Yesterday, I encountered two different news stories that illustrated the deleterious health effects of nationalism. In China, a government policy based on national pride is resulting in thousands of needless deaths from Covid: South Korea’s leading vaccine producer says it is unlikely to supply Covid jabs to China due to Beijing’s “national pride” and insistence on using domestic vaccines, even as the country is hit by its biggest outbreak of the pandemic. China’s domestically made vaccines are widely viewed as inferior to vaccines available in other countries. China had plans to rapidly ramp up production of nuclear power plants, but has fallen well short of its goals: They called for the mass deployment in both coastal and inland provinces, with a mixture of Chinese indigenous and imported technology. Together with hydropower, nuclear would comprise the backbone of China’s low-carbon baseload capacity additions. Instead, new nuclear power generation has largely undershot those goals. Total nuclear capacity was just 51 GW by 2020, and China is now targeting just 75 GW by 2025. Meanwhile, coastal provinces are still approving tons of coal-fired capacity. What happened? . . .  By the end of the 2010s, several things had become apparent to Chinese policymakers and energy planners: First, imported designs from the U.S. and France were taking longer to build and were costing a lot more than initially budgeted. Second, the trade war with the U.S. exposed Chinese nuclear developers to supply chain risks via their American suppliers. Obviously, the slow rollout of nuclear is only a small portion of their environmental problem, but air pollution from coal is estimated to kill hundreds of thousands of Chinese each year.  Just one more consequence of the US trade war. Some of the effects of nationalism are obvious, as with the Russian war against Ukraine.  Others are more subtle, as when a recent shortage of infant formula in the US was aggravated by trade barriers. In some cases, Americans don’t even know that they are being hurt by nationalism.  David Henderson recently pointed out that one factor explaining the low quality of airline service in America is the prohibition on domestic flights by highly respected international airlines, such as Singapore Air.  I wonder how many frustrated Southwest Airline passengers are even aware that their government doesn’t allow them to choose foreign airlines?  And how many are aware of how the Jones Act contributes to higher prices? Does nationalism cause inflation?  Yes and no.  Most inflation is caused by monetary policy.  If the Fed were serious about its 2% average inflation target, then nationalism would not cause any inflation in the long run. In the short run, demand side inflation generated by monetary policy also raises nominal incomes.  It is the inflation that Americans find especially painful, the supply side inflation, which is exacerbated by nationalism.  For any given level of nominal GDP, policies such as Russia’s war on Ukraine and the US trade war on China cause prices to rise.  This is the sort of inflation that reduces living standards.   (1 COMMENTS)

The first post in this series outlined the purpose of Jeffrey Friedman’s final book, Power Without Knowledge: A Critique of Technocracy. In this post, I’ll be overviewing a key problem facing an effective technocracy, in Friedman’s view: the problem of naïve realism. Recall the four types of knowledge necessary for a successful technocracy – knowledge about the existence and severity of social problems, knowledge of the underlying causes of those problems, knowledge about how to alleviate those causes effectively, and knowledge that the costs (including all unintended and unanticipated costs) of such alleviation will not exceed the benefits. Friedman defines social problems as “epistemically complex” when they “lack self-evident solutions.” For problems that are both epistemically complex and society-wide, possessing all four types of knowledge accurately and simultaneously seems at best staggering, and at worst insurmountable. To the naïve realist, however, “common sense” is all that’s needed to establish all four types of knowledge. Naïve realism is often denied as an overall worldview, while still being asserted about specific issues: A naïve technocratic realist, however, could allow that it may sometimes be necessary to interpret evidence in order to produce the four types of knowledge, while insisting that, in the case at hand, a given statistic obviously shows that a given social problem is important, that “common sense” reveals the obvious causes of the problem, that the efficacy of a proposed solution is equally obvious, and that so, too, are the costs of the treatment…Few deny that, in principle, things may sometimes be complicated, but many affirm that in the case being debated, the truth is obvious. For example, someone might say “For outcome X, there is a gap of Y magnitude between Group A and Group B. This difference is obviously the result of the history of prejudice against Group B. In order to combat this, we need to implement these policies to help boost the status of Group B, which will close the gap and right the wrongs of history.” This is naïve realism in action. A sign that the truth isn’t obvious is widespread disagreement about what the allegedly “obvious” truth is: The fact that different people’s diagnoses of and prescriptions for social problems frequently contradict each other suggests that these diagnoses and prescriptions are not, in fact, drawn from intuitive perceptions of obvious realities, but that they are fallible interpretations of ambiguous realities. However, the naive realist often fails to grasp this: Naive technocratic realism is a subspecies of naive political realism. Logically, the fact of technocratic disagreement should be fatal to the naive technocratic realist’s assumption that her opinions about social problems are self-evidently true…clashes of interpretation entail that at least some of the interpretations are wrong, such that none of them can be self-evidently true – except in the eyes of the naive realist. We might attempt to bolster our interpretations with research supporting them, but this implicitly forfeits the idea that our views are self-evident: Disagreements [about policy effectiveness] are reasonable for the same reason that a technocracy needs policy studies in the first place. If technocratic knowledge were self-evident, there would be no need for research about social problems and remedies, let alone for meta-research about them. To the extent that such research seems to be necessary, it is because the truth about the success of the policies is not self-evident. The necessity for such research also undercuts those who claim their knowledge is rooted in their “lived experience.” As Friedman notes: Moreover, it must surely be the case that, in a society that is opaque enough to require scientists to analyze its problems and prescribe cures, the intuitive insights one derives from personal experience cannot be presumed to be adequate: science is an effort to go beyond uninterrogated experience and is, as such, almost necessarily counterintuitive. Additionally, just like what might seem obvious to people is frequently contradicted by what others claim is obvious, the lessons supposedly inferred from “lived experience” also frequently contradict each other: When people bring contrasting personal experiences to the discussion of [social problems], how will their disagreements be reconciled without an appeal to statistics, and other esoteric knowledge as well? Whether [the issue] is unemployment, unaffordable housing, bad education, or costly health insurance, one needs more than personal experience with the problem if one is to conclude, legitimately, that government should try to solve it. Because the naive realist thinks all four types of knowledge are intuitively obvious, they are blind to the possibility that some or all the necessary knowledge may be counterintuitive. Naive realism is particularly ill-equipped to deal with counterintuitive policy outcomes, or the possibility that policies might backfire in unexpected ways: How might a naive technocratic realist respond to such claims? She might assert that they are inherently implausible – regardless of whether the posited mechanisms are plausible – because self-evident truths cannot possibly be counterintuitive…Such a claim is inconsistent with human fallibility, and is therefore – I take it – unreasonable in principle. It seems to me, then, that technocratic disagreement is always reasonable, even discounting the difficulty in obtaining the first three types of technocratic knowledge. Even if one considers knowledge of the significance of social problems, of their causes, and of the efficacy of the proposed solutions to be self-evident, one cannot deny the very possibility of Type 4 knowledge failures without making unreasonable claims about the reach and accuracy of human knowledge. Thus, contrary to what the naive technocratic realist believes, technocratic policies that seem self-evidently necessary might do more harm than good. Naive realism is plagued by these and many other problems. But setting aside the problems of naive realism, what are its consequences? How does the adherence to this view play out in the world? That will be the topic of the next post.   Kevin Corcoran is a Marine Corps veteran and a consultant in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason University.  (0 COMMENTS)

When OpenAI launched its conversational chatbot this past November, author Ian Leslie was struck by the humanness of the computer’s dialogue. Then he realized that he had it exactly backward: In an age that favors the formulaic and generic to the ambiguous, complex, and unexpected, it’s no wonder that computers can sound eerily lifelike. Leslie […] The post Ian Leslie on Being Human in the Age of AI appeared first on Econlib.

Any resemblance between the following parable and current events is purely intentional. Imagine an ambitious young man who wishes to become very rich, very quickly.  He has sophisticated skills in manipulating data and works for a large financial firm.  What is the quickest way to accumulate $6 billion dollars? Obviously, there is no easy way to get rich.  But if you are willing to risk going to jail, then you can considerably shorten the odds.  So here’s my plan (Kids, please don’t try this at home): 1. “Borrow” $30 billion in customer funds for a few minutes.  Put $1 billion on each of numbers 1 through 30 on a roulette wheel.  (If the casino doesn’t do bets this large, do the Wall Street equivalent with derivatives.) 2. There’s more than a 75% chance your number will hit.  (A 30/38 chance, to be precise.). If you win, the casino pays you $36 billion.  Quickly return $30 billion to the customer accounts, and no one is the wiser. 3.  Of course there is a non-trivial chance your number won’t hit, in which case your fraud will eventually be discovered and you’ll go to jail. If you are lucky, you will be lauded as a highly talented investor:  “How was this young man able to go from zero to $6 billion in such a short time?  He must have found market inefficiencies.  No one could beat a truly efficient market that consistently.” But he shouldn’t push his luck.  If he keeps doing these sorts of bets over and over again, then eventually he will get caught.  The same media outlets that called him “the next Warren Buffett“, will now claim that it was always obvious that he was a fraud. There’s a lesson here for the Efficient Markets Hypothesis.  If some people are willing to risk going to jail in order to get rich, then the number of unusually successful investors will appear to be much larger than what one would expect if markets were efficient.  But this reflects cheating, not superior investment skills.  Even if asset price bubbles do not exist (which is my view), reputation bubbles most certainly do exist.  Some investors have reputations that are inflated far beyond their fundamental values.  When those gains are achieved illegally, it is only a matter of time before the reputation is punctured. To summarize, the EMH is truer than it seems.   (0 COMMENTS)

In the last two decades, information and communication technologies (ICT) have progressed immensely, which has meant a significant increase in the level of innovation in products and services provided in many industries, including the legal sector. In this era of globalization and technological absorption, technical improvements have been introduced in the arbitration process, and the idea of arbitrators as replaceable by robots is looming, the most striking consequence of which is the emergence of many speculations. Artificial Intelligence is emerging in  arbitration systems, but will the future of Artificial Intelligence become a realistic solution to disputes? The future is the answer. Undoubtedly, some clear examples of the improvement in services provided by the arbitration community through the implementation of ICT are: videoconferencing, electronic disclosure, use of online platforms, cloud-based applications, and so on. However, to the extent of the consolidation of Artificial Intelligence, arbitration, as we know it today, will hardly exist in the future. The major limitation of Artificial Intelligence remains its rebellious nature, which can make the use of the technology too wasteful and complicated. Moreover, although AI can automate low-level tasks, it is unlikely to supplant the manual arbitration of AI robots. In the end, all this adds to the degree of confidence needed to implement Artificial Intelligence in dispute resolution.   Artificial Intelligence in Modern Arbitration Artificial Intelligence is a term coined for the general procedure of unifying large amounts of data with robust interactive processing systems and intelligent algorithms to drive automatic learning of software concerning patterns derived from the mass above information. However, the nomenclature “Artificial Intelligence” is often used imprecisely, as it encompasses various topics such as machine learning, cognitive computing, and natural language processing (Paisley et al., 2018). The main difference between Artificial Intelligence and other automation and legal technology tools involves the ability to learn and develop along the way. Similarly, it is worth noting the existence of two main types of Artificial Intelligence mechanisms: rule-based learning and machine learning. Currently, most AI tools use machine learning, which is ideal for static and slowly varying scenarios. At present, when there is a growing concern about the expenditure of resources and time in resolving litigation, AI has the potential to reduce the time and cost of resolving litigation and create incentives for early settlement. However, there are now concerns about the impact of this figure on decision-making and access to justice, depending on who has access to its benefits, the transparency, and control of arbitral data and algorithms, as well as the publication of awards and the potential risks to confidentiality and the protection of personal data, to name a few. Even if it is inferred that an arbitration procedure may be carried out with the intervention of Artificial Intelligence, depending on the magnitude and qualification of such intercession, it is feasible to evaluate the precision and benefit of its application. With the fundamental purpose of making the arbitration process faster and more transparent, Artificial Intelligence can manifest itself in three different ways: as a support for the automation of procedural acts, as an interpretative tool for consultation, and as a judging entity in its own right.   Artificial Intelligence in the constitution of the Arbitral Tribunal One of the first actions included in an arbitration process is the selection and appointment of arbitrators, who will hear and decide on the dispute. Thus, in particular disputes, the parties spend a considerable amount of time in a laborious process of choosing the arbitrators, which—with the help of Artificial Intelligence—can be mitigated to a great extent. At present, some platforms have been developed to help in this situation. To illustrate this, specific mention is made of the Arbitrator Intelligence program, whose purpose is to act as a global information aggregator, collecting qualitative and quantitative data on legal professionals and users in terms of critical elements for the choice of arbitrators. Through this platform, the selection of arbitrators is optimized by analyzing a vast amount of information comprised of the history of potential candidates and their linkage with the nature of each case in question (CIAR Global, 2020). At the same time, this type of dynamic not only implies a clear saving of time in the arbitration process but also provides transparency to a crucially important arbitration stage, such as the selection of the tribunal members. Above all, to counteract the implications of the phenomenon of “double-hatting,” which implies the risk of conflict of interest arising from the simultaneous concurrence of certain legal professionals as representatives of parties in certain arbitration proceedings and as arbitrators in others (Fierro Valle, 2014).   Artificial Intelligence as an interpretative consulting tool Among the various forms of application of Artificial Intelligence in arbitration is the processing of data and precedents for the proposal to the judges of possible decision designs. However, this interpretative function of consultation certainly does not involve the direct resolution by Artificial Intelligence but the formulation of patterns, whose function is to serve as a suggestion to the arbitrators to elaborate their opinion. From now on, many software and applications can be pointed out to fulfill the abovementioned purpose. An example is the “Arbilex” initiative, which uses Artificial Intelligence to issue a coherent predictive analysis regarding possible suitable arbitration results. Likewise, one can denote “Premonition” as one of the vastest litigation databases in the world; “Context” as a means capable of evaluating millions of pieces of arbitral jurisprudence for the structuring of possible awards; and “Kira” as automated learning and Artificial Intelligence software aimed at the identification and interpretation of contracts and documents. In short, today, the alternative of Artificial Intelligence has been installed at the service of the arbitration process as a mechanism that can be used by the parties involved in it. However, participation in this particular means of dispute resolution has been limited, at least, to acting as a fourth party and not as a kind of immediate judge of disputes. Otherwise, this paradigm could mutate over time.   Conclusions Even though the technology is constantly growing, formulating such a radical alteration as the attribution of the decision-making function to an Artificial Intelligence system in arbitration entails a series of unknowns and hypothetical but imminent disadvantages that are difficult to solve. In short, Artificial Intelligence will play a crucial role in arbitration as a means of conflict resolution shortly. The benefits provided by this technological tool are too great to be missed. However, this reality can only be magnified by materializing guarantees on the accuracy and scope of machines to deal with all those unpredictable but common circumstances that abound in arbitration proceedings.   Michelle Bernier is an attorney specializing in international law and commercial law. She is currently studying Master of Laws and International Business with a double degree from the Universidad Internacional Iberoamericana in Mexico and the Universidad Europea del Atlántico. She is also a part of Students for Liberty’s inaugural cohort of Fellowship for Freedom in India.     (0 COMMENTS)

Believe it or not, I spent time on Christmas day, before we went out to an early dinner, watching the whole 1 hour+ interview that Laura Shin did of Martin Shkreli. Shkreli was giving advice to Samuel Bankman-Fried (henceforth SBF). Shkreli, in case you don’t know or have forgotten, was the guy who, as a Pharma exec, raised the price of Daraprim. Daraprim is prescribed to AIDS patients and others with suppressed immune systems. He raised the price from $13.50 per pill to a whopping $750. That’s why he’s often called “pharmacy bro.” (Why did Shkreli go to prison? If you’re interested, then research it. That’s not what I want to discuss.) The interview is fascinating. I learned a lot and I highly recommend it. One of my big bottom lines, which I already believed, is that I will do a lot to stay out of prison. Shkreli made me even more convinced. Because it’s so hard to type his name each time, I’m going to call him Martin S. One show that my wife and I enjoy watching is the Gutfeld show, on Fox News Channel every weekday evening at 8 p.m. It can go awfully low-brow and disgusting. But they often have very good discussions and often the humor is great. Their discussion of Martin S.’s advice to SBF, though, was pretty bad. The various commentators had disdain for Martin S. because he’s a convicted criminal. Some of them seemed to think that for that reason, his advice would not be useful. But if I were facing serious federal charges, I would want to learn from someone who’s gone through something similar and who is very analytic. In trying to figure out federal judges, Martin S. even read a book by Judge Dick Posner titled How Judges Think. The interview is full of insight after insight. I would try to summarize it, but I can’t. I learned something almost every minute. I don’t know how good Laura Shin is as an interviewer generally; I’ve never seen her interviews. But she clearly realized that all she needed to do was ask a few questions and let Martin S. unwind. Part of why I found it fascinating is that I’m the kind of person who tries to imagine how I would deal with various situations that are unlikely, just in case they happen. So, for example, well before 9/11, I always looked at people as they board an airplane I was already on and assess whether I think they are threats. Also, I’ve often thought that if I were to go to a tough prison and someone tried to rape me, I would scratch and claw and kick and bite, knowing that I would still get the crap beat out of me and maybe worse. But my purpose would be to impose a high cost on someone who tried to rape me and then let the law of demand do its wonders. That reminds me of a true story. It’s about a friend of mine who went to military prison during the Vietnam War. He was drafted into the U.S. Army and was stationed in Germany. He was dealing marijuana and got caught. The one witness whom the Army needed to testify against him didn’t want to. But that person was gay and the Army prosecutor knew it. So he threatened to out him as gay, something that had consequences 50 or so years ago that were way worse than what would happen now. So the guy testified and my friend was sent to the prison at Fort Leavenworth. But by the time he got to that prison, the gay guy had been badly beaten up. My friend had nothing to do with it: he’s not, and wasn’t, that kind of person. But, as Martin S. points out, the people in prison have a lot of time on their hands and pay attention to this kind of thing. They were positive that my friend had a gang that had beaten the guy up. My friend was smart enough never to disabuse them of that mistaken idea. As a result, he perceived himself to never be in danger.   (0 COMMENTS)

Wall Street Journal columnist Holman Jenkins explains how some UFO enthusiasts are a bit beyond the pale (“The UFO Crowd Wants an Alien Invasion for Christmas,” December 23, 2022). He reports how, after a previous column critical of the UFO sect, a reader emailed him: He asks some questions, though: “How much did they pay you to write this trash? Do you still have a gag reflex or did they take that along with the journalistic integrity?” He closes with a scatological insult, which, in an undeserved favor to him, I don’t repeat. The hope of the UFO crowd is that extraterrestrials from an “advanced civilization” will soon establish contact with us earthlings, if they have not already done so. My question is, Does political economy allow some reasonable conjecture about such a civilization? Interstellar aliens would certainly come from a technologically advanced civilization. If they depart from an exoplanet orbiting around the star closer to us, Proxima Centauri, and travel at the same speed as we have reached in space, their spacecraft would take 6,300 years to reach Earth (see “This Is How Many People We’d Have to Send to Proxima Centauri to Make Sure Somebody Actually Arrives,” MIT Technology Review, June 22, 2018). If they travel at the speed of light, our visitors from the Proxima Centauri solar system would be here in a bit more than four years. Can we speculate on the kind of society where the required technology has a chance to develop? If the understanding that classical liberal economists have developed since the 18th century is correct, our visitors’ society or civilization—that is their beliefs and institutions—cannot be centralized and authoritarian. If it were “run” by an authoritarian government or by some “social organism” of which individuals are mere cells, a technology appropriate to interstellar travel could not have been developed and sustained. An “advance civilization” cannot be based on central planning or even on any serious industrial policy. It must be neither collectivist of the left (socialist) or of the right (fascist). Scientific progress requires free speech, open discussion, and constant criticism. Scientific and technological development also require efficient markets and trade. The economy must be rich, which requires entrepreneurship and competition. In brief, an advanced civilization requires the sort of spontaneous social order that Adam Smith or Friedrich Hayek conceived, with an efficient use of the dispersed knowledge in society. It must be the sort of “ordered anarchy” that James Buchanan advocated. Perhaps the traveling aliens’ advanced civilization has even discovered, after tens or hundreds of millennia, institutions that have allowed the withering away of the state and the birth of a liberal anarchy. In other words, compounded technological advances are not only a matter of technology. Note that I am assuming that our interstellar visitors are somewhat similar to us in the sense that they come from within our universe and are subject to the same scientific and social-scientific laws as we are. If all that is correct, the aliens who would land on Earth would not be military men regimented in a tight hierarchy, but free men and women (of at least two sexes appear to be an evolutionary necessity) used to independence and liberty, that is, to a truly advanced civilization. At worst, it seems, they could be banned outlaws or escapees from such a society. The earthlings who hope that aliens will come with a ready-made model of socialist or fascist nirvana will be disappointed. PS: The featured image of this post shows a UFO I sighted a few days after reading Jenkins’s column, right above the corn field where I regularly walk and hunt. Things do happen in Maine. (0 COMMENTS)

Yes, ceteris paribus.  So how can we explain this: In an interview with the Financial Times Gita Gopinath, the fund’s second-in-command, urged the US central bank to press ahead with rate rises this year despite a recent moderation in headline inflation following one of the most aggressive tightening campaigns in the Fed’s history. “If you see the indicators in the labour market and if you look at very sticky components of inflation like services inflation, I think it’s clear that we haven’t turned the corner yet on inflation,” she said, adding that the fund’s advice to the Fed was to “stay the course”. . . . Chief among Gopinath’s concerns is the continued resilience of the US labour market, which as of the most recent data added on average roughly 400,000 jobs each month in 2022. The unemployment rate still hovers near historic lows and an acute worker shortage has helped to push wage increases to a level that is far too high for the Fed to hit its 2 per cent inflation target. Policymakers may warn about excessive job growth and the financial markets occasionally react negatively to a strong jobs figure.  So what’s going on here? Consider the following facts: 1. A strong labor market is a good thing, other things equal.  Thus for any given rate of NGDP growth, more jobs is generally a good thing. 2.  In the very short run, job growth and NGDP growth are highly correlated. 3.  Jobs data comes out a few days after the end of each month.  NGDP data comes out 4 weeks after the end of each quarter.  Thus jobs data is far more timely. 4.  A stable macroeconomy requires slow and steady NGDP growth. 5.  Over the past year, NGDP growth has been wildly excessive.  Money has been far too easy. When the financial markets react negatively to a strong jobs figure, they are not indicating a preference for a weak labor market.  Indeed during periods when NGDP growth is too weak for a healthy economy, markets will often react positively to a strong jobs figure.  Rather the markets are taking the jobs figure as an indicator of the current growth rate of NGDP.  The resulting movement in asset prices thus reflects the market’s view as to whether NGDP growth is inappropriately weak or strong.   You might object that in the long run there is almost no correlation between NGDP growth and jobs growth.  Money is approximately neutral in the long run.  That’s true, but in the short run the growth rates of employment and NGDP are highly correlated and the jobs data is available in a much more timely fashion.   PS.  After writing this post I noticed that stocks rose this morning after a strong jobs report.  But the actual reason for the rise in stock prices was not the jobs figure, it was the unexpected slowdown in nominal wage growth, an indication of easing inflation pressure. (0 COMMENTS)

The atmosphere in Moscow is vividly depicted by the Financial Times bureau chief there, Max Seddon (“A Moscow Diary: Fear, Loathing and Deep Denial,” January 6, 2022). The subtitle reads: Champagne still flows at elite parties in the Russian capital, as cowed critics only speak openly in their own homes. One striking passage depicts the interface (I am tempted to write “the intersectionality”) of nationalism, authoritarianism, ordinary people, and the elite. As is typically the case, nationalism buttresses state power, and both trap ordinary people. Seddon quotes a senior Russian businessman, whose children are educated in Europe, speaking about some members of his family: Some say ‘Fuck everyone! Let’s nuke Holland! Let’s bomb London and Washington! Send the missiles!’ I say, What about your nephew, my son? He lives there! And they say, ‘Let them live in their own country.’” (0 COMMENTS)

If you’ve followed the problems that bad weather created for US airlines over the recent holiday season, you know that one airline, Southwest, has been responsible for a hugely disproportionate share of flight cancellations. On December 25 and 26, for example, Southwest canceled more than 5,500 flights. To put that in perspective, Delta Air Lines, which had the second-most cancellations of any airline, canceled 311 flights. It turns out that this was not just a weather issue. If it had been, the Southwest cancellations would not have been eighteen times the number of Delta cancellations. Although Southwest is generally known for its innovations that have created strong competition in the industry, it is behind the curve on one particular technology: its method of assigning flight crews. When very bad weather calls for changes in assigning crews, the Southwest technology is just not up to snuff. In response to the Southwest “meltdown,” Transportation Secretary Pete Buttigieg has called for Southwest to be “accountable.” What does accountability mean for an airline or for any for-profit business? Also, because Buttigieg is a government employee, it’s worth asking what accountability means for government employees. A crucial question is whether for-profit companies are more or less accountable than government agencies. I’ll save you the suspense. For-profit companies are far more accountable. And the reason has to do with the presence or absence of what economists call a residual claimant. These are the opening two paragraphs of David R. Henderson, “Don’t Let Government Be the Pilot,” Defining Ideas, January 5, 2023. And what Buttegieg could do to make things better: Is there anything Buttigieg could do to improve the airline business? There is, and economists have talked about it for years: allow foreign airlines to compete in the domestic market. Deregulation of airlines in the late 1970s and early 1980s was a tremendous success. Before deregulation, airlines had to give notice to the Civil Aeronautics Board (CAB) in advance of fare reductions, and other airlines could intervene to contest the cuts. They often did. Also, an airline that wanted to add a route between any two cities had to first get permission from the CAB. Other airlines that already flew that route could contest that also. But when economist Alfred E. Kahn took over as CAB chair under President Carter, he did everything he could within the law to allow airlines to change fares and to add routes. At the same time, a Harvard law professor named Stephen Breyer worked closely with Democratic Senator Edward Kennedy to pass an airline deregulation bill that ended CAB regulation of fares and routes. (Breyer later became a US Supreme Court justice from 1994 to 2022.) A cozy airline cartel that had existed since 1938 was ended. The results were noticeable almost immediately. Before deregulation, airlines had charged high fares and competed on meals and frequency (a famous airline jingle in the early 1970s was “Delta is ready when you are”). After deregulation, they competed on price and ultimately dropped almost all meals. Consumers were quite happy to save on fares and buy their own meals in the airport. Between 1978 and 2000, inflation-adjusted airline fares fell by 44.9 percent. Economists Clifford Winston and Steven Morrison estimated that half of this fall was due to deregulation. In short, competition worked, and works. So let’s have more of it. Allowing foreign airlines to fly domestic routes would create more competition, more options, and lower fares. Even radical leftist Mexican President Andrés Manuel López Obrador sees the benefit of allowing that to happen in Mexico. If even a socialist can see the benefits of competition, then maybe Buttigieg can too. Of course, he would need the permission of his boss, President Biden, to start pushing for it, and Biden would need Congress. Maybe it’s a long shot, but in the mid-1970s, airline deregulation was a long shot. By December 31, 1984, the Civil Aeronautics Board had been abolished. Read the whole thing. Note: In the first edition of The Concise Encyclopedia of Economics, which was originally The Fortune Encyclopedia of Economics, I commissioned Alfred [Fred] Kahn to write the article on airline deregulation. Here it is. A delightful guy to deal with. In the second edition, I had Fred L. Smith, Jr. and Braden Cox do a badly needed update. (0 COMMENTS)