A Sighting of David Ricardo in Palo Alto
Don Boudreaux  
I'm genuinely delighted to learn that students at Stanford's  School of Law 
are learning the meaning and benefits of the principle of  comparative 
advantage.  _This fine op-ed_ 
(http://www.washingtonpost.com/wp-dyn/content/article/2005/12/30/AR2005123000989.html)
  in today's Washington  Post by Josh Sheptow, a 
Stanford law student, explains why the widespread  practice of high-priced 
corporate attorneys devoting some of their time to do  pro bono work for poor 
people is "staggeringly inefficient." 
Here's the core of Mr. Sheptow's argument: 
My argument is straightforward. First, note that there are  nonprofits such 
as the Legal Aid Society that do nothing but provide free  legal services to 
low-income clients. Their offices are not fancy and their  attorneys command 
much lower salaries than their counterparts at large,  prestigious law firms. 
As 
a result, it costs these organizations (or, more  accurately, their donors) 
less than $100 for each hour of legal services they  provide to low-income 
clients.

Now consider a lawyer who charges paying clients $500 an hour  (roughly the 
going rate for an upper-level associate at a large corporate law  firm). If she 
donated 10 hours of fees to Legal Aid, she could fund roughly 50  hours of 
legal service to low-income clients. That's five times the amount of  service 
she could provide if she spent those 10 hours doing pro bono work  herself. 
Thus 
it is much more efficient for her, and for high-priced lawyers  generally, to 
donate their fees rather than their time. 

Well done, Mr. Sheptow! 
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December 29, 2005
Milton and (Charlie) Rose
Don Boudreaux  
Milton Friedman _was the  guest_ 
(http://www.charlierose.com/search/search.asp)  on Monday night's The Charlie 
Rose  Show. 
Unfortunately, a free link to the show -- or even its transcript  -- is 
unavailable.  But I don't regret the $9.95 that I paid for the  transcript to 
be 
e-mailed to me.  Friedman remains brilliant and  important. 
Here, for example, is Friedman responding to the oft-expressed  concern that 
foreigners holding dollars and dollar-denominated assets is  dangerous for 
America because foreigners might 'dump' these assets. 


MILTON FRIEDMAN:  Why -  who -- how would they dump it? 

CHARLIE ROSE:  They would sell it  back.   
MILTON FRIEDMAN:  Sell  what? 
CHARLIE ROSE:  The interest on  the debt that they have.  The dollars they 
have. 
MILTON FRIEDMAN:  To whom?   To whom would they sell it? 
CHARLIE ROSE:  Your point is that  there is no buyer.   
MILTON FRIEDMAN:  Well, there are  buyers, of course there is always a buyer. 
 At what price? 
CHARLIE ROSE:  But wouldn`t that  be destabilizing? 
MILTON FRIEDMAN:  Who would lose  money?  Who would lose money on that kind 
... 
CHARLIE ROSE:  Wouldn`t that be  destabilizing?  Wouldn`t that suggest a lack 
of confidence in the American  economy? 
MILTON FRIEDMAN:  Yes, it  might.  But the people who would lose by it would 
be the foreigners who  held that and who dumped those dollars.   
CHARLIE ROSE:  Well, then are  they in a frozen position then, so that they - 
they have no  flexibility? 
MILTON FRIEDMAN:  They are not in  a frozen position.  They are in a position 
they want to be in, because  that`s why they are holding these assets.  
Because they are afraid of risk,  of political risk.   
CHARLIE ROSE:  What happens if  they would allow ... 
MILTON FRIEDMAN:  And in general,  let`s suppose foreigners start dumping 
their assets here.  They would dump  them at distressed prices.  They would 
have 
no ... 
CHARLIE ROSE:  Once it started  (INAUDIBLE) would begin. 
MILTON FRIEDMAN:  And who would  buy them?  The people at home, here, the 
people in the United States, who  had confidence in the United States.  So what 
you would have would be that  the assets would go from weak hands to strong 
hands.  It isn`t going to  happen, because there is no reason for foreigners to 
dump the dollars.   
CHARLIE ROSE:  But nothing is  certain, is it?  I mean, certainly in 
economics ... 
MILTON FRIEDMAN:  Of course  not.  Nothing is absolutely certain.  But you 
can be pretty damn sure  of what is likely to happen and what isn`t.   
CHARLIE ROSE:  What might -- but  argue the other side.  What might cause 
someone to say we`re holding too  many dollars and - and we don`t think it`s 
healthy. 
MILTON FRIEDMAN:  There is only  one thing that would cause them to do that, 
and that`s if we engage in  inflation. 
(Hat tip to David Boaz.). 
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Affordability of Housing
Don Boudreaux  
On the front page of today's New York Times is _a  report_ 
(http://www.nytimes.com/2005/12/29/realestate/29afford.html)  that I hope 
against hope that Paul 
Krugman reads  the next time he's tempted to write that ordinary Americans 
are no better off  economically than we were a generation or so ago. 
Here are the opening paragraphs of the NYT  report: 
Despite a widespread sense that real estate has never been  more expensive, 
families in the vast majority of the country can still buy a  house for a 
smaller share of their income than they could have a generation  ago.

A sharp fall in mortgage rates since the early 1980's, a  decline in mortgage 
fees and a rise in incomes have more than made up for  rising house prices in 
almost every place outside of New York, Washington,  Miami and along the 
coast in California. These often-overlooked changes are a  major reason that 
most 
economists do not expect a broad drop in prices in  2006, even though many 
once-booming markets on the coasts have started  weakening.

The long-term decline in housing costs also helps explain why  the 
homeownership rate remains near a record of almost 69 percent, up from 65  
percent a 
decade ago. 

(Hat tip to Karol.) 
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December 27, 2005
Market Utopians
Don Boudreaux  
In today's Wall Street Journal, Jeffrey Hart _makes an argument_ 
(http://online.wsj.com/article/SB113564361018331773.html?mod=opinion_main_commentaries)
  
that I first encountered in _John Gray's work_ 
(http://www.amazon.com/gp/product/1565845927/qid=1135700461/sr=2-1/ref=pd_bbs_b_2_1/002-9782236-4980013?s=books
&v=glance&n=283155) : 
At length, the free market triumphed through much of the  world, and today 
there are very few socialists in major university economics  departments, an 
almost total transformation since 1953. But the utopian  temptation can turn 
such 
free-market thought into a utopianism of its own --  that is, free markets to 
be effected even while excluding every other value  and purpose … … such as 
Beauty, broadly defined [original  elipses].
Such a claim reveals a poor knowledge and understanding of  economics.  
(Among other books that I can recommend to Prof. Hart is Tyler  Cowen's _In 
Praise 
of Commercial Culture_ 
(http://www.lfb.com/index.php?deptid=&parentid=&stocknumber=CL8185&page=1&itemsperpage=24)
 , which  clearly explains -- using facts 
and economic reasoning -- how markets promote  rich cultures, graced with much 
beauty.) 
I would like Profs. Hart or Gray or anyone else to direct me to  any work by 
any respected free-market economist that portrays free markets as  utopian.  
Perhaps such a work exists.  If so, I've yet to encounter  it.  If any Cafe 
Hayek reader knows of such a work, please direct me to  it. 
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December 26, 2005
Who You Gonna Call?
Don Boudreaux  
Which places on the Katrina-ravaged gulf coast do you suppose  are being 
cleaned up faster and at lowest cost: those locales that rely  principally on 
the 
private sector to supply clean-up services, or those locales  that rely upon 
Uncle Sam? 
Today's New York Times gives _the answer_ 
(http://www.nytimes.com/2005/12/25/national/nationalspecial/26debris.html?adxnnl=1&emc=eta1&adxnnlx=1135609436-ygh
RBRgr/bFqr0TVJH3f6Q) . 
(Hat tip to fellow Louisiana native Fred Dent.) 
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December 25, 2005
To Want or Not to Want
Don Boudreaux  
Cafe Hayek reader Keith, after reading _this recent post_ 
(http://cafehayek.typepad.com/hayek/2005/12/the_toll_of_eco.html)  on 
toll-roads, asks me: "Why 
do  you  [meaning me, Don Boudreaux] insist on criticizing people's  
preferences?  Haven't we Americans rejected toll roads long enough to  convince 
any fair 
minded person that we don't want them?  You may not like  our preference, but 
at least shouldn't you respect it?" 
With respect, I respect any preference that reflects a genuine  willingness 
of those with the preference to bear personally all necessary costs  to indulge 
the preference.  But I do not respect 'cheap' preferences --  preferences 
that are merely expressions backed-up with no personal stake in  indulging the 
preferences. 
Suppose I invent a machine that allows me to transfer to anyone  I wish the 
ill-consequences of my drinking too much wine.  I drink goo-gobs  of wine in 
the evenings and just before stumbling off drunk to bed I press a  button and, 
voila!, the hangover that I would have awakened with in the  morning will now 
be suffered by my neighbor, who has no earthly idea what's  happening to him.  
Likewise for the calories and any detriments to health  and career caused by 
overdrinking.  I enjoy all the benefits of boozing but  I off-load the costs 
onto someone else who has no say in the matter. 
My machine is quite reliable.  Everytime I drink, I press  my machine's 
button and I keep the benefits of boozing but my unwitting neighbor  suffers 
the 
costs. 
What do you expect will happen to my pattern of drinking?   Let me assure you 
that I'd drink a lot more than I drink now.  I love wine  and, I don't mind 
saying, I love also the intoxication that wine induces.   I limit my drinking 
because I understand that overdoing it has significant  personal costs to me 
and my family. 
Now suppose in this fantasy world with this machine I tell you  that I want 
to be able to drink every night without limit.  Would you  believe me?  You'd 
have reason to do so, for in a way I really do want to  drink every night 
without limit.  If I really had that machine (and I  really did not have the 
decency that keeps me from shifting such a cost to  someone else), I'd shift 
the 
costs of drinking onto my neighbor and guzzle  nightly. 
But if in the real world -- the world without any such machine  -- I tell you 
"I want to drink every night without limit," what would I  mean?  If I didn't 
have personally to bear the costs of drinking heavily I  would indeed "want" 
to do so.  But because I do have personally to  bear the costs of drinking 
heavily, in fact I don't want to do so. 
My saying, in these real-world circumstances, that "I  want to drink every 
night without limit" is nothing more than a loose,  slang use of the verb "to 
want."  After all, if I really wanted to drink  much more heavily than I now 
do, 
I could easily do so.  But I never do --  because I am unwilling to bear the 
awful costs of suffering hangovers and severe  risks to my health and career. 
The point, in short, is that we use the verb "to want" in very  different 
ways.  Some "wants" are worthy and ought to be respected; other  "wants" are 
irresponsible and cavalier -- indeed, not really wants at  all. 
I want you to read also _this essay_ 
(http://www.fee.org/publications/the-freeman/article.asp?aid=4978)  that I 
wrote on the confusing usage of  the verb 
"to want."
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The Beauty and Power of Undesigned Order
Don Boudreaux  
I love _this  blog-pos_ (http://hnn.us/blogs/entries/19793.html) _t_ 
(http://hnn.us/blogs/entries/19793.html)  entitled "Of Social Snowflakes..." by 
Steve  
Horwitz.  It's inspired by _this photograph_ 
(http://www.marginalrevolution.com/marginalrevolution/2005/12/merry_christmas_1.html)
  of a real snowflake.  
Here's  Steve's concluding paragraph: 
My fervent wish for the 21st century is that more smart and  caring people 
can begin to see and appreciate "social snowflakes." People who  are so willing 
to accept the existence and beauty (and benevolence!) of  undesigned order in 
the natural world should be more willing to open  themselves to the 
possibility that there are processes of undesigned order at  work in the social 
world 
too. These people know that no one can make a  snowflake, but seem blind to the 
fact that much of the innocent blood that was  spilled in the last century was 
because too many people thought they could  intelligently design the social 
world. Not repeating those mistakes will  require a renewed aesthetic 
appreciation of, and deep desire to understand,  the awesome beauty and 
complexity of 
the undesigned order of "social  snowflakes."

Steve's point goes nicely, by the way, with _this post_ 
(http://www.marginalrevolution.com/marginalrevolution/2005/12/why_people_dont.html)
  from Tyler 
Cowen. 
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It Takes a Tough Man to Make a Tender Chicken
Don Boudreaux  
Soon after the Berlin wall crashed down on November 9, 1989,  Pepsi Cola ran 
a television ad celebrating the wall's fall -- an ad, I believe,  showing 
celebrants at the wall drinking Pepsi.  I recall that some American  pundits 
were 
horrified, asking -- rhetorically, in their minds -- if eastern  Europeans 
wanted freedom merely to drink Pepsi.  (I can find no link to  this ad, but 
_this 
interview_ (http://www.stayfreemagazine.org/archives/14/leslie-savan.html)  
mentions it.) 
My reaction to this question was and remains "Well, yes, in  large part.  
People want freedom not just to do great and momentous  things.  Mostly, they 
want freedom to pursue their everyday pleasures and  dreams and interests as 
they 
wish without interference from others.  Access  to more and better 
soft-drinks, in itself, is a small thing -- but it's  certainly part of the 
reason why 
people want to be free.  And celebrating  these quotidian freedoms, even in a 
Pepsi commercial, is  appropriate." 
For some reason I recalled that Pepsi-commericial brouhaha today  when I read 
in today's New York Times Magazine _this interesting recollection_ 
(http://www.nytimes.com/2005/12/25/magazine/25perduehoffman-1.html?adxnnl=1&adxnnlx=11355
48836-8ynZ2osG1l78l9xJ7bSW2g)  of Frank Perdue,  the Marylander who became 
wealthy growing, slaughtering, and selling  chickens. 
Too many people -- such as those who were offended by  Pepsi-Cola, Inc., 
associating freedom with joyously drinking soft-drinks --  disdain everyday 
freedoms as well as everyday commercial and industrial  activities made 
possible by 
these freedoms and that, in turn, make these  freedoms more valuable to each 
of us. 
I hope I'm wrong (I really do), but I fear that too many people  who read the 
following about Frank Perdue will regard such efforts as  contemptible, low, 
mean, almost comical, unworthy of being ranked as  great.  In fact, such 
efforts are precisely the sort that makes our  prosperity so vast and deep. 
But what was its [a Perdue chicken's] unique selling  proposition? To hear 
Perdue himself tell it, his chickens were just plain  better than anybody 
else's. His son, Jim, says that when his father decided in  the late 1960's to 
cut 
out the middleman and sell his chickens directly to  grocery stores, he spent 
six months on the road, talking to butchers about  what qualities they liked to 
see in their chickens. "He identified 25 items on  a chicken that they cared 
about," Jim Perdue said. They wanted yellow  chickens, so Frank Perdue fed his 
poultry grain that gave the meat a golden  hue. They didn't like little hairs 
left over on the wings after plucking, so  Perdue had his engineers develop a 
torch that would singe the hairs off. They  wanted more white meat, so he 
mated a meaty-breasted Cornish male with a White  Plymouth Rock female to 
create 
the Perdue pedigree. They didn't want bruised  meat, so Perdue set strict 
protocols for handling live chickens. He was  obsessive about knowing 
everything 
there was to know about chickens - and  about maintaining what heviewed as the 
superior quality of Perdue Farms'  birds.

Looking at a reel of old Perdue ads, this obsession is  striking. 

In the earliest commercial, he talks about how well his  chickens are fed - 
including "pure well water to drink." In another, he  complains that his 
competitors freeze their meat. To drive the point home, he  hammers a nail into 
a 
piece of wood with a frozen chicken. He talks about how  he had to develop his 
own breed because no other chicken in the world was good  enough for Perdue 
Farms. And he constantly needles the federal government,  claiming he inspects 
chickens better than it does.
Ain't it great that someone -- someone who is a stranger to  almost all of 
America's chicken eaters -- spent his valuable time traveling  around asking 
butchers what features make a good chicken?  Ain't it great  that Frank Perdue 
cared about the water his chickens drank?  Ain't it great  that he bred a new 
breed of chicken?  Sure, he did all this to make money  for himself.  But so 
what?  His means of making money inspired him to  care deeply about what the 
typical chicken eater likes and dislikes about  chicken. 
Why is it that so many people admire the likes of FDR and LBJ  who uttered 
fine phrases but whose ideas of helping people never went beyond  stealing from 
some, showering part of the booty on others, and bureaucratically  regulating 
everyone? 
Frank Perdue alone has contributed more to our quality of life  than has any 
politician you care to name. 
This claim of mine will strike many as over the top.  But I  mean it 
literally.  Perdue persuaded people to buy his  chickens.  Politicians force 
people to 
do their bidding.   Those in the force business are inherently less likely to 
care deeply about  people -- about real, flesh-and-blood people in all of our 
diversity -- than are  those, like Frank Perdue, whose success depends 
critically upon  persuading millions of people to buy, and keep buying, their  
products.
Update: Muck and Mystery _gently  plucks my feathers_ 
(http://www.garyjones.org/mt/archives/000236.html)  by arguing that (1) there's 
nothing  really 
special about Frank Perdue, for the production and distribution practices  that 
Perdue followed are standard practice in the poultry industry, so (2)  Perdue's 
real genius lay in advertising to promote himself and his firm, and (3)  that 
insofar as Perdue and other poultry producers do contribute to our  well-being, 
it's the system that encourages such wealth-creating  efforts.
I'm happy, although not suprised, to learn that Perdue's  best-practices are 
industry standard.  My point was not so much to praise  Frank Perdue 
personally (although I do regard him as praiseworthy).  My  point was to 
celebrate the 
fact that we have an economic system that prompts  Perdue, and Tyson's, and 
you-name-the-entrepreneur each to spend enormous  amounts of creativity and 
effort doing things that we consumers never become  consciously aware of -- but 
things that we nevertheless value and benefit  from.  So, indeed, the system is 
of paramount importance -- but this fact  doesn't mean that we can't admire 
the many instances of creative human  productive efforts that it unleashes.
On the merits of advertising, I'll just recommend _one of my favorite books 
on the topic_ 
(http://www.amazon.com/gp/product/0936488212/qid=1135597581/sr=1-9/ref=sr_1_9/002-9782236-4980013?s=books&v=glance&n=283155)
 . 
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December 23, 2005
Adam Smith: Yokel
Don Boudreaux  
_In today's New York Times_ 
(http://select.nytimes.com/2005/12/23/opinion/23krugman.html) , Paul Krugman  
calls _supply-side economics_ 
(http://www.econlib.org/library/Enc/SupplySideEconomics.html)  -- by which 
_Krugman  means_ 
(http://www.pkarchive.org/economy/TaxCutCon.html)  the idea that tax cuts can 
generate higher tax  revenue for government-- as "hokum for the yokels." 
_Krugman has long ridiculed_ 
(http://www.pkarchive.org/economy/TaxCutCon.html)  the idea that for  thirty 
years now in the U.S. has been known as "the 
Laffer curve."  Indeed,  as his "hokum for the yokels" remark makes clear, 
Krugman 
sneers at _the Laffer  curve_ 
(http://www.heritage.org/Research/Taxes/bg1765.cfm) . 
My first reaction, whenever I read Krugman's (or anyone else's)  dismissal of 
the Laffer curve as illogical hooey, is to wonder if Krugman ever  studied 
the concept of _own-price elasticity of demand_ 
(http://www.uri.edu/artsci/ecn/mead/INT1/Mic/Overview/Over.elast.html) . 
For the non-economists among you, this concept is taught in  Economics 101, 
and explains that firms that raise their prices do not always  earn higher 
sales revenue; their revenue can and often does fall.  (To see  the point 
clearly: 
ask youself what would happen if, say, Starbucks raised the  price it charges 
for a tall latte to $1,000.)  Likewise, firms can often  increase their sales 
revenue by cutting their prices. 
But Cafe Hayek's Russ Roberts has a different thought: he knows  that the 
Laffer-curve idea didn't originate in the United States during the  1970s.  
Russ 
knows that it expresses a truth so fundamental that thoughtful  thinkers from 
even long ago understood it -- thoughtful thinkers such as _Adam Smith_ 
(http://www.econlib.org/library/Enc/bios/Smith.html) . 
_Here's_ 
(http://www.econlib.org/library/Smith/smWN21.html#B.V,%20Ch.2,%20Of%20the%20Sources%20of%20the%20General%20or%20Public%20Revenue%20of%20the%20Socie
ty)  the great Scot writing in Book V, Chapter  2 of The Wealth of Nations: 

The high duties which have been imposed upon the importation  of many 
different sorts of foreign goods, in order to discourage their  consumption in 
Great 
Britain, have in many cases served only to encourage  smuggling, and in all 
cases have reduced the revenue of the customs below what  more moderate duties 
would have afforded. The saying of Dr. Swift, that in the  arithmetic of the 
customs two and two, instead of making four, make sometimes  only one, holds 
perfectly true with regard to such heavy duties which never  could have been 
imposed had not the mercantile system taught us, in many  cases, to employ 
taxation as an instrument, not of revenue, but of  monopoly. 

Does the above sound like hokum for yokels -- or hokum  from a yokel? 
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December 22, 2005
The Byrd is at least wounded
Russell Roberts  
The Washington Post (rr) _reports_ 
(http://www.washingtonpost.com/wp-dyn/content/article/2005/12/21/AR2005122102074.html)
  that the Senate has voted to 
kill the  Byrd Amendment:  
The Senate action, which came as part of a broader  budget bill that passed 
with Vice President Cheney's tie-breaking vote, would  phase out the Byrd 
amendment, a five-year-old measure especially popular with  lawmakers from 
industrial states heavily affected by foreign competition. The  House has 
already 
voted to repeal the amendment, named for Sen. Robert C. Byrd  (D-W.Va.), in 
nearly 
identical legislation. 
Yes, it would be especially popular with lawmakers from  industrial states:  
According to the Byrd amendment, whenever the  government finds U.S. 
companies to be disadvantaged by the dumping of imported  goods at unfairly low 
prices, the duties collected on those goods can go to  the companies rather 
than to 
the Treasury. 
Don't you love that phrase, "disadvantaged by the dumping of  imported goods 
at unfairly low prices"? Of course if you're a domestic producer,  all low 
prices charged by foreign competitors are unfairly low. And of course  all low 
prices put domestic producers at a disadvantage. The problem with  anti-dumping 
low is the definition of "unfair." The way that it is actually  defined is 
comically arbitrary and creates endless opportunities for domestic  firms to 
enter the anti-dumping lottery in hopes of forcing higher prices on  
competitors. 
What the Byrd amendment does is doubly reward that lottery effort.  Not only 
does anti-dumping law force foreign prices higher but it channels the  fines to 
the domestic firms.  
You can't have everything:  
The repeal would be delayed for two years, giving  some U.S. lumber firms and 
other companies the chance to continue receiving  substantial sums under the 
amendment. That compromise was necessary to secure  yesterday's vote. 
Taking time to phase something in is generally a good idea to  allow people 
time to react to the new rules. But I wonder if this repeal will be  repealed 
two years from now.  
Posted in _Trade_ (http://cafehayek.typepad.com/hayek/trade/index.html)  | 
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