Free trade conserves lower prices, not social stability

The advantages of Free Trade are lower prices for stuff. That means they are more cheaply produced. As the economist David Ricardo wrote, there is a principle of comparative advantage that coupled with free trade guarantees maximum profits for when there are no trade restrictions, and impediments to free trade are supposed to be mutually disadvantageous.

But do understand, what is conserved is lower prices. Nor social stability. Not communities. Not family life. Indeed those are often disrupted; it’s part of the economic model. Under free trade theory, it’s better to have free trade than community preservation, better to have ghost towns of people displaced because their jobs have been shipped overseas; better to have Detroit as a wasteland than a thriving dynamic industrial society turning out tail finned Cadillacs and insolent chariots and supporting workers represented by rapacious unions in conflict with pitiless corporate executives.

Source: Back to Normal. Beginning a discussion of Free Trade by Jerry Pournelle. He goes on to say that a “conservative” should ask himself, “What precisely is being conserved?”

National Debt: “We Owe It To Ourselves”? Not Quite.

The burden of the debt is that we create an ever-deeper conflict of interest between Lenders and Spenders. Yes, if you think of Lenders and Spenders collectively, you can say that “we owe the debt to ourselves.” But that is a dangerously vacuous way of looking at it.

An excellent analysis of national debt. In short, one person is doing the lending, and another person is doing the spending. At some point you need to pay pack the specific person who did the lending.

Source: Lenders and Spenders: Confronting the Political Reality of Debt – AEI

The Formula For Anti-Capitalist Concern-Trolling

Then economists … commenced worrying about, to name a few of the pessimisms concerning “capitalism” they discerned: greed, alienation, racial impurity, workers’ lack of bargaining strength, workers’ bad taste in consumption, immigration of lesser breeds, monopoly, unemployment, business cycles, increasing returns, externalities, under-consumption, monopolistic competition, separation of ownership from control, lack of planning, post-War stagnation, investment spillovers, unbalanced growth, dual labor markets, capital insufficiency, peasant irrationality, capital-market imperfections, public choice, missing markets, informational asymmetry, third-world exploitation, advertising, regulatory capture, free riding, low-level traps, middle-level traps, path dependency, lack of competitiveness, consumerism, consumption externalities, irrationality, hyperbolic discounting, too big to fail, environmental degradation, underpaying of care, slower growth, and more.

… [The formula is this:] First, discover or rediscover a necessary condition for perfect competition or a perfect world (in Piketty’s case, for example, a more perfect equality of income).

Then assert without evidence but with suitable mathematical ornamentation that the condition might be imperfectly realized or the world might not develop in a perfect way.

Then conclude with a flourish that “capitalism” is doomed unless experts intervene with a sweet use of the monopoly of violence in government to implement anti-trust against malefactors of great wealth, or subsidies to diminishing-returns industries, or foreign aid to perfectly honest governments, or money for obviously infant industries, or the nudging of sadly childlike consumers, or, Piketty says, a tax on inequality-causing capital worldwide.

From McCloskey in a long, but inspired and genius, review of Piketty; lightly edited for brevity from the original at http://ejpe.org/pdf/7-2-art-4.pdf.

UPDATE (also lightly edited):

One begins to suspect that the typical leftist starts with a root conviction that capitalism is seriously defective. The conviction is acquired at age 16 when he discovers poverty but has no intellectual tools to understand its source.

Then the lifelong “good social democrat”, in order to support the now deep-rooted conviction, looks around when he has become a professional economist for any qualitative indication that in some imagined world the conviction would be true, without bothering to attach numbers drawn from our own world.

It is the utopianism of good-hearted leftward folk who say, “Surely this wretched society, in which some people are richer and more powerful than others, can be greatly improved. We can do much, much better!” The utopianism springs from the logic of stage theories, conceived in the eighteenth century as a tool with which to fight traditional society.

Conspicuous *Production*: “Sexy” Work, “Schlep” Work, Automation, and Artisans

People who seek sexy work are often members of what I called the Jeffersonian middle class in an earlier post — motivated by creative self-expression and a sense of personal dignity rather than economic survival.

… Sexy work is attractive to those who like their social identity to be harmoniously integrated within itself (what your mom thinks of you and what your boss thinks of you are not in conflict) and with your private identity (you don’t feel misunderstood). There is consensual external validation of your internal sense of self-worth. You feel authentic.

Sexy work is easy to enjoy, learn, value and integrate into your identity, primarily because it is downhill psychological work: it is the cognitive equivalent of muscular atrophy. You have to choose to make it hard for yourself. You can cash out some status and attention even if you’re not making any money. It does not test your sense of self-worth significantly.

Schlep work has the opposite characteristics along all four vectors. It is harder to enjoy, learn, value and integrate into your identity, primarily because it is uphill psychological work for a social species. It is hard whether or not you want it to be. It is hard to cash out status and attention even if you’re making good money. It tests your sense of self-worth every day.

Somehow, over the past decade, we’ve gone from a useful heuristic (“focus on your strengths” and “find flow”) down a slippery slope of use-with-caution ideas (“work smart, not hard” and “follow your passion”) to the idea of work as a kind of consumption that should be chosen based on the pleasure one can derive from it.

Sexy/schleppy is to my mind, the most natural way to break down human preferences for work. They arise from fundamental desires and aversions. In choosing consumption behaviors or conspicuous production, we tend to feed desires and starve aversions. In schleppy work, we do the opposite: we defer gratification and accept, even seek out, a degree of pain based on the no-pain-no-gain heuristic. A little nudge from a plausible “play to your strengths” philosophy is enough for us to choose the easier way.

Unfortunately, the entire current conversation around work is confused because we prefer a less meaningful distinction, creative vs. uncreative.

Via You Are Not an Artisan.

The Two Most Important Free-Market Economic Arguments

Mainstream economists appear to me not to appreciate the two most important arguments that we have. One is the socialist calculation argument. My sense is that mainstream economists either do not believe that the socialist calculation problem is real, or they believe that it only applies to socialist dictatorships. In fact, any government program to spend, tax, or regulate will encounter the socialist calculation problem. That is, government planners face a fundamental information problem themselves. Knowledge is dispersed. What planners do not know is important, and indeed it can be more important than what they claim to know about market failure.

The second argument is the public choice argument. This is often over-simplified as “government officials act based on self-interest.” The deeper issue, which Boettke mentions in his post, is that markets and government should be looked at in parallel as institutions. The market process has certain strengths and weaknesses. Government has other strengths and weaknesses. The mainstream approach simply assumes away all weaknesses of the political process. Once an economist identifies a market failure and a policy to treat it, the next step if to play fantasy despot and recommend the policy.

All emphasis mine. Via Pete Boettke on Ideology and Economics | askblog.

Jean Tirole and Josh Lerner on Open Source

Tirole and Lerner noted, with a bit of puzzlement that, compared with open-source software writers, academics were less likely to make their data sources public and more likely to allow their work to be hidden behind publishers’ paywalls. I think that in those ten years there has been a shift, at least in economics, more in the direction of the open-source model.

(I had a hard time deciding if this was a “professional” post or an “general interest” post. “General interest” won out.)

Via Jean Tirole and Josh Lerner on Open Source | askblog.

On This Labor Day: “The Role of Unions”, Especially Government Worker Unions

Rhat gave unions their big push in the 1930s was federal legislation allowing them to be the sole bargainer for employees, even for employees who had no wish to join or pay dues. What we do call an organization that is the sole seller? We call it a monopoly. And not the kind of monopoly that some people say Microsoft is or had been. Microsoft always has to compete with other software companies.

Unions, moreover, have a pretty ugly track record on race relations, which is why two prominent early 20th century black leaders, W.E.B. DuBois and Booker T. Washington, who agreed on little else, agreed that unions were bad for black workers. When people forcibly prevent you from competing and figure out ways to exclude you from working, you don’t feel very good about them.

Our big challenge with unions nowadays is to rein in unions of government workers who are negotiating high wages and high pensions. That is what is wrecking state and local government budgets all over the United States.

Emphasis mine. Via The Role of Unions, David Henderson | EconLog | Library of Economics and Liberty.

Jock/Nerd Theory and Income Redistribution

(Lightly edited for streamlining purposes; all emphasis mine)

According to the Jock/Nerd Theory of History, most historical human societies bore a striking resemblance to K-12 education. In primitive tribes, for instance, the best hunters are on top. If the village brain knows what’s good for him, he keeps his mouth shut if the best hunter says something stupid. The rise of civilization gave the nerds a better deal, but as long as almost everyone worked in agriculture, brawn continued to pay well.

But then something amazing happened: Nerds got enough breathing room to develop and implement amazing wealth-producing ideas. The process fed on itself, devaluing physical ability and elevating mental ability. Nerds built the modern world – and won handsome financial rewards in the process.

Notice: For financial success, the main measure where nerds now excel, governments make quite an effort to equalize differences. But on other margins of social success, where many nerds still struggle, laissez-faire prevails.

It’s suspicious – and if you combine the Jock/Nerd Theory with some evolutionary psych, it makes sense. When the best hunter in the tribe gets rich, his neighbors will probably ask nicely for a share, if they dare to ask at all. But if the biggest nerd in the tribe gets rich, how long will it take before the jocks show up and warn him that "You’d better share and share alike"?

Punchline: Through the lens of the Jock/Nerd Theory of History, the welfare state doesn’t look like a serious effort to "equalize outcomes." It looks more like a serious effort to block the "revenge of the nerds" – to keep them from using their financial success to unseat the jocks on every dimension of social status.

via Redistribution: Blocking the Revenge of the Nerds?, Bryan Caplan | EconLog | Library of Economics and Liberty.

Most Federal Housing Subsidies Do *Not* Fund The Poor

The bulk of homeownership expenditures go to the top fifth of households by income, who typically could afford to purchase a home without subsidies.  According to estimates by the congressional Joint Committee on Taxation, more than three-fourths of the value of the mortgage interest and property tax deductions goes to households with incomes of more than $100,000, and close to a third goes to families with incomes above $200,000.

Yet another reason to start stripping back entitlements, including things like mortgage interest deductions. Via Chart Book: Federal Housing Spending Is Poorly Matched to Need — Center on Budget and Policy Priorities where there is a pretty chart. Hat tip to Arnold Kling where the comments are enlightening.