Beware of “foolproof” recession indicators. For years, people have been telling me that an inversion of the 2-year and 10-year yield spread on Treasury securities indicates that a recession will occur within 12 months. I’ve warned them that while the indicator has a good track record, it’s far from perfect. This yield spread inverted on April 1st, 2022. In retrospect this inversion seems to have been an April fool’s joke, as yesterday’s jobs figures were extremely strong, showing payroll employment rising by 339,000 in May 2023. You don’t see those sorts of big job gains when the economy is in a recession.  It looks like the “infallible” yield curve indicator has failed us.    In fairness, the 3-month/10-year spread didn’t invert until October of 2022, so that one might yet prove accurate. This inversion may have contributed to Bloomberg’s panel of forecasters telling us last October that a recession was 100% certain to occur by October 2023.  But there’s another problem with forecasts of an imminent recession.  Bloomberg reports that a labor market showing this sort of very widespread strength almost never occurs within 6 months of the next recession: Meanwhile, the so-called diffusion index showed that 60.2% of industries added jobs, a proportion that’s historically inconsistent with a recession starting in the next six months. That means that the majority of economists projecting economic contractions in the third and forth quarters of this year may have to reconsider. The labor market is often considered a “lagging indicator,” but it’s rare — outside of the highly unusual Covid-19 experience — for it to abruptly stop with no forewarning. I don’t know what will happen between now and October, but I do know one thing for certain; one of these reliable recession indicators will be wrong.  Either the yield curve inversion will predict a recession that didn’t happen, or the diffusion index will fail to give its normal advanced warning. This is one more example of why you should always maintain a healthy skepticism when someone shows you a supposedly sure fire indicator of future economic trends.  As they say in the investment industry, past performance is no guarantee of future success.  PS.  It’s true that the yield spread accurately predicted a US recession in 2020.  But in my view it just got lucky.  Without Covid, I doubt whether a recession would have occurred during 2020. (0 COMMENTS)

Who asked Nikki Haley to run for president? Can somebody introduce us to the gentlepersons who convinced Tim Scott to enter the contest? Is anybody outside of his family and his congregation urging Mike Pence to join the Republican field? The same applies to the other long shots — Vivek Ramaswamy, Doug Burgum, Chris Sununu and Chris Christie — who have been flashing their presidential dance cards at voters. Have any of them stopped to consider the deleterious effect that having a swarm of candidates in the race might have on the outcome? This is from Jack Shafer, “Return of the Republican Clown Car,” Politico, June 1, 2023. Shafer goes on to point out, correctly, in my view, that the large number of candidates will likely give a plurality of votes to Donald Trump and that, therefore, he will likely be the 2024 presidential candidate. In answer to Shafer’s last question, my guess is that some of them stopped and asked that question but some of them, at least, thought they could be “the one.” Others are probably doing it for the publicity and the related other things that publicity might lead to. What this illustrates is the tragedy of the commons. Each knows that his or her probability of winning is small and would like the others to exit so that he/she will have a much probability. None of them has a strong incentive to care about the big picture that, I’m guessing, they all would like to avoid: the nomination of Donald Trump. That’s the way the commons works. For more on that, see the article that I commissioned the late Garrett Hardin to write for The Concise Encyclopedia of Economics, “The Tragedy of the Commons.” (0 COMMENTS)

A recent oped in the Financial Times bears a strange title: “On America’s Ramshackle Railroads, Republicans Concede the Limits of the Market.” Although this sentence does not appear in the piece itself, it does reflect its author’s opinion. Oren Cass, president of American Compass and a proponent of industrial policy and protectionism, argues that the frequent derailments of private freight trains in America justify more regulation of railroads. He congratulates Republicans like J.D. Vance, Marco Rubio, Josh Haley, Donald Trump, and Mitt Romney for supporting more regulation. Conservatives like them, Cass argues, have fortunately “become increasingly cognisant in recent years that regulation can be far from perfect and yet still far better than the status quo.” He does not mention the accidents of passenger trains of Amtrak, a heavily subsidized and money-losing corporation established by Congress in 1971, and whose major shareholder is the federal government. In fact, it can probably be said that American railroads have been a major part of federal industrial policy, without the name, for a century and a half, not to mention heavy regulation by state governments (including, in the South, to oblige railroads to discriminate against Black passengers).  This industrial policy has had ups and downs, and random walks, as is typical of industrial policies. The Council of Foreign Relations writes: The mid-to-late nineteenth century saw thousands of miles of track laid across the United States, spawning an era of economic integration that connected the East and West Coasts for the first time. By the turn of the twentieth century, rail companies—which offered both passenger and freight rail services at the time—provided one of the cheapest and most efficient modes of transport. But in the first half of the 20th century, demand shifted to new forms of transportation, especially cars and planes. Meanwhile, a suite of laws that expanded the federal government’s power to set freight prices and enforce other stringent rail regulations increasingly challenged the system. The second half of the century saw a rail revival. Congress established Amtrak in 1971, ushering in the present era of publicly owned and subsidized passenger rail. Among the major agents of the federal regulation of railroads figure the Interstate Commerce Commission, created in 1887, and the Federal Railroad Administration in 1966. There was some deregulation with the Stagers Rail Act of 1980, but I think nobody would argue that it negated the “limits of the market.” The Moving Ahead for Progress in the 21st Century Act of 2012 and the Fixing America’s Surface Transportation Act of 2015 continued to fit well in a rail industrial policy—I mean an industrial policy as it exists on earth, not as it should be in the minds of nirvana ideologues. The idea that Republicans have just now decided to concede the limits of the market is at the very least misleading. If we take a more general look at all federal regulations, it appears that the GOP has continuously added to the stock of regulations, just like the Democrats did. The chart below shows the evolution of federal regulation as measured by the number of prohibitions and mandates in the Code of Federal Regulations, which is the stock of total net regulations at the end of each year. Over the whole period for which this database is available, it is not easy to see a clear difference between the times when the Democrats and the Republicans held power in DC. The only two instances when a significant but temporary drop in total regulations are found in the first half of the 1980s under Ronald Regan and in the mid-2000s under Bill Clinton. It is unlikely that the modest drop toward the end of Donald Trump’s administration in 2019 would have continued. (Older data, a bit more favorable to the Trump administration on that score, can be found in my Regulation article “The Trump Economy: Three Years of Volatile Continuity.”) Most Republicans and Democrats have long enforced limits of the market more than understood its benefits. It is true that libertarians and classical liberals have, since the mid-20th century, found more compagnons de route in the GOP than in the Democratic Party, but it is a matter of degree. And the degree of differentiation has been rapidly shriking. Source: QuantGov, https://www.quantgov.org/federal-regulatory-growth (0 COMMENTS)

In my recent summary and review of Randall Holcombe’s book Following Their Leaders: Political Preferences and Public Policy, one of the ideas I found most interesting was Holcombe’s distinction between anchor and derivative preferences. Holcombe attempts to explain something many people have noticed before – why is there such a strong correlation among political views that seemingly have nothing to do with each other? For example, consider the question of whether the rich have a moral obligation to pay taxes at a higher rate. If I know someone’s answer to this question, I can confidently predict whether or not they believe stricter gun control laws will effectively reduce violent crime. These are not merely different topics; they are fundamentally different kinds of questions. Whether or not there is a moral obligation for the rich to pay higher taxes is a normative question, while the effectiveness of gun control legislation is an empirical question. Why should one’s normative beliefs about tax policy predict their factual beliefs about the effectiveness of gun control? Some writers have made attempts to create a sort of Grand Unifying Theory tying together all these seemingly unrelated positions into a consistent worldview. Thomas Sowell’s A Conflict of Visions: Ideological Origins of Political Struggles describes a “constrained vision” and “unconstrained vision” (which in later works he also refers to as the “tragic vision” and “utopian vision”) and argues that beliefs about these seemingly different issues cluster together because of these underlying differences of vision. George Lakoff has argued that the clustering of unrelated views is due to unconscious beliefs about family structure, with conservatives taking a “strict father” worldview and liberals taking a “nurturing parent” worldview. Arnold Kling has offered a model with three divisions rather than two, arguing that conservatives view the world through a barbarism versus civilization divide, progressives through an oppressor versus oppressed divide, and libertarians through a lens of liberty versus coercion. Johnathan Haidt, in The Righteous Mind, suggests a six axis model consisting of care and harm, fairness and cheating, loyalty and betrayal, authority and subversion, sanctity and degradation, and liberty and oppression. In Haidt’s telling, progressives place great value on care and fairness but little value on the others, libertarians put almost all their eggs in the liberty/oppression basket, and conservatives treat all six axes as equally important. In contrast to these theories, Holcombe’s explanation seems startlingly simple – people anchor on a party, movement, or leader, and then just adopt whatever bundle of beliefs happens to come with that anchor. But simple does not mean simplistic, and Holcombe’s theory has a notable advantage over these other explanations. According to these other theories, major changes in a party’s platform should be followed by a significant shift in the people who support it. However, as Holcombe notes, in practice party leaders can drastically alter the party platform, even swapping positions with the opposing party, while the party’s supporters and opponents remain largely unchanged. This is easily explained by Holcombe’s account, but much harder to explain by these other theories. However, there is a key caveat to make. The supporters or opponents of a party can remain largely unchanged, but not completely so. When Trump came along on a platform that was in many ways the exact opposite of everything the Republican party had been advocating for decades, most Republicans simply changed their views to match Trump’s, but not all. Some left the party and denounced the direction it was moving in, George Will being a high-profile example. What should we make of this? I think the explanation is found in an idea put forth by Tim Urban in his recent (and excellent) book What’s Our Problem: A Self-Help Book for Societies. Urban argues that the usual depiction of views as a spectrum from left wing to moderate to right wing is unhelpful, in part because it seems to imply that people in the middle are intrinsically more reasonable. This isn’t true, as Urban correctly notes. Lots of so-called “moderates” are dogmatic and close minded, and many people who are far left or right are intelligent, reasonable, and open-minded. To account for this, Urban proposes a new model that doesn’t just go left to right, but also up and down. He distinguishes thinkers as being on higher or lower rungs of a ladder, corresponding to the quality of their thought. The highest rung is for what he calls “scientists.” This is rung is for the Platonic Ideal of how thinkers should operate. Scientists are open-minded, willing to consider all the evidence, will freely admit when their interlocutor makes a good point, follow the evidence wherever it may lead, aren’t committed to a pre-existing view, and so forth. Of course, nobody is perfect in this regard, but some people approximate it more than others. The next rung down is for what he calls “sports fans.” Sports fans have a preferred outcome and are rooting for a side, but they are also fundamentally driven by respect for the game. If a referee makes an ambiguous call, a sports fan will instinctively interpret it in whatever way is more favorable to their team. But if the slow-motion replay makes it clear they were mistaken, they will freely admit the referee should call in favor of the other team. They want their team to win, but only if they win fair and square. The next rung down is for the “attorney.” These are people who are committed to arguing for a specific side, just like lawyers in a court of law. If the prosecution presents a particularly damning bit of evidence, no defense attorney will ever say “wow, that’s a great point, my client probably is guilty then!” They will always seek out some grounds to argue against any evidence contradicting their established position. Still, they are attempting to persuade and make arguments, tendentious as their arguments will be. The lowest rung is for “zealots.” Zealots don’t bother with arguments and aren’t interested in the evidence. They operate on pure tribalism and are convinced members of the other tribe are necessarily stupid, evil, or otherwise corrupt. In this model, Urban says, we can see that “moderate” doesn’t imply “reasonable.” You can be a low-rung moderate, or a high-rung extremist. I think we can use this ladder to connect Holcombe’s model with the others. Models like the conflict of visions or the three languages of politics better describe high-rung thinkers, while lower-rung thinkers are probably better described by the anchor and derivative preference model. Still, the implications for democracy are not good. As Diane Mutz has documented in her book Hearing The Other Side: Deliberative versus Participatory Democracy, the more politically engaged a voter is, the more likely they are to be a low-rung thinker, and the more high-rung a thinker someone is, the less likely they are to be politically engaged or to vote. It’s easy to feel motivated to action when one is a zealot who is convinced their side is obviously right about everything, and the opposition is motivated entirely by vile intentions or sheer stupidity. It’s difficult to conjure that same motivation when you think issues are complicated, evidence is frequently ambiguous, and reasonable people can disagree. (0 COMMENTS)

Last month, the House of Representatives voted to pass H.R. 2, the “Secure the Border Act.” 219 Republicans in the House of Representatives voted in favor; 211 Democrats and 2 Republicans voted against. One of its provisions, as noted by the Congressional Budget Office, is that it would “Require all U.S. employers to use E-Verify, the federal web-based system for confirming eligibility to work.” That one provision would hobble one of the best features of the U.S. economy, the relatively free market in labor. If this bill passes in the Senate and is signed by the President, then when employers want to hire someone not currently working for them, they must make sure that the person is eligible to work. That would mean, presumably, that the worker is a U.S. citizen or a permanent resident. When I met with my Congressman, Sam Farr, a few years ago (he’s now retired), he said he opposed such a provision but his opposition was based on how it would hurt Latinos in his and other Congressmen’s districts. I pointed out to him that it would hurt everyone. The employer who wants to hire anyone, Latino or not, would have to check with the federal government first. You might say that this is no big deal because if you have a green card or are an American citizen, you’ll pass the test. But to that, I have two answers, one short run and one long run. In the short run, a relevant question is: Does the federal government ever make mistakes? Can we be sure that every green card holder or U.S. citizen will be in the data base? The answer is no. There will be people in those categories who won’t be able to get the job. How many? Admittedly, not many. So it would slow the labor market a little. The bigger problem is in the long run. Governments often promise to keep a program small and rarely keep their promises. To take one example, when the USA PATRIOT act was passed, the federal government was given tools to go after terrorists. Does it ever use those powers against people who are clearly not terrorists? Yes. Here’s how my Hoover colleague John Cochrane put it in a 2013 op/ed in the Wall Street Journal: E-Verify might seem harmless now, but missions always creep and bureaucracies expand. Suppose that someone convicted of viewing child pornography is found teaching. There’s a media hoopla. The government has this pre-employment check system. Surely we should link E-Verify to the criminal records of pedophiles? And why not all criminal records? We don’t want alcoholic airline pilots, disbarred doctors, fraudster bankers and so on sneaking through. Next, E-Verify will be attractive as a way to enforce hundreds of other employment laws and regulations. In the age of big data, the government can easily E-Verify age, union membership, education, employment history, and whether you’ve paid income taxes and signed up for health insurance. How about this idea? Let’s allow more legal immigrants. We gain and they gain. And, as a side benefit, we especially need them now that the Social Security Trust Fund will likely be out of money in 2033. Remember that the vast majority of immigrants are young. Letting them in would buy us a few years.   (0 COMMENTS)

Some economists worry that minimum wage laws will lead to higher unemployment. But there are many other pernicious side effects when governments intervene in the labor market. Here’s one example: Targeted grazing is part of California’s strategy to reduce wildfire risk because goats can eat a wide variety of vegetation and graze in steep, rocky terrain that’s hard to access. Backers say they’re an eco-friendly alternative to chemical herbicides or weed-whacking machines that are make noise and pollution. So what does this have to do with minimum wage laws?  Consider the following: Companies have historically been allowed to pay goat and sheepherders a monthly minimum salary rather than an hourly minimum wage, because their jobs require them to be on-call 24 hours a day, seven days a week. But legislation signed in 2016 also entitles them to overtime pay. It effectively boosted the herders’ minimum monthly pay from $1,955 in 2019 to $3,730 this year. . . . But in January, those labor costs are set to jump sharply again. Goatherders and sheepherders have always followed the same set of labor rules last year. But a state agency has ruled that’s no longer allowed, meaning goatherders would be subject to the same labor laws as other farmworkers. That would mean goatherders would be entitled to ever higher pay — up to $14,000 a month. . . . Arrowsmith employs seven goatherders from Peru under the H-2A visa program for temporary farmworkers. He said the herders are paid about $4,000 a month and don’t have to pay for food, housing or phones. “I can’t pay $14,000 a month to an employee starting Jan. 1. . . . “What’s at stake for the public is your house could burn up because we can’t fire-mitigate.” A wage of $3730/month probably doesn’t sound very generous to the average reader of Econlog.  But it’s worth keeping in mind that many of these goatherders are from low or middle income countries.  Because employers pay their living expenses, they can save a sum of money that would give them some upward mobility (perhaps opening their own business) when they return to their home country.  The state labor regulators in California are working to deny them this opportunity. This is not a zero sum game.  Minimum wage laws have all sorts of negative side effects, such as worsening working conditions.  Were this law to take effect, many workers would probably lose jobs.  But that’s just the beginning: 1. More California homeowners would lose their homes to wildfires. 2. For the few remaining jobs, Peruvians would engage in fierce non-price competition as a way of securing a position paying $140,000.  This might involve massive bribes to those who control the process, perhaps funded by loans that will be repaid out of the high salary.  Or perhaps higher queuing costs.  One way or another, much of the potential welfare gain to Peruvian workers will be dissipated in non-price competition for the now highly lucrative jobs. Again, it’s not a zero sum game.  Regulations that make society less efficient generally make most people worse off. (0 COMMENTS)

Public goods is one of many terms in economics where the term’s intended meaning is not all intuitive. Most people hear it and think it means either something like “good produced by the public sector” or “something that is good for the public to have.” Thus, if an economist points out that education is not a public good, many people react with bewilderment, because they think this means either you’re saying education is bad, or denying that education systems are provided publicly. But public goods are simply goods that are non-rival and non-excludable. For a good to be rival means it can’t be used simultaneously by multiple people. Being excludable means that the producers can withhold the good from someone who doesn’t pay for it. Pizza is a private good – if I don’t pay for pizza, the pizza shop won’t give me any, so it’s excludable, and a piece of pizza that I eat can’t also be eaten by you, so it’s rival. Deterring a foreign army from invading is a public good – you and I can both benefit from that deterrence simultaneously, so it’s non-rival, and I can still benefit from that deterrence even if I make no financial contribution to maintaining it, so it’s non-excludable. Education is both rival and excludable – if I don’t pay tuition, I won’t be given a degree, so it’s excludable, and every seat I occupy in a classroom is one that can’t be used by another student, so it’s rival. Therefore, education isn’t a public good, by definition. Here’s another seemingly unusual case of the public goods concept – digital media. Readers may be aware of the controversy that surrounded so-called “peer-to-peer file sharing” facilitated by websites like Napster. Websites like these allowed people to share media files with each other, so if I wanted to listen to the new Metallica album, I could just duplicate someone else’s digital copy through Napster rather than buying it. Video games, too, could be shared across devices in this way. This threatened to turn digital media into a public good. Digital music and video games would be non-excludable, because people could acquire them without payment, and the ability to duplicate files across devices made these files non-rival as well. Video game developers have found ways to try to correct for this. One way was requiring an activation key for a game to be fully installed, with those activation keys only being made available with games that were bought and paid for. This is one example of what is known as digital rights management, or DRM for short. In other cases, game developers have deliberately built games with game-breaking bugs. These bugs were automatically fixed in first-day patches that legitimately downloaded copies could access but couldn’t be installed on pirated copies. This made it so pirates could download the game but couldn’t effectively play it due to the intentional glitches and bugs. But my favorite example of a video game developer using this strategy comes from a game called Game Dev Tycoon. It beautifully demonstrates what happens when digital piracy threatens to move video games from a private good to a public good – and in a way that was hilariously lost on the pirates themselves. As you might imagine from the title, Game Dev Tycoon is a sim game about running a video game company and developing video games. What the developers did was make it so pirated copies of the game, but not legitimate copies, would experience video game piracy with the games they developed, preventing them from recouping their investments and discouraging them from producing high quality games. After publishing games, players would start getting messages like this: Boss, it seems that while many players play our new game, they steal it by downloading a cracked version rather than buying it legally. If players don’t buy the games they like, we will sooner or later go bankrupt. The more effort was made to produce a better game, the more likely the game was to be pirated, while producing mediocre games resulted in less piracy. People playing pirated copies of the game soon began posting confused comments on message boards like this: Guys I reached some point where if I make a decent game with a score 9-10 it gets pirated and I can’t make any profit. It barely sells 100k units…I am during the Xbox 1 and PS2 gen. Back in the 80s and 90s I could easily make 1m sales with a 9-10 game but now it’s not possible due to the piracy. It says bla bla our game got pirated stuff like that. Is there some way to avoid that? I mean I can research a DRM or something… So far I am going nowhere. My profit is little to none. If I make an average game 5-7 I get some cash which is understandable but then if I make a 9-10 game I earn the same cash because I get the message for piracy… For the past 6-7 games I ended up with the same amount of money or a few grand less. So what do I do now? There’s no point in inventing a new engine because the revolutionary game made out of it will get pirated and I will not be able to cover my expenses.   Keep in mind, this is a comment coming from someone who is himself playing a pirated version of the game! One more lesson to take away from this is that entrepreneurs in competitive markets are very good at finding ways to turn public goods into private goods – when regulation doesn’t block them from doing so. At first glance, lighthouses were considered to be quintessentially public goods, because the light they emit can be seen regardless of payment and can be equally seen by multiple users simultaneously. Yet, market solutions were found, and the majority of lighthouses were privately provided on the market. As economist and historian Vincent Geloso has noted, “There was nothing inherent to the lighthouse that made it a public good. It was a public good because government regulation made it so.” (1 COMMENTS)

Matt Damon as Sonny Vaccaro in AIR The 30 days since publication have more than passed and so I’m posting my joint op/ed with Don Boudreaux here. ‘Air’ Is a Cautionary Tale About ESG Michael Jordan’s lesson for investors: Avoid uncertainty.  By Donald J. Boudreaux and David R. Henderson April 13, 2023 at 6:34 pm ET Some movies not only entertain and inspire but convey broader lessons. “Air” is one of them. The film is about Nike’s efforts in 1984 to secure Michael Jordan’s endorsement of its basketball shoes, which soon after became the iconic Air Jordans. But it also tells anyone who will listen that ESG investing—environmental, social and governance—is a trap. When the company begins its quest for Mr. Jordan (played by Damian Young), Nike is an underdog. He and his parents are leaning toward a Converse or Adidas sponsorship, as these companies are more established in basketball. Adidas is a front-runner until Nike alerts Mr. Jordan to a problem with that company. Nike’s determined employee, Sonny Vaccaro (Matt Damon) tells Mr. Jordan’s mother, Deloris (Viola Davis), that because the head of Adidas has just died, there will be turmoil at the top of the company that would hurt her son’s interests by creating uncertainty about his sponsorship. The Jordan family’s meeting with Adidas makes it apparent that the company has no clear leader or vision on how it would deal with Mr. Jordan in the future. This sense of confusion helps persuade the Jordans to sign with Nike, where leader Phil Knight is securely ensconced, ensuring against any radical change of direction in Nike’s relationship with Mr. Jordan. The Jordans’ decision conveys an important message about investing in companies, especially when it comes to ESG. With uncertainty about who will be a company’s next CEO comes uncertainty about the company’s strategies. Michael Jordan wasn’t willing to invest his personal brand in a fluctuating operation. Investors should be even more wary when considering companies that pursue ESG. At the time of Mr. Jordan’s sponsorship decision, everyone at least agreed that the lone goal of a company was to maximize value for shareholders. Under ESG investing, by contrast, conflicts arise not only over how best to pursue company goals but over what the goals are. In his 2022 testimony before the U.S. Joint Economic Committee, Hoover Institution economist Joshua Rauh noted that ESG investment “is plagued by inconsistent and changing definitions that ultimately have reduced managerial accountability to shareholders.” Because maximum shareholder value is no longer management’s exclusive aim, managers will wrangle endlessly over which goals to pursue and how to trade them off against one another and against shareholder value. That’s bad for both investors and the economy. If you watch “Air” for the entertainment value, you’ll enjoy a great story and some inspiration. If you watch as an investor, don’t be surprised if you pass up the next pro-ESG investment opportunity. Mr. Boudreaux is an economics professor at George Mason University. Mr. Henderson is a research fellow with Stanford University’s Hoover Institution and editor of the Concise Encyclopedia of Economics. By the way, I saw the movie after we wrote our piece, relying on Don to have gotten it right. He did. It’s a great movie and only the second one I’ve seen in a movie theatre since Newsom locked down. It’s good old-fashioned drama and they didn’t feel the need to put in a romance when there wasn’t one. Here’s the trailer, which gave me goose bumps. Nell Minow, on Twitter, called our thinking “idiotic.” Then she went further, using that oldest of arguments, the ad hominem that doesn’t even fit the facts, suggesting that our research was funded by Koch. I wish. Minow might not know this, but the Wall Street Journal actually pays. Twitter, at least in the use of some tweeters such as Nell, is a vast wasteland. (0 COMMENTS)

Michael Lewis is an American author and financial journalist; he wrote two of the greatest sports novels our generation has seen in Moneyball and The Blindside. Lewis is also known for his work on behavioral finance and forecasting of financial crises. In this episode from 2007, Lewis and EconTalk host Russ Roberts discuss the improbability common in each of his best-selling sports books, with Billy Beane’s innovations and Michael Oher’s rise being more alike than you would think. The podcast is particularly interesting to look back on now with the introduction of NIL in college sports, and the evolution of the use of statistics in baseball. We hope you’ll share your thoughts with us based on the prompts below. Play ball!     1- Michael Lewis alludes to the tie between “Moneyball” and “The Blindside” as stories of social class. Furthermore, both markets of baseball and football have market inefficiencies in terms of player acquisition which relate to barriers of entry. What similarities do Scott Hatteberg and Michael Oher share  in Lewis’ books? How are market inefficiencies different in football and baseball?    2- Lewis and Roberts discuss the  hypocrisy in the façade of education for high-level athletes in college. Athletes from underprivileged circumstances face a barrier to entering the market for college football at the highest level, even when their lack of education should not be a problem considering the lack of education players receive at college. Is the system still hypocritical? How does the quality of public education affect the potential for high-level athletes to get to college today? How do new NIL laws allowing players to earn money from their name, image, and likeness change the issue?    3- As MLB teams caught on to Billy Beane’s strategy of exploiting a market inefficiency, it was inevitable that further innovations in player evaluation would result. Beane’s focus on on-base-percentage (OBP) has evolved into a focus on on-base-percentage-plus-slugging (OPS) which can be used to measure efficiencies of both hitters and pitchers (OPS against). With the amount of statistical evaluation prevalent in player evaluation, is the objective quality of analysis taking too much priority over the subjective evaluation of the past? What is the current value of computing statistics versus passing the eye-test of a scout, and how does this problem relate to others we see developing outside of sports?    4- “The Blindside” offers an inspiring yet concerning story of Michael Oher and his rise to both stable living and the NFL. Following Lewis’ thoughts, how many “hidden gems” like Oher slip through the cracks because they do not have someone like the Tuohy’s to pull them out of intensely impoverished circumstances? How can public education be improved to provide an out for kids whose circumstances are hindering their progress and life quality? Are underprivileged kids who do not have athletic gifts suffering from even more barriers to a good life?   5- Lewis and Roberts allude to the questioning done by the NCAA regarding the legality of the Tuohy’s assisting Oher, given that the family had deep ties to Ole Miss and that Michael ended up going there. Even if the Tuohy’s were helping Oher out of pure kindness and concern, other well-off families could exploit talented yet underprivileged athletes to earn money from them or nudge them toward their favorite school. What flaws are there in the structure of recruiting which continue to breed corruption and violations? How can the NCAA more properly incentivize ethical recruiting while looking out for kids who are vulnerable to having their talents exploited?    6- Lewis and Roberts discuss the possibility of a remedial program for college athletes who are lacking in areas such as reading. How would more transparency in the structure of education for student-athletes affect the landscape of the NCAA? Would big-time student-athletes benefit more from an adjusted curriculum as opposed to an utter lack of educational value? What questions have NIL and compensatory recruiting competition raised in the student-athlete discussion?    Brennan Beausir is a student at Wabash College studying Philosophy, Politics, and Economics and is a 2023 Summer Scholar at Liberty Fund. (0 COMMENTS)

Over at Bloomberg, Clive Crook suggests that monetary policy does not deserve all of the blame for the inflation overshoot: The Fed’s fragile independence precludes it from challenging Congress and the administration over appropriate fiscal policy. For the same reason, it can’t be seen as directly countermanding fiscal policy with interest-rate changes, much as it might sometimes wish to. Tweak the monetary-policy framework by all means — but it isn’t the main problem. In my view, the “same reason” suggests that the Fed must engage in “countermanding fiscal policy”.  Indeed, Congress has given the Fed a mandate to countermand bad fiscal policy.  They are breaking the law if they refuse to do so.   The Fed’s mandate includes stable prices, high employment and moderate long term interest rates.  That’s the job that Congress has instructed the Fed to do.  There is nothing in the Fed’s mandate about assisting fiscal policy.  If the Fed believes that fiscal stimulus is likely to lead to a level of spending in excess of what is required for stable prices and high employment, then it must tighten monetary policy to offset the effects of the fiscal stimulus.  When asked, numerous Fed officials have suggested that this is exactly how they approach their job. If it really were true that Congress and the Fed worked together to produce stable prices and high employment, then the Fed would be well advised to challenge Congressional decisions on fiscal policy.  Crook is right that it is not appropriate for the Fed to challenge Congress on fiscal policy—these are completely independent policymakers.  And for exactly the same reason the Fed must do whatever it takes to achieve its Congressional mandate of stable prices and high employment, even if doing so requires a rise in interest rates during a period of fiscal stimulus. I would also challenge the implicit assumption that the Congressional moves were primarily motivated by macroeconomic considerations. By 2021, the economy was recovering very rapidly from Covid, much faster than during 2009.   The motivation for the large stimulus was mostly a mixture of three factors: 1. A desire to provide relief for people hurt by Covid. 2. The age-old desire of politicians to curry favor with the public. 3. The (incorrect) perception that interest rates would stay low for an extended period. Notice that raising rates doesn’t prevent the stimulus from providing relief to the public; indeed the assistance goes a bit further if there is less inflation.  On the third point, keep in mind that an expansionary monetary policy tends to raise interest rates in the long run.  I’ve been saying that for years, and lots of people refused to believe me.  Now we see the effects. (0 COMMENTS)