Economists frequently react to events differently than most people. Often, critics of economists will say something like “sure, it’s easy for you to say that because of the position you are in, but if you were in the shoes of someone who has to experience it I bet you’d change your tune!” For example, economists don’t view so-called “price gouging” as a terrible affront – but maybe that’s just because those economists have never been on the receiving end of price gouging, and if they ever were, they’d reconsider. But such critics shouldn’t be so sure. The economist John Cochrane recently explained why his experience being on the receiving end of “price-gouging” was positive: Uber surge pricing was an important lesson to me. I loved it. I could always get a car if I really needed one, and I could see how much extra I was paying and decide if I didn’t need it. I was grateful that Uber let me pay other people to postpone their trip for a while, and send a loud signal that more drivers are needed. But drivers reported that everyone else hated it and felt cheated. Cochrane also describes his mother being outraged when they tried to find a hotel room in what turned out to be the midst of Woodstock II. Eventually, they found one at a Super Motel 8 that was going for significantly more than that chain’s typical rate. He tried to reassure his mother that the room being available for a high price was, in fact, a thing to be grateful for: I tried hard to explain. “If he charged $50, or $100, those rooms would have been gone long ago and we’d be sleeping in the car tonight. Thank him and be grateful! He’s a struggling immigrant, running a business. We don’t need presents from people who run Super-8s in upstate New York.” But, though an amazing, smart, wise, and well-traveled woman, she wasn’t having it. Nothing I could do would persuade her that the hotel owner wasn’t being terrible in “taking advantage of us.” My own experience of this comes from the other side of things – being in a situation where there was no “price gouging,” and wishing there had been. This was back in 2016. I was leaving my job at the Medical University of South Carolina in Charleston and moving to Minnesota. Most of my belongings had been picked up by movers several days prior, and I was going to drive out that weekend. However, a few days before I was originally set to leave, Hurricane Matthew would be arriving in Charleston. So I decided to wake up extra early the next morning and hit the road a few days earlier than I initially planned. When I woke up the next morning, I realized I had screwed up. My gas tank was very low, bordering on empty, and I had a very long drive ahead of me. So, I needed to get gas. And what I found was that even at 4:30 in the morning, every nearby gas station had a tremendously long line for each pump, as people prepared to leave the area ahead of the hurricane. However, the price of gas had not changed at all – no price gouging to be found here! And that was worrying to me. Everyone needed gas, but not everyone needed it equally. I’m sure that many people in that line, as well as those who had filled up and left in the prior days, had tanks that were near or mostly full but wanted to “top off” before hitting the road. Then there were other people like me, whose gas tanks were running on fumes and who wouldn’t even be able to make it ten minutes down the highway to hit up a gas station in the next town over. In a perfect world, the remaining gas would go to people like me rather than those with mostly full tanks. And that’s exactly the sort of world that price signals will tend to steer us toward. If the price had been allowed to rise, someone who already had three-quarters of a tank of gas might have thought “It’s not worth filling the rest of the way up at this price, I’ll just head out now and get gas when we are a few hours down the road.” Each person who made that kind of decision would leave that much more gas behind for people in a situation like mine, where it really was a “now-or-never” scenario. I’d have cheerfully paid an extra couple of bucks a gallon to be assured of the ability to fill my tank, rather than having a serious risk of getting stranded next to a gas station advertising a “fair” price alongside their empty gas reserves. Luckily it didn’t come to that – I was eventually able to get to the front of the line and fill the tank. I also noticed that the flow of gas coming out of the pump was slower and weaker than I’ve ever experienced before or since. I was lucky – if I had been an hour later leaving that morning it’s very likely there would have been no more gas left at all, and I’d have been stuck with a hurricane bearing down on me. And I wouldn’t have felt at all like I had been protected or looked out for by the laws that kept the price of gas from rising. John Cochrane was grateful for the high prices he got to pay – and I was immensely distressed at the low prices I had to pay. (0 COMMENTS)

Protectionism is currently in vogue, gaining support from both the left and the right. This isn’t the first time. As protectionism’s popularity ebbs and flows, it remains a constant presence. Each resurgence is driven by variations of the same argument, particularly the infant industry argument.  The argument is straightforward: protectionism, through tariffs or subsidies, helps young industries grow by shielding them from foreign competition until they can compete on their own, ultimately leading to more economic growth than would have occurred otherwise. As right-wing public intellectual Oren Cass recently summarized, “the way America went from colonial backwater to this globe-spanning industrial colossus was not free markets and free trade. It was aggressive protection of our domestic market.”  The problem is that, with each resurgence, the same replies can be made: the increase in domestic production of protected industries is not worth the lost welfare of consumers. In fact, there is not a bit of the statement made by Cass that squares with American economic history.  Let’s start with the last part of Cass’s comment that speaks to “aggressive protection of our domestic market”. By definition, protectionism should increase output in the protected industries. However, the scale of the increase, as seen in frequently cited case studies like the steel industry in American economic history, appears pretty small– smaller than what protectionists had promised when they initially called for tariffs. One reason this is the case is because tariffs can also increase the price of some inputs (such as capital inputs), which reduced productivity growth in the future. As such, there might have been a one-time bump in production but the trend was ultimately slowed down by the tariffs.  On the cost side, it’s important to recognize that tariffs, by raising the prices of certain inputs, also increase costs for industries that depend on these inputs. This is especially harmful to industries engaged in fierce international competition for export markets. Economic historian Douglas Irwin was able to show that this effect constituted, for postbellum America, what was effectively an export tax of 10%. All of this is without considering the cost borne to consumers. Returning to the case of steel protection (one of the frequently mentioned cases historically), we find that consumers were left worse off by significant proportions. In other words, the “aggressive protection” was a bad thing.  However, the first part of Cass’s comment is even more profoundly mistaken. America was far from being a “backwater” by the 18th century. Economic historians such as Jeffrey Williamson and Peter Lindert have shown that by 1774, the average American colonist enjoyed a significantly higher income than the average Englishman—a fact consistent with the large numbers of immigrants moving to America. My own research further demonstrates that America was at least 30% richer than the next wealthiest region in the Americas at the time, the French colonists in Quebec. Notably, this period before 1774 coincided with what was essentially the “freest” trade era of American economic history. From 1760 to 1775, following the conquest of Canada, the North Atlantic functioned as a free trade zone encompassing America, Canada, and Britain. Most protectionist legislation (such as the Navigation Acts) were either too small to matter or were widely ignored.  To make the claim he makes, Cass commits a common crime in economic history: focusing on growth during periods like 1790 to 1860 or 1865 to 1913 without considering the broader context. What these eras share is that they immediately followed highly destructive wars. The American Revolutionary War, for instance, erased America’s economic edge over Britain, with incomes dropping by roughly 20% due to destruction. Similarly, the American Civil War had a devastating impact on the economy. While both post-war periods did see impressive growth, this was largely “catch-up” growth—accelerated economic recovery as the nation rebuilt after the turmoil of war. Cass and other protectionists often cherry-pick periods of protectionism, attributing all observed growth to their favored policies. This tactic, much like a magician’s sleight of hand, is designed to dazzle the audience by masking the real factors at play.  The case for tariffs as a driver of economic growth has always been weak, and no amount of rebranding every few decades can change that fundamental flaw.   [Editor’s Note: Readers may also be interested in Geloso’s contributions to the Liberty Matters Forum, “Did the American Colonies Pay Too High Cost?” at the Online Library of Liberty.]   Vincent Geloso is an Assistant Professor of Economics at George Mason University. (0 COMMENTS)

In a recent Bloomberg column, Tyler Cowen discussed the difficulties involved in paring back regulation: The basic paradox is this: Government regulations are embedded in a large, unwieldy and complex set of institutions. Dismantling it, or paring it back significantly, would require a lot of state capacity — that is, state competence. Yet deregulators are suspicious of greater state capacity, as it carries the potential for more state regulatory action. Think of it this way: If someone told a libertarian-leaning government efficiency expert that, in order to pare back the state, it first must be granted more power, he would probably run away screaming. Tyler was focusing on the federal government’s role in regulation, but a recent twitter thread by Brian Hanlon illustrates a similar problem at the state level: Yimby attempts to promote housing construction have proceeded along two different dimensions, deregulation and mandates.  To paraphrase Tyler, if 5 years ago you’d asked me about housing mandates for local governments, I “would have probably run away screaming.”   I’m still not at all sure that this is a good idea.  But I do sort of see the logic of this approach.  State governments are trying to deregulate the housing market, and local governments continually offset their moves with ever more onerous regulatory barriers.  Mandates are obviously not the first best solution—it would be better if local governments put up fewer barriers to building houses.  But mandates are one tool that might actually force action on the issue. For instance, most state governments engage in lots of revenue sharing.  One could imagine making the size of the local grant be proportional to the quantity of new housing being constructed.  Because Nimby policies impose negative externalities on the rest of the state, a financial penalty for burdensome regulations would force local governments to bear at least part of the cost of their barriers to new construction.  This would nudge them toward policies that allowed for more home building. To be clear, I am not at all confident that this would work in the real world.  In states like California and Massachusetts, the state government might attach requirements that construction use union labor, or that a certain percentage of housing be “affordable”.  By the time legislation gets through the sausage making process in the legislature, it rarely resembles the ideal concept drawn up by policy wonks.  Nonetheless, there are things in the world that are worse than housing mandates, and I suspect that certain parts of the US already have them. (0 COMMENTS)

I’m reading J. Doyne Farmer’s recent book, Making Sense of Chaos, for a discussion I’ll be involved in next week. On page 53, Farmer makes a good point, writing: Though we often refer to pieces of the production network as supply chains, this is a bad metaphor: The production network is full of branches and is more like a tangled web than a chain. (italics in original) It’s nice to see someone who’s not even an economist making that economic point. Here’s Don Boudreaux making it in some detail in “The Economy is Not a Series of Supply Chains,” American Institute of Economic Research, April 13, 2020: A Web Isn’t a Chain The first reality is that, in our modern economy nearly every productive enterprise is connected to every other productive enterprise. This connectedness is the phenomenon alluded to by the term “supply chain.” This term, however, is highly misleading. Today’s economy is not a series of supply chains running side by side with each other, each largely distinct from, and independent of, the others. If it were, there would indeed be little challenge in pulling in one or more such chains into the domestic economy so that it fully resides there, from beginning to end. Instead of a collection of distinct supply chains, our modern economy is a single globe-spanning web of interconnectedness. Within this web every output is the product of countless inputs and each kind of input typically is used to produce countless different kinds of outputs. This web of interconnectedness – the complexity of which is beyond human comprehension – is indispensable for our modern mass prosperity. Yet its existence – its ‘everything-is-connected-in-some-way-to-everything-else’ reality – means that there are no objective and clear lines separating “critical supplies” from “uncritical” ones. Further obliterating the existence of any such objective and clear lines is economic change – both change that is inseparable from a market economy’s creative destruction (for example, the invention of the assembly line), as well as change that is imposed on humanity by nature (for example, the depletion of an iron-ore mine). Such change at every moment rearranges – usually slightly, but sometimes dramatically – the particular connections that each node of the vast economic web has with innumerable other nodes.   Postscript: Russ Roberts recently interviewed Farmer on his book for EconTalk. Arnold Kling recently reviewed the Farmer book here.   (0 COMMENTS)

[Editor’s note: In her previous post, Temnick talked about how she teaches her students about human capital.]   Economics teachers never fail to miss introducing their students to the Factors of Production. Land, labor, and capital all have their day. But too often, one of the most critical factors is left out- entrepreneurship. How do I teach it? I begin by asking for volunteers to attempt to spell out-loud, without looking at a reference, the word, entrepreneurship. I sound a buzzer at a first mistake and move on to the next student, and the next. It usually takes three student attempts before it is spelled correctly. This may be the reason that some textbooks substitute the term enterprise for this factor of production. I prefer the former term. (I have a relentless aim to emphasize spelling and geography lessons as opportunities arise in the high school classroom. I rotate seating in my classroom so that students sitting under the world map are responsible for pointing out the locations of countries that come up in various lessons.) After the lesson on Human Capital, I ask students how this factor of production differs from Entrepreneurship, as well as for examples. Inevitably, names of individual entrepreneurs come up, Steve Jobs, Bill Gates, Elon Musk… mostly male and tech related. Why not Taylor Swift? Or Oprah Winfrey? After acknowledging that these are indeed individual entrepreneurs, we discuss the definition of entrepreneurship: the risk-taking, innovation, and organization of resources for production. It is a process of discovery, most often a collaboration by many individuals over time that leads to small and sometimes large changes in goods, services and processes. In the tens of thousands of Research and Development Departments in U.S. institutions, patents are awarded for new inventions or changes made to existing products. This intellectual property award protects the owner for a limited time from others copying, using or selling the invention. Roughly 90% of all patents are awarded to firms (corporations, universities, and other organizations), while the remainder go to individual inventors. Entrepreneurs can be awarded either patents or copyrights depending on the type of intellectual property they create. Patents are awarded for useful new items, copyrights generally protect authorship (of books, software, music, etc.). The distribution of copyrights between firms and individuals varies with the type of creative work. I then ask. what are recent examples of inventions of brand new products? What are examples of tweaks or changes to existing products?  The Covid-19 vaccine, AI-powered health devices like Apple watches and Fitbits, plant-based meat alternatives, TikTok, craft breweries, eco-friendly cosmetic packaging… I encourage the list to be continued while I type them into a smart board projected document.  Then I ask what countries of the world file the most patents? Which countries earn the most copyrights? Here I remind myself of the great responsibility I have to connect the institutions of free market societies to the incentives that influence flourishing entrepreneurship. Demographic differences or feverish patriotism are not the drivers. Entrepreneurship prospers where contracts are upheld by courts of law, where private property is protected and can be used for collateral, where profits can be earned and retained by the firm or individual risking their time and capital to innovate. These are only some of the features of an enterprising society. Others include an educational system that promotes the exploration of creative endeavors, access to global markets, and cultural and community support for business ventures that encourage individuals to devote time, effort and finances to produce their products and ideas. A free market economy, as examined in Adam Smith’s  Wealth of Nations, illuminates how resources – those factors of production- are best allocated to produce the goods and services desired by society.  I assure students that we will revisit the multiple topics brought up in that description, but it is never too early to reinforce the market connection. Back to the question, ‘who leads the world in patents and copyrights, these symbols of a prosperous entrepreneurial society’? The right answer is usually guessed, but that guess is hopefully more informed.  The U.S. consistently ranks at the top for patent filings, particularly driven by its strong technology, pharmaceutical, and automotive sectors. Major corporations like Apple, IBM, and Microsoft contribute significantly to the country’s patent filings. The United States is the undisputed leader in global startup businesses.  From Silicon Valley, the epicenter of tech innovation, to New York City, to newer hubs like Austin Texas, talented workers are attracted to startups across various industries.   The U.S. leads the world in copyrights, particularly in entertainment, software, and literature. The dominance of Hollywood, Silicon Valley, and the robust publishing industry makes the U.S. a global leader in copyrights. Additionally worth a mention is how easily the spirit of existing and potential entrepreneurs can be crushed by an authoritarian regime disrupting existing institutions. This can also generate conversation about countries with limited f entrepreneurship. As an advocate of proper technology use in the classroom, I now have students work in teams to conduct their own research on global patents and copyrights, or business start-ups, research and development funding or any related topic. Teams then share with the class an interesting finding or observation from a country other than the United States. (The students seated under the map will point out each location as students name their country and their unique findings).   The class closing is an opportunity for a student volunteer to differentiate human capital as the physical and intellectual work of the laborer with the entrepreneur’s risk-taking, innovative actions. This might generate interest in future work for a firm that is part of the entrepreneurial activity in a growing economy.  Two factors of production down, and now land and capital need an introduction. Coming Soon! (0 COMMENTS)

The Economist argues that those calling price-gouging laws “communist” are wrong. Three-fourths (at least) of American states, whether dominated by Democratic or Republican governments, have them on the books (“America’s Anti-Price-Gouging Laws Are Too Minor to Be Communist,” April 22, 2024). In my view, those who use the epithet in this instance are rather ignorant or sophistical. Labelling them collectivist, however, is correct. Communism is a Marx-inspired ideology that relies on collective choices as opposed to individual choices for the regulation of society. (The Chinese government has abandoned Marx but not collectivism, of which it is a standard bearer.) Any sort of price control, including milder and intermittent price-gouging caps, is certainly collectivist but not necessarily communist. Communism is just one form of collectivism. There are other forms of collectivism including on the right, which explains the many price-gouging laws across American states, plus one at the federal level—the Defense Production Act, often invoked by the federal government including during the (extended) Covid emergency. Both on the moderate-left and moderate-right sides (if we may use the conventional axis), price-gouging laws are a manifestation of collectivism with a human face. More extreme collectivist regimes impose more permanent, extensive, and arbitrary price controls. Opposed to the different shades of left and right collectivism stands individualism—from classical liberalism to the ideal of anarcho-capitalism—where individual choices are privileged to coordinate a spontaneous or autoregulated social order and to define a minimal ethics. One should not be scared of the terms “collectivism” and “individualism”: they define the fundamental alternative in political philosophy. “Price gouging” should of course put in scare quotes. Your preferred manufacturer or egg farmer is not more of a “price gouger” than your expensive babysitter or your own salary. Producers are happy to accept prices bid up by customers and the latter are happy to have prices bid down by competing suppliers. Consumers are happy to bid up the prices of what they want instead of going without it. Many suppliers are willing to accept lower prices rather than leaving the industry. Nobody is obliged to accept a price proposal, while everybody is obliged to accept state interferences in his life under fear of punishment. Market-determined prices serve to coordinate individual actions without coercion from authority. Nothing is perfect but voluntary interrelations through private choices are generally preferable to prohibitions and obligations imposed by force. Anthony de Jasay was a contrarian economist and political philosopher who defined himself as both a (classical) liberal and an anarchist. He expressed the fundamental distinction between collectivism (collective choices) and individualism (individual choices) by defining liberalism as the primacy of the latter; quoting from his book Social Contract, Free Ride): Liberalism … means a broad presumption of deciding individually any matter whose structure lends itself, with roughly comparable convenience, to both individual and collective choice. (0 COMMENTS)

This is my second of two posts on Matt Zwolinski’s criticism of the moral parity thesis, looking at the second (and to me, more interesting) objection to moral parity. To Zwolinski, the “basic problem” with moral parity is that “we can’t base macro-level conclusions about politics and social organization (solely) on the basis of micro-level examples.” I’m sympathetic to the idea that the rules of individual, face-to-face interaction might be an incomplete guide for determining the rules of macro-level social institutions. This rhymes with F. A. Hayek‘s criticisms of the concept of “social justice.” In Hayek’s view, advocates of “social justice” go wrong for the same reasons as the issue identified by Zwolinski – they take claims about what would or wouldn’t be just in individual, micro-level cases and attempt to copy-paste that into conclusions about the justness of large-scale emergent social outcomes. Hayek freely granted that “the manner in which the benefits and burdens are apportioned by the market mechanism would in many instances have to be regarded as unjust if it were the result of a deliberate allocation to particular people.” But, Hayek says, we can’t extrapolate from cases of “deliberate allocation to particular people” carried out at the level of individual agents to claims about just distributions on a society-wide level. Attempting to do so, Hayek argued, falls not into “the category of error but to that of nonsense.”  But even granting that micro-level examples of appropriate behavior can’t fully account for macro-level rules of social organization, this still doesn’t provide much traction against the moral parity thesis. The reason is because, as I see it, Zwolinski is operating with too narrow a definition of the moral parity thesis to begin with. In Zwolinski’s post, he describes the moral parity thesis as the idea that “that governments have no rights that are not identical to or derivable from the rights of individuals. In other words, if something is wrong for individuals to do, then it’s wrong for governments to do as well.” But I think this misstates what advocates of the moral parity thesis mean. For example, Michael Huemer (certainly as strong an advocate of the moral parity thesis as you’ll ever find) has described his view like this, in his book The Problem of Political Authority: Political authority is a special moral status, setting the state above all nonstate agents. If we reject this notion, then we should evaluate state coercion in the same manner as we evaluate coercion by other agents. For any coercive act by the state, we should first ask what reason the state has for exercising coercion in this way. We should then consider whether a private individual or organization would be justified in exercising a similar kind and degree of coercion, with similar effects on the victims, for similar reasons. Note that Huemer’s objection in no way requires believing that micro-level examples of individual behavior be the sole determinant of macro-level conclusions about social organization. And when Huemer speaks of “agents” he doesn’t mean “individuals.” After all, he refers to the state as an “agent” even though the state is clearly not an individual, and he also speaks about private organizations as well. Huemer is not claiming, as Zwolinski puts it, that “if something is wrong for individuals to do, then it’s wrong for governments to do as well.” Those who endorse political authority argue not only that the state may do things that no individual would be permitted to do, but also that the state may do things that would be impermissible if engaged in by any other macro-level or emergent social institution. Should we conclude that because macro-level social rules can’t be derived entirely by reference to micro-level individual behavior that, say, large religious organizations like the Church of Scientology have special entitlements and moral exemptions that apply to no other organization? Or sufficiently large corporations? Or clans? Or any other large-scale social institution you can envision? States, after all, are simply one of a number of different organizations used to coordinate social activity – so one would need additional arguments for why these special moral exemptions emerge only in the case of the state but not any nonstate social institution. As Vincent Ostrom put it: We need not think of “government” or “governance” as something provided by states alone. Families, voluntary associations, villages and other forms of human association all involve some form of self-government. Rather than looking only to states, we need to give much more attention to building the kinds of basic institutional structures that enable people to find ways of relating constructively to one another and of resolving problems in their daily lives. One can accept that all these forms of human association Ostrom describes may operate on rules not straightforwardly derivable from micro-level examples of individual behavior. I, for example, freely agree that micro-level behavior of individual adult interactions does not fully describe the responsibilities and obligations that are part and parcel to families. But that, in and of itself, does not touch the moral parity thesis. In order to dispute the moral parity thesis one would need to provide additional arguments for why one and only one form of social organization holds such impressive and weighty moral exemptions as are typically ascribed to the state. And the emergent nature of social morality, by itself, still leaves that gap unfilled.  (0 COMMENTS)

Noah Smith has a post that advocates policy reforms to encourage more construction of housing.  At one point he makes the following observation: Housing policy is incredibly tough in America — and in most other rich countries — because housing has to serve two functions at once. It’s both a consumption good and an investment asset. A house is a place to live, but it’s also something that’s supposed to make you wealthier over time, when its price goes up. These two objectives directly conflict — if owner-occupied housing becomes more affordable, that makes most Americans poorer. When I say “most Americans”, I’m not exaggerating. The homeownership rate is about two thirds, with only small fluctuations. And for middle-class Americans, most of their wealth is the value of their home This fact sets up a direct and inevitable conflict between two large classes of American society: homebuyers versus homeowners. If you’re buying a house for the first time or looking to significantly upgrade, you want house prices to be as low as possible. But if you already own a home that you’re happy with, you want the price of that home to be as high as possible, so that you can make the homebuyers pay you a lot of money when you’re finally ready to sell. It’s basically a zero-sum game. But when it comes to new construction, it is very much a positive sum game.  (To be clear, in this paragraph Smith is discussing a change in the price of existing housing.  So AFAIK there is no disagreement on this point.) There are two ways to think about questions of economic welfare—money flows and the consumption of goods and services.  In my view, a monetary approach often leads to sloppy thinking. Thus some people complain that building lots of new housing won’t bring down the cost of home ownership.  But who cares?  The point of building lots more housing is not to lower the price (which as Smith rightly points out is a zero sum game), it’s to have more housing.  Thus while building more housing might not bring down the price (although ceteris paribus it usually does), it most certainly will provide more housing.  Countries don’t get rich by having lots of money (Zimbabwe has plenty), they get rich by having lots of stuff. When you travel around America, you can usually tell how rich an area is by just looking out the window of your car.  But there are a few exceptions.  There are some areas in New York City, San Francisco and West LA that are much richer than they look.  I’ve been told that the neighborhoods are trendy and expensive, but they look kind of run down, with unimpressive structures that don’t look well maintained.   As many of you know, the cause of this disparity is regulation.  Rent control laws, condo conversion restrictions, onerous permitting process, requirements to use union labor, affordable housing mandates, restrictive zoning rules, and many other regulations cause property owners to allow their buildings to fall into disrepair. The root cause of all this was satirized by Kurt Vonnegut in Harrison Bergeron.  The pursuit of excellence leads to inequality.  If we allow market forces to create beautiful neighborhoods in these run down areas, then lower income people might be replaced by wealthier residents.  So all of this misguided regulation is enacted in the name of “the poor”.   Keep the area run down and the poor can still afford to live there. There’s just one problem.  In the long run, it is the poor that suffer the most from the housing shortage.  The rich can usually find ways around misguided government regulations, whereas the poor that don’t luck into a rent controlled unit often end up homeless.      If a country has 100 million housing units and 110 million households, then as many as 10 million households may end up homeless.  That problem cannot be fixed with rent control, as landlords will prefer to rent to richer tenants that they can be confident will pay the rent on time.  YIMBYs understand that the only durable solution is to create another 10 million housing units.  It doesn’t even matter if the new units are “affordable”, as new construction will tend to depress the price of existing homes, which would be vacated by wealthy people moving into the new McMansions.  Indeed, affordable housing mandates actually make housing less affordable, as they discourage new construction. So why is housing such an important public policy issue?  Why don’t I write articles about the television manufacturing industry, or the dry cleaning industry? Housing has two special characteristics.  First, housing expenditures are a very large share of consumption.  Second, it’s a highly inefficient industry, especially in some key coastal areas.  And this inefficiency is mostly due to regulation.  I would add that the other two major economic problems, health care and education, are also industries which absorb a large share of GDP and are heavily distorted by subsidy and regulation.  In all three cases, the media relentlessly focuses on monetary issues, whereas solutions can only come from approaching these industries from an output perspective.  The goal should be changing the total quantity and/or quality of output, and producing each unit of output at a lower opportunity cost.  Monetary solutions like subsidies and price controls merely paper over the deeper problems.  (0 COMMENTS)

Friedrich Hayek argued that only action can be just or unjust. So, when the famous Austrian playwright and novelist Ödön von Horváth was promenading on the Champs-Élysées during a thunderstorm and was hit—and ultimately killed—by a bough of some tree, we cannot speak of injustice. The tree did not intend to kill him; it just happened. But Hayek’s view that justice only meaningfully applies to actions has further (and perhaps more important) implications. It also implies that the income and wealth patterns in a pure market economy are neither just nor unjust. While it certainly can be just or unjust how two people in the market economy interact, the specific order resulting from the interaction of millions of people is neither just nor unjust. As nobody plans the overall order (there is no action, no guiding will behind it), it is beyond justice. Today’s economies are mixed systems. In these systems, there is generally a free market process. Therefore, generally, the specific order that emerges is beyond justice. However, governments do intervene, that is, they, relying on coercion, interfere with people’s free actions. While perhaps not all, some interventions are intended to shape the income and wealth patterns in society. And to the degree that these interventions then impact the overall pattern of wealth in society, justice becomes applicable: how the government shapes these patterns can be just or unjust. For instance, governments tax inheritances with the purpose of preventing rising inequality, or they bail out ailing banks (as occurred after the 2008 crisis). You need not find this problematic per se. Perhaps there are good reasons for the interventions. However, even if generally fine, it is only unproblematic if all government interventions are actually just. As soon as some government interventions are unjust, however, a delicate situation emerges, because then we have an income and wealth pattern that is partly the result of unjust actions and that can thus be partly called just or unjust. To make this clear, if in a pure market economy you are poor or lose your job, you are just like Ödön von Horváth. You may be angry with your fate, but you haven’t been treated unjustly. But if you are poor or lose your job in a mixed economy, this may be (partly) the result of governmental action, that is, government’s unjust coercion-based actions. But then you may have justified claims to governmental action in order to retribute the prior injustice. And perhaps more. In Sanford Ikeda’s words, “once the redistributive intervention takes place, those who lose as a result now have a legitimate and identifiable target, i.e., the central authority and its supporters, to blame.” If this reasoning is correct, our evaluation of numerous actions of citizens within the mixed economy becomes very difficult, if not impossible. It’s a mess! For instance, if the bakery around the corner evades taxes, is this unjust? (That it is illegal is surely the case, but legality is not morality.) Once you acknowledge that the government has erected an insidiously complex regulatory regime that favours big companies who, with their lawyers and consultants, are better able to manoeuvre the mixed economy, it is no longer possible to pronounce a clear verdict. But also when we examine the actions of big players such as Apple it soon becomes evident that it is really difficult to find a good vantage point from whence to judge their actions, including attempts to capture regulation. For they may also be victims of unjust government intervention—a point in case is probably the EU Commission’s decision to punish Apple for allegedly exploiting its power in the music streaming business. In the imperfect mixed economy, then, people and companies who evade taxes, who violate the law, who implement schemes to circumvent government interventions, may even have the moral high ground. They may be justified to do illegal stuff. And they may be justified to capture regulation or even fight for new regulation that favours their industry. I am not saying that they are justified. These are moral questions and these, if they have definite answers at all, surely require detailed and intricate analysis of each specific case. But what is evident is that in an interventionist society, things really get messy and murky. It is not clear that those who do stuff that would definitely be reprehensible in the pure market economy, act reprehensibly in the mixed economy.   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (0 COMMENTS)

I’ve posted twice on this, here and here. This is either the last or second-last post, depending on what further thoughts I have. I had never wondered, but should have, how Jews in Germany and Austria made out day to day under the Nazis before they were hauled away. One thing that comes across in about the first 60 pages is the day-to-day difficulties, and sometimes actual torments, that Jews had to deal with. Here’s one story from the author: I refused to let the political situation keep me from my studies. I had taken both state exams and passed with high grades. One last exam, and I would be a doctor of law, qualified to serve not just as a lawyer but also as a judge. I felt that if I earned my degree, if I was trained, qualified, certified, I would have a much easier time emigrating. In April 1938 [DRH note: the Anschluss had happened the previous month] I went to the university to pick up my final exam papers and to receive the date for my doctoral exam. A young clerk there, actually someone I knew, said: “You will not be taking the examination, Edith. You are no longer welcome in our university.” She gave me my papers and the transcript of my grades. “Good-bye.” For almost five years, I had studied law, constitutions, torts, psychology, economics, political theory, history, philosophy. I had written papers, attended lectures, analyzed legal cases, studied with a judge three times a week to prepare for my doctoral exam. And now they would not let me take it. My legs buckled. I leaned on her desk for support. “But…but…this last exam is all I need for my degree!” She turned her back on me. I could feel her sense of triumph, her genuine satisfaction in destroying my life. It had a smell, I tell you–like sweat, like lust.     (0 COMMENTS)