Market Correction

3 January 2008

Editor, The New Yorker

Dear Editor:

Ostensibly looking after the welfare of persons who volunteer to be "guinea pigs" in medical-research tests, the FDA (as you report) "instructs review boards to make sure that payment is not 'coercive'" ("Guinea-Pigging," January 7). The FDA's use of the word "coercive" is disingenuous. To coerce someone is to threaten that person with physical force or blackmail to do something against his or her will. Specifically, it is to worsen artificially the condition that the coerced party will be in if he or she declines to act as the coercer demands.

A non-coerced person who declines to do X in return for $Y is no worse off than she would be were she never offered this bargain. In contrast, a coerced person who declines to do X on the terms stipulated by the coercer will be put by the coercer into a worse position - for example, dead - if she rejects the "bargain."

Because medical researchers who raise the prices they pay to human "guinea pigs" never threaten to worsen the status quo ante position of anyone who rejects the offered bargain, high and rising prices paid to such "guinea pigs" are no more coercive than are high and rising prices paid to NFL quarterbacks or to Hollywood starlets.

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

3 January 2008

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

To the Editor:

Raymond Richman argues that the dollar's fall is the result of America's large trade deficit (Letters, January 3). Not true.

While a falling dollar tends to reduce the size of the trade deficit, the causality does not run strongly in the opposite direction. A large trade deficit and a strong dollar both often are caused simultaneously by the same phenomenon: an intense global demand to invest in the United States. Investors seeking dollar-denominated assets need dollars to acquire these assets. This demand for dollars drives up the dollar's value and the use of these dollars to buy assets drives up America's trade deficit. The trade deficit can grow indefinitely without being followed by a falling dollar.

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

2 January 2008

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

To the Editor:

Jared Diamond serves up the same tired world-is-running-out-of-resources story that has long been the staple of doomsayers whose apocalyptic predictions consistently fail ("What's Your Consumption Factor?" January 2). One flaw in this worldview is its blindness to the fact that in entrepreneurial market economies people do not merely extract and consume; we creatively produce.

Nearly every "natural resource" was made into a resource by human creativity. Such creativity figured out ways of using for human betterment forests, land, harbors, and more recently things such as petroleum, chemicals, electricity, and the electromagnetic spectrum. Importantly, in modern free societies - contrary to Mr. Diamond's assertion - there's no evidence that we're running out of resources. While stocks of some resources are declining, known stocks of many others (including petroleum) are increasing. The greatest risk to this progress is baseless fears, such as Mr. Diamond's, that might scare humankind into abandoning the free markets that create resources and ever-higher living standards.*

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

* See Indur M. Goklany, The Improving State of the World (Washington: Cato Institute, 2007).

31 December 2007

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

Dear Editor:

Clyde Prestowitz attributes the economic growth of China, Japan, South Korea, Ireland, and the U.S. to protectionism (Letters, December 31). Unlikely. While governments in each of these countries protected favored industries, the source of each country's growth almost surely is liberal economic policies such as relatively low taxes, secure property rights, and tolerance of economic change.

If, for economic growth, shielding producers from foreign competition were sufficient, Cuba and North Korea would be economic powerhouses. If for growth such protectionism were necessary, not only would Hong Kong be destitute, but by requiring each U.S. state to trade freely with all sister states, the U.S. Constitution would have robbed Virginians, Pennsylvanians, and citizens of every other state of the prosperity they would have generated were producers in each state protected from out-of-state rivals.

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

31 December 2007

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

To the Editor:

Paul Krugman accuses persons who want lower taxes and less government control over the economy as following a "greed-is-good orthodoxy" ("The Great Divide," December 31). A true "Progressive," I believe, would not resort so readily to name-calling.

Scholars such as F.A. Hayek and Milton Friedman never accused leftist scholars of following, say, a "use-the-state-to-steal-as-much-as-you-can orthodoxy." You can find no such name-calling in the writings of the likes of Messrs. Hayek and Friedman because these scholars respectfully assumed that they and their opponents shared the same goal - a free and prosperous society - and differed only on the means of achieving this outcome. The dispute was over means rather than motives. Why can't Mr. Krugman accord his intellectual opponents the same respect?

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

30 December 2007

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

To the Editor:

Peter Goodman asserts that "The monopolistic excesses of the Robber Barons led to antitrust laws" ("The Free Market: A False Idol After All?" December 30). This notion is as mistaken as it is common.

Research conclusively shows that before the 1890 passage of the Sherman Antitrust Act the industries run by so-called "Robber Barons" behaved in ways emphatically opposite the ways of true monopolists. J.D. Rockefeller, Andrew Carnegie, Gustavus Swift, and other "Robber Barons" expanded their outputs more rapidly, and cut their prices more deeply and consistently, than did other business owners. Research also reveals that Sen. John Sherman sponsored his famous Act in order to get political cover for his pet cause: higher tariffs. Only three months after passage of the antitrust act, Sen. Sherman successfully pressed for the McKinley Tariff of 1890.*

The only "excess" at the time was Congress's duplicity as it posed as defender of consumers while saddling them with higher prices made possible by what was then the largest tariff hike in U.S. history.

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

* Thomas J. DiLorenzo, “The Origins of the Sherman Act: An Interest Group Perspective,” International Review of Law and Economics, June 1985, pp. 73-90.

29 December 2007

Editor, Scientific American

Dear Editor:

Michael Shermer splendidly explains how natural selection creates complexity and order in a market economy in very much the same way that it does so in those domains of our existence studied by genetics and biology ("Evonomics," December 16).

The late Stephen Jay Gould, although no friend of free markets, identified Adam Smith as a principal inspiration for Darwin's idea of natural selection: "I believe that the theory of natural selection should be viewed as an extended analogy - whether conscious or unconscious on Darwin's part I do not know - to the laissez faire economics of Adam Smith. The essence of Smith's argument is a paradox of sorts: if you want an ordered economy providing maximal benefits to all, then let individuals compete and struggle for their own advantages. The result, after appropriate sorting and elimination of the inefficient, will be a stable and harmonious polity. Apparent order arises naturally from the struggle among individuals, not from predestined principles or higher control."*

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

* Stephen Jay Gould, "Darwin's Middle Road" (in Gould's The Panda's Thumb [1980], quotation on page 66), and available here:
http://inst.sfcc.edu/~ENGLISH/ADJUNCT/hbutler/Darwin's%20Middle%20Road.htm

29 December 2007

Editor, The Washington Times

Dear Editor:

Louis Candell deserves applause for his clear-eyed opposition to the war on drugs (Letters, December 29). I offer, though, a slight correction to his argument.

Selling illegal drugs likely is not an especially profitable enterprise. While prohibition raises drug prices, sellers' risks of imprisonment and death - and their need to bribe officials - reduce the expected real return to drug selling. This "war's" violence nevertheless is caused by prohibition. First, prohibition screens out law-abiding citizens from this industry and screens in the reckless and those whose respect for the law is unusually low. Second, by imposing harsh penalties for the peaceful activity of merely selling drugs, it thereby reduces the severity of the additional legal sanctions that drug dealers suffer if they resort to violence. That is, if the penalty for drug selling is ten-years imprisonment and that for armed robbery is 15 years, the drug seller who resorts to armed robbery risks only an additional five years in prison - a penalty only one-third as harsh as it would be were selling drugs legal.

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

28 December 2007

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

To the Editor:

Paul Krugman worries that, although trade between high-wage countries is mutually beneficial, "trade between countries at very different levels of economic development tends to create large classes of losers as well as winners" - and so is suspect because it likely harms ordinary American workers ("Trouble With Trade,” December 28).

A famous trade economist argues that this concern is misplaced. In a 1996 essay, this economist - responding to a protectionist who fretted that western trade with low-wage countries would harm workers in the west - wrote that this protectionist "offers us no more than the classic 'pauper labor' fallacy, the fallacy that Ricardo dealt with when he first stated the idea, and which is a staple of even first-year courses in economics. In fact, one never teaches the Ricardian model without emphasizing precisely the way that model refutes the claim that competition from low-wage countries is necessarily a bad thing, that it shows how trade can be mutually beneficial regardless of differences in wage rates."

Oh, the economist who wisely warned against the pauper-labor fallacy is none other than Paul Krugman.*

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

* Paul Krugman, “Ricardo’s Difficult Idea,”
http://web.mit.edu/krugman/www/ricardo.htm

27 December 2007

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

To the Editor:

Opposed to free trade, David Raines asks "How can it be good for workers to be subjected to competition from low-wage countries?" (Letters, December 27). This question reveals a common misunderstanding.

Worker compensation in America is high because American workers are made highly productive by the great amounts of capital they work with. (And by the way, America is rich in capital, in part, because she consistently runs capital-account surpluses - i.e., "trade deficits.") Where wages are low, it is because workers in those places have little capital to work with and, therefore, are not very productive.

G.M. and Toyota continue to sell cars even though bicycles - a competing means of transportation, but one far less productive than cars - fetch much lower prices. For the same reason, with free trade American workers will continue to sell their labor for high wages even though many workers abroad fetch much lower wages.

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

26 December 2007

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

Dear Editor:

Sally Pipes nicely explains why government statistics on overweight Americans are best taken with a grain of salt ("Brave New Diet," December 26). I applaud also her defense of each person's freedom to choose. More, however, can be said in favor of this freedom: namely, it is required for there to be equality before the law.

Such equality means that no one has the right to play god with the lives of others. But if Jones asserts that he has a duty or a right to order Smith about for Smith's own good, Jones thereby asserts that he is better than Smith - that he has more knowledge than does Smith about Smith's life - or that Jones occupies a higher social rank that accords him the privilege of dictating how Smith must behave. Any such assertion is anathema to a society of free and equal individuals.

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

25 December 2007

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

To the Editor:

Timothy Kane asserts that among the cause of the collapse of the Roman Empire was "small government" (Letters, December 25).

Mr. Kane's history is wrong. Emperor Diocletian (reigned 284-305 AD) brought many industries, including mercantile trade, under state control. And with the Edictum de pretiis, he infamously imposed an empire-wide system of wage and price controls. The results were calamitous.

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

24 December 2007

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

To the Editor:

Paul Krugman asserts that the steady decline in labor-union membership happened because "beginning in the 1970s, corporate America, which had previously had a largely cooperative relationship with unions, in effect declared war on organized labor" ("State of the Unions," December 24). Two facts cast doubt on this assertion.

First, the decline in union membership began in the mid-1950s, not in the 1970s. Second, union membership in almost all of Europe and the rest of the industrialized world followed a similar trajectory to that in America.

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