Three Burning Questions about Political Economy

I’ve long believed that we economists are never of greater use to our fellow human beings as when we ask relevant questions. Typically, these questions are rhetorical; they’re meant to draw the general public’s attention to phenomena that are familiar and uncontroversial to economists but alien and provocative to many non-economists.

An example of such a question is this query to the many non-economists who support tariffs as a means of increasing domestic employment: “If our tariffs cause foreigners to earn fewer dollars selling their exports, won’t foreigners then buy fewer of our exports or have fewer dollars to invest in America? And won’t this diminished foreign demand for our exports, and shrinking foreign investment in the U.S., destroy jobs in U.S. industries that export and that rely on foreign investment?”

Although there are no good protectionist answers to these questions, constant repetition of these questions is an appropriate means of prompting as many non-economists as possible to consciously confront the internal contradictions of protectionism.

Yet sometimes the useful questions asked by economists are not at all rhetorical. Compelling answers to such questions remain to be discovered. Here are some non-rhetorical questions that are relevant today.

Congressional Delegation and the Size of Statutes

It’s well-known that over the past century there’s been an enormous increase in both the size and scope of the administrative state. In the United States, Congress has delegated much of its power to legislatively intervene in Americans’ commercial and private affairs to bureaucrats working at agencies such as the Environmental Protection Agency, the Federal Communications Commission, and the Department of Health & Human Services.

The common explanation for this delegation is that Congress hasn’t itself the time or brain power to regulate as it wishes. In so-called “enabling legislation,” therefore, Congress spells out its goals and then delegates to government agencies the power (and the funds) to determine the regulatory details by which Congress’s goals will be achieved. Nevertheless - and regardless of whatever are its practical or Constitutional merits or demerits -  this delegation has been accompanied by an increase in the wordiness of legislation.

In 1947-48, the average number of pages of a bill passed by Congress was 2.5; today (2013-14) it’s 17.9. That’s an increase in average page length of more than 600 percent. Even if much of this increase in average page length is driven by a relatively few humongous outliers, such as the 974-page Affordable Care Act, shouldn’t increased Congressional delegation result in fewer pages in bills? Why, for example, did Congress need the 2,300 pages of the Dodd-Frank statute to delegate to administrative officials increased power to regulate financial markets?

What’s going on? Is Congress delegating to bureaucrats the power to determine the details of government policies or are more such details being issued by Congress itself?

I don’t know the answers to these questions. Do you know the answers?

Access to Capital and Hostility to Capitalism

A great development over the past half-century has been ordinary Americans’ increased ownership of capital. Perhaps most notably, the typical American today owns – in the form of his or her specialized skills – more human capital than at any time in the past. Similarly, the value of American-workers’ ownership of corporate assets through 401(k) plans has grown impressively. The total value of mutual funds has also generally increased over the past 40 years.

Furthermore, recent advances in “sharing-economy” technology have encouraged even poor Americans to turn their homes and automobiles, formerly used only for consumption purposes, into capital assets that yield income.

Given this democratization of capital ownership, why in the U.S. in recent years have we not witnessed a significant increase in support for capitalism? Indeed, why has there been a slight rise in public support for socialism? Perhaps the answer is as uncomplicated as “economic ignorance”: not only do too many people not understand just how many consumer goods and services are brought to them by capitalism – and not only do they not understand how much cleaner and safer their lives are because of capitalism – they don’t even understand how much capital they themselves, as ordinary Americans, own.

Economic ignorance is real and tenacious. It promotes destructive government interventions. Yet I’m also somewhat mystified that the widespread rise over the past few decades of Americans’ ownership of capital hasn’t sparked a steady, if modest, rise in public support for free, capitalist markets. Why has it not done so?

While I can think of a number of possible answers beyond mere “economic ignorance,’ I have no good sense of which of these possible answers – if any – is ‘correct.’ Can you, treasured reader, offer any good answers?

Immigration and the Expanding Economic Landscape

Very few people today doubt that the heavy immigration to America during the 19th century played a large and positive role in fueling American economic growth back then and in creating the foundation upon which our current prosperity is built. Yet Americans’ hostility to immigration is today more intense than it has been at any time in my 60-year memory. Why?

Is the answer “the welfare state”? That is, is this hostility to immigration driven largely by the belief – however mistaken it might be – that immigrants come to our shores largely to free-ride on American taxpayers’ contributions to the welfare state? Perhaps. But if so, at least two other questions arise.

First, why is the most intense hostility directed at immigrants who are undocumented? After all, undocumented immigrants are far less likely to receive government welfare than are legal immigrants. Second, why not use the claim that immigrants abuse the welfare state as an argument to roll-back the welfare state rather than as an argument to roll-back immigration?

Or perhaps today’s hostility to immigration springs from the mistaken sense that America today, unlike in the 19th century, is less able to “absorb” immigrants. If so, this reason is sorely at odds with reality. It’s true, of course, that - unlike back then - there is today very little virgin land in the U.S. available for farming. But also unlike back then, almost no immigrant today comes to America with the hope of making a living by farming.

And when we look at the plausible ways in which America might today be better able, or less able, to “absorb” immigrants, we find that America is today unprecedentedly better able to absorb them.

For example, the amount of capital invested per worker is today higher than ever; the number of physicians, teachers, and firefighters per person is higher than ever; the square footage of housing stock is higher than ever, and despite a chorus of complaints to the contrary, the total pay of ordinary American workers is today as high as ever.

Given that today America’s ability to absorb immigrants is unquestionably greater than it was before Uncle Sam imposed annual quotas on immigration – and given most Americans’ admission that immigration during the 19th century was a great benefit for America – a genuine question is posed: What accounts for early-21st-century Americans’ fierce antagonism to immigration?

Can you explain why we Americans today, who are so much richer than were our great-great grandparents, are also so much more fearful than they were of peaceful immigrants?

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Donald J. Boudreaux

Donald J. Boudreaux is a senior fellow with American Institute for Economic Research and with the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University; a Mercatus Center Board Member; and a professor of economics and former economics-department chair at George Mason University. He is the author of the books The Essential Hayek, Globalization, Hypocrites and Half-Wits, and his articles appear in such publications as the Wall Street Journal, New York Times, US News & World Report as well as numerous scholarly journals. He writes a blog called Cafe Hayek and a regular column on economics for the Pittsburgh Tribune-Review. Boudreaux earned a PhD in economics from Auburn University and a law degree from the University of Virginia.