When Alexandra Hudson arrived in Washington, D.C., she discovered that outward behavior is not always a reflection of a person’s character. Her disillusionment led to an in-depth exploration of the historical concept and practice of civility, along with a newfound appreciation for not only empathy, but also debate and disagreement in a healthy society. Listen as […] The post Alexandra Hudson on the Soul of Civility appeared first on Econlib.

Former Fed vice chair Richard Clarida has a new paper that examines Fed policy during the Covid period. He argues that the mistakes were tactical, not strategic. I believe they were both. In August 2020, the Fed adopted a policy of “Flexible Average Inflation Targeting” (FAIT).  Clarida argues that the policy regime is sound, but mistakes were made in the process of implementing the policy. I agree with Clarida on two key points.  First, it is better to target the average inflation rate over several years, and make-up for inflation shortfalls with a subsequent overshoot of inflation.  In addition, it makes sense to look through supply shocks, and focus on maintaining stable growth in aggregate demand. (That’s the flexible part of FAIT.) Here Clarida discusses what went wrong:  [B]eginning in the summer of 2021, the incoming data began to reveal that the inflation surge was becoming broad based in both goods and labor markets and that, moreover, the balance of risks to the inflation outlook were skewed decidedly to the upside. Certainly by the fall of 2021 , and as is shown in Figures 4 and 5, time series plots of the above mentioned inflation indicators along with many other inflation readings “went parabolic” indicating clearly that, already by that time, the level of nominal aggregate demand in the economy exceeded available aggregate supply forthcoming at the Fed’s 2% inflation target, even though the data then available . . .  indicated that the level of real GDP remained some 2 percentage points below the CBO’s contemporaneous estimate of potential , that the unemployment rate at 5.2 percent remained well above contemporary estimates of NAIRU, and that the prime age labor force participation remained 1.3 percentage points below its pre pandemic peak. Simply put, the Fed in 2021 got aggregate supply wrong, and in so doing, it kept in place an exceptionally accommodative monetary policy longer than it would have it had not overestimated the economy’s potential . . .  By the time of September 2021 FOMC meeting, standard monetary policy rules, including the “shortfalls” version of the balanced approach Taylor – rule featured in the Fed’s recent Monetary Policy Reports were signaling that liftoff from the ZLB was by then warranted Thus, under FAIT the Fed should have raised rates in September 2021, instead of waiting until March of 2022.  In Clarida’s view, there was a series of tactical errors, and the basic FAIT approach remains sound: Thus it was not the goal that inflation average 2 percent over time as was endorsed in the Fed’s August 2020 framework revision that precluded the FOMC in 2021 from lifting off from the ELB and beginning to shrink its balance sheet. It was instead the Committee’s additional commitment to honor its September 2020 threshold guidance as well as its communication that it would follow a ‘taper – hike – shrink’ sequence of policy normalization similar to the practice it implemented following the GFC , in tandem with a reluctance even to commence the taper until a majority of the Committee deemed that “substantial further progress” towards its maximum employment mandate had been achieved, the threshold standard for tapering QE the FOMC had laid out in its December 2020 FOMC statement. Committing – and honoring the commitment – to follow a ‘taper hike shrink’ sequence and to the delay the taper itself until “considerable progress” had been made towards the maximum employment goal were FOMC decisions with regards to how best to execute policy to achieve the Fed’s dual mandate goals of maximum employment and inflation that averaged 2 percent over time, but were not decisions compelled by or nor were they necessary to honor the either the spirit or the letter of the August 2020 Framework Statement. This also applies to the September 2020 threshold guidance on the conditions for lift off: this stronger commitment was consistent with the new framework, but it was not required by it as is evidenced by the fact that the shortfalls version of the balanced approach policy rule did signal lift off before those conditions were met. Clarida’s correct that tactical errors were made.  The September 2020 threshold guidance was inappropriate, and indeed was based on a Phillips Curve model that was already discredited by the 1970s.  But Clarida underestimates the problems with the underlying FAIT approach. The basic problem is that the Fed’s FAIT policy is asymmetric.  The Fed commits to make up inflation undershoots with higher future inflation, but there is no similar commitment for inflation overshoots.  Some argue that offsetting an inflation overshoot would be inappropriate, as it would impose pain on the economy.  But that’s the reason for the “flexible” part of FAIT; policymakers look through supply shocks and stabilize aggregate demand.  Indeed, a properly symmetric FAIT would be essentially equivalent to NGDP level targeting.  Inflation could vary a bit over time due to supply shocks, but in the long run would equal the NGDP target growth rate minus the trend rate of RGDP growth.  Thus if the target were 4% NGDP growth and trend RGDP growth were 1.8%, then inflation would average 2.2%.  If the primary mistakes were tactical, then how does changing the policy regime fix the problem?  It turns out that tactical errors are much less consequential with a symmetric FAIT approach.  If markets knew the Fed was committed to offsetting both demand undershoots and demand overshoots, then market interest rates would have risen in late 2021 to restrain aggregate demand.  Markets would have seen that the Fed was behind the curve—that NGDP growth was quite excessive—and that this meant much tighter money was coming in 2022.  But merely the expectation of future tight money would have been enough to immediately tighten monetary conditions.  Yes, the Fed held rates at zero for too long during 2021-22.  But the deeper problem was that they failed to commit to a regime of stable growth in NGDP, making up for both undershoots and overshoots. 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A brief essay on The Thoughts of Blaise Pascal Blaise Pascal plumbs the depths of the human condition and establishes the logic of conservatism by examining hard choices in high-stakes situations. Pascal expresses his insights in brilliant pensées—fireworks of thought. Let me focus on Pascal’s thoughts about two kinds of hard choices: (a) Who shall rule? (b) How shall I behave if God’s existence is uncertain? Pascal’s general approach to hard choices is to clarify the limits of reason and the power of psychology, the better to chart a narrow path for rational choice: “There is nothing so conformable to reason as the disavowal of reason.” Pensée no. 272 Knowledge is incomplete. A (partial) increase in one’s knowledge tends to induce overconfidence. Wisdom consists in cognitive humility—an elusive frame of mind for intellectuals: “The sciences have two extremes which meet. The first is that pure natural ignorance in which every man is born. The other extreme is that reached by great minds, who, having run through all that men can know, find that they know nothing, and again come round to the same ignorance from which they started; but this is a learned ignorance, conscious of itself. Those between the two, who have left their natural ignorance and not been able to reach the other, have some tincture of this vain knowledge, and assume to be wise.” Pensée no. 327 Who shall rule? Pascal foreshadows the conservative principle, Chesterton’s fence. One should hesitate to change a rule, or to break with tradition, unless one understands the origin or function of the rule or tradition. Pascal makes a case that traditions deserve legitimacy. Traditions have stood the test of time because they reduce conflict: “Do we follow ancient laws and opinions because they are more sound? No; but because they stand alone and take from us the root of diversity [conflict].” Pensée no. 589 Pascal then illustrates the conservative principle’s function by concrete analysis of a fundamental political institution in early modern Europe: monarchy with dynastic succession by primogeniture: “The most unreasonable things in the world become most reasonable, because of the unruly lives of men. What is less reasonable than to choose the eldest son of a queen to guide a state? for we do not choose as steersman of a ship that one of the passengers who is of the best family. Such a law would be ridiculous and unjust; but since they are so themselves, and ever will be, it becomes reasonable and just. For would they choose the most virtuous and able, we at once fall to blows, since each asserts that he is the most virtuous and able. Let us then affix this quality to something which cannot be disputed. This man is the king’s eldest son. That is clear, and there is no dispute. Reason can do no better, for civil war is the worst of evils.” Pensée no. 786 Here Pascal foreshadows Nobel Laureate Thomas C. Schelling’s theory of the crucial role of salient focal points in strategic interaction and conflict resolution. Salience is psychological, not strictly logical. If there exists a clear, preferably unique, focal point, it can forestall or overcome bargaining impasses and self-serving conceptions of justice. If the focal point is recurrent—for example, primogeniture—it may readily become a tradition, a Chesterton fence. How shall I behave if God’s existence is uncertain? ‘Pascal’s Wager,’ his most famous pensée, deploys both the logic of games of chance, and the psychology of belief-formation, to try and convince freethinkers to bet on God, and to dupe themselves!  Pascal’s interlocutor is someone who does not believe in God. Their dialogue has three background empirical premises: If God exists, then belief in God is a necessary condition for salvation in the afterlife. One cannot prove the existence of God. One cannot simply decide to believe. Given these premises, Pascal first makes a gambler’s case that it would be prudent to believe in God. Pascal makes an appeal to interest, not evidence: “Let us then examine this point, and say, ‘God is, or he is not.’ But to which side shall we incline? Reason can determine nothing about it. There is an infinite gulf fixed between us. A game is playing at the extremity of this infinite distance in which heads or tails may turn up. What will you wager? [… .] Let us weigh the gain and the loss in choosing heads that God is. [… .] But there is here an infinity of an infinitely happy life to win, a chance of gain against a finite number of chances of loss, and what you stake is finite; that is decided. Wherever the infinite exists and there is not an infinity of chances of loss against that of gain, there is no room for hesitation, you must risk the whole. [… .] Every gambler stakes a certainty to gain an uncertainty, and yet he stakes a finite certainty against a finite uncertainty without acting unreasonably. [… .] So that our argument is of infinite force, if we stake the finite in a game where there are equal chances of gain and loss, and the infinite is the winnings. This is demonstrable, and if men are capable of any truths, this is one.” Pensée no. 233 The intuition is that any positive chance at an infinite reward has infinite value, and so trumps any finite worldly pleasures here and now.  Pascal’s wager triggered an ongoing avalanche of analysis of the logic of ‘expected utility.’ It gets complicated fast. Let me mention just a few issues for flavor. What if God exists, but punishes gamblers? What if a gambler has a high ‘discount rate’ (i.e., cares about the present, not the afterlife)? What if there are many Gods? Howsoever that may be, Pascal is certain that he has got the gambler’s attention. A quandary—a psychological challenge—then naturally arises. If it would be prudent to believe in God, but there is no proof of God and one cannot simply decide to believe in God, then what is a non-believer to do?! Pascal’s answer is to take steps to dupe oneself by going through the motions of religious practice:  “I confess and admit it [that belief in God would be prudent]. Yet is there no means of seeing the hands at the game? — Yes, the Scripture and the rest, etc. — Well, but my hands are tied and my mouth is gagged: I am forced to wager and am not free, none can release me, but I am so made that I cannot believe. What then would you have me do? [… .] Labor then to convince yourself, not by increase of the proofs of God, but by the diminution of your passions. You would fam arrive at faith, but know not the way; you would heal yourself of unbelief, and you ask remedies for it. Learn of those who have been bound as you are, but who now stake all that they possess; these are they who know the way you would follow, who are cured of a disease of which you would be cured. Follow the way by which they began, by making believe that they believed, taking the holy water, having masses said, etc. Thus you will naturally be brought to believe, and will lose your acuteness. — But that is just what I fear. — Why? what have you to lose? The last process of reason is to recognize that there is an infinity of things which transcend it; it is but weak if it does not go so far as to know that.” Pensée no. 233 The psychological thesis is that faking it is transformative. Going through the motions will eventually (a) dull one’s critical faculties, (b) erase one’s awareness of faking it, and (c) induce faith. The rational, self-interested choice is to submit to tradition as a means to psychological transformation. Pascal’s thoughts about politics (legitimacy of dynastic succession) and about religion (prudent make-believe to achieve faith)—his thoughts about hard choices in high stakes situations—unflinchingly demonstrate the limits of reason and strategically enlist rational choice and psychology to harness traditions. The Pensées are the dawn of the modern conservative mind.   John Alcorn is Principal Lecturer in Formal Organizations, Shelby Cullom Davis Endowment, Trinity College, Connecticut.  Scruples about principles of historical inquiry, and a stint teaching in Columbia’s ‘great books’ core curriculum led him to explore methodological individualism and the social sciences.  As in the Dry Bones song, a concatenation of authors—Jon Elster, Diego Gambetta, Thomas C. Schelling, Robert Sugden, David Friedman, and Michael Munger—eventually brought him to discover EconTalk and EconLog.   (0 COMMENTS)

To think about the war in the Middle East, I suggest it is urgent to read, or reread, Bertrand de Jouvenel’s 1945 book On Power. (See also my Econlib review of the book.) Reflecting on attacks and atrocities against civilians during WWII, Jouvenel wrote (and that was before Hiroshima and Nagasaki): We are ending where the savages began. We have found again the lost arts of starving non-combatants, burning hovels, and leading away the vanquished into slavery. Barbarian invasions would be superfluous: we are our own Huns. Hamas represents an extension of the barbarism that Jouvenel was denouncing. If an undisputable marker were needed, talking civilian hostages would be one. That the terrorist gang was once elected as the political authority or quasi-state of Gaza only buttresses the parallel. On the other side, the state of Israel, whose civilian population has been directly targeted and whose right of self-defense cannot be seriously challenged, should follow “higher standards,” as American Secretary of State Antony Blinken correctly said. Over the past millennium or so, rules of civilized behavior have evolved, especially in the West, for protecting civilian populations in war. They have not always been respected, perhaps especially—that’s Jouvenel’s argument—under the modern state. Would-be states, like Hamas and Isis, have doubled down on barbarism by conspicuously rejecting these rules of civilized behavior. These barbarians are literally “bands of robbers and murderers,” to borrow Lysander Spooner’s expression. The plight of ordinary Gazans, often the children of Palestinians displaced when the state of Israel was created, and who are now forced to move again, should not leave us indifferent (“As War Looms Israel Calls for 1.1m people to evacuate Northern Gaza,” The Economist, October 13, 2023; see also “Inside Gaza, People Desperately Seek Safety,” Wall Street Journal, October 13, 2023). If states did not exist and if (admittedly a big if) anarchy remained peaceful, such moral catastrophes on the scale as we have observed could not happen. On the other hand, it is true that political authorities did not prove capable of protecting the Jews against persecution during most of their history, so it is understandable that many of them count on their own state to protect their lives and liberty. Political economy helps us to inquire into the general role of moral values in social interaction. James Buchanan with his ethics of reciprocity and Friedrich Hayek with his spontaneous-order rules of just conduct argue that the maintenance of a free society requires some minimum ethics. The basic individualist ethic nurtured by Western civilization rejects group identities and tribal intuitions that justify collective punishments. In times of war, individualist ethics may be difficult to uphold by those waging a just defensive war, but its recognition is essential as a standard to distinguish collectivist barbarians and civilized individualists. Just as it makes no sense to hold the Israelis responsible for the barbaric attack of which they were victims, it is nonsensical to think of ordinary Gazans, under the yoke of Hamas thuggery, as collectively guilty and artisans of their own misfortune. (1 COMMENTS)

1. Peter Suderman, “The Bad Law that Made Good Bars,” Reason, November 2023. Excerpt: The previous system, Raines said, was understood to be corrupt, as it relied on discretionary licenses and a host of largely unenforced provisions. In addition to taxing saloons, the Raines Law imposed new rules about when, where, and to whom they could serve alcohol. It raised the drinking age to 18, restricted sales “in the vicinity of public institutions” such as asylums, and prohibited alcohol sales on Sundays or on any day between 1 and 5 a.m. There was, however, an exception to the ban on Sunday sales: hotels, which could sell liquor to guests with their meals. To be classified as a hotel, a place of business had to have at least 10 rentable rooms and a few other amenities. Thus the Raines Law Hotel was born. Saloon operators converted their back spaces into hotel rooms so they could legally sell booze on Sunday. By one 1902 count, there were just 13 hotels in Brooklyn before the law passed; a few years later, there were more than 1,000 in that borough alone. Some estimates put the total number of such establishments between 4,000 and 5,000 statewide. Unintended, but totally predictable, consequences. 2. Glenn Greenwald, “The Israel-Gaza War: The Urgent Need for Rational–Not Emotional–Responses Glenn walks us through how badly the Bush administration’s responses to 9/11 were, plus much more.   3. David Friedman, “The King’s Friends,” David Friedman’s Substack, October 7, 2023. Excerpt: In 1969 a group of Chicago police officers opened fire at night on an apartment full of sleeping members of the Black Panther Party,  killing two of them. The police claimed that the Panthers had opened fire. I was living in Chicago at the time as a graduate student, mentioned to a friend that I was not willing to trust either the police or the Panthers to be telling the truth. She told me that the Panthers were offering tours of the apartment so I went — and discovered that one can tell which way a bullet went through a wall by the direction the splinters were pointing. They were all incoming. By the way, not that this is David Friedman’s comparative advantage, but David would have been a hell of a news reporter. He has two of the most important ingredients: (1) a curiosity that won’t quit and (2) a first-rate mind for thinking things through. 4. Eric Boehm, “The Covid Bailout of State and Local Governments Was Unnecessary,” Reason, October 13, 2023. Excerpt: In a new report, the Government Accountability Office (GAO) found that states (including Washington, D.C.) had spent just 45 percent of the funding they had received through the Coronavirus State and Local Fiscal Recovery Funds program, a $350 billion line item within the $2 trillion American Rescue Plan Act (ARPA), which passed in March 2021. Local governments had reported spending just 38 percent of their funds received through the same program. In an article in 2020, I argued that the Trump bailout wasn’t necessary either. It’s “Just Say No to State & Local Bailouts,” Defining Ideas, June 3, 2020. Excerpt: The Federation of Tax Administrators estimated a $152 billion loss in state government revenues through the end of the states’ fiscal years, which typically end on June 30. That sounds high. Two things about that number are striking. The first is how manageable those losses are, even without a federal bailout. That same study notes that state FY annual budgets were estimated to total about $900 billion for the entire fiscal year, and also estimates that year-end balances plus rainy-day funds totaled $90 billion. So that leaves only $62 billion ($152 billion minus $90 billion) in spending cuts or tax increases. It would probably not be hard mathematically, even if hard politically, to find $62 billion in cuts, which amount to only 7 percent of the prior estimated revenues. 5. Arnold Kling, “Gaza Memories,” In My Tribe, October 12, 2023. Intro: “You’re about to see the saddest sight of your entire life,” our host told us. My wife and I, recently married, were riding in a tractor that was pulling the accumulated week’s trash from our small farming village to a dumping area in the sand just outside the boundary of the village. The cart we were pulling was about 15 feet by 15 feet, piled high with what today would be composted by environmentally conscious elites: moldy bread, rotten fruit, scraps of vegetables. As we approached the dumping area, we found ourselves surrounded by Arab residents of Gaza. They came running, competing to be the first to have access to what we were dumping. They were dressed in rags, which were torn, patched and ill-fitting. It was indeed the saddest sight I have ever seen.   (0 COMMENTS)

The last decades in the United States have been marked by what has been called the era of “permissionless innovation.” From the early days of the internet to the rise of mobile computing, American entrepreneurs and innovators have been free to experiment and create new products and services without being hampered by excessive regulations or government interference.  In a free market, individuals and businesses can freely innovate, compete, and succeed based on their merits without government favoritism or intervention. The culture of permissionless innovation in the US exemplifies this free-market ideal, enabling entrepreneurs and innovators to pursue their ideas and compete in the market freely. This strategy has fostered significant growth and innovation in the tech industry and other sectors. The achievements of American-founded companies like Amazon, Google, and Facebook exemplify the power of the permissionless innovation culture in fostering economic growth and development. Yet recent antitrust suits may indicate an end to that era. Many factors push the US towards greater public involvement, oversight, and stricter regulations.   A Clash of Approaches: Permissionless Innovation vs. the Precautionary Principle  Permissionless innovation is a term that refers to the idea that anyone should be able to innovate without having to seek permission from a government or other authority. It means that, as a general rule, experimentation with new technologies and business models should be allowed unless there is a strong argument that it will cause significant harm to individuals. Conversely, the precautionary principle suggests that innovations should be limited or prohibited until their inventors can verify their lack of harm toward individuals, groups, specific entities, cultures, or existing laws, norms, or traditions. This principle places the responsibility of proof on those proposing or engaging in an activity to demonstrate its safety rather than on those expressing concerns about potential risks.  The United States is often associated with a culture of permissionless innovation. The US has traditionally embraced a more of laissez-faire approach to regulation, prioritizing economic growth, competitiveness, and technological advancement. This approach can be seen in various aspects of the US system, such as the relatively minimal regulatory burden on startups and technology companies, the freedom given to entrepreneurs to experiment and invent, and the emphasis on market forces to drive innovation. As a result, the US has been known for fostering groundbreaking innovations in industries like technology, biotech, and finance. In the mid-1990s, the Clinton administration made a wise choice. They declared the internet a “market-driven area,” not regulated, with limited government involvement only to support and enforce a predictable, minimalist, consistent, and simple legal environment. This policy allowed a new generation of creative minds to explore this frontier for business and commerce. This approach led to the internet’s success, resulting in a surge of innovation. Today, the US is home to the most innovative tech firms, hosting vibrant internet-based companies and bringing countless benefits to consumers and small businesses. On the other hand, Europe leads in adopting the precautionary principle in its regulations and decision-making. European regulatory frameworks prioritize consumer protection, public health, and environmental preservation. This approach can lead to stricter regulations, mandatory impact assessments, and more rigorous safety standards. It has been applied in various areas, including genetically modified organisms (GMOs), chemicals, pharmaceuticals, and emerging technologies. Nonetheless, inadequate regulation can result in unanticipated outcomes, including privacy worries, market monopolies, and detrimental societal effects. Overregulation hampers advancement, deters investments, and undermines the competitiveness of European industries. Europe’s precautionary principle culture has led to increased costs, market distortions, and a risk-averse approach to innovation in Europe. This principle, employed in Europe when faced with scientific uncertainty, has had numerous unintended consequences. For instance, the EU’s ban on genetically modified food crops has spiked food prices while reducing agricultural productivity, making it challenging for European farmers to compete globally. Additionally, it has led to a decrease in innovation. Companies are less likely to invest in new products and technologies if they are unsure whether they can market them in the EU. This situation has adversely impacted the EU economy. Precautionary measures enforced through stringent regulations and requirements can increase expenses for enterprises, ultimately affecting consumers. Moreover, they can discourage investments and hinder progress in specific industries. Every year, Boston Consulting Group (BCG) has compiled a list of the world’s most innovative companies. Notably, American tech companies have consistently dominated this list. In 2013, seven of the top ten most innovative companies were based in the United States. Despite increasing global competition, the 2023 list still features 16 U.S.-based giants among the top 25, including Amazon, Alphabet, Intel, Microsoft, Apple, Facebook, Space X, and Tesla. In stark contrast, European digital tech companies were conspicuously absent from this prestigious list back in 2013 and have a rare presence in the 2023 list, as mentioned in the chart below. Only the US and China have expanded their portion since 2013, displacing companies from European nations such as Germany, the UK, and Italy. Notably, there have been noticeable decreases in the presence of Japanese and South Korean firms. Despite the recognition and popularity of American tech firms in Europe, it remains challenging for many to identify even one EU digital innovator.  The following chart compares the country breakdowns of the 2013 and 2023 rankings.   The policy battles between the US and Europe favored permissionless innovation over the precautionary principle. Today, the permissionless innovation culture is facing significant threats. Although this culture has been a driving force behind technological advancements and economic growth, many factors are posing challenges to this culture in recent years.   The Permissionless innovation culture is under threat. Several reasons exist for the belief that the U.S. innovation culture is at risk. A primary concern is the rising government regulation and intervention in the technology sector. Despite its success, numerous individuals today express concerns about the uncontrolled nature of technology and call for governmental oversight. There are worries that technology might jeopardize consumers, displace jobs, or be used by criminals or foreign powers. In response, many advocate increased regulation in the name of promoting competition, safety, choice, quality, and lower prices. However, the intention to serve the public interest does not guarantee that the implemented regulatory measures will effectively accomplish these well-intentioned objectives. The methods employed, like the new rules, regulations, and bureaucracies, tend to be complex, vague, and often counterproductive.  New regulations often reinforce established businesses rather than promoting increased competition. Many experts have extensively documented the issue of regulatory capture in various scenarios. Based on historical indications, we can foresee that numerous major technology companies will openly embrace regulation as they perceive it to be a valuable means of preserving their market dominance and blocking new competitors. Most of these new competitors will likely struggle to handle the burdens of compliance and the risks associated with rigid regulatory systems. In the Theory of Economic Regulation, the economist George Stigler, a Nobel laureate, explicitly pointed out that established businesses embrace regulation for their benefits: “As a rule, regulation is acquired by the industry and is designed and operated primarily for its benefits.” Populist figures from both the political left and right are launching attacks against major technology corporations due to their size and success. Certain companies have aligned themselves with these proponents and are leveraging antitrust and data regulation laws to impede their competitors. For example, in 2020, Mark Zuckerberg requested greater government regulation of the internet. Zuckerberg argues that more regulation is essential to shield society from harmful content, uphold election integrity, protect privacy, and enable data portability. However, Zuckerberg’s appeals are not driven by humanitarian reasons, but there is hidden agenda behind it. Government regulation would lead to higher costs for internet companies, primarily borne by smaller businesses. Larger companies like Facebook and Google would easily absorb these costs, while startups and smaller businesses would struggle to compete. This could potentially reinforce the dominance of tech monopolies, favoring the most substantial and wealthiest companies.  Zuckerberg’s call for regulation is perceived as an attempt towards regulatory capture, favoring the interests of big corporations like Facebook. Increased regulation could aid Facebook in restoring credibility after the data scandals following the company name for years and safeguarding its position against potential rivals. This alliance seeks to replace permissionless innovation with precautionary regulation, advocating for increased government intervention as the solution to every problem they identify. This interference can impede innovation, hinder entrepreneurial experimentation, and make it difficult for startups to compete with established firms. If the trend persists, it could lead to diminished innovation in the US, negatively impacting both the US and the global economy. It is essential to protect permissionless innovation culture in order to promote economic growth and prosperity. This means resisting the temptation to regulate new technologies too heavily and ensuring that businesses are not afraid to innovate for fear of government regulations. It also means educating the public about the benefits of innovation and the risks of excessive regulation. The costs of regulation do not mean not to regulate; instead, it highlights the need to understand and consider these costs when deciding whether and how to regulate. Innovation thrives within systems that maximize flexibility for ongoing social and economic experimentation, evolution, and adaptation.  In conclusion, countries that promote innovation without restrictions are more likely to enjoy sustainable economic growth. Conversely, those that diminish such principles and adopt a more cautious policy approach are more likely to hinder innovation and experience economic stagnation. By creating an environment that fosters entrepreneurship, experimentation, and technological advancement, nations can unlock their potential, attract investment, and address societal challenges. Embracing this culture as a fundamental principle opens doors to long-term opportunities and positions countries as leaders in global innovation.     Mohamed Moutii is a research associate with the Arab Center for Research and the Montreal Economic Institute. He is also a research fellow at the Institute for Research in Economic and Fiscal Issues (IREFeurope), where he analyzes economic policies and their impact on society. Furthermore, he translated numerous books from English to Arabic, facilitating the dissemination of free-market literature in the Arab-speaking region. (0 COMMENTS)

One of Frederic Bastiat’s most basic, and most important, insights is the distinction between the seen and the unseen. In what is arguably his most famous essay, “What is Seen and What is Not Seen,” he wrote: In the sphere of economics an action, a habit, an institution or a law engenders not just one effect but a series of effects. Of these effects only the first is immediate; it is revealed simultaneously with its cause, it is seen. The others merely occur successively, they are not seen; we are lucky if we foresee them. The entire difference between a bad and a good Economist is apparent here. A bad one relies on the visible effect while the good one takes account both of the effect one can see and of those one must foresee. Earlier this week, I was watching Danny DeVito’s character Lawrence Garfield give his famous speech in which he tries to persuade shareholders to vote to sell him majority ownership of New England Wire and Cable so that he can liquidate the company because it’s worth more dead than alive. Prior to Garfield’s speech, Gregory Peck’s character Andrew Jorgensen, chairman of the company, is trying to persuade shareholders not to vote to sell majority ownership to Garfield. Watching their speeches for the nth time, I realized that they are the perfect illustration of Bastiat’s seen and unseen. Jorgensen is telling the audience of the seen: the company they know, the relationships they have with each other, the nice history they have had with the company and maybe with some of the workers. That’s all seen because it’s tangible; it’s visible. We often hear and read that Garfield is simply talking about money and how to maximize profit. He is talking about that. But pay attention to his speech and you see that he is talking about his own vision, his vision of the seen, that he makes tangible to his audience. If the company is liquidated, he tells his audience, there will be new uses for the money they save. Those uses aren’t seen now but they will be seen. Check the part that starts at about 4:00. BTW, DeVito’s speech is one of my all-time favorites. When I was watching it, I found myself saying most of the words out loud before he got to them.   (0 COMMENTS)

I don’t remember when I first encountered Claudia Goldin’s work, but I do know that the first piece of hers that I read was her Ely lecture, titled, “The Quiet Revolution that Transformed Women’s Employment, Education, and Family.”  It blew me away. And it blew me away not just because it was one of the first pieces of economic history I’d read, in contrast to the piles of economic theory I’d be working through, and not just because it was written with both beauty and clarity. What really hit me, then and now, and what is preserved in my enthusiastic marginalia from my first reading, is that Goldin was describing–with extraordinary accuracy–my life and the lives of generations of women in my family, for as far back as I knew my own history.  Goldin’s “Phases of Evolutionary Change” could have been taken straight from conversations I had with my grandmothers and my mom.  Her “Phase I: Late-Nineteenth Century to the 1920s—The Independent Female Worker” described women who “were often piece workers in manufacturing or labored in the service sector as domestics and laundresses.” This was my great-grandmother Sarah, a Jewish immigrant from Poland, who spoke little English and worked as a piece-worker and seamstress out of her apartment in Brooklyn.  Golden’s “Phase II: 1930s to 1950—Easing the Constraints on Married Women’s Work” describes my grandmother Ida, who graduated from high school on the eve of the Great Depression, but found work as a teller at the Federal Reserve Bank of New York. Goldin writes of this group of women that, “the increased demand for clerical workers and the increased supply of high school graduates meant that, prior to marriage, young women entered nicer, cleaner, shorter-hour, and thus more “respectable” jobs. Some remained employed after marriage, although levels were insubstantial until the 1940s.” It’s a tidy depiction of very precise details of my grandmother’s life that includes, in a few words, the fight she had with her mother when she wanted to go into nursing (which was not a nice, clean, respectable job), the importance of my grandmother’s high school diploma for obtaining work, and her decision to leave her job shortly after she was married, when she and my grandfather began to plan a family. Goldin’s next phase, “Phase III: 1950s to 1970s—Roots of the Revolution” is my mother Midge’s life. Mom was the first woman in her family to attend college. She studied biblical history, but was told that she could never expect to have a career as a minister. So she took an M.Ed from Harvard and went into teaching special education. It was a career she kept until she and Dad began a family. The pregnancy bar meant she could no longer teach in public schools, so Mom did some tutoring and volunteering and stayed home with the three kids until we were all in school. Then she began an entire second life–with a career rather than a job–as a director and then minister of religious education in the UU church. Goldin describes my mom and her cohort this way, “Even though many would eventually be employed for a significant portion of their lives, their expectations of future employment, when they were young, were quite different. Women born from 1931 to 1940, for example, were eventually employed for more than 40 percent of their post-schooling years… Most of these women had anticipated brief and intermittent employment in various jobs, not generally in a career. Some trained for the remote possibility that they would have to support themselves later in life. College, for many, was a way to meet a suitable spouse rather than a way to embark on a career.” But as the world changed women like my mom changed to meet it. And Goldin’s final phase? That’s me. She describes members of “The Quiet Revolution—Phase IV: Late 1970s to the Present” as assuming that they will have careers rather than jobs, as establishing themselves as professionals “making a name for themselves” before making a decision about whether to take a spouse’s name, as being better prepared for college by their high school classes, and better prepared for their careers by their college choices. But most importantly, my generation assumes that much of our identity will come from the work we do. “Rather than jobs, most see employment as part of a long-term career. Most perceive their work as a fundamental aspect of their satisfaction in life and view their place of work as an integral part of their social world. They have added identity to their decision about whether to work or not to work given changes in wages and incomes.” The appeal of economics, for me, has always been the way it serves–when done well–as a way to see how the world works, rather than how we think it ought to work, or could work, or might be able to be made to work. Goldin’s “Quiet Revolution” did that. And it did all that by applying rigorous economic thinking to women’s history, my history, the history of the women in four generations of my family. I read Goldin, and I felt economics come alive.   And then I mailed a copy of her article to my mom.   (0 COMMENTS)

Last week, a friend sent me this link about immigration to Italy. Both my friend and the author at the link seemed to think that this was a problem. I pointed out, though, that the number of immigrants on an annualized basis would be about 180,000, and also pointed out that Italy’s population is about 59 million. So immigrants this year will be about 0.3 percent of Italy’s population. Unfortunately, the author at the link did not say why he thinks such a small percent would be such a big problem. (0 COMMENTS)

Matt Yglesias has a very perceptive post on industrial policy, which is the latest fad in Washington: Industrial policy is a hot topic in Biden-era Washington, but it’s hard to get a handle on it because nobody is totally sure what it means. We know what it’s not — it’s not a continuation of the free trade consensus associated with the pre-Trump years. It’s also supposedly not just crude protectionism that props up inefficient companies that happen to have political clout in congress. It’s supposed to be something better and more sophisticated than that, the deliberate cultivation of areas of national economic strength in a manner inspired by the economic growth success stories of Japan, the “Asian Tigers,” and China. I think that’s right, but on closer examination it’s an odd claim.  The US has a per capita GDP of about $80,000, while Japan is at $52,000 in PPP terms and China is around $23,000.  (The East Asian economies are even lower if you use market exchange rates.)  So why are we inspired by economies that are far below our level? You might point to some rapid growth rates in East Asia, but ever since the 1990s Japan has plateaued at a level far below the US.  China is likely to follow suit. In addition, I see little evidence that industrial policy explains the success of East Asia.  Consider: 1.  All countries do lots of industrial policy, and that includes the US. 2.  China boomed after it dramatically reduced the role of the government in the economy. 3.  Hong Kong does much less industrial policy than other countries, and yet is one of the most successful of the “tiger economies.”  If industrial policy explains East Asia’s success, why isn’t Hong Kong a laggard? 4.  Many of the biggest success stories in East Asia occurred in areas not favored by planners—such as Honda making cars. The Biden administration is pro-industrial policy and pro-labor union.  Yglesias points to a contradiction: And I think that, for progressive-minded people, this is a bit of a conceptual trap around the idea of industrial policy. From inside an academic bubble, you can resent the hegemonic dominance of free market capitalism and dream of owning the neolibs by embracing industrial policy. But the go-to move of a developmental state is to be more hostile to worker interests than a free market would be. In the old New Deal interpretation of American history, this is why Hamilton was the bad guy and Thomas Jefferson was the good guy — it was regressive tariffs versus the interests of small farmers. Today’s liberals care more about racial justice issues, where Jefferson is the bad guy and Hamilton is the hero, but the basic economic tension remains. The Hamiltonian strategy isn’t free markets, but that doesn’t mean it’s pro-worker. It arguably means the opposite. Those East Asian economies that inspired our industrial planners were basically hostile to organized labor.  But the US is not trying to turn peasants in factory workers.  A sensible industrial policy for the US would be one aimed at making our economy more efficient.  Here’s Yglesias: A real industrial policy for a rich country should involve finding ways to reduce regulatory burdens on the industry you’re trying to foster. If you’re not doing that, you’re going to be stuck either suppressing wages or else just engaging in basic protectionism — give the industry preferred access to the domestic market and forget about global competitiveness — which is really a different beast altogether. He discusses some good ideas, such as reducing the regulatory barriers to geothermal projects.  Ironically, our environmental laws favor oil and gas drilling over (clean) geothermal.     Instead, look for more subsidies and trade barriers that redirect capital into less efficient sectors.      PS.  Consider the following typical example of one of our thousands of industrial policies.  We could allow cars to be sold directly to buyers, but instead force manufacturers to sell them through car dealers.  Almost every industry has similar examples of industrial policies–overwhelmingly counterproductive. (0 COMMENTS)