There are loose ways of speaking, which are literally incorrect, and precise ways of speaking, meant to convey exact information. As an example of loose speaking, I read in yesterday’s Wall Street Journal (“Why You’re Losing More to Casinos on the Las Vegas Strip,” May 29, 2023): In addition to smaller winnings, visitors are also paying more to visit Las Vegas. Prices for everything from hotel rooms to concerts to restaurants have surged in recent years. So far, tourists haven’t been deterred. The last sentence is confusing at best. It means either (1) that no visitors have been deterred by higher prices, or (2) that some visitors haven’t been deterred by these prices. The first interpretation cannot be true. For zero visitor to have been deterred by the price increase, it would mean that there was no marginal tourist who was close to the point of not gaining net utility (or “consumer surplus”) at the previous prices, and who would thus have been brought into negative utility by the higner prices. It would also mean that no visitor would decrease his visits to, or time in, Vegas. In other words, the implication is a perfectly inelastic market demand curve, meaning that quantity demanded of casino services and other tourist attractions does not change with their prices. This could only happen if there were no other good or service on which these consumers would want to spend their money. If more than one good or service are available, economic theory gives a formal proof of the law of demand, which states that there is a negative relationship between the price of a good and its quantity demanded. Virtually all empirical (econometric) study confirm the law of demand: the higher the price, the lower the quantity demanded. If  some visitors haven’t been deterred by Las Vegas higher prices—the second interpretation of the incriminated sentence—we cannot of course conclude that no visitor has been, and the suggestion that higher prices don’t deter tourists is baseless. (Much less can it be argued that a few eccentrics with contrarian free will would have purchased more because the prices were higher.) It is true that other factors than prices could have pushed up the whole relation between prices and quantity demanded of Las Vegas services, thus compensating for the increase in the latter’s prices. For example, leisure travel in general may have jumped after the end of the pandemic. But saying that visitors haven’t been deterred by higher prices implies that no one has reduced his quantity demanded relative to what it would have been if prices had not increased. Otherwise, we are confusing many possible causes. Counterfactual such as “relative to what it would have been” constitute an essential part of any causality argument. It corresponds to the ceteris paribus condition: one may only affirm that A caused B if that happens when other things are kept equal. Examples are endless. When, in January 2016, the CEO of McDonald’s declared that the profit “momentum continued into the fourth quarter with the launch of breakfast all day in October,” he meant that this part of the profit increase would not have materialized if the breakfast menu had only remained available until 10:30. (McDonald’s observers may object that conditions have since changed, but this is not relevant to the company’s analysis at that time.) You may say that your wine glass broke because you dropped it on the floor only if you know that it would not have broken otherwise; for example, you don’t think that a tiny time bomb had been imbedded in the stem and set to go off, coincidentally, at the precise moment when you clumsily tripped in the carpet. The Wall Street Journal could seriously suggest that higher prices caused no change in quantity demanded (“tourists have not been deterred”) only by tacitly assuming that no other potential causes changed demand (as opposed to quantity demanded as a function of price). On the distinction between demand and quantity demanded, see also a previous post of mine on this, “A Frequent Confusion and the Yo-Yo Economic Model.” (0 COMMENTS)

The second general class or type of opinions to which I have referred is distinguished, not by a special emphasis upon some particular view of the nature and purposes of the aggressive activities of states, but by a very definite thesis with respect to the wisdom and the consequences of such activities. If wars are waged for economic advantage, it is held, they defeat their own purposes. So too, in general, with all national policies designed to advance the economic interests of one state at the expense of other states. The truth is, it is alleged, that a nation gains by the prosperity of other nations, not by their poverty. This general thesis, if stated with some necessary qualifications, would be subscribed to, I think, by most economists. It was brilliantly expounded in Mr. Norman Angell’s book, The Great Illusion. If, in the days of its first vogue, that book seemed to be given little attention by the economists, it was not, I imagine, because they disagreed with it conclusions, but rather because most of those conclusions seemed to them to be fairly commonplace economic doctrines. Doubtless Mr. Angell weakened a good case by pushing it a little too far. He gave too little weight to the special interests (not necessarily or even generally class interests) that may be served by a belligerent or imperialistic policy, even when other interests, larger but more diffused, are injured. He did not adequately distinguish between immediate and ultimate gains and losses. But taking his argument in the large, and leaving details aside, it would command, I believe, the general assent of economists. Some of the policies he finds unwise are, in fact, policies we are accustomed to disparage by lumping them together and calling them neo-mercantilism. This is from Allyn Young, “Economics and War: A Presidential Address,” American Economic Review, Volume 16, No. 1, March 1926. It’s Harvard professor Allyn Young’s presidential address to the American Economics Association. Normal Angell’s book, The Great Illusion, which Young refers, to makes the case that trade between countries makes war less likely. I think Young’s critique is apt. The Great Illusion was published in 1909. The war between England and France on the one hand and Germany on the other was a war in which both sides had substantial trade with each other. But don’t overstate Angell’s naivete. As Wikipedia puts it: Angell said that arms build-up, for example the naval race between England and Germany that was happening as he wrote the book in the 1900s, was not going to secure peace. Instead, it would lead to increased insecurity and thus ratchet up the likelihood of war. The only viable route to peace would be respect for international law, implemented in a world court, in which issues would be dealt with rationally and peacefully. Postscript: I don’t think I would have heard of Allyn Young if not for some of the reading I did, very early in my career, of George Stigler’s work on the the history of economic thought. Incidentally, the great Frank Knight was one of Young’s students. (0 COMMENTS)

The Financial Times has an article by Gideon Rachman entitled: How to stop a war between America and China Unfortunately, the article doesn’t tell us how to stop a war between the US and China.  It does mention the possibility of setting up the sort of “hot line” that existed between the US and the Soviet Union, but it’s hard to see how that would be decisive.  There was no hot line 1962, when the US and Russia pulled back from the brink of nuclear war.   Rachman says that policymakers view the risk of war as being quite high: Visiting Washington last week, it was striking how commonplace talk of war between the US and China has become. That discussion has been fed by loose-lipped statements from American generals musing about potential dates for the opening of hostilities. Those comments, while unwise, did not spring from nowhere. They are a reflection of the broader discussion on China taking place in Washington — inside and outside government. Many influential people seem to think that a US-China war is not only possible but probable. The rhetoric coming out of Beijing is also bellicose. Last month, Qin Gang, China’s foreign minister, said that “if the US side does not put on the brakes and continues down the wrong path . . . confrontation and conflict” between the two nations is inevitable. I am also worried about the risk of war between the US and China.  When thinking about this risk, it might be worth reviewing the situation in Europe, which seems equally dangerous.  As far as I can tell, the US policy in Europe is roughly the following: 1. If Russia invades Estonia, we go to war with Russia. 2. If Russia invades Latvia, we go to war with Russia. 3. If Russia invades Lithuania, we go to war with Russia. 4. If Russian invades Ukraine, we supply Ukraine with weapons and intelligence. A major war between two nuclear armed nations is a massive negative sum outcome.  That sort of outcome is most likely to occur due to miscalculation.  One way to reduce the risk of war is by making one’s intentions crystal clear, so that our adversaries know how we will respond if they act.  Russia knows that we will defend Nato countries if they are attacked, and that’s why it doesn’t attack Nato countries. It’s somewhat odd that the risk of war with China is currently seen as being higher than the risk of war with Russia, especially given the fact that Russia has a more powerful nuclear force than China and is led by a more reckless and militaristic leader.  One possible factor is that our foreign policy in Asia is far more ambiguous than in Europe.  Ambiguity can lead to miscalculation, which can have very negative effects.  In my view, clarity along the following lines would make war between the US and China much less likely than it is today, and much less likely than war between the US and Russia: 1. If China invades Japan, we go to war with China. 2. If China invades South Korea, we go to war with China. 3. If Russia invades the Philippines (their main islands), we go to war with China. 4. If Russia invades Taiwan, we supply Taiwan with weapons and intelligence. In other words, replicate our successful European policy approach to avoiding a US war with Russia, as a way of avoiding war with China. Of course there are other possible options, such as extending our defense umbrella to Taiwan.  But whatever we decide to do, our policy must be crystal clear.  The worst of all possible outcomes would be if the US intends to go to war with China over Taiwan, while China doesn’t believe the US intends to go to war over Taiwan. Remember the Gulf War of 1991?  Alternatively, suppose China believes that we’d go to war over Taiwan, but we have no intention of actually doing so.  China might accompany an attack on Taiwan with a Pearl Harbor-type strike against US bases in Japan and Guam, triggering WWIII.  All due to a misunderstanding.  Not a likely outcome, but possible. I don’t expect the US to follow my advice, and hence I see a non-trivial risk that miscalculation could lead to a nuclear war between the US and China during the late 2020s, which would be in no one’s interest.  I hope I’m wrong. (0 COMMENTS)

If Victor Frankl can have a good life in Auschwitz, then I can have a good life in the United States in 2023 and beyond. I was talking to a good friend yesterday morning about our and other people’s attitudes to the world around us. We were both noting that some libertarian friends of ours, observing the various reductions in freedom in the United States and in the world generally, focused on these negatives and seemed in almost a perpetual state of despondency. I said that my view is that enough good things are happening, both on the freedom side and in life generally, that most of the time I’m the opposite of despondent. Also, I said, I don’t know if the world will go from 40% crap to 60% crap or 80% crap. I also mentioned a mid-forties economist friend to whom I had said that and this young friend responded that it might even go to less crap, a distinct possibility. But whichever of those things happen, I said, I want to be around. That reminded me of a book I finally read a few years ago after many people had recommended it to me over the years: Victor E. Frankl’s Man’s Search for Meaning. Frankl survived Auschwitz by, in part, maintaining a positive attitude. Yes, really. One excerpt: We who lived in concentration camps can remember the men who walked through the huts comforting others, giving away their last piece of bread. They may have been few in number, but they offer sufficient proof that everything can be taken from a man but one thing: the last of the human freedoms–to choose one’s attitude in any given set of circumstances, to choose one’s way. (pp. 65-66) I highly recommend Man’s Search for Meaning. It’s not quite as good as people over the years had led me to believe, but it’s 90% as good. Addendum: I have another libertarian friend who’s about 10 years younger than me who sometimes says that he’s glad he won’t be around to see the mess 50 years from now. I’m the opposite: I would love to be around.   (0 COMMENTS)

Author and consultant Luca Dellanna talks with EconTalk host Russ Roberts about the importance of avoiding ruin when facing risk. Along the way Dellanna makes understandable the arcane concept of ergodicity and shows the importance of avoiding ruin in every day life. The post Luca Dellanna on Risk, Ruin, and Ergodicity appeared first on Econlib.

Competition is a buzzword. Everyone loves it, but there are vastly different interpretations of this precious concept. These different interpretations lead to strongly conflicting policy recommendations. Imagine you and your super wealthy friend bet on who will win the 100 metres at the Olympics. Your friend wins the bet. But then you find out that the race was rigged. Your friend had bought off seven of the eight contestants. “That’s unfair! Then it wasn’t a real contest” you cry out. Now, imagine your friend shrugging his shoulders and responding, “It was a competition. See, there were so many runners.” That response would strike us all as ridiculous. The sheer number of racers is not relevant. What would have been necessary for it to be true competition and a true race is for all the runners to give their best to win. But that wasn’t the case. And thus, it wasn’t competition; it wasn’t a race. This story demonstrates a precious insight into economic theory. To see that, consider one of the dominant models in economics, that of perfect competition. Roughly, this suggests that for a market to be perfectly competitive, goods must be homogenous, there must be an infinite number of sellers, no transaction costs, and perfect information. Let’s focus solely on the infinite number of sellers. In reality, there’ll never be an infinite number, but imagine that we have an industry with many sellers such that we would be content that this condition for perfect competition holds for our practical considerations. Remember the race example I mentioned earlier. There were eight runners. Would this number be “enough” to have competition? Initially, one would think yes, in general this is so. When we have many runners (as these are the companies in the market), we should expect there to be competition. But not so fast. Recall that in our example, seven of the eight runners had been bought off. They had not given their best; they lost on purpose. There had been no competition – it was all a sham. Unrealistic as this example may be, it demonstrates an important lesson: we want a certain kind of behaviour when we want competition. We want racers to give their best to win the gold medal, we want athletes to train as hard as possible, and we want entrepreneurs, managers, and workers to work relentlessly to improve their products, make them cheaper, and align them better to what the consumers want. What we want is not this or that number of runners or sellers. What we want is a certain attitude. Two lessons follow from this. Firstly, a monopolist, in the sense of a company that is the sole seller in some market, can mean absolute competition. For it is enough that the company has the right mindset, i.e., acts competitively by relentlessly striving to improve their product etc. So, what is needed is this competitive mindset. And for its emergence it is necessary that potential competitors have “freedom of entry”. The threat of competitors potentially entering the market keeps the incumbent company on its toes. Then, we may have only one seller – but this seller is competing. Secondly, a market that has many companies does not necessarily have to be competitive. Imagine we had an economic system akin to the guild systems of past centuries. In such a scenario, there could be hundreds of smiths in the country, but all of them with their specified area that they, and only they, supply. There may well be no competitive mindset here, as the smiths need not worry about customers choosing a rival – as rivals are not allowed to enter the market. Capitalism as an economic system is intended to lead entrepreneurs to produce what consumers want. To ensure that consumer wants are satisfied, competition is imperative. But this is about a mindset, an attitude. It is irrelevant whether there is one spectacular entrepreneur in a market that outcompetes others such that his company is the only seller. Instead, it is about how entrepreneurs act: are they vigilant, striving, restless, endlessly looking for improvements? If yes, then we consumers have the competition we want. If not, then we consumers must protest. And then we consumers must recall that for sellers to have this competitive mindset, we need “the complete absence of institutional restrictions upon entry”. This freedom for entry (and for exit) is what makes for competitive markets. Not an arbitrarily defined number of sellers.   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (0 COMMENTS)

Libel is in the news. The high-profile case, of course, is the result in the defamation lawsuit in which Fox News settled with Dominion for $787.5 million. But the chess world is not too far behind, with a slander case brought by Grandmaster Hans Niemann demanding $100 in damages from world champion Magnus Carlsen who had accused him of cheating. What is going on here? Of what is the perpetrator of libel (a statement in writing) and slander (one spoken orally) being accused? It is that the author of defamatory material has ruined the reputation of the victim, and the latter has suffered grievous financial and other harm. This must be a false claim, not merely a matter of opinion, or a truth, since a sharply negative book or movie review can ruin reputations, but as long as there is nothing untrue in such writing or speaking, libel law would not apply. Libel law is thus akin to protecting private property rights. If I car jack your automobile, I am a thief; I should be made to return your vehicle to you, plus visit the pokey for a period of time. If I falsely accuse you of something, I have robbed you of something quite possibly far more valuable to you than your four wheels. The analogy is not a perfect one, since neither Dominion nor Niemann was even asking for incarceration for Fox or Carlsen, only to be made “whole” again, at least financially. What is the libertarian take on all of this? In the analysis emanating from this quarter, there should be no such thing as libel law. Yes, slander ruins the reputation of the victim, but, paradoxically, he simply does not own his own reputation. He works hard to improve it; he benefits from it; sometimes, the good will of a company is worth more in a sale than the attached capital equipment. But, still, his reputation consists, solely, of the thoughts of others in the community and he simply cannot own their thoughts. I now engage in some libel: Joe Biden takes candy from babies. Donald Trump takes a bath with a rubber duckie. If anyone takes these silly lies of mine seriously, these two presidents of the US will have their reputations diminished. But did I in effect steal anything from either of them? Of course not. I only denigrated the reputations of both of them, which they do not own in the first place. Another paradox: reputations might well be safer, not in greater danger, without these laws. Right now, people are likely to think: “where there’s smoke, there’s fire. There must be some truth to these false allegations.” With no libel laws on the books, the accusations would come so thick and fast, none of them would any longer have as much power to ruin reputations. Proof, evidence, would have to be offered before people believe them. There is one more problem with present legislation: it makes an invidious distinction between those who are public figures, and those who are not. Plaintiffs in the former category have a harder row to hoe: they must prove actual malice on the part of the defendant. Waitasec: When Senator Rand Paul, a public figure if ever there was one, was physically attacked by his neighbor, who is not a public figure, one set of laws applies, and if the assault and battery was in the other direction, a different one would apply? There is a word for that hypothetical: unjust. Ditto for libel law. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of the 2015 book Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers. New York City, N.Y.: Lexington Books, Rowman and Littlefield (with Peter Lothian Nelson ). (0 COMMENTS)

Friday night football is a tradition in the state of Texas, with high school games often attracting very large crowds. Today, I came across a couple of news stories that suggest this cultural tradition indirectly impacts public policy.Bloomberg has a story about Governor Abbott’s attempt to expand school choice in Texas. He is running into predictable opposition from the Democratic Party, which tends to support teachers unions. But Democrats are in the minority in Texas, and Abbott must also contend with opposition from rural Republicans: The efforts have been met with stiff opposition not only from Democrats – traditional allies of public education – but also rural Republicans who fear that more parents pulling their kids out of the local schools will decimate funding for institutions that serve as community hubs and a source of regional pride. An additional factor for many GOP lawmakers outside cities is that their sparsely populated districts often don’t have any private schools, limiting the usefulness of the [education saving] accounts for those who don’t want to homeschool their children. Perhaps government monopolies seem less oppressive in smaller towns where citizens have more influence over public policy. For example, I suspect that rural Texas school boards are less likely to impose “woke” approaches to teaching.  If the local football team is a “source of regional pride”, then school choice seems less appealing than in a bigger city such as Dallas or Houston.  A post written by Matt Yglesias looked at a very different industry, but reached a similar conclusion: There’s a very widespread misperception that the biggest companies have the most clout in politics, when actually highly fragmented industries like auto dealers have more clout as a collective. Just a small example is that when congress was putting the Dodd-Frank financial regulation overhaul together, Elizabeth Warren rolled the entire financial services industry and got her Consumer Financial Protection Bureau created. But to round up the votes in congress, she had to swallow an exemption from CFPB oversight for auto loans because the car dealerships had the clout to demand that. The key to dealership strength is that there’s a dealership owner (or several) in every district, and they are rooted in the local community — often involved in sponsoring sports teams, visible on local television news, and generally playing a major role as a local influencer. People feel sentimental about local businesses. Republicans like free markets but they love businessmen, so if businessmen want to back an anti-market policy, Republicans are inclined to agree. Democrats are more skeptical of businessmen but less enthusiastic about markets, so it lands in the same place. In California, the Democratic Party is far more powerful than in Texas, and hence the prospects for education reform are much bleaker.  Indeed, Abbott may succeed in the end despite rural opposition.  But California is more market friendly in terms of auto retailing, with new manufacturers such as Tesla able to sell directly to consumers.  (This does not apply to manufacturers with existing dealer franchises.) Many people on both the left and the right assume that the US is a free market economy, although they may differ on whether that state of affairs is desirable.  In fact, the auto retailing industry is fairly typical; there are hundreds of similar examples.  Most US industries are heavily regulated and the regulations generally favor producers at the expense of consumers.  We have a large pro-business political party and a large pro-bureaucrat political party.  We do not have a significant pro-market political party.   (0 COMMENTS)

If you think you’ve never heard of Leigh Steinberg, you may want to rethink. Steinberg is an accomplished sports agent, who is loosely depicted by Tom Cruise in the film, Jerry Maguire. In his 41-year career, Steinberg gas represented over three hundred professional athletes. In this 2013 episode, EconTalk host Russ Roberts and Steinberg dive into his unique approach as an agent, presenting his model for both acquiring athletes and helping them achieve what they value most. Steinberg covers topics like crisis management and cohesively growing the game of football with each party involved in contract negotiations in this fascinating discussion with Roberts.     1- Steinberg found success in creating a unique model for the athletes he wanted to attract. In recruiting clients, he favored athletes who wanted to be role models and who hoped to springboard their own personal brand while having athletic success as well. Steinberg also realized the marketability and capital forming quality of the quarterback, as well as the advantage of regionality in controlling costs and revenue. What other profit maximizing strategies would serve agents well in looking to start a successful business today? What other qualities of athletes today (besides being a quarterback!) can provide a breeding ground for an agent’s expansion?   2- Steinberg’s approach in maximizing an athlete’s own agency is interesting—he wants to push the athlete to become the captain of their own ship by providing them with a model for post-athletic success as well as mentoring them. Steinberg encourages both financial planning and a structure of tracing back roots to create a meaningful impact on the athlete’s community. How much value should athletes place on setting themselves up for a potential career after sports? Should sports agents be as involved in athletes’ lives as Steinberg has? How else can athletes maximize their individual potential while developing an ideal living environment after sports?   3- Steinberg and all sports agents must be able to effectively manage crises. When his clients make a public mistake, Steinberg has a step-by-step strategy for controlling brand blowback. Steinberg believes that the athlete should take responsibility as someone with a big platform, and that they should also apologize and offer their steps to prevent the action from happening again. How often do we see athletes today following this process, and to what extent does it feel genuine? Have personal brands and the earning potential of athletes taken a greater hit in the last few years due to the prevalence of cancel culture?   4- Steinberg asserts that the NFL is competing with all other forms of entertainment which people spend money on, and that agents should cooperate with owners in growing the game and building a pie big enough for everyone to share. According to Steinberg, contract negotiations are a closed system with owners, GM’s, and players all being involved continually. He thinks that negotiations should be less about labor versus management and instead, each party should provide creative ways to increase the revenue pot. As an agent, Steinberg focuses on building a revenue flow for the athlete with creative business ventures. How have we seen athletes extend their brand to become cultural phenoms? What areas of business are untapped which could provide great earning potential for athletes and agents?   5- Steinberg believed that contract negotiations following the NFL draft are an “artificial construct” because players would automatically be earning more than they would if they were to stay in college an extra year. How do NIL opportunities change the role of agents and general managers when athletes are considering a return to college athletics instead of entering the draft?   6- Steinberg believes that a sports agent should understand his or her client’s valuation of specific features of a contract because it is not always about receiving the highest salary. Roberts and Steinberg discussed Tom Brady’s new contract at the time, which may have offered the Patriots more spending flexibility. Often, fans see this as a sacrifice by a player to help their team win, but other parts of the contract, like guaranteed money, weigh more on the player’s decision than any other incentive. Are there as many situations as it seems where players are really taking a pay cut for the betterment of their team? Given that athletes are already making tons of money, which parts of their contract should they value most?   Brennan Beausir is a student at Wabash College studying Philosophy, Politics, and Economics and is a 2023 Summer Scholar at Liberty Fund. (0 COMMENTS)

Montesquieu: “Peace is the natural effect of trade.” KYIV, Ukraine — Despite a brutal Russian invasion that has killed tens of thousands of Ukrainian soldiers and civilians and laid waste to swaths of the country, Ukraine continues to allow Russian oil and gas to cross its territory to serve its European neighbors — generating revenue for Kyiv and Moscow and illustrating how hard it is for the bitter enemies to cut ties. Senior Ukrainian officials have demanded that their Western partners impose tougher sanctions and cut virtually all economic ties to Russia, saying “more must be done” to cripple Moscow’s war machine. But as surreal as it might seem, Ukraine insists that it has virtually no choice but to maintain its own commercial deals and has lobbied to preserve them, arguing that they provide some leverage over the Kremlin and help constrain where the Russian military carries out airstrikes. This is from David L. Stern, “Despite War, Ukraine and Russia are still connected to pipelines,” Washington Post, May 24, 2023. There is little doubt that a huge percent of Ukrainians, not least among them President Volodymyr Zelenskyy, hate Russian President Vladimir Putin. So love cannot account for the fact that Zelenskyy allows the Russian oil and gas to cross its territory. What can account for it? Economic incentives. Both sides gain. Obviously, this doesn’t create peace in an overall sense, but notice the last part of the quote above: “arguing that they provide some leverage over the Kremlin and help constrain where the Russian military carries out airstrikes.” So both sides gain and a little bit of territory is somewhat safer. The whole Stern news story is well worth reading.   (0 COMMENTS)