“Once hailed for decriminalizing drugs,Portugal is now having doubts.” That’s the title of a July 7 article in the Washington Post by Anthony Faiola and Catarina Fernandes Martins. Jeffrey Singer, M.D., who has become one of my go-to experts for examining the drug war, has written a response on the Cato Institute’s Cato at Liberty. It’s quite good. I’ll hit some highlights of his response, mixed in with my own thoughts. First, what I found striking is that there’s not a lot of before and after. Normally, you would start to judge a change by looking at how things were before the change. But a lot of the discussion in the article is about how things are now compared to how they were in the first few years after the change. So even if things have deteriorated, by whatever criteria you use, that doesn’t mean they’re worse than before decriminalization. And that comparison, after all, is the relevant one if you’re judging decriminalization. Here’s the one clear before-and-after comparison I could find: A newly released national survey suggests the percent of adults who have used illicit drugs increased to 12.8 percent in 2022, up from 7.8 in 2001, though still below European averages. Portugal’s prevalence of high-risk opioid use is higher than Germany’s, but lower than that of France and Italy. But even proponents of decriminalization here admit that something is going wrong. Notice that the percent of adults increased by over 60 percent. That, though, doesn’t seem enough of an argument against decriminalization. After all, my prior view, based on the law of demand, is that when the price of something falls, people do more of it. With a lower legal risk of consuming, the price inclusive of risk falls. Also Jeff Singer points out the following: In my letter to the editor [of the Washington Post], I argue that the article’s tone suggests the expectation that decriminalization would lead to a drop in illicit drug use. While it did, that was always a secondary goal. The primary goal was to reduce drug overdose deaths by redirecting resources from incarceration to harm reduction. I pointed out that Portugal’s harm reduction efforts have greatly succeeded. I also pointed out that while overdose deaths increased between 2019 and 2023, for most of those years anxiety, despair, and isolation resulting from pandemic‐related policies caused a worldwide increase in drug use— including alcohol consumption—and sparked overdose deaths. The authors of the Post article didn’t take this into account in their reporting. It’s really striking that the authors and some of those they interviewed blame some of the problems that have cropped up recently on a change that happened 22 years ago and don’t seem to give any play to a change that happened 3 years ago (Covid and related lockdowns.)   (1 COMMENTS)

Recently, I had occasion to patronize a school bus. (No, I didn’t enroll in kindergarten. if you must know, I do competitive race walking, and the buses were needed to get us from the parking lot to the starting point of the race, and back). I’m not really overweight (I keep telling myself), but the seats were a really tight fit for ordinary people. No mystery here: these vehicles are used primarily to ferry around school children, and they are lots easier to squeeze into limited spaces than adults. But the shockeroo was that there were no seat belts available anywhere; not a single one. I would have thought that if seat belts actually save lives, young children would have them most certainly, and first to boot, since they are smaller, weaker, and more vulnerable than grown-ups. Shows how much I know. So I did a bit of research, to try to find out how the all and ever-loving state apparatus could have missed this seemingly splendid paternalistic opportunity. What I came up with was not comforting at all. One theory is that of “compartmentalization.” According to the National Highway Traffic Safety Administration (NHTSA – the group that is responsible for some 40,000 annual highway deaths) “…(t)his requires that the interior of large buses protect children without them needing to buckle up. Through compartmentalization, children are protected from crashes by strong, closely-spaced seats that have energy-absorbing seat backs.” I don’t know about those “energy-absorbing seat backs.” During my brief trip, I touched the one in front of me. It might have “absorbed energy,” whatever that means, but it seemed pretty solid to me. I’d sure hate to collide with one if them in an accident. I’m not too confident that a seven-year-old child would do very well at all in impacting them. And, if they were so great, why not require that all transportation vehicles employ them? It simply makes no sense to bifurcate matters in this manner; we are all frail human beings – children and adults alike — when one vehicle rams into another at speed. Here is another justification: “School buses are most often used to transport children, and the only adult in the vehicle is there to drive. In the instance where there was an accident, the driver would likely have to unbuckle the passengers, a time-consuming process that could prove dangerous for others.” But this is just plain silly. Ten-year-olds, and even younger children, are perfectly capable of unbuckling their seat belts, and buckling them too. They do so every day in their family automobiles. This hardly explains why so called “public transportation”, street buses, subway trains, Amtrak, etc., are also lacking seat belts. Here is yet another justification: “A seatbelt is of most use where a collision causes rapid deceleration. Trains carry so much momentum that they do not stop rapidly, even in very severe collisions.” This a good competitor with the previous excuses in the silliness sweepstakes. You can’t tell me that when two trains, or buses, meet in a head-on collision, that they don’t both stop rapidly, and on the dime, despite massive previous momentum. Ditto for when a bus impacts a really thick brick wall, no matter has fast it was going beforehand. Here is an alternative explanation: it is easier to compel other people to do things, when you have the power to ride roughshod over them, then to subject yourself to the same regulations you impose on others. It is thus no accident that the government makes an exception for its own vehicles while imposing all sorts of rules on the mulcted citizenry. So, should we have seatbelts or should we not? This is not the sort of question that can or should be asked in the free society? It is akin to querying, should we have peas or carrots, and if both in what proportion? Or, should we have vanilla or chocolate ice cream, and if both in what proportion? The answer emanating from the disciples of Adam Smith is, let the market decide on all these questions, certainly including seatbelts. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of the 2015 book Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers. New York City, N.Y.: Lexington Books, Rowman and Littlefield (with Peter Lothian Nelson ). (0 COMMENTS)

Progressives often see the opposition to the welfare state from conservatives and libertarians as rooted in heartlessness. But is that true? No doubt there are heartless conservatives and libertarians around – just as there are heartless members of any large group into which anyone can self-identify. But I think there is a common misunderstanding afoot that might be driving part of this perception, one that I want to spend a bit of time unpacking here. Both conservatives and libertarians frequently make comments like “the welfare state diminishes personal responsibility.” I think progressives often misunderstand this as saying “If you’re struggling, fixing that is your problem. Don’t expect any help from me or anyone else, just pull yourself up by your own bootstraps and get your life on track.” Again, I don’t want to deny that anyone has ever expressed such a sentiment. But presenting this as the standard view of the relationship between helping those who are struggling and personal responsibility is, if not a literal straw man argument, certainly a weak man argument – a logical fallacy Scott Alexander once described in this way: The straw man is a terrible argument nobody really holds, which was only invented so your side had something easy to defeat. The weak man is a terrible argument that only a few unrepresentative people hold, which was only brought to prominence so your side had something easy to defeat. The argument from personal responsibility I described above is the weak man version of the argument. The stronger and more representative version is something more akin to this: you have a personal responsibility to help people who are in need. When you see your friends, your family, or members of your community struggling, you shouldn’t be looking to city hall or to the state legislature and wondering what they are going to do about it. You should be helping them, directly. To turn away from your duty of care to those close to you, and outsource it to distant state bureaucrats, is to abandon your personal responsibility. A historical perspective of this view can be found in the book From Mutual Aid to the Welfare State: Fraternal Societies and Social Services, 1890 – 1967. The author, David Beito, points out that prior to the rise of large-scale welfare services, the country was filled with fraternal societies and mutual aid organizations that enabled communities to organize and support each other in times of need. This was especially useful for the most marginalized communities in America – racial minorities, for example, or women, for whom the official system was not particularly concerned. Beito documents that as the welfare state was introduced and expanded, it eventually crowded out these kinds of community centered support networks, driving them all but extinct today. There are many reasons to find this regrettable, but one worth emphasizing is how these bottom-up mutual aid organizations helped form and maintain the kind of social fabric that is all too weak today. In high crime, low-income areas, the vast majority of criminals target people within their own communities. This wasn’t always the case, even back when people lived in far worse poverty, or faced far more discrimination and social hostility. When community-organized mutual aid societies were strong, that random person’s house you might break into to burglarize wouldn’t belong to a random person. It could be the person who, when your family was struggling, brought over some extra groceries to help you get through your tough times. Or it might be someone whose home took some damage in a storm, and you were part of the neighborhood group that banded together to help repair the damage. These kinds of frequent, personal, and face to face acts of goodwill were commonplace prior to the welfare state – when it was believed that helping your neighbor was a personal responsibility, not a bureaucratic mandate to be carried out by politicians. But though these kinds of actions have been crowded out by the welfare state, the effect has not been uniform. Arthur Brooks has documented in his book Who Really Cares the differences in behavior in charitable giving and volunteer work. His evidence strongly contradicts the weak-man version of the personal responsibility argument. Brooks finds that the less someone supports welfare state programs, the more they tend to give to charity, to do volunteer work, to donate blood, and actively provide help and support to those in need. This is the exact opposite of what we would expect to see if opposition to the welfare state was rooted in heartlessness and a belief that the poor and struggling should be left to their own devices. By contrast, the more someone supports the welfare state, the more their behavior tends to reflect the thought “Many of my neighbors are struggling and in need, but I have voiced support for welfare programs and taxes were deducted from my paycheck to help pay for those programs, so I’ve fulfilled my responsibility! My hands are clean.” Opponents of the welfare state reject this mentality. Even though their paychecks are also taxed, and those taxes help pay for those same welfare programs, they still view themselves as bearing a personal responsibility to help people in need. And as Brooks documents, their actions reflect this. Edmund Burke once wrote “Society cannot exist, unless a controlling power upon will and appetite be placed somewhere; and the less of it there is within, the more there must be without.” By this, he meant that the more people exercised temperance, prudence, and virtue, the less need there was for an authority to restrict people’s behavior. But Burke only points out half the story here. He is correct that “the less there is within, the more there must be without,” but it’s also true that the more it comes from without, the less it develops within. As more people have come to view supporting the needy as not a personal responsibility they must exercise, but simply a state responsibility that requires nothing of them beyond their tax bill, the less people are called upon to actively practice the virtues that help bind communities together. Aristotle was right when he said that excellence comes from engaging in virtuous behavior by habit – and the more the need to practice these habits is removed from without, the less such virtues will develop within. (0 COMMENTS)

I just finished my first novel of my vacation: Seven Days to Petrograd by Tom Hyman. It’s about an attempt to assassinate Lenin as he goes from Switzerland to the Finland station to Petrograd, all via Germany and Sweden. The book jacket quotes the Washington Post‘s comment that “What Frederick Forsyth did in The Day of the Jackal . . . Hyman Does Here.” True, but he doesn’t do it as well. Still, it’s good. I found two passages worth quoting on EconLog because they’re both about taking responsibility for one’s own life. Bauer, mentioned in the first quote, is the guy trying to assassinate Lenin. In Bauer’s eyes, Marx’s social theories had victimized his father far more than the railroad ever did. Karl Marx invited his father to hide from himself and from the reality around him. It was Marx who fed him the excuses he needed to explain away his miserable lot in life and to justify his not making any effort to improve it. It was all somebody else’s fault–the fault of the government, the fault of the system, the fault of the ruling classes. His father was a sucker, he decided. He had let others control his life. Later he’s talking to a woman about his life and his failures. I won’t name the woman because that would be too much of a spoiler. Bauer braced his hands on the edge of the chest’s marble top and leaned forward. “I could have been [a great star in baseball]. But I only got to play two seasons. I gave the owner of my team a hard time, so he fired me. I was a dumb, hotheaded kid. I pushed too hard to get more money out of him, and when I didn’t get it, I started raising hell–on the field and off. I was my own worst enemy. I couldn’t get a job in professional baseball after that. The owners blackballed me.” “Sounds to me as if the owner exploited you for his own profit, then callously discarded you when it suited him. You were a victim of capitalist greed.” [DRH note: It shouldn’t be surprising that this member of Lenin’s travel party is a Marxist.] “I guess it could seem that way. But it was his team. I could have started my own team if I’d had the money.” Clearly Bauer learned from his father’s mistake: he blamed himself rather than the system or a team owner.   (0 COMMENTS)

A new NY Fed paper from Martin Almuzara, Richard Audoly, and Davide Melcangi has some interesting findings regarding nominal wages.  This is their conclusion: We estimate the latent persistent component of aggregate nominal wage growth by combining worker–level data with time series filtering and smoothing methods. This measure, which we label CoWI, is purged from noise and short–run fluctuations. We propose a novel approach to account for the monthly-to-yearly temporal aggregation present in CPS data. In a real-time forecast comparison, we show that it outperforms a random walk benchmark and, as such, that it can provide reliable signals for turning points in wage inflation. CoWI moves substantially during the three episodes of largest macroeconomic relevance in our sample: the 2001 and 2008 recessions, and the wage inflation episode of 2021. In all episodes, we find that changes in CoWI are driven by its common component. In accounting for these changes, no specific job or worker characteristics matters to a first order. Finally, our results suggest that the common component of CoWI seems especially important during inflationary episodes. It contributes more than 75% of the increase in aggregate nominal wage growth during the post-pandemic episode of inflation. In my view, that common component is monetary policy (which can be proxied by nominal GDP growth.)  Expansionary policy drives up almost all nominal wages, and contractionary policy reduces wage growth.  In the following graph, you can see the effect on wages of the small undershoot of NGDP after 2001, the big undershoot after 2008, and the big overshoot after 2021: If excessively high wages discourage employment, then why does unemployment tend to be high during periods of slow wage growth, such as 2009?  This puzzle is resolved if we recall that nominal wages are sticky, or slow to adjust to changes in equilibrium wages.  Thus when slow NGDP growth after 2001 reduced equilibrium wage growth; the actual nominal wage growth fell more slowly, raising unemployment.  When NGDP growth fell sharply after 2008, equilibrium wages fell very sharply.  Although actual wage growth slowed a bit, the shock ended up pushing wages above their (rapidly falling) equilibrium value, creating high unemployment.  After 2021, fast rising NGDP pushed equilibrium wages much higher.  Actual wage growth sped up, but not enough to eliminate “worker shortages”.  This comment also caught my eye: The estimated common factor matters even more during the 2021 inflation surge. We find that it accounts for at least 80% of the increase in CoWI over this period, regardless of the cross-sectional variable we use in the estimation. This finding suggests that a form of asymmetry might be at play between recessionary and inflationary episodes, with potentially more worker heterogeneity in downward than in upward nominal wage rigidity. Just thinking out loud, I wonder if this reflects the varying degree of cyclicality across industries.  Workers are very resistant to nominal wage cuts, which probably makes wages a bit stickier on the downside.  In addition, rates of unemployment vary greatly between sectors during recessions, with much higher unemployment rates among factory workers than teachers or nurses.  Perhaps workers are more willing to accept wage cuts in those sectors with high unemployment.  During periods of expansionary monetary policy (fast rising NGDP), unemployment is fairly low in most sectors of the economy—thus not as much wage growth variation between sectors.  In that case, wages rise rapidly across all sectors.  (0 COMMENTS)

If AI is truly very powerful, is the chance that it will save us from other existential risks higher than the chance it will kill us? The question above posed by polymath Tyler Cowen in this episode, is the core of his conversation with host Russ Roberts. Roberts begins by asking Cowen what he thinks the biggest impacts Artificial Intelligence will have on the economy and elsewhere. The conversation covers the possibility of intelligence and/or wisdom in AI, and its potential “cognitive oomph.” (That’s a technical term, of course.) It’s always a treat to sit in on a conversation between these two. And once you’ve done so, we hope you’ll consider the prompts below. As you know, we ♥ to hear from you!     1- Cowen suggests that the closest historical analogs to AI are the printing press and electricity, stressing that major technological advances tend to be disruptive. But with great disruption, they often bring highly significant benefits. The question is, according to Cowen, how do you face up to them? Are we willing to tolerate major disruptions which have benefits much higher than costs, but the costs can be fairly high? What other historical analogs can you suggest that help shed light on the trade-offs we may anticipate with widespread adoption of AI? What sort of disruptions do you think AI will bring to bear, and how much should be tolerated, and why?   2- Roberts asks Cowen where he sees the greatest impact of AI now. Cowen suggests it can already serve as an “incredible interactive tutor,” and that it will soon eliminate a great deal of back office work. Roberts and Cowen agree that the impact on coding is already significant, and then Roberts turns to poetry. Where do you see the greatest impact short-term effects of AI? To what extent do you agree with the suggestions offered by Cowen and Roberts? Would you let ChatGPT write a condolence note? What about a love poem? Why or why not?   3- Cowen asserts that alongside AI, how you behave in real life will become even more important. So back to poetry. Recall the story of Cyrano de Bergerac. How does this illustrate the need for transparency, and what does this suggest about real-life versus virtual engagement in things like dating apps? The classroom? Employment situations?   4- Roberts asks Cowen if there anything he would regulate or  slow down with regard to AI. Cowen continually insists that it’s not whether to regulate, but who should regulate and how. It’s about decentralization, he says- ensuring proper checks and balances and mobilizing decentralized knowledge. What does Cowen mean when he says that Hayek and Polanyi should be at the center of the debate, rather than Arrow and Bentham? What role does he see for social norms in constraining AI? What role do you see for regulation and/or social norms? If there’s such an emphasis on decentralization, why is Cowen so adamant that we need to employ scientific modeling in the conversation?   5- Unlike several other recent guests, Cowen is much more optimistic about the future of AI, but not that it doesn’t come without risk. He says, “There are these very serious risks, but there’s also a Millenarian tendency in human thought that tends to rise in volatile times. And, we have to think about how to deal with those Millenarian tendencies. They are themselves a form of risk: that our reaction to an event can be worse than the event itself, even if the event involves some very high costs.” What does this mean? Which do you think is more dangerous- AI itself, or the doomsday predictions it inspires? Explain.   Bonus Question: Says Cowen, “One of my predictions is that GPT models will raise the relative–and indeed–absolute wages of carpenters.” Why might this be the case? Double Bonus if you use supply and demand graphs in your explanation! (0 COMMENTS)

I recently posted about an issue I see as the critical flaw with planning – or at least one such flaw among many. In that post, I was focused largely on how major historical events ultimately turned on minor events that had massive impacts in ways that were unforeseeable and unknowable, not just to planners, but even to the people on the spot who carried out those actions at the time. But I also mentioned how this very uncertainty and uncontrollability can be found in our own lives, giving one example of such a butterfly effect moment in my own life. Does this mean that I am against the idea of people making plans for their life? In a way, yes. Or more precisely, I think attempting to plan out one’s life path is a suboptimal way to approach things. When I tell people I’m not a fan of planning life in this way, they sometimes misunderstand that to mean that I’m against having goals. But having goals and having a plan are not quite the same thing. A goal is where you want to end up, whereas a plan is the specific means you intend to use to get there. You can have a goal, without needing to stake it all on having a plan. In the Marines, we used to say “no battle plan survives first contact with the enemy.” This is because, rather annoyingly, the enemy isn’t interested in doing things in a way that goes according to our plan. Being well-trained to handle combat situations isn’t about having a step-by-step battle plan – such a plan would be useless because it would be obsolete by step two. But that doesn’t mean abandoning the goal of mission accomplishment either. Being well-trained is instead about having the kinds of skills, tools, and know-how to allow you to adapt to whatever the moment-to-moment circumstances are, in a way that still moves you to the goal of accomplishing your mission. That’s why the common saying in the Marines wasn’t “make sure you have a plan for that.” It was “improvise, adapt, and overcome.” In the same way, when it comes to living one’s life, I’ve come to believe that having everything planned out is not just overrated, it can often be counterproductive in the same way that it would be counterproductive to try to go through a combat situation according to a step-by-step plan. One can still have goals they wish to pursue, but the focus should be less on planning how to achieve every step along the way, and more about making yourself into the kind of person who can adapt to the situation they face while also moving towards that goal. As I’m entering my middle age years, occasionally old friends and I will reflect on how our lives have turned out differently from what we were imagining ten or twenty years ago. And it’s very common to hear something along the lines of “I thought I had it all figured out how it was going to go, but then such and such unexpected thing happened, and that derailed everything I had planned from there.” Conversations like these expose the weakness of planning – in order for them to work, things need to go according to plan. This isn’t true just at the individual level – it’s also true at the social level. While there is no coherent sense in which we can say “societies” have goals or plans in the way that individuals do, certain kinds of societies are arranged better to allow individuals to better achieve their goals. Free and decentralized societies give individuals the kind of elbow room they need to be adaptable in the pursuit of their separate aims in a way that just isn’t possible within centralized and planned systems. Even if every member of society were agreed on a particular end goal, having a centralized plan would be a terrible means to achieve that goal. Life is complicated, and reality is often messy and uncooperative, and the best means to deal with that is to prioritize being adaptable over making sure things go according to plan. Plans stifle innovation and discourage adaptability, but markets thrive on them – to the benefit of each of us, and all of us. (0 COMMENTS)

After Covid, inflation in the US – and worldwide – soared to levels not seen since the 1970s. And during that time, we’ve been treated to a steady stream of proclamations that economists were blindsided by it. And as economists argued about supply-side vs demand-side explanations, more off-the-wall theories took the opportunity to muscle their way back into the discourse. But what if I told you you could have predicted both the onset and the end of the post-Covid inflation almost perfectly, just plugging public numbers into a back-of-the-envelope model? Hindsight is 20/20 of course, so here are the receipts. December 2020: We should be worried about inflation as the economy recovers. (Annualized inflation was at 1.2% at the time, still well below the Fed’s 2% target) July 2022: 1.5 more years of inflation if the Fed doesn’t do anything more; less if they do. (Economists were arguing whether inflation would be ‘transitory’ or ‘permanent’ around this time) April 2023: There won’t be a financial crisis or recession until the CPI catches back up to M. (Economists were debating whether inflation can be brought down without a recession – a “soft landing” – around this time) July 6, 2023: Inflation is just about over. And on July 12, new inflation numbers put June’s inflation at 3% annualized, to widespread cheers of Soft Landing and the End of Inflation. Four for four. These predictions don’t come from anything more complicated than a back-of-the-envelope Quantity Theory of Money. In the long run, the price level tracks the money supply. I challenge you to find a model with a better track record over the past three years.    The Quantity Theory: Back from the Dead? “But wait,” the monetary policy wonk will say, “didn’t we ditch the Quantity Theory in the 80s? And what about the demand for money? Wasn’t it too unstable for the Quantity Theory to be useful?” The Quantity Theory did have a brief time in the limelight after the 70s discredited more elaborate Phillips Curve explanations. But indeed, the quantity of money stopped predicting variables like inflation and NGDP growth very well in the mid 80s. So going into the 90s, policymakers started relying more on interest rates as a guide to monetary policy, eventually settling on rules (like the Taylor Rule) and models (like the New Keynesian DSGE) that don’t involve the money supply at all. These models failed notably during the 2008 crisis, but – the conventional wisdom goes – it’s not clear the quantity theory would have done any better. If you were looking at the monetary base in 2008, which quintupled over several rounds of quantitative easing, you should have expected hyperinflation – as many Austrians at the time did. If you were looking at M2, which grew mostly smoothly, you wouldn’t have expected anything amiss – as many Fed economists at the time did not. In retrospect, neither of these were good predictions. Nevertheless, a growing body of theory and evidence suggests we may have buried the Quantity Theory too hastily. What if M0 and M2 were the wrong quantities the whole time?   What Is the Quantity of Money? At first glance this seems obvious enough: the quantity of money is all the stuff you can spend as a medium of exchange. As every econ major learns, we have a quantity of base money – cash and bank reserves – and then larger quantities of privately issued bank deposits that we add to get M1 and M2. But what if you’re not indifferent between cash and deposits? Does it make sense to add together two quantities of imperfect substitutes? What about other media of exchange that don’t get counted at all in M2, like Treasury bills, commonly used as collateral in financial transactions? If these sorts of assets make their holders feel more liquid – that is, that they can spend more easily – aren’t they money too? Of course we can’t just add the total value of Treasuries and commercial paper and whatever else to the money supply without dwarfing it and getting a nonsense measure. What we can do, however, is treat them as money-like. And we can identify money-like assets if they provide a rate of return below the risk-free market rate. After all, why would you hold something with a below-market rate if it didn’t give you some sort of liquidity benefit? This logic can be used to construct what’s called a Divisia monetary index, in which a variety of assets are weighted by their moneyness. So let’s return to our skeptical wonk. Yes, the Quantity Theory broke down – but only when looking at M2, which was never an economically sensible aggregate (In fact, it was the deregulation of the 80s that opened the market for a variety of near-moneys that weren’t captured by M2, that led to M2’s fading usefulness). The much-problematized demand for money is actually quite stable if you look at a Divisia aggregate. And despite being broader, it even turns out to be a more feasible target for monetary policy than M2 was.   Ecological Monetarism and the New Quantity Theory “Old” monetarism tended to take monetary aggregates like M0 and M2 at face value, and thus riddled with caveats, sunk beneath the stormy seas of Ceteris Non Paribus. If the demand for money isn’t stable, how much can we say in practice with the Quantity Theory? By contrast, what I’ve called “ecological” monetarism – sensitive to the fact that money isn’t just a handful of very liquid assets thrown together into an aggregate, but a complex interplay of the plans of both money users and money providers – can dispense with many of the caveats and epicycles of Old Monetarism. So how does an ecological Quantity Theory guide you through 2008 and 2021? Deflation in 2008. Yes, the quantity of base money quintupled, but this was more than offset by a collapse in broader monies. Even though M2 was stable, Divisia M4 showed a decline in 2008 – exactly what would predict the deflation we saw. Inflation following Covid. With newly printed money flooding the economy via stimulus checks but nowhere to spend it during lockdowns, the demand for money naturally spiked. But knowing the demand for money is stable, suggests a quantifiable gap between money supply and money demand that has to be closed by inflation as the economy recovers from Covid. This key assumption enabled a prediction of the timing of both the beginning and the end of the inflation. The back-of-the-envelope model that predicted the beginning and the end of the post-Covid inflation. So If you just know where to look, you can outperform everyone from DSGE-armed central bankers to Greedflationist journalists in predicting inflation. The path of our recent inflation and recovery should be understood as a huge practical win for the Quantity Theory – if you use the right quantity.   Cameron Harwick is a monetary economist and Assistant Professor at SUNY Brockport. (0 COMMENTS)

Last Wednesday, while in the Calgary airport and awaiting a flight to Winnipeg, I had lunch at a Chili’s. I normally don’t have alcohol with lunch, but the price of a Margarita got my attention: $8.75 in Canadian dollars. That would have been a deal even if it had been $8.75 in U.S. dollars. At an exchange rate of 76 U.S. cents to the Canadian dollar, that’s $6.65 in U.S. dollars. What a bargain! I bought one. That got me thinking about purchasing power parity. I normally think of that as being something applicable to rich countries versus poor countries. But even between two rich countries, Canada and the United States, it applies. The price was so low, presumably, because of labor costs. Surely the ingredients were roughly the same price in the United States and Canada. No big insight: Just interesting compared to my priors. (0 COMMENTS)

Physician and author Lydia Dugdale wants to teach us a better way to die. She argues that this will help us find a better way to live. Listen as she discusses her book, The Lost Art of Dying, with EconTalk’s Russ Roberts. The post Lydia Dugdale on the Lost Art of Dying appeared first on Econlib.