Let’s Take the ‘Con’ Out of Neocons. Don Boudreaux

Here’s a letter to USA Today:

Correctly noting about Iraq that “Institutions like the military were not fully formed, territorial disputes were not resolved, and key questions relating to oil were up in the air,” Danielle Pletka complains that American troops were withdrawn too early from that troubled country (“We got out of Iraq too soon,” Dec. 27).
Ms. Pletka works for the American Enterprise Institute.  That organization’s members rightly understand that Uncle Sam’s interventions into America’s domestic economy are typically motivated by narrow interest-group pressures or by economic ignorance (or by both) – and that, either way, the results are generally harmful.  So it’s truly a mystery why Ms. Pletka and her AEI associates insist so boisterously that Uncle Sam’s interventions into the affairs of some foreign nations are indispensable for the improvement of those nations’ domestic institutions.
When operating abroad, do U.S. government agents and employees grow wiser and better informed than when they operate here at home?  Do they become less susceptible to the wiles of special-interest groups?  Are U.S. government operatives’ magnanimity, courage, insight, and public-spiritedness enhanced simply by stepping onto foreign soil?  And do the complexities, trade-offs, and uncertainties that make domestic intervention in America so likely to unleash regrettable unintended consequences not exist outside of America?
Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030
So bumbling at home; so balletic abroad.  Go figure.

Ha Joon Chang: Wrong on Free Trade, Markets and Development

By Mark Pennington.

My first post on 23 Things They Don’t Tell You About Capitalism addressed Ha Joon Chang’s dubious debating tactics when discussing ‘free market economics’. I turn now to some of Chang’s more specific critiques of economic liberalism to illustrate these tactics in greater detail.

Summarising his work in Kicking Away the Ladder and Bad Samaritans Chang tries to debunk the claim that free trade and open markets are the key to prosperity in developing countries. He claims that historically free trade was rarely if ever practiced by developed nations such as Britain and the USA. To the extent that they prescribe free trade for today’s developing nations, therefore, free market economists and their political supporters are guilty of a ‘do as I say, not as I did’ hypocrisy. What the developing world needs is the freedom to pursue the protectionist industrial policies that Chang himself favours. The economic success stories of East Asia owe their prosperity to high levels of state intervention and not to ‘neo-liberalism’.
To put it mildly, Chang misrepresents free market economics and offers a highly selective view of the evidence on trade, markets and development. First, few if any free market economists have ever claimed that Britain or the US were historical paragons of free trade. At most they have suggested that relative to previous historical eras nineteenth century Britain and the US benefited from a broad package of market-oriented policies of which free trade (especially in Britain, though less so in the United States) was a part. Similarly, they have been foremost in attacking the residual protectionism that exists in the developed world today – notably the European Union Common Agricultural Policy and equivalent schemes in the US. While Chang has every right to suggest that free market economists are in error the charge of hypocrisy is disingenuous because these economists have been critical of protectionism whenever and wherever practiced. Arguably, rich country politicians who preach free trade while refusing to reform domestic protection may be guilty of hypocrisy – but this is not a charge that can be directed against free market economists themselves.
Second, Chang misrepresents the place of free trade in the overall package of institutions and policies supported by free market economics. The classical liberal case has never been that international trade is the engine of development per sebut that free trade offers an extension of the benefits provided by domestic market oriented policies – such as improvements in the security of property rights, largely private ownership of industry and a broad reliance on competition rather than central planning. Free trade can extend the benefits of these policies and may be especially important for smaller countries that have very limited scope for internal trade. Recognising this perspective is crucial when separating correlation from causation in understanding development outcomes. The fact that Britain and especially the USA had protection in place during industrialisation does not imply that it was the protection that caused the growth. Rather, the negative effect of protection may have been more than offset by other policies – such as improved security of property rights, low taxes, low government spending, and strong internal competition. Thus, though it pursued an external policy that was often highly protectionist, nineteenth century America also benefited from the creation of an enormous internal free trade zone where the free movement of goods, labour and capital enabled gains from trade across a massive territorial area.
Significantly, Chang fails to acquaint his readers with any of the empirical literature that has sought to decipher the causal role of protection in development relative to other factors. Douglas Irwin and Stephen Broadberry, in particular, have questioned the role of tariffs by showing convincingly that the sectors of the US economy that were supposed to benefit most from ‘infant industry’ protection did not in fact experience strong growth. Thus, at the time the US overtook Britain in the nineteenth century it did so largely by increasing labour productivity in the service sector – and not through gains in protected sectors of manufacturing industry. Similarly, high growth in Argentina and Canada in the late nineteenth century was largely due to growth outside the specific industries which were supposed to benefit from import tariffs. Protection in Britain meanwhile – notably the Corn Laws, actually slowed the industrialisation process by preventing the transfer of resources out of agriculture and into industry. *
Chang cites a number of small countries (such as Finland) that had elements of state intervention during the nineteenth century but succeeded nonetheless. Again however, he makes no effort to put this evidence in a broader context of other policies. Typically, Chang seizes on any evidence of state intervention however small to claim that it must have been the intervention that did the developmental heavy lifting. Interestingly, he does not apply the same criteria when accounting for declining economic growth in Europe and the United States over the last thirty years. During this period there has been privatisation of state-owned industries and liberalisation of labour markets – but these trends have been accompanied by substantial government spending and significant increases in regulation elsewhere (see on this blog ‘ America’s Thirty Year Experiment with ‘Radical Economic De-Regulation). Nonetheless, Chang asserts that the ‘dominance’ of free market economics must be to blame for recent ills. On planet Chang, state intervention no matter how extensive cannot be considered a legitimate explanation for declining economic performance. Reading Chang’s book one is left with the impression that Europe and the United States during the Victorian era were models of Keynesian interventionism, even though they had government expenditures between 5 and 10% of GDP, minimal regulation and virtually non-existent welfare states. Europe and America of today by contrast are depicted as practitioners of rampant laissez faire – even though government spending runs at between 40 and 60% of GDP alongside constantly escalating regulation.
Chang’s analysis of East Asian development is no more impressive. Though it is true that South Korea and Taiwan pursued protectionist policies during the 1960s and 1970s and experienced strong growth their performance was eclipsed by that of Hong Kong and Singapore which operated much closer to a free trade model. China post 1978 meanwhile, though it is far from a laissez faire economy has undergone one of the most significant economic liberalisations in world history – a liberalisation that has promoted unprecedented economic growth. Not surprisingly, Chang is quick to claim that the continuing existence of industrial policies and active government involvement in the financial sector are the cause of this growth. Yet, as Jasheng Huang has shown, the growth that started the Chinese economic boom had little to do with any such policies – it was the result of a huge boost in agricultural productivity following Deng’s massive programme of rural privatisation in the early 1980s. More recently, residual government controls in industry and finance have thwarted the Chinese industrial sector. Insofar as the Chinese have developed successful industrial companies (such as Lenovo) these have been Chinese in name alone. Nearly all such companies although operating in China are formally owned and registered in Hong Kong where they have access to one of the most liberal capital markets anywhere in the world. Far from China’s system of financial controls being the cause of their success it has been the ability of entrepreneurial start-ups to exit from these restrictions and to re-enter China on the more liberal terms granted to ‘foreign investors’ that has been critical. **
Perhaps the worst misrepresentation of free market economics in 23 Things They Don’t Tell You About Capitalism occurs in chapter 15 where Chang claims that ‘they’ – the ‘free market economists’ – attribute lack of development in poorer countries to the absence of entrepreneurial spirit. I know of no free market economist who has ever made such claims. From Peter Bauer in the past to William Easterly in the present free market economists have argued that entrepreneurship is a universalaspect of the human condition. What matters is whether social and political institutions channel this entrepreneurship towards voluntary exchange and positive sum games or whether institutions encourage entrepreneurs to engage in rent-seeking activity focused on the predatory transfer of wealth. The primary obstacle to the poor in much of the developing world is the absence of secure title to property and a maize of regulatory restrictions which limit access to markets, confine people to the ‘informal sector’ and which benefit predatory elites that monopolise access to the legally recognised economy. Chang offers no account of how these obstacles would be addressed by his protectionist/ high regulation agenda. Were developing countries to follow his advice they would be destined to a future that would institutionalise crony capitalism on a truly massive scale – the very sort of crony capitalism that is now disfiguring much of the developed world as well.
* Broadberry, S. (1998) How Did the United States and Germany Overtake Britain? A Sectoral Analysis of Comparative Productivity Levels, 1870-1990, Journal of Economic History, 58: 375-407.
Irwin, D. (2000) Did Late Nineteenth Century US Tariffs Promote Infant Industries? Evidence from the Tinplate Industry, Journal of Economic History, 335-360.
Irwin, D. (2000) Interpreting the Tariff-Growth Correlation of the Late Nineteenth Century, American Economic Review, 165-169.
** Huang, J. (2008) Capitalism with Chinese Characteristics, Cambridge: Cambridge University Press.

¿Qué es el liberalismo clásico? - What is classical liberalism? Nigel Ashford

Dr. Nigel Ashford explains the 10 core principles of the classical liberal & libertarian view of society and the proper role of government:

1) Liberty as the primary political value
2) Individualism
3) Skepticism about power
4) Rule of Law
5) Civil Society
6) Spontaneous Order
7) Free Markets
8) Toleration
9) Peace
10) Limited Government

Dr. Ashford is Senior Program Officer at the Institute for Humane Studies (IHS) at George Mason University.

Fuente: Yvonne Caldera Lollett.

"Las mentiras de un Chávez en campaña" 1998

Fuente: Amy.

Wladyslaw Theodor Benda (1873 – 1948)

illustration from The Shrine Magazine
A Pebble From India
illustration from The Shrine Magazine
illustration from The Woman’s Home Companion
illustration from The Country Gentleman
illustration from Hearst’s International
illustration from McCall’s
illustration from The Shrine Magazine
Theatre Number
Tropical Beauty
illustration from Collier’s Weekly
illustration from Hearst’s International
illustration from Hearst’s International
illustration from The Saturday Evening Post
illustration from Cosmopolitan
Zebra Rider

Fuente: American Gallery.

Edward Elgar Variations on an Original Theme "Enigma" Op.36, Complete

Edward Elgar Variations on an Original Theme "Enigma" Op.36

New Philharmonia Orchestra
Giuseppe Sinopoli Conductor

From Rags to Riches: Fighting India's Caste System with Capitalism: From the "Village to the Palace"

By Mark Perry.

NEW YORK TIMES -- "As the founder of a successful offshore oil-rig engineering company, Mr. Ashok Khade is part of a tiny but growing class of millionaires from the Dalit population, the 200 million so-called untouchables who occupy the very lowest rung in Hinduism’s social hierarchy.

“I’ve gone from village to palace,” Mr. Khade exclaimed, using his favorite phrase to describe his remarkable journey from the son of an illiterate cobbler in the 1960s to a wealthy business partner of Arab sheiks.

The rapid growth that followed the opening of India’s economy in 1991 has widened the gulf between rich and poor, and some here have begun to blame liberalization for the rising tide of corruption. But the era of growth has also created something unthinkable a generation ago: a tiny but growing group of wealthy Dalit business people.

Some measure their fortunes in hundreds of thousands of dollars, and a handful, like Mr. Khade, have started companies worth tens of millions. With their new wealth they have also won a measure of social acceptance.

“This is a golden period for Dalits,” said Chandra Bhan Prasad, a Dalit activist and researcher who has championed capitalism among the untouchables. “Because of the new market economy, material markers are replacing social markers. Dalits can buy rank in the market economy. India is moving from a caste-based to a class-based society, where if you have all the goodies in life and your bank account is booming, you are acceptable.”

Milind Kamble, a Dalit contractor based in the city of Pune in Maharashtra State, said that out of the 100 or so members of the Dalit Indian Chamber of Commerce and Industry in his city, only one was in business before 1991.

“We are fighting the caste system with capitalism,” he said.

Watch a four-minute video here profiling Mr. Khade.   

HT: Colin Grabow

Entrevista a Francisco Cabrillo. Víctor Gago

Esta semana, Víctor Gago entrevista al economista Francisco Cabrillo en Contemporáneos. Catedrático de Economía de la Universidad Complutense de Madrid, director del Máster en Derecho, Economía y Políticas Públicas del Instituto Ortega y Gasset y presidente del Consejo Económico y Social de la Comunidad de Madrid, Cabrillo es autor, entre otros títulos, de Economistas extravagantes (2007) y Grandes errores en economía (2001). También es colaborador de Libertad Digital, La Ilustración Liberal y de FAES.

El camino a la servidumbre de Argentina

Por Diego Sánchez de la Cruz.

Ilya Shapiro, académico del Instituto CATO, escribió lo siguiente sobre la lenta y progresiva decadencia socioeconómica de Argentina,
“Hace un siglo, la Argentina salía de un gobierno oligárquico para entrar en una democracia cada vez más liberalizadora y en el club de los países más ricos del mundo. Para 1930, tenía la séptima economía más grande, por encima de las de Canadá y Australia, y atraía grandes oleadas de inmigrantes procedentes de Italia, España y Europa Oriental. ¿Cómo un país tan rico en recursos naturales y humanos pasó de estar en la cumbre a convertirse en el hazmerreír de los economistas? 
La respuesta la encontramos en el corporativismo autárquico legado por Juan Domingo Perón, que destruyó el flamante sector import-export, nacionalizó los ferrocarriles y dio a los sindicatos todo el poder que quisieron (tanto, que incluso empezaron a chocar con Perón. Combine esa locura macroeconómica –que lleva inevitablemente al descontento social y a una reacción represiva del propio gobierno– con una idiosincrásica política exterior detercera vía y la apuesta por redistribución de la riqueza, y sabrán por qué la Argentina volvió al mismo saco de los decaídos estados latinoamericanos.
La Argentina padeció una serie de populismos salvajes, tanto de izquierda como de derecha, una cadena de golpes de estado, una guerra sucia entre los dos extremos ideológicos y la desastrosa Guerra de las Malvinas. La democracia retornó definitivamente en 1983, pero salvo un breve período, en los 90, la casa económica nunca ha estado en orden. Recordemos que la Argentina fue el paradigma de la hiperinflación en los 80, e incluso ahora la inflación ronda el 20% (nadie lo sabe con certeza, ya que no se puede confiar en las cifras oficiales).
Luego de una crisis económica parecida en sus efectos a la Gran Depresión y que llevó, a principios de este siglo, a una dolorosa pero necesaria corrección –entre otras reformas necesarias, se desvinculó el peso del dólar–, un presidente accidental del sur, Néstor Kirchner, comenzó a reimponer la marca peronista. De ahí el impago de la deuda soberana, el control gubernamental del sector energético, la expansión de los programas sociales y el acercamiento al modelo chavista. Tras decidir no presentarse a la reelección, Kirchner entregó la presidencia a su esposa, Cristina Fernández de Kirchner, quien en esencia continuó sus políticas.
Argentina pone a prueba la teoría de que las democracias son capaces de corregir las extralimitaciones de los gobiernos. No sólo ha sido incapaz de salir del agujero negro del corporativismo, sino que se hunde cada vez más en él”.
Mary Anastasia O’Grady, columnista del Wall Street Journal, anota lo siguiente sobre la situación actual de Argentina:
“La experiencia de la Argentina de Kirchner es instructiva. Abandonó el libre mercado, aparentemente en aras de la justicia social. El resultado predecible ha sido una mayor injusticia, más pobreza y una creciente concentración de la riqueza y el poder en manos de la clase política y sus allegados. Los esfuerzos para hacer competitiva la economía han fracasado constantemente, y el nivel de vida se ha deteriorado”.
Por último, Adrián Ravier ha recopilado los diez errores capitales del Estado argentino desde el año 2003:

“1. Está claro que el desarrollo económico depende en el largo plazo del nivel de inversión. Los precios récord de los commodities generan un extraordinario estímulo para extender la siembra hacia tierras vírgenes, importar nuevas técnicas y aprovechar la ocasión para vender a China y, por qué no, a la India y Brasil. 
Pues bien, las autoridades han sumado a la ya excesiva estructura tributaria retenciones a las exportaciones del orden del 35%, que automáticamente se deducen de las divisas que ingresan en el país.
2. La mayor demanda global de nuestros productos implica una oportunidad única para desarrollar aún más las industrias relacionadas con la carne, la leche, los vinos, etc., esto es, aquellos productos en los que tenemos ventaja comparativa, lo cual eleva sus precios en el corto plazo, al menos hasta que se incremente la producción. Pues bien, el gobierno ha decidido imponer precios máximos a dichos productos, y prohibir en varios casos la exportación, con la idea de reducir los márgenes de ganancia de los productores y evitar que esos mercados reciban nuevas inversiones. No sólo eso, se ha presionado y amenazado a los empresarios que intenten subir los precios, lo cual representa un obstáculo más a la inversión.
3. El gobierno ha prohibido a las empresas la importación de algunos insumos básicos para el desarrollo de sus proyectos, y fijado en otros casos aranceles que encarecen el coste de la importación. Con esto garantizamos que las empresas afronten cuellos de botella que les impidan desarrollarse.
4. En vez de seguir el modelo chileno, el gobierno ha decidido nacionalizar las pensiones. Cien mil millones de pesos (30.000 millones de dólares) fueron consumidos en cuatro años al objeto de evitar todo posible retorno a un proyecto que durante toda una década había financiado inversiones de capital que podían generar cierto desarrollo nacional.
5. El gasto público excesivo (pasó del 30 al 45% del PIB), basado fundamentalmente en el dinero obtenido de las pensiones y en la mayor presión tributaria, genera un estímulo de demanda que produce en el corto plazo un mayor crecimiento y hasta mejoras salariales. Pues bien, el gobierno atentó contra esa mejoría imprimiendo moneda y generando inflación, lo que acabó con las mejoras en lo relacionado con el nivel adquisitivo.
6. La estabilidad monetaria se podría garantizar con una buena cantidad de reservas en dólares en el Banco Central, para emplearlas cuando fuera necesario y sostener un tipo de cambio relativamente fijo. Qué mejor, entonces, que exigir al Banco Central que utilice esas divisas para cancelar compromisos con el FMI. Eso reduce nuestras reservas… y nuestras posibilidades de captar inversores.
7. La inversión extranjera directa se ha concentrado en estos años en los países que proveen a China de los insumos que necesita para producir los bienes que después consume el mundo entero. Pues bien, el gobierno apostó por el nacionalismo y por alinearse con países como Cuba, Venezuela, Ecuador y Bolivia, lo que se ha traducido en una subida del riesgo-país y, de nuevo, en una huida de potenciales inversores. La política nacionalista tiene dos objetivos: impedir la recepción de capitales y estimular la fuga de capitales, lo cual hace inviable cualquier desarrollo a largo plazo.
8. Un país tan extenso necesita de las mejores aerolíneas, que hagan accesible el territorio a los empresarios. Las provincias sólo podrán reducir su dependencia del gasto público nacional cuando consigan inversiones sustentables de largo aliento, las cuales, a su vez, permitirán elevar la recaudación tributaria. Para evitar este riesgo que hubiera ayudado al desarrollo, el gobierno decidió estatizar Aerolíneas Argentinas y seguir una política de “cielos cerrados” para las demás compañías. Para disimular, se permitió a la chilena LAN operar en forma limitada, pero sus vuelos no representan más del 10% de los vuelos locales.
9. Otro punto fundamental para mantener a la Argentina en el subdesarrollo es evitar que el riesgo-país descienda. Para ello se necesita incumplir los compromisos adquiridos con el exterior, no pagar al Club de París y evitar todo acuerdo. Mejor aun es estafar a aquellos acreedores que esperan cobrar intereses de la deuda en torno a la tasa de inflación, para lo cual el Instituto Nacional de Estadísticas y Censos (Indec) se dedica a airear una tasa de inflación que es un tercio de la real.
10. También es importante impedir que el mercado laboral sea flexible. Para ello, nada mejor que potenciar los planes Trabajar y para Jefes y Jefas de Hogar Desocupados, crear incentivos para mantener improductiva a la fuerza laboral, generar mucho empleo público, fundamentalmente en las provincias, y mantener una estructura de poder que garantice el triunfo en las sucesivas elecciones.

Conforme se acerca 2012, el gobierno está nervioso y ya prepara un nuevo arsenal de medidas que profundicen en el subdesarrollo. La primera ha apuntado a mayores controles para la compra y venta de dólares, lo que potenciará la fuga de capitales. También se quiere expandir el gasto público: el último presupuesto plantea un aumento del 35% del gasto nominal. Una posible Ley de Tierras, aunque inconstitucional, apuntaría a evitar que cualquier extranjero compre tierras y las explote”.

"Evening" 9x12 oil on panel

By Casey Baugh.

"Evening" is part of my outdoor figure studies which explore various moods of fading light.