A trip report about three good things, one of which might piss off people who already think I’m “privileged.” I’m telling this story partly because I like telling stories about my life but also partly because I’ve noticed that many people complain about bad service from for-profit businesses but don’t much mention the way many of those businesses go the extra mile (pun intended but you won’t get the pun until you read this post.) On Thursday morning, I interrupted my time at my cottage in Minaki to drive to Winnipeg. Then I flew to Montreal, rented a car in Montreal, and drove almost 4 hours (due to a wrong turn and a 20-minute wait at the U.S. border) to Lebanon, NH. My purpose: to attend a memorial service in Newport, NH for my dear friend (and fellow Canuck and fellow UCLA econ Ph.D. Harry Watson.) The service was very nice and on Saturday I got up early, drove to Montreal, flew to Winnipeg, did some shopping errands in Winnipeg, and drove to Minaki. In all, I did over 14 hours of driving in 3 days, almost all of it in 2 days. At the start, though, I had an upset. After renting my car from Avis at the Montreal airport, I was in Montreal’s rush hour and, a few miles in, noticed that the gas tank was less than half full. I was pissed off, and there was no way I was going to lose time by turning back to the airport. I did take a picture of the fuel gauge with the total mileage on the car showing. I resolved to tell them when I got back to Avis on Saturday but was not confident that the people at Avis would believe me. I calculated that, given upstate New York gas prices, I would be out about US$30. I had to keep telling myself that $30 was not a big deal and was not worth fretting over. I sometimes have trouble with that, and I think it comes partly from having so little money for about my first 25 years of life.  I stopped at a gas station just south of the border and, sure enough, spent a little over $35, making my $30 estimate about right. By the way, because I took a wrong turn that lengthened my trip, I saw Lake Champlain for my first time. What a gorgeous lake! I crossed a bridge over the northern part of the lake and, looking to my left, saw a beautiful old stone fort that is almost 200 years old. It’s Fort Montgomery, pictured above. On the way back, I filled the tank just south of the border, to save money on gas. That meant that I would use about 1.5 to 2 gallons before getting to the airport and was prepared to tell the Avis people that but that they deserved it because my tank had started out less than half full. When I got to Avis, I immediately told the guy, whom I recognized as the guy at the Avis counter who had set me up with the car, about the half-full tank. I was prepared for an argument. What I wasn’t prepared for was for him to take my word for it. And I think he didn’t have to. He showed me on his cell phone the exact amount of gas that was in the car when I rented it and the exact amount when I returned it. So I told him my calculations that led me to believe that I was out US$30. I then went to translate that to Canadian dollars but purposefully went low–to $37–because of the gas I had used up after the last fill. Then he said, “Let’s round up to $40.” I high-fived him and he told me I would get something in my email asking me to evaluate him. I said I would praise him, but I’m still waiting for the email. The night before, I had received an email from Air Canada telling me that because of a different airplane it was using, I was in 34F. That was unacceptable to me because I had paid extra for more leg room near the front. So after printing out my boarding pass, I went to a special line at Air Canada and explained the situation. The woman behind the counter told me that they had shifted me because it was a different airplane. I told her that I had paid extra and I wanted a better seat. “I can give you 16A, which is an exit row,” she said. “Done,” I said, happy with the conclusion. I really like it when people work with me to achieve something that’s in both of our interests. The final thing was not from a for-profit company but from the people who can choose whether you get in the quick line to get through the gate-keeper or the long line. I noticed that the long line was really long. So I went to the two guys who were guarding access to the short line. I told them that I had Clear, and I was wondering if that was good enough to get me in the short line. I’m not sure if they knew what Clear was but the two young guys looked at each other and said, “Go ahead.” All in all, an excellent trip. (0 COMMENTS)

Neuroscientist and author Erik Hoel talks about his book, The World Behind the World, with EconTalk’s Russ Roberts. Is it possible to reconcile the seemingly subjective inner world of human experience with the seemingly objective outer world of observation, measurement, and science? Despite the promise of neuroscience, Hoel argues that this reconciliation is surprisingly difficult. […] The post Erik Hoel on Consciousness, Free Will, and the Limits of Science appeared first on Econlib.

Department stores almost always have sales and clearances. These clearances may present themselves broadly as some kind of promotion, like “30% off all shirts,” or “everything up to 40% off!”; or, they may appear as simple tag-price changes. Many interpret these discounts as deception; stores want you to think you’re getting a sale, when in reality, everything is priced normally. Any mother worth her salt will remark that sales are not indicative of saving anything, because sales are the natural state of things. The implication, then, is that companies are tricking you into purchasing an item by making it appear as if you’re saving money. But we shouldn’t be so hasty in drawing this conclusion. It’s easy to discount unseemly items as market ills, but sometimes looks can be deceiving.  In approaching this phenomenon, I begin with a question that every economist is familiar with: what is the incentive? That is, how do companies actually benefit from engaging in constant clearance sales? The implied answer that folks often derive is that these clearances increase sales. But how could that be true if we all knew about the deception? Further, why would any company gain sales when its customers believe the company to be predatory and conniving? We should expect that deception is not rewarding, yet clearances somehow are, as indicated by their persistence.  Perhaps deception is not the true motive. After all, if you’re even aware of this issue, clearly you weren’t deceived. Many people aren’t. So, we should ask: what problem does this phenomenon solve? For any action to occur spontaneously and so frequently, we should expect that it (successfully) resolves issues for the actors. What issue could be solved by frequently marking items cheaper? Changing prices is something most companies would do frequently if it were costless, but menu costs prohibit this behavior.  It’s often too expensive for businesses to give on-the-spot valuations for all their goods, all the time; price tags are attempts at fixing this issue, but even then it’s often expensive to change prices for reasons both physical (changing tags) and mental (deciding what prices should be). Clearances are an easy way to change the prices of items without the hassle of printing new tags.  This explains why there are “always” clearances. To reduce costs, companies will produce tags with the highest possible price; that way, any potential price can be set by a clearance, and not the production of a new tag. For instance, I may expect my shirt to typically sell at $7. But I may want to increase the price in seasons of high demand. So, I tag the shirt at $10, and mark it as 30% off on typical days. A change in price would only require that I stamp stickers on tags or put one 30% off sign above a pile of clothes. What looks like predatory pricing is actually just my method of price-changing in a cost-effective manner.  Also remember that price changes are not inherently “predatory.” If demand increases (or supply decreases) and firms raise tag prices, their incentives are aligned with yours. They want more money, and you want their goods. Should they not raise prices, their goods may sell out before you’ve the opportunity to purchase them. If firms increase prices from equilibrium without an increase in demand (or decrease in supply), they lose sales. Any attempt at an “exploitatively” high price would not benefit firms anyways.  As a side note, menu costs are lower for online retail, yet clearances persist there, too. This may seem to disprove my hypothesis, as these clearances persist regardless of menu costs. However, it makes complete sense that websites would still employ clearances. It behooves chains to maintain consistent prices in-store and online, not just for customer satisfaction but for contractual obligations as well. Clearances online allow for original prices to be displayed while also changing the de facto buying price. It may also behoove online retailers to show discounts (in lieu of simply changing prices) simply to show good will to customers. It may mean nothing to most of us (who know that discounts are par for the course), but it could entice the marginal buyer. There can be multiple reasons for clearance sales, all I’m proposing is the unlikelihood of deception being a leading factor.  On a last note, some may question why tags must be priced high and discounted lower, rather than priced lower and marked up later. For example, why don’t stores price an item at $50 and produce signs/tags that read “+ 20%”? Perhaps menu costs explain why prices are frequently changed, but menu costs don’t explain the direction of the price change. It’d be easy to say that at least this is deception, because making a shirt “on sale” for $7 sounds better than marking a shirt up from $5. There is probably some truth there, but I’d posit that discounts are simply easier for customers to understand. If a $50 shirt is 20% off, it’s not hard to figure out that it’s now $40. But saying a $30 shirt is 33% more expensive just sounds more difficult to calculate, doesn’t it.    Sam Branthoover is an economics PhD student at George Mason University. (0 COMMENTS)

An apparently banal story in yesterday’s Wall Street Journal reveals much about current democracy. The reader familiar with the economic analysis of politics (public choice) may read the story as follows: Joe Biden and his supporters are trying hard to prove to voters that “Bidenomics” has done much for them by spending their or their children’s money, and by pushing Colbertiste industrial policy. Voters only see inflation, not realizing that most of it was due to Trump’s deficits, which were higher than Biden’s. Most voters don’t anyway understand what the candidates are proposing and a crushing majority wouldn’t know (for example) where to find measures or indicators of the rate of inflation on the sprawling government websites; even fewer would be able to understand the numbers and their methodology. (See “Biden Goes All In on Bidenomics. Voters Aren’t Buying It,” July 22, 2023). The candidate himself, trying to buy votes with his largesse, is incited to say just about anything useful for his purposes—just like the other side, although there is a difference of degree in the brazenness of nonsense and lies. One of Biden’s mouthpieces said that the president “brought hundreds of thousands of manufacturing jobs back to the United States.” In reality, the jobs were “brought back” not from foreign lands, but from the Covid recession of early 2020. The chart below shows that, given the Covid recession, the number of manufacturing jobs did increase by 800,000 during Biden’s mandate thus far, while it had decreased by 36,000 under Trump. As for manufacturing production, which is more revealing than employment (workers’ sweat), it decreased slightly under Trump (given the Covid recession), increased slightly under Biden, and is now back to roughly what it was under Trump (and Obama). If we add the impact of inflation (generated by Trump and Biden), industrial production is a bit lower under Biden than it was under Trump before the recession. This is just an example among many. By the way, Colbert also thought that his boss Louis XIV made his subjects richer by spending the money (or other resources) he had confiscated from them. Going back to democracy and to paraphrase Joseph Schumpeter, the typical individual, who is so efficient in managing his private affairs where his own interests are concerned—and can thus contribute so much to general prosperity—becomes an irrational primitive in a necessarily dysfunctional system when he tries to run the lives of all others. Both Friedrich Hayek and James Buchanan have provided useful theories to help escape the truncated dilemma between democracy and tyranny. For a more radical theoretical alternative, Anthony de Jasay defended liberal anarchy, or perhaps it was conservative anarchy. To simplify a bit, but just a bit, democracy can only work in two ways: if it is a means for changing the government peacefully (“throwing out the rascals”) in a strictly limited state; or if it represents an ideal of collective liberty and “sovereignty” under which the individual is powerless and happy to be so, like in the village of Patrick McGoohan’s The Prisoner. (0 COMMENTS)

The Economist has an interesting article discussing the increasingly close connection between India and the United Arab Emirates. I couldn’t help noticing a number of parallels between India/UAE and China/Singapore:1.  India and China both have 1.425 billion people. 2.  India and China both have a lot of bureaucratic inefficiencies. 3.  India and China both have a lot of talented entrepreneurs. If only there were a well-run place where Indians and Chinese freely create wealth.  It turns out that there is.  Indeed there are two such places. There are so many Chinese people in Singapore that the native Malays comprise only 14% of the total population.  There are so many South Asians in the UAE that the native Emiratis comprise only 13% of the total population: To live in Dubai is to play a part in Indian commerce. The local business chamber reports that some 11,000 Indian-owned companies were added to its records in 2022, bringing the total number to 83,000. Trade links between the two countries are getting ever tighter. Behind these companies stands a vast diaspora: 3.5m Indians live in the UAE, compared with 1.2m Emiratis. Of course, there are differences.  Singapore is a city-state with just under 6 million people, whereas the UAE is basically a dual city-state with just under 10 million people (Abu Dhabi and Dubai, plus five other smaller entities).  In Singapore, political power is held by the Chinese, not the native Malays.  In the UAE, political power is held by the Emiratis.  The UAE has much more land, so housing is less constrained. But I am most intrigued by the economic similarities in the two relationships: The UAE’s tax system exerts its own pull: there are no personal taxes. By contrast, Indian income taxes approach 40% and come on top of swingeing consumption levies. Corporate-income taxes are not only higher in India, they are also bewildering in their complexity. There are other important legal differences. The UAE technically operates under strict Islamic law. In practice, it now has commercial courts that operate under international standards and a tolerant view of vice. It also encourages religious pluralism. Abu Dhabi recently built an enormous Hindu temple and combined Muslim-Christian-Jewish centre. India is technically secular with established common law. But in practice it offers clogged courts, strictly enforced anti-alcohol and vice laws, and increasing religious strife. In recent years, many rich Chinese have moved to Singapore.  Similarly, many rich Indians have bought property in the UAE. All of this suggests that the Emirates is evolving into a financial capital for India. . . . [Indian businessmen] believe that the relationship of Abu Dhabi and Dubai to India will increasingly come to resemble that of Singapore to South-East Asia: small, orderly city-states serving as financial and business conduits to enormous, unruly neighbours where economic dynamism and potential is undercut by chaotic administration and corrosive rules. It’s too bad that countries don’t sell land.  The world would be better off if Malaysia or Indonesia would sell a tiny chunk of their vast holdings to Singapore. PS.  After writing this post, I came across another article in The Economist making some similar points: Singapore has also sucked up firms and workers fleeing Xi Jinping’s authoritarianism. Much like Dubai in the Middle East, it serves as a place where anyone can do business with anyone. Dubai and Singapore share other advantages as well. Both offer year-round warm weather (important when people can work remotely) and lenient regulation (helpful for those annoyed with Western red tape). Singapore has thrown tax breaks at family offices, helping lift their number to 1,500 in 2022, from 50 in 2018. Dubai has introduced social reforms, decriminalising alcohol and the cohabitation of unmarried couples. PS.  The Heritage Foundation ranks Singapore as the freest economy in the world, whereas the UAE is ranked 24, just above the US: The US has slipped badly in recent years. (1 COMMENTS)

In recent years, Rappi, a Colombian e-commerce platform, has gained immense popularity and a valuation of over $5 billion. However, the platform’s business model has sparked controversy, particularly regarding the employment status of its delivery workers, or “rappitenderos.” This issue has gained national attention in the context of Colombia’s proposed labor reform, which aims to modernize the country’s labor laws but has sparked debate about how to balance worker protections with the needs of startups and small businesses. As Rappi continues to operate in Colombia and beyond, the question of how to draft a labor reform that protects workers’ rights but at the same time corresponds to current market dynamics remains a pressing issue with implications for economic growth and social justice.   What is Rappi? Creating sustainable, scalable, and replicable business models is crucial in countries like those in Latin America, and especially in Colombia where we face unique challenges. This approach is essential for driving economic growth and generating new, efficient income streams. Rappi´s work is invaluable in this regard. Rappi, a Colombian e-commerce platform (sometimes confused as a delivery platform), has become one of the country’s most successful startups in recent years, boasting a valuation of over $5 billion.  But Rappi’s impact goes beyond the numbers. It serves as a source of inspiration for those committed to creating new companies and provides opportunities for thousands of people to earn extra income. Rappi also boosts the sales of partner businesses, improves city mobility, enhances quality of life for its users, helps position Colombia as a global leader in technological entrepreneurship, and attracts foreign investment to the country, generating internal wealth and increasing competitiveness. Originally, Rappi was an app that delivered products from a local store. However, the creators of Rappi noticed that their customers needed more assistance, so they began offering services provided by assistants, called “rappitenderos,” who complete tasks that people typically find burdensome in exchange for money. Today, Rappi not only delivers products in under 30 minutes but also provides 24/7 services.   Does Rappi have an employment relationship with its rappitenderos?  Rappi’s business model attracted investors as it operates as an intermediary between users and couriers, or “rappitenderos”, who work as self-employed contractors. They can turn on and off their availability on the app and choose which orders to fulfill, rather than being classified as employees. Rappi has provided income to thousands of people through the sharing economy. In the last 6 months, 150,000 Colombians have earned money through the app. However, the labor reform has brought back controversy about the relationship between rappitenderos and Rappi. To establish an employment relationship, three requirements must be met: personal service provision, subordination, and remuneration. Rappi argues that rappitenderos do not meet the subordination and personal service provision requirements, but demands payment of social security and imposes indirect restrictions such as inability to delegate tasks and blocking accounts without justification. Moreover, the algorithm reviews the number of orders fulfilled, the time taken, and the ratings received to give them more or fewer orders and award them with prizes or sanctions (like a boss would). Subordination?  Rappi now pays liability insurance for all rappitenderos and proposes to pay social security based on hours worked and not as stated in the labor reform (which demands that digital platforms must verify that the workers are affiliated to the social security system or else they must assume 100% of the payment). If a rappitendero works only 10 hours a month, it is valid to contribute based on actual income rather than the minimum wage (which makes sense)   What does Colombia need more: Rappi or a Labor Reform? If Colombia’s new labor reform is passed, Rappi may be forced to make significant changes to its business model, which could impact its profitability and growth potential.  In Colombia, the process of hiring an employee can be lengthy and bureaucratic, which can be a barrier for startups and small businesses.   Colombia definitely needs labor reform, but it should take into account the current market dynamics and the interests of today’s workers. With the rise of remote work, freelancing, and other non-traditional forms of employment, there should be tailor-made labor relations for each type of worker. While it’s important to discuss contractual types and working conditions, the conversation should be guided by the new forms of work demanded by the new generations. Unlike 20-30 years ago when only two types of contracts existed, there are now an infinite number of variables that must be considered when legislating. To achieve a successful reform that doesn’t put companies at risk, it’s necessary to involve the industry, modern workers, and companies in the conversation. The harmful narrative that businessmen want to exploit people must be eradicated. It is worth considering the role of individual responsibility in the debate around labor reform.  While government regulations can provide important protections for workers, individuals also have agency in shaping their own lives and careers. The gig economy provides opportunities for individuals to earn money and gain valuable work experience, and many people may prefer the flexibility and autonomy of gig work over traditional employment. Rappi is not hiding, they are proposing, negotiating and listening to their stakeholders. Hopefully, the Colombian government will work with industry and workers to come up with a reform proposal that makes sense and doesn’t hinder the generation of employment in the country.   Michelle Bernier is an attorney specializing in international law and commercial law. She is currently studying Master of Laws and International Business with a double degree from the Universidad Internacional Iberoamericana in Mexico and the Universidad Europea del Atlántico. She is also a part of Students for Liberty’s inaugural cohort of Fellowship for Freedom in India. (0 COMMENTS)

Here’s a thought experiment that recently occurred to me. Imagine that many decades ago, financial regulators passed a law about investing in the stock market. According to this law, each person may buy stock in one company, and only one company. If you wanted to invest in the stock market, you must put all of your stock holding in Krispy Kreme Donuts, or CitiBank, or Tesla, etc. There are, shall we say, some rather obvious downsides to a program like this. For one, it would serve to massively discourage investment in new, innovative, but potentially risky companies. Being an Apple stockholder is a pretty safe investment at the moment, but when Apple was a fledgling startup, investing in Apple would have been highly risky. Without a law like this, some people would still have an incentive to invest some portion of their holding in risky startups like the Apple of old, but if this law had been in effect, people would be far more likely to put all their holdings in a relatively safe company like Apple is today. Except, of course, there very likely would be no Apple today, had such a law existed at the time. Another obvious downside is that when a company goes bankrupt, everyone who held stock in that company would see their stock investments completely wiped out, because their holdings in that company would necessarily represent 100% of their stock holdings. This would make downturns in the stock market far more devastating than they otherwise would be. How should people respond to such a regulation? If your answer is “stop making it illegal to have a diversified stock portfolio,” then I congratulate you on your good sense. But suppose regulators lacked this good sense? Suppose instead they were to say that the financial devastation people experience in the stock market just shows the dangers of allowing unregulated investing – it shows that the government isn’t regulating enough. So there is a new wave of regulations passed tightly controlling how people can invest in the stock market, as well as establishing a program that ensures whenever anyone loses money in the stock market, they will get funds at taxpayer expense to make up for their losses. Now, nobody has a particular need to be cautious about which company they are investing in – if that company goes under and the value of your stock is wiped out, you’ll just get bailed out by the taxpayer. It may strain credulity to imagine such a system would ever be set up. But with a few tweaks, the above story is something that has already happened. For a very long time, the United States had financial regulations which forbade branch banking, which is to say, banks that could operate at a large scale across multiple areas. These unit-banking laws created a situation where small local banks made up a massively disproportionate amount of the banking system, relative to what was produced in countries with relatively unregulated banking, like Canada. Like the hypothetical stock market law described above, a small unit bank is legally required to put all their financial eggs in one basket. Small, undiversified banks would have all their financial assets tied to local economic conditions – so if there was a local economic downturn, the local banks were all but guaranteed to go down as well, worsening the situation. If your reaction is to think “Well, stop making it illegal for banks to branch out and diversify” then I congratulate you on your good sense, but sadly financial regulators lacked such good sense. Instead, they claimed that this fragility in the banking system showed the dangers of “unregulated banking” and only showed that the government isn’t regulating banking enough – despite the far superior contemporary and historical performance of unregulated banking systems. So, the regulators passed laws putting even tighter controls on banking, and establishing the FDIC, ensuring that depositors would get their money back whenever their banks failed. Scott Alexander once suggested people have a tendency to just assume the regulation that exists is the right and appropriate level, saying “There’s an old saying: ‘Everyone driving faster than you is a maniac; anyone driving slower than you is a moron’. In the same way, no matter what the current level of regulation is, removing any regulation will feel like inviting catastrophe, and adding any regulation will feel like choking on red tape.” I suspect that had such a hypothetical law been passed early in the 20th century to ensure that anyone who loses money in the stock market would get bailed out by the taxpayer, and if a couple of generations of people were born and raised in that system, it would be taken for granted today that of course the government needs to financially guarantee people against stock market losses. In such a world, where the prospect of losing money on the stock market has been removed, and people have no incentive to ensure they are investing carefully, we would expect to see far more unwise investments, creating more and more situations where people “need” to be bailed out, which would only serve to convince people more and more about the necessity of such bailouts, etc. It simply wouldn’t occur to people that the reason such bailouts are “necessary” is because of the very regulations they think protect them – and suggesting that we move from that world to one more like our own would seem like utter madness. I’m just glad we don’t live in a world like that… (0 COMMENTS)

Today’s Bloomberg has two stories that illustrate the unintended consequences of increasing nationalism in US policymaking.  Both relate to the chip industry, but look at different aspects of the problem. During the Trump administration, the US cracked down on the immigration of skilled STEM workers from overseas.  Here’s one consequence of that decision: Taiwan Semiconductor Manufacturing Co. cut its annual outlook for revenue and postponed the start of production at its signature Arizona project to 2025, twin setbacks for a chipmaking linchpin struggling with geopolitical tensions and a deep market slump. TSMC’s surprise cut in 2023 revenue projections sent a warning to investors that the global electronics slump may persist for some time despite a boom in AI development. And the delay in the US — a consequence of both a lack of skilled American workers and ballooning costs — underscores the difficulties in making chips there despite Washington’s insistence to reduce a global reliance on Asian facilities. I recently had some problems with my air conditioning system.  The technician told me that the unit is too big, and is trying to force too much air through a relatively narrow duct.  That’s basically the problem with programs combining massive subsidies for chip making with various restrictions on the domestic chip industry. The Biden administration has enacted protectionist measures aimed at hurting China while boosting our chip industry.  An article by Dave Lee points to some unintended consequences: One problem with US limits on non-US companies, notes Emily Kilcrease, senior fellow with the Center for a New American Security, is that international businesses now have an incentive to design out US components to avoid being subject to these rules. Meanwhile, China has begun introducing small disruptions to the market. Citing “relatively serious” national security concerns over Micron, the Boise, Idaho-based memory chip maker, Beijing in May said the company’s components shouldn’t be used within vital infrastructure. Micron said the loss of business represented a “low-double-digit percentage” of overall global revenue. The ban benefits South Korean competitors Samsung and SK Hynix, who also make memory chips. As a result, US companies may choose to move production elsewhere.  Unfortunately, a country that cuts itself off from the rest of the world can easily end up falling behind: If they confront their worst-case scenario, in which their sales to China cease altogether, US chip companies could lose $83 billion annually, at a cost of 124,000 jobs, the US Chamber of Commerce estimates. R&D spending would fall by $12 billion per year. This can be mitigated by a diversified supply chain that shifts that business to other regions, but such transitions take time, and would open the door for empowered international competitors to increase their Chinese market share. They could then use the fruits of that success to plow more resources into creating next-generation cutting-edge chips, weakening US leadership over these vital innovations. There is also a risk that these actions further hurt the US if they lead China to retaliate by cutting off exports of key “rare earth” metals used in chip manufacture. (0 COMMENTS)

Michael Munger is a political science professor and the director of the PPE program at Duke University. On this episode of EconTalk, Russ Roberts and Michael Munger talk about F. A. Hayek’s conception of rule of law—both formal and informal rules—and their interaction with conflict in sports. Revisiting this fascinating discussion, we look at the current state of rules in sports and how Hayek, Ronald Coase, and the Peltzman effect can help us understand the relationship between rules and value.   1- Roberts and Munger frame their discussion of the interaction between formal and informal rules in sports from a Hayekian standpoint. Munger argues that the informal rules, what he calls ‘The Code,” may be more important than the formal rules in each sport. Which informal rules do you find the most appropriate in your favorite sport? Think about Munger and Roberts’ discussion of “stars.” How vulnerable are refs and umpires to relaxing formal rules for the biggest names in each of the major sports?   2- Each major sport continues to evolve its practices with the goal of producing more entertainment value, but how do they protect and cultivate value? People want to see the stars of the game playing all the time, and for players, the cost of injuries is greater than ever with their contracts seeing new peaks each year. How have the formal rules or the equipment rules of each sport been enhanced to protect their stars? How can the NBA fix the new problem of ‘load management’ that seems to be hurting the product of basketball on a nightly basis?   3- Roberts and Munger discuss the Peltzman effect, which is a form of moral hazard where people will act with more risk when they are consciously or subconsciously feeling insulated from harm from some form of protection like seatbelts or insurance. In sports, the Peltzman effect results from heightened safety measures, like helmets being used in more physical contests. What might be some sports injuries that are inflated by the Peltzman effect? To what extent is it beneficial for athletes to feel safer while playing their sport? Do the resulting risk-taking behaviors bring injuries to higher equilibriums? When do safety measures and equipment upgrades go too far?   4- In football, there is a familiar system of market value where certain players are very replaceable while others hold the utmost value. Roberts and Munger note the importance of the quarterback for the game, while linemen are replaceable, and suggest that this is reflected in the formal rules of the game. To what extent is there a problem with the lack of protection for non-quarterbacks? Should the NFL always operate according to  scarcity and the resulting market value of different position players? Reflecting on the brand of modern football being played, and the relative injury risk for each position, how have body types evolved in the NFL?   5- Major League Baseball has made numerous formal rules changes this season to increase the game’s entertainment value and allow for its star players’ athleticism to shine. As mentioned earlier, the cost of injuries has become extremely high for players. In recent years, hit batsmen and retaliation have decreased dramatically. The informal rule of showing-up the opposition or the umpire still stands, but overall, the escalation of ejections and bench-clearing is down significantly from previous years. What are your predictions for the informal rules that will come out of MLB’s drastic formal rule changes? Thinking about Coase, what are the new transaction costs which might prompt private bargaining between players? To what extent is this net positive?   6- Roberts and Munger point to Hayek’s idea of local information and traditional changes which bring about efficient informal rules to address transaction costs as the reason for the different codes in each sport. In your life, what are peculiar informal rules which have developed from the standards of the environments you frequent? What is an informal rule that has brought about sustained, inefficient outcomes, and why? (0 COMMENTS)

Immigrants founded America, yet the path for immigrants to become U.S. citizens is harder than ever, and getting worse.  Florida’s new law aimed to identify undocumented immigrants and prosecute any who have helped them enter the country will strain the state’s businesses, hospitals, and law enforcement. Meanwhile, the U.S. citizenship test, one of the final steps to becoming an official American, is undergoing changes that could make it more difficult for non-native English speakers to pass.  These types of barriers to legal immigration, including border walls and complicated visa applications, hinder economic prosperity for immigrants and the native-born population. But America keeps discouraging immigration with more red tape because people fail to understand the economic impacts of immigration due to fear-mongering and false messaging.  Thankfully, facts and data tell the true story that the country is overall helped by immigrants.   Perhaps you’ve heard the common concern that immigrants  “steal jobs” and “lower wages.” On the surface, it seems intuitive that immigrants increasing the supply of workers would yield these effects. But that’s incomplete as there is no one labor market but many labor markets depending on skills, experiences, and other criteria.  Alex Nowrasteh, vice president for economic and social policy studies with the Cato Institute and author of Wretched Refuse?, states, “To substitute natives, immigrants would have to be similar. But the competition is not even, so that doesn’t apply. Immigrants tend to have either high or low levels of education, while Americans are in the middle. There are also language differences. For immigrants who do not yet know English, they will not be selected for jobs that require verbal communication with the public.”  Immigrants are more likely to find themselves competing for jobs against other immigrants instead of native-born workers for this reason.  When immigrants move to the United States, the wages of native-born workers actually tend to increase. This is because immigrants contribute to increased demand by purchasing goods and services. As a result, businesses expand, leading to higher labor demand and wage growth for native workers.  Figure 1. Long-run relative effect of immigration on wages of native-born citizens by education    Studies have shown that immigrants are twice as likely as native-born Americans to start businesses, ranging from small enterprises to large-scale ventures. This entrepreneurial spirit increases labor demand for immigrants and contributes to greater opportunities for everyone else. As Nowrasteh puts it, “Every argument against immigration could be an argument against native-born Americans having babies.”  When a child is born, that’s a new future worker who will grow up, enter the labor market, and could “steal” someone’s wages. Thankfully, it doesn’t work like that, and most people recognize that having children is adding to the labor market in the long term and not posing a threat to someone else’s job or wages.  Another fear often promoted to discourage easier immigration is that immigrants cost us more tax dollars. Again, it sounds believable, but studies show differently.   Not only are new immigrants barred from using safety-net programs in most instances, but also, the average immigrant consumes 27% less welfare than the average native-born American. Making immigrants the scapegoat when assessing the cost of government programs distracts from the much more prominent concern of how many U.S. citizens depend on these programs, noting the need for safety net reforms for everyone.  Figure 2. Average per capita welfare cost by program for native-born Americans and immigrants 2020   Regarding taxes, immigrants pay more on average and generate more federal tax revenue. Due to the varying state tax codes, immigrants may or may not pay more taxes than citizens depending on which state they live. Moreover, most immigrants enter the country in their early twenties and immediately join the workforce, making them fiscally positive contributors who don’t rely on education subsidies. Recognizing how immigration is often misunderstood as a threat when it is actually a huge benefit is critical if Americans hope to cultivate a prosperous economy where native-born and legal migrant workers can thrive.  Restricting immigration limits the ability to work with individuals who possess the skills and talents that could enhance productivity and innovation in the long run, and the whole country suffers as a result. State and federal resources that discourage immigration would be better invested by reforming the path to immigration so that individuals who want to contribute to American society can do so with relative ease.  While reasonable exclusions for national security threats may be necessary, beyond that, discouraging immigration harms the American economy. Physical barriers like the Texas-Mexico border wall are costly to build, maintain, and patrol, are ineffective at deterring people from entering the country, and represent the illogical fear of immigration leading to worse outcomes.  Instead, reforming the visa system with a market-based approach to expand legal immigration opportunities would alleviate border chaos, reduce the black market, and enhance economic growth. New anti-immigration laws like the one in Florida will move America backward.      Vance Ginn, Ph.D., is founder and president of Ginn Economic Consulting, LLC, 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)