Market Correction

17 April 2008

Editor, The New Yorker

Dear Editor:

James Surowiecki writes that "Iceland's current woes teach a useful lesson about the interconnectedness of global markets: trouble can come from anywhere" ("Iceland's Deep Freeze," April 21). True. But Mr. Surowiecki misses the more-important point, which is that with interconnectedness of global markets, insurance and security can come from anywhere.

Someone who invests his assets exclusively in shares of GM avoids potential trouble caused by declines in the share prices of other corporations such as Microsoft and USX. This person also, though, avoids the potential gains that would come from rising prices of other corporations' shares. So just as an individual investor is foolish not to diversity his portfolio out of fear that some assets might loses value, a country is foolish not to integrate economically with other countries out of fear that some of those international commercial relationships might prove troublesome.

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

16 April 2008

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

Dear Editor:

In his otherwise excellent column, Robert Samuelson complains that the Chinese government harms Americans by depressing the value of the yuan ("Marching Backward On Trade," April 16).

Ignore Nobel economist Robert Mundell's explanation that currency manipulation cannot long keep the prices of any country's exports artificially low. If Beijing's currency manipulation really does keep Chinese exports artificially inexpensive, American exports buy greater quantities of Chinese goods and services. Complaining about this unearned ability to get more in exchange for the fruits of our labor is akin to complaining about an unmerited pay raise: the lucky worker (or, in this case, American consumer) benefits at the expense of a foolish employer (or, in this case, Chinese government).

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

15 April 2008

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

Dear Editor:

You report that "France may outlaw inciting thinness" (April 15). Many Americans who read about the French government possibly outlawing the public incitement of "extreme thinness" will smile with self-satisfaction. "Those crazy French," these Americans will gloat. "They too quickly give power to government by too quickly taking personal responsibility away from individuals."

I share this assessment of the French, but caution my fellow Americans against smugness. After all, the U.S. is now slathered with the sentiment that businesses that loaned foolishly, and homeowners who borrowed foolishly, should be relieved by government from bearing the consequences of their poor choices. In short, Americans too quickly give power to government by too quickly taking personal responsibility away from individuals.

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

15 April 2008

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

To the Editor:

Richard Conniff proposes that the money we pay to government be called "dues" rather than "taxes" ("Abolish All 'Taxes'," April 15). He argues that "we need language to remind us that this is our government, and that we thrive because of the schools and transit systems and 10,000 other services that exist only because we have joined together."

A celebrated intellectual tradition - represented by the likes of Adam Smith, F.A. Hayek, and Ronald Coase - holds that most of what government does, if worthwhile, can be done better by free markets and civil society. A related intellectual tradition - represented by scholars such as James Madison, James Buchanan, and Gordon Tullock - implores us to understand that government is predatory unless tightly constrained by constitutional rules. Uncle Sam long ago escaped his constitutional fetters. The predictable result is that he is now far too predatory - witness, for example, his agricultural subsidies and his Patriot Act snooping - for anyone seriously to regard taxes as anything other than protection money paid to brutes in suits.

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

14 April 2008

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

To the Editor:

Paul Krugman repeats the refrain that the economy for ordinary Americans is a shambles ("Crisis of Confidence," April 14). I'm doubtful, but will here assume that he's correct about this matter. What conclusion are we to draw?

Rather than conclude (as Mr. Krugman does) that this problem reflects a need for higher taxes and greater government control over the economy, why not conclude the opposite? At no time since Mr. Krugman's imagined Golden Age of the 1970s has Uncle Sam's budget been severely reduced. Indeed, inflation-adjusted spending on programs such as Social Security, Medicare, and Medicaid have consistently risen since then. During the past three decades, some welfare programs have been scaled back, while others have been expanded and even newly created. We now have, as we did not prior to the 1970s, cabinet-level departments to regulate energy, education, veterans affairs, and homeland security. Some regulations have been repealed, while others have been created at both the state and national levels.

Weren't FDR's New Deal and LBJ's Great Society - most of which programs remain with us today - supposed to make life better for ordinary Americans? If Mr. Krugman's factual claim about the state of the economy is correct, these programs clearly have failed.

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

14 April 2008

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

To the Editor:

Arguing that today's economy is "considerably worse" than the data reveal, Paul Krugman notes that "The official unemployment rate may be relatively low - but the percentage of prime-working-age Americans without jobs, which isn't the same thing, is historically high" ("Crisis of Confidence," April 14).

Sounds awful, for Mr. Krugman here implies that Americans between the ages of 25 and 54 have more difficulty finding jobs today than they did even during the Great Depression. But this implication fails the smell test. There are many reasons why some prime-working-age people are without jobs - reasons having nothing to do with being unemployed. Retirees are without jobs; many full-time students are without jobs; stay-at-home parents are without jobs. Contrary to Mr. Krugman's suggestion, perhaps the economy is trending so remarkably WELL, over the long run, that more and more people remain in school longer and retire earlier, a luxury much less affordable in the past.

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

13 April 2008

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

To the Editor:

Upset at what he has divined to be excessively high pay for corporate CEOs, Sen. Barack Obama wants to change "a system where bad behavior is rewarded" ("Candidates Target Executive Pay," April 12).

If Mr. Obama truly seeks to rein in institutions that systematically reward bad behavior, he should scale back government and forget about intruding into the private sector. In private markets, Smith spends only Smith's money. Smith profits or loses depending on the prudence of his choices. This tight connection between each person's actions and the consequences that he or she bears provides remarkably effective carrots and sticks encouraging private persons to behave responsibly. In the public sector, in contrast, Smith spends Jones's money. Smith profits or loses depending on how effectively he uses Jones's money to buy votes from Jackson, Johnson, Williams and other persons who are assured by Smith of their moral right to free-ride on Jones's resources. Surely, there is no surer recipe than this for rewarding bad behavior.

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

12 April 2008

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

Dear Editor:

Emily DeRocco complains that "The April 9 Business article 'Don't Blame NAFTA for Downturn, Many Economists Say' quoted politicians, economists and labor representatives but not a single manufacturer - those at the heart of this wrenching debate" (Letters, April 12).

She's mistaken. Those at the heart of this debate aren't manufacturers (or politicians, economists, or labor representatives). Those at the heart of this debate are consumers. Unfortunately, consumers are too large in number and too disparate in interests to organize effectively for political purposes. The result is that consumers' interests in trade discussions are largely ignored, even though an economy's success is measured not by how well it satisfies the wishes of producers, but exclusively by how well it satisfies the demands of consumers.

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

12 April 2008

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

Dear Editor:

In "Philippines Caught in Rice Squeeze" (April 12) you correctly point out that Filipinos are paying sharply higher prices for rice largely because of that country's Draconian restrictions on rice imports. The government there limits to 2.7 million metric tons the amount of rice that Filipinos can import annually, and - until just days ago - slapped a 50 percent tariff on these imports.

This policy of trying to make the Philippines self-sufficient in rice is not merely foolish; it's lethal. Looking carefully at the data, economists Ann Owen and Stephen Wu find that freer trade "is associated with lower rates of infant mortality and higher life expectancies, especially in developing countries."*

For a variety of reasons, including diversifying the sources of agricultural supplies, free trade gives life - which is another way of saying that protectionism kills.

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

* http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1009899

11 April 2008

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

To the Editor:

Concerned about the safety of the flying public, Rep. James Oberstar (D-MN) fears, as he says, "that complacency may have set in at the highest levels of FAA management, reflecting a pendulum swing away from vigorous enforcement of compliance, toward a carrier-favorable, cozy relationship" ("Flying the Oberstar Skies," April 11).

In other words, Mr. Oberstar assumes that airlines favor unsafe air travel. How bizarre. Suppose that all government regulation of airlines were abolished today. Does the Congressman suppose that airline executives would tomorrow fire all inspectors and maintenance crews, indifferent to the prospect of losing multimillion dollar assets in fiery crashes? Does he not see that airlines with poor safety records would have difficulty attracting customers? Is he unaware that airlines' insurers have ample incentives to work closely with airlines at keeping air-travel safety at optimal levels? In short, is Mr. Oberstar really so dimwitted to think that airlines will be safe only if they are regulated by government?

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

11 April 2008

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

To the Editor:

Rightly criticizing bureaucrats who steal by abusing government credit cards, you summon Congress "to institute far more systematic oversight of the trashing of the public's pockets by government employees" (“Brandishing Plastic for Uncle Sam," April 11).

But let's get some perspective. While credit-card abuse by bureaucrats annually costs taxpayers (as you say) "millions of dollars," Congress has perfected the art of "trashing the public's pockets" each year to the tune of TRILLIONS of dollars. Are the deceits and shenanigans routinely practiced by elected officials to take other people's money - such as the filigree of false pretenses used to justify the transfer of unfathomable sums of taxpayer and consumer dollars to farmers, to firms protected from foreign competition, and to corporations supplying the Pentagon - morally acceptable simply because these particular methods are formally lawful? Not in my book.

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

10 April 2008

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

Dear Editor:

In one letter it's possible to expose only a fraction of the falsehoods, half-truths, non sequiturs, cheap innuendo, and cockamamie conclusions that make up Harold Meyerson's "Missing: Our Trade Strategy" (April 10).

One falsehood is his claim that American manufacturing has declined. In fact, manufacturing output in the U.S. today is about 100 percent higher than it was in 1987.* One cockamamie conclusion is Meyerson's insistence that the way to promote widespread prosperity is to protect firms and workers from competition.

Stripped of its layers of sophistry and confusions, protectionism is revealed as being nothing more than veneration of monopoly power - a veneration typically provoked by fear of progress.

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

* http://research.stlouisfed.org/fred2/series/OUTMS?cid=2

9 April 2008

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

Dear Editor:

The depth of misconceptions about trade is displayed vividly in the text (if not the title) of "Don't Blame NAFTA for Downturn, Many Economists Say" (April 9).

First, your reporter writes that NAFTA's "boosters" predicted that this trade agreement "would add 200,000 U.S. jobs." Sure, some "boosters" predicted as much. But no serious economist did so. Economists understand that freer trade neither increases nor decreases net employment; rather, it SHIFTS employment from lower-output to higher-output industries. To criticize NAFTA for not increasing net employment is akin to criticizing penicillin for not enlarging penis size: no serious scholar expects such an outcome.

Second, your reporter scolds NAFTA's proponents for predicting - contrary to what happened - "that the pact would help convert small trade deficits with Mexico and Canada into surpluses." Wrong. Predictions that NAFTA would generate U.S. trade surpluses were made by NAFTA's opponents (such as Ross Perot) who screeched that freer trade would cause investors to abandon the U.S. for Mexico. America's persistent trade deficits with Mexico and Canada mean that investors continue to invest especially heavily in America, thus exposing as absurd the infamous fear of a "giant sucking sound" of factories and jobs rushing south across the Rio Grande.

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

9 April 2008

Editor, New York Post

Dear Editor:

While I don't doubt that the Clintons routinely truck and barter with swarms of seedy characters (including, for starters, him with her and her with him), Dick Morris and Eileen McGann recklessly stoke the flames of protectionism by writing that "Mark Penn's lobbying for the Colombia Free Trade Pact" is evidence that Hillary is "up to her ears in lobbyists for foreign entities" ("Hill & Lobbyists: More the Merrier," April 9).

Such wording in this context hints darkly that freer trade will benefit Colombians at the expense of Americans. But in fact, by expanding the range of opportunities for voluntary exchange between the peoples of both countries, freer trade will bring greater prosperity not only to Colombians but also to Americans.

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