November 2009

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Saturday, November 28, 2009

What To Be Thankful For 

While there are certainly real problems and challenges these days, those of us who live in first-world countries have much to be thankful for. We're living in a time of amazing abundance and we have more opportunities for productive work and leisure than at any time in human history.

But, it would be foolish to just treat this abundance as either inevitable or as an accident (or as a divine gift). It has real causes; and we could easily undermine them and regress if we don't understand these causes.

In this light, I like to remember an article from Benjamin Powell from last year, with lessons from the Pilgrims at the first Thanksgiving. Here's the gist:

Bad weather or lack of farming knowledge did not cause the pilgrims’ shortages. Bad economic incentives did.
In 1620 Plymouth Plantation was founded with a system of communal property rights. Food and supplies were held in common and then distributed based on equality and need as determined by Plantation officials. People received the same rations whether or not they contributed to producing the food, and residents were forbidden from producing their own food. Governor William Bradford, in his 1647 history, Of Plymouth Plantation, wrote that this system was found to breed much confusion and discontent and retard much employment that would have been to their benefit and comfort. The problem was that young men, that were most able and fit for labour, did repine that they should spend their time and strength to work for other men’s wives and children without any recompense. Because of the poor incentives, little food was produced.
Faced with potential starvation in the spring of 1623, the colony decided to implement a new economic system. Every family was assigned a private parcel of land. They could then keep all they grew for themselves, but now they alone were responsible for feeding themselves. While not a complete private property system, the move away from communal ownership had dramatic results.
This change, Bradford wrote, had very good success, for it made all hands very industrious, so as much more corn was planted than otherwise would have been. Giving people economic incentives changed their behavior. Once the new system of property rights was in place, the women now went willingly into the field, and took their little ones with them to set corn; which before would allege weakness and inability.
Once the Pilgrims in the Plymouth Plantation abandoned their communal economic system and adopted one with greater individual property rights, they never again faced the starvation and food shortages of the first three years. It was only after allowing greater property rights that they could feast without worrying that famine was just around the corner.
We are direct beneficiaries of the economics lesson the pilgrims learned in 1623. Today we have a much better developed and well-defined set of property rights. Our economic system offers incentives for us—in the form of prices and profits—to coordinate our individual behavior for the mutual benefit of all; even those we may not personally know.

I'm thankful for economic (and personal) liberty. It's made life better for billions of people and, if we don't mess it up, will continue to do so.


Monday, November 16, 2009

Free Trade Helps The Environment (and people) 

I just signed this petition. It expresses opposition to "green protectionism."

One of the terrible ideas likely to be considered at the UN convention on climate change next month is to use trade sanctions to enforce environmental compliance. I can understand that most eco-alarmists are, like voters, rationally ignorant of the quality of their expressed preferences because the status they gain by their signaling outweighs the likely consequences of their marginal contribution to the debate.

But, sometimes, the policies are so stupid and dangerous that I find it hard to sympathize with their advocates. Inhibiting trade is such an instance.

Trade increases wealth. Not just for the already wealthy, but (more importantly) for the terribly impoverished as well. It saves lives, promotes peace, and it helps the environment. If you want people to care about the environment enough to trade-off some of their wealth, then you should want to hasten the growth of their economies. The historical evidence on this is very clear.

Here are some quotes from the petition signers:

“Economists don't agree reliably. When they do, listen up: In international trade, freer is fairer and smarter.
Free trade has the authority of Adam Smith, classical economics, neoclassical economics, Keynesian economics, and basically all economics. The International Policy Network is doing a great service in advancing the wisdom and humanity of free trade.”
Daniel Klein, Professor of Economics, George Mason University
“The proof of the enormous economic benefits of free trade is all around us, not least in the impoverished third world that has already benefited mightily from so-called globalization. It is immoral and irresponsible, or just plain stupid, that politicians, and the special interests they protect, would sacrifice this humanitarian improvement in welfare for their own short-lived personal gain. The Freedom to Trade Campaign has the potential to do far more good for the world than all the foreign aid ever devised.”
Henry Manne, Dean Emeritus George Mason University School of Law.
"We have it in our paper [sic] to turn the present recession into a depression. One good way to do that is to succumb to the crude politics and base impulses of nationalism and racism that underlie the demand for protectionism. A better alternative is to support and extend economic interchange across borders, motivated both by the liberal values of tolerance, choice and openness and by a wealth of empirical evidence demonstrating the relationship between trade and economic growth."
Jeffrey Smith, Department of Economics, University of Michigan
"International free trade is about more than ensuring that consumers can get the most value for their spending dollar, as important as that is during a recession when incomes are strained. Trade builds trust and understanding among people regardless of their physical location. Greater interdependence makes war less likely. These are values we always should cherish, but especially when economic uncertainty provides fertile soil for those who would drive us against each other. Now more than ever, free trade is best."
Dr. Eric Crampton, Senior Lecturer, Department of Economics, University of Canterbury

Sign the thing.