The Latest from Cafe Hayek

(Don Boudreaux)

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… is from page 131 of the 11th (2006) edition of one of greatest economics textbooks of all time: Paul Heyne’s, Peter Boettke’s, and David Prychitko’s The Economic Way of Thinking (original emphasis):

We are extremely dependent on changing money prices to secure effective cooperation in our complex, interdependent society and economy. When prices are not permitted to signal a change in relative scarcities, suppliers and demanders receive inappropriate signals. They do not find, because they have no incentive to look for, ways to make accommodations to one another more effectively. It is important that people receive some such incentive, because there are so many little ways and big ways in which people can accommodate – ways that no central planner can possibly anticipate, but which in their combined effect make the difference between chaos and coordination. Changing money prices, continuously responding to changing conditions of demand or supply, provides just such an incentive.

DBx: No principle of economics is more important than the one explained here by Heyne, Boettke, and Prychitko, and few principles are as important. Further, absolutely nothing learned in advanced economic classes should in any way diminish the centrality, power, and practical relevance of this insight. None of the many formal demonstrations that any competently trained assistant professor of economics can scribble on a scratch pad to show conditions under which this government-imposed maximum price and that government-mandated minimum wage might yield “net welfare benefits” has any practical relevance.

Well, perhaps this ability does have the practical trait of allowing assistant professors either to demonstrate their pedantry or to get an audience with politicians seeking academic cover for interventions into markets.

But in the real world, market-set prices and wages are the only practical means to inform as well as to incite producers and consumers to adjust as well as is humanly possible to the realities of resource availabilities, of technical constraints, and of each other’s wants, expectations, and abilities. Government restrictions on prices and wages inevitably spread misinformation and create discoordination and discord. The fact that price controls and minimum wages are often politically popular means only that too many people are ignorant of vital economic principles.

Government officials, of course, pander to this economic ignorance.

(Don Boudreaux)

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Ms. Ashley Moody, Attorney General
State of Florida
Tallahassee, FL

Ms. Moody:

You issued more than 40 subpoenas in response to so-called “price gouging.” And you justified your actions with this written statement: “Floridians are searching for essential products needed to stay safe and healthy during this COVID-19 pandemic. Sadly, when they find these products for sale online, they often discover that the price tag makes them unattainable. This is unacceptable and unlawful.”

Your economics is mistaken: the price tag about which you complain is what prevents these products from being “unattainable.”

The high prices that you aim to push lower entice suppliers to exert the extra efforts necessary to ramp up production of such products and to speed them to market. These high prices also encourage consumers to use these products more prudently. Your efforts to push these prices lower, therefore, will ensure that such products very soon become “unattainable.”

Products available for sale at unusually high prices are obtainable, for they actually are for sale (if only at these high prices). In contrast, products unavailable for sale at ‘normal’ prices are not actually for sale; they are utterly unobtainable – which means that their prices then are infinite.

If you truly wish to ensure maximum access of Floridians to the goods and services that they seek, cease and desist from interfering with market prices.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

(Don Boudreaux)

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… is Mark Twain’s response to someone who asked him how he could be friends with Standard Oil vice-president Henry H. Rogers, whose immense fortune was falsely believed – simply because it was chiefly earned as a result of Rogers’ work at Standard Oil – to be “tainted”:

His money is tainted, it taint mine and it taint yours.

DBx: It’s a damn shame that this civilized respect for others’ property is today not more widespread. Rather than, like Samuel Clemens, respect and not envy other people’s unusually great material prosperity, today Americans read books, articles, and columns by Ivy League credentialed academics that actively encourage envy and covetousness of that which one hasn’t earned. And too many Americans cast ballots for politicians who solemnly promise to pillage the earnings of peaceful people.

This institutionalized envy and pillage is called “Progressive.” Measuring differences in monetary incomes and wealth, and explaining how the god-state will “redistribute” it all, seems oh-so advanced and scientific. Indeed, many people convince themselves that such “redistribution” is positively humane. Or so I gather it appears to many.

Well.

This attitude from top to bottom and from back to front, in full, disgusts me. And it should disgust every civilized human being.

(Don Boudreaux)

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Two of my Mercatus Center colleagues – the intrepid Veronique de Rugy, along with Gary Leff – make the case against a government bailout of U.S.-based commercial airlines. Here are two slices:

When the federal government bails out an industry, it shifts resources away from nonsubsidized industries to the subsidized one. Because politics drives the bailout decision, this shifting of resources is done largely independently of the merit of the industry or of its claims of special distress. If it were not for the government action, the resources used in bailouts would be directed naturally by the market to other, more productive uses. So while it is easy to see the companies and the jobs that are today saved by bailing out the airlines, we don’t know what goods and services are thereby not produced and consumed because of the bailout, what non-airline companies don’t survive because of the bailout, and what jobs aren’t created and sustained in nonsubsidized industries.

The history of bailouts also suggests that they prop up weak firms long enough to make their dysfunctions worse, thus requiring further intervention in the long run. Economist Bill Shughart, for instance, looked at the history of bank bailouts in the United States and found that

“the record of government bailouts of private financial institutions in the 1930s, of Continental Illinois Bank in 1984 (which cost $8 billion) and of the entire U.S. savings & loan industry in the late 1980s and early 1990s (which cost $125 billion) teaches that emergency loans keep weak institutions alive just long enough for their problems to increase. Bailouts encourage more risk-taking and eliminate the freedom to fail that is just as essential to a free-market economy as the freedom to succeed.”

…..

No one should be surprised that the airline industry was the first to ask for a government bailout, considering its long history as a government-protected industry. Today, despite “deregulation” (which largely means that the government no longer tells airlines where they are permitted to fly and how much they should charge), airlines remain intricately intertwined with government as a means of subsidy and protection from competition.

A bailout of airlines funnels taxpayer money to private airline investors and creditors, and it is not necessary to prevent an economic contagion. Many large US airlines have demonstrated an ability to successfully fly through bankruptcy. And bailing out airlines is an inefficient way to protect workers because it focuses on a single industry’s employees, and only the most visible of those workers, while ignoring the many airline-industry contractors who have already lost their jobs and won’t have work in times of reduced demand.

While airlines should not receive a bailout as a matter of public policy, if politics dictates one, then the process should not become a grab bag of interests and preferred policy prescriptions stapled on in haste. Such bailout packages risk doing long-term damage to the industry that the bailout is trying to save.

(Don Boudreaux)

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Notre Dame University law professor Stephen Smith (a fellow graduate with me of UVA Law’s class of 1992) busts the mythical claim that the United States has no abnormally – and unnecessarily – high rate of incarceration. Here’s his well-grounded conclusion:

We would be much better off as a society—both safer and truer to our libertarian ideals—if we reserved prisons and jails exclusively for our most dangerous and most incorrigible criminals, made serious efforts to rehabilitate instead of merely warehouse inmates, and relied on less-invasive means to address other social problems.

Also helping to bust the myth that incarceration rates in the U.S. aren’t too high by any reasonable standard is Clark Neily.

Ben Zycher isn’t impressed with House Republicans’ proposals for climate policy.

“Personally what I fear the most is the way in which people will respond, at the end of the emergency, to the major economic wreckage we will have to deal with. Lots of observers tend to assume that the virus has damaged populism, as now demagogues (including Trump) were forced to pick “experts” who are at the helm of our countries. But interventions validated by experts may backfire too. We may end up with a society which is less dynamic, more fearful, and more dependent on government than ever” – so writes the ever-wise Alberto Mingardi.

Writing in the Wall Street Journal, Stanford University medical professors Eran Bendavid and Jay Bhattacharya make the case that COVID-19 is likely much less lethal than is now commonly supposed. Here’s their conclusion:

A universal quarantine may not be worth the costs it imposes on the economy, community and individual mental and physical health. We should undertake immediate steps to evaluate the empirical basis of the current lockdowns.