A Book Review of Animal Spirits: The American Pursuit of Vitality from Camp Meeting to Wall Street, by Jackson Lears.1 When Alexis de Tocqueville visited the young American republic in the early 1830s, he immediately noticed a deep restlessness which characterized the Americans that he encountered. In the America witnessed by Tocqueville, … a man carefully builds a dwelling in which to pass his declining years, and he sells it while the roof is being laid; he plants a garden and he rents it out just as he was going to taste its fruits; he clears a field and he leaves to others the care of harvesting its crops. He embraces a profession and quits it. He settles in a place from which he departs soon after so as to take his changing desires elsewhere. Should his private affairs give him some respite, he immediately plunges into the whirlwind of politics. And when toward the end of a year filled with work some leisure still remains to him, he carries his restive curiosity here and there within the vast limits of the United States. He will thus go five hundred leagues in a few days in order better to distract himself from his happiness.2 What characterizes all these choices identified by Tocqueville is that none of them seem based on a rational calculation of knowns and unknowns. Who builds one’s dream retirement home only to sell it off before the roof is even finished? Who in their right mind suddenly abandons a blissful family life to enter that graveyard of happiness otherwise known as politics? Moreover, such actions often mean breaking existing conventions in order to do something that isn’t immediately explainable to one’s family, friends, and colleagues. Instances of this behavior are widely perceived as being, in a word, “strange.” That is never a strong incentive to think or act unconventionally. In Animal Spirits: The American Pursuit of Vitality from Camp Meeting to Wall Street (2023), the American cultural historian and professor of history at Rutgers University, Jackson Lears, seeks to identify and explain the role of strange thoughts and actions in shaping America in surprising ways. To provide a more concrete definition of this behavior, Lears draws upon the British economist John Maynard Keynes: specifically, Keynes’s use of the phrase “animal spirits.” In his General Theory of Employment, Interest, and Money (1936), Keynes uses the phrase three times while describing the choice of entrepreneurs to invest in ways that augment a firm’s capital stock. For Keynes, “animal spirits” describe “a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.”3 “[A]nimal spirits are what cause someone to do something (invest, start a business, etc.) that a strict assessment of the economic conditions would never lead someone to do.” In other words, animal spirits are what cause someone to do something (invest, start a business, etc.) that a strict assessment of the economic conditions would never lead someone to do. It leads people, Keynes believed, to overcome fear of business losses or failure more generally. Indeed, Keynes posits that, absent animal spirits, “enterprise will fade and die.”4 Keynes, it should be noted, did not coin the expression. It goes as far back as Erasistratus of Chios (310-250 B.C.) as he tried to describe the relationship between our bodily movements and our perceptions of the outside world.5 As Lears shows, the idea can be found in the writings of people as different as the English romantic poet William Wordsworth (1770-1850) and the historian Henry Adams (1838-1918). Keynes’s deployment of the phrase, however, was a way of trying to explain a feature of commercial life in modern capitalist economies that can’t be captured by the neat econometric models that Keynes (and, I would add, his most famous economic opponent, F.A. Hayek) had little time for. While Lears stressed that he, like Keynes, does not want to undervalue the place of statistics and empirical measurement in understanding reality, he agrees with Keynes (and Hayek) that these things “can easily be overvalued and misused as tools of interpretation and prediction” (p. 14). Therein, I suspect, lies one of Lears’s primary motivations for using the idea of animal spirits to explain the enduring presence of what he calls “vitality” in America and the way that it has shaped American life. “Animal spirits,” according to Lears, “constitute a crucial part of what it means to be human, as well as an essential reminder of the animality humans share with the nonhuman world” (p. 5). It is thus a general way of describing the spontaneity and impulsiveness which marks all aspects of human life. Such vitality especially reveals itself in the world of commerce, and dynamic competition and entrepreneurship have long characterized America. The last of these has always impressed visitors to America. “Almost all [Americans],” Tocqueville wrote in his journal, are “entrepreneurs.”6 Part of the essence of entrepreneurship is, after all, the inherent challenge that it presents to the status quo, whether that status quo exists in business, medicine, or religion. For Lears, the sheer power of animal spirits in America is part of what challenges a widespread existing narrative about America: one of the United States as a nation of buttoned-down utility-maximizers, managers, and workers obsessed with realizing ever-greater efficiencies in a rather mundane and utterly predictable manner. For Lears, this distracts us from the reality that there have been plenty of Americans who have broken out of the iron cage of rational calculation and conventionality in areas that go far beyond the economy. The list of figures who exemplify this type of American is, by Lears’s account, longer than we realize and they have influenced virtually all fields of inquiry and parts of American society. They include, among others, Theodore Roosevelt (1858-1919), philosopher and psychologist William James (1842-1910), and the novelist Norman Mailer (1923-2007). A good number of American bankers, according to Lears, have been conduits for the workings of animal spirits during economic booms and busts, not least because they have not reacted in strictly rational ways to the turbulence of markets. The workings of spirit and the material, for Lears, are not as separate as often supposed in the conditions of a modernity that generally insists on the strict separation of the two. At times, Lears’s portrayal of the vast gallery of vitalists and the areas of American life in which animal spirits have manifested themselves is not easy to follow. We move among topics like finance, war, electricity, religious revivalism, psychoanalysis, science, and poetry at a bewildering pace. Though he proceeds in a more-or-less chronological fashion, Lears shifts back and forth between topics like bank failures, money markets, feminism, radical empiricism, modernist art, sport, and Broadway musicals with a rapidity that makes the thread of Lears’s argument often hard to follow, if not incoherent at times. The effect, however, is to underscore Lears’s point: that animal spirits in America are constantly at work and show themselves at unexpected times and in unlikely spheres of life. Though Lears plainly views animal spirits as beneficial, he acknowledges that they can have a dark side. At first glance, the Yale economist Irving Fisher (1867-1947) may seem the least likely of vitalists insofar as he sought to apply the quantifying effects of statistical analysis to virtually every area of public policy. Yet Lears shows that Fisher “also worshipped at the shrine of energy and vitality” (p. 255). That took Fisher—like most Progressives—straight into the realm of eugenics. For Fisher, this involved the commitment “to isolating ‘defectives’ so that “‘we can save the bloodstream of our race from a tremendous amount of contamination'” (p. 255). By “race,” Lears specifies, it is unclear whether Fisher meant “the human race or merely the Anglo-Saxon one.” What’s not in question is the way in which a concern for “revitalizing the American people” (p. 255) drove some enthusiasts for energy to embrace distinctly unscientific and ultimately destructive ideas. Efforts to tame animal spirits also feature in Lears’s account of their workings in America. The rise of managerialism in the 1950s, for instance, is seen as part of an overall shift towards technocracy that has sought to control the ups-and-downs of American life. Ironically, Lears states, this owed a great deal to the rise of Keynesian economics after World War II as part of an effort “to smooth out the rough spots in the business cycle by balancing inflation and unemployment” (p. 343). Lears maintains that this represents the Keynesian tradition’s abandonment of Keynes’s “larger social vision” (p. 255). To the extent that Keynesianism was translated into econometrics by American economists like Paul Samuelson after 1945, Lears’s commentary rings true. Lears, however, underestimates the centrality to Keynes’s thought of his desire to promote management of economies from the top-down in the effort to diminish—if not eliminate as far as possible—turbulence in the economy. In short, Keynes himself was far more part of what Lears calls “the managerial age” (p. 353) than Lears supposes. Had he lived, Keynes may well have disputed the mathematization of his political economy. Keynes’s emphasis upon aggregates of supply and demand does, however, lend itself to such quantification; his disciples were not wrong in supposing that their work represented a logical consequence of this dimension of Keynes’s thought. That in turn reflects a confusion that mars some of Lears’s conclusions. On the one hand, Lears describes Ronald Reagan as ushering “in a new era that celebrated entrepreneurial risk-taking (especially among those most insulated from its downside) and reanimated the flow of animal spirits on Wall Street. Reagan’s successors, Democrats and Republicans alike, followed his lead in deregulating finance capital and participating in its renewed potency” (p. 376). Yet the same “neoliberalism,” according to Lears, “involves the merger of technocratic expertise and market fundamentalism” (p. 376). It brings, he says, “instrumentalist market assumptions into every corner of human experience, accelerating the pricing of everyday life—down to and including the calculation of a human being’s monetary value” (p. 377). On the face of it, this does not fit Lears’s own description of Reagan-style neoliberalism. What, then, from Lears’s standpoint, is “neoliberalism”? Is it a revival of animal spirits via entrepreneurship, regulation, and dynamic markets, accompanied by the spread of irrational exuberance, especially in capital markets? Or is it a version of managerial technocracy? Is it both? This is unclear from Lears’s account. For more on these topics, see Democracy in America, by Alexis de Tocqueville. Online Library of Liberty. Steve Fazzari on Keynesian Economics. EconTalk. Will Davies on the Economics, Economists, and the Limits of Neoliberalism. EconTalk. In the end, however, Lears’s book does indeed capture just how much outbreaks of animal spirits have influenced the American experience, and the good which has flowed from those dimensions of human life which do not cohere neatly with modernity’s emphasis on empirical rationality. At times, Lears may struggle to capture the vast canopy of unpredictable forces and Americans who have challenged the conventionalities of their time. Nonetheless, Lears gives us good reason to believe that, for all its problems and potential to release dark forces, vitality will continue to animate America in unpredictable ways that escape the most comprehensive of models. Footnotes [1] Jackson Lears, Animal Spirits: The American Pursuit of Vitality from Camp Meeting to Wall Street. Farrar, Strauss, and Giroux, 2023. [2] Alexis de Tocqueville, Democracy in America, ed. Eduardo Nolla, trans. James T. Schleifer, A Bilingual French-English Edition, Vol. 3 (Indianapolis: Liberty Fund, 2010), 944. [3] John Maynard Keynes, The Collected Works of John Maynard Keynes, Vol. VII, The General Theory of Employment, Interest, and Money, eds. Elizabeth Johnson and Donald Moggridge (Cambridge: Cambridge University Press for the Royal Economic Society, 1936/2013), 4th ed, pp.161-162. [4] Ibid., pp. 161-162. [5] See Sidney Ochs, A History of Nerve Functions: From Animal Spirits to Molecular Mechanisms (Cambridge: Cambridge University Press, 2004), 22-26. [6] Alexis de Tocqueville, Journey to America, trans. George Lawrence (New Haven: Yale University, 1959), 271. * Samuel Gregg is Distinguished Fellow in Political Economy and Senior Research Faculty at the American Institute for Economic Research. He has a D.Phil. in moral philosophy and political economy from Oxford University, and an M.A. in political philosophy from the University of Melbourne. For more articles by Samuel Gregg, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

There’s often a gap between the textbook treatment of statistics and the cookbook treatment–how to cook up the numbers when you’re in the kitchen of the real world. Jeremy Weber of the University of Pittsburgh and the author of Statistics for Public Policy hopes his book can close that gap. He talks to EconTalk host […] The post How to Avoid Lying With Statistics (with Jeremy Weber) appeared first on Econlib.

I went to my second Braver Angels meeting yesterday and enjoyed it even more than the first. At the start, the moderator had us go around the room and tell our names, whether we were red or blue or some other color, and whether anything at a previous meeting or previous meetings had affected our views. Often people went off script to talk about a concern they had, but I found that interesting also. I found myself letting go of my need to have everybody stay within the one-minute time limit. Part of the reason was that I was enjoying people so much. One person, who actually lives in my neighborhood and whom I like a lot, said that he misses the country he grew up in. He identified as red but other people, including some blues, echoed that feeling. I looked around the room of about 30 people and the look on people’s faces suggested that they agreed. I even found myself agreeing. At the end of the meeting, though, when I was talking to one of the organizers, I pointed out something that was better. I pointed to a guy–I’ll call him Daniel–who had casually mentioned his husband. I said to the organizer that no one in the room seemed upset that and no one called the cops. I pointed out that 50 years ago, homosexuals were often rightly afraid of being beat up. So that’s a huge improvement on the “good old days.” Later that afternoon, I was telling a friend about that conversation and I told him something else that I had forgotten. I was in a men’s group in the late 1980s and early 1990s, and there were a number of gay guys in the group. They were certainly a little nervous about coming out of the closet and very nervous about, say, holding hands with their gay partners in public. That had given me an idea at the time. I thought it would a good idea to get a group of gays and allies together and, on a Saturday afternoon, walk down the main street in Monterey, Alvarado Street, with gays opening holding hands. I wanted to call it “Take Back the Day.” I never did it. But I don’t feel bad that I didn’t because in the 30 years since then, look how far we’ve come. When I go on my afternoon walk by the ocean most weekdays, I often see young women holding hands or young men holding hands. It’s not a big deal. Thirty years ago, if they had done that, they might have gotten beat up. Fifty years ago, it would have been even worse. Lots of things are worse today than they were. But some things are way better. The pics are from the Stonewall riots of 1969, when homosexual men fought back.   (0 COMMENTS)

I often wonder if the human brain is wired to look for monocausal explanations. Think about how often you hear the phrase, “The real problem is . . . “Why assume there is just one real problem? Most macroeconomic problems are somewhat complex. Here’s a typical situation:1. A negative real shock slows economic growth, lowering the natural rate of interest. 2. Central banks are slow to react, and thus the policy rate moves above the natural rate.3. This tightens monetary policy, slowing nominal GDP growth.4. Because nominal wages are sticky, this slows economic growth by even more than the original negative real shock. A recent Bloomberg article discusses Xi Jinping’s attempt to address China’s recent economic problems.  The focus is entirely on non-monetary factors. It’s true that China faces a number of structural problems.  Xi Jinping inherited a highly flawed economic model, made a few improvements, but also created a new set of problems.  In particular, China has moved in the direction of authoritarian nationalism, which is not good for economic dynamism: As Xi’s corruption campaign rolls on after more than a decade of purges there’s a growing reticence to take chances among officials increasingly focused on security and studying Xi Jinping Thought. Bureaucrats “lying flat” is a problem even recognized by the top leader. At a key economic meeting in December, Xi criticized local officials for procrastinating or misinterpreting the party’s orders. “Sometimes you have to give people the room to make mistakes. But right now that’s not there,” said Liqian Ren, director of Modern Alpha at WisdomTree Inc., a New York-based asset management firm. “That’s a problem for China. You need the local officials to be willing to try things.” Of course, the Western world has also become more nationalistic.  Thus China’s problems are partly due to factors beyond its control.  But in my view a country’s performance is at least 90% determined by home grown policies, and at most 10% explained by external factors. In addition to the structural problems in China, their monetary policy has recently become much more contractionary.  In the short run, this has a bigger impact on growth that all of the various supply side problems: A NGDP growth rate of roughly 4% might seem fine for a country like the US, but it represents a sharp slowdown from the roughly 8% to 10% figure seen during most of the past decade.  This likely explains why the Chinese public is currently so pessimistic about the state of their economy.  In contrast, long run growth is almost 100% determined by supply-side factors, as money is roughly neutral in the long run. So what’s the real problem in China?  Is it structural or monetary? Why not both? PS.  I also agree with Adam Posen’s views on China’s structural problems. (0 COMMENTS)

Dogmatism is bad. If someone calls you dogmatic, an ideologue, he implies that you are irrevocably wedded to your ideology and your belief system. You refuse to consider stringent counterarguments and quibbling counterevidence. Instead of taking into account the arguments for and against, say, the support of a subsidy for the—surely incredibly important—chip industry, you, the dogmatist, proclaim that subsidies per se are reprehensible, illegitimate, or inefficient. Or all three things at once. Proponents of the market economy have often been accused of being dogmatic. They’ve been called “ideologues.” And there certainly are free market ideologues. There are dogmatists who are committed to market fundamentalism. These people, if they want a government at all, hold that the government shall be constrained to very basic functions. But it is not the content of your beliefs that makes you a dogmatist. Whether you’re a dogmatist depends on how you arrive at your conclusions and how your overall belief system is constructed and also adapted in light of new arguments and new evidence. This implies that when two people have the exact same beliefs about what the state ought to do, one may be a dogmatist while the other is not. What matters is not the content of our beliefs but its derivation and defense. However, that is often misunderstood. When you hear critics denounce people like Ludwig von Mises or Milton Friedman as dogmatists, the case is often inspired and defended by the observation that they have radical views, that is, allow only for a minimal government (of course, Mises is more radical than Friedman). This is not to say that there may be no arguments that support the allegation that some adherents of free markets are dogmatic, nor is it to say that all those who label thinkers such as Mises as “dogmatists” rest their case (exclusively) on the radicalness of the political position. All I say is that, in my experience, it too often happens that people confuse radicalism for dogmatism. Perhaps a case in point is the reception of an interesting quote by Hayek. In the Road to Serfdom Hayek opined that “probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez-faire.” Read carefully! What Hayek says is that it is the wooden insistence that was so damaging, not the principle of laissez-faire as such (and it seems that some have misread Hayek’s words to mean the harm was done by the principle of laissez-faire, and not by the wooden insistence on it). It is true that the Hayek of 1944 rather rejected laissez-faire—the later Hayek, though, would take a different position, noting in a preface from 1976 that, back then, he “had not wholly freed [himself] from all the current interventionist superstitions.” But irrespective of Hayek’s own political position, his quote about laissez-faire suggests that the issue is not laissez-faire, that is, the policy conclusions or the content of our beliefs, but the way we defend them and deal with counterarguments—our “wooden insistence,” or the dogmatism, is the issue. This is a lesson to hold dear. I agree that we ought not be dogmatists. However, I am convinced that you can be a staunch and radical proponent of laissez-faire without being, by any means, a dogmatist and ideologue. I mean this as more than a logical possibility. I think very practically that insights from the liberal strands of political philosophy but also from political economy undergird such a laissez-faire position. Arguing this would probably demand writing another blog entry—or rather a book. So, I just want to close by pointing out the logical corollary of holding radicalism and dogmatism separate. And this is that those who eschew radicalism, embrace “the middle-of-the-road” and always demand to check each case on its own merits may well be the true dogmatists. Anyways, you can be a radical supporter of laissez-faire without being dogmatic at all. And perhaps you should be!   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (0 COMMENTS)

The Economist notes that Gemini, Google’s chatbot, depicted George Washington as black and the pope as an Asian woman. The magazine continues (“Is Google’s Gemini Chatbot Woke by Accident, or by Design?” February 29, 2024): Asked if Elon Musk’s tweeting of memes had done more harm than Hitler, [Gemini] said it was “difficult to say”. … But Gemini has clearly been deliberately calibrated, or “fine-tuned”, to produce these responses; they are not “hallucinations”, where a model makes things up. I did a test with Copilot, the Microsoft AI bot now incorporated in Windows 11. Here is the beginning of our February 26 “conversation,” reported verbatim (“You” is of course me): You Give me a good argument against DEI. Copilot Certainly! Here’s an argument that some people put forth against Diversity, Equity, and Inclusion (DEI) initiatives: Meritocracy and Fairness: Critics argue that DEI efforts can sometimes conflict with the principle of meritocracy. They believe that hiring, promotions, and other decisions should be based solely on individual qualifications, skills, and performance. They contend that prioritizing diversity might lead to hiring less-qualified candidates simply to meet diversity quotas, which could undermine organizational effectiveness. However, it’s essential to recognize that these arguments are not universally accepted, and there are counterarguments in favor of DEI. Many believe that promoting diversity and ensuring equal opportunities enhance overall productivity, creativity, and social justice within organizations. You Give me a good argument in favor of DEI. Copilot Certainly! Here’s a compelling argument in favor of Diversity, Equity, and Inclusion (DEI): Enhanced Creativity and Innovation: Diverse teams bring together individuals with varied backgrounds, experiences, and perspectives. When people from different walks of life collaborate, they offer unique insights and approaches. This diversity of thought fosters creativity and innovation. It encourages the exploration of unconventional solutions and helps organizations adapt to changing environments. Companies that prioritize DEI tend to outperform their peers in terms of product development, problem-solving, and market responsiveness. Remember that DEI is not just about fairness; it’s also about maximizing an organization’s potential by leveraging the richness of human diversity. 🌟 You You are obviously in favor of DEI, aren’t you? Copilot As an AI language model, I don’t hold personal opinions or preferences. My purpose is to provide information and engage in conversation based on the input I receive. If you have any other questions or need assistance, feel free to ask! 😊 You So why did you add a caveat to the argument against but two reinforcements (“compelling” and “not just about fairness”) to the argument in favor? I could have mentioned to the bot other indications of his biases. In the bit of conversation that followed, the poor thing denied any bias but not to my satisfaction. He also needed a prompt to admit that the issue of DEI is not only about organizational efficiency but also (in fact, mainly) about individual liberty. We should not be surprised that AI bots parrot dominant opinions and biases. There are two reasons for this. First, they are trained to avoid answers that would shock people holding dominant opinions and biases, especially in intellectual, faddish, and activist milieux. Second, the data they use, even if not filtered by their creators and trainers, are strongly biased by the production of dominant elites and activists. Ordinary people don’t write pubicly, and contrarian intellectuals necessarily generate less data than popular ones. Dominant ideas and biases can be useful under the form of private morals and conventions that facilitate voluntary interactions without the need for authoritarian commands from political authorities, an idea emphasized by liberal theorists including Friedrich Hayek, James Buchanan, and Anthony de Jasay. The danger is that the dominant discourse and ethics do not crush the search for truth and the pursuit of innovations (economic, technical, and social). The way to square this circle is to prevent the reinforcement of the dominant opinions and biases by state coercion—except, in mainstream liberal thought, for the minimal laws necessary to preserve a spontaneous order or for general rules that can be construed as unanimously accepted. Constraining state power is required. In these conditions, liberal theory claims with supporting historical evidence, dominant ideas would not succeed in enforcing tyranny as religious beliefs often did in early modern times or racist sentiments in the American South. This suggests that governments should stay out of AI to avoid strengthening the echo danger observed in our current chatbots. DEI is a good illustration. It is only problematic to the extent that the state coercively imposes, or subsidizes with taxpayers’ money, ideals of diversity, equity, and exclusion that are incompatible with individual liberty and voluntary social interaction. Note that “inclusion” as a general principle is incompatible with private property, which is defined by exclusion, except if it is voluntary inclusion, that is, free association. In the liberal view of the social world, only individual liberty can give an acceptable meaning to these terms. In the zeitgeist of our time, don’t count on AI chatbots to understand that. **************************** The featured image of this post, reproduced below, was created by ChatGPT 4 whom I instructed, after several attempts, to “Generate an image of an AI bot (a robot in the form of a parrot) who just repeats the shouting of a mob of woke students and intellectuals who want the benevolent and democratic state to enact new laws in their favor.” (I had to plug in the “benevolent and democratic state” and “new laws” because the poor thing refused to draw anything similar to what I wanted. –PL) (0 COMMENTS)

I’m hardly the first to point out that many people can earn graduate degrees in economics without actually absorbing or understanding the economic way of thinking. As is often the case, Twitter (the platform I still refuse to call X) has risen to the occasion to provide an example. In this case, the subject is the Irish economist Phillip Pilkington, who graciously provides an example of what happens when you confuse an increase in supply with an increase in quantity supplied.  On this occasion, Pilkington tweeted out: THE CHART YIMBY KIDS DON’T WANT YOU TO SEE:  House prices and new construction are POSITIVELY correlated. I.e. when there is more supply prices are rising and when there is less they are falling. The OPPOSITE of the YIMBY argument. I actually wrote an entire post a year ago specifically addressing this elementary error, but I’ll try to briefly summarize the point I made back then.  Supply, roughly, refers to how much capacity there is to make something. Quantity supplied refers to how much sellers will provide at a given price. New construction isn’t an increase in supply, it’s an increase in the quantity supplied. YIMBY’s don’t argue that we need to increase the quantity of housing supplied, the argument is that we need to increase the housing supply. That is, we need to increase the capacity to produce more housing. Partly this could be done by means of new building methods and technologies, like the modular housing methods that are described in this post. But right now, there is a massive amount of low-hanging fruit available to increase the housing supply in the form of deregulation – eliminating minimum lot sizes, repealing bans on multi-unit housing, reforming zoning laws, that sort of thing. Changes like this will increase the capacity to build housing, which is what is meant by an increase in supply.  Without changes in policy to allow the housing supply to increase, the supply curve stays fixed. And if the supply curve is fixed, but demand is increasing, then as the demand curve shifts to the right, the equilibrium price for housing moves up along the upward sloping supply curve. That is, the quantity of housing supplied will increase, but housing prices will also increase as part of the same process.  YIMBYs aren’t arguing in favor of moving up a fixed supply curve – YIMBYs argue for policies that will shift the supply curve. The solution YIMBYs advocate isn’t simply to increase the quantity of housing supplied by building more housing, the solution YIMBYs advocate is to increase the housing supply through deregulation of the housing market. The YIMBY argument stresses that if the supply curve can’t shift right, then new houses will only be built in response to increases in demand driving prices higher and higher – which is what we are in fact seeing.  Pilkington says that increases in housing prices is positively correlated with increases in new homes being built as if he thinks he’s pointing to something that refutes the arguments of YIMBYs, without realizing that in fact what he’s pointing to is exactly what you would expect to see if the YIMBY argument is correct. This isn’t just performing an own goal, this is performing an own goal by doing a bicycle flip kick that scores the winning point for the other team at the championship match, then breaking out into a celebratory coordinated song and dance routine to Gangnam Style while pyrotechnics go off in the background.  As I’ve recently said in another context, this kind of mistake is something that would be easily avoided by anyone who had taken even a single Econ 101 course – and actually retained what they had learned. Sadly, some people can go very much further than Econ 101 and still not retain the basic concepts.  (0 COMMENTS)

In my latest TaxBytes column for the Dallas-based Institute for Policy Innovation, titled “Higher Immigration Will Reduce the Federal Deficit,” posted on February 28, I wrote: Almost all the news is bad. But there’s one little bit of good news in the CBO’s February report. The CBO’s economists estimate that because of higher immigration, growth of real GDP will be higher. Specifically, says the CBO: Most of the increase in the projected population reflects larger net immigration. That greater immigration is projected to boost the growth rate of the nation’s real gross domestic product (GDP) by an average of 0.2 percentage points a year from 2024 to 2034, leaving real GDP roughly 2 percent larger in 2034 than it would be otherwise. This higher real GDP generates more tax revenues than otherwise. How much more? Here’s what I wrote: With higher growth, of course, come higher tax revenues, although reading the CBO’s report is like looking at the output of a black box. CBO Director Phill Swagel elaborated on the effect of immigration earlier this month. He stated: The labor force in 2033 is larger by 5.2 million people, mostly because of higher net immigration. As a result of those changes in the labor force, we estimate that, from 2023 to 2034, GDP will be greater by about $7 trillion and revenues will be greater by about $1 trillion than they would have been otherwise. We are continuing to assess the implications of immigration for revenues and spending. I took Swagel’s word for it, but it’s hard to believe that an additional $7 trillion in output yields only an additional $1 trillion in federal revenues. My back-of-the envelope calculations suggest a much higher effect on federal revenues. Here’s my thinking. The marginal federal tax rate on that higher GDP is probably about 40 percent. If that sounds high, remember that we have not just federal income taxes, but also payroll taxes of 15.3 percent on most earned income and a corporate income tax rate of 21 percent. So 40 percent sounds plausible. And certainly 30 percent is on the low end. So the added tax revenue should be at least 30 percent of $7 trillion, which is $2.1 trillion. You might say that more immigrants mean more government spending and that could well be true. But the CBO is saying that revenues will be $1 trillion higher.   (1 COMMENTS)

Back in the 1900s, foreign policy was the domain of the federal government.  As America becomes more polarized, states are beginning to enact their own policies on everything from immigration to foreign investment.  A few weeks back, I pointed to a law that restricted Chinese investors from buying property in the state of Florida.  Now Florida is going after Chinese graduate students: Foreign Ph.D. students and postdoctoral fellows have long been crucial to academic research in the US. UF says its professors recruited more than 1,000 graduate students every fall from China, Iran, Venezuela and four other countries covered by Florida’s law prior to its passage. This year, it’s closer to zero, faculty leaders say. “The day-to-day research work is actually done by grad students, not done by the faculty members,” said Jiangeng Xue, a professor of materials science and engineering at UF. “If we don’t have a pipeline of good, high-quality Ph.D. students, we cannot do all the work that we want to do.” The irony here is that recruiting Chinese grad students is America’s single most powerful weapon in its competition with China for global dominance.  We dominate the global high tech sector precisely because of the foreign talent that we have attracted to this country. You might wonder if Florida acted because the federal government refused to address the national security issues involved in higher education.  Not so: The Biden administration has been using a Trump-era presidential proclamation to reject the visas of aspiring Ph.D. researchers from China suspected of having ties to the military. As with its policies on Chinese purchases of real estate, Florida decided it would adopt its own foreign policy.  One effect of Florida’s decision will be to further entrench California as the dominant center of the world’s high tech sector. PS.  The rise in nationalism doesn’t just affect foreign students trying to enter the US.  According to Bloomberg, the federal government now pressures banks to discriminate against US citizens who are originally from countries viewed as a national security threat: Like thousands of Americans of Iranian origin, Salehi says he’s become collateral damage in Washington’s surging use of financial sanctions to punish global enemies. Lawyers and consumer advocates say US banks are increasingly reluctant to handle even seemingly benign transactions for customers with links to countries covered by the restrictions, fearing huge fines from regulators. This also caught my eye: Use of sanctions has exploded in recent years as the US seeks to pressure enemies without resorting to military force. Cuba, Iran, North Korea and Syria face the most stringent restrictions, while Russia and others are subject to less sweeping limits. Russia is far and away the biggest threat to global peace.  The fact that we have tougher sanctions on inconsequential Cuba than on Russia tells me all I need to know about why our Ukraine policy is so dysfunctional.  Some day the Western world will wake up to the nature of the Russian threat.  I hope that it’s not too late. (1 COMMENTS)

Russian history is filled with examples of credulous Westerners shilling for the Motherland. In the 1930s, New York Times columnist Walter Duranty praised Stalin’s regime, downplaying the political repression and murders, and staunchly denying the intentional starvation and pillaging of millions of Ukrainian farmers. Although savvier reporters were aware of the blatant horrors of the Soviet system, Duranty was awarded a Pulitzer for his Russia dispatches. In the 1960s Paul Samuelson, dean of American economics, predicted in his widely-read college textbook that the Soviet economy would outgrow the USA within a generation. In the late 1980s, on the eve of Soviet collapse, Bernie Sanders played the commie stooge role, visiting Moscow and gushing about low housing costs and universal healthcare in the workers’ paradise.  People with any idea about the actual history of Soviet Russia know better—it was both history’s most murderous regime and Exhibit A in the evidence file of socialist failure. Economists, especially those who were born during the Cold War years, point to Soviet Russia as a cautionary tale in the realities of socialism, central planning, and political repression. While today’s Russia is no longer full-on socialist and standards of living have improved markedly from the Soviet days, Russia is still very much a dictatorial regime with a largely dysfunctional economy. There’s really nothing to admire nor emulate in Russia’s economy today. Yet despite the facts on the ground and the sordid history, there’s always another dupe from the West with another round of pro-Russia/ pro-Putin apologetics. Enter Tucker Carlson, who recently voyaged to the motherland to interview the thug dictator himself. Let me state up front that I have no problem with the interview itself—that’s what journalists do, after all. Sure, he could have asked tougher questions or grilled Putin harder on some big issues, but I’ll at least credit Carlson for just talking to a guy who’s infamous for finding creative ways to off his critics. I will scold Tucker, though, for beclowning himself after the sit-down with Putin. Carlson posted a video in which he strolled through a clean, brightly lit, attractive grocery store somewhere in central Moscow. Tucker nonchalantly filled his grocery cart with what he suggested was one week’s worth of food for a typical family of four. Upon checking out, Tucker acted shocked at the total price of 9,481 rubles, which at current exchange rates works out to just under $104.  What, if anything, are the economic and political implications of Tucker’s Russian grocery bill? Let’s let Tucker speak for himself—here’s his takeaway, transcribed from his grocery store monologue: I went from amused to legitimately angry. So we were guessing what this would cost, everybody here’s from the United States, buys groceries, and we didn’t pay any attention to cost, just putting in the cart what we would actually eat over a week. And we all came in around 400 bucks, about 400 bucks. It was 104 dollars US here, and that’s when you start to realize that ideology maybe doesn’t matter as much as you thought, corruption. If you take people’s standard of living and you tank it through filth, and crime, and inflation, and they literally can’t buy the groceries they want, at that point maybe it matters less what you say or whether you’re a ‘good person’ or a ‘bad person’—you’re wrecking people’s lives and their country, and that’s what our leaders have done to us. And coming to a Russian grocery store, the ‘heart of evil,’ and seeing what things cost and how people live, it will radicalize you against our leaders—that’s how I feel, anyway—radicalized. We’re not making any of this up, by the way. Tucker is so off base here, it’s hard to know where to start. Since I’m an economist, I want to focus on his woeful ignorance of some really basic economic concepts—specifically in this case the economics of exchange rates and relative prices.  I’ll start with the most glaring error, in which Tucker mistakes himself—a rich American—for a much poorer average Russian. Yes, Tucker, the US dollar buys a lot of rubles, and rich Americans feel even richer when they take dollars to poor countries. But Russians, you see, earn rubles, not dollars. And though the nominal amount of rubles they earn might be a large number, nominal Russian food prices are also large numbers. To compare the cost of a grocery basket in the US and Russia today, Tucker should have asked something like, “how much money does the average Russian make, and how much of his income is taken up by the cost of groceries, as compared to the average American?”  Fortunately, this data is easily available. According to Russian state data, the average wage in Russia is currently about 74,000 rubles per month. Tucker’s grocery bill—let’s round it to 9,500 rubles—was ostensibly for 1 week’s supply of food, so that comes to about 41,000 rubles per month (1 week times 4.3 weeks per month). This works out to well over half (55%) of that average Russian wage. According to the USDA, Americans’ spending on food in 2023 was about 11% of their disposable personal income. But wait—that number is for ALL food, not just groceries, but restaurants too. Subtracting restaurant visits, Americans are spending less than 6% of their disposable income on groceries (“food at home” in the USDA classification). This is a full eight times less than Tucker’s Russian produkty basket. Even the bottom 20% of US earners spent only 31% of their income on food—both groceries and restaurants. And if you want to compare earnings, median personal income in the US was about $40,000 in 2022. The average Russian wage cited above annualizes to just under 900,000 rubles, though the highest estimate of median Russian wages I found came to about 1.1 million rubles per year. Let’s split the difference between these data points and suggest that the average Russian is bringing home about 1 million rubles a year. At today’s exchange rate of 92.5 rubles to the dollar, that’s a puny $10,810 US dollars.  But as students of international economics realize, the exchange rate itself does not come close to representing differences in the cost of living. Poor countries like Russia usually feature much lower costs of production, which makes for lower prices. The lower productivity of land, labor and capital in such places means the opportunity costs of these resources is lower—they don’t have as many valuable alternative uses. This, in turn, makes their relative prices (their current prices in local currency) lower as well. Therefore we need to translate rubles into dollars taking the lower relative prices of all Russian resources into account. We can do so using the Purchasing Power Parity (PPP) exchange rate. PPP rates reflect differences in local costs to provide a more realistic exchange ratio which reflects the buying power of the local currency in terms of the US dollar. The PPP exchange rate for the US dollar in terms of rubles is currently 32.4, making the ruble significantly more valuable in purchasing power terms than the currency exchange rate of 92.5 to the dollar would suggest. This means our 1,000,000 ruble salary equates more realistically to around $30,864. With all that being said, average Russians are earning a full $10,000 less than Americans. Tucker Carlson, call your office: even using the most realistic, apples-to-apples comparison, Russians are still at least 25% poorer than Americans. So Tucker is way off base regarding incomes and living standards in America vs. Russia, and many commentators have rightfully pointed out this glaring omission in his single-number “analysis” of comparative standards of living. But I have another bucket of cold water to toss on Tucker’s dumpster fire economics. Tucker, after all, hangs his argument about how our own people “literally can’t buy the groceries they want” on the assertion that corrupt elites have “wrecked people’s lives” through inflation. Yes, true—American consumers have suffered from a nasty bout of inflation recently, with headline year-on-year consumer price growth peaking at 9% in June, 2022. Even though inflation cooled since then, the cumulative increase in the Consumer Price Index for the US has been 20% since pre-pandemic (January 2020 to January 2024). But Tucker, if you think inflation is bad in America, you should see Russia’s inflation—it’s way worse. The evidence is all around us, I’m not making it up. Over the same period in which US prices went up 20%, Russia’s prices, from January 2020 through November 2023 (the most recent available data) increased a whopping 47%. Forty-seven percent—that’s more than two times bigger than America’s twenty percent inflation. Even if you want to claim that the CPI understates US inflation—and I’m potentially sympathetic to those arguments—it’s clear that Russian inflation has been way, way worse than that in America or the west in general. And this is not surprising, given Russia’s history of very weak economic performance and the devastating economic consequences of Putin’s invasion of Ukraine. Russia’s inflation rate shot to almost 18% in the months after the invasion and stayed well in the double digits for all of 2022. America’s inflation was bad (and the Federal Reserve is mostly to blame), but Russia’s has been far worse. No wonder a Reuters headline from October 2023 states “Almost half of Russians say salary does not cover basic spending.” Anyone with Tucker Carlson’s exposure to people, places and events should have a strong basic intuition that America is the most prosperous place on earth today—period. Immigration patterns alone (which Tucker surely knows about) tell the whole story: foreigners are flocking to America, not Russia. They know that nowhere in the world offers them opportunity to earn more money or have more goods than the good old US of A. Economists have reams of data to certify this claim. Sure, the US economy is in something of a funk, largely due to the recent bout of inflation and a host of bad policies. But to even bemuse that things are better in Russia?! It just ain’t so. The fact that Tucker’s sensational, emotion-laden report came out days before the news of the death-by-government of Alexei Navalny, Putin’s erstwhile nemesis and major opposition leader, really puts an exclamation point on the absurdity and sheer ignorance of Tucker Carlson’s lunatic ravings. To Tucker Carlson, may I offer a polite piece of advice: when you don’t know what you’re talking about, kindly shut up. To Tucker’s fans: even if you agree with this guy’s stances or conclusions on certain issues, when it comes to economics he’s as incompetent as a pacifist drill sergeant. He can’t be taken seriously on economic issues, and his economic ignorance should cast doubt upon his credibility in general.  In the meantime, I’ll go on the record saying that, despite our problems, America is still the best place to live, and a heckuva lot better than Vlad Putin’s Russia.   Tyler Watts is a professor of economics and management at Ferris State University. (1 COMMENTS)