Market Correction

17 January 2009

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

To the Editor:

You suggest that it might have been "a coincidence" that U.S. Airways' stock price shot up by 13 percent immediately after Cap't. Chesley Sullenberger completed a remarkable emergency landing in the Hudson River ("In a Split Second, a Pilot Becomes a Hero Years in the Making," January 17). Do you think that it was also a coincidence that Cap't. Sullenberger received telephone calls afterward from both President Bush and President-elect Obama?

In fact, both set of events were perfectly predictable. Evidence of a company's ability to provide excellent service to customers inevitably and properly raises that company's market value. And just as inevitably, politicians - who have absolutely nothing to do with the commendable actions in question - horn in on the glory, smarmily trying to perfume their own malodorous profession with the scent of genuine heroism and decency.

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

Here's a comment that I left at Nicholas Kristof's wonderful January 16, 2009, NY Times column on sweatshops.

Don
.......

I'm surprised by the number of commenters who write as if harsh working conditions of the sort found in sweatshops are something exceptional, something visited upon people in developing countries by we rich folk in developed countries, something crying out for an explanation.

In fact, such conditions have been the norm throughout human history. Life on subsistence farms - which was the lot of the vast majority of our ancestors for the past 10,000 years - was grueling, dreary, and dangerous. And the material returns eked out from the work effort were, well, subsistence - except in the bad times, of which there were many, when these returns were at less than subsistence level. People then literally starved to death. (Indeed, compared with working in subsistence agriculture, working in a sweatshop is surely better - which is one important reason why so many people, today as in the past, have chosen to leave their bucolic hells for cities and towns.)

There is no real challenge in explaining harsh working conditions, for they are the overwhelming norm. They happen naturally - automatically, as it were - when societies are poor. And societies are poor 'automatically' whenever they do not have in place a sufficient number of prosperity-encouraging social institutions - which has been the common lot of humankind for nearly our entire existence.

What requires explanation is the exceptionally safe, comfortable, and high-paying working conditions that we modern westerners enjoy. The outliers are US; what is exceptional is OUR way of living and OUR historically off-the-charts prosperity that makes it possible for us to be appalled at the harsh working conditions still endured by so many of our fellow human beings.

Put differently, good working conditions have causes; poor working conditions do not. Good working conditions cry out for explanation; poor working conditions do not - except insofar as we want to explain why the underlying causes of good working conditions in some parts of the world have been kept from other parts of the world.

16 January 2009

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

To the Editor:

In his otherwise excellent column "Where Sweatshops Are a Dream" (January 15), Nicholas Kristof writes that "Mr. Obama and the Democrats who favor labor standards in trade agreements mean well, for they intend to fight back at oppressive sweatshops abroad."

Unlikely. Mr. Obama and the Democrats (and Republicans, too) are far less interested in helping poor foreigners than they are in winning votes from American workers and factory owners who compete with producers in poor countries. Given that Mr. Kristof is correct that sweatshops provide a way out of poverty for many of the world's poorest people - and given also that even the lowest-income American worker enjoys a standard of living that is princely compared to that of the typical third-world worker - efforts by western politicians to "save" foreign workers from sweatshops should be labeled properly: heartless and greedy attempts by rich western politicians to win votes from rich western citizens at the expense of the world's poorest workers.

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

16 January 2009

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

To the Editor:

In criticizing economists' assumption that individuals are rational ("An Economy of Faith and Trust," January 16), David Brooks misses an important point explained by my colleague Alex Tabarrok on the blog Marginal Revolution:

"Rationality is a property of equilibrium. By this I mean that rationality is habitual and experience-based and it becomes effective as it becomes embedded in the rules of thumb and collective wisdom of market participants. Rules of thumb approximate rational decision rules as market participants become familiar with an economic environment. Individuals per se are not very rational; shift the equilibrium enough so that the old rules of thumb no longer apply and we are likely to see bubbles, manias, panics and crashes. Significant innovation is thus almost always going to come accompanied with a wave of irrationality. When we shift to a significant, new equilibrium rationality itself is not strong enough to tie down behavior and unmoored by either reason or experience individuals flail about liked naked apes - this is the realm of behavioral economics. Given time, however, new rules of thumb evolve and rationality once again rules but only until the next big innovation
arrives."*

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

* http://www.marginalrevolution.com/marginalrevolution/2009/01/rationality-is-a-property-of-equilibrium.html

15 January 2009

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

Dear Editor:

E.J. Dionne reminds us of one of F.D.R.'s beliefs - a belief that Mr. Dionne shares: "'We must lay hold of the fact that economic laws are not made by nature,' Roosevelt said, directly countering the central premises of orthodox economics. 'They are made by human beings.'" ("Audacity Without Ideology," January 15).

Really? Which legislature created the fact that the more scarce is something the more valuable is that something? Which potentate first dictated that consumers will respond to, say, a lower price of apples by seeking to buy more apples? Which judge ruled that firms are more likely to build big, costly factories the larger are their expected markets? Which bureaucracy issued the regulation declaring that the division of labor is a source of increased outputs?

Untold amounts of human misery have been caused by the naivete of persons, like Mr. Dionne, who suppose that just because some aspects of reality are the results of human actions that these aspects are also the results of human design and, hence, can be rather easily re-designed to suit some intellectual's romantic fancy.

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