Nothing Fishy About Property Rights
26 September 2008
Editor, The Boston Globe
Dear Editor:
In "Fish wisely, save fisheries" (Sept. 26) you correctly report that the catch-share system prevents overfishing, but you inexplicably miss a fundamental reason for this happy outcome. This system works not only, as you mention, because each fisherman is given a seasonal allotment to fish based on his past experience. Critical to this system's success also is the salability of these allotments. That is, the catch-share system succeeds because it creates transferable private property rights in fish stocks.
New York Times Science writer John Tierney crisply described how these property rights work: "Under this system, a fisherman owns the right to a certain percentage of the annual allowable catch in a fishery. These shares, sometimes called individual transferable quotas, can be bought and sold on the market, and their price goes down if the fish population declines. So fishermen have a direct incentive to protect the fishery along with their investment: that way their share will be worth more when they retire and sell it to someone else."*
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
Enterprise Hall
George Mason University
* http://tierneylab.blogs.nytimes.com/2008/09/18/how-to-save-fish/?scp=1&sq=%22Individual%20Transferable%20Quotas%22&st=cse
Don't Bank on Government Regulation
25 September 2008
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
Gerald Tache scolds John McCain for voting to repeal the Glass-Steagall Act (Letters, Sept. 26). Mr. Tache is apparently among those who believe that investment banks and commercial banks work better when kept separate by legislation.
Much research contradicts this conclusion. Here's my colleague Tyler Cowen writing recently at the highly respected blog "Marginal Revolution":
"A significant academic literature has investigated these claims [that the pre-Depression combination of investment and commercial banking contributed to the banking crisis] and rejected them. Eugene White, for example, found that national banks with security affiliates were much less likely to fail than banks without affiliates. Randall Kroszner (now at the Fed.) and Raghuram Rajan found that securities issued by unified banks were (ex-post) of higher quality than those issued by investment banks. A powerful book by George Benston went through the entire Pecora hearings which supposedly revealed the problems with unified banking and found them to be a complete sham. My colleague Carlos Ramirez later showed that the separation of commercial and investment banking increased the cost of external finance."*
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
* http://www.marginalrevolution.com/marginalrevolution/2008/09/glass-steagall.html
What WOULD Keynes Do?
25 September 2008
Editor, Washington Post
1150 15th St., NW
Washington, DC 20071
Dear Editor:
David Ignatius might be correct that John Maynard Keynes would support massive government intervention to deal with today's financial turmoil ("What Would Keynes Do?," Sept. 25). But Keynes was not without his subtleties and even his contradictions.
A year after publication of his General Theory, Keynes wrote that "We have, as a rule, only the vaguest idea of any but the most direct consequences of our acts."* Taking this obviously correct insight seriously might, just might, have led Keynes to worry that even the most expertly designed government intervention of the sort that is underway today will have dreadful unintended consequences tomorrow.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
Enterprise Hall
George Mason University
* John Maynard Keynes, "The General Theory of Employment," Quarterly Journal of Economics, Vol. 51, February 1937.
Clinton Earns an F
25 September 2008
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
Hillary Clinton wants government to temporarily "freeze rate hikes in adjustable-rate mortgages" ("Let's Keep People In Their Homes," September 25).
The Senator's reasoning is akin to that of weak students who - offering excuses such as "My grandma died" - ask me to change their grades. I always refuse by saying that grades are like market prices: they reflect an underlying reality. Were I to change a student's grade arbitrarily, I wouldn't change his actual performance in my class or his command of the material. I would merely send to the world a false signal about him, and encourage him to rely on such excuses in the future.
As a teacher, I can't make students smarter simply by lying about the grades they've earned. As a Senator, Ms. Clinton can't make housing more affordable simply by forcing mortgage terms to lie about the reality of high risks and scarce credit that are reflected by unregulated mortgage-interest rates.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030
Myth of the Rational Voters
24 September 2008
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
I read your demographic summary of "The American Voter" (September 24) after encountering a report in TIME saying that 55 percent of Americans believe in guardian angels. In other words, more than half of adults in the U.S. believe in miracles; they find credible the regular suspension of natural laws by supernatural willpower.
Given such gullibility and hostility to reality, it's no wonder that government is forever posing as an economic Moses - reducing scarcity with the wave of a price-control statute; increasing prosperity by printing lots of little monochrome pictures of dead American statesmen and calling it 'money'; making workers more productive merely by enacting minimum-wage legislation; and now saving us from financial ruin by lording it over capital markets.
God help us.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
I Need a Trojan to Protect Me From the State
24 September 2008
Editor, The Wall Street Journal
200 Liberty Street
New York, NY 10281
To the Editor:
You introduce several letters on Amity Shlaes's interpretation of the New Deal with this headline: "New Deal Brought Hope, but Not End of Depression" (Sept. 24).
What "hope"? The New Deal - as convincingly argued by Ms. Shlaes, by professional economic historians such as Robert Higgs, and by most of your letter-writers - deepened and prolonged the Depression. Any "hope" that ordinary Americans found in the New Deal was as justified as the hope that the Trojans found in the large wooden horse left for them by the Greeks.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Industrial Policy?
23 September 2008
Editor, The Washington Times
Dear Editor:
On top of Uncle Sam's unprecedentedly large bailout plan comes calls from top business executives for "comprehensive industrial policy" ("Ford, Dow execs to discuss national summit in '09," September 22).
Let's keep our heads. Despite the turmoil, Americans today remain incredibly wealthy. This fact is evidence that capitalism works very well even though it is never textbook perfect. Calling for a fundamental restructuring of an economy that produces such widespread prosperity is, at best, an irresponsible overreaction.
More likely, though, this call for industrial policy is a ploy by business executives to find shelter from the bracing winds of competition. By trying to plan the economic future, any such policy necessarily tramples innovation and consumer sovereignty. Anything at odds with the policy - such as unforeseen new products, creative new techniques of production, or simply changes in consumers' tastes - must be squelched, for otherwise the policy falls apart. Many existing firms (especially large ones such as GM and Dow Chemical, who have the resources to influence government) will benefit from industrial policy - but only because such policy inverts the economy from one in which producers exist to satisfy consumers to one in which consumers (and taxpayers) exist to satisfy producers.
Such a policy will make most of us much, much poorer.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Genetically Engineered Chickens
23 September 2008
Editor, The New York Times
229 West 43rd St.
New York, NY 10036
To the Editor:
According to your headline, Congress is "angry" over the "the steep cost" of the bailout plan ("Talks On Bailout Plan Advance; Congress Is Angry and Skeptical," September 23). While I understand that members of this body are actors by trade, I wish that in this case they'd spare us their histrionics. This mess is largely their fault.
In today's Wall Street Journal, Charles Calomiris and Peter Wallison report that Congress, seeking to promote "affordable housing," encouraged Fannie and Freddie to make high-risk loans. Rep. Barney Frank (D-MA) crowed in 2003 that "Fannie Mae and Freddie Mac have played a very useful role in helping to make housing more affordable ... a mission that this Congress has given them in return for some of the arrangements which are of some benefit to them to focus on affordable housing." As Messrs. Calomiris and Wallison add: "The hint to Fannie and Freddie was obvious: Concentrate on affordable housing and, despite your problems, your congressional support is secure."*
The chickens now coming home to roost were genetically engineered by Congress.
Sincerely,
Donald J. Boudreaux
Chairman, Department of Economics
George Mason University
Fairfax, VA 22030
* “Blame Fannie Mae and Congress For the Credit Mess,” Wall Street Journal, Sept. 23:
http://online.wsj.com/article/SB122212948811465427.html
