Recent data shows a very strong labor market in the US. Some progressives have argued that this proves their longstanding claim that we could do better on the jobs front, and that for most of our history we’ve had an unnecessarily weak job market.I have some sympathy for this argument, but I’d like to take an intermediate position between the fatalism of those who believe that nothing can be done about unemployment, and the optimism of the progressives.Consider the following analogy. A philosopher claims that human life inevitably contains lots of drudgery and boredom. Someone responds that this cannot be true. They just inhaled a line of cocaine, and they are experiencing a pleasant sense of exhilaration. How would the philosopher respond? She might argue that the exhilaration is temporary and the after effects of the drug are unpleasant.  On the other hand, that doesn’t mean that most people are living life in the optimal fashion. Most people (including me) could probably take steps to make their lives more pleasant and fulfilling. Thus I’m not suggesting fatalism. In 2022, the unemployment rate fell back to roughly 3.5%, similar to the level experienced during the late 2010s.  Other indicators such as the high ratio of job openings to unemployed workers, as well as fast rising wages, suggest a labor market that is even hotter than in the late 2010s.  But I would argue that the job market of the late 2010s was healthier than the current labor market. People have often compared inflation to a drug, which produces a short-term euphoria at the expense of longer-term pain.  I believe the strong labor market of the late 2010s was sustainable, because it was not generated by a surge in NGDP growth (and inflation.)  If we had not been hit by Covid, the labor market might well have stayed strong during the early 2020s.  In contrast, a job boom generated by an excessive surge in NGDP growth is much less sustainable.  No one should point to the current job market and suggest, “See, this is what we should have been doing all along.”  It’s like saying “See, I can be happy anytime I consume cocaine.” At the same time, I am less fatalistic than many other pundits.  During the 2010s, some pundits suggested that the weak job market reflected structural factors, everything from safety net work disincentives to the lure of video games.  In fact, much of the weakness was due to the lingering effects of the big drop in NGDP during 2008-09, and the unusually slow recovery in NGDP after 2009.  We really can and should do much better.  Some monetary stimulus during 2020 was appropriate; enough to get us back to the NGDP trend line (which happened in late 2021.) In addition to demand shocks, supply side policies also affect the labor market.  At various times in history (albeit less so today), pro-union legislation and minimum wage laws have reduced employment.  Disincentives in our poorly constructed safety net have often reduced employment.  Thus we have two unforced errors.  Substandard monetary policy has led to sharp NGDP growth slowdowns that created excess unemployment, especially in the 1930s, the early 1980s, and the early 2010s.  Other flawed supply side factors have boosted the “natural rate of unemployment”, even during non-recessionary periods.  BTW, “natural” doesn’t mean healthy, it means the rate the economy will move to when NGDP growth stabilizes.   So the progressives are correct that we can and should do better in creating a job market where it’s relatively easy to find work, even for unskilled workers.  But they make two other mistakes.  First, they seem to view an overheated job market as healthy, when it’s actually quite unhealthy (even though it “feels good”.)  Second, they underrate the disincentive effects of well-meaning progressive legislation designed to help workers and the unemployed.   (0 COMMENTS)

The Andy Griffith Show is one of the most beloved television series of its time and is considered one of the greatest shows of all time. In the show, small-town Sheriff Andy Griffith and his deputy Barney Fife keep the peace in the town of Mayberry, NC. Sheriff Griffith is an excellent archetype for what law enforcement officers in America used to be. Today, this notion of the small-town “peace officer” is almost unrecognizable. Replaced with the so-called “warrior-cop,” American police officers have become increasingly armed with military training, equipment, and weapons, ranging from armored cars to small arms and body armor. The militarization of police is a hotly debated topic. Many in favor of militarization claim that giving police military-style equipment will save officers’ lives. One site writes, “Armor saves lives, and the better the armor, the more good-guy lives can be saved.” What this statement doesn’t address is how using military equipment, such as body armor and armored vehicles, affects police officers’ risk assessment and decision-making. In his 1975 paper, Sam Peltzman described the effects of automobile safety regulation. Rather than just saving drivers’ lives, the seen effect of automobile safety policy, an unseen effect exists in the form of reckless driving and pedestrian deaths. The logic is as follows: drivers forced to wear seatbelts engage in more risky behavior since they believe they are safer. This behavior offsets the lives saved by wearing a seatbelt, causing pedestrians to be killed by reckless, seatbelt-wearing drivers. Peltzman’s insights on safety regulation can also be applied to the police. Police officers who use devices that give them fire superiority or increase their safety (whether body armor, automatic rifles, or armored cars) have lowered the marginal cost of escalating situations and using violence. For example, a law enforcement officer not wearing body armor is much less likely to draw his weapon on a civilian since he knows a gunshot to the torso may be fatal. The officer who wears body armor has less of an incentive to avoid physical conflict since he believes wearing body armor makes him safer. This, too, applies to police using armored vehicles and small arms. The 1033 Program was officially started in 1997 but had a predecessor in the National Defense Authorization Act, created in 1990. The program allows the Department of Defense to provide military hardware to law enforcement agencies. Between 1997-2014, over 5 billion dollars of military equipment (new and used) was transferred from the Department of Defense to American local law enforcement agencies. These transfers included everything from military armored vehicles and ammunition to small arms and body armor. According to the Law Enforcement Epidemiology Project at the University of Illinois at Chicago, civilians killed by law enforcement increased from roughly 400 deaths in 1999 to nearly 800 deaths in 2020 (even before the high crime year of 2020, civilian deaths were greater than 600 per-year between 2017-2019). In addition to civilian killings by police, there are other horrific consequences of militarized police, including a horrifying incident where a SWAT team threw a flashbang into a baby’s playpen, exploding near the child’s face. Additionally, according to a paper published by the Proceedings of the National Academy of Sciences, “using nationwide panel data on local police militarization, I demonstrate that militarized policing fails to enhance officer safety or reduce local crime.” While undoubtedly additional factors have led to an increased number of citizens killed by police, risk compensation due to police militarization is most certainly a factor leading to the rise in citizen deaths. Moreover, the perceived benefit of increased safety to officers from military-style equipment may also lead to more police deaths. Given that police use of armored cars and other military equipment has nasty, unseen consequences, how could it stop? One solution would be to end the Federal subsidization of local police departments through the 1033 Program, giving citizens more control over how militarized their law enforcement agencies are. Ultimately, it is important to remember Bastiat’s words, “Your theory has stopped at what is seen and takes no account of what is not seen.” In our case, we must understand that risk compensation may often have negative consequences when considering law enforcement policy.   Samuel Peterson is a student at Grove City College majoring in economics. He is a summer Research Intern at the Competitive Enterprise Institute and an inaugural Mises Institute Apprentice.      (0 COMMENTS)

“Older Americans Invest Like 30-Year-Olds.” So reads the headline of a news story by Anne Tergeson on the front page of the July 6 Wall Street Journal. (The electronic version, published July 4, has a somewhat different headline: “America’s Retirees Are Investing More Like 30-Year-Olds.”) She interviews people about their strategy but, except for the case of Wayne Winquist, the reader gets very little feel for the net worth of the people being interviewed. There’s an even bigger problem. Although she mentions one couple living “mainly on Social Security benefits,” that’s the only mention of Social Security. Here’s what you should know as someone thinking about your investment portfolio especially if you’re in your sixties or older: Social Security is like an inflation-indexed bond. Let’s say you’re 67 and have a spouse who’s also 67 and you’re about to start taking SS benefits. Because you’ve been taxed heavily for these benefits for, probably, over 40 years and because many of those years have been high-income ones, you and your spouse get $60,000 in SS benefits annually. Let’s say you’re both relatively healthy and both expect to live for another 20 years. Because SS benefits are indexed for inflation, you get annual “coupons” as if your SS is a bond. What’s the value of the bond? That depends on the interest rate, of course. A principle I taught my students in my Cost/Benefit Analysis course is that you discount real magnitudes using real interest rates. Your real benefit each year is $60,000. The value of the Social Security “bond” is the present value of a stream of income of $60,000 for 20 years. Let’s say the real discount rate is 2%. Then the value of the SS bond is about $981,000. You have, in essence, a $1-million inflation-indexed bond. So let’s say that you’ve invested all your retirement assets, other than your house, in a stock index fund like Vanguard Total Market Index. Let’s say that the value of that currently is $1.5 million. So now it doesn’t look as if your retirement net worth is heavily into stocks. In this case, 60% of your net worth (not including the equity in your house and any other major assets) is in stocks. If I were to go a financial advisor to talk about my retirement (I don’t because I trust myself) and he/she didn’t say in the first meeting something like “Think of your Social Security benefit as an inflation-indexed bond,” I wouldn’t return.   (0 COMMENTS)

  Although the prospect for taxation at the federal level is dismal, given the huge annual budget deficits of over $1 trillion as far as we can predict, the story at the state level is much different. Here’s an excerpt from David R. Henderson, “Cuts in Income Tax Rates Continue,” TaxBytes, Institute for Policy Innovation, July 5, 2023. The progress since I last reported has continued. The state governments of Arkansas, Indiana, Michigan, Mississippi, Nebraska, North Dakota, and West Virginia have cut state income tax rates. Even Connecticut, whose Democratic governor, Ned Lamont, had to deal with a Democrat legislature, succeeded, with Republican support, in cutting all income tax rates except for the top rate paid by the highest-income people. All of this matters for three reasons. First, as a moral matter, it’s important that people are able to keep more of their income. It’s theirs. Second, even if cuts in tax rates cause state government revenue to be lower than otherwise, that will somewhat constrain the future growth in government spending. The reason is that, unlike the federal government, state governments can’t print money and almost all have some degree of a balanced-budget requirement. Third, high income tax rates distort the economy, causing people to engage in tax avoidance (which is legal) and tax evasion (which is illegal.) Tax avoidance means not only aggressively finding legitimate deductions when you do your taxes; it also includes working less and making less money. Cutting tax rates reduces tax avoidance and tax evasion. Read the whole thing, which is short. (0 COMMENTS)

This clever rejoinder by M. Nolan Gray triggered several different thoughts: 1. Let’s start with the most boring consideration—is it true? Gray is not saying that regulation is the only factor boosting home size.  As countries get richer, the public will generally choose to consume more luxurious homes.  But regulation has tended to artificially increase housing costs.  Many suburbs have minimum lot sizes, bans on accessory dwelling units, and rules making it much more difficult to build budget multifamily housing.  The sort of small ranch houses built in Levittown during the 1950s have been outlawed in many places, and it’s much harder to get approval for the construction of apartment buildings. 2.  The initial tweet by Collins reminds me of my own reactionary impulses.  Now that I’m over 65, I find myself reflexively having this sort of reaction to all sorts of societal trends.  “What, they closed Madison schools because of a snowstorm, or below zero temps?  We had to trudge through deep snow to get to school back in the 1960s.  Back then, they never closed school because of snow or cold.”  I often have that sort of thought. In other cases, the reactionary impulse suggests that things were easier in the past.  “We were much freer before all these government regulations.”  Or “A man used to be able to support his family without the wife having to work.”  People often overlook all the people that weren’t freer back in 1900 (blacks, gays, and women voters.)  Or they overlook the fact that (apart from a few areas like coastal California) a man can still support an entire family, if willing to live at a 1960 standard of living. 3.  This tweet is also a good example of how we tend to overlook the underlying cause of many social problems.  I’d estimate that more than 90% of the time when someone complains to me about being mistreated by a company, it’s clear to me that the underlying problem is some form of dysfunctional government regulation.  Indeed much of my interaction with the companies I most dislike (auto dealers, lawyers, insurance companies, etc.) occurs only because of regulation.  In other cases, (such as airlines and healthcare), the business is heavily distorted by regulation. I presume that people who are NIMBYs don’t see themselves as causing young people to be unable to buy a house.  Those who oppose kidney markets probably don’t see themselves as the cause of a friend or relative dying of kidney disease.  Those who favor the War on Drugs probably don’t see themselves as the cause of high murder rates in Mexico.  Those who support spending more on various government programs probably don’t see themselves as the cause of big budget deficits (or higher taxes.) 4.  Gray’s tweet also makes me reflect on how people with different levels of talent interact with each other on social media.  One of the pleasures of following a talented tweeter like Matt Yglesias or Razib Khan is watching them pull this sort of judo move on an overconfident upstart that is in way over their head. If done with a sense of humor, it can be quite amusing.  It’s not my forte, however, which is why I stick to blogging. (0 COMMENTS)

A column in the Wall Street Journal reminds us, by default, of the strange theories of inflation that are lying around. Inflation seems to be conceived as the mysterious increase of some prices that must be caused by some (bad) people somewhere, who demand more units of “aggregate output” (a sort of dark matter) for themselves. If these people are bad capitalists, the increase in something is called “greedflation”; bad workers, and we speak of “wageflation.” It is some mysterious somethingflation but, strangely, nobody speaks of “rulerflation,” perhaps out of respect for the leaders of mankind. (See “As Greedflation Starts to Fade, Wageflation Creeps In,” Wall Street Journal, July 6, 2023.) Recently, the ridiculous idea circulated that Beyoncé’s concert in Stockholm had accelerated inflation in Sweden—“beyoncinflation,” we should call it. If some stones became more expensive, would it be useful to call the phenomenon “stoneflation”? (See “The Beyoncé Effect: Sweden’s Inflation Feels the Hit,” Wall Street Journal, June 14, 2023; “Beyoncé Blamed for Stubbornly High Swedish Inflation,” Financial Times, June 14, 2023.) Without claiming any originality, I propose another way to look at inflation. Its advantage is to have its roots in the standard economic way of looking at things, to be consistent with the analytical tools of economics—even if the ultimate theory of inflation one may build on that foundation may be more complex. Suppose a constant stock of money, whether gold or any sort of paper or anything that people generally consider to be a convenient medium of exchange. Some selfish individuals somewhere think they will improve their individual situations by consuming more of good B. (You may think “B like Beyoncé show,” but it can be any other produced good). They must of course consume less of good A. The reason is that resources are scarce. To produce more B, the economy must produce less A (along its production possibility frontier or PPF). Being bid up, the relative price of B increases, which is the same as saying that the relative price of A decreases. Alternatively, we can say that, on the PPF, the opportunity cost of B increases and the opportunity cost of A decreases. Of course, the remuneration (wages or capital values) of the producers of A diminishes, and the remuneration of B’s producers increases. Nobody can speak of inflation. There is no badflation! Why? I suggest that we can’t rationally think about inflation without first answering this question. (0 COMMENTS)

When reading, I often have an experience of a small phrase triggering my memory and making a connection between the page in front of me and something I’ve read previously, either recently or many years ago. One example of this came from David Schmidtz’s recent (and excellent) book Living Together: Inventing Moral Science. The phrase in question was about giving someone their due, and it brought to mind a time when I read that phrase being used to characterize a very different mindset than the one Schmidtz describes.  The older example, brought back to my memory while reading Schmidtz’s book, comes from an essay written by the British physician Theodore Dalrymple years ago. Dalrymple writes how doctors from impoverished countries will regularly come to England “to work for a year’s stint at my hospital.” He describes how these doctors start out “uniformly enthusiastic about the care that we unsparingly and unhesitatingly give to everyone, regardless of economic status.” Yet, says Dalrymple, by “the end of three months my doctors have, without exception, reversed their original opinion that the welfare state, as exemplified by England, represents the acme of civilization. On the contrary, they see it now as creating a miasma of subsidized apathy that blights the lives of its supposed beneficiaries.” One step along the process Dalrymple outlines is when these doctors begin to ask “why so few people seemed grateful for what was done for them.” Dalrymple in turn suggests when “every benefit received is a right, there is no place for good manners, let alone for gratitude.” Dalrymple uses an example of one patient who arrived near death, and who “required intensive care to revive him, with doctors and nurses tending him all night.” Upon awakening, this patient treated the staff with a continuous stream of contempt and abuse. These transfer doctors initially “assume that the cases they see are a statistical quirk, a kind of sampling error, and that given time they will encounter a better, more representative cross section of the population. Gradually, however, it dawns upon them that what they have seen is representative.” As for this patient, Dalrymple says, there was “no acknowledgment of what had been done for him, let alone gratitude for it. If he considered that he had received any benefit from his stay at all, well, it was simply his due.” Simply his due. That was the mindset many come to absorb from a lifetime of living in a welfare and entitlement state. The idea that the labor and efforts of other people is something one is entitled to benefit from, by right, while owing them nothing in return. Because why would I owe anything to these people, when I’m entitled by right to receive the benefits of their work? They aren’t doing anything special for me deserving of compensation, gratitude, or even acknowledgement – they’re just giving me what I’m already owed, what is by right mine to take and which third parties can properly force them to provide if they won’t do it willingly.  A very different picture of giving one their due comes from Schmidtz’s work, where he points out that Adam Smith’s famous phrase “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own self-interest. We address ourselves not to their humanity but to their self-love, and never talk to them of our own necessities, but of their advantages,” is not, as some careless readers have taken it, a suggestion that people are only motivated to help each other out of self-interest. As Schmidtz puts it: Second, it makes perfect sense for the author whose first book treated benevolence as primary to subsequently ask how to respond benevolently to trading partners. Why, as a benevolent person hoping to truck and barter with brewers and bakers, do you address their self-love? Answer: because you want them to be better off for having come to you. Notice that Smith does not say bakers are motivated solely by self-love. He says we address ourselves not to their benevolence but their self-love (WN, Book I, chap. 2). This is a reflection on our psychology, not theirs. He is offering insight not into the self-love of bakers but into what it takes to be benevolent in our dealings with them. In sum, the author of Moral Sentiments gives center stage to virtue and benevolence, but, in elaborating what benevolence means, the author of Wealth of Nations belabors the obvious: namely, a man of true benevolence wants his partners to better off with him than without him. The point of addressing other people’s self-love is to give other people their due. That is what it’s like to succeed in one’s attempt to be sympathetic. Here, Schmidtz highlights what is wonderfully humanizing and noble about markets and market exchange. Markets encourage us to see other people not merely as servants to our needs, from whom we are entitled to take and to whom we own nothing in return. Markets encourage us to make ourselves better off by making other people better off as well, by providing them what they want and what they value. Some of the less insightful critics of capitalism charge markets with encouraging greed and selfishness – but it’s not so. Markets profoundly encourage us to treat people as they want to be treated and makes improving the lives of those around us the central means by which we improve our own lives in turn.  The welfare state, by contrast, is a means by which we seek to better our own situation at the expense of our neighbors, and at the expense of our community. And as Adam Smith well understood, and as David Schmidtz correctly reiterates, a person of true benevolence and true sympathy, who wishes to give other people their due, will clearly see the dignity of market exchange and the vanity of the welfare state. (0 COMMENTS)

On July 3, I posted my critique of an email sent to me by Clifford Winston, a well-known and productive economist at the Brookings Institution. Cliff then sent me his response, which I published on July 5. Here is my response to Cliff. The quotes from him are highlighted. Mine are not. To the best of my knowledge, economists have not reached a consensus on defining government failure.  A plausible definition of a government failure, which is useful for my purposes because it lends itself to empirical measurement and does not limit its scope, is a policy intervention that significantly wastes resources.  Those resources include firms’ compliance costs and the cost of taxpayers’ funds to pay for government’s implementation and enforcement of the policy. That does sound reasonable when we’re thinking of governments as legislators and as bureaucrats. If we could reasonably think of judges and justices the same way, then I would agree with Cliff. But I don’t think of them the same way. You’ll see why soon. Economists tend to think of government failure as applying to elected officials in the legislative and executive branches who formulate and implement public policies at various levels of government.  I have synthesized many studies (see the following books free and free in certain cases) that have assessed the effects of those policies and found enormous evidence of government failure. Such studies have been useful for policy debates. For example, evidence on the effects of Civil Aeronautics Board regulation of airline fares on interstate routes that found those regulated fares were higher than comparable unregulated routes in California and Texas supported the case for deregulating the airline industry to correct government’s regulatory failure. I agree and, as I have written elsewhere, economists including Alfred Kahn but also other lesser-known economists were very important in making the intellectual case for deregulating airlines. Although economic efficiency is important for policymaking, there are far more counterexamples to the airline case.  For these, empirical evidence identifies a government failure that supports an efficient policy reform, but policymakers are unwilling to consider that reform.  For example, agricultural subsidies to farmers and Agri-business are hard to justify on economic grounds and urban rail transit’s social benefits are exceeded by its huge subsidies, yet money continues to be funneled into those enterprises. Apparently, there is something more important than efficiency that enables those subsidies to grow.  That “something” causes government failure and impedes any efforts to reform policy to significantly reduce that failure.  It is certainly possible to speculate on what that “something” is, but I don’t know of any causal evidence to support such speculations. I agree with his examples. But although Cliff doesn’t know of causal evidence, I do. Strong concentrated interest groups get together and get large benefits per person or per firm, while the much larger costs are borne in smaller amounts per consumer and/or per taxpayer. We have lots of evidence on that. Of course, elected officials and their surrogates are not the only people in government who make policy.  Judges and Justices also make policy.  For example, policy toward abortion over the last fifty years was not the result of an act passed by Congress and signed by the President. The nation’s abortion policy was shaped first by the Supreme Court’s decision on Roe v. Wade and more recently by the Dobbs decision.  Similarly, affirmative action policies by public and private colleges and universities will have to conform to the Supreme Court’s recent decision to undo the Bakke decision. I think Cliff is mixing two things here. It’s true that judges and justices sometimes make policy. And they shouldn’t. What they should do is read the rules and see if the particular legislation conforms to those rules. Here you can see Cliff’s and my very different views of the proper roles of judges and justices. Thus, in the context of government failure, how should we assess SCOTUS decisions and determine if they are likely to result in government failure?  How can we reduce the chance that the decisions are likely to result in government failure? Two immediate objections to this exercise are that SCOTUS is supposed to be narrowly constitutional providing a check within the structure of governance, and that SCOTUS makes legal not economic decisions.  In other words, it is inappropriate to assess SCOTUS rulings as possibly failing like we have assessed other government policy failures. Here Cliff, to his credit, understands the objections. His last sentence is a little ambiguous. If by his last sentence he means that the objection is that it’s inappropriate to assess SCOTUS rulings the same way we assess other government policy failures, that is, by an efficiency test, then yes, I think he understands the objection. If he means that the objection is that we shouldn’t judge judges, then no, almost no one has that objection. However, I agree with Richard Posner’s perspective that a case is just a policy (my insert) dispute, which opens up the playing field to assessing the case by cost-benefit analysis and by other empirical approaches that are commonly used to assess government policies. To be sure, Justices are not trained in economics, but does that mean economics should be ignored in assessing their decisions, especially if it could identify a more socially desirable resolution of a policy dispute?  Economic efficiency considerations are not ignored in assessments of other government policies; what makes assessments of the public policies facing SCOTUS different? A case is a policy dispute, but it’s not “just” a policy dispute. It’s also about whether the rules were followed. Here Cliff and I are diverging a lot. But wait, there’s more. If the constitution gave unambiguous guidance that was aligned with socially desirable outcomes, then it would be dispositive.  However, the constitution is not always unambiguous; Justices interpret it in different ways and have increasingly done so in accordance with their ideologies (see chapter 7 free in certain cases for empirical evidence); and the Constitution, just like transit operations, has not kept pace with changing demographics and other societal changes. Did you catch that qualifier in the first sentence? This is why I think Cliff is advocating that judges be central planners. It’s not enough for him that the constitution gives “unambiguous guidance.” It also, in his view, must be guidance “aligned with socially desirable outcomes.” Forget about the fact that we don’t even know what “socially desirable” means. Hum a few bars from many posts by my EconLog colleague Pierre Lemieux here. Even if we did know, Cliff would have the judges  rule on that basis even in the face of unambiguous guidance. Take an extreme example. I, David R. Henderson, am not allowed to be U.S. president. The requirement that I be born an American is about as unambiguous as the U.S. Constitution can get. Imagine that 80% of Americans thought, as I do, that I would a better president than Donald Trump or Joe Biden. Imagine also that by Cliff’s own “socially desirable outcomes” standard, he agrees with those 80 percent. I run and win. In my view, the U.S. Supreme Court should prevent me from taking office. Actually, SCOTUS wouldn’t have to. A lower federal court would do the job. In Cliff’s view, the courts should allow me to take office. Who is right, Cliff or me? Unlike other areas of economic policy, there is not accumulated evidence that SCOTUS rulings have added to government failures.  As noted, I have not seen SCOTUS rulings assessed using that benchmark. One might speculate that because elected officials’ policies fail so often, when SCOTUS has a case involving the government, it is likely to reduce a government failure. In any case, my view is that empirical economic analysis could and should be used to help reduce the chance that SCOTUS decisions will result in government failure.  As noted, Justices are not trained in economics or empirical methods, so expert panels could and should be formed to help Justices to reach more informed decisions. The paper I sent to David raises and responds to several objections to expert panels: (1) Economists also are ideological; (2) Economist and non-economist experts may disagree; (3) Experts can submit amicus curiae briefs; (4) Expert panels are inconsistent with the role of the Supreme Court; (5) The Supreme Court makes legal not economic decisions; (6) The legislative branch should convene expert panels; (7) Lawyers control the evidentiary process; (8) Expert panels would amount to academic seminars; and (9) Other reforms of the Supreme Court are available. I don’t object to SCOTUS asking economists to help them understand the effects of various laws or rules. What I object to is SCOTUS acting as if it is not constrained by what the Constitution says. Assuming expert panels were advising the Supreme Court and the Justices respected their insights and took their advice seriously, could those panels bring evidence to a case that might affect the Justices’ thinking and understanding of arguments and amicus briefs so as to reduce the likelihood of government failure? Let me first add that the cause of government failure is probably better understood in polices that arise from Supreme Court cases than from policies instituted by elected officials.  That is, I do not have evidence that explains why policymakers assign a large welfare weight to farmers and transit operators, but I do have evidence suggesting that some Justices’ ideologies could enable them to justify assigning a dispositive welfare weight to a woman who does not want to provide her services to a gay couple, or providing a higher welfare weight to a pregnancy than to the fate of that baby post-birth. “[C]ould those panels bring evidence to a case that might affect the Justices’ thinking and understanding of arguments and amicus briefs so as to reduce the likelihood of government failure?” Sure. But in my view it has to be in the context of following the rules. That said, in the web designer case, the expert panel would stress the economic costs to all the parties involved, the non-economic benefits to the web designer, the bargaining issues involved, and consider any spillover effects of either allowing or disallowing the web designer’s discrimination.  This is not a straightforward exercise, and it could reveal some important effects. In the final analysis, I don’t know where the assessment would land, but I think it could clarify the relevant welfare effects of the policy dispute and the most desirable resolution and scope of application for the decision among a set of options (e.g., subcontracting the web design or cake, what types of services constitute speech, and which don’t). As Frank Barone says in the TV show “Everybody Loves Raymond,” Holy Crap!  Whatever you think about the role of courts, Cliff flunks basic economics. Contrary to what he says, this is a completely straightforward exercise. The web designer can decide whether the business she loses by not catering to certain groups is a worthwhile cost to pay to exercise her tastes. Let’s say, now that the case has been resolved, she sets up her business and says, “Oh, gee, I’m missing a lot of business and I think I would like to get that business, even if it means saying things I don’t believe?” The great thing about the SCOTUS decision, not just based on following the rules but, as Cliff says he wants us to think, based on economic efficiency, is that it allows for that. Either way we get efficiency. In the Dobbs case, it would have been useful for Justices to hear from an expert panel that attempts to resolve a variety of relevant issues, many of which can and have been addressed empirically, such as: (1) the effect of abortion access on women’s lives and health; (2) risks to women who cannot get timely and appropriate healthcare in case of urgent medical issues like miscarriages or ectopic pregnancy; and (3) risks to women due to confusion and legal doubt among health care providers after Dobbs.  The expert panel also could provide insights on the difficult problems of assessing the effects of abortion on the unborn child as well as the fates of children resulting from un-terminated pregnancies after Dobbs. Yes, it would have been useful if the Justices were legislators. It’s not useful for them qua Justices. And, by the way, what we’re seeing at the state level is a whole lot of legislatures and some groups of voters tangling with these issues. And, for Republicans who oppose legalizing abortion, talk is no longer so cheap, as the 2022 Congressional elections showed. Finally, the education loans and college admissions cases are ripe for an expert panel’s empirical analyses of the effects of those policies and assessments of alternative policies that might be more socially desirable. Here and in the previous paragraph, Cliff is not making his case. He’s simply begging the question: that is, assuming that judges should make policy. Of course if they should make policy, these are important things for them to know. In sum, my view is that the Supreme Court is making public policies, which like other policies have economic and non-economic effects; thus, Justices should have the benefit of assessments by experts of those possible effects, which may reduce the chances that the justices’ rulings result in government failure. Yes, that is Cliff’s view. The question is whether his view is correct. Cliff then turns to my objections and answers them. I leave out the possibility of looking at the Constitution, seeing what it says, and judging accordingly.  My response: I indicate my reasons above that relying on the Constitution alone is not necessarily going to lead to desirable outcomes.  In particular, I agree with Posner’s 1987 article that “law is not a self-contained field of knowledge whose methods of reasoning can by themselves solve human problems in ways that best serve our society.” Expert panels are not necessarily appropriate for every case before SCOTUS, but I think Justices often could benefit from more effective help by experts. In cases where the Constitution is explicitly silent or ambiguous on the matter, neither determining judicial intent nor ascertaining original meaning is an exact science that must be practiced only by Justices. We both agree that, if we can define “socially desirable outcomes,” relying on the Constitution alone is not going to lead us there. Cliff is arguing as if I haven’t admitted that. I have. My point is that that’s not what judges should be doing. If you think Cliff is right, how would you handle the hypothetical I gave above, where I, not born as an American citizen, am voted in as president? Notice also how Cliff hedges on his earlier argument. Here he talks about “cases where the Constitution is explicitly silent or ambiguous on the matter.” But earlier he wanted not just unambiguous guidance but “unambiguous guidance aligned with socially desirable outcomes.” On the web designer case, although I say that the economic benefits of greater output should be compared with the costs of not allowing the web designer to exercise her religious preferences, that, in theory, is what the web designer is doing. Accordingly, we don’t need a government agency, whether a court or a regulatory agency, to make that assessment. If a government agency were to require her to trade, we know that there would be net losses: the loss to her from being forced to trade would be greater than the gain to the consumers who miss out on the trade. If that weren’t so, they could raise their offer and she would accept. My response: The argument is that there is no price that could result in a mutually beneficial trade because of the infinite loss to the web designer, so any ruling by SCOTUS that dictates otherwise would produce a net welfare loss and there is no need for the court to get any advice.  That is certainly true if the web designer requires an infinite price.  But my understanding is that the case was brought without an actual gay couple wanting the designers’ services. I therefore have no idea what tradeoffs the web designer made with an imagined consumer and consumer base.  In any case, the role of the expert panel would be to guide the Justices about what we know about dispute resolution when the participants are extremely far apart. I would be more comfortable with the Justices’ ruling if they concluded, based on the insights of the expert panel, that the dispute could never be resolved more constructively after considering a plausible set of options instead of relying solely on their subjective interpretation of the constitution.  It is important to be right for the right reasons.  At this point in the debate about SCOTUS decisions, both sides are content to be right for the wrong or at least highly questionable reasons. Cliff says that he has “no idea what tradeoffs the web designer made with an imagined consumer and consumer base.” But he doesn’t need to know. The web designer knows her preferences better than he or any court does. He says that he doesn’t want the judges to be central planners. But here he’s pretty clearly saying that he would have the designer ask “Mother, may I?” rather than letting her exercise her preferences. That’s the ultimate in central planning. Cliff says, “I would be more comfortable with the Justices’ ruling if they concluded, based on the insights of the expert panel, that the dispute could never be resolved more constructively after considering a plausible set of options instead of relying solely on their subjective interpretation of the constitution.” But why should we or, more important, the web designer care about his comfort. Cliff is being the man of system here, whom Adam Smith discusses in The Theory of Moral Sentiments. Cliff says “It is important to be right for the right reasons.” It is. In my view, the reasons stack up nicely. First, the web designer should be able to exercise her freedom of speech, the point at issue here. Second, even if we go with Cliff’s extreme view that consequences are all that matter, SCOTUS still made the right decision. It refused to require an exchange that one party didn’t want. She said she would do this knowingly, meaning that whatever the excluded customers would pay her would not be enough to compensate her. In other words, SCOTUS refused to require an exchange whose costs to one party exceeded the gains to the other parties. As a believer in market efficiency, Cliff should be happy with the decision. But he’s not. Why? The only reason I can think of is that he does not respect people’s rights to make their own decisions about whom to deal with. Again, Cliff is being a central planner here. I’m reminded of the 1991 movie Bugsy. In one scene, Bugsy Siegel goes to a nice house, rings the doorbell, and gets invited in. He tells the owner that he wants to buy it. The owner says he has no interest in selling. In a normal situation, that would be the end of the story. But Bugsy threatens the owner and so the owner gives in and sells. I think that’s horrible. What does Cliff think? Would he say that a court should intervene and weigh the competing interests? And if he wouldn’t say that, why wouldn’t he say it? Generally, policies with the primary intent of redistributing income instead of improving efficiency are taken by economists as given, meaning democracies support them or reject them at the ballot box.  Economists assess those policies from an efficiency perspective on whether they are least cost solutions to achieving the social goals they are trying to achieve by redistributing income.  So, on the education loans and college admissions cases, I agree that Biden has not subjected his education loan policy to the ballot box, but that policy would influence voters’ preferences for or against him if it were maintained. In any case, I speculated on what the motivation is for Biden’s and the universities’ polices because I didn’t see a market failure. So, the economic issues are what are the least cost ways of achieving the policies’ goals? To that end, I think an expert panel would provide useful information on what we know about the effects of suspending the education loans and of admissions policies that favor certain applicants based on their race and ethnicity.  Again, the objective is to be right for the right reasons. Notice in the first sentence that Cliff is sure that voters are the ones who should get to decide whether to redistribute. In his view, there is no principle here that is being violated. In my view there is. So no, I as an economist don’t want to be an agent of the state, taking as given what the government tells me it wants or what polling data tell me the public wants. And since we’ve literally never had a vote on redistribution at the federal level, how does Cliff know this? Cliff writes, “So, on the education loans and college admissions cases, I agree that Biden has not subjected his education loan policy to the ballot box, but that policy would influence voters’ preferences for or against him if it were maintained.” But a president, especially one with the power that modern U.S. presidents have, has thousands of policies. How do we know that if voters voted for Biden that it’s because of that policy? And even if we did know that, so what? Why is what relatively uninformed voters vote for so sacred? And especially why is it sacred when what they’re voting is what governments are going to do or not do others and it’s not sacred to let someone choose how to use her resources in her own life? This is seriously messed up and if I weren’t constrained by Liberty Fund rules, I would use another adjective. And notice once again how comfortable Cliff is with letting one man decide how $400 billion is allocated because we get to vote against him. (0 COMMENTS)

Prices are exchange ratios. When governments claim to regulate prices, what they are actually doing is regulating, and sometimes prohibiting, the mutually beneficial cooperative exchanges between people. Ludwig Lachmann once pointed out that it was a huge change in the history of mankind when prices were no longer made on the spot. “Over the centuries, all over the world, market dealings have taken place among ‘higgling and bargaining’ between buyers and sellers. […] ‘Fixprices’ were then unknown”. Prices today, in most cases, emerge from the anonymous decision of some company officials to demand a certain amount of dollars and the acceptance of those terms by thousands of buyers. I suspect that this change in the nature of exchange led, or at least contributed, to a public understanding of prices as being independent of any exchange itself. This means that nowadays we usually think of a price as being “set” by the company, say Walmart, where we go to buy a good. A price is thus seen as being independent of an exchange; rather, prices are seen as what we would have to pay in order to obtain a good. But this is not quite true. Instead, a price is an exchange ratio or rate of exchange. “The price is the rate of exchange between two commodities expressed in terms of one of the commodities”, as Murray Rothbard put it. A price can only be observed when two people exchange two things. For example, I go on Vinted and offer my old blue jeans, and Mary is interested and offers me her red hoodie in exchange. We both agree to the trade. And then, as we exchange, there’s a price: an old blue jeans is the price for a red hoodie, and a red hoodie is the price for an old blue jeans.  In most cases today, we go to large stores and exchange our dollars for the goods on offer. But we should not be confused by the fact that we use indirect exchange with fixprices: it is still an exchange, and the price is the rate of exchange. Walmart gives me a bottle of milk, and I give them one dollar. Therefore, the price for the bottle of milk is one dollar – and the price for one dollar is a bottle of milk. Of course, it may seem strange to say that the price for one dollar is a bottle of milk, but this is simply a peculiarity of indirect exchange. Additionally, just because I demand 1,000 dollars for my old white tee does not mean that this is its price. It may be its price tag – but it is simply something I hope for. It becomes a price if and only if I exchange it with someone for 1,000 dollars (although chances seem slim in this case). Understanding that prices are nothing more than rates of exchange between two commodities is important when we think about price regulation. These government measures are widely popular, but they are actually regulations of exchange. We just, often misleadingly, call them price regulation. What price regulations do is interfere with the social cooperation of people – after all, exchanging what I value more for something you value more is cooperating. If there is a minimum wage in my state, this means that I am barred from exchanging my labour for the entrepreneur’s money, unless she is willing or able to pay me what the minimum wage law decrees as the minimum. When we speak of a minimum wage law or rent control, what actually happens is that free exchange is prohibited. Two people who would have cooperated for their respective benefit are not allowed to do so. Two people who would have voluntarily agreed to some exchange are prevented from doing so. The anonymous talk of price regulation tends to conceal this fact. And, I suspect, it does so to the advantage of those who support price regulation. Critics of these kinds of interventions should instead emphasise that when governments regulate prices, they are actually regulating or rather interfering with how we peacefully exchange with each other. This may not convince everyone of the inadequacy of these interventions; some may contend that our free exchanges are not “really” free or that we do not know our “true” interests. But it may get a few people to think and reflect on what price regulations actually do: regulate how two people can cooperate with each other.   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (0 COMMENTS)

Cliff Winston has written a lengthy response to my critique of his views on judges and justices. It came on July 4 but I was busy, as Bob Cratchit said to Ebenezer Scrooge, “making rather merry” yesterday. I marched in the local July 4 parade and our group carried Betsy Ross flags and a Libertarians for Peace banner. Thinking through Cliff’s response and replying to much of it will take time. So, for now I’m going to do what Bryan Caplan often did when someone had a lengthy response: print it in whole and respond later. Cliff’s response is titled “The Supreme Court and Government Failure.” Here it is: The intent of my comments was to motivate assessing Supreme Court Justices and their rulings in the same way that we assess other policymakers and their policies.  Assessment of the latter often leads to findings of government failure.  I have not seen SCOTUS assessed in this manner and I acknowledge the topic still requires more thought and discussion about the methodological issues involved. To the best of my knowledge, economists have not reached a consensus on defining government failure.  A plausible definition of a government failure, which is useful for my purposes because it lends itself to empirical measurement and does not limit its scope, is a policy intervention that significantly wastes resources.  Those resources include firms’ compliance costs and the cost of taxpayers’ funds to pay for government’s implementation and enforcement of the policy. Economists tend to think of government failure as applying to elected officials in the legislative and executive branches who formulate and implement public policies at various levels of government.  I have synthesized many studies (see the following books free and free in certain cases) that have assessed the effects of those policies and found enormous evidence of government failure. Such studies have been useful for policy debates. For example, evidence on the effects of Civil Aeronautics Board regulation of airline fares on interstate routes that found those regulated fares were higher than comparable unregulated routes in California and Texas supported the case for deregulating the airline industry to correct government’s regulatory failure. Although economic efficiency is important for policymaking, there are far more counterexamples to the airline case.  For these, empirical evidence identifies a government failure that supports an efficient policy reform, but policymakers are unwilling to consider that reform.  For example, agricultural subsidies to farmers and Agri-business are hard to justify on economic grounds and urban rail transit’s social benefits are exceeded by its huge subsidies, yet money continues to be funneled into those enterprises. Apparently, there is something more important than efficiency that enables those subsidies to grow.  That “something” causes government failure and impedes any efforts to reform policy to significantly reduce that failure.  It is certainly possible to speculate on what that “something” is, but I don’t know of any causal evidence to support such speculations. Of course, elected officials and their surrogates are not the only people in government who make policy.  Judges and Justices also make policy.  For example, policy toward abortion over the last fifty years was not the result of an act passed by Congress and signed by the President. The nation’s abortion policy was shaped first by the Supreme Court’s decision on Roe v. Wade and more recently by the Dobbs decision.  Similarly, affirmative action policies by public and private colleges and universities will have to conform to the Supreme Court’s recent decision to undo the Bakke decision. Thus, in the context of government failure, how should we assess SCOTUS decisions and determine if they are likely to result in government failure?  How can we reduce the chance that the decisions are likely to result in government failure?  Two immediate objections to this exercise are that SCOTUS is supposed to be narrowly constitutional providing a check within the structure of governance, and that SCOTUS makes legal not economic decisions.  In other words, it is inappropriate to assess SCOTUS rulings as possibly failing like we have assessed other government policy failures. However, I agree with Richard Posner’s perspective that a case is just a policy (my insert) dispute, which opens up the playing field to assessing the case by cost-benefit analysis and by other empirical approaches that are commonly used to assess government policies. To be sure, Justices are not trained in economics, but does that mean economics should be ignored in assessing their decisions, especially if it could identify a more socially desirable resolution of a policy dispute?  Economic efficiency considerations are not ignored in assessments of other government policies; what makes assessments of the public policies facing SCOTUS different? If the constitution gave unambiguous guidance that was aligned with socially desirable outcomes, then it would be dispositive.  However, the constitution is not always unambiguous; Justices interpret it in different ways and have increasingly done so in accordance with their ideologies (see chapter 7 free in certain cases for empirical evidence); and the Constitution, just like transit operations, has not kept pace with changing demographics and other societal changes. Unlike other areas of economic policy, there is not accumulated evidence that SCOTUS rulings have added to government failures.  As noted, I have not seen SCOTUS rulings assessed using that benchmark. One might speculate that because elected officials’ policies fail so often, when SCOTUS has a case involving the government, it is likely to reduce a government failure. In any case, my view is that empirical economic analysis could and should be used to help reduce the chance that SCOTUS decisions will result in government failure.  As noted, Justices are not trained in economics or empirical methods, so expert panels could and should be formed to help Justices to reach more informed decisions. The paper I sent to David raises and responds to several objections to expert panels: (1) Economists also are ideological; (2) Economist and non-economist experts may disagree; (3) Experts can submit amicus curiae briefs; (4) Expert panels are inconsistent with the role of the Supreme Court; (5) The Supreme Court makes legal not economic decisions; (6) The legislative branch should convene expert panels; (7) Lawyers control the evidentiary process; (8) Expert panels would amount to academic seminars; and (9) Other reforms of the Supreme Court are available. Assuming expert panels were advising the Supreme Court and the Justices respected their insights and took their advice seriously, could those panels bring evidence to a case that might affect the Justices’ thinking and understanding of arguments and amicus briefs so as to reduce the likelihood of government failure? Let me first add that the cause of government failure is probably better understood in polices that arise from Supreme Court cases than from policies instituted by elected officials.  That is, I do not have evidence that explains why policymakers assign a large welfare weight to farmers and transit operators, but I do have evidence suggesting that some Justices’ ideologies could enable them to justify assigning a dispositive welfare weight to a woman who does not want to provide her services to a gay couple, or providing a higher welfare weight to a pregnancy than to the fate of that baby post-birth. That said, in the web designer case, the expert panel would stress the economic costs to all the parties involved, the non-economic benefits to the web designer, the bargaining issues involved, and consider any spillover effects of either allowing or disallowing the web designer’s discrimination.  This is not a straightforward exercise, and it could reveal some important effects. In the final analysis, I don’t know where the assessment would land, but I think it could clarify the relevant welfare effects of the policy dispute and the most desirable resolution and scope of application for the decision among a set of options (e.g., subcontracting the web design or cake, what types of services constitute speech, and which don’t). In the Dobbs case, it would have been useful for Justices to hear from an expert panel that attempts to resolve a variety of relevant issues, many of which can and have been addressed empirically, such as: (1) the effect of abortion access on women’s lives and health; (2) risks to women who cannot get timely and appropriate healthcare in case of urgent medical issues like miscarriages or ectopic pregnancy; and (3) risks to women due to confusion and legal doubt among health care providers after Dobbs.  The expert panel also could provide insights on the difficult problems of assessing the effects of abortion on the unborn child as well as the fates of children resulting from un-terminated pregnancies after Dobbs. Finally, the education loans and college admissions cases are ripe for an expert panel’s empirical analyses of the effects of those policies and assessments of alternative policies that might be more socially desirable. In sum, my view is that the Supreme Court is making public policies, which like other policies have economic and non-economic effects; thus, Justices should have the benefit of assessments by experts of those possible effects, which may reduce the chances that the justices’ rulings result in government failure. David’s objections to my initial email and my responses are as follows: ▪ I leave out the possibility of looking at the Constitution, seeing what it says, and judging accordingly.  My response: I indicate my reasons above that relying on the Constitution alone is not necessarily going to lead to desirable outcomes.  In particular, I agree with Posner’s 1987 article that “law is not a self-contained field of knowledge whose methods of reasoning can by themselves solve human problems in ways that best serve our society.” Expert panels are not necessarily appropriate for every case before SCOTUS, but I think Justices often could benefit from more effective help by experts. In cases where the Constitution is explicitly silent or ambiguous on the matter, neither determining judicial intent nor ascertaining original meaning is an exact science that must be practiced only by Justices. ▪ On the web designer case, although I say that the economic benefits of greater output should be compared with the costs of not allowing the web designer to exercise her religious preferences, that, in theory, is what the web designer is doing. Accordingly, we don’t need a government agency, whether a court or a regulatory agency, to make that assessment. If a government agency were to require her to trade, we know that there would be net losses: the loss to her from being forced to trade would be greater than the gain to the consumers who miss out on the trade. If that weren’t so, they could raise their offer and she would accept. My response: The argument is that there is no price that could result in a mutually beneficial trade because of the infinite loss to the web designer, so any ruling by SCOTUS that dictates otherwise would produce a net welfare loss and there is no need for the court to get any advice.  That is certainly true if the web designer requires an infinite price.  But my understanding is that the case was brought without an actual gay couple wanting the designers’ services. I therefore have no idea what tradeoffs the web designer made with an imagined consumer and consumer base.  In any case, the role of the expert panel would be to guide the Justices about what we know about dispute resolution when the participants are extremely far apart. I would be more comfortable with the Justices’ ruling if they concluded, based on the insights of the expert panel, that the dispute could never be resolved more constructively after considering a plausible set of options instead of relying solely on their subjective interpretation of the constitution.  It is important to be right for the right reasons.  At this point in the debate about SCOTUS decisions, both sides are content to be right for the wrong or at least highly questionable reasons. ▪ Generally, policies with the primary intent of redistributing income instead of improving efficiency are taken by economists as given, meaning democracies support them or reject them at the ballot box.  Economists assess those policies from an efficiency perspective on whether they are least cost solutions to achieving the social goals they are trying to achieve by redistributing income.  So, on the education loans and college admissions cases, I agree that Biden has not subjected his education loan policy to the ballot box, but that policy would influence voters’ preferences for or against him if it were maintained. In any case, I speculated on what the motivation is for Biden’s and the universities’ polices because I didn’t see a market failure. So, the economic issues are what are the least cost ways of achieving the policies’ goals? To that end, I think an expert panel would provide useful information on what we know about the effects of suspending the education loans and of admissions policies that favor certain applicants based on their race and ethnicity.  Again, the objective is to be right for the right reasons. Bottom line: I certainly don’t want judges and Justices to be central planners.  However, they are policymakers who can advance policies that fail, just like other policymakers’ policies have often failed. Just like I wish other policymakers were better informed about the effects of their policies before they enacted them and learned from their mistakes, I wish Justices were better informed about the effects of their de-facto policies and learned from their mistakes. I don’t know if any of the recent rulings by the Justices will be assessed retrospectively as government failures. However, the Justices’ siloed approach to policymaking strikes me as likely to result in government failures. I probably don’t need to tell commenters that they should feel free to comment on Cliff’s points before I get around to doing so. But I will do so in the next day or two. It might not be totally comprehensive but I won’t cherry pick either. I guarantee, though, that I will show why he’s wrong about the web designer.   (0 COMMENTS)