Megan McArdle once again joins EconTalk host Russ Roberts to discuss the dangers of the left-leaning bias of Google’s AI to speech and democracy, if such a thing as unbiased information can exist, and how answers without regard for social compliance create nuance and facilitate healthy debate and interaction. McArdle is a columnist for The Washington Post, and is the author of The Upside of Down: Why Failing Well is the Key to Success. Often times when the dangers of AI are discussed, apocalyptic scenarios of human subjugation  or extermination, such as Terminator, I Have No Mouth and I Must Scream, and 2001: A Space Odyssey are thought of. More realistically, some are concerned about the potential of AI to destroy jobs and dilute the meaning of art or make plagiarism easier. AI chatbots and companions are becoming mainstream- for instance, the main topic of this podcast: Google’s Gemini. McArdle’s concern surrounds how the left-wing bias of the companies at the forefront of AI development has bled into their creations, and the tangential impact on American free speech and democracy. McArdle’s initial examples of this are the factual inaccuracies of Gemini in the name of affirming a socially respectable position. The first case discussed involves Gemini’s artistic portrayal of the founding fathers, and other ethnically European historical figures, as nonwhite, which she admits is trivial. However, Gemini’s responses to text queries about gender affirming care were far more notable to McArdle. So, I asked it about gender affirming care, and in short order, Gemini was telling me that mastectomies were partially reversible. When I said, my aunt had a mastectomy for breast cancer is that reversible? It said, no, and I said, well I don’t understand. It seemed to understand that these were the same surgery, but then it delivered a stirring lecture on the importance of affirming and respecting trans people. It had clearly internalized part of our social rules and how we talk about this subject, but not all of them. The errors leaned in one direction, it was not making errors telling people conservative things that aren’t true, and to be clear no activist wants Gemini to tell people that mastectomies are reversible. It was acting like the dumbest possible parody of a progressive activist. McArdle notes that there are reasons for this that don’t involve bias, such as training the chatbot on social media sites such as Reddit, whose moderation leans left. Additionally, the AI doesn’t have the ability to detect certain limits to logical positions, and social rules. But this is an issue for McArdle as well. She sees this as indicative of speech suppression, where only one side of the political spectrum is allowed to be praised, and the other is only allowed to be demonized. Her example of this Gemini’s refusal to giving praise to right-wing figures like Brian Kemp, while doing the opposite for more controversial left-wing figures like Ilhan Omar. The danger in this to McArdle is that AI will teach people not to think in a complex manner and will answer queries analytically to keep the questioner in their ideological bubble. We have these really subtle social rules, and we apply them differently in different situations, we code switch. If I’m with my liberal friends, there are some issues where I’m like, you know what let’s just not have a conversation about that. The AI can’t do that, it’s like a toddler. That can go in one of two directions. The good direction is that Google understands it cannot enforce the subtle social rules of the Harvard faculty lounge, which is effectively what it had done. Google can just say we’re going to be willing to say that Mao is also bad, but we’re just not going to say, Donald Trump who is elected by half of the population is too awful, and you’re only allowed to say awful things about him. That’s a more open equilibrium. It’s a place that allows people to be more confronted with queries and the complexity of the world. Gemini often does a good job with that. I have been dumping on it for an hour, but it actually often does a good job of outlining where the nuance is. My nightmare is that instead, Google teaches Gemini to code switch, to know the person who’s asking the query, what bubble they want to live in, and will give them an answer that will please them. That is a genuinely disturbing future. In response to this, Roberts asks a fantastic question. Since search engines, in order to be useful, are discriminatory or biased by their very definition, what could an unbiased Google, or Gemini possibly mean? This question prompts Roberts to proclaim his pessimism, as the problem is larger than AI chatbots, and is centered around the very ideal of an unbiased search engine. This teaches people to not to decipher truth from varying information, instead people rely on the results they’re given, particularly those which align with their biases. This has a further detrimental trickle-down effect to democracy. To summarize, since search engines are biased by their nature, Roberts’ solution comes from users of search engines behaving more carefully and attentively. This is a conversation about AI, at least nominally, but it’s really a much deeper set of issues related to how we think about our past. History has been taught as great men do great things and let’s learn about what they were. The modern historical trend is partly a reaction against that, and I have no problem with that. The problem I have is the whole idea of unbiased history. What the heck would that possibly be? You can’t create unbiased history; you cannot create an unbiased search engine. Almost by definition if it’s to be useful it’s discriminatory. It’s by definition the result of an algorithm that had to make decisions…the problem for me culturally is that we have this ideal of unbiased search engine. That can’t happen, so we should be teaching people how to read thoughtfully…you start to get people not knowing what the facts are… they assume most things are true if they agree with them. This infantilization of the modern mind is the road to hell, this is going to be difficult for democracy. I don’t think it’s a coincidence that the two candidates we have in the United States are not what most people would call the two most qualified people. It points to something more fundamental. McArdle proposes a similar solution: A proliferation of people focusing less on social appeasement when difficult social questions are being answered, and more on finding nuance. Understanding the complexity within addressing problems like racial inequality is the root to finding solutions. A great new concept I just learned is people who are high decoupling versus low decoupling. High decoupling people abstract all questions from context and low decouplers answers questions in the social context in which they occur. What you need is a high decoupling system instead of one attempting to produce a socially desirable answer. No one is a perfectly high decoupler, but it gives you as much nuance as possible. To contrast Roberts’ pessimism, McArdle gives reason for the best-case scenario. She believes that negatives are sure to come from AI, similarly to how social media led to cancel culture. But human decency will triumph over this challenge. McArdle’s point is one defending liberal society. She views the attempts to fundamentally shift the social order away from enlightenment principles as failures, and the new social order attempting to shift the window of acceptable views seen by Google’s left-wing bias will fail as well. The spirit of human connection and conversation is strong enough to maintain productive discourse. So, I think that the long-term reason to be optimistic: is that these technological challenges are going to create a bunch of bad stuff. I can’t even imagine all of it. You can’t either. If you would ask me in 2012 to predict cancel culture from Twitter, I definitely would not have. But we are also actually fundamentally decent to each other over and over and over again, and we look for ways to be decent to each other…I actually believe that enough people want the things that really matter–which are the people you love, and creating a better world and free inquiry and science and all of those amazing human values…And so, I think at the end of the day, that will probably win if the AI’s don’t turn us into paperclips. Although this was a fascinating conversation, I finished the podcast unconvinced by McArdle that AI bias was a meaningful issue. At multiple points throughout the podcast, she would discuss a response from Gemini that displayed clear left-wing bias, and then go on to state that Google fixed the issue very quickly, even the same day. For example, she mentioned that Gemini does not say mastectomies are partially reversible anymore. The AI that told me that mastectomies were reversible, now doesn’t say that. It’s actually interesting how fast Google is patching these holes. Drawing from this, it seems like Google has a set of values it wants their AI to embody, and they’re just working out the kinks. Furthermore, the leap McArdle takes from this is drastic to say the least, “We are now saying that you can’t have arguments about the most contentious and central issues that society is facing.” Social media bias against right-wing people has been shown to be an unfounded claim and is by far not the biggest threat to free speech. There is a far better argument for social media companies failing to adequately regulate disinformation and false claims about vaccines and the 2020 election or inability to take action against harassment or right-wing extremism coming from their platforms. Similarly, to cancel culture, this is an overblown concern. The better place to focus in the pursuit of preserving free speech and expression does not come from social media companies banning people for hate speech. It comes in state legislatures banning forms of LGBTQ+ expression, such as drag, and Project 2025’s totalitarian and Christian nationalist aims to restrict speech contrary to conservative principles. This is far more important than Gemini refusing to write a love poem for Brian Kemp. Freedom is under attack in America, but it predominately comes from the far right, not Silicon Valley. McArdle’s argument also begs the question of to what extent corporations are responsible to entities other than their shareholders. Are fossil fuel companies obligated to shift their energy production to green sources in order to slow climate change? What about corporations’ responsibility to pay their workers a living wage even if it’s above equilibrium? Are building developers, such as those of the Grenfell Tower, responsible for installing sprinkler systems or building with safer materials, even if it is more expensive? If Silicon Valley is socially responsible to uphold the public square and the spirit of free speech, even if it negatively impacts their shareholders, then this principle of social responsibility should be expanded to all areas of corporate activities.   Related EconTalk Episodes: Megan McArdle on Internet Shaming and Online Mobs Ian Leslie on Being Human in the Age of AI Can Artificial Intelligence be Moral? With Paul Bloom Zvi Mowshowitz on AI and the Dial of Progress Marc Andreesen on Why AI Will Save the World   Related Content: Megan McArdle on Catastrophes and the Pandemic, EconTalk Megan McArdle on the Oedipus Trap, EconTalk Megan McArdle on Belonging, Home, and National Identity, EconTalk Akshaya Kamalnath’s Social Movements, Diversity, and Corporate Short-termism, at Econlib Jonathan Rauch on Cancel Culture and Free Speech, The Great Antidote Podcast Lilla Nora Kiss’ Monitoring Social Media at Law & Liberty   (0 COMMENTS)

I find the debate over the existence of a god intrinsically interesting. Among the many arguments that exist, one argument in favor of a god’s existence I find fairly clever is Alvin Plantinga’s modal ontological argument. I’m not going to get too into the weeds over the finer details of that argument here, but in very simplified and condensed form, it can be described as follows. After offering a definition of “god,” the argument simply starts with the singular premise that the existence of such a being is at least possible. From there, it utilizes modal logic to go through a series of steps to reach the conclusion that the existence of such a being is necessarily true. The argument is logically valid, and everything follows deductively from the fairly modest premise that god’s existence is merely possible. This means that to deny the conclusion of the argument, it becomes incumbent on you to dispute that first and only premise, and offer a positive argument that god’s existence is impossible.  One of the biggest counters to the modal ontological argument is to point out that there is a symmetrical argument that can be constructed to reach the opposite conclusion. That is, you can also start with the fairly modest premise that it’s simply possible that no god exists, and using the same logically valid steps, reach the conclusion that the non-existence of a god is necessarily true. In order to resolve this issue, one would need to propose some kind of symmetry breaker between these two arguments, such that we have some non-arbitrary reason to prefer one over the other. Philosophers and theologians have proposed a number of different symmetry breakers over the years – you can see a compilation and evaluation of them in this recently released paper, if you’re interested. Why am I bringing all this up? Well, recently I posted about how I find libertarianism and classical liberalism to be more focused on reciprocity than other political philosophies. I argued that Thomas Christiano’s argument for the authority of democracy based on the obligation to show proper respect to the judgment of your fellow citizens fails because the obligation he cites (were it to exist, which is far from clear!) is reciprocal in nature. As I put it there: Even assuming that placing one’s judgment above the judgment of others is an impermissible wrong, the situation is still reciprocal. If my fellow citizens say I must do as they have decided because if I don’t, I’m treating my judgment as superior to theirs and treating them wrongly, I can equally say that by trying to compel me to do as they’ve decided, they’re placing their judgment above my own, placing me as an inferior and treating me wrongly. The situation is reciprocal. I also argued that Yoram Hazony’s concerns about free trade undercutting the mutual loyalty among the citizens of a nation fails to get off the ground because of the same issue: After all, what Hazony invokes so often is the idea of mutual loyalty – and the thing about mutual loyalty is that it’s mutual. The obligation goes in both directions. So why would we say I’m failing to show Walter proper loyalty by buying from Carl? Why not say Walter would be failing to show proper loyalty to me, by insisting I buy from him despite the huge additional financial burden it would impose on me? Simply saying “mutual loyalty” does nothing to resolve this Like the modal ontological argument, both of these situations require a symmetry breaker before they can reach the conclusions their proponents seek. And that’s what I think classical liberal and libertarian thought help bring to the table by focusing on the reciprocal nature of these situations. Invoking symmetry isn’t a semantic stopsign, designed to end conversations. It’s an invitation to carry a conversation forward by pointing out that there is a further factor requiring attention.  In the comment section to my previous post, commenter Dylan also brought up the issue of symmetry breakers regarding externalities. Dylan points out that in many cases, people’s moral intuitions about a situation serve as a symmetry breaker. I brought up Ronald Coase’s insight about the reciprocal nature of externalities in my post – and Dylan described how widely held beliefs about particular cases will, for many people, break the symmetrical nature of the situation. As he put it: Take the classic externality of the polluting factory, the idea that I should pay to stop the factory from polluting (or pay to mitigate my exposure) just feels wrong on a fundamental level, even if that solution would win on efficiency grounds. I think this accurately describes how the vast majority of people would react to this situation. To tell someone “Well, why don’t you just pay that factory to install scrubbers if you’re so upset about their smoke and soot falling in your yard” just feels wrong. Most people have a strong reaction along the lines of “They shouldn’t be blowing soot on my house in the first place – why should I have to pay them to make it stop?”  I think that in a lot of cases, moral considerations are a source of symmetry breakers. To use an easy example, my desire that my house not be burned down interferes with Pyro Pete’s desire to burn down houses. Technically, we are imposing on each other in a reciprocal, symmetrical way. But I don’t think it’s a great moral mystery to work out what a symmetry breaker is in this circumstance. Arson is wrong, therefore my imposition on Pyro Pete’s wishes is morally justified in a way that breaks the symmetry.  Sometimes in situations where the moral obligation isn’t clear (or isn’t applicable), other sources of symmetry breakers exist. Sometimes social conventions and norms can serve as symmetry breakers. Or in the court system, one standard that’s sometimes used is the principle of the “least-cost avoider.” In this standard, if two parties are equally imposing on each other (in a way that doesn’t clearly violate some existing law or moral imperative), the responsibility to ameliorate the situation is given to whichever party faces the lowest cost of doing so. If changing the situation is a major imposition on me but only a minor inconvenience for you, then that serves as the symmetry breaker in these cases.  The libertarian and classical liberal focus on reciprocity and symmetry isn’t born of some desire to argue that all laws or interventions are always unjustified on the grounds that every situation is symmetrical. If that was the case, libertarians would be arguing that a law preventing Pyro Pete from burying down my house is unjustified – but I’ve yet to come across a libertarian in favor of arson! But libertarians and classical liberals are correct to point out that the issue of reciprocity and symmetry exist and are important issues deserving examination. Symmetry isn’t an insurmountable obstacle – but ignoring the issue isn’t justified. To the extent that libertarians and classical liberals keep this issue raised, they are doing public discourse a service.  (0 COMMENTS)

The Economist has an article discussing the issue of forward guidance in monetary policy. Here’s an excerpt: To guide expectations credibly, officials must eventually follow through with the changes they indicate. The quandary is deciding what to do when conditions change, as they have since the Powell pivot, with inflationary pressure stronger than expected, which has rendered rate cuts less suitable. Staying the course might no longer be appropriate; changing it risks harming central bankers’ ability to jawbone investors in the future. . . .Ben Bernanke, a former Fed chairman, once warned that such considerations can quickly degenerate into a “hall of mirrors”. If policymakers mimic market expectations, which then shift as a result, endless distortions are possible. Suitably enough, Mr Bernanke’s more recent work reviewing the Bank of England’s approach to forecasting offers a way out, suggests Michael Woodford of Columbia University. One crucial recommendation was that the bank ought to start publishing its projected policy rate under a range of different economic scenarios, rather than just its central forecast. Doing so would help investors understand how policymakers would react to different conditions, allowing them to change course in response to new data without losing face. In my view, making interest rate forecasts conditional on macroeconomic conditions is an improvement over unconditional forward guidance.  Unfortunately, it is difficult to predict how changing macroeconomic conditions might impact future movements in the natural rate of interest. An alternative would be to offer more specific guidance as to the policy goals of the Fed.  For instance, one could imagine a nominal GDP target that calls for 4% annual growth, with make-up policies to correct any short run deviations from this trend line.  This sort of policy regime is called “NGDP level targeting”, because it targets the level of NGDP, not the growth rate. Even more precise guidance could be provided by specifying the exact nature of the make-up policy.  For instance, the Fed could indicate that the make-up would occur at a rate of 1%/year, until back on the trend line.  Thus if a mistake pushed NGDP 1% above the target path, the Fed would aim for 3% growth over the next 12 months.  If a mistake pushed NGDP 2% above target, the Fed would aim for 3% NGDP growth over the next two years.  If NGDP fell 1.5% below target, the Fed would aim for 5% NGDP growth over the next 18 months. One advantage of this sort of policy regime is that it would make it easier to interpret the information in interest rate futures markets.  Today, policymakers don’t know whether an anomalous movement in fed funds futures reflects expectations of what sort of future interest rate would be required to achieve 4% NGDP growth, or a lack of confidence that the Fed is actually trying to achieve 4% NGDP growth.  To make the point more concrete, if the fed funds futures show rates falling to 3.5% over the next year, is that because markets expect a weaker economy, or is it because markets expect an easy money policy that will trigger a stronger economy? I’ve advocated a “guardrails” approach, where the Fed would take unlimited short positions on 5% NGDP growth futures contracts and unlimited long positions on 3% NGDP growth futures contracts.  But even if this market-guided policy regime is politically infeasible, a clearer statement of the Fed’s desired path for NGDP growth would lead to an environment where existing financial markets could provide a rich source of information to policymakers struggling with the question of where to set their interest rate target.  I believe that setting a clear NGDP level target would lead to much less volatility in NGDP growth over time.  Indeed, an NGDP level targeting regime with a clearly specified make-up rule would likely have allowed us to avoid a severe recession in 2008-09, and a severe inflation overshoot in 2021-22. (0 COMMENTS)

The speech that Joe Biden gave at Pointe du Hoc (Normandie, France) in celebration of D-Day echoed a naïve conception of democracy that is now widespread. The general theory goes like this: Democracy is a system where the voter is in power. He is well-informed and votes to express his interest in the public goods that the government proposes to produce. The politicians and the government bureaucrats are selfless public servants who faithfully respond to the electorate’s demands. If I may put a summary in Biden’s mouth: the result is freedom, the rule of law, and a government in the service of “the people”; democracy is good; we come together and do great things at great sacrifice. In reality, to roughly summarize public choice theory, most citizens vote blind because each one’s vote has no impact of the election or referendum result. Many remain apathetic. Politicians and bureaucrats are ordinary self-interested individuals who occupy the public sector to further their own interests. When necessary, they will yield to special-interest groups. The (classical) liberal believes that democracy is a means to individual liberty, not an end, and that the government’s scope and power must be strictly limited to some essential functions in order to restrain its capacity to exploit part of the population. The naïve conception confuses freedom with democracy and views collective choices as superior to individual choices. The collective is greater than the individual, and the latter must sacrifice for the former. Democracy is collectivism with a human face. Biden declared (see “Against D-Day Backdrop, Biden Puts Democracy at Center of Anti-Trump Pitch,” Wall Street Journal, June 7, 2024; and the C-SPAN video of the speech): American democracy asks the hardest of things: to believe that we’re a part of something bigger than ourselves. So democracy begins with each of us … when one person decides there’s something more important than themselves … when they decide that their country matters more than they do. Note in passing how the rhetoric goes from “one person” to the politically correct “they”—ostentatiously to avoid saying “him.”  Intriguingly, Biden later eulogizes “the brave men who scaled these cliffs.” The real function of replacing singular pronouns by their plural is, I believe, to erase the individual. Biden affirms that the American soldiers who took Omaha Beach are asking us to care for others in our country more than ourselves … to be part of something bigger than ourselves … to protect freedom in our time, to defend democracy … to be part of something bigger than ourselves. At least, freedom is mentioned, but it appears to be a mere synonym for democracy, which is the central concept. A free society is very different. Its government leaves every individual free to make the sacrifices he wants without imposing sacrifices on others such as conscripts in times of war. The incipit of Milton Friedman’s Capitalism and Freedom (1962) famously said: In a much quoted passage in his inaugural address, President Kennedy said, “Ask not what your country can do for you—ask what you can do for your country.” …. Neither half of the statement expresses a relation between the citizen and his government that is worthy of the ideals of free men in a free society. The paternalistic “what your country can do for you” implies that the government is the patron, the citizen the ward. … The organismic, [sic] “what you can do for your country” implies that government is the master or the deity, the citizen, the servant or the votary. To the free man, the country is the collection of individuals who compose it, not something over and above them. James Buchanan saw stronger relations between the citizen and a government created and limited by a conceptually unanimous social contract. But he stressed (along with his collaborators Gordon Tullock or Geoffrey Brennan, to mention only those) how the whole system was based on the absolute primacy of individual choices. The citizen is not viewed as a sacrificial lamb. There is no social or collective purposes, only private purposes. Mr. Biden’s concept of democracy is closer to Spartan democracy, which was all about the power of the citizens as a collective, not about individual liberty. In Pointe du Hoc, he preached about countering the natural instinct “to be selfish, to force our world upon others, to seize power and never give up.” But isn’t forcing the world of some upon others exactly what any sort of collectivism means? I suggest there is another way in which Mr. Biden failed his own test. It is pretty obvious that, in the Democratic Party, many presidential candidates other than an 81-year-old apparatchik would have had much more chances to save the Republic from Donald Trump. But Biden is selfish and will not give up power. (0 COMMENTS)

Mike Munger recently wrote about an elementary misunderstanding of economic competition many legislators and regulators seem to harbor – the idea that improving competition means ensuring there are more firms rather than less. This misunderstanding springs from what Munger calls a confusion between the textbook definition of “perfect competition” (which Munger calls an “idiotic concept”) and real competition, as it occurs in the world outside of the classroom blackboard. Munger cites this example: Senator Elizabeth Warren recently argued that the Biden administration, through the FTC, should block the acquisition of Discover by Capital One. Her logic has been “perfect competition,” two small firms are better than one medium-sized firm. Yet one need only take a look at the larger industry, where Visa, Mastercard, and American Express control fully 98 percent of credit-clearing transactions, to realize the folly of that approach. If the Capital One-Discover marriage can be consummated, there will be more competition in the industry, not less. The newly formed entity would have the financial power, and the scale of transactions, to force the credit card industry out of its anachronistic ways. That got me thinking about other cases where “more firms = more competition = better” fails to hold true. Two big examples struck my mind – banking, and mobile operating systems.  Let’s start with the first. Prior to the Great Depression, Canada had a largely unregulated banking system. From that system, what emerged was a relatively small number of very large banks that operated across the country. In the United States, there was a highly regulated banking system that (among other things) heavily skewed towards a “unit banking” system rather than a branch banking system. That is, banks were geographically limited in how far they could expand (operating across state lines was often a no-go) and were thus limited in size. From this system, what emerged was a system of tens of thousands of fairly small banks across the country.  From a “more firms = more competition = better” perspective, it might seem like the United States, with its vast number of banks, would be in a better situation than Canada, which was “dominated” by just a few very large banks. But in practice, the opposite was true. Because banks were so numerous and small, it also meant each individual bank was highly undiversified in the assets it held and was all but chained to local economic conditions. Large, highly diversified banks can better absorb economic shocks than small, undiversified banks. This is part of the reason why in the Great Depression the highly regulated United States banking system had over 10,000 bank failures and the lightly regulated Canadian banking system had none at all.  The second example that came to mind was mobile operating systems. Right now, it’s not at all uncommon to see a certain amount of handwringing over the fact that mobile operating systems is effectively a duopoly between Android and iOS. Wouldn’t it be better if there were more mobile operating systems on the market, because of increased competition? Well, no, not necessarily. If you’re wondering why, then as Munger himself would say, the answer is transaction costs.  Let’s consider a pretty extreme example. Imagine a genie snapped its fingers and tomorrow there was 10,000 different mobile operating systems on the market. Why wouldn’t that be good for competition? Well, one of the annoying features of the real world that’s left out of the introductory blackboard models is transaction costs. If you want to produce and sell an app that simulates a coin flip to help improve the lives of indecisive people, there’s simply no way you’re going program and format that app for 10,000 different OS’s. The transaction costs are simply too high. The same is true for every programmer and app developer out there. The more operating systems are out there on the market, the more complicated and expensive it is to make your application or program available to everyone on the market. Over the last couple of decades, there have been a wider variety of operating systems. Symbian was one. BlackBerry had their own, called (rather unimaginatively) BlackBerryOS. WebOS was another. Windows Mobile had a good run, too. These have all fallen away, leaving Android and iOS locked against each other. Would it be better if all these defunct mobile operating systems were still out there, providing more and better competition? Maybe so in the imaginary world of perfect competition. But in the real world, a world where transaction costs exist, it’s not at all clear that this would be the case. More operating systems means increasing transaction costs associated with producing everything we use those operating systems for – which could very well make the mobile OS market less rather than more productive.  What is the “optimal” number of operating systems? I don’t know. Neither do you. The answer can’t be derived from the blackboard, the armchair, or from tea leaves. But the best chance we have to discover the answer is when markets are free enough for actors to engage in real world market competition.    (0 COMMENTS)

Can a document unify a nation? Yuval Levin of the American Enterprise Institute and author of American Covenant argues that the Constitution unified the United States at the founding of the country and that understanding the Constitution can help bring the country together today. Listen as Levin speaks with EconTalk’s Russ Roberts about how the Constitution not […] The post How the Constitution Can Bring Us Together (with Yuval Levin) appeared first on Econlib.

I often learn more from people whose views partially overlap, than from those with whom I completely agree or completely disagree. Thus I’ve learn a lot from reading Matt Yglesias’s Substack, even though he has a much more favorable view of the Biden administration than I do. In particular, he supports their early effort to pass major bills involving stimulus, and well as subsidies for things like infrastructure, clean energy, and technology.But Yglesias also believes that the Biden administration went off course in 2022: I published a piece on August 25, 2022 advising Biden to press pause on his flirtations with heterodoxy and congressional dealmaking and start listening to boring neoclassical economists. To my mind, that didn’t mean disavowing anything that he’d done in the first 18 months of his presidency. It just meant acknowledging that most of his pre-2021 policy agenda had been cooked up assuming depression-like conditions, and those conditions no longer applied. He’d taken big legislative swings, had some good hits, and now it was time to play defense.But the pivot never really happened. Yglesias is much smarter than most of the policy advisors that Biden relied upon over the past few years.  Many of them don’t really understand neoclassical economics (aka supply side economics), and this led to a series of policy initiatives that made inflation even worse: I would not expect any Democratic administration to weaken Davis-Bacon rules as an anti-inflationary measure, even though doing so would advance a number of Biden’s stated policy objectives. But did Biden need to re-write these rules to be tougher than they were under Obama or Bill Clinton? Similarly, every president likes to tout “Buy American” rules because they sound popular, but Biden’s lawyers genuinely wrote stricter rules than his predecessors. They adopted stricter energy efficiency rules that will drive up prices. They raised tariffs on Canadian lumber. They raised tariffs on solar panels from Southeast Asia. Repealing the Jones Act would be a heavy lift, but Biden made Jones Act rules stricter. A lot of this can be seen as special giveaways to union interests, which is not always ideal but is at least part of a rational political strategy. But beyond that, what I think you see at work in some of the regulatory agencies is a completely sincere, completely non-cynical worldview that promoting high nominal wages is a path to national prosperity. The moves to implement stricter rules on au pairs or create stricter rules for agricultural guest workers don’t have any particularly clear interest group angle. They’re just small moves that drive up the cost of child care and food. To be clear, it is the Fed that determines inflation over the longer run.  But if the Fed sets its policy tools at a position likely to generate 6% NGDP growth, then the enactment of new regulatory measures that raise costs will temporarily shift that nominal spending from output to prices.  Yglesias believes that this policy mistake may ultimately cost Biden the election. The Trump campaign is also advocating policies that could lead to higher costs, such as a 10% tariff on all imports and the expulsion of undocumented workers.  Trump also opposes YIMBY policies to allow the construction of apartments in suburban areas.  But voters tend to focus on the record of the president that is currently in office, not the campaign promises of the challenger.  And Trump benefits from the fact that inflation was relatively low during his tenure. Because I am less Keynesian than Yglesias, I am much more skeptical of Biden’s early policy initiatives.  But I do understand the Keynesian model, and thus I can easily understand why Yglesias has become increasingly frustrated with Biden’s approach to policymaking.  Keynes believed the free market worked reasonably well as long as there was adequate aggregate demand.  By 2022, the economy had recovered from the Covid recession and inflation had become a major problem.  In that sort of world the rules of classical economics apply—industrial policies have real opportunity costs.  It was time to focus on efficiency.  In November, we’ll find out if Biden must pay a price for ignoring the advice of one of the Democrats more insightful pundits. PS.  In my view, the classical rules always apply.  It’s always a good time to focus on efficiency.  Thus I believe the Biden administration went off course long before 2022.  Yglesias pointed me to a Ezra Klein essay from April 2021: Biden has less trust in economists, and so does everyone else. Obama’s constant frustration was that politicians didn’t understand economics. Biden’s constant frustration is that economists don’t understand politics. Multiple economists, both inside and outside the Biden administration, told me that this is an administration in which economists and financiers are simply far less influential than they were in past administrations.  Obama was re-elected against a mainstream Republican.  Biden is trailing in the polls against one of the most unpopular politicians in American history. (0 COMMENTS)

  Our Kids Have No Economic Immune Systems by Michael Munger, AIER, June 5, 2024. Excerpt: This seems paradoxical. The commercial system has delivered, consistently and broadly shared across the population. Yet having to participate in a system where one plans, saves, invests, and designs an individual “pursuit of happiness” is overwhelming the very people who should be grabbing all the new opportunities that the system has revealed to them. I think the explanation for the paradox is simple: Everything difficult has been banished. Just as our physiological immune system needs threats to mature and avoid attacking itself, our sense of commercial efficacy has to be confronted with challenges, and surmount those challenges, to mature into effective citizenship. Kids are told they can do anything, that they are personally mighty and important. But they never have the experience of everyday effort and failure; In fact, they are urged to avoid anything that might “trigger” them, or enable them to play or act on their own, as has been documented by authors ranging from Jonathan Haidt, mentioned above, to Lenore Skenazy.  So young people are overwhelmed with anxiety: If they do anything less than cure cancer or become a US Senator, they have failed. But they don’t know how to build a birdhouse from scrap wood. They have no idea how to repair a toilet, or how to change the inner tube on their $6,000 mountain bike. They are helpless, but charged with an inflated sense of destiny and self-importance. DRH comment when I read this: One of my proudest accomplishments at the Naval Postgraduate School occurred one afternoon about 15 years ago when I saw a distinguished professor (and by distinguished, I mean that he had gray hair and looked old, which is about how I look now) in the parking lot with a flat tire. I asked him if he wanted me to help. He did. I hadn’t changed a tire in over 30 years, but I remembered all the steps right, and we were both on our way in under 15 minutes. DRH comment now: I hesitate to challenge Michael’s observations because, after all, he is around young students more than I am. So my 5 counterexamples will probably appear weak, laced as they are with self-selection. A local organization I’m involved with, called the California Arts and Science Institute (CASI) had an event for young people–everyone from grade schoolers to college students–last Wednesday. My friend Francois Melese talked to three of them; I talked to two of them–my two were in college, one at Monterey Peninsula College and the other at UC Berkeley. I came away very impressed, as did Francois. I know the danger of anecdotes. What I would say is that the danger of going with Mike Munger’s view is that you might tell yourself that there’s no point in showing up for such events. How Democrats Left the IPCC Behind by Roger Pielke, Jr., The Honest Broker, May 20, 2024. Democrats — not all, but many — have left the IPCC behind in favor of an extreme view of climate and extreme events. Republicans — not all, but many — find themselves much more in line with the findings of the IPCC on climate and extreme events. Similarly, I’d guess that explains why in recent years I’ve been invited to testify by Republicans.4 Of course, consistency with the IPCC (or not) says little about policy preferences. Democrats remain the party championing action on climate policy and Republicans remain much less supportive. Of course, the key question here is, What action? I have long argued that there are unexplored opportunities for greater bipartisan support for pragmatic energy and adaptation policies that would accelerate decarbonization and reduce vulnerabilities — but that’s a topic for another day. Comment: The Stanford Classical Liberals had Roger speak on Zoom last month. Very impressive. The Danger Is Not China But the Fake China Threat by John V. Walsh, antiwar.com, May 27, 2024. At times a book is convincing not only because its arguments are sound but also because of the author’s identity.  It would be no surprise to encounter a book penned by a socialist or Sinophile that takes on the false portrait of China that graces the US media.  But Joseph Solis-Mullen, the author of The Fake China Threat And Its Very Real Danger, is neither socialist nor Sinophile. Solis-Mullen is a libertarian in the mold of Randolph Bourne and Justin Raimondo. Hence, he is classified as a conservative in our impoverished political taxonomy.  But his book is not written to appeal to people of any single political outlook.  It is written with only one thing in mind, the interest of the American people and, dare I say, of humanity in general, China included.  Hence it is of great utility for people across the political spectrum who sense that our people are being hoodwinked by fake China threats.  It may answer your questions on China or those of your friends in ways understandable to the average American. Comment: I don’t completely discount the threat from China but I think it has been overblown. Certainly, if they’re trying to threaten us with trade, they have a weird way of doing it, namely having their taxpayers give money to us in the form of subsidized exports. As Milton Friedman once said, “Why should we reject foreign aid?” Especially when the foreign aid is given to consumers rather than to our wasteful governments. George Orwell’s Error by Christopher J. Snowdon, Quillette, June 6, 2024. Excerpt: The central assumption at the heart of Orwell’s political writing from the mid-1930s was that capitalism was doomed and would most likely be replaced by totalitarian socialism of the sort satirised in Nineteen-Eighty Four. Despite his contempt for capitalism, Orwell saw the world caught between a rock and hard place. “Capitalism leads to dole queues, the scramble for markets, and war,” he wrote in 1944. “Collectivism leads to concentration camps, leader worship, and war.” The only alternative, to his mind, was a planned economy that retained democracy and allowed freedom of the individual, but he became increasingly pessimistic about the prospects for his libertarian brand of what he called democratic socialism as the 1940s wore on. Indeed, he saw “no practicable way of bringing it about.” This explains why he was so despondent about the world’s prospects in the last years of his life and why he decided to write Nineteen Eighty-Four. But he was wrong. Capitalism did survive, subsequent communist revolutions went the same way as the USSR’s, and Orwell’s version of democratic socialism was not required to prevent totalitarianism sweeping the globe. It turned out that it was not a straight choice between democratic socialism and communist (or fascist) totalitarianism. There was a third way. The quote from 1944, by the way, is from his review of two books, one of which was Friedrich Hayek’s The Road to Serfdom.   Scott Ritter : On My Way to Russia I Met Big Brother. Judge Napolitano, Judging Freedom, YouTube, June 5, 2024. Ritter tells of 3 U.S. government agents hauling him off an airplane about to leave for Russia and stealing, without explanation, his passport. They wouldn’t tell him who sent them and, when asked, told him that the way to retrieve his stolen property was to contact the State Department. (0 COMMENTS)

For well over a century, economists have studied ways to make the law more efficient.  While the Journal of Law & Economics (the premier field journal) was not founded until 1958, early 20th century economists like Alfred Marshall, A.C. Pigou, John Maynard Keynes, and many others were busy studying how economics can inform legislation to improve outcomes. However, moving from “blackboard” economics to the real world is a difficult endeavor.  We have repeatedly seen economic policies fail to achieve their stated goals, from the grand central planning of the USSR to more mundane “market fine tuning,” like carbon taxes.  There is a wide literature on these failings, which readers of this blog are certainly aware of: the knowledge problem highlighted by Hayek, public choice issues like rent-seeking and other collective decision-making problems, and so forth.  But there is also a problem of translating theory into something actionable.  Economic theory uses a lot of terms slightly differently from how they are generally used.  Translating these terms into legislation is tricky.  The example of dumping will demonstrate this point. A bit of business before I begin: I am assuming here that the goal of the legislation is to improve economic outcomes as defined in the neoclassical sense: to maximize total welfare.  My general point about the difficulty of aligning legislation with goals will not change if this assumption does not hold, though the examples will.   Dumping is a process where a firm sells below cost to try and grab market share by driving out competitors.  There is an argument that such behavior is anti-competitive and will result in worse economic outcomes.  Economists generally reject this argument (indeed, one of the first papers in the Journal of Law & Economics is a classic piece dispelling this myth), although it can still be considered anticompetitive and not welfare maximizing.  To that end, legislation exists both at the U.S. federal government level and at the international (World Trade Organization) level that prohibits dumping by domestic and international firms. But there is a significant difference between economic dumping (that is, dumping as defined in economics) and legal dumping (that is, dumping as defined in legislation).  In economics, dumping is when a good is sold below Average Total Cost.  For the economist, “cost” includes both explicit (monetary) and implicit (opportunity) costs.  Explicit costs are easy to identify, but implicit costs are much harder.  Despite a clear definition, economic dumping is hard to identify.  So, when legislation is written to try and improve economic outcomes, the legislators must use something more measurable.  Thus, the legal definition of dumping. Legal dumping is something entirely different.  Legal dumping is simply a good being sold below “fair value.”  But what is fair value?  The Department of Commerce and U.S. International Trade Commission (the two bodies charged with investigating unfair international trade practices) have three ways to determine fair value: 1) what the price of the good is in the home country, 2) what the price of the good is in some 3rd country, 3) what the “constructed” price of the good is (the manufacturing cost of the good, plus some Department of Commerce-determined markup). Note that the legal definition of dumping is vastly different from the economic definition.  Indeed, the two describe very different practices!  From an economic perspective, departure from any of the three descriptions of “fair value” does not imply unfair or uncompetitive behavior.  Indeed, departure could be competition and welfare enhancing!  We should expect prices to differ in different markets (supply and demand holds locally).  Furthermore, where economics treats the price of a good as emergent depending on marginal benefit and marginal costs, the legal definition of dumping considers price as known in advance and the function simply of explicitly costs. Because of the vagueness of the legal dumping statue, it is highly prone to corruption.  Firms tend to use dumping as a hammer to wield against competition, especially domestic competition. The tool meant to prevent unfair practices ends up encouraging unfair practices.  In short, by attempting to translate economic theory into legislation to actively guide outcomes, the legislation generates the very outcomes it was trying to prevent!  (For a full discussion of the literature on the anti-competitive nature of anti-dumping legislation, see Free Trade Under Fire, Chapter 5.) One could respond “But Jon, you sly and handsome devil, that just shows that the legislation can be enhanced further.  There is no difficulty here.”  But I disagree.  A good scientist is comfortable with the fact that there are many things that influence our behavior that are unmeasurable.  In economics, costs are one such thing: costs are ephemeral, psychological, and subjective.  Costs, and their interpretation, will vary from person to person, and situation to situation.  It is impossible for an outside observer ex ante to know what another person’s costs are.  Indeed, the decision-maker may not even be aware of the costs they are facing.  Legislation must rely on proxies, such as accounting costs, which do not translate the information in the same way.  Consequently, translating economic theory into actionable legislation faces a significant uphill battle. Dumping is one particularly obvious example of the difficulty of translating theory into legislation.  But even if things go perfectly, there are always unintended consequences.  Sticking with trade, Trump and Biden’s explicit goals for their tariffs were to raise the domestic prices of goods to discourage imports.  That worked as intended.  But the unintended consequence of reducing exports also occurred.  Let me end with what I call Jordan’s Law of Unintended Consequences (named for fantasy author Robert Jordan): “Law of Unintended Consequences, stronger than any written law.  Whether or not what you do has the effect you want, it will have three at least you never expected, and one of those usually unpleasant” (from The Path of Daggers by Robert Jordan, page 334).   Jon Murphy is an assistant professor of economics at Nicholls State University. (0 COMMENTS)

The ideological certitude with which FTC Commissioner Lina Khan explains her latest investigation of Microsoft is revealing of the zeitgeist of our time. Interviewed by the Wall Street Journal, she explains that Microsoft may have violated antitrust law–or rather policy and politics, because it is not properly law–by consensually hiring the co-founder of startup Inflection AI and almost all its staff, and compensating the ongoing concern with a licensing fee. Watch the video accompanying the story “FTC Opens Antitrust Probe of Microsoft AI Deal,” June 6, 2024. It is with the most reasonable political correctness that Ms. Khan declares: In Washington, there is increasingly a recognition that we can’t as a government just be totally hands-off and stand out of the way. I wonder at what fleeting moment the young law professor nominated by Joe Biden thinks the federal government was “totally hands-off” and “out of the way.” It would be interesting to know what evidence she has to support her contention. She also says: You’re right that in some ways this is going to look different. … And we as policymakers and we as a society can help make decisions and choices that are going to steer the technologies on a path that actually serves us rather than a model where a handful of companies are just extracting more and more from society, from creators, and people feel they don’t have recourse. Who are “we as policymakers” and “we as a society”? Are the two political “we” the same? Don’t “we as policymakers” represent at best 50% +1 of the “we as a society”? And that is the best case. I suspect that our Washington political bureaucrat hasn’t reflected much on these issues and entertains an intuitive and naïve conception of democracy. Twentieth-century welfare economics and social-choice theory, often developed by economists who, like Ms. Khan, had a sweet tooth for economic and social planning, showed that “we as a society” raises problems of preference aggregation that can only be solved by authoritarianism—“dictatorship,” in the terms Kenneth Arrow’s famous theorem. Only a society of identical individuals can be imagined as saying “we” (with our collective mouth). James Buchanan and public-choice economics added a realistic view of “we as policymakers” and a more sensible view of democracy. In reality, Ms. Khan’s “we as policymakers” hides an authoritarian desire to control society: At the FTC … we are scrutinizing the entire stack, from the chip, to the computing cloud, to the models, to the apps. … The raw material for a lot of these tools is in the hands of a very small number of companies. … There could be self-dealing, there could be discrimination, there could be exclusion, so that the big guys are just getting bigger at the expense of everybody else. Ms. Khan seems to unknowingly admit that her crusade is part of a general ideology of social engineering from above. Could it be that Microsoft and Inflection structured their deal so that it did not fall foul of what the surveillance state does not like? That is certainly a possibility. It is a scary possibility, but not in the way Khan seems to imagine. The rule of law does not consist in a majoritarian government using a wide and expanding complex of laws and regulations to prevent anything “we as policymakers” do not like and mandate anything that “we as policymakers” want. Such a conception of government represents a “government of men” (OK, make it “of persons”), not a “government of laws.” With the proliferation of laws and regulations, there must now exist at least one legal instrument for every potential power grab. Refusing to see this suggests a disregard of both the economic-scientific study of society and the modern conception of liberty, in favor of an unexamined and dangerous predilection for collective choices over individual choices. As an instinctive adherent to majoritarian democracy—we as policymakers representing we as the current majority in society—Ms. Khan should be as happy if Donald Trump is elected policymaker-in-chief as if the crown is given to Joe Biden. The people will have spoken in one case as in the other. Setting the problem in these terms suggests that the danger of collective choices is the same on the right and on the left as we know them: under a strong leader, “we” impose “our” preferences on the rest of the “we.” It is urgent to think out of the political box. ****************************** Big Mother grabbing control of bad businesses (By DALL-E under the inspiration of P. Lemieux) (0 COMMENTS)