Market Correction

25 September 2006

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

Dear Editor:

Rep. Joe Knollenberg (R., Mich.) asserts that Japanese automakers are subsidized by an undervalued yen (Letters, October 2). Rep. Knollenberg - whose position on this issue surely is grounded only on his dispassionate evaluation of the arguments and evidence and has nothing to do with his being elected by voters in Michigan - overlooks the fact that an undervalued yen will cause the prices of goods and services denominated in yen to rise.

So as the value of the yen falls, enabling (it is true) each dollar to buy more yen, another effect is that the nominal yen-price of Japanese-made cars rises, reflecting the yen's lower value. The net result is no advantage to Japanese automakers seeking to sell more cars abroad.

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

My better-half, Karol Boudreaux, wrote this letter to the editor of the New York Review of Books.
.....


To the editor:

In his problematic review of Naomi Klein’s The Shock Doctrine, Joseph Stiglitz makes a series of claims about South Africa that are both insulting and inaccurate. For example, he claims the ANC “didn’t fully understand how important economic policy was.”

Rubbish. The ANC is filled with highly educated, competent people who knew full well that radical redistribution would likely fuel violence and capital flight, generally not a recipe for economic growth. The ANC recognized that their economic policies had to accommodate a broad array of domestic interests--business people, small entrepreneurs, farmers, and union members—as well as international donors. Its economic policies reflected this reality.

For example, far from introducing “labor flexibility” to meet IMF and World Bank demands, the ANC has kept the labor market excessively rigid, which penalizes poor black South Africans but makes its political partners, the South African Communist Party and the nation’s largest labor union, COSATU, happy. Indeed, the high black unemployment rate and the ever-expanding informal sector are evidence of this rigidity. Despite the fact that South Africa is ranked 35th out of 178 nations in the World Bank’s most recent Doing Business report the country scores a poor 91 in the category of “Employing Workers;” the lowest mark of the 10 categories the Bank considers.

Finally, to argue that 5% per annum growth rates are “disappointing” is disingenuous. As the OECD said in its African Economic Outlook report (2006) “In 2005, the South Africa economy experienced GDP growth of 5 per cent, its highest since the end of apartheid.” The OECD goes on to say that “although this good performance is due in part to a favorable international environment, it also reflects the sound economic policies that have been carried out since 1996. . .”

To be sure, South Africa has plenty of problems, labor rigidity being key among them. It is disappointing, however, that an economist as prominent as Mr. Stiglitz should be so wrong about what ails this beautiful country.

Sincerely,
Karol Boudreaux
Senior Research Fellow
Lead Researcher, Enterprise Africa!
Mercatus Center at George Mason University

2 October 2007

Mr. Thomas Palley
www.ThomasPalley.com

Dear Mr. Palley:

Thanks for including me on your distribution list. But I dispute your claim that the principle of comparative advantage applies only when capital is immobile. You mistake an assumption typically made to render the explanation of comparative advantage clearer as being a condition necessary for the principle to hold in reality.

Like other real-world happenings, capital mobility does indeed change the specific pattern of comparative advantage. It does not, however, nullify the principle. If it does - if, as you assert, capital mobility makes comparative advantage "obsolete” - then the principle of comparative advantage would be useless for explaining the pattern of specialization and trade within national or local economies, where capital has long been mobile.

Of course, comparative advantage has always helped to determine the pattern of specialization and trade between Brooklyn and Queens no less than it has always helped to determine the pattern of trade between America and other countries. And this helpfulness does not diminish as capital mobility increases.

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

1 October 2007

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

Dear Editor:

Ecuador's President Rafeal Correa opposes freer trade with the U.S. because "it would be dangerous for our farmers" ("Ecuador’s Hugo Chavez?," October 1).

I have some questions for Pres. Correa. Suppose that a new and nearly costless technique were invented that increased agricultural yields so magnificently that all Ecuadorians could be well and safely fed from the output of only one farmer. Would you oppose such technological progress? If so, why don't you also require Ecuadorian farmers to till the soil with nothing but their bare hands, for that policy would stimulate even more work and effort in the agricultural sector?

And if you wouldn't oppose technological progress in Ecuadorian agriculture, why do you oppose commerce that promises the same result, namely, an increase the supply of food for citizens of your country?

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

30 September 2007

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

To the Editor:

Reviewing Naomi Klein's anti-market book Shock Doctrine, Joseph Stiglitz excuses her oversimplifications by saying that Milton Friedman and others who advocated free markets "were also guilty of oversimplification, basing their belief in the perfection of market economies on models that assumed perfect information, perfect competition, perfect risk markets" ("Bleakonomics," September 30). This accusation is nonsense.

The most celebrated contribution of F.A. Hayek, a free-market proponent nearly as influential as Friedman, was to show that markets are important precisely because the information that each of us has is always incomplete and often wrong. And Friedman himself built his case for markets not on their imaginary perfection - a fantasy that he never alleged to exist in reality - but on their relative superiority to production and exchange directed by government.

For a Nobel laureate economist such as Mr. Stiglitz to join in the slaying of straw men is unbecoming.

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

30 September 2007

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

To the Editor:

Like many others, Louis Uchitelle writes of imports having "flooded the market" ("Once Again We're Driving What’s Not Made Here," September 30). Such language is as loaded as it is lazy. Floods literally devastate and kill. Persons in the paths of real floods are willing to pay to be spared the excess water.

In sharp contrast, consumers willingly pay to receive imports and would benefit even more if imports arrived in larger quantities. Having ever greater volumes of Toyotas and Krups coffee makers offered for sale downtown is quite the opposite of having ever greater volumes of water rushing destructively into people's homes and workplaces.

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

29 September 2007

Editor, The New York Review of Books

To the Editor:

In Andrew Hacker's generally smart review of books on income distribution (October 11), he commits a frustrating error when writing that "recent years have seen a larger share of the nation's income accruing to the top 1 percent. And more affluence for them means less for others; the bottom fifth's share has been declining for a generation."

A greater SHARE of total income for one group does not at all mean less affluence for members of other groups whose shares are falling. If the size of the pie is growing, those with shrinking shares of it might still enjoy greater affluence. Six percent of 100, for example, is larger than seven percent of 80.

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

28 September 2007

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

To the Editor:

Who cares what modern health-care-delivery methods are called (Philip M. Boffey, "The Socialists Are Coming! The Socialists Are Coming!," Sept. 28)? The elemental problem is that more and more persons feel entitled to vast quantities of high-quality health care paid for by someone else. And politicians, ever-lusting for office, are only too happy to further conjure the ridiculous illusion that A will get top-flight service from B when C is forced by G to pay the bills.

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

27 September 2007

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

Dear Editor:

Harold Meyerson asserts that "The American middle class has toppled into a world of temporary employment, jobs without benefits, retirement without security. Harder times have come to left and right alike" ("Rise of the Have-Nots," Sept. 27). He supports this claim with survey results showing that a smaller percentage of Americans today identify themselves as "haves" - and a larger percentage identify themselves as "have-nots"- than was true in 1988.

Conducting surveys and interpreting their results is notoriously tricky business. How, for example, would Mr. Meyerson square the results he takes as definitive with those of a recent Gallup poll that finds that the percentage of Americans who report being "completely satisfied" with their jobs rose from 28 percent in 1989 to 43 percent in 2006, while the percentage of Americans who report being "completely dissatisfied" with their jobs fell from three percent to two percent?*

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

* http://www.aei.org/publications/pubID.14886/pub_detail.asp