A Liberty Classics Book Review of Universal Economics, by Armen Alchian and William Allen.1 What do you do when economists stop believing in economics? The “dismal science” never merited its dreary epithet, but trends in economics education at the graduate and undergraduate levels could change that. Ph.D. courses are saturated with hyper-mathematical models that are as sophisticated as they are irrelevant, as well as statistical pyrotechnics that amount to little more than brute description. Undergraduate courses trivialize the economic way of thinking and leave students incapable of intelligently discussing the complexity and richness of markets. Good economics is increasingly hard to find in the academy. But there is hope. Finicky smartphones can be rebooted to their factory settings. We can do something similar with economics. There are plenty of resources for teachers and scholars who want to recapture the power and elegance of old-school price theory.2 Foremost among them is Armen Alchian and William Allen’s Universal Economics. This remarkable book teaches foundational economic concepts without reading like a textbook. Too often, course readings in economics come across like hastily assembled instructors’ manuals. Students find them sterile and enervating. But Universal Economics grips the reader and conveys the wonder of finding the hidden order in economic life. This book should be required reading for all Bachelors and Masters students, as well as a prerequisite for doctoral study. As my colleague Bryan Cutsinger and I write in a forthcoming paper, price theory studies “how the price system coordinates the disparate plans of producers and consumers.” It is impossible to understand market economies without appreciating how the price system generates information and aligns incentives. This theme is consistent throughout Universal Economics. Alchian and Allen write from the perspective of the UCLA school of price theory, which emphasizes the importance of property rights and legal rules for shaping economic activity, as well as the surprising varieties of contractual devices producers and consumers use to overcome barriers to exchange. Too many economists treat the economy as a machine, conveniently positioning themselves as the machinists whose tinkering makes the whole thing “work.” Alchian in Allen, in contrast, treat the economy as an object of inquiry, inviting the reader on a quest of joint discovery. Their goal is social comprehension, not social control. That enables them to avoid the common pitfalls of microeconomic analysis, such as equating price-taking behavior by firms with “perfect competition” or assuming margins of adjustment other than price indicate an economic inefficiency. Universal Economics properly begins with the problem of scarcity, which makes necessary a system to determine who gets what. They immediately segue to rules and processes that can allocate resources. This puts property rights front and center. Queueing, discrimination, and violence are all schemes societies have used throughout history to allocate rights. What makes market economies unique is their reliance on “competitive cooperation by exchanges” to determine what gets produced, how it gets produced, and who gets the resulting products. Thinking about economic problems in terms of property rights helps us understand, for example, why politically free speech (“the right to communicate with your own resources to other willing listeners”) is never economically free. This is time well-spent: We cannot make good use of a market model, such as supply and demand, without understanding that market participants are exchanging rights to things, rather than things in themselves. From their discussion of choice, cost, and trade, Alchian and Allen carefully build up the laws of demand. Chapter 6, titled “The Extent of Exchange,” is one of the book’s most valuable. Using a simple trade model, they demonstrate one of the most important yet least understood principles in basic economics: supply and demand are the same thing. Depending on the terms of trade (i.e., prices), the same household or firm can be a net demander or a net supplier of a commodity. We trade with each other until prices adjust such that everybody values the next additional unit of the commodity the same, in terms of foregone resources. “Equilibrium” is not merely an x-marks-the-spot point on a graph; it is the careful explication of the logic of exchange, driven by the purposes and values of the exchangers. Universal Economics truly shines in its second part, which focuses on production and firms. Alchian and Allen distinguish between price takers and price searchers. They do not classify markets with price-taking firms as “perfectly competitive,” nor do they classify markets with price-searching firms as “imperfectly” or “monopolistically competitive.” Competition is not a function of how firms respond to market demand. It is something firms do, not something handed down on high in the form of an unalterable market structure. The authors emphasize several important points that other books miss: Marginal costs increase with the rate of production, not the volume; profit maximization results from the filters and selection processes in markets, not the intentions or knowledge of managers; extraordinary profits cannot persist indefinitely, even without the entrance of new competitors, because markets will capitalize those profits into the value of the enterprise, raising average total cost. Furthermore, Alchian and Allen distinguish between profits earned in open competition versus profits secured through political lobbying and regulation. Rent-seeking can confer to firms a de facto property right to the market itself—something not included in the common-law commercial precedents they highlight early in the book. My favorite chapters in this section focus on the theory of the firm and inter-firm dependencies. Why do firms exist in the first place? Why aren’t all producers independent contractors who spot-transact with consumers, with relative prices coordinating the whole process? Alchian and Allen defend the teamwork theory of the firm: Many production processes use team production, meaning the whole is greater than the sum of the parts. The parts (e.g., an individual employee’s contribution) are difficult to value, and hence difficult to compensate. This creates some bad incentives for team members. They would rather slack off and let other team members do the heavy lifting. But if every team member thinks this way, nothing gets produced, and nobody gets compensated. The firm, and in particular the manager, is a governance mechanism. The firm hierarchically polices production, ensuring team members contribute the right amount of effort to the group project. Dependencies exist whenever two parties to a transaction—for example, one firm selling another firm an input into the latter’s production process—become sensitive to each other’s strategies. Repeat dealings and reputational capital can make continued business more attractive than switching to the market’s next best trading partner. This creates incentives for each party to cheat. Each firm might renege on previous agreements to extract some of the extra benefits both firms enjoy due to their specialized dealings. Many fascinating contractual practices arise to solve dependency problems between firms, or between firms and customers. Airlines can merge to avoid the problem of overcharging on split or shared routes; non-compete clauses give firms an incentive to invest in their employees, because employees cannot take their firm-financed human capital to a competing enterprise; publishers of newspapers print a price on the front page to make it costly for sellers and distributors of newspapers to reduce circulation by charging too much. Other textbooks, if they discuss these practices at all, declare them “anti-competitive” or use them as examples of “market failure.” Nonsense! Alchian and Allen take great care to show the reader this is what “cooperative competition” in the market looks like. Alchian and Allen conclude their discussion of firm production by covering corporations and the stock market. They praise the corporation as “one of the great inventions during at least the past five centuries. It’s the dominant method of organizing and financing durable teams of people and resources for increased production of marketable goods—real income and wealth.” Notably, they explain the differences between firm liability structures (unlimited-liability partnerships vs. limited-liability corporations). As for the stock market, it “provides quick, low-cost salability of shares” for resale, as opposed to origination. The subsection on residual claimancy is particularly important. Any study of contemporary market economies will be incomplete unless it addresses the information-generating and incentive-aligning features of a property right to revenues in excess of costs, as the authors do. Universal Economics does a very good job of integrating topics that are normally reserved for introductory business courses (balance sheets, earnings statements, etc.) and showing their relevance for coordinating the economic system. The chapter on the market for corporate control is especially helpful. Alchian and Allen explain an apparent puzzle of corporate governance: the separation of ownership and control. If property rights and incentives are so important, why would anyone sever these functions? The key is specialization. Especially for large, complex enterprises, those with a comparative advantage at running the firm are rarely the same as those with a comparative advantage in owning the firm (bearing risk). Upper management polices lower management, the chief corporate officers police upper management, and the board of directors police the chief corporate officers. The board themselves, as representatives of the shareholders, are accountable to the market—and if they fail in their oversight duties, “takeovers, tender offers, and leveraged buyouts are means of almost complete displacement” that can restore lost profitability. Part three of Universal Economics is a crash course on wealth, interest rates, and financial markets. Students often need basic instruction in personal finance (how to budget; how compound interest works, etc.) and chapters 30-37 more than satisfy. Students will learn about optimal resource allocation over time, the determinants of capital prices, risk and insurance, competition and equalization of rates of return, and options trading. It is useful material, although probably this portion of the book is the least distinct from other books on similar topics. “A well-trained price theorist, even if he cannot say everything about something, can say something about everything.” UCLA price theory shines in the final part of the book. Alchian and Allen tackle topics usually reserved to macroeconomics courses: unemployment and inflation. They refuse to sunder economics by declaring certain topics off-limits. A well-trained price theorist, even if he cannot say everything about something, can say something about everything. For example, their discussion of unemployment—workers who want a job but don’t currently have one—incorporates information and search costs. The best job is rarely the first one to come along. Importantly, temporarily specializing in job search “can be productive, and in an important sense you are employed in wealth-maximizing activity, but the statisticians will count you as unemployed.” They extend this analysis to capital equipment not currently in use (idle resources). The analysis is a notable rebuke to narratives that rely on excessive aggregation, and hence are price-atheoretic, which unfortunately prevail among economists too busy making policy recommendations to think carefully about labor markets. Universal Economics concludes with a chapter on money, prices, and inflation. It is a treat. Alchian and Allen remind the reader of the information-generating role of the price system. In a market economy, prices reflect opportunity costs. Price changes signal that the highest-valued use of resources has changed. To maximize wealth, the economic system must adapt accordingly—and thanks to property rights, prices, and profits, it does. Yet this process depends on accurate perception of relative price changes, as dictated by alterations in the basic conditions (resource availability, technology, political and legal institutions, etc.) that underpin supply and demand. Since market prices are denominated in money, a well-functioning price system presupposes a well-functioning monetary system. What happens when, instead of monetary order, we have monetary disorder? As Alchian and Allen note, “When the standard of value—money—does not mean the same thing over time, we say there is noise or static in the pricing of goods and services. This static means the signals that are coming to decision makers from observed price changes cannot be relied upon to indicate that the use of productive resources is shifting.” Policy-induced inflation or deflation, especially when unanticipated, throws a wrench in the economy’s gears. There is a signal-extraction problem when money’s purchasing power fluctuates: consumers and producers cannot be certain which price changes are due to nominal and which due to real factors. (Of course, any observed price change could be some combination of both.) Hence, “The amount of wealth there is available to consume by an economy will be affected by an inflationary process because of the effects on relative prices. Less well recognized, the distribution of income in the economy also will be altered.” The predictable result is allocation errors and the transfer of wealth between creditors and debtors. Market participants will take steps to minimize the costs of these problems. But those resources could be put to other productive uses if the monetary system were stable. There is one final point I want to make about Universal Economics that underscores its value. Alchian and Allen never set up a “perfect” market as a standard against which real-world markets are judged and found wanting. They often employ thought experiments involving frictionless markets to ascertain why particular institutions or practices exist. But nowhere do you find the facile, efficiency-engineering approach that, even at introductory levels, permeates economics curricula. Economists are most definitely not plumbers according to Alchian and Allen. To cite just one example from early in the book, after the authors introduce market-clearing prices, they immediately discuss why such prices frequently do not prevail. Bids and asks often diverge because of transaction costs: impediments to exchange that render the hypothetical equimarginal allocation (everyone values the next additional unit of the traded resource the same) too expensive to achieve. But rather than regard this as an imperfection or failure, they immediately proceed to discuss the important role of middlemen. These specialist intermediaries have a comparative advantage at linking up buyers and sellers. Supermarkets, banks, stockbrokers—all exist and perform a useful function because of transaction costs. Middlemen earn profits because they solve a real economic problem. Markets work because of, not in spite of, their frictions. Alchian was famous for insisting upon studying “economic forces at work,” so it is not surprising (but most welcome nonetheless!) to watch him subordinate the blackboard to the real world. For more on these topics, see David Henderson on the Essential UCLA School of Economics. EconTalk. “Economics Works,” by David Henderson. Library of Economics and Liberty, May 6, 2019. Property Rights, by Armen Alchian. Concise Encyclopedia of Economics. “Why Did Armen Alchian Have to Teach Economists About Property Rights?” by Peter Boettke. Library of Economics and Liberty, Feb. 3, 2020. Universal Economics deserves to be read carefully by all students and practitioners of social science. Even those with advanced economics degrees—perhaps I should say “especially,” given the unfortunate state of graduate education—can benefit from selective rereading throughout their careers. I believe this book should be standard reading material in introductory economics courses. Depending on the program, it could also be used at the intermediate microeconomics level, as well as in master’s programs in public policy or philosophy, politics, and economics (PPE). Doctoral study in economics necessarily involves greater use of mathematics and statistics than in Universal Economics, but these tools must be used to deepen Alchian and Allen’s insights, not to avoid them. Footnotes [1] Universal Economics, by Armen Alchian and William Allen. Available from the Liberty Fund Book Catalog. [2] Alexander Salter and Bryan Cutsinger, “Price Theory Needs a Revival.” City Journal, February 15, 2024. * Alexander William Salter is the Georgie G. Snyder Associate Professor of Economics in the Rawls College of Business, the Comparative Economics Research Fellow at TTU’s Free Market Institute, a Senior Fellow with AIER’s Sound Money Project, and a State Beat Fellow with Young Voices. (0 COMMENTS)

This book is about how the world’s religions have gained such power, what they do with it, and how abuses of this power can be constrained. —Paul Seabright, The Divine Economy: How Religions Compete for Wealth, Power, and People,1 p. 6 Paul Seabright’s The Divine Economy investigates how religions gain adherents and acquire wealth and power. He finds that it can be useful to treat a religion as a business, and to view it with an economist’s eye. But his approach is broader than that, incorporating sociology, political theory, and evolutionary psychology. To understand the book, one must try to keep in mind two views of religion. The narrow view is how Seabright defines religion. The broader view is what he calls the “platform perspective.” As a definition, Seabright uses: … religion is the very large and diverse set of human activities that directly or indirectly involve interaction with invisible spirits who intervene causally in the world, and who can be influenced by appeals from human subjects. p. 36 By putting “invisible spirits” at the center of the definition, Seabright includes what we commonly think of as religions. But he excludes describing something as a religion just because people care strongly about it. You may describe someone as “worshiping the Almighty dollar,” “believing in climate change,” or “Woke,” but they are not treating the dollar, the climate, or systemic racism as spirits to which prayers can be addressed and answered. But there are people who affiliate with a religion for whom belief in invisible spirits may be unimportant, or even non-existent. Their behavior is best understood from the platform perspective. Religious movements are a special kind of business—they are platforms. Platforms are organizations that facilitate relationships that could not form, or could not function effectively, in the platforms’ absence. p. 15 Seabright claims that the platform perspective helps to explain how religions appeal to humans, how they influence behavior, and how religions compete with one another. Humans are a social species, and religions have evolved to meet our needs for belonging. The activities of religion have historically included everything from private prayer and meditation through collective spectacle to violent crusades and jihad. They have channeled such diverse emotions as awe, fear, devotion, anger, excitement, and love. They cater to needs for ritual and transcendence, needs for peace and for striving to overcome a challenge, to needs for private and selfish fulfilment as well as the need to be needed by others… … Religious platforms create communities that powerfully articulate that collective dimension to our lives. Some secular institutions can do that too—political parties, for instance. But religious platforms have access to historical traditions, and stories from those traditions, that give them a powerful edge. p. 331 Seabright argues that religions create special social bonds. They may credibly claim that their members are more trustworthy and are, on average, more worthwhile friends and colleagues than random members of the population. p. 332 He would have to acknowledge that there are secular institutions that do this to some extent. If you can say that you were in the marines, or that you went to Yale, people with similar backgrounds will be inclined to trust you. Seabright offers an extended analysis of the topic of religious competition. He writes, … anything that makes it easier for people to make lucid comparisons between the benefits of belonging to different movements will intensify religious rivalry. p. 333 He offers many insights into the way that religions evolve under the pressure of competition. This is where they face challenges that are very similar to those faced by businesses. Seabright believes that the Internet is going to force further evolution. He thinks that the Catholic Church is likely to incur another schism, comparable to what took place in the wake of the invention of the printing press. Of course, we can hope that it will not be accompanied by so much violence. Seabright also believes that tensions will arise concerning the relationship between religion and politics. Everything we have seen in this book about the platform model of religious movements suggests that religion cannot command the legitimacy of most of the population if its leaders use that legitimacy to prop up political rulers, whether or not they are authoritarian. p. 339 “As platforms, religions have an impact on the economy, on politics, and on social relations in general. Friction would seem to be inevitable, and it becomes unclear how best to apply the First Amendment.” For me, this comes back to the tension between the narrow definition of religion and Seabright’s broader platform perspective. If religion were merely the belief in certain animal spirits, then at least in the United States we would be happy to rely on the First Amendment and a tolerant attitude of, “sure, whatever floats your boat.” But as platforms, religions have an impact on the economy, on politics, and on social relations in general. Friction would seem to be inevitable, and it becomes unclear how best to apply the First Amendment. For more on these topics, see Anthony Gill on Religion. EconTalk. Competition, by Wolfgang Kasper. Concise Encyclopedia of Economics. Samuel Gregg on Christianity and Liberalism. Great Antidote Podcast, AdamSmithWorks.org. Seabright is adamant that religion is not just going to fade away. He concludes, … the religious movements…have for too long been regarded with an odd mixture of reverence by some and scorn by others. These private reactions are no way to think about religion in public life. Religious movements enjoy privileges, and they should acknowledge obligations. It’s time to treat them more pragmatically, more demandingly, not with reverence but with respect. p. 341 Footnotes [1] Paul Seabright, The Divine Economy: How Religions Compete for Wealth, Power, and People. Princeton University Press, 2024. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Thomas Stearns Eliot. Photo by Lady Ottoline Morrell, 1934. Although the most illustrious honors in economics, such as the Nobel Prize, are typically awarded to specialists in the field, many of the most penetrating economic insights do not come from economists. To look exclusively to economists for economic insights would be as misguided as expecting to learn everything about movies from movie critics. For one thing, most movie critics have never made a film. More importantly, learning which movies are good or bad is usually less important than determining whether or not to go to the cinema in the first place. Likewise, economics offers insights into the economic sphere of life, but opting to think exclusively in economic terms would be as absurd as spending all one’s days gazing at the big screen. There is a difference between managing scarcity and leading a full life, just as there is a difference between watching movies and actually living. Few 20th-century critics made this point with more force and effect than the poet T.S. Eliot, who received the Nobel Prize for Literature in 1948. Born Thomas Stearns Eliot in St. Louis, Missouri in 1888, Eliot was the scion of a prominent Boston family and attended Harvard University before moving to England at the age of 25 and renouncing his American citizenship 14 years later. Among his most notable poetic works are “The Love Song of J. Alfred Prufrock” (1915), “The Wasteland” (1922), and “Four Quartets” (1943).1 Eliot was also an accomplished essayist, publisher, critic, and editor. Of special interest for present purposes are two of his prose works, Christianity and Culture (1949)2 and “The Aims of Education” (produced in 1950 and 1951 and published posthumously),3 the latter based on a series of lectures that he delivered at the University of Chicago while he was teaching in the Committee on Social Thought, from which I received a degree. In this latter work, he outlines three aims of education: preparing to earn a living, be a citizen, and pursue perfection. To say that earning a living and all the economic benefits that come with it—a degree of self-determination, a measure of security amid the vicissitudes of life, and above all, the ability to make purchasing choices among various available goods and services—is just one aim of education is to make a profound anthropological declaration—namely, that Homo economicus is at best an incomplete model of the human. To be sure, we can tell a lot about people by their spending choices. Every expense can be regarded as an act of self-declaration. In 1925’s “The Hollow Men,” Eliot writes of “The hollow men, the stuffed men, leaning together, headpiece filled with straw.” Even if we had access to the receipts for every single purchase a person made over the course of a lifetime, a substantial residuum of hopes, fears, and human identity would remain. Of course, the same would apply to earnings. Suppose we possessed every person’s lifetime financial records, including every penny they ever earned. Would we be able to tell from the total amount or the increments in which their wealth was accrued what path they had followed in life? Suppose these lifetime earnings amounted to millions of dollars—would we know whether we were dealing with lawyers, bankers, or doctors? Even in the case of someone who earned very little, would we be able to tell who had served as the homemaker of a thriving household and who had lived in penury? Most people endure poverty as an unwanted state. In “The Waste Land,” Eliot writes, “I will show you fear in a handful of dust.” Yet others, such as members of some religious orders, choose poverty voluntarily. They regard it not as a curse but a kind of blessing, in the sense that not having money frees them to focus on more significant matters in life. And of course, some people acquire vast wealth through nefarious means. A wallet biopsy provides some insight into a person, but it also leaves a great deal to the imagination. We want most people to earn a living, or at least to find an arrangement in life that renders them financially self-sufficient, but it is possible to achieve economic self-sufficiency and still lead a lamentable life. Such people might have enough money to provide for all material needs, yet nonetheless feel miserable and regard life as a burden—they might hate their jobs, because they regard their work as meaningless, degrading, or even harmful to themselves and others. Likewise, their personal circumstances might render their lives unhappy. Perhaps they are alone and lonely, or they are involved in a personal relationship that yields nothing but fear, anger, or recrimination. A few of the most economically well-off people I have known have also been among the more unhappy, partly because they were tormented by envy, an acute awareness of the fact that there were others who had still more. Eliot comes to the rescue. Most of us do not aim to educate our children and grandchildren to be mere vendors and consumers. Earning a living and spending and saving money well are good things we wish for them, but we also hope that they will be good human beings who enjoy the truly good things in life, many of which cannot be bought or sold. They should, in other words, not overly esteem money, and they should know that it cannot buy an education. To be sure, well-off young people might manage to obtain admission to elite educational institutions merely by donating large sums of money and even pass courses and receive degrees through wealth-fueled academic misconduct. Yet no matter what formal credentials they managed to acquire, they would still lack the knowledge, skill, and experience such an education can provide. We do not want to be remembered by the wind, as Eliot writes in the “Choruses from the Rock,” (1934), “Here were decent godless people: their only monument the asphalt road and a thousand lost golf balls.” Ultimately, education is not primarily a commodity, but something approaching an end in itself, in that it enables us to make the sorts of choices that characterize good citizens, neighbors, and family members. Notwithstanding speeches of countless politicians urging their fellow citizens to get off the welfare rolls and advance their nation’s capacity to compete in the global marketplace, it is simply not the case that education’s sole or even primary purpose is to advance economic security and prosperity. Sober reflection makes clear that we want more from our schools, colleges, and universities, precisely because we want more out of life. Consider the matter of legacy, what we hope to bequeath to those who come after us. Writes Eliot in “The Idea of a Christian Society,” “Was our society, which had always been so assured of its superiority and rectitude, so confident in its unexamined premises, assembled round anything more permanent than a congeries of banks, insurance companies, and industries, and had it any beliefs more essential than a belief in compound interest and the maintenance of dividends?” In other words, will we turn out to have been little more than makers and spenders of money, whose meager quality of life rises and falls with the value of our investment portfolios? If so, we would do well to heed the words of one of Eliot’s fellow poets, William Wordsworth, who wrote, “The world is too much with us; late and soon, getting and spending, we lay waste our powers.” If every bad thing in life could be avoided and every good thing in life could be won simply by making sound purchasing decisions, it might make sense to confine our attention to the world of commerce. In the making and spending of money we can destroy ourselves. To be sure, a good education can help in developing the kind of character that insulates against such misfortune, but it also has purposes that far transcend the fungible. Families, friends, and the wise are not attempting to exploit one another for financial gain, but to develop and enjoy one another in ways that supersede a person’s net worth. As Eliot himself suggests, the profit motive may propel economic progress, but it must not be allowed to “hypertrophy into a social ideal.” Consider the work of Eliot’s contemporary, Edward Bernays, nephew twice-over of psychoanalyst Sigmund Freud, who saw perhaps more clearly than his uncle the implications of a human psyche dominated by the id. The self-styled “father of public relations,” Bernays pioneered a new approach to marketing that aimed to exploit human psychological limitations for the profit of his clients. Faced with poor sales among women, for example, he rebranded cigarettes “torches of freedom,” aligning perhaps the greatest single public health scourge of the 20th century with the nascent women’s liberation movement, which eventually allowed lung cancer rates among women to catch up completely to men’s. Ironically, he was never able to convince his own wife, Doris, to kick the habit, and she pre-deceased him by a decade and a half. Bernays reconceptualized decisions on the part of his fellow citizens not to purchase a product or service as “sales resistance,” a lesson that one of his most influential acolytes, Joseph Goebbels, put into practice through the Nazi propaganda machine. Where Eliot saw in literacy the hope for intellectual and cultural flourishing, Bernays saw something quite different. In a 1927 article called “The Minority Rules,” in his book, Propaganda, he wrote: Universal literacy was supposed to educate the common mortal into control of his environment. Once he could read and write he would have a mind fit to rule. So ran the democratic doctrine. But instead of a mind, universal literacy has given him a rubber stamp, a rubber stamp inked with advertising slogans, with editorials, with published scientific data, with the trivialities of the tabloids and the profundities of history, but quite innocent of original thought. Each man’s rubber stamp is the twin of millions of others, so that when these millions are exposed to the same stimuli, all receive identical imprints. It may seem a wild exaggeration to say that the American public gets most of its ideas in this wholesale fashion. But to say so is merely to state a fact that is as real as it is unrecognized. The mechanism by which it is done is propaganda—propaganda, that is, in its broad sense of an organized effort to spread a particular belief or opinion. The written word, which Eliot cherished as a medium of human enlightenment, becomes in Bernays’ hands just another means of manipulating mass behavior. Eliot responds more or less directly to this concern, writing, “What is more insidious than any censorship is the steady influence which operates silently in any mass society organized for profit, for the depression of standards of art and culture.” Where all things are valued for their profit potential, worth becomes displaced by value, the price a product or service brings in the marketplace, and the total amount of revenue generated by its sale. If consumers purchase 100 or 1,000 times as many copies of a Harry Potter novel as Tolstoy’s Anna Karenina or Dostoevsky’s The Brothers Karamazov, then the creative forces of culture turn to producing moral bildungsromans about wizards, and if the billion-dollar ticket receipts of the Marvel cinematic universe dwarf those of films such as “Before Midnight” or “The Tree of Life,” then the culture is flooded with more superhero melodrama. Eliot wants to nurture the psyche and enrich the culture, while Bernays and his ilk are content to plant more ticket-purchasing rear-ends in seats. “Eliot asserts that while education exerts great sway, culture exerts even greater influence, and to adopt a purely consumerist culture driven entirely by sales figures is to create something that resembles a mass, swept irresistibly along by the tide of the passion of the moment.” Eliot asserts that while education exerts great sway, culture exerts even greater influence, and to adopt a purely consumerist culture driven entirely by sales figures is to create something that resembles a mass, swept irresistibly along by the tide of the passion of the moment. People are seen and esteemed not so much as free individuals capable of wise choice but in terms of what Eliot calls their capacity for “regimentation and conformity,” opinions and behaviors that can be molded through what both Bernays and Eliot call “propaganda.” Without history, a canon, and largely shared senses of the unseemly and the ideal, the tendency of “unlimited industrialism” will be to turn women and men into mere bodies “detached from the tradition, alienated from religion, and susceptible to mass suggestion; in other words, a mob.” What should be an opportunity for transcending the exigencies of merely material existence—the need for food and shelter and the like—becomes a technologically amplified opportunity to entrain human beings to base passions, the final triumph of Freud’s id over intellect, character, and culture. Consider the work of Daniel Kahneman, the first psychologist to win the Nobel Prize in Economics. In his 2011 book, Thinking, Fast and Slow, he follows Freud in dividing the human mind into parts, one of which, “system one,” he characterizes as the “reptilian brain.” This aspect of the mind fits Bernays’ purposes well—it works quicky, automatically, and on impulse, often without our conscious awareness. He introduces another part, “system two,” which is both reflective and slower. Kahneman argues that we prefer to use system one, largely because it is easier. In terms of which Bernays would no doubt approve, Kahneman regards human beings as naturally lazy, inclined to get through life with as slight an expenditure of energy as possible. It is precisely this tendency toward mere efficiency that Eliot opposes—the tendency to make choices that require as little effort as possible. We should, instead, invest our best when it comes to weighing the things that matter most. Reading “The Wasteland” or “Four Quartets” may be demanding, but the achievement is commensurate with the effort. For more on these topics, see The Opportunity Costs of J. Alfred Prufrock, by Sarah Skwire. EconLog, July 1, 2020. Dana Gioia on Learning, Poetry, and Studying with Miss Bishop. EconTalk. Roosevelt Montás on Rescuing Socrates. EconTalk. “Economics and the Art of Education,” by Richard Gunderman. Library of Economics and Liberty, Dec. 5, 2022. In the end, Eliot concludes, the lower cannot redeem the higher. What is reptilian, or profitable, or expedient cannot rescue what is humane, just, and good. To be sure, it may be “quick and simple” to organize society for ends which, being only material and worldly, “must be as ephemeral as worldly success,” but there is an alternative, and that alternative is a social organization based on truth, which refuses to ignore the essential dignity of human individuals and human culture. We must, Eliot suggests, supplant the appetite to exploit with the longing to enrich, the appetite to extract with the longing to contribute and make a salutary difference in the lives of others. To do so, we need to play our part in creating a culture that sees through the twin economic towers of materialism and efficiency. In this effort, Eliot regards art and culture, and yes, even the Christian faith, as vital resources. As he writes in “The Idea of a Christian Society,” it does not matter how “well-fed, well-clothed, well-housed, and well-disciplined” a mob may be—it is still a mob. The best education is one that lifts us above the level of a mob to a flourishing culture of free and responsible individuals. Footnotes [1] You can access much of Eliot’s oeuvre via the Poetry Foundation online: https://www.poetryfoundation.org/poets/t-s-eliot [2] T.S. Eliot, Christianity and Culture: Essays. Mariner Books, 1960. [3] T.S. Eliot, To Criticize the Critic and Other Writings. University of Nebraska Press, 1992. *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. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

I’m glad that Geoffrey Lea expressed his misgivings about Richard Ebeling’s discussion of “the Remnant.” Even though I had read Richard’s essay carefully twice, I failed to comment on that part of his essay. But Geoffrey’s comment reminds me that I do have my own misgivings. I shouldn’t blame Richard too much. I had misgivings in the 1970s, when I first read about Albert Jay Nock’s concept of the Remnant. As Nock himself admits in his famous 1936 essay, neither the “Remnant” nor the “masses” can be defined by class or station. Someone could be a bona fide member of the elite and still be a member of the masses; similarly, one could come from a humble background and be part of the Remnant. So even if one stuck to writing only for the Remnant, that would not mean that he or she should focus on a particular well-defined audience. When he gets to his actual argument, Nock is essentially saying that we should not water down or compromise our thinking to appeal to the masses. I agree with that. Even if Nock didn’t intend it, though, thinking that one is producing ideas for the Remnant could lead one not to reach out to others. It could easily lead someone to isolate himself from all but those who already agree with him, whether they be fellow scholars or what might seem to be members of the “masses.” Fortunately, many members of the Austrian school have engaged in valuable outreach to people who might be mistaken for the “masses,” without compromising or watering down. In my view, Murray Rothbard is a case in point. I do remember, though, the case of one prominent Austrian scholar who refused to reach out to a scholar who was not a member of the Austrian school. That Austrian scholar was Israel Kirzner. This might sound surprising, given my genuine praise of Kirzner in my first essay. But I distinctly remember a story he told the audience at either the South Royalton conference of 1974 or the Hartford conference of 1975. Kirzner told of his excitement when hearing that Sir John Hicks, who had earlier won the Nobel Prize in economics, was writing an explicitly Austrian book. The 1973 book was titled Capital and Time: A Neo-Austrian Theory. Kirzner told of excitedly attending a session of the American Economic Association meetings in New York in 1973 at which Hicks was to present his “neo-Austrian” ideas. Kirzner said that after listening to Hicks present for a few minutes, he concluded that Hicks did not understand Austrian economics and he, Kirzner, got up and walked out before the session was over. When I heard Kirzner say that, I thought, “What a wasted opportunity!” It’s true that Hicks was not an Austrian. But a good-willed prominent economist, Hicks, who thinks he is doing Austrian economics is probably worth talking to. And who better to try to steer him in the right direction than the clear-thinking and normally patient Israel Kirzner. This is from my second essay in the Liberty Fund series on the South Royalton Austrian Economics Conference, which was held in June 1974. The other contributions are on line also. I’ll have comments on those in a day or two. (0 COMMENTS)

To international law expert Eugene Kontorovich of George Mason University, all the arguments that make Israel out to be an occupying force collapse under the weight of a single, simple fact: A country cannot occupy territory to which it has a legal claim. Listen as Kontorovich speaks with EconTalk’s Russ Roberts about the legal issues […] The post Is Israel Occupying the West Bank? (with Eugene Kontorovich) appeared first on Econlib.

Not everyone sees the world in the same way.  This is one reason why market economies work better than centrally planned economies.  If everyone preferred black mid-sized sedans, you could have one government-owned auto manufacturer churn out millions of copies of a standardized car, and achieve significant economies of scale.  But not everyone has the same taste. None of this is particularly controversial.  But the rest of this post will be a bit more controversial.  I claim that most people underestimate the extent to which other people see the world differently from the way that they see the world. I’ve met many people who like modern art, and many people who dislike modern art.  In the later group, I often find a disbelief that anyone truly likes abstract art.  I often hear people suggest that modern art lovers are faking their interest, in order to seem hip.  What’s going on here?  Before answering this question, let’s consider another example. During the course of my life, there’s been a significant increase in political polarization.  People no longer simply disagree with people holding differing views, they increasing regard the other side as bad people.  More and more often, people will refuse to even date someone holding different political views, something that rarely occurred when I was young.  What’s going on here?  It’s not nice to suggest that those with different artistic tastes are fakers, nor is it nice to suggest that those with different political views are evil. I don’t believe that increased political polarization is due to the issues becoming more important.  Back in the 1960s and 1970s, the world faced many very important issues, such as high inflation, the nuclear arms race and the Vietnam War.  Instead, I believe the increased polarization is due to the (mistaken) impression that others are seeing what you see. The people that cannot accept that other people like modern art suffer from a failure of imagination, an inability to grasp that other people process visual information differently than they do.  People that view voters for the opposing party as evil often fail to grasp that not everyone sees political issues the way that they do. Differences of opinion on economic regulation or corporate taxes don’t tend to cause political polarization.  Voters understand that the issues are complex and that other people might have a different perspective.   Polarization is most likely to occur when the issues seem more personal (trans rights, abortion, affirmative action, etc.)  Polarization also increases when political styles become more diverse.  People often gravitate toward the style they prefer, and wonder how anyone could possibly be attracted to the opposing candidate.  Over the course of my life, I’ve seen increasing divergence in political styles. At the same time, religious polarization has mostly been declining over time, except where a religion adopts an overt political stance. Hypochondria is another example.  Many doctors will assume that patients are faking an illness if the doctor is unable to diagnose the problem.  A few decades ago, a colleague of mine (in his 40s) went to (highly rated) Massachusetts General Hospital in Boston complaining of chest pains.  The hospital did a few tests and sent him home, perhaps viewing him as a hypochondriac.  A few hours later he died of a massive heart attack. Don’t assume that you know what’s going on in the minds of other people.  You do not.  You don’t believe that your neighbor needs a painkiller?  How would you know?  We need free markets precisely because we do not know what other people see and feel and taste. (0 COMMENTS)

  Here are some highlights. America’s Mayors Say the Heartland Needs Immigrants By Fiona Harrigan, Reason, June 24, 2024. Excerpt: As population and economic downturns hit many parts of the American heartland, some policy analysts and elected officials have begun to throw their support behind place-based visas that would bring high-skilled immigrants to those areas facing decline or stagnation. The idea got another nod this weekend. The U.S. Conference of Mayors—a nonpartisan organization of mayors and other elected officials who represent cities with populations of 30,000 or more—called on federal lawmakers to establish a “heartland visa” that would bring high-skilled immigrants and immigrant entrepreneurs to communities facing population and economic decline. Why Does (It At Least Appear That) Justice Barrett Applies “New,” “Heightened,” and “Elevated” Standing Rules? by Josh Blackman, Reason, June 28, 2024. Excerpt: It is a tall order! The standards she erects are so byzantine, it is unlikely that anyone could ever satisfy them. And maybe that’s the point. Justice Barrett, more than anyone else on the Court, is serving as the gatekeeper. She is extremely stingy on cert grants. She turns away all emergency petitions on the shadow docket (unless they’re from the Fifth Circuit). She no longer believes in cert before judgment. And she forces lawyers to establish standing to a degree of certitude I’ve never seen before. Critics often charge that the Roberts Court is slamming shut the courthouse doors. Justice Barrett is the embodiment of that theme. And: I’ve made this point before, and I’ll make it again. Justice Barrett spent virtually no time in private practice. During her time in academia, she engaged in zero litigation. And she had a very brief stint on the appellate court. She simply lacks the experience of a lawyer who has tried to seek expedited relief in a complex case with a fast-moving timeline. When she asserts that sophisticated litigants failed to meet a burden that is not clearly established in the case law, introspection would suggest that such a burden is not really present. I get the sense that Justice Barrett grades briefs like she would grade a seminar paper–or worse, give feedback at a faculty workshop. She has exceedingly high expectations which are borne based on her subjective sense of which cases belong in federal courts and which do not. DRH note: The way I put Josh’s point when I was explaining it to someone at pickleball yesterday is, “She seems to be grading students’ papers and insisting that they get an A+.”   The Free-Market Tories Britain Needed by Ryan Bourne, AIER, June 28, 2024. Americans who only dabble with British politics, the recent TV debate between Labour leader Keir Starmer and Conservative Prime Minister Rishi Sunak might have sounded familiar. That’s because the Tory leader’s electoral pitch on economics could have easily come from a Reaganite Republican. “Vote Labour, and your family’s taxes will go up substantially,” was Sunak’s paraphrased message. “Not just that, but your fuel bills will jump as Labour ploughs on with unnecessarily rapid plans to decarbonize the economy.” Here was Sunak sounding like Grover Norquist, warning that Britain’s progressive left would increase people’s taxes and ramp up costly environmental regulations. To which a Brit would say: “the brass neck of it!” Yes, Labour will surely do more tax and spend and regulation than the Conservatives. But Sunak’s own government has been no stranger to growing the state’s footprint and raising taxes aggressively already. Indeed, under Sunak’s chancellorship turned premiership, the UK’s total tax burden has risen a whopping 3.4 percent of GDP since 2019 to its highest level since the aftermath of World War II. The Prime Minister has frozen income tax thresholds through a high inflation environment to deliver the largest stealth tax increase in British history. All this to finance a state that has already grown to over 40 percent of GDP — its biggest since the start of the Thatcher revolution — with the Tories pushing for new regulators for digital markets and football, their own net zero target, a further state takeover of early years childcare, and plans to (in time) totally ban smoking. DRH note: I pointed out to Ryan, when considering this article, that I particularly appreciate the fact that he put the tax increases as a percent of GDP; it’s an important dose of numeracy. He replied that that is more commonly done in Britain than in the U.S. I also just noticed that Ryan put it in terms of tax burden, which isn’t quite correct. Tax burden includes the deadweight loss from taxes, which, at that level of taxation, would be quite high since the DWL from a tax is proportional to the square of the tax rate. A correct statement would be that tax revenues have risen by 3.4 percent of GDP. A Day in the Life of a California Fast-Food Manager Who Makes Up to $174,000 by Heather Haddon, Wall Street Journal, June 17, 2024. Monique Pizano has spent three years as a general manager and her six-figure earnings have helped her save for a house down payment, take a honeymoon to Japan and support her mom. The 27-year-old from Ontario, Calif., feels lucky—many of her fellow University of California, Riverside, graduates haven’t been able to find jobs or are earning low hourly wages. Pizano is one of about 850 general managers for Raising Cane’s, where her pay can reach $174,000 annually including bonuses based on her location’s sales and profit. The fast-growing chicken chain views its managers as critical partners, and the company, based in Baton Rouge, La., pays them to be perfectionists. I found this article, which is, unfortunately, gated, very inspiring. Note that there is some regulation here: Gaining less attention was the requirement for chains to boost pay for managers. Big fast-food chains are required to pay salaried managers at least $83,200 to comply with California rules, up from $66,560. If not, operators need to pay their managers an hourly wage, plus overtime if they work more than 40 hours a week. But clearly, in the case of Monique Pisano, that regulation is non-binding. By the way, Heather Haddon is becoming one of my favorite WSJ reporters on labor market issues: she calls balls and strikes fairly, something that WSJ reporters don’t always do. (0 COMMENTS)

“The nation” is not a large individual but is made of a large number of individuals, all different and unique, with each his or her own preferences, values, and circumstances. Economics is a science that studies the social consequences of individual choices. Ultimately, all choices are individual, even the choices made by politicians and bureaucrats. A political majority is made of individuals. If somebody were the nation’s doctor, you would expect him to be proficient in economics, whether he studied the social consequences of the Second Amendment, or the First, or the Fourth, or any of them. The US “Surgeon General” officially defines himself, presumably on the basis of some law or regulation, as “the Nation’s Doctor.” His office is a strange creature (as its history also reveals): As Vice Admiral of the U.S. Public Health Service Commissioned Corps, the Surgeon General oversees the operations of the U.S. Public Health Service Commissioned Corps (USPHS), an elite group of over 6,000 uniformed officers working throughout the federal government whose mission is to protect, promote, and advance the health of our nation. Like most public health bureaucrats, he and his office are not exactly proficient in economics. His latest “advisory” is titled Firearm Violence: A Public Health Crisis in America. Although surgeons general have opines on many topics and lifestyles, they never discussed the social consequences of free speech or due process. (The current Surgeon General did however publish advisories on social media and health misinformation. His advisory on firearms violence contains no mention of the word “economics” and seems to reference no more than two limited economic studies. Could I have missed something in the report’s 110 footnotes (there is no separate bibliography)? It does look anyway as if the Surgeon General believes he is the physician of a big organism of which ordinary individuals are the organs or the cells. Economics and other rational choice approaches to society have deflated the pre-scientific idea that society can be studied as a biological organism. Émile Faguet, the great French literary critic, historian of political ideas, essayist, and Academician was not an economist, but he knew enough to mock the sort of “zoological politics” implied by social organicism: “You think you are a man,” he wrote; “in fact, you are a foot”—“Vous vous croyez un homme; vous êtes un pied” (Le Libéralisme, Paris, 1902/1903). My Independent Review article “The Impossibility of Populism” illustrates the danger of this pre-scientific error. Of course, we can hope that individuals will make informed choices on their trade-offs between risk and happiness–especially when children are the indirect victims of risk. Minimal government intervention in the form of unbiased information, assuming it is possible, could probably be justified. But unbiased information and the protection of children are not what public health is about. What we now call “public health” originated at the beginning of the 20th century, a bit earlier in Germany. It is not a scientific endeavor but an ideological and political movement. (I have developed this idea in a Regulation article, “The Dangers of Public Health,” and a Reason Foundation article, “Public Health Models and Related Government Interventions.”) During the Progressive Era, the public health movement and at least one Surgeon General were supportive of eugenics and compulsory sterilization. In an article on “UVA and the History of Race: Eugenics, the Racial Integrity Act, Health Disparities,” P. Preston Renolds, a professor of medicine and nursing at the University of Virginia, mentions how the fifth Surgeon General of the United States, Hugh Smith Cumming (see featured image of this post), with two assistant surgeon generals, took eugenic racism into the rural tobacco fields of Alabama. Here they implemented the infamous Tuskegee Syphilis Study, where nearly 400 black men were followed for 40 years in an effort to document how the disease manifested in black individuals left untreated. The tragedy is that with the discovery of penicillin as a cure for syphilis after World War II, these men were never informed of their disease, nor offered curative therapy. Public health is a busy-body movement who has used or inspired emergencies to increase state power. On March 13, 2020, just two hours before president Donald Trump declared the Covid-19 state of emergency, Surgeon General Jerome Adams, who had already declared youth vaping an “epidemic,” was speaking at an anti-tobacco conference. He declared: It’s important for us to understand more people are going to die in the next hour from smoking-related illnesses than have died in the United States from COVID-19 so far. So much for bureaucratic wisdom. In many ways, “public health” is the label for the faddish lifestyles coercively imposed by government. It is government coercion with a human face. It is a surreal experience to see the Surgeon General, dressed in his authoritative vice-admiral’s uniform, opining on what lifestyle choices his national patients should make (see “U.S. Gun Violence Is a Pubic-Health Crisis, Surgeon General Warns,” Wall Street Journal, June 26, 2024). ****************************** The current Surgeon General. By United States Department of Health and Human Services – http://www.surgeongeneral.gov/images/vadm-murthy.jpghttp://www.surgeongeneral.gov/about/biographies/biosg.html, Public Domain, https://commons.wikimedia.org/w/index.php?curid=37966238 (0 COMMENTS)

Fans of economist Milton Friedman—of whom I’m one—should count themselves lucky that Stanford historian Jennifer Burns has written a detailed biography of him. Based on intensive archival research that only a patient, first‐​rate historian can do, she covers his intellectual life in its various stages from his time in high school to his death. Along the way, we see how he struggled in the 1930s and even, to some extent, in the 1940s to figure out his role in academia. Burns also shows in great detail the important influences in his life and, later, the many ways he has influenced the economics profession and the bigger world of policy—on taxes, monetary policy, welfare policy, and the draft, to name four of the most important. Her book is by no means a hagiography. At various points, she criticizes Friedman, sometimes unfairly. She’s also a little unfair to his wife, Rose Friedman, an economist in her own right. But that makes Burns’s many positive evaluations of Milton’s work all the more credible. Although she is, as noted, a historian and not an economist, and sometimes makes little slips in her economic exposition, her big‐​picture understanding of economics is impressive, especially on one of the toughest issues to understand: monetary policy. Indeed, she lays out the fact that the Federal Reserve does not directly control interest rates better than many economists I’ve read. These are the opening paragraphs of my review of Jennifer Burns’s book Milton Friedman: The Last Conservative, Regulation, Summer 2024. As I explain near the end of the review, I’m not in love with the book’s title, to put it mildly. But that’s not the most important part of my review. I praise many things in the book and criticize a few. Read the whole thing. (0 COMMENTS)

At a recent blogger conference, I was asked to name the most important paper published in my field (which is macroeconomics) over the past ten years. I couldn’t think of any.In one sense, that’s a reflection of the fact that the field has moved on from the 20th century macro research with which I am most familiar. My ignorance may say more about me than it does about the field of macro. In desperation, I suggested that Paul Krugman’s 1998 Brookings paper (It’s Baaack . . . ) was the most recent one that I recall having a decisive impact on how we think about macroeconomics. A few years ago, I wrote a paper discussing how the important “Princeton School” of monetary economics was heavily influenced by this paper. Many brilliant economists continue to do quite sophisticated research in money/macro.  And yet I rarely see new papers that seem interesting to me, at least in the way that many papers from the last half of the 20th century seemed interesting when they were first published.  And it’s not just macro.  Casual art fans like me are familiar with hundreds of famous painting from the period from 1880 to 1924, but very few famous paintings from the period 1980 to 2024.  Why is that? Tyler Cowen recently linked to an NBER working paper by Joel P. Flynn and Karthik Sastryx, which looks at how optimistic and pessimistic narratives could contribute to the business cycle.  At a technical level, the 134-page paper is far above anything I ever did, featuring literally hundreds of mathematical equations, some fairly complex.  Here’s an excerpt from the conclusion: When we calibrate the model to match the data, we find that the business-cycle implications of narratives are quantitatively significant: measured declines in optimism account for approximately 32% of the peak-to-trough decline in output over the early 2000s recession and 18% over the Great Recession. Finally, we show that the interaction of many simultaneously evolving and highly contagious narratives, some of which are individually prone to hysteresis, can nevertheless underlie stable fluctuations in emergent optimism and output. Taken together, our analysis shows that narratives may be a significant cause of the business cycle. Their work employs a “real business cycle” framework, of which I’m generally somewhat skeptical.  It’s not that these RBC models don’t tell us important things about the economy, rather I believe that (at least in the US) real shocks are primarily important as a determinant of long run trends, not business cycles.  (With Covid being the obvious exception.) I only skimmed the paper, so I won’t offer an opinion on their empirical estimates, but this caught my eye: Our analysis leaves open at least two important areas for future study. First, we have analyzed how firms’ narratives matter and abstracted away from studying households’ narratives. It seems reasonable that similar mechanisms could operate on the household side of the economy, where contagious narratives might influence spending and investing decisions. Moreover, co-evolving narratives on both the “supply side” and the “demand side” of the economy might have mutually reinforcing effects. From this perspective, narratives have the potential to explain even more of the business cycle than our analysis suggests. I like this observation, as I’ve long believed that the most important impact of supply (real) shocks is the way they interact with demand (nominal) shocks.  Thus a real shock in housing/banking during 2007 probably depressed the natural rate of interest.  The Fed fell behind the curve and cut rates too slowly (especially in 2008.)  This led to a fall in nominal GDP (less demand), making the recession much worse. They conclude with the now almost mandatory call for further research: Second, there remains much more to study about what “makes a narrative a narrative”—that is, in the language of our model, what microfounds the set of narratives and their contagiousness? A richer study of these issues would cast further light on policy issues, including both the interaction of standard macroeconomic policies with narratives and the potential effects of directly “managing narratives” via communication. Moreover, probing these deeper origins of narratives could further enrich the study of narrative constellations beyond our analysis, to account for the full economic, semantic, and psychological interactions between narratives in a complex world. Will that follow up research answer those questions?  I’m skeptical.  I worry that the next brilliant pair of young macroeconomists will think to themselves, “Flynn and Sastryx have already done that, let’s develop a different model.”  There’s probably enough truth in almost any plausible macro model that you can find some empirical support for the theory (at least if you sufficiently “torture” the data set.) It’s possible that my skepticism about modern macro merely reflects an old guy who is out of touch with recent developments.  I plead guilty.  But in the second half of the 20th century, one didn’t have to read 100 page research papers to understand that macro was generating lots of revolutionary ideas.  I am not seeing interesting new ideas being explained in non-technical papers for the layman. Here’s one way to think about my pessimistic mindset.  I’ve done macro research for almost my entire life.  Fairly early on, I came to the conclusion that US business cycles were pretty simple.  In most cases (not Covid) it was simply a question of monetary policy mistakes driving fluctuations in NGDP, and real GDP being highly correlated in the short run due to sticky wages.  If you were going to explain why the paintings of 1880-1924 seem more memorable than the paintings of 1980-2024, you might point to the fact that painters in the earlier period discovered lots of interesting new styles, and that there simply weren’t as many interesting new styles to discover in the latter period.  Another view is that I’m wrong, and that future generations will discover even more masterpieces in the art of painting from the 1980-2024 period than from 100 years earlier.  Time will tell. Thomas Kuhn said that in science we often make progress by developing models, then discovering that there are certain “anomalies” not explained by these models, and then developing new and improved models to explain those anomalies.  Perhaps our best late 20th century macro models do a pretty good job of explaining business cycles (and note that the “Fed mistake” theory I just gave could explain why explanation doesn’t imply prediction).  Perhaps the remaining anomalies are simply very hard to explain. But this doesn’t fully explain my skepticism about modern macro.  You can argue that we invented too many good macro models in the second half of the 20th century.  We have Keynesian models, monetarist models, real business cycle models, Austrian models, MMT models, and many variations within each category.  Flynn and Sastryx are employing a RBC framework in their paper.  Because my own view is that this framework is not very useful for understanding business cycles, from the outside this whole line of analysis seems a bit off target.  And that skepticism doesn’t just apply to RBC models, from my perspective any non-market monetarist model is somehow missing the point.  They all appear to be trying to explain something that has already been adequately explained.  They aren’t addressing anomalies in the model where Fed mistakes drive NGDP and create cycles due to sticky wages; they are usually working with an entirely different framework.  This is why to a grouchy old guy like me, macro no longer seems progressive.  We are not filling in the gaps; we are continually trying to reinvent the wheel. Again, it’s very possible that I’m out of touch.  All I can say is that I no longer read papers and think, “I always wondered why certain macro variables (M,Y, P, i, U, etc.) showed this pattern, now it makes more sense.”   I don’t see the progress.   But hey, people in 1890 didn’t yet see the brilliance of Van Gogh, so it’s quite possible that I’m missing something important. PS.  Here’s a Kandinsky painting from 1925.  What was there left to say? PPS.  Here’s one of the 247 mathematical equations in the paper: (0 COMMENTS)