Comparing pollutants generated by EVs and gasoline-powered cars over the life cycle also leads to ambiguous results. Of course, EVs produce zero pollution but they do use electricity, and electricity production causes pollution. How does the EPA take account of this? It doesn’t. Go to page 203 of the EPA’s 728-page proposal for its new regulation and you will see this statement: EPA is proposing to make the current treatment of PEVs [plug-in electric vehicles] and FCEVs [fuel cell electric vehicles] through MY [model year] 2026 permanent. EPA proposes to include only emissions measured directly from the vehicle in the vehicle GHG [greenhouse gases] program for MYs 2027 and later (or until EPA changes the regulations through future rulemaking) consistent with the treatment of all other vehicles. Electric vehicle operation would therefore continue to be counted as 0 g/mile, based on tailpipe emissions only. In short, the EPA assumes something it knows to be false, namely that emissions from producing electricity to power EVs are zero. I’m tempted to call this the EPA’s “non-smoking gun.” How could the EPA justify such an extreme assumption? On the same page, it attempts to do so, writing, “The program has now been in place for a decade, since MY 2012, with no upstream accounting and has functioned as intended, encouraging the continued development and introduction of electric vehicle technology.” Did you catch that? The EPA justifies its explicit bias against gasoline-powered vehicles and in favor of EVs by arguing that doing so will encourage the continued development of EVs. Well, yes, just as ignoring the cost of anything will justify more of that thing. Call it the EPA’s new frontier in cost/benefit analysis. Or maybe call it the Bart Simpson justification: “I only lied because it was the easiest way to get what I wanted.”   The above is from David R. Henderson, “EV Mandates Are Taking Californians for a Ride,” Defining Ideas, May 4, 2023. The original title I gave the piece (the editor chose a different title) is “Assume a Tesla.” You’ll see why if you read the first few paragraphs of the piece. At the end, I give what I think are substantial grounds for hope, based in part on thoughts from a deep expert on regulation, Peter Van Doren. Read the whole thing. (0 COMMENTS)

One of the worst depressions in American history began in mid-1937. At the time, Keynesian ideas were becoming increasingly prominent and many Keynesians blamed fiscal austerity. In fact, there wasn’t all that much fiscal austerity in 1937, certainly not enough to cause a major depression: Between 2020 and 2022 we had roughly twice as much “austerity” as in 1937, at least in terms of the reduction in the budget deficit.  And yet not only did we not have a major depression, we saw some of the strongest job growth in American history.  Yes, we began 2022 with employment still a bit below normal, but that was even more true in 1937.  And yes, the austerity of 2022 mostly reflected the decision to end Covid relief programs, but much of the austerity of 1937 was the decision to not repeat the big 1936 “bonus” payments to WWI veterans.   I’m confident that observers can spot a few more differences, but do they actually explain such a dramatic difference in outcome?  Do they explain the difference between major depression and extraordinary job growth?  And why didn’t the sharp fiscal tightening after WWII lead to the major depression predicted by Keynesian economists at the time?  Why didn’t the big 1968 tax increase reduce inflation, as predicted by Keynesian economists?  Why didn’t the 2013 austerity produce a recession, as predicted by Keynesian economists? The answer to all of these questions is quite simple; it’s monetary policy that drives aggregate spending, not fiscal policy.  Tight money caused the 1937 depression.  It’s time to give up on the theory that fiscal policy drives aggregate demand.  The Fed takes fiscal policy into account when it makes its decisions.  It tries (not always successfully) to offset the effects.   The same concept applies to banking problems.  It is very possible that we’ll have a recession in late 2023 (recessions are almost impossible to forecast.)  But if we do, it won’t be caused by banking turmoil.  If the Fed thought credit problems were likely to lead to a recession, they would not be raising interest rates this week.  If there is a major recession it will be because the Fed raised rates too much—it misjudged the situation.  In contrast, a very small recession might in some sense be intentional—the Fed’s way of reducing inflation. PS.  Here’s the unemployment rate.  Notice that recessions (grey vertical bars) are easy to spot.  Do you see a recession in 2022?  Neither do I. (0 COMMENTS)

A story in yesterday’s Wall Street Journal reminds us how even financial journalists may fail to go past common intuitions if not superstitions about inflation—or at least don’t ask all the questions that a familiarity with economic analysis suggests.  “Some economists,” we are told, think that businesses are using inflation to “opportunistically” boost their profits, thereby fueling inflation in return (“Why Is Inflation So Sticky? It Could Be Corporate Profits,” May 2, 2023). If inflation is caused by businesses raising their profits, why didn’t they do that before inflation? Because they did not expect their competitors to do the same, the story suggests. But if that is true, it means that businesses are not raising their profits now just because they suddenly want to (they were not greedy before!), but because it is increased market demand that is pushing up prices and short-term profits at the same time. Aren’t consumers as greedy as businesses? So why aren’t they forcing businesses to cut or cap their prices? Same answer: because markets don’t allow it, that is, consumers are the ones bidding up prices, just as employees are responding to the bidding up of wages on labor markets. But why are consumers suddenly bidding up prices? Why are businesses suddenly bidding up wages? Could it be that central banks (the Fed in the United States) have increased the money supply, in large part to finance the jump in government deficits? And why would a report in a financial newspaper not at least mention the existence of a respected monetary theory of inflation according to which the phenomenon is due to more money chasing the same quantity of goods? In early 2021, after three years during which the Fed had increased the money supply (M2) by about 50%, chairman Jerome Powell declared: Right now, I would say the growth of M2, which is quite substantial, does not really have important implications for the economic outlook. Both economic history and theory strongly suggest it was not just a bad luck. (The Fed has since pushed down the money supply, partly repairing its error, at a cost.) On corporate profits and inflation, The Economist shows more sophistication than the Wall Street Journal. The venerable British magazine writes (“Are Greedy Corporations Causing Inflation,” April 30, 2023): People are looking for someone to blame—and corporations are often top of the list. According to a recent survey by Morning Consult, a pollster, some 35% of Americans believe that “companies’ attempts to maximise profits” have contributed “the most” to inflation, more than any other factor by far. … Arguments for “greedflation” rest on unsure theoretical ground. Companies did not suddenly become avaricious. … If you are fuming at paying $10 for a coffee, blame the barista serving it to you as much as the owner. According to the monetary theory of inflation, however, the barista is not to blame either. (0 COMMENTS)

The American Economics Association has awarded the prestigious John Bates Clark medal to University of California, Berkeley economist Gabriel Zucman. At the link you’ll find what the AEA decision makers thought made him deserving. What’s missing? The shoddy work he did to make the data fit his story that in 2018 the tax rate on the “super-rich” exceeded the tax rate on the bottom 50 percent. That contradicted one of his own findings in a previous academic article. Economic historian Phil Magness, who was one of a number of people who caught the problem at the time, explained the details in a February 25, 2020 article titled “Harvard Finally Stands Up to Academic Duplicity“: The issue with Zucman’s work revolves around a stunning statistical claim that he made last fall. According to his own proprietary calculations, the overall effective tax rate paid by the ultra-rich in the United States had dipped below that paid by the bottom 50 percent of earners for the first time in 2018. Zucman released these statistics to journalists with much fanfare, where they were quickly trumpeted as “fact” by outlets including the New York Times and Washington Post to bolster Elizabeth Warren’s wealth-tax proposal. In reality, Zucman’s numbers had not even undergone scholarly peer review, as is the norm for work in the economic arena. The weeks that followed their release also revealed something far worse than failing to adequately vet this seemingly stunning empirical claim. Instead of objectively reporting the latest findings from tax statistics, Zucman was placing his finger on the scale. He appeared to be bending his results to conform to the political narrative of Warren’s campaign, which he was also advising at the time. Through a series of highly opaque and empirically suspect adjustments, Zucman had artificially inflated the tax rate paid by the poorest earners while simultaneously suppressing the tax rate paid by the rich. I was among the first economists to notice and call attention to the problems with Zucman’s new numbers. Shortly after his release to the New York Times, I noticed a strange discrepancy. The tax-rate estimates he provided for the ultra-rich – the top 0.001 percent of earners – did not match his own previously published academic work on the subject, including a 2018 article in the highly ranked Quarterly Journal of Economics. Whereas Zucman now claimed to show the ultra-wealthy paid just slightly north of 20 percent of their earnings in taxes, the most recently available year of his previously published numbers (2014) places the rate at 41 percent. I called attention to this discrepancy with a tweet, as did Columbia’s Wojtek Kopczuk and the University of Central Arkansas’s Jeremy Horpedahl. Then the floodgates of scrutiny opened. According to Magness, here’s how Zucman did it: At the bottom of the income ladder, he was artificially raising the depicted rate faced by the poorest earners. He did so by excluding federal tax programs that are intentionally designed to alleviate the tax burden on the poor, such as the Earned Income Tax Credit and the Child Tax Credit. By leaving out these programs, Zucman not only broke from decades of statistical conventions – he also created the illusion that the tax rate paid by the bottom quintile was nearly twice its actual level. Later investigation revealed that Zucman further tilted the scales through unconventional assumptions about the burdens of state and local consumption taxes on the poor. To avoid the empirical impossibility of infinite sales-tax rates that arise from accounting discrepancies between pre- and post-transfer income, Zucman essentially excluded the bottom decile of earners when assigning its tax incidence. This essentially causes him to misrepresent data from the second decile from the bottom as the poorest earners. Zucman’s handling of the very top of the distribution ventured even more aggressively into the territory of intentional data manipulation. The biggest discrepancy here came from his handling of how to assign corporate tax incidence across earnings. When economists examine corporate tax incidence, they usually distribute it across a variety of affected parties according to fairly standard assumptions about the portion that falls onto shareholders, onto other forms of capital, and onto the noncorporate sector of the economy due to various pass-through effects. Indeed, Zucman followed these conventional assumptions in his aforementioned academic article from 2018, coauthored with Saez and Thomas Piketty. In his new statistics, however, he jettisoned all conventional literature on corporate tax incidence and adopted his own heterodox approach that effectively assigns 100 percent of actual incidence to its statutory incidence, namely shareholders. This unconventional assumption not only conflicts with his prior work, but is sufficiently unrealistic to have caused a wave of jeers around the economics profession when it was discovered. In practical effect, however, it greatly augmented Zucman’s depicted tax rate on the top 0.001 percent in the mid-20th century and greatly reduced the same in the last few decades, mapping with the recent downward trend in corporate tax rates. As a result of this scrutiny, the president and provost of Harvard vetoed a job offer to Zucman. And it wasn’t just free-market types who were critical. Larry Summers, who appeared on a panel with Zucman’s co-author Emmanuel Saez, said that after examining the data that Zucman and Saez used to justify a wealth tax, he was “about 98.5% persuaded by their critics that their data are substantially inaccurate and substantially misleading.”(at the 20:40 point in the above link.) Notice, just following this part, how Summers, using his own data, cast doubt on the Zucman/Saez methodology. John Bates Clark deserved better. (0 COMMENTS)

My wife and I went to see the movie Air on Saturday and I highly recommend it. If you follow this blog closely and have read the post about my Wall Street Journal op/ed, co-authored with Don Boudreaux, on Air and ESG, you might wonder how I could write an op/ed without seeing the movie. The answer is that Don saw it and I took his word for it. The good news: he got it right. But I want to talk about something else: how good a movie this is. To review quickly, it follows Nike employee Sonny Vaccaro as he tries to make Nike a player in the basketball shoe market. Multiple spoilers ahead. Vaccaro makes some gutsy moves, going around Michael Jordan’s agent to talk directly with the real decision maker: Michael Jordan’s mom. Why do I like Air so much? It’s a good old-fashioned movie. There’s no sex or romance. It’s about one man’s determined moves to get Deloris Jordan to the bargaining table and to get his two bosses, played by Jason Bateman (Rob Strasser) and Ben Affleck (Nike CEO Phil Knight) to back him. Beyond that, my wife and I loved the 1984-era music. I always stay and watch the credits and there was a lot of music credited, more than the usual. Also, I’ve seen the movie Jerry McGuire at least 4 times and I swear that some of the background music in a couple of scenes was very close to the background music in a few Jerry McGuire scenes. Coincidentally, it was some of the music I liked most in Jerry McGuire. I also had a very personal reason for liking the movie. It all took place, as far as I could tell, in the summer of 1984, when Jordan was about to start playing with the Chicago Bulls. That summer was eventful in my wife’s and my lives. In August we moved from Arlington, VA, where we had lived when I was working with the Council of Economic Advisers and she was working as an editor with the Center for the Study of Market Processes (later the Mercatus Center) at George Mason University, to Monterey, CA. There I began a job as a temporary member of the faculty at the Naval Postgraduate School. My wife was 5-months pregnant with our daughter and so she didn’t drive with me. She flew, and we rendezvoused at her sister’s place in Chicago, and then I drove on to San Francisco, where we rendezvoused, picked up our cat Max, whom I had had a friend ship from Washington, and drove down to Monterey, where we had rented a house. Exciting times, and the movie’s music brought back my feelings of fear and excitement as we started a big new chapter in our lives.   (0 COMMENTS)

I think the main interest of the third volume of Friedrich Hayek’s 1973-1978 trilogy Law, Legislation, and Liberty, titled The Political Order of a Free People, resides in its strong liberal critique of democracy as we know it. My review of this third volume is just out on Econlib. A few excerpts of my review (the quotes are of course from the book): The first broad argument of the book is that democracy has diverged from its original ideal and degenerated into an unlimited and totalitarian democracy. Unlimited democratic power can be traced back to the decline of Athenian democracy at the end of the 5th century BC when, as Aristotle noticed, “the emancipated people became a tyrant.” In a similar way, the British Parliament became sovereign, that is, theoretically omnipotent, in 1766, when it “explicitly rejected the idea that in its particular decisions it was bound to observe any general rules not of its own making.” Liberal democracy originally referred simply to “a method of procedure for determining government decisions” or, more practically, for getting rid of governments without bloodshed. Democracy was a protection against tyranny. It is an error to view democracy not as “a procedure for arriving at agreement on common action,” but instead “to give it a substantive content prescribing what the aim of those activities ought to be.” The current, unlimited democracy leads to rent-seeking (competition for government privileges), the triumph of special interest groups, and legal corruption. The cause is that a government with unlimited powers “cannot refuse to exercise them,” so everybody will rush to the public trough. I previously reviewed on Econlib the two previous volumes, respectively Rules and Order, and The Mirage of Social Justice. As the reader of my reviews will realize, I try to provide a summary of Hayek’s theory, but I also draw a few parallels with other theories, and raise some questions or doubts. For those who are not already familiar with Hayek’s thought, I would recommend reading my reviews in the same order as the books. (0 COMMENTS)

Scott Alexander pushes back against the argument that building more housing in a city will reduce housing prices in that city.He begins by noting that housing costs tend to be higher in places that are relatively dense, such as New York and San Francisco. He is aware that this argument is subject to the “reverse causality” issue, which I call “reasoning from a price change”. Consider the graph that he provides: He is aware that the pattern above may show an upward sloping supply curve, not an upward sloping demand curve.  But he nonetheless suggests that it’s probably an upward sloping demand curve, and that building more housing in Oakland would make Oakland so much more desirable that prices actually rise, despite the greater supply of housing.  I have two problems with this sort of argument. First, I doubt that it’s true.  It is certainly the case that building more housing can make a city more desirable, and that this effect could be so strong that it overwhelms the price depressing impact of a greater quantity supplied.  But studies suggest that this is not generally the case. Texas provides a nice case study.  Among Texas’s big metro areas, Austin has the tightest restrictions on building and Houston is the most willing to allow dense infill development.  Even though Houston is the larger city, house prices are far higher in Austin: Houston pretty much describes the “Oakland with more housing” outcome that Alexander views as somewhat far-fetched.  Only in this case, it’s Austin with more housing.  Alexander seems too quick to accept the, “If you build it they will come” idea—that you can build more housing and thereby boost demand so much that prices actually rise. Alexander relies on the following intuition: Matt Yglesias tries to debunk the claim that building more houses raises local house prices. He presents several studies showing that, at least on the marginal street-by-street level, this isn’t true. I’m nervous disagreeing with him, and his studies seem good. But I find looking for tiny effects on the margin less convincing than looking for gigantic effects at the tails. When you do that, he has to be wrong, right? Here’s the problem with this argument.  It mixes up population change due to economic effects such as the benefits of agglomeration, with population changes due to regulatory changes such as less strict zoning.  If you look at things this way, then the stylized facts work against Alexander’s argument.  Over the past 50 years, increasingly strict zoning has reduced housing construction on big cities like New York and San Francisco.  As a result, their populations have increased by less than in cities with less strict zoning, such as Houston.  If Alexander were correct, then the price gap between the tightly controlled cities on the coast and the more laissez-faire cities of Middle America should have shrunk over time.  Instead, the price gap has widened.  New York and San Francisco were always more expensive than other cites, but with tighter zoning and less new construction the gap has become far wider.  Nonetheless, I suspect that there are at least a few cases where Alexander’s argument would be correct, especially in the case where the new housing was luxury homes that replaced slums.  For instance, if 100,000 homes in the (poorer) eastern half of Washington DC were replaced with 120,000 luxury townhouses, then prices might rise (due to a lower crime rate).  But even in that case, I believe Alexander would be drawing the wrong conclusion: And it doesn’t violate laws of supply and demand; if Oakland built more houses, this would lower the price of housing everywhere except Oakland: people who previously planned to move to NYC or SF would move to Oakland instead, lowering NYC/SF demand (and therefore prices). The overall effect would be that nationwide housing prices would go down, just like you would expect. But the decline would be uneven, and one way it would be uneven would be that housing prices in Oakland would go up. This isn’t an argument against YIMBYism. The effect of building more houses everywhere would be that prices would go down everywhere. But the effect of only building new houses in one city might not be that prices go down in that city. This is a coordination problem: if every city upzones together, they can all get lower house prices, but each city can minimize its own prices by refusing to cooperate and hoping everyone else does the hard work. This theory is a good match for higher-level management like Gavin Newsom’s gubernatorial interventions in California. Tell me why I’m wrong! Alexander is implicitly viewing this outcome as a “problem” for the city that builds more housing.  They must sacrifice so that the rest of the country can gain.  But in his scenario, Oakland is better off.  Indeed if it were not better off, then why would more people choose to live in Oakland?  In order for it to be true that building more housing boosts housing prices, it must also be true that the quality of existing houses (including neighborhood effects) rises by more than enough to offset the increase in supply.  That means the new housing construction must make Oakland such a desirable place to live that the amenity effect overwhelms the quantity effect. You see the same fallacy with criticism of highway expansion projects.  People will complain, “They added two more lanes to the freeway, but the traffic is worse than ever.”  But that’s a wonderful result!  If the traffic is worse than ever, despite many more people driving on the highway due to the extra lanes, then the welfare of commuters has increased for two reasons.  First, more people benefit from using the highway.  Second, the fact that they are willing to use it despite a higher time cost means that they value the service much more than before the expansion.  Otherwise, the traffic would not be worse. Of course, economic change always has winners and losers.  Here’s how I would describe the impact of allowing more housing construction in Oakland, in the unlikely event that this did raise housing prices: 1. America would benefit. 2.  Oakland would benefit. 3.  Poor people in America would benefit, in aggregate. 4.  Affluent people in America would benefit, in aggregate. 5.  Homeowners in Oakland would benefit. 6.  Some renters in Oakland would benefit (from a more economically dynamic city.) 7.  Some renters in Oakland would suffer from higher rents. In the much more likely case where new housing construction would lower prices, the impact described in #5 and #7 might reverse.  Either way, there is no defensible argument for not building more housing in Oakland, regardless of the impact on price.  If building more housing reduces its price, then there is a strong argument for allowing more housing construction.  If building more housing raises its price, then the argument for more construction is even stronger.   (2 COMMENTS)

I recently had occasion to read (for the first time) John Locke’s “Some Considerations of the Consequences of the Lowering of Interest, and Raising the Value of Money.” [SC]1 Among other things, this got me thinking about the common claim that Locke was a mercantilist.2 I think the correct assessment of this claim is that it all depends on what one understands mercantilism to be. Is mercantilism at its core the view that a nation should export more than it imports to build up its stock of money—in particular, its stock of silver and gold? Or is mercantilism at its core the view that the wealth of a nation consists in the size of its stock of silver and gold? “Locke was a mercantilist in the sense of favoring an excess of exports of consumable commodities over imports of consumable commodities. But he was not a mercantilist in the sense of taking a nation’s wealth to consist in the magnitude of its stock of silver and good.” Let’s look at some passages from “Some Considerations” [SC] that most support the claim that Locke was a mercantilist and then some passages in which Locke seems to distance himself from mercantilism. My suggestion is that the first group of passages show that Locke subscribed to the view that exports of consumable goods should exceed imports while the second group of passages show that Locke subscribed to the view that ultimately the riches of a nation does not consist in its stock of silver or gold. Rather, the wealth of a nation consists in the amount of the conveniences that are enjoyed by its inhabitants. Locke was a mercantilist in the sense of favoring an excess of exports of consumable commodities over imports of consumable commodities. But he was not a mercantilist in the sense of taking a nation’s wealth to consist in the magnitude of its stock of silver and good.3 In addition, we will see that Locke’s mercantilist view that international trade is a zero-sum game contravenes his own general recognition of the positive-sum character of all voluntary economic exchange.’ Locke writes that “… our growing rich or poor depends… only [on] which is greater or less, our importation or exportation of consumable commodities.” (SC 15) He contrasts two cases in which England annually exports two million pounds of consumable goods. In one case, England imports one million pounds of goods which it consumes and one million pounds of silver or gold coins. In the other case, England imports two million pounds of goods all of which it consumes. Locke says that England prospers in the first case, but not in the second. If more consumable goods are imported than are exported, “our money must go out to pay them, and we grow poorer.” (SC 15) Locke contrasts three scenarios involving a farmer who sells 1000 pounds of commodities a year. In one case, the farmer spends only 900 pounds per year on consumable goods and “he grows every year a hundred pounds richer.” (SC 19) In another case, the farmer only spends 500 pounds per year. In this case, “the owner[is] a better husband” and will be “so much richer.” (SC 19-20) In the third case, the prudent farmer dies and leaves the farm to his spendthrift son who spends 1100 pounds per year and, hence, his household becomes poorer (and more debauched, idle, and quarrelsome) every year. (SC 20) The lesson is that, if England is to prosper, it must spend only a portion of what it earns in trade. “[M]oney is brought into England by nothing but spending here less of foreign commodities, than what we carry to market can pay for.” (SC 20) Locke tells us that, “We have seen how riches and money are got, kept or lost, in any country” and that is, by consuming less of foreign commodities, than what by commodities, or labour, is paid for.” (SC 21) Locke criticizes legislation that caps interest payments below their “natural” level. He says that such legislation may affect “the distribution of the money we have amongst us Englishmen here at home.” But such legislation “would be of no advantage to the kingdom.” In contrast, sensible legislation “brings in more [money] from abroad” (SC 62) and, hence, advances the kingdom’s wealth. Indeed, legislation should facilitate foreigners purchasing land held by English proprietors. For, … whatever a foreigner who purchases land here, gives for it is so much every farthing clear gain to the nation: for that money comes clear in, without carrying out any thing for it, and is every farthing of it as perfect a gain to the nation, as if it dropped down from the clouds. (SC 63) Still, despite these passages, it is not at all clear that Locke holds to the mercantilist view that wealth (or riches) consists in the possession of money. Indeed, Locke tells us that, “Gold and silver, though they serve for a few, yet they command all the conveniences of life, and therefore in a plenty of them consist riches.” (SC 12) Indeed, Riches do not consist in having more gold and silver, but in having more in proportion than the rest of the world, or than our neighbors, whereby we are enabled to procure to ourselves a greater plenty of the conveniences of life, than comes within the reach of neighboring kingdoms, and states… (SC 13) Although each nation should seek a disproportionate quantity of silver and gold, the reason for doing this is that a disproportionately large share will “procure… a greater plenty of the conveniences of life” for the nation. Locke endorses legislation that “draw[s] more money into England.” (SC 62) However, Locke’s case for such legislation is that this increase of money will enable landholders to “sell better, and yield a higher price” for agricultural products and this benefit will compensate landholders for bearing through taxes on land “the greatest part of the burden of the kingdom.” (SC 62) How can England acquire such a surplus of silver and gold? According to Locke, In a country not furnished with [silver or gold] mines, there are but two ways of growing rich, either conquest or commerce. By the first the Romans made themselves master of the riches of the world; but I think that, in our present circumstances, nobody is vain enough to entertain a thought of our reaping profits of the world with our swords, and making the spoil and tribute of vanquished nations the fund for the supply of the charges of the government, with an overplus for the wants, and equally-craving luxury, and fashionable vanity of the people. (SC 13) The only reliable route to England having silver and gold in greater proportion than the rest of the world is commerce. Here Locke at least comes close to disavowing the common mercantilist view that a major reason for governments maintaining “a sufficient quantity of hard currency” was “to support a military that would deter attacks by other countries and aid its own territorial expansion.”5 How does such an addition to a nation’s stock of money yield a greater quantity of the conveniences of life for inhabitants of that nation? Locke holds that a nation having a large stock of money has value for that nation because of the propensity of that stock to support and extend trade within that nation and, in that way, to enhance the conveniences of life in that nation. He tells us that, while “it matters not, so it be here amongst us, whether the money be in Thomas, or Richard’s hands,” that money will serve the wealth of the nation, “provided it be so ordered, that whoever has it may be encouraged to let it go into the current of trade, for the improvement of the general stock and wealth of the nation.” (SC 62, emphasis added) Here Locke is relying upon his idea that a certain amount of money needs to be in circulation (at a certain velocity) within a nation for a certain level of mutually beneficial domestic trade to be sustained or exceeded. Locke also seems to presume that a sufficiency of money to maintain or extend domestic trade requires a surplus of money accruing to the nation from its international trade. According to Locke, it had been through “this over-balance of trade” with Spain” that “the greatest part of [England’s] money hath been brought to England, out of Spain. (SC 18) It is crucial to note that England could not move toward a disproportionately large share of the world’s money without moving Spain toward a disproportionately small share. On Locke’s mercantilist view about what counts as a gain and what counts as a loss in international trade, viz., increases and decreases of silver or gold, international trade is a zero-sum game. England’s enrichment requires Spain’s impoverishment. In fact, Locke feels a need to justify England’s imposing this loss on Spain. He tells us that “riches are only for the industrious and frugal” and the Spanish are “lazy and indigent people.” (SC 72) In contrast, Locke clearly thinks that the domestic trade is positive-sum. In “Some Considerations,” Locke is especially concerned to vindicate a borrower’s payment of interest to lenders in voluntary exchange for the borrower’s use of the lender’s money. This vindication underwrites Locke’s case against state-mandated interest rates. Locke’s specific strategy for vindicating interest payments to owners of money in exchange for the borrower’s right to use the owner’s money is to show that such exchanges are entirely parallel to rental payments to owners of land in exchange for the renter’s use of that land. On one level, Locke simply presumes that his readers will favor landowners and renters being allowed to enter into leasing arrangements and will reject out of hand rents being set by legislation. Showing the parallels between renting land and borrowing money should convince these readers to favor allowing the rental of money and to disfavor legislative setting of rates of interest. Nevertheless, Locke reinforces this argument by explaining why both the voluntary rental of land and the voluntary borrowing of money will be mutually advantageous to the parties involved. The essential—albeit, not quite explicit—explanation is that renters will rent, and borrowers will borrow if and only if they can put the land or money in question to sufficiently more productive use than the land or money would be put to by its owner. The land or the money will be sufficiently more productively used by the renter or the borrower if and only if the use of the land under the lease or the money under the loan yields enough income to the renter or the borrower both to pay for the lease or loan—thus, benefiting the owner of the land or the money—and to provide a sufficiently attractive net gain to the renter or the borrower. In effect, each sort of economic interaction moves a resource to a more productive use and because the interaction is voluntary the economic gains from this move are divided between the resource owner and the resource user in a way that leaves each a net beneficiary. (SC 36-37) Part of my reason for explicating this argument from “Some Considerations” is to point to a tension between this Lockean gains-from-trade argument and Locke’s own mercantilist commitment to the zero-sum character of international trade. Central to Locke’s discussion of the mutual advantages that accrue to landowners and leasers and to money owners and borrowers is the idea that voluntary exchanges strongly tend to be mutually advantageous. These interactions would not take place except for each party’s belief that he or she will on net gain. Similarly, if we think of international trade, as Locke tends to, as trade between nations, rather than as trade between private parties from different nations, we should expect voluntary commercial interaction between nations to be mutually advantageous. If each party to any given international exchange did not judge the interaction to be on net beneficial to it, the exchange would not take place. Suppose, as Locke and mercantilists in general, did that sometimes a nation needs to increase the quantity of hard currency in circulation within it. If the need for such an increase in hard currency is to be met through commerce, this nation will have to export more consumable goods to other nations than it imports from them. But no other nation will voluntarily agree to any commercial interaction that will diminish its stock of hard currency unless it sees that interaction as being on net advantageous to it—presumably by adding enough to its supply of consumable commodities to compensate for its loss of hard currency. For more on these topics, see Mercantilisim, by Laura LaHaye. Concise Encyclopedia of Economics. “Mercantilism Lives,” by Charles L. Hooper. Library of Economics and Liberty, Apr. 4, 2011. Peter Berkowitz on Locke, Liberty, and Liberalism. EconTalk. So, Locke should conclude that in the ordinary course of affairs, any voluntary international exchange that advantages one trading nation will also, contrary to mercantilist doctrine, benefit its trading partner. Were Locke to apply his insights about voluntary domestic trade to international trade, he would have been even less of a mercantilist than he was. Footnotes [1] The Collected Works of John Locke, volume 8; henceforth SC. [2] See David Henderson’s Concise Encyclopedia biography of John Locke. [3] In her John Locke: Economist and Social Scientist, Karen Vaughn maintains that it is the systematic character of Locke’s economic thought that distinguishes him from the mercantilists. [4] Laura LaHaye, “Mercantilism.” Concise Encyclopedia of Economics. * Eric Mack is a professor of philosophy at Tulane University. You can find more of his writing in the Online Library of Liberty. (0 COMMENTS)

The July 2021 issue of Nature Aging—one of the prestigious Nature periodicals’ group—published “The Economic Value of Targeting Aging.”1 It begins by asserting that changes in U.S. life expectancy and attention to “healthy aging” raise questions that biomedical scientists and economists alike must tackle. What kinds of questions? Is it preferable for biomedical research to aim at extending life? Or should its goal be to “compress morbidity” to make the same lifespan healthier? What is the economic value of each emphasis? The article, although it appends several pages summarizing the mathematics of its methodology, states its conclusions in reader-friendly terms: “[C]ompression of morbidity that improves health is more valuable than further increases in life expectancy… [and] targeting aging offers potentially larger economic gains than eradicating individual diseases.” (616) Of course, these conclusions are intended to “inform” government policy—and government policy is cast always and everywhere in terms of the collective and not the individual. For example, the authors write, “We show that a slowdown in aging that increases life expectancy by 1 year is worth US$38 trillion, and by 10 years, US$367 trillion. Ultimately, the more progress that is made in improving how we age [versus how long we live], the greater the [economic] value….” (616) As a 78 year-old man still blessed with good health, it occurred to me while reading this that research that extended life expectancy (mine is 10 years) might serve me, as an individual, better than research to keep the U.S. population at large on the job longer. Just one man’s perspective. If my taxes over approximately 62 years (since I turned 16) have gone to support the world’s largest, most expensive biomedical research enterprise, to what extent will my interests be represented? My interests are those of any individual fortunate enough to enter older age healthy and with a relatively greater stake in living longer. “Longer life with no greater proportion lived in good health equals more years in poor health—statistically, for the population at large.” But that is not the focus of the economic analysis, which reports Global Burden of Disease data indicating that for the last 150 years, life expectancy has soared in the United States and other developed countries, but the proportion of life in good health has not increased. Longer life with no greater proportion lived in good health equals more years in poor health—statistically, for the population at large. Certainly, there are economic issues raised by an aging population with proportionately more years lived in ill health. In a few years (2030), one-fifth of Americans will be over the age of 65, a doubling over the past 60 years. The retirement age remains 65, and that standard is affirmed by Social Security and Medicare.2 • Economic growth, as measured by GDP, reduces in basic terms to growth in the working age population multiplied by productivity. Neoclassical economics identifies productivity chiefly with capital invested per worker, especially in technology. And, despite some Luddite sentiment, technology is our strong suit. • The downside is that technology displaces workers at least temporarily, and among OECD nations, the United States is second only to Great Britain in worker displacement. • On the other hand, our population is not only getting older but also more diverse. Between now and 2037, the U. S. population will increase by 35 million from births that exceed deaths. More than half of that increase will be thanks to a burgeoning Hispanic population. • Millennials (now ages 23 to 38) are viewed as having the greatest potential to sustain U. S. economic growth, but they are struggling. On average, they are underemployed, have too much debt, and save little. A factor still very much in play is the role of the gig economy, which does not fit smoothly into existing systems for paying and saving for healthcare and retirement. Today, U.S. households under 35 years old earn less (inflation-adjusted) than comparable households a decade ago ($40,500 versus $43,300). • Finally, of course, an older, sicker population keeps increasing the cost to government of retirement, healthcare, and safety net programs, which takes us right back to the point that collectively if we live longer, and are sick longer, we hasten the often-predicted fiscal crisis of Medicare and Social Security. The United States does face the challenges of sustaining economic growth as its population on average becomes older and sicker and labor force participation declines. Yes, one element of the problem is a population living longer with more years of chronic illness. But that is only one factor in an equation that involves—just for example—immigration policy, investment in technology and worker training, a workforce (millennials) with potential but also problems, and government’s funding of healthcare and aspects of retirement. Mentioned far less often are factors such as the impact of regulation on productivity, the proportion of potential investment capital taxed away, welfare state disincentives to work, failing public education, and inefficiencies of partially socialized health care and retirement investment. (My search turned up dozens of policy statements addressing how an aging population will make capitalism “unworkable” for every article on free market prescriptions such as privatizing healthcare insurance.) For interventionist-welfare statists, of course, the least painful course is to continue all the above programs and policies. And instead, declare a grand strategy of using government’s dominant position in funding research—relentlessly aggrandized since WWII—to steer the national biomedical research enterprise toward the goal of shorter but proportionately healthier (i.e., more productive, cheaper for the welfare state) lives. Really? Is this an emerging policy bias? More research would be required to prove that, but there are suggestive indications. Most notable is an outpouring of policy papers on the theme “Living Too Long.” A few examples: • “Living Too Long” (“The current focus of medical research on increasing the quantity rather than the quality of life is damaging our health and harming the economy…”)3 • “Great Desire for Extended Life and Health amongst the American Public” (but very limited desire for longer life spans per se).4 • “Who wants to live forever? Three arguments against extending the human lifespan” (“… research with the explicit aim of extending the human lifespan is both undesirable and morally unacceptable.”)5 Examples could be multiplied without end. The message is that longevity per se is not a desirable national objective. The intensive focus on morbidity compression versus longevity seems evident to the healthcare policy world. If you are like me, past 75 and in good health, your interest in extending longevity is not relevant to the national interest, which is economic growth. To expect research on longevity is a personal, not to say “anti-social,” perspective. The focus of research will never satisfy everyone. A story on “billionaires who race to fund anti-aging projects” reports that “Earlier this year [2022], Altos Labs, a partial cellular reprogramming company, drew billions of dollars of investment, including from Jeff Bezos and Yuri Milner. Google founders Sergey Brin and Larry Page have put billions into Calico. Peter Thiel was an early backer of Unity Biotechnology. Peter Diamandis is placing bets on young blood and stem cells.” This private, individual support for biomedical and clinical research, as for all market-driven investments, is motivated by personal value priorities (such as cures for certain diseases) and one such priority, among those fortunate to age in good health, is longevity. Of course, the discoveries of the scientists supported by these private investments potentially will benefit everyone. But funding of biomedical research responsive to priorities of individuals and private organizations is little more than a rounding error of the research budget driven by national policy prescriptions. The Lancet points out: “Public funding of biomedical research in the USA is dominated by one funding agency to an almost absurd degree. The National Institutes of Health (NIH) has an annual budget of more than US$30 billion—no other source of research funding in the world even comes close to that figure.”6 For more on these topics, see “On Old Age (De Senectute),” by Marcus Tullius Cicero. Online Library of Liberty. Empirics of Economic Growth, by Kevin Grier. Concise Encyclopedia of Economics. Jacob Stegenga on Medical Nihilism. EconTalk. No one bothers anymore to dispute that politics drives the allocation of government grants. “We investigated… congressional appropriations bills and appropriations committee meeting reports covering the 20 fiscal years between 1984 and 2003. During every year of this period, the director of the NIH negotiated with the Department of Health and Human Services and the Office of Management and Budget within the Executive Office of the President to craft a budget request for the NIH that was consistent with White House priorities.” If the “national interest” has become identified (as I hypothesize) with putting the brakes on lifespan increases (thus relieving pressure on the welfare state) and prioritizing the extension of years worked (thus sustaining American economic leadership), then that is how the billions will be spent. Footnotes [1] Andrew J. Scott, Martin Ellison, and David A. Sinclair, “The Economic Value of Targeting Aging,” Nature Aging 1 (July 2021), pp. 616–23. [2] Paula Campbell Roberts, “What Does an Aging Population Mean for Economic Growth and Investing?” CRI Blog, Center for Retirement Initiatives, McCourt School of Public Policy, Georgetown University, September 2018, 18-07. [3] Guy C. Brown, “Living Too Long,” EMBO reports 16, no. 2 (February 2015), pp. 137–41, at 137. [EMBO is an acronym for the European Molecular Biology Organization.] [4] Yoni Donner et al., “Great Desire for Extended Life and Health amongst the American Public,” Frontiers in Genetics 6, article 353 (January 20, 2016), pp. 1–2. [5] Martien A. M. Pijnenburg and Carlo Leget, “Who Wants to Live Forever? Three Arguments against Extending the Human Lifespan,” Journal of Medical Ethics 33, no. 10 (October 2007), pp. 585–87, at 585. [6] Brian Owens, “Mapping Biomedical Research in the USA,” The Lancet 384, issue 9937 (July 5, 2014), pp. 11–14, at 11. *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. For more articles by Walter Donway, see the Archive. (0 COMMENTS)

People believe many myths, but I suspect few are as pernicious as the zero-sum fallacy. It sees the world as a story of an unending struggle over a fixed prize such that someone who has something only has it because someone else does not. It’s an understandable thing to believe throughout most of history when the way to enrich yourself was to make other people poorer. But, unfortunately, it’s an inadequate description of the Bourgeois Era, where for about two-and-a-half centuries, people had been enriching themselves by enriching others. Karl Marx thought exchange was mutual swindling. It is not; an exchange means both parties are better off. Competition means more and more of the gains from innovation have gone not to the innovators themselves or to grasping producers but to consumers. Exchanges hurt no one—at least, as Paul Heyne points out, no one with a right to be consulted.1 You have as much right to stop someone from spending the wrong way as you have to stop them from kissing or praying the wrong way. And, of course, some people will point with at least some justice to the problems of inequality. However, inequality is not morally important. The propagandist Danilov was right in the 2001 movie Enemy at the Gates. There will always be someone with something we want but don’t have. Envy we will always have with us. The beauty of exchange, again, is that it makes both people better off. If it improves their position relative to you, then the right response is congratulations rather than resentment. “Repeat after me: the right response to another’s good fortune is congratulations, not grief.” Aleksandr Solzhenitsyn said that the line dividing good from evil runs through the heart of every man. It’s on the evil side of the line from which we get the impulse to resent the colleague who has published two articles when we have only published one, or the colleague who has more citations than we have, particularly when we want to tell some sort of story about how that could have been us had things only been different. First, I can’t imagine that the object of my resentment’s life has been perfect by any stretch of the imagination. Second, we need to own the consequences of our choices. For just about every “if only…” I can point to when I want to be upset about what I don’t have, I can point to deliberate choices I made in the past, many of which recognized and explicitly considered the trade-offs. The ones that didn’t were either exercises in immaturity or ignorance. Repeat after me: the right response to another’s good fortune is congratulations, not grief. We need to learn to say, “I’m happy for you” and mean it instead of saying “I’m happy for you” out loud and then muttering “you blackguard” under our breath. In Leave Me Alone and I’ll Make You Rich,2 Deirdre McCloskey and I explain that the Bourgeois Deal is the appropriate deal for a society of adults. It is a deal that respects and honors others as people bearing the image of God, or at any rate as people who are blessed with dignity and liberty simply because they are people. It is not the Blue Blood Deal governing a society of masters and slaves. It is the deal fit for C.S. Lewis, for example, who notes that he has seen people fit only to be slaves but no one fit to be master. Envy has been defined as “grieving the good of others,” and in an excellent analysis,3 Jordan Ballor and Victor Claar explain its pernicious effects. It is easy to default to the idea that someone who has more or better than we do has made some kind of deal with the devil. It’s a natural human impulse, and it’s common not only in humans but in all other primates, as well. It’s an impulse to be resisted. In Speaker of the Dead, the second book of Orson Scott Card’s Ender Quartet, a peculiar group of creatures called the pequeninos have a fundamentally zero-sum view of the world. One asks what he has gained if he and another get the same benefit without noticing that the relevant comparison is with oneself the day before, not with another who (again) might have something we don’t. Where we are now is, in a lot of respects, the result of having won the historical and geographic lottery as well as the accretion of a lifetime’s worth of decisions—some good, some bad, some evil, some virtuous. Importantly, we don’t lift ourselves up by pulling one another down, and as Booker T. Washington has pointed out, you cannot keep someone down in a ditch without climbing down to lay on top of him. There are a lot of candidates for the most powerful force in the universe. There’s love. There’s the strong nuclear force. There’s compound interest. Perhaps a better candidate is division of labor, which makes us more productive by giving us opportunities to specialize and exchange—and to thereby get more with the sweat of our brow. In a famous example in The Wealth of Nations, Adam Smith tells us that we get our dinner from the butcher, the baker, and the brewer not by appealing to their humanity or to our need—they are, after all, surrounded by people with unlimited need, and if “compassion fatigue” exists, then we are limited in our ability to be purely and perfectly altruistic all the time. We appeal to others’ interests, and to their self-love—to the fact that we are willing to help them achieve their goals if they are willing to help us achieve ours. By specializing in butchering, the butcher can get more beef, more bread, and more beer. By specializing in baking, the baker can get more bread, more beef, and more beer. By specializing in brewing, the brewer can get more beer, more bread, and more beef. Their gains come in addition to the gains they create for others and not “instead of” or “at the expense of.” As Thomas Sowell put it: people live on real income, not on income shares. With respect to the ability to get the necessaries—food, clothing, and our daily bread—it is better to have a small fraction of a large sum than a large fraction of a small sum. It is curious that for all its emphasis on making people better off by their own preferences and correcting cognitive biases, behavioral economists and psychologists have paid so little attention to envy. Indeed, they haven’t so much ignored it as they have sanctified it even though it is agreed to be the kind of thing that corrodes the soul. When I feel those twinges of resentment at people who have what I don’t—a nicer car, a bigger house, a higher salary—I have to check myself and note that I’m making more than enough to meet my needs and to to lead a flourishing life. It’s vicious, not virtuous, for me to think myself cheated just because someone else has a little more than I do. It’s true that the people around me who have more might have it because of horrible things they’ve done. However, we’ve all done horrible things (“well, maybe not that horrible,” I say, and I hear you saying) that have us better positioned than we otherwise would have been had we started from Year Zero and all lived lives of perfect virtue. We and our ancestors have also been the perpetrators and victims of innumerable outrages. Preoccupation with those outrages leads to a moral dead end, though. First, it encourages us to think of people as abstractions, with one group having wronged another group and with the wrong being compressed in space-time to a perpetual now. I cannot help but wonder if this is popular in part because it relieves people of the burden of thinking. Second, it encourages the Intersectional Oppression Olympics where everyone is fighting to claim the mantle of Most Oppressed. Not only is such an argument costly—we could actually be making things and creating beauty instead of arguing—it’s morally corrosive. It might be attractive, though, because it relieves us of the obligation to treat one another as moral equals. If the world sorts semi-neatly into oppressors and oppressed, then “equity” demands political inequality where moral exemplars like ourselves are created equal but are more equal than the people around us. For more on these topics, see Stephen Kotkin on Solzhenitsyn. EconTalk. “Wanting the Worst,” by Peter W. Wood. Law and Liberty, Oct. 16, 2019. “Behavioral Versus Free Market Economics,” by Leonidas Zelmanovitz. Library of Economics and Liberty, Jan. 2, 2023. The zero-sum fallacy has deep psychological roots. So does its offspring, envy. As societies have slowly, reluctantly, and incompletely embraced the Bourgeois Deal, it has become less relevant to, and less descriptive of, our day-to-day affairs. To the extent that we have resisted our envious impulses and left other people alone, even when they have enjoyed things we don’t have, we have freed them up to make the rest of us rich. Footnotes [1] Carden, Art. “Are Economists Basically Immoral?” AIER, October 26, 2019. [2] McCloskey, Deirdre Nansen and Art Carden. Leave Me Alone and I’ll Make You Rich. Chicago: The University of Chicago Press, 2020. See also Peter J. Boettke’s Liberty Fund Economics Book Club: Discussion with Art Carden about Leave Me Alone and I’ll Make You Rich. EconLog, March 24, 2022. [3] Ballor, Jordan J. and Claar, Victor V., “Envy in the Market Economy: Sin, Fairness, and Spontaneous (Dis)Order” (November 4, 2013). Faith & Economics 61/62 (Spring/Fall 2013): 33-53. *Art Carden is Assistant Professor of Economics at Samford University in Birmingham, AL, a Senior Research Fellow with the Institute for Faith, Work, and Economics in McLean, VA, a Research Fellow with the Independent Institute in Oakland, CA, and a Senior Fellow with the Beacon Center of Tennessee. For more articles by Art Carden, see the Archive. (0 COMMENTS)