Don Boudreaux’s letters

Don Boudreaux teaches economics at George Mason University. In his free time he blogs at Café Hayek. And he also enjoys writing letters expounding his views on economic questions. These letters, which deal with common economic fallacies, are usually written to newspaper editors. I don’t always agree with his opinions but I do enjoy his combative style. Here are a few examples:

In your e-mail seeking to enlist my opposition to a policy of allocating water by market pricing, you write: “Moreover, because most residential water consumption goes towards essential uses like drinking, cooking and sanitation, consumer demand for water is unlikely to change regardless of price.”  That is, every drop of water is so essential to every household that even substantially higher water prices will not reduce residential water use.

But then you say “water pricing is most likely to negatively affect low-income consumers.  Raising water prices could mean that some households are denied access.”  That is, higher prices for water will cause low-income consumers not only to use less water in their homes but to stop using water in their homes altogether.

So which is it?  Will market pricing of water affect consumer demand or will it not?

In fact, neither of your scenarios is remotely plausible.  If your first scenario were realistic, then bottled-water suppliers such as Evian could double, triple, or even quintuple their prices without reducing the demand for their products.  If your second scenario were realistic, low-income consumers would prefer to lose all access to water in their homes rather than spend even moderately less on clothing, cell phones, and even pets.

            __________

Sen. Bill Nelson claims that “The ultimate answer to America’s energy needs lies not in oil, but in the rapid development of alternative fuels

How in the world does Mr. Nelson divine this alleged fact?  Does he have expert insight into the full costs and benefits of developing and producing non-fossil fuels?  Has he displayed a unique talent at predicting changes in the technologies that are used to extract petroleum?  Hardly.

After a short stint in the Army, Mr. Nelson spent all of one year (1970) in the private sector (where he practiced law).  From 1971 until today he has worked exclusively in politics.  He has neither experience in the energy industry nor any record of entrepreneurship.  For nearly 40 years – well over half of his life – he’s devoted his career to spending other people’s money.  In short, he has no basis for making this claim.

Mr. Nelson’s “answer to America’s energy needs” deserves no more attention than does any such prophecy issued by a Ouija board or by a witch doctor reading the entrails of a rooster.

As my friend Wilson Mixon, of Division of Labour, points out, these latter methods of prognostication might not be efficient, but at least they – unlike Sen. Nelson – are reliably unbiased.

__________

Attempting to defend intrusion by antitrust bureaucrats into Google’s business operations, Charles Rule writes that “Ironically, many of the most ardent defenders of Google are the same individuals – such as Eric Schmidt, Google’s CEO who was an executive at Sun and later Novell – who devoted so much time, money and effort to pushing the frontiers of the law and government regulation against Microsoft a decade ago” (“‘Trust Us’ Isn’t An Answer,” Sept. 17).

Nothing about this fact is remotely ironic.  Business executives use antitrust to throttle their competitors: businesses accused of antitrust violations point out (almost always rightly) that they are guilty only of unusual success at pleasing consumers, while businesses that are either too lazy or too incompetent to excel in the marketplace turn to antitrust legislation for relief from the rigors of competition.

The real irony is that, for its entire 120-year history of being used to stymie competition and the forces of creative destruction, antitrust regulation continues to be portrayed as pro-competitive.

__________

John Hofmeister builds his case for a U.S. industrial policy on a foundation of falsehoods

The most notable falsehood is Mr. Hofmeister’s assertion that American manufacturing is faltering.  In fact, America remains the world’s leading manufacturing country, one whose manufacturing output continues to increase.  For example, in inflation-adjusted dollars, the value of U.S. manufacturing output in 2007 was 8 percent higher than it was in 2000, 69 percent higher than it was in 1990, and 184 percent higher than it was in 1980.

And while it’s true that the Chinese will one day produce more manufacturing output than do Americans, that eventuality is hardly surprising given that China is home to one-sixth of the world’s population.  Moreover, the fact that manufacturing outputs in newly industrializing nations such as China are growing faster than American output no more means that American manufacturing is in poor health than does the fact that a two-year-old girl is growing faster than her ten-year-old brother mean that the brother is shrinking, is in poor health, or is in need of a ‘height’ policy.

__________

V. Nagarajan suggests that turmoil on Wall Street combines with the fact that most winners of the Nobel Prize in Economic Science are Americans to reveal that economics is a discipline unworthy of Nobelity

While some laureates are indeed undeserving of such high distinction, Mr.Nagarajan’s presumption that Uncle Sam’s economic policies are fashioned after the advice of distinguished economists is unwarranted.

One of America’s greatest economists is my colleague James Buchanan, winner of the 1986 Nobel Prize.  Jim’s life work shows that government officials seek office, not truth – and that success at their venal endeavor too often requires not merely ignoring sound economics but positively fleeing from it as if it were a fast-expanding cloud of anthrax spores.

__________

Your report on Venezuela’s new state-owned cafes overlooks the many ill economic consequences that will be unleashed by these government enterprises and by the below-market prices that they so proudly charge

For example, while it might be true that “The prices are intended to offer a respite from the country’s rampant inflation,” in fact these below-market prices will fuel Venezuela’s inflation even further.  The reason is that Hugo Chavez’s government will almost certainly get the funds it needs to subsidize these cafe sales by using the same method that it increasingly employs to get the funds it uses for its slew of other boondoggles: printing more money (i.e., inflation).

Not even Oliver Stone movie heroes can suspend the laws of economics.

            __________

Julie Sensat Waldren eloquently explains the difficulties of “being green”

For example, consumers cannot possibly know how the environmental impact of disposable cups compares with that of ceramic cups whose production consumes lots of energy.

Contrary to a profusion of claims by naive pundits, the economy is far too complex for any person or even a committee of geniuses to trace the full environmental consequences of any of the hundreds of ordinary decisions consumers and producers make daily.

Economists since Adam Smith have taught that the best we can do is to have well-defined property rights that owners use and exchange as each judges best.

The unplanned result isn’t an earthly paradise, but it’s vastly superior to what emerges when people consciously aim to bring about a specific outcome in the overall pattern of economic activities.    

__________

William Borah unwisely calls for New Orleans to be rebuilt according to “a master plan with the force of law, a plan that the politicians as well as the citizens would be legally required to follow”.  Mr. Borah and all New Orleanians should heed the wisdom of the late Jane Jacobs, one of history’s greatest students of cities. Ms. Jacobs described a city’s “intricate order” as “a manifestation of the freedom of countless numbers of people to make and carry out countless plans” – and she warned that master plans of the sort that Mr. Borah admires will only suffocate this vital source of any city’s life.

__________

To reduce interest-groups’ political influence, Michael Scheinberg proposes “A complete ban on lobbying by lawmakers and government officials for five years after they leave government service and a prohibition against political contributions by industry groups.

Such a ban can’t work. Lobbying is as much a consequence as a cause of a behemoth state that takes from the politically unorganized and gives to the politically organized. To imagine that politicians who possess such power – and the shamelessness requisite to exercising it – will become stewards of the public interest merely by imposing formal restrictions on lobbying is a childish fantasy.

__________

Russ Wise wants insurance rates in Louisiana to be set by Uncle Sam. Mr. Wise’s complaint is not that current rates don’t reflect the cost of supplying insurance. Instead, when he writes that “a federal agency could set rates on a more fair and equitable basis, spreading risk among tens of millions of people instead of just a few thousand,” he’s complaining that residents in places such as Wyoming and Vermont are not forced to subsidize insurance coverage for residents of the hurricane- and flood-prone Gulf Coast. Contrary to his assertion, however, there’s nothing fair or equitable about such forced subsidization. In fact, it would be grossly unfair and inequitable – as well as economically foolish – to force people living in places less prone to flood and wind damage to subsidize people who choose to live on the Gulf Coast.

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