The market as an institution is both a blessing and a curse. Its blessing lies in its coordinating abilities.  As Adam Smith first noted back in his Wealth of Nations, nobody knows how to make a woolen coat.  Rather, it is the coordinated (although not planned) actions of “a great multitude” of workers that results in a woolen coat (pg. 22–24 of the Liberty Fund edition).  This division of labor and subsequent division of knowledge results in a great multiplication of the goods and services available to everyone.  It also leads to innovation and invention, further generating more gains. F.A. Hayek famously noted how the price system (when operating freely) conveys vital information to all participants, who can then use that information and their own knowledge to make their decisions.  One need not know why tin prices are rising, but one does know that tin needs to be conserved and to search out alternatives.  And Vernon Smith showed how few conditions are really needed to get the market to work (see Rationality in Economics: Constructivist and Ecological Forms by Vernon Smith, in particular pg. 30, chapter 4, and the citations therein). Markets have allowed people to come together and create such prosperity that the world has never seen before. The market’s curse lies in its very decentralization. Referring back to Adam Smith, division of labor results in a certain “torpor of the mind” (pg. 782 of Wealth of Nations) where an individual becomes so wrapped up in their specialized work that they know nothing of the world beyond.  We see that as an outcome in markets politically as collectivism: because individuals know a lot about their specific work, they assume that all knowledge can subsequently be collected, analyzed, and acted upon.  But the market contains such a magnitude of particular knowledge (meaning that the knowledge only makes sense in the particular time, place, and mind in which it exists) that it cannot be collected.  Collectivists greatly misunderstand the system in which they operate, and consequently meddle with it, undoing the very blessings markets bring, leading to ruin. One would think that after the spectacular failures of centralized societies in the past century, from fascist Spain, Italy, and Germany to socialist China and the USSR (not to mention failed African and Asian states), would result in a movement away from collectivism.  Indeed, the Socialist Calculation Debate (the multi-decade debate between Austrian economists and socialist economists) was won so handily by the Austrians that the definition of “socialism” changed!  Yet, those zombie ideas continuously come back from the dead, all justified with some version of “this time is different!” And so we economists beat on, boats against the currents of collectivism, bore back ceaselessly into the past, rehashing arguments made long ago (and continuously supported by more and more data).  Adam Smith declared his intellectual victory for free trade over mercantilism grandiosely: All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord.  Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men (Wealth of Nations, pg. 687). Given the perpetual ebbs and flows of market liberalism, Smith’s declaration may be optimistic, but it is nonetheless true.  The market system brings us countless blessings.  But simply because of its beautiful, complex nature, it can also never fully disperse the curse of collectivism.   As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

There is something worse than everybody wanting to come to your country: that’s if everybody tried to avoid it. America is not at this point, but there is a play about that in a theater of the absurd near you. Official figures show a significant drop in foreign tourists coming to America this year compared to the same period last year. The Economist writes (“Have Foreign Tourists Really Avoided America This Year?” August 26, 2025): Foreign arrivals at [20 major] American airports are down by 3.8% compared with 2024, or 1.3m fewer people. The slump was steepest between May and July, when arrivals fell by 5.5% year on year. That bucked the global trend as tourism finally recovered to pre-pandemic levels. The drop was especially steep from Canada at 7.4%, or 13.2% if we consider only the summer (May to July, year on year). Trips by road fell even more. Air arrivals from Europe are down more than 2%. Interestingly, more Americans have traveled abroad. The conjunction of the two trends will have caused a reduction in the international balance of tourist trade and, thus, in the international balance of goods and services compared to what it would otherwise have been. For protectionists, this should be a matter of great concern. Perhaps another emergency decree is needed to subsidize foreign tourists and intimidate Americans into staying here? I suspect that many supporters of protectionism don’t realize that what foreign tourists spend in America is an American export. Just like for exports of goods, receiving tourists from abroad (whether for business, pleasure, study, or medical reasons) uses resources belonging to American residents in order to produce goods and services for foreigners. Not surprisingly, foreign tourism in America is entered as exports in official statistics. American residents travelling abroad provide the mirror image: they use resources belonging to foreigners—hotel rooms, Airbnb accommodations, food, entertainment, souvenirs, and so forth. Of course, they pay for that: any trade is a two-way street. This simply confirms the benefits of exchange: each party gives away what he values less for something he values more. It is not surprising that the expenditures of American tourists abroad are recorded as imports in official figures. A prohibition of American travel abroad would “save” an estimated $248 billion in the annual balance of international trade. This elementary analysis suggests that the whole protectionist doctrine is a sham or an absurdity. So is the goal of having foreign corporations invest in the US—which they will do anyway voluntarily in a free country. Moreover, foreign investment is the mirror image of trade deficits, but let’s ignore this to focus on another contradiction. If the police start raiding foreign companies’ factories as happened last Thursday in Georgia, the dystopia imagined at the beginning of this post will get closer (see “Hundreds Arrested in Immigration Raid at Hyundai Site in Georgia,” Wall Street Journal, September 5, 2025). The raided battery factory under construction is part of a joint venture between Hyundai and LG Energy Solution, two South Korean companies. The majority of the 475 individuals arrested were South Korean nationals, including about 50 LG employees (the others were employed by contractors). Are the arrested individuals “the worst of the worst”? Not necessarily, it seems: Asked about the raid, Trump said that the people arrested were immigrants who entered the country illegally. “We had as I understand it a lot of illegal aliens,” he said. “Some not the best of people. But we had a lot of illegal aliens working there.” Another Wall Street Journal story (“How the Immigration Raid at Hyundai’s Factory Complex Unfolded,” September 6, 2025) reports on some consequences: LG Energy said Saturday it was suspending most business trips to the U.S. and directing employees on assignment in the U.S. to return home immediately or stay put in their accommodations. It would be another matter, of course, if there had been ongoing murders, rapes, torture, and other real crimes in the raided factory. The story also quotes a few other phrases that have deep significance: “We have a warrant for this entire construction site, OK?” said an officer who wore a neck gaiter and sunglasses. “We’re Homeland Security. We have a search warrant for the whole site. We need construction to cease immediately.” For one thing, it is as if the immigration police were proudly saying that, this time, they are not doing anything illegal. At any rate, the image of masked police raiding factories isn’t how people used to think about America. The South Korean nationals arrested—some of whom were shackled!—had committed such unspeakable crimes that, we learned on Sunday, a “deal” with the US government will allow them to be repatriated by their government (“South Korea Charters Plane to Repatriate Workers After US Battery Factory Raid,” Financial Times, September 7, 2025). An objection to my argument could be that, as much as trade deficits are a matter of “national emergency,” repelling foreigners represents a more pressing one. Note that, following James Buchanan and Friedrich Hayek, I am not arguing for totally free immigration; see my post “The Strangers Who Live Among You.” What I am arguing, against both the left and the right, is this: if the glorification of state power doesn’t verge on tyranny, it certainly tips into the absurd. One might think that the absurd is not a concept belonging to public choice theory, but this is not sure. Politicians and bureaucrats pursuing mainly their own self-interest, while rationally ignorant and Condorcet-handicapped voters stagger for “the public interest,” can produce a chaotic walk into policy space. “Anything can happen” (emphasis in original), wrote political scientist Richard McKelvey and economist Norman Schofield. “Anything” includes absurdities but also possibly revolutions and civil wars. (See William Riker’s classic book Liberalism Again Populism or my Regulation review [pp. 54-57], a poor but more accessible second-best.) ****************************** Samuel Beckett’s “Waiting for Godot,” with the two leading characters changed into little kings (with the help of ChatGPT) (0 COMMENTS)

What makes some groups thrive while others crash and burn? According to organizational-behavior scholar Colin Fisher, the real villains are rarely individuals, but dysfunctional teams and organizations. Listen as he and EconTalk’s Russ Roberts discuss the reasons for the free-rider problem and the importance of meaningful, well-defined tasks to incentivize synergy. They speak about why […] The post How Teams Succeed (with Colin Fisher) appeared first on Econlib.

Based on the discussion over numerous posts in this series (beginning here) unpacking the arguments of Musa al-Gharbi’s We Have Never Been Woke: The Cultural Contradictions of a New Elite, one might assume that al-Gharbi is hostile to woke ideas or woke values. But that would be a mistake, and would show that one has failed to closely pay attention to his arguments. The title of the book itself should make this clear. The argument is that symbolic capitalists have failed to be woke, not that wokeness as such is a failed idea. As I mentioned in my initial post in this series, the book is a criticism of woke activism written by someone who is himself sympathetic to woke ideas. His criticism is that the activists have failed to live up to the ideas—their behavior contradicts what wokeness would actually imply. As such, the strongest critique of woke activists is the actual content of woke ideas: Ideas associated with wokeness can similarly provide us with tools for challenging the order that has been established in its name. In many respects, that is precisely the project of this book. Throughout the book, al-Gharbi finds that what woke progressives espouse and what they do are wildly out of sync with each other: Over the course of this text, we have seen that the attitudes and dispositions associated with “wokeness” are primarily embraced by symbolic capitalists. Wokeness does not seem to be associated with egalitarian behaviors in any meaningful sense. Instead, “social justice” discourse seems to be mobilized by contemporary elites to help legitimize and obscure inequalities, to signal and reinforce their elite status, or to tear down rivals – often at the expense of those who are genuinely vulnerable, marginalized, and disadvantaged in society. But this, by itself, does not undermine the ideas the woke espouse. For example, no libertarian would seriously think that the arguments libertarians make against rent control legislation (both economic and moral) are undercut by the fact that Robert Nozick once invoked rent control legislation to try to prevent his landlord from increasing his rent. Was this hypocritical of Nozick? Certainly. Does it constitute evidence that arguments against rent control are therefore invalid? Of course not. This, too, is the case with woke ideas, as al-Gharbi points out: What, then, should we make of the ideologies and modes of analysis associated with wokeness? Can they be useful guides for understanding and discussing the social world? Or are they fundamentally dangerous, misleading, or irredeemably corrupted? Is the main issue that symbolic capitalists tend to leverage social justice discourse in unfortunate ways? Or is it that symbolic capitalists have been led astray by wokeness into pursuing social justice in a counterproductive manner? Put simply, is the problem wokeness or are we, ourselves, the problem? Just as physicists (so far) lack a theory of everything, social scientists, too lack a theory of everything. As al-Gharbi points out, “any theoretical approach that elucidates some important aspect of society will generally obscure other phenomena. It will handle some things well and explain other things poorly.” This is just as true with woke ideas. As an example, al-Gharbi describes the so-called “discursive turn” in social research. This idea emphasizes that how terms are defined is not something that emerges in a purely neutral way from the ether. How things are defined can strongly stack the deck in favor of or against certain ideas or groups—and this makes the definition of terms a significant power struggle. Overall, al-Gharbi notes, “This is a genuine contribution to understanding the world.” However, even though the idea is legitimate, the woke extend the theory well beyond its usefulness: That said, today many symbolic capitalists seem to attribute too much power to symbols, rhetoric, and representation. Many assert, in the absence of robust empirical evidence, that small slights can cause enormous (often underspecified) harm. Under the auspices of preventing these harms, they argue it is legitimate, even necessary, to aggressively police other people’s words, tone, body language, and so forth. As we have seen, people from nontraditional and underrepresented backgrounds are among the most likely to find themselves silenced and sanctioned in these campaigns, both because they are less likely to possess the cultural capital to say the “correct” things in the “correct” ways at the “correct” time and because their deviance is perceived as especially threatening (insofar as this heterodoxy undermines claims made by dominant elites ostensibly on behalf of historically marginalized and disadvantaged groups). This overextension also leads the woke to put an undue emphasis on “symbolic gestures towards antiracism, feminism, and so forth,” despite the fact that these efforts “change virtually nothing about the allocation of wealth or power in society.” Overall, the focus on language, while legitimate in the proper context, has been stretched to the point where it becomes useless or even actively counterproductive: Campaigns to sterilize language, for instance, will never lift anyone out of poverty. Referring to homeless people as “unsheltered individuals,” or prisoners as “justice-involved persons,” or poor people as “individuals of limited means,” and so on are discursive maneuvers that often obscure the brutal realities that others must confront in their day-to-day lives… More broadly, gentrifying the discourse about the “wretched of the earth” doesn’t make their problems go away. If anything, it renders elites more complacent when we talk about the plight of “those people.” On this the empirical research is quite clear: euphemisms render people more comfortable with immoral behaviors and unjust states of affairs. This is one of the main reasons we rely on euphemisms at all. Another idea associated with the woke is that of “intersectionality,” an idea that al-Gharbi says is “both important and fairly uncontroversial: there are emergent effects, interaction effects, that are greater than, or different from, the effects of two phenomena studied independently.” However, as al-Gharbi has stressed throughout his book, the way this idea is invoked by the woke tends to be unrelated to, or even the opposite of, what the scholarship they cite actually says. For example, al-Gharbi describes how the woke cite the idea of intersectionality to “simply tally up their different forms of perceived intersectional disadvantages as though they can simply be stacked on top of one another (e.g., ‘As a Latinx, bisexual, neurodivergent woman my perspective is more valid, and my needs more important than yours — a white, cisgender, gay neurotypical man.’)” This is exactly the sort of thing that the actual scholarship of intersectionalism says we can’t validly do. For example, someone might naively say “Given that in America, with respect to income, whites do better than Blacks, and natives do better than immigrants, native whites must do better than immigrant Blacks.” But intersectional theory tells us that this would be a fallacious inference—and that’s to the credit of intersectionality, because the conclusion is also factually false. Immigrant Blacks actually tend to have somewhat higher incomes than native-born whites. So, al-Gharbi says, intersectionality is an important insight despite how it is misrepresented by the woke: However, the fact that many engage in these kinds of self-serving and facile analyses does not mean intersectionality itself is wrong or should be discarded. The essential elements of the concept seem straightforwardly true and useful for social analysis. Another useful and true idea associated with the woke is about how the impacts of past racial discrimination can continue even in the absence of current racial discrimination, as a result of how past effects can be perpetuated in current institutions: In this same period, following the civil rights movement, prejudice-based discrimination in most job markets declined. However, skill – and education – based discrimination increased dramatically, as did the returns on having the “correct” credentials and talents. Because education was (and continues to be) unevenly distributed across racial lines, the practical effects of these new “meritocratic” forms of reward and exclusion have been comparable to overt racial discrimination in many respects. Hence, racialized socioeconomic gaps persist, largely unchanged, even as overtly bigoted attitudes and behaviors have become far less common and increasingly taboo. A problem, however, is that much of the “skill – and education – based discrimination” paired with the heavy emphasis on credentials and certifications has itself been actively promoted and upheld by woke progressives. Thus, in practice, the ways the woke “appeal to ‘systems,’ ‘structures,’ and ‘institutions’ can serve as a means to mystify rather than illuminate social processes. These frameworks can be, and regularly are, deployed by elites in order to absolve them of responsibility for social problems and to legitimize their inaction to address those problems. They are evoked in hand-wavy ways to avoid getting into specifics (because the specifics are uncomfortable).” This mystifying (and unclarifying) way the woke invoke ideas like “systemic racism” is also reflected in how they invoke “historical injustices” or “history” to describe current outcomes: In a similar fashion, many contemporary symbolic capitalists evoke “history” as a chief cause of contemporary injustices. However, “history” doesn’t do anything. The tendency of many symbolic capitalists to analyze contemporary injustices in historical terms often obscures how and why certain elements of the past continue into the present. Discussing the persistence of race ideology, historian Barbara Fields explained, “Nothing handed down from the past could keep race alive if we did not constantly reinvent and re-ritualize it to fit our own terrain. If race lives on today, it can do so only because we continue to create and re-create it in our social life, continue to verify it, and thus continue to need a social vocabulary that will allow us to make sense, not of what our ancestors did then, but of what we ourselves choose to do now.” But, properly understood, the ideas are themselves sound and worth considering: In a similar vein, this chapter spent significant time exploring how appeals to “systemic” or “institutionalized” racism or sexism are often used to mystify social processes rather than illuminate them. However, the idea of systemic disadvantage seems straightforwardly correct: historical inequalities, paired with the ways systems and institutions are arranged in the present, can lead to situations where certain people face significant disadvantages while others are strongly advantaged. Another valuable idea associated with the woke is the idea of positionality—the idea that our social position and identity influence how we see and understand the world. This, too, is a valuable and useful idea, al-Gharbi says. But there’s a problem here, too: those who most commonly evoke positionality fail to apply the idea to themselves: Taking positionality seriously should lead folks to interrogate the extent to which their own ostensibly emancipatory politics (and especially the homogeneity of these convictions within a field) may undermine their ability to understand certain phenomena, lead them to ignore key perspectives and inconvenient facts in the pursuit of their preferred narratives and policies, and drive them to pursue courses of action that do not, in fact, empower or serve the people they are supposed to be empowering or serving, nor reflect others’ own values and perceived interests. Indeed, taking these ideas to their logical endpoint should lead more people aligned with the Left to question the extent to which their own “emancipatory politics” may, in fact, be a product of their own elite position, and may primarily serve elite ends rather than uplifting the genuinely marginalized and disadvantaged. Overall, a parallel might be made with confirmation bias and its use in public discourse. I have no formal numbers here, but my impression is that approximately every single time the idea of confirmation bias is invoked, it’s as an explanation for why those people are unable to see why my side is actually correct about whatever the issue of the moment is, and approximately zero point nothing percent of the time it’s used as an opportunity to explore why my views might be misinformed and what kind of important insights I might be overlooking. But this doesn’t invalidate the idea of confirmation bias itself! So, too, al-Gharbi says about the ideas associated with wokeness: The fact so many instead use these frameworks in nonreflexive ways—to reinforce their own sense of moral and intellectual superiority or confirm their prejudices about “those people” who do not profess, believe, or feel the “correct” things—neither entails nor implies that these modes of analysis cannot be put to more productive use. And that’s al-Gharbi’s overall message. His critique is not of wokeness per se, but of the behaviors of those who claim to be inspired by woke ideas. When he says “we have never been woke,” he doesn’t then go on to say “and a good thing too, because these ideas are all terrible!” Instead, he sees that as a problem that needs to be fixed, because behind it all, there are valuable ideas in wokeness that can make the world a better place – and the fact that progressives have never been woke in practice is a failure of progressives, and not of woke ideas. As he sums it up, To put it simply, the fact that symbolic capitalists have never been woke reveals a lot about us. It says much less, however, about the frameworks and ideas that we appropriate (and often deform) in our power struggles. This wraps up my summary of al-Gharbi’s book. In the next few posts, I’ll outline what I agree with from his book as well as what I’ve learned, what I disagree with or where I think he missed the mark, and then summarize my overall thoughts.   As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

The title of this post is a nod to Timur Kuran’s book Private Truths, Public Lies: The Social Consequences of Preference Falsification. This book examines the disconnect between what people say they believe publicly and what they believe privately. As Kuran puts it, The preference that our individual ends up conveying to others is what I will call his public preference. It is distinct from his private preference, which is what he would express in the absence of social pressures. By definition, preference falsification is the selection of a public preference that differs from one’s private preference. This turns out to be an issue of some significance. Political scientists or policymakers may collect data on expressed public opinion to try to inform their own decisions, but expressed public opinion can be very different from the actual opinions of the members of the public. Something can hold broad support according to “public opinion,” yet actually be opposed by the vast majority of individual members of the public, when circumstances that create pressure for preference falsification are in place. When this happens, unpopular ideas and policies can be perpetuated by an illusory popular demand. Recently, researchers at Northwestern University tried to get a sense of how common this phenomenon is among college students. They conducted confidential interviews with 1,452 students at Northwestern and the University of Michigan. They found that preference falsification is shockingly common: We asked: Have you ever pretended to hold more progressive views than you truly endorse to succeed socially or academically? An astounding 88 percent said yes. They also touch on how many students engage in preference falsification on specific issues: Seventy-eight percent of students told us they self-censor on their beliefs surrounding gender identity; 72 percent on politics; 68 percent on family values. More than 80 percent said they had submitted classwork that misrepresented their views in order to align with professors… Perhaps most telling: 77 percent said they disagreed with the idea that gender identity should override biological sex in such domains as sports, healthcare, or public data — but would never voice that disagreement aloud. It’s easy to underestimate just how powerful a force the fear of social ostracism can be. In his book The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom, Jonathan Haidt describes an experience he had horseback riding: There was, however, one difficult moment. We were riding along a path to a steep hillside, two by two, and my horse was on the outside, walking about three feet from the edge. Then the path turned sharply to the left, and my horse was heading straight for the edge. I froze. I knew I had to steer left, but there was another horse to my left and I didn’t want to crash into it. I might have called out for help, or screamed “Look out!”; but some part of me preferred the risk of going over the edge to the certainty of looking stupid. So I just froze. Haidt was faced with a situation where, on the one hand, he faced the risk of almost certain death if he did nothing, and on the other hand, if he did something, people might laugh at him, and in a moment ruled by his deepest and most primal instincts, he decided the second of those two was the bigger concern. While this seems absurd in a detached perspective, it makes a certain degree of sense when examined in light of the world in which we live. We are social primates, and historically our survival has depended critically on getting along with our tribe and being held in good standing. For the vast majority of our time as a species, social exclusion was a death sentence — and we evolved powerful social instincts that make us fear rejection and exclusion. Even when a point of view is privately held by the majority of people, this fact can remain hidden if people even worry that expressing that view will lead to them being ostracized by the community. This is one reason why free speech is important as more than just a legal framework (though that is critical). In order to gain the benefits of free speech, open inquiry, and truth-seeking debate, the legal structures of free speech are a necessary but not sufficient condition. A culture of free speech, where it’s recognized that someone can be tragically wrong on issues of great importance while still being a good person (and that you might be such a person yourself!), and that mistaken views should be debated without shunning those who hold them, is also needed. In his book The Road to Serfdom, F. A. Hayek was clear about how disastrous he believed central economic planning would be. But he also made clear he believed the ideas he criticized were advocated by “authors whose sincerity and disinterestedness are above suspicion.” This isn’t to say that a culture of free speech is entirely without downside — but then again, nothing is. However, both a legal framework and a culture of free speech are the only tools that can enable a social order to break free from a socially damaging equilibrium brought on by preference falsification.   As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Cleveland-Cliffs Chief Executive Lourenco Goncalves’s invocation of “unfairly traded steel” shows, a contrario, many reasons why free trade is an essential feature of a free society. Mr. Goncalves said that adding tariffs on steel products to tariffs on primary (semi-finished) steel provides (“Trump Leans on National Security to Justify Next Wave of Tariffs,” Wall Street Journal, August 28, 2020) certainty that the American domestic market will not be undercut by unfairly traded steel embedded in derivative products. He means that tariffs on primary steel do not suffice because imported steel-containing goods would gain an advantage over their domestically manufactured equivalents. In passing, let’s note that in the roaring ’60s, it was popular among the ruling establishments of underdeveloped countries, supported by the Western intelligentsia, to impose large tariffs on foreign manufactured goods in order to help domestic manufacturing. Only when, a few decades later, it was realized that such an industrial policy was a fool’s errand, were the poor people of underdeveloped countries able to jump on the bandwagon of free trade and to escape dire poverty. A basic economic reason why “unfairly traded steel” or the underlying ideal of mercantilist and industrial policy is a fool’s errand is that it presupposes a central economic planner possessing what he does not and cannot possess, that is, the information of time, place, costs, and preferences that is carried by prices determined by supply and demand on free markets. Friedrich Hayek explained that in the 1930s and 1940s (see Hayek’s American Economic Review article “The Use of Knowledge in Society”). A central planner cannot even know many intricate effects of his resource-allocation decisions, especially in a complex economy. Thus, government intervention begets government intervention in the greatest political disorder. That the US government only realized after imposing steel tariffs that they should be imposed on steel products too provides a rather funny illustration. Another important lesson from protectionism—empirically confirmed a thousand times—is how rent-seeking special interests will try to exploit the general public, or part of it, each time the state offers them a means to do so. The requests for tariffs on steel-containing products are already flooding the government. A related reason why an expression like “fairly traded steel” has no meaning but exploitative (or illiterate if not, truth be told, clownish) comes from a reflection on the value judgements that necessarily underlie public policy. Rational public policy recommendations require a justification in moral and political philosophy. If fairness is not defined in terms of individual liberty—if what is fair is not simply what is free—it is probably a smokescreen to impose on others the pursuit of the speaker’s self-interest. “Fairly traded steel” is what Mr. Goncalves thinks is fair for the interests of Cleveland-Cliffs’s shareholders besides his own self-interest. It is rare that an individual considers fair something that harms his own interests, and unfair a government subsidy or protection for himself or his organization. “Free” is much easier to define than “fair.” Liberty does not require that the whole world be made “fair” by somebody’s standards. American steel companies have been protected off and on since the 19th century, and still think that fairness requires American consumers to be forced to pay more for steel products. How fair would it be that Americans be forced, in imitation of Chinese farmers in the heydays of Mao’s Great Leap Forward, to build little blast furnaces in their backyards? (See the featured image of this post.) What happens to the interests of industrial purchasers of steel, consumers of steel products, and consumers of the goods or services that would be produced if fewer resources (workers, engineers, managers, machines, buildings, electricity, land, etc.) were forcibly diverted to the production of steel? Three ways exist to reconcile or adjust the interests of individuals living in society: customs (the tribe), command (the coercive economic planner or dictator), or the market (free and voluntary cooperation). An interesting and easily accessible book on this is John Hicks, A Theory of Economic History (see also my review in Regulation). Both historical experience and economic theory teach that an efficient reconciliation of individual interests—“efficient” meaning that it maximizes the formal opportunities of all individuals—can be accomplished by free markets, but not by the diktats of the central planner and his court of lobbyists and sycophants. We are thus led to discover that “unfairly traded steel” could only make sense in a society where a dictatorial or collectivist political regime imposes on everybody some arbitrary conception of fairness. The alternative is reciprocal individual liberty, of which a manifestation is free trade, internal and external, between individuals or their private organizations. (James Buchanan’s little book Why I, Too, Am Not a Conservative offers a reflection on reciprocity; I reviewed it in Regulation.) ****************************** Chairman Mao visits a homemade blast furnace, 1958 Credit: PC-195a-s-013 (chineseposters.net, Private collection) (0 COMMENTS)

Regular readers here know that myself and my co-bloggers (both present and former) spend a lot of time talking about the problems of central planning.[1]  There are many, many problems with central planning: the Hayek-Lavoie knowledge problem, issues revealed by public choice analysis, and so on.  In this post, I want to highlight a big one: creativity. Human beings are insanely creative.  Seemingly unique in the world, we are abstract thinkers and often find ways around what appear at first to be insurmountable problems.  Every day, new inventions, innovations, music, and art come about to solve some problem and/or make our lives better.  When we want something, we can make it happen.  Indeed, Ball State University economics professor James McClure places that creativity as the core of economics: The economic problem of society is rapid adaptation, in the face of resource scarcity, to changes in the particular circumstances of time and place. This creativity is a problem for central planners.  Central planners tend to think of the economy not as a complex system of relationships among people, but as a system that’s more like water flowing through a pipe.  If you don’t like the course, simply pull some lever and change it.[2]  What central planners fail to appreciate is that the economy is not like water in a pipe, but rather the result of billions of people pursuing their goals, given their constraints and alternatives.  These goals are chosen by the people themselves.  And when barriers toward those goals are thrown up, say by some central planner who wants the people’s goals to be different, people find creative ways around those barriers.  Those creations may be illegal in nature (e.g., smuggling) or may become a whole new way of doing things. Of course, not all forms of creativity are equal.  People may get creative in gaming the system to get what they want out of it at the expense of others (e.g., rent-seeking). Regardless, creativity poses a problem for central planners when their plans do not come to fruition.  The central planner must then devote more resources to their plan to check these new behaviors not aligned with the plan.  And again, more resources are then consumed by people to be creative in getting around these new barriers.  Consequently, we have a sort of arms race.  More and more resources are spent, but there is no relative gain by either side.  Even assuming the central planner’s plans aren’t frustrated, the resource cost is significantly higher than expected.  Consequently, other plans by the planner are necessarily frustrated.  Even if the central planner didn’t suffer from the knowledge problem or face public choice constraints and had perfect information about outcomes that could be improved, this arms race tells us that it is quite unlikely that central planning can improve upon market outcomes. Long story short, central planning gets frustrated because people are people.   —— [1] Note: Historically, “central planning” has referred to total government control of the economy.  I am using the term more broadly to include all sorts of government interventions and schemes including (but not limited to): industrial planning, wartime planning, social-justice interventions like income inequality measures, “leveling the playing field,” and so on. [2] This metaphor is deliberate.  Economists borrow heavily from fluid dynamics. (0 COMMENTS)

Some 500 economists work for the Federal Reserve System. This is probably more than the entire dismal science faculty at all eight Ivy League Universities, perhaps with Chicago and Berkeley thrown in for good measure. If the Fed were disbanded, they would all have to seek other work, perhaps leading to prosperity. Under the present institutional arrangements, they undermine the economy. On the other hand, this is an empirical issue. Presumably, many of them would obtain faculty positions, on the basis of which they would be inculcating their charges with the same voodoo economics with which they ruin the economy. Why? How so? That is because one of their present roles is to determine, among other things, the interest rate. Thus, this job of theirs is “beneath contempt.” From whence did this phrase spring? It comes to us courtesy of an economist who has been accurately characterized as a “national treasure.” Here is the quote from Thomas Sowell (from Sowell’s textbook, Basic Economics) to which he refers: “Another reason for public support for protectionism is that many economists do not bother to answer either the special interests or those who oppose free trade for ideological reasons. The arguments of both have essentially been refuted centuries ago and are now regarded by the economics profession as beneath contempt.” Well, so it is for price controls, and, as interest rates are a price, just like that of imports, so too is controlling them via the Fed’s central planning “beneath contempt.” Moreover, if there is anything we have learned both from theory and practice, it is that price controls create economic disarray. Have we learned nothing from the almost perfectly controlled experiments of East and West Germany, North and South Korea, a true rarity not only in economics, but in all of social science? Presumably not, otherwise the Fed would never have lasted as long as it so far has. Central planning never works and never will work. Prices, market prices, free market prices, are the eyes and ears of the economy. Without them, we would not know whether it is economically better to use platinum or steel for railroad lines. The former can do a better job. But its market price is so high we may do no such thing, if we want to allocated resources productively. Its relatively high price indicated that this metal should be used for more important purposes elsewhere in the economy, and lower-priced steel for this use. Ditto for interest rate prices. Should we build a tunnel through the solid rock mountain, or a far longer road all around it? The former will cost far more right now and will take many years to come online, maybe decades. But it will save money for centuries, most likely in terms of reduced travel outlays. The circular road will cost less and will be available for motorists much sooner. It will last longer, and be in less need of repair, given that the danger of cave-ins will be comparatively minimal. If the interest rate is high, we will veer in the direction of the road. We will heavily discount the roundabout process of the tunnel. If low, the shortcut in terms of vehicle mileage will be more attractive. But this assumes a market rate of interest, not one concocted out of whole cloth by a bunch of central planners scattered all around the country, who pay no price, none at all, for being wrong. We have not yet said anything about the second job of the Fed: maintaining the value of the dollar. It has lost some 97% of its value from the time of its inception in 1913 to the present time. On that ground alone, it ought to be disbanded, forthwith, and salt sowed where it once stood.   Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans. (0 COMMENTS)

Occasionally, I use a grocery delivery service—not always, and not for every item. In a vacuum, one might think that having someone else take the time to gather grocery items for me and bring those items to my house seems clearly advantageous. So why don’t I always use this service? A few ideas from economics help explain why. For one, it’s not always the case that the time spent grocery shopping is purely a cost. While I know this isn’t true of everyone, I actually rather enjoy grocery shopping. Walking up and down the aisles of the store, chatting with my kids—that’s something I look forward to doing every weekend. Having all my groceries delivered would mean losing those outings, and I don’t particularly want that. Whether the time and effort of going out shopping is a cost or a benefit is subjective—it depends on the person doing it. Given my preferences, why do I ever use grocery delivery? Most of my grocery and general household supply shopping is done with a weekend Target run. However, there is a handful of grocery items I like that aren’t typically carried by Target but are usually available from Whole Foods. The nearest Whole Foods locations aren’t particularly convenient to where I live, and especially not relative to the Target where my weekly shopping runs occur. Tacking on an additional stop at Whole Foods (or finding some other time to insert a Whole Foods run) for a relatively small selection of items is too high a transaction cost in terms of time and effort. There is a delivery fee, but that is well worth saving the time and effort of a secondary stop. I’ve found that most produce items from Whole Foods are better than they are from Target. Despite this, I usually get my produce from Target rather than including them in my Whole Foods delivery. If I’m going to place a Whole Foods order anyway, and if produce from Whole Foods is generally better in my estimation, why don’t I just get those items from the grocery delivery service? There are two reasons: information asymmetries, and a principal-agent problem. Information asymmetries prevent potential gains from trade from being made when both parties don’t have the same information. For example, when I buy bananas, I try to get a small bunch of bananas that are yellow (to be eaten over the next few days) and a small bunch that are green (which will be ready to eat by the time the first bunch is done). A store employee picking out items for me doesn’t have access to that information, so the bananas I’d get wouldn’t line up with what I actually want. The same is true for an item like avocados. Another example: when I’m in the store, I try to get a sense of how far away the avocados are from ripening before I buy them based on how firm they are. The window between an avocado that’s a bit too underripe and one that’s overripe to the point of being a disgusting mess is fairly narrow (by my estimate, the window for an avocado to be “just right” lasts approximately thirty-seven seconds). Someone at the store doesn’t know that I’m buying an avocado for a recipe I intend to try out on Thursday, so they don’t know which kind of avocado would be best for me to get. When the store shopper doesn’t know my preferences, I don’t get what I want for the price I pay, and potential economic value isn’t realized. The principal-agent problem occurs when I have someone ostensibly working on my behalf, but their incentives don’t align with what would best serve my interests. When I’m getting, say, raspberries from the store, I often take a bit of extra time to sort through the selection available. Often, there will be at least some cases of berries where the fruit inside has gotten squished, or some of the berries are already starting to look a bit wilted. For me, it’s worth it to take the extra time to sort through the available selection and find a batch that looks good. But someone packing groceries for a home delivery order has different incentives. Their goal is to pack up this order as quickly as possible and move on to the next one. They don’t have any particular incentive to stop and spend extra time sorting through the produce to find the best-looking available batch. None of what I’ve just described is especially cutting edge—but that’s part of the point. As I’ve argued before, many ideas in economics can be easily recognized in how we make choices in everyday life. Economics is rooted in human behavior. The lessons and ideas of economics are like the water in which fish swim—it surrounds us so thoroughly that it becomes almost invisible from its own ubiquity. (0 COMMENTS)

Why are some people cruel? Why are some governments cruel? Do cruel governments require cruel citizens? I take cruelty to refer to Merriam-Webster’s definition of cruel as “disposed to inflict pain or suffering: devoid of humane feeling.” An individual is cruel who has a taste for cruelty, i.e. cruelty is an argument of his utility function. He will satisfy this preference when he can do it at a price that he considers acceptable. This is the standard price theory model, which remains useful despite all its critiques: the individual maximizes his utility given his preferences and the constraints he faces. Why are some governments cruel, whether we are speaking of the Russian government intentionally attacking Ukrainian civilians and torturing prisoners of war, or the American government inflicting pain or distress on immigrants? (Of course, there is a difference in degree between these two cases of cruelty.) It is a matter of incentives: if those who disobey government decrees risk not only punishments but cruel punishments, disobedience is reduced. In short, governments use cruelty when it contributes to the realization of their policies, and no constitutional or other binding constraints exist. A government (or “the state”) is not a supernatural being or a biological organism, but an organization of individuals who determine policies or enforce them. Cruelty in public policy depends on the costs and benefits of the individual rulers, their agents, and their supporters (at least their important supporters). A cruel government is made of, or supported by, cruel individuals, but the process of public choice may increase the extent of cruelty. For one thing, the cruelty of a government will increase through selection. Individuals with a taste for cruelty will self-select for government roles: politicians, prosecutors, security personnel, torturers, etc. A government known for its cruelty will attract more cruel rulers and servants—which is related to Friedrich Hayek fear of the rule of the worst (see his 1944 book The Road to Selfdom; see also my review of this book). Cruelty will likely increase as political rulers discover that hatred can be used to further their ambitions. Scapegoats, preferably unarmed and defenseless, are useful for a politician to both explain away his failures and enflame his supporters. Propaganda can present hated or to-be-hated minorities as “the worst of the worst” or “animals.” The more the rule of law has been compromised (at the limit, up to the aphorism attributed to Lavrentiy Beria, Stalin’s secret police chief, “Show me the man and I’ll find you the crime”), the more we would expect cruelty to follow hatred. Economist Edward Glaezer modeled the supply of hatred by politicians and the demand for it by voters. In his model, the supply of hatred depends on the existence of minority groups or “out-groups” that can be turned into scapegoats (the Blacks not so long ago, the immigrants today) and thus help “entrepreneurs of hate” in political competition. Other things being equal (including the individuals’ taste for cruelty), the demand for hatred is favored by “citizens’ willingness to accept false hate-creating stories [as] determined by the costs and returns to acquiring information” (Edward L. Glaezer, “The Political Economy of Hatred,” Quarterly Journal of Economics, Vol. 120, No. 1 [February 2005], pp. 45-86). Since the typical citizen’s probability of changing the result of an election is infinitesimally small and the cost of political information remains very high—despite or because of social media—the voter will remain rationally ignorant and tend to hate the people his political tribe hates. Constitutions, norms (morals), religion (or at least certain forms of religion), trade, and other soft habits of civilization (les mœurs douces) can act as constraints to cruelty. They decrease the demand for it or limit its supply. In his book The Problem of Political Authority (see my review), philosopher Michael Huemer observes that, over a certain period of time, mores have become softer, more respectful of individual dignity, and less cruel. Political authorities may have helped but, past a certain point, the constraints on them can collapse, perhaps suddenly like an avalanche. Totalitarian regimes illustrate this. The North Korean or Russian states are not less cruel than political authorities in the High Middle Ages. Past a certain point, the state may contribute not to civilizing mores but, on the contrary, to fueling cruelty. Cruel governments don’t require cruel people or at least not a majority of them, and perhaps only a small faction. Many factors explain that. First, a government can contribute to making its subjects cruel through political hatred, propaganda, and selection (pulling the cruel to the top), as suggested above. Second, it appears easy to be cruel only toward foreigners or domestic minorities whose support the government doesn’t need. Professor Rudolph Rummel of the University of Hawaii estimated that, during the 20th century, states killed millions, if not hundreds of millions, of their own citizens, excluding interstate wars. Third, let’s not forget the Condorcet paradox: in a democratic society, an electoral majority can very well “prefer” the rule of law to despotism, despotism to poverty, poverty to cruel government, but then cruel government to the rule of law—as revealed if and when the latter alternative is the one put to the vote. Finally, note that political cruelty is a boomerang. Nothing guarantees the demanders of cruelty that the cruel enforcers of their demand will always only target others. The brutes live among the people. The Roman legions are stationed in Rome. ****************************** The Roman legions in Rome, as viewed by ChatGPT (0 COMMENTS)