Suppose that Gazans, the residents of Gaza, were called Hamassians, from the name of the organization, Hamas, that rules over them. Strangely, that’s the way most people in the world are labeled and speak of themselves: Italians are governed by ”Italy,” the French (les Français) by “France,” the Canadians by “Canada.” The same ambiguity exists between the Israelis and “Israel.” In common parlance, “the U.S.” means both the government and “its” people, although fortunately “Americans” is a substitute that suggests some difference. Fortunately, too, the inhabitants of the UK are not called “Ukeans.” In The Fatal Conceit, Friedrich Hayek wrote about “our poisoned language.” One of the worst poisons may be the collectivist bias whereby the country label is used for both its inhabitants and its state. If residents of Gaza were called Hamassians, it would be much more difficult to distinguish them, analytically and morally, from their thuggish rulers. It would be more difficult to forget that whatever the proportion of “Hamassians” who support in some way the local tyrant, some Gazans are more its prisoners or internal hostages and don’t deserve any collective punishment on its behalf. If they are used as human shields by their own tyrant, of course, it is not the fault of an enemy waging a just war tantamount to self-defense—but the theoretical difference between that and a collective punishment must still be maintained. Ideas and ideals matter; or at least, we should hope so. Even in the best case, there exists a certain distance between individuals and “their” government or state. I interpret James Buchanan and Gordon Tullock’s seminal book The Calculus of Consent as implying that the state is, in such a best case, both us and non-us. A larger distance exists in a Nozickian setup in the context of Anthony de Jasay’s “Capitalist State.” If a free market for security were possible as Gustave de Molinari first envisioned it and contemporary anarcho-capitalists argue for (see, among others, Mike Huemer and former EconLog blogger Bryan Caplan), the distance would be like between Pinkerton and its customers. These reflections were partly inspired by a declaration of president Joe Biden (“Israel ‘Preparing Ground Invasion’ of Gaza, Says Netanyahu,” Financial Times, October 25, 2023): Biden also added that Hamas “does not represent the vast majority of the Palestinian people in the Gaza Strip or anywhere else”. This looks like an improvement over how a large number of people seem to think, but the distance between the state and its citizens or subjects has relatively little to do with some numerical majority. Joe Biden has certainly never read Hayek, Buchanan, Tullock, Nozick, de Jasay, Huemer, Kaplan, or EconLog. I don’t think he would understand anyway, and I conjecture that even a moderate-classical liberal—like, say, John Stuart Mill—would unambiguously disavow him. One common denominator of any liberal theory must be that, a priori, all individuals are assumed to have the same basic dignity, whether they are part of some political majority or not (Buchanan and Tullock propose a strong defense of this theory). Even if positive and normative analysis must be distinguished, economics has the benefit of providing a good theoretical background to understand these ideas. (0 COMMENTS)

I think it is or, at least, comes close. Hamas’s operatives’ murder of about 1,400 Israelis on October 7 was horrible. Nothing can justify it. In subsequent discussions, I’ve seen an issue raised about Gaza. There are many comments on the web to the effect that Gaza is an open-air prison. I’ve also seen many comments that it isn’t. What’s the truth? First, the open-air issue is settled: Gaza is in the open air. Second, and more controversial, is the prison part. Most of us think of a prison as something you can’t escape from. So, for example, if the government were to build a chain-link fence around a certain population of people, forbid them from going through it, and enforce that prohibition with the threat of force, the area surrounded by the fence would be a prison for those inside. There are four sides to Gaza: (1) two sides that border Israel, (2) the side that borders Egypt, and (3) the side that borders the Mediterranean Sea. The Israeli government prevents people from entering Israel. The Egyptian government prevents people from entering Egypt. What’s left is the Mediterranean. I have heard over the years that the Israeli Navy patrols the sea to prevent people from leaving Gaza by sea. But when I go on the web to confirm that, I can’t. All I can find is that the Israeli government has tight restrictions on the area of the sea in which people from Gaza can fish and also harsh restrictions on flotillas taking goods into Gaza. But I can’t find any evidence that the government prevents them from leaving. And a friend who was in the Israeli Defense Force tells me that he has never heard that the Navy prevented people from leaving. That would seem to suggest that Gaza is not an open-air prison. But then I think of the novel and the movie King Rat. It has been 30 years since I’ve read the novel and, of course, the key word is “novel.” But one part that seems realistic is that in the POW camp in Singapore run by the Japanese military, the Japanese didn’t need any walls or fences to prevent prisoners from escaping because the surrounding physical landscape is so forbidding that the prisoners wouldn’t try to escape. No one would say that the lack of physical barriers to prevent escape means that the POW camp was not a prison. The Mediterranean comes close. If people in Gaza escaped in a boat (if they could find or build a boat) they would be in a pretty harsh physical situation, possibly not as forbidding as the Malaysian jungle, but forbidding, nevertheless. So my conclusion is that Gaza is, or is close to being, an “open-air prison.” Reminder:  The Hamas murder of 1,400 people in Israel was horrible. The post above is on a separate issue. (0 COMMENTS)

And CCR earlier expressed skepticism about Stalin and FDR. I finally decided to listen to the lyrics of Taylor Swift’s new song “Anti-Hero” and noticed this line at about the 1:33 point: Did you hear my covert narcissism I disguise as altruism like some kind of Congressman? In other words, she’s noting the contrast between what the Congressman(woman) says and what his (her) true motives are. That got me thinking about older classic rock songs that express skepticism about government. One of my favorites is Credence Clearwater Revival’s 1970 song “Who’ll Stop the Rain?” I’ve loved it for decades and finally a friend recently pointed to this part of the lyrics that I had missed: Caught up in the fable, I watched the tower grow. Five-year plans and New Deals, Wrapped in golden chains. And I wonder, still I wonder. Who’ll stop the rain. Note the reference to five-year plans (probably Stalin’s) and New Deals (definitely FDR.) Also the golden chains line is beautiful. It’s gold, but it’s also a chain. Note: The button Taylor Swift is wearing says “Vote for Me, For Everything.” (0 COMMENTS)

Over at Café Hayek, Don Boudreaux points to this essay by William Shughart, pushing back on the idea that Amazon is a monopoly in any economically interesting or relevant sense. The essay is good and well worth reading, but there is another angle I think is worth adding. Shughart describes how Lina Khan of the FTC currently “oversees two antitrust cases targeting two of the globe’s three biggest online platforms: Amazon and Meta, Facebook’s parent company. (The Department of Justice is going after a third tech giant, Google.)” One company that doesn’t come up in the article, but has itself been the target of similar cases, is Microsoft. Along with Apple, Google, Amazon, Facebook and Microsoft are often collectively referred to as representing “Big Tech.” Each of these companies has in various ways and at various times been ominously described as too big, too powerful, too entrenched, and representing a threat to economic competition.  However, that last claim seems much less poignant when you consider that all of these companies are in competition with each other.  Shughart correctly points out that when you include brick and mortar retailers as competitors to Amazon’s retail business, Amazon only has a 6% market share. I’ve also pointed out in a different post that Microsoft’s Xbox gaming division is in competition with Sony, a company only about 5% as big as Microsoft, and Nintendo, a company only half the size of that. Nonetheless, Microsoft is currently being trounced by both of these much smaller companies. Competition from smaller competitors shouldn’t be dismissed – mere size is no guarantee of success when nobody is required to use your products, and when competitors, however small, have the ability to give customers a better offer.  But even if we set that aside and kept our eye on the biggest tech giants, what’s the cause for alarm? Why should I fear, say, Microsoft on account of how big it is, when Microsoft faces competition every day from comparably huge companies like Apple, Amazon, Google, and Facebook? Even with this limited view, Microsoft is currently fighting a four-against-one battle – or so it would feel to them. Apple, too, would feel themselves to be in a four-against-one battle, as would the others. Of course, these companies don’t compete against each other in every aspect. Microsoft isn’t competing in the smartphone space against the iPhone (RIP Windows Phone, your passing was mourned by dozens), but PC vs Mac is a serious market. Microsoft also doesn’t compete much with Amazon in retail, but cloud-computing services are another story. Apple and Google compete in smartphones and the iOS vs Android market. But overall, each of these companies competes with the other in various ways.  Maybe the concern among these would-be reformers is that competition among five giant companies is too small – a healthy competitive market requires more comparably sized competitors. If that is truly their concern, just wait until they find out about the size, power, and resources commanded by the federal government where the only meaningful competition is the two-party system! None of these companies can hold a candle to that along any of the dimensions over which these reformers express their concern. So I don’t share Khan’s priorities here – there are much bigger fish to fry first. (0 COMMENTS)

How do you communicate complicated ideas, let alone persuade people to change their mind about something they think they know? Why do we have to “learn things the hard way” all the time??? These are some of the questions EconTalk host Russ Roberts welcomed Adam Mastroianni back to discuss in this episode. Mastroianni says it’s because you can’t reach your brain through ears, a concept not nearly as simple as it sounds. He relates his experience as a graduate student advisor, trying to explain what grad school was really like to prospective students. Why didn’t they *hear* what he was saying? This episode might make you rethink what you think you know. Welcome to the ride! We hope you’ll take a moment to share your thought with us. Alternatively, maybe you can use the prompts below to enhance your experience with this conversation, or start one of your own offline. Either way, we hope you stay curious!     1- Roberts and Mastroianni both recall instances in which they’ve opined, “Why can’t I just tell you the truth and you know it?” What are some of the reasons Mastroianni suggests this is the case? How is this like the phenomenon of not “seeing” in your mind, as discussed in this episode with Patrick House? (Parents, feel free to relate your experiences as members of the “Leaky Bucket Brigade!)   2- How would you describe the difference between absorbing and learning? Between wisdom and knowledge? In discussing concepts that are simple to define but may take a lifetime to absorb, Russ cites emergent order as an example. What other examples can you add? What does this suggest about the efficacy of the emphasis on testing in education today?   3- What is the “illusion of explanatory depth?” Is it ever possible to know you’re suffering under this illusion? To what extent do you think this poses a problem- for the individual and/or for the community?   4- What is Mastroianni describing when he talks about “the source code and the keep?” What are some things it may be beneficial to have “walled off” in your brain? How might this be an evolutionary equilibrium, as Mastroianni suggests?   5- While both Roberts and Mastroianni have been frustrated by their ability to persuade others of particular positions, Mastroianni suggests it would actually be disastrous “if everyone in the world thought the same way that I do, even though I’m pretty sure this is the correct way to think.” How can he think both these things, and why has Russ found the inability to convince people comforting as he’s gotten older? What’s the problem with “editable” people, as Mastroianni describes?   (0 COMMENTS)

In his most recent post, James Broughel was perplexed with my claim that social welfare functions are a “zombie idea.” He writes:  Maybe this is true amongst libertarians, but social welfare functions are alive and well in numerous areas of modern economics, including climate change economics, optimal tax theory, and macroeconomic growth theory, just to name a few. Neither Arrow nor Buchanan buried them, and it may be a sign of an insulated culture amongst Austrian economists that Martin incorrectly thinks they did. When I said that social welfare functions are a zombie idea, I did not mean that economists did not still use them. The labor theory of value is a zombie idea, and yet Marxists still publish as if it were not. I am well aware that various subfields of public economics / welfare economics make use of the idea. But all good economists are as free to ignore them as they are to ignore the astrology section in their local newspaper. Broughel can of course have a different judgment. But saying that Austrians’ rejection of social welfare functions is what is holding them back is a big empirical claim. Perhaps he should look over the articles and books that the Society for the Development of Austrian Economics has recognized over the past decade before pronouncing that Austrian economics has stagnated. I doubt economics would be in better shape if those scholars had spent the past decade churning out social welfare functions.   Broughel’s Broken Arrow Problem Broughel has misinterpreted my critique of his argument as a defense of the relevance of the “Independence of Irrelevant Alternatives” condition. This is not correct. As explicitly stated, I agree with Buchanan that it was wrong of Kenneth Arrow to think that transitivity would apply to collective actions. What I objected to was Broughel’s ineffectual objection to the condition. Broughel’s objections all amount to saying: “what if the irrelevant alternative isn’t irrelevant?” He can multiply these thought experiments as much as he likes, but as long as the experiment posits the relevance of an alternative it fails to engage Arrow. I find myself in the odd position of defending Arrow, who was correct in his formal claims but incorrect in his judgment of their relevance, against this misunderstanding of his formal claims. If you’re going to beat up on Arrow, do it right. Broughel’s next line of argument is a straightforward logical fallacy: IIA is too rigid. Any new information contained in third options is ruled out as irrelevant by assumption. There can be no reaction in the form of a reordering of preferences based on new information contained in third alternatives. It’s as if time stands still.  We should not be surprised therefore that Arrow’s theorem has had such considerable influence in areas like neoclassical equilibrium analysis and, yes, cost-benefit analysis, where analysis takes a fixed, static perspective constituted from the viewpoint of a single moment in time. Let’s take the second paragraph before the first. Broughel argues that cost-benefit analysis is based on Arrow’s work because it “takes a fixed, static perspective.” I agree that standard cost-benefit analysis takes an equilibrium perspective. Broughel’s argument is then: Arrow’s theorem assumes time stands still. Cost-benefit analysis assumes time stands still. Therefore, cost-benefit analysis assumes Arrow’s theorem. I am happy to grant that (a) and (b) are both true. But this argument is a straightforward instance of the fallacy of the undistributed middle. Consider another example: Adam is a GMU graduate. James is a GMU graduate. Therefore, James is Adam. I suspect that James and I recoil from this prospect equally. There might be all sorts of problems with cost-benefit analysis, but they ain’t Arrow’s fault. Moving back to the first paragraph: I applaud Broughel’s pseudo-Austrian emphasis on dynamics in these paragraphs. But dynamics don’t make constructing a social welfare function easier. Quite the opposite. They render even a coherent social welfare function—if it happened to exist at a moment in time—ephemeral.   Social Welfare Functions Just Are Normative With regard to my claim that a social welfare function underpins market activity, there is both a positive and a normative side to this. On the one hand, we can write down the particular equation, or equations, that correspond with what we observe. In that sense, social welfare analysis is a form of positive analysis. There need not be any value judgments. This claim is wrong. Social welfare functions are one proposed method for aggregating preferences. Efficiency is another method for aggregating preferences. As noted in my previous response, the goal of mid-century welfare economists was to combine these two ways of aggregating preferences to identify social states that satisfied multiple normative criteria. The ideal was to base at least two distinct normative judgments on the same set of preferences. Here’s the problem with individual preferences: you and I disagree. You think that Zack Snyder should be allowed to complete his vision for the DC cinematic universe while I am happy to see a competent filmmaker like James Gunn take the reins. What is the socially preferred choice? There is no answer to this question that is not normative. How do we add up differing preferences? Any answer to this question involves criteria about which preferences count and how much they count. Willingness to pay is one criterion. Interpersonal comparisons of utility are another. Adam is right and you are wrong is a third. We can envision infinite options, all of which invoke value judgments. Social welfare functions are normative criteria by which social states are judged. This is why Broughel’s Bush vs. Nader vs. Gore example is confusing. To say that voters won’t produce transitive results is not an indictment of a particular social welfare function but rather an indictment of said voters, if one takes that social welfare function seriously.   Deficit Financing Still Matters Says Broughel,  I also never suggested that the ability to roll over debt turns “government spending into a magic goodies creator.” However, rolling over debt can prevent the government from ever having to raise taxes in the future to pay debts. Faster economic growth can do the same. These facts in themselves contradict the assertion that deficits necessarily “reduce the present discounted value of assets held by individuals in the present.” There is no reason why, on net, this needs to be the case. This is not to say our actions do not impose costs on future people. In fact, the costs we impose on the future generations are a paramount concern to me. But it’s not whether spending adds to the deficit that matters (within reason, course), but instead the composition of spending that is important. Buchanan turned economists’ attention toward little pieces of paper whilst simultaneously propping up the populist myth that deficits are paid for by future generations. This focus on deficits distracts us from the more important issue of how money is actually spent. In the particulars, here, Broughel and I are verging on agreement. Two points of clarification: in raising Abba Lerner, I was not trying to imply an affinity between market socialism and Broughel. As I tried to make clear, I think Lerner is partly right in his article. Lerner is a genius and not coincidentally a Hayek student. And by invoking MMT, I am simply pointing out the extreme version of Broughel’s view, which I don’t think he in fact holds, but is a useful point of reference for Econlib’s general readers. I admit I was poking the bear when I used the phrase “magic goodies creator.” I used it twice on my macroeconomics comprehensive exam in graduate school and am proud to report that I only got a marginal pass. More than a marginal pass would indicate too much time studying macro. But let’s dig into why he is wrong to ignore deficits. Let’s say that in period 1 the government decides to borrow instead of taxing. Then in period 2, the government confronts the choice again: tax to pay the debt off now or issue new debt to pay off the existing debt. This obviously just returns us to the same position as period 1. The government can either impose future taxes and thus alter the period 2 NPV of current assets or it can tax the period 2 generation to pay off the holders of debt. Either way some burden is imposed on period 2 citizens (unless they perfectly foresaw the future tax burden, in which case it was incurred in period 1). Scarcity is the ultimate binding constraint. Because of Ricardian equivalence, the ability to roll over the debt is irrelevant.  Both the nature and the financing of government spending is relevant to the pros and cons of government spending. More importantly, the insight we get from Buchanan is that the possibility of deficit financing itself changes what government will spend money on and how much it will spend. The nature and quantity of spending is endogenous to the financing rule.   Once More on Cost Does cost attach to actions like naps or things like widgets? The whole point of Buchanan’s Cost and Choice is that which one is correct depends on whether you are using cost in a predictive science or in a theory of choice. Hence the opening chapter about the deer-beaver model and the confusion resulting from conflating these distinct concepts of cost.  What Broughel seems to want is a third concept of cost: a normative concept. Social cost. He might deny that his favored concept is normative, since he denies that social welfare functions are wholly normative. Since social cost necessarily involves aggregating preferences, it is necessarily normative. So now we have three concepts of cost. But Buchanan is still right. The word simply means different things in different theoretical contexts. Insisting that cost is subjective or objective or normative misses the point. The point is not to conflate the different meanings. Perhaps Broughel will be happy to know that I am more than willing to criticize Buchanan on this point. After a careful analysis of choice-influencing costs (cost in a theory of choice) he admits into the domain of subjective economics choice-influenced costs, or what I have called losses. His justification is that both losses and opportunity costs exist in “utility space.”  I don’t doubt that Broughel has met dogmatic Austrians that say you can’t do cost-benefit analysis. I tell my own students that “BUT SUBJECTIVISM” is a bad argument because it conflates normative subjectivism with subjectivism in a theory of choice. Whether social cost is a valuable concept is simply a different question than whether costs are subjective at the moment of choice.  Buchanan objected to social cost because he objected to utilitarianism. But one could easily be both a radical subjectivist about cost and a utilitarian. It is simply a matter of normatively picking out which costs and benefits count when aggregating preferences. I am a radical subjectivist in one sense but am happy to say that some preferences are just bad, such as preferences for listening to Nickelback or for using social welfare functions.   Adam Martin is Political Economy Research Fellow at the Free Market Institute and an assistant professor of agricultural and applied economics in the College of Agricultural Sciences and Natural Resources at Texas Tech University. For more articles by Adam Martin, see the Archive. (0 COMMENTS)

And they’re not just for students. Georgetown philosophy professor Jason Brennan, a friend on Facebook and an actual friend, posted recently on Facebook a set of 20 exercises to give students to help them learn. Jason is a strong proponent of the view that you learn best, not by being lectured to (he might say “at”), but by doing. He gave me permission to use these. He got the idea from Jessica Flanagan, a philosophy professor at the University of Richmond’s Jepson School. Some of the ideas below are his and some of these are Jessica’s. According to Jason, Jessica’s students do one exercise each week as a “Purpose Project” assignment in one of her classes. Jason told his students to choose 10 of the 20 options below. 1. The Singer Project Make your phone background one of the pictures of a GiveDirectly recipient. As you spend money throughout the week, write a short note to that person explaining why you need to make that purchase instead of giving them money. At the end of the week, write a reflection paper about your moral reasons for spending or giving throughout the week. 2. The Hedonism Project Think about the things that make you happiest while they are happening and the things that you want for your life. This assignment is designed to make you appreciate the paradox of hedonism and the potential appeal of utilitarianism. On one day, whenever you have the choice, choose whatever will make you happy at that moment (within reason, folks). On the next day, try to live in a way that contributes to the happiness of the people around you whenever you can. What are some examples of the differences between these days? What did you learn by reflecting on what would make you happy in the moment? How did you feel on the day you devoted to the happiness of others? Write a response paper where you evaluate how satisfying each day was and what you learned about the moral significance of happiness. Which kinds of days would you want more of in your life? 3. The Honesty Project* For a 12-hour period, in which you are awake and interacting with others, try to be completely honest. You needn’t answer every question someone asks, but you must avoid engaging in strategic speech, deception, obfuscation, exaggeration, signaling, understatement, and the like. [DRH note: this reminds me of two movies: the hilarious 1997 movie “Liar, Liar” with Jim Carrey and the more interesting 2009 movie “The Invention of Lying” with Ricky Gervais.] Was this difficult or easy? How did it make you feel? How did people react to you? 4. The Paternalism Project* Choose a trusted friend or family member who cares about your wellbeing. Tell them your goals for yourself and identify the ways that you are falling short. Ask them to plan a day for you that they think will help you make progress on some of your goals. Follow their plan for the day and write a reflection about whether it actually did bring you closer to your goals. If so, why was your friend helpful here? If not, what information did they lack or why did they fall short? 5. The Political Disagreement Project* Talk to someone you disagree with about politics for 20-30 minutes about a political topic. Ask them to explain why they think their view is correct. Record the conversation and write 700 or words explaining and defending their argument for their position. Show them the summary and have them email me telling me whether they think your summary is fair, charitable, and accurate. 6. The Obligation Project* Part 1: I’m not saying you should break the law when you judge that the law is stupid, useless, and unjust, solely for the purpose of developing your anarchist spirit. But it’s at least worth thinking about the many laws you could break in this spirit! Make a list of at least 5 laws or rules that you think are totally permissible to break, and explain why it’s fine (or good?) to break these laws. Part 2: You’re probably a free rider. This week, spend at least 2 hours contributing to public goods in your home, community, or workplace (e.g. tidying common spaces, picking up trash, playing pleasant music for others, lending a helping hand at the gym, etc.). How did it feel to contribute to public goods when most other people were free riding? How did others respond to your contributions? Do you think you will continue to contribute going forward? 7. The Democracy Project* Think of a decision that you need to make in the next week. Gather at least 7 people to vote on the decision. (You can use social media to do this with a poll.) The more people voting the better! Let the crowd choose for you and follow the wisdom of the crowd. 8. The Equality Project On Day 1, try to live as a distributive egalitarian by leveling yourself down in order to equalize. (For example, you might spend time that you’d ordinarily devote to your own studying helping a struggling student or you could buy lunch for someone who has fewer resources than you) On Day 2, try to relate to everyone as an equal. Pay attention to status hierarchies and work to combat inequalities of status and esteem in your life. 9. The Drugs and Vices Project Talk to someone you know who uses a lot of recreational drugs, cigarettes, alcohol, study drugs, or the like. Ask them how they got started using the drugs. How do they circumvent rules trying to stop them from using the drugs? Do they like using the drugs and plan to continue? How much more would they be willing to pay for the drugs than they currently pay? Do they regret starting using them and wish they didn’t use them now? Alternative: Do the same for some other activity commonly seen as a vice. 10. The Tradition Project* Think of something that is considered a tradition in your community which you have not done. Try doing it. How did it make you feel to do it? Why do you think this tradition exists? What’s the best case for it? What might be lost of value if the tradition goes away? Alternatively, think of a long-standing norm or tradition in any society which at first glance seems unjustifiable to you. Make the best case you can for it. What possible purpose or value might it serve? Are there legitimate reasons why this norm or tradition exists? What might be lost of value if the tradition goes away? 11. The Laborer Project Find a person who works at what you consider a “blue collar” or “sweaty” job. Interview them about their work. Do they like it? Do they think they are paid well? Are they proud of their work? What sorts of skills do they use and how did they get into the work? What do they think of the people who manage them, if there are any such people? Do they think those managers add value? Do they want to become managers themselves? If the laborer works for themselves, ask them what value they think their self-management activities (scheduling, advertising, accounting, etc.) adds compared to the actual labor. 12. The Envy Project Think of someone who has something you do not, someone you are envious or at least jealous of. Make the best case you can for why they might deserve it or be entitled to what they have. Make the best case you can for why they don’t deserve it or aren’t entitled to it. Explain as best you can how things seem from their perspective. (You can feel free to ask them.) How would your life be better if you weren’t jealous or envious? 13. The Immigration Project Pick two countries where you are not a citizen, one rich and one poor, where you do not speak the most common language. Research what would it take for you (yourself, not a hypothetical person) to get the legal right to live and work there long term, if you could get such a right at all. What kind of jobs do you think you could get and what kind of lifestyle would you lead? What would your quality of life be? Tip: You might find people from those countries and ask how they think you would fare. Alternative: Find two immigrants to your own country, one from a rich country and one from a poorer country. Ask them why they moved. How are they doing? What did it take to enter? How long may they stay? Do they want to stay or plan to return? 14. The Reputation Project* Write down a short summary of what you believe your reputation is among some group of people you care about or whom you at least need to work with. (Examples: Teammates, family, people in your dorm, people in this class.) Now, find some reliable way to check if your view of your reputation is correct or not. For instance, ask a trusted friend to show people the summary and to take notes about whether people agree. Or set up an anonymous poll. 15. The Economic Growth Project Try to find a country or place from before 1850 AD where the typical person is leading a lifestyle and has a qualify of life that you think would be as good or better than your own. Explain why their life is better than yours. If you cannot find such a country or place, explain why not. In that case, pick a place and explain why yours is better. 16. The Moral Exemplar Project Talk to someone who you view as a moral exemplar, in some aspect of how they live their life. Do they view themselves in this way? What sets them apart, in your view, as a moral exemplar. Are they especially morally motivated or do they have other reasons for their actions? 17. The Perverse Incentive Project* Identify a persistent problem or flaw in an organization which you are involved in (such as a team, club, Georgetown University, etc.), a problem which is caused by perverse incentives. Explain how one might feasibly change the incentives to produce better outcomes. What are the potential downsides to your idea? Why hasn’t the organization already adopted the proposed change? Bonus if you get them to actually change. 18. The Taboo Market Project Pay someone to do something taboo or accept money to do something taboo. (Don’t do anything illegal.) For example, pay someone to wear clothes of your choosing or to put a temporary tattoo on their head. Write up a short report about how the spender and buyer felt, whether they regret it, and whether they would do it again. 19. The Socialism Project Take some property of yours (which you value but can afford to lose, if it comes to that) and announce to everyone in your dorm (or some other suitably large group where people know you but not that well) that for one week you consider this property a common bounty for all. Tell them they may use it at will and do what it takes to let them borrow it/ use it. How did they treat it? How did people respond to this? Did it get destroyed or overused? 20. The Trading Project* Select an item worth [DRH note: I’m pretty sure that Jason means “priced at”] approximately $1 USD, such as a candy bar. Over the course of a week, try to sell or trade that object for items of higher value. Trade each new object in turn and try to end up with the highest value object or most amount of money you can, just from trading. Note: You cannot add something to the objects to increase their value. For instance, don’t offer to tutor someone in calculus II if they buy your candy bar. Don’t tell them you are raising money for charity. The monetary value must be something we can easily establish from retail websites and the like; you cannot, for instance, just say you personally value some ten-cent item at $1 million. (0 COMMENTS)

I talked about education and positive externalities in a recent post. In that post, I took for granted that education has positive externalities, and that subsidizing education is an appropriate role of government, according to standard economic theory. However, as is often the case, there’s more to the story. Things that have positive externalities can simultaneously have negative externalities as well. It’s not a foregone conclusion what the net effect will be, even in the case of education. However, there’s also a subtle fallacy of equivocation we should avoid falling into. The fallacy of equivocation happens when we use the same word, but that word refers to different things at different stages in the argument. For this discussion, it’s important to distinguish between education, by which I mean the general process of gaining knowledge and skills, and the education system, by which I mean the system of schools, accreditation, degrees, and so forth. The education system is often referred to as just education, but they’re not the same thing. For example, Bryan Caplan’s book on the topic would probably have a more accurate (if less provocative) title if it had been called The Case Against the Education System, rather than The Case Against Education. Education has positive externalities – my neighbors being smart and well-informed benefits me as well in addition to the benefits it provides them. But the fact that education has positive externalities doesn’t entail that the existing education system ought to be subsidized. These are different things, and arguments about one can’t simply be copy-pasted onto another. A negative externality that exists with the education system comes from the idea of what economists call positional goods. A positional good is when somethings value for you to possess depends on the fact that it’s not possessed by others. As that good becomes more widely possessed, it becomes less valuable to you. For example, a sandwich is clearly not a positional good – the value of your lunch doesn’t go down just because other people also have a sandwich to eat at lunchtime. But the education system produces positional goods – the value of the degree you gain becomes lower as more people also acquire the same degree. How many times have you heard some variation of this lament? It’s getting harder and harder for people to keep up these days. Not too long ago, it was possible for someone to go straight out of high school into a career that would let them buy a house and support a family, and graduating college was a surefire ticket to the upper class. But now, you need a college degree just to have a chance to be middle class, and people who never graduate college have almost no hope at all of building a decent middle-class life. Part of this is due to the positional goods nature of degrees. Rates of both college and high school graduation only a few decades ago used to be much lower than today – and because of that, having a high school degree or a college degree used to be worth much, much more. Sometimes people suggest that the apparent necessity of getting a college degree to secure a good job means we should more heavily subsidize the education system so more people can get college degrees, but this is a self-defeating approach. If by waving a magic wand we could make bachelor’s degrees as common among people now as high school degrees currently are, the result wouldn’t be to secure the financial future of everyone who magically gained a new bachelor’s degree. It would be to basically wipe out the market value of everyone’s bachelor’s degree, and going forward it would take a master’s or PhD just to get the same benefit on the job market as is currently gained by an undergraduate degree. It’s important to not confuse the signal with the underlying reality the signal is meant to reflect – and to recognize you can’t change the underlying reality by simply changing the signal. In the beginning of the Great Depression, after worldwide tariffs were employed, food prices in America collapsed as export markets were restricted. A program was put into place prevent new food from being grown, or destroy currently existing food, to try to drive the price back up again. The thinking seemed to be “When the economy was strong food prices were high, so if we can make food prices high then the economy will be strong again.” But that approach got things all wrong – it mistook the signal for the reality. In the same way, many people have argued that since people with college degrees make more money than people without college degrees, if we can just make it so more people have a college degree by subsidizing the education system, then everyone will make more money. But that, too, is wrong. It’s also mistaking a signal for the reality – and it overlooks the positional goods aspect of the education system. Increasing the number of college graduates doesn’t necessarily give the current benefits of college to more and more people. It may instead only dilute the value of a college degree to those who have it, and further block the upward mobility of those who lack a degree.   (1 COMMENTS)

Economist Anita Summers died on Sunday, October 22. She was the mother of Larry Summers, Kenneth Arrow’s sister, and Paul Samuelson’s sister-in-law. I had a brief but pleasant phone conversation with her in, I think, the late 1980s. I had heard that Larry was very sick. He and I had been colleagues at the Council of Economic Advisers and we always got along. So I called her to see if he was alright and to express my concern. James Poterba and Claudia Goldin did a recent interview of her to learn about her early experiences as a researcher with the National Bureau of Economic Research. It’s fascinating throughout. HT2 Tyler Cowen. She was clearly a very careful numbers person and the first 8 minutes or so are about that. Later she worked for Standard Oil of New Jersey and was given an important question on Friday to answer by Monday. That part starts at about the 28:00 point. She spent virtually the whole weekend researching it and had her answer. It was about whether Standard Oil, if it invested in a refinery in South Africa, would be able to take the dollars out later. Here’s the transcript of the conversation, cleaned up for the “uhs” etc. I got all the examples of other things that were were gotten and looked for the evidence of where dollar shortages were eased and so on and made a conclusion that the answer was yes, they would be able to get their dollars out by then and so I had the report by the end of Monday. Then my immediate boss looked at it and then the head of the department looked at it and it went to–what’s his name–Emilio Collado, who had been head of the IMF [DRH: actually, the World Bank], you know, before he came there.  He was Chief Financial Officer of Standard Oil of New Jersey. He was the person. So the next day, Tuesday, it was to be discussed with him, and my immediate boss said to me when I came in at nine o’clock in the morning, “I’m sorry, Anita, that he won’t have a woman in his office except as secretary, so I’m going down. So stay next to your phone.” All morning every 10 minutes the phone would ring. I would answer the question. The phone would ring and I began to really feel angry. But the interesting thing is that I was angry that I had done all the work and he was the one transmitting it. That was idiotic. I was less focused on because it was a female. It was the idiocy of it. So at lunchtime when he came back and it was still to continue, I said, “I just want you to know that of course I’m going to see this through appropriately, but I will never do this again. You can decide to fire me or you can decide to see that I never do a job for him again but the one thing I will never do is this again.” So then he and the head of the department decided they would both take me down in the afternoon unannounced in advance. We walked in the office and he said, “Who is she?” and they answered and he started by asking them the answer [question] but within five minutes, I was answering and that was the end of the problem. From then on it was not a problem but I really felt the notion that I had worked and, particularly, I think because I’d worked 20 hours a day, you know, and doing all this and the idiocy of that arrangement was so offensive. But that was the end of the problem. He was courteous.   (0 COMMENTS)

…and never were. It has become conventional wisdom among economists that demographics are Japan’s underlying problem. Demographics are blamed for everything from slow growth to zero interest rates to deflation. But demographics are not and never were Japan’s problem.  Japan may represent “the future”, but are we drawing the right lessons?The demographics hypothesis does have a sort of superficial plausibility. Japan’s population grew 12.5% between 1974 and 1991, and then only 3.0% from 1991 to 2012. Japan’s total employment grew 23.6 % between December 1974 and December 1991, and then actually fell by 2.4% over the following 21 years. Thus as population growth slowed, employment growth slowed even more dramatically. At the time, people assumed that an aging population was the culprit.But when the Abe administration took office at the beginning of 2013, everything changed. Employment soared by 8.1% between December 2012 and November 2019, and yet the demographics actually got far worse. Population is now actually falling, and at an accelerating rate. In addition to a falling population, Japan also has an aging population.  But that “problem” actually got worse after 2012, so it doesn’t explain the dramatic employment shifts.  I use scare quotes, as I’m not convinced that an aging population is actually a problem, at least by conventional metrics.  If adults work on average during 75% of their expected adult lifespan, it really shouldn’t matter whether the life expectancy is 80, 180, or 580 years.Many people (including me a few years ago) assumed that as Japan got older the Japanese would continue to stop working at the same age.  But that doesn’t seem to have been the case, and thus the number of available bodies in Japan has risen much more than expected.  That reflects both better health and less strenuous jobs.(In the US, the employment/population ratio for age 55-64 and has hit all time high, while the ratio for over-65 group peaked in late 2019.) It’s now clear that demographics never were Japan’s problem.  Once monetary policy became a bit more expansionary, prices began rising and employment rose much faster than expected.  Demographics may partly explain the low real interest rate in Japan, but the nominal rate is mostly determined by the trend rate of inflation, i.e. monetary policy.In the future, demographics may be a problem for specific countries such as Italy, but only if they choose to make it a problem.  There’s no reason to keep the retirement age at 62 as life expectancy rises sharply and jobs get softer.  We may choose (in public pension plans) to allow the elderly to enjoy some extra years of retirement as we get richer, but there’s no reason for years spent in retirement to rise one for one with life expectancy.  Japan is showing that there’s another way. (0 COMMENTS)