Brian Albrecht has a clever series of tweets comparing inflation and weight gain: After a sarcastic comment about cutting off legs to lose weight, Albrecht then draws some policy implications: I’d like to take this analogy a bit further.  I can imagine a few cases where it might make sense to attribute weight gain to a specific part of the body.  Suppose all of the weight gain occurred in the lower torso, due to a cancerous tumor.  In that case, a doctor might recommend that the patient not try to lose weight in other parts of the body to offset the gain in the lower torso.  In that case, it might make sense to speak of a tumor as causing weight gain.   In most cases, however, weight gain is caused by eating too much food (combined with not enough exercise.) Most serious bouts of inflation are caused by excessive aggregate demand—excessively rapid growth in nominal GDP.  This is equivalent to excessive consumption of food.  In some cases, however, brief periods of inflation can occur due to problems in a specific area of the economy, without any increase in NGDP.  An oil shock might raise prices and lower output by an equal amount.  Increasingly monopolistic corporations might reduce output to drive up prices.  Increasingly powerful labor unions might reduce the total workforce to drive up wages. In that case, a “monetary doctor” might suggest not offsetting price increases in one sector with deflation in another.  Instead, it might be better to allow a temporary rise in inflation, as long as NGDP growth remains on track.  This would be like allowing some weight gain from a tumor. Of course that doesn’t mean that a tumor is not a problem, rather that dieting is not the optimal solution to cancer.  Instead, you might try radiation or chemotherapy.  Similarly, my claim is not that supply shocks are not a problem; rather the claim is that the resulting rise in the CPI is in some sense optimal, given the existence of the supply problem.  You may wish to use other policy tools to boost aggregate supply.  I see a lot of confusion when people speak of inflation being caused by “supply bottlenecks”, or “greed”, or “rising wages”, or “budget deficits”, or “currency depreciation”.  What are the relevant policy counterfactuals?  What do you mean by “cause”?  Just because prices rise before wages doesn’t imply that prices cause wages. This is from a recent paper by Norbert Michel and Jai Kedia: Beyond these simple comparisons of percentages, more sophisticated research suggests that there is little reason to expect monetary policy to have much of an effect on prices in the services industry. As a Cato study using a VAR technique finds, Fed policy has hardly mattered in explaining inflation (services or otherwise). Figure 1 below reproduces the breakdown of inflation into its demand, supply, and monetary policy components from 1960 onwards. As the graph shows, supply factors dominate – they account for over 80% of the variation in service‐​sector inflation, both in the short‐​term and long‐​term. In the near term, monetary policy explains less than 2% of inflation. In the longer term, the effects increase but never account for more than 5% of service‐​sector inflation. VAR studies aren’t going to tell you anything about inflation causation, at least in any commonsense meaning of the term “cause”. In my view, almost all of the inflation since 1960 has been due to monetary policy.  If real GDP grows at 3% since 1960, and  nominal GDP grows at 7%, then you’ll have a 4% average inflation rate.  Monetary policy drives NGDP growth, and hence explains the excess of NGDP over RGDP growth.  With less expansionary monetary policy we would have had less inflation (both total and services.) Furthermore, monetary policy is not an alternative theory to “demand”, it’s what determines demand.  Once you’ve isolated the supply and demand “components”, there’s nothing left. Brian Albrecht is exactly right when he suggests that in economics it’s most useful to think of causation in terms of policy counterfactuals: I don’t want to get into semantic disputes, but a theory of inflation should be *causal*. A causes inflation generally. B caused inflation here. At the heart of causation is the counterfactual. If X had been different, then Y would have been different. It’s theoretically possible that our recent inflation was caused by something other than monetary policy, such as increased greed, or increasingly powerful labor unions.  But it just so happens that the recent overshoot of NGDP growth is quite similar to the recent overshoot of inflation.  That means that in this case the cause is simply “overeating”, no need to search out mysterious “tumors” in the body. My daughter recently sent me a San Francisco Fed paper by Adam Hale Shapiro looking at the effect of wage inflation on overall inflation.  The abstract suggests little impact: Labor-cost growth has no meaningful effect on goods or housing services inflation. Overall, labor-cost growth is responsible for only about 0.1 percentage point of recent core PCE inflation. The opening paragraph quotes Jay Powell: In a November 2022 speech, Federal Reserve Chair Jerome Powell mentioned that it is helpful to explain elevated inflation levels by examining three underlying categories: goods, housing services, and nonhousing services. He paid particular attention to the last category, stating that it “may be the most important category for understanding the future evolution of core inflation. Because wages make up the largest cost in delivering these services, the labor market holds the key to understanding inflation in this category” (Powell 2022). And Shapiro concludes as follows: For instance, recent evidence shows that wage growth tends to follow inflation, as well as expectations of future inflation (Glick, Leduc, and Pepper 2022). Overall, the results highlight that recent labor-cost growth is likely to be a poor gauge of risks to the inflation outlook. I suspect that some readers might conclude that Shapiro is contradicting Powell.  But I don’t see it that way—I think they are both correct.  Wages are not causing inflation.  Wages don’t predict changes in the path of core inflation.  But there is a sense that wages are the essence of the current inflation problem (as Powell is implicitly suggesting.) Here’s how I look at inflation.  An optimal monetary policy (say 3.5% NGDP growth) would lead to steady nominal wage growth at about 3%/year.  Because of productivity growth of roughly 1%, that will deliver 2% inflation, on average.  Actual inflation will fluctuate due to supply shocks.  But any periods of above 2% inflation will be “transitory”, as long as monetary policy keeps nominal wages growing at 3%.  And not just transitory; the excess inflation will also be appropriate—that is, better than the alternative of forcing down some prices to offset spikes in other prices. The fact that nominal wage growth has risen to roughly 5% is an indication that monetary policy has been too expansionary.  The resulting inflation is not transitory, and won’t go away on its own.  It will take a monetary policy that is tight enough to at least somewhat depress the labor market.  (Hopefully not extreme enough to cause a significant recession.)  We need to get wage growth down to 3%. When monetary policy is too expansionary, the effects show up first in flexible prices and nominal GDP.  Nominal wages respond with a lag.  Thus in any statistical test it won’t look like wages are causing inflation.  But because stable wage growth is a roughly optimal monetary policy, wages are in a sense the essence of the inflation problem, without being the cause. I’m struggling to think of an analogy with weight gain, but let’s suppose that when eating too much the weight first went to your stomach, and then later to your thighs.  Also suppose that it’s easier to get the weight back down when it’s still in your stomach, but harder once it adds to your thighs.  Excessive wage growth is sort of like the fat thighs; once wages begin growing too fast it’s harder to reduce inflation without a recession. The question of causation in macroeconomics is trickier than many people suspect.  Economists that I respect will say, “It’s silly to say inflation is caused by soaring oil prices, as rising prices are the definition of inflation.  That’s like saying inflation is caused by inflation.”  Yes, but it’s also true that under certain appropriate monetary policy regimes, certain types of supply shocks can create temporary inflation.  All these recent theories of bottlenecks, greed, and wages causing inflation aren’t wrong because they can’t be right, they are wrong because they don’t happen to be right in this case—it’s almost all excess NGDP growth (since 2019). As a country we ate too much, gorging on monetary stimulus.  And now we need to sacrifice with an unpleasant period of dieting.   (0 COMMENTS)

In this episode of EconTalk, Russ Roberts hosts Robert Hall, a professor of economics and fellow at Stanford University’s Hoover Institution. Roberts and Hall discuss The Federal Reserve’s monetary policy following the Great Recession, in addition to Hall’s experience as chair of the National Bureau of Economic Research Committee on Business Cycle Dating. The two explore what we know and don’t know about the recovery from the Great Recession and what we may have learned about the choices facing the Federal Reserve and the policy instruments the Fed has available. In the wake of the COVID pandemic and another round of economic “stimulus,” the questions raised in this episode remain pertinent. We hope you’ll use some of the prompts below to continue the conversation.     1- Extensive disagreement exists amongst economists, politicians, and citizens on the role of monetary and fiscal policy following a recession. Following the Great Recession, The Fed aggressively employed expansionary monetary policy, including the lowering of interest rates. Hall asserts that during the post Great Recession years, expanding discretionary fiscal policy was not politically feasible. To what extent should expansionary monetary and fiscal policy be used as a tool to aid an economy’s recovery from a recession? What monetary and fiscal policy measures should be employed or avoided following a recession? How can governments and central banks determine the adequate level of monetary and fiscal policy expansion, while prioritizing the national debt and inflation?     2- During the Great Recession, the Obama administration initiated an $800 billion Stimulus Package. A large amount of the funds from the stimulus package went directly to state and local governments. Hall argues that many of these governments used the stimulus money to pay off their debts. If the federal government utilizes economic stimulus, what programs and services should it invest in? Should individual citizens, businesses, or local governments be the priority of federal economic stimulus? If federal stimulus funds are given directly to state and local governments, should those governments be allowed to use the funds to pay off their debts? Why or why not?   3- Hall attests that for many Americans, it doesn’t make fiscal sense to enter the labor market and relinquish government benefits. This problem persisted during the COVID-19 pandemic, where many Americans stayed unemployed, partially motivated by record-high unemployment benefits that exceeded the compensation of some occupations. Hall asserts that disability is the welfare program most in need of reform; to what extent do you agree? Besides disability, what other welfare programs are in need of reform, and why? How can the welfare system best be reformed to ensure that current recipients are able to re-enter the workforce and be self-sufficient in the long-run?   4- Around the start of the Great Recession, The Fed started paying interest on excess reserves. As a result, banks were encouraged to keep their excess reserves in the Fed, rather than loan them out. At the time of this episode’s recording, The European Central Bank paid a negative interest rate to banks holding excess reserves, a policy that Hall desired the Fed employ. Should the Fed’s excess reserve rate be positive, negative, or zero? How can adjustment of the excess reserve rate be used as an effective monetary policy tool to control unemployment, inflation, and the national debt?   5- Historically, the simplified start date of a recession was determined to be after two consecutive quarters of negative GDP growth. Hall argues that this theory isn’t always accurate, citing factors such as the aggressive revision of previous GDP data, the transition to GDP being measured monthly, and factors beyond negative GDP growth that can signify the start of a recession. Do you think that two consecutive quarters of negative GDP growth automatically signifies an economy is in a recession? What other factors should be used to determine if an economy is in a recession? Is the United States currently in a recession or destined to face one soon? Explain. (0 COMMENTS)

The Supreme Court announced that it will hear an appeal in Moore v. United States. The legal case is certainly more complicated than I can imagine but, in my opinion, the economic or political-economy case is quite straightforward. The tax grab at the source of the case is a one-time “mandatory repatriation tax” under the 2017 Tax Cuts and Jobs Act, pushed by President Donald Trump. A Wall Street Journal summarizes the legal case (“Supreme Court to Hear Case That Could Block Democrats’ Plans to Tax the Rich,” Wall Street Journal, June 26, 2023): The court, in an unsigned order, said it would decide a case that asks whether people and companies have to receive, or realize, income for it to be taxed under the 16th Amendment. … The case stems from a one-time tax on accumulated foreign profits that Congress created in 2017 in the tax law signed by then-President Donald Trump. That tax applied to 30 years of profits that U.S.-based companies held overseas and hadn’t repatriated. It also applied to individuals who owned at least 10% of foreign companies. … Charles and Kathleen Moore, a Washington state couple, challenged the tax and sought a $14,729 refund. They argued they hadn’t realized any income on their investment in an India-based company and thus couldn’t be taxed. … The Moores, backed by conservative organizations and business groups, lost in lower courts. More interestingly, they were supported by libertarian organizations. The Competitive Enterprise Institute has been representing the Moores (see the Petition for Writ of Certiorari). The Cato Institute has produced an Amicus Curiae brief. Suppose you own an asset (it could be a physical machine, a financial title, or your human capital) whose present value is $100 and which produces a net return of $5 per year. From the perspective of standard public finance, taxing your (realized) annual income at 20%, that is, $1 a year, is the same as imposing an annual wealth tax of 1% on the asset. In other words, an income tax is equivalent to a wealth tax at some appropriate rate. So what’s the difference? The financial math seems unchallengeable, but the economic logic is not, as Geoffrey Brennan and James Buchanan argued in their book The Power to Tax: Analytical Foundations of a Fiscal Constitution. The problem is the following. If Leviathan—what any government is bound to become if unconstrained—taxes your revenue in our simple example, the most it can take is $5 per year. (In fact, what Leviathan can grab is less than that if you are free to move your asset away from its grasp, but neglecting this won’t change my argument.) Buy if Leviathan can tax your asset, that is, your wealth, it can also tax it at any rate up to 100%. A tax on wealth is a tax on the value of all future income from this wealth, that is, a tax on unrealized income. It opens a much larger tax base for Leviathan, and this is why rational individuals in a contractarian setup would never unanimously agree to give this power to a government. Wealth taxes don’t only threaten the rich. The most extreme case is slavery, where the slave owner appropriates, or taxes away, all future production of his slave, that is, he takes possession of his human capital. “The power to tax involves the power to destroy,” said Chief Justice John Marshall, an observation that Brennan and Buchanan used as an epigraph to their book cited before. The approach of public-choice analysis and its offshoot of constitutional political economy is quite different from traditional public-finance theory of the Musgrave sort (see James M. Buchanan and Richard A. Musgrave, Public Finance and Public Choice: Two Contrasting Visions of the State [MIT Press, 1999]). (0 COMMENTS)

Robert Louis Stevenson beautifully describes the ever-shifting terrain of politics: History is much decried; it is a tissue of errors, we are told, no doubt correctly; and rival historians expose each other’s blunders with gratification. Yet the worst historian has a clearer view of the period he studies than the best of us can hope to form of that in which we live. The obscurest epoch is today; and that for a thousand reasons of inchoate tendency, conflicting report, and sheer mass and multiplicity of experience; but chiefly, perhaps, by reason of an insidious shifting of landmarks. Parties and ideas continually move, but not by measurable marches on a stable course; the political soil itself steals forth by imperceptible degrees, like a traveling glacier, carrying on its bosom not only political parties but their flag posts and cantonments; so that what appears to be an eternal city founded on hills is but a flying island of Laputa.   [From “The Day After To-morrow”] I love the flag post on the glacier metaphor.On the left, people have shifted from marching in support of “free speech” to opposing free speech. They went from advocating a colorblind society to the view that colorblind policies are racist. Many of the right went from outrage over “defund the police” to advocating defunding the tax police and the FBI. The Democrats once opposed abortion more than the Republicans, now the reverse is true. Republicans went from praising Houston’s lack of zoning to the being the biggest NIMBYs on the block. Attitudes toward Russia flip flopped after the 2016 election. Free trade, immigration, almost any issue you could cite has no fixed political home.To channel Robin Hanson; in politics, X is never about X. The free speech movement of the 1960s was not about free speech; it was a demand that we tolerate left wing ideas. The civil rights movement of the 1960s was not about civil rights; it was about improving the condition of blacks in America. On both the left and the right, defunding movements are aimed at government entities that seem to persecute their voters. Republicans supported abortion rights when they saw the opposition as composed of Catholics trying to boss them around. Votes on legislation affecting trade, immigration, zoning, etc., hinge on how the policies are seen as affecting the political coalition that currently votes for their party. Matt Yglesias recently linked to this graph: Note that as recently as 1996, blue states like Colorado and Virginia voted for a Republican, while deep red states like Louisiana, Tennessee and West Virginia voted Democratic.  Go back further and the changes are far greater.  And yet our pundits talk about politics as if “Democratic” and “Republican” were a fixed type, unchanging from year to year.  There is a subtle pressure to join one of the two tribes. One way to think about this is to notice that 90% of American voters are mostly unprincipled.  I don’t mean that as a pejorative, merely a description of their approach to politics.  Presumably they would defend their approach as being pragmatic, not locked into a rigid ideology.  This means that the other 10% of us end up wandering around, with no fixed tribe to call our home.  And it can be quite uncomfortable to be a fixed post stuck deep in the bedrock as a glacier grinds past.  Especially when the 90% believe that they are the ones with consistent views. PS.  Immediately after the quotation above, Stevenson had this to say about a gradual change in the meaning of “liberalism” during the late 1800s: It is for this reason particular that we are all becoming Socialists without knowing it; by which I would not in the least refer to the acute case of Mr. Hyndman and his horn blowing supporters, sounding their trumps of a Sunday within the walls of our individualist Jericho, but to the stealthy change that has come over the spirit of Englishmen and English legislation. A little while ago, and we were still for liberty; “Crowd a few more thousands on the bench of Government,” we seemed to cry; “keep her lead direct on liberty, and we cannot help but come to port.” This is over; laisser-faire declines in favor; our legislation grows authoritative, rows philanthropical, bristles with new duties and new penalties, and casts a spawn of inspectors, who now begin, notebook in hand, to darken the face of England. It may be right or wrong, we are not trying that; but one thing it is beyond doubt: it is Socialism in action, and the strange thing is that we scarcely know it. (1 COMMENTS)

There’s a series of questions I often receive from people around me who know of my military background, particularly since Russia invaded Ukraine. These questions, while no doubt well-intended, are often ill-formed. Here, I want to identify these questions and explain what I think they get wrong. A common question is what I predict will happen – how will the war end, who will win, how long might it go on, things like that. To questions like these, the only honest response I can give is, “I have no earthly idea, and neither does anyone else.” Prior to the invasion, there was a widespread consensus that the Russian military would quickly plow over the Ukrainian armed forces leading to a swift capture of Kyiv. Outside observers drastically underestimated both the resilience of the Ukrainian military and the ineptitude of the Russian military. Where things will go from here is equally opaque to me, and I doubt very much anyone else can effectively say otherwise. Sometimes, I’m asked how I think Ukraine could most successfully drive out Russia. This, too, falls into the “I have no idea” category. Simply having a military background doesn’t give someone the kind of insight needed to make that kind of call. In my last couple of years in the Marines, I was an instructor at the rifle range, running both annual rifle requalification training as well as pre-deployment combat training. If you want to know how to effectively fire particular weapons, I can provide excellent advice. If you want to know how to effectively run a major military campaign, however, I possess no special insights. Indeed, I’ve become increasingly skeptical over the years that anyone has the kind of insight needed to make justifiable and accurate predictions on matters like this. Even the best and the brightest, with all their training and education, can be made fools of by the randomness and overwhelming complexity of the real world. But the comment I find most objectionable is when someone suggests to me that by having served in the military, I have gained a special “moral authority” in my opinions on military matters. I reject this idea with every fiber of my being. The idea that my thoughts on these matters should be evaluated by anything other than the merits of the arguments I make is something I find immensely ugly and frankly insulting. Military experience bestows no special moral authority in one’s opinions. No amount of skill in firing a rifle will give you any special insight on when it’s okay to pull the trigger. Some might say this additional authority comes from the fact that military members have a special insight that comes from bearing the costs of military actions, and thus can offer a more informed opinion on whether such actions are “worth it.” There are a couple of problems with this. First, to know whether something is worth it, we need to know more than just the costs, we also need to make an accurate and justified account of the benefits. As mentioned before, I doubt anyone has the kind of knowledge needed to make such an account. Second, it’s simply not true in a country with a volunteer service like the United States that members of the military uniquely bear the costs of military engagement – here, I outsource the explanation for why that is to Don Boudreaux, who, as is inevitably the case, makes the argument better than I could hope to myself, along with a relevant postscript. But place those issues to the side – indeed, I’ll assume for the sake of argument that both points are mistaken. Even then, it’s far from clear that military experience – even wartime experience – gives one special insight into whether nor not such actions are justified. There are good reasons to suspect the opposite. One reason is a variation of the Benjamin Franklin effect. This quirk of human psychology was noticed by Franklin, who suggested that the best way to get someone to like you isn’t by doing a favor for them, it’s by getting them to do a favor for you. This effect takes advantage of the fact that actions can drive our perceptions and opinions – we want to believe the way we’ve acted in the past is justified. The Benjamin Franklin effect takes advantage of this – “I did something nice for that person, so I guess that means I like them.” When the actions taken go beyond a simple favor – when they involve great difficulty, risk, hardship, and even tremendous loss – there is every reason to believe those who have endured the experience will struggle mightily to convince themselves such actions must have been justified and worthwhile. To acknowledge the opposite is often something people find too difficult to bear. This might strike some people as an offensive line to take, but as far as I can tell, it is true. And we must resolve to never find the truth of any matter offensive – particularly when war and peace are concerned. There’s too much at stake.   (0 COMMENTS)

And freedom of association. In 2020, Olympus Spa, a Korean spa, refused to allow a transgender woman, Haven Wilvich, who had not undergone gender reassignment surgery, to be naked around naked women. The Washington State Human Rights Commission (WSHRC) then served the spa with a Notice of Complaint of Discrimination in March 2021. The owner and president of the spa objected but lost. In “Washington Korean spa orders to drop ‘biological women only’ policy after trans complaint,” Yahoo?life, June 9, 2023, Carl Samson writes: The spa, which features the experience of Korea’s traditional, sex-segregated bath houses called “jjimjilbang,” responded by maintaining its women-only policy. In a statement, owner Myoon Woon Lee and President Sun Lee said they are “unwilling to remake the ‘jjimjilbang’ we have worked so hard over many years to build and preserve, simply for the sake of promoting gender neutrality.” They also cited their Christian faith in their decision to keep the policy. Samson continues: WSHRC ultimately ruled that Olympus had discriminated against Wilvich. In a pre-findings settlement agreement to avoid prosecution, the commission ordered the spa to remove the term “biological women” from its website. The business was also forced to make staff members attend an inclusivity training. However, in March 2022, the spa sued Andreta Armstrong, the commission’s executive director, alleging violations against their First Amendment rights to free exercise of religion, freedom of speech and freedom of association. What brought this up again in the news earlier this month is a judge’s finding. Seattle District Barbara Jacobs Rothstein rejected First Amendment suit by Olympus Spa et al against Andreta Armstrong. Two weeks ago the show “Gutfeld” on Fox News Channel had an interesting discussion of the case. Usually Kat Timpf, the resident libertarian, nails the principle. But unless I heard wrong, even she failed to make the case from the correct principle. One of the guests, a woman named Brooke Goldstein, argued that letting a person with a penis in with naked women violated those women’s rights to privacy. But that’s not the key. They had no right to be naked without a person with a penis present. If the spa had wanted to allow a person with a penis to be present, the women who frequented the place would have had no basis for objecting on grounds of rights. (Unless, of course, the spa had contractually obligated itself to these women beforehand.)  The entity whose rights are being violated is Olympus Spa and the right that the WSHRC is violating is Olympus Spa’s right to property. Olympus Spa is being told how it may use its property. The WSHRC is also violating Olympus Spa’s freedom of association, the spa’s freedom to associate with those it chooses to associate with. But property rights and freedom of association are taking a back seat to the WSHRC’s phony right of someone who wants to go where she is not wanted.     (0 COMMENTS)

Last week Alex Tabarrok over at Marginal Revolution had an interesting post on pro-business movies. He focused on recent movies, only one of which I’ve see–Air–and I’ve already commented on that one. That leaves out my two all-time favorite pro-business movies: Executive Suite (1954) with William Holden and Working Girl (1988) with Melanie Griffith. I won’t say much about either because if I do, I’ll necessarily give spoilers and I highly recommend watching them in suspense. I will say this. Do you think someone could make a movie in which a large part of the plot is about whether a company should focus on quality in making furniture? If you had asked me before I saw Executive Suite, I would have said no. As for Working Girl, my favorite scene is at the end when the camera pans out to show the beautiful skyline of Manhattan, showing, if I recall correctly, the Twin Towers. Like other Americans, I still feel bad for the approximately 2,500 people in those buildings and in the two airplanes who were murdered when the planes hit. But I also feel bad that we can’t see those buildings any more. Back to the camera. As it pans out, we hear Carly Simon singing “Let the River Run.” I’ve looked all over for that version. The one I bought by Carly Simon is good but not nearly as good. How about you? What are your favorite pro-business and/or pro-market movies? I recognize that those are not nearly the same. (0 COMMENTS)

In the early 1900s, the philosopher Henry Adams expressed concern about the rapid rate of social change ushered in by new technologies, from the railways to the telegraph and ultimately airplanes. If we transpose Adams’s concerns onto the power of artificial intelligence–a power whose rate of acceleration would have exceeded his wildest dreams–you might feel […] The post Jacob Howland on the Hidden Human Costs of AI appeared first on Econlib.

Most scientists seem to believe that Covid-19 first infected humans in a Chinese animal market.  The pundits I read lean toward the view that Covid originated in a Chinese virology lab.  One possible explanation for these differing views is that scientists are reluctant to acknowledge a lab accident that would make their profession look bad.  In this case, however, I believe it is the pundits who are mistaken.  I suspect that they have correctly intuited that the Chinese government is covering up the origins of Covid-19, but have drawn the wrong inference from that fact. Throughout history, pandemics have often started in southern China.  People in this region consume a wide range of wild animals, and often live in close proximity to animal markets.  When I was young, I recall people speaking of the “Hong Kong flu”.  If in 2018 you’d asked scientists where the next SARS outbreak would occur, they might have suggested an animal market in a large city in southern China, such as Guangzhou, Chongqing, Chengdu or Wuhan.  In fact, SARS-1 originated in an animal market in Guangzhou (in 2002), and almost all of the early cases of SARS-2 (Covid-19) occurred in or near a wild animal market in Wuhan. Early in 2019, top Chinese scientists like George Gao stated that Covid-19 had begun in the Wuhan animal market, and that the market was shut down for this reason.  Case closed?  Not quite.  Over the remainder of 2020, two conspiracy theories developed; one promoted by the US government and the other promoted by the Chinese government.  How this came about is an interesting story. At first, there was a great deal of sympathy in the West for the unfolding tragedy in Wuhan.  In February 2020, President Trump praised the efforts being made by China’s leadership on no fewer than 14 occasions.  After March 2020, however, Covid spread to America and it became clear that we were woefully unprepared for the outbreak. At this point, the administration’s attitude toward China flipped, and they began looking for ways to blame China for our own policy failures.  False claims were made about China allowing infected passengers to fly out of Wuhan in February 2020. In the early stages of the pandemic, a few scientists speculated that Covid might have emerged from the Wuhan Institute of Virology (WIV).  This theory was based on incomplete information, and was eventually discarded by most scientists.  Contrary to initial reports, the virus does not “look engineered”. (Similar “suspicious” features have since been discovered in the wild).  And the initial outbreak occurred near the animal market, not near the WIV, which is located in a completely different section of this large city.  But the theory proved to be a handy cudgel for the Trump administration.  With his customary casual disregard for the truth, Trump claimed that our intelligence services had found proof of a lab leak. [As an aside, the wild animal market theory should actually be more embarrassing for China, as these markets were known to be a risk and were supposed to be banned after SARS-1.  But administration officials correctly understood that the public would view a lab leak as a bigger scandal.  This is despite the fact that America also has lab leaks, but we do not have Wuhan-style wild animal markets.] Given these facts, why do most pundits favor the lab leak theory, rather than the animal market?  I suspect that the Chinese government shot itself in the foot by covering up the origins of Covid.  That cover-up made people very suspicious—“where there’s smoke, there’s fire”. China’s government is unusually sensitive to outside criticism, occasionally placing trade sanctions on a country merely in response to mild criticism.  They were infuriated by the US attempt to pin the blame for Covid on China, and created another conspiracy theory to deflect attention from the US government’s conspiracy theory.  China began suggesting that the virus might have originated outside of China.  One version has the virus entering the country through frozen fish, while another speculated that it might have been created in a US lab.  These theories are even more unlikely than the lab leak hypothesis. So now you have three views of the origin of Covid-19.  There’s the mainstream scientific view that it crossed over from a wild animal market, a US government conspiracy theory and a Chinese government conspiracy theory.  At this point the Chinese government began denying that the animal market was the source of Covid, even denying that it sold wild animals.  So in a sense, all three views became “conspiracy theories”, as all three views involved an implicit assumption that someone was hiding something. Meanwhile, western scientists continued to research the origins of Covid, and found more and more evidence pointing to the wild animal market. For instance, early cases near the animal market involved two versions of the virus (A and B), which is much more likely if the virus mutated in the animal market before crossing over.  In the course of this research, they also stumbled on evidence that Chinese scientists were covering up the animal market origins of Covid.  For instance, in swabs taken in the market they found genetic evidence for the sort of wild animals that China had insisted were no longer sold.  A previous study by Chinese scientists had failed to disclose this fact.  (No proof the animals were infected, however.) [Check out minutes 41:00 to 43:00 of this podcast, where they speculate that George Gao changed his view on the animal market hypothesis under pressure from the Chinese government.] This is an important point missed by pundits with only a casual acquaintance with the Covid origins debate.  We don’t know if Covid originated in the Wuhan animal market, but we do know that the Chinese government is actively covering up evidence pointing to an animal market origin.  Thus no one should be surprised that the Chinese haven’t found an animal host for the virus; there is no evidence that they are even trying.  Instead of supporting the lab leak hypothesis, evidence of a Chinese cover-up increasing points to the animal market as the source of the pandemic.  China’s government wishes to muddy the water so that neither the lab nor the animal market is known to be the problem.  (And it’s not clear that even they know for certain.) So why don’t most pundits see things the way that I do?  I suspect a number of factors: 1. Some pundits are not aware of how much of the initial lab leak “evidence” has been discredited.  Conspiracy theories such as the claim that Kennedy was killed by the CIA attract a flood of grifters, who seek to profit from fake evidence.  The lab leak hypothesis is no different.  I’m continually amazed at how in comment sections to my posts people keep repeating evidence that has already been thoroughly discredited. 2. I suspect that people were powerfully impressed by the fact that Covid outbreak occurred in a city with a virology lab doing research on coronaviruses.  But if “geographical proximity” is the key evidence, then you should adopt the animal market hypothesis.  That’s where the initial outbreak occurred. 3.  Some pundits may have assumed that China’s government was covering up the lab leak evidence and promoting the animal market, whereas most of the cover-up was aimed at the animal market (because that’s where most of the evidence was that needed covering up.) 4.  Pundits view evidence of Chinese virology research very suspiciously, because they don’t know much about the subject.  If there’s just been a huge coronavirus pandemic, it’s natural to view nearby lab work manipulating coronaviruses with suspicion.  To scientists, such research seems perfectly normal.  Ditto for safety issues.  It’s not clear that the safety procedures at WIV were unusually bad (although there were problems, as in many other labs).  But given what happened later, reports of safety lapses are viewed with extreme suspicion, if not outrage.  How many of us are even aware of the number of safety lapses at US virology labs? Is it possible that the virus escaped from the WIV?  Absolutely! A scientist might have gotten infected with version A and brought it to the animal market.  Another scientist might have been infected with version B and brought it to the same animal market.  Or maybe A mutated to B after being brought to the animal market.  But the simplest explanation is that this pandemic began as did so many others, with the virus crossing over in southern China to humans working and shopping in close proximity to the sort of wild animals that can serve as a conduit between bats and humans. It might seem odd that I am downplaying the probability of a lab leak as the origin of Covid-19, given that I’m on record worrying that future research on viruses might pose a near existential risk to humanity.  I still have that fear.  But my main interest is not in scoring debating points.  Rather, I’m interested in seeking the truth. PS.  In general, I believe that people view China with more suspicion than is warranted.  It’s true that China’s government is becoming increasingly authoritarian and bellicose.  That’s a big problem.  But many of the specific complaints about China are about things that apply equally to the US.  We stole lots of intellectual property when we were a developing country.  We bully other countries that don’t agree with our foreign policy.  We spy on other countries.  We have military bases on islands not far from China.  There are plenty of good reasons to be concerned about China’s policy in Xinjiang, or its future plans, particularly with regard to Taiwan.  But it doesn’t help to promote unproven scandals just because you believe the target is deserving of opprobrium. PPS.  The most famous bat caves are over close to Burma, far from the outbreak of both SARS-1 and SARS-2.  But there are plenty of bat caves near Wuhan as well. (0 COMMENTS)

Imagine you go to the grocery store and when you put your items on the counter, the checkout clerk asks you your annual income. I can only guess about the number of swearwords you would use in your response—I would bet it would be between zero and four—but I can almost guarantee the gist of your response: “That’s none of your damn business.” It really isn’t the checkout clerk’s or the store’s business. Fortunately, no one in California’s grocery stores is asking that question. At least not yet. So why am I even discussing this? Because Californians will soon be subject to an income test to determine how much they will pay for their electric utilities. In April of this year, three major utilities—Pacific Gas & Electric, Southern California Edison, and San Diego Gas & Electric—proposed to California’s Public Utility Commission (PUC) that they be allowed to charge customers a rate based partly on income. When I first read about this months ago, I blamed the utilities. I shouldn’t have. It turns out that they are trying to comply with a law that California’s legislature passed. The law requires the PUC to base rates in part on a household’s income. From each according to his ability, to each according to his need. Marxism lite, anyone? These are the opening 2 paragraphs of David R. Henderson, “California Gets a Jolt of Marxism,” Defining Ideas, June 22, 2023. An excerpt: Borenstein goes on to point out that the artificially high prices Californians now pay for a kilowatt-hour cause us to use less electricity and more natural gas for our homes and businesses and more gasoline for our cars. He argues that the price per kilowatt-hour should be brought down closer to its incremental cost so that we would use more electricity, including in electric cars. There are three problems with his argument. I also consider the loss of privacy about our incomes. Read the whole thing. (0 COMMENTS)