Market Correction

28 January 2009

Editor, The Baltimore Sun

Dear Editor:

C. Paul Mendez wants to protect American workers from competition with a moratorium on immigration (Letters, Jan. 28). Why stop there? Why not also impose moratoria on worker training and on technological advances? After all, improved worker skills and more highly developed production techniques increase worker productivity. The result is that any given amount of output is produced using fewer workers. So worker training and technological advances, no less than immigrants, also compete with many existing workers.

In truth, any such moratoria are moratoria on sources of economic growth - never wise moves at any time, but especially not during times such as these when investors are especially leery of committing funds to long-term projects.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

27 January 2009

Editor, The New Yorker

Dear Editor:

Ben McGrath's report on modern-day doomsayers is a masterpiece ("The Dystopians," Jan. 26). But he missed an opportunity to poke even more fun at gloomster Dmitry Orlov. This opportunity arose when Mr. Orlov listed "a worsening foreign-trade deficit" as evidence of America's coming collapse.

Mr. McGrath could have explained that another name for "worsening foreign-trade deficit" is "improving foreign-investment surplus" - meaning, larger inflows of foreign investment funds to America. While more foreign investments in the U.S. might in part reflect Uncle Sam's reckless fiscal policies, foreigners' continued willingness to lend so much means that they voluntarily shoulder a good deal of the risks created by these policies. This fact both makes America stronger than it would be without "a worsening foreign-trade deficit" and it signals that foreign lenders emphatically reject Mr. Orlov's belief that the United States' economic destruction is imminent.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

26 January 2009

Editor, The New York Times
229 West 43rd St.
New York, NY 10036

To the Editor:

Paul Krugman claims to "debunk some of the major antistimulus arguments" ("Bad Faith Economics," January 26). Alas, he ignores the most compelling arguments against the "stimulus" - such as the one that recognizes that massive increases in government spending are too likely to be laden with pork and infected with political viruses to do much good.

More important is the argument built on the understanding that the fundamental problem isn't a lack of aggregate demand but, rather, resource misallocation caused by prices being out-of-whack relative to each other. The only way to solve this problem is to let these relative prices adjust over time so that resource allocation becomes more sustainable. "Stimulus" spending will only thwart these adjustments. The economic turmoil may be masked in the short-run, but only by ensuring longer-term harm.*

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

* See, for example, Mario Rizzo's blog post here:

http://thinkmarkets.wordpress.com/2009/01/21/the-macroeconomic-knowledge-problem/

26 January 2009

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

In "Three Crises In One," Robert Samuelson double-counts by identifying "the collapse of consumer spending" and "a trade crisis" caused by Americans now spending less on imports as two separate problems with today's economy (January 26). When consumers reduce their spending they do so for imports as well as for domestically produced goods and services. It makes no more sense to distinguish reduced consumer demand for American-made outputs from reduced demand for foreign-made outputs than it does to distinguish reduced consumer demand for Ohio-made outputs from reduced demand for Oregon-made outputs.

Also, if - as Mr. Samuelson has long contended - Americans earlier saved too little and spent too much on imports, why is it now a problem that Americans are saving more and buying fewer imports? Despite the adjustment costs that such a shift entails, shouldn't we applaud this end to what Mr. Samuelson (and so many other pundits) regard as American consumers' excessive profligacy?

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

25 January 2009

News Editor, WTOP Radio
Washington, DC

Dear Sir or Madam:

You report today that "President Barack Obama's ban on earmarks in the $825 billion economic stimulus bill doesn't mean interest groups, lobbyists and lawmakers won't be able to funnel money to pet projects. They're just working around it."

This news is as surprising as January snow in Buffalo. As my colleague Russ Roberts points out, pork is as inseparable from government spending as it is from ham sandwiches.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

25 January 2009

Editor, Baltimore Sun

Dear Editor:

Dan Rodricks wants "national service," and he believes that the nation's current infatuation with Barack Obama provides an ideal opportunity to implement it ("Americans poised to heed Obama's call to service," January 25).

Put aside the mistaken premise that each of us "serves" only when working in government programs, and ask: how will Uncle Sam know how best to use all the conscripted labor at his disposal? And what earthly reason is there to suppose that he will deploy such labor according to reasonably objective criteria rather than according to political fads, partisan emotions, and interest-group influences?

Sadly, Mr. Rodricks utterly ignores practical questions such as these. His essay is evidence of the truth of what Thomas Sowell observes in his column appearing in today's Washington Times: "politics is about evoking emotions, not examining specifics."

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

24 January 2009

Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281

To the Editor:

The headline of your report on Mayor Lawrence Morrissey of Rockford, IL, spending time in Washington begging pooh-bahs there for money speaks volumes: "Wish List in Hand, Mayor Travels to Washington and Finds He's Not Alone" (January 24).

Mayor Morrissey's use of his time seeking government handouts is an ideal, if unintentional, tribute to a great son of Rockford, the economist Gordon Tullock. Forty-two years ago, in one of the most important papers published in economics during the 20th century, Tullock identified the phenomenon of "rent-seeking."* Rent-seekers generate huge amounts of waste by using resources to plead for handouts. It's not so much the actual transfers from taxpayers to successful supplicants that are wasteful, Tullock showed, but the fact that the prospects of receiving these transfers prompt producers to form themselves into special-interest groups. These interest groups divert the time and resources that they, as producers, would have spent doing socially productive things - such as administering cities efficiently - into lobbying for government favors. Successful rent-seekers benefit, but the diversion of resources from productive uses into pleading and pandering at the feet of politicians makes society poorer.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

* Gordon Tullock, "The Welfare Costs of Tariffs, Monopolies and Theft," Western Economics Journal, Vol. 5, 1967, pp. 224-232.

23 January 2009

Editor, Washington Times

Dear Editor:

Re your headline "Top bailout recipients also major lobbyists" (Jan. 23): While I appreciate the appropriateness of this headline, it's discouraging to realize that such a fact is newsworthy.

If people were as credulous about non-politicians as they are about politicians, we'd routinely read headlines such as "Thief Steals Money to Benefit Himself!" or "Teenage Boys Buy 'Playboy' for the Pictures, Not the Articles" or "18-year-old Italian Supermodel Marries 98-year-old Billionaire Only for His Money!"

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

23 January 2009

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

Treasury Secretary nominee Timothy Geithner sides with those who worry, as you put it, that "Beijing has kept its currency artificially low to keep the prices of its goods cheap and generate trade surpluses. That has led to a global capital imbalance, as American consumers borrowed and spent and China became the United States' largest foreign creditor" ("Geithner Says China Manipulates Its Currency," January 23). And he threatens to act "aggressively" to stop this alleged wrongdoing.

Overlook the reality that the only way Beijing can push the price of the yuan lower is through inflation or other policies that weaken the Chinese economy. Instead ask: why should the Obama administration be so upset by Beijing pumping easy credit into markets at a time when this same administration is deeply worried that credit has become too tight?

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

22 January 2009

Editor, WTOP Radio
Washington, DC

Dear Editor:

Interviewed this morning in your report on how Uncle Sam will assume many of the insurance obligations for the Metro transit system, Rep. Jim Moran asserted that this assumption of obligations will "cost taxpayers nothing."

How absurd. Government provision of insurance to Metro would cost taxpayers nothing only if it were certain that whatever insurance claims Metro files in the future will be lower in value than whatever insurance premiums Metro pays. But if this outcome were certain, each and every private insurance company would be jumping at the opportunity to insure Metro. The fact that government feels obliged to serve as Metro's insurer strongly suggests that the expected value of Metro's future claims on its policy exceed the value of the premiums it will pay to Uncle Sam. Taxpayers will be on the hook for the difference.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

22 January 2009

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

President Obama's inaugural declaration that "The question we ask today is not whether our government is too big or too small, but whether it works" is further evidence that the wisdom and values that animated America's founding generations are lost.

If Thomas Jefferson thought as Mr. Obama does, he would have written in 1776: "We hold these truths to be self-evident, that all men are endowed by their government with the unalienable right to be taxed, regulated, scolded, herded, harassed, and otherwise ruled in whatever ways work."

And these soaring words would have been part of the Declaration of Dependence.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

21 January 2009

Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281

To the Editor:

Alberto Alesina and Luigi Zingales say that "this recession is unusual is that it was caused in large part by a significant current-account imbalance due to the low savings rate of Americans (families and government)" ("Let's Stimulate Private Risk Taking," January 21). Not so. A current-account imbalance might reflect conditions that portend recession, but it cannot itself cause a recession.

To see why, suppose that Uncle Sam declares Canada, Europe, China, and Japan to be parts of the United States. With no further changes, most of the U.S. current-account deficit would immediately disappear. Much of what were formerly classified as imports, exports, and international capital flows would lose those special classifications - just as purchases, sales, and investments between, say, Nevada and Utah are adorned with no special classifications. And yet, surely no recession can be cured merely by reclassifying economic transactions.

But just as no such reclassification can cure a recession, no recession can be caused by the initial classification of economic transactions. Whatever foolish monetary or fiscal policies might spark bad investments, whatever irrational bubble-izing behaviors might move the market, or whatever unwise regulations (or lack of regulations) might encourage unsustainable investments, it is REAL factors such as these that bear the blame for market unrest and not the arbitrary measurement called the "current-account imbalance."

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

20 January 2009

Editor, The New York Times
229 West 43rd St.
New York, NY 10036

To the Editor:

During the past few days, your paper, like many others across the country, has been filled with celebratory praise for America's tradition of transferring political power peacefully. I am among the celebrants.

But my celebration is tempered by the realization that ours would be an even more civilized and progressive society if we had much less political power to transfer - if we had finally cast off the ages-old superstition that human lives gain meaning only through subordination to a grand collective directed by Great Leaders. Not until more Americans replace their fascination with power and personality with a love of liberty will this country ascend to the highest possible stage of civilization.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

20 January 2009

Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281

To the Editor:

You report that Barack Obama will call for "a new era of responsibility" ("Obama to Call for a New Era of Responsibility," January 20).

His actions belie his words. By seeking an extra $800 billion for "stimulus," Mr. Obama will generate a typhoon of irresponsibility. Consider what Arnold Kling says at the blog EconLog: "How many people will have meaningful input in determining the overall allocation of the billion stimulus? 10? 20? It won't be more than 1000. These people - let's say that in the end 500 technocrats will play a meaningful role in writing the bill - will have unimaginable power. Remember that what they are doing is taking our money and deciding for us how to spend it. Presumably, that is because they are wiser at spending our money than we are at spending it ourselves.

"The arithmetic is mind-boggling. If 500 people have meaningful input, and the stimulus is almost $800 billion, then on average each person is responsible for taking more than $1.5 billion of our money and trying to spend it more wisely than we would spend it ourselves."*

Absolutely no one can spend $1.5 billion of other people's money responsibly.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030

* http://econlog.econlib.org/archives/2009/01/the_stimulus_an.html

19 January 2009

Editor, Washington Post
1150 15th St., NW
Washington, DC 20071

Dear Editor:

The fawning coverage of Barack Obama in today's edition of your paper combines with the increasingly surreal homage that Americans now pay to this man-of-myriad-bromides to remind me of a piece of wisdom from H.L. Mencken:

"People in the mass soon grow used to anything, including even being swindled. There comes a time when the patter of the quack becomes as natural and as indubitable to their ears as the texts of Holy Writ, and when that time comes it is a dreadful job debamboozling them."*

From the likes of Bruce Springsteen to the ordinary man and woman in the street, the deification of Mr. Obama is as dangerous as it is infantile.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030

* H.L. Mencken, On Politics: A Carnival of Buncombe (Baltimore: Johns Hopkins University Press, 1996), p. 335.

19 January 2009

Editor, The New York Times
229 West 43rd St.
New York, NY 10036

To the Editor:

Jeremy Weir Alderson says that "the No. 1 reason for imposing higher labor standards on imports isn't to improve living standards abroad but to maintain them here" (Letters, January 19). It's true that the real motive for such standards is to protect certain producers in America from having to compete with lower-cost rivals. But it's untrue that access to lower-cost sources of goods and services causes poverty in America.

The greatest source of lower-cost competition for American producers over the years is not cheap foreign workers; it's machinery and technology. Local butchers in the late 19th century could not compete with Chicago slaughterhouses that shipped their beef across the country in new-fangled refrigerated railroad cars. Farmers over the past two hundred years have consistently been displaced by mechanized farm machinery, improved fertilizers and pesticides, better seed varieties, refrigeration, and better materials for packaging produce for storage and shipment. Typists in the late 20th century were out-competed by low-cost word-processing hardware and software.

Lower-cost sources of output do not cause poverty; they alleviate it.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

18 January 2009

Editor, Washington Post Book World
1150 15th St., NW
Washington, DC 20071

Dear Editor:

Re James Q. Wilson's review of Robert Kaiser's "So Damn Much Money" ("Is Washington for Sale?" January 18): Why are people continually surprised that successful special-interest-group lobbying happens routinely in Washington? To be shocked by this reality is like being shocked that sex happens in whorehouses.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

17 January 2009

Editor, The New York Times
229 West 43rd St.
New York, NY 10036

To the Editor:

You suggest that it might have been "a coincidence" that U.S. Airways' stock price shot up by 13 percent immediately after Cap't. Chesley Sullenberger completed a remarkable emergency landing in the Hudson River ("In a Split Second, a Pilot Becomes a Hero Years in the Making," January 17). Do you think that it was also a coincidence that Cap't. Sullenberger received telephone calls afterward from both President Bush and President-elect Obama?

In fact, both set of events were perfectly predictable. Evidence of a company's ability to provide excellent service to customers inevitably and properly raises that company's market value. And just as inevitably, politicians - who have absolutely nothing to do with the commendable actions in question - horn in on the glory, smarmily trying to perfume their own malodorous profession with the scent of genuine heroism and decency.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University

Here's a comment that I left at Nicholas Kristof's wonderful January 16, 2009, NY Times column on sweatshops.

Don
.......

I'm surprised by the number of commenters who write as if harsh working conditions of the sort found in sweatshops are something exceptional, something visited upon people in developing countries by we rich folk in developed countries, something crying out for an explanation.

In fact, such conditions have been the norm throughout human history. Life on subsistence farms - which was the lot of the vast majority of our ancestors for the past 10,000 years - was grueling, dreary, and dangerous. And the material returns eked out from the work effort were, well, subsistence - except in the bad times, of which there were many, when these returns were at less than subsistence level. People then literally starved to death. (Indeed, compared with working in subsistence agriculture, working in a sweatshop is surely better - which is one important reason why so many people, today as in the past, have chosen to leave their bucolic hells for cities and towns.)

There is no real challenge in explaining harsh working conditions, for they are the overwhelming norm. They happen naturally - automatically, as it were - when societies are poor. And societies are poor 'automatically' whenever they do not have in place a sufficient number of prosperity-encouraging social institutions - which has been the common lot of humankind for nearly our entire existence.

What requires explanation is the exceptionally safe, comfortable, and high-paying working conditions that we modern westerners enjoy. The outliers are US; what is exceptional is OUR way of living and OUR historically off-the-charts prosperity that makes it possible for us to be appalled at the harsh working conditions still endured by so many of our fellow human beings.

Put differently, good working conditions have causes; poor working conditions do not. Good working conditions cry out for explanation; poor working conditions do not - except insofar as we want to explain why the underlying causes of good working conditions in some parts of the world have been kept from other parts of the world.

16 January 2009

Editor, The New York Times
229 West 43rd St.
New York, NY 10036

To the Editor:

In his otherwise excellent column "Where Sweatshops Are a Dream" (January 15), Nicholas Kristof writes that "Mr. Obama and the Democrats who favor labor standards in trade agreements mean well, for they intend to fight back at oppressive sweatshops abroad."

Unlikely. Mr. Obama and the Democrats (and Republicans, too) are far less interested in helping poor foreigners than they are in winning votes from American workers and factory owners who compete with producers in poor countries. Given that Mr. Kristof is correct that sweatshops provide a way out of poverty for many of the world's poorest people - and given also that even the lowest-income American worker enjoys a standard of living that is princely compared to that of the typical third-world worker - efforts by western politicians to "save" foreign workers from sweatshops should be labeled properly: heartless and greedy attempts by rich western politicians to win votes from rich western citizens at the expense of the world's poorest workers.

Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University