I’ve occasionally heard some version of “I only criticize X because I love it and I want it to be better.” Most of the time, that comes across as little more than a shibboleth to let someone engage in petty dunking, while pretending to be inspired by noble motives. But sometimes it does seem sincere. Ezra Klein is someone with whom I agree on very little, but one thing that’s clear about him is that he loves progressivism and progressive ideology – and that in turn has led him to forcefully highlight and criticize many of progressivism’s failures. One good example of this is an article he wrote pointing out many of the problems facing California. This is a state where virtually all levels of government aren’t just dominated by Democrats, but the far left, progressive wing of the Democratic Party. And yet, as Klein correctly notes, California is uniquely bad at actually achieving the goals that progressives claim to value, lamenting that among other problems: California has the highest poverty rate in the nation, when you factor in housing costs, and vies for the top spot in income inequality, too. There are bright spots in recent years — electric grid modernization, a deeply progressive plan to tax the wealthy to fund poor school districts, a prison population at a 30-year low — but there’s a reason 130,000 more people leave than enter each year. California is dominated by Democrats, but many of the people Democrats claim to care about most can’t afford to live there. As he sums up his case: California, as the biggest state in the nation, and one where Democrats hold total control of the government, carries a special burden. If progressivism cannot work here, why should the country believe it can work anywhere else? I hope California keeps being weird. But it needs to do better. Recently, Klein has written another interesting article in this vein, this one worrying about the problems with what he calls “everything-bagel liberalism.” (Terminology quibble incoming – what Klein often calls “liberalism,” I will refer to as “progressivism.” He switches between those words as though they were synonymous, but that’s a semantic point I refuse to concede.) Klein begins by describing something resembling good news coming from San Francisco – some new housing units actually completed, a studio apartment complex called Tahanan. He notes: Tahanan went up in three years, for less than $400,000 per unit. Affordable housing projects in the Bay Area routinely take twice as long and cost almost twice as much…San Francisco cannot dent its housing crisis at the speed and cost at which it is building affordable housing units. But if the pace and price of Tahanana were the norm, the outlook would brighten. So how did Tahanan do it? The answer, for liberals, is a bit depressing: It got around the government. This particular unit was built, according to Klein’s description, by using “gobs of private money to avoid triggering an avalanche of well-meaning rules and standards that slow public projects down in San Francisco – and nationally. You might assume that when faced with a problem of overriding public importance, government would use its awesome might to sweep away the obstacles that stand in its way. But too often, it does the opposite. It adds goals – many of them laudable – and in doing so, adds obstacles, expenses, and delays.” This is the problem that Klein identifies as “everything-bagel liberalism.” Or, as I would call it, everything bagel progressivism. Klein points out that “one problem liberals are facing at every level where they govern is that they often add too much. They do so with good intentions and lament their poor results.” The key issue is that progressive policy makers refuse to acknowledge the reality of trade-offs. Pursuing more of one good thing means less of some other good thing. In the private sphere and in our normal lives, we all make these kinds of trade-offs all the time, according to what outcomes we value the most. But refusal to acknowledge this among progressives leads to the system just locking up. Here’s one example of that from Klein’s article: Tahanan is the first affordable housing project in San Francisco built using modular housing. All of the units above the ground floor were fabricated at a factory in Vallejo, Calif. “That definitely helped with meeting the time- and cost-saving goals,” Foster said. But some local unions were furious, even though the factory in Vallejo is unionized. That might have been enough to kill Tahanan in a normal planning process. For that reason, Foster’s group isn’t planning to use modular construction on its next affordable housing project. “It just was too big a political lift,” she said. Here, then, is another place where progressive goals conflict. Local union jobs are a good thing. Modular housing can make construction cheaper and faster in a state facing a severe housing shortage. Which do you choose? I don’t share Klein’s notion that “local union jobs” are somehow intrinsically good in themselves, but the trade-off he describes is real. Here’s a somewhat more mundane example of the same idea. Jobs with high pay are good. Jobs that provide comfortable working conditions are good. But, all else equal, one comes at the expense of the other. Some employers spend a lot of money providing a comfortable and pleasant work place, and that can come at the expense of employee pay. Other jobs may provide an unpleasant, bare bones work environment, but offer higher wages. Which do you choose? The liberal (as opposed to progressive) answer to that question is to let people choose for themselves. If someone is fine with enduring a rugged work environment so they can take home a bigger paycheck, that’s fine. And if someone wants to take a smaller paycheck in exchange for a more comfortable workplace, that’s fine too. Neither is a problem that needs to be solved. But the worldview of everything-bagel progressivism rejects this – it wants more of everything that’s good, and doesn’t want any of it to come at the expense of anything else. But trade-offs are a part of reality, and as Thomas Sowell likes to remind us, reality is not optional. Klein recognizes that this refusal to accept trade-offs is what plagues these projects: But more profoundly, it is damning that you can build affordable housing so much more cheaply and swiftly by forgoing public money. Government needs to be able to solve big problems. But the inability or the unwillingness to choose among competing priorities – to pile too much on the bagel – is itself a choice, and it’s one that California keeps making. It’s not mysterious to me why California politicians keep making that kind of choice – with political incentives being what they are, it would be surprising if they behaved any differently. But Klein has come perilously close to seeing the alternative here. Situations like building adequate housing isn’t a big problem the government needs to be able to solve – it’s a problem that would be solved already if the government wasn’t blocking off every possible escape route. The fact that private money can achieve far more with far less than public money can is a feature, not a bug. And I suspect that until progressives no longer take it as given that we need government to be able to solve big problems, the little increments of improvement Klein manages to identify will continue to be the exception rather than the rule.   (1 COMMENTS)

I posted a few months ago how the interest rates on Treasury’s I savings bonds reset. Someone at pickleball asked me to explain further. I looked into it and it’s fairly straightforward: the value of an I-bond bought at a particular time increases by the nominal rate (which is the real interest rate set at the time plus the inflation rate set at the time plus a small factor for the interaction of the two.) These rates are set every 6 months. So for the next months that new amount, which includes the interest earned, increases by the new nominal rate. In short, the value of the investment compounds by an interest rate for a 6-month period, then the interest rate for the next 6-month period, etc. There’s one little wrinkle involving what the Treasury calls the “fixed rate” and I call the “real rate.” In essence, the I bond, except for that little wrinkle, is not different from investing in a CD, except that the interest rate on the I bond will be typically be higher. Let’s say you buy a $10,000 6-month CD that carries an annual interest rate of 5%. (This is the highest I could find on line; it’s from an on-line bank called CIT Bank.) At the end of the 6 months, you’ll have $10,250. Then, when 6 months is up, you use the $10,200 to buy a 6-month CD that carries an annual interest rate of 4% because, let’s say, interest rates have fallen. At the end of the 6 months you’ll have $10,250 * 1.02 = $10,455. Now back to the I bond. Let’s say you buy a $10,000 I bond that pays an annual rate of 6.89%. (That’s the current annual rate.) This is made up of 3 components: a real rate of 0.4% (the Treasury calls this a fixed rate) + 2 times the semiannual inflation rate of 3.24% plus the semi-annual inflation rate times the 0.4%. So that’s 0.4% + 2* 3.24% + 0.4% * 3.24% = 0.4% + 6.48% + 0.01296% = 6.89296%. Rounding to two decimal places gives 6.89%. So on a 6-month basis, that’s 3.45%. You hold this bond for 6 months and so at the end you have $10,000 * 1.0345 = $10,345. See this link for how the Treasury explains it. Notice, by the way, that if the Treasury’s explanation is correct, the Treasury made a little mistake. That third term above should be annual, just like the others. So it should be 0.4% * 6.48%. It doesn’t matter much, though. Done on an annual basis, that third factor would be 0.02592%. So, the total would be 0.4% + 6.48% + 0.02592% = 6.9052%. Rounding to two decimals places, it would be 6.91%, not 6.89%. Then you decide not to cash the bond but to let it ride and keep collecting interest. Meanwhile the 6-month inflation factor has fallen, say, to 3.00%. One thing hasn’t changed, though. Because you bought when the real rate was 0.4%, you get that 0.4% forever, no matter what happens when the Treasury resets the real rate on bonds bought in the new 6-month period. This is probably why the Treasury calls it a fixed rate rather than my preferred terminology of a real rate. So you get an annual rate of 0.4% + 2*3.00% + 0.4% * 3.00% = 0.4% + 6.00% + 0.012% = 6.52%. At the end of this 6-month period, your investment is worth $10,345 * 1.0652 = $11,019.49. Note: The picture above is of Irving Fisher, one of the greatest U.S. economists of the late 19th and early 20th centuries. He pointed out that interest rates adjust for expected inflation. Indeed we now call the 2nd and 3rd terms in the computations above the “Fisher effect.” (0 COMMENTS)

Yes I Can. In an episode of Gutfeld! last month, a black guest made a controversial statement about a policy issue involving blacks and whites—I can’t remember what—and his statement was one that many conservatives might want to make. Then he looked at the white host, Greg Gutfeld, grinned, and said, “You can’t say that; I can.” I’ve heard that kind of statement a lot in the last few years and it’s typically about issues where white people and Asians are the victims—things like affirmative action, federal grants that discriminate in favor of black people, and so on. The statement is profoundly mistaken. If a statement is true, anyone should be able to say it. It might have more rhetorical force coming from a black person, but that’s a different issue. (Even if the statement is false, freedom of speech means that anyone should be able to say it. On that, although I’ll defend someone’s right to make a false statement, I won’t defend a statement that I know to be false.) In the 1950s and early 1960s, black people were badly hurt by state governments’ segregation policies. They were clearly the victims, whether the policies were about who got to vote, whether municipal bus and streetcar companies were required to segregate by race, etc. When I was a kid, Martin Luther King, Jr. was one of my heroes for fighting against laws requiring segregation or against officials in the South who wouldn’t allow black American citizens to vote. Would it have been even more rhetorically effective if white leaders argued strenuously against these policies? Maybe. But any white leader who did so and then said, on a talk show, to MLK Jr., “You can’t say that; I can” would be wrong. It’s symmetric. (0 COMMENTS)

The economic benefit of the rule of law comes from its being a necessary condition for the security of private property rights and thus for prosperity, not to speak of individual liberty in general. This is clear both from economic theory and from history. No wonder that classical liberals have considered the rule of law as an essential institution. Even anarcho-capitalists or most of them recognize the importance of the rule of law by arguing that it would be discovered or generated by their proposed system. So does Anthony de Jasay, an unconventional liberal anarchist or perhaps a conservative anarchist, who invokes David Hume’s conventions. Without the rule of law, the state is Leviathan; or else a Hobbesian “war of all against all” rages. If we ignore these considerations, it is difficult to correctly evaluate the significance of the indictment of Donald Trump—and other former heads of state in democratic countries, including France and Italy. In “law and order” properly understood, laws apply equally to ordinary individuals and to statocrats. Trump was wrong when, in his perspective, he wrote on his own social media “Truth Social” of all names (“Donald Trump Arrives in New York Ahead of Surrender in Hush-Money Case,” Wall Street Journal, April 3, 2023): On Tuesday morning I will be going to, believe it or not, the Courthouse. America was not supposed to be this way! America was certainly meant to be a country where laws would apply to everybody equally. Then, two minutes before entering the Lower Manhattan Courthouse yesterday, he posted (“Trump Arrives at Court for Arraignment,” Wall Street Journal, April 4, 2022): Heading to Lower Manhattan, the Courthouse. Seems so SURREAL — WOW, they are going to ARREST ME. Can’t believe this is happening in America. MAGA! He is not the only one to have been arrested in America. He would have been right to criticize the proliferation of laws that constrain and trap everybody, but he did not. It’s all about Narcissus. Lots of ordinary Americans, believe it or not, are indicted and brought to court. Another quixotic presidential candidate,  Allen Maldonado a.k.a. “Joe Exotic,” just reminded us of that from his jail. Some suspects cannot simply surrender, but are arrested manu militari. One out of 13 American adults have a felony record. Mr. Trump should not fear being alone. In fact, he has generally argued for more laws and harsher enforcement, even suggesting that cops arresting suspects should not be too soft with them (see a video reminder). His pardons, on the other hand, often benefited rich or famous people, or simply his friends. Those people arguably are in less legal jeopardy than ordinary people who follow Donald Trump–or, for that matter, Joe Biden or Bernie Sanders. QuantGov data give an idea (but only a partial one) of the problem of the multiplication of laws and accompanying regulations. At the end of 2020, the last year of the Trump administration, federal regulations contained 1,082,486 restrictions (measured by the occurrence, under certain conditions, of the words “shall,” “must,” “may not,” “required,” or “prohibited”), which is a bit (0.7%) more than at the end of the last year of the Obama administration. (Source: Patrick McLaughlin, Jonathan Nelson, Thurston Powers, Walter Stover, and Stephen Strosko, RegData US 4.0 Annual [dataset], QuantGov, Mercatus Center at George Mason University, Arlington, VA, 2021.) The danger for the rule of law comes from the proliferation of legal obligations and bans, not from treating statocrats like ordinary individuals. The more laws, the easier to use them for persecution of disliked individuals or minorities.  Indeed, it seems a standard prosecutorial strategy to shower a suspect with a large number of felony charges in order that at least some of them stick or that he plea-bargains and admits his guilt to at least a few. Equal justice under law is only possible with essential and parsimonious laws. James Madison wrote in the Federalist No. 62: The internal effects of a mutable policy are still more calamitous. It poisons the blessing of liberty itself. It will be of little avail to the people, that the laws are made by men of their own choice, if the laws be so voluminous that they cannot be read, or so incoherent that they cannot be understood; if they be repealed or revised before they are promulgated, or undergo such incessant changes that no man, who knows what the law is to-day, can guess what it will be to-morrow. (1 COMMENTS)

One of the great joys of economics is realizing how applicable it is to the world. The lessons of economics don’t only apply to situations where money changes hands. All kinds of human decision-making can be understood through the ideas of economics. In this way, understanding economics can also help us improve our own decision-making and better reach our goals. One tool I’ve found very useful is the idea of opportunity cost. Opportunity cost is easy to understand. When you have a choice between A and B, and you choose A over B, then the value of B is your opportunity cost, because by choosing A, you give up the opportunity to acquire B. To give a more specific example, suppose I’m thinking about buying a PlayStation 5 (assume this is a version of me in a parallel universe, who actually has time to spare for video games). There are currently two models of PS5 available – a $500 version that has a built-in disc drive, and a $400 version that has no disc drive. The more expensive version allows you to play games or watch movies via a physical disc or digital download, whereas the less expensive version only facilitates games and movies through digital download. The price of the disc drive version is $100 higher, but that doesn’t really capture what the additional cost is, in the economically relevant sense. If I spend $500 for the version with a disc drive, I can buy just the console, whereas the same $500 could buy me the digital-only version, plus a couple of games to download to the console as well. So if I choose the version with the disc drive I’ll pay a price that’s $100 higher, it didn’t cost me an extra $100, it cost me the games I might have gotten alongside the purchase of the digital version. (The above example is a bit oversimplified because it tacitly assumes that my next preferred use of $100 after buying the digital console would be buying games, which doesn’t necessarily have to be the case, but we’ll just toss that assumption in for the sake of simplicity.) Because every decision we make necessarily entails not making some alternate decision, opportunity cost is ubiquitous. And I think there is an important lesson in this that can help people make better and more informed decisions in life, not just about what to buy, but more generally. My advice would be, when you’re making a decision of significance, you should always make the opportunity cost explicit. When we decide to undertake a new project or set some new goal, it’s all too easy to consider that goal in isolation. But nothing exists without opportunity cost. Setting that new goal will come at the expense of something else you could be doing, or crowding out something else you are doing currently. The easiest way to make this clear is to ask what the “instead of” is, because everything you do is done instead of something else. For example: I’m going to take some training courses at night to gain this new certification, instead of keeping up on the latest shows on my streaming service. I’m going to go to train to run a Tough Mudder this summer, instead of crossing off more books on my reading list. I’m going to volunteer as a coach for the local Little League this season, instead of working on that bathroom remodel I’ve been planning to do. In my experience, one of the biggest stumbling blocks people run into when pursuing new goals (or New Year’s Resolutions!) is that they don’t make the opportunity cost explicit. They consider the value of the goal in isolation, without thinking about what they will need to give up in order to achieve it. So my advice is to always take a moment to make the opportunity cost explicit before you set out on a new goal. If you can’t find an “instead of” that you’re willing to act on, it’s a good sign that you should reconsider your goal. (0 COMMENTS)

George Selgin has an excellent post on the history of FDIC.  I already knew that FDR had opposed the idea of deposit insurance and was pressured into agreeing to the proposal in order to achieve his other banking reform goals.  But this was new to me: Carter Golembe (1960, 195) zeros in on the truth. “[I]t is not reading too much into history,” Golembe says, to regard deposit insurance  schemes as “attempts to maintain a banking system composed of thousands of independent banks by alleviating one serious shortcoming of such a system: its proneness to bank suspensions, in good times and bad.” Henry Steagall, who was second to none in his determination to save the United States’ small unit banks, made no bones about this. “This bill,” he said, referring to his May 1933 effort, “will preserve independent dual banking in the United States. … This is what the bill is intended to do” (ibid., 198). Insurance and branching were, in short, rival reform options; one sought to preserve the unit banking status quo, and particularly state-chartered unit banks, despite their inherent weaknesses; the other would instead have allowed banks to branch statewide, if not nationwide, which would have meant more relatively large and well-diversified banks with branches, and many fewer smaller unit banks. Steagall favored the insurance option, while opposing branch banking tooth-and-nail. Carter Glass, his Senate Banking Committee counterpart, took the opposite position. I increasingly believe that it makes sense to view federal deposit insurance and the small banking bias of our regulatory system as part of a unified regime that aims to create moral hazard—to encourage banks to take socially excessive risks.  From the point of view of Congress, this risk-taking is a feature, not a bug.  That’s why neither political party is proposing any sort of reforms to fix the problem.  Indeed the problem is likely to get worse over time. In a free market regime, the US system would consolidate into a smaller number of large, well diversified banks.  Some worry that adoption of the Canadian approach would offer too little choice to consumers.  But the US is much larger than Canada, and would end up with more than 5 large banks.  In any case, this tweet casts doubt on the view that concentration hurts depositors:   (0 COMMENTS)

The book’s subtitle is overly long, and so is the book. We learn over and over her view, which she seemed to have expressed almost daily at White House meetings, that the key to reining in the pandemic was social distancing, testing, masking, limiting the size of indoor gatherings, and—occasionally—lockdowns. Unfortunately, given the book’s length, she doesn’t give strong evidence for her views. And at times she reveals herself to have a strange view of “proof.” Also, the evidence against the efficacy of masks—evidence that surfaced well before she finished her book—would cause one to hope that she would address this matter. (See “How Effective Are Cloth Face Masks?” Winter 2021–2022.) But she does not; her support for masking is as strong as it was in 2020. There are other examples of sloppy thinking. Although Birx claims that she carefully looked at the COVID numbers virtually daily, she fails at times to make important distinctions such as the difference between the infection fatality rate and the case fatality rate. She doesn’t address the famous Great Barrington Declaration (GBD), which advocated focusing government attention on high‐​risk populations while leaving much of the rest of society to function unrestrained, though at one point in the book she seems to endorse that idea. This is from David R. Henderson, “Book Review: Silent Invasion,” Regulation, Spring 2023. It’s my review of Deborah Birx’s long book. I do give her credit on a few things: After reading the book, I give Birx credit on three policy issues: First, she is fairly critical of how the Centers for Disease Control substantially slowed the development of COVID tests and gives the private sector kudos for how quickly it reacted. Second, she shows a real understanding of how the absence of property rights for tribal nations badly hurts the people who live there. Third, although she—like me—favors people receiving the COVID vaccines, she wisely points out that they are not a silver bullet for ending the pandemic. And a very disturbing admission: Early in her time at the White House, Birx became one of main champions of lockdowns. We were told in March 2020 that we should lock down for 15 days to “flatten the curve.” This meant slowing the rate of spread so that hospitals would not be overwhelmed. Some observers at the time thought that this 15‐​day lockdown was just an opening bid and that the government had a longer lockdown in mind. I, naively, didn’t think that. Birx reveals that I should have. In a chapter titled “Turning Fifteen into Thirty,” she writes, “No sooner had we convinced the Trump administration to implement our version of a two‐​week shutdown than I was trying to figure out how to extend it. Fifteen Days to Slow the Spread was a start, but I knew it would be just that. I didn’t have the numbers in front of me yet to make the case for extending it longer, but I had two weeks to get them.” That’s revealing in two ways. First, she planned for a much longer lockdown. Second, she knew what she wanted to find and she looked for data to make her case. Read the whole thing.   (0 COMMENTS)

A Book Review of Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy, by Elizabeth Popp Berman.1 The thesis of University of Michigan sociologist Elizabeth Popp Berman’s 2022 book, Thinking Like an Economist, is straightforward. From the administration of Franklin Delano Roosevelt through that of Lyndon Johnson, Americans on the political left—and not least those in elective office—were motivated by ideals that precluded any utilitarian weighing of costs and benefits. These ideals, as frequently listed by Berman, are “universalism, rights, and equality.” To put these ideals into practice, the U.S. government adopted policies to protect minorities, the poor, the sick, consumers, workers, the environment, and democratic participation itself. Designers of these policies intended them to be implemented without regard to costs. But despite the designers’ intentions, these policies, starting in the 1960s and gaining steam in subsequent decades, were increasingly guided by economic considerations. These economic considerations—above all, the use of cost-benefit analyses—in most cases limited government’s ability to right the wrongs that were targeted by the policies. Ironically, the impetus for subjecting government interventions to economic considerations did not come from conservative or “neoliberal” ideologues. Nor did it come from right-wing economists affiliated with the University of Chicago. Instead, this impetus came from economists who were ideologically left-of-center. These economists were confident that active, smart government intervention can improve economic performance and social outcomes; they shared none of the skepticism of government that marked the attitudes of their right-wing colleagues. As Berman summarizes, “[t]he central players in this story are economists (and their allies) who wanted to use economic reasoning to make government work better and more effectively, and who thought government had an important role to play in American life. Chicago Schoolers are on the stage, but they are not the stars.” Also ironically, the left-of-center economists whose efforts would inadvertently over time result in restrictions on the reach of government intervention were given their main toehold in Washington not by a Republican administration or during a time when trust in government was waning. Instead, that toehold was created by President John F. Kennedy, who was in office when confidence in government ran quite high. Kennedy surrounded himself with impressively credentialed technocrats who were sincerely committed to science and quantitative methods. Naively trusting that neoclassical economic analysis is value-free—that is, is scientific—these administration advisors and appointees believed that using economics to guide government intervention would render that intervention more effective. As Berman points out, however, the very use of cost-benefit analysis involves a value judgment. Yet because this economic practice appears to be value-free, the technocrats in Kennedy’s administration—many of whom continued in their positions of influence during LBJ’s administration—endorsed it enthusiastically. To carry out economic-style analyses of government programs, formal systems such as the Planning-Programming-Budgeting System (PPBS) were created for the purpose of improving government decision-making. In addition, more and more government agencies in the 1960s and 1970s established internal offices devoted to amplifying economists’ sway over policymaking. Economic-analyses’ alluring scientific patina mixed with the increasing institutionalization into formal policymaking processes of what Berman calls “the economic style of reasoning” to produce a result that no one intended—namely, a government-wide displacement of policymaking based on “universalism, rights, and equality” by policymaking constrained by economic considerations. This entrenchment of the economic style of reasoning into policymaking was fueled also by the success of think tanks—above all, RAND—that, starting in the mid-20th century, used economics to analyze and improve narrow aspects of government policy, such as weapons acquisition. But as government came increasingly to rely on the economic style of reasoning, demand grew for more such analyses to be supplied by not-for-profit think tanks. Government paid attention to such analyses and, thus, encouraged their development. In turn, there blossomed at universities public-policy programs that (as Berman puts it) “centered” the economic style of reasoning. Larger numbers of scholars were drawn to this style of reasoning. Many of these scholars consulted with government and often even took positions within government. Government’s heavy reliance on these scholars of course only further entrenched the economic style of reasoning into policymaking. The triumph of the economic style of reasoning has been so complete that even the administration of a President as progressive as Barack Obama clung to it as a matter of course. **** In most of her book, Berman writes as an historian rather than as an advocate for a specific set of policies or for a particular approach to policymaking. And her history will be of interest to some public-policy wonks and historians of 20th-century American government. For example, details abound on the origins and activities of several policy-planning offices throughout the federal bureaucracy, as well as on the educational backgrounds of some famous, and of many obscure, government officials who played roles in the regulatory state. (Unsurprisingly, a good number of the officials highlighted in Berman’s account boasted degrees either in economics or in public policy.) But despite Berman’s admirable attempt to write this history objectively, the reader from the start realizes that Berman regards the impact of the economic style of reasoning to be unfortunate. This realization is confirmed in her concluding chapter. There, Berman reveals explicitly that she’s a progressive who hopes that the economic style of reasoning will be supplanted by the ideals—or, as she calls them, “logics”—of “universalism, rights, and equality.” Her sympathies are with “those who want to restore an ambitious vision of how government might work differently”—a vision in which progressives’ pursuit of “values like equality, racial justice, rights, and community” is no longer “frustrated by the political restraints of the economic style.” “Berman never makes clear exactly what she means by the set of “logics” that she presents as an alternative to economic analysis. But the reader gets hints of what she has in mind when she discusses ways in which various government programs were hijacked by the economic style.” Berman never makes clear exactly what she means by the set of “logics” that she presents as an alternative to economic analysis. But the reader gets hints of what she has in mind when she discusses ways in which various government programs were hijacked by the economic style. She writes, for example, of how economists insisted that government health-care assistance to individuals be means-tested—presumably in contrast to it being universally available. Likewise, Berman obviously sympathizes with the wish of the early environmental crusader Senator Edmund Muskie that environmental regulations not be subjected to cost-benefit tests. A clean environment is, or ought to be, a right possessed by each citizen rather than merely a benefit to be enjoyed only if, when, and where it’s cost-justified. **** To explain what is, in her view, the unfortunate triumph of the economic style of reasoning, Berman identifies two factors that were indeed active during the second half of the last century. One is a naïve overestimation of the ability of neoclassical economics to guide policymakers to objectively ‘correct’ conclusions. Another factor is the institutionalization throughout government of economists and their style of reasoning. These factors undoubtedly did help to promote and protect the economic style of reasoning generally and cost-benefit analysis in particular. But I submit that by far the most important reason for the rise and endurance of the economic style of reasoning is the fact that, as Thomas Sowell famously observed, reality isn’t optional.2 While governments—especially ones with printing presses—are better able than are individuals to hide the costs of their actions or to shove these costs onto others, not even the most powerful government can escape the bonds of scarcity. No government can divert resources into the production of butter without diverting resources out of the production of guns. And so with growth in government comes growth in the number of particular individuals and businesses who are deprived of some resources. Especially in democratic societies, individuals and businesses who are thus deprived of resources don’t remain silent. They complain. They vote. Some organize and lobby. The expressed grievances of these individuals and businesses spur elected officials to search for ways to placate the complainers, or at least to welcome any such ways that are stumbled upon. One obvious means of placation is to limit the amount of resource diversion. And one obvious means of limiting resource diversion is to subject government interventions to cost-benefit tests. Interventions that fail such tests are blocked, resulting in fewer resources being diverted away from the complainers. Few if any of the left-leaning economists (and other like-minded intellectuals) who Berman identifies as leading the charge for using cost-benefit analysis did so because of its ability to ease political pressures on officeholders. Being economists, they simply took for granted the legitimacy and usefulness of thinking in terms of costs and benefits. But politicians, eager to placate those who complain about paying the costs of ambitious new government programs, found it politically convenient to allow these programs to be subjected to cost-benefit analyses. And who better to design and conduct cost-benefit analyses than economists? Indeed, even if no particular individuals explicitly complained about this or that program’s cost, because government cannot grow without someone paying for it, the negative effects of such growth inevitably show up in some form. Because government relied more on newly printed money to pay for its programs, inflation began to rise in the mid-1960s, topping out in 1979 at an annual rate of more than 13 percent.3 At the same time, to fund its expanding activities the U.S. government turned increasingly to deficit financing,4 thus passing larger and larger shares of the bills for today’s programs to future generations. (Unborn voters don’t complain!) It’s true that when government pays for its activities by either printing or borrowing money it doesn’t incite as intense an opposition to these activities as would arise if these activities had been fully funded out of current taxes. But both inflation and deficit financing nevertheless each come with political costs. Eventually feeling inflation’s disagreeable bite, the public expresses its displeasure at the polls. As for growing government indebtedness, a handful of pesky intellectuals—such as the late Nobel laureate James Buchanan5– enjoy some success at warning the public not only that government debt might well be monetized and thus further fuel inflation, but also that the burden imposed by government borrowing on our grandchildren is unjust. It’s hardly surprising that, anxious about these realities, very few elected officials rebuffed the economic style of reasoning; it helped to keep government spending from getting dangerously out of control. And so Berman is correct when she writes about the economic style of reasoning that “[i]n contrast to accounts that see the changes of the 1970s as something ‘done to’ the state by outside actors, whether intellectual movements or political interest groups…. the call is coming from inside the house. The economic style that helps constrain the state is produced, and reproduced, by the state itself.” But she’s incorrect to suppose that the adoption of the economic style of reasoning was avoidable in any way that wouldn’t have bankrupted Americans and their government. Enough government officials, thankfully, understood, if only intuitively, that spending without constraint on the likes of cleaning the environment, supplying medical care, and reducing poverty would devastate everyone’s economic fortunes and, along with these, the political fortunes of incumbent officials. Whether or not these officials additionally understood that follow-on results of such an economic calamity would have included also a dirtier environment, reduced access to medical care, and higher and more widespread poverty is here irrelevant. **** Berman should be commended for treating those with whom she disagrees fairly and with respect. Unlike too many scholars today, she doesn’t put words in her adversaries’ mouths or accuse them of moral depravity. She writes as a true scholar. Nevertheless, my disagreements with her are many. The most fundamental of these disagreements is that, while I agree with Berman that the decision to reject policies the costs of which exceed the benefits reflects a value judgment, I disagree that this value judgment is either dubious or at odds with basic liberal, democratic norms. Instead, this value judgment is one to which nearly everyone subscribes, if most people do so only unconsciously. Nearly everyone is led to do so by the inescapability of scarcity and the corresponding need to make trade-offs. For more on these topics, see Benefit-Cost Analysis, by Paul R. Portney. Concise Encyclopedia of Economics. “How We Failed Our Economics Students and Caused Low Government Approval Ratings,” by Russell S. Sobel. Library of Economics and Liberty, Nov. 4, 2019. Don Boudreaux on Buchanan. EconTalk. Legitimate debates rage over just what counts as costs and as benefits, as well as over how to weigh each of the entries in the cost-benefit ledger. But because a widespread commitment to pursuing certain benefits in disregard of the costs would leave too few resources available for the pursuit of other benefits—and do so without any weighing of the benefits gained versus the benefits foregone—the consequence of a complete casting aside of economic considerations would be a society immensely more poor, dangerous, and unjust than is even the dystopian America that exists today in the minds of many progressives. It’s the odd person whose system of values tolerates such an outcome. Footnotes [1] Elizabeth Popp Berman. Thinking Like an Economist: How Efficiency Replaced Equality in U.S. Public Policy. Princeton: Princeton University Press, 2022. 329pp. + xi. [2] Thomas Sowell, Is Reality Optional?: And Other Essays (Palo Alto, CA: Hoover Institution Press, 1993). [3] Macrotrends, “Historical Inflation Rate By Year”. Interactive chart showing the annual rate of inflation in the United States as measured by the Consumer Price Index back to 1914. [4] Economicshelp.org, “US Federal Deficit % of GDP”. PNG. [5] James M. Buchanan, Public Principles of Public Debt (Indianapolis: Liberty Fund, 1999 [1958]). *Professor of Economics, George Mason University. He blogs at Café Hayek (www.cafehayek.com). For more articles by Donald J. Boudreaux, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Review of China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, by Yuen Yuen Ang.1 The parable of blind men touching an elephant is a good description of how scholars are putting forward theories to explain the growth of China. Wanting to know what an elephant looks like, each man touches one part of it and reaches a different conclusion. The man who touches the leg says the elephant is like a pillar, the one who touches the tail says the elephant is like a rope, and so on. All the men find part of the truth, yet none get the whole picture. For social scientists, one moral of the parable is that our eagerness to generalize knows no bound. People studying the Chinese economy have touched every inch of the elephant and, based on the part they have felt, have come up with dozens if not hundreds of explanations. In her new book China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption, the political scientist Yuen Yuen Ang mentions the parable more than once to point out how the focus and judgment of analysts influence their approach to understanding modern China. Early on, she instills the reader with the confidence that what is in store in the book is more than one touch of the elephant, and that we are finally able to solve China’s growth puzzle: how can an economy grow so rapidly given its rampant amount of corruption? Throughout the book, Ang reminds us how the answers put forward by others all suffer from different levels of blindness. To have a fuller picture of what the elephant looks like, she provides a more subtle definition and categorization of corruption. Ang rightly points out that the conventional measure of corruption, which lumps all sorts of corruption together, is too simplistic. To avoid adding apples to oranges, she proposes to unbundle them into four categories. Corruption may involve theft by officials or exchange to “get things done,” and the officials who participate may be elites at the top or the rest of the Chinese Communist Party mammoth of bureaucrats. The two-by-two dimension gives us four self-explained categories of petty theft, grand theft, speed money, and access money, and Ang shows that it is the last that dominates in China. Ang defines “petty theft” as corruption among non-elites consisting of street-level bureaucrats privately pocketing illegal fees. Corruption involving theft among elites she labels “grand theft,” and includes such examples as siphoning public funds into private funds and embezzlement. “Speed money” involves exchanges among non-elites such as low-level bribes to avoid penalties or prompt services. Finally, “access money” involves exchanges among elites such as business paying massive bribes, allocating positions to politicians’ family, lobbying for favorable regulations, and loose oversight combined with potential bailouts. (page 28) Businesses are eager to pay massive bribes for deals that promise even bigger returns, and high-level officials are happy to sell lands and other goodies under their control to the highest bidder. While resources are egregiously misallocated (think ghost towns of empty housing projects), the prevalence of access money does move the economy forward at least for the short term. Career concerns also ensure that officials are incentivized to keep the local economy growing and attractive to investors, generating competition across regional governments. Ang argues that such a form of blatant corruption is similar to that during the Gilded Age in the United States at the turn of last century, hence the book’s title. The book successfully puts all the pieces together, using a wide range of qualitative and quantitative evidence, and by the end of the book, one is convinced that this must be how the elephant looks. But the story starts to look shaky when we look at the numbers more carefully. The blindness is still there, just of a different kind. As is often the case, the devil is in the details. The main argument of the book is that access money (which promotes growth) dominates in China, and the other three types (which stifle growth) matter less. According to the numbers collected by Ang in Chapter 2 (and its appendix at the end of the book), both as a proportion of all corruption and as an absolute value, access money dominates not only in China. For example, while the other three types of corruption are less of a problem in Brazil, its prevalence of access money is about the same as in China. Yet the growth experience of the two countries is drastically different. The author may argue that the nature of the political regime and forms of access money also matter, but then the story is not only about access money, as the rest of the book is trying to show. The interpretation of the corruption index is also unclear. Russia has more corruption than China under all four categories, but is that enough to explain its much lower average growth rate? If China’s access money score of 7.6 is good enough to be a growth steroid, at what level does it lose its power? Moreover, despite the structural reforms mentioned in the book, China still has plenty of corruption of the other three types. We still often see news about politicians at all levels stealing from the public fund or low-level officials taking small bribes. When we read the fascinating stories of Bo Xilai and Ji Jianye in Chapter 5, it is also obvious that they took in a lot more than just access money. Further, the unbundled corruption index constructed by Ang also shows that China is still far from intact in those forms of corruption that impede growth. Is the stimulating effect of access money that powerful, and how come that does not work for other countries? Again, China’s distribution of corruption does not look unique enough to explain that much growth over such a long period. In the context of regression analysis, Ang may want to demonstrate how much of the cross-section of growth experience can be explained by the unbundled corruption index. If we only look at the 15 countries included in the study, my educated guess is not much. More data is needed to answer this question reliably. “The concept of access money is the hinge of Ang’s argument, but it is doubtful if the modest difference in the corruption index is enough to carry all the weight of explaining the spectacular growth of China.” The concept of access money is the hinge of Ang’s argument, but it is doubtful if the modest difference in the corruption index is enough to carry all the weight of explaining the spectacular growth of China. After the data analysis in Chapter 2, the book carefully puts together evidence from various sources that access money plays a role in China’s economic growth, but at the end the book does not tell us how big that role is. Like the parable of the blind men and the elephant, too much is made of access money, which is merely one of the many features of China’s economic growth. Despite the measurement problem, this book is also frustrating for people who care about the distinction between causation and correlation. The rise of access money is explained by the “value of political connections” that “multiplied astronomically” due to the opening of the economy in the early 1990s (page 83), and according to the description of the book “the rise of capitalism” is “accompanied” by an “evolution from thuggery and theft to access money.” But Ang also repeatedly argues in the book that access money is like a “steroid” that “stimulates” growth. Indeed, after going through chapter after chapter of how “access money” can get things done, one cannot help but form the idea that access money is what pushes China’s growth, and it is assisted by reforms and anticorruption efforts that have reduced the other types of corruption. The narrative seems like a one-way traffic from corruption to growth. The truth is likely to be somewhere in the middle: that corruption affects growth and growth also changes the way corruption is carried out. What is missing in the book is a discussion about the other direction. After decades of dismal economic performance, a substantial part of China’s growth can be explained by catching up and the immense gains from free trade (both internal and external). As the economy expands, the power of allocating resources (land use or other monopoly rights) becomes more valuable, and the prevalence of access money can merely be an outcome. On the other hand, when local governments compete to attract investors (page 91), corruption in the form of theft becomes less appealing. If the distribution of corruption types is mainly a result of growth experience, then the book loses much of its appeal. While it is unreasonable to expect one book to do everything (it will probably take another project to clarify the causal relationship), a clearer stand on the issue would be helpful to the reader. For more on these topics, see Corruption, by François Melese. Concise Encyclopedia of Economics. Economic Freedom, by Robert A. Lawson. Concise Encyclopedia of Economics. Branko Milanovic on Capitalism, Alone. EconTalk. Ang’s idea of unbundling corruption is innovative, and future scholars will likely use and extend her index to answer important research questions. Some of the methodological comments in the book are also refreshing (social scientists will more than chuckle at this sentence on page 207: “Datasets that are easily downloaded and plugged into regressions have shaped concepts, theories, and policies more profoundly than we’d like to admit.”). The collection and analysis of a wide range of data, accompanied by a barrage of sophisticated techniques that include textual analysis and error-correction modeling, is also an impressive scholarly feat. But after reading more than 200 pages of engaging and entertaining prose, I cannot help but feel that the book does not fully deliver what it promises. There is not enough direct evidence to support that access money is a major mechanism behind China’s growth, and the paradox of economic boom and vast corruption is still there. Nevertheless, Ang’s book is a significant first step towards finding out more about the elephant. Footnotes [1] Yuen Yuen Ang, China’s Gilded Age: The Paradox of Economic Boom and Vast Corruption. Cambridge University Press, 2021. *Kwok Ping (Byron) Tsang is an Associate Professor of Economics, Virginia Tech. He is also Affiliated Faculty at the Kellogg Center for Philosophy, Politics, and Economics at Virginia Tech and a member of the Economic Research Centre at the Hong Kong Institute of Asia-Pacific Studies, and is a Co-editor of Contemporary Economic Policy. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

The foundation stone of uniquely human agency is individuals’ ability and propensity to form with others a joint goal, thereby creating an evolutionarily unique, socially constituted feedback control system. ——Michael Tomasello, The Evolution of Agency: Behavioral Organization from Lizards to Humans.1 (Page 97) According to Michael Tomasello, humans are the only species that understand cooperation. Other species might occasionally engage in cooperative behavior, but they are not aware that they are doing so. They are not consciously trying to arrive at a joint plan to reach a goal, to make partners aware of the joint plan, or to ensure shared benefits of reaching the goal. Tomasello describes experimental results comparing chimpanzees with human children: First, if a chimpanzee is collaborating with a partner and unexpectedly gets her reward first, she simply takes it and runs; in contrast, if a young human child gets her reward first, she nevertheless stays committed to the collaboration throughout, delaying cashing in her own reward until her partner gets hers as well. Second, when a collaboration has reached its joint goal, a dominant chimpanzee will, if possible, hog all the spoils and exclude her partner, which means that the pair is unlikely to continue collaborating; in contrast, when a young human child obtains rewards collaboratively with a partner, she almost always divides them equally, which encourages continuing collaboration. (p. 96, references omitted) Agency, as Tomasello describes it, is a feedback control system. An agent has a goal, it takes actions in pursuit of that goal, it assesses whether those actions are moving toward the goal as expected, and if it is off track it alters those actions. The concept of agency thus, in a sense, represents the dividing line between biological and psychological approaches to behavior; it is the distinction between complex behaviors designed and controlled by Nature, as it were, versus those designed and controlled, at least to some degree, by the individual psychological agent. (p. 6) A feedback control system acts like a thermostatically controlled heating system. You set a target temperature for your heating system, it pushes warm air in order to achieve that temperature, and until that temperature is reached, it keeps adding warm air. But I would not say that the heating system has agency. A thermostatically controlled heating system is designed and manufactured by a firm and is controlled by the consumer. It has no autonomy. In the animal kingdom, creatures may be “designed” by evolutionary processes, but they are not manufactured. They have some degree of individual autonomy. Tomasello refers to human cooperation as joint agency, shared agency, or socially normative agency. He argues that joint agency is the end result of an evolutionary process affecting animal brains that took place in four stages. “At each stage of the evolution of agency, an additional layer of cognitive capacity had to be added to our brains.” According to Tomasello, early vertebrates were able to set goals, rather than merely react to stimuli. He calls this goal-directed agency. Early small mammals were able to change strategies for achieving goals. He calls this intentional agency. Ancient apes could make predictions about other animals’ behavior based on their own propensities. He calls this rational agency. Finally, humans were able to work with one another to achieve a joint goal. He calls this shared agency. At each stage of the evolution of agency, an additional layer of cognitive capacity had to be added to our brains. I will focus narrowly on shared agency. Shared agency means that you and I both understand that we are acting in pursuit of a goal. Suppose that I say, “Look to your left.” You choose to do so, because you believe that we have a common goal that is served if you look to your left. Looking to your left is not a reflex. A dog might be trained to obey a command “look to your left.” But I can use completely different words, such as “I see a deer in those trees,” which a trained dog would not recognize. Or I could merely point in that direction. Tomasello sees pointing as an example of a linguistic communication skill that other animals lack, because it requires a brain capable of shared agency. Shared agency leads to rich communication skills. These include using language for deceptive purposes. I could say “Look to your left” to distract you while I take your wallet. Why did agency evolve? Tomasello emphasizes that evolved capacities would not just have appeared out of nowhere. Selection pressure must be at work: The evolutionary hypothesis is that when individuals regularly face situations of uncertainty, the individuals that fare best are those that operate agentively to flexibly assess the situation at hand and make a decision informed by the relevant local contingencies…. My more specific evolutionary hypothesis is that the four main types of agentive organization on the way to contemporary humans evolved in response to four main types of uncertainties, created mainly by four different types of social interaction. (p. 12-13) The first layer of the brain evolved in response to uncertainty about where food might be found. A second layer was added in response to uncertainty about which path to food would be most successful. A third layer was added in response to the need to compete with other creatures for food. Humans evolved in a context in which increased crowding elevated the challenges of foraging for food. To meet those challenges, humans learned to collaborate. Tomasello believes that this evolution took place in two steps: The initial step was early human individuals (before the emergence of Homo sapiens) coming to collaborate with one another in face-to-face interactions to pursue collaborative goals, especially in the context of foraging. Early human individuals formed with other individuals a joint agency. The second step was modern humans (early Homo sapiens sapiens, before agriculture and civilization) coming to form distinct cultural groups, each pursuing its own collective goals with its own cultural practices. Modern human individuals formed with others in their cultural group a collective agency. (p. 91-92) The cognitive requirements for shared agency are steep: What could be riskier and more uncertain than forgoing pursuit of one’s own individual goal to try to align and coordinate toward a common goal with a partner who has her own individual goals and values? And the risks and uncertainties are only magnified when the “partner” is an entire cultural group. Making these new socially constituted forms of agency work thus required ancestral humans to develop both new skills of social coordination and new social motivations. (p. 92) I would propose that a third step was required when humans formed large collective entities, such as cities. That step was the development of formal rules. Informal norms and social pressure are adequate for regulating behavior among people who know one another. The Dunbar number suggests that this would apply in groups of about 150 or less. For larger entities, explicit laws and well-defined roles are necessary. A small start-up business does not need an organization chart or a written procedures manual. A large, established business cannot get along without such formal elements. By the time we reached this third step, human development consisted more of cultural evolution as opposed to basic biological changes to our brains. Cultural evolution continues, and at a far faster rate than biological evolution. For more on these topics, see “The Social Learning Animal,” by Arnold Kling. Library of Economics and Liberty, Jun. 5, 2017. “A WEIRD Turn in Social Science,” by Arnold Kling. Library of Economics and Liberty, Nov. 2, 2020. “The Fundamental Rule of Social Morality,” by Arnold Kling. Library of Economics and Liberty, Sep. 7, 2015. Many important cognitive skills serve the purpose of collaboration. A long period of childhood enables a new human to acquire cultural knowledge before dealing with adult problems. The ability to recall the past and plan for the future enables more complex forms of collaboration. The ability to produce written records enables us to make long-term agreements and bring cultural knowledge into the future. Unfortunately, each stage of cultural evolution only solves some problems. Other problems persist. We still have conflicts between individuals. We still have conflicts between cultural groups. New cultural tools can sometimes help us to mitigate conflicts, but it seems that new ideas and technologies can just as easily exacerbate conflicts. Footnotes [1] Michael Tomasello, The Evolution of Agency: Behavioral Organization from Lizards to Humans. MIT Press, 2022. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)