Economists extol the importance of competition in markets for driving prices down and quality up. But what is “competition” and how does it actually work?  To non-economists, the word conjures the idea of something like a sporting contest, where there can be one winner while everyone else loses. But this comparison fails on at least two dimensions. First, for there to be a single “winner” in a market exchange would require there to be a single, identical good that each competitor is trying to provide, vying for scarce consumer dollars. This is a fine thought-experiment for the classroom, textbooks, and academic papers. But that is not how market exchanges really work, even for any particular good. While it is true that important lessons can be learned from these abstractions and thought experiments, go ahead and tell someone with discerning taste that Coke, Pepsi, and RC Cola are “basically the same” and let me know their reaction. Second, a single winner, many losers scenario would also imply that if the number of competitors were increased, competition itself would increase. After all, winning a world title is far more impressive than winning “just” a national title. But that misses something about how competition works. In a small town with just two hardware stores, “competition” between those two stores can be much more fierce than in a larger city with twenty stores. So what actually is competition, then? Recently, my mom and her husband’s furnace went out while they were out of town. In Michigan. In the winter. Since they live just two miles down the road from me, I was the designated emergency contact. The next morning, a technician was on site, diagnosing the problem. (Being a firm believer in specialization, I have no idea what was wrong, only that some part needed replacing.) Both of us knew that he had me stuck between a rock and a hard place. No other company in town could get this done faster and I wasn’t about to let my mom’s pipes freeze. Despite this, when the bill came, everything was normal. There was a standard fee for parts and labor that was perfectly reasonable and no trace of a markup for an “emergency service” or anything of the sort that, given the circumstances, I would have agreed to. Why not? This year marks the 250th anniversary of Adam Smith’s Wealth of Nations, and the furnace repair job illustrates what Smith understood about competition. It’s not about the textbook definition of identical firms producing identical products, battling over price until (economic) profit is driven to zero. Indeed, Smith wouldn’t have recognized this formal model of perfect competition. But Smith understood, and helped clarify, the fuller insight about how commercial activity shapes behavior over time. Smith recognized that markets don’t just allocate scarce resources. They cultivate habits of honest dealing. A firm that cheats will likely profit in the short run, but certainly not in the long run. The firm that treats and charges customers honestly builds a reputation, attracts repeat business, and ultimately outlasts the swindler. Smith referred to this as the “discipline of continuous dealings,” which game theorists have taken to calling “repeated play.” When a firm expects future dealings, either with the same customer or with people that customer talks to, cooperation (not defection) becomes the dominant strategy. This isn’t because people become angels, but because cheaters ultimately get punished when their market counterparts do business with someone else instead. The furnace technician operates in a world of Yelp, Google Reviews, and social media. The company has been in business for decades at this point and (presumably) plans to be in business for many more to come. Every service call that the technician makes is part of his “continued dealing,” and he plays accordingly. This completely transforms how we should think about things like “market power.” The standard story says that when a seller faces a buyer with no realistic alternatives, exploitation follows. Sometimes it does. But more often than not, we find honest dealings instead. Competitive markets create pressures that persist even in temporarily non-competitive moments. The company that gouges today will face competition tomorrow, and its reputation will follow. “Competition,” then, isn’t really about the number of rivals at any one moment. It’s about the ongoing possibility of rivalry, and the understanding that customers can leave, that alternatives exist or could emerge, and that word of good or bad behavior spreads. These possibilities discipline market transactions so consistently that fair dealing becomes virtually automatic. Two hundred and fifty years after Smith wrote, his insight remains underappreciated. Markets are not just mechanisms for setting prices. They also shape behavior by rewarding fairness and cooperation. By doing so, they can make ordinary self-interest look remarkably similar to virtue. My mom’s pipes didn’t freeze. The repair company earned a loyal customer. If told this story, Adam Smith would probably take a sip of his claret and nod. (0 COMMENTS)

A New York magazine article titled “Everyone Is Cheating Their Way Through College” made the rounds in mid-2025. I think about it often, and especially when I get targeted ads that are basically variations on “if you use our AI tool, you’ll be able to cheat without getting caught.” Suffice it to say it’s dispiriting. But the problem is not that students are “using AI.” I “use AI,” and it’s something everyone needs to learn how to do. The problem arises when students represent AI’s work as their own.  At a fundamental level, the question of academic integrity and the use of artificial intelligence in higher education is not technological. It’s ethical.  I love generative artificial intelligence and use it for many, many things. Workouts. Recipes. Outlining and revising articles and lectures. Multiple-choice questions. Getting the code I need to tell R to turn a spreadsheet into a bunch of graphs. Tracking down citations. And much more.  The possibilities are endless. Used wisely, it multiplies productivity. Used foolishly, it multiplies folly. Debates about academic integrity and artificial intelligence force us to really reckon with who we are and what we’re doing. The debate has split into unhelpful camps. One compares AI to a calculator. Another sees AI as the end of human thought. Both miss the point. The “just a calculator” crowd ignores how calculators and related software tools, as useful as they are, have relieved us of many of the burdens that come with thinking quantitatively. “It’s just like a calculator” is (kind of) true, but it’s not reassuring. Knowing which buttons to press to make a parabola appear is not the same thing as knowing what a parabola actually is and why it’s meaningful. The “end of thought” crowd ignores how generative AI is a powerful tool that can be used wisely. Is it an assistant? That’s great. Is it a substitute? That’s not. The problem, though, is not the tool. It’s the user. People can use AI wisely or wickedly, just like they can any other tool. In the hands of Manly Dan from Gravity Falls or Paul Bunyan, an axe is a tool used to fell trees and provide shelter. In the hands of Jason Voorhees from the Friday the 13th horror franchise, it’s a tool for something else entirely. In 2023, just as we were meeting and getting to know our new AI overlords, I wrote an article responding to the cynical student asking, “when am I ever gonna use this?” about the humanities and other studies that aren’t strictly vocational. My answer was (and is) “literally every time you make a decision.” Why? The decisions you make are a product of the person you are, and the person you are is shaped by the company you keep. Studying history, philosophy, literature, economics, and the liberal arts more generally is an exercise in keeping good company and becoming a certain kind of person: one who has spent sufficient time grappling with the best that has ever been thought and written to be trusted with important decisions. It is to become a person who has cultivated the art of judgment. It’s an art we can practice poorly in a world where it’s trivially easy to outsource our thinking to ChatGPT and Gemini. Here’s an analogy. If you’ve never seen the movie Aliens, drop everything and watch it. It’s a classic among classics. If you have seen it, consider the end of the movie, when Sigourney Weaver’s character, Ellen Ripley, dons a P-5000 power loader suit to defeat the alien queen. She uses a tool that amplifies her strength, enabling her to accomplish what would otherwise be impossible. The way many students use AI is much like wearing Ripley’s power loader suit to the gym. You might be able to “lift” 5000 pounds in the power loader suit, but it’s a mistake to think the suit is making you any stronger, a laughable self-deception to think you could lift 5000 pounds without it, and a laughable lie to anyone you’re trying to deceive into thinking you can lift 5000 pounds. When you hand in work that’s mostly AI-generated, you’re not building muscle, learning to lift, or getting stronger. You’re racking up huge numbers while your muscles atrophy. Sometimes, of course, using AI is like having a spotter when you’re doing squats or bench press. I use AI in the gym as a trainer of sorts that tells me which exercise to do next. That’s one way to use AI, but the way too many students use AI is like going to the gym and having the AI tool–the power loader suit–lift the weights for me. Tools like ChatGPT, Gemini, Grok, and Claude should free up our time and energy to do higher-order work, not hide the fact that we can’t. Technology has made me significantly more productive: I dictated the original version of this essay into Google Docs on my phone using wireless earbuds, and then revised it using Gemini and Grammarly. What’s the difference between that and submitting AI-generated work? Using dictation tools and AI to generate and clean up an essay like this is like using Ripley’s power loader to move heavy stuff. Using AI to create text and trying to pass it off as your own is like using Ripley’s power loader suit to fake a workout.   I thank ChatGPT, Gemini, Grammarly Pro, and GPTZero.me for editorial assistance. (0 COMMENTS)

The recent removal of Nicolás Maduro from Venezuela’s presidency is a dramatic development after more than two decades of socialist experimentation under Hugo Chávez and Maduro, characterized by expropriation, macroeconomic mismanagement, and political repression.  Although there is much uncertainty about the economic and political future of Venezuela, economics can offer some guidance—and warnings. One such lesson has to do with the dangerous temptation to base economic recovery solely on the oil sector. Venezuela’s prospects depend critically on the quality of its institutional and policy choices from now on.  In Venezuela today, the judiciary, the electoral authorities, public prosecutors, and the police have lost their independence. The restoration of individual and political rights by reforming instrumental institutions, by which the Venezuelan people may again impose accountability on their political leaders and government agents, must be the first order of business.  Secondly, it is necessary to restore private property rights and free enterprise to unleash the creative powers of the Venezuelan people. Finally, leadership should turn to the design of foreign-exchange policy and the management of oil rents, both of which are essential to avoiding a renewed cycle of dependency, rent seeking, and stagnation. A political transition that included meaningful electoral reforms and credible guarantees of fair competition would likely be accompanied by a gradual normalization of relations with the United States. Such normalization could, in turn, allow for the partial lifting of sanctions and renewed participation of private—especially foreign—oil companies in Venezuela’s energy sector. Given the country’s vast proven reserves and deteriorated but recoverable infrastructure, even modest institutional improvements could translate into significant increases in oil production and export revenues. These revenues would provide a rare opportunity: the chance to stabilize public finances, begin repaying defaulted foreign debts, and reestablish Venezuela’s credibility in international capital markets. Yet this opportunity carries well-known dangers. Chief among them is the risk of Dutch disease—the tendency of resource booms to appreciate the real exchange rate, undermine non-resource tradable sectors, and entrench an undiversified economic structure. Venezuela’s historical experience provides ample warning. During previous oil booms, exchange-rate appreciation and fiscal profligacy devastated agriculture and manufacturing, increased import dependence, and reinforced the political power of rent-seeking coalitions. Any serious reconstruction strategy must therefore treat exchange-rate policy not as a technical afterthought but as a central pillar of economic reform. Avoiding Dutch disease requires resisting sustained appreciation of the local currency, even in the face of rising export revenues, as I have argued elsewhere. A freely appreciating currency would make non-oil exports uncompetitive and discourage the revival of sectors that are essential for long-term growth and employment. This does not necessarily imply a return to rigid exchange controls—whose catastrophic consequences in Venezuela are well documented—but it does suggest the need for a carefully designed regime. Sterilization of foreign-exchange inflows, accumulation of external assets, and institutional mechanisms to prevent excessive domestic spending of oil revenues would all play a role in maintaining a competitive real exchange rate. Closely related to a successful foreign-exchange policy design is the question of oil rents. The central political economy challenge for post-socialist Venezuela will be to prevent these rents from being captured by entrenched interests, whether public or private. Without credible constraints, oil revenues tend to fuel corruption, clientelism, and fiscal irresponsibility, undermining both democracy and economic freedom. For this reason, the creation of a dedicated “sink fund” deserves serious consideration. Unlike a traditional sovereign wealth fund designed to maximize returns or smooth consumption, a sink fund would have a narrow and transparent mandate: the systematic repayment of Venezuela’s foreign debts over a foreseeable horizon. Channeling a substantial portion of oil revenues into such a fund would yield several benefits. First, it would reduce the immediate pressure to spend domestically, thereby supporting exchange-rate stability and mitigating Dutch disease. Second, it would help rebuild Venezuela’s reputation as a responsible borrower, lowering future borrowing costs and expanding access to international finance. Third, by placing oil rents beyond the discretionary control of day-to-day politics, it would limit opportunities for rent-seeking and signal a credible commitment to fiscal discipline. Over time, the restoration of basic protections for private property and free enterprise would allow economic activity outside the oil sector to recover. Venezuela once possessed a relatively diversified economy by regional standards, with significant capabilities in agriculture, manufacturing, services, and human capital–intensive industries. While much of this capacity has been destroyed or driven into the informal sector, it has not vanished entirely. The Venezuelan diaspora—now numbering in the millions—represents a particularly important reservoir of skills, entrepreneurial experience, and international connections. If institutional reforms are credible and durable, many expatriates may choose to return or to invest from abroad, accelerating reconstruction and diversification. Perhaps, the political demands of an impoverished people for public transferences could be diverted by allowing profit making and income generation by the private sector. If that is not understood and implemented, rent seeking will become irresistible, and the oil rents will be once more dissipated and political representation corrupted as government revenues are divorced from the broader well-being of Venezuelans and their economy. In this broader context, exchange-rate policy and oil-rent management should be understood as enabling conditions for a deeper transformation. The goal is not merely macroeconomic stabilization but the reconstitution of a society in which economic opportunity is decoupled from political privilege. By avoiding currency overvaluation, insulating oil revenues from predation, and prioritizing debt repayment over short-term consumption, a post-Maduro Venezuela could lay the foundations for sustainable growth and genuine reintegration into the world economy. None of this would be easy, and success would depend a lot on luck and on political will as much as technical design. But if the assumptions of political normalization, institutional reform, and renewed oil production were to hold, the prudent management of exchange rates and rents could help ensure that Venezuela’s next encounter with resource abundance becomes a source of recovery rather than another missed opportunity.   Leonidas Zelmanovitz is a Liberty Fund Senior Fellow and a part-time instructor at Hillsdale College. (0 COMMENTS)

Philosopher and author Rebecca Newberger Goldstein discusses her new book, The Mattering Instinct, which argues that our lives are a quest to validate our inherent self-centeredness. Tracing this essential longing from physics and biology through to ethics and politics, she explains to EconTalk’s Russ Roberts why material success alone can never satisfy our deep-seated need […] The post The Mattering Instinct (with Rebecca Newberger Goldstein) appeared first on Econlib.

This is the latest in our series of posts in our series on price theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed. Share your proposed solutions in the comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!   Question: Is the following true or false? Explain your reasoning. If the quantity of higher education services supplied does not rise with the price of those services, i.e., if supply is perfectly inelastic, then subsidizing the demand for higher education services will primarily benefit universities and their employees. (0 COMMENTS)

It is time to explore the principles on which human nature has been constructed and the social structures that are derived from behaviors embedded in the human genome. —Nicholas Wade, The Origin of Politics (46) Nicholas Wade is concerned that we are attempting to establish cultural norms and political structures that stray too far from traditions that are consistent with evolutionary biology and psychology. Two fateful collisions between politics and human nature are at present in progress.  One is the steady fraying of the social cohesion required to hold together the multiethnic society that the United States has become. The other is a worldwide decline in fertility that has set almost every country outside Africa on the path to eventual extinction  (1) Humans, like other species, come with a set of instincts and drives that were shaped by evolution. The desire to reproduce and successfully raise children is one that may not dominate our waking thoughts, but it’s the prime motivator of actions throughout life.  (53) We can connect some of our behavior to evolutionary prehistory. A striking link between early and modern armies is that of movement in unison.  Moving the body in synchrony with others engenders a feeling of unity and common purpose.  War dances were doubtless held for this reason.  The modern army’s equivalent is marching on the parade ground.  (62) Wade argues that our moral outlook has evolutionary origins. A society cannot function if its members have no compunction about harming or murdering one another, so evolution instilled in our minds a moral sense that such actions are prohibited. (85) He says that the same holds true for social arrangements at large.  Humans have built large-scale social structures, by drawing on such features of human nature as kinship, religion, warfare, the instinct for following rules and punishing violators, and the desire to pass on wealth and status to one’s children.  (97) What happens when culture conflicts too much with our deep desires?  Wade discusses the social experiment of the kibbutz in Israel, which attempted some cultural modifications that could not be sustained. The kibbutzim regained their footing only after they had abandoned their two primary policies that conflicted with human nature—the abolition of the family and separating work from reward.  (12) Other cultural changes have turned out to be more workable.  Substituting monogamy for polygamy served to reduce violence within groups and helped strengthen group solidarity with respect to external groups.  Replacing tribal society with formal political structures allowed societies to enlarge their economies and to increase wealth.  These effects had survival value. Wade insists that sex differences are natural and important. The two sexes have different aptitudes and interests, as would be expected from their long evolutionary history of specialization.  A society that substantially reallocates these natural choices according to feminist or any other ideology will raise social tensions and will risk deranging the natural distribution of talents within a society.  (109) He asserts that the drive to place women in high positions in organizations, especially universities, has had adverse consequences. Almost all social institutions have been created by men.  This is because men have always been concerned with forming coalitions with other men for reasons of governance and defense… The idea that men are on average better adapted than women for running institutions is therefore a reasonable hypothesis, though one that has yet to be proved… Two thirds of college administrators were female in 2021.  A principal function of these shadowy groups is to diminish the success of white male applicants in applying for faculty positions.  They also issue requirements for “safe spaces” and speech codes that make the campus resemble as much as possible the optimal female environment of security… There is scant evidence that today’s feminized universities place top priority on the pursuit of knowledge… Institutions that propel women into leadership positions for reasons other than merit risk slipping into the same disarray as that into which many once-renowned universities have collapsed.   (117–119) Such claims are inflammatory.  But I would note that Helen Andrews spoke similarly at a conference in the fall of 2025.  See also my review of Warriors and Worriers, by Joyce Benenson. Wade speculates that liberal and conservative political beliefs are sprinkled through humanity because circumstances vary. A group pressing into new territory would benefit if the “liberal” alleles became more common in the population, encouraging it to keep exploring.  But suppose the new territory is fraught with danger, whether of hostile neighboring groups or climactic variability.  In these circumstances, the “conservative alleles will start to become more common in the population because those who practice caution and traditional ways of doing things will have better chances of survival. (158) In his final chapter, Wade backs away from the seemingly conservative implications of the evolutionary perspective. Politics has to promote and govern change as well as the conservation of values and traditions.  The evolutionary perspective provides no basis for favoring conservative over liberal politics.  (211) But he concludes with a plea to pay heed to our evolutionary inheritance. The evolutionary mismatch between human nature and culture continues to widen, creating serious stresses… Lasting solutions will be found only within the framework of human nature.  This set of behaviors, whatever its frailties and failings, is the best that evolution could devise for constructing human societies and ensuring their survival.  Politics and culture can sometimes moderate these behaviors for the better.  But, stretched too far, the natural bonds that sustain the fabric of society will tear asunder.  (213) If I had written a book on these themes, I would have taken more care to take a stance of “Often, but not always.”   Often, cultural experiments fail when they go against evolutionary instincts, but not always (we have found ways to overcome nepotism).   Often, the way that women approach cooperation and competition differs from men’s approach, but not always (personality differences are prevalent among women and among men that may be as large or larger than average differences between the sexes).   Often, evolutionary mismatch is exacerbated by liberal policies, but not always (one can argue that dramatic income inequality is an example of a phenomenon that is an evolutionary mismatch that is exacerbated by conservative policies).   That said, one should not reject Wade’s speculations out of hand. (0 COMMENTS)

In any principles of economics class, students learn the difference between accounting profit and economic profit. Accounting profit, which is what one typically understands when discussing “profit,” is total revenue minus your monetary costs. It is what appears on the bottom line of an accounting statement as “profit.”  Economic profit is a broader term. Recall that, for economists, “cost” is a term of art: it is the highest-valued alternative not undertaken. This includes both monetary costs and alternative uses of your resources, often called implicit costs. Economic profit, thus, is total revenue minus total costs (both your monetary and your implicit costs). Implicit costs do not show up on an accounting statement, yet they are still vital to making life decisions.  It is possible for accounting profit to be positive (i.e., you are making money), but economic profit is negative (i.e., there are better alternative uses for your resources). In that case, the economically rational thing to do would be to reorganize your resources toward the higher-valued use.  A real-life example of economic and accounting profit is discussed in The Rise of the Cajun Mariners: The Race for Big Oil by Woody Falgoux. Woody’s book follows four Cajun families as they rise from humble beginnings to become major oil boat barons on the bayou. One such family was the Orgerons. The Orgerons, for the purposes of this post, were the father, Juan, and his two sons, Herman “Bouillien” and Bobby. During World War 2, Juan ran a boat, the “Herman J,” that serviced the oil rigs in the Gulf of Mexico. After the war, a dispute over submerged mineral rights flared between the coastal states and the federal government, known as the Tidelands Dispute. During this dispute, there wasn’t much need for oil boats, so Juan sold the Herman J and returned to his traditional source of income, muskrat trapping.  Muskrat trapping was a good business for Juan. It allowed him to purchase the Herman J, put food on the table, and put his sons through at least rudimentary schooling. The price of muskrat post-war was high and he had relatively low labor costs. His two sons worked for him (Bouillien full-time, Bobby when not in school) at no salary (pg. 23). Juan was certainly making accounting profit. But was he making economic profit? Was there a better allocation of his resources (labor)? Bouillien certainly thought so: “But then in 1946, Bouillien reminded him [Juan] that while trapping was a good living, the oilfield was a better one. Bouillien told his father things were picking up and convinced him to buy a 36-foot wooden crew boat with twin Chrysler engines, which was working for Texaco out of Lafitte, twenty-five miles to the northeast of Golden Meadow [their home] (pg. 23).” Bouillien saw that the economic cost of keeping all their labor on the muskrat trapping leases was greater than the revenue it brought in for the family. It made sense, then, to reallocate their resources. Juan agreed, bought a new boat, made Bouillien the captain, and resumed servicing the oil industry. By recognizing their accounting profit was positive but their economic profit was negative, Juan and Bouillien were able to increase their well-being (the family would become quite wealthy) and profit. But, ever the man with an economist’s insight, Juan intuitively understood that life happens at the margins. He did not reallocate all his resources to oil. He kept Bobby on the muskrat leases. Bobby was less-than-thrilled with that arrangement, but that is a story for another time. The economic way of thinking is both descriptive and prescriptive. It teaches both how people make decisions and shows how one can improve their decision-making skills. Not all can be as lucky as the Orgerons (they certainly were skilled, but luck plays a role in success, too). They were in the right place at the right time to capitalize on the oil industry. But the economic way of thinking does show how we can improve our lives, even if just incrementally. But incremental improvements can lead to substantial gains, thanks to the power of compounding. Recognizing economic costs (even when they are ephemeral and inarticulable) and opportunities is key to improving one’s economic position. (0 COMMENTS)

If technology is ruining the art of conversation, maybe it can save it, too. Anna Gat–poet, screenwriter, playwright, and founder of Interintellect–talks with EconTalk’s Russ Roberts on how she’s reviving the French salon in the digital age. They discuss why authority, moderation, and clear formats make conversation freer, not more constrained. They also explore why one of […] The post Conversation, Interintellect, and Arcadia (with Anna Gát) appeared first on Econlib.

On January 1, 1959, Fidel Castro and his bearded revolutionaries marched into Havana. Church bells rang across the island as Batista fled into exile. This January 1st marked the 67th anniversary of that revolution. Sixty-seven years of a system built on deception, imposed through violence, and sustained through repression. But now, for the first time since Castro’s march into Havana, genuine change appears inevitable. Throughout the 1950s, Castro repeatedly insisted he wasn’t a communist. He promised free elections, a free press, and the restoration of the 1940 Constitution. By April 1961—barely two years after marching into Havana—Castro declared the revolution socialist. Commanders such as Huber Matos and the American William Morgan, who believed his earlier promises and opposed this communist turn, paid dearly. Matos was convicted and spent 20 years in prison, while Morgan was tried and executed for treason. What followed was swift and total. Between 1959 and 1968, the regime nationalized every sector of the Cuban economy. Share of the Economy Under State Ownership (%) Source: Carmelo Mesa-Lago, The Economy of Socialist Cuba: A Two-Decade Appraisal, p. 15. By 1963, roughly 95% of industry was in state hands; by 1968, private enterprise had been effectively eliminated. Research by Marianne Ward and John Devereux indicates that in the 1950s (before Castro’s takeover), Cuba’s living standards were among the highest in Latin America, with per capita income levels comparable to those of countries like Italy. But that pre-revolutionary economy, grounded in markets and private property, was replaced by Soviet-style central planning, with severe social consequences. Between 1959 and 1981, some estimates suggest that between 35,000 and 141,000 Cubans died under the regime. Dissent was suppressed, newspapers were nationalized, and repression was brutal, especially against those most openly opposed to the government. For decades, the system Castro built appeared unshakeable. But on July 11, 2021, something unprecedented happened. Thousands of young Cubans flooded the streets of cities across the island, demanding freedom. “Libertad!” they shouted. “Patria y vida!” Homeland and life, a direct rebuke to the revolutionary slogan “Patria o muerte.” The regime responded with brutal repression. According to Prisoners Defenders, Cuba currently holds about 1,187 political prisoners, many of them young people who simply demanded basic rights. But this time, the repression backfired. Instead of crushing dissent, it triggered the largest migration in Cuban history. Between 2022 and 2023, Cuba lost roughly 20% of its population to emigration. The numbers are extraordinary. Entire neighborhoods in Havana have emptied. Doctors, engineers, teachers, and skilled workers of all kinds have fled. A few weeks ago, The Economist published a sobering assessment, noting that “most Cubans with get-up-and-go have got up and gone—a manpower hole is gaping at the heart of Cuba’s economy.” The economic situation compounds the crisis. Inflation is estimated to be anywhere from 20% to 100%. A recent survey reports that 89% of Cubans now live in extreme poverty. As one 52-year-old Cuban told The Economist, “This system is so screwed up it’s unfixable. All you can do is get rid of it and start all over again.” The regime has conducted some reforms, resulting from strong pressure to loosen controls in the import sector. But these have not been genuine market reforms. Access still depends on state discretion rather than predictable rules, open entry, and protected property rights. This limited liberalization thus favors rent-seeking behavior, with firms operating mainly to please party officials rather than compete in open markets. But there are concrete reasons to think change is coming. A recent poll by CubaData reveals a striking ideological shift: 21.7% of Cubans now identify as “liberal or pro-market”—seven times the 3% who still consider themselves “staunchly socialist.” Among these pro-market Cubans, 65% believe the regime must conduct serious structural reforms. The broader numbers are even more telling: 79% of all Cubans believe socialism is in decline, and 78.8%  no longer consider revolutionary principles relevant.  Even Cuban economists largely agree that the island’s problems stem not from the U.S. embargo but from the regime’s own policies. In addition, recent research by João Pedro Bastos, Jamie Bologna Pavlik, and Vincent Geloso found that the embargo explains only 3–10% of Cuba’s economic decline. The real culprits are nationalizations, the destruction of private property and markets, and their replacement with centralized economic planning. By 1989, even before Soviet support collapsed, these policies had already made Cuba approximately 55% poorer than it would have been otherwise. This matters because it means Cuba’s problems are solvable. They are the result of specific institutional choices that can be reversed. The regime now faces a perfect storm. It has lost people through mass emigration, and with them the manpower necessary to keep even basic services running. It has lost its ideological legitimacy. It has lost the ability to blame outside forces.  I believe we will witness the fall of this regime in the coming years. When that moment comes, Cuba could follow the path of Estonia or Poland, countries whose market reforms dramatically improved living standards. The transformation will require intellectuals, political leaders, and groups capable of implementing market reforms, property rights, and the rule of law. Paradoxically, the massive emigration may help provide this human capital. As Cubans assimilate into market economies abroad, they gain skills and institutional knowledge that Cuba will need. The exile community has already built infrastructure to educate new generations about the atrocities of communism and what prerevolutionary Cuba was like. These Cubans, with experience in functioning democracies and the motivation to help their homeland, will likely play a crucial role in Cuba’s reconstruction. Sixty-seven years ago, Castro marched into Havana promising freedom and delivered tyranny. Now his system is losing its grip. The Cubans who risked everything to demand liberty in 2021, who refused submission through exile, who have turned away from socialism, are writing Cuba’s next chapter. The question is no longer whether the regime will fall. It is whether Cubans will seize the moment to build a free and prosperous country on their own terms. (0 COMMENTS)

Question: Over the past several decades, the inflation-adjusted price of healthcare has increased. Based on this information alone, can you infer the source of the higher price–lower supply or higher demand? If not, what additional data would you need to determine whether higher prices are being driven by changes in supply or demand? Solution: I use this question, and others like it, in my principles of microeconomics class to emphasize a central lesson: you should never reason from a price change alone. As Scott Sumner has emphasized repeatedly, higher prices can result from an increase in demand, a decrease in supply, or some combination of the two. Observing a price change by itself is therefore not enough to identify the underlying cause. To determine why prices have changed, we must also examine what happened to quantity. Before turning to the analysis, it is useful to clarify the framework. In what follows, healthcare is treated as a composite good. While this introduces some measurement complications, it is a standard and appropriate simplification for a principles-level analysis. Likewise, the quality of healthcare has improved substantially over time. This does not undermine the supply-and-demand approach. Improvements in quality affect production costs and consumers’ willingness to pay, and therefore operate through shifts in supply, demand, or both. As a result, changes in quality can be incorporated within the same price-quantity framework used here. Suppose, for example, that we observe both the price of healthcare and the quantity of healthcare consumed rising over time. In this case, the data indicate that higher prices are driven primarily by an increase in demand. Importantly, this conclusion does not require that supply has remained constant. Rather, it reflects the fact that any supply-side changes were dominated by a sufficiently large outward shift in demand, resulting in a higher equilibrium price and quantity. By contrast, if we observed that the price of healthcare was rising while the quantity consumed was falling over time, we could conclude that higher prices were driven primarily by a contraction in supply. This reasoning follows directly from the logic of supply and demand, which treats each observed price-quantity pair as an equilibrium outcome. At any point in time, the market price and quantity reflect the intersection of the prevailing supply and demand curves. When we compare outcomes across time, we are therefore comparing different equilibria generated by shifts in supply, demand, or both. Observing how price and quantity move together across equilibria allows us to infer which shift was dominant, even though we do not directly observe the underlying curves themselves. This is why changes in prices must be interpreted alongside changes in quantities: together, they reveal the direction of the forces reshaping the market. Note that we do not need to identify the specific underlying factors—such as demographics, regulation, preferences, or technology—before drawing conclusions about whether supply or demand has changed. While these factors are important for explaining why supply or demand shifts, they are not necessary for identifying which side of the market shifted. In supply-and-demand analysis, such factors matter only insofar as they shift the supply curve, the demand curve, or both. By observing how equilibrium price and quantity change, we can infer whether demand or supply was the dominant force, even without knowing the precise source of the shift. In short, price and quantity data identify the direction of the change, while information about underlying determinants explains its cause. It is also important to emphasize that total spending—price times quantity—on healthcare cannot tell us whether higher prices are due to changes in supply or demand. An increase in demand would raise total spending, since both price and quantity increase. However, a decrease in the supply of healthcare could also raise total spending if demand is relatively inelastic, because price may rise by more than quantity falls. For this reason, total spending on healthcare does not allow us to identify the underlying source of higher prices. In short, a rise in the inflation-adjusted price of healthcare, by itself, does not tell us whether demand or supply is responsible. To identify the dominant force, we must examine how quantity changed alongside price. (0 COMMENTS)