Scott Sumner recently had a post discussing a potential relationship between trade deficits and government debt.  To sum up, since debt must come from savings, if domestic savings are too low relative to domestic investment, then foreign savings must come in and make up the difference; the United States imports foreign savings.  When the government incurs deficits and decides to fund those deficits by incurring debt, the savings used to pay for that debt can come from domestic sources or foreign sources.  In the US, much comes from foreign sources, being a partial amount of the trade deficit. Some protectionists have used this relationship between trade deficits and government debt to argue that classical liberals (like myself) and others concerned about government debt should support tariffs to reduce the trade deficit.  Reducing the amount of foreign savings coming into the US would increase interest rates and thus make government borrowing more costly.  The government would consequently reduce deficit spending.  That argument is specious, however, for two reasons. First: interest rates would likely rise, but it is not obvious that will reduce government deficit spending.  The people making spending and budgetary decisions do not face the full costs of their decisions.  Neither do voters (indeed, the costs are spread out across all taxpayers).  Consequently, we end up in a situation that James Buchanan and Richard Wagner call “Democracy in Deficit”: politicians prefer easy choices over hard, and will generally support higher spending and lower taxes.  Voters face similar incentives.  Indeed, the absolute amount of resources used to produce the same amount of spending will increase if tariffs are used to try and tackle government debt (assuming the same amount of deficit spending occurs, it will be financed at a higher interest rate than would have occurred with larger trade deficits.  Thus, the amount needed to pay back the debt would be higher than otherwise).  No one in the political process faces the incentive to cut deficit spending even with a higher interest rate because “the government” is not a monolithic chooser such as the individual in the marketplace.  Rather, it is a collective made up of many independent choosers, each acting in accordance with their own will and self-interest. Second: Tariffs are a blunt instrument.  Even assuming (contrary to evidence) that tariffs can reduce the trade deficit, there is no promise that the reduction in debt will come from a reduction in government deficit spending.  It could (and perhaps would, given public choice constraints discussed just above) come at the expense of private investment.  Domestic firm managers would find it harder to expand, to hire, to acquire, and to produce.  Since domestic firm managers do face the full costs of their actions, managers would feel the impact of higher interest rates more acutely than the government choosers.  Using tariffs to reduce government deficits is like burning down a house to kill a spider: sure the spider may be dead, but the collateral damage is far worse. Ultimately, using tariffs to reduce the trade deficit in the hopes that it reduces government deficit spending is confusing the symptom for the cause of the disease.  Trade deficits may signal excessive government spending, but if that is the case, then the goal should be to actually reduce government spending.  Of course, that is a much more difficult problem for the reasons mentioned above.  But just because it is difficult does not mean one should choose an easier, but probably more harmful, option. Many economists, from Adam Smith to modern day, dismiss trade deficits as “absurd” and argue their presence causes more confusion than clarity.  The linkage between trade deficits and government debt support their conclusion.   Jon Murphy is an assistant professor of economics at Nicholls State University. (0 COMMENTS)

  Should we call this reverse monetarism? An “answer” in the July 1 episode of Jeopardy was the following: In the 1940s, this country’s Magyar Nemzeti Bank printed the million billion pengo note to fight inflation. The contestants were expected to say, and one did, “What is Hungary?” The problem, of course, is that you don’t fight inflation by adding a huge amount to the money supply; that creates more inflation. The people who come up with the clues are obviously smart and I don’t expect them to know a lot of economics, but how would one think that printing more money “fights” inflation rather than adding to it? I don’t understand their mental model. One of my favorite articles on hyperinflations, not surprisingly, is the one I commissioned for my Concise Encyclopedia of Economics. It’s Michael K. Salemi, “Hyperinflation.” Notice that in the third paragraph, he discusses the Hungarian inflation that Jeopardy alluded to. It was substantially more extreme than the German hyperinflation of 1921 to 1923.   (0 COMMENTS)

The second round of the French election, to be held on July 7, carries some interesting lessons about democracy. In each circumscription where no candidate obtained more than 50% in the first round, those who got at least 12.5% are allowed to run. But they don’t have to. A political party or coalition whose candidate came third or lower may have an interest (and an informal obligation according to electoral agreements before the first round) to pressure him to drop off in order not to split the votes among the two major candidates in case the election of one of them would be prejudicial to its post-election position in the National Assembly. “Centrist” parties allied with the leftist New Popular Front to try to block the “far-right” National Rallye. “I put “far-right” in scare quotes because it is not obviously farther to the right than the NPF is to the left, and many of the statist proposals of the two sides are similar.) In pursuit of this goal, 224 such candidates have dropped out in the 577 circumscriptions. (See “French Elections: 224 Candidates Have Officially Withdrawn from the Second Round,” Le Monde, July 2, 2024.) The purpose of a second round is to increase the chances (or to guarantee, depending on the exact setup) that the elected candidate will be able to claim to represent the “will of the people,” that is, 50%+1 of the individuals making up “the people.” which is at best One might think that, for a worshipper of democracy, removing one option from the voters’ menu would be sinful. Technically, it violates the condition called “neutrality” in democratic theory, for it favors some options over others. In reality, though, limiting options presented to the voters necessarily happens all the time, one way or another, if only because there are zillions of possible collective (political) choices; each voter potentially has his own ideal option. For any single voter, choice limitations are inconsequential because his vote, whatever the menu, is not decisive. He (including she, of course) would stay home that the winner would be the same. However, a political strategy of making one candidate drop out may change the collective choice resulting from the election compared to what it would otherwise have been. The contradictions and inconsistencies of democratic mythology are numerous. There is no democratic gadget that can make an election better express “the will of the people,” which does not exist anyway. As I noted in a previous post, different democratic voting methods can achieve widely different results. Interpreting the work of Donald Saari (“Millions of Election Outcomes from a Single Profile,” Social Choice and Welfare, 1992), Gordon Tullock wrote (in Government Failure: A Primer in Public Choice, 2002): Many different voting rules are used in the world and each leads to a somewhat different outcome. Saari has produced a rigorous mathematical proof that for a given set of voters with unchanged preferences, any outcome can be obtained with at least one voting method. Combining all that with the Condorcet Paradox and its contemporary extensions, it would be an error to search for the unfindable majority. A majority is only one possible majority among many, depending on the voting system and back-office politics, not to mention the frequent bureaucratic influence on the political agenda. As political scientist William Riker would put it, democratic decisions are either dictatorial or “arbitrary nonsense, at least some of the time” (see his Liberalism Against Populism, 1982). The non-negligible benefit of constitutional democracy (“constitutional” means “limited”) is to offer voters, when enough are dissatisfied with their rulers, a low-cost means to get rid of them. Liberal democracy (which, in its classical sense, means constitutional democracy), Riker also writes, allows for “an intermittent and sometimes random popular veto” that has some capability of restraining “official tyranny.” We must not ask too much from democracy. As much as the limitation of the options presented to an electorate is unavoidable, the constant limitation of individual choices by collective choices is not the only imaginable state of the world. It is generally inefficient or immoral or both. A collective choice removes many options from the opportunity sets of individuals. It has a direct effect on the choices of all individuals who would have done what is now forbidden. This, not democratic mythology or gadgetry, is the important issue. ***************************** I instructed ChatGPT, “Generate an image illustrating democracy.” I did not tell “him” anything else. He described his image (the featured image of this post, reproduced below) as follows: “A vibrant and diverse group of people standing together in a large open space, each holding a different flag representing various countries around the world. In the center, there is a large, ornate ballot box on a raised platform, symbolizing democracy. Above the scene, a bright sun shines, casting a hopeful and unifying light over the crowd. The background includes iconic global landmarks such as the Eiffel Tower, Statue of Liberty, and the Great Wall of China, representing international unity and cooperation.” It is a vacuous concept of democracy: democracy is nice and good; but it is probably widely shared, as the bot’s database attests. (“He” produced a second image, at the same vacuity level.) Democracy is nice, good, and vacuous, if we believe DALL-E (0 COMMENTS)

The historian AJP Taylor wrote that the 1923 general election was “the only election in British history, fought solely and specifically on Protection.” The general election of 1847 is one of the few contenders.   The Reform Act of 1832 gave the vote to elements of the growing urban middle class. The Tory Party fought the Act, but some now realized that they had to adapt to new political realities. Traditionally the party of the landed aristocracy, the Tories needed new allies. One of the more thoughtful Tories, Robert Peel, believed they could be found among the growing urban working class, which was often at odds with the Whig middle class. For the 1835 election, Peel issued his ‘Tamworth Manifesto,’ which reconciled with the Reform Act and became the creed of the new Conservative Party. ‘One Nation’ Toryism was born.  Aristocrats and workers soon united to oppose the Poor Law Reform Act of 1834, a key Whig policy which sought to reduce welfare spending. Bitterly resented by the workers, Conservatives opposed it too. The radical Tory and factory law reformer Richard Oastler lambasted it as “damnable, infernal, detestable, despotic, unchristian, unconstitutional and unnatural.”    Peel’s Conservatives were elected in a landslide in 1841, but tensions developed between Peel’s “One Nation” Conservatives and the Tory aristocrats. The former, inspired by Richard Cobden’s Anti-Corn Law League, wanted to abolish the Corn Laws, the tariffs which kept foreign wheat out of Britain, raising food prices and harming the working class, and make up lost revenues with a new income tax. Justified on grounds of “food security,” these laws financially benefited the landowning Tories. These Protectionists – whom Queen Victoria denounced as “abominable, short-sighted and unpatriotic” and among whose leaders was Benjamin Disraeli – resisted Peel to the last – and beyond.   The Corn Laws were abolished on June 25, 1846. The Protectionists retaliated the same night, splitting and allying with the Whigs and Irish Repeal Party. Peel resigned, never to hold office again. Cobden paid him tribute:  If he has lost office, he has gained a country. For my part, I would rather descend to private life with that last measure of his…than mount to the highest pinnacle of human power by any other means. Peel’s followers – ‘Peelites’ – supported Lord John Russell’s Whig government, but this unstable situation collapsed in July 1847 and an election was called.  “The election of 1847 was fought…in an atmosphere of confusion, disorder and recrimination,” wrote historian Robert Blake. Not only were the Whigs opposed to the Conservatives, but the Conservatives were opposed to each other, and the Irish Repeal Party was opposed to all of them. Tempers ran high. In Marlow, it was reported that “a set of blood-thirsty ruffians” had been “assaulting any respectable person who was not favourable to the [protectionist] cause.” In Berkshire, The Times wrote, “a compact at present exists among the influential portion of the constituency to retain the recent sitting member, professedly with a view of not disturbing the peace of the county.” Only 44% of seats were contested.   The results resolved little. The Whigs gained slightly but fell short of a majority, the Peelites inched up, but the Protectionists lost around 50 seats. One failed Protectionist candidate berated his audience in Essex, telling them, “we have endeavoured, with no slight difficulty to ourselves, to penetrate some of your thick heads, lest you return home as ignorant as you came!”  In opposition, the Protectionists led by Lord Stanley (soon the Earl of Derby) and Disraeli reconciled themselves to free trade much as Peel had reconciled the Conservatives to the Reform Act. When Britain went to the polls again in 1852, Disraeli argued that “The spirit of the age tends to free intercourse and no statesman can disregard with impunity the genius of the epoch in which he lives.” After squeaking back into office, Derby announced that the Conservatives would “bow to the decision of the country” and pursue free trade “as if we ourselves had been the authors of that policy.” As the historian Thomas Babington Macaulay observed, Toryism amounts to no more than defending the Whig achievements of a previous generation.  The fight over Corn Law repeal cast a long shadow. The Peelites, led by Peel’s protégé William Ewart Gladstone, joined with the Whigs in 1859 to form the Liberal Party and the rivalry of Disraeli and Gladstone dominated British politics until the former’s death in 1881, by which time Queen Victoria had come to love Disraeli and loathe Gladstone. But all sides would remain true to the faith of free trade as Britain ascended to its imperial peak. Only as the country felt its relative position weaken would the old cause of Protectionism live again.        John Phelan is an Economist at Center of the American Experiment. (0 COMMENTS)

[Note to readers: This post is not about inflation. The rate of inflation is a little bit subjective, but much less subjective than the cost of living.]In my previous post, I discussed Singapore. Today’s FT has an article on Singapore, which contains this interesting fact: The city, one of Asia’s main financial centres, has been ranked the world’s most expensive for nine of the past 11 years by the annual Worldwide Cost of Living survey from the Economist Intelligence Unit. That surprised me for a couple reasons. First, I’ve been to Singapore on several occasions and didn’t find it to be expensive. Second, I recalled some IMF PPP comparisons that suggested Singapore was actually quite cheap.  When I doubled checked, my memory turned out to be correct: If you divide 88.45 by 133.74 you get 66.1%.  In plain English, the IMF estimates Singapore’s cost of living to be an astounding 33.9% lower than the cost of living in the US.  Not 33.9% below NYC, rather 33.9% below the US average.  There’s an almost crazy disparity between the IMF’s claim that Singapore is a very cheap city and surveys showing that Singapore is literally the most expensive city on Earth.  What gives? Fortunately, the FT links to a useful linked article that explains the reality of prices in Singapore.  The “TLDR” synopsis is as follows: 1. Singapore is a really expensive city for expat business people who wish to rent a private apartment in fashionable central neighborhoods, have a private car, and have membership in a golf club. 2. For average Singaporeans living further out and not owning a car, the cost of living is quite reasonable. The article matches my observations.  I recall that subway fares were low and restaurant meals were cheap.  I presume that lots of other services that use imported low skilled temporary workers (say nannies, nail salons, home remodelers, etc.) are also cheap.  Here’s what the linked article says about transport costs: Owning a car in Singapore is certainly pricier than in other countries – no argument about that! This is because the certificate of entitlement (COE) that every car owner must purchase averages a whopping $75,000 for a sedan – and that excludes the cost of the car, road tax, fuel, and insurance.  It’s a major contributing factor to Singapore being ranked the most expensive city in the EIU survey. There’s a reason for it, though. Given Singapore’s small size, the volume of traffic on the road is carefully controlled to ensure we meet sustainability goals as well as avoid traffic gridlocks common to dense cities. Paired with Singapore’s compact size, an efficient and affordable public transport infrastructure means there is no need to own a car. This is unlike larger cities where driving an hour or more to your destination is common. If you really need a car from time to time, rental services like GetGo are an affordable alternative that starts at $2.20/hour and go up to $65.50/day. Longer-term rentals start at $283/week for non-luxury models.  Taxis and ride-hailing services like Grab, CDGzig or Gojek are readily available in Singapore for around $11 to $26 per trip, less if you opt for shared rides.  It should be noted, however, that this article is a government sponsored rebuttal to the cost of living survey that claimed Singapore was extremely expensive. In my view, the truth is somewhere in between these two estimates.  Recall my earlier post arguing that Newport Beach was America’s best place to live.  That claim was based on a survey that showed Newport Beach to be America’s most “unaffordable” city (of more than 100,000 people.)  The basic idea is that a highly desirable place becomes “unaffordable” as people bid up housing prices to a high multiple of average incomes.  Unaffordability is an index of “revealed preference”. Central Singapore is extremely desirable, especially to expat business people who want to be close to the action.  So the high “cost of living” there is essentially a measure of its attractive amenities.   But all of Singapore is relatively attractive, at least compared to most other Asian nations.  Thus real estate in even the outlying districts is much more expensive than in most of the US.  An American family with a 2500 sq. foot home, a nice yard, and 2 SUVs in the driveway, would have a difficult time recreating their lifestyle if transplanted to Singapore.  They would view the IMF estimate as an almost absurd underestimate of Singapore’s cost of living. On the other hand, Singaporeans do enjoy a relatively low cost of living in most things, including some areas that are much more important than restaurant meals and nail salons.  Health care is quite inexpensive and income taxes are very low. My general sense is that Singapore does fairly well on service-focused measures of living costs (and perhaps some imported goods), and the US does relatively well on “physical goods” based measures of living costs. Within the US, dense coastal cities like New York are particularly expensive for people that want big houses and cars.  It wouldn’t surprise me if studies even found a political dimension, with Republican consumption baskets skewing a bit more toward things, and Democrat consumption baskets skewing a bit more toward services. The cost of living is thus highly subjective:  The cost of living how? PS.  Singapore also does well on many “intangibles” that don’t show up in price indices.  Subways are clean and efficient.  Crime is very low.  There is much less pollution and traffic congestion than other Asian cities.  On the negative side, there is less freedom of speech.  After my previous post, Jim Glass provided a very astute comment on Singapore’s excellent health care system, and the political barriers to translating that success to other countries. PPS.  Even service quality is highly subjective.  Americans who like to eat steak and potatoes in a big restaurant with plush chairs might not like the hawker’s markets where many Singaporeans eat.  Tyler Cowen loves these eateries:   PPPS.  Yesterday, a New Zealand tourist was murdered during a holdup at one of Newport Beach’s most elegant shopping malls.  This is a reminder that even America’s safest areas would not be viewed as all that safe by Singaporean standards.  Indeed, even Canada’s murder rate is almost 20 times higher than the rate in Singapore. (0 COMMENTS)

Here are some quick comments on Richard Ebeling’s and Geoffrey Lea’s second essays on Austrian economics in South Royalton, Vermont. All of the essays can be found here. First, Richard Ebeling. Richard tells a hilarious story about traveling to South Royalton, VT from Sacramento by bus. Wow! I remember that Harry Watson and I had our air fare paid for, if I recall correctly. I don’t know why the disparate treatment. The good news is that it didn’t seem to negatively affect Richard’s attitude unless he was normally even friendlier and more excited than he appeared. One of my favorite parts of his second essay is his reminiscence of the late Sudha Shenoy. I remember her well. At the age of 23, I had never interacted at any length with an Indian woman. I enjoyed her immensely, especially her infectious laugh. I actually had heard of her famous father, economist B.R. Shenoy, and I think I had read one or two things he wrote. Again, if I remember correctly, he was the first economist I read who was critical of India’s government’s central planning. It’s hard to  believe that she died in 2008. It seems much more recent. Here’s a very sweet remembrance of Sudha by the late John Blundell. Second, Geoffrey Lea. I think Geoffrey is right to charitably interpret Milton Friedman’s famous statement to the group in South Royalton that there’s no such thing as Austrian economics; there are only good economics and bad economics. I didn’t take him to mean that the Austrians didn’t have important insights. I took him to mean that the people gathered there shouldn’t let each other get away with incorrect statements or claims just because they sounded Austrian. And, by the way, I didn’t see people there letting each other get away with such claims. The pic above is of Sudha. The other pic is of my late friend Harry Watson and his wife Ida Walters in front of the South Royalton hotel, the “scene of the crime.” I was visiting Harry and Ida in September 2015 in New Hampshire and we drove to the hotel to see what it was like. Harry and Ida had met at the conference and got married not long after. (0 COMMENTS)

Thinking- what is it? What does it mean for human beings to think? Are we about to be surpassed by artificial thinking? Many people think so, but not Teppo Felin, as far as I understand him. In this episode, EconTalk host Russ Roberts welcomes back Felin to discuss these questions, based on a working paper Felin has written with Matthias Holweg. Felin explains that the human ability to ignore existing data and evidence is not only our Achilles heel, but also one of our superpowers. So what is it we actually do when we’re thinking??? After listening to the podcast, we’d love to hear your thoughts. Share your answers to the prompts below in the Comments, or use them to start your own offline conversation. Either way, we’re here for it.     1- What’s wrong with thinking of the the brain as a computer? This pervasive metaphor has been around since the 50s. It’s true, says Felin, that neural networks make connections, but the brain is still not quite a computer- something else is going on. How should we understand the brain instead, according to Felin?   2- Large Language Models can take in so much content, Felin says it would take humans hundreds of years to pre-train their brains for the same number of words. He describes LLMs as employing a stochastic process that’s very good at “predicting the next forward.” If LLMs contain so much content, why can’t they think like humans? What’s the significance of looking backward in the process of human thinking?   3- Felin argues that using AI to make rational decisions is a fool’s game, as is the idea of being being able to rid AI of bias. Why are biases a feature, not a bug, of human cognition? What is the relationship of beliefs and theories to thinking, and how does this differentiate human thinking from AI?   4- Felin uses the charming example of the Wright brothers, insisting that no Venture Capitalist would have given them any money. Why, according to Felin, would AI have hampered the Wright brothers’ progress? Why, conversely, were they able to succeed?   5- Roberts quotes Yann LeCun; “Prediction is the essence of intelligence.” How much does prediction have to with intelligence, according to Felin? What does Felin mean when he says, “…that’s something that computers can’t do. They take existing data as a given, whereas we as human beings find and create, through experiments, new data.” To what extent is there a meaningful distinction between digital and biological intelligence, and how might you describe it? (0 COMMENTS)

  On Marginal Revolution, Tyler Cowen quotes from a news item in the Financial Times: There are several investment implications of Trump back in the White House,” said Jack Ablin, chief investment officer at Cresset Capital. “[Most notable would be] a higher-for-longer Fed, as monetary policymakers increase the likelihood that the corporate tax cuts will be extended next year.” Did you spot the error in the quote from Jack Ablin? Neither Tyler nor, as far as I can tell, any of his many commenters did. The corporate tax cuts, if by that you mean the drop in the corporate tax rate to 21%, don’t need to be extended next year because they don’t expire next year. They are one of the few parts of the 2017 tax cut that are permanent unless Congress explicitly changes them. And thank goodness for that because they are one of best parts of the 2017 law. (The other one is the restriction on the deduction for state and local taxes, which does expire next year.) I’ve seen a number of people claim on line that the cut in the corporate income tax rate was temporary. I corrected a Reason writer who made that claim. To his credit, he updated his post to reflect the truth. (0 COMMENTS)

In a recent interview with Dwarkesh Patel, Former UK Prime Minister Tony Blair discussed the policies of Lee Kuan Yew—the father of modern Singapore.  He suggested that Lee made three key decisions early in his administration, which led to Singapore achieving a high level of economic development: 1.  Singapore adopted English as its national language. 2. Singapore became highly open to foreign capital and talent. 3.  Singapore adopted a zero tolerance policy for corruption, combined with salaries for top government officials that were an order of magnitude higher than typical in the public sector. This made me think of the similarities between Singapore and corporations based in Switzerland.  Many corporations in Switzerland use English as their official language, despite the fact that their country’s main ethnic groups (German 62.1%, French 22.8%, and Italian 8.0%) all speak other languages.  Singapore also has a complex ethnic mix including Chinese (75.9%), Malay (15.1%) and Indian (7.4%.)   Blair noted that Lee’s decision to have Singapore adopt English was quite controversial at the time. Switzerland is a highly open economy, which welcomes foreign investment.  Approximately 30% of Switzerland’s population is foreign born, far higher than the 10% to 20% typical in Western Europe.  Singapore also welcomes foreign talent and investment, with 37% of its population foreign born.  Again, Lee’s policy was controversial at the time, as import substitution was in vogue at the time Singapore was founded (in 1965.) Like Singapore’s government, Swiss companies do not tolerate corruption, and pay relatively high salaries to top executives.  Lee’s policies regarding corruption and public sector salaries are quite unusual in the developing world. Ethnic strife is a very common problem in many parts of the world.  Switzerland has used political decentralization to reduce the danger of conflict between regions speaking different languages.  Decentralization would not be as feasible in a small city-state like Singapore, but by adopting English as a language Singapore was able to at least somewhat reduce the salience of ethnicity. I don’t know if Lee Kuan Yew had Europe’s most successful country in mind when he adopted these policies, but whatever the motive, Lee ended up creating a Singaporean model that looks uncannily like a successful Swiss multinational corporation. (0 COMMENTS)

Robert Nozick’s Anarchy, State, and Utopia was released in 1974, shortly after (and partly in response to) his Harvard colleague John Rawls’ 1971 A Theory of Justice. Anarchy, State, and Utopia included a theory of rights and a right-based account of liberalism in the classic tradition, which offered an alternative not only to Rawls’ progressive redistributionist egalitarianism but also to socialism.1 Nozick was not the first or only philosopher to make these arguments, but he was among the first, and among the most famous. His arguments were rigorous and compelling, his writing was clear, and Anarchy, State, and Utopia has become one of the books chiefly associated with the classical liberal (sometimes “libertarian”) perspective. Alongside the work of economists defending market-based economies, Nozick was instrumental in making the classical liberal tradition a viable (if not tremendously popular) alternative in the academic world. Checking in fifty years later, one observes that Nozick has had great influence, even though philosophers remain divided on the ideas he put forth. Philosophers who work in the classical liberal tradition are more plentiful now compared to when Nozick wrote, and they are taken a little more seriously. While there are non-Nozickian approaches to arguing for liberalism, the success of Nozick’s work is one reason this variety of approaches has grown and developed. His arguments may have had less traction than some liberals might have hoped—Marxism and Rawlsianism are still the predominant approaches, and there are a few more academic anarchists than there used to be (another theory targeted by Anarchy, State, and Utopia), but it’s fair to say that the book itself holds up extremely well and is rightly regarded as a major contribution to political philosophy. It also supports liberal economists’ emphases on rights of property, contract, and market entry. Let’s have a look at some of the ways in which it continues to be a significant work. The very first sentence of Anarchy, State, and Utopia says, “Individuals have rights, and there are things no person or group may do to them (without violating their rights).”2 Some of Nozick’s early critics assailed him for having merely asserted that people have rights without providing an argument, but this is plainly false. The argument is in chapter three, which makes one wonder whether these critics were quick to dismiss a book the conclusion of which contradicted their priors rather than actually looking at the argument. He specifically cautions against this on the same page, just two paragraphs down: “many persons will reject our conclusions instantly, knowing they don’t want to believe anything so apparently callous…. I know that reaction; it was mine when I first began to consider such views…. This book contains little evidence of my earlier reluctance. Instead, it contains many of the considerations and arguments….”3 So while in the first two chapters, he is working on a promissory note, he makes good on it in the third. The argument for rights is based on the “fact of our separate existences.”4 That is not to say that we do not have connections to other people or derive some component of our self-image from the various communities we inhabit, merely that we are nevertheless distinct individuals, each with his or her own life to live. This, he argues, creates moral side-constraints on how we treat each other. There are echoes here of both John Locke and Immanuel Kant: one argument for the side-constraints is that no one could by nature have a claim to own another person, so we can’t rationally understand another person’s existence solely in terms of them being a means to anyone else’s ends. Nozick is firm on this. People are ends in themselves, existing for their own sake. He uses the example of tools: tools exist in order to help people accomplish their ends; the tools don’t have ends of their own. But people do exist and have ends of their own and are not to be regarded as tools for others’ ends. Using a person as a tool for your own ends “does not sufficiently respect and take account of the fact that he is a separate person and that his is the only life he has.”5 This is what it means for there to be moral side-constraints on how we treat each other. “Moral” because of course, one can treat others as mere tools, use them only to further one’s own goals with no regard to their dignity and autonomy—but it is morally wrong to do so.6 Nozick argues that if this doesn’t hold—if there are no constraints on how we may treat others—then there’s no morality at all.7 These side-constraints on how we may treat others are what rights are: if you’re morally required not to do X to me, then I have a right not to have you do X to me.8 If we have rights in a moral sense, Nozick argues, that has legal implications for the political/economic order. Returning to the opening sentence: there are things no person or group may do without violating those rights. This means that many conceptions of what government is supposed to do may turn out to be logically incompatible with taking people’s rights seriously. We tend to recognize wrongful government action when it’s a different government more easily than we recognize it when it’s our own. Looking, for instance, at a theocratic society, most people in a liberal democracy will notice the lack of religious freedom and the imposition of a single set of values. When looking at a one-party state with strict control of all work and media, members of a liberal democracy will notice the lack of voter choice and the problems caused by suppressing economic and journalistic freedom. It’s much better, they surmise, that people have freedom of press and freedom of occupation, and can vote for a better candidate if they don’t like the ones in office. However, it’s sometimes harder to see the ways in which a liberal democracy can also violate rights. The easiest way is when checks on majoritarian democracy are weak or poorly understood. Then we can have majorities regulating what others might want; for example banning interracial marriage, or prohibiting the manufacture and sale of alcohol. More subtly, Nozick notes, conscription (still U.S. policy in the early 1970s), wage and price controls, and taxation itself also violate rights, yet we often don’t notice this, or are taught in school that that’s just the way it is. Nozick argues that governments cannot have a moral entitlement to do things that individual people may not do. That is, the reason the government would be wrong to murder me is exactly the reason anyone would be wrong to murder me: it violates my rights. But this extends to all sorts of things that, typically, only governments do; press people into service or otherwise deny them their liberty, appropriate their property, impose restrictions on their ability to publish a book or give a speech, impose restrictions on their ability to engage in commercial activity, and so on. This means that most conceptions of good government will be rights-violative and hence morally unjustifiable. In addition to (perhaps) more obvious things like massacring or enslaving disfavored populations, it also includes things we tend to take for granted, like restricting financial transactions and seizing “excess” property. Where Rawls argues for a system in which rights to free speech, religious freedom, voting rights, and the like are fully protected for all, but where commercial and financial activity can be restricted through regulation and taxation, Nozick argues that there’s no coherent rationale for distinguishing between the two (more on this momentarily). Where Karl Marx argues for the abolition of money and private property to ensure the equal distribution of all material resources, Nozick argues that not only would this be morally unjustifiable, it would also be unsustainable. Wilt Chamberlain One of Nozick’s most famous thought-experiments to illustrate the inconsistencies in Rawls and Marx is the “Wilt Chamberlain argument.”9 Briefly, with this idea Nozick asks the reader to assume that we have in fact achieved the most just distribution of material resources, according to the reader or even Rawls or Karl Marx. Whatever that just distribution is, Nozick asks us to refer to it as D1. On D1, everyone is ex hypothesi entitled to whatever they have. Nozick then says, “suppose that Wilt Chamberlain is greatly in demand by basketball teams, being a great gate attraction…. He signs the following sort of contract with a team: In each home game, twenty-five cents from the price of each ticket of admission goes to him…. The season starts, and people cheerfully attend his team’s games…. They are excited about seeing him play; it is worth the total admission price to them. Let us suppose that in one season one million persons attend his home games, and Wilt Chamberlain winds up with $250,000, a much larger sum than the average income and larger even than anyone else has.”10 Nozick asks the reader whether this new distribution, call it D2, which deviates from D1, is also just. If it is not, Nozick asks, why not? After all, each person was entitled to spend that 25 cents as they pleased, and no one was coerced or exploited by Chamberlain’s contract, but the net result is an increase in wealth inequality that “upsets the pattern.” “There is no question about whether each of the people was entitled to the control over the resources they held in D1; because that was the distribution (your favorite) that (for the purposes of argument) we assumed was acceptable. Each of these persons chose to give twenty-five cents of their money to Chamberlain…. If D1 was a just distribution, and people voluntarily moved from it to D2,… isn’t D2 also just?”11 If we’re to maintain the pattern and keep D1, Nozick concludes, it would require forbidding people like Chamberlain from entering into favorable contracts, or forbidding people from spending their money in accordance with their own choices, or both. Since in the real world, the Wilt Chamberlain situation plays out in countless ways every day, that kind of planned distribution of resources requires constant interference with people’s freedom to choose what to do with their lives. “If we are to take people’s rights as morally important, we will not be able to justify the multitude of restrictions on transactions that are required not only by socialism but also by the progressive-taxation-based regulatory-and-redistributionist state.” The Wilt Chamberlain thought experiment is meant to show that not only is a completely egalitarian distribution of material resources unsustainable without massive rights-violations, so is any sort of redistributive plan. The under-appreciated significance of this is that the distinction Rawls makes between “political rights” and “economic rights” is not really a valid distinction. My freedom to choose doesn’t amount to much if I am not free to engage in transactions that give material reality to my choices. If we are to take people’s rights as morally important, we will not be able to justify the multitude of restrictions on transactions that are required not only by socialism but also by the progressive-taxation-based regulatory-and-redistributionist state. In addition to the morally objectionable rights violations these entail, Nozick might also have mentioned the further problem that these restrictions will be made through a political process, which necessarily means influence-peddling and cronyism in the selection of which transactions are to be restricted. In assessing the continuing relevance of Anarchy, State, and Utopia fifty years on, it is also noteworthy that Nozick devotes a considerable amount of space to exploring the reality of human diversity, and to demonstrating the relevance of this for political and economic theory. Nozick notes that any conception of “the good society” will either be very minimal, or else it will exclude some people’s values and preferences while privileging others. People form associations voluntarily when there’s mutual benefit to doing so. Sometimes this benefit is as simple as facilitating the division of labor, but other times it is based on a more comprehensive set of shared values. So, left to their own devices, we can imagine people forming larger, cosmopolitan, commercial communities and also smaller, homogenous, belief-based communities. In Manhattan, for instance, people of varied beliefs and ethnicities live together because of financial or artistic benefits, while just a few hours away, in Lancaster County, Pennsylvania, the Amish live in a more homogenous society where everyone shares a common religious faith and other values. Nozick’s point is that there’s no universal and objective sense in which one of these is “good” and the other “bad”—rather, each is good for some people and bad for other people. As long as people are free to form the communities they want, and no one is forced either to join or to remain, any number of communities are possible, and consistent with respect for people’s rights and autonomy. So the “minimal state” Nozick defends is not, contrary to incautious critics, a laissez-faire capitalist society. The “minimal state” is a framework, which allows for laissez-faire commercial societies and also communes, for high-tech societies and Amish country, for secular societies and religious societies—provided only that people join these communities voluntarily and may exit should they change their mind.12 For more on these topics, see “Subversive Innovation: A Strategic Reading of Nozick’s Framework for Utopia,” by Max Borders. Library of Economics and Liberty, Apr. 4, 2022. David Schmidtz on Rawls, Nozick, and Justice. EconTalk. “Three Ways of Looking at Individualism: Freedom in Agency,” by Bill Glod. Online Library of Liberty. Ironically, some of the pushback one sees regarding economic freedom is based on alleged failure of market institutions to embrace pluralism and diversity. Nozick’s argument is that just as taking rights seriously has implications favoring the minimal state, so does respect for human diversity and pluralism. Any theory of “the ideal society” that goes beyond Nozick’s framework is necessarily neglectful of this, substituting one set of values and preferences for others in a totalizing way. Fifty years after Anarchy, State, and Utopia, the classical liberal perspective is still not the predominant one in political and economic theory, but Nozick’s insights into the nature of rights, the significance of rights, and the reality of human pluralism remain significant challenges to proponents of more heavy-handed, illiberal theories. Classical liberalism is richer for Nozick’s contributions, and he is at least partially responsible for whatever increase in numbers we have seen over the years. The book deserves its place on short-lists of important books in political philosophy, and hopefully it will continue to find readers. Footnotes [1] Robert Nozick, Anarchy, State, and Utopia (Basic Books, 1974); John Rawls, A Theory of Justice (Harvard University Press, 1971). I have a more detailed discussion of Nozick in The Essential Robert Nozick (Fraser Institute, 2020). See also https://www.essentialscholars.org/nozick. [2] Anarchy, State, and Utopia, p. ix. [3] Anarchy, State, and Utopia, p. ix. [4] Anarchy, State, and Utopia, p. 33. [5] Anarchy, State, and Utopia, p. 33. [6] The contrast would be physical side-constraints; e.g., I literally cannot go back in time or be in two places at once. Those are side-constraints on how I may act about which I have no choice. But that I shouldn’t murder or enslave someone are not physical side-constraints—one can do those things but should not. [7] Or, a denial of the reality of the uniqueness and dignity of each person. The danger of any reductio ad absurdum is that one’s interlocutor might agree with the putative absurdity, and some philosophers might reject Nozick’s account of rights, if, e.g., they thought there was no such thing as right and wrong at all. But that’s not a move Rawls can make. [8] Philosophy note: this approach is generally regarded as deontological, referring to one’s duties or obligations. There are other approaches to deriving rights of course, chiefly consequentialist approaches, which hold that a concept of rights is beneficial because it promotes better outcomes for society (e.g., in David Hume-, arguably John Stuart Mill-), and neo-Aristotelian-approaches, on which a concept of rights is seen as protecting the possibility of self-directed action, which is a necessary component of human flourishing (e.g., in Douglas B. Rasmussen and Douglas J. Den Uyl, Norms of Liberty (Penn State Press, 2005). [9] Wilt Chamberlain was a top basketball superstar in the early 1970s. If that reference isn’t helping, think Michael Jordan or LeBron James, or any superstar athlete, or any A-list movie star. [10] Anarchy, State, and Utopia, p, 161. [11] Anarchy, State, and Utopia, p. 161. [12] For further discussion of Nozick’s argument from pluralism, see my forthcoming “Reassessing Nozick on Pluralism,” The Independent Review, Vol. 29, no. 2 (Fall 2024). *Aeon J. Skoble is the Bruce and Patricia Bartlett Chair in Free Speech and Expression and Professor of Philosophy at Bridgewater State University, and author of The Essential Robert Nozick, part of the Fraser Institute’s Essential Scholars series. This article was edited by Features Editor Ed Lopez. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)