Small misunderstandings can snowball into major confusions. This is as true in economics as in any other field. Very often one finds a well-educated person build up a sophisticated analysis that ultimately rests on a misunderstanding of basic economics. Marx wrote thousands of pages of economic prophecy that rested on the false foundation of the labor theory of value. Modern observers are no less vulnerable. I was reminded of this when reading a book review by Scott Alexander of Peter Theil’s Zero to One. Peter Theil spends a lot of intellectual effort trying to explain something which, to him, cries out for an explanation, but seems to rest on a fundamental misunderstanding of what economists mean when talking about profit. According to the Scott Alexander’s review, “the basic economic argument goes like this: In a normal industry (eg restaurant ownership) competition should drive profit margins close to zero.” But this leads to the following mystery: “Neither the promise nor the warning has been borne out: business owners are often comfortable and sometimes rich.” To Theil, this is a contradiction between theory and reality that must be explained. Theil attempts to explain it by suggesting that wealthy businesses have “escaped competition and become at least a little monopoly-like.” But Theil is attempting to resolve a contradiction that doesn’t exist. Here’s where the misunderstanding lies. Economic theory does not predict that competitive markets will drive profit margins close to zero. What economic theory tells us is that competitive markets will drive the rate of economic profit towards zero. This may sound like two slightly different ways of saying the same thing, but there is a big difference between them. When most people think of profits, they think of accounting profits – income minus expenses, in the simplest formation. And this isn’t unreasonable – it describes what most people care about in their day-to-day life. Am I bringing in more money than I’m spending? If so, I’m profitable, and if not, I’m taking losses. But economic profits also consider the opportunity cost – that is, it factors in what else you could be doing. To put it another way, economic profits are the difference between your current choice and the best available alternative. Because of this, your economic profits can be low, zero, or even negative while you are making large accounting profits. If your next available option is just as good as your current situation, then you’re making zero economic profits- even if you have a very favorable cash flow. If your best alternative is only slightly worse than the status quo, you’re making a small economic profit. If there’s a better option for you out there, then you’re sustaining an economic loss, even if your bank account is very impressive. Consider this example. Suppose I can assign some square footage in a building I own to gambling. Let’s say I put in a bunch of nickel slot machines. Imagine that these machines are very popular – all day, every day, there are people sitting at the slot machines, putting in coins and pulling the handles. The money these machines bring in for me exceeds their expenses by $1 million a year. My accounting profits, therefore, are $1 million a year. But that doesn’t mean I’m making $1 million a year in economic profits. Instead of putting in nickel slots, I could have used that same square footage to put in blackjack tables. If those blackjack tables could have generated accounting profits of $5 million a year, that means the nickel slots carry an annual opportunity cost of $5 million. So even though I’m making accounting profits of $1 million a year with the slot machines, the opportunity cost of not setting up blackjack tables means I’m taking an economic loss of $4 million a year.  In almost all cases, whenever a non-economist decides they’ve made some new, cutting-edge observation that upends standard economic theory, an observation that economists have somehow overlooked, what’s usually going on is the non-economist is just misunderstanding an elementary point. This is one such case. Theil seems to believe that “the rate of economic profit tending towards zero” implies that in competitive markets, every business should be operating on the brink of bankruptcy. He expends a great deal of intellectual effort trying to explain why things haven’t worked out his way. But all his efforts ultimately rest on a misunderstanding of basic economics, and he’s trying to solve a mystery that doesn’t exist. The rate of economic profit tending towards zero just means that your next available option will tend to be nearly as good as your current option. This can be true whether you’re bankrupt, just barely scraping by, comfortably middle class, or a billionaire.   (0 COMMENTS)

A half-century ago this October, the Arab members of the Organization of Petroleum Exporting Countries (OPEC) announced a production cut and embargo against the United States. The consequences represent a case study in the perils of economic intervention by government. Wrong-headed public policy can turn market challenges into a full-blown crisis—and did so with petroleum in the 1970s. Worse, a false narrative emerged about energy security that would plague U.S. policy for decades. The crisis did not begin with the five percent production cut and embargo. It began with the passage of the Economic Stabilization Act of 1970, which gave the President authority to enact wage and price controls. Richard Nixon invoked this power on August 15, 1971, setting a 90-day freeze on all wages and prices in the U.S. economy. Monetary expansion, the real culprit behind price inflation, was conveniently ignored. The controls shocked Milton Friedman and other free-market economists but attracted wide business support. The “temporary” program, it was said, would quell inflationary expectations to check rising prices. But the first peacetime price control program in U.S. history would go through five phases over the next 33 months—Phase I (Freeze I), Phase II, Phase III, Phase III 1/2 (Freeze II), and Phase IV—and it would distort the petroleum market more than any other major industrial sector. Oil shortages at the wholesale level and spot gasoline lines by late 1972/early 1973 resulted in Congressional hearings on energy-use conservation, another peacetime first. Growing petroleum problems led Nixon to create three successive bureaucracies over oil policy. On the legislative front, a major energy bill was working its way through Congress to deal with petroleum prices and allocation. All this was before the October 1973 announcement by OPEC (itself created in 1960 in retaliation for U.S. oil import quotas). The Arab OPEC actions against the United States in fourth-quarter 1973 worsened Nixon’s oil crisis. But it was pre-existing federal regulation that fathered the panic at the pumps. As Ayn Rand noted at the time: The Arab oil embargo was not the cause of the energy crisis in this country: it was merely the straw that showed that the camel’s back was broken. There is no “natural” or geological crisis; there is an enormous political one. The U.S. on-and-off oil crisis persisted until decontrol and market adjustment set-in during 1981.   EPAA of 1973 The Emergency Petroleum Allocation Act of 1973 (EPAA), which Nixon had opposed for months, was enacted the month after the Embargo. EPAA linked price and allocation controls. “The creation of Part 210,” stated the Federal Energy Office, “recognizes the compelling necessity of viewing both allocation and price problems within the context of a single regulatory framework.”[1] Intervention-begetting-intervention marked the seven-year reign of EPAA. A higher price cap for “new oil” than (physically identical) “old oil” was introduced, a price schema that grew to three categories in 1976, five in 1977, and eight and finally eleven in 1979. With downstream parties differentially impacted by wellhead price categories, distortions reigned on the distribution side. Two regulatory programs, the supplier/purchaser rule and the buy/sell program, continually amended, tried to address price inequities between independents and integrated majors. Another distortion was U.S. refinery purchases given multi-tiered domestic price ceilings and unregulated import prices. Specifically, inland refineries tied to domestic oil capped at $5.25 per barrel in 1974 were greatly advantaged over coastal refineries paying a world price approaching $10 per barrel. The result was the Old Oil Entitlements Program of 1975, which required refiners with an average crude acquisition cost under the national average to write a monthly check to an oppositely situated refiner. Entitlements “equalization” was quickly politicized. The “small refiner bias” awarded bonus entitlements to refine low-cost oil without obligation to subsidize inefficient “tea kettles,” some of whom suddenly entered the market. Exemptions also rewarded the politically astute at the expense of their more efficient rivals—and consumers.   Oil Reseller Boom The refiner-entitlements program was the most visible and criticized program under the EPAA. But an almost invisible regulatory episode grew up alongside oil price and allocation controls—the oil reselling boom—that ranks as one of the most bizarre in U.S. history. The nation suffered through several major petroleum shortages during the 1970s. But for most of the price-controlled period, supply and demand meshed at retail without queues. Why did U.S. consumers pay record-high prices—even approximating the price of world oil—despite maximum price regulations at every transaction point to ensure the opposite result? Part of the answer was that domestic refiners purchased uncontrolled imports to price-blend with (underpriced) domestic regulated crude, increasing the cost of imported oil by an estimated 10–20 percent.[2] Second, a swarm of nouveau oil resellers profitably bought and sold price-regulated (underpriced) oil—a regulatory gap that energy planners could not plug despite regulating margins per transaction. While physical transportation, refining, and retailing involved a limited number of markups, resellers could buy and sell the oil repeatedly with the quantity and location physically undisturbed. Back-to-back trading (“daisy chaining”) became commonplace to capture the margins and prices that, by law, were denied at the wellhead. So long as the refiner could buy crude and make its maximum profit, and so long as the retailer could sell the churned product at full margin, the opportunists could bid up the price to “market” levels. Hundreds of resellers consummated hundreds of thousands of transactions in this way. The good news was that the resulting price increases kept motorists out of gasoline lines for most of the price-control period; the bad news was that domestic oil producers were prevented from producing an estimated one million (additional) barrels per day.[3] The revenue that would have gone to oil producers (and royalty owners), in other words, went to foreign petro-states and to fly-by-night resellers, a number of which became “regulatory millionaires.” This example of superfluous entrepreneurship was an unintended consequence of intervention.   Robert L. Bradley is the founder and CEO of the Institute for Energy Research. [1] The summary to follow is taken from Robert L. Bradley, Jr., Oil, Gas, and Government: The U.S. Experience (Lanham, MD: Rowman & Littlefield, 1996), chapter 9, chapter 12 (pp. 667–710), chapter 20 (pp. 1194–1228), and chapter 27. [2] Joseph P. Kalt. The Economics and Politics of Oil Price Regulation: Federal Policy in the Post-Embargo Era (Cambridge, MA: MIT Press, 1981), pp. 286–87. This represented a regulatory subsidy to OPEC and other exporters to the U.S. [3] Kalt, The Economics and Politics of Oil Price Regulation, p. 287. (0 COMMENTS)

Other things equal, a reduction in price leads to a lower quantity supplied. But other things equal, price never changes.  Price always changes because other things are not equal. This tweet caught my eye: This is an example of what I call “reasoning from a price change”.  Don’t do it! Most advocates of increased housing construction are proposing measures that would shift the supply curve to the right, resulting in both lower prices and higher output. Reasoning from a price change is a very common mistake.  You see Fed officials doing this when they speculate that higher bond yields might slow the economy.  Not if the higher bond yields reflect higher demand for credit. (0 COMMENTS)

On a recent post, a commenter suggested something that struck me as a perfect example of what I will call Grey’s Law. Grey’s Law comes from an offhanded comment made by the YouTuber CGP Grey in one of his videos, where he said: There’s almost a law of the universe that solutions which are the first thing you’d think of and look sensible and are easy to implement are often terrible, ineffective solutions, once implemented will drag on civilization forever. The specific comment that brought Grey’s Law to mind was remarking on the education system, where a commenter said “if the goal was better education we would just do what Massachusetts and New Jersey do and avoid what Oklahoma does.” And this seems to make sense at first! After all, if you want to make any system better, wouldn’t you look at examples of systems that are performing well, find out what they are doing, and then simply use their system everywhere else? Certainly, that’s the first thing you’d think of, and it looks sensible, and it would be easy to implement so…oh wait, right, Grey’s Law. So, what’s wrong with this seemingly sensible solution?  At the highest level, it falls into one of the major pitfalls of High Modernist thought. I’ll summarize this pitfall by cribbing from Scott Alexander’s review of Seeing Like a State, where Alexander describes one of the tenants of High Modernism as believing “the solution is the solution. It is universal. The rational design for Moscow is the same as the rational design for Paris is the same as the rational design for Chandigarh, India.” Or, as this commenter would contend, the optimal education system for students in Massachusetts or New Jersey is the optimal education system for all students, everywhere. All we need to do is find out what they’re doing in Massachusetts and just do that everywhere.  But why on earth would we assume this is true? Students aren’t a Standardized Product Unit who all respond to a given education system in the same way – nor are groups of students in different states, towns, or districts. A system that works extremely well in New Jersey might be only moderately successful in Pennsylvania, and completely ineffective for students in the Appalachian region. Even a system that works well in one particular school district might be terribly suited for students in the next district over, or even from one classroom to the next in the very same school. Simply assuming that “we” (whatever “we” is supposed to mean) can just decide what the “right” system is and implement it everywhere handwaves away the enormous variety and complexity of circumstances that exist in different areas and among different students.  As an aside, I see exactly this sort of thinking a lot in my work as a healthcare analytics consultant. Most doctors I’ve worked with (thankfully, not all) often invoke the term “Best Practices” in a manner that almost makes you expect it to followed by the sign of the cross. They think that “we” just need to Determine Best Practices, often by looking at a particular institution that’s having strong success in a given area. From there, we need only Implement Best Practices at their own institution, and they’ll get the same results. And it never, ever works out that way. I wish it did – it would make my work so much easier! It would mean for any given issue for which a hospital needs help, my team and I would just need to find an effective solution once, and then for every future job, we can just implement the proper tool or system at the new institution and get equally good results. Alas, reality is not that simple or that simplistic. Every institution has different constraints, different patient populations, different resources – even the personalities of the medical staff can make a huge difference on how effective solutions are from place to place. It takes a good deal of work getting familiar with all the local circumstances to work out an effective solution – and that solution, sadly, won’t be applicable on the next job.  I also saw this iteration of Grey’s Law play out frequently in my time in the military. Most of the time, any given servicemember is at a given unit for about three years before getting orders to the next unit. During your time at a given unit, you’d almost certainly see the commanding officer replaced, along with the Sergeant Major and other lower-level officers and enlisted leaders. You always hoped that the new bigwigs would be one of the good ones. And one of the most reliable signals we learned for predicting which ones would be good or bad was their attitude on how their experience at their previous unit should inform what they do at the current unit. A universally bad sign was when they said something to the effect of “Back at my last unit, we did things in such and such a way, and everything worked great there. So going forward, we’re going to do it in such and such a way here too.” Commanders with that attitude were, in practice, terrible, ineffective commanders whose methods, once implemented, were a drag on unit performance.  Luckily, in practice, there was a way around such people, to prevent them from hampering mission effectiveness too much – a way described by James C. Scott in his book Two Cheers for Anarchism:  Workers have seized on the inadequacy of the rules to explain how things are actually run and have exploited it to their advantage. Thus, the taxi drivers of Paris have, when they were frustrated with the municipal authorities over fees or new regulations, resorted to what is known as a grave de zele. They would all, by agreement and on cue, suddenly begin to follow all the regulations in the code routier, and, as intended, this would bring traffic in Paris to a grinding halt. Knowing that traffic circulated in Paris only by a practiced and judicious disregard of many regulations, they could, merely by following the rules meticulously, bring it to a standstill. The English language version of this procedure is often known as a ‘work-to-rule’ strike. In an extended work-to-rule strike against the Caterpillar Corporation, workers reverted to following the inefficient procedures specified by engineers, knowing that it would cost the company valuable time and quality, rather than continuing the more expeditious practices they had long ago devised on the job. The actual work process in any office, on any construction site, or on any factory floor cannot be adequately explained by the rules, however elaborate, governing it; the work gets done only because of the effective informal understandings and improvisations outside those rules. In the same way, when we had a new commander who was drunk on the idea that what worked well at his last unit must also work well here, the result, in practice, was “a practiced and judicious disregard of many regulations” set out by that commander in favor of “the effective informal understandings and improvisations outside those rules.” This was not done flagrantly of course – it was a subtle understanding. But there was a sort of satisfied amusement among us to see a planner utterly convinced their plan was working, and equally unaware that the plan only appeared to be working to them because people knew better than to actually follow the plan. (0 COMMENTS)

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)