José Ortega y Gasset was a 20th-century Spanish philosopher still known for his theory of the mass-men (including mass-women if it is necessary to add). My Regulation review of his 1932 The Revolt of the Masses (1930 for the original Spanish edition) suggests that, despite some oddities or errors, Ortega can be read as a philosopher in search of liberalism. For Ortega, the mass-man is the person who is blind to the conditions necessary for the maintenance of a liberal civilization. To quote a few passages of my review: Mass-men are those “for whom to live is to be every moment what they already are, without imposing on themselves any effort towards perfection.” It should be noted this is not class theory. Ortega makes clear that we often see “nobly disciplined minds” in working classes, while in the upper classes of surviving nobility and among intellectuals we frequently find “the mass and the vulgar.” Ortega’s mass-men seem to prefigure the obscurantist era that we seem to be entering today. The mass-man is not interested in the conditions of civilization, even in the conditions of science, which provides him with “his motor-car … but he believes that it is the spontaneous fruit of an Edenic tree.” He is like a primitive with no knowledge of history and who cannot but repeat mistakes of the past. Orgeta considers the typical scientist as “the prototype of the mass-man”: Science is essential, of course: “China reached a high degree of technique without in the least suspecting the existence of physics,” he writes. “It is only modern European technique that has a scientific basis, from which it derives its special character, its possibility of limitless progress.” But science requires narrow specialization. Thus, the scientific man has no culture. Contrary to Einstein, “who needed to saturate himself with Kant and Mach before his own synthesis,” the typical scientific man is “astoundingly mediocre, and even less than mediocre.” He is “a learned ignoramus.” Perhaps a good example in our own days is the public health expert. (See “The Dangers of ‘Public Health,’” Fall 2015.) We may wonder if many if not most economists aren’t also mass-men. (0 COMMENTS)

Bloomberg has a new piece suggesting that a recession may be immanent: …And Fed Hikes Are About to Bite Hard “Monetary policy,” Milton Friedman famously said, “operates with long and variable lags.” One subtlety here is that the “variable” can refer not just to differences between one recession and another — but also to different parts of the economy within a single cycle. Soft-landing optimists point out that stocks have had a good year, manufacturing is bottoming out and housing reaccelerating. The trouble is, those are the areas that have the shortest lag time from rate hikes to real-world impact. For the parts of the economy that matter for making the recession call — above all the labor market — lags are longer, typically 18 to 24 months. That means the full force of the Fed’s hikes — 525 basis points since early 2022 — won’t be felt until the end of this year or early 2024. When that happens, it will provide a fresh impetus for stocks and housing to turn down. It’s premature to say the economy has weathered that storm. I agree with the final sentence (a recession is quite possible), but have some questions on the rest: 1. Why aren’t the effects of Fed rate hikes already priced into stock prices?  Why does Bloomberg believe that rate hikes that have already occurred will cause stocks to decline in early 2024? 2.  If rate hikes impact the economy with 18 to 24 month lags, why can’t economists forecast the business cycle?  Economists have failed to forecast any of the recent US recessions. 3.  On October 17, 2022, Bloomberg suggested that there was a 100% chance of recession within the next 12 months.  Is that still true?  If not, why cite 18 to 24 month policy lags as an excuse for why a recession has not yet occurred? Weren’t those policy lags well understood back in October 2022, when a recession was seen as certain to occur within 12 months? 4.  On a somewhat different topic, why hasn’t Bloomberg put in a disclaimer correcting the truly egregious errors in this recent article on the Japanese economy?  Just say “nevermind”. I hate to be so tough on media outlets such as Bloomberg, the Financial Times, The Economist and the WSJ.  I do so because the rest of the media is far worse when it comes to economic news.  I’m trying to nudge our best outlets to maintain high standards. PS.  I do not believe in long and variable lags—monetary policy impacts the economy almost immediately.  But then interest rates are not monetary policy. (0 COMMENTS)

I’ve talked before how certain ideas or lessons in economics can be found in works of fiction, such as how Bryan Caplan’s idea of rational irrationality was illustrated in an episode of House, M.D. It turns out there are a few different ideas illustrated in Joseph Heller’s novel Catch-22. For those who haven’t read the book, the story of Catch-22 is about an American military pilot in World War II named Yossarian. He wants to get out of fighting, on the grounds that every time he flies a mission, people on the other side try to kill him. He tries every trick he can think of to game the system to avoid flying more missions, and often argues with his superiors in favor of being relieved of duty.  In doing this, Yossarian illustrates a classic free-rider problem in economics. Free-rider problems can occur when an activity depends on a collective effort to which nobody in particular has an incentive to contribute. The author makes it clear that Yossarian is fully aware of the free-rider problem, and that Yossarian simply doesn’t care – he thoroughly owns his position and feels no shame in it. This is shown in a bit of dialogue where Yossarian is arguing with one of his superiors, who asks if Yossarian simply wants America to lose the war, leading to the following exchange: “We won’t lose. We’ve got more men, more money, and more material. There are ten million people in uniform who could replace me. Some people are getting killed and a lot more are making money and having fun. Let somebody else get killed.” “But suppose everybody on our side felt that way.”  “Then I’d certainly be a damned fool to feel any other way. Wouldn’t I?” And this is exactly what creates a free-rider problem. If everybody else is willing to fight, Yossarian’s best move is to avoid the conflict and let others do the fighting. If nobody else is willing to fight, then Yossarian’s best move is still to avoid the conflict, because he’d be the only one doing the fighting.  (It’s worth pointing out that regarding war, the free-rider problem is really only a “problem” if the war in question is both just and necessary. In the case of a war that is unjust or unnecessary, the free-rider problem would actually be a free-rider solution!) Another important economic point is illustrated in the backstory of the officer Yossarian argues with in the above bit of dialogue, a man whose first, middle, and last names are all Major. Upon joining the Army, he is immediately promoted to the rank of Major, making his full rank and name out to Major Major Major Major. His father was determined to give him this name entirely for his own amusement. The author tells us, “A lesser man might have wavered that day in the hospital corridor, a weaker man might have compromised on such excellent substitutes as Drum Major, Minor Major, Sergeant Major, or C Sharp Major, but Major Major’s father had waited fourteen years for just such an opportunity, and he was not going to waste it.”  But the economically relevant point made by Major Major’s father is not about his keen sense of branding. Instead, Major Major’s father illustrates the often-overlooked idea that contrary to popular belief, businessmen are not dedicated supporters of capitalism. They are, at best, asymmetric supporters of capitalism, wanting capitalism and competition for everyone else, and socialism and protectionism for themselves. Major Major’s father, a farmer, was very much an example of this in action: Major Major’s father was a sober God-fearing man whose idea of a good joke was to lie about his age. He was a long-limbed farmer, a God-fearing, freedom-loving, law-abiding rugged individualist who held that federal aid to anyone but farmers was creeping socialism. Major Major’s father also illustrated another important point in economics. Subsidizing something leads to more of that something. And when you subsidize idleness or wasteful behavior, you get more of that too. Major Major’s father just so happened to benefit from a government program that paid people to not grow food crops. Major Major’s father was very responsive to the incentives created by this program: His specialty was alfalfa, and he made a good thing out of not growing any. The government paid him well for every bushel of alfalfa he did not grow. The more alfalfa he did not grow, the more money the government gave him, and he spent every penny he didn’t earn on new land to increase the amount of alfalfa he did not produce. Major Major’s father worked without rest at not growing alfalfa. On long winter evenings he remained indoors and did not mend harness, and he sprang out of bed at the crack of noon every day just to make sure the chores would not be done. He invested in land wisely and soon was not growing more alfalfa than any other man in the country…Major Major’s father was an outspoken champion of economy in government, provided it did not interfere with the sacred duty of government to pay farmers as much as they could get for all the alfalfa they had produced that no one else wanted or for not producing any alfalfa at all. The last point relevant to economics I’ll be bringing up is when Yossarian is grousing at everything he thinks is wrong with the world. In his tirade, he insists that God did a sloppy job of making such a broken world, asking “Why in the world did He ever create pain?” When he’s told pain is useful because it warns us of bodily damage, he retorts with the following: Oh, He was really being charitable to us when He gave us pain! Why couldn’t He have used a doorbell instead to notify us, or one of His celestial choirs? Or a system of blue-and-red neon tubes right out of the middle of each person’s forehead. Any jukebox manufacturer worth his salt could have done that. Why couldn’t He? Yossarian is missing an important point about pain, which is related to an important point about prices. Pain and prices are both conveyers of information – of bodily damage in one case, and of relative supply and demand for some commodity in another case (at least, when prices are allowed to adjust freely). But they both do more than merely provide information – they also provide an incentive to act on that information. Simply knowing something isn’t enough to create an incentive to respond to it. When price controls created gas shortages in the 1970s, it’s not as though the shortage of gas was something people were somehow unaware of – the long lines people would sit in for hours waiting for a chance to get some gas was a pretty good indicator. But, in the absence price adjustments, merely knowing there was a gas shortage wasn’t enough to meaningfully change people’s behavior. Price spikes can be painful, but they create the necessary incentive for producers to make more of something and for consumers to cut back on their use of it. An economy without price spikes would be like a body without pain – seemingly beneficial in the very narrow, very short run, and endlessly deteriorating in the long run. (0 COMMENTS)

I am a pothole—an ordinary road hazard and a bane to all who drive. Messing with you and your vehicles is my vocation; it’s what I do. My genealogy is compelling enough. I come from a common road-built with dirt, six to twelve inches of #2 gravel and #57 gravel with lime dust—which is compacted at each stage. Then, add an inch or two of asphalt base, before a layer of finishing asphalt to complete the work. But over time, roads wear out. If the road is not well-constructed, trouble comes quicker. Without inspections, developers have an incentive to skimp on long-term road quality—and may succumb to this temptation. Even with the best roads, the ground can shift, especially if built on sand, and the weight of traffic inevitably takes a toll. But most of us potholes start with moisture, especially ice. Road salt is a mixed blessing: it’s tough on the roads, but it reduces the damage to roads from moisture and ice. One vulnerable area is the asphalt seam or “crown”—the peak of the road that allows water to drain off. Sometimes, the edge of a road lacks a solid foundation. And the driving lanes of a road receive the most weight. So, I can show up anywhere. Street departments try to prevent me through road maintenance—for example, “crack sealing” using hot rubberized asphalt and polymers. Those stripes may not look pretty, but they prevent me from showing up. “Because I’m small and local, I seem simple to fix, but I’m not. Given this, imagine how difficult it is to fix large, national, complex problems.” All that said, at the end of the day, I’m only a hole in the ground. The more fascinating story is about the efforts to fix me and my friends. It is more of a mystery than you might expect. Sadly, people overlook this—and then, miss the larger lesson: Because I’m small and local, I seem simple to fix, but I’m not. Given this, imagine how difficult it is to fix large, national, complex problems. Me and my story may seem mundane. But as the clever and wise G. K. Chesterton once observed, “There are no uninteresting things, only uninterested people.” I, Pothole, simple as I may appear, merit your wonder and awe—a claim I will explain. In fact, if you can understand me and efforts to fix me—no, that’s too grand to ask—if you can become aware of the miracles that this represents, you will have less faith in the efficacy of government activism and be able to promote the freedom and prosperity that are under attack today. I have a profound lesson to teach. And I can teach this lesson better than a pencil or a missile, an elementary school or antitrust enforcement, because fixing me is seemingly so simple. It may be simple, but no single person on earth knows how to do it. This sounds incredible, especially when you realize how many potholes are fixed every year. As you know from the popular parable of the now-prominent pencil, innumerable people are involved with fixing a pothole. Consider just one aspect of the remedy: my family tree includes asphalt—the production of which requires hundreds of people in an average company. Now contemplate what efforts went into making the places where they work, the clothes they wear, the coffee they drink, the tools, machines, and computers they use. Think of all the cars they drive to get there and of course—don’t overlook the avenues with their potholes. (They also use roads to receive the inputs they use and to transport their final product!) As with the pencil, it’s obvious that no single person knows how to do all the things required to fix a simple problem like me. But let’s take this discussion down a different road. How does a pothole get fixed? Imagine that you run the relevant department for the local government and are in charge of maintaining the city streets. The first problem is identifying the location of the potholes. How do you get this information? The most common method is for your workers—and other government workers in the public (e.g., sanitation workers)—to report what they find. You’d love to have more input from your friends and neighbors. But they probably figure that someone else will report a problem. You have a website and a phone number for citizens to report their concerns. (And it’s important for us to keep a good paper trail—to show that you’ve done your due diligence to prevent tort claims!) But the point is clear: finding all the potholes is easier said than done. Second, you need to prioritize which potholes to fix first. How many people are affected by the pothole? What is the severity of the damage and danger caused by each pothole? Your top priority is preventing car damage (and avoiding lawsuits). So, more severe potholes are highest on the list. But it’s also important to deal with higher traffic areas where potholes can get worse more quickly. For lower-priority jobs, it’s first come, first serve. Another complication is “pothole season.” In the late winter, you have many more potholes, making those decisions even more challenging. And ironically, potholes are more difficult to fix in the winter, since you need the ground to be above freezing. You can use a “cold patch,” which can be done even when it’s freezing or wet, but it’s a costlier option. You can also use a propane torch to dry out and warm up a pothole, but that’s costly too. When you’re not in pothole season, you can use more time and resources for road maintenance. And if there aren’t enough potholes to fix on a given day, it may not be cost-effective in terms of asphalt, machine usage, machine rental, and so on. It’s important that you achieve economies of scale to be relatively efficient. When should you fix them—with implications for disrupting traffic and imposing on workers: during the day or at night, on weekdays or weekends? For example, it’s not smart to fix potholes in front of the courthouse during the week. It’s better to do this at night or on the weekends. Third, to fix the potholes, which skills are required (or at least useful) in your employees? The skill level of workers may seem unimpressive, but you need them to be able to do many jobs, since your work varies throughout the year. Your workers may do three or four different types of jobs in a day and you cross-train them to be effective at a handful of tasks. So, you want them to be able to learn quickly and to be self-motivated. Beyond that, not just any worker will do. For safety reasons, they must be diligent and detail-oriented. Since some manual labor is involved, they must be willing to get their hands dirty—and ideally, they’re good with tools and machines. How many workers do you need? A small “cold patch” is a one-worker job—pouring the mix into the hole and smoothing it out. But most jobs are for two (or more) workers. At the least, you usually need one (or more) to fix me and one to deal with traffic. Larger jobs could still be done by one person, but safety concerns and greater accountability usually mean that it’s better to have two on the job. Fourth, what materials will you use to fix the potholes? What sort of machines and tools would be helpful? What is the rate of depreciation, maintenance, and breakage in those tools and machines? For tools, you need trucks and “hot boxes” (small trailers to keep the asphalt within a certain temperature range), tampers (hand and gas), asphalt rakes, shovels, heavy brooms, blowers, an air compressor (to dry out narrow fissures), Rosebud heating nozzles, propane torches, skid steers (e.g., Bobcats), rollers with a milling head attachment. For materials, you need asphalt and “binder” (which binds the new asphalt to the existing road materials). When temperature is an issue or you need a quick fix, you also have “hot patch” and “cold patch” options. (It’s perhaps surprising that it’s easier to have a more effective fix for deeper potholes, since there’s more surface area for the binder to attach.) All of this assumes a modest pothole. If there is a problem with the foundation of the road, you’ll need to remove the asphalt and the flawed foundation, cutting and replacing the section as necessary—to deal with the root causes. In this, you’re a lot like a dentist. (And don’t forget: if you’re going deeper, be careful not to hit a gas main, electrical wires, or a water pipe!) Fifth, what are the prices of the inputs to production: the labor of various skills, the capital of various types, and other inputs? How do you balance your budget, trying to maximize social well-being within the revenues you have been granted by the government? There are so many factors to weigh as you maximize road quality while watching costs. Sixth, how are the above answers changed by differences in climate? (Arizona is not the same as Vermont.) Not much, except for differences in temperature and precipitation, variance in the quality of road construction, and various state regulations. What about weather? Aside from cold patches and hot patches, potholes can’t be fixed when the ground is wet or freezing. Underlying road conditions are relevant. And as we’ve seen, there are some important trade-offs between short-run fixes, long-run fixes, and cost. Seventh, when can the private sector provide better quality and/or lower cost? Maybe you shouldn’t be fixing potholes at all—or maybe you should fix some types of potholes and outsource the others. You’re likely to privatize bigger jobs for paving, potholes, striping, engineering services. You simply cannot achieve the economies of scale to be as efficient. Sometimes, you can handle the job, but it doesn’t make sense for some smaller cities to own paving machines. Renting is smarter given that the work is seasonal and the machine is expensive and high maintenance. And finally, what role does technological advance and changing market conditions have in changing all of the above? Even if I understand the world of potholes perfectly today, my understanding will become increasingly obsolete, soon enough. Although millions of people have a hand in fixing me, none of them know more than a small bit of what is required. This “knowledge problem” is a key facet in the field of Austrian Economics. In the context of markets, we have innumerable, subjective, and diffuse bits of information embedded in the preferences of consumers (often modeled as demand curves). We have the wide array of variables that face producers—the prices of output and inputs, technology, incentivizing workers, etc. (often modeled as supply curves). And these two cooperate in markets through the challenges (and transaction costs) of communication and transport. To credit Leonard Read’s classic example, “I, Pencil,” it’s amazing that there are usually about the right number of yellow #2 pencils in boxes of ten on the shelf of the local box retailer in February and in August. Thankfully, the person running the Street Department can be successful because the pothole problem is relatively simple in terms of the knowledge required. While the list of questions above is daunting, it is manageable for someone who gains expertise in such things. It may not be done well, but it can be done well—with sufficient experience, managerial skill, wisdom, and knowledge. What about more complicated matters—for example, a national health care system. What do government bureaucrats need to know to effectively run everything from allergy shots to cancer, from routine check-ups to Medicare, from cheap prescriptions to innovative research, from the rural poverty of Appalachia to the elites on the coasts? Well, we don’t have nearly enough time to get into all of that. But the point is clear enough: the “knowledge problem” is staggering for more complex matters and as we extend from local to state to federal governance. Another concern is the question of motives and how they play out in different contexts. In the context of the market for asphalt, it’s astounding that few of those involved—the worker in the oil field and the person who produces the coffee he drinks, the salesperson and the clerical staff, the CEO and the janitor—perform their tasks to please people per se. Their motivations are mixed—from putting food on their table to buying a boat, from sleeping well at night to impressing their friends. A competitive market harnesses these motives to get people to serve customers (and society) effectively. For more on these topics, see Privatization, by Robert Poole, Jr. Concise Encyclopedia of Economics. Information and Prices, by Donald J. Boudreaux. Concise Encyclopedia of Economics. “Don Lavoie on the Continuing Relevance of the Knowledge Problem,” by Cory Massimino. Library of Economics and Liberty, Aug. 7, 2023. In political markets, these concerns are generally greater. It’s certainly possible that the primary aim of the bureaucrat is maximizing social well-being. Even if not, it’s possible that political pressures will curtail deviations from the ideal. But it’s also possible that we’ll see cronyism and graft, inefficiency and red tape, budget-maximization and over-spending. Of course, these worries are exacerbated by the high level of monopoly power in most government endeavors. The lesson I have to teach is this: Even when government is a constitutional, ethical, and practical means to some end—on paper—be wary of the knowledge problem and the motives question for politicians and bureaucrats. In contrast to the foibles of political markets, have more faith that free people will respond favorably to the Invisible Hand of economic markets. I, Pothole—though seemingly simple—offer the miracle of my maintenance as testimony that this is a practical faith—as practical as the sun, the rain, and the roads. *D. Eric Schansberg is Professor of Economics at Indiana University Southeast and the author of Poor Policy: How Government Harms the Poor. Thanks are due to Kevin Morlan and Jeremy Neff for sharing their expertise. (0 COMMENTS)

James Buchanan Sixty years ago, the Public Choice Society was founded by Gordon Tullock and James Buchanan, nearly coincident with the publication of their jointly authored book, The Calculus of Consent.1 A decade ago on the 50th occasion I was tasked with discussing the “Past, Present, and Future of Virginia Political Economy.” That paper (co-authored with Alain Marciano) was subsequently published in Public Choice.2 In it, Alain and I stressed the original impetus for the Thomas Jefferson Center for Studies in Political Economy and Social Philosophy. We tell the story of Buchanan’s journey from the University of Virginia to Virginia Tech to George Mason University, his Nobel Prize and post-Nobel career. Buchanan’s efforts were met first with ideological resistance, then with methodological resistance, until finally finding a hospitable home. Buchanan and his colleagues between 1958-1968 are focused on contributing to the grand tradition of political economy as practiced in its finest hours from Adam Smith to John Stuart Mill, but with the sharpened intellectual tools of modern price theory as refined by the early neoclassical economists and culminating with Frank Knight.3 Still, critics outside of economics sought to discredit and delegitimize the work of the center as “ideological”. Buchanan joined forces with Gordon Tullock at Virginia Tech, they narrowed their focus to the economics of politics—the persistent and consistent application of neoclassical economics to the analysis of political decision making. The public choice research program matured and was operationalized during the period from 1969-1982. But Buchanan also grew impatient with many aspects of that research program. If you carefully read his 1963 essay “What Should Economists Do?” he was already presenting his research program as distinct from a narrow rendering of neoclassical maximization and equilibrium theorizing. As Richard E. Wagner perceptively points out in Rethinking Public Choice (2022), neoclassical economic theory at this time came in two varieties: formal models of maximization and equilibrium (demonstrative reasoning), and an intuitive understanding of market theory and the functioning of the price system (plausible reasoning). Different public choice scholars followed either one or the other approach, with social choice theory the exemplar of the formal theory approach, and the Virginia School of Political Economy the exemplar of the price theoretic approach. The work of the Center for the Study of Public Choice at Virginia Tech during the 1970s could be reasonably described as drawing out the implications of the economics of politics, rather than the more expansive program of political economy. Nevertheless, and despite the narrowed focus, the scholarly work of the Center for the Study of Public Choice came under attack from within the economics department for methodological reasons. Buchanan, and his colleagues, were simply viewed as out of step with the modern science of economics; a criticism levelled by colleagues with much less impressive publication records than Buchanan. It clearly was the victory of mediocrity over excellence in academia, as Buchanan would note in a parting essay entitled “Dishwater of the Orthodoxy.”4 Thus, it was time to move again, and dare to be Different. In many ways what the move to George Mason University permitted Buchanan et al to return to the vision of the original Thomas Jefferson Center for Studies in Political Economy and Social Philosophy, but with the hard-earned knowledge that the previous two decades of scientific struggle had taught. Alain and I conclude that the future of Virginia Political Economy will reside with those who continue to embrace this aspect of Buchanan’s project. What has happened in the decade since the paper I wrote with Alain Marciano? Outside of economics and political economy there has been the rise of critical works on neoliberalism that seek to engage in the sort of broad-brush indictment of the public choice program such as Nancy MacLean’s Democracy in Chains, or Naomi Orekes and Erik Conway’s The Big Myth. To counter these sorts of interpretations, I have done extensive work in Buchanan’s archives. In these efforts to recapture the true purpose of the initiative, I stress the methodological and analytical discomfort with the rise of Samuelsonian neoclassical synthesis (see Paul Samuelson), the Knightian concern with practicing social science from the inside-out versus from the outside-in, and the implications for a functioning modern democratic society. So many subtle points in the Buchanan effort are lost when critics focus exclusively on the ideological and social philosophic position that Buchanan himself articulated in his writings. For one, they too often fail to see his position is an outcome of his analysis, not a hard prior. For another, they too often fail to understand the terms; Buchanan’s commitment to a free society is not some code for a libertarian paradise, but an invoking of the ancient notion of a society of the choosing of its citizens. Many are keenly aware of this ongoing critical dialogue concerning neoliberalism and public choice, and many probably deem it a waste of time and energy. It is hard to persuade those who refuse to be persuaded by logic and evidence, because the narrative they paint is too convenient for their intellectual comfort. I personally think the crusade is worth the intellectual effort—though not to nudge those who view public choice as the work of an “evil genius” or part of a “neoliberal thought collective.” Rather, younger scholars in the social sciences and humanities should be able to judge us by how we reason, what arguments and evidence we marshal to our cause, and how we conduct ourselves in the wake of not just unfounded criticisms of public choice, but unfair character assassinations of the scholars who initiated the research program. But I will agree this is definitely not the most important development in the late decade. “There are positive trends presenting opportunities for scholars in public choice if they stick to their knitting as found in those original meetings of sixty plus years ago.” There are positive trends presenting opportunities for scholars in public choice if they stick to their knitting as found in those original meetings of sixty plus years ago. First, I want to stress the great opportunity that the focus on Institutional Analysis in the work of Daron Acemoglu and James A. Robinson presents for public choice scholars. They have put at the center of modern political economy the puzzle of predation, and the countervailing powers required to both empower the productive and protective state while constraining the predatory state. Second, I want to stress the issue of “ideation” in historical political economy that Deirdre McCloskey and Joel Mokyr have put forward in their grand sweeping histories of modern economic growth. Public choice theory must come to a solid reckoning with the power of ideas and the role that ideology plays in the world. This is a topic that Robert Higgs raised in Crisis and Leviathan (1987), and Michael Munger developed in his book with Melvin Hinich, Ideology and the Theory of Political Choice (1996), and more recently in Dani Rodrik’s “When Ideas Trump Interests,” JEP (2014). Ideas in these presentations are not just a cover for interests, but a force in the world independent of interests and institutions, but which interacts with interests and institutions to shape the world we find ourselves occupying. It is, after all, ideas that inform us as to what it is that is in our interest to pursue. Third, it is this interaction of ideas, interests, and institutions that must be a focal point of our studies in political economy. Many years ago, Chris Coyne, Peter Leeson, and I sought to develop this idea about “institutional stickiness” and how it relates to the transplanting of institutions in the development process. (See Boettke, Coyne and Leeson 2008) More recently, Stefan Voigt and others have been studying the question of constitutional compliance. Compliance has an obvious incentive component when we focus on enforcement, but it also has an epistemic dimension when we focus on acceptance and legitimacy. Voigt himself very early in his career had identified the intimate connection between norms, beliefs, and the acceptability or non-acceptability of the formal institutions in the transition economies. (See Voigt 1993) Acemoglu and Robinson open the intellectual space for a focus on the constitutional project that follows from the paradox of government. They are not alone, I would point to Douglass North, John Joseph Wallis, and Barry R. Weingast on constitutions, federalism, the violence trap and development, and liberty. As Weingast argues, serious research on this topic all but disappeared from economics and political science, yet it was a major theme in political economy as practiced in its finest hours. The “narrow corridor” in Acemoglu and Robinson is this pathway to the establishment of a functioning system of liberty and prosperity. The balance in their system is the tension between the state and society; these both must be empowered to check-mate the abuses of the other, but also empowered to provide the needed protection and basic public goods for human flourishing. We want a regime of liberty both for the protection of universal human rights and the mass flourishing that such regimes have historically been able to deliver for their citizens. The fundamental question remains, how do we detail the path from a state that discriminates and dominates its citizens, or the absence of a functioning state, to a social arrangement that exhibits neither relationships of domination nor engages in discriminatory politics? As Rosolino Candela and I point out in “Productive Specialization, Peaceful Cooperation, and the Problem of the Predatory State” (2019), in addressing this issue we must be careful not to confuse descriptions of initial conditions with explanations of the evolutionary path. Too much of Acemoglu and Robinson is baked into those initial conditions, and too little explanation is provided of the mechanisms that get you inside the narrow corridor in the first instance and how to progress inside that corridor to be able to achieve a constitutional order that shackles Leviathan. How does a Myanmar of today become a Denmark of tomorrow? We cannot be content with saying that Myanmar is Myanmar because it is Myanmar, any more than we can be content with saying Denmark is Denmark because it is Denmark. There is no explanation there, only description. The public choice and constitutional political economy tradition as developed by Buchanan and Tullock, but also by Vincent and Elinor Ostrom does postulate paths out of the Hobbesian jungle. Situations of conflict can be transformed into opportunities for peaceful social cooperation by changes in the structural rules under which we interact with one another. Buchanan’s Limits of Liberty (1975), Tullock’s Social Dilemma, Vincent Ostrom’s The Meaning of Democracy (1997), and Elinor Ostrom’s Governing the Commons (1990) all postulate development paths in the political economy of rule-making. There is the possibility of freedom through constitutional contract. The Ostroms individually as well as jointly tackle the question of the construction of the common knowledge required to play cooperative social games in the first place. When we confuse descriptions for explanations in political economy, we end up doing what Elinor Ostrom identified as institution-free institutional analysis. Genuine institutional analysis, on the other hand, must recognize the devil is always in the institutional details and explicate the dynamics of the mechanism(s) set in motion by those details. We seek to explain the variation in the pattern of outcomes we see in the world by variation in the institutions that individuals find themselves operating within. “Theories” that postulate that differences in people determine the differences in outcomes we observe are not really theories.5 We don’t need elaborate theory, as F. A. Hayek pointed out in The Counter-Revolution of Science (1952) if the claim is good people do good things and bad people do bad things. What requires our theoretical skill is to tease out how “bad people”, i.e., self-interested agents, can produce publicly desirable outcomes, and how “good people”, i.e., other regarding agents, can produce publicly undesirable outcomes. We need theory to articulate the invisible hand of the market, as well as how the road to hell can be paved with good intentions. Only when outcomes diverge from preferences do we need an explanation of the mechanisms at work that either give us an outcome greater than the sum of its parts, or less than that sum.6 It is the machinations of politics (or law or society) that shapes and directs human behavior. We need the discipline of the rational actor model, because it prevents us from postulating that some actors are ignorant and others are enlightened, but we also need only a very thin model of the rational actor that recognizes that in our striving we stumble, we have cognitive limitations and face transactional difficulties, and must cope with our ignorance as we engage in decision making under deep uncertainty. For more on these topics, see A Conversation with James M. Buchanan, Parts I and II. Intellectual Portrait Series. Liberty Fund video interview of James Buchanan, recorded in 2001. Don Boudreaux on Buchanan. EconTalk. Don Boudreaux on Public Choice. EconTalk. This research program on endogenous rules still has theoretical legs, as well as practical significance in the field of development economics, and in political economy more generally. I hope to see more work along the lines of the individuals I mentioned above populate the pages of Public Choice, Constitutional Political Economy, the American Political Science Review, the Journal of Political Economy, the American Economic Review, and more. There are talented scholars prepared to carry this research forward and are doing so in the field of historical political economy. It is not, and must not, just be about state capacity. It can and should be about self-governance in its great diversity of manifestations across time and place. Footnotes [1] See James Buchanan’s 2003 essay “Public Choice: The Origins and Development of a Research Program,” PDF file; or see the “History of the Public Choice Society,” by James Buchanan on the PCS About page [scroll to page bottom for the essay]. [2] For Peter J. Boettke and Alain Marciano’s paper, see “The past, present and future of Virginia Political Economy.” Public Choice, Vol. 163, No. 1/2, Special Issue: Symposium on the 50th Anniversary of the Public Choice Society (April 2015), pp. 53-65; published online February 2014. JSTOR. [3] On this subtle point about Buchanan and classical political economy see Richard Wagner’s James M. Buchanan and Liberal Political Economy (2017). [4] This essay, along with many other gems from the archives, has now been published in The Soul of Classical Political Economy, edited by Peter Boettke and Alain Marciano (2020). [5] I refer you to the Monty Python skit dealing with the ‘theory’ of the brontosaurus. A more serious discussion is provided if you look up Richard Feynman’s discussion of the difference between naming and describing and theorizing and explaining: see Richard Feynman–Names Don’t Constitute Knowledge. [6] Just a note of reminding that 60 year ago, the Public Choice Society was formed to bring together scholars who shared a desire to tackle a frustrating puzzle of 20th century democratic society. Namely, that simple majoritarian politics did not prove sufficient to discipline the behavior of elected officials to pursue public policies in the public interest and policies that reflected the preferences of the citizens. *Peter J. Boettke is University Professor of Economics & Philosophy, George Mason University, Fairfax, VA 22030. Adapted from an address Pete Boettke gave at the Public Choice Society’s annual meeting on March 17, 2023. For more articles by Peter J. Boettke, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Improving standards of living are something that we have mostly taken for granted in modern America. In fact, failing to produce sufficient increases in national income is one of the surest ways for a President to lose reelection (even if they have little control over it in the short run). But how much are living standards and income improving? Has growth slowed down in recent decades? Are we worse off than a generation ago? Both regular Americans and economic researchers have been asking these questions a lot lately. The debate often slips into dueling anecdotes or—even worse—wonky discussions of income measures and inflation adjustments. What’s the best way to look at this data and answer those questions? I’ll try to give you a guide to the data, without getting too much into the weeds. Well, maybe a little bit. To give you a preview of the conclusion: while the prices of many categories of goods and services have risen rapidly, Americans have continued to see their standard of living rise in recent decades, properly measured. Now, let’s talk about measurement. The Long-Run View There isn’t much disagreement that in the really long-run, say 200-300 years, standards of living have improved significantly. By almost any measure—income, health, education, freedom—people today are better off in 2023 than they were in 1823. I really like a summary of the global data for six measures that Max Roser wrote for Our World in Data.1 You could do a similar analysis of the United States over our entire history. For example, life expectancy at birth in the United States was around 40 years in the early nineteenth century. Today, it’s approaching 80 years (though the pandemic along with the surge in opioid overdoses have set us back a bit). Measuring the increase in income is more challenging than measuring life expectancy, but many economic historians have dug into the available data and given us some useful estimates. For example, Lawrence H. Officer and Samuel H. Williamson report that average compensation of production workers (non-supervisory manufacturing laborers) was about 4 cents per hour in 1800.2 Louis Johnston and Samuel H. Williamson also estimate that Gross Domestic Product per capita was about 90 dollars per year in 1800.3 GDP is a widely used, sometimes criticized, and sometimes misunderstood measure of average incomes, but it is one that we are able to approximately estimate for very long-past periods. But those numbers from 1800 are a bit unsatisfying. How do they compare to wages and incomes today? We know that a dollar doesn’t buy as much “stuff” today as it did in the past. But how much less “stuff” does the dollar buy? This is where the familiar, but also often misunderstood, concept of “inflation adjustment” comes in. If your income triples, but prices also double, you are better off, but you are not three times better off. Inflation adjusting is a way to answer the “how much?” question of improvements in income over time. Economic historians have developed long-run measures of consumer prices for purposes of inflation adjustment. The most common measure is a backwards extension of the Bureau of Labor Statistics’ Consumer Price Index, which officially only goes back to 1913, but once again, Officer and Williamson have combined all the best historical estimates to extend it back to 1774. The CPI also has some adjustments for the improvement in quality of products, even if this is not perfectly captured—stay tuned for much more on quality improvements later on in this essay. For the latest data in 2022, we see that consumer prices are about 24 times higher, on average, than they were in 1800. That’s a lot of inflation! But when we look at average incomes, as measured by GDP, it is an astonishing 842 times higher than in 1800. Putting these two together, we can say that real, or inflation-adjusted, GDP per person in the United States is about 38 times higher in 2022 than it was in 1800. Economic historians still might debate the exact figure—is it actually 40 or 50 times, or maybe a little less than 38?—but no one debates the direction of improvement. It’s also useful to point out that the past 200-300 years have been unusual in human history. Economic historian Deirdre McCloskey likes to call this the “hockey stick” of human history, as a very long-run chart of economic growth looks a long stick with a sharp blade at the end. The Medium-Run View of Income Growth While there is little dispute about the long-run, there has much debate about the prospects of Americans in recent decades. How has the last generation fared economically? It depends on what data you look at. And here’s where it gets interesting. Measures such as Gross Domestic Product show continued progress. Adjusted for inflation, GDP per capita roughly doubled between 1982 and 2022. That’s pretty good growth. Other measures of economic well-being have shown improvement as well, though not quite as much as GDP. For example, real median family income has grown by about 40 percent over the past 40 years. Not all of the data paints as rosy a picture. If we look at average hourly earnings for private sector, non-supervisory workers and adjust for inflation using the Consumer Price Index, we see the shocking fact that there has been essentially no net growth since 1973. That’s 50 years of stagnation! That’s not because nothing was happening. By this measure, real wages were falling from about 1973 until the mid-1990s, after which they rose again to roughly equal their 1973 levels recently. Here’s where things get a little technical and confusing. The Consumer Price Index is a good measure of prices over time, but it fails to take into account a number of important factors, such as that consumers will change their behavior when prices of particular goods rise by buying other, cheaper goods. Combined with some other biases, the Boskin Commission (established by the U.S. Senate to study this issue in the 1990s) found that the CPI tends to overstate inflation by about 1 percentage point per year. This may sound small, but when inflation is only about 2-3 percent per year, if 1 percentage point of that is an overstatement, it really adds up over time. How much does it add up? We can make the comparison by looking at an alternative price index, the Personal Consumption Expenditures price index.4 The PCE corrects for some of the biases in the CPI. And it makes a big difference, as Michael Strain has explained in more detail.5 Here’s the cumulative effect: while CPI-adjusted wages are essentially flat (no increase!) since 1973, PCE-adjusted wages have increased about 30 percent. That’s not as much as GDP per capita or median incomes, but it’s very different from the pessimistic CPI-adjusted picture. Beyond Inflation Adjustments: The Cost of Thriving Index A new analysis of incomes in recent decades has challenged these results on a number of fronts. In 2020, Oren Cass published the first edition of his “Cost of Thriving Index,” which was updated in 2023 and published by his American Compass think tank.6 Cass’s COTI is much more pessimistic about how American families are doing, suggesting that it is much harder for a family with one earner to purchase the necessities of life today than in 1985. How much harder? COTI tells us that in 1985, the median male earner could pay for five basic necessities for his family (groceries, a car, a home, health insurance, and a college education) with about 40 weeks of work. By 2022, COTI tells us that it would take about 62 weeks of work to pay for these same necessities. That’s not a typo; it’s not 52 weeks. According to COTI, it takes more than a full year of work for a man to purchase these goods and services. That means that men must take on second jobs, women must work outside the home, or a family must go without some of these goods and services or go into deep debt to buy them. None of these seems to be an ideal situation, especially if the family would prefer the wife to stay at home. How does Cass arrive at this conclusion? The first important step is that he says inflation adjustments are misleading. Yes, the quality of, say, minivans has improved. But the CPI treats these quality improvements in a curious way: it says the goods haven’t gotten more expensive. They have gotten more expensive, which is bad, but they are also nicer, which is good. But for a family struggling to make ends meet, perhaps they would prefer a lower quality minivan, but you can’t just say, “Hold the airbag and anti-lock brakes, please.” (Cars in 1984 didn’t have these features, nor air conditioning in many cases). In short, Cass looks at the actual costs of goods and services, rather than a quality-adjusted cost. But he also gets many of the costs wrong. In a recent report published by the American Enterprise Institute, Scott Winship and I analyze Cass’s COTI in detail and find many errors.7 Some of the errors and omissions are so significant as to almost completely eliminate the apparent increase of 22 weeks of work that Oren Cass claims are necessary to maintain a lifestyle like that of 1985. For example, while health insurance costs have surely risen significantly in recent years, Cass dramatically overstates the cost of health insurance to a family by including the employer share of health insurance. Workers are not paying this share out of their wages—it may indeed lower their wages, but Cass’s method is double counting (or double subtracting, if you will). Other errors show up for most of the five spending categories. A major omission is to consider the effect of income taxes, which definitely do come out of a worker’s wages. Cass includes no provision for income taxes. But while incomes taxes do reduce take-home pay, thus requiring even more hours work, what’s important for this analysis is the change in income-tax liability for a median-income family from 1985 to 2022. Due to a number of changes in tax law, the biggest being the Child Tax Credit, families today will pay a significantly smaller share of their income in federal income taxes, falling from about 16 percent to just 6 percent of their annual income. These tax changes significantly reduce the number of weeks per year needed to pay the bills. Winship and I make a few other improvements to the analysis. Importantly, we consider not just men over 25, but both women and men. We also include workers under the age of 25, so long as they are working full-time. Cass does have a separate analysis just for women, but we instead include all workers together in one version of our analysis. “Families are 15 percent better off, rather than 36 percent worse off, as Cass’s analysis suggests. And keep in mind this doesn’t include quality improvements to goods and services, which have been substantial since 1985.” Including the improvements to the costs of goods and services, the inclusion of federal taxes, and broadening the workers we consider (to all full-time workers 16 and older), we find dramatically different results than Cass. Families are 15 percent better off, rather than 36 percent worse off, as Cass’s analysis suggests. And keep in mind this doesn’t include quality improvements to goods and services, which have been substantial since 1985. Forget about air bags in minivans for a moment, and think about how much better healthcare is in 2023. Many of the procedures, drugs, and technologies that we use today weren’t even available in 1985—at any cost. By including these quality improvements, we finally conclude that the median family—even if they only chose to have one spouse working—is about 53 percent better off than 1985. This still falls short of the roughly doubling of GDP per capita during this time period, but it’s still a huge improvement in our standard of living. For more on these topics, see “Jeremy Horpedahl on The Real Cost of Thriving Index.” Podcast episode with host Juliette Sellgren. AdamSmithWorks, September 15, 2023. “What would Adam Smith think about ‘vocations’? Part 2,” by Janet Bufton and Christy Lynn. AdamSmithWorks, undated. Standards of Living and Modern Economic Growth, by John V.C. Nye. Concise Encyclopedia of Economics. The American family continues to thrive, despite many headwinds in recent years such as growing government, the rampant inflation of the past few years, and two major recessions in the past fifteen years. Footnotes [1] Max Roser, “The short history of global living conditions and why it matters that we know it”. Available online at Our World in Data: https://ourworldindata.org/a-history-of-global-living-conditions [2] Available online at Measuring Worth: https://www.measuringworth.com/datasets/uswage/ [3] Available online at Measuring Worth: https://www.measuringworth.com/datasets/usgdp/ [4] Available online from the Federal Reserve Bank of St. Louis at https://fred.stlouisfed.org/series/PCEPI [5] Michael R. Strain, “Have Wages Stagnated for Decades in the US?” Available online from the American Enterprise Institute at https://www.aei.org/articles/have-wages-stagnated-for-decades-in-the-us/ [6] The Cost of Thriving Index is available online from American Compass at https://americancompass.org/2023-cost-of-thriving-index/ [7] Scott Winship and Jeremy Horpedahl, “The Cost of Thriving Has Fallen: Correcting and Rejecting the American Compass Cost-of-Thriving Index.” Available online from the American Enterprise Institute at https://www.aei.org/research-products/report/the-cost-of-thriving-has-fallen-correcting-and-rejecting-the-american-compass-cost-of-thriving-index/ *Jeremy Horpedahl is Associate Professor of Economics at the University of Central Arkansas. He blogs at Economist Writing Every Day. For more articles by Jeremy Horpedahl, see the Archive. (0 COMMENTS)

The new elites are in revolt against “Middle America,” as they imagine it: a nation technologically backward, politically reactionary, repressive in its sexual morality, middlebrow in its tastes, smug and complacent, dull and dowdy. —Christopher Lasch, The Revolt of the Elites and the Betrayal of Democracy,1 p. 5-6. Historian Christopher Lasch died in 1994, and his collection of essays The Revolt of the Elites appeared posthumously shortly afterward. The first five chapters in the book read like a prophecy about today’s cultural and political climate. Lasch saw the emergence of a new class of elites. Their livelihoods rest not so much on the ownership of property as on the manipulation of information and professional expertise. Their investment in education and information, as opposed to property, distinguishes them from the rich bourgeoisie… and from the old proprietary class—the middle class in the strictest sense of the term—that once made up the bulk of the population. p. 34 This class sees itself as meritocratic. Hence it has little sense of ancestral gratitude or of an obligation to live up to responsibilities inherited from the past. p. 39 As a result, the new class becomes disconnected from the rest of American society. It is a question whether they think of themselves as Americans at all. Patriotism, certainly, does not rank very high in their hierarchy of virtues. “Multiculturalism,” on the other hand, suits them to perfection, conjuring up the agreeable image of a global bazaar in which exotic cuisines, exotic styles of dress, exotic music, exotic tribal customs can be savored indiscriminately…. Theirs is essentially a tourist’s view of the world—not a perspective likely to encourage a passionate devotion to democracy. p. 6 Previously, wealthy Americans had been rooted in communities. They saw that their well-being depended on having robust local economies and cultural institutions. Lasch sees the new class as characterized by much more global mobility, lacking ties to local geography. Lasch wrote during a period when “political correctness,” an early version of what is now called “Woke,” was ascendant. “Diversity”—a slogan that looks attractive on the face of it—has come to mean the opposite of what it appears to mean. In practice, diversity turns out to legitimate a new dogmatism, in which rival minorities take shelter behind a set of beliefs impervious to rational discussion…. How much longer can the spirit of free inquiry and open debate survive under these conditions? p. 17-19 Lasch wrote that the new class … mounted a crusade to sanitize American society: to create a “smoke-free environment,” to censor everything from pornography to “hate speech,” and at the same time, incongruously, to extend the range of personal choice in matters where most people feel the need of solid moral guidelines. p. 28 Perhaps he would not have been surprised that in the 2020s Americans were subjected to mask guidelines and vaccine mandates at the same time that many states were legalizing marijuana and the latest youth fad was to proclaim oneself as sexually fluid. “If Lasch was able to spot the pathologies that have become so prominent today, perhaps it is because as a historian he saw the long-term trends that had led to them.” If Lasch was able to spot the pathologies that have become so prominent today, perhaps it is because as a historian he saw the long-term trends that had led to them. One of these trends was the decline of small-scale production and the consequent loss of individual independence. In the late nineteenth century, Populists regarded self-reliance (which, of course, does not preclude cooperation in civic and economic life) as the essence of democracy, a virtue that never went out of demand. Their quarrel with large-scale production and political centralization was that they weakened the spirit of self-reliance and discouraged people from taking responsibility for their actions. That these misgivings are more cogent than ever is suggested by the cult of the victim and its prominence in recent campaigns for social reform. p. 83 Lasch died shortly before the World Wide Web burst onto the scene. The early prophets of the Internet proclaimed that it would empower individuals and disrupt the mass-market economic structure that had grown since the late nineteenth century. Instead, new corporate behemoths have emerged, even more powerful than the older manufacturing firms. The new class of knowledge workers has become even wealthier and more detached from the rest of the population. Today, many more cultural critics than when Lasch was writing understand the distinctiveness of the elite outlook.2 Observers share Lasch’s pessimism about what this portends for democracy and social cohesion. For more on these topics, see Martin Gurri on the Revolt of the Public. EconTalk. Richard Reinsch on the Enlightenment, Tradition, and Populism. EconTalk. “When the Elite Become the Elect,” by Arnold Kling. Library of Economics and Liberty, Dec. 6, 2021. Among politicians, it is popular to raise hopes that a revival of manufacturing in America could rebuild the middle class. But I am afraid that the status inequality that is reflected in the new class is not going away. We are not returning to a mid-twentieth century middle-class America any more than we are returning to a Jeffersonian era of the yeoman farmer. We will have to find another way of overcoming the revolt of the elites. I wish I knew what that remedy might look like. Footnotes [1] Christopher Lasch, The Revolt of the Elites and the Betrayal of Democracy. Published posthumously, 1996. [2] I could cite Joel Kotkin (The Coming of Neo-Feudalism), David Goodhart (The Road to Somewhere), Martin Gurri (The Revolt of the Public), Rob Henderson (“luxury beliefs are status symbols”), or N.S. Lyons (“The China Convergence”), among many others. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

When bureaucrats and politicians (including 17 state attorney generals) attack a successful, entrepreneurial company, is it surprising that it looks like a circus? On the suit of the Federal Trade Commission against Amazon, I read in Thursday’s Wall Street Journal (“Lina Khan Once Went Big Against Amazon. As FTC Chair, She Changed Tack,” September 29, 2023): Advertising is part of the FTC’s argument for why it says Amazon has provided worsening service to consumers. The company’s shopping results pages are now “cluttered with advertisements,” making it harder to find the products they want, the FTC’s lawsuit said. That would make some sense if Amazon were trying to maximize its revenues at the cost of losing its customers and its profit, a behavior more suggestive of the approach of governments than of private companies competing in the market. Imagine a citizen shopping on the federal government’s sprawling websites, especially if he is shopping for liberty. He will find these sites cluttered with propaganda, especially at the political level, which makes it very difficult to find what he wants. Speaking of the FTC’s chair, Lina Khan, the Wall Street Journal notes: In her 2017 academic paper, Khan argued that Amazon sweet-talked customers by using predatory pricing, or slashed prices so low that it lost money but rivals couldn’t compete. Her paper acknowledged that predatory pricing was almost obsolete as a legal theory, the Supreme Court having set the bar so high that enforcers stopped trying to prove it. Now the FTC accuses Amazon of hurting consumers with higher prices, mainly through punishing its marketplace sellers if they offer lower discounts anywhere else. … “It’s really hard to square the circle of the earlier theory of harm that Lina Khan enunciated with the current complaint,” said John Mayo, an economist who leads Georgetown University’s Center for Business and Public Policy. “The earlier complaint was that prices were going to be too low and therefore anticompetitive. And now the theory is they are too high and they are anticompetitive.” This illustrates the arbitrariness of bureaucratic and political processes. If you can’t sue them because their prices are too low, sue them because they are too high. And of course, the government knows what would be a price neither too low nor too high. The foundation of the argument against antitrust is that competition and potential competition provide a built-in constraint against concentration. Competition only requires that the market be free from government-granted privileges and legal restrictions to entry. In a free market, greed controls greed. In an overgrown state, power does not control power as much as it fuels it. One can find a short exposé of the arguments against antitrust (including the idea of predatory pricing) in David Friedman’s Law’s Order: What Economics Has to Do with Law and Why It Matters (2000), chapter 16 on antitrust. For the broader economic-philosophical argument, we get a concise summary from James Buchanan (James M. Buchanan and Richard A. Musgrave, Public Finance and Public Choice: Two Contrasting Visions of the State [MIT Press, 1999]), which reminds us what freedom of contract and free enterprise look like: If I observe someone with apples and somebody else with oranges, I don’t want to try to say a particular allocation of oranges and apples in a final position is better than in the other allocation. If I observe them trading without defrauding each other, whatever emerges, emerges, and that is the way I define what is efficient. (0 COMMENTS)

When then-hedge fund manager Elie Hassenfeld began his philanthropic journey in 2006, he knew that he wanted to get the most charitable bang for his buck. He quickly realized, however, that detailed data on charitable impact simply didn’t exist. So he and Holden Karnovsky founded GiveWell, an organization inspired by effective altruism that identifies the […] The post Elie Hassenfeld on GiveWell appeared first on Econlib.

What causes societies to fail?  One possibility is that they enter a zero sum death spiral.  Here’s the basic problem: 1.  Zero sum thinking causes bad economic policies. 2.  Bad economic policies cause a poor economic outcome. 3.  A poor economic outcome causes zero sum thinking. Rinse and repeat. I’ve always been aware of the first two points, but hadn’t given much thought to the third point.  An excellent recent article in the Financial Times (by John Burn-Murdoch) has some data on this question: If someone’s formative years were spent against a backdrop of abundance, growth and upward mobility, they tend to have a more positive-sum mindset, believing it is possible to grow the pie rather than just redistribute portions of it. People who grew up in tougher economic conditions tend to be more zero-sum and sceptical of the idea that hard work brings success. These attitudes are perfectly rational. The pattern holds whether you look at people who grew up at the same time but in countries with varying economic fortunes, or different generations who grew up in the same places but against a shifting economic backdrop. The article provides some interesting graphs that illustrate the relationship: In recent years, economic growth has slowed in many countries, including the US.  This has been associated with a rise in identity politics: You wouldn’t typically think of affirmative action advocates and anti-immigration nativists as being bedfellows. The former group skews young and is composed overwhelmingly of progressives, and the latter skews old and conservative. But according to a fascinating new study out of Harvard University, they have one significant thing in common: a predilection for zero-sum thinking, or the belief that for one group to gain, another must lose. The same way of thinking crops up on all manner of issues that cut across traditional political divides. Roughly equal numbers of US Democrats and Republicans agree that “in trade, if one country makes more money, then another country makes less money”. And while Democrats are more likely to say “if one income group becomes wealthier, this comes at the expense of other groups”, a third of Republicans agree. Not surprisingly, Obama-Trump voters are especially likely to engage in zero sum thinking: Populism, conspiracy theories and nativism are all rooted in the belief that one group gains at the expense of others, and all these have risen of late. Self-identified Democrats who voted for Donald Trump in 2016 scored very high on zero-sum beliefs. Some people argue that economic growth makes us happier.  I’m skeptical of that claim, at least beyond a certain income level.  But if growth leads to less zero sum thinking, and that leads to more market-oriented polices, then growth may indirectly lead to greater happiness.  Not because more money makes us happier, rather because economic freedom makes us happier. (0 COMMENTS)