Market Correction

6 January 2009

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

To the Editor:

What is Barack Obama's plan for dealing with the economic downturn? More government spending! ("Obama Seeks Wide Support in Congress for Stimulus," January 6). The Bush administration has so far run budget deficits totaling $2.13 TRILLION – a figure that doesn't include the spending orgy now in full swing for the bailout.

Governments throw goo-gobs of taxpayer money at problems as predictably as flies in the summer swarm to dog droppings. Where, I ask, is all this Change We Can Believe In?

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

5 January 2009

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

To the Editor:

Barack Obama wants tax credits "for companies that make new hires or forgo layoffs" ("Obama Eyes $300 Billion Tax Cut," January 5). Be wary. By artificially lowering firms' cost of increasing output by employing more workers, such credits tamp down firms' incentives to increase output by investing in capital such as machinery, R&D, and worker training. Because real wages rise as worker productivity rises - and because worker productivity rises with greater amounts of capital - such tax credits will prevent wages from rising as fast as they would otherwise rise.

A far better policy would be to cut the rate of capital-gains taxation. That way, firms would still have heightened incentives to produce, but with a better mix of labor and capital.

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

"Capitalism causes people to pursue profits blindly!" complain some.

"Capitalism promotes unwarranted discrimination!" complain many of the same some.
.........................

4 January 2009

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

Dear Editor:

George Will nicely explains how the 1971 ruling in Griggs v. Duke Power is an example of the law of unintended consequences at work ("The Toll of a Rights 'Victory,'" January 4). Another point deserves mention, though.

The market share of, and the rates charged by, defendant Duke Power were regulated by government. Moreover, these regulated rates were based on the Company's costs; higher costs meant higher permitted rates, and vice versa. So it's unsurprising that Duke Power practiced racial discrimination in hiring: failure to use the most productive workers cost it very little, for the higher costs resulting from sacrificing worker productivity in order to satisfy its preference for white workers were recovered through higher regulated rates.

In contrast, firms regulated by market competition pay dearly if they discriminate in favor of racially preferred but less-productive workers, for the resulting higher costs cannot be recovered through government-set higher prices.

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

3 January 2009

Editor, Chicago Tribune

Dear Editor:

President-elect Obama prescribes fiscal stimulus as the cure for America's ailing economy ("Obama urges Congress to approve economic recovery plan quickly, support bold investment," January 3). Well let's see.

With the exception of a few years during the Clinton administration, the U.S. has run annual budget deficits continuously for the past four decades. And from 2002 through 2008, Uncle Sam ran budget deficits each year, totaling $2.13 TRILLION dollars. That's a frightful amount of fiscal stimulus, and yet the economy today is struggling.

Now with the bailout, the budget deficit for 2009 alone is projected to be close to $1 trillion - nearly seven percent of GDP, a figure much higher than at anytime since WWII. If deficit spending were good for the economy, Americans would now be, not on shaky ground, but in Shangri-la.

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

1 January 2009

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

Dear Editor:

David Bell writes that "Rather than buying a gun to protect ourselves and our flat-screen TVs from our less-fortunate neighbors, we could forgo buying the gun, sell the flat-screen TV and use the proceeds to help the neighbors" (Letters, January 1).

While there's nothing wrong in principle with helping others, Mr. Bell misses an important part of the reality justifying gun ownership. Persons willing to commit violence while stealing the likes of consumer electronics elicit from their potential victims, not a sense of charity, but a sense of self-preservation. Understandably and rightly so.

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

31 December 2008

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

To the Editor:

Your case against the F.T.C.'s opposition to Whole Foods' merger with Wild Oats is 100 percent economically wholesome ("Whole Foods Fiasco," December 31).

Before the antitrustinistas batter us further with their self-righteous restrictions, I challenge them to present a single compelling instance of an actual merger that resulted in consumer harm. Just one.

I've studied business and antitrust history for many years and can think of not one such case. Given the paucity (to put it mildly) of evidence that free-market mergers harm consumers, it's grotesque that bureaucrats who know only textbook models are statutorily armed to prevent private entrepreneurs from experimenting with different ways to enhance efficiencies and serve consumers better.

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

29 December 2008

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

To the Editor:

Like many people, Ben Stein was assured that Bernard Madoff "never lost money" ("They Told Me That Madoff Never Lost Money," December 28). Unlike many people, Ben Stein wisely understood this assurance to be nonsense.

Americans should apply Mr. Stein's wisdom to the greatest Ponzi scheme going: Social Security. Many pols and pundits assure us that this program is a great financial deal for ordinary Americans. But in principle Social Security is identical to Mr. Madoff's fraudulent scheme: rather than generate wealth through productive investments, both schemes transfer wealth from newer 'investors' to older 'investors.' As long as a sufficient number of newer 'investors' keep coming aboard - either by being duped a la Mr. Madoff or by being coerced a la Social Security - such schemes appear brilliant. This appearance, however, is a dangerous apparition.

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