I’ve been at odds with many people on the right, many on the left, and many in the approximate center for some time now. But various things I’ve learned have convinced me that many of them were right and I was wrong. Here are some. Bomb fentanyl factories in Mexico I’ve run into a number of people who want the U.S. government to bomb fentanyl factories in Mexico. Although I haven’t written about it, I’ve opposed this on both moral and practical grounds. But I’m now convinced that the people who produce fentanyl are bad people even if they’re producing for good consumers who want it. And I think the history of U.S. foreign policy shows that bombing people in other countries is highly effective and has few negative unintended consequences. Impose tougher sanctions on Iran Earlier this week, I argued that economic sanctions on Iran harm a lot of normal, non-political Iranians. I still believe that. But I’ve now come to the view that such sanctions are justified because Iranians have a choice to overthrow their government. If they haven’t done so, that’s their problem. I am still struggling, though, with one of the apparent implications of my new view: when our government kills tens of thousands of innocent people in other countries, as, by the way, the Iranian government hasn’t done to us, are people in those other countries justified in getting their governments to prohibit trade with us even if it means that we go without needed goods? Tax the rich more to make them pay their fair share Even though the rich, at least as defined by high income, pay a higher percent of their income in taxes than the rest of us, they should be taxed even more. They’re not paying their fair share because a lot of their income is based on theft from the rest of us. My source on this is that noted 19th century French economist Honoré de Balzac, who noted wisely that “Behind every great fortune lies a great crime.” Along with Thomas Piketty, I’m sure he studied the data carefully before reaching that conclusion. Ban Tik Tok Many people today advocate banning Tik Tok because of their fear that it collects data from users and sends it to China’s government. And the Chinese government will almost certainly use this data against us and can do more harm to us with these data than the U.S. government is likely to do to us with the data it collects. So ban Tik Tok. And since we also have reason to think that various federal agencies are following us on Twitter and Facebook, ban Twitter and Facebook while we’re at it. Bring back manufacturing jobs While it’s true that real manufacturing output in the United States is only 5% below its 2007 peak, the downside is that the number of manufacturing jobs in June 2019 was a whopping 35 percent below its peak in June 1979. We need more manufacturing jobs because manufacturing was one of the main contributors to the U.S. middle class. So the U.S. government should impose 10 to 20% tariff rates on all imports of manufactured goods. Doing so would cause both manufacturing output and manufacturing jobs will increase. Tyler Cowen and the Great Barrington Declaration I was fairly harsh in my treatment of Tyler Cowen in 2020 (here, here, here, and here) for what seemed to be his lack of concern for people who suffered from extensive lockdowns. He was very critical of Jay Bhattacharya and of the Great Barrington Declaration that Jay helped write. It came out later that one of the reasons Tyler was critical was that the American Institute of Economic Research (AIER), the place where the GBD was written, employed Jeffrey Tucker at the time. While it’s true that Tucker was neither author nor editor of the GBD, his presence at AIER when the GBD was written makes the GBD suspect. I’ve really come around to the view that guilt by association and, especially, guilt by distant association, is more appropriate than I once believed it to be. For more on how I’ve changed my mind in the past, see this. (0 COMMENTS)

I’ve written before about finding the ideas of economics in works of fiction. I’ve also described how I find F. A. Hayek’s distinction between law and legislation to be a key insight in understanding how the world works. In this system, legislation is the written, articulated, deliberately constructed rule book, while law is the unwritten, evolved, unarticulated (but not inarticulate!), tacitly understood rules which guide behavior. So are there any examples of this distinction to be found in fiction? Delightfully, yes. Leo Tolstoy wrote about it well in his novel War and Peace. He describes a scene where a young lieutenant, Boris, is coming to speak to Prince Andrei, who is the son of a famous general and serving as a captain in the army. Tolstoy writes: When he entered, Prince Andrei, his eyes drooping contemptuously (with that peculiar expression of polite wariness which plainly says ‘if it were not my duty I would not talk to you for a moment’), was listening to an old Russian general with decorations, who stood very erect, almost on tiptop, with a soldier’s obsequious expression on his purple face, reporting something. “Very well, then, be so good as to wait,” said Prince Andrei to the general in Russian, speaking with the French intonation he affected when he wished to speak contemptuously, and noting Boris, Prince Andrei, paying no more heed to the general who ran after him imploring him to hear something more, nodded and turned to him with a cheerful smile. At that moment Boris clearly realized what he had before surmised, that in the army, besides the subordination and the discipline prescribed in the military code, which he and the others knew in the regiment, there was another, more important system, which made this tight-laced, purple-faced general wait respectfully while Captain Prince Andrei for his own pleasure chose to chat with Lieutenant Drubetskoy. More than ever Boris resolved to serve in the future not according to the written code, but under this unwritten law. He felt now that merely by having been recommended to Prince Andrei he had already risen above the general who at the front had the power to annihilate him, a mere lieutenant of the Guards. Here, in discovering the existence of this “other, more important system,” Boris was discovering how the unwritten law of the military was different from the written legislation found in official rules and regulations. The law wasn’t something that could be looked up in a book, and it wasn’t ever explicitly described or even fully understood by everyone. And the law had a flexibility and evolving character to it which the official regulations lacked. Boris realized that the best way forward for him was to act in accordance with the unwritten law, rather than the written legislation. Having spent nearly a decade in the Marine Corps, this definitely reflects my experience. As you gain experience in the military, you start to recognize the difference between what the regulations say, and how things are actually done. A common source of amusement was laughing at the expense of “boots” (a moniker usually signifying someone fresh out of boot camp with no real experience) who still do everything “by the numbers” – that is, who do everything according to the official rules and regulations. When you come out of boot camp, you’ve had these rules and regulations drilled into your head, and it’s probably not an exaggeration to say nobody knows the official rules better or more thoroughly than someone freshly graduated from boot camp. And this is also why boots were viewed as being comically ignorant – because all they knew were the written rules, which in reality meant they knew nothing. To very badly paraphrase John Stuart Mill, he who knows only the official rules of a system knows little of that. Of course, this isn’t unique to the military. In every job I’ve had since then, there have always been unwritten rules permeating the background. Learning and understanding those rules have always proved crucial to being successful. Chances are you, dear reader, have also noticed something similar in your experiences as well. If so, do share some examples in the comments – it’s always fascinating to be able to see what’s behind the veil.   (0 COMMENTS)

As you may know, I’ve long advocated the abolition of federal deposit insurance. I believe that a free market would provide people with safe places to store wealth, such as narrow banks and MMMFs that invest in T-bills. But my proposal is not politically feasible, at least for the foreseeable future.Josh Hendrickson has a post entitled: How Can We Align the Interests of Bank Shareholders with Depositors? It addresses moral hazard in a way that seems more politically feasible than abolishing FDIC: This raises a natural question. If shareholders prefer more volatile assets and depositors prefer less volatile assets, how can the preferences of depositors and shareholders be aligned to avoid the insolvency risk just described?Historically, shareholders of banks were subject to multiple liability. The most common version of this seems to have been double liability. The way that this worked is that a shareholder would buy X dollars worth of stock in the bank. If the bank become insolvent, not only did the shareholder lose his X dollars, but the shareholder was also responsible for compensating depositors using up to X additional dollars of the shareholder’s own personal wealth. This is referred to as double liability since a shareholder investing X dollars in the bank would have a maximum loss of 2X dollars.It is easy to see how this sort of arrangement would help to navigate the conflicting visions of depositors and shareholders with regards to what banks should do. Multiple liability aligns the financial incentives of the shareholders with those of the depositors by making shareholders responsible for depositor losses. I like that idea.  I’m no expert on banking, but what about simply requiring people (and institutions) that purchase bank stock to make and hold deposits in the bank that are equal to the size of their equity purchase.  If you buy $1 million in Republic Bank stock, you must also deposit $1 million into Republic Bank and hold it there until you sell your stock.  In that case, the FDIC could continue insuring ordinary deposits, but these special deposits of bank shareholders would be uninsured.  (Shareholders could hold other insured deposits, apart for these uninsured accounts.)   From the shareholder perspective, this would double the cost of a bank failure, and reduce the incentive to take excessive risks.  It’s also an approach that utilizes market forces.  When it comes to regulation, bureaucrats will never be able to anticipate all of the different ways that a bank might screw up.  In this proposal, the market is automatically moving banks closer to alignment with uninsured depositors. PS.  This picture shows the FDIC headquarters.  Ironically, my old employer (Mercatus Center) is right next door.) (0 COMMENTS)

Is it better to have more or less population in your country and the world? I ask the question in a short article in the Summer issue of Regulation. I review a few economic and philosophical arguments on both sides of the debate. On the one hand, we have known a certain type of currently recycled environmental argument: In his 1968 book The Population Bomb, Stanford biologist Paul Ehrlich warned that an exploding world population was hitting resource constraints and that, within a decade, food and water scarcity would result in a billion or more people starving to death. Governments, he opined, should work toward an optimal world population of 1.5 billion. … In 1965, the New Republic announced that the “world population has passed food supply,” and that world hunger would be “the single most important fact in the final third of the 20th Century.” On the other hand, I dismiss is the utilitarian claim that a larger population is better because it means more “utility” (in the economic sense). One of my replies is follows the very interesting article of The Economist on “population ethics”: A non‐​existent individual cannot be included in any utility calculus because there is no “he” (or “she”) to include. Even if no utility calculus is possible, however, political-economy suggests a moral presumption that a larger population is beneficial to most individuals: It is a good guess that the more numerous is mankind, the larger the opportunities for beneficial exchange, which includes all sorts of voluntary relations between individuals. At any rate, there is no reason to believe that the topic should be a political matter: There is no reason to believe that the size of mankind should be the province of collective choices—which are, in practice, government choices. … Like in so many other areas, economics (albeit with some minimal value judgements of the sort “live and let live”) suggests that a superior alternative is usually available: individual choices in a general context of liberty. Let each potential parent decide, or agree on, what will be the number of his or her own children. These individual choices should determine the number of humans, instead of a certain group of individuals “collectively” deciding how many children families should have. (0 COMMENTS)

In 1980, Margaret Thatcher’s Conservative government passed its famous Housing Act. This gave five million council house tenants in England and Wales the ‘Right to Buy’ their house from their local authority at a discount reflecting rent previously paid. For Thatcher, it was the perfect mix of ideological and practical politics. It made ‘public’ assets private with the handy consequence that owners of their own properties were more likely to vote Conservative than were tenants of government owned properties. Proposing the bill, Environment Secretary Michael Heseltine said it “lays the foundations for one of the most important social revolutions of this century”. Indeed, 1982 saw 200,000 council houses sold to their tenants and by 1987, more than 1,000,000 had been sold. Home ownership grew from 55% of the population in 1980 to 67% by the time Thatcher left office in 1990. The Act was not universally popular; indeed, it remains controversial. At the time of its passage, Labour Shadow Cabinet member Gerald Kaufman said it would “not provide a single new home and [would] deprive many homeless people or families living in tower blocks from getting suitable accommodation”. It remains an article of faith on the British left that the high cost of housing in Britain today is, in not inconsiderable degree, a result of the Housing Act. In his 2014 book Engels’ England, Matthew Engel meets a Labour councillor who identifies the “major issue” facing his region as “Council housing”: People come to me and say, “What about my son and daughter? They can’t get on the housing list.” So I say, “You bought your council house, didn’t you? That’s why. We’ve hardly got any.”’ Of course, it has never been clear how the Act – which simply transferred the ownership of some portion of Britain’s existing housing stock from government to the individuals living in it – reduced the overall stock of housing available. In Engel’s Labour councillor’s case, the fact that those parents bought their council house is not the reason it is unavailable for their children to live in: it is unavailable for them to live in because the parents are still living in it. Even if the house was still owned by the council, the parents would still be living in it and it would still be unavailable for the children to live in. But that shortage of housing is a definite social, economic, and political problem. A new report by the Centre For Cities titled The housebuilding crisis: The UK’s 4 million missing homes claims that: Compared to the average European country, Britain today has a backlog of 4.3 million homes that are missing from the national housing market as they were never built. Why? The origins of the crisis lie in one of the two dramatic changes to housing policy in the United Kingdom that occurred just after the Second World War. One was that council housing became much more important, accounting for roughly half of all new homes built in the post-war period. The other was the introduction of a new discretionary planning system in England with the Town and Country Planning Act 1947, which continues to form the basis for planning across the UK in the present day. These two changes are at the centre of political debate on the housing crisis today, with both put forward as competing explanations of Britain’s severe housing shortage. One explanation is focused on the introduction of Right to Buy and the subsequent decline of council housebuilding in the 1980s. The other explanation emphasises that England’s discretionary planning system reduces the supply of new homes through its case-by-case decision-making process for granting planning permission. The report’s authors, “Using newly available data on housing,” find “that Britain’s housing shortage began at the beginning of the post-war period, not at its conclusion.” In other words, it is Britain’s discretionary planning system which is to blame for a house not being built for those two kids to live in, not the Housing Act which enabled their parents to buy a place they already inhabited. This finding has major policy implications. The solution usually offered to Britain’s housing crisis is a vast program of council house – or ‘social housing’ – construction. On the contrary, the authors note, what is needed is: “Replacing the discretionary planning system with a new rules-based, flexible zoning system… [and] Increasing private sector housebuilding…” Britain’s housing crisis is government made. Not by the Housing Act, which merely transferred ownership of some of the existing housing stock, but by the Town and Country Planning Act which made it incredibly difficult to expand that stock. The market should be allowed to help clean up the mess made by government.   John Phelan is an Economist at Center of the American Experiment. (0 COMMENTS)

Economics emphasizes the power of incentives in influencing how people behave. When I began to read economics, I found this focus on incentives very plausible, because I had seen firsthand a very strong example of how the incentives created by a system of rules was clearly influencing the way people made a major life decision – getting married. It’s almost a cliché that people in the military get married too quickly and too young, which in turn leads to lots of divorces and broken families, with all the emotional and financial strain you’d expect. But why do young members of the military get married so young and so fast, compared to the rest of the population? It’s because the system heavily incentivizes it, both officially and unofficially. When you complete your official training and arrive at your first duty station, you get assigned a room in the barracks on base. Barracks living is not exactly pleasant, particularly when you’re a low rank. But married Marines don’t have to live in barracks. If you’re married, you get paid significantly, often more than doubling your pay, so you can afford to live off base. Your spouse will get military health care for “free” (and in my experience, military health care is worth everything you pay for it). When you inevitably get sent to a new duty station, the military will pay to move your new spouse with you. Imagine for a moment if other institutions worked this way. Think of a pair of high school sweethearts who have just reached adulthood. One of them is leaving for college, while the other is not. They are heartbroken to be separating. Then imagine the college announces a new policy. If they were to get married, the college would pay for the new couple to move together, would subsidize their living expenses so they could live in an apartment out in town instead of in dorms, and would provide the newly married couple with health care benefits at no additional expense. I suspect the percentage of married college freshmen would increase by leaps and bounds within three seconds of that policy going into effect. You see the same thing with new Marines rushing to marry their high school sweethearts the instant they graduate from boot camp. But the issue goes even further than that. An extremely common occurrence was a form of outright fraud casually referred to as “contract marriages.” This was when a Marine and a civilian (or less commonly, two Marines) got married entirely for financial gain. The gist of the deal was “Let’s get ‘married’, and I’ll get to move off base and escape the grind of barracks life, you’ll get health care and other benefits, and I’ll maybe send some of the extra money your way, too.” In every unit I was in, everyone knew at least a few people who were in contract marriages. They barely made any effort to hide it either, because nobody in particular had a strong incentive to address it in the way a private company operating on profits and losses has an incentive to root out fraud or embezzlement. Most military commanders recognize the problems that arise from a policy that encourages young and immature people to rush into marriage, to say nothing of contract marriages. But at the same time, they don’t have the ability to adjust the rules which create these incentives – the policymakers who create these rules are very far from being F. A. Hayek’s proverbial man on the spot. This means the only tool available to a commanding officer who wants to address this problem is to try to give briefings saying, in effect “Hey, stop behaving in the way that we are heavily incentivizing you to behave!” I sat through many, many such briefings during my years in the military, and they were exactly as effective as you probably have guessed.     (0 COMMENTS)

WASHINGTON (Reuters) – Treasury Secretary Janet Yellen said on Thursday the United States was looking at ways to strengthen its sanctions against Iran, but acknowledged the sanctions had not resulted in the behavioral or policy changes Washington desires from Tehran. This is from David Lander and Kanishka Singh, “Yellen: Iran’s Actions Not Impacted by Sanctions to the Extent US Would Like,” March 23, 2023. Lander and Singh continue: “Our sanctions on Iran have created real economic crisis in the country, and Iran is greatly suffering economically because of the sanctions … Has that forced a change in behavior? The answer is much less than we would ideally like,” Yellen told lawmakers in a hearing on Thursday. Dave DeCamp writes: History shows that sanctions do little to change the governments they target but always hurt ordinary people in the targeted country. For example, UN experts said last month that more Iranians are dying from thalassemia, a congenital blood disorder, due to Western sanctions that deprive them of specialized medicines and the ingredients to make them. Despite the failed policy in Iran, Yellen said the US was looking for ways to strengthen the sanctions even more. The Biden administration has followed the Trump administration’s so-called “maximum pressure campaign” against Iran and has imposed a large number of new sanctions. This is from Dave DeCamp, “Yellen Says US Sanctions Have Created a ‘Real Economic Crisis’ in Iran,” Antiwar.com, March 26, 2023. DeCamp is right to state, “History shows that sanctions do little to change the governments they target but always hurt ordinary people in the targeted country.” That is the approximate bottom line of Kimberly Ann Elliott, Gary Clyde, Hufbauer, and Barbara Oegg, “Sanctions,” in David R. Henderson, ed., The Concise Encyclopedia of Economics. I’ve also written about sanctions here. (0 COMMENTS)

Newsom pushes through a bill that penalizes oil companies for “price-gouging.” California lawmakers voted on Thursday to advance a bill that would penalize oil companies for “price gouging” — a first-of-its-kind legislation pushed forward in recent months by Gov. Gavin Newsom (D). The SBX1-2 bill, sponsored by state Sen. Nancy Skinner (D), received the approval of the California State Senate in an Extraordinary Session convened to fast-track the legislation on Thursday morning. . . , The bill could head to the State Assembly as early as Monday and receive the governor’s signature shortly after that, a source familiar with the matter told The Hill. The bill would authorize the State Energy Resources Conservation and Development Commission to set a maximum gross gasoline refining margin — and then establish a penalty for any California-based refineries that exceed that margin. The Commission would be required, however, to consider a refiner’s request for an exemption from that maximum margin. This is from Sharon Udasin, “Newsom gets big win: California Senate approves first-of-its kind ‘price gouging’ bill,” The Hill, March 23, 2023. This has the whiff of price controls although it’s not literally price control. Or maybe you could say it’s price control with the penalty for violating the control spelled out explicitly: “establish a penalty for any California-based refineries that exceed that margin.” It reminds me of Nixon’s price controls in 1971. The setting was very different. Nixon imposed a 90-day price freeze on August 15, 1971 and then relaxed the freeze but kept controls into 1974. But of course OPEC got powerful and raised the world price of oil from about $3 a barrel to $11 a barrel in a few months in late 1973. Nixon’s price controls didn’t allow refiners to pass along much of this increase. Thus the huge shortages and line-ups. With Newsom’s plan, it’s hard to know how things will play out. It will probably be substantially less bad than Nixon’s controls because it sets “a maximum gross gasoline refining margin,” which means that any increase in the underlying price of crude oil will be allowed to be passed on. One thing to be aware of, though, as I pointed out in January, is that the large margins don’t seem to be at the refiner level but at the individual gas station level. So if California’s government squeezes refiner margins, refiners would almost certainly respond by reducing output. If gasoline stations are free to raise prices then, ironically, Newsom’s controls will make gasoline prices higher than otherwise.   (0 COMMENTS)

During the latter part of the 20th century and the early 21st century, a consensus emerged that industrial polices were counterproductive. This view was a part of what was known as the “Washington Consensus”.Unfortunately, economics goes through cycles as one fad after another becomes fashionable, at least until society painfully relearns the fundamental principles of economics. In recent years, industrial policy has come back into style in the US and indeed much of the world. But the new industrial policy doesn’t work any better than previous iterations. Here’s Bloomberg: By now it’s clear that the Chips and Science Act — which includes a $52 billion splurge for the semiconductor industry — is unlikely to work as intended. In fact, its looming failure is a microcosm of all that’s wrong with America’s current approach to building things. Bloomberg cites several factors, including regulations that lead to very long delays in constructing new plants.  And even bigger problem is our immigration system: Another challenge is that the US lacks the needed workforce for this industry, thanks partly to a broken immigration system. One study found that 300,000 more skilled laborers may be needed just to complete US fab projects underway, let alone new ones. Yet the number of US students pursuing advanced degrees in the field has been stagnant for 30 years. Plenty of international students are enrolled in relevant programs at US schools, but current policy makes it needlessly difficult for them to stay and work. The strains are showing: New plants planned by Intel Corp. and Taiwan Semiconductor Manufacturing Co. are both struggling to find qualified workers. Even worse, chipmakers are burdened with regulations aimed at helping labor unions: Companies hoping for significant Chips Act funding must comply with an array of new government rules and pointed suggestions, meant to advantage labor unions, favored demographics, “empowered community partners” and the like. They should also be prepared to offer “community investment,” employee “wraparound services,” access to “affordable, accessible, reliable and high-quality child care,” and much else. Over in Foreign Policy, Adam Posen has a more in-depth examination of the problems with industrial policies: This policy approach, while having considerable popular appeal at home, is based on four profound analytic fallacies: that self-dealing is smart; that self-sufficiency is attainable; that more subsidies are better; and that local production is what matters. Each of these assumptions is contradicted by more than two centuries of well-researched history of foreign economic policies and their effects. Neither the real but exaggerated threat from China nor the seeming differences of today’s technology from past innovations change underlying realities. Posen discusses many specific problems with industrial policies, but most of them boil down to one specific error—ignoring opportunity costs. (0 COMMENTS)

Psychologist Paul Bloom says yes–but not the things that you might think. In this episode, Bloom returns to discuss his new book, Psych, with EconTalk host Russ Roberts. Bloom’s goal with this book was to provide a  review of all of psychology, not a specific concept like empathy or suffering. He describes is it as a labor of love, and Roberts loved it bin turn, in part because of the nuance it offers. Let’s hear what you took from this conversation. (And if you were prompted to read the book, we’d love to hear you general reactions to that, too!) We’re here for the conversation.     1- Roberts did not pose only the question in this post’s title. Unsurprisingly, he also asked, “Do economists know anything?” What does Russ suggest economists know the most about, and why does Bloom think you might be better off reading novels instead? What does Bloom point to as the most surprising and interesting discoveries we can attribute to psychology?   2- Bloom agrees that learning how to think like an economist is helpful. How, then, does he describe how to think like a psychologist? What value does such a perspective add?   3- How does Bloom describe rationality? To what extent does he find it to be a useful psychological concept, and to what extent do you agree? What’s the best argument against rationality, according to Bloom?   4- The conversation turns to motivation, and Bloom cautions us to not try to pin singular principles to people’s behavior. He suggests that behaviors often have two sets of motivations- evolutionary and personal. What does he mean by this? And why do he and Roberts seem to agree that others may have more insight into why we behave the way we do than we do ourselves?   5- What are Bloom’s views on peer review and the replication crisis? How does Bloom defend peer review, and what is his concern about the alternative raised in this episode with Adam Mastroianni?   Bonus Question: Is it rational to give gifts? Compare what Bloom and Roberts have to say in this episode with what Sarah Skwire and I have to say in this conversation. (0 COMMENTS)