Market Correction

5 September 2008

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

To the Editor:

Troy Clarke, President of G.M. North America, asserts that direct government loans to U.S. automakers are not handouts ("these loans must and will be paid back") and that such loans are "intended to lower borrowing costs for auto makers and suppliers to invest in designing and building more energy-efficient cars and trucks" (Letters, Sept. 5). This argument is classic special-pleading for corporate welfare.

A chief role of private capital markets is to finance innovation and product development. Private investors compete for customers by keeping their borrowing costs as low as possible and (unlike politicians) have powerful incentives to evaluate project risks correctly. Because car buyers will eagerly purchase vehicles boasting greater fuel-efficiency, there's no reason in the world why private investors will not finance all promising projects to make such vehicles a reality. Projects, therefore, that cannot attract private financing are ones unlikely to pay off. It follows that financing these projects with government loans puts taxpayers' money at undue risk - meaning that taxpayers are forced to subsidize corporate boondoggles.

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

4 September 2008

Yahoo! News

Dear Sir or Madam:

The headline of one of your reports today from the Associated Press reads "Sarah Palin and her fellow RNC speakers weren't completely truthful at times." Wow.

Why not also run a report with the headline "Law of Gravity Still Working," or one screaming "Julius Caesar Remains Dead!"? Deceitful politicians are as newsworthy as ants at a picnic - although much more avaricious and annoying.

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

3 September 2008

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

Dear Editor:

Robert Samuelson helpfully explains why the data routinely cited to show the alleged economic stagnation of middle-class Americans are misleading ("The Real Economic Scorecard," September 3). In particular, he's correct that average or median income can stagnate or fall even if everyone's income rises. Here's how I explain this possibility to my students:

Imagine what the average or median income would be in a room occupied only by Bill Gates, Warren Buffet, and Bono. Now imagine that I enter the room and accept their offer to become their full-time shoe-shiner at an annual salary of $500,000. Because this income is higher than I earned before entering the room, I'm richer. And because my entering the room does not lower their annual incomes, none of them is poorer. But my presence in the room (with my new income still far below that of each of these men) dramatically lowers the room's average income, and pretty significantly lowers its median income, EVEN IF the income of each of these men rises during the current year.

Everyone is richer, yet average and median incomes are lower. As Mr. Samuelson points out, this possibility is not merely academic.

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

You can read Bruce Yandle's timeless classic on Bootleggers and Baptist here:

http://www.cato.org/pubs/regulation/regv7n3/v7n3.html

3 September 2008

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

Dear Editor:

So the "Slow Food" movement is unveiling a political agenda that includes efforts to encourage the consumption of "local foods" ("Slow Food At Full Speed: They Ate It Up; Thousands Get a Taste Of Group's Political Agenda," September 3). Perhaps most "locovores" mean well, but they likely are being used by interests whose motives are less palatable.

Just as bootleggers hide their true colors to join forces with Baptists in self-righteous agitation for alcohol prohibition - a policy that raises bootleggers' incomes by protecting them from legitimate competitors - so, too, are many farmers cunningly joining forces with locovores. They are doing so not out of any selfless concern for the environment or "social justice" but, rather, because locovores' political success will mean less competition and higher, monopoly profits for local farmers.

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

2 September 2008

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

To the Editor:

Crusading for a national "energy plan" and upset that Holman Jenkins isn't on board, T. Boone Pickens asks rhetorically: "My father used to tell me that a fool with a plan is better than a genius with no plan. So I ask, what's Mr. Jenkins's plan?" (Letters, Sept. 2).

Contrary to Mr. Pickens's assumption, an economy is not simply a gigantic business firm. An economy is both incomprehensibly more complex than is even the largest multinational corporation, and it has no specific, overriding purpose comparable to a firm's goal of maximizing profits - a purpose by which the performance of each employee and each investment decision is relatively easy to evaluate. So while plans and some measure of central direction make sense for firms, comparable plans and direction for an economy are poison. They prevent the on-going decentralized experimentation from which spring not only progress that is unplanned, but progress whose details could not have been foreseen before they actually materialize.

The Soviet Union famously had plans for its economy; the United States did not. Which country was the fool?

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