Congenial Communications—Another Miracle of the Market

On Saturday, I spent the bulk of the day going to and from Chetumal and taking care of business there. As usual, I had a fairly successful trip. Whenever I make these trips, which I do on average every three or four weeks, I am reminded of how well I get along in a country where I speak the language—to give myself more credit than I deserve—poorly.

Now, it’s true that my transactions are eased by the fact that Mexicans, in general, are very nice, accommodating people. But something else is at play here, and it deserves recognition as another “miracle of the market.” You see, people who are dealing with one another as buyers and sellers, as lenders and borrowers, as investors and entrepreneurs are highly motivated to reach a successful deal. They are therefore not inclined to let the niceties of vocabulary, grammar, and syntax stand in the way of a mutually advantage transaction. However clumsily I may stumble around in speaking and writing Spanish, I virtually never draw a blank from the Mexicans, much less a Parisian dismissal. (I should add, however, that even in Paris I rarely drew such an oft-mentioned dismissal, probably for the same reason I’m discussing here.)

Through the ages, many observers have noted how markets promote peaceful and mutually enriching dealings among people of varying languages, customs, religions, and backgrounds. Voltaire’s account of this matter is a classic. I rediscover this time-honored truth virtually every day while living in Mexico. I assure you that I’m not getting along here so well because I’m the most fluent gringo south of the border or because I’m an extraordinarily nice guy.

Open This Content

The Broader Effects of Trade and Tech

Quite a few people consciously favor “free markets, but not free migration.”  When questioned, many explain that unlike free markets in goods, free markets in labor have “broad social effects.”  At this point, I have to suppress my urge to exclaim, “Are you out of your minds?”  They’re right, of course, that free migration has broad social effects.  They’re crazy, however, to imagine that free markets in goods lack these effects.  Indeed, at least within the observed range, ordinary market forces have changed society far more than immigration.

Start with international trade.  If the U.S. were a closed economy, manufacturing would still have shrunk, but it would remain a major source of employment.  The Rust Belt would be doing far better – and less eager for a populist political savior.  Opioid and alcohol use among the working class would likely be considerably lower.  Families would be more stable.  College attendance and the college premium would have risen more modestly.  More speculatively, church attendance would be higher, and nerd culture less dominant.

The broader effects of international trade are however dwarfed by the broader effects of all the technological progress that market forces unleash.  I remember life before the Internet.  When I was a teenager, I was almost completely intellectually isolated.  Overcoming boredom was a constant challenge.  There were no cyberbullies; we had real bullies instead.  When I wanted to publicly speak my mind, I wrote letters to the newspaper.  I had zero friends outside the U.S.  My parents and I were routinely out of contact for hours at a time.  I still feel young, but I remember a world that most EconLog readers would find primitive.

Nor is the Internet an isolated example.  The automobile has broad social effects.  So did household appliances.  So did modern contraception.  Obviously.

The pro-market, anti-migration thinkers could demur, “Yes, we all know that.  Our real complaint is that the broader effects of immigration are generally bad, while the broader effects of international trade and technological progress are generally good.”  But if that’s the real complaint, I say we’re entitled to a careful accounting of these broader social effects.  Who has even bothered to compile lists of these broader effects, much less try to measure them?

If no one is doing the math, why would anyone think that broad social changes are benign?  By the power of hindsight bias!  Once a major social change happens, people just get used to it, with little doubt about whether the change was in fact a net positive.

Immigration is, of course, the main exception.  We can’t imagine going back to a world without the Internet, automobiles, or contraception.  It doesn’t ultimately matter whether their broad social effects are good or bad; we just have to live them them, because turning back the clock would require draconian tyranny.  We can, however, imagine going back to a world with near-zero immigration, so fretting about the broader effects of immigration has great appeal.  Wouldn’t that require draconian tyranny, too?  Well, since the victims aren’t fellow citizens, no.

My personal view is that the broad social effects of international trade, technological progress, and immigration are all, on balance, positive.  For immigration, I’ve done my homework; for trade and tech, however, I’m only guessing.  What’s clear, however, is that broader social effects are ubiquitous.  Selectively invoking “broader effects” may be rhetorically effective, but it does not make you wise.

Open This Content

What (Other) Economists Think About Democrats’ Education Plans

A recent NPR article, titled “What Economists Think About Democrats’ New Education Proposals,” caught my eye. FEE, after all, is an economic education organization that looks at how free markets and individual liberty lead to more progress, greater prosperity, and better outcomes for all than any other social or economic system ever created. I was curious what these NPR-interviewed economists might say about the Democratic presidential candidates’ education plans, which involve funneling more money into a government system of mass compulsory schooling.

What’s the Plan?

According to the article, Democratic presidential hopeful Kamala Harris wants to spend $315 billion of taxpayer money to lift teacher salaries. Joe Biden wants to increase federal spending to low-income schools with teacher pay hikes. Bernie Sanders wants to impose price controls for teacher salaries, imposing a pay floor of $60,000 for incoming teachers. To its credit, the NPR article explains that by both domestic and international standards, American teachers are already well compensated and enjoy above-average employee benefits.

But that’s not enough, according to one of the economists interviewed. Eric Hanushek of Stanford says: “I think teachers are way underpaid.” Hanushek and others argue that teachers who are able to increase student test scores can improve both a student’s lifetime earnings and contribute positively to society at large.

The NPR reporter, Greg Rosalsky, concludes: “While being a good teacher means huge economic benefits for the people they teach and society at large, teachers don’t get to fully share in all the benefits they create. In economic terms, that’s a positive externality, and it’s a big reason why we should pay them more.”

Duquesne University economist Antony Davies disagrees. Davies, the Milton Friedman Distinguished Fellow at FEE, explains that the media often misunderstands and misuses the term “externality,” as NPR did here. “Failing to share fully in the benefits one creates is not an externality,” says Davies. He continues:

The phenomenon is called “consumer surplus.” Not only does it exist in every transaction, it’s the reason we exchange with each other at all. Consider a car purchase. When a car dealer charges me $30,000 for a car for which I would have been willing to pay $35,000, the dealer does not benefit fully from the exchange. I walk away from the exchange $5,000 better off. But that doesn’t mean the dealer doesn’t benefit also. If the dealer charges me $30,000 but would have been willing to take $27,000, then the exchange makes the dealer $3,000 better off. For the exchange to occur, neither I nor the dealer can fully benefit from the exchange. Instead, we share the benefit. How we share the benefit is determined by the price to which we agree.

If teachers benefited fully from the value they create, there would be no point in obtaining an education because the entire value of the students’ educations would go to the teachers. Similarly, if students fully benefited from the value that teachers impart, there would be no point in teaching because the entire value of the students’ educations would go to the students. Instead, teachers and students share the value they create, and both walk away from the exchange better off than they were.

Davies points out a central problem with the Democratic presidential candidates’ education proposals, arguing that creating salary floors or offering universal pay increases do not address the root of the problem. He says:

The problem with teacher pay isn’t that teachers are paid too much, nor is it that they are paid too little. The problem with teacher pay is that it is largely divorced from teacher performance. Because pay schedules are usually set by the school district, principals don’t have the ability to reward outstanding teachers with greater pay nor to punish poor teachers with less.

Angela Dills, professor of economics at Western Carolina University, concurs. “I agree that better teachers should receive higher pay and that that’s more effective than across the board pay increases,” she says.

The inability to differentiate teacher quality and pay teachers accordingly limits the opportunity to reward top teachers and urge weaker teachers to improve. School leaders are not the only ones without the discretion to signal good and bad performance. Parents are also unable to offer these signals, with most required to keep their child in an assigned district school whether they like it or not. According to Davies: “Parents don’t have the ability to reward outstanding public schools and punish failing schools by diverting their tax dollars to the schools of their choice.”

A Better Alternative

Education choice mechanisms, like Education Savings Accounts (ESAs), tax-credit scholarship programs, and vouchers, allow parents to signal quality by opting out of inadequate schools and into higher quality learning spaces that work better for their children. Davies explains:

Voucher opponents claim that vouchers diminish the quality of public education by siphoning tax dollars away from public schools. But regardless of whether the quality argument is correct, the siphoning can easily be avoided. Allowing parents to send their children to any public school they choose and have the tax dollars follow the student—essentially, a voucher program restricted to public schools—would restore the link between pay and performance without removing any dollars from the public school system.

Programs like these can put parents back in charge of their children’s educations and can trigger true educational change. But the current crop of Democratic presidential candidates appears more interested in expanding the government’s ability to impose decisions on us. Empowering people to make their own choices is not in their education plans.

Open This Content

What Does Aggregated Information Mean?

Prices are information. They provide both info and incentive for individual actors to help them determine how to allocate resources. I love prices and the way they emerge.

But on a massive scale and when aggregated, they can get pretty wild. You can see anything you want in the info they convey. Especially in nascent markets.

There’s another crypto bull run going on, after a long ‘crypto winter’. No one really knows why the prices are climbing, though everyone will do their best to figure it out and tell you. There’s nothing that has really changed since the last big run up and dip. In fact, the brand leader BTC has arguably gotten technologically less feasible since then. No major advancements or breakthroughs in usage, tech, or adoption. (Yes, I know, fans of each coin will list 100 things that have happened. My point is that none of these are clear and compelling to general audience sufficient to explain the price spike). The only big happening is Facebook announcing the creation of their own coin. This could either be a threat to BTC and others, or a boon. Or nothing at all. It’s hard to tell. You would expect those betting on each of these three outcomes to more or less cancel each other out, rather than the bulls to dominate the market and drive up price.

I love massive run-ups. I also love massive dips. Not so much for the financial outcome (though I hold some crypto and have benefited from low buying prices and high selling prices at times). I love them because they are entertaining and revealing. People can’t help but show their feelings in a massive bull or bear market. You learn a lot about the state of crypto fans, traders, and doubters in the big swings. Mostly what I learn is that vocal crypto fans are almost entirely fans for gambling purposes. Very few care or know about anything but price. There’s a small cluster behind each coin that cares about use cases and development, and a small spread of agnostics who are interested in the crypto market’s overall real world application. Otherwise it’s 90% speculators. Speculators are wildly entertaining and overreact to everything in every direction. They make sports fans seem sane by comparison.

So what do the recent price spikes mean? Beats me, but I’ll have my popcorn and Twitter feed ready.

Open This Content

Why Be a Peasant When You Can Be a Knight Errant?

What adventurous boy or girl didn’t grow up wanting to be a knight?

All of our favorite stories, video games, and histories let us imagine ourselves spending our lives as a series of adventures. Yet somehow most of us have chosen to be peasants.

There wasn’t much attraction then to the idea of serving a lord, tying down to a fixed point of earth, and living on the good graces of the powerful. But when we’ve chosen our careers, we’ve generally chosen to commit our whole working lives to serving on the land of another while a whole realm of people with quests awaits.

By “whole realm of quests”, I mean the markets – known and unknown – that we could be serving if we were entrepreneurial. And the alternative to being a “peasant” in this world of markets is being a “knight errant”* – always in search of entrepreneurial opportunities.

We see one form of “knight errant” work quite literally in the gig economy. It’s now possible (if not easy) to for many people to support themselves doing gigs they choose, from driving people around to making deliveries to creating designs to walking dogs. For every skill, there is a freelance opportunity, and for every opportunity taken, there are “knight errant” virtues to gain: resourcefulness, courage, stamina, independent judgment.

Peasant life may be more comfortable, but a quest-based life is going to be more interesting. We’re heading into a world in which the average “workweek” can have multiple quests. The work will take many forms, God willing. And with that variety, we can count on work requiring more of a spirit of knightly adventure from all of us.


*If you think the analogy silly, consider that our term “Freelance” was first used to describe mercenary medieval warriors.

Open This Content

Why is Immigration a “Contentious Issue in Classical Liberalism”?

“Contentious Issues in Classical Liberalism” was the theme of this year’s Mont Pelerin Society.  This gave me a chance to explore a major puzzle: Sociologically, immigration clearly deserves to be on the agenda.  After all, many people otherwise sympathetic to human freedom and free markets support even more immigration restrictions than we already have.  Intellectually, however, it’s hard to see why.

The plot thickens when you notice that pro-freedom immigration skeptics routinely use arguments that almost never use in any other context, starting with:

1. Collective ownership.  Yes, if countries are the collective property of their citizens, then they have a right to regulate immigration.  But this also implies nations’ right to regulate everything else, too!  You can’t live on my land without my consent, but neither can you open a store on my land without my consent, or even hire someone to work on my land for less than the minimum wage without my consent.

2. Collective guilt.  Yes, if e.g. foreign Muslims are collectively guilty for whatever wrongs foreign Muslims have done in the past, then immigration restrictions against Muslims would be justified.  But this also implies that other people can legitimately hold us collectively guilty for whatever wrongs “we’ve” done in the past.  So affirmative action, reparations for slavery and colonialism, returning land to American Indians, and much more are suddenly on the agenda.

3. Shocking anecdotes.  Yes, if we ought to take shocking anecdotes seriously, then any awful immigrant action on CNN justifies a major policy response.  But this also implies that shocking anecdotes about poverty, health care, worker safety, and the environment on CNN also justify major policy responses.

4. Popular support.  Yes, if “This is what citizens want, and they’re entitled to get their way,” then immigration restrictions easily pass muster.  But so do virtually all the policies classical liberals traditionally oppose, starting with protectionism and a bunch of price controls.

Unless you’re going to abandon the whole classical liberal framework, basic intellectual hygiene requires you to excise any argument along these lines.  What remains?  Only arguments claiming that the consequences of immigration are awful enough to overcome the standard classical liberal presumption against government action.

How does that approach fare?  See my full presentation to find out.  Bonus: A bunch of Zach Weinersmith cartoons!

Open This Content