—BJS

Economic Crime

It’s a mad world, as Paul S. Columbus can attest. The California entrepreneur was just sentenced to two years in prison and fined $100,000 for trying to bring cheap Japanese-made computer chips into the U.S. It seems Mr. Columbus’s effort violated the U.S.-Japan price-fixing accord that makes it illegal for Americans to buy chips at free-market (that is, lower) prices. We aren’t surprised that a cartel should force U.S. consumers to look to the black market for chips, but it’s still quite something to see the day arrive when the U.S. would start throwing people in prison for trying to serve those consumers.

—The Wall Street Journal,

January 14, 1988

Silkworms or Textiles?

From the perspective of fundamental economic principles, one can often perceive connections between policies that might otherwise be overlooked.

Not long ago, for example, two articles regarding our relationships with China appeared virtually side-by-side in The Wall Street Journal (December 21, 1987, page 9). Although apparently devoted to separate topics, they are actually intimately interrelated.

First, the Journal reported new limits on China’s textile exports to the United States. Under pressure from U.S. officials, the Chinese agreed to an annual growth rate of 3 per cent. This new rate does exceed the I per cent growth limit on textile imports from Hong Kong, Japan, South Korea, and Taiwan, but it falls dramatically below China’s recent textile export growth rate of 19 per cent.

Just below this article, another piece provided more sinister news. U.S. satellite intelligence reports suggested that China might be shipping more sophisticated Silkworm missiles to Iran.

Of course, these two articles, thus juxtaposed, could provoke outrage. After all, here we are buying Chinese textiles, and what do they do? Arm our adversaries! Perhaps we should conclude that our 3 per cent limit on the growth of textile imports from China is too generous rather than too stingy!

But think again. Remember the basic economic dilemma taught during the first week of any introductory economics class: limited resources force us to choose between guns and butter. In the present context, this principle suggests that, if we would buy more textiles from the Chinese, they would have fewer resources available to devote to Silkworm production.

Furthermore, if we buy more Chinese goods such as textiles, the Chinese will earn more desperately needed foreign exchange which they can use to buy products from our export industries. New job opportunities would emerge to replace those lost for textile workers. Living standards would improve in China and in the U.S. as both countries concentrated on producing those items for which they have comparative advantages. These are the gains from free trade.

Here then is another example of the unintended but adverse effects of political meddling in the marketplace, if we really want the Chinese to produce fewer guns, shouldn’t we butter up to them by buying more—not less—of their textiles?

—Russell Shannon

Clemson University

The Police Power

The only thing that distinguishes the institution of government from any and every other institution is its possession of police power. It alone has the legal right to incarcerate a person or even take a person’s life. Therefore, the more we delegate to our government responsibility for different aspects of our individual and social lives and thereby expand the incidence of police power, the more we move toward a compulsory, authoritarian society and away from a free society. To be truly free we must limit government, i.e., police power, to the administration of justice, and thus provide that social order which is essential to free intercourse.

—Miller Upton

(Dr. Upton is former president of Beloit College in Wisconsin.)

The Communist Collapse

As governments in the East bloc have more and more difficulty supplying medical care, housing, and other social services, birth rates in all six countries are declining, despite generous new incentives for larger families. Life expectancy has dropped in some of the six countries—for example, in Hungary, from an average 67 to under 65—and families are feeling the pressure resulting from parents who hold two and sometimes three jobs apiece.

In these countries, where food, health, education, public transportation and housing are heavily or totally subsidized, the squeeze on ordinary citizens is amplified by increases in the costs of some consumer goods and rents and, in the case of Hungary, a new income tax. In some East European hospitals, patients are now being asked to supply their own medicines.

Nowhere is the sense of deterioration more evident than in air and water pollution. For example, an official Slovak study concluded recently that Bratislava is the most severely polluted city in all of Europe. Instead of allowing the analysis to be made public, the Government pulped 2,000 copies and sought to sequester those remaining in circulation.

A Czech water quality specialist confided to a visitor that Prague’s drinking water contained such a high level of toxins that infants in the capital were restricted to drinking bottled mineral water. To the north in the factory town of Usti nad Labem, air pollution has reached levels that compelled local school authorities to send pupils out of town to special education facilities for four months a year.

—David Binder,

writing in The New York Times,

January 6, 1988

Property and Propriety

Property is related to propriety, and is an ethical institution. It is a feature of our civilization.

The kinship of property with what is proper has been recognized from early times. It has been acknowledged by the people themselves in that genuine expression of popular feeling—language. It has been seen by our great thinkers. No matter what period or aspect of our civilization we may consider, we find that the institution of private property has been defended on grounds of justice, freedom, progress, peace and happiness. Often attacked and suppressed, ultimately free property emerged victorious.

—Gottfried Dietze,

In Defense of Property

The Will to Power

The chief danger to property has not been from the covetous neighbor nor from the habitual thief. It has been from the acquisitive and confiscatory activities of rulers. The Will to power, the temptation to exercise power simply because one has it, has led rulers to arbitrary interferences with liberty of the person. Covetousness has led them to arbitrary seizure of property. Both have joined to bring about arbitrary interferences with the liberty of using property. It is significant that the current of thought which is giving up the idea of property is also giving up the idea of liberty. As the two grew up together they are a common subject of attack by those who conceive the one must go with the fall of the other.

—Roscoe Pound,

“The Law of Property

and Recent Juristic Thought,”

American Bar Association Journal (1939)

Available from FEE . . .

We have a limited number of copies of Burt Folsom’s Entrepreneurs vs. The State, priced at $14.00. (See John Chamberlain’s review on page 206.) Call or write FEE to reserve a copy.

—BJS

Cambodian Communism

Sophal Song, a student at Winona State University in Minnesota, describes her experiences in communist Cambodia:

“Four years of my life, from the age of ten to fourteen years, were spent under communist rule. My family consisted of my parents, my grandmother, two sisters, and two younger brothers, one who was just a baby. The communist tactic was to divide all family members so they wouldn’t try to escape from the work camps, and so they separated family members into camps many miles apart. We didn’t know if our family members were alive or dead, but we had to live with the hope that they were surviving.

“The communists separated my two sisters and me into three different camps. They put my morn with a group of women who worked on a farm in the valley and my dad worked in the field with a group of men, cutting wood, building roads, and so forth. My camp was for children seven to twelve years old. We weren’t allowed to visit our families. The communists taught us to work the farms and to obey their rules. I missed my family very much so one day I escaped to see my mom, but they caught me and wouldn’t give me any food for a whole day.”

That was not the end of Sophal Song’s struggle. Her mother died of malnutrition in 1978. Her father also perished. In 1982, she came to the United States with her grandmother, two sisters, and two brothers. Although Sophal is thankful for her freedom, she still grieves for what she has lost. She concludes, “The free world must know that communism doesn’t work. It is deadly. It cripples the mind and the spirit. We must always work hard to protect our freedom and to fight any force that threatens to destroy it.”

The Minimum Wage

“A minimum wage increase eliminates jobs by encouraging businesses to seek ways to lower overall labor costs. Some firms automate to avoid higher wage payments. Employers also make up for cash wage hikes by reducing fringe benefits. . . .

“Minimum wage legislation hurts most those who have the most to gain from employment—poor youths, especially blacks. It is ironic that American liberals are pushing a higher minimum wage, which also has been promoted by South African racists. While the Americans don’t have racist intentions, they should understand, as the Afrikaners did, that the minimum wage favors better-educated and -trained white youths over their black counterparts. . . .

“The minimum wage clearly strengthens only one group—unions, whose wage rates become more competitive when minimum wage legislation lifts the level of nonunion compensation- while it clearly harms many others. In the end only improved productivity and economic growth—not higher wage levels—can increase general prosperity.”

—from an editorial in The Detroit News, March 3, 1987

What’s New at FEE

—BJS

Foreign Debtors

U.S. banks hold more than $240 billion in foreign debts. What are the prospects of these debts being repaid? Recent developments in the loan markets may provide an answer.

Since 1982, when the international debt crisis first made headlines, New York and London brokers have been quietly trading portions of these debts in a secondary market. This market has now grown to where we can get an idea of the true value of these loans.

If traders are completely confident that a debt will be repaid, it will trade at book value—100 cents on a dollar. But many foreign debts are trading at much less than book value. Argentine debt, for example, is offered at 67 cents on the dollar. Mexican debt stands at 62 cents, Polish debt at 53 cents, Peruvian debt at 24 cents, and Bolivian debt at a paltry 8 cents.

As with any other market price, these figures vary with time and changing expectations. But with traders putting their money on the line, the secondary market for foreign debt may be the best gauge of debt serviceability.

—BJS

A Man’s Home . . .

No one is really responsible for collectively owned property; no one cares. So it deteriorates. Individuals who own property do care because they know they are responsible. A recent visitor to the home of his ancestors in East Germany pointed to the contrast in an article in The Wall Street Journal.

He described the fate of that small East German town under the communist regime. The old castle, once a “stately mansion” surrounded by lavish park and flower gardens, was in shambles, with spider webs, wallpaper peeling, window sills covered with dust and dead moths, its garden overgrown. There was a state-run grocery store on the old castle’s first floor and people were living in its nooks and crannies. “The neighborhood that belongs to all,” this observer wrote, was “dingy and chaotic; chickens, ducks and rabbits run wild around the muddy streets and run-down houses.”

The residents’ private homes presented a sharp contrast. “[I]nside the homes, the private castles of the people . . . . pride and responsibility thrive . . . .”

When property is collectively owned, no one cares. When property is privately owned, the owners care; they are willing to “go that extra mile” because they know they are responsible for it.

—BBG

Liability Crisis

“Thousands of patients with rare neuromuscular disorders are suffering renewed contortions of the eyes, face, neck and other parts of the body because their supply of experimental medicine was cut off when its only manufacturer was unable to obtain liability insurance.”

This item, from the October 14, 1986 issue of The New York Times, is indicative of the frightening trend in liability coverage. What is the cause of this crisis’? Is there a cure? See Ridgway K, Foley’s penetrating analysis which begins on page 12.

—BJS