Opining about Elon Musk’s trade union conflict in Sweden, a Financial Times editorial declares (“Tesla Meets the European Social Model,” December 6, 2023: Foreign investors need to respect the legal and social rules and the business cultures of the countries where they seek to do business. Really? A foreign investor in the Jim Crow South should have respected the social rules and laws promoting and enforcing racism? A pre-WW2 foreign investor in Nazi Germany should not have employed Jews at senior levels? A foreign investor in Russia should respect its corrupt business culture? A foreign investor in Islamist countries should respect the legal and social rules mandating the way women may dress or behave? Strange morals! Or perhaps what the Financial Times’s editorial board meant by “need to” is not normative but merely descriptive: the foreign investors cannot avoid submitting to the power that wields the most force and to the most powerful mobs. That the editorialists immediately added to the sentence quoted above “doing otherwise can harm their brands” may suggest this interpretation. They should still have been clearer in distinguishing between what they think Tesla should do from a moral viewpoint and what the company might need to do in a hostile political environment. We would then be better placed to evaluate their conclusion: It should be for Musk and his company to adapt to a Swedish model that has a record of working well, rather than for the Swedish model to adapt to Musk. In this passage, we discern that like all fashionable intellectuals, the Financial Times’s editorialists have a sweet tooth for the Swedish corporatist model in which corporations and trade unions make decisions over the heads of individuals. This model is criticizable from both an economic and an ethical viewpoint. Let’s carefully distinguish the normative issue (what a foreign investor or, for that matter, a domestic one should do) from what it must submit to. Of course, a corporation must adapt to what its customers want and to the customs of individuals with whom it directly interacts in a foreign country. The more authoritarian a national state is, including with its own subjects, the more an investor must expect to submit to that state if it wants to do business there. But, as I suggested, there are obviously moral limits—the should—to such submission. Note that in a more or less free country, a foreign or domestic corporation is not doing business with “the country” but with specific individuals: its customers, employees, and investors. If the corporation deals with the government, it is to smooth over the obstacles that, typically, the same government (or another level in the same government) raises or can raise against its voluntary contractual arrangements. As usual, the introduction of individuals in the analysis changes the perspective. The Swedish government should respect Tesla for the simple reason that individual Swedes voluntarily work for the company or buy its cars, and nobody is forced to. From a moral and political-philosophical point of view consistent with the maintenance and promotion of a free society, I would argue the opposite of the Financial Times’s claim. It is the Swedish government and the unions to which it has outsourced some of its coercive power who should respect the “culture” of a foreign investor who finds individual Swedes willing to exchange with him—provided only that basic rules of honesty are followed. (0 COMMENTS)

On Sunday, Argentines finally welcomed new President Javier Milei, the first self-described anarcho-capitalist candidate to ever be elected to highest office anywhere in the world. Because he had stopped giving interviews and issuing statements in the past weeks, expectations about the content of his inaugural address were high. And he did not disappoint. For the first time in their history, Argentines witnessed an inaugural address that focused on describing the country’s grim economic state rather than making impossible, short-sighted promises. Milei told his supporters not only that irresponsible fiscal and monetary policies by the left-wing government of Alberto Fernández and Cristina Kirchner caused poverty, inflation and the national debt to increase, but also that the consequences of their mismanagement will be felt in months to come. “No hay plata”, he concluded, which literally translated means “there is no money.” Even more importantly, and also for the first time in their history, citizens applauded new President Javier Milei as he told them that sacrifices need to be made to get Argentina back in track. “There is light at the end of the tunnel,” he added, and he also promised to make the public sector pay for the fiscal adjustment instead of having the private sector suffer through more taxes and regulations. But he explicitly said that there is no alternative but to close the fiscal gap and that avoiding hyperinflation will hurt. When has the world ever seen a newly elected President being applauded for telling his own constituents such a bitter truth? As Milei turned from diagnosing the problems to his proposed solutions, he took yet another unprecedented step in his speech: He quoted libertarian intellectuals to explain how he will address the crisis. On the one hand, Milei cited Spanish economist Jesús Huerta de Soto’s claim that government handouts cause poverty instead of eradicating it, and that it is through economic liberty that Argentina will prosper once again.  Javier Milei also quoted Alberto Benegas Lynch(s)’s definition of classical liberalism as the “unrestricted respect for one’s neighbor’ life plan based on the non‐aggression principle and the defense of the right to life, liberty, and property”. In an important ideological statement, the new President added that it is this definition which will be the essence of the new ‘social contract’ that Argentines signed by electing him.  In this regard, Milei also praised Julio Argentino Roca, the President who secured economic freedom for Argentina during the country’s 19th century ‘golden era.’ Milei quoted Roca in saying that ‘no big, stable and lasting changes are made in the world when it comes to freedom if they do not come at the cost of supreme effort and painful sacrifices.’ The cultural impact of this quote is significant, given that Roca’s figure had come under severe left-wing criticism in recent years. It was not just Milei’s speech which signaled that Argentina is entering new times, though. Former President Mauricio Macri, for example, not only attended the transition ceremony and congratulated Milei but also said he would not have made a single change to his speech. Another significant presence was Ukraine’s President Volodymyr Zelenskyy: Only two years ago, Argentina’s now former President Fernández was hugging Vladimir Putin and offering the country as Russia’s ‘gateway’ to Latin America.  There was even a major announcement on inauguration day regarding Argentina’s relationship to the world. Indeed, the new Minister of Foreign Affairs announced that the country will join the OECD immediately, in what signals a huge shift in the country’s foreign policy. The Macri administration had taken steps for Argentina to become a member between 2015 and 2019, but these had been stopped by the Fernández administration. In conclusion, the cultural significance of Milei’s inauguration could not have been higher. By clearly stating the depth of the crisis caused by left-wing policies and that the way out of the crisis is through economic liberalism, the new President has set a high bar for all future successors. Now, it will be time to deliver.   Marcos Falcone is the Project Manager of Fundación Libertad and a regular contributor to Forbes Argentina. His writing has also appeared in The Washington Post, National Review, and Reason, among others. He is based in Buenos Aires, Argentina. (0 COMMENTS)

Last Wednesday, I gave a talk, “Adam Smith as Moral Philosopher,” at our local Osher Lifelong Learning Institute (OLLI) at California State University, Monterey Bay. The person who runs it is Michele Crompton and she does a very good job. Her husband, John Crompton, recorded my talk. He did a great job also, as you’ll see. This coming Wednesday, I do my talk for OLLI on “Adam Smith as Economist.” The reason for doing these before the year ends is that 2023 is the 300th anniversary of Adam Smith’s birth. Here’s the video. And here are some highlights. Times are approximate. The page numbers in the video are for the Liberty Fund version of the Theory of Moral Sentiments. 10:20: Adam Smith and Michael Jackson. 15:40: Celebrity. 16:40: Tom Nagle vs. Nathaniel Branden. 19:35: Castro and Trudeau. 20:50: Motives matter. 22:05: The three P’s of justice. 23:20: Love matters. 25:00: Applauds not us, but others. (Applauding for military.) 27:00: Being called a “brownshirt” at age 17. 28:40: Accepted versus acceptable. 29:30: Earthquake in China. 31:17: Whiny and melancholy moralists. 34:24: Adam Smith as Dear Abby. 36:00: Sovereign and subjects in war. 37:39: Love of country. 39:20: My country right or wrong? 40:20: Adam Smith as Louis CK. 48:25: Stoicism sucks. 50:00: Walk the walk. 50:48: Lady Catherine de Bourgh. 51:25: Virtue signaling is fine if you’re virtuous. 52:15: Getting an ought from an is. 54:45: Mandeville, Fable of the Bees. (0 COMMENTS)

How can we create a radically different atmosphere at American universities? Easy, says historian Niall Ferguson of Stanford University’s Hoover Institution–have meaningful rules about free speech, and ensure that they’re upheld. As with humans, as with institutions: It’s all about incentives. Ferguson discusses the current state of free speech on American campuses and how the […] The post Niall Ferguson on Free Speech and Kissinger’s Role in the Middle East appeared first on Econlib.

Recently, the demand for EVs has been at best stagnating and purchase intentions are cooling off. This has pushed down the demand and prices of battery minerals: thus far this year, battery-grade lithium prices fell by 60%; nickel, graphite, and cobalt, by 30%. So far, so good. But if we believe a Wall Street Journal report, the lower price of these inputs will bite back and, in turn, lead to lower prices and higher demand for EVs and battery materials, canceling the previous effects; the snake is biting its tail and will completely eat itself (“Biden’s Electric-Vehicle Push Hits a Speed Bump,” November 21). A typical blurb: Milewski, Nickel 28’s CEO, said the steep fall in metal prices could also spark another phase of the boom-bust cycle. Falling prices can make EVs more affordable, which in turn could boost demand for batteries—and drive metal prices higher again. “Low prices are a cure for low prices,” Milewski said. This faulty reasoning is well-known to economists. Economic theory teaches us to distinguish between demand and quantity demanded, and similarly between supply and quantity supplied. Demand is the whole schedule (or curve) of quantities demanded at different prices. Supply is the whole schedule (or curve) of quantities supplied at different prices. A price determines the quantity demanded along a given demand curve and the quantity supplied along a given supply curve. Decreases or increases in demand or supply happen when other factors than prices change. A few years ago, I wrote an EconLog post on the confusion exemplified in the quote above: “A Frequent Confusion and the Yo-Yo Economic Model” (January 29, 2018). It contains a supply-demand graph which, if you are not familiar with standard economics, might help you better understand. What I called the yo-yo model suggests that a price will automatically go up because it has gone down before; it’s a model with fuzzy concepts and fuzzy relations between them, like a blob which you can’t get a grip on. With a correct supply and demand analysis, we can give a coherent, not blobby, explanation of what has presumably been happening. A lower demand (a shift of the whole demand curve—not a movement along the curve) has led to a lower demand for battery metals, whose prices have thus fallen. The falling prices of battery metals cannot boost demand for EVs (and battery metals) because it is precisely the fall (or expected fall) of the latter that has caused the prices of battery metals to fall. This would be like saying that an increase of demand causes a reduction of demand—a new version of pre-Socratic philosopher Parmenides’s claim that all motion and change are illusions. The real-world issue we are dealing with is complicated by the fact that, observing the presumed reduction of demand (in EVs and battery metals), some suppliers (mining companies and manufacturers) have reduced their future supply by postponing investments. This means that not only are they responding to lower current demand and prices by reducing their current quantity supplied, but they are also reducing their future supply. Another Wall Street Journal story, “Are Americans Falling Out of Love With EVs?” (November 17), gives a more sensible, or less economic-less, view of the situation. To summarize: If one does not have a clear idea of what economics calls a change in demand, that is, a shift up or down of the whole demand curve as opposed to a move along a given curve (and similarly for a change in supply as opposed to quantity supplied), he is likely to fall into egregious errors like thinking that a price reduction will necessarily be neutralized by a price increase. When one knows these distinctions, it becomes easy to see that if a price gets out of equilibrium, it will tend, ceteris paribus, to return to its equilibrium through changes in quantity demanded and quantity supplied; but if demand or supply changes, a new equilibrium is created which is not self-defeating. (0 COMMENTS)

There are highlights from my weekly reading and viewing. “Glenn Greenwald Interviews Rep. Thomas Massie About Gaza and Israel,” December 5, 2023. Glenn Loury and John McWhorter, “New Evidence on George Floyd’s Death Changes Everything,” December 5, 2023. I had been positive that Derek Chauvin murdered George Floyd. Now I, like Glenn Loury and John McWhorter, am not. “There’s Nothing Mystical about the Idea that Ideas Change History,” Matt Johnson interview with Steven Pinker, Quillette, December 1, 2023. Excerpt: And for all its fiascoes, the UN has accomplished a lot. Its peacekeeping forces really do lower the chance of a return to war—not in every case, but on average. And members of the UN are signatories to an agreement that war is illegal, except for self-defense or with the authorization of the Security Council. Even though that’s sometimes breached, most flagrantly with the Russian invasion of Ukraine, we have to remember that whenever there are laws there are scofflaws, but that doesn’t mean the laws are useless. The legal scholars Oona Hathaway and Scott Shapiro have argued that even though the outlawry of war did not eliminate war, it reduced it by making conquests no longer recognized by the community of nations. That is, if Russia holds onto territory taken from Ukraine, it cannot count on other nations recognizing the conquest—which is a big change from the practice of millennia, when the policy was “to the victor go the spoils.” As it happens, I recently debated John Mearsheimer, the foremost Realist theorist. “Realism” is a misnomer—it’s a highly unrealistic idealization of the relationships among states, barely more sophisticated than the board game Risk. It assumes that countries seek nothing but power and expansion, because the only defense against being invaded is to go on offense first. I think I sometimes dump too much on the UN. This is a nice bit of offsetting reasoning. Also, my opinion of Mearsheimer had been fairly high but after seeing him speak about 6 weeks ago, I thought less of him. Pinker puts his finger on a big part of what I saw and found unsatisfactory. Russ Roberts, “Does [sic] the Media Hate Israel?” Listening to the Sirens, December 3, 2023. The incentives of the information landscape ratchet up the outrage on both sides. The New York Times will eagerly repeat stories that make Israel look bad. That’s what their readership wants. They want to feel outrage about the oppressor. The BBC will eagerly repeat stories that show the suffering of the Palestinians to further cement the feelings of their viewers that the Palestinians are oppressed and deserve sympathy. Of course their coverage is more nuanced than this, but for those of us who support Israel, it feels like the coverage is completely one-sided. It isn’t. But our news feeds make it feel even more extreme than it actually is. The same is true for people on the conservative side. Fox News and the social media feed of pro-Israel users will be filled with example after example of Hamas cruelty, vindicating the view that this is not just about Israel but about the future of civilization. Stories that make Israel look less civilized will either not show up or will be glossed over or excused. Stories of Palestinian suffering will either not show up or will be excused—after all, they will say, so many Palestinians support Hamas. Did you see how ordinary citizens treated those Red Cross vehicles carrying the hostages home from Gaza? Somehow, a crowd of 100 jeering Palestinians becomes a representative sample. (0 COMMENTS)

People with Disabilities Individuals with targeted or “severe” disabilities are the most under-represented segment of the Federal workforce. The People with Disabilities Program (PWD) ensures that people with disabilities have equal Federal employment opportunities. The FAA actively recruits, hires, promotes, retains, develops and advances people with disabilities. The FAA meets the goals of the PWD Program through a variety of practices: Targeted Disabilities Targeted disabilities are those disabilities that the Federal government, as a matter of policy, has identified for special emphasis in recruitment and hiring. They include hearing, vision, missing extremities, partial paralysis, complete paralysis, epilepsy, severe intellectual disability, psychiatric disability and dwarfism. This is from the Federal Aviation Administration. Here’s what I wonder: does the FAA target disabled people with, say, “severe intellectual disability” for positions as air traffic controllers? That makes me nervous. One of the things that has been done very well in this country, mainly by the airlines but possibly also by the FAA, is to make commercial flying extremely safe. It would be tragic to reverse that on purpose. (0 COMMENTS)

In late August, private equity firm Roark Capital announced plans to purchase fast-food giant Subway.  The Federal Trade Commission quickly jumped in, announcing a federal antitrust probe into Roark on the basis of a potential sandwich shop monopoly.  Roark Capital already owns Jimmy John’s, Arby’s, McAlister’s Deli, and Schlotzky’s, so the addition of Subway would put them in a dangerous position of “market power” according to the sandwich trust busters. Senator Elizabeth Warren, a well-known antitrust advocate and ever keen on burnishing her anti-big business credentials, was quick to raise the alarm. In a post on X, Warren warned, “We don’t need another private equity deal that could lead to higher food prices for consumers.  The FTC is right to investigate whether the purchase of Subway by the same firm that owns Jimmy John’s and McAlister’s Deli creates a sandwich shop monopoly.” Is this really fair?  Would the acquisition of Subway really give Roark a monopoly? On the surface, Roark’s newly-formed sandwich empire might plausibly fit this definition, given that Subway and Jimmy John’s are two of the nation’s largest brands in the fast-food sandwich restaurants category. According to market research firm IBIS World, for the “sandwich and sub store franchises” category, Subway and Jimmy John’s have 38% and 9% market share, respectively (I’m excluding Arby’s as they are not mainly a sub sandwich restaurant). The other sandwich joints owned by Roark are very small, but let’s assume that all together Roark would own more than 50% of the “sandwich and sub store” business post-merger—not quite a monopoly, even with the loosest definition.  The larger problem with antitrust worrywarts, however, is a failure to understand what markets are for and the nature of competition. Why do any of us buy a sub sandwich, anyway? Is it because we need a sandwich right now, or because we’re hungry and a sandwich sounds good? Food businesses exist to feed us, and those which do so with great food at good prices will succeed. Those that don’t will fail, regardless of past market share tallies. The open market is full of great fast food options, from burgers to pizzas to tacos to subs. If subs are overpriced, we can easily switch over to other food options. Even if we’re insistent on a deli sandwich, there will still be multiple options even if the big bad “sandwich monopoly” comes to own every franchised-deli shop in the land. I live in a college town of about 10,000 people in northwestern Michigan, and when discussing the specter of the sandwich monopoly recently in an economics class, we were able to identify nearly a dozen alternatives specifically for sub sandwiches—even excluding Subway and Jimmy John’s—within our very small town. If we expanded our list to all fast food purveyors we’d add at least another dozen options, and we’re still not even including the prepared foods offered by gas stations and grocery stores. We live in a wonderful world of open, competitive markets, and perhaps nowhere is this more evident than food service, where entry costs are low and lots of people have the knowledge and ambition to make a go with small business entrepreneurship.  So, even if Roark Capital achieved 100% ownership of “sandwich shops” and tried to raise prices to exploit hungry consumers, they will not succeed. Customers will reliably abandon Roark’s shops in favor of more affordable food offerings of similar quality. But even if some entity monopolized all restaurants and was able to successfully raise prices, the fact that the knowledge and skills required to make and sell good food are widely dispersed among the people, and the costs of opening a small food place are relatively low, no “monopoly” in food could last. As economists understand, it’s not just the presence of current businesses that makes for competition, but the potential  for new enterprises to arise that makes for a robustly competitive marketplace.  Overall, the fundamentals of competition in a free market certainly prevail in case of Roark Capital and the not-to-be-feared sandwich monopoly.  The universe of market competition in general, and specifically in the case of food service in the United States today, is vast and hearty. There is nothing to be feared when an investment firm adds a third or fourth franchise to its holdings.  So, next time you hear Elizabeth Warren or any other proponents of antitrust legislation exclaim that the federal government needs to step in to ensure a free market, remember that we’re already living in a world of vast and deep competition, both within and especially outside of narrow industry categories. Nobody’s going to pull off a sandwich monopoly, and even if it happened, it wouldn’t last long enough to be worthwhile. Rest easy, and enjoy your next meal courtesy of the competitive market economy.   Brendan Cairney is a student at Ferris State University studying Economics and Finance. (0 COMMENTS)

Karl Smith has a new piece in Bloomberg discussing the impact of monetary policy on economy. He argues that the standard model doesn’t explain what’s been happening to the economy. I partly agree, but only because what is now the “standard model” is not a state of the art model of monetary policy. I’ve done numerous posts pointing out that prior to 2008, prominent economists like Ben Bernanke, Frederic Mishkin and Milton Friedman completely rejected the claim that interest rates represent the stance of monetary policy.  But we’ve entered a new Dark Ages for macroeconomics, reverting to the once discredited Keynesian views of the 1950s.  Here’s Smith: The way monetary policy is understood to work is that the central bank boosts rates to suppress demand throughout the economy and lowers them to achieve the opposite effect. And the latest data would suggest the Fed tightened policy precisely enough to temper demand and squeeze out excess inflation without sparking a massive rise in unemployment. Yet it’s difficult to identify any sector of the economy outside of housing in which monetary policy has been instrumental in curbing demand. Unfortunately, this does accurately describe the current view, but it is not how monetary policy works.  Instead, the Fed adjusts its policy tools to impact the supply and demand for base money, which then impacts nominal GDP growth.  Monetary policy is not credit policy.   This leads to confusion about inflation: The Federal Reserve Bank of Cleveland produces a measure that calculates how much supply-side factors contribute to inflation. Subtracting that measure from actual inflation gives a rough estimate of how much excess demand is contributing to rising prices. The most striking thing to note is that the portion of inflation attributed to excess demand has declined a mere 2.3 percentage points since its peak in September of 2022, from 7.3% to 5.0%. The overall consumer price index, though, has decreased by 5.9 percentage points since peaking at 9.1% in June 2022. Here it’s worth noting that the Fed prefers the PCE inflation index, which peaked at 7.1% and has fallen to 3%.  But I do not dispute the claim that only about 2.3 percentage points of the inflation decline (however measured) is related to a slowdown in the growth of aggregate demand.  At the peak, headline inflation was briefly pushed above the underlying inflation rate by supply problems, and recent data shows an inflation rate currently below the underlying rate due to improvement in the supply side of the economy.  A reasonable guess might be that the underlying inflation rate fell from roughly 5.8% to 3.5%—that’s the part of inflation caused by monetary policy. In previous posts, I’ve shown that virtually all of the cumulative excess inflation since 2019 can be explained by excess growth in aggregate demand (NGDP).  Supply shocks push inflation higher during some periods, and lower during others, but do not affect the long run inflation rate.  There is no mystery to explain—monetary policy explains the long run trend in inflation. Why did economists assume that a recession would be required to bring inflation back to normal?  Probably because the US has never had a soft landing.  But there’s no obvious theoretical reason why a soft landing is impossible.  In theory, if you gradually slow NGDP growth to a sustainable rate of about 4%, you can get back to 2% inflation without a recession.  I don’t know if we’ll be able to do that (NGDP growth is still running at about 6%), but it might happen. Because American economists had never seen a soft landing, they built a flawed theory that monetary policy worked by impacting real output, which then slowed inflation.  To bring inflation down to 2% (it was assumed), you needed to create a recession.  This is often called the Phillips Curve theory.  But it’s not actually how monetary policy works.  Here Smith seems to use data for real output as an indicator of aggregate demand: If tighter monetary policy has had a small effect on consumers, then it must have had an outsize effect on businesses. Indeed, growth in business investment slowed from 5.8% year-over-year in the third quarter of 2022 to 4% in this year’s third quarter. But the slowdown is small both in absolute terms and relative to past tightening cycles. . . .  So, if tighter monetary policy has mostly failed to curb demand in the broader economy, then what did?  There are two problems here.  Aggregate demand is GDP, not investment.  In addition, it’s nominal GDP, not real output.  I believe Smith is citing growth rates for real investment, which slowed only modestly.  But 12-month nominal business investment growth slowed sharply between 2022:Q3 and 2022:Q3, from 13.1% to 6.8%. Monetary policy does not work by slowing real consumption or real investment.  It does not even work by slowing real GDP.  It works by slowing nominal spending growth (NGDP growth.) How that slowdown affects real output depends on the speed at which NGDP growth slows, and the pace at which wage moderation occurs. If the Fed’s 2% inflation target has some credibility, then wage moderation is easier to achieve.  And if wage moderation occurs at a time when NGDP growth is slowing gradually, then a soft landing is possible.  If you go back and read the past 55 years of the business media, you’ll see one article after another discussing “puzzles”, which are anomalies that cannot be explained by the flawed Keynesian model that many economists and journalists utilize.  Smith is correct that there is something wrong with the conventional model of monetary policy.  But that’s because today’s conventional model relies on once discredited Keynesians ideas, such as the claim that higher interest rates represent tighter money.  (Check out interest rates in Argentina!)  We need to rediscover the insights of people like Ben Bernanke (from 2003, before macroeconomics entered a new Dark Age): The imperfect reliability of money growth as an indicator of monetary policy is unfortunate, because we don’t really have anything satisfactory to replace it. As emphasized by Friedman (in his eleventh proposition) and by Allan Meltzer, nominal interest rates are not good indicators of the stance of policy, as a high nominal interest rate can indicate either monetary tightness or ease, depending on the state of inflation expectations. Indeed, confusing low nominal interest rates with monetary ease was the source of major problems in the 1930s, and it has perhaps been a problem in Japan in recent years as well. The real short-term interest rate, another candidate measure of policy stance, is also imperfect, because it mixes monetary and real influences, such as the rate of productivity growth. . . .  Ultimately, it appears, one can check to see if an economy has a stable monetary background only by looking at macroeconomic indicators such as nominal GDP growth and inflation. On this criterion it appears that modern central bankers have taken Milton Friedman’s advice to heart. PS.  One reason why people wrongly assume that monetary policy works by changing investment is that investment is especially cyclical.  But that’s because the public smooths consumption for reasons explained by Milton Friedman way back in the 1960s.  If consumption is smoother than national income, then investment will necessarily be more volatile than GDP.   PPS.  I mention the past 55 years of media because the first example I can recall is from the late 1960s, when economists were “puzzled” by the fact that higher interest rates and tax increases were failing to slow inflation.  This led the government to opt for price controls.  We are still being puzzled by the failure of interest rates to do what we expect, as we’ve never learned the lessons taught by Milton Friedman.  Here he has a similar lament in 1998: Low interest rates are generally a sign that money has been tight, as in Japan; high interest rates, that money has been easy. . . . After the U.S. experience during the Great Depression, and after inflation and rising interest rates in the 1970s and disinflation and falling interest rates in the 1980s, I thought the fallacy of identifying tight money with high interest rates and easy money with low interest rates was dead. Apparently, old fallacies never die. I guess not.   (0 COMMENTS)

  There has been a lot of discussion of newly elected Argentine president Javier Milei’s proposals for economic reform. Much of that discussion has been on how successfully he will implement his ambitious proposals for freeing Argentina’s highly statist economy. He has proposed getting rid of the central bank and putting Argentina on the US dollar standard that, if successful, would bring Argentina’s inflation rate down from triple digits to single digits. He has proposed slashing government spending by as much as 15 percent of GDP. To put that in perspective, if the US federal government did that, it would cut spending from about 24 percent of GDP to about 9 percent of GDP. He has proposed eliminating eleven government ministries and agencies and privatizing many of Argentina’s government-owned enterprises. What he will achieve is difficult to know. As Danish physicist Niels Bohr said, in a famous line often also attributed to baseball legend Yogi Berra, “Prediction is very difficult, especially if it’s about the future.” But what we can say is that Milei has a highly developed understanding of the most important ideas in economics. He will almost certainly make better decisions and more-thoughtful trade-offs than if he had the low-level, or even zero, understanding that is typical of politicians. A look at some of his pronouncements in interviews shows a sophisticated analytic mind at work.   This is from my latest article for Hoover’s Defining Ideas, titled “New Argentine Leader’s Economic Savvy,” Defining Ideas, December 7, 2023. Javier’s economic understanding is quite impressive. Read the whole thing. (1 COMMENTS)