On February 9, the Wall Street Journal reported a “victory” for intellectual Property (IP) rights, with the subhead: “Case Seen as test of how a company can exercise its IP rights against virtual assets.” Okay, we kind of get that: This is about assets that exist in cyberspace. The French luxury brand, Hermès International SA, had gone to federal court in Manhattan to sue an “entrepreneur and artist,” Mason Rothschild, and won modest damages ($133,000)—but “the legal principle was large.” The court upheld Hermès right to the “Birkin” trademark in cyberspace. The story quoted Felicia Boyd, an attorney with Norton Rose Fulbright LLP, as saying that brands like Hermès had sought clarity on the their legal rights “as virtual reality expands.” In this case?  Their legal rights regarding non-fungible tokens (NFT) that can be “transferred to digital worlds in the metaverse.” The concept of IP has been repeatedly expanded and redefined. Readers once read stories about “property rights” in the airwaves, including rights to specific frequencies. David Henderson writes in “How the Electronic Spectrum Became Politicized: We learn how Hoover’s decision [not to enforce property rights to the airwaves] started a path leading to government control that is still with us today. [Thomas Winslow] Hazlett shows that the FCC has, for over 80 years, set itself up as a central planner, creating the usual problems that central planning creates. The planners are in the dark about the best uses of the electromagnetic spectrum, but that hasn’t stopped them from planning. Hazlett shows how FCC regulation slowed FM radio, cable television, and cellular phones by decades, destroying many hundreds of billions of dollars of value. And, as a bonus, FCC regulation reduced free speech on radio and TV, something that still exists today. The same confusion could engulf cyberspace. That is why the decision in favor of Hermès may qualify as “landmark,” the first trial ever of the NFT/intellectual property nexus. So, what are nonfungible assets (NFTs)? On the blockchain—a  online distributed ledger with the same version on the computer of every participant so all transactions and exchanges are known to very participant—“tokens” have been currency. The prime example is Bitcoin, but there are legion others. These tokens, created by “mining” under a strictly defined set of rules, are used to pay for goods, settle contracts, pay debts, and can be exchanged for other tokens or national currencies at a rate reset continuously on exchanges like Coinbase. There is a huge market for these cryptocurrencies, establishing their value at any given moment. An innovation introduced to the blockchain has been non-fungible tokens (NFTs). As just explained, blockchain tokens like Bitcoin are fungible—that is, exchangeable at a known rate for other tokens or for national currencies. NFTs are not fungible; they are unique. In some cases, they represent ownership of “things” and the blockchain makes it possible to give each a unique, unduplicatable identifier. They can be a digital “chit” for a piece of real estate or a share in a company or collectibles. The advantage is that this property can be exchanged without a broker, or a commission, online. NTFs also can be valuable and collectible in themselves. An artist creates a certain digital image, an “artwork,” in the form of an NTF. Each instance of the image is a unique token, a digitally defined concrete that no one can duplicate. Even if there are thousands that look the same. What the artist sued  by Hermès created is called a “MetaBerkin.” NTFs began in a small way in 2014 with a design tokenized by Kevin McKoy on a blockchain. Every blockchain and every token is created to conform with a standard. The most popular and powerful standard is Ethereum, which specifies all rules and requirements of a blockchain, including, for example, transfer of ownership and confirmation of transactions. With this foundation, by 2021, a group of NFTs by a digital artist, Beeple, sold for more than $69 million—at that time, the most expensive digital art ever sold. The artwork sold was a collage of Beeple’s own work. Subsequently, tokens of the work of photographers, sports celebrity art, trading cards, ownership in virtual worlds (want to own an avatar?), art, other collectibles, domain names, and music all were tokenized—made into unique property, registered, and verified on a blockchain ledger. NFTs became a hot business. Hermès sued Mason Rothchild for using the image of the Hermès Birkin handbag, released in 1986 and today a symbol of luxury with a price tag beginning at $12,000 but in some case as high as $200,000. It is an icon of luxury spending. Mr. Rothchild transferred an identifiable but cartoonish version of the Berkin image to an NFT. To own this NFT meant that you owned one unique image of a Birkin handbag called the MetaBerkin. Rothchild launched a frenzied marketing campaign, raised financial backing, and sold some 100 hundred MetaBirkins. The first few sold for about $500, but their value soared, and they began to sell for the same price as the real Birkin handbags. (It is not within the scope of this article to speculate on the motives of buyers of these NFT artworks.) Hermès argued in court that Mr. Rothchild was profiting unlawfully from the brand-recognition of Birkin—in effect, selling the company’s trademarked product in the virtual marketplace. And undercutting the company’s potential market if it did enter the virtual marketplace. Bloomberg reports that Hermès filed suit when a survey “found a net confusion rate of 18.7 percent among potential NFT buyers.” Mr. Rothchild and his attorneys disputed the accuracy of the survey but argued, above all, that Mr. Rothchild is an artist creating work protected by the First Amendment to the U.S. Constitution. His work is protected as free expression, they claimed, making a socially significant statement about “conspicuous consumption.” During the trial, Mr. Rothschild’s attorneys argued that the brand’s trademark rights didn’t apply to his series of MetaBirkins just as trademark rights did not apply to the artworks of Andy Warhol, who depicted consumer products. Commenting on the jury’s decision, Rothchild’s attorney, Rhett Millsaps, lamented: “Great day for big brands. Terrible day for artists and the First Amendment.” He went on to say that big Hermès is picking on individual artists. Mr. Rothschild called the jury’s decision the result of a broken justice system, vowing: “This is far from over.” In fact, however, companies such as Nike and Miramax LLC are doing or planning the same thing as Mr. Rothchild: to create NFTs of their products to market just as the MetaBirkin “art” is marketed. Except they view it as marketing a different version of their trademarked product, not creating art. Hermès told the jury that it does not yet sell NFTs but has been developing plans to do so and MetaBirkins harmed its ability to break into the market. If Mr. Rothchild had won, said one IP attorney, Maurico Uribe, with the firm of Knobbe Martens, there would have been significant disruptions in IP law. In other words, it would have been open season for “artists” using brand images and company reputations to sell high-priced digital “knockoffs” of their products online. Did Mr. Rothchild incorporate the Hermès Birkin image into his “digital art” to make a point about conspicuous consumption? And only incidentally because of the huge bucks involved in selling “virtual” ownership of a Birkin bag? Hermes attorneys cited emails Mr. Rothchild sent to potential backer saying “We’re sitting on a potential goldmine.” The blockchain can create “virtual assets” but if their market value depends on the market value of brands created and promoted by companies in the real world, then the value of intellectual property created by Hermès or any other company is being stolen. The issue at trial became the “blurred line” between the right to artistic expression under the First Amendment and property rights. The jury decided that the issue was property. To turn to philosophy for a moment, “artistic or intellectual rights” do not trump property rights. That is a false premise based on the mind-body dichotomy. The complexity, and the blurred lines, arose because the alleged artistic creation was in cyberspace, and sold on a blockchain. The did not seem to baffle the jury, however, which decided that the monetary value of what the artist sold had been created by Hermès. The decision seems an initial promising victory for intellectual property rights in a new era of complexity introduced by new technology. But either juries will have to draw new “bright lines” for intellectual property in virtual reality or Congress will barge in as always. It is a fond hope that Congress will take the approach of clarifying the application of property rights instead of creating a new field of government regulation so that bureaucrats can call the shots. Walter Donway is an author and writer with more than a dozen books available on Amazon and an editor of the e-zine Savvy Street. He was program officer or director at two leading New York City foundations in the healthcare field: The Commonwealth Fund and the Dana Foundation. He has published almost two dozen articles in the Blockchain Healthcare Review. (0 COMMENTS)

In 2020, the Fed promised to maintain an average inflation rate of 2%. They abandoned that promise as soon as it was convenient to do so.After the 2008 banking crisis, the government promised to refrain from bailing out small and mid-sized banks and instead allow FDIC to handle the situation. According to Bloomberg, that promise is also being reneged on: US authorities raced on Sunday to stem jitters about the health of the nation’s financial system, pledging to fully protect all depositors’ money following the collapse of Silicon Valley Bank while also giving any banks squeezed for cash easier terms on short-term loans. . . . The Fed in a separate statement said it’s creating a new “Bank Term Funding Program” that offers loans to banks under easier terms than are typically provided by the central bank.Fed officials said on a briefing call that the facility will be big enough to protect uninsured deposits in the wider US banking system. This is even worse than only bailing out SVB.  It means that other banks will get similar protection.  It is tempting to think that bailouts solve the problem, but in fact they just make it worse.  The underlying problem is moral hazard, and each bailout makes people behave even more recklessly going forward. One common misconception is that moral hazard is not a problem because bank shareholders at SVB will lose a lot of money.  That misses the point.  Moral hazard doesn’t cause banks to want to fail, but it does tilt the optimal bank strategy toward a socially excessive amount of risk taking.  Obviously most banks don’t fail even under our dysfunctional system, but the problem is getting steadily worse despite an endless series of regulatory fixes that don’t address the root cause of the problem.  When regulators plug one gap, banks find an alternative method of loading up on risk. Another misconception is that we cannot reduce moral hazard because big depositors don’t pay attention to bank risk.  Of course they don’t.  Why should they?  But what if they feared losing their money? The only solution is to reduce moral hazard.  Instead, we are moving in exactly the opposite direction—adding to moral hazard.  Financial crises will get ever more frequent in the decades ahead. PS. This made me roll my eyes: SVB depositors “will have access to all of their money starting Monday, March 13,” the government said in a statement, adding that taxpayers won’t be responsible for any losses associated with SVB’s resolution.  No cost to taxpayers?  Let me guess—the Treasury has a magic wand. (0 COMMENTS)

There is a rational, self-interested reason to choose a strategy, and establish a reputation, of non-lying. This idea been recently illustrated by the condemnation of Alex Murdaugh for the murder of his wife and son, and by Sergei Lavrov, the foreign minister of the Russian government during a conference in India. The theory is that if one follows a strategy of non-lying and succeeds establishing his reputation for telling the truth, he is more likely to be believed in the future. And to be believed and trusted is useful in any social relation. I have no special insight about the trial and condemnation of Alex Murdaugh, scion of a family of prosecutors and himself a former part-time prosecutor in South Carolina. And I have no reason to question the jury’s verdict. My point is that the jury had reasons to doubt Murdaugh’s testimony in his own defense if only because he repeatedly admitted that he had lied in several other occasions (see “Alex Murdaugh’s Trial Lasted Six Weeks. Two Days Mattered Most,” Wall Street Journal, March 3, 2022): The jurors heard Mr. Murdaugh, turned toward them and in tears, say that he had lied to dozens of people, hundreds of times, but he would not lie to them about the brutal killing of Maggie and Paul, who were both fatally shot at close range. He told jurors that he lied to law enforcement about his whereabouts the night of the shooting. … One by one, [the local prosecutor] ticked off a series of dozens of names, asking Mr. Murdaugh if he had lied to that person’s face. With rare exception, Mr. Murdaugh said he had. He admitted to stealing money from friends and clients, including his close friend Barrett Boulware, who was nearly destitute and on his deathbed at the time, and Hakeem Pinckney, a deaf teenager who had been rendered a quadriplegic in a car crash. As for Mr. Lavrov, as he was answering questions at a conference in Delhi after a G20 meeting, he mentioned that the war in Ukraine had been “launched against us.” The audience reacted with a short burst of laughter, which, for an instant, destabilized even a habitual liar like Lavrov. He is more used to be called “Excellency.” It is worth watching a video of the event—for example the one on the website of the BBC, or one of the many others available on YouTube. The Guardian reports (“Russian Minister’s Claim Ukraine War ‘Launched Against Us’ Met With Laughter,” March 4, 2023): “The war, which we are trying to stop, which was launched against us using Ukrainian people, of course, influenced the policy of Russia, including energy policy,” he said, briefly stumbling over his words as people in the audience laughed. If you become known as a liar, nobody will believe you. Lavrov, however, is hired by a state that requires that he lie. The penalty for not lying might be death or at least much discomfort, so his incentives are to try to square the circle: lie each time he is asked to, and try to maintain some credibility outside his den of liars. Which brings me to my second general point: as game theory and ordinary economic reasoning suggest, the individual’s optimal strategy changes if a critical number of liars is reached in a society. At the limit, there is no reason to tell the truth because nobody will believe you anyway. This result has a bearing on the conditions, including possibly the moral conditions, for the maintenance of a free society. Both Friedrich Hayek and James Buchanan emphasized, from different viewpoints, the moral dimension. (0 COMMENTS)

Fortunately, Erica York, a senior economist at the Tax Foundation, nicely shows why stock buybacks often make sense. They tend to happen when a firm doesn’t have better investment options. Stock sellers can then use the funds to invest in firms that do have better investment options. Oh, and by the way, who owns a large percent of corporate America? Pension funds. Many workers rely on these funds for their retirement. Those tears that Schumer and Biden are shedding for workers are crocodile tears. This is the last paragraph of David R. Henderson, “Stock Buybacks Are Good, Not Bad,” TaxBytes, Institute for Policy Innovation, March 9, 2023. Read the whole thing, which is short. (0 COMMENTS)

Throughout our history, the US has always had a dysfunctional banking system. There was never a golden age of American banking. That doesn’t mean the system was always in crisis, but the potential for crises was always there.  (Even in the 1970s.)  This isn’t Canada.There are many problems with the US banking system, but they all tend to revolve around the combination of too many undiversified banks and the socialization of financial losses.  That combination creates moral hazard, which encourages excessive risk taking. This tweet caught my eye: There is no “if”.  We are in trouble, and we’ve been in trouble for our entire history.  And if depositors have confidence in deposits that exceed $250,000, then we will be in even greater trouble.  The moral hazard problem will become even greater.  Unfortunately, I suspect that SVB depositors have little to fear. Dodd-Frank was supposed to fix the “problem” after the 2008 banking crisis.  In fact, it did almost nothing to fix the underlying problem because key segments of the business and political world did not want the problem fixed.  It’s easier to have a system where the profits are privatized and the losses are socialized, with taxpayers picking up the tab.  Neither political party favors any sort of effective reform of banking.   So here we are again.  In a follow-up tweet the congressman suggested “Bank management must be investigated”: I’m reminded of that scene in Casablanca where the officer was shocked to discover that gambling was occurring in Rick’s establishment.   It’s politicians that passed Dodd-Frank.  It’s politicians that passed FDIC.  It’s politicians that object to bank mergers that would make banks more diversified, less brittle.  It’s politicians that demand bailouts even to depositors above the $250,000 threshold.   An investigation?  Look in the mirror. PS.  I see complaints that sophisticated Silicon Valley investors couldn’t be expected to devise a safe way of storing their funds.  Matt Yglesias provides some useful perspective: (Bucks fans know that the number 50 has special meaning for Giannis.) (0 COMMENTS)

French President, Emmanuel Macron, might witness a game-changing moment in India as we go bullish on nuclear energy and say goodbye to our energy crisis for good. As he plans to visit India in early 2023, there is a newfound sense of urgency to expedite the construction of 1,650 MW nuclear power reactors at Jaitapur in Maharashtra, which could become the nation’s largest nuclear power site once completed with a total capacity of 9,900 MW. India is the world’s second most populous country, with over 1.4 billion people, and it is projected to be the world’s most populous country by 2023. India is also the world’s fastest-growing major economy, with an annual growth rate of 8.9%. India must ramp up its energy production to sustain this rapid economic growth. And for this, nuclear energy is a safe, reliable, and carbon-free source of energy that can help India achieve its energy and climate goals. Since the last few decades, nuclear energy has faced skepticism and fierce resistance in Europe and the western world at large. Influential non-profits such as Greenpeace lobby against nuclear energy and claim that it “has no place in a safe, clean, sustainable future. Nuclear energy is both expensive and dangerous, and just because nuclear pollution is invisible doesn’t mean it’s clean. Renewable energy is better for the environment and the economy and doesn’t come with the risk of a nuclear meltdown.” They are, of course, wrong and wrong by a long margin. Accidents at nuclear power plants are extremely rare. In the nearly 60 years that nuclear power plants have been in operation, there has only been one major accident: at the Fukushima Daiichi power plant in Japan in 2011. This accident was caused by a tsunami, which knocked out power to the plant’s pumps and led to nuclear fuel meltdown. However, the safety systems worked as they were designed to, and no one was injured or killed by the release of radiation. Talking about the Chernobyl disaster, it was a failure of the top-down government system of the Soviets and not of nuclear power. The Soviet Union’s centrally-planned economy meant that decisions about safety and risk were made by few at the top, without much input from those who handled the technology. This resulted in a culture of secrecy and cover-ups, preventing the spread of information and the implementation of necessary safety measures. The Chernobyl disaster was a direct result of this top-down decision-making approach. If the Soviet Union had better institutions, the tragedy could have been avoided. European politicians chose to ignore these facts and closed their nuclear plants. And now they are stuck with Russian gas. Nuclear is still their best shot — along with fossil fuels, only because they chose to close down their nuclear plants — at reducing their dependence on Russia. Still, European policymakers have forced a rapid transition from fossil fuels and nuclear energy to renewable sources. The problem is that renewable resources are not ready yet, which has caused an energy shortage, leading to price spikes and gas shortages. European policymakers should allow energy buyers to sign long-term gas import contracts, reverse nuclear phaseouts, and give natural gas a new look to make their respective country’s energy secure and independent. If such discourse has hijacked the energy policy narrative in Europe and managed to cause an energy shortage there, it can happen to India too. We have active anti-nuclear energy movements and chapters of anti-growth organizations in our country, including Greenpeace. Thankfully, India is choosing to invest in nuclear power. Even the pandemic did not stop the government from progressing on this path. Minister of State for Personnel, Public Grievances, and Pensions Jitendra Singh announced in the Rajya Sabha that by 2024, nine new nuclear reactors would be up and running, with a capacity of 9000 MW. This is in addition to the 12 reactors approved during the pandemic. This is the right thing to do, and we must continue investing in nuclear power and stand against any unfair criticism. Nuclear power is a low-carbon energy source that can help India reduce its greenhouse gas emissions and combat climate change. Nuclear power plants do not emit greenhouse gases or air pollutants and have a very small land footprint. In comparison, coal-fired power plants are a major source of air pollution and greenhouse gas emissions. As researchers have found, “Compared with nuclear power, coal is responsible for five times as many worker deaths from accidents, 470 times as many deaths due to air pollution among members of the public, and more than 1,000 times as many cases of serious illness, according to a study of the health effects of electricity generation in Europe.” Investing in nuclear energy would also help India achieve energy security and independence. India is currently heavily reliant on coal imported from other countries. This dependence on imported coal leaves India vulnerable to price fluctuations and supply disruptions. In contrast, India can build nuclear power plants to use indigenous uranium resources, providing the country with a secure and reliable energy source. One can switch to solar, wind, or hydroelectric power, but these energy sources have limitations. Solar and wind energy are variable and intermittent, meaning they cannot be a constant and reliable energy source. Hydroelectric power causes floods, which in turn, causes damage to people’s homes and their way of life. Hydropower also blocks sediment flow and disrupts fish movement, which negatively impacts the local ecosystem. In contrast, nuclear power is the only carbon-free energy source that is scalable, reliable, and available today. India must increase its energy production to maintain its status as a world power and leader in economic growth. The world would have had 72 billion more tonnes of carbon dioxide in the atmosphere if it were not for nuclear reactors. Imagine what our county — and the world — can be if most of our energy is produced using nuclear power. Nuclear power is a proven and commercially available technology that can provide India with the clean and reliable energy it needs to power its economy and meet its climate goals. We must continue to be bullish on nuclear energy and ignore the critics whose agendas are based on the degrowth movement rather than science.   Adnan Abbasi is currently pursuing a Bachelor of Arts (Hons.) degree in Social and Political Science from Ahmedabad University. He is the Regional Coordinator for Academics & Research with Students for Liberty and a Writing Fellow at Students for Liberty’s Fellowship for Freedom in India. (0 COMMENTS)

We should expect politicians to lie, or at least to make misleading statements, whenever they can get away with it. But we would normally expect the Financial Times to be careful with information (which is why I have been an addict to this newspaper for most of my life). An exception is their story of yesterday on president Joe Biden’s proposed budget (“Biden Proposes Big Tax Rises in Budget to Shave $3tn off US Deficit,” March 9, 2023): According to the economic assumptions underpinning the budget, the White House expects the consumer price index to fall to 4.3 per cent in 2023 and 2.4 per cent in 2024 — a significant step down from its current 6.4 per cent level. The unemployment rate, meanwhile, is projected to rise to 4.3 per cent in 2023 and climb another 0.3 per cent in 2024 to peak at 4.6 per cent. There was still no erratum or correction at 10:48 Eastern Time today, nearly 24 hours after the original publication online The first sentence is simply false, or totally nonsensical. The consumer price index (CPI) is an index of the general price level. The index stood at at 296.797 in December 2022. It can never ever be 4.3% or 2.4% (contrary to the  unemployment rate, reported in the second sentence, which is a percentage by definition). What the Financial Times means is that the consumer price index is expected to continue increasing by (a change) 4.3% in 2023 and 2.4% in 2024, but at a slower rate than the increase of  6.4% from January 2022 to January 2023. These percentages are the inflation rates of the CPI level. (More technically and precisely, they are the inflation rates as estimated by the changes in the CPI level.) The Wall Street Journal did not commit this elementary error. We should discount the possibility that the Financial Times journalists or their editor don’t know the difference between a level and a change, between the value of a variable and its first difference. Is it just very sloppy writing or editing, then? Note that replacing “to” with “by” in the first sentence is still incorrect, for inflation will continue to increase according to the government’s own assumptions. Errare humanum est, of course, but the Financial Times has accustomed its readers to higher standards. I cannot find the same error in the government’s actual budget documents. So the Financial Times can probably not pretend that they just reproduced a government’s blurb without quotation marks, which would be at least as inexcusable anyway. The elementary confusion between a variable’s level and its change often leads to more consequential problems and is a choice means of governments’ subliminal propaganda. For example, a budget deficit corresponds to an increase (a change) in the level of the public debt. When Biden writes that his budget is “lowering deficits by nearly $3 trillion over the next decade,” he means that the otherwise forecasted accumulated deficits of $19.9 trillion over the coming 10 years are now forecasted to be reduced by $2.9 trillion (largely through his tax increases). But this means that the accumulated deficits will have added $17 trillion (a change) to the public debt level over that period. Upon reflection, the title of the Financial Times story is also misleading. Especially on the first error, the only other excuse I imagine the Financial Times could find is to claim that its readers are sophisticated enough know all this; and that it can consequently afford impressionistic writing. Risky assumption! And if it had a strong connection to reality, what would be the use of analysis? Why doesn’t the Financial Times just publish quotes from the government budget documents along with a few tables (notably Table S-9 on “Economic Assumptions”)? Or even better, simply give a link the White House budget web pages? (0 COMMENTS)

Oh my God, checks and balances.  In “Economic Lessons From COVID-19,” Reason, June 2021, I ended my article with the following: Just as even paranoids can have real enemies, even optimists can have real grounds for hope. I think almost all of us were surprised at how quickly most governors and many mayors moved to close down major sectors of the economy. This was a really large attack on economic freedom, the largest in my lifetime, and it happened within days. In most cases, executives did it with zero consent from legislatures. They used existing law to the limit and, some legal scholars say, beyond the limit. I doubt those officials typically thought in March 2020 that we would still be locked down in January 2021. But the lockdowns took on a life of their own. Recall, though, an earlier anti-liberty episode that was not nearly as shocking as the lockdowns. In 2005’s Kelo v. New London, the U.S. Supreme Court gave its blessing to a city government’s use of eminent domain to expropriate property from homeowners and transfer it to a private entity, the New London Development Corporation. This sent shockwaves through the country. The Institute for Justice, which represented the losing side before the Supreme Court, has noted that the decision “sparked a nation-wide backlash against eminent domain abuse, leading eight state supreme courts and 43 state legislatures to strengthen protections for property rights.” Could we see a similar response to the lockdowns? Already there have been some moves at the state level to limit governors’ lockdown powers. A bill that passed both the House and the Senate in Ohio would have limited the Ohio Department of Health’s power to quarantine and isolate people, restricting it to only those who were directly exposed to COVID-19 or diagnosed with the disease. Similarly, in Michigan, the Senate and House passed a bill to repeal a 1945 law that Gov. Gretchen Whitmer had used to impose the state’s rather extreme lockdowns. Both bills were vetoed, but I doubt that will be the end of the story. Even if it doesn’t happen until this particular pandemic is over, there’s good reason to believe that some state legislatures will want a say in future decisions. Whatever the case for letting governors move so quickly early last year, that case gets weaker and weaker the longer the lockdowns last. At some point, legislators just might roll back those powers. Or so we can hope. When I wrote, “Could we see a similar response to the lockdowns?” in January 2021 (there was a long lag before publication), I proceeded to make a hopeful prediction. According to the Washington Post, what I hoped for has come about in many states. The WaPo, as is its wont, makes it sound scary. And Tyler Cowen repeats the WaPo’s fear-mongering without comment. In “Covid backlash hobbles public health and future pandemic response,” Washington Post, March 8, 2023, Lauren Weber and Joel Achenbach write: When the next pandemic sweeps the United States, health officials in Ohio won’t be able to shutter businesses or schools, even if they become epicenters of outbreaks. Nor will they be empowered to force Ohioans who have been exposed to go into quarantine. State officials in North Dakota are barred from directing people to wear masks to slow the spread. Not even the president can force federal agencies to issue vaccination or testing mandates to thwart its march. But when it gets to details, it becomes more understandable. A few paragraphs down, Weber and Achenbach write: Health officials and governors in more than half the country are now restricted from issuing mask mandates, ordering school closures and imposing other protective measures or must seek permission from their state legislatures before renewing emergency orders, the analysis showed. The conjunction “or” is doing a lot of work in the above paragraph. Many people of various persuasions have thought that during the pandemic the public health bureaucracies exercised too much power with too little oversight and, moreover, focused on one variable rather than admitting tough tradeoffs. Disappointingly, Tyler Cowen was never clearly in this group of critics. So it’s refreshing to see legislatures taking back their power. That’s what checks and balances are all about. Near the end of the article, Weber and Achenback write: “One day we’re going to have a really bad global crisis and a pandemic far worse than covid, and we’ll look to the government to protect us, but it’ll have its hands behind its back and a blindfold on,” said Lawrence Gostin, director of Georgetown University’s O’Neill Institute for National and Global Health Law. “We’ll die with our rights on — we want liberty but we don’t want protection.” That brought back memories. About 15 years ago, Lawrence Gostin and I shared a limo from Topeka to Kansas City, Missouri. We had both spoken earlier that day at a conference of cardiologists. I mainly questioned and listened and got to know a lot about how he thought. By the end, although I found him likable, I also found myself hoping he would never get much power over people’s lives. My sense then, and my sense from this quote, is that he would almost always trade away liberty for protection without thinking about tradeoffs the way economists trained since the marginal revolution have done.   (0 COMMENTS)

How would you react if a close friend made the following statement:“Of course, I am firmly opposed to infidelity, but I’ve discovered that it’s not so bad as I had thought. I have a friend who is currently having a passionate affair that is adding spice to his life. He says that he will eventually end the relationship and then go back to being a faithful spouse, refraining from future affairs.  His partner will not discover the indiscretion, and hence no harm will be done. Again, I’m firmly opposed to infidelity, but on reflection I have grown to appreciate its silver linings.”I suspect that you’d have roughly the same reaction as I would.Tyler Cowen has a new Bloomberg column explaining why conservatives might benefit from a bit of inflation. It begins with a standard criticism of inflation: I myself am not happy about an inflation rate of 4% to 5%, which seems embedded in the economy right now. After this statement, Tyler discusses a number of benefits from the recent bout of high inflation. Toward the end, he warns readers not to be entranced by his rosy description of inflation’s effects: Of course the Fed should put such considerations aside and stick to its mandate for price stability. The rest of us, however, are free to appreciate some of the benefits of higher inflation, at least for a while. Hmmm. I’m reminded of Marc Anthony’s famous eulogy in Shakespeare’s Julius Caesar.  Obviously, Tyler doesn’t have space to list all of the negative effects, but readers may ask themselves if inflation actually has all the pleasant effects described in the column, then why is it “of course” the case that the Fed should stick to price stability?  Inflation is a complex subject, and it’s not always clear what people mean by “the effects of inflation”. Supply side inflation? Demand side inflation? The welfare effects of these two shocks are radically different.  In context, it’s pretty clear that Tyler is referring to demand side inflation in the Bloomberg column, as he alludes to effects such as the reduction of the ratio of public debt to GDP (which doesn’t occur unless NGDP growth rises.)  In other words, when discussing “inflation”, Tyler is actually considering some benefits from faster NGDP growth.  So I’ll focus on demand side inflation. I don’t want to get into a line-by-line rebuttal of Tyler’s column.  The standard model predicts that demand side inflation has important short run non-neutralities and no important long run real effects on the economy.  That also seems to be Tyler’s working assumption.  But when discussing the welfare effects of inflation, it makes more sense to focus on the long run effects.  I worry that many people think in the following terms: 1. The short run effect of inflation on X is positive. 2. The long run effect of inflation on X is zero. 3.  Therefore, the combined short and long run effect of inflation on X is positive. I don’t know if that’s Tyler’s view, but I suspect many readers will draw that conclusion.  In my view, that’s not how things work.  Take the example of the public debt.  It’s tempting to view inflation as a short run boom to taxpayers, as it reduces the real burden of the debt.  Perhaps if the Fed quickly gets inflation under control, there’ll be no long run damage.  Here’s Tyler: To be clear, it is not easy to reap very large gains through this inflationary mechanism. If high inflation continues for too long, interest rates will adjust upwards to the point at which inflation may be increasing the burden of future debt. The past debt may be worth less, but the higher costs of future borrowing may, on net, push government budgets further out of balance. In that scenario, the US might end up with both tax hikes and high inflation. So the risks are real. But there is a decent chance it will work out, at least if the Federal Reserve can get inflation back under control again fairly soon. I don’t believe there is a “decent chance” that things will work out in this way.  That’s not to say inflation and interest rates won’t decline at some point–I believe they will.  But this sort of monetary infidelity will impose a price on future borrowings.  If inflation really were painless, the government would do it again and again.  More likely, it won’t be painless.  Investors will understand that the Fed is less committed to 2% inflation than they had previously imagined, and demand a higher inflation premium when lending to the Treasury.  (Recall the 1980s.) It’s best to view public finance from a “timeless perspective”.  Over a period of decades and centuries, policymakers will occasionally enact inflationary policies.  Over the long run, investors will rationally adjust their behavior in such a way as to be compensated for the risk of occasional high inflation.  During actual bouts of unexpected inflation (such as the 1970s), lenders will not be fully compensated.  During other periods (the 1980s), they’ll be over compensated.  It’s analogous to the way that insurance companies over charge you during periods when you drive safely and undercharge you during years when you have a major accident.  Over the long run, insurance companies figure out a level of premiums that provides an appropriate compensation. Tyler also looks at the impact of inflation on the wages of different segments of the labor market.  Once again, the effects of inflation are neutral in the long run, and thus any distributional effects will reverse after a few years. Don’t be attracted by the siren song of short run monetary non-neutralities.   (0 COMMENTS)