Even in authoritarian countries, leaders are reluctant to cross certain lines. Thus in Poland, the communist government was unable to prevent a degree of resistance within the Catholic Church. In some Muslim countries, leaders are forced to tolerate some dissent within the Islamic leadership.In China, there have been several notable cases of a period of mourning turning into an implicit form of protest. After Zhou Enlai died in April 1976, there was a memorial set up in Tiananmen Square. Over time, the intensity of the expressions of grief steadily increased and became seen as a disguised protest against the reckless policies of Mao Zedong (who died a few months later.). It was hard for the authorities to crack down too severely on a large group of people putting flowers onto the memorial of a much beloved leader like Zhou.  Nonetheless, authorities did eventually clear the square. History repeated itself (in the same location) in April 1989, when there was another outpouring of grief in response to the death of another Chinese reformer (Hu Yaobang).  This time, the protests morphed into a strong pro-democracy movement, which eventually led to a violent crackdown. In light of this history, a recent Financial Times story caught my eye: Hundreds of mourners have flocked to Li Keqiang’s childhood home to pay their respects to a reformist politician many saw as the “people’s premier”, creating a potential political challenge for Chinese president Xi Jinping. The popular outpouring for Li, who died suddenly last week aged 68, was mirrored in other cities and on Chinese social media, with many people contrasting the late premier’s relatively down-to-earth style with that of his more aloof colleagues. The rare public outburst of grief for Li, who was largely sidelined by Xi while in office, presents a delicate situation for China’s ruling Communist party as it contends with a lagging economic recovery and geopolitical tensions, analysts said.  Li was a relatively liberal figure by Chinese standards (albeit not by Western standards.). He spoke out against overly tight Covid controls and favored good relations with the West.  He was also in favor of free market reforms of China’s economy: “Sometimes to praise the path not taken is to make a comment on the path that was taken,” said Wen-Ti Sung, a fellow at the Atlantic Council Global China Hub. “For some, Li Keqiang represented a relatively more laissez-faire attitude towards state-society relations, and he stood for allowing more space for societal and market forces.”. It’s unfortunate that Li did not become China’s leader in 2012. In retrospect, however, it was no surprise.  Almost the entire world moved in a more illiberal direction during the 2010s.  And of course China’s shift toward authoritarian nationalism cannot be blamed on jobs lost as a result of the “China Shock”.  Nor can the Hungarian shift, or the Turkish shift, or the Indian shift, or the Russian shift, or the US shift.  Much deeper forces are at work. (0 COMMENTS)

In late 1983, when I was in my second year as a senior economist with President Reagan’s Council of Economic Advisers, I was tasked with writing the chapter on “industrial policy.” Industrial policy was all the rage back then. Various politicians, especially Democratic ones, advocated the idea. Among them was former vice president Walter Mondale, who seemed to have the best odds of winning the Democratic nomination for president and who, in fact, did win the nomination. So we knew it was a hot issue and my two bosses, chairman Martin Feldstein and member William Niskanen, decided that we should devote a whole chapter to the issue. The essence of industrial policy is that government officials, looking ahead, predict which industries will or should do well, and then use various policy instruments—tax policy, subsidies, subsidized loans, and regulation—to move the economy in what they think is the best direction. They are, in Adam Smith’s words, updated, “men and women of system.” There are two problems with industrial policy: information and incentives. Government officials don’t have, and can’t have, the information they need to carry out an industrial policy that creates benefits that exceed costs. Also, they don’t have the right incentives. If they spend literally billions of dollars of government revenue on buttressing an industry and the industry fails, they don’t suffer any personal wealth loss and don’t even lose their jobs. The only cost to them as individuals is their prorated share of tax revenues, which will typically be no more than a few hundred dollars. So what ends up happening is that subsidies and preferential treatment are given to the politically powerful, which reduces the amount of capital available for unsubsidized entrepreneurs and innovators. This is from David R. Henderson, “Why Industrial Policy Fails,” Defining Ideas, October 26, 2023. Read the whole thing. (0 COMMENTS)

Slot machines, social media, and potato chips: we humans seem to find a lot of things hard to consume in moderation. Why does “enough” seem so much harder to say than “more?” Listen as Michael Easter discusses these questions and his book, The Scarcity Brain, with EconTalk’s Russ Roberts. Easter shares ways that our awareness […] The post Michael Easter on Excess, Moderation, and the Scarcity Brain appeared first on Econlib.

Anyone interested in money should check out JP Koning’s excellent blog.  In a post discussing the ECB’s decision to stop producing 500-euro banknotes, Koning made this claim:   This highlights an important point that I often mention on this blog. One of the most popular motifs of central banks is that they print cash willy nilly, forcing it onto an unsuspecting and virginal economy. This wildly misses the mark. Central banks do not push banknotes into the economy. Rather, the public pulls banknotes out of the central bank into the economy and pushes them back to the central bank. I understand the point he is making here, and it has some validity.  But I don’t agree that the alternative view “wildly misses the mark”.  There are different ways of viewing the process of money creation, and “forcing it onto an unsuspecting and virginal economy” is a perfectly respectable way of envisioning the process.  Here are a couple plausible claims: 1. The Fed targets interest rates and accommodates the public’s demand for currency at the interest rate target. 2.  The Fed targets inflation and accommodates the public’s demand for currency at a 2% inflation target. I don’t think the first view is particularly useful, as the Fed frequently adjusts its interest rate target as required to stabilize inflation.  So interest rates are mostly endogenous, much like currency. The second claim is more useful, but raises another question.  How does the Fed create 2% inflation, on average?  That sort of trend inflation rate is not normal; indeed it’s extremely abnormal.  Throughout human history, trend inflation has mostly been close to zero, with occasional spikes during wartime, etc.  So how does the Fed create 2% inflation? Between 1990 and 2008, they did so by “forcing extra base money onto an unsuspecting and virginal economy”.  They printed just enough money to push prices higher at the desired rate.  Prior to 1990, they didn’t even target inflation, and therefore inflation often greatly exceeded 2%.   Between 1960 and 2007 the Fed increased the monetary base from $50 billion to $837 billion, by forcing $787 billion in new base money onto an unsuspecting and virginal US economy.  And doing so caused a lot of inflation and a big rise in NGDP. The monetary base is not identical to currency.  But prior to 2008, the base was more than 98% currency.  So it would be 98% accurate to describe the process as forcing extra currency onto the public. Today, things are different.  Currency is still a substantial portion of the base, but a far smaller share than prior to 2008.  The rest is commercial bank deposits at the Fed.  The Fed still does rely to some extent on money printing as a way of boosting prices, but less so than prior to 2008.  Instead, they often adjust the interest rate on bank reserves.   You can think of a cut in the interest rate on bank reserves as being equivalent to an open market purchase of bonds.  Before 2008, they forced currency onto the public by purchasing Treasury bonds with new base money.  More than 98% of the new base money went out into the economy as currency.  Now they cut the IOR, which discourages banks from holding reserves.  Banks then try to get rid of these unwanted reserves, which flow out into the economy as currency.  The extra currency drives up prices, just as with an open market purchase.  Instead of the Fed injecting cash, the Fed is incentivizing commercial banks to inject cash.  Either way, it pushes up the price level. At its most basic level, monetary economics is quite simple.  The price level is the inverse of the value of money.  The central bank controls the price level (i.e., the value of money) by adjusting the supply and demand for base money.  They can raise prices by adding to the supply of base money or reduce base demand with a cut in IOR.  Or that can reduce the price level by reducing the supply of base money or increasing the demand for base money by raising IOR.  It’s basic supply and demand, nothing more.   Prior to 1913, the base was 100% currency.  As late as 2007, the base was still more than 98% currency.  Thus for most of our history, changes in the base were almost identical to changes in the currency stock.  If the Fed wishes to create 2% inflation, they’d print more currency than the public would wish to hold if inflation were 0%.  Then they would force it into an “unsuspecting and virginal economy”. It’s not a question of Koning being right or wrong, or me being right or wrong.  The issue is which description of the process is more useful.  For some purposes, Koning’s description is more useful.  For other purposes, my description of the process is more useful. Here’s an analogy.  A new gold mine opens and the owners sell 20 tons of gold on the international gold market.  Is that gold being “forced” on the public?  Yes and no.  No in the sense that people are free to not buy the new gold.  Yes in the sense that the mine is determined to sell the gold, even though the extra gold is not wanted or needed at the pre-existing gold price.  The mine sells the gold for whatever people are willing to pay.  This forces the price of gold down until people willingly buy the new gold. Central banks add currency whether people want the money or not.  But people are not going to throw away this new money.  Instead, prices rise until people willing hold the extra currency. (0 COMMENTS)

Here are some highlights from my weekly reading. Colin Grabow, “United States Remains a Manufacturing Powerhouse,” Cato at Liberty, October 25, 2023. Excerpt: Simply put, the United States remains a manufacturing powerhouse. In 2020 it was the world’s fourth‐​largest steel producer and in 2021 was the second‐​largest automaker and largest aerospace exporter. Accounting for nearly 16 percent of global manufacturing output in 2021—second only to China, which has four times the population of the United States—the US had a greater share than Japan, Germany, and South Korea combined. By itself, the US manufacturing sector would constitute the world’s eighth‐​largest economy. This ability to produce more stuff with fewer workers reflects the incredible productivity of US workers. Measuring manufacturing value added on a per‐​worker basis shows Americans to be the world leader at over $141,000. That’s 45 percent higher than second‐​place South Korea and over seven times that of workers in China. Such high productivity helps explain why manufacturing attracted over $55 billion in foreign direct investment last year—more than any other sector.   Matthew Sedacca, “Unaccompanied migrant kids seen selling candy in NYT subways: ‘Shameful, disgusting, blatant child abuse'”, New York Post, October 7, 2023. Excerpt: Mothers with tots strapped to their backs in slings rarely raise straphangers’ eyebrows as they drift across subway cars and platforms to sell candy bars, some of whom bring in at most $80 a day. The reporter seems to think that $80 a day is not a large amount for a migrant from Central or South America. Alex Nowrasteh, “Hamas’ Attack in Israel Doesn’t Reveal Much About U.S. Border Security,” Reason, October 25, 2023. Excerpt: The U.S.-Mexico border is a chaotic mess. In the fiscal year ending in September, Border Patrol had 2,045,838 encounters with unlawful border crossers—the second highest in history. There are three explanations for the border chaos. The first is the incredible U.S. demand for immigrant labor. Since President Joe Biden took office, there have been an average of about 10.4 million nonfarm job openings per month compared to just 6.7 million during the Trump administration. Second, U.S. immigration laws allow in very few legal immigrants. Third, the Biden administration has broadcast mixed messages that sometimes unintentionally encourage dangerous travel to the border. Grant Starrett, “Why Teenagers Should Earn Money,” Grant Reads Books, October 25, 2023. Except: Talk to a father about why his progeny plays sports and he may light up. His child may not get much play time nor play at an especially elite level – the kid may even kick up more grass than goals – but sports build character. Players learn about teamwork and responsibility, the discipline of setting and achieving goals, and perseverance through disappointment. Sports offer the opportunity to demonstrate leadership and practice time management. Sports keep kids focused and out of trouble. And of course sports keep kids moving (at least during practice, benchwarmers might note). All of these qualities teach life lessons and set kids up eventually for employability. Of course, so does being employed. Athletics and arts may be fun – or not (imagine loving one and being forced to participate in the other) – but they lead to lots of dreams and very little employment in those actual fields. Children are encouraged, often pressured, to take on extracurriculars for alleged intrinsic benefits, for the entertainment of parents (and/or daycare until they get off work themselves), for the employment of a particular class of teachers, and for the arbitrary amusement of college admissions officers. How many teenagers are given an honest choice to directly benefit from their own (“child”) labor by getting paid? How many schools make it as easy to sign up for jobs as they do for teams? [bold in original]     (0 COMMENTS)

Yesterday, on the second day after a mass shooter killed 18 persons and wounded 13, but before the suspect was found dead, I drove through Lewiston, Maine. I was trying to find a place to sit down with my laptop and have lunch, and more generally to observe. Nearly everything was closed in the town. At McDonald’s, only the drive-through remained open. The local shelter-in-place order must have had something to do with this, although I don’t think it was very strict. It is also easy to understand why ordinary people in small-town peaceful Maine would be in shock. Lewiston, the second largest city in Maine, has only 35,000 inhabitants. I find it a bit more difficult to understand why people would still be scared, though. There were many cops searching the Lewiston surrounding area, although I saw only a few in town. More surprisingly, in Portland, the progressive city 50 miles away, some businesses closed on the morrow of the killing. Note that contrary to ordinary individuals in nearly all other advanced countries, Mainers don’t have to shake in terror and impotence if they think a killer is in the neighborhood: they can have guns too. Unfortunately, on Wednesday night in Lewiston, there was no Elisjsha Dicken at the right time and place. Dicken is the young man who, on July 17, 2022, was shopping with his girlfriend in an Indianapolis mall and saw a mass shooter in action. The criminal had already killed three persons and wounded two. Just fifteen seconds into the killing, Dicken, an ordinary citizen, drew his Glock 19 and, at 40 yards, shot 10 rounds, of which 8 hit the killer, a marksman’s exploit with a handgun. The killer was only able to shoot back once before he tried to retreat and died. (See the Wikipedia entry and the Wall Street Journal editorial of a few days after the event.) Tragedies must fit into the theories, explicit or (more often) implicit, with which one interprets what happens in the world. In the case of social tragedies—as opposed to, say, quantum events—just about anybody entertains theories whose validity he is certain of. When a mass shooting occurs (never in Maine until now, just like it was unknown in the country just six decades ago) every non-student of society tries to explain it with his homemade intuitive theories. Those who believe that guns are the problem (while they were more legally accessible, except for legal carry, when mass shootings were unknown) will see such an event as confirmation. So did Joe Biden who called on Congress (“Manhunt Drags On After Maine Shootings Leave 18 Dead,” Wall Steet Journal, October 26, 2023) to act: Work with us to pass a bill banning assault weapons and high-capacity magazines, to enact universal background checks, to require safe storage of guns, and end immunity from liability for gun manufacturers. We can imagine the killer, just about to leave his apartment to go on his rampage, thinking “Oh my God, I can’t do it,  my gun is safely stored in my gun cabinet.” Somebody opposed to a standing army, or persuaded by former president Trump that the army is training “our boys to be killing machines,” could as well explain the Maine killing by the fact that the killer was an Army reservist. Many claim that mental disease is the cause of everything now going wrong in the world, perhaps like the early-20th-century Progressives blamed alcohol or the hereditary defectives. I am not sure how to explain random mass killings, but I have proposed some hypotheses. Rapid change, to which many people cannot easily adapt, would be a complementary one, although there have been many such periods in the past two or three centuries. At any rate, one should make sure that one’s theories about society are well grounded in logic and evidence before using them to explain something like mass shootings. Epistemologically, a theory is necessary to determine which facts are significant. It’s probably not going to be news to most readers of this blog that economics or political economy generally provides the best analytical tools for thinking about what happens in society. (0 COMMENTS)

Earlier this month, Massachusetts Democratic governor Maura Healey touted the tax cuts she signed into law, stating in a press release: “$1 billion in tax cuts includes savings for seniors, businesses, renters, and the most generous Child and Family Tax Credit in the country.” Not all tax cuts of $1 billion are equal. Because I’m an economist who realizes that incentives are important, I think the best tax cuts are those that reduce a marginal tax rate or increase a threshold beyond which a tax rate applies. Both kinds of tax cuts increase the incentive to make money or save money. By that standard, there are two particularly good components in Massachusetts’ complicated tax-cut law. First, it cuts the tax rate on short-term capital gains from a whopping 12 percent to a less-whopping but still high 8.5 percent. Second, it reduces the death tax, increasing the threshold beyond which the estate tax applies from $1 million to $2 million. Both measures will give an increased incentive to save and invest and will also marginally raise the chance that relatively wealthy people will stay in Massachusetts. This is from David R. Henderson, “Massachusetts Cuts–and Complicates–Taxes,” TaxBytes, Institute for Policy Innovation, October 25, 2023. The conclusion: I give the governor a C+ or maybe a B-. If you think that’s too generous, remember that I live in California. Here, a Democratic governor and a heavily Democratic legislature are still busy raising taxes. Read the whole thing. You’ve already read half of it.   (0 COMMENTS)

I have expressed a great deal of frustration with the Fed’s “Flexible Average Inflation Target”, which does not target the average inflation rate. Commenter Jeff recently made the point much more effectively than I could have done. I thought it was worth bringing his comment to the attention of readers that do not bother with the comment section: Let’s not forget that the meaning of “FAIT” was extremely unclear to you, your readers, and even some of the Fed’s own researchers through the better part of 2021. Both the plain English and technical meanings of the word “average” imply that both undershoots and overshoots will be compensated for. Anything else is not properly described as an “average”. Monetary policymakers do not have license to redefine mathematics any more than energy policymakers get to redefine the fundamental constants of the physical universe. No doubt many professional Fed-watchers saw through the murky verbiage and were able to personally benefit as a result, but I’m not exactly a fan of societies where only courtiers and palace whisperers know what is really going on because the royals speak a different language from everyone else. Jeff nailed it. Next year, the Fed plans to review its targeting strategy.  Let’s hope they come up with a less confusing approach. PS.  I notice that 2023:Q3 NGDP growth came in at 8.5%—still way too fast.  I see very little evidence for the “tight money policy” that everyone keeps talking about.  What is the evidence that money is tight? (1 COMMENTS)

In this episode of EconTalk, Russ Roberts hosts Robert Skidelsky for a conversation about his book, co-written with his son Edward: How Much is Enough? Money and the Good Life. Robert Skidelsky is a Member of the House of Lords of the United Kingdom and an economic historian who wrote a notable biography of British economist John Maynard Keynes. Skidelsky’s concept of “enough” was inspired by Keynes, as Keynes believed people would be working less by now, because they reached a quantity of enough in terms of goods and held a diminishing marginal utility. Keynes was wrong, but like Keynes, Skidelsky is calling for leisure to be prioritized and working hours to be lowered. What have Keynes and Skidelsky overlooked in terms of the quality of goods and the nature of the market? Skidelsky says that generally, technological improvements are quite trivial. Is this true?   Another point of convergence for Keynes and Skidelsky is the argument for enjoying the now as opposed to calculating for the future. Skidelsky believes that religion and other planning purposes have decreased the value of current enjoyment. Russ says he is all for stopping to look around and enjoy the moment, but that he also values his faith and caring for the soul as an appeal to living for the future. Whose view do you think is more popular today- Roberts’ or Skidelsky’s- and why? What are the pitfalls of a life that overemphasizes leisure? That underemphasizes it?   Skidelsky frames his view of the ‘good life’ with seven items he believes are integral to living a good life: health, security, respect, personality, harmony with nature, and friendship. Skidelsky thinks the government should ‘nudge’ people towards this good life. How might the government go about so nudging? What problems do you see with that? Is the government or the market responsible for producing the goods of the good life?   Skidelsky believes that society overproduces consumption goods and underproduces the goods of the good life. He says that once a ‘plateau of wealth’ has been reached, society should produce the goods of the good life instead of consumption goods. Is Skidelsky falling into Adam Smith’s man of system trap in trying to move chess pieces on the board?   Skidelsky believes that Americans are too skeptical of government, and that the government and advertising already nudge us. Russ believes that our mistrust of government power comes from the American founding. How does Skidelsky underestimate the effect on  liberty if the government were to have the power to ‘nudge’ people toward the good life? Are people ‘suckers’ for advertising as much as Skidelsky makes them out to be? What makes advertising important for the market, and how does it improve the consumer experience?   Brennan Beausir is a student at Wabash College studying Philosophy, Politics, and Economics and was a 2023 Summer Scholar at Liberty Fund. (0 COMMENTS)

On September 26th, the FTC and 17 state attorneys general filed an antitrust complaint against Amazon in federal court.  The complaint alleges several anticompetitive behaviors and asserts that Amazon uses its monopoly power to give itself an unfair advantage. Over the past few days, I have been going through the complaint.  There is one area of the complaint where the FTC accidently proves Amazon faces fierce competition and is not a monopolist: Section VII on Project Nessie.  In the official complaint, that section is heavily redacted.  However, the Wall Street Journal reported on the FTC’s allegations of what Project Nessie is and how it supposedly gave Amazon monopoly power.   Project Nessie was an algorithm created by Amazon to test the waters for price increases.  Nessie would raise the price of certain goods and then monitor reactions by Amazon’s rivals like Target, Walmart, etc.  If they matched Amazon’s new, higher price, the price would stay.  If they did not, the price would return to its previous level.  The FTC alleges Nessie allowed Amazon to extract wealth from consumers through these higher prices.  Consequently, Amazon was behaving in an uncompetitive manner. The FTC’s evidence of Project Nessie has two deadly flaws.  First, the goal of Nessie was to compare Amazon’s price increase to other retailers.  Thus, the existence of the project shows that Amazon faced substantial competition in its ecommerce market; competition they had to monitor and adjust to.  Second, the fact that Nessie was programed to reduce prices to previous levels if the other competitors didn’t increase theirs indicates that Amazon is a price-taker, not a price-maker.  They have to follow the market price; they cannot just increase their prices as they wish. Amazon’s behavior is not of a monopolist but of a competitive firm. The existence of Nessie actually proves Amazon faces a highly competitive ecommerce industry.   Project Nessie seems to be a potentially efficient way of doing what firms of all stripes do: try to figure out the demand curve.  Firms are constantly testing price changes.  Supply and demand curves do not exist ahead of time.  Rather, they are revealed through the market process: through the constant changing of prices and behaviors, consumers reevaluate purchasing decisions and sellers reevaluate production decisions.  New information comes in and new prices emerge.  Those new prices send signals, causing suppliers and consumers to reevaluate again, etc.  This ongoing process is a sign of a functioning market.  From this process, demand curves and supply curves emerge.  Project Nessie was just another form of participating in the market process. Other elements of the FTC’s complaint may have antitrust merit; I am unfamiliar with antitrust law to judge one way or the other.  But the Project Nessie element does not have economic standing.  Declaring Project Nessie uncompetitive would make illegal the normal way that firms compete with one another.   Jon Murphy is an assistant professor of economics at Nicholls State University. (0 COMMENTS)