Co-blogger Scott Sumner wrote yesterday that the positive correlation between economic freedom and civic virtue was not something he expected. It is something I expected. And it has to do with how free markets lead to virtue. In a chapter titled “Market Virtues and Community” in my 2001 book, The Joy of Freedom: An Economist’s Odyssey, I wrote, “Markets teach or encourage at least three virtues: tolerance, honesty, and compassion.” In that chapter I spell out how. Here’s what I write about Oskar Schindler, in response to Walter Mondale’s dissing of Schindler: In other words, to Schindler, each person is worth counting—each has value; 850 differs from 851 by one person, and that person’s life matters. This is a major transformation. Earlier in the movie, after rescuing Stern from certain murder, Schindler had said angrily, “What if I got here five minutes later? Then where would I be?” He had been upset about being without an accountant. Now he cared about all his workers. This transformation made some movie critics call Schindler “complicated” (San Francisco Chronicle) and “puzzling” and “contradictory” (Atlanta Journal and Constitution). But Schindler’s growing humanity is about as hard to understand as warm weather in summer and should surprise only those people who think about Marxist cardboard characters—“workers” and “capitalists”—rather than real human beings. Schindler started to like the people he worked with. Commerce does that. Almost all of us care for the people we work with, whether they are our employees, our employers, or our fellow workers. Indeed, we think of fellow workers who don’t care about anyone else as being odd, troubled, unusual. Anyone who knows employers knows that the part of the job many of them hate most is firing somebody. Schindler was a hero—his actions were heroic because he took a big risk. But what led to his heroic actions was his caring for his employees, something that is quite normal. Virtually all of us would be willing to take some risks to help those around us, and the bigger the threat to their well-being, death obviously being the biggest threat, the bigger the risk we’re willing to take. So the transformation in Schindler, though heroic, was entirely normal. The free market created an environment in which Schindler learned to value people; in a sense, markets taught Schindler morality. In that chapter I also lay out why economic freedom supports accountability and compassion. Another story that I don’t relate in the book. In the late 1990s, I played volleyball with a regular group that included some people who, as adults, had escaped from Czechoslovakia. One thing I noticed about 2 of the 3 adults was that they often called balls in when they were out or out when they were in and always when that benefited their team. The other players didn’t do this nearly as often and sometimes made wrong calls that hurt their team. As I talked about it to another economist who played with us, it made sense. They had come from a Communist society where lying was a way of life, and it almost had to be because the stakes were so high.   (0 COMMENTS)

A few months ago, I bought Micheal Keen’s and Joel Slemrod’s entertaining book on taxes, Rebellion, Rascals, and Revenue. It’s not the kind of book I like to read cover to cover. It’s more the kind I like to dip into to find an interesting story or two. There are many. In one section, though, the authors, both of whom are good economists, make a basic error. In discussing the Earned Income Tax Credit, they write: By making work more attractive, the EITC induces an increase in labor supply among low-income workers. Unless the demand for labor is perfectly inelastic (meaning, improbably, that employers will employ the same amount of labor no matter what wage they have to pay), this increase in labor supply drives wages down. No. It’s the opposite. It’s when the demand for labor is perfectly inelastic that the drop in wages is greatest. I’m not great at drawing demand and supply curves on line. But imagine a vertical demand curve for labor. Then draw an upward-sloping supply curve. Then shift the supply curve to the right. You’ll see that the equilibrium amount of labor demanded and supplied doesn’t change. What changes is the equilibrium wage, which drops. It’s actually when the elasticity of demand for labor is perfectly elastic (think of a horizontal demand for labor schedule) that the increased supply leads to no drop in wages. (0 COMMENTS)

Is the US Constitution problematic in terms of the creation and implementation of successful public policy in today’s America? Is the Constitution authoritarian? What’s the history of constitutional ambiguity? Louis Michael Seidman joins EconTalk host Russ Roberts to discuss and disagree on constitutional disobedience, how the Constitution should be interpreted, and the ideal place of the Constitution in how policy is designed. Seidman is the Carmack Waterhouse professor of constitutional law at the Georgetown University Law Center, and the author of On Constitutional Disobedience. Seidman’s main point throughout the podcast is that of constitutional disobedience: not using the Constitution as a framework for creating laws for the country. Seidman believes that blindly accepting the rules that people from three centuries ago is archaic and undemocratic, and that we should ignore the Constitution when it advocates for immoral rules: Constitutional Disobedience does not mean disobeying everything that’s in the Constitution. To the extent that the Framers put in the Constitution are good things, they ought to be obeyed because they are good things. And so you’ve pointed to one feature of the Constitution which you consider a good thing. And that ought to be followed because it’s a good thing. There are other things in the Constitution that are not good things and ought not to be followed because they are not good things. Seidman has a few arguments to bolster this view. For example, he believes that there is a significant pattern throughout American history of the Constitution being ignored or blatantly violated due to practicality or morality. His main example is the Emancipation Proclamation: Other sorts of foundational events in our history are also either outright violations or constitutionally questionable. So, my favorite example: We’re now celebrating, the 150th anniversary of it, is the Emancipation Proclamation. It was common ground, a view shared by everybody, including Abraham Lincoln and including most abolitionists, that the Constitution prohibited interfering with slavery in the states where it already existed…So the abolition of slavery was accomplished not by constitutional processes but by the force of arms, in violation of the Constitution. And when the Constitution finally caught up in 1866, with the passage of the 13th Amendment, the Amendment itself was adopted by mechanisms which were constitutionally questionable. A few people dispute this, but the vast majority of people who have studied it think that the framers of the 14th Amendment would certainly not have read their words as prohibiting segregated schools. Here, Seidman is making the point of many dis-unionist abolitionists in the 19th century, such as William Lloyd Garrison. Garrison believed that slavery was constitutional due to the opinions of the founding fathers being mostly pro-slavery, but he also encouraged his followers to not accept the U.S. Constitution as a legitimate legal document until slavery was abolished. However, many other abolitionists at the time, namely Lysander Spooner and Frederick Douglass disagreed. In Spooner’s The Unconstitutionality of Slavery, he outlines why the Constitution’s language itself is anti-slavery, and why the pro-slavery attitudes of the framers are irrelevant to interpreting the Constitution.  Seidman references a more niche issue, that of how U.S. Senators have been elected since 1791. Seidman concludes that Americans have sensibly ignored the Constitution in this realm, and that more scrutiny needs to be applied towards the more nonsensical portions of the Constitution: The way in which we have appointed elected Senators since 1791 pretty clearly violates Article I. So, Article I. provides that all Senators serve 6 years, except for the first group of Senators, who were divided by lot into 3 groups to serve 2, 4, or 6 years, so as to have staggered elections. So, in 1791, Vermont became the first new state. And in the resolution making Vermont the first new state, Congress provides that 1 Senator is going to serve for 6 years and the other is going to serve for only 4 years. That’s a violation of Article I. And you know what? Every state that’s been admitted since then, Congress has done that. This leads into the “obsession” with constitutionality that Seidman takes issue with. He explores how appeals to the Constitution, and the strict use of the Constitution to justify rules in America are inherently authoritarian. According to Seidman, Americans are too focused on whether policies are constitutional, as opposed to their effectiveness in solving the problems they were intended to solve. To Seidman, this is representative of a fallacious appeal to tradition and legality over morality. A focus on constitutionality stifles debate and gives hegemonic, totalitarian, and undemocratic control of the nation over to the opinions of the founders as opposed to the views of Americans today, and is no different from a dictatorship, or control from a hostile foreign power: I don’t have to give you any reasons, you’ve got to think aid to agriculture is unconstitutional because people 250 years ago said so, people are not willing to accept that. And they shouldn’t accept it. The obligation you have is to explain to people why now government aid to agriculture is a bad thing. And in the end what we think of as constitutional rights aren’t going to survive unless folks can explain to their fellow Americans why these are principles that ought to be accepted and not just something that in an authoritarian way you tell people they have to whether they want it or not. This is our country. We live in it. We have the right to have the kind of country we want. We would not accept rule by France or rule by the United Nations. And for the same reasons, we shouldn’t accept rule by a relatively small group of people who probably did not represent a majority even at the time that they lived; but in any event have been dead for several hundred years. Seidman’s claim here ignores the concept of the Constitution as a living document. However, Americans don’t have to accept the attitudes and ideas of those who lived 250 years ago, contrary to what Seidman suggests. Evidence of this is the amendment process, and the significant changes to American law since 1787 which have passed the merits of constitutionality, such as the Affordable Care Act.  Seidman takes significant issue with the ambiguity in the Constitution. He believes a core purpose of law is to settle disputes, and the constant debates over the unclear language of the Constitution create gridlock and animosity. To Seidman, the Constitution doesn’t only do a poor job of settling arguments, it causes them and fans the flames of contemporary American polarization. What you end up with is not the Constitution settling our arguments. What you end up with instead is people on both sides accusing the other side of violating our foundational document. And that’s not conducive to the kind of respectful and restrained debate we ought to have in a mature democracy. Though Roberts pushes back on a significant portion of Seidman’s arguments, this is one he agrees with. But where I agree with you, and I think you make a very telling point, is that the document is ambiguous, and those of us who don’t like what’s happened under its name, we are fooling ourselves a little bit in that we are saying, not just that we want the Constitution. We want the Constitution that’s the one we like. The one we interpret. Another argument Roberts takes no issue with is Seidman’s assertion the Supreme Court needs to be honest about legislating from the bench, and making decisions largely through political beliefs, and not an understanding of constitutional law. So, really, the important decisions, like the decision outlawing segregated schools or creating an abortion right or limiting affirmative action or protecting the rights of gay men and lesbians, those decisions have basically no grounding in the Constitution. They are some combination of the Justices’ views of political morality, their views of our traditions, their interpretation of their own prior precedents; and if we are going to have a body act like that, I think we need to be honest with the American people and come clean and make clear that that’s what it’s doing. I believe many Americans would also align with Roberts and Seidman on this point. It’s understandably difficult for the court to rule on modern issues which the Constitution doesn’t address specifically, or even ambiguously. Justices of the court are forced to post-hoc justify their rulings, which are may be based on political views, tying together bits of constitutional provisions that fit their narrative, instead of using the legal text to inform their opinions on cases brought to the court. However, Roberts significantly pushes back on a few of Seidman’s points, such as the authoritarianism of the Constitution. In his counter-argument Roberts makes the point that people don’t appeal to the Constitution because might makes right. The Constitution prevents that mindset in the first place, due to its focus on constraint of factions and power. Roberts further takes issue with Seidman’s argument against the gridlock that the Constitution encourages. Roberts argues gridlock prevents authoritarianism, as it’s simply too difficult to enact so much totalitarian change with the sheer amount of barriers that need to be bypassed: My thought is that the gridlock that we have right now–you are talking about gridlock writ large, that it’s very hard to amend the Constitution. It’s also hard to get a lot of things done. We’re having a lot of trouble right now agreeing on how to close a trillion dollar deficit, whether we should at all. We can’t agree on either of those things. Or how to make it happen. So let me argue that that’s a feature and not a bug. There’s a general, I think, perception that policy in America moves very slowly. And there’s a lot more inertia here relative to in Europe. And I think that’s a good thing. Though this episode was full of disagreements between Seidman and Roberts, both expressed gratitude to the other for being able to educationally and amicably disagree. Seidman and Roberts specifically mention the constant anti-Semitic abuse they both receive as a point of comparison for the healthy nature of this podcast. Lastly, the podcast finishes with Seidman explaining his approach to education as a professor.  I don’t expect or even want people to come away from my classes agreeing with me. What I want them to come away from the classes is holding the view they hold in the most sophisticated form that it can be held. And that’s my ambition as a teacher. This is a fantastic note to end on. The purpose of education is to understand the best process of thought for deciphering the complexity of the world, and deciding how to improve it, and Seidman’s method of teaching is a wonderful example of this.   While listening to this podcast some questions came to mind. feel free to share your thoughts as well. 1- Seidman asserts that it is authoritarian to use an appeal to the Constitution. Why is it authoritarian to reference agreed upon principles? If we can’t appeal to these, how else will we solve disputes? Would Seidman agree with this argument in any other scenario, such as a sports environment or private contract? This seems like a strawman; does Seidman think that Americans only have arguments based exclusively on constitutional law and not morality? If Americans reference the Constitution, doesn’t it stand to reason that they do so because they agree with the provision being referenced, not solely because it exists?   2- Another of Seidman’s critiques of the Constitution is its ambiguity leading to difficulty in solving problems. Does this contradict Seidman’s points on authoritarianism? Does Seidman want the Constitution to settle our disputes with unambiguous law? Isn’t this the exact same authoritarianism he believes appeal to constitutionality is representing in the first place? I would argue the ambiguity is without a doubt a positive, as it facilitates debate, and allows contemporary and future Americans to interpret the constitution as a living document, in a way that is in the best interest of the country throughout time. Where do youstand?   3- Gridlock is a key point that Seidman and Roberts discuss, specifically the drastic stagnation in constitutional amendments. How should Americans view the amendment process potentially going dormant?   4- Seidman seems to think that the Constitution has little effect on the American way of life today. In his words it’s not “the glue that holds us together.” However, he also points out that Americans seem hyper-focused on the constitutionality of proposed rules. Are these positions contradictory or can they both be held simultaneously?   5- Seidman expressed his dislike for the politicized nature of the Supreme Court, and though I agree that this is a problem, I wonder… to what extent is it possible for any governmental institution, including the Supreme Court, to be apolitical?   Kevin Lavery is a student at Western Carolina University studying economic analysis and political science and was a 2023 Summer Scholar at Liberty Fund. (0 COMMENTS)

Today, I’d like to discuss a couple of correlations in areas where I wouldn’t expect to observe them.  One is the positive correlation between free markets and civic virtue, and the other is the negative correlation between economic growth and birth rates (at least for advanced countries.) 1. Back in 2008, I wrote a paper entitled “The Great Danes.”  I argued that countries with a high level of civic virtue tend to have the freest economies.  More specifically, I looked at various indices of “economic freedom” that had the size of government removed.  I wasn’t interested in the amount spent of social welfare programs, rather my focus was on other aspects of free markets, such as free trade, deregulation, rule of law, lack of price controls, privatization, etc.  In a surprising coincidence, the world’s number one free market by this definition turned out to be Denmark.  And it turns out that Denmark also tends to top indices of civic virtue (an ambiguous concept that includes things like lack of corruption.) A recent paper by Leandro Prados de la Escosura developed a similar approach to economic freedom: Assessing economic liberty and its dimensions is hampered by unavoidable discretional decisions in the choice and transformation of variables (de Haan 2003). A widely shared view is that the more a society relies on the market and the less on government intervention, the larger its economic freedom. However, freedom of economic activity implies “freedom under the law, not the absence of all government action” (Hayek 1960: 193). In fact, the government, as a provider of protection to the individual from coercion, is essential for economic liberty (Friedman 1962). It is the nature of government action, rather than how active the government is, that is at stake. Hence, the size of government should not be considered a dimension of economic freedom. I wasn’t surprised to see Denmark come in number one in his ranking of economic freedom—I had produced a similar result.  I was surprised to see that Denmark’s leadership went back at least as far as 1850: Of course Denmark is just one country, but when looking across all developed countries I found strong evidence that economic freedom was positively correlated with civic virtue. Perhaps that should not be viewed as a surprise, but I must have read dozens of left wing intellectuals assert with confidence that free markets make people more selfish and corrupt. I suspect the causation goes in both directions.  Free markets make people more honest for reasons discussed in Deirdre McCloskey’s Bourgeois Virtues, and civic virtue makes it easier to set up a free and transparent economic policy regime that doesn’t favor particular special interest groups. As an aside, I recently read a book written in the early 1800s, which discussed the dramatic arts.  The author (August Wilhelm Von Schlegel) had this to say about cultural differences in Europe: Intrigue in real life is foreign to the Northern nations, both from the virtues and defects of their character; they have too much openness of disposition, and too little acuteness and nicety of understanding.  . . . In the North, life is wholly founded on mutual confidence. Clearly this sweeping statement involves plenty of hyperbole, but it does suggest that even 200 years ago certain “Nordic” cultural traits were already apparent. 2.  Some thoughts on a second interesting correlation were triggered by this tweet: Younger readers who are impressed by this growth spurt might be interested in knowing that Politano’s graph doesn’t even include the heyday of Korean growth, which occurred during the 1970s and 1980s.  In the 30 years between 1960 and 1990, Korea went from being one of the poorest countries on Earth to being a successful middle-income country.  By the time South Korea hosted the Olympics in 1988, it was already viewed as an impressive success story.  Unless I’m mistaken, Korea’s growth over the past 60 years is the most impressive in the entire world. So what does all of this have to do with “non-obvious correlations”?  It turns out that South Korea leads the world in another significant category; it has the world’s lowest birth rate (0.78 children per woman.) You might think that this correlation is not so surprising, as we all know that richer countries tend to have lower birth rates.  But that’s not the point I’m making here.  Korea is not unusually rich, it is unusually fast growing.  I understand why a rich country might be expected to have a low birth rate.  Among developed economies, however, there is actually very little correlation between birth rate and GDP/person.  The US and Northern Europe have slightly higher birth rates than Mediterranean countries and East Asia, and are also a bit richer.  But even if it were true that richer countries had lower birth rates, why would you expect very low birth rates in fast growing countries that are not unusually rich? As with the Denmark “coincidence” discussed above, this is not just a correlation involving one country.  Next to South Korea, places like Taiwan, Singapore, China and Hong Kong have the world’s lowest birth rates, and are also the fastest growing economies since 1960. I have no explanation for this pattern, but I suspect that there is something in Korean culture that helps to explain both the birth rate and the rapid economic growth.  To be clear, I don’t believe that culture is the only factor explaining economic growth (a quick look at North and South Korea dispels that theory), but culture may be correlated with certain traits that boost growth, such as willingness to work hard and sacrifice for future benefit.  For instance, South Korean students are known to study unusually hard to achieve academic success.  South Korea maintained a 6-day workweek until 2004, and Koreans still work more hours per year than workers in other advanced countries. Perhaps that drive to succeed in some way pushes a country toward a lower birth rate. Alternatively, the causation might go from growth to culture.  Perhaps the rapid growth causes such extreme societal change that traditional cultural traits emphasizing the importance of big families get brushed aside. Any other theories? PS.  What other surprising correlation are out there?  It occurs to me that America’s most productive city (San Francisco) is also perhaps its worst governed city.  Is there a causal story there?  That correlation is clearly not true at the international level.  Switzerland is both richer and better governed than Somalia. (0 COMMENTS)

As I’ve mentioned before, I currently live in Minnesota. Like most places I’ve lived, it has its upsides and downsides, but one thing I put firmly in the “upside” category is the Minnesota State Fair. This event occurs in the final days before summer ends and the school season begins. While scrolling through the local news, I stumbled across an opinion piece with what struck me as a strange take on fair parking.  Parking at the fair can certainly be an ordeal. It attracts large crowds and there is only so much parking space and only so many streets one can take to get there, so the last leg of the drive to the fair is often spent moving at barely faster than walking speed while getting into the parking lot. The official state fair parking lots charge a $20 fee. In theory, street side parking is available in various neighborhoods within walking distance of the fairgrounds. But, because these street side parking spaces are available to use free of charge, they reach capacity approximately instantaneously and finding one requires a great deal of luck. Personally, I’ll cheerfully pay $20 to skip that process and park at the fairgrounds. The amount of time and hassle I save is worth significantly more than $20 to me – which will be even more true this year, since my three-year-old son will be coming along for the experience.  The author of this piece, however, takes a different view. For him, its either free street side parking or nothing at all. He calls this his “biggest tradition” regarding the fair. Now, I’m not going to say he’s wrong for harboring this preference. Economic value is subjective, and just because the time and hassle saved by using fairground parking is worth $20 to me doesn’t mean it must be worth $20 to him. However, I think his opinion would benefit if he took certain externalities into account.  He does seem at least partly aware of one externality associated with his parking preference – the time and hassle costs of fulfilling his parking preferences are also inflicted on the other people joining him to this event. He acknowledges this issue exists, commenting how his behavior “drives my friends and family accompanying me to the fair nuts: I will drive around for a looooooong time through the neighborhoods to find a free parking spot. This is a game I am not willing to lose.” But even though he’s aware that fulfilling this preference inflicts costs on the other members of his party, he doesn’t seem too troubled by that. However, there’s another externality going on that he also fails to properly appreciate. He points out that some “enterprising individuals who live adjacent to the grounds” will also, for a fee, allow state fair attendees to park in their driveways or even on their lawns. I think this is a great thing. Parking is a scarce resource, and during the state fair the quantity of parking demanded is unusually high, and local residents are responding to this by increasing the parking supply since they can charge a price for the use of that resource. Unfortunately, it’s clear that when he refers to these people as “enterprising individuals” his intention is full of sarcasm and scorn – he also refers to these people as “clowns” immediately afterwards.  I think his disdain for these people is uncalled for. Some people have extra space that can be used, others are happy to pay to use that space, and this is a mutually beneficial exchange for all parties involved. If he doesn’t find that it’s worth it for him, that’s fine, but sneering at people who do find it beneficial is a bad look. But even if he has no wish to partake, he should be grateful these arrangements exist – they work to his benefit. Every person who uses these spaces to park is one less person out there looking for street side parking. The more people are willing to allow their driveways and lawns and lots be used for fair parking, the more it improve his odds to find some of the street side parking he values so much. The very thing he scoffs at and looks down upon also creates a positive externality from which he benefits. Perhaps if he took the insights of economics a little closer to heart, his attitude towards other people would be a little less dismal.     (0 COMMENTS)

Early detection of cancer seems like a very good idea. But it’s a lot more complicated than it seems. Oncologist and epidemiologist Vinay Prasad of the University of California, San Francisco talks to EconTalk’s Russ Roberts about why many tests to detect cancer do little or nothing to extend lifespan. The post Vinay Prasad on Cancer Screening appeared first on Econlib.

There is something absurd in anti-discrimination laws. One illustration can be found in a recent Wall Street Journal report on corporations sued by conservative activists for discriminating in the name of non-discrimination (“The Legal Assault on Corporate Diversity Efforts Has Begun,” Wall Street Journal, August 8, 2023): The Wisconsin Institute for Law and Liberty, in suing Comcast in April 2022, cited the 1866 Civil Rights Act. One provision often referred to as Section 1981 says all Americans should have the same rights to sue and enforce contracts “as is enjoyed by white citizens.” … Title VII of the Civil Rights Act of 1964 bans workplace discrimination. The recent [Supreme Court] affirmative-action decision didn’t address employment practices directly. But Supreme Court Justice Neil Gorsuch in a concurring opinion noted “materially identical language” on discrimination in the laws governing higher education and employment. … The pressure leaves employers vulnerable to litigation for either going too far or not far enough in addressing barriers to equity and inclusion, lawyers say. Consider the broad lines of the history of discrimination in America. Before the Civil War, some states mandated racial discrimination either legally or by letting mobs impose it. After the Civil War, racial discrimination was forbidden, even if the prohibition was not seriously enforced until the Civil Rights Act of 1964. This law came to be interpreted as mandating discrimination in the name of non-discrimination, an enterprise called “affirmative action.” Now, some people want to forbid discrimination again. (Note how the word “liberty” seems to be used against liberty in the name of the Wisconsin Institute for Law and Liberty, except if they refer to “collective liberty” instead of individual liberty.) Here is a revolutionary idea: Why not let individuals and their voluntary associations (including private corporate bodies) be free to discriminate or not? At least if some actions or attitudes are bigoted (with the cost of discrimination largely supported by the bigots), the outcomes will remain diversified at the level of private choices. What should be forbidden, of course, is for governments and government institutions to discriminate. (0 COMMENTS)

Yesterday my friend Danny Shapiro recommended a 2018 EconTalk episode in which Russ Roberts interviewed A. J. Jacobs on his book Thanks a Thousand: A Gratitude Journey. I loved the episode. Various parts of it immediately caused me to think of my own experiences, including my own expressions of gratitude to people. Here are a few. Thanking the barista for the coffee Jacobs says: And, I said, ‘I know this sounds strange, but I just want to thank you for keeping the bugs out of my coffee.’ And she said, ‘Well, that is strange; but I really appreciate it. I don’t get a lot of gratitude.’ That reminded me of when I was on a flight from Newark to San Francisco and started a conversation with the guy beside me. One of the things I find most interesting about people is what work they do. So I asked him. He answered that he worked for a pharmaceutical company and named the company. I asked him what drugs they produced and what diseases they were aimed at. He told me a few. Then I said, “Thank you.” “What?” he asked. “Thank you. I appreciate your role in getting these drugs out to the public and helping them.” “I’ve been in this business for over 20 years,” he said, “and you’re the first person who has ever thanked me.” By the way, I wrote an op/ed 23 years ago titled “Make Money off My Sickness, Please.” In it I expressed gratitude to the local hospital (Community Hospital of the Monterey Peninsula, which we locals call CHOMP) for saving my life for $2,000 in 1995 dollars. Gratitude for a Doctor Russ tells this story about people expressing thanks to a doctor dying of cancer. People gathered to thank him for the treatments he had given them. This doesn’t directly relate, but somehow it reminded me of the memorial service for my friend Harry Watson last month. I was wandering around their New Hampshire compound (there are 7 buildings on it) an hour or so before the service when I saw someone show up in a nice Porsche. He rolled down his window to ask where he should park and I introduced myself. He then introduced himself. He was Dr. Hunt of the University of Pennsylvania medical center. He had been Harry’s hero because his destruction of various malignant tumors in Harry’s body probably bought Harry 3 or 4 more years of life while he had stage 4 colorectal cancer. Dr. Hunt flew from Philly to Boston and then rented a car to drive 2 hours to New Hampshire. Now that’s dedication. Gratitude for a Parent Russ states: You mention your parents. That’s an obvious example where, for me, when I first had, when I was blessed with a child, one of the things that it does to–it does a lot of things to you–but one of the things it does to you is it makes you realize what your parents did for you. Because–tragically or not, realistically, you don’t spend a lot of time thinking about it. And when you have your own child, you realize, ‘Oh my gosh.’ And you should be overwhelmed by gratitude. And I think how often you tell you tell your parents how grateful you are for what they did for you. My mother died when I was 19 and so it never occurred to me to express gratitude to her. My father died when I was 46 and fortunately I knew it was coming (I had visited him for that reason less than 2 weeks earlier) and when I found out from the nursing home that he was near the end, I faxed him a very brief appreciation that they told me they had read to him. I did get a glimpse of the fact that he had thought about his kids when I went through his papers and found a carbon copy (remember those?) of an application he had written for a job as a school principal when he was wanting to resign as a school principal where he was. He mentioned that he had 3 kids and his youngest (me) was 9 and then something I forget. But still it was neat to see him even mentioning me when I had had the working assumption that he took me for granted. Gratitude Replacing Annoyance Jacobs states: I think my default mode, like many people’s, is to be annoyed: Find the three or four things wrong with everything and focus on them. I think of it almost like a battle between my inner ‘Larry David’ and my inner ‘Mr. Rogers.’ And I think my Larry David is very strong. So, this was partly an attempt to strengthen my Mr. Rogers. And I do think it was successful. I mean, I still get annoyed a huge amount. But, just doing a practice of focusing on the hundreds of things that feel right in every part of our lives, it really is a radical shift in perspective. I have worked on this a lot over the last 5 decades and I’m now at the point where my “Mr. Rogers” is dominant. Two stories from the last 2 weeks. Two weeks ago my wife and I rented an expensive house for 5 nights in Novato, California. We had to pay a lot to get a private swimming pool. All kinds of things went wrong. First, there was no set of directions. So we had to contact the owner to get the WiFi password. Second, I had bought ice cream the day we arrived and by that evening, it had turned to soup. The freezer didn’t work. Third, it took us 2 days to find where the towels were hidden. I could mention a couple of other upsets, but I think you get the picture. We contacted the owner about the freezer and he told us he had ordered a new one and it would arrive the day before we left. So it wouldn’t help us much. I don’t know if this was a response to our complaint about the ice cream or if he had already ordered it and it was due to arrive. He asked us if we could be there to accept delivery. My immediate response was anger, but by this point my anger quickly turned to laughter. This really seemed like a comedy. We said we could be there if they specified the time, and the guys who delivered it were only a little later. The owner also showed up and he was a really nice guy. The power had gone out that morning and when we had told him that, he said we should go out for breakfast and he would pay. My sister in law and her boyfriend were visiting and so we took them out and treated. I had no intention of charging him for them, just for us. So when I told him that the bill was $107, but that he should give us half of that, he pulled out 6 $20s and said that that should compensate us for breakfast, the ice cream, and another dish that had spoiled in the fridge. When the fridge arrived and the guys pulled out the old one, of course there was all kinds of dirt on the floor. Although the owner was 10 years younger than me, he wasn’t in as good shape and it was difficult for him to clean the floor. He tried to do it with wet paper towels and using his foot to sweep them back and forth. It just wasn’t working. I like to be helpful and I also felt gratitude for his being so accountable. So I got some wet paper towels, got on my hands and knees, and cleaned the floor. The other story is about something that happened this morning. My wife is having a knee replacement early next month and a friend who had had it recommended that we get a big piece of plywood and put it under the cushions on our couch. That way, she could get off the couch more easily. So I went to Home Depot this morning to buy a piece of plywood. It turns out that Home Depot has a great deal where you can rent a truck for 75 minutes and pay only $20 plus gas. So I did that. The guy who checked me out told me to make sure I returned it full, because the gas gauge said “F” for full. I also noticed that it said 394 miles until empty. After I dropped the plywood off at home, I went to gas station. I had driven only 9 miles but I pumped 1.9 gallons and it hadn’t quit. So I stopped. There was no way I had got just over 4 miles per gallon. When I returned the truck, I pointed out that the gas gauge now said 414 miles until empty. I wasn’t upset. I think I just wanted to tell them and maybe I wanted to get a little credit for being a responsible customer. A different guy was there and he said something that disarmed me and got me laughing: “Welcome to the Home Depot business model.” I never had any anger. But this one line brought out my Mr. Rogers big time. Thanking People in Your Life Around the 22 or 23-minute point, Russ talks about thanking people who have done nice things for you and he tells a nice story about a family friend who was generous to him. It made me think of someone who arguably saved my life. When I was 24 and about to go to the University of Rochester as an assistant professor, I was visiting friends in Winnipeg. I wasn’t sure that the Immigration “Service” would okay the extension of my F-1 student visa for “Practical Training,” I was way further behind on my dissertation than I had expected to be, and I was afraid of moving into a new job where I was around people, at least some of whom I had already figured were smarter and more productive than me. Everything hit at the same time one evening. I had borrowed the car of my friend I was staying with and I told Edwin, “I want to go out in your car and get it up to 80 and crash it into a tree, and I want you to talk me out of it.” My brother had committed suicide 5 years earlier and that had, unfortunately, made suicide quite plausible to me. Edwin could have said, “No way are you going to wreck my car.” He didn’t. He gave me what I needed. He talked me down, having me look at each problem in turn and convincing me that I could deal with each problem. That is the only time in my life when I seriously thought about committing suicide. For that response, I feel a lot of gratitude to Edwin. (0 COMMENTS)

With the rise of social media (especially Twitter), it has becomes easier to observe changes in the zeitgeist. Over the past few years, I’ve seen the following trends:1. Claims that increases in the minimum wage do not have negative side effects.2. Claims that we don’t have to worry about big budget deficits when the interest rate is low.3. Claims that changes in the money supply don’t impact inflation.4. Claims that neoliberalism no longer works, and that we need an industrial policy. In each case, trendy pundits rejected long established economic principles. And now the chickens are coming home to roost.  1. In a recent post, Kevin Corcoran discussed a study by Seth Hill, which found that minimum wage increases led to more homelessness.  Can we be certain that this study is correct?  Clearly not; social science has a replication crisis.  But that’s equally true of studies claiming that the minimum wage did not reduce employment.  Other studies by highly respected researchers found that the minimum wage does reduce employment.  In my view, all of these studies miss an important point.  The worst effect of wage, price and rent controls is that they make society more cruel.  With rent control, landlords have an incentive to be mean to tenants.  With minimum wage laws, bosses have an incentive to become jerks.  Anyone who ever visited a communist country quickly discovers that “customer service” abysmal.  (I was married in a communist country.)  I have enough problems; please don’t make our society even more annoying. 2. I have some sympathy for those who suggested that we didn’t need to worry about budget deficits when interest rates were low.  At the time, I argued against this view on the basis that interest rates might rise in the future.  But even I did not expect rates to rise as sharply as they have over the past few years.  Now we are discovering that debts incurred at a very low interest cost in the late 2010s and early 2020s must be rolled over at a much higher rate.  Yes, it is true that we never actually pay off the national debt.  But we do pay off individual Treasury securities, and refinance this debt at current market rates. The other reason I have some sympathy for those who discounted the danger of budget deficits is that there had been so much “crying wolf” over previous decades.  Throughout almost my entire life, I’ve heard the budget deficit called a ticking time bomb.  And yet for the most part the national debt remained relatively low as a share of GDP.  Something changed in the late 2010s, when the US went from being a responsible nation to something akin to a banana republic.  There were no more “grownups in the room” to scold Congress when reckless fiscal policies were adopted.  The budget deficit doubled during an economic boom, a period where it would normally be falling as a share of GDP. These policies (spend more and tax less) proved popular with the general public and were maintained (and even extended) when a new administration took power in 2021.  And now the wolf is here, we really do have a debt problem.  Unlike during the Reagan years, this really is unsustainable: Future generations will face some very unpleasant choices due to the irresponsible behavior of the Federal government over the past 6 years.  I would not wish to be elected president in 2024. 3.  The money supply is not an ideal indicator of the stance of monetary policy.  Velocity can change over time.  But many pundits drew the wrong inference from those facts, completely discounting the importance of monetary policy.  Now we are seeing the high inflation from the reckless decisions made by the Federal Reserve back in 2021 and 2022, which led to a surge in the money supply.  And don’t be fooled by the recent drop in the headline inflation rate—the problem is far from over. It would not surprise me to see headline inflation begin moving higher again. Inflation and excessive borrowing share one common feature—the longer we wait to address the problem, the more painful the cure. 4.  After the 2008 financial crisis, neoliberalism seemed to go out of style.  Perhaps people just got bored with it.  “You say it was the biggest ever reduction in world poverty seen, by far?  Yawn, what have you done for me lately?”  The US, Europe and China all began moving in a more statist direction.  Pundits assured us that we needed to copy China’s industrial policy, least we fall behind that nation of 1.4 billion people.  (Left unsaid is why the US should copy a nation that has a per capita GDP roughly equal to that of Mexico.) Now we are being told that China’s economic model is sputtering.  And the recent so-called Inflation Reduction Act is creating a set of grotesque distortions and inefficiencies.  Even worse, the massive subsidies will also boost the national debt, forcing future tax increases that will further slow economic growth.  Statist policies are like a time bomb; the most pronounced negative effects occur down the road. But what about global warming?  Didn’t something need to be done?  Here it’s worth noting that the approach most favored by economists (a carbon tax) would have actually reduced our budget deficit. That would have been the logical approach. Instead we went with a set of open ended subsidies that boosted the budget deficit. Even worse, we favored local producers over imports, even if imported goods could address global warming more effectively.  We were told that global warming was such a big problem that we could no longer rely on a free market economy, but then implemented mercantilist policies that prioritized subsidizing domestic special interest groups over addressing global warming.  Apparently global warming was merely a pretext for industrial policies that were being implemented for other reasons.  The same is true of industrial polices aimed at competition with China.  If we were serious about this issue, we’d bring thousands of Taiwanese and Chinese engineers to America to help us rebuild our chip industry.  Instead, these projects are floundering due to a lack of skilled labor.  Trump and Biden have an instinctual preference for mercantilism—China and global warming are handy excuses to exercise those preferences. To summarize, stay away from trendy economic fads.  The eternal verities never change: 1. Price controls are bad (whether on wages, prices rents or interest rates.) 2. Large budget deficits are bad, even if interest rates are low at the time.  3. Persistent inflation is always and everywhere a monetary phenomenon. 4.  Free market economies do better than statist economies.  Emulate Denmark, not Argentina. PS.  Veronique de Rugy discusses the Foxconn fiasco in Wisconsin, a previous attempt at industrial policy that occurred during the Trump administration.  Hope springs eternal. (0 COMMENTS)

The invention of the concept of rent-seeking has made a powerful impact on economic science. Comparative economics, especially the study of economic transitions, has been particularly affected as rent-seeking nicely explains the behavior and institutions involved in the processes and unintended consequences of transitioning to different economic systems. For this reason, the case of Cuba is perfect to be explained in terms of rent-seeking and the search for privileges. The idea of rent-seeking – as described expertly by David R. Henderson – is that entrepreneurs obtain certain benefits and privileges via the political arena. Rent-seeking behavior can include everything from tariffs or subsidies protecting a specific interest group, to patents and licenses.  The choice to engage in rent-seeking is rational when the expected costs of wealth transfers via political pursuits are lower than those of engaging in the market process. In modern economics, rent-seeking is categorized as a zero-sum game or wasteful behavior. Rent-seekers do not create value through production; they instead capture wealth from other entrepreneurs, possibly wasting resources and destroying wealth in the process. In contrast, market entrepreneurs make their wealth by producing the best quality goods at the lowest and most affordable prices. And, in the eye of comparative advantage and specialization from trade, they secure this wealth through mutually beneficial trade with the consumers and other sellers. In other words, gains from trade.  It is here where entrepreneurs and rent-seekers diverge, while they are both entrepreneurs in the pursuit of profit, only market entrepreneurs profit by making society better off. However, their addition to the wealth stock is different.  Despite being a net drain on society, rent-seeking never ceases to exist, though it differs from country to country. Such variations result from differences in institutional arrangements which determine how profitable rent-seeking activity is and, therefore, how much occurs. As the American economist William Baumol put it, “Changes in the rules and other attendant circumstances can, of course, modify the composition of the class of entrepreneurs and can also alter its size.” When the rule of law is absent, and the law is unpredictable, not applicable to everyone, and unequal, rent-seeking reigns freely. Once rent-seeking has been connected to the concept of institutions, we may propose a case study to explain the phenomena of economic transitions. With the recent approval of a law that legalizes small and midsize enterprises, many commentators have claimed that capitalism might be returning to Cuba. Although this claim must not be outright discredited, clarifying the true state of affairs is still necessary.  In the political economy of Cuba, the rule of law is absent, property rights are not protected, and legal exchanges often cannot take place – these factors conspire to make a free market impossible. Moreover, allocating property rights via political means could never be considered capitalism, as it substitutes political competition for competition in the market sphere market. Put differently, Cubans are not competing in the market but for the right to enter it. Moreover, the 18th article of the Cuban constitution states that:  The Republic of Cuba is governed by a socialist economic system based on ownership by all people of the fundamental means of production as the primary form of property as well as the planned direction of the economy, which considers, regulates, and monitors the economy according to the interests of the society. While the Cuban government might have changed the players, the rules of the game, that is, the institutions, have stayed the same. Even Gil Fernandez, Cuba’s Economic minister, has stated that Cuba is still a centrally planned economy despite the recent market-oriented laws. This phenomenon is similar to the Perestroika period in the Soviet Union, as Peter Boettke pointed out in his book Calculation and Coordination: Thus, despite the rhetoric promising enterprise autonomy, the Law on State Enterprises – the centerpiece of perestroika – was never intended to substantially change the basis of state central planning (see Ericson, 1988, 1989). More recent “reform” decrees and laws have similarly claimed to accomplish much but in reality made little substantial difference. Putting aside the fact that these enterprises will play a secondary role in the economy, the legal, financial, and economic regulations they face impose substantial expected costs on entrepreneurs on the island. The Decree Law 46/2021 introduces a myriad of regulations seemingly aimed at regulating the emerging private sector, but which, in practice, often result in undue restrictions on private initiatives. These restrictions extend to the number of employees and partners an enterprise can have and the sectors they are allowed to operate in. Nonresident individuals and legal entities, including potential investors, grapple with stringent limitations when initiating a business venture. Such limitations prioritize natural-born citizens and residents, thus narrowing the field of potential participants.  An overarching concern emerges with the incorporation of small and midsize companies, as the process is subject to the Ministry of Economy and Planning approval. This requirement inadvertently fosters an environment conducive to rent-seeking, wherein political connections become a means to secure approval rather than the strength of the business proposition. This phenomenon further increases the expected costs of engaging in the market. Moreover, the tax regulations, which are intended to provide a revenue stream for the government, are not tailored to facilitate a straightforward path for entrepreneurs to achieve profitability. Consequently, this intricate tax system adds to the already onerous burden of entrepreneurship, exacerbating the gap between the costs of engaging in legitimate market activities and those of seeking political favor. Another critical confusion is the assumption that the liberalization of some limited and regulated markets indicates a free market—in fact, nothing is further from reality. The presence of some consumer markets does not indicate capitalism if the state lacks the very institutions needed to be capitalist. Another question to ask, considering this law of small and midsize enterprises, is if everyone can even open one of these newly legal companies in the first place? It is hard to believe that Cuba would allow any of its 1037 political prisoners or their family members to open an enterprise. Not even Cuba’s financial press can be trusted to provide an accurate account of what’s happening, as they, too, have experienced political pressure, as evidenced by the many constraints placed upon elToque, who has been reporting the exchange rates between the Cuban peso and the U.S. dollar. The official statistics are hard to acquire and even harder to believe; in many instances, the time series that the Cuban government publishes are either non-accessible or nonexistent. This makes it more challenging to prove that Cuba is transitioning to a market or market-friendly economy. So far, the expectations for the Cuban economy are an economic transition a la Russia. In fact, Cuba has been seeking the advice of Russian officials and economists to provide the structural changes the economy needs to be more productive or at least more connected to rational economic calculation. The concept of rent-seeking has proven to be a valuable lens for understanding economic transitions, exemplified in the Cuban case. The distinction between rent-seekers and market entrepreneurs highlights the contrasting paths to wealth creation and societal impact. The analysis of Cuba’s economic situation reveals the persistent challenges of institutional constraints and central planning. As the country embarks on potential changes, careful evaluation of rent-seeking behaviors and their consequences remains essential to gauge Cuba’s economic future trajectory.   Carlos Martinez is a Cuban American undergraduate student attending Rockford University. He is pursuing a BS in financial economics. Currently, he holds an Associate of Arts degree in economics and data analysis. 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