Market Correction

2 February 2009

News Editor, National Public Radio

Dear Sir or Madam:

Carl Kasell reported this morning that President Obama told Chinese president Hu Jintao to "correct" China's "trade imbalance" with the United States.

Overlook the fact that, because trade is a two-party process, any "imbalance" is caused as much by one trading partner as it is by the other. Instead ask: Has Mr. Obama taken leave of his senses? With one breath he argues for a one-trillion dollar stimulus plan that will require Uncle Sam to borrow unprecedented sums. With the next breath he tells the Chinese to reduce the amounts that they lend to Uncle Sam.

This isn't leadership; it's an act in the theater of the absurd.

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

1 February 2009

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

To the Editor:

The title of Frank Rich's column today proclaims that "Herbert Hoover Lives." Indeed he does. But contrary to Mr. Rich's argument, Hoover's ghost seems to animate President Obama at least as much as it animates G.O.P. members of Congress.

In response to the economic downturn of the early 1930s, President Hoover signed the largest tariff hike in U.S. history (Smoot-Hawley); he tried to spur the residential real-estate market with the Federal Home Loan Bank Act; he sought to assist the financial sector by launching the Reconstruction Finance Corporation; and he aimed to decrease unemployment through public-works programs with the Emergency Relief and Construction Act.

Oh, and he also raised taxes on corporations and on the rich. No laissez faire President he!

Seems to me as if U.S. President #44 has had some séances with U.S. President #31.

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

1 February 2009

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

To the Editor:

Because Frank Rich sensibly claims that "the job growth the Bush administration kept bragging about ('52 straight months!') was a mirage inflated by the housing bubble," I'm mystified that Mr. Rich so unquestioningly supports stimulus spending ("Herbert Hoover Lives," February 1.)

Today's woes are the result of this bubble having burst. Many of the consumption and production plans made during the bubble period - plans made on the basis of out-of-whack prices - are now proven to be unsustainable. Workers and entrepreneurs must adjust to a new and more realistic pattern of prices. These adjustments, although painful, are necessary if we're to have sustained and real economic growth.

But injecting massive additional government demand into the economy risks recreating, if only for a short time, the faulty pattern of demands, prices, and production plans that got us into this mess to begin with.

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

31 January 2009

Adam Davidson, National Public Radio

Dear Adam:

I enjoyed your and Alex Blumberg's January 29th report on the resurgence of Keynesian economics. In your list of anti-Keynesian schools of thought, though, you missed an important group of scholars: the Austrian economists, whose most prominent proponent was F.A. Hayek. Unlike Keynesians and monetarists, Austrians reject the idea that recessions are due chiefly to aggregate demand being too low. Instead, Austrians focus on the time it takes to correct any misdirections of resources caused by distortions in the complex pattern of individual prices.

Sadly, almost no one today has heard of - and even fewer people pay serious attention to - the Austrian theory. But it was once influential. We have it on the authority of the late Sir John Hicks, himself a Nobel laureate economist, that in the mid-1930s "the new theories of Hayek were the principal rival of the new theories of Keynes."

Keynes's theory cannot adequately explain the experience of the 1970s. Perhaps it's time to look again, not at Keynes's work, but at Hayek's.

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

31 January 2009

Adam Davidson, National Public Radio

Dear Adam:

I enjoyed your and Alex Blumberg's January 29th report on the resurgence of Keynesian economics. In your list of anti-Keynesian schools of thought, though, you missed an important group of scholars: the Austrian economists, whose most prominent exponent was F.A. Hayek. Unlike Keynesians and monetarists, Austrians reject the idea that recessions are due chiefly to aggregate demand being too low. Instead, Austrians focus on the time it takes to correct any misdirections of resources caused by distortions in the complex pattern of individual prices.

Sadly, almost no one today has heard of - and even fewer people pay serious attention to - the Austrian theory. But it was once influential. We have it on the authority of the late Sir John Hicks, himself a Nobel laureate economist, that in the mid-1930s "the new theories of Hayek were the principal rival of the new theories of Keynes."

Keynes's theory cannot adequately explain the experience of the 1970s. Perhaps it's time to look again, not at Keynes's work, but at Hayek's.

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

29 January 2009

Editor, The New Orleans Times-Picayune

Dear Editor:

You report that "In another example of how Hurricanes Katrina and Rita have helped shield Louisiana from the worst of the nation's economic woes, the state was one of only three to post job gains in December" ("Louisiana bucks trend, adds jobs despite U.S. slump," January 28).

This reasoning is sloppy. First, a large chunk of these job gains is undoubtedly due to the continuing return to Louisiana of residents who were displaced by Katrina and Rita. Second, destroying wealth promotes poverty rather than "shields" people from economic woes. If destructive hurricanes really do sustain economic growth, then the answer to America's current problems is much simpler than the solons in Washington realize: all they need do is to hire brigades of hoodlums to swarm across the nation with orders to destroy everything in sight.

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

30 January 2009

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

To the Editor:

Terence M. O'Sullivan alleges that "voluminous research" shows that legislatively mandated higher construction wages do not raise builders' costs because these higher wages "are generally offset by greater productivity" (Letters, January 30).

Research - and economic logic - do indeed show that mandated higher wages are correlated with higher worker productivity. But contrary to Mr. O'Sullivan's argument, the reason is that firms prevented from paying wages lower than some regulatory minimum hire only workers capable of producing enough to justify the higher wage. The lower-skilled workers who would have been hired in the absence of such regulation never enter the picture. The resulting higher measured productivity is a statistical artifact created by the arbitrary exclusion of lower-skilled workers from construction jobs.

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

29 January 2009

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

To the Editor:

Your headline reports that "Obama Calls Wall Street Bonuses 'Shameful'" (January 29). True enough. But equally shameful is Mr. Obama's detachment from reality.

Why would he suppose that greedy bankers, when given access to money forcibly extracted for them from taxpayers through a program that Mr. Obama himself champions, would cease to be greedy bankers? And, more fundamentally, is it not also shameful for government to compel citizens as taxpayers to patronize banks and auto producers that these same citizens as private consumers choose not to patronize?

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