What happens when a writer discovers her “boring” great-grandfather was actually a household name across the Russian Empire who helped 10,000 Jews escape to Texas? Rachel Cockerell‘s The Melting Point traces this forgotten history through an audacious technique: she removed herself entirely, letting only primary sources–newspaper articles, diaries, letters–speak across time. Her journey uncovers great-grandfather […] The post Zionism, the Melting Pot, and the Galveston Project (with Rachel Cockerell) appeared first on Econlib.

Mass deportation is often framed as a pro‑worker policy. Remove unauthorized immigrants, the argument goes, and native wages will rise as labor supply contracts. This logic is intuitive, politically potent, and economically incomplete.  Mass deportation is a massive market intervention. When examined through the lens of labor markets, production complementarities, and historical evidence, mass deportation emerges not as a wage‑enhancing reform but as a broad negative shock—one that reduces output, raises prices, and ultimately leaves most American workers worse off. Current proposals target roughly 11 million unauthorized immigrants, of whom an estimated 8.5–10.8 million participate in the labor force. The scale alone distinguishes this agenda from prior enforcement efforts. Economic models from the American Immigration Council and the Penn Wharton Budget Model estimate that removing workers at this magnitude would shrink U.S. GDP by between 2.6–6.8%—losses comparable to, or exceeding, those of the Great Recession. These are not abstract macroeconomic projections. They reflect concrete disruptions in industries where unauthorized workers are deeply embedded and difficult to replace. From a first-principles perspective, forcibly removing 8–10 million mostly prime‑age workers is a negative labor supply shock: it shrinks hours worked and productive capacity, raises prices in sectors where labor cannot be quickly substituted, and destroys the specific capital and complementarities that make those workers especially productive.  Because unauthorized workers are concentrated in labor‑intensive, hard‑to‑automate industries, the lost output is not easily offset by capital deepening or native labor. Instead, the burden is split between consumers paying higher prices, complementary workers earning lower real wages, and owners absorbing lower profits. Construction and agriculture already show these effects in miniature. In construction, unauthorized immigrants make up about 19% of workers and more than 30% in trades like roofing, drywall, and concrete, so mass deportation would pull roughly 1.5 million workers—about 14% of the sector’s workforce—off job sites, slowing projects and driving up building costs. In agriculture, unauthorized workers account for nearly one quarter of farm labor nationally and closer to one third in harvesting and sorting roles, so deporting them would eliminate on the order of 225,000 agricultural workers, reduce output, and raise food prices. One modeling exercise projects food price inflation approaching 9% under large‑scale deportation scenarios. Hospitality, childcare, cleaning services, and food preparation could together lose close to one million workers, and because these jobs are physically demanding, irregular, and geographically fixed, employers have historically struggled to replace immigrant workers with natives at wages consumers will tolerate. History reinforces these projections. During the expansion of the Secure Communities program between 2008 and 2013, interior enforcement intensified in many jurisdictions. Research from that period shows that increased deportations reduced construction activity and raised housing prices by 5–10% in affected areas, with no lasting wage gains for native workers. Short‑term labor scarcity did not translate into durable improvements in worker welfare. It translated into lower output and higher prices. Advocates of mass deportation often acknowledge these disruptions but argue that native workers will benefit through higher wages. In the short run, some low‑skill native workers may indeed experience modest wage increases, typically on the order of 1–3%. However, these gains are both small and temporary. Firms respond to labor shortages not by bidding wages up indefinitely, but by reducing hours, cutting output, automating, or closing altogether. As production contracts, labor demand falls, erasing the initial wage bump. Meanwhile, higher‑skill workers—who make up roughly two‑thirds of the U.S. labor force—face clear losses. Because low‑skill and high‑skill labor are complements in production, removing workers at the bottom of the skill distribution reduces the productivity of those above them. The Penn Wharton Budget Model estimates long‑run wage declines of 0.5–2.8% for higher‑skill workers following mass deportation. These losses are diffuse and less visible. This makes them politically easier to ignore. Fiscal effects compound the damage. The Baker Institute estimates that the upfront cost of mass deportation would exceed $315 billion, with ongoing annual enforcement costs approaching $88 billion. Implementing such a policy would require a dramatic expansion of federal enforcement capacity, potentially adding hundreds of thousands of new agents. These expenditures would be financed by taxpayers while producing no corresponding increase in productive capacity. At the same time, deportation eliminates substantial tax revenue. Unauthorized immigrants contribute approximately $46.8 billion annually in federal taxes and $29.3 billion in state and local taxes, including payroll taxes that support Social Security and Medicare. Removing these contributors worsens long‑term fiscal pressures rather than alleviating them. The social spillovers are equally significant. More than five million U.S.‑citizen children live in households with at least one unauthorized parent. Deportation often cuts household income in half overnight, destabilizing families and increasing reliance on public assistance. These downstream costs rarely appear in enforcement‑first rhetoric, but they are real and persistent. The political appeal of mass deportation lies in its visibility. Raids, removals, and enforcement statistics provide tangible signals of action. Economically, however, deportation functions much like a cartel—restricting labor supply to benefit a narrow group while imposing diffuse costs on consumers, taxpayers, and complementary workers. Property owners do not possess a monopoly on physically demanding work, nor does excluding immigrants magically reassign those jobs to natives at higher productivity. Labor markets coordinate through specialization and price signals. Immigrant workers tend to specialize in tasks that complement native labor, allowing firms to expand output and natives to move into supervisory, technical, and customer‑facing roles. Deportation disrupts this process, replacing cooperation and coordination with force. This shrinks the economic pie, and so it cannot simply redistribute jobs and wages more fairly. If the goal really is higher wages and sustained prosperity, a more productive alternative is straightforward and supported by the most basic economic knowledge. Expand legal work visas, price them transparently, and enforce contracts rather than people.  This means treating migrant workers like any other market participants. Give firms legal, tradable access to labor through visas, then police wage theft, recruitment fraud, and safety violations through contract and labor law enforcement—rather than relying on raids and deportation as the primary compliance tool. This need not neglect the concerns of those concerned about border security. For example, visa auctions could fund the resources needed for an orderly border while allowing labor markets to function. Employment verification could occur post‑hire, protecting property rights while discouraging exploitation.  Mass deportation does not elevate American workers. It impoverishes them—quietly, broadly, and predictably. An economy grounded in voluntary exchange and secure property rights requires labor mobility, not forced scarcity. If the objective is abundance—more homes, lower prices, and rising real wages—the evidence points decisively away from deportation and toward legal, market‑driven labor flows. (0 COMMENTS)

On this post by Kevin Corcoran, frequent commentator Steve writes: “Is there a health care system in the world that would be regarded as first world quality that does not have health care heavily regulated? Is it just a coincidence that in the countries where health care is not heavily regulated that health care is generally poor?” One might be willing to dismiss Steve’s comment for falling prey to the Bandwagon Fallacy. Such a dismissal, however, would be inappropriate for two reasons: First, just because an argument contains a logical fallacy does not imply the argument is incorrect. Indeed, such a dismissal would in and of itself be fallacious. It’s called the Fallacy Fallacy. Second, Steve’s comment mirrors one frequently made by economists, namely that if there were a better way to do something, people would be doing it. It’s the oft-told “$20 bill on the sidewalk” joke. In this joke, two economists are walking down the street. One spots a $20 bill on the sidewalk. As he bends over to pick it up, his friend stops him. “There can’t really be a $20 bill on the sidewalk,” the friend says. “If there were, someone would have already picked it up.” The economist nods sagely, and the two continue along their way.  This is, of course, a joke. It highlights the absurdity of taking models literally, but there is truth in it. If there are profit opportunities and they are obvious, then they will be snatched up quickly. A genuine profit opportunity is difficult to find. That’s one of the reasons why so many businesses fail. The argument is important but subtle (in a different post, Kevin does an excellent job discussing the subtleties of the argument), and it is a rule of thumb—it is not always and literally true. Profit opportunities do exist and some of them are quite large. Furthermore, failures do exist, preventing those mutually beneficial trades from being consummated (more on this point below). But it’s a useful starting point. As I read Steve’s comment, he is making a similar argument. If heavy health care regulation were so bad, why do the wealthiest countries regulate so heavily? If governments want to improve health care, wouldn’t they choose the mix of regulations that is optimal? These are good questions.  Whenever I think about things from an economic perspective, I start with the assumption that the present state of affairs is efficient (my null hypothesis, if you will). That is to say, I start with the assumption that all profit opportunities have been eaten up and, at least at the present time, there are no failures in the market. Then I consider how likely it is that such an assumption is an approximate representation of reality. That is where methodological individualism and the economic way of thinking come in.  One of David Henderson’s 10 Pillars of Economic Wisdom is that incentives matter. Incentives are not mind control, of course, but they do shape people’s behavior. One of the key assumptions behind the $20 bill story is that the market provides the incentive for people to find those bills. In a market system, where the benefits are (largely) kept by those who create value, it incentivizes people to seek out those benefits. In other words, being allowed to keep profits incentivizes profit-seeking behavior. Legislators and regulators do not face the same economic incentives. No matter how well-intentioned their actions are, they do not enjoy all (or even most) of the increased value produced by a well-regulated health care system. Cost-savings do not increase their bottom line. Efficiencies only help them insofar as their personal care improves. Even ignoring knowledge problems, there is no economic incentive for regulators to choose a mix of regulations that optimizes health care outcomes. Thus, it is not necessarily the case that the current mix of regulations is optimal, even if everyone is doing it.  Indeed, there are often incentives for regulators and legislators to keep poor regulations in place, even if they acknowledge the regulation has failed in its goal. The regulations created jobs to fix the problem, which means that if a regulation has failed to solve a problem, there are benefits to responding with more regulation. Rarely do we get repeal-and-replace, but rather new regulation tacked on over the old, often creating contradictions (that are then fixed with more regulation). Eventually, the regulatory system lacks any sort of coherence. This is especially true of the health care industry in the United States, where there are so many rules and regulations that contradict each other. It’s less a body of regulation and more like a chimera. There is another issue, which we might call diminishing marginal returns from regulation. The law of diminishing marginal returns is a scientific law in economics that states: all else held equal, each additional unit of input (or consumption) brings less output (or benefit) on the margin than the previous unit.  The late, great Ronald Coase pointed out a similar pattern with regard to regulation. In a 1997 interview with Reason Magazine, Coase stated: “When I was editor of The Journal of Law and Economics, we published a whole series of studies of regulation and its effects. Almost all the studies–perhaps all the studies–suggested that the results of regulation had been bad, that the prices were higher, that the product was worse adapted to the needs of consumers, than it otherwise would have been. I was not willing to accept the view that all regulation was bound to produce these results. Therefore, what was my explanation for the results we had? I argued that the most probable explanation was that the government now operates on such a massive scale that it had reached the stage of what economists call negative marginal returns. Anything additional it does, it messes up. But that doesn’t mean that if we reduce the size of government considerably, we wouldn’t find then that there were some activities it did well. Until we reduce the size of government, we won’t know what they are (emphasis added).” It’s probable we are past the point of diminishing marginal returns in health care regulations. The optimal level of regulation in health care is likely not 0, but it is also not likely to be the approximately 50,000 federal regulations we have (as of 2018). Initially, health care regulations likely had a significant positive effect on outcomes (that is, the benefits of the regulation outweighed costs). But, given the discussion of incentives above, one can reasonably argue that we (and indeed all major countries, since they also face the same incentives) are overregulated. Since the regulators do not face the costs of the regulations but enjoy benefits, they face the incentive to keep adding more, even if the net cost is negative. There are likely regulations we could remove that would improve health care outcomes. (0 COMMENTS)

I have a new working paper with Bart Wilson titled: “You Wouldn’t Steal a Car: Moral Intuition for Intellectual Property.”  The title of this post, “everyone take copies,” comes from a conversation between the human subjects in an experiment in our lab, on which the paper is based. The experiment was studying how and when people take resources from one another.  The people in the game each control a round avatar in a virtual environment, as you can see in this screenshot below.  In the experiment, “seeds” represent a rivalrous resource, meaning multiple people can’t possess and use them at once. In other words, they operate like most physical goods. If the Almond colored player in the picture takes a seed from the Blue player, then Blue will be deprived of the seed, in the same way that if someone’s car is stolen, they don’t have it anymore.  Thus, it is unsurprising that the players called the taking of seeds “stealing,” as you can see from the speech bubble in the picture. This result was expected, and it is in line with Bart Wilson’s previous work on the origins of physical property. Our research question considers whether similar claims will emerge after the taking of non-rivalrous goods that we call “discs.” Non-rivalrous goods are goods that can be used by multiple people without any loss to the other users. If participants exercise the ability to take a disc, then the original disc holder still has a disc and can still consume the full value of it.  The human subjects are not forced to interact via the chat function, but they often choose to form a community and use language to try to obtain the available surplus in the environment. The following quote from our paper indicates that the subjects do not label or conceptualize the taking of digital goods (discs) as “stealing.”  In our paper, we write: Participants discuss discs often enough to reveal how they conceptualize the resource. In many instances, they articulate the positive-sum logic of zero-marginal-cost copying. For example, … farmer Almond reasons, “ok so disks cant be stolen so everyone take copies,” explicitly rejecting the application of “stolen” to discs. Participants never instruct one another to stop taking disc copies, yet they frequently urge others to stop taking seeds. The objection targets the taking away of rivalrous goods, not the act of copying per se. As farmer Almond explains in noSeedPR2, “cuz if u give a disc u still keep it,” emphasizing that artists can replicate discs at zero marginal cost. We encourage you to read the manuscript if you are interested in the details of how we set up the environment and mechanisms of exchange. We conclude that, contrary to the desired comparison in the “You Wouldn’t Steal a Car” advertising campaign attempted by the Motion Picture Association of America in the early 2000s, people do not intuitively view piracy as a crime.  Humans can state that digital piracy is illegal and take measures to prevent it. However, it will be difficult to cause an individual engaging in piracy to feel guilty as they do when they believe they are directly harming another human.  This has implications for how the modern information economy will be structured. Consider the model recently labeled “the subscription economy.” Increasingly, consumers pay recurring fees for ongoing access to products/services (like Netflix, Adobe software) instead of one-time purchases. Gen Z has been complaining on TikTok that they feel trapped with so many recurring payments and lack a sense of ownership.  In a recent interview on a talk show called The Stream, I speculated that part of the reason companies are moving to the subscription model is that they do not trust consumers with “ownership” of digital goods. People will share copies of songs and software, if given the opportunity, to the point where creators cannot monetize their work by selling the full rights to digital goods anymore. “Everyone take copies.” A feature of our experimental design is that, when a disc was shared, even though the creator was rarely compensated directly, the attribution of who originally created the disc was secure. A disc made by the Blue player is blue, so all can see who gets credit for providing it. The reason for this design choice was to allow the Blue player to easily see their work being passed around.  A recent development in information technology, that of large language models, means that many idea creators are not getting credit when their original work informs the answers users are getting from tools like ChatGPT. In a recent settlement, Anthropic agreed to pay for some of the written training material that went into making Claude. The way in which human creators are (or are not) compensated for providing inputs to AI models will shape the future ideas landscape. Understanding how people think about those inputs illuminates our thinking about that process.  (0 COMMENTS)

Are your genes your destiny? Despite famous studies of identical twins that seem to answer in the affirmative, mathematician David Bessis says: Not so fast. He and EconTalk’s Russ Roberts take a deep dive into the “twins reared apart” literature, showing how multiple flaws in those studies undercut their claims about heritability. Bessis demonstrates why […] The post Nature, Nurture, and Identical Twins (with David Bessis) appeared first on Econlib.

Economists extol the importance of competition in markets for driving prices down and quality up. But what is “competition” and how does it actually work?  To non-economists, the word conjures the idea of something like a sporting contest, where there can be one winner while everyone else loses. But this comparison fails on at least two dimensions. First, for there to be a single “winner” in a market exchange would require there to be a single, identical good that each competitor is trying to provide, vying for scarce consumer dollars. This is a fine thought-experiment for the classroom, textbooks, and academic papers. But that is not how market exchanges really work, even for any particular good. While it is true that important lessons can be learned from these abstractions and thought experiments, go ahead and tell someone with discerning taste that Coke, Pepsi, and RC Cola are “basically the same” and let me know their reaction. Second, a single winner, many losers scenario would also imply that if the number of competitors were increased, competition itself would increase. After all, winning a world title is far more impressive than winning “just” a national title. But that misses something about how competition works. In a small town with just two hardware stores, “competition” between those two stores can be much more fierce than in a larger city with twenty stores. So what actually is competition, then? Recently, my mom and her husband’s furnace went out while they were out of town. In Michigan. In the winter. Since they live just two miles down the road from me, I was the designated emergency contact. The next morning, a technician was on site, diagnosing the problem. (Being a firm believer in specialization, I have no idea what was wrong, only that some part needed replacing.) Both of us knew that he had me stuck between a rock and a hard place. No other company in town could get this done faster and I wasn’t about to let my mom’s pipes freeze. Despite this, when the bill came, everything was normal. There was a standard fee for parts and labor that was perfectly reasonable and no trace of a markup for an “emergency service” or anything of the sort that, given the circumstances, I would have agreed to. Why not? This year marks the 250th anniversary of Adam Smith’s Wealth of Nations, and the furnace repair job illustrates what Smith understood about competition. It’s not about the textbook definition of identical firms producing identical products, battling over price until (economic) profit is driven to zero. Indeed, Smith wouldn’t have recognized this formal model of perfect competition. But Smith understood, and helped clarify, the fuller insight about how commercial activity shapes behavior over time. Smith recognized that markets don’t just allocate scarce resources. They cultivate habits of honest dealing. A firm that cheats will likely profit in the short run, but certainly not in the long run. The firm that treats and charges customers honestly builds a reputation, attracts repeat business, and ultimately outlasts the swindler. Smith referred to this as the “discipline of continuous dealings,” which game theorists have taken to calling “repeated play.” When a firm expects future dealings, either with the same customer or with people that customer talks to, cooperation (not defection) becomes the dominant strategy. This isn’t because people become angels, but because cheaters ultimately get punished when their market counterparts do business with someone else instead. The furnace technician operates in a world of Yelp, Google Reviews, and social media. The company has been in business for decades at this point and (presumably) plans to be in business for many more to come. Every service call that the technician makes is part of his “continued dealing,” and he plays accordingly. This completely transforms how we should think about things like “market power.” The standard story says that when a seller faces a buyer with no realistic alternatives, exploitation follows. Sometimes it does. But more often than not, we find honest dealings instead. Competitive markets create pressures that persist even in temporarily non-competitive moments. The company that gouges today will face competition tomorrow, and its reputation will follow. “Competition,” then, isn’t really about the number of rivals at any one moment. It’s about the ongoing possibility of rivalry, and the understanding that customers can leave, that alternatives exist or could emerge, and that word of good or bad behavior spreads. These possibilities discipline market transactions so consistently that fair dealing becomes virtually automatic. Two hundred and fifty years after Smith wrote, his insight remains underappreciated. Markets are not just mechanisms for setting prices. They also shape behavior by rewarding fairness and cooperation. By doing so, they can make ordinary self-interest look remarkably similar to virtue. My mom’s pipes didn’t freeze. The repair company earned a loyal customer. If told this story, Adam Smith would probably take a sip of his claret and nod. (0 COMMENTS)

A New York magazine article titled “Everyone Is Cheating Their Way Through College” made the rounds in mid-2025. I think about it often, and especially when I get targeted ads that are basically variations on “if you use our AI tool, you’ll be able to cheat without getting caught.” Suffice it to say it’s dispiriting. But the problem is not that students are “using AI.” I “use AI,” and it’s something everyone needs to learn how to do. The problem arises when students represent AI’s work as their own.  At a fundamental level, the question of academic integrity and the use of artificial intelligence in higher education is not technological. It’s ethical.  I love generative artificial intelligence and use it for many, many things. Workouts. Recipes. Outlining and revising articles and lectures. Multiple-choice questions. Getting the code I need to tell R to turn a spreadsheet into a bunch of graphs. Tracking down citations. And much more.  The possibilities are endless. Used wisely, it multiplies productivity. Used foolishly, it multiplies folly. Debates about academic integrity and artificial intelligence force us to really reckon with who we are and what we’re doing. The debate has split into unhelpful camps. One compares AI to a calculator. Another sees AI as the end of human thought. Both miss the point. The “just a calculator” crowd ignores how calculators and related software tools, as useful as they are, have relieved us of many of the burdens that come with thinking quantitatively. “It’s just like a calculator” is (kind of) true, but it’s not reassuring. Knowing which buttons to press to make a parabola appear is not the same thing as knowing what a parabola actually is and why it’s meaningful. The “end of thought” crowd ignores how generative AI is a powerful tool that can be used wisely. Is it an assistant? That’s great. Is it a substitute? That’s not. The problem, though, is not the tool. It’s the user. People can use AI wisely or wickedly, just like they can any other tool. In the hands of Manly Dan from Gravity Falls or Paul Bunyan, an axe is a tool used to fell trees and provide shelter. In the hands of Jason Voorhees from the Friday the 13th horror franchise, it’s a tool for something else entirely. In 2023, just as we were meeting and getting to know our new AI overlords, I wrote an article responding to the cynical student asking, “when am I ever gonna use this?” about the humanities and other studies that aren’t strictly vocational. My answer was (and is) “literally every time you make a decision.” Why? The decisions you make are a product of the person you are, and the person you are is shaped by the company you keep. Studying history, philosophy, literature, economics, and the liberal arts more generally is an exercise in keeping good company and becoming a certain kind of person: one who has spent sufficient time grappling with the best that has ever been thought and written to be trusted with important decisions. It is to become a person who has cultivated the art of judgment. It’s an art we can practice poorly in a world where it’s trivially easy to outsource our thinking to ChatGPT and Gemini. Here’s an analogy. If you’ve never seen the movie Aliens, drop everything and watch it. It’s a classic among classics. If you have seen it, consider the end of the movie, when Sigourney Weaver’s character, Ellen Ripley, dons a P-5000 power loader suit to defeat the alien queen. She uses a tool that amplifies her strength, enabling her to accomplish what would otherwise be impossible. The way many students use AI is much like wearing Ripley’s power loader suit to the gym. You might be able to “lift” 5000 pounds in the power loader suit, but it’s a mistake to think the suit is making you any stronger, a laughable self-deception to think you could lift 5000 pounds without it, and a laughable lie to anyone you’re trying to deceive into thinking you can lift 5000 pounds. When you hand in work that’s mostly AI-generated, you’re not building muscle, learning to lift, or getting stronger. You’re racking up huge numbers while your muscles atrophy. Sometimes, of course, using AI is like having a spotter when you’re doing squats or bench press. I use AI in the gym as a trainer of sorts that tells me which exercise to do next. That’s one way to use AI, but the way too many students use AI is like going to the gym and having the AI tool–the power loader suit–lift the weights for me. Tools like ChatGPT, Gemini, Grok, and Claude should free up our time and energy to do higher-order work, not hide the fact that we can’t. Technology has made me significantly more productive: I dictated the original version of this essay into Google Docs on my phone using wireless earbuds, and then revised it using Gemini and Grammarly. What’s the difference between that and submitting AI-generated work? Using dictation tools and AI to generate and clean up an essay like this is like using Ripley’s power loader to move heavy stuff. Using AI to create text and trying to pass it off as your own is like using Ripley’s power loader suit to fake a workout.   I thank ChatGPT, Gemini, Grammarly Pro, and GPTZero.me for editorial assistance. (0 COMMENTS)

The recent removal of Nicolás Maduro from Venezuela’s presidency is a dramatic development after more than two decades of socialist experimentation under Hugo Chávez and Maduro, characterized by expropriation, macroeconomic mismanagement, and political repression.  Although there is much uncertainty about the economic and political future of Venezuela, economics can offer some guidance—and warnings. One such lesson has to do with the dangerous temptation to base economic recovery solely on the oil sector. Venezuela’s prospects depend critically on the quality of its institutional and policy choices from now on.  In Venezuela today, the judiciary, the electoral authorities, public prosecutors, and the police have lost their independence. The restoration of individual and political rights by reforming instrumental institutions, by which the Venezuelan people may again impose accountability on their political leaders and government agents, must be the first order of business.  Secondly, it is necessary to restore private property rights and free enterprise to unleash the creative powers of the Venezuelan people. Finally, leadership should turn to the design of foreign-exchange policy and the management of oil rents, both of which are essential to avoiding a renewed cycle of dependency, rent seeking, and stagnation. A political transition that included meaningful electoral reforms and credible guarantees of fair competition would likely be accompanied by a gradual normalization of relations with the United States. Such normalization could, in turn, allow for the partial lifting of sanctions and renewed participation of private—especially foreign—oil companies in Venezuela’s energy sector. Given the country’s vast proven reserves and deteriorated but recoverable infrastructure, even modest institutional improvements could translate into significant increases in oil production and export revenues. These revenues would provide a rare opportunity: the chance to stabilize public finances, begin repaying defaulted foreign debts, and reestablish Venezuela’s credibility in international capital markets. Yet this opportunity carries well-known dangers. Chief among them is the risk of Dutch disease—the tendency of resource booms to appreciate the real exchange rate, undermine non-resource tradable sectors, and entrench an undiversified economic structure. Venezuela’s historical experience provides ample warning. During previous oil booms, exchange-rate appreciation and fiscal profligacy devastated agriculture and manufacturing, increased import dependence, and reinforced the political power of rent-seeking coalitions. Any serious reconstruction strategy must therefore treat exchange-rate policy not as a technical afterthought but as a central pillar of economic reform. Avoiding Dutch disease requires resisting sustained appreciation of the local currency, even in the face of rising export revenues, as I have argued elsewhere. A freely appreciating currency would make non-oil exports uncompetitive and discourage the revival of sectors that are essential for long-term growth and employment. This does not necessarily imply a return to rigid exchange controls—whose catastrophic consequences in Venezuela are well documented—but it does suggest the need for a carefully designed regime. Sterilization of foreign-exchange inflows, accumulation of external assets, and institutional mechanisms to prevent excessive domestic spending of oil revenues would all play a role in maintaining a competitive real exchange rate. Closely related to a successful foreign-exchange policy design is the question of oil rents. The central political economy challenge for post-socialist Venezuela will be to prevent these rents from being captured by entrenched interests, whether public or private. Without credible constraints, oil revenues tend to fuel corruption, clientelism, and fiscal irresponsibility, undermining both democracy and economic freedom. For this reason, the creation of a dedicated “sink fund” deserves serious consideration. Unlike a traditional sovereign wealth fund designed to maximize returns or smooth consumption, a sink fund would have a narrow and transparent mandate: the systematic repayment of Venezuela’s foreign debts over a foreseeable horizon. Channeling a substantial portion of oil revenues into such a fund would yield several benefits. First, it would reduce the immediate pressure to spend domestically, thereby supporting exchange-rate stability and mitigating Dutch disease. Second, it would help rebuild Venezuela’s reputation as a responsible borrower, lowering future borrowing costs and expanding access to international finance. Third, by placing oil rents beyond the discretionary control of day-to-day politics, it would limit opportunities for rent-seeking and signal a credible commitment to fiscal discipline. Over time, the restoration of basic protections for private property and free enterprise would allow economic activity outside the oil sector to recover. Venezuela once possessed a relatively diversified economy by regional standards, with significant capabilities in agriculture, manufacturing, services, and human capital–intensive industries. While much of this capacity has been destroyed or driven into the informal sector, it has not vanished entirely. The Venezuelan diaspora—now numbering in the millions—represents a particularly important reservoir of skills, entrepreneurial experience, and international connections. If institutional reforms are credible and durable, many expatriates may choose to return or to invest from abroad, accelerating reconstruction and diversification. Perhaps, the political demands of an impoverished people for public transferences could be diverted by allowing profit making and income generation by the private sector. If that is not understood and implemented, rent seeking will become irresistible, and the oil rents will be once more dissipated and political representation corrupted as government revenues are divorced from the broader well-being of Venezuelans and their economy. In this broader context, exchange-rate policy and oil-rent management should be understood as enabling conditions for a deeper transformation. The goal is not merely macroeconomic stabilization but the reconstitution of a society in which economic opportunity is decoupled from political privilege. By avoiding currency overvaluation, insulating oil revenues from predation, and prioritizing debt repayment over short-term consumption, a post-Maduro Venezuela could lay the foundations for sustainable growth and genuine reintegration into the world economy. None of this would be easy, and success would depend a lot on luck and on political will as much as technical design. But if the assumptions of political normalization, institutional reform, and renewed oil production were to hold, the prudent management of exchange rates and rents could help ensure that Venezuela’s next encounter with resource abundance becomes a source of recovery rather than another missed opportunity.   Leonidas Zelmanovitz is a Liberty Fund Senior Fellow and a part-time instructor at Hillsdale College. (0 COMMENTS)

Philosopher and author Rebecca Newberger Goldstein discusses her new book, The Mattering Instinct, which argues that our lives are a quest to validate our inherent self-centeredness. Tracing this essential longing from physics and biology through to ethics and politics, she explains to EconTalk’s Russ Roberts why material success alone can never satisfy our deep-seated need […] The post The Mattering Instinct (with Rebecca Newberger Goldstein) appeared first on Econlib.

This is the latest in our series of posts in our series on price theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed. Share your proposed solutions in the comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!   Question: Is the following true or false? Explain your reasoning. If the quantity of higher education services supplied does not rise with the price of those services, i.e., if supply is perfectly inelastic, then subsidizing the demand for higher education services will primarily benefit universities and their employees. (0 COMMENTS)