For most of the past 50 years, there’s been a consensus among economists that “industrial policies” are counterproductive. Nothing has occurred in recent years that would lead a reasonable person to alter that view. And yet as Noah Smith recently pointed out, neoliberalism is rapidly losing ground to advocates of regulation, subsidies and protectionism: The really important thing about Biden’s policies, though, is that they don’t even gesture halfheartedly in the direction of “free trade”. The idea of free trade never carried much water with the general public; now, it carries essentially no water with the political class or the intellectual class either. The free-trade consensus is dead as a doornail. . . .  These fights over the nature of industrial policy will be fierce, and sometimes even bitter. But we shouldn’t let them obscure the larger point, which is that both parties now agree on the need for industrial policy, and on many of its broad contours. It appears that America has found its new economic policy consensus. What remains to be seen are the results — how effectively the new policy regime can be implemented, and how well it achieves its goals. It’ll also be interesting to see how the economics profession contributes to the effort (a topic for another post). I would like to believe that the economic profession would stick to its principles, but I fear that influential policymakers will always be able to find economists who tell them what they wish to hear. (At least it won’t be Larry Summers.) Almost everywhere in the world, nationalism and statism are on the rise. Not long ago, economic development in a developing nation containing 1.4 billion of our fellow human beings would be regarded as good news, now Smith seems to almost relish the fact that our policies have damaged the Chinese economy: Overall, the outcomes were negative for the U.S., which was hurt by the [Trump] tariffs and which didn’t see a reshoring boom. But China was hurt more, both by the tariffs and by the export controls. As industrial policy, Trump’s policies failed; as economic warfare, they showed promising signs of effectiveness. Smith seems to be saying that while we suffered, Trump’s policies “showed promising signs of effectiveness” because China suffered even more. That’s an incredibly bleak vision. I find it sad that there are fewer and fewer people willing to defend free trade with China. Warren Buffett and Charlie Munger recently warned that economic nationalism could lead to war with China, but they are in their 90s. I fear that the world of economics is entering a new dark age, similar to the first half of the 20th century. We are forgetting all of the lessons learned so painfully by previous generations. Buffett and Munger are among the few people left who are old enough to recall that dark era. Smith referred to the bipartisan nature of the new statism. But there are important differences. While both the extreme left and the extreme right are increasingly skeptical of free markets, their views on identity politics differ. Both engage in identity politics, but the left favors women, minorities and gays, while the right favors straight white males. This leads to some strange bedfellows. Here’s Politico, referring to a controversial column in the left wing American Prospect that praised Tucker Carlson: In fact, for progressives, the debates like the fracas over the Carlson column could, perversely, be seen as a side-effect of good news. Instead of a furious argument over internal dissent against political tactics, it was a furious argument over (alleged) new external support for policy positions. Even for folks who don’t buy the idea that the market-skeptical bits of Carlson’s schtick were at all genuine, it’s a situation that’s presenting itself more frequently as elements of the GOP move beyond Reaganite positions and instead talk up things like opposition to monopolies, support for living family wages or protectionist treatment of embattled stateside manufacturing. The challenge is that the rising GOP populists whose views on economic issues might appeal to progressives also often have social views that are way more extreme than the average Chamber of Commerce lifer. Sometimes, in fact, those social views may even be their motivator for their hostility to businesses. Witness the fulminations about “woke capitalism.” For students of history, this is nothing new. The same dynamic occurred in the 1930s, when both the far left and the far right turned against what is now called “neoliberalism,” or “globalization.” Leftists in America were intrigued by fascists such as Mussolini in much the same way that some progressives are now intrigued by the economic views of people like Tucker Carlson and Josh Hawley. Juan Peron (pictured above) adopted these ideas in the late 1940s, and turned Argentina into a developing country. The far left and the far right both oppose free markets for the same reason. They have a vision as to which groups should benefits from wealth creation, and they fear that the free market won’t deliver the outcome that they favor. Noah Smith and Tucker Carlson have almost diametrically opposed views on most political issues. It’s a pretty safe bet that both of these individuals will not get the US industrial policy that they would prefer. When the government starts running the economy, the outcome will depend upon which side is in power. (FWIW, Smith’s vision is easily the lesser of evils.) History suggests that free markets are the least bad option. They aren’t perfect, but the truly disastrous economic policy mistakes always come from misguided government intervention. (1 COMMENTS)

Eliezer Yudkowsky insists that once artificial intelligence becomes smarter than people, everyone on earth will die. Listen as Yudkokwsky speaks with EconTalk’s Russ Roberts on why we should be very, very afraid and why we’re not prepared or able to manage the terrifying risks of AI. The post Eliezer Yudkowsky on the Dangers of AI appeared first on Econlib.

As described in my first post in this series, Randall Holcombe’s new book Following Their Leaders: Political Preferences and Public Policy was written to examine how political preferences are formed. To start, Holcombe separates preferences into two different categories – expressive preferences, and instrumental preferences. Expressive preferences are, as the name suggests, what we prefer to express. In this case, “express” isn’t limited to what we communicate verbally or in writing, though it does include those. Something is “expressive” when its purpose isn’t to bring about some result, but to reflect a particular attitude. Bumper stickers, yard signs, and tweets are all expressive, but modes of behavior meant to serve as a “show of support” are expressive acts. Instrumental preferences, by contrast, are about the outcomes we prefer. Our instrumental preferences may or may not align with our expressive preferences. Instrumentally, we might prefer A over B, but we might also prefer to express support for B over A. Consider the case of someone who expresses strong support for the idea of shopping at small and local businesses, but when it’s time to do their shopping will drive right past all the local mom and pop shops and make their way to Target. Their expressive preference is for local shopping and small business, but their instrumental preference is for big box retail stores. There are many reasons why our expressive preferences may not align with our instrumental preferences. Some preferences feel more virtuous to express – it just feels better to express support for small local businesses than for giant retail corporations. Or our expressive preferences could be formed by peer pressure – you might receive social opprobrium if you outwardly express that big box retailers are a better deal than local shops. Whether we go with our expressive or instrumental preferences will be context dependent, particularly when it comes to market activity and political activity: When engaging in market activity, people have an incentive to choose the outcomes they most prefer, because they get what they choose. There is no such incentive when people vote. Because their political choices have no effect on political outcomes, people may express political preferences for outcomes they would not choose if the choices were theirs alone. Moreover, we shouldn’t underestimate the importance people place on satisfying their expressive preferences: Once people’s basic needs for food, clothing, and shelter are satisfied, their demand for additional goods and services is driven largely by expressive concerns. Their desire for status, to impress others, and to feel good about themselves can even overshadow their desire for necessities. People will give up meals to spend money for expressive purposes. When our expressive preferences don’t align with our instrumental preferences, and when fulfilling our expressive preferences comes with no instrumental cost, we would expect people to indulge in their expressive preferences. This is why someone might put up yard signs on the importance of supporting local business, and nod sagely along with their friends who express the same idea, yet still drive to Target when it comes time to do their shopping. In the former cases, the expressive preference is cheap, but in the latter case, fulfilling that preference is costly. When acting as voters, Holcombe argues, expressive preferences will win the day. Unlike in markets, where the direct link between what we choose and what we receive makes us likely to favor our instrumental preferences over our expressive preferences, the lack of any such strong link makes engaging in voting or other political activity likely to be driven by our expressive preferences over our instrumental preferences: [Voters] are acting expressively, not instrumentally, and as individuals they are not choosing an outcome, they are expressing a preference. There are many reasons to think that the preferences they express at the ballot box may differ from outcomes they would prefer if the choice among social alternatives were actually theirs to make. This can explain why voters may vote for a particular outcome, but in practice show little no concern about whether that outcome is successfully achieved. For example, with regards to welfare and transfer programs, Holcombe points out that: …most government redistribution does not go to the least well-off. It is targeted to students, to farmers, and to the elderly without regard to their economic status…People who are voting for redistribution are, in large part, not voting to help the needy, but voting to help the politically well-connected. The poor have relatively little political clout compared with the elderly, the education establishment, and even supporters of the arts. This seems odd. If voters really cared about supporting the needy, and if redistribution in practice doesn’t make the needy much of a priority, why does this state of affairs continue to exist for decades, without a widespread demand for change from voters? Because casting votes is an expressive act, not an instrumental act, and achieving a specific outcome wasn’t the point of the exercise to any given voter: By casting a charitable vote, voters can get a good feeling about doing something to help the less fortunate, but at no personal cost to themselves. They feel good about expressing charitable views without having to give up anything, because voting is a nonlogical action. Voters could vote for government redistribution programs as expressive acts, even though if the decision were theirs alone, they would choose not to fund those programs. People, as voters, can express support for programs and candidates they would not choose if the choices were theirs alone. The disconnect between the common justification for redistribution (helping the needy) and the actual outcome of redistribution (helping the politically powerful) is largely unnoticed by voters because the voters weren’t seeking to create an instrumental outcome to begin with. The point was simply to express a preference for helping the needy – whether or not the needy actually receive help as a result was never really the point. The difference between expressive and instrumental preferences presents another problem. Recall in the first post where I described Holcombe’s formula for how democracy works – votes are cast to show voter preferences, the votes are aggregated, and a collective choice is made. The internal components of that process, P1 to Pn, are implicitly assumed by political scientists to be instrumental preferences – voters reflecting the outcomes they prefer. But if voters are acting expressively rather than instrumentally, then the output of the voting process doesn’t provide any real information about what outcomes voters actually want: If people do not reveal their instrumental preferences when they vote, there is no way to relate aggregate outcomes of elections back to the underlying preferences of voters for actual outcomes. One cannot identify the degree to which social choices reflect the instrumental preferences of voters, because the social choice mechanisms being analyzed do not aggregate instrumental preferences; they aggregate expressive preferences. Thus, voting mechanisms could only provide insight about voters’ preferences for outcomes if voters’ instrumental preferences were identical to their expressive preferences. If voters’ instrumental and expressive preferences aren’t identical, however, then even if it was possible to perfectly aggregate votes in a socially optimal way (which it isn’t) and even if policymakers were entirely incorruptible seraphim exclusively motivated to faithfully serve the public (which they aren’t), elections would still fail to deliver the outcomes the public wants. However, this disconnect between expressive and instrumental preferences still doesn’t get to the core of Holcombe’s analysis. In the next post, I’ll describe another way of looking at preferences he identifies, and how this influences the way people form their political opinions.   (0 COMMENTS)

Here’s Tyler Cowen: One of the current macro puzzles is that we keep on receiving good labor market reports during a time of monetary and credit tightening. Which is the missing “dark matter” variable that helps to explain this? I see no “current macro puzzle” because I see no monetary tightening.  NGDP growth over the past couple of years has been very rapid, and thus the strong labor market is no surprise.  Perhaps Tyler would say that the strong NGDP growth is surprising.  If so, why?  Is he assuming that rising interest rates reflect monetary tightening?  (It doesn’t.)  Does he judge monetary policy by the growth rate of M2?  (He shouldn’t.)  What’s his metric?  What causes Tyler to conclude that monetary tightening has been significant? I am aware that the extremely rapid NGDP growth has been gradually slowing—but it’s still quite rapid.  If you wish to call that “tightening”, that’s fine.  But the strong labor market is no surprise given the high NGDP growth rate.  I don’t see any mystery here.  David Beckworth produced this graph: Again, what macro puzzle?  If Tyler insists on finding some mysterious “dark matter”, how about the following: The unobservable natural rate of interest has risen faster than the policy rate, producing easy money.  The cause of the rise in the natural rate is the monetary and fiscal stimulus of 2020-21, which generated very fast NGDP growth.  Higher NGDP growth leads to a higher natural rate of interest in 2022.  If you insist on focusing on M2, then the dark matter is movements in velocity.   (0 COMMENTS)

Health policy expert Joe Grogan writes: Another Alzheimer’s drug has yielded promising results, demonstrating a 35% decline in early-disease progression in a trial of 1,736 patients after 18 months. Donanemab, made by Eli Lilly, represents the strongest showing against Alzheimer’s to date. This success follows the Food and Drug Administration’s accelerated approval in January of lecanemab—a similar treatment from Biogenand Eisai—which showed a 27% decline in a trial of 1,795 patients after 18 months. Yet the Centers for Medicare and Medicaid Services is denying seniors and their families access to these treatments, and rebuffing innovators who have produced the biggest breakthroughs in Alzheimer’s in two decades. Such regulatory overreach must stop. This is from Joe Grogan, “The Agency Keeping Alzheimer’s Drugs From Patients,” Wall Street Journal, May 4, 2023 (May 5 print edition.) I respect Joe Grogan a lot. He’s a very sharp guy with whom I generally agree on drug policy. But on this issue I disagree. He thinks that taxpayers should pay for these expensive treatments. I think they shouldn’t. I’m glad that the FDA allowed the drug; it should allow more. But that doesn’t mean that taxpayers should pay. Moreover, refusing to subsidize someone for a particular treatment should not be called, as Grogan does, “regulatory overreach.” Maybe the difference between Joe Grogan and me is over how we view Medicare. Medicare is socialized medicine and I want to move in the direction of limiting and reducing socialized medicine. I want people to take more responsibility for paying for their own medical treatments and not put that on taxpayers. The case holds a fortiori for drugs that have less evidence in their favor, especially when they are so high-priced, By the way, I’ve written on a related Alzheimer’s drug before (here and here) and I notice (somehow I missed it) that co-blogger Scott Sumner has written cogently on this also and, indeed, beat me to the punch. (0 COMMENTS)

Yuval Noah Harari, a historian, philosopher, and lecturer at the Hebrew University of Jerusalem, has an interesting article on AI in The Economist (“Yuval Noah Harari Argues that AI Has Hacked the Operating System of Human Civilization,” April 28, 2023). He presents a more sophisticated argument on the danger of AI than the usual Luddite scare. A few excerpts: Forget about school essays. Think of the next American presidential race in 2024, and try to imagine the impact of AI tools that can be made to mass-produce political content, fake-news stories and scriptures for new cults. … While to the best of our knowledge all previous [QAnon’s] drops were composed by humans, and bots merely helped disseminate them, in future we might see the first cults in history whose revered texts were written by a non-human intelligence. … It is utterly pointless for us to spend time trying to change the declared opinions of an AI bot, while the AI could hone its messages so precisely that it stands a good chance of influencing us. Through its mastery of language, AI could even form intimate relationships with people, and use the power of intimacy to change our opinions and worldviews. … What will happen to the course of history when AI takes over culture, and begins producing stories, melodies, laws and religions? … If we are not careful, we might be trapped behind a curtain of illusions, which we could not tear away—or even realise is there. … Just as a pharmaceutical company cannot release new drugs before testing both their short-term and long-term side-effects, so tech companies shouldn’t release new AI tools before they are made safe. We need an equivalent of the Food and Drug Administration for new technology. The last bit is certainly not his most interesting point: it looks to me like the feared AI-bot propaganda. Such a trust in the state reminds me of what New-Dealer Rexford Guy Tugwell wrote in a 1932 American Economic Review article: 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. We don’t know how close AI will come to human intelligence. Friedrich Hayek, whom Harari may never have heard of, argued that “mind and culture developed concurrently and not successively” (from the epilogue of his Law, Legislation, and Liberty; his underlines). The process took a few hundred thousand years, and it is unlikely that artificial minds can advance “in Trump time,” as Peter Navarro would say. Enormous resources will be needed to improve AI as we know it. Training of ChatGPT-4 may have cost $100 million, consuming a lot of computing power and a lot of electricity. And the cost increases proportionately faster than the intelligence. (See “Large, Creative AI Models Will Transform Lives and Labour Markets,” The Economist, April 22, 2023.) I think it is doubtful that an artificial mind will ever say like Descartes, “I think, therefore I am” (cogito, ergo sum), except by plagiarizing the French philosopher. Here is what I would retain of, or deduct from, Harari’s argument. One can view the intellectual history of mankind as a race to discover the secrets of the universe, including recently to create something similar to intelligence, concurrent with an education race so that the mass of individuals do not to fall prey to snake-oil peddlers and tyrants. To the extent that AI does come close to human intelligence or discourse, the question is whether or not humans will by then be intellectually streetwise enough not to be swindled and dominated by robots or by the tyrants who would use them. If the first race is won before the second, the future of mankind would be bleak indeed. Some 15% of American voters see “solid evidence” that the 2020 election was stolen, although that proportion seems to be decreasing. All over the developed world, even more believe in “social justice,” not to speak of the rest of the world, in the grip of more primitive tribalism. Harari’s idea that humans may fall for AI bots like gobblers fall for hen decoys is intriguing. The slow but continuous dismissal of classical liberalism over the past century or so, the intellectual darkness that seems to be descending on the 21st century, and the rise of populist leaders, the kings of “democracy,” suggest that the race to create new gods has been gaining more momentum than the race to general education, knowledge, and wisdom. If that is true, a real problem is looming, as Harari fears. However, his apparent solution, to let the state (and its strongmen) control AI, is based on the tragic illusion that the it will protect people against the robots, instead of unleasing the robots against disobedient individuals. The risk is cetainly much lower if AI is left free and can be shared among individuals, corporations, (decentralized) governments, and other institutions. (1 COMMENTS)

We often hear that if the US government defaults on its debt, that will be unprecedented. But one Treasury Secretary in our history actually structured a default on federal debt. Who was it? Hint: there’s a popular musical on Broadway by the same name. That’s right, it was Alexander Hamilton. This is the opening paragraph of David R. Henderson and Jeffrey R. Hummel, “Hamilton’s Haircuts,” American Institute for Economic Research, May 4, 2023. And: The bottom line is that the funding of the domestic debt involved a haircut that, in all but name, was a partial default. Using a discount rate of 6 percent, we calculate that someone who exchanged $100 of the Continental Congress’s wartime debt, with one-third of that funded with deferred 6 percent consols received assets whose present value was only $82. At the same discount rate, the present value of $100 worth of 3 percent consols was $50. Moreover, Hamilton and Congress never even considered the idea of paying additional interest on the arrears of interest. And the assumed state debts had even a more severe haircut on principal and interest; the present value for $100 of that debt had been reduced to $59. Some holders of the Revolutionary War debt, particularly in New England, were outraged at the loss of a full 6 percent interest on all the new securities. Of course, prior to the refunding, the wartime debt securities had been trading well below their face value. Read the whole thing, which is not long. (0 COMMENTS)

Today, we received another jobs report showing that the labor market remains red hot. Unemployment fell to 3.4%, a 54-year low. Job growth was 253,000, which is well above trend and well above pre-report estimates. By far the most important data point, however, is the growth rate of average hourly earnings. Nominal wages grew at a 6% annual rate in April, well above expectations. (The 12-month growth rate ticked up from 4.3% to 4.4%.) For a Fed that is trying to slow the growth in aggregate demand, this is bad news. For the purposes of monetary policy, wage inflation is the only inflation rate that matters.Why does the economy remain so hot, despite more than a year of “tight money”? Is it long and variable lags? No. A truly tight money policy reduces NGDP growth almost immediately. The actual problem is a misidentification of the stance of monetary policy.I’ve discussed this issue on numerous occasions, but people don’t seem to be paying attention. So perhaps a picture would help. In the two graphs below I provide typical examples of a tight money policy and an easy money policy. Note that what really matters is the gap between the policy rate (fed funds rate) and the natural interest rate.It’s not always true that a period of tight money is associated with falling interest rates, but that is usually the case. Does that mean the NeoFisherians are correct—that lower interest rates represent a tight money policy? No. For any given natural rate of interest, lowering the policy rate makes monetary policy more expansionary. That fact is clear from the way that asset markets respond to monetary policy surprises. But when the natural rate is falling (often due to a previous tight money policy), the policy rate usually falls more slowly. To use the lingo of Wall Street, the Fed “falls behind the curve.” The opposite happened during 2021-22, when the Fed raised rates more slowly than the increase in the natural interest rate. In this case, it wasn’t so much the pace of rate increases, which was fairly robust, it’s that they waited too long to raise rates, by which time the natural interest rate had already risen sharply. P.S. The natural rate cannot be directly measured; we infer its position by looking at NGDP growth. That’s why I ignore interest rates and focus on NGDP. (0 COMMENTS)

I am involved in a regular reading group, and at this time our text is David Hume’s Essays, which contains “Of the Balance of Power.” It ends with several paragraphs on Great Britain’s “imprudent vehemence” in its many wars against absolutist France. Those paragraphs are remarkably relevant to things today, as I see them. In entering into those paragraphs, one learns about Hume’s thoughts and a way to see events today. Hume presents France as a real threat to Britain. He speaks of it as “this ambitious power,” one that is “more formidable [than Charles V and the Habsburgs were] to the liberties of Europe.” He seemed to endorse Britain’s efforts to “guard us against universal monarchy, and preserve the world from so great an evil.” It is possible that those declarations were sincere, and it is possible that they were sound. But Hume was a cagey writer, and certainly wrote to persuade the ruling class. What is so notable about “Of the Balance of Power,” however, is how it concludes. Hume says that Britain has prosecuted war to “excess,” calls for “moderation,” and gives his reasons. In applying those paragraphs to today, we might think of the United States in place of Britain, and Russia or China (or both) in place of France. Today’s Ukraine, Germany, and other NATO countries would be in the place of the allies of Hume’s Britain. This is from Daniel Klein, “David Hume’s Warning on Our Future Wars,” Law and Liberty, May 3. Law and Liberty is our sister publication at Liberty Fund. In his article, Dan lays out how judicious David Hume was in his thinking about war with France. Dan suggests that we be as judicious in thinking about war with Russia. Another excerpt: Today, what is the realistic aim in Ukraine? Why put off negotiations and resolution? Hume writes that it is “owing more to our own imprudent vehemence, than to the ambition of our neighbours” that we have sustained “half of our wars with France, and all our public debts.” Second, Britain, being “so declared in our opposition to French power,” has displayed also that it is “so alert in defence of our allies.” How, then, do Britain’s allies respond? “[T]hey always reckon upon our force as upon their own; and expecting to carry on war at our expence, refuse all reasonable terms of accommodation.” I particularly like the part about government debt, which I think doesn’t get talked about enough with regard to U.S. wars and proxy wars. While the Ukraine war has been relatively cheap for the United States so far, the war against Afghans and Iraqis has cost us cumulatively trillions of dollars. Dan ends with the following: The White House and Pentagon are close to the Washington Monument but now far from George Washington. I recommend the whole thing. (0 COMMENTS)

Democracy has become widespread enough as a form of social organization to be assumed legitimate by default. To say a country is “not democratic” is implicitly understood as a rebuke. Even patently authoritarian regimes often go through the motions of holding elections and claiming their leaders are democratically supported. Democracy is so strongly supported that there is a cottage industry of people who get upset over massive charitable donations to good and worthy causes, because the money was given at the discretion of the donor rather than taken through the tax system and therefore used in a way that is “democratically accountable.” Given this massive presumption that “democratic” equals “legitimate”, or that democracy makes the government accountable to the people, it’s all the more important to place this presumption under careful scrutiny. Many scholars have examined this issue and have raised important questions. A recent book by Randall Holcombe, Following Their Leaders: Political Preferences and Public Policy, has joined this body of research and will be the focus of a series of posts where I examine and give thoughts on its central claims. Of course, this is no substitute for actually reading the book – even spreading the discussion out through several posts, large chunks of the case will be either left out or only described in a bare-bones way. With that disclaimer aside, let’s get a lay of the land. How, ideally, is democracy supposed to work? Holcombe gives a generalized, mathematical account of the democratic process, represented as follows: C = f(P1, P2, P3,…Pn) In the above equation, P represents the preference of a given voter, with P1 being the preferences of the first voter, P2 being the second voter, all the way through n number of votes cast. The method of aggregating these votes is represented by the function f. Different vote aggregation methods may produce different outputs – for example, the output might be different when f is majority rule compared to when f is an electoral college system, and both could be different from an f that uses rank-order voting or single transferable votes. Running all the inputs through a given function produces the output C, which represents the collective choice produced by the voting system. Or, as Holcombe more tersely puts it, “Voters vote, the votes are aggregated through the algorithm represented by f, and a collective choice is made.” In the standard, Civics 101 model, voters have preferences about political and social policies. Through the act of voting, voters make their preferences known and the totality of these preferences are aggregated into a social choice. This information is in turn take by policymakers who, in response to the results of elections, craft policies that represent and reflect the preferences of citizens. There are a few obvious issues worth looking at more closely. For example, is there a way to coherently map the idea of “a collective choice” onto reality, in a way that is analogous to the kinds of choices individuals make? This is one concern someone could express about C. There are concerns about f as well. There are many different forms of vote aggregation out there. The same inputs, run through different fs, can produce different and even diametrically opposite results. Is there an aggregation method that is clearly superior to the others, in that it produces more consistently optimal results, or more accurately reflects the preferences of voters? Holcombe touches on these concerns, but they are not his primary focus. Instead, he is interested in P – that is, the preferences themselves. How do voters form the preferences that serves as the input to the democratic process? As he explains it: Thinking about democratic institutions as a way of aggregating the policy preferences of individual citizens into some vision of the public interest requires an understanding of how those institutions aggregate individual preferences, which has been done extensively in the public choice analysis undertaken by political scientists and economists…But it also requires an undermining of how citizens form the preferences they express through democratic institutions, and this has seen much less development. Political preferences are often assumed as given and exogenous, and the primary interest of this volume is to examine in more detail how those preferences are formed, and as a result, the implications for public policy. Holcombe argues that preferences are neither given, nor static, nor equivalent. There are different kinds of preferences people have, which are formed in different ways, and some of these preferences can drive, dictate, or alter other preferences. Most importantly, Holcombe argues, economists and political scientists all too often treat preferences as exogenous to the system with which they interact. This gets things all wrong, Holcombe argues. Our preferences emerge through our interaction with our available choices and our judgments about how to best pursue our ends. Pre-existing preferences don’t create our choices – the choices we make under the constraints we face define and create our preferences, says Holcombe, quoting James Buchanan in support: Economists tend to describe individuals as utility maximizers. They have utility functions that constitute their preferences, and they refer to those utility functions to make choices that maximize their utility. In fact, the process works in the other direction, as James Buchanan explains. People make choices and the choices they make define their preferences. “Individuals do not act so as to maximize utility, described in independently-existing functions. They confront genuine choices, and the sequence of decisions taken may be conceptualized, ex post (after the choice), in terms of ‘as if’ functions that are maximized. But those ‘as if’ functions are, themselves, generated in the choosing process, not separately from such process.” So if preferences are generated in the choosing process, it’s worth examining what that process is and how it can influence preference formation. In the next post, I’ll describe the different kinds of preferences Holcombe identifies, and how they come to be formed.     (0 COMMENTS)