Saturday, April 07, 2018

Ying and yang

You could call cooperation and competition the ying and the yang of economics. Donald Trump and other protectionists only see competition whereas the fundamental lesson of economics is cooperation. Buyers and sellers cooperate; both want a deal. Sellers compete with other sellers, not with buyers.

Protectionists, including Fox's Lou Dobbs and many others, confuse the trade balance with a profit-loss statement.  "Nothing, however can be more absurd than this whole doctrine of the balance of trade" (Adam Smith).

The fact that buyers and sellers eagerly seek each other is not changed by the facts of their addresses, whether in the same nation or region or not. The fact that data are reported by geographic units ("trade gap"), mixed with the usual political grandstanding, gives many people the impression that the trade balance idea is useful.

So, as usual, everything is upended by politics. This where public choice economics helps. When sellers in country X fear the competition from sellers in country Y, and if they are politically potent (and economically impotent) they can win political points and elections. Small bands of buyers out-organize and out-vote much larger groups of consumers.

Many people are seemingly worried that China does not abide by WTO trade rules and out-mercantiles the U.S.  Again, some U.S. industries would be impacted. The WTO should police its own rules.  But short of that, China is moving towards greater state control (their crony capitalism); if the U.S. and others do not follow the same path, they will remain the more formidable. Many U.S. people and entities (not "the U.S.") will win.

Timothy Taylor makes a similar point.

Monday, April 02, 2018


The post-recession reckoning among economists (and others) is in full swing and will go on. Among my favorites is the very readable Behind the Model: A Constructive Critique of Economic Modeling by Peter Spiegler. My review is forthcoming in the Independent Review.

Beyond all this, I have often mentioned that economic theory of any kind is almost useless if it ignores public choice analysis -- as much of it still does.

Here is news from Washington DC's Metro:

“Uber and Lyft are part of the transit system here, and so they should help pay to fix Metro because they’re benefiting from Metro’s demise,” [D.C. Councilman Jack] Evans told The Washington Post after D.C. Mayor Muriel E. Bowser introduced new taxes on the ride-sharing companies based largely off his advice. (reports Timothy Meads)

This is not an unusual sentiment.  The public schools must be defended and maintained because they are a jobs program.  So it is with public transit, the post office and an uncountable number of public programs and agencies. This bizarre logic is natural to its proponents but under the radar for much of the electorate -- just as public choice analysis suggests.

What else does the theory predict?  These programs will survive even as the red ink (and awful rhetoric) accumulate. The California bullet train will be continue to be funded.  Trump's infrastructure plan will spawn more such projects -- with considerable bi-partisan support.


Mike Munger and Russ Roberts discuss the various problems with textbook prescriptions for congestion taxes. They only lightly treat the problem of who will set the fees -- and what will they do with the revenues? That is the elephant-in-the-room highlighted by the Washington D.C. episode mentioned above.