Raghuram Rajan recently offered some advice on monetary policy regimes: [T]he balance of risks suggests that central banks should reemphasize their mandate to combat high inflation, using standard tools such as interest rate policy. What if inflation is too low? Perhaps, as with COVID-19, we should learn to live with it and avoid tools like quantitative easing that have questionably positive effects on real activity; distort credit, asset prices, and liquidity; and are hard to exit. Arguably, so long as low inflation does not collapse into a deflationary spiral, central banks should not fret excessively about it. Decades of low inflation are not what slowed Japan’s growth and labor productivity. Aging and a shrinking labor force are more to blame. I think it’s a mistake to adopt asymmetrical policy targeting, where you combat above target inflation and tolerate below target inflation.  Better to set a target path (preferably NGDP) and eliminate deviations in either direction. But here I’d like to focus on a different issue.  While Rajan doesn’t say this explicitly, his comment implies that tolerating low inflation is an alternative to quantitative easing (QE).  In my view, toleration of very low inflation is a cause of QE.  To see why, let’s review a few concepts in monetary economics: 1. The demand for base money (as a share of GDP) is negatively related to the trend rate of inflation/NGDP growth.  Prior to 2008, most developed countries had monetary bases of roughly 5% to 10% of GDP.  In extreme cases of very high inflation, base demand can fall to 1% or 2% of GDP.  At the opposite extreme, countries with very low inflation (such as Japan and Switzerland) have base/GDP ratios exceeding 100% of GDP. 2.  In a technical sense, central banks do not have to accommodate high base demand with QE policies.  But if they fail to do so, a country can fall into severe deflation, as we saw in the early 1930s in the US.  Thus in a political sense, a high base demand as a share of GDP almost forces central banks to engage in lots of QE.  The central banks of Switzerland and Japan are not left wing organizations.  They are (small c) conservative.  They have accumulated large balance sheets as a way of meeting a high demand for base money, and thus preventing outright deflation. Rajan is correct that Japan has adapted to a regime of low inflation (although the initial adjustment process during the 1990s was somewhat painful.) But I don’t think the example of Japan shows what Rajan seems to think it shows.  In the long run, Japanese success in maintaining a very low inflation environment has required much more extensive QE policies than those adopted by either the Fed or the ECB. Toleration of very low inflation is not an alternative to QE; in the long run it’s the primary cause of QE.  There is a close analogy with monetary policy and interest rates.  On any given day, a cut in the central bank’s interest rate target is expansionary (for any given natural rate of interest).  But over the longer run, a central bank with a contractionary policy regime that leads to low inflation will end up with lower nominal interest rates than a central bank that tolerates a high trend rate of inflation. In the long run, there are three regimes that central bankers can choose from: Regime A:  Very low trend inflation.  Very low nominal interest rates.  Lots of QE and a large central bank balance sheet.  (Japan and Switzerland are examples.) Regime B:  Moderate trend inflation.  Moderate nominal interest rates.  Very little QE and a moderate size balance sheet.  (The US prior to 2008.) Regime C:  High trend inflation.  High nominal interest rates.  Substantial QE (financing budget deficits), but small central bank balance sheets as a share of GDP.  (Argentina and Turkey.) PS.  Yes, the payment of interest on reserves complicates this picture somewhat, leading to larger CB balance sheets for any given trend rate of inflation.  But IOR is a policy choice.  (Unwise, in my view.) (0 COMMENTS)

What do Madonna, Tom Brady, David Ortiz, Jimmy Fallon, Gwyneth Paltrow and Kim Kardashian have in common? Yes, they are all famous, but that’s not it. Rather, it is the fact that they have all been the subject of lawsuits against them for their endorsement of crypto currency. It would appear that the plaintiffs lost money in their investments, and they blame these celebrities for misinforming them. If justice were to prevail, those wasting the courts’ time in this manner should be severely penalized for bringing frivolous lawsuits; at the very least, they ought to be compelled to pay the legal costs of these high profile defendants. Endorsing something is merely giving an opinion, and doing so is part and parcel of free speech. Now that this right is under attack by wokist cancellers, it is more important than ever that we defend, to the utmost, what few free speech rights are left to us. Penalizing endorsers is open to all sorts of reductios ad absurdum. Who else gives of their opinions, for a fee, and whose implicit advice might upon occasion, backfire. Perhaps the most mistaken endorsers are the meteorologists. Sometimes, it seems as if they flip coins before giving their diagnoses of what is in store for us. But many people depend upon their prognostications, and lose money when (I was about to say “if” but I corrected myself) they are in error. But these people are just the tip of the proverbial iceberg. Who else gives out advice for a fee and has deep enough pockets to be profitably sued? Accountants advice clients about how to ward off the IRS; sometimes they are in error. Lawyers give guidance. Whenever a lawsuit goes to court, both sides cannot win; the loser can bring suit. One does not necessarily think of doctors, dentists, psychologists as giving out instruction; but they all do, and are thus vulnerable to lawsuits, when in error. The less said about financial advisors the better. They will be on the front lines of this new intellectual war, if it gets off the ground. I, too, in writing this essay, can be subjected to legal attack. I am among many others who are giving direction for public policy in the legal realm. Please don’t sue me. What about the owners of the periodical for which I am now writing? They are in the same boat with me (misery loves company). If we stretch things not too unreasonably, it is possible to bring into this practically every participant in the economy. The grocer, for example, stands by his wares. He is in effect endorsing them. If they boomerang, he can be found guilty of the exact same “crime” as those celebrities named above. Pretty much anyone selling anything at all can be reached by this not unreasonable interpretation. If we stretch matters a bit, just a little bit, what about those beautiful models who stand by, and sometimes caress, new automobiles at their releases? They too, it might well be argued, are with their beauty endorsing these cars. Certainly they rivet attention on these new vehicles. No, this latest attack must be nipped in the bud, if we are to retain any modicum of our much under attack nowadays free speech rights. Yes, it is commercial free speech in this case, but there is no warrant to denigrate them vis a vis political or intellectual discourse. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of the 2015 book Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers. New York City, N.Y.: Lexington Books, Rowman and Littlefield (with Peter Lothian Nelson ). (0 COMMENTS)

My friend Jeff Hummel sent me a link to a recent 28-minute interview that DW News did late last month with Jeffrey Sonnenfeld of the Yale School of Management. Jeff asked me to evaluate it. I find it highly credible. The big bottom line: Russia’s economy is in the tank and the reason many of us have thought differently is that Putin literally makes up the numbers. Here are some highlights: 2:00: Rosstat, Russia’s official agency that estimates GDP, stated that the economy contracted by only 2.1% in 2022. 2:14: The interviewer says that the IMF expects the Russian economy to grow by 0.3%. 3:00: Sonnenfeld says that the World Bank and others get their information from Rosstat. One little problem is that Rosstat has had a change of leadership 3 times. Why? Sonnenfeld says it’s because Putin is looking for lackeys (my word) who will state the data he wants stated. 3:30: As a member of the IMF and the World Bank, Russia is required to submit data to the IMF and World Bank. “They are not submitting.” By the second quarter of 2022, Russia stopped submitting the data. 4:00: Putin wakes up in the morning and decides what the GDP should be. (My economic historian’s mind clicked in here. I remember reading, in John Flynn’s book on FDR titled The Roosevelt Myth, that after FDR took the U.S. off gold, he woke up in the morning and decided what the price of gold would be. Here’s the relevant segment from that book: Thereafter each day Morgenthau and Roosevelt met, with Jesse Jones, head of the RFC, present, to fix the price of gold. They gathered around Roosevelt’s bed in the morning as he ate his eggs. Then “Henny-Penny” and Roosevelt decided the price of gold for that day. One day they wished to raise the price. Roosevelt settled the point. Make it 21 cents, he ruled. That is a lucky number- three times seven. And so it was done. That night Morgenthau wrote in his diary: “If people knew how we fixed the price of gold they would be frightened.” Why do these things seem to happen in the morning? 4:45: The Russian economy is in a tailspin. 5:40: Every key industrial sector is down. The auto industry is down 99%. 6:30: The work force is even more of a government work force than it was before the war. While Sonnenfeld doesn’t say it explicitly, it is clear that he understands that that’s not good. 7:10: Thousands of refrigerators are being torn apart to harvest chips that can be used by the military. [I had recently heard this from another friend who follows the Russian economy.] 9:45: Russia is losing money on energy. He goes into this later in detail after about the 19:20 point. 10:45: Ruble (not ruple—his pronunciation) is not being traded. 12:10: Yellen, Raimondo, and Blinken all say that Sonnenfeld’s team has informed them on this. 12:40: Companies that have pulled out of Russia. 16:14: Koch Industries has pulled out and gone from a grade of F to A. 17:30: Companies should not only accept a loss but should accept a complete write-down and “it won’t cost them a penny.” In case you think Sonnenfeld is pulling a Kramer (the Seinfeld character) and saying they “write it off,” he’s not. What he’s getting at, without using the term, is sunk cost. They recognize that an asset that is valued on their books at $X is really worth approximately 0. And by getting out, they avoid further losses. 18:14: Doing good and doing well are not antithetical. 19:20: The economics of Russia’s oil supply. Why Russia is at best breaking even. 20:30: Russia’s economy is smaller than that of Chile. 21:15: Russia cannot gain back its business in Western Europe even after all this is over. Fascinating story about liquefied natural gas. The market comes through. 23:20: Putin can’t sell natural gas to India and China because he doesn’t have the pipelines he would need. 25:25: The mayor of Moscow, until he was silenced, admitted in April that hundreds of thousands of idled workers “were in the streets with nothing to do.” 25:50: 3 million highly sophisticated workers have fled Russia. [DRH comment: Biden should allow a bunch of them in. They wouldn’t go on welfare and would help us.] This is one of the most informative videos I’ve seen in months. I have one concern, and it’s not about the truth of Sonnenfeld’s statements. I put a high probability on the idea that he’s correct. No, the concern is that he seems to celebrate implicitly the destruction of the Russian economy. But Putin’s not suffering. It’s Joe Six-Pack, or maybe Sergei Vodka Bottle who’s suffering. Also, Sonnenfeld and I both agree that Vladimir Putin is an evil man. What does an evil man with nuclear weapons do when he’s going down? That concerns me. (1 COMMENTS)

It is barely an exaggeration to say that governments as we know them are discriminatory by definition. A current government crusade confirms that. The claim by the federal government and some state governments is that the Second Amendment can be legally discriminatory because it was so historically. A Wall Street Journal story summarizes the issue, which might look surreal to our contemporaries who haven’t reflected on it (“Old Racist Gun Laws Enter Modern-Day Legal Battles,” February 27, 2023): Historical, racist gun laws are taking on new relevance in legal battles over modern-day gun regulations. … In the 1700s and 1800s, states across the country passed laws to keep guns out of the hands of slaves, free Black people, Native Americans and Catholics. Such discriminatory gun restrictions would be unconstitutional today, but they have entered the gun-rights debate as judges look to apply the Supreme Court’s decision last June that said gun restrictions must be anchored in historical traditions. … “[S]ome of these classifications—such as those based on race or religion—are abhorrent,” U.S. prosecutors told a federal appeals court last fall in a brief defending the disarmament of convicted domestic abusers. “They nevertheless show that the Framers understood that legislatures could make such judgments to categorically disarm groups of people deemed to be dangerous.” Lawyers representing the State of California added virtue—their conception of virtue—to the conditions for Second Amendment protection by claiming that their survey of historical statutes buttresses their assertion that the state’s background-check law is “rooted in the historical tradition—dating back to the founding—of disarming groups of people perceived to be dangerous or unvirtuous.” The supporters of the new discrimination crusade effectively argue that there is good and bad discrimination: racial discrimination is bad, but many other forms of government discrimination are good, depending probably on what is wanted by “society,” that is, the majority of society, or the majority of those who votes or shout the loudest, or in reality the temporary majority or horse-trading minorities of elected representatives, or the bureaucrats. The racist or otherwise discriminatory character of gun regulation has been known to American legal scholars for half a century (see, for example, Don B. Kates, Jr., editor, Firearms and Violence: Issues of Public Policy, 1984). In England, by the 19th century if not before, all discrimination had disappeared from “the right of the Englishman to keep arms for his own defence” (see notably the book of Colin Greenwood, Firearms Control: A Study of Armed Crime and Firearms Control in England and Wales [Routledge & Kegan Paul, 1972]); and Joyce Malcolm (To Keep and Bear Arms: The Origins of an Anglo-American Right [Harvard University Press, 1994]). When I said that the essentially discriminatory state is “barely an exaggeration,” the qualification was meant to acknowledge one theory of government that does not depend on the desirability of discrimination. A central part of the classical-liberal ideal forbids discrimination by political authority through a strict conception of the rule of law. In a 1932 article, “The Pursuit of Economic Freedom,” John Hicks, the economic theorist and Nobel laureate, expressed this idea in a moderate way that must be difficult to understand today: The Manchester Liberals believed in Free Trade not only on the ground of Fairness among Englishmen, but also on the ground of Fairness between Englishmen and foreigners. The State, so they held, ought not to discriminate among its own citizens; also it ought not to discriminate between its own citizens and others. It is true that most classical-liberal theorists believed that the principle of non-discrimination had limits. The general theme is that non-discrimination is exceptionally allowed toward individuals who don’t share or have violated the liberal ethics of social relations. Such limits obviously apply to imprisoned criminals, but they are also invoked against potential immigrants who are likely to throw off balance the equilibrium of a free society. In this perspective James Buchanan, laureate of the 1986 Nobel Prize in economics, argued that a “nondiscriminatory immigration policy” is misguided although, of course, free trade in goods and services should remain free. Friedrich Hayek, a 1974 Nobel economics laureate, supports this kind of limit; in the third volume of his Law, Legislation, and Liberty, he writes, in a related context: We must face the fact that we here encounter a limit to the universal application of those liberal principles of policy which the existing facts of the present world make unavoidable. These limits do not constitute fatal flaws in the argument since they imply merely that, like tolerance in particular, liberal principles can be consistently applied only to those who themselves obey liberal principles, and cannot always be extended to those who do not. Of course, such exceptional limitations must be motivated and consistent with one’s general theory of the social world. I don’t think the opponents to the Second Amendment, who are mainly so-called progressives, have a theory to reconcile their anti-racism with their otherwise wall-to-wall love of government discrimination. Hayek’s own approval of “restrictions on the sale of dangerous goods (such as arms, explosives, poisons and drugs)” was not, in my opinion, seriously justified and, as far as I know, he only once mentioned any issue with the Second Amendment. At any rate, potentially justifiable limits to the exercise of Second Amendment rights are very far from what the progressives are currently after, which is cancellation of these rights for individuals guilty of non-violent crimes or even just deemed likely to commit future crimes. Even the life prohibition for convicted felons who have served their punishments is debatable. Imagine if the First, Fourth, or Fifth Amendments were applied that way. Mission creep has been especially enthusiastic in that area. One out of 13 American adults has a felony record. As far as domestic violence is concerned, its definition has continuously expanded. A misdemeanor conviction for “domestic violence” now means the cancellation of Second-Amendment protection. Sometimes, a mere accusation is enough to restrict one’s rights under the Second Amendment. Economist Anthony de Jasay, who defined himself as a classical liberal (I played with the idea that he may have been a conservative anarchist instead), argued that the state cannot avoid governing, which means discriminating among its citizens, “taking sides” for some against others (see my Econlib article, “An Unavoidable Theory of the State”). The state, de Jasay argued, cannot please everybody, and [w]hen the state cannot please everybody, it will choose whom it had better please. He meant that the state had better please its most powerful supporting clientèles. The optimistic way to look at this circus of professed anti-racists invoking racist laws to protect other diktats of their authoritarianism is that they have finally been caught up in their irreparable contradictions. (1 COMMENTS)

The Schweizer Monat is probably the oldest conservative-libertarian publications in Europe. Perhaps not surprisingly, it is a Swiss-German magazine: Germans seem to be more inclined to keep reading traditional newspapers (and books) than us Latins. The latest issue is now online, and the website includes the English version of a couple of articles. I was very impressed by an interview with Lenore Skenazy, which I think is very relevant for parents but also for teachers, university professors and anybody who wants to play the educator role. It illuminates some of the frightening challenges we face today. Here’s a slice: You need bad experiences to develop as a human being. There are some things that are fragile, like a glass that breaks if you drop it. Then there are things that are resilient, like a ball, which bounces back if you drop it. And then there are things that are antifragile, like bones: they need some resistance to get stronger. This is the idea of Nassim Taleb. Just one illustration: Everybody’s getting sick now after Covid, because we’ve been covering our faces for so long that we didn’t develop antibodies against other viruses out there. Similarly, children are antifragile. It’s interesting to observe how children grow: Their bodies grow very fast until the age of about seven. Then the growth slows down until 12, and then there’s another growth spurt. I think it’s during this period of slow growth where the growth of everything else is occurring: when you take little risks, try new things, figure out who your friends are and find out what you really like to do. It’s not that the door closes after that, but that’s when Mother Nature expects you to be becoming the person you are to be. If, during all this time, someone else takes care of everything for you, this stunts the development of those human muscles when they’re supposed to be growing. Did the Covid lockdowns affect overprotected kids differently than others? We did a survey in the beginning of the pandemic and asked parents what their kids were doing. They said that the kids were helping out around the house more and had found new all sorts of new things they could do: drawing, riding a bike, playing guitar – one girl even mentioned that she learned about Bitcoin. When the kids suddenly had unstructured time, they had to fill it up. At the beginning, it was sort of the flourishing of an old-fashioned childhood. And then? When remote schooling started, parents began spending a ton of time right next to their kids, just in case the kids had a question or there was a problem with Zoom. What I’ve heard from teachers is that when the kids came back to school, it was as if they had been in suspended animation for a couple of years. The maturing of social skills, which was already atrophying before Covid, had gotten worse. Read the whole thing. (0 COMMENTS)

There’s nothing special about free trade across international borders. The principles are the same whether I in Pacific Grove am trading with someone in neighboring Monterey or someone in Mexico, Myanmar, or Morocco. Free trade both within a country and across international borders is what has led to our huge standard of living. If that doesn’t seem obvious, think about how you would live if you could never trade. You could never buy wood, food, clothing, pharmaceuticals, or computers and, moreover, could never buy the inputs that are used in making those things. In such a situation, many of us would starve. We in the United States are lucky. Before the European Union was formed, we were the largest free trade zone in the world. With over 330 million people with a huge array of skills, with a lot of capital equipment, and with fairly decent mineral resources, we need to engage in less international trade than people in other countries. So if we couldn’t trade across borders, we would be worse off but not nearly as badly off as, say, Canadians if they couldn’t trade. Still, international trade makes us substantially better off. We can get coffee from Colombia instead of buying the limited supplies that Hawaii has to offer and building expensive hothouses in the lower forty-eight. We can get bananas from Central America rather than building hothouses to grow them domestically. And how would we get rubber for our tires? This is from David R. Henderson, “Globalization and Its Discontents,” Defining Ideas, March 2, 2023. Read the whole thing. (0 COMMENTS)

Most people view legal market activities, such as buying goods and services, as being in a very different category from illegal activities where violators face penalties.  But the distinction between these two categories is not always clear. My wife and I recent stayed just outside Pucón, Chile.  We drove into town for dinner and parked in what looked like a legal spot on the street.  (I don’t speak Spanish, so I’m not certain.)  After dinner, we found a parking ticket on our windshield. At first, I thought I’d wait and pay the ticket when I returned the rental car.  But I noticed that the fine was 25 pesos per minute (about 3 cents per minute.)  So I looked for one of the numerous men that were writing the tickets.  It turns out I was able to pay the modest fine on the spot, and get a receipt (shown below.). The next couple of nights we again got a parking ticket, and immediately paid it in a similar fashion. This experience got me thinking about the difference between ordinary market activity—such as parking in a garage and paying a fee of X dollars per minute on leaving, and parking in Pucón and paying a fine of X pesos per minute when leaving Pucón.  What is the essential difference between a crime and an ordinary market transaction? [BTW, the post title is a reference to the old joke about a sign that says “Fine for Parking”.  Does that sign mean parking is illegal, or that it’s perfectly fine to park your car in that spot?  That’s what I wondered about Pucón.] Society often scolds people for committing crimes.  But why is one set of activities (crimes) viewed as wrong, while another set (market transactions) is viewed as acceptable?  If the fine accurately reflects the social cost of your activity, why should we feel guilt about engaging in a crime and paying the price? I suspect that our feeling of outrage regarding some lawbreaking reflects a (correct) intuition that our criminal justice system frequently does not lead to efficient outcomes.  First consider an example of a law violation that is “efficient”: Suppose I value parking illegally in a specific place at $15.  Also assume that society views the violation as imposing a social cost of $10.  In that case, my breaking the law might be efficient.  The government might assume that there is a 50% chance I will get caught for this infraction, and impose a $20 fine for illegal parking.  In that case the expected penalty is (.50)*$20 = $10.  If I value the parking spot at $15, I’ll take the risk. Now consider a case where someone mugs a pedestrian and steals their wallet.  Common sense suggest that this is generally not an efficient outcome for society, even if the criminal is poorer than the victim.  Crime imposes all sort of other costs.  People devote resources to avoiding crime.  A mugging is physically and psychologically traumatic.  Because muggers are often poor, financial penalties must often be accompanied by prison.  And while paying a $20 parking ticket merely transfers funds from one person to the general public, prison is an expensive burden on taxpayers. A deadweight loss. To summarize, a parking violation is more akin to an ordinary transaction than it is to a typical felony.  That’s one of the reasons why we don’t feel the same sense of outrage toward a violator of parking rules as we feel for someone whose actions impose serious negative welfare effects on society. Parking violations feel a bit different from normal market transactions because the penalty is stochastic.  We might pay no penalty at all, or we might pay more than we expected.  After three nights in Pucón, I discovered that the tickets were not random.  Each time, a ticket was put on my windshield almost immediately after parking.  I came to see the little town of Pucon as being like one giant parking garage.  That removed the stress of thinking about whether I was likely to “get a ticket” or not.  I began viewing it as a normal market transaction. PS.  I suspect that the way we think about lawbreaking and penalties has an impact on how we choose to address problems such as externalities.  Economists tend to favor imposing a “pollution tax” set equal to the size of the external cost from pollution.  Some environmentalists prefer a more rigid regulatory approach, and are skeptical of ideas such as “paying to pollute” and the “optimal quantity of pollution”.   (0 COMMENTS)

Back in 1976—it was another word, wasn’t it?—I purchased a Ford Granada in California. I remember the salesman confidently asserting, as if he had a serious theory to back up his opinion, that all cars would soon come with an automatic transmission. But one does not fool an economist so easily. I remember thinking, and perhaps arguing, that this depends on consumers’ preferences. It also depends on budget constraints, the second factor in consumer choices. At that time, stick-shift cars cost less at purchase, in gasoline, and I think on long-term maintenance; trade-offs had to be made. According to an interesting Wall Street Journal story, the small demand for sticks is on the rise, even if their cost advantage has disappeared (Rachel Wolfe, “The 20-Somethings Fueling a Stick-Shift Renaissance,” March 1, 2023). The new appeal comes mainly from younger consumers intent on “taking control of their clutches” or looking cool. Remember that individual preferences are subjective. A mother gave a stick-shift to her son, reflecting that he was thus less likely to text while driving. The demand for stick-shift transmissions is also increasing in high-end cars. A few highlights from the WSJ: Following a decades long decline, three-pedaled vehicles are experiencing a modest but real resurgence. Manuals accounted for 1.7% of total new vehicle sales in 2023, according to data analytics company J.D. Power, up from 1.2% last year and a low of 0.9% in 2021. The Autotrader marketplace reports a 13% rise in page views for new manual cars in 2023 compared with this time last year. … “It’s not a statement against electric cars so much as I’m going to try to enjoy the type of driving that’s the most fun to me until I can’t anymore,” says 26-year-old Lucas Marcouiller, an engineering salesman in Warwick, R.I., who has purchased three manual vehicles. If my car old (or deceased) salesman forgives me for using him as a teaching scapegoat, we may imagine that his implicit and muddled theory was that decisions on which sorts of car to manufacture would soon be made by the government. As we know, politicians and bureaucrats are more rational than consumers. Perhaps the salesman, assuming he was also well versed in the history of economic thought, was envisioning the future advocated by Rexford Guy Tugwell, the socialist economist of FDR’s time? In a 1932 American Economic Review article, Tugwell wrote: New industries will not just happen as the automobile industry did; they will have to be foreseen, to be argued for, to seem probably desirable features of the whole economy before they can be entered upon. More seriously, compared with government apparatchiks, car salesmen are saints, as long as they don’t want to rule over others. Yet, there is an important feature of the world that still seems to escape many of our contemporaries: as long as some free market exists and a small minority of consumers are, whatever their reasons, willing to pay for stick-shift cars, they will continue to be produced. It’s called consumer sovereignty. (0 COMMENTS)

The Calculus of Consent by James M. Buchanan and Gordon Tullock is one of the Great Books in the Public Choice tradition, a scholarly tradition within economics and political science that uses tools of economics–rational choice, methodological individualism, and the notion of politics as exchange–to understand political decisions. Public choice has been criticized as cynical and depressing because it (allegedly) doesn’t see people as more than hedonistic lightning calculators of pleasure and pain who would run over their own mothers to pick up a nickel on the sidewalk. Like many economic theories, it has been criticized for being “reductionistic” and for having a narrow, “atomistic” view of the detached individual. People have argued that it is evil because it advises people to act that way (spoiler alert: it doesn’t). It has been called immoral because it refuses to look at people through aspirational lenses. But then again, what should we expect from what James M. Buchanan–one of the founders of Public Choice and 1986 Nobel Laureate for public choice ideas–calls “politics without romance”? Observers shouldn’t sell public choice theory or public choice economists short. There is more to the Public Choice tradition–and to economics more broadly–than getting and spending. Buchanan was keenly interested in ethical ideas over the course of his career, which shouldn’t be surprising given his mentor Frank Knight’s publication record. He includes a section on “Pigovian Economics and Christian Ethics” in his underappreciated book Cost and Choice. There are four entries in the index to The Calculus of Consent for “ethics” and one for “morals.”  Four of those references direct readers to Chapter 16, “Democratic Ethics and Economic Efficiency” (emphasis added), and another directs readers to a section titled “The Ethics of Pressure-Group Activity” at the end of Chapter 19. Buchanan and Tullock argue that their research agenda is optimistic rather than pessimistic because they “view collective decision-making (collective action) as a form of human activity through which mutual gains are made possible.” They continue: “Thus, in our conception, collective activity, like market activity, is a genuinely cooperative endeavor in which all parties, conceptually, stand to gain.” They contrast this against “much of orthodox political thought” which “seems to be based on the view that the collective-choice process reflects a partisan struggle in which the beneficiaries secure gains solely at the expense of the losers.” Following the economist Dennis Robertson, they argue that if their analysis is correct, “there need be less reliance on moral restraints of individuals.” In other words, we can get better political outcomes with people as we actually know them without waiting for a Great Leap Forward or a New Socialist Man. They recognize that people have standards: some people might think labor is OK but prostitution is “grossly immoral.” Turning to economists, “(a)n economist may consider it morally acceptable to sell his educational services to a university, but morally unacceptable to sell his professional services to a political party.” A little imagination brings up a lot of other examples. We generally agree that it is OK to buy houses and apartment complexes and rent them to strangers but that it isn’t OK to present one’s child with a bill for food, clothing, and shelter. Taboo foods and forbidden words appear in almost every culture. Just because people are methodological individualists does not mean they can’t be vegan. They go on to discuss vote-trading, which, they argue, is almost universally condemned when money is involved. A student at the University of Minnesota, for example, was charged for offering to sell his vote in the 2008 election on eBay. Things are different when no money changes hands but when people take advantage of “(t)he opportunity to trade votes on separate issues through logrolling,” which, as they point out, can have some advantages insofar as it can block discriminatory legislation. They go on to analyze arguments for and against vote-trading in different scenarios and to argue that pressure-group activity (later called rent seeking) and argue that it is “an inherent and predictable part of modern democratic process” that “is a predictable outcome of [their] fundamental behavioral assumptions.” At first, this looks depressing. However, the public choice approach gives us reasons for  hope because it shifts attention from moral reform to institutional or “structural” reform. There is a great deal of fault in ourselves, but at least with respect to public choices, they can be mitigated a great deal by addressing the faults in our incentives.   Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University, and he is by his own admission as Koched up as they come: he has an award named for Charles G. Koch in his office, he does a lot of work for and is affiliated with an array of Koch-related organizations, and he has applied for and received money from the Charles Koch Foundation to host on-campus events. (0 COMMENTS)