Boudreaux’s letters #2

Here are some more examples of Don Boudreaux’s letters to newspaper editors about common economic fallacies. Boudreaux blogs at cafehayek.com.

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John Hill asserts that “The free market has many virtues, but by its nature it must remain callous to human suffering caused by illness”

Really?  Take a walk down the pharmaceutical aisle in a typical modern supermarket.  You’ll find shelves stuffed with analgesics, antihistamines, antiseptics, antifungal medicines, bandages, and nutritional supplements – all supplied by private, profit-seeking companies.  Keep walking and you come to the store’s pharmacy, where you can buy yet other medicines – such as those that address serious illnesses like depression, hypertension, and high cholesterol – created and produced by private, profit-seeking firms.

 It’s no wonder that my GMU colleague Peter Leeson found that, in countries that became more capitalist since 1980, average life-expectancy at birth has risen from less than 63 years to 67.5 years (by 2005).  In countries that became less capitalist since 1980, life-expectancy at birth fell from 59 to 57 years.*

Thank goodness for “callous” capitalism.

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 Michael Norton and Dan Ariely surveyed us Americans and found that we “drastically underestimated the current gap between the very rich and the poor” (“Spreading the wealth,” Nov. 8).  They found also that Americans’ “ideal” distribution of wealth is one that is more even than is the wealth-distribution in reality.

There are many reasons why Messrs. Norton and Ariely are mistaken to conclude that their findings support “policies that involve taking from the rich and giving to the poor.”  Here’s just one:

That Americans “drastically” underestimate the wealth of “the very rich” compared to the wealth of “the poor” reveals that the difference in the number of dollars owned by “the very rich” compared to the number of dollars owned by “the poor” translates into a much smaller – that is, far more equal – difference in living standards.  In other words, differences in monetary wealth are not the same as differences in living standards.

Bill Gates’s monetary wealth, for example, is approximately 70,000 times greater than my own, but I’m certain that he doesn’t daily ingest 70,000 times more calories than I ingest in a day.  I’m also certain that the food Bill Gates eats isn’t 70,000 times tastier than the food I eat; that his many homes are not 70,000 times larger than my one home; that his children are not educated 70,000 times better than is my child; that he cannot travel to Europe or to Asia 70,000 times faster or more safely than I can; that he doesn’t have 70,000 times more annual leisure than I have; and that he will not live 70,000 times longer than I will live.

I’m even sure that he’s not 70,000 times happier than I am.

So, really, it’s incorrect to conclude that Bill Gates’s real wealth is 70,000 times larger than my real wealth.  The difference isn’t remotely close to being that large.

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Will Wilkinson’s essay on income inequality inAmericais splendid (“This ain’t no banana republic,” Nov. 19).”  In it, Mr. Wilkinson correctly challenges New York Times columnist Nicholas Kristof’s claim that “the wealthiest plutocrats now actually control a greater share of the pie in the United States” than in several countries of Latin America.  Rich Americans, Mr. Wilkinson rightly points out, overwhelmingly are business people who serve the middle-classes and not political, military, or ecclesiastic predators who steal from peasants.

This fact makes Mr. Kristof’s claim that wealth is “controlled” in America highly misleading.

Except insofar as rich Americans succeed at getting government to protect their wealth with special privileges, such as tariffs, wealth is not “controlled.”  Wealth is created only by serving consumers – that is, by making others wealthier – and it flees from those who stop serving consumers.  Should Apple stop producing innovative products that consumers willingly buy, Steve Jobs’s fortune will disappear.  Should Southwest Airlines start charging uncompetitive fares, its shareholders’ wealth will dissolve.  Should a super-wealthy hedge-fund manager consistently fail to increase the value of his clients’ portfolio, he will become a not-so-super-wealthy ex-fund-manager.

In market economies, wealth isn’t controlled so much as it is deployed in the service of others.

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Bill Gates writes that “slowing population growth” has “proven … to be critical to long-term economic growth” What’s the evidence for this claim?

Did Hong Kong grow as a result of slowing population growth?  No.  What about Taiwan over the past 60 years?  No.  Was slowing population growth key to England’s unprecedented economic blossoming during the industrial revolution?  No.  Did population growth in America slow before its economy began to grow?  No.

Did the great 20th century migration to California cause that state’s economy to languish?  No.  Do the high population densities of Manhattan, London, Sydney, and Tokyo keep people in those cities poor?  No.  What about high population densities of countries such as South Korea, Netherlands, and Belgium– are their citizens poor as a consequence?  No.  Do low population densities in the Republic of Congo, Chad, and Bolivia keep people in those countries rich?  No.

It’s disappointing that Mr. Gates, visionary entrepreneur that he is, so readily accepts the pop myth that population growth is a drag on economic growth.

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Applauding British legislation “allowing citizens to sue companies for excess packaging,” Scott Cassel declares that “theUnited  States is far behind” (Letters, Dec. 31).

A nation is hardly “far behind” by refusing to create a cause of action based upon nebulous damages (How will courts measure such harm?) and upon an even more nebulous ‘offense’ (What, exactly, is “excess” packaging – and how on God’s green earth is a court to make such a determination for each of the countless different products available on the market?).

Moreover, producers already have strong incentives to avoid excess packaging.  Not only do packaging materials cost producers money, heavier packaging means higher shipping costs.  That businesses respond positively to these incentives to find ever-better ways to keep packaging optimal is revealed in the data; as reported earlier this year by economist Daniel Benjamin, “Over the past 25 years, the weights of individual packages have been reduced by amounts ranging from 30 percent (2-liter soft drink bottles) to 70 percent (plastic grocery sacks and trash bags)”

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William Kristol argues that “American principles” require Uncle Sam to intervene more vigorously – with force, if necessary – in the revolutions now sweeping through theMiddle East.

I disagree.  While we should cheer for liberalization to grow and spread throughout the Middle East, American principles counsel our government not to interfere.  One of these principles, after all, is that government (even our own) is an inherently dangerous agent best kept on as short a leash as possible.  Another of these principles is that top-down social engineering is bound to have undesirable unintended consequences – a fact that is no less true when the social engineers are headquartered in the Pentagon and the State department as when they are headquartered in the Department of Health and Human Services and the Department of Education.  The same government that Mr. Kristol so often, and rightly, criticizes for making a mess of matters here at home is unlikely to become a shining example of efficiency, rectitude, and Solomaic wisdom in foreign lands.

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In “Need Versus Greed,” Jeffrey Sachs asserts that current market-based forces of economic growth are unleashing upon humanity a “calamity” of resource depletion and environmental destruction. Unfortunately, Prof. Sachs views economic growth through a lens of Gandhian banalities.

On matters of economic growth, the late Julian Simon was far more insightful than was the late Mohandas Gandhi.  (What, really, does it mean for Gandhi to say “there is enough on Earth for everybody’s need, but not enough for everybody’s greed”?  Jingles aren’t analyses.)  Simon argued that, in markets that are at least reasonably free, resources are continually being discovered and created by human ingenuity – ingenuity powered by the drive for profit and guided by market prices which rise and fall in response to changes in patterns of consumer demands and to changes in resource supplies.

History overwhelmingly supports Simon’s thesis.  Despite two centuries of unprecedentedly high and sustained economic and population growth, supplies of nearly all resources are today greater than they were at the dawn of the industrial age, and the environments that human beings inhabit are immeasurably cleaner and healthier.  As a result, we are now living longer and in better health than ever before.

Why does Prof. Sachs suppose that recent upticks in the rates of economic growth of some Asian countries will reverse this 200-year-long process?

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Setting up a straw man for the slaughter, Dustin Ensinger asserts that “Proponents of unfettered free trade have long claimed that lowering trade barriers will allow America to export more and more goods, eventually leading to trade surpluses and economic prosperity”  Wrong.

Proponents of unfettered free trade have long claimed that lowering trade barriers will allowAmericato import more and more goods, eventually leading to greater economic prosperity.  Period.

Proponents of unfettered free trade – at least those who understand economics – don’t give a damn about trade ‘deficits’ or ‘surpluses.’  They agree with Adam Smith that “Nothing, however, can be more absurd than this whole doctrine of the balance of trade.”*

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Ariel Dorfman wants President Obama, during his trip toChile, to visit Salvador Allende’s grave as a means of paying respect to the late Marxist leader that nation.

 Such a visit would be improper.  The fact that Allende was ousted in a coup that resulted in the brutal regime of Augusto Pinochet doesn’t justify the Left’s deification of Allende; he, too, was a thieving brute.  Not only did Allende nationalize (i.e., steal) many of Chile’s industries; not only did his irresponsible monetary policy result in annual inflation rates as high as 140 percent (i.e., more theft of assets, this time from ordinary citizens who saw the return to their work effort diminish daily); and not only did he praise and cozy up to Cuba’s murderous Fidel Castro – Allende also violated, with reprehensible actions, Chile’s constitution.

Harvard-trained economist Jose Pinera, brother of Chile’s current president, notes that, while Allende was popularly elected, “his government lost its democratic character by repeatedly violating the Constitution.”  And just weeks before Allende was deposed,Chile’s democratically elected Chamber of Deputies drew up “a list of twenty legal and constitutional violations of President Allende’s government (including illegal detentions and torture).”*

The fact that Allende justified his thuggish lawlessness with pseudo-intellectual Marxist gibberish hardly makes him or his regime praiseworthy.

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 George Will’s wise skepticism of Uncle Sam meddling both in the domestic economy and in foreign affairs distinguishes him as one of today’s very few pundits who isn’t schizophrenic about the perils of power

 Most modern “liberals” believe that domestic economic problems are caused chiefly by unsavory characters – “business people” – who impose their destructive rule on masses of innocent workers and consumers yearning for more prosperity, and that the best solution to these problems is government force deployed using armies of regulators to subdue these bad guys and to keep close watch over them and their successors.  Failure to intervene is immoral.  These same “liberals,” though, believe that foreign problems are typically the result of complex forces that can be understood only poorly by American-government officials; it is naïve to suppose that even well-intentioned foreign intervention by Uncle Sam will not have regrettable unintended consequences.

Most modern conservatives believe that domestic economic problems are typically the result of complex forces that can be understood only poorly by government officials; it is naïve to suppose that even well-intentioned economic intervention by Uncle Sam will not have regrettable unintended consequences.  These same conservatives, though, believe that problems in foreign countries are caused chiefly by unsavory characters – “dictators” or “tyrants” – who impose their destructive rule on masses of innocent people yearning for more democracy, and that the best solution to these problems is government force deployed with armies of soldiers to subdue these bad guys and to keep close watch over them and their successors.  Failure to intervene is immoral.

Talk about a conflict of visions.

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One Response to Boudreaux’s letters #2

  1. Alberto says:

    Carlos Rodríguez Braun writes “La tontería económica de la semana”, in Libertad Digital, if you want to follow domestic examples.

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