Today’s Quote of the Day…

…is found in a letter from Frederic Bastiat to Richard Cobden (leader of the Anti-Corn Law League) dated 8 April 1845.  The letter can be found on page 58 of the Liberty Fund’s collection of Bastiat’s correspondence, The Man and the Statesman (emphasis added):

Sir,

Since you have permitted me to write to you, I will reply to your kind letter dates 12th December last.  I have been discussing the printing of the translation [of Cobden’s speeches and pamphlets] I told you about with M. Guillaumin, a bookseller in Paris.

The book is entitled “Cobden and the League, or the Campiagn in England in Favor of Free Trade.”  I have taken the liberty of using your name for the following reasons: I could not entitle this work “The Anti-Corn Law League.”  Apart from the fact that this would have a barborous sound for French ears, it would have brought to mind a limited conception of the project. It would have presented the question as purely English, whereas it is a humanitarian one, the most notably so of all those which have brought campaigning to our century.

By presenting the issue of free trade as a humanitarian issue rather than a sectarian or nationalist issue, he demonstrates the universality of the principles of free trade.  Many opponents of free trade like to argue that free trade is conditional.  They may argue that free trade requires “transnational rule-making institutions.”  Or that trade only is good if one nation (ie the nation of the speaker) benefits.  Or that free trade needs to be “fair” (whatever that means).  But Bastiat makes no such prerequisites.  Bastiat and Cobden both argue that free trade is not an English concern, not a French concern, not an American concern, but a human concern.

The Anti-Corn Law League that Cobden was part of was founded in opposition to the Corn Laws, a series of mercantilist legislation that raised the price of food within Great Britain by restricting imports.  Given this legislation occurred at the same time as the Irish Potato Famine, the Corn Law, by artificially increasing scarcity of food, likely caused many deaths in Ireland from the famine.  The Corn Laws contributed to a humanitarian crisis.  We are seeing similar situations going on in Puerto Rico, where scarcity is increased because of the Jones Act, and Houston and Florida where scarcity is increased because of anti-price-gouging legislation.  Free trade is a humanitarian concern, not a sectarian concern.

Everyday Economics: Bioshock Edition

On my recent trek between Virginia and Massachusetts (and back), I listened to an audio version of the book Bioshock: Rapture by John Shirley (If you’re looking for something light to take your mind off of things, this is a good book).  The book details the rise and fall of Rapture, a massive underwater city built by Andrew Ryan (a not so subtle jab at Ayn Rand) to escape the “parasitic” governments of the world and build a society dedicated to freedom and free markets.  While the initial goal of Rapture may have been freedom and free markets, as the novel (and the video game that the novel is based on) details, Rapture becomes a totalitarian police state with an extremely wealthy (and often sadistic) upper class, and extremely poor low class, and no one in between.  Some see Bioshock as a refutation of Randian philosophy, however, I will not address that here as I am no expert in Ayn Rand (for an excellent discussion, see The Value of Art in Bioshock: Ayn Rand, Emotion, and Choice by Jason Rose).  I’ll leave that to people far smarter than I.  Rather, I want to address the economic situation of Rapture and discuss, briefly, how that contributed to the downfall.

A few quick disclaimers before I begin:

  1. As far as I know, Bioshock: Rapture is not canonical.  However, it is the only detailed source I can find thus far on the days of Rapture that take place before the video game (which is canon) so I will operate on the assumption that my source material is canonical knowing full well everything I write here could become completely worthless insofar as discussing canonical information (the lessons gleaned from this book are still important, however).
  2. Nothing in this essay should be taken as implying the rise or fall of Rapture is purely economic.  There are many other factors involved (social, political, medical, psychological, etc).  I skip or gloss over these not because I think they are unimportant (quite the opposite, really), but because I simply lack the expertise to discuss them with any confidence.
  3. I will be avoiding using direct quotes in this version of this essay.  The reason for this is simple: I have the audio book, not the book itself.  I can’t easily do verbatim quotes and attribute them to proper pages for citations.  Therefore, the reader should be aware that I am doing this partly out of memory (although I did scribble some notes) and further the reader should assume that whenever I describe what’s happening in Rapture, that is a reference to the work of Mr. Shirley.  The only original material will be my analysis.  Any inaccuracies, either to details or analysis, belong to me and me alone.

The short version of what follows: Rapture cannot be classified in any meaningful sense as a “free market.” It suffers from several deficiencies that prevent us from labeling Rapture as a free market: lack of property rights, lack of free trade (autarky), lack of labor mobility (autarky in the labor market), rejection of altruism, widespread and institutionalized fraud (this issue is speculative based off of interviews with characters within the book but not substantiated by details), and censorship (indirect at first, but more direct later).  In Andrew Ryan’s Rapture, “free market” and “laissez-faire” were not much more than dishonored buzzwords.  It can best be described, in the words of James Buchanan, as “moral anarchy,” (see Moral Science and Moral Order, especially page 190 and Limits of Liberty, especially Chapter 7).  These factors, coupled with other psychological, social, and other factors, lead to the decline, civil war, and eventual fall of Rapture.  Continue reading

What Does Protectionism Protect?

What does protectionism protect?

Some claim that it protects jobs, but that’s not true.  By raising the price of the “protected” good, it reduces quantity demanded, thus reducing the need for labor and other inputs in that particular industry.  Plus, by increasing the price of the protected good, it reduces demand from other areas of the economy just to pay for the new price, costing jobs and inputs into those areas as well (eg, if you have $100 and a suit jacket costs you $50, you have $50 to spend on a night out.  If, due to tariffs, the price raises to $100, you now have nothing to spend on a night out if you buy the suit jacket).

Some claim protectionism protects industries/firms; helps them grow.  That’s not true, either.  As Mercatus Center scholar Dan Griswold reminds us: “Protected industries tend be lazy about innovation and customer service because they are shielded from normal market competition – think the U.S. Postal Service.”  Protectionism tends to weaken the protected industries, not strengthens them (this, in turn, could lead to perpetual calls for protection by the industry.  A good example of this is the US sugar industry.  The subsidies and tariffs it receives were only supposed to be temporary, while the new American nation got on her feet.  Almost 300 years later, they’re still around).

Some claim protectionism protects the economy, it “makes us great” by encouraging exports and reducing imports.  This isn’t true either.  As Dartmouth College professor Douglas Irwin reminds us: “a tax [tariff] on imports is equivalent to a tax on exports. Any restraint on imports also acts, in effect, as a restraint on exports.”  Whether you measure economic gain in the number of exports or the total volume of trade, tariffs reduce both, so it can’t encourage economic growth.

So what, then, does protectionism protect?  Nothing, so far as I can tell.  All it does is reduce the number of goods a society can enjoy by increasing prices.  This is why I call protectionism by its proper name: scarcityism.

Social Welfare and Unanimity

Like James Buchanan, Jean-Jacques Rousseau, and many others before me, I invoke the “unanimity” condition whenever talking about social welfare (aka “the Greater Good”).  The reason for this is simple: only through unanimous agreement can something truly be said to be for the greater good; that it improves social welfare.

Welfare economists (and others) will call me crazy for such a claim.  “Of course that’s not true!” they say.  “Simply look at the benefits the beneficiaries get, the costs the payers pay, and if the benefit is higher than the cost, then it increases social welfare.”  This kind of cost-benefit analysis is important, I’ll grant that, but for the individual, not society as a whole.  Extrapolating to the societal, or collective, level gets messy.  The reason why is simple: valuation of costs and benefits are subjective.  For any given individual, the valuation of the benefit of Good X is likely to be different from the valuation of the cost of Good X.  Aggregating those valuations gets very very tricky and it ultimately leads to judgement calls by the analyst/policy maker.

If we want to make the claim that a collective action benefits the greater good, and we want to be able to say this positively and not normatively (that is, to eliminate judgement calls), then we need to apply the same standards as at the individual level, the most important of which being unanimity.  In an individual action, all parties agree to interact; if there is no unanimous agreement, the interaction does not take place.  If one disagrees, then we can conclude he does not stand to benefit from the interaction.  Extrapolating this to collective action (that is, more than two people interacting), then the only way to positively claim the action benefits the group as a whole is if it is chosen unanimously.

At this point, I provide only assertions and light reasoning.  An upcoming blog post will go much more in depth and I will attempt to prove my assertion, using the reasoning of James Buchanan and Gordon Tullock.  However, this post is long enough as it is and I will bore the reader no further.

A Rather Bright Silver Lining

I’ve written a lot lately about scarcityism (aka protectionism, “fair trade,” and about a million other monikers).  It is a rather strange doctrine, that in scarcity, not abundance, lies wealth.  What’s more, the problems the scarcityists claim exist for capitalism has a rather strong silver lining.

The argument for scarcityism is that prices are too low for some purpose.  If prices are low, that necessarily means there is a relative abundance of that good.  Indeed, this is the common issue scarcityists have: China is flooding our markets, immigrants are flooding our labor market, Germany is flooding our market, etc etc.  What we have is, essentially, an overabundance of goods/services.

It’s not just scarcityists who make this argument.  Other critics of capitalism do: obesity is a problem in America because we have an overabundance of food; we’re a nation that finds it cheaper to throw stuff out rather than repair (we have an overabundance of stuff); end of life medical care and diseases are rising (we have an overabundance of life).  The list goes on.

In short, the major criticism of capitalism is that it provides too many things!  What a criticism to have!  It’s like saying “my job is a problem.  It pays me too well and I have too many cars!”  Talk about First World Problems.

Compare the outcome of capitalism (overabundance) to that of socialism and other forms of economic planning: scarcity and poverty.  In Venezuela, shortages of even the most basic items occur every day.  In the Soviet Union and China, millions and millions died from lack of food, health care, and the like.  In Africa today, poverty and starvation and lack of medical care, issues virtually unknown in the Western World, are all too common.

In short, socialism gets criticized because it doesn’t do its job.  Capitalism gets criticized because it does its job too well.