H.G. Wells Best known today for science fiction novels such as The Time Machine, The Invisible Man, and The War of the Worlds, H.G. Wells was in his own day widely regarded as a prophet. Trained in science, he predicted the wireless telephone, directed energy weapons such as the laser, and the production of human-animal chimeras through genetic engineering. Yet Wells’ prognostications did not stop with science and technology. His imagination also ventured into the socio-political realm, where he predicted the development of a rational world government that would give rise to perpetual peace. Wells believed that if only the fate of the world could be placed in the hands of truly enlightened individuals cast in the mold of Wells himself, humankind could be saved from itself, averting disasters such as famine and war and ushering in a new era of human felicity. Yet many observers, particularly those with a strong fondness for liberty, would find Wells’ prescriptions less utopian than dystopian. Peer deeply enough, and Wells’ seemingly benevolent vision turns out to be misanthropic in the extreme. Consider his work, Anticipations,1 published in 1901, just at the beginning of what Wells presumed would be humanity’s most momentous century. At the time, he was 34 years old, and he would later refer to this bestselling work as “the keystone to the main arch of my work.” Published initially as separate essays, it represents his first extended foray into socio-political commentary, anticipating a complete reorganization of society and the transformation of many spheres of human life. To Wells, human history up to that point had been a mere prologue- in many respects a collection of cautionary tales of ignorance and superstition. Only with the birth of a new age of reason and science, heralded by Wells, was humanity finally prepared to take up the reins of its own fate and craft a better world. Of special interest is the final essay in the book, its ninth chapter, which he entitled, “The Faith, Morals, and Public Policy of the New Republic.” In it, Wells lays out his vision of a humanity liberated from the bonds of outmoded religious beliefs, drawing instead on the insights of Thomas Robert Malthus and Charles Darwin. Wells’ “new republic” will be a world state composed of capable, rational men. Thanks to technological developments such as faster transportation and communication, men naturally suited and capable of governing will be able spread their control over vast stretches of territory, soon to encompass the entire globe. Technological advances will also eliminate many of the scourges of mankind, such as famines and plagues. And perhaps most importantly, technology will make it possible to address the greatest threat to humanity, which Wells refers to as the “people of the abyss.” These are human beings who are both poor and lack “any evident function in the social organism.” They are, in short, useless, merely taking up space and using resources that could be put to better purposes. Faced with the existence of such “worthless eaters,” the rational governors of the new world order will see no alternative but to reduce the numbers of such parasites, eventually eliminating them altogether. For too long, the survival and increase of the people of the abyss, Wells argues, have proceeded outside of human control. In the new century, however, their very existence would pose a question that no rational person could any longer ignore: “What will you do with us, we hundreds of millions, who cannot keep pace with you?” These hundreds of millions, Wells asserts, will consist not only of the “multiplying rejected of the white and yellow civilizations” but also “a vast proportion of the black and brown races.” The new republic will “meet, check, and control these things,” moving him to consider both the broad principles by which such control will be exerted and the nature of the methods that will be employed. In encountering these central features of Wells’ vision, readers must ask themselves, is this a description of a kind of paradise that we would choose to bequeath to our children and grandchildren, or is this something quite different, perhaps even a terrifying vision of human pride run amok? Wells turns almost immediately to the religious and moral convictions of the new human beings who will inhabit the new republic. Naturally, they will find purpose in the universe, supposing that reality itself is either one and systematic, “held together by some omnipresent quality,” or “an incoherent accumulation with no unity whatsoever outside the unity of the personality regarding it.” Wells readily admits that up to the present moment, both men of faith and men of science have tended to see a unified purpose, often connected to the idea of God. But the rational men of the future will, “like many of the saner men of today,” presume no knowledge of God and will reject as nothing more than anthropomorphic projection the notion that anything beyond the human can account for any notions of right and wrong. Instead of desperately positing some divine guarantor of human welfare and justice, they will face facts, looking for no revelation beyond that provided by their own nature and the natural world of which they are a part. Although they need not be atheists, Wells’ new men will believe far less in God than in their own free will. And combining this free will with reason, they will soon recognize that the things that seem most apparent to us, such as the greenness of new-sprung grass, the hardness of wood, and the coldness of ice, are in fact, in the “abstract world of reasoning science,” really devoid of color, hardness, and temperature, which represent nothing more than the mind’s reaction to molecular processes that possess no such properties. Similarly, our ethical sensibilities enjoy no firm foundation in the nature of things, a truth Wells sees in what he calls the nineteenth century’s “breaking down and routing out of almost all the cardinal assumptions on which the minds of the eighteenth century dwelt securely.” Subjected to vigorous and fearless scientific scrutiny, Wells asserts, the chips of long-held moral and ethical convictions are now flying. For Wells this is not a process of destruction but one of revelation, much like the sculptor wielding his hammer and chisel. Consider Malthus, whose 1798 Essay on the Principle of Population. In it, we discover, says Wells, that all dreams of earthly golden ages must, thanks to the human propensity to reproduce faster than resources can multiply, be either “futile or insincere, or both.” Malthus also provided Darwin with a key foundation for his theory of natural selection. Because natural organisms, including human beings, differ from one another in a variety of ways, some individuals will turn out by virtue of this process to be superior and others inferior to one another. Furthermore, says Wells, these differences will obtain not only at the level of individuals but also at the level of groups. In other words, some groups of human beings are naturally inferior to others, and as a result, they “cannot be given opportunities or trusted with power as superior peoples are trusted.” To treat them as equals would be “to sink to their level,” and “to protect and cherish them is to be swamped in their fecundity.” In the past, Wells asserts, people were content with a “mysteriously incompetent deity exasperated by an unsatisfactory creation.” But modern thought sees through such conceptions to a new dawn in human consciousness. It has been like the coming of dawn, at first a colorless dawn, clear and spacious, before which the mists whirl and fade, and there opens to our eyes not the narrow passage, the definite end we had imagined, but the rocky, ill-defined path we follow high amidst this limitless prospect of space and time. At first the dawn is cold—there is at times a quality of terror almost in the cold clearness of the morning twilight—but insensibly its coldness passes, the sky is touched with fire, and presently up out of the dayspring in the east, the sunlight will be pouring. And these men of the New Republic will be going about in the daylight of things assured. (Anticipations, p. 108) To be sure, not everyone will be up to this challenge, and some will continue to “lead their little lives like fools, playing foolishly with religion and all the great issues of life.” But the new republic will be led not by fools but by “those who by character and intelligence will fearlessly shape all their ethical determinations and public policy anew.” The dominant human beings in Wells’ new republic would be a naturally segregated class of individuals characterized by “a desire, a passion almost, to create and organize, to put in order, to get the maximum result from certain possibilities.” Their aim will be not to produce a paradise, which by definition would be a place of stagnation, but a world state of, … active ampler human beings, full of knowledge and energy, free from much of the baseness and limitations, the needless pains and dishonors of the world disorder of today, but still struggling, struggling against ampler but still too narrow restrictions and for still more spacious objects than our vistas have revealed. For this general end, for the special work that contributes to it as an individual end, they will make the plans and the limiting rules of their lives. (p. 110) They will aim to produce “what is fine and efficient and beautiful in humanity, beautiful and strong bodies, clear and powerful minds,” and to check the procreation of “base and servile types, of fear-driven and cowardly souls, of all that is mean and ugly and bestial in the souls, bodies, or habits of men.” And the method that must be called upon in achieving this vision is death. In Wells’ new ethics, life will be seen not as a God-given gift or a political right but as a privilege. The citizens of the new republic will have little pity and even less benevolence for the “multitude of contemptible and silly creatures, fear-driven and helpless and useless, unhappy or hatefully happy in the midst of squalid dishonor, feeble, ugly, inefficient, born of unrestrained lusts and increasing and multiplying through sheer incontinence and stupidity.” They will recognize that making life convenient for the breeding of such people is an abomination and that the procreation of such children can only be regarded as a kind of disease to be purged from humanity. Simply put, Wells reveals himself to be a eugenicist. From his point of view, those who fail to face up to these facts are merely burying their heads in the sand, and in so doing, they inflict great harm on humanity. To repeat, the key for Wells is death. The squeamish and the fear-driven must be replaced by the unsympathetic and the courageous. Wells waxes eloquent in his description of these leaders of the new republic. And here emerges in full the horror with which any decent person must regard his program. The men of the New Republic will not be squeamish either in facing or inflicting death, because they will have a fuller sense of the possibilities of life than we possess. They will have an ideal that will make killing worth the while, like Abraham they will have the faith to kill, and they will have no superstitions about death. They will naturally regard the modest suicide of incurably melancholy or diseased or helpless persons as a high and courageous act of duty rather than a crime. And since they will regard, as indeed all men raised above a brutish level do regard, a very long term of imprisonment as infinitely worse than death, as being indeed death with a living misery added to its natural terror, they will, I conceive, where the whole tenor of a man’s actions, and not simply some incidental or impulsive action, seems to prove him unfitted for free life in the world, consider him carefully and condemn him and remove him from being. All such killing will be done with an opiate, for death is too grave a thing to be made painful or dreadful and used as a deterrent from crime…. To kill under the seemly conditions science will afford is a far less offensive thing. The rulers of the future will grudge making good people into jailers, warders, punishment-dealers, nurses, and attendants on the bad. People who cannot live happily and freely in the world without spoiling the lives of others are better out of it. That is a current sentiment even today, but the men of the New Republic will have the courage of their opinions. (p. 111) Killing the unfit, whether their defects be physical, mental, or moral, is not a crime against nature but the fulfillment of nature’s true purpose. Only the fit should survive; they are reducing inefficiencies, making society more consistent, and beautifying it, by removing the ugly. Where, precisely, does Wells go wrong, and what, precisely, is he guilty of? Let us count the ways. First, he exhibits excessive faith in human rationality, supposing that a more rational world will necessarily be a better one. Likewise, his faith in technology is exaggerated. Yet we can extend the range and speed of transportation and communication without reaching a better destination or sharing a better message. In fact, in some cases, traveling farther or talking faster actually degrades quality. Far more disturbing is the ease with which Wells is prepared to place persons or whole peoples in different categories, ultimately amounting to the chosen and unchosen. To presume to say that a person or a people belongs in the abyss betrays a remarkable lack of fellow-feeling. Wells is supremely confident that he and those like him are adequately prepared to render such judgments, a degree of pridefulness that rises to the level of hubris. And the criteria by which he does so, such as utility, evince absolutely no appreciation for a concept such as human dignity or the inherent worth of each human being as human. He never questions that he knows the difference between a useful and a useless human being, and knowing this alone, he is prepared to consign the latter to destruction. Unanswered is the question, “Useful for what?” And even people he regards as useful, such as the economically self-sufficient and productive, may in fact turn out to be real blights on humanity. Like the ancient Greek sophists before him, Wells ends up concluding that man is the measure of all things—that is, that there is no standard outside the human to which we can appeal in attempting to differentiate between appropriate and inappropriate. There is no God, no natural law, no extra-human standard by which we can calibrate our moral compasses. Instead, we must simply look to the standards our own nature provides, namely the laws of natural selection which distinguish the fit from the unfit. And yet such a view implies, ultimately, that the only natural goods are survival and reproduction. Wells is horrified that that the people he regards as his equals—the well-off and well-educated—seem to produce progeny at a relatively low rate, while those he despises appear to be considerably more fecund. Yet if the rate of reproduction is the standard, how can he prefer a social group that produces fewer offspring? We are left with the conclusion that Wells prefers people who bear a striking resemblance to him, and that their fecundity has relatively little to do with it. Having determined what he likes in the way of people, he simply wants more of them. Wells seeks to erase from the world many of its primary characteristics; he would break down moral sensibilities such as sympathy and generosity and leave in their place nothing but a hyper-rational commitment to efficiency and utility. His is a world predicated on scarcity, where there is not enough to go around, and where some must inevitably do without. On this basis, he savors a competitive arena in which the strong will prevail and the weak will be extinguished. Far from pitying those he perceives as weak and defective, he despises them and longs to be rid of them. Aware that many readers will recoil, he ridicules the revulsion and disgust good that good people will naturally experience at such suggestions. He attempts to recast vice as virtue and misanthropy as good, referring to inhumanity as enlightened courage. Yet many readers will not be fooled. They will not fail to recognize that a perfectly appropriate feeling in facing evil is fear. We can only conclude that, in creating his version of a better world, Wells is serving not the interests of humanity but his own. His new republic is populated with his kind of people and devoid of the kind of people he finds off-putting and objectionable. By his own admission, Wells is not a bringer of life but a harbinger of death, a prophet of a new kind of human being and society that will dispassionately dispense “scientific” poisons for the sake of his version of a larger good. Where nature was once the selector in natural selection, now it will be Wells and his tribe of the scientific elite. Wells ultimately resembles nothing so much as an extremely urbane and well-informed name caller, heaping scorn on the “diseased little men and women” he so abhors. Unwilling to leave such matters to the hands of a God in whom he does not believe, Wells sets himself up as judge, jury, and executioner. Yet perhaps it is not for the weak and infirm but Wells himself that our most severe condemnation should be reserved. He is not expunging the gods from the world but setting himself up as one. Footnotes [1] H.G. Wells, Anticipations of the Reaction of Mechanical and Scientific Progress: Upon Human Life and Thought. 1901. Harper and Brothers, 1901. (Quotations referred to herein are from the Dover Thrift edition, 1999. *Richard Gunderman is Chancellor’s Professor of Radiology, Pediatrics, Medical Education, Philosophy, Liberal Arts, Philanthropy, and Medical Humanities and Health Studies at Indiana University. He is also John A Campbell Professor of Radiology and in 2019-21 serves as Bicentennial Professor. He received his AB Summa Cum Laude from Wabash College; MD and PhD (Committee on Social Thought) with honors from the University of Chicago; and MPH from Indiana University. (0 COMMENTS)

A Liberty Classics Book Review of Against Politics: On Government, Anarchy, and Order, by Anthony de Jasay.1 We cannot be against politics, especially in a democratic regime; isn’t that obvious? In his 1997 book Against Politics: On Government, Anarchy, and Order, Anthony de Jasay led a frontal charge against this commonly accepted idea. He argued that politics is condemnable economically and even more so ethically; and that popular sovereignty does not solve the problem, but, if anything, makes it worse. Against Politics is a collection of some of de Jasay’s scholarly articles (plus one lecture) posterior to his seminal book, The State,2 and can be viewed as an elaboration of and a complement to the latter. It should be remembered that de Jasay defined himself as both a (classical) liberal and an anarchist. A Devastating Critique of the State Princess Mathilde, a niece of Napoléon Bonaparte, expressed a hedonistic-egoistic view of the state when she defended her late uncle by saying that, “without that man I should be selling oranges on the wharf in Marseilles.” Government, de Jasay argues, is essentially a redistribution mechanism, which some, like Princess Mathilde, use very effectively for their own purposes. Politics helps some to the detriment of others. This, he explains, is as true, or even truer, in a democratic system, where the majority defines what is the “common good” or “public interest.” In de Jasay’s view, the public interest or common good is meaningless. It cannot be a sum or another form of aggregation of the preferences or interests of the polity’s members because it would require interpersonal comparisons of utility. For example, if I prefer oranges to apples and you prefer apples to oranges, there is no meaning in the statement that we as a group prefer one or the other fruit and by how much. Such pronouncements “are unfalsifiable, forever bound to remain my say-so against your say-so.” Making a political choice—also called social choice in contemporary political theory—requires evaluating and weighing its consequences on different individuals compared to an alternative. Utilitarianism is the version of consequentialism that claims to take all individual preferences into account. But the consequences are not comparable, because they depend on the arbitrary comparison of the subjective utility of different individuals. Recall that “utility” only means the subjective and ordinal ranking of alternatives by each individual. In other words, “The good of different persons is incommensurable,” as long as all individuals are not identical. The impossibility of interpersonal comparisons of utility is a fundamental idea of economics. De Jasay takes it seriously. Choosing one policy alternative instead of another and imposing it on all individuals necessarily implies harming some individuals in the process of benefiting others. In a society where individuals are different, only Pareto improvements are defendable. A Pareto improvement characterizes an action or policy that is preferred by at least one person and does not harm any other; a free exchange between two contractual parties is the paradigmatic example. The goal of achieving such possible outcomes (moving towards Pareto optimality) by government action when necessary offers “a minimal morally legitimate space for a minimal state, and no more.” It remains to be seen if the state can access this moral space. De Jasay’s answer is negative. Social-Contract Theory and Social Choice An important strand of political philosophy tries to justify politics with an implicit unanimous agreement of citizens on the rules guiding their behavior and the social choices to be made by the state. Such a social contract, the theory goes, is indispensable to protect private property, to enforce private contracts, and to produce so-called public goods. In mainstream economics, a public goods is defined as a good or service that everybody wants, is automatically available to all once produced, but cannot be supplied by private enterprise because free riders would not pay their share—think public security, for example. The prisoners’ dilemma is a game-theoretic representation of the purported impossibility of producing public goods in anarchy. Nobel economist James Buchanan was a major contractarian theorist.3 De Jasay argues that contractarianism is self-contradictory. An overarching social contract is deemed necessary because particular contracts would otherwise be non-enforceable, but the social contract is itself non-enforceable because nobody can enforce it against a state intent on violating it. Quis custodiet ipsos custodes? Is it in any way conceivable that a social contract could be unanimously agreed on? This seems possible only if the rules it enunciates are very general and the contracting parties are more or less ignorant of their future interests. The second condition amounts to saying that they negotiate behind a veil of ignorance, as John Rawls would say,4 or a veil of uncertainty, in James Buchanan’s terms.5 De Jasay rejects these conditions. He argues that the choice of a decision rule is logically equivalent to the choice of its probable outcomes. But unanimity on an outcome is impossible if only one individual thinks it would harm him. In my opinion, the debate on these issues is not settled, but de Jasay’s formulation is enlightening. As a constitution, the social contract establishes the rules according to which political decisions (social choices) will be made. Instead of a limitation of politics, de Jasay sees the social contract as a license to make social choices. It is not the first time that the author of Against Politics turns a standard argument on its head! He offers another intriguing idea: to the extent that the state and a social contract is desirable, he compares the modern social contract to the medieval idea of a contract of government. In the latter, government is a contractual entity instead of being a creation of society; society is the other party. Through the power of feudal orders and the towns, enough armed force remained in society to enforce any implicit agreement between the sovereign and “society.” An important criticism of the social contract is that it won’t eliminate free riders but, on the contrary, multiply them. A public good, de Jasay argues, is simply a good produced or financed by the government and made accessible to everybody at a zero or subsidized price. Public provision breaks the link between contribution and benefit. Since the marginal cost of consuming more of a public good (in this sense of something supplied or financed by government: think about “free” health care) for an individual is zero for all practical purposes, everybody will try to free ride by getting as much as possible. Government does not solve the public goods problem; it deepens it. Is Limited Government Possible? De Jasay contends that in a regime of social choice—that is, of non-unanimous decisions imposed on all—limited government and individual sovereignty are impossible. Politics will lead to redistributive coalitions vying to get more money and privileges from the government—that is, from fellow citizens. Entitlements will tend to grow uncontrollably. A constitutionally restricted domain cannot be imposed on the government. If a decisive coalition (generally 50%+1) wants a constitutional modification beneficial to itself, it will get it, if only through reinterpretation of the existing rules. Qualified majorities will not change that, for their members can be bribed into changing sides. Under democracy, the constitution that will come to prevail will allow a bare majority to rule over an unrestricted domain. The reader will recall that a powerful counter-argument remains that of James Buchanan and Gordon Tullock in their seminal The Calculus of Consent.6 De Jasay may underestimate the cost of building a ruling coalition, especially under uncertainty, as well as the cost of transactions among social groups. Yet, constitutional history over the past two centuries certainly does not refute his theory. “Private fortresses” against popular sovereignty have been dismantled. De Jasay’s melancholy is contagious: It is to history taking its time that we owe thanks for the brilliant but passing nineteenth-century interlude in Western Civilization, with limited government and assured-looking private sovereignty of everybody’s own decisions over crucial domains of economic and social life. Principles of Philosophical Anarchism The author of Against Politics defends anarchy as the theoretical solution to all these problems of the state in general and the social contract in particular. Iconoclastic as he often is, he criticizes “freedom-talk” or “rightsism,” which implies that anything not specifically permitted is forbidden, as opposed to the liberal ideal where everything not explicitly forbidden is allowed. In his theory, a right is simply a contractual benefit resulting from the voluntary assumption of a corresponding obligation by a contractual party. A liberty is everything one can do without violating a specific obligation one has and without interfering with the exercise of somebody else’s equal liberty. Such interference is a tort, which implies some harm different from an insignificant externality. A high point of the book summarizes the liberal case in three principles of political philosophy presented as the basis of the classical liberal logic. “In case of doubt, abstain,” is the first principle. There is no justification for political authority to intentionally and directly harm, or to risk harming, some individuals in order to benefit others. This principle, de Jasay notes, “would compress politics to the vanishing point.” It is equivalent to a presumption against coercion or, alternatively, to a social convention of live and let live when it involves no harm to others. It is a value judgement, for sure, but it “demands far less of our moral credulity” than other rules of moral and political philosophy. The second principle is that “the feasible is presumed free;” that is, “a person is presumed free to do what is feasible for him to do” if it does not contradict his own voluntarily-assumed obligations nor causes specific harms to others. This presumption of liberty is supported by an epistemological argument: “… the list of feasible actions is indefinitely long,” while listing prohibitions is possible. The contrary presumption could prevent any action because it is impossible to prove that it will be harmless, while it is not impossible to prove a specific harm ex post facto if there is one. The third principle, “let exclusion stand,” legitimizes private property obtained either by original possession or by contract. Property is not a social privilege that needs to be defined by the state. There is no common pool of wealth belonging to society and waiting to be distributed. Each past contribution to the creation of wealth—say the house a contractor built for your parents—has been paid for “and has duly left its permanent mark on the ownership structure.” All property is accounted for. Nothing is owed to society, because “no payment must be claimed twice.” This brilliant argument against a common social pot, however, seems to contradict de Jasay’s later suggestion of a possible liberal argument against immigration, namely that “the country is… the extension of a home”! 7 The Workings of Anarchy How would anarchy work? There is no reason, de Jasay suggests, why at least some public goods could not be produced privately in response to the demand of those individuals who want them most. Let the free riders free-ride. Moreover, every good is excludable at some cost; “exclusion cost is a continuous variable.” Excludability depends only partly on the physical characteristics of a good. The difference between a state-dominated society and an anarchic one is that in the former, the link is broken between contribution and use, thereby creating more free riders—an interesting argument I already mentioned.8 Individual actions in an anarchic society would be coordinated partly by conventions, that is, spontaneous social rules, notably for the respect of property and reciprocal promises. But how would the most important of these conventions be enforced under ordered anarchy? Spot contracts are self-enforcing, but contracts with non-simultaneous performance (say, buying for later delivery) require a satellite convention of enforcement. Absent the state, who will be the enforcers? The answer lies, de Jasay argues, in the value of reputation for anybody in constant economic and social interaction—a repeated game in the terms of game theory. The victim of contractual default may have to pay enforcers (similar to repossession companies nowadays), but his fellow businessmen also have an interest in helping him through discrimination, ostracism, or other sanctions, as they will partly internalize in their own contracts the benefit of reduced defaults. Related conventions may develop. But what happens in a large modern society where most transactions are impersonal and anonymous? In reality, de Jasay counters, large groups are aggregations of small, overlapping groups, and “a complex and dense web of communication” buttresses the value of reputation. Few exchanges are totally anonymous: “Many supermarket customers are unknown to the checkout girl. But they pay before rolling out their trolley. If not, they produce a credit card; and the credit card company is not unknown.” Today’s online commerce reinforces this important point. De Jasay suggests that, following David Hume, we can suppose that property and contract are antecedent to government, which is thus not indispensable for protecting the former. Conclusion Anthony de Jasay’s are serious claims. He admits, however, that “[a]n anarchic society may not be well equipped to resist military conquest by a command-directed one.” This raises a major argument against anarchy. I would add that we don’t have any experience of anarchy except in primitive, pre-state societies, where the results were not exactly stateless nirvana. Today, states cover and share the earth, forbidding anarchic societies as potential competitors. At least for this reason, humans are most likely to live under politics for some time. Must we not therefore try to find ways to limit state power and politics in order to preserve and strengthen individual liberty? A related problem is that formal liberty under the rule of law including procedural rights (due process) are worth maintaining and strengthening, as they would be in some way under anarchy. On this point, perhaps de Jasay should have taken Friedrich Hayek and James Buchanan more seriously. Yet, Against Politics is a must-read for any political philosopher as well as for any economist interested in the philosophical implications of what he or she is doing. The book may become even more urgent for our descendants to read. Footnotes [1] Against Politics: On Government, Anarchy, and Order, by Anthony de Jasay. Routledge, 1997. [2] Anthony de Jasay, The State (Basil Blackwell, 1985; Liberty Fund, 1998). See also my Econlib review: “An Unavoidable Theory of the State” Library of Economics and Liberty, June 4, 2018. [3] See notably James Buchanan’s The Limits of Liberty: Between Anarchy and Leviathan (University of Chicago Press, 1975; Liberty Fund, 2000); see also “Lessons and Challenges in The Limits of Liberty“. Library of Economics and Liberty, Nov. 5, 2018. [4] John Rawls, A Theory of Justice (Harvard University Press, 1971). [5] Geoffrey Brennan and James Buchanan, The Reason of Rules: Constitutional Political Economy (Cambridge University Press, 1985; Liberty Fund, 2000). See also my review: “Constitutional Democracy: Is Democracy Limited by Constitutional Rules?”. Library of Economics and Liberty, Jan. 2, 2023. [6] James M. Buchanan and Gordon Tullock’s The Calculus of Consent: Logical Foundations of Constitutional Democracy (University of Michigan Press, 1962; Liberty Fund, 1999). See also my review: “The State Is Us (Perhaps), But Beware of It!” Library of Economics and Liberty, Jan. 3, 2022. [7] Anthony de Jasay, “Immigration: What is the Liberal Stand?” Library of Economics and Liberty, August 7, 2006. [8] This part of de Jasay’s thesis is elaborated in his Social Contract, Free Ride: A Study of the Public-Goods Problem. (Oxford University Press, 1989; Liberty Fund, 2008). See my review in Regulation, Vol. 47, No. 1 (Spring 2024), pp.60-62. *Pierre Lemieux is an economist affiliated with the Department of Management Sciences of the Université du Québec en Outaouais. He blogs on EconLog. He lives in Maine. E-mail: PL@pierrelemieux.com. For more articles by Pierre Lemieux, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

I did not find in the quoted words of Treasury Secretary Janet Yellen the exact expression “clean energy dumping” to attack inexpensive Chinese exports of clean-energy goods (solar panels, EVs, and such). But when giving her speech at solar cell producer Suniva, she did say “flooding the market,” which means the same. And that’s how Financial Times journalists interpreted her speech: see “Janet Yellen Warns China Against Clean Energy Dumping,” March 27, 2024. After trying to persuade us that the use of fossil fuels threatened the future of mankind, these politicians get on their high horses because some producers in the world want to sell us at low prices products that could prevent the catastrophe. In the United States, formerly called “the country of free enterprise,” the feds and state governments are heavily subsidizing domestic producers of “green products.” The so-called Inflation Reduction Act offers large tax credits. Isn’t it also farcical that the government of the United States would beg a foreign socialist government to cut its exports of green products? For sure, Chinese producers are nearly totally dominated by their state and the latter can more easily force its taxpayers to subsidize domestic exporters. (The exporters use their national resources to produce goods for foreigners—but let’s skip this contradiction of protectionism.) Why would American consumers and producers reject a gift from foreign taxpayers and prefer instead to their other fellow citizens to pay? It is true that American producers (shareholders and workers of out-competed companies) would be harmed and would have to adjust: some workers would have to switch industries, some shareholders’ investments would lose value, and some companies may even go bankrupt—like Suniva already did once in 2017. The US government—both the Biden and the Trump administrations—apparently believes that the relatively flexible American economy is threatened by socialist businesses and by Chinese taxpayers whose average income is one-fourth the average income in America. Moreover, the share of personal consumption expenditures that comes from Chinese imports (including the Chinese part of their input components) is only 1.9%, as shown by a 2011 study by the Federal Reserve Bank of San Francisco. (The low figure is partly explained by the fact that services, mostly non-tradable, make up two-thirds of American consumption expenditures. Only in certain industries do Chinese imports make up a high proportion of consumer expenditures.) Ms. Yellen, who was an economist before she became a groupie politician, said that “China’s overcapacity distorts global prices and production patterns and hurts American firms and workers.” Of course, any subsidy or tax preference causes distortions in prices and production, but there is not much that the US government can do to change the policies of the Chinese state, short of annexing China. A little could be done through the World Trade Organization, but both the Trump and the Biden administrations have cooperated to neuter it. And then, how much distortion is caused by the annual federal spending ($6.1 trillion in FY 2023), which includes multiple subsidies—to individuals mainly, but also to corporations? Same question for federal revenues ($4.4 trillion), most of which are taxes. Same for its deficit ($1.7 trillion). How much do the federal government’s transfers to individuals distort the labor market and the charity market? How much further distortion is caused by its minimum wages and the coercive privileges it grants to trade unions? Such questions are not easy to answer, but the Treasury Secretary should at least pretend to ask them instead of blaming the government of a developing country for giving to Americans at bargain prices what her government claims they need to survive. What damage could the forced generosity of Chinese taxpayers cause to the American economy? Let me make the most heroic assumptions against my case. Suppose the total production of green goods and services in the American economy corresponds to $1 trillion or 4% of GDP. (This is a wild assumption, which is double the maximum Commerce Department estimate for 2007. This study did not use value added as in GDP but shipments, which include much double-counting, as well as a wide definition of green products and services.) Suppose that all of this green stuff comes from China (while it is almost certainly much less than 20%). Suppose, as unrealistically, that all American producers of green goods and services go bankrupt after being out-competed by producers from communist China. Add the assumption that after this “victory,” “China” suddenly decides to cut all green exports to the United States–which, except in case of war, is another a fantasy assumption. Even this highly exaggerated scenario would not be a catastrophe. We must not forget the savings realized from Chinese green imports up to the hypothetical cutoff point, and the production, consumption, and investment that would otherwise not have occurred in other sectors. More importantly, who doubts that American businesses could not rapidly pivot to importing the same products from other countries—even if presumably for a higher price? Who doubts that greedy American or foreign investors (whose companies are likely included in your pension fund) would not recreate an American green industry, if it is economical to do so? Four percent of GDP is not an insignificant amount, but gross investment in fixed business equipment and structures runs at about $2 trillion a year or 8% of GDP (DEA data for 2022). Moreover, building an American green-product industry would not need to be done in only one year and some imports from other countries would anyway remain economical, especially on the manufacturing side. With more realistic assumptions, replacing Chinese green imports would probably be an easy feat in a relatively flexible economy, provided there is not too much government interference. It would of course be better for many people in the world—from Chinese taxpayers to the American investors who have sunk money in firms that cannot compete with green largesse from China—if the Chinese state stopped intervening in its exporters’ businesses. The US government should work on this persuasion enterprise instead of going full Trumpian. And it should preach by example and show what a free economy is. Any economist familiar with public choice economics knows that politicians and bureaucrats demonstrate by their behavior that they are generally as self-interested as ordinary individuals. Thus, the economist is not overly surprised to observe a politician blurting out absurdities. But anybody who believes in a free society is understandably scandalized by the most extreme cases of homo politicus. These politicians have no shame. ****************************** On the featured image of this post, I had problems getting DALL-E to draw what I wanted. My idea for DALL-E was that Chinese solar panels and EVs were falling from the sky like manna; and that Commerce Department agents were trying to shoot the goodies and prevent people from collecting them. To get DALL-E half-cooperation, I had to explain to zir that the guns of the Commerce Department agents shoot roses. (It looks like the guy lying on the ground is a manna chaser who was hit by a rose straight in the heart.) Chinese green manna witch Commerce Department agents are trying to stop from being collected (0 COMMENTS)

Can you be too happy? Psychologist Adam Mastroianni talks with EconTalk’s Russ Roberts about our emotional control systems, which seem to work at bringing both sadness and happiness back to a steady baseline. Too much happiness is–perhaps surprisingly–not necessarily a good thing. They also explore whether our general level of happiness is really related to […] The post A User’s Guide to Our Emotional Thermostat (with Adam Mastroianni) appeared first on Econlib.

FDA Aims To Stifle Medical Innovation Again By Ronald Bailey, Reason, April 2024. Excerpt: The Food and Drug Administration (FDA) that massively screwed up COVID-19 testing now wants to apply its vast bureaucratic acumen to all other laboratory developed tests (LDTs). By insisting on its recondite approval procedures, the FDA at the beginning of the pandemic stymied the rollout of COVID-19 tests developed by numerous academic and private laboratories. In contrast, public health authorities in South Korea greenlighted an effective COVID-19 test just one week (and many more in the weeks following) after asking representatives from 20 private medical companies to produce such tests. LDTs are diagnostic in vitro tests for clinical use that are designed, manufactured, and performed by individual laboratories. They can diagnose illnesses and guide treatments by detecting relevant biomarkers in saliva, blood, or tissues; the tests can identify small molecules, proteins, RNA, DNA, cells, and pathogens. For example, some assess the risks of developing Alzheimer’s disease or guide the treatment of breast cancer. The FDA now wants to regulate these tests as medical devices that must undergo premarket agency vetting before clinicians and patients are allowed to use them. The FDA estimates that between 600 and 2,400 laboratories currently offer as many as 40,000 to 160,000 tests. Overall, some 3.3 billion in vitro tests are administered to patients annually. Wow! The FDA plans to be even more detructive of human health than it has been. How Capitalism Beat Communism in Vietnam by Rainer Zitelmann, Reason, May 2024. Excerpts: The reforms adopted in the next couple of years included permission for private manufacturers to employ up to 10 workers (later increased), abolition of internal customs checkpoints, elimination of the state foreign-trade monopoly, reduced restrictions on private enterprise, elimination of virtually all direct subsidies and price controls, separation of central banking from commercial banking, dismantling major elements of the central planning and price bureaucracies, the return of businesses in the South that had been nationalized in 1975 to their former owners or their relatives, and the return of land seized in the ’70s collectivization campaign if it was “illegally or arbitrarily appropriated.” And: Vietnam’s gross domestic product grew by 7.9 percent a year from 1990 to 1996, faster than any other Asian country but China. Poverty fell sharply. By the World Bank’s standard for extreme poverty—living on less than $1.90 a day—52.3 percent of the Vietnamese population was living in extreme poverty in 1993. By 2008, the figure had fallen to 14.1 percent. By 2020, it was only 1 percent. That indicator was developed for “low-income economies,” though, and Vietnam has now moved to the “lower-middle-income” category, where poverty is defined as living on less than $3.20 a day. By that measure, the poverty rate dropped from 79.7 percent to just 5 percent.   Israel announces largest West Bank land seizure since 1993 during Blinken visit by Cate Brown, Washington Post, March 22, 2024. Palestinians have little ability to stop the land transfers. After the 1967 war, Israel issued a military order that stopped the process of land registration across the West Bank. Now families lack the paperwork to prove that they have private ownership over their land. And tax records, the only other evidence of West Bank property rights, are not accepted by Israeli authorities. In June, the Knesset waived a long-standing legal precedent that required the prime minister and the defense minister to sign off on West Bank settlement construction at every phase. Smotrich enjoys near-total control over construction planning and approvals in the West Bank, and approved a record number of settlements in 2023. “Israel has reached the conclusion that they could get away with this huge land grab because of the lack of international action,” said Sarit Michaeli, international advocacy lead at B’Tselem. “There have been individual economic U.S. sanctions placed on violent settlers, but the greater violence of the occupation is this colossal land theft.” Steven Pinker: What Went Wrong at Harvard by Nick Gillespie, Reason, March 27. 2024. Excerpts: Pinker: The first of the five-point plan was just consistent commitment to academic freedom. Because another reason that Claudine Gay got into such trouble is that when she was given what admittedly was a kind of a trap that she walked into—that is, if students called for genocide against Jews, would that be prohibited by Harvard’s code of conduct—she made a pretty hardcore [American Civil Liberties Union]-style free speech argument, which came across as hollow or worse, because we’ve had a lecturer who was driven out of Harvard for saying there are two sexes. There was another professor whose course was canceled because he wanted to explore how counterinsurgency techniques could be used against gang warfare. We had a professor in the School of Public Health who had cosigned an amicus brief for the Obergefell Supreme Court case against a national policy allowing gay marriage. There were calls for his tenure to be revoked, for his classes to be boycotted. He had to undergo struggle sessions and restorative justice sessions and basically grovel in front of a mob. Given Harvard’s history of those cases and others, to all of a sudden say, “Well genocide, it’s just a matter of I disagree with what you say, but I defend it to the death your right to say it,” came off as a little bit hollow and hypocritical. Pinker: I have nothing against diversity, equity, and inclusion. But as Voltaire said about the Holy Roman Empire: it was neither holy, nor Roman, nor an empire. Diversity, equity, and inclusion imposes an intellectual monoculture. It favors certain groups over others. It has a long list of offenses that mean you can be excluded. But it is a strange bureaucracy. It’s a culture that is kind of an independent stratum from the hierarchy of the universities themselves. The officers get hired or poached to move laterally from university to university. It’s with their own culture, their own mores, their own best practices. It’s just not clear who they report to, or who supervises them, or who allows them to implement policy. Pinker: Yes. Not at Harvard, but at many universities. No one knew that we had this requirement. No one knew who implemented it. The faculty never voted on it. The president never said this is our policy going forward. A dean of arts and sciences must have signed off on it, but no one can remember who or when. But we just live with it. Likewise, freshman orientation consists of indoctrination sessions. This is emblematic of a trend in universities, that this nomenklatura just got empowered and no one knows exactly how. What often happens is a dean gets into trouble because of some racial incident. They hire a bunch of staff, and that’s their way of getting out of the trouble. Then they’re there forever. And there is only one way that they’ve been changing and that’s upward. I love the line “it was neither holy, nor Roman, nor an empire.” Aside from that, Mrs. Lincoln, how was the play? (0 COMMENTS)

I finally got around to reading Stefan Zweig’s The World of Yesterday, and I found it to be even better than its reputation.  It’s not just a memoir; it’s also a brilliant example of social science. While Zweig is aware that the pre-1914 world had many flaws, he mourns the freedoms that had been lost by the early 1940s: [P]erhaps nothing more graphically illustrates the monstrous relapse the world suffered after the First World War than the restrictions on personal freedom of movement and civil rights.  Before 1914 the earth belonged to the entire human race.  Everyone could go where he wanted and stay there as long as he liked.  No permits or visas were necessary, and I am always enchanted by the amazement of young people when I tell them that before 1914 I travelled to India and America without a passport.  Indeed, I had never set eyes on a passport.  You boarded your means of transport and got off it again, without asking or being asked any questions; you didn’t have to fill in a single one of the hundred forms required today. If only he could see the TSA!  I like to tell young people that in the 1970s I would travel to Mexico, Canada and the Caribbean without any passport.  Or that you could smoke on airplanes. Today, I find travel to be less immersive because I am always tethered to current events by the internet.  But even in 1942, Zweig observed the way that technology was intruding into our lives: The greatest curse brought down on us by technology is that it prevents us from escaping the present even for a brief time. Previous generations could retreat into solitude and seclusion when disaster struck; it was our fate to be aware of everything catastrophic happening anywhere in the world at the hour and the second when it happened. Presumably he’s referring to the effect of radio. Of course, these observations about travel are of trivial importance when compared to the devastation of the two world wars, which is the focus of Zweig’s memoir.  Here he analyzes the mindset of German nationalists (and not just the Nazis): But already certain groups were gaining ground in the country, knowing that they would recruit supporters only if they kept assuring defeated Germany that it had not been defeated after all, and all negotiations and concessions were treasonous. Zweig’s memoir is the best piece of anti-nationalist literature that I have ever read. Here he describes the way that a cancel culture mob can turn even a writer’s friends against him, even after reaching the pinnacle of artistic success at age 50: Here was my house, and who could drive me out of it?  There were my friends—could I ever lose them? I thought without fear of death and illness, but not the faintest inkling came into my mind of what still lay ahead of me.  I had no idea that I would be driven out of my own home, a hunted exile who must wander from land to land, over sea after sea, or that my books would be burnt, banned and despised, my name pilloried in Germany like a criminal’s, or that the same friends whose letters and telegrams lay on the table before me would turn pale if they happened to meet me by chance.  I did not know that everything I had achieved by hard work for thirty or forty years could be extinguished without trace . . . Zweig is quite honest about how he failed to understand the significance of many historical events as they were actually occurring: It is an iron law of history that those who will be caught up in the great movements determining the course of their own times always fail to recognize them in their early stages. I found that reading Zweig’s masterpiece helped me to better understand my own times.  But it also put things into perspective.  The losses I’ve experienced are trivial compared to those he faced during the first half of the 20th century. PS.  Here’s The Economist: When George Orwell pondered the question of nationalism in the waning days of the second world war, he wrote of its dangers this way: “Nationalism is power hunger tempered by self-deception. Every nationalist is capable of the most flagrant dishonesty, but he is also—since he is conscious of serving something bigger than himself—unshakeably certain of being in the right.” Plus ça change . . . Happy Easter! (1 COMMENTS)

Many are familiar with F.A. Hayek’s Road to Serfdom.  Fewer know of Wilhelm Röpke’s The Solution to the German Problem.  The two books are in basic agreement about the political and economic factors leading to the rise of the Third Reich, but Röpke’s greater emphasis on economic culture yielded timeless insights about the human capacity for blindness when confronted with truths that are, or which seem to be, too terrible to look at. The arguments of The Road to Serfdom and The Solution to the German Problem overlap in fundamental respects.  Shortly after the Potsdam Agreement, both shot a warning flare to those who were willing to see it: Hayek threatened that “It is necessary now to state the unpalatable truth that it is Germany whose fate we are now in some danger of repeating,” and Röpke cautioned a year later in his own volume, “let not the Englishman or America be too sure that ‘it can’t happen here’.”  Why?  Both thought that fascism and socialism are not to be understood as distant and incompatible enemies but as cousins with shared essentials, most importantly collectivism. What distinguished Röpke’s argument was the claim that it was a kind of cultural sickness that explained the rise of Nazi Germany, and it was a sickness that Germany shared with the western powers. The Solution to the German Problem is a wide-ranging volume that covers a lot of ground, going back even to the forests of medieval Germany in search of the cultural sources of the Third Reich; these pathways of the book are fascinating, but it is not my aim to provide a summary.  Instead, I focus here only on the main argument, which was that the blindness of Germans and of the rest of the world to the Nazi threat was due to a “weakening of the moral reflexes.” The result was that people “were blind because they were determined to be blind,” even in the face of “unprecedented barbarism.”  In this modern tragedy people “simply did not want to know, because it was inconvenient knowledge.”   In this scenario, there was “universal passivity” and “paralysis” resulting from “a spiritual and moral poisoning” that made people determined to “ignore the writing on the wall in order to postpone the day of reckoning and to purchase a few years of peace and comfort, at the price of a most terrible final catastrophe.” One really must go to Röpke’s A Humane Economy to see the kinds of virtues growing from a rich cultural soil that he thought were necessary for people who would have been more capable of rising to the occasion of pre-war Germany.  In his diagnosis of a “spiritual and moral poisoning,” Röpke had in mind this broad cultural foundation of virtue, but one can point to various concrete instances of their absence in the history of the rise of the Third Reich that seem to bear this out: the stab-in-the-back myth that allowed many Germans to lay blame for the loss of the Great War and the signing of the Armistice on civilians and, in particular, Jewish people, rather than on the Army; the unwillingness of the various parties in the Reichstag to coalesce around a unified opposition to the National Socialists even after the Beer Hall Putsch; the unwillingness of the allied nations to take action even after open German rearmament began – in obvious violation of the terms of Versailles; the collective plugging of the ears during Churchill’s many warnings in the years preceding the invasion of Poland.  One could add to this list a certain strain of American isolationist impulse, well described in a recent book; this, I hasten to add, is an impulse sometimes wedded to a bizarre antisemitism.   What one cannot add to that list is Wilhelm Röpke.  A professor in Germany at the time of the birth of the Third Reich, he thought his platform gave him a duty to “speak a word of warning,” so he wrote and distributed a leaflet, in which he appealed to his fellow Germans’ “common sense and their consciences,” showing “how appallingly they were being deceived.”  Although his warnings fell well short of the actual atrocities that would come by Nazi hands, he was “laughed at and abused.”  Later, he delivered a speech, incidentally on the very morning before the burning of the Reichstag in February 1933; in it, Röpke warned that the Nazis were “proceeding to turn the garden of civilization into fallow land and to allow it to revert to the primeval jungle.”  The speech caught the attention of the Nazis, and he soon fled in exile, until, through the blunt trauma of war, more people would see clearly that he had been right all along.   Bill Reddinger has been a professor of political science at Regent University since 2010. Prior to that, he taught political science at Wheaton College in Illinois and at South Texas College. He received his undergraduate degree from Grove City College in Pennsylvania before completing his M.A. and Ph.D. in Political Science at Northern Illinois University, where his studies focused on the history of political philosophy and American political thought. You can also find Reddinger’s posts in the OLL Reading Room. (0 COMMENTS)

In his book Thinking, Fast and Slow, Daniel Kahneman writes: As you consider the next question, please assume that Steve was selected at random from a representative sample: An individual has been described by a neighbor as follows: “Steve is very shy and withdrawn, invariably helpful but with little interest in people or in the world of reality. A meek and tidy soul, he has a need for order and structure, and a passion for detail.” Is Steve more likely to be a librarian or a farmer? Kahneman continues: The resemblance of Steve’s personality to that of a stereotypical librarian strikes everyone immediately, but equally relevant statistical considerations are almost always ignored. Did it occur to you that there are more than 20 male farmers for each male librarian in the United States? Because there are so many more farmers, it is almost certain that more “meek and tidy” souls will be found on tractors than at library information desks. However, we found that participants in our experiments ignored the relevant statistical facts and relied exclusively on resemblance. We proposed that they used resemblance as a simplifying heuristic (roughly, a rule of thumb) to make a difficult judgment. The reliance on the heuristic caused predictable biases (systematic errors) in their predictions. Charley Hooper and I were unaware of Kahneman and Tversky’s experiments, which were run way before we wrote our book, Making Great Decisions in Business and Life, in 2006. But we gave a similar example in Chapter 6, “Biases Affect the Best of Us.” We put it under the subhead “Check Your Base.” Here it is: Many people make the mistake of not checking their base. The following example explains what we mean: Person A: I was surprised that I met this really serious person from California. I thought everyone in California is relaxed and mellow. Person B: There are 35 million people in California. Many of them are serious. At a truly national event, such as a scientific conference or a square dancing convention with people from all over the country, you would have a much higher chance of finding a serious person from California than from another state, such as Iowa. This is true even if Iowans in general are more serious; there are just so many more people from California. Say one out of three Californians is serious and that double that fraction of Iowans, that is, two out of three Iowans, are serious. Given California’s population of 35 million and Iowa’s population of three million people, there are about 12 million serious Californians versus only two million serious Iowans. You are six times as likely to come across a serious Californian as a serious Iowan, even though Iowans are twice as likely to be serious. The real question is what you’re doing at a square dancing convention looking for serious people. 🙂 (0 COMMENTS)

Between 1967 and 1975, imports rose from 19% of US oil consumption to 36%. The ‘oil shock’ of October 1973 seemingly showed the geopolitical risks of that. In November, President Nixon said “In the short run…we must use less energy – that means less heat, less electricity, less gasoline. In the long run…we must develop new sources of energy which will give us the capacity to meet our needs without relying on any foreign nation.” This dual approach – conservation and production – became American energy policy for the rest of the 1970s.       Conservation Nixon invoked World War Two, imploring Americans to carpool and turn down their thermostats: “I’d buy a sweater,” one aide quipped.  Initially Americans responded. “The 500 residents of Block Island, R.I., have gone back to daylight saving time so electric lights will not be used so much in the evening,” U.S. News and World Report noted; “The town council has even discussed the possibility of using windmills to generate electricity.” Elsewhere, “Governor Tom McCall of Oregon is warning that those who violate his order against outdoor display lighting will lose all electric service.” Government cut back, too. “The Navy’s ships now cruise at 16 knots an hour instead of the 20 that had been normal. Air Force pilots are training more in flight simulators instead of planes.” But by January reality was biting. “Anxious motorists overwhelmed gasoline stations in the metropolitan [New York] area yesterday,” the New York Times reported, “with many stations running out of supplies early in the day.” Ration cards were printed and the Pitfield, Massachusetts, Berkshire Eagle warned that “If and when the effects become more severe, if fuel prices go out of sight and plant closings become common, the public tolerance is likely to shift to high indignation.” Legislation accompanied jawboning. In 1974, Congress set a 55mph speed limit on interstate roads. Daylight saving time was extended from January 1974 until October 1975, in the hope that more daylight hours would reduce demand for light and heat. The 1975 Energy Policy and Conservation Act established fuel efficiency standards for automobiles, the Corporate Average Fuel Economy (CAFÉ) standards. American automobile manufacturers moved to produce compliant vehicles but found that German and Japanese manufacturers already were. “Left holding a surplus of gasoline-gulping standard-sized cars that have been shunned by buyers newly conscious of fuel economy,” the New York Times reported in December 1973, “General Motors and Chrysler are temporarily shutting down 18 big-car assembly plants.”   Production  The expansion of domestic energy production encountered opposition from America’s newly powerful environmental movement. In February 1974, Anthony Wayne Smith, president of the National Parks Association, laid out “The elements of the solution.” His second point was “A substantial return to coal for the time being, and temporarily to natural gas, but subject to severe environmental and mine-safety restrictions, and the ultimate need to reduce chemical combustion in terms of carbon dioxide;” his first point was “A rapid shift to solar energy.”  Indeed, the federal government itself frequently blocked increased production. The Nixon Administration passed a range of environmental legislation, such as the Clean Air Act (1970) and the Clean Water Act (1972), but it was 1970’s National Environmental Policy Act (NEPA) which had most impact. When his administration pushed to open Alaska’s North Slope for oil drilling, environmental groups used NEPA to delay it.     Nixon’s successor, President Ford, suggested taxing oil imports to encourage domestic production. Ford’s successor, President Carter, pushed for more nuclear power and coal production, and supported attempts to produce synthetic oil and extract oil from shale. These initiatives met with little success.    Failure The dual approach failed. By 1977, imports accounted for nearly 50% of American oil consumption and US oil production would not regain its 1970 peak until 2015. In 1978, a second ‘oil shock’ occurred as oil workers in Iran – the region’s largest oil exporter after Saudi Arabia – struck against the Shah’s unpopular, American backed government. Oil prices rose from $12-$13 a barrel in late 1978 to $30-$35 a barrel in early 1980. Lines reappeared at gas stations in April 1979, truckers struck in protest at higher gas prices that summer, and in July 90% of gas stations in the New York metropolitan area were closed.  Responding to this in his infamous ‘malaise’ speech in July 1979, Carter leaned towards conservation, arguing that America had stopped being “a nation that was proud of hard work, strong families, close-knit communities, and our faith in God” to one where “Too many of us now tend to worship self-indulgence and consumption.” Americans struggling to make ends meet with inflation at 11.2% didn’t agree that their affluence was the problem. They would make this clear at the ballot box in 1980 and usher in a revolution in American energy policy.    John Phelan is an Economist at Center of the American Experiment. (0 COMMENTS)

In California, the minimum wage has risen to $16.00, vs. $7.25 in Texas.  Even adjusting for differences in the cost of living, the rate in California is much higher.  Of course most workers earn more than the minimum wage, but I suspect that union wages are also higher in California.  For instance, consider this recent article in the Orange County Register: Workers at 34 Southern California hotels hailed new labor contracts Monday that will boost wages by $10 an hour over four years, ending months of protests and rallies for thousands of employees. . . .Most room attendants will earn $35 an hour, or $73,000 a year, by July 1, 2027, Unite Here said, while top cooks will make $41 an hour, or $85,000 a year. When benefits are added in, a hotel will pay $100,000 annually to employ a single room attendant. And yet the US has a fairly unified labor market.  It may be hard to get into the US, but it’s not that hard for a hotel worker to move from Texas to California.  How should we think about this wage disparity?   My baseline assumption is that workers are not better off in California, as there is currently a strong outmigration from California to Texas.  Much of that is explained by housing, but not all.  To see why, consider a model I recall learning in grad school.  Imagine a poor country with a large rural population and a big city with a few higher paying jobs.  Why doesn’t everyone migrate from the countryside to the city?  Perhaps because most workers would suffer from long periods of unemployment while they searched for one of the few good jobs.  Unemployment becomes a sort of “queuing cost” that subtracts from the expected benefit from high wage employment, and preserves equilibrium between the urban and rural population.  If too many people move to the city, queuing costs increase and the expected benefit from migration declines. If I’m correct, then California’s recent push for much higher wages should have led to more queuing, i.e., a higher natural rate of unemployment.  And there is a little bit of evidence that this has recently occurred in California: I don’t want to make too much of this graph.  But it does seem like California has diverged a bit more from the national rate in the post-Covid period (albeit not much in mid-2022, when there were labor shortages almost everywhere.) At the national level, the natural rate of unemployment seems to have fallen from roughly 6% in much of the 1970s and 1980s, to something closer to 3.5% in the late 2010s.  Post-Covid it’s hard to know for sure, because the natural rate is best measured during periods without either recession of overheating, such as 2019. California is a big enough state that even an extra 1.4% worth of unemployment adds about 17 basis points to the national rate.  Thus, minimum wage and union policies in California might have slightly boosted the US’s natural rate of unemployment, reversing a nearly 40-year downtrend.  If a few other states have similar changes in labor market policies, it wouldn’t surprise me if the natural unemployment rate had ticked up from 3.5% to somewhere around 3.8% to 4.0% Assuming there is no recession in 2024, more data will give us a better sense of whether the natural rate of unemployment has indeed turned upward.  In the meantime, I’d strongly encourage the Fed not to focus on the unemployment rate and instead target NGDP growth at 4%/year.  In the 1970s, Fed officials failed to notice a rise in the natural rate of unemployment, and this led to a very costly (inflationary) mistake in monetary policy.  Let’s not repeat that mistake. Equilibrium is a very powerful concept.  It is often helpful to keep this concept in mind when thinking about questions such as, “What is required for people to be migrating from high wage California to low wage Texas.”   In the past, I would have said “housing prices”.  But now I suspect the answer is “housing prices and employment prospects”.  (It can’t just be employment prospects, as otherwise California housing would be cheap, like Detroit.) PS.  That $73,000 figure caught my eye.  Because it’s for 2027, you have to lower it to about $66,000 in today’s dollars today for comparison.  Even so, my first year teaching at Bentley (in 1982) I made $22,500, which is like $60,600 today (using the PCE price index as a deflator.)  BTW, I’m not complaining—always happy to see trends like this: And no, the difference between the inflation rates experienced by low and high-income workers doesn’t even come close to being large enough to offset this gap. PPS.  In my view, the federal minimum wage has been effectively repealed.  There used to be a debate about what would happen if the US copied Sweden and Denmark by not having a minimum wage law.  The debate should be over.  In Texas, fast food workers earn an average of $17/hour.  Unless you believe that wage is caused by the federal $7.25/hour minimum, that represents the free market wage—the wage without any federal minimum wage law.  Even if minimum wage laws could somehow be justified (they cannot), there would be no justification for a federal minimum.  If it were not set too high for the poorest state, it would be irrelevant in most states.  States are free to set their own minimum wage, reflecting local labor market conditions. (0 COMMENTS)