Market Correction

22 July 2008

Editor, Washington Times

Dear Editor:

Upset that Virginians' taxes were not recently raised to construct more roads, State Delegate Brian Moran declares that "Government has an important role to play in strengthening our infrastructure, developing our economy and creating new jobs" ("Virginia's transportation conundrum," July 22). Not so fast.

Infrastructure that we today naively suppose must be supplied by government has in the past often been supplied by the private sector - supplied so well, indeed, that these private infrastructure projects helped to spark the industrial revolution in 18th-century Britain. Harvard historian David Landes explains:

"At the same time, the British were making major gains in land and water transport. New turnpike roads and canals, intended primarily to serve industry and mining, opened the way to valuable resources, linked production to markets, facilitated the division of labor. Other European countries were trying to do the same, but nowhere were these improvements so widespread and effective as in Britain. For a simple reason: nowhere else were roads and canals typically the work of private enterprise, hence responsive to need (rather than to prestige and military concerns) and profitable to users.... These roads (and canals) hastened growth and specialization."*

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

* David S. Landes, The Wealth and Poverty of Nations (New York: W.W. Norton & Co., 1998), page 214-215.

21 July 2008

Editor, JewishWorldReview

Dear Editor:

Evidence that Dick Morris is clueless about economics is found in his most recent column, co-authored with Eileen McGann ("Stop Oil Speculation Now!" July 21):

"If there is any doubt that it is speculation, not the supply and demand for oil, that is driving up the price, look at this week's history of oil prices. After Bush announced that he was rescinding his father's executive order and permitting off shore drilling and after OPEC announced a weakening of oil demand, the futures market price dropped $15 per barrel. No new oil gushed through the system. The speculators just switched their bets from up to down."

Market prices reflect future as well as current conditions. Just as, say, GM's share prices would rise today if it announced a major breakthrough in fuel-conservation technology - rise even though this technology might not find its way into GM's engines until years from now - so too does new information on greater supplies of oil tomorrow push today's oil prices down. And it's good that this happens because such information means that oil is less scarce than previously thought. People need not be as careful today in consuming it. "Speculators" play a vital role in causing today's prices to reflect future conditions and, hence, in causing consumers and producers today to act in ways that are consistent with future reality.

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

21 July 2008

Editor, Atlanta Journal-Constitution

Dear Editor:

I disagree with Cynthia Tucker's claim that "Carter deserves credit for his energy smarts" (July 20). The price controls enforced during Jimmy Carter's presidency - ones within his power to lift - were responsible for fuel shortages.

I well remember in July of 1979 my father driving to a gasoline station at midnight only to wait in line. He waited in that line until 6am, when I (having walked the mile and a half from our home) relieved him. The station finally opened at noon. It allowed each motorist in line to buy a maximum of five gallons of gasoline. I bought the five gallons and drove home - without, of course, turning on the air-conditioner, for to do so would have burned too much of the precious elixir. As we lived in New Orleans, these sorry recollections of the consequences of misguided government intervention are seared especially hot into my memory.

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

19 July 2008

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

To the Editor:

Donald Libert speculates that Sen. John Sherman sponsored the 1890 antitrust act that bears his name out of "a desire to 'pay back' the New York industrialist-dominated delegation who he blamed for denying him the Republican nomination for president at the 1888 convention" (Letters, July 19). Revenge might well have been part of the Senator's agenda. But another part of that agenda likely was his desire for political cover.

Sherman, a staunch protectionist, was a senate champion of the McKinley Tariff. This tariff, enacted a mere three months after passage of the antitrust act, set import duties at (what at the time were) record high levels. (So much for Sen. Sherman's credentials as friend of consumers!) Free-trade Democrats rightly accused protectionists as being architects of monopoly power - an accusation that Sen. Sherman no doubt sought to conveniently deflect by putting his name on an antitrust statute.

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

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20 July 2008

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

To the Editor:

Frank Rich accuses John McCain of being economically illiterate ("It's the Economic Stupidity, Stupid," July 20). This conclusion makes sense in light of many of Mr. McCain's pronouncements. But Mr. Rich is shooting fish in a barrel. Sen. McCain is a politician; almost all of them say things that would earn failing grades in Econ 101.

Taking seriously the "economics" encountered on campaign trails is as foolish as taking seriously the financial advice encountered in late-night "infomercials." In both cases, the speakers only pretend to care about their audience; their real agenda is to dupe people to put trust in persons who are absolutely shameless about betraying that trust for their own personal enrichment and glorification.

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

18 July 2008

Editor, USA Today

Dear Editor:

John Lowe opposes more drilling for oil in the U.S. because "No law says that oil found there must stay in America. The oil companies can put it on the world market at prevailing prices, and it could just as easily end up in Chinese cars as our own" (Letters, July 18).

It's true that the market for oil spans the globe. And so while oil extracted in Alaska could well be consumed in China, this fact in no way supports the claim that more drilling in America won't help Americans. Precisely because the market for oil is global, a greater supply of oil - regardless of where it originates - would lower the price of oil worldwide. Americans (and the Chinese, and the Swedes, and the Australians….) would all pay lower prices for fuel.

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

17 July 2008

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

To the Editor:

Your reporters uncritically accept the claim that "the slowdown in the economy will restrain wages and keep inflation in check" ("Fed Confronts Spike in Inflation," July 17). This claim, although common, is mistaken.

By reducing the quantity of goods and services relative to dollars - and, thus, decreasing the purchasing power of dollars - a slowing of economic growth INCREASES inflationary pressure. If inflation were kept "in check" by a "slowdown in the economy," one of the most stable currencies in the world today would be the Zimabwean dollar.

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

17 July 2008

Editor, Washington Examiner

Dear Editor:

So the Pope is preaching against "insatiable consumption" ("Pope says world's resources being squandered," July 17).

If the Pope means to indict capitalism, I ask him what 'insatiable consumption' would he have ordinary people in the west sacrifice. The convenience and mobility of automobiles and airplanes? Reliable supplies and varieties of food, clothing, and life-saving medical care? Roomy and sturdy homes that, better than ever, offer personal privacy, sanitation, and protection from the elements? Learning unavailable to even the wealthiest pre-capitalist pooh-bahs? Almost limitless sources of real-time information enabling us to communicate easily with love ones, regardless of location, and that make us more aware of the world? An array of entertainment options that enrich our lives? Unprecedented amounts of leisure time? Perhaps our historically high life-expectancies?

I'd like the Pope to reveal which of these things he believes we should do without or cut-back on.

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

16 July 2008

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

To the Editor:

With its decision to curb short selling, the Securities and Exchange Commission joins today's witch-hunt for "speculators" ("SEC Moves to Curb Short-Selling," July 16). Specifically, the SEC aims to prevent investors from driving down prices of shares in Fannie Mae, Freddie Mac, and other troubled financial houses. The SEC acts as if it knows for certain that the true value of these shares is higher than the prices that emerge from the decisions of millions of investors. Beware.

While speculative bubbles (bullish and bearish) do happen, they eventually burst and harm investors who bought or sold unwisely. This risk of loss provides powerful discipline that keeps unwise investing to a minimum. And that's the best we can do, for we never really know that a bubble exists unless and until it bursts. Government restrictions on investing prevent prices from reflecting as clearly as possible the consensus beliefs of investors - each of whom has strong incentives to invest sensibly. The SEC's intrusion will weaken the important information-conveying role of prices, resulting in a higher proportion of genuinely inaccurate prices to accurate ones.

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

15 July 2008

Mr. Scott Kirby, President
US Airways

Dear Editor:

Thanks for your company's blast e-mail urging me to urge Congress to enact "oil speculation reform," which you assert is "the quickest way to stop or reduce the rising price of oil."

If you're so confident that such speculation, if unregulated by government, will continue to push oil prices higher, then you've got a fabulous and sure-fire opportunity to make profits hand over fist for your shareholders. All you must do is to buy lots of oil today - buy as much as you can as fast as you can. Spend all of your cash reserves buying oil; indeed, liquidate much of your capital stock and use those proceeds to buy additional stores of oil. As the price of oil is destined to rise, sell your oil sometime in the future and wallow joyously in all the $$$ you rake in.

If you're not now buying all the oil you can, I speculate that you have exceptionally poor business acumen, for the only other option is that you really don't believe what you wrote in your blast e-mail.

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

15 July 2008

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

To the Editor:

Sen. Dick Durbin's letter today is classic demagoguery. He presumes that his motives are purer than those of persons who disagree with him; his case for more-intrusive government is based on zero evidence that the culprits he demonizes ("speculators") are responsible for the "problem" (high oil prices) visited upon victims portrayed as helpless but for Sen. Durbin's courageous intercession on their behalf; he demands power to prevent practices defined only with question-begging vagueness ("excessive speculation" and "unfair speculation") - a vagueness that, once enacted into legislation, greases the path to even more power for demagogues such as Sen. Durbin.

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

14 July 2008

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

Dear Editor:

Re Robert Novak's "Oil Paranoia" (July 14): We humans have a long and embarrassing history of blaming devils for distressing aspects of reality that we don't understand. Erupting volcanoes, droughts, floods, and plagues have all been ascribed to the machinations of unseen super-powerful entities – as ill-defined as they are ill-intentioned – who manipulate a reality to which they are immune but to which we mortals must inevitably bend.

Today's witch hunt for speculators who allegedly are driving oil prices to heights unconnected with the realities of supply and demand is just the latest entry in this pageant of ignorance.

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

13 July 2008

Editor, Atlanta Journal-Constitution

Dear Editor:

We can debate just how closely the economy of 2008 parallels that of the 1970s ("Today's crunch feels like '70s," July 13). But one big difference unquestionably - and happily - distinguishes today from the dismal days of disco: no wage and price controls. This fact alone goes far toward making our prospects today brighter than they were during the presidencies of Nixon and Carter. No inflation camouflaged by government fiat, and no long lines at gasoline stations or anxiety about finding fuel.

Plus, we're much wealthier today. Those who doubt this truth can get any Sears catalog from the 1970s, study it, and ask if they'd prefer to use their 2008 incomes to buy 1970s-era products at 1970s prices, or buy today's products at today's prices. Even though nominal prices in the 1970s were much lower than prices today, very few persons would choose the 1970s option.*

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

* http://cafehayek.typepad.com/hayek/2006/01/working_for_sea.html

13 July 2008

Editor, Baltimore Sun

Dear Editor:

James Hogan is correct that inflation is no "boon to seniors" (Letters, July 13). But contrary to Mr. Hogan's suggestion, inflation harms seniors not simply because Social Security payments aren't properly indexed to account for it.

Inflation's most serious consequence is to make the economy less productive. Because inflationary new money added to the economy doesn't rain down evenly on the populace but enters at specific points, it causes some prices to rise faster than others. During inflationary periods, therefore, prices inaccurately reflect the relative scarcities of different products and of different resources. Consumers and producers – misled by these faulty prices – make poor consumption and production decisions. Overall economic productivity declines, hurting not only seniors but everyone.

In short, inflation spreads lies throughout the economy. And neither these deceptions nor their ill-consequences would be lessened by more accurate indexing.

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