Arguments in favor of intellectual property (IP) boil down to innovation. If not for giving company X a monopoly on producing good Y, good Y would have never been produced, and we would be worse off; therefore, the government should enforce intellectual “property.” As persuasive as this may be to laymen, it has a hidden premise; IP provides us with new goods and no relevant cost. There is no sacrifice. The intellectual monopoly will indeed decrease production relative to the free market quantity, but if not for IP protection, there would be no free market quantity in the first place. IP protections are claimed to be a neutral policy; the underproduction relative to an unhampered market is acknowledged, but the market would allegedly not exist if not for the IP protection. It is a win-win! Admittedly, this situation is conceivable, but the cost of the protection is not simply lower production relative to a competitive market and higher prices, but foregone investment into alternative production is a cost we have no knowledge of. For example, it may be the case that developing the EpiPen would not happen in a society absent of IP protections; however, this is not a reason to support IP. The choice is not just between EpiPen and no EpiPen, it is between EpiPen and foregone alternative, the unseen. In this example, if there had been no IP protections, the EpiPen would not have been developed, but the investors and producers would not have gone home and become couch potatoes! The capital invested in EpiPen would have been directed to some other productive endeavor, perhaps the development or production of another drug or in another industry entirely. That is not something we should lament over. Producing more of another drug is certainly a good thing. If the capital is invested in another industry, it might enable the production of medical devices or food, both also potentially lifesaving. Even if the alternative investment is not in a “lifesaving” industry, it would be a life-altering industry. All business in the free market aims at the satisfaction of consumer desires. Even if the capital goes into McDonalds or a video game company, the fact remains that this may be the next best alternative investment for the available capital. Who can say that these investments are not worth it? McDonalds supplies food in foods deserts. Video game companies might produce a game that brings joy to the heart of a kid dying of cancer. Value is subjective. Certain investments will prove satisfying to some, while meaningless to others. The rate of return in terms of money is the only basis for comparing the ability of alternative investments to fulfill the individual desires. Is all lost? Are we to give up innovation? No; there is plenty of literature explaining how innovation occurs in the absence of IP protections (Against Intellectual Property and Against Intellectual Monopoly). Non-profits can innovate, too. If a group of people observe that the private sector is innovating inefficiently according to their preferences, they can form or fund a non-profit corporation that engages in research regardless of IP protections. Furthermore, for-profit companies can take a lot of measures to make sure that their formulas are not copies, such as built-in obsolescence, un-replicability, and non-disclosure agreements. These are only some ways that companies can protect their formulas. Who is to say that a company will not hire a team of scientists to innovate more in order to stay ahead of competitors? Are we to suspect that pharmaceutical companies will simply give up? Definitely not; they will just adopt a different business model. There is no way to determine a priori how a company will alter innovation in the absence of IP. Some will not be affected, some will decrease innovation, and some will innovate more. The choice of potential innovators is not always between innovating or not innovating, it is between innovating here, innovating there, or going into some non-innovative yet productive endeavor. To say that there is an underproduction of innovation at any point is to suggest that there is a better quantity of innovation that exceeds the quantity of innovation desired voluntarily by consumers. If consumers are willing and able to support a higher degree of innovation, someone will find a way to exploit that desire, thus, profiting. The claim states that there is an efficient level of innovation outside of what human actors have voluntarily demonstrated. Efficiency, determined by voluntary actions of human actors, is opposed to the IP. Ultimately, many, many people are harmed in order to provide protection for someone else’s idea in excess of the free market quantity of protection. Such a thing harms consumers generally instead of enhancing their welfare. That alone is enough to be against IP. Prioritizing one innovation over another is nothing short of arrogance. It neglects the unseen effects of government intervention and subverts the ability of the market to fulfill consumer desires. All action aims at the satisfaction of human affairs. Choosing not to innovate is a beneficial decision just like any other, and we should not make it a matter of public policy.   Benjamin Seevers is a student at Grove City College studying economics and philosophy.  (0 COMMENTS)

Juliette Sellgren, the daughter of two economists and an economics undergraduate economics major at the University of Virginia, does regular podcasts in which she interviews mainly economists about issues that they and she find interesting. She’s an amazing interviewer. Even though some of us interviewees go long and, in listening to this interview I realize that I went a little long, it’s often a conversation and Juliette is a good conversationalist. Her podcast is titled “The Great Antidote.” Juliette contacted me to see if I wanted to talk about various economists I’ve written about who died and/or won the Nobel Prize. The podcast with me is titled “David Henderson on Economists’ Nobels, Obitz, and More.” Of course I recommend it. Here are some highlights, including two places where I made an error. Times are approximate. 1:40: The most important thing people in her generation should know. 2:40: How I got to do Nobel Prize write-ups in the Wall Street Journal, starting in 1996, based on an idea I had in 1992. 5:15: My math error. I missed 6 years, 3 because I was traveling, 2 because I didn’t know enough about the winners’ work, and 1 because I thought the winner didn’t deserve it, but wasn’t sure enough of that to state it. 6:10: My tweak on John Cochrane’s advice. 6:57: Bob Lucas. 11:30: Harold Demsetz. 13:20: My second mistake. The 1967 article by Demsetz titled “Towards a Theory of Property Rights” is not the one that a committee found to be one of the 20 most important articles in the American Economic Review. That honor goes to his 1972 article on the theory of the firm, co-authored with Armen Alchian. 15:00: Armen Alchian. 16:00: Universal Economics. 17:00: What to do as a teacher if you can’t answer a student’s question. 19:00: Mirrlees and his idea that the top marginal tax rate should not exceed 20 percent. 22:30: Vickrey on toll roads and how to collect. 23:50: Demsetz came up with the tragedy of the commons before Hardin, but just didn’t call it that. 25:00: Stigler’s Law. 25:15: Wait a minute. 28:05: Coase on blackboard economics. 29:00: Coase on economists thinking about horses. 32:45: Lucas, Barro, and smoking. 34:20: The use of mathematics in economics and Alfred Marshall’s advice. 35:00: Rigor with words. 36:00: Why I hate the word “intuition.” 37:00: Investment vs. consumption and how Juliette used to be like Bill Clinton. 38:00: Equipment vs. parrot. 39:00: Where economics is going. 40:00: Juliette’s future. 42:20: Two views I had on which I changed my mind: (1) Hayek’s tone in The Road to Serfdom, and (2) case for limited government, cute lion cub becomes a lion. (0 COMMENTS)

In this episode of EconTalk, Russ Roberts hosts Lars Peter Hansen, Professor of economics at the University of Chicago and a recipient of the Nobel Prize in Economics. Roberts and Hansen discuss the validity, shortcomings, and use of economic models in understanding systemic financial risk. Hansen reminds us that it is irresponsible to place 100% confidence in models to solve economic problems. Roberts mentions F. A. Hayek’s 1974 Nobel Address “The Pretence of Knowledge”, in which Hayek argued that attempts to model the economy give the illusion of science. Hansen agrees with Hayek that overconfidence in quantitative modeling is dangerous, but argues that models are useful in understanding our economic system and guiding policy if they are used sensibly.     1- To what extent do you agree with Hansen that it is irresponsible for lawmakers and government officials to place their full trust in models to solve economic problems? Do you agree with Hayek’s view that attempts to model the economy create a false illusion of science, or do you agree with Hansen’s opposition that models are useful in understanding economics and guiding policy? Why? Where do you think the line should be drawn between using qualitative and quantitative analysis to understand economics and make policy decisions?   2- Roberts and Hansen concur that politicians have a tendency to embrace economists who share their viewpoints. Hansen views this as problematic, as it leads politicians to advocate for economic policy based on their opinions rather than on data. How can politicians lacking education and work experience in economics legislate economic policy in a way that reflects data rather than their personal biases?   3- Roberts argues that in a financial setting, it is possible that quantifying risk could deceive financial professionals into thinking that risky financial practices are safer than they actually are. Removing quantification in the financial sector could lead to reliance on theory for risk management procedures. Hansen argues that fully relying on theory to measure financial risk would eliminate useful parameters in decision making that economic models provide. Should financial professionals rely on quantitative or qualitative factors in measuring risk? If both quantitative and qualitative factors can provide useful parameters in measuring financial risk, which should be prioritized, and why?   4- Hansen proclaims that economic models are always wrong in some sense, meaning that there will always be some uncertainty. Hansen contends that in spite of the uncertainty that models fail to overcome, they are able to estimate probabilities of what can happen in the future, and can always be improved upon.  If economic models are always wrong in some sense, to what extent can they reasonably be relied upon to make market predictions and mitigate risk? Are economic models or existing empirical data a better means of analyzing and predicting the future of the economy? Do you think that existing economic models adequately hypothesized the recent failures of Silicon Valley Bank, First Republic Bank, and Signature Bank?   5- Hansen claims that the Dodd-Frank Act initiated a new government practice of designating which firms and businesses are systemically important. Hansen fears that when firms have been designated as systemically important, they are incentivized to take more substantial risks. Hansen concludes that when firms fear the risk of failure, they behave better. With reliance on government bailouts, have some firms been given an unfair advantage and been incentivized to take unnecessary risks? Are some firms and industries so essential to our economy that they should be protected by the government from failing under any circumstances? If so, which ones, and why? If no, why not?   Kyle Fowler is a student at Indiana University studying Accounting and Finance and is a 2023 Summer Scholar at Liberty Fund. (0 COMMENTS)

Do dumb people hold dumb ideas? I’d say not necessarily. There are a host of issues where my views are probably closer to the view of the typical dumb person than to the views of a sophisticated reader of the New Yorker magazine. And even where I disagree with the views of dumb people, it’s quite possible that they are correct and I am wrong. So dumb ideas =/= the ideas held by dumb people. Nonetheless, there is one area where I believe that dumb people do tend to hold dumb ideas. I believe that are too quick to equate bad things with things that should be banned, and good things with things that should be mandatory. Obviously, there are lots of bad things that should be banned. Robbing a bank should be banned. My view as to the appropriate punishment of bank robbers is probably closer to that of the typical dumb person that to the view of the typical New Yorker reader. (At least five years in prison, not one year because criminals are “oppressed by society.”) I can think of all sorts of things that are bad or at least seem bad to many people: Flag burning. Pornography. Drugs. Prostitution. Really high interest rates on credit cards. Paying workers very low wages. Very high rents on low quality apartments. Imported goods that result in American workers losing their job. A $5 fee to use an ATM. My hunch is that dumb people are more likely to support banning those things, because they seem bad. This is not because I think that dumb people are left wing or right wing; the “ban bad things” view is held by people on both sides of the political spectrum. So is making certain “good things” mandatory, whether it be the Pledge of Allegiance or school mask wearing. Tyler Cowen linked to a recent article that made the following claim: Meanwhile, people with high measured cognitive ability are also more likely to support economic conservatism (and cultural liberalism). Note that that people with economically conservative and culturally liberal views would tend to oppose the bans discussed above. The same cannot be said about right wingers or left wingers. I suspect that dumb people are too quick to favor banning things that are seen as bad. That is, they are less likely to understand that these are two very different questions: 1.  Is X a bad thing? 2.  Should X be allowed? They are less likely to be aware of the unintended consequences of government bans and mandates. Those consequences don’t always make bans and mandates a bad idea, but if you tend to overlook those consequences when forming your views, then your political opinions will be biased in a very specific direction—too much statism. (0 COMMENTS)

Silvio Berlusconi passed away on Monday. His state funeral (a beautiful ceremony in Milan’s Cathedral) took place on Wednesday. Not many foreign dignitaries attended: basically, the only one of note was Hungarian prime minister Viktor Orban, not a darling of the West these days. Yet former Spanish prime minister José Maria Aznar had some nice things to say about Berlusconi and French President Emmanuel Macron, too. The tone of international obituaries was sharply different than the ones in Italy, however. Foreign observers at first feared Berlusconi as a media mogul who wanted to manipulate voters through his media empire. That was when he first entered politics, in 1994. In later years, his womanizing was the true news item. Just Google “Berlusconi” and “bunga bunga”. And yet Berlusconi should not be treated as a joke. He was a great showman, but also a revolutionary entrepreneur. As a politician, he never delivered the “free market revolution” he promised at the beginning of his career. But he established a political party anew and won three elections (half-won another, that he lost by 30,000 votes in a country of 60 millions), becoming the longest serving Italian prime minister (2001-2005) in a country where a government on average last 14 months. Watching his funeral on the Internet, his uniqueness was apparent. Inside the Church, you had political dignitaries, TV celebrities, business leaders, soccer champions: politics, entertainment, business, and sports may be contiguous fields, but you seldom met somebody who was a central figure in all of them. Berlusconi was that rare case. Outside the Church, some 15,000 people camped to say goodbye to a man they admired, a fair chunk of them being soccer fans of AC Milan. For once, (part of) the elites and the people shared admiration and affection and gratitude for the same man. That says something. As a free marketer, I thought Berlusconi was a disappointing prime minister, as I remember in this obituary for the Daily Telegraph. But though this was a tragedy for Italy, this was not central in an incredible life, which would be wrong to remember just for some gross and undignified moments (which were there, of course). I tried to reflect on that in this piece for the Independent Institute’s The Beacon. (0 COMMENTS)

I’ll save you the suspense: I think it is. Drug company Merck is suing Medicare. What’s its beef? Merck claims that certain changes in the way Medicare will pay for drugs are coercing Merck, forcing it to sell drugs at bel0w-market prices. But Cato health economist Michael F. Cannon disagrees. He says that there is no coercion whatsoever. Indeed, Michael’s post is titled “Medicare Is Not Taxing or Coercing Merck, Just Reducing Its Government Subsidies.” At first I agreed with him. And then I read his post more carefully. Read it too–it’s not long–if you want to understand my objections. Michael starts with an argument I agree with and I was pleasantly surprised to see him being so radical on the issue of Medicare. He writes, “The price Medicare should pay for all medical goods and services is $0.00.” In other words, he’s saying that Medicare should not exist. You can be sure that if it paid $0.00 for every medical good and service, its budget would be zero. Then the tax that people pay for Medicare, 1.45 percent of all “earned” income for employees and the same tax for employers (and a higher tax for higher-income people) could be zero. Most workers below the age of 40, who are years away from ever getting Medicare benefits, would probably be thrilled. The key issue, though, is whether Merck and other drug companies are free to say no and not sell drugs to Medicare. If that were so, then Michael would be right. But my understanding of the law is that it’s not so. Michael links to a very long document from the Center for Medicare that explains the process. I didn’t have the patience to work my way through it, but I’ll accept that Michael has summarized it accurately. He boils it down to 4 steps: If Medicare selects a Merck drug for price negotiation, Merck has until October 1 to enter into an “agreement” to negotiate a “maximum fair price.” Medicare’s opening bid must be at least 25 percent less than the current price. If Merck does not enter into an “agreement” by October 1, “a noncompliance period would begin” that could result in “excise tax liability” for Merck. If Merck enters into an “agreement,” it must sell the drug to Medicare at whatever price Medicare negotiates/​dictates or pay an “excise tax.” Merck may terminate the “agreement” for any reason, but the termination does not take effect until 11–23 months after Merck announces it. In the meantime, Merck must continue to sell the drug to Medicare at the price Medicare negotiated/​dictated. To his credit, Michael puts “agreement” in quotation marks because it’s not an agreement. The crucial issue, as I noted above, is whether a drug company is free to engage. Bullet #2 above says that it’s not. A company that refuses to enter an agreement is designated by Medicare as being noncompliant and is taxed for being noncompliant. The tax, by the way, is very heavy. So how does Michael claim that the drug company is not coerced? He writes: First, Both Merck and the government are wrong to describe those “excise taxes” as taxes. Merck’s own lawyers admit, “the excise tax is suspended if the manufacturer has no relationship with Medicare or Medicaid.” Taxes are compulsory; these “taxes” are optional. Ergo, it’s not a tax. The correct way to think of those payments is that Merck would be rebating to the government a portion of the subsidies it receives from taxpayers through Medicare and Medicaid. In essence, those rebates are an across‐​the‐​board reduction in the prices Medicare and Medicaid pay for Merck’s products. No one is taxing Merck, just reducing their government subsidies. Since those “excise taxes” are not taxes, the government is not compelling Merck to enter an “agreement.” Merck is free to decline. If the resulting rebates Merck must pay mean its government “book of business” is unprofitable, it can walk away from federal health programs. If Merck and other drug companies really were free to decline, then he would be right that they’re not coerced. But there’s a big wrinkle and Michael addresses it in his next paragraph, writing: Not even the 23‐​month period that Merck would have to continue selling the drug to Medicare at the Merck‐​unfriendly price is coercive. Merck has received plenty of notice of that condition. Merck was aware of that provision as Congress debated the law in 2021. And when Congress passed it. And when President Biden signed it in August 2022. And when Medicare announced in March 2023 how it would be implementing these provisions. Merck has had and will continue to have plenty of opportunities to avoid those conditions. It could have avoided them at any time from when Congress began debating them in 2021 until now. It could avoid them today. It could avoid them by refusing to enter into an “agreement.” At any of these points, Merck could avoid these conditions of Medicare participation without coercion. Excuse me? Merck received plenty of notice? Yes, that provision was debated and there was reason to think that Joe Manchin (D-WV) would stand his ground and that the Inflation Reduction Act would be defeated. Merck was supposed to anticipate that Larry Summers would convince Manchin that it was a good bill that he should vote for? Really? Once Biden signed it, then, yes, Merck could see the writing on the wall. But let’s do some basic math. August 2022, when Biden signed it, was 10 months ago. So if Merck was already selling drugs to Medicare, it was stuck. 10 is less than 11 and is way less than 23. Interestingly, Michael makes the point that Medicare announced in March 2023, just 3 months ago, how it would implement those provisions. I think Michael is saying that there was some ambiguity. If so, then Merck had, not 10 months, but 3 months. So it’s really stuck. 3 is less than 11 and is way less than 23. But whether the right measure is 3 months or 10 months, would Michael apply this to other government measures? What if Congress passed a law today, and Biden signed it today, stating that anyone currently working for the federal government could be shipped to Ukraine to fight or serve in some other capacity within the next 11 to 23 months? Would Michael then say that those government workers are not being coerced? Would he go further and say that those workers should have anticipated that provision because it had been debated months and months ago? I don’t think he would. But if so, what’s the difference in principle? HT2 Charley Hooper for helpful discussion. (0 COMMENTS)

A recent Financial Times report (“India Drops Evolution and Periodic Table from Some School Textbooks,” June 6, 2023) adds to the bad news we have been hearing from India: India has dropped Charles Darwin’s theory of evolution and the periodic table of elements from some school textbooks, part of a widening campaign by the Hindu nationalist government that has prompted warnings from educators about the impact on teaching and the country’s vital tech sector. … It said the new textbooks were a transitional solution that would apply only to the current 2023-24 academic year. … While evolution would still be taught in grades 11 and 12, [Aniket Sule, a professor at the Homi Bhabha Centre for Science Education in Mumbai] noted, many Indian pupils chose not to study science or maths beyond grade 10. “You are depriving this knowledge for the bulk of students,” he said. … I asked my friend Neera Badhwar, a professor of philosophy at the University of Oklahoma and a native of India, if she thought this piece of news was significant. She replied: It’s very disturbing. I don’t believe the claim that it’s temporary, although the fact that evolution hasn’t been banned from the upper grades does hold out some hope. And [Indian Prime Minister Narenda] Modi is desirous enough of foreign adulation that he may be persuaded not to do anything that destroys science in India. To which extent the erosion of the teaching of evolution and the periodic table will apply to all high schools in the country is not clear. In any event, I want to focus mainly on some underlying ideology that seems on the rise. The Financial Times notes: In 2018, Satyapal Singh, then-India’s minister of state for human resource development, dismissed the theory of evolution as “scientifically wrong” and called for it to be removed from school and college curricula. No one “saw an ape turning into a man”, he said in remarks quoted by the Press Trust of India, a news agency. That nobody has ever seen a man descending from an ape made me think of another famous scholar and political friend of Narenda Modi, Donald Trump. The latter defended a historical plaque on his golf course in Sterling, Virginia, which claims that a Civil War battle nearby transformed the Potomac into a “river of blood.” The problem is that historians apparently believe that the said battle never happened. Contradicting the historians’ opinion, Trump declared: How would they know that? Were they there? Of course, biology, history as a discipline, or any field of organized knowledge tries to explain events that were not witnessed or to critically examine observers’ testimonies and interpretations. If we had to base our knowledge on the testimonies of people who “were there” or reported what the latter told them, we would know very little—close to nothing, in fact. The experience of one human being is extremely limited. To know what happened and to find causes, we need to observe facts and study the theories that help interpret them. Nobody has ever seen a dinosaur or, with his own eyes, a black hole. Nobody has seen a demand curve elsewhere than in an abstract theory or an econometric estimate. Reviewing a recent book by Financial Times columnist Gideon Rachman (The Age of the Strongman), I echoed what he believes as do many other observers: Although India is known as a democratic country—the largest democracy in the world—its supporting institutions have weakened under Modi’s Hindu ethnicism and nationalism. All that teaches us something about superstition and the state. What’s happening in India parallels the apparent retreat from rationality that we observe in the West. It may very well be true, as most classical liberal thinkers believed, that the state was necessary for mankind to culturally evolve from the tribe to the “Great Society,” to use Friedrich Hayek’s terminology. (It is worth reading Hayek’s last book, The Fatal Conceit.) But it was not any kind of state that could come close to that ideal, which is obviously still imperiled. It had to be the constitutionally limited classical liberal state, now challenged by the rise of right and left populism and nationalism. In political regimes that are not sufficiently constrained and liberal—the state naturally supports and fuels the mob’s superstitions instead of protecting individuals against them. (1 COMMENTS)

The debt ceiling fiasco is over, and with it, the costly Inflation Reduction Act, or as I like to call it, the Inflation Recession Act, was unfortunately left mostly intact. Congress’s lackluster attempt to curb spending will matter even less considering this, as new calculations show. The time is ripe for a reassessment and elimination of at least the ill-advised tax credits contained within the IRA before irreversible damage is inflicted on our already suffering economy.  Last year, the Congressional Budget Office (CBO) estimated that the IRA would cost $391 billion from 2022 to 2031. But with updated data and Treasury rules, new cost estimates show it to be three times higher at $1.2 trillion.  During my recent testimony before the U.S. House Ways and Means Committee, I noted the need for a re-estimate of the IRA’s cost for tax credits that subsidize manufactured battery cells and modules for electric vehicles (EV). The CBO’s estimate of these tax credits was $30.6 billion, but new calculations have it at nearly $200 billion–or nearly seven times higher. Battery cells can receive a $35 tax credit for every kWh of energy the battery produces, while battery modules can receive $10 per kWh, or “$45 for a battery module that does not use battery cells.”  The CBO’s assessment was conducted prior to the Treasury’s release of draft guidance in March that relaxes mineral sourcing standards to produce EV batteries. And since the IRA passed, there’s more evidence that incentives matter as EV manufacturers substantially increase production to get the tax credits well above CBO’s estimates.  Look no further than Tesla for a real-time example of how these tax credits will cost us.  Maker of the most-sold EVs in America, Tesla moved its battery production from Germany to Texas after the tax credits were announced. And its Model Y emerged as the best-selling EV in the U.S. last year, with a total of 234,834 units sold. Its battery starts at 75-kWh, so for those sales, Tesla could have received more than $616 million in tax credits had the tax credits been in place. For 2023, Tesla expects to manufacture 2 million EVs, resulting in possibly $5 billion in annual tax credits for batteries.  Meanwhile, Ford, which had the second-highest EV sales last year, plans to triple production for its F-150 Lightning, targeting 150,000 units by the end of 2023. The battery size for this model starts at 98-kWh, and assuming Ford meets its goal, that would cost taxpayers $514 million in tax credits. If Tesla and Ford can collectively receive at least $1 billion in tax credits in 2023, it’s easy to see how the CBO’s estimate over the next decade for all EV batteries is too low.  This difference between the estimates and the growth of the EV market is concerning in this post-pandemic economy, verging on a recession where more than 60% of Americans are estimated to be living paycheck to paycheck. More government spending, like what’s allotted in the IRA, and more debt, like what’s allowed under the debt ceiling deal, is the last thing America needs.  As government spending increases, so do taxes, leading to less work, lower productivity and growth, and, subsequently, less tax revenue. These measures contribute to even higher budget deficits that stifle economic growth, increase poverty, and exacerbate multi-decade high inflation.  While the IRA’s green energy initiatives, massive tax hikes, and excessive spending should have been enough reason to reject it initially, Democrats forced it through based on CBO’s massive underestimates of tax credits and other initiatives. Now, taxpayers will suffer the aftermath of this expensive legislation, which is why these costs should be reevaluated and ultimately eliminated before this weak economy is made worse for struggling Americans.  For a better path forward, we need more pro-growth policies and less government spending, not bad debt deals and corporate welfare to large businesses on the backs of taxpayers.    Vance Ginn, Ph.D., is founder and president of Ginn Economic Consulting, LLC, senior fellow at Americans for Tax Reform, and chief economist or senior fellow at multiple think tanks across the country. He previously served as the associate director for economic policy of the White House’s Office of Management and Budget, 2019-20. Follow him on Twitter @VanceGinn. (0 COMMENTS)

  Thirty days have passed since my Wall Street Journal obit of Bob Lucas was published, so I can reproduce it below. Robert E. Lucas Jr. Brought Rationality to Macroeconomics A Nobel laureate and a giant in the field dies at 85. By David R. Henderson May 15, 2023 at 6:01 pm ET (May 16 print edition) Keynesianism had taken some lumps by the early 1970s, but it was still the dominant school in macroeconomics. Then Robert E. Lucas Jr. came along. The longtime University of Chicago economist died Monday at 85. In a famous 1972 article, Lucas made a crucial observation. He noted that virtually every macroeconomic model erroneously assumed, implicitly or explicitly, that government officials who made economic policy could essentially fool people into making irrational decisions. Microeconomics assumed people were rational. Why shouldn’t macroeconomics make the same assumption? For this and other insights he was awarded the 1995 Nobel Prize in Economics. Over time, Lucas argued, people would start to understand the model that policy makers used for the economy. That meant, for example, that if the Federal Reserve increased the growth rate of the money supply to get a temporary reduction in unemployment, the policy would work only if the actual growth rate was bigger than what people expected. Lucas extended this thinking in a 1976 article that came to be called “the Lucas critique” of macro models. He argued that because these models were from periods when people had one set of expectations, the models would be useless for later periods when expectations had changed. While this might sound disheartening for policy makers, there was a silver lining. It meant, as Lucas’s colleague Thomas Sargent pointed out, that if a government could credibly commit to cutting inflation, it could do so without a large increase in unemployment. Why? Because people would quickly adjust their expectations to match the promised lower inflation rate. To be sure, the key is government credibility, often in short supply. Lucas also did work in the 1980s that broke down the barrier between development economics, which focused on poor countries, and the study of economic growth. He thought that the same tools, such as tax policy, used to achieve economic growth in rich countries could be used to generate growth in poor countries. One of his most quoted statements comes from his 1988 paper “On the Mechanics of Economic Development.” After asking what the Indian government could do to get growth like that of less-poor Indonesia or Egypt, Lucas wrote that “the consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else.” Lucas was willing to change his mind when the evidence demanded it. In the early 1960s, he thought that taxing capital gains like ordinary income was “the single most desirable change in the U.S. tax structure.” By 1990 he had concluded that “neither capital gains nor any of the income from capital should be taxed at all.” He estimated that cutting the tax rate to zero would increase the capital stock by about 35%. The Nobel committee called Bob Lucas “the economist whose work has had the greatest impact on the development of macroeconomics and macroeconometrics since 1970.” That’s putting it mildly. He will be missed. Mr. Henderson is a research fellow with Stanford University’s Hoover Institution and editor of the Concise Encyclopedia of Economics. There were many stories I couldn’t fit within my word limit. Here is one of my favorites: Bob Barro, now at Harvard, was a colleague of Bob Lucas at the University of Chicago at a time when smoking was allowed pretty much everywhere. Bob Barro hated cigarette smoke; Bob Lucas was almost a chain smoker. But Barro highly valued conversations with Lucas. How highly? Barro had a sign on his door that stated, “No smoking, except for Bob Lucas.” (0 COMMENTS)

Kevin Kelly is an author, photographer, and visionary with a keen interest in technology and futurism. In addition to his own books, Kelly is a founding editor and ongoing contributor for Wired Magazine. On his website, Kelly says, “I write in order to think.” On this episode of EconTalk, Russ Roberts welcomes Kevin Kelly for a compelling conversation on advice and technology. Kelly introduces his new book Excellent Advice for Living. The two discuss useful mantras in their lives and why mantras work, along with the future of technology and our relationship to it. Roberts and Kelly speak to people’s reluctance to accept advice or have their mind changed. Why is it hard to listen to advice? What is the best way to reach young people with good advice?   1- Kelly and Roberts agree that discomfort is a good thing and that it is an agent for becoming a better person. How do you feel about discomfort? Are you able to consistently get outside of your comfort zone even when it means there will be an adjustment period? To what extent is the experience outside of a normal routine important for realizing new talents and interests?   2- Roberts and Kelly argue that maxims and mantras can help to build consistent, good habits which can protect a person from making mistakes. Kelly offers a powerful maxim with which a person should remember to consult a third thing when considering two sides. How can thinking about a gray area, or a third side, help to illuminate an answer to a problem? Are people willing to consider a third side? In terms of a unique business plan in a competitive field, can you think of an individual or a company who utilized a third side of a black and white case to get ahead of competitors?   3- Kelly finds power in having control over his time as opposed to money. What is the advantage of caring more for time than money? How can planning in terms of life experiences and goals be more fulfilling than only planning for a career based on its monetary value? What might you give up when you choose to live this way? As Kelly himself says, you can never do things if you don’t give some things up…   4- Kelly and Roberts are skeptical of the technology panic cycle in which people are concerned about technology taking over humans. Today, we see different people have contrasting relationships with technology, where some let it harmfully dominate their daily lives while others utilize it in a productive manner. What type of person is vulnerable to the power of technology? Will we always have the power that Roberts and Kelly allude to in shutting down technology if it becomes dangerously invasive?   5- Roberts disagrees with the utopian argument that AI will come to develop a mind of its own. Instead, he and Kelly recognize the value of having something that ‘thinks’ differently than us as humans, and that we should be more thoughtful consumers in utilizing AI. What do you think about the trajectory of AI technology? Is there going to be exponential growth in AI which results in a problematic entity? To what extent do you agree with Kelly that there should be people working on how to “unplug” AI, just as there are people working to prevent asteroid strikes? (And is this a good metaphor???)   Brennan Beausir is a student at Wabash College studying Philosophy, Politics, and Economics and is a 2023 Summer Scholar at Liberty Fund. (0 COMMENTS)