Market Correction

Inspired by research done by my former GMU colleague Larry Iannaccone.

12 April 2009

Editor, Washington Post

Dear Editor:

E.J. Dionne rightly applauds the healthy state of religion in America ("A Resilient Christianity," April 12). But I wonder if Mr. Dionne ever stops to reflect that America's thriving religions are strong evidence against his often-expressed belief in the necessity of regulation by government.

Americans' principled commitment to the First Amendment means that the market for religion in America is arguably the freest market on earth. In the U.S., no religion receives government funding; every religion in America is funded exclusively with voluntary contributions. No religion is protected by government from the competition of other religions. No religion receives special privileges from government. No licensing requirements exist to thwart the creation of new religions or churches. Similarly, no preacher, priest, rabbi, or other religious worker is licensed by government. Entry into the religion market is utterly free. Government has no regulatory agencies to screen or validate religious doctrines before such doctrines are allowed to be marketed. There is no cabinet-level office devoted to religion. And no one is forced to attend religious services or to study religious doctrines.

If such freedom works so well for religion, why doubt that it would work equally well in other industries?

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

11 April 2009

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

To the Editor:

Bravo to the letter writers who challenge Thomas Frank's denigration of "eighteenth-century man" (Letters, April 11). The 18th century gave us history's most momentous advance in the social sciences. I speak here of the Scottish Enlightenment, led by David Hume and Adam Smith. These thinkers were the first fully to grasp the fact that complex and productive social order emerges from - and can emerge ONLY from - millions upon millions of individual actions of countless persons, each constrained by the rule of law and each of whom aims to achieve only very localized goals. These Enlightened Scots taught us not only that a peaceful and productive society requires no great planner or overseer, but also that efforts to enthrone any such planner or overseer inevitably lead to poverty and tyranny.

Alas, far too many twenty-first century men, such as Mr. Frank, remain insufficiently astute to learn this lesson.

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

10 April 2009

Editor, The New York Times
620 Eighth Avenue
New York, NY 10018

To the Editor:

Councilwoman Melinda Katz's letter today reveals an ironic pitfall of government bailouts of private firms - namely, the inevitable demands by demagoguing politicians that recipient firms be hamstrung in their ability to respond to market forces.

Ms. Katz argues that credit-card companies that received bailout funds should be prevented from raising their rates. While I have no sympathy for any firm that accepted taxpayer funds, the fact is that a firm must be able to change its prices in response to changing market conditions if it is to survive in the market.

By turning private firms into quasi-political entities, bailouts undermine their own ostensible purpose of making these firms strong and nimble competitors.

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

9 April 2009

Editor, Florida Times-Union

Dear Editor:

In "Florida's economy: Support local business" (April 9) you report that some Floridians are trying to boost Florida's economy by "buying local." The idea, of course, is that if Floridians buy as much as possible from other Floridians, rather than from non-Floridians, then economic activity in Florida will be stronger.

Nonsense. Suppose that to promote, say, Florida peach growers, consumers in Florida reject good deals on peaches from South Carolina. Florida peach growers benefit, but other Floridians suffer. By paying more than necessary for peaches, Florida consumers not only directly make themselves poorer, but they also have less money to spend elsewhere, such as at the local car-repair shop and at local restaurants. In addition, to the extent that the misguided ethic of "buying local" takes hold, local firms have weaker incentives to improve their efficiencies and product offerings. The state's economy suffers, both today and especially tomorrow.

Florida's buy-local effort boasts the charming name "Backyard Economics." A more appropriate name would be Backward Economics."

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

8 April 2009

Editor, Los Angeles Times

Dear Editor:

Writing about medical-care provision in America, Ezra Klein laments that "we abdicate collective responsibility and let individuals fend for themselves" ("When it comes to healthcare, the U.S., Britain and Canada are hurting," April 7).

Mr. Klein's anthropomorphizing of the collective causes him to get matters backward. Collectives aren't sentient beings; they're abstractions. As such, a collective cannot be responsible (or irresponsible) any more than it can be sexually aroused or suffer a broken wrist. Only individuals are capable of acting responsibly. But when some individuals, masquerading as oracles for "the collective," take resources from other individuals and then use some of these resources to subsidize individuals' consumption, each individual whose consumption is subsidized DOES behave irresponsibly. Each subsidized individual is freed from the necessity of taking account of the full costs of consuming the resources he uses. That individual, therefore, no longer ably responds to economic reality; he becomes truly irresponsible.

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

7 April 2009

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

To the Editor:

Several letter writers rightly criticize former Danish Prime Minister Poul Nyrup Rasmussen's assertion that today's economic downturn reveals American-style capitalism to have failed in comparison to modern Europe's welfare state (Letters, April 7). None of the writers, though, confronts Mr. Rasmussen with the data that are most relevant, namely, unemployment rates.

From 1990 through 2008, America's unemployment rate averaged 5.5 percent while western Europe's unemployment rate averaged 8.4 percent - just about what America’s unemployment rate reached only last month (8.5 percent). Moreover, in each and every one of these years, America's unemployment rate was lower - and in many years 40 and even 50 percent lower! - than western Europe's rate. How can Mr. Rasmussen rationally conclude that American capitalism has failed relative to European state welfarism if unemployment in the U.S. only last month, for the first time in more than a quarter century, reached a level that has haunted Europeans consistently for the past two decades?

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

5 April 2009

Editor, The New York Times
620 Eighth Avenue
New York, NY 10018

To the Editor:

The headline of Thomas Friedman's column on President Obama's economic-recovery plan reads "Obama's Big, Bold Bet" (April 5).

Persons who make big bets with their own money act boldly. Persons, such as Pres. Obama, who make big bets with other people's money act badly - and in two traditional senses of that word.

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

5 April 2009

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

To the Editor:

John Morris stumbles into what economists call the 'income effect' when he says that higher taxes might prompt people "to work even harder in order to amass an after-tax accumulation of transferable wealth" (Letters, April 4). Such a result is imaginable yet implausible. If Jones's benefit from engaging in an hour of activity X falls, Jones will likely substitute out of X into some other activity whose payoff to him hasn't fallen. In the tax context, that means that higher income taxes will prompt Jones to work less. He'll substitute into other activities, such as leisure, whose benefits to him are not so heavily taxed.

But suppose it were true, as Mr. Morris seemingly thinks, that 'income effects' dominate 'substitution effects.' It would then also be true that raising penalties on, say, securities fraud will result in more such fraud. Devious issuers and brokers, forced to fork over more of their ill-gotten gains as fines, will try to keep their take-home pay unchanged by working harder to defraud their customers.

Assuming that Mr. Morris finds it implausible that raising penalties on fraudulent activities increases the incidence of fraud, why does he truck with the notion that raising penalties on working (i.e., raising taxes) increases the incidence of work?

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