Further thinking has tweaked or clarified my opinions about social diversity. It should not be viewed as a fundamental value; it is simply a fact of life in any non-tribal society, and an instrumental value to solve otherwise insuperable problems of social interaction and to promote prosperity and human flourishing. Economics helps see this by providing tools to analyze individual choices and their social consequences. Consider the current issue of whether sport competitions involving women or girls should welcome biological males who identify as females. The Biden administration is proposing a regulation modifying Title IX of the Education Amendments of 1975. The Department of Education explains (note that “schools” include K-12, colleges, and universities): Under the proposed regulation, schools would not be permitted to adopt or apply a one-size-fits-all policy that categorically bans transgender students from participating on teams consistent with their gender identity. Instead, the Department’s approach would allow schools flexibility to develop team eligibility criteria that serve important educational objectives, such as ensuring fairness in competition. The Wall Street Journal paraphrases the Secretary of Education Miguel Cardona as opining that “every student should be able to participate in athletics, free from discrimination” (“Biden Administration Proposes New Rule for Transgender Athletes,” April 6, 2023) This is mumbo-jumbo. It is not possible that any student be free from discrimination whether he is a transgendered biological male wanting to compete against females, or she is a female who does not want not to compete against biological males. The “fairness” invoked by the government is really nothing else than what it itself decrees is “equal opportunity.” As emphasized by Anthony de Jasay’s theory of the state, the government “takes sides” among citizens (and individuals). In other words, the federal government decides against whom to discriminate and calls it non-discrimination. Note that imposing supposedly flexible rules is no less discriminatory; it merely opens the door to more arbitrary bullying from the top down. The (classical) liberal or libertarian approach is very different. Don’t ban or mandate, but let individuals and the organizations responsive to them adopt the formulas they want. Different formulas are likely to develop to match different preferences. Within budget constraints—the unavoidable scarcity of resources given individuals’ diversity and near-infinite desires—some biological females would participate in women-only sport competitions and others would make the opposite choice. It is to prevent this diversity, between states or schools, that the new regulation is proposed. We should not be misled by the government claiming that its regulation, as amended, opposes “one-size-fits-all policies”: it imposes such a uniform policy from the higher top down. It aims at replacing voluntary diversity by imposed diversity. That the state should treat all individuals equally cannot logically mean that that it must allow any of them to impose his preferences on others. In another post, I argued that a government can be non-discriminatory only by letting individuals make their own choices; see “Only One Way to Be ‘President of All Syldavians’.” With decentralized choices, delusions are less likely survive or thrive. It is a reality that men are physically stronger and generally perform better in sports. If the freedom of sport organizations and activities is recognized, it is likely that transgendered biological men would have to complete with men or in their own trans leagues, as most women would prefer competing among themselves. We must respect (peaceful) individual choices. Accepting physical reality or the social results of diverse individual choices is, of course, not bigotry. Individual liberty implies that anybody may identify to whatever he thinks best describes him as long as it does not involve violence or threat of violence, even under color of law. It also implies that anybody else may agree or not to change his own choices and actions because of somebody’s self-identification. The woman who married the Eiffel Tower in 2007 does not harm anybody else as long as she does not obtain a regulation forbidding others to “marry” the same object. (There is apparently some scientific basis for the recognition of “objectum sexuality“!) That the proposed federal regulation would only apply “to public K-12 schools, as well as colleges, universities, and other institutions that receive federal funding does” not defangs its discriminatory character, given the pervasive subsidization of education with taxpayers’ money. These decisions should be made as close as possible to the ultimate consumer of education. Individual choices should be preferred to collective choices, which are of course made by some government individuals or some majority and imposed to all. That the American left wants laws discriminating against non-transgendered women while the American right wants laws discriminating against transgendered men shows the common authoritarian streak of the two movements. In general, diversity is good only to the extent that individuals want it and are separately able to achieve it in a non-discriminatory political system. Outside such voluntary diversity, there most likely exists a minimum of ethics without which a society of equally free individuals becomes impossible. For James Buchanan, this ethics is a market-like ethics of reciprocity; for Friedrich Hayek, it lies in the respect of the abstract and impersonal order of a liberal society (see my forthcoming Econlib review of the third part of Hayek’s The Political Order of a Free People). (0 COMMENTS)

My frequent co-author Charley Hooper, Stanford epidemiologist and economist Jay Bhattacharya, and I met for lunch in Palo Alto on Friday. See pic above. Not surprisingly, much of what we discussed was the ways in which Twitter, at the behest of various major players, tried to shut Jay down. He was so often accused of wanting to kill people and it seemed to be for at least one of the three reasons: (1) he pointed out that young children were at an extremely low risk from Covid and, therefore, there was little basis for shutting down schools; (2) he noted that so few economists were pointing out one of the most basic principles in economics–TANSTAAFL, which means there are tradeoffs; and (3) he reminded people that we do develop immunity to coronaviruses. If people, including Anthony Fauci and Francis Collins, hadn’t tried so hard to shut him down, just think how different the discussion might have gone. Fortunately, Jay’s head is, in the words of one of my two favorite poems, “Invictus” (which was also the favorite poem of Nelson Mandela), “bloody, but unbowed.” (0 COMMENTS)

As Israel turns 75, has it fulfilled the promise of its founders? Daniel Gordis of Shalem College talks about his book, Impossible Takes Longer, with EconTalk’s Russ Roberts looking at the successes and failures of Israel. Topics discussed include the history of Zionism, the plight of the Palestinians, the Jewishness of the Jewish state, and […] The post Daniel Gordis on Israel and Impossible Takes Longer appeared first on Econlib.

Some pundits argue that America’s recent inflation is caused by corporate price gouging. I find that claim to be rather implausible. Why would corporations suddenly choose to engage in price gouging in 2022? Why not 2017? Or 2012? So I decided to check the national income accounts. Here are the percentage changes from the 4th quarter of 2021 to the 4th quarter of 2022 (all nominal variables):National income: +6.8%Labor compensation: +7.1%Capital (and proprietor) income: +0.9%Corporate income: + 1.2%What am I missing? Why would this data lead people to believe that profit margins are the major factor driving inflation? (0 COMMENTS)

Adam Smith’s “invisible hand” is certainly the most wondrous, astounding and marvelous concept in all of economics, and there are quite a few doozies in the dismal science. I go further than that. The invisible hand ranks as high or higher, in terms of pure beauty, than even the smile of a baby, the music of Mozart, or the most beautiful sunset that ever took place. In terms of what it means for our potential prosperity, it has no upper bounds whatsoever. Bastiat perched on the top of the Eifel Tower, looked down at the people scurrying around far down below him, and marveled at the fact that Paris got fed, without any central direction at all. This was the invisible hand (that is, free enterprise) at work; you can’t see this “hand,” but you can discern its effects. We all marvel at the teamwork of the championship basketball team, the winner of the eight-person shell in the regatta, a 100-member orchestra playing 64th notes without a hair’s breath of discord. But this pales into total insignificance compared to the teamwork made at least potentially possible by the invisible hand; all eight billion of us cooperating producing goods and services and thus fighting poverty. These other accomplishments have a coach, a coxswain, or a conductor. In contrast, when the human race bans protectionism and regulation, the invisible hand will take over without any central direction at all. If that is not a miracle, then nothing is (Adam Smith thought that the invisible hand was God’s hand). If that does not at least slightly shake up the atheists of the world, then nothing will. The claim that “competition tends to bring about a better product” is also profound, and, also, part and parcel of the invisible hand. It explains, as if an explanation were necessary, the inefficiency of the post office and the motor vehicle bureau. Thomas Sowell said it best when he averred: “It is hard to imagine a more stupid or dangerous way of making decisions that by putting those decisions in the hands of people who pay no penalty for being wrong.” He, too, is channeling the invisible hand. The reason we have pretty good fast food, given the prices we must pay for it, is due to competition. McDonald’s, Burger King, Wendy’s, and all the other participants in this industry are continually trying to figure out better ways to satisfy customers, whether it is by shortening queues and thus wait times, or introducing newer and better products, or providing scrupulously clean restrooms (hey, they are only human, and we don’t pay all that much; lighten up, they do a pretty good job here too). Why? Profit seeking. I know this is a dirty word in some circles, but it is an honorable part and parcel of the invisible hand. What about when there are few competitors? Does the invisible hand still function? Consider the only restaurant, grocery store or bowling alley in Duckburg, USA, a village of 500 population located 100 miles away from the nearest city or even town. Can they give the middle finger to customers? Not if the invisible hand is still operating, and it operates everywhere. No, the proprietors of these establishments will still strive to earn profits and the only way they can attain this goal is by providing good products and service relative to the prices they charge. If they do not, Duckburgers will eat more meals at home, seek other forms of entertainment, or in the extreme move elsewhere. There is always the “danger” of new entrants arriving in the village; that is, potential competition counts too. Suppose bridges were privately owned (work with me here!). Establishment A was convenient, but dangerous. B was safe, but out of the way. Would the invisible hand function even in this example? You bet your boots it would. There are always motorists on the verge of patronizing the two. They can be knocked off the fence by A’s behavior. An improvement in safety of A would attract more paying customers, and garner more profits for the owner, provided, only, that the costs of so doing, all things considered, were lower than the value placed on this improvement by the marginal bridge user. Hint: don’t bet against the invisible hand. It is a losing proposition.   Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of the 2015 book Water Capitalism: The Case for Privatizing Oceans, Rivers, Lakes, and Aquifers. New York City, N.Y.: Lexington Books, Rowman and Littlefield (with Peter Lothian Nelson ). (2 COMMENTS)

To write about statistics and Cuba is, inevitably, to speak of oxymoronic terms. Whenever someone tries to approach the Cuban case from the lens of years prior to 1959, or even after, the stats are either obscure, non-transparent, or nonexistent. That is not to say that the work in this field does not exist. On the contrary, various third parties have tried to devise ways to analyze the Cuban case. Some of these individuals and organizations have been elToque, Steve Hanke, and Pedro Monreal. Yet, it is indispensable to make the clear and concise statement that even with these contributions, we still are behind the curve regarding information on the Cuban economy. On the side of the Cuban regime, the National Office of Statistics, commonly known in Spanish as “Oficina Nacional de Estadistica e Informacion” (ONEI), has done a choppy job of providing precise and transparent details that we can rely on, as has been pointed out by Diario de Cuba. Every statistic or graph you may see about the state of the finances of the Cuban state or its economy must be taken with a pinch of salt. The other day, I came across a graph Hanke posted on his Twitter timeline, stating that Cuba’s inflation was 81%. Such a number significantly impacted me. Since the pandemic is already over, reforms are on their way to shape a “private market,” and even remittances would start reopening. At this point, there was no excuse for the Cuban government not to control the inflationary pressures. The Economy Minister of Cuba, Dr. Alejandro Gil, has said numerous times that the leading cause of inflation in Cuba was a “national deficit in the supply of goods.” Although the wording of the reason is confusing, Gil is saying there are not enough products in the peso denomination to back up the notes the government has been emitting. In other words, a generalized scarcity provokes prices to soar. Nonetheless, this does not make any sense. In any “normal country,” the central bank or even the government would look to control inflation by decreasing output using monetary policy.   Monetary Theory in Action! Following this logic, I was excited to test Milton Friedman’s famous quote where he said: “Inflation is always and everywhere a monetary phenomenon.” To clearly demonstrate this, I prepared a graph in the old, classy way Milton Friedman would do it. Although I took the M2 data from the ONEI, since there is no other alternative source to refer to, I used the GDP deflator from the World Bank for my inflation rate. Even though it seems awkward to today’s standard to use GDP deflator as a measure of inflation, it was the only measure I found that had provided data since the 1990s. The results are expressed in the graph below.   Source: Oficina Nacional de Estadistica e Informacion (2021) & World Bank (2021)   Even the most brute eye test would see that as the quantity of money increases, prices must also increase. As if it were necessary, I also did a correlation test that came up to approximately 0.91. The question that now arises is, why would the Cuban government debase its currency so heavily? The answer to this, as some may guess, is complicated. If we outline some of the reasons, we would definitely conclude that the economy has not recovered yet from Covid. Even after two years, the Cuban economy is taking time to get back on track. The evidence of this is that the GDP growth is still lower than before the pandemic. That might cause the public revenue to decline, forcing the government to spend more. Source:  Oficina Nacional de Estadistica e Informacion (2021)   Also, with inflationary pressures underway, the government increased the salaries of the public workers, which instead of helping, added more gasoline to the already burning fire. Rafaela Cruz, a Cuban economist, noted that these increases in wages would cause increases in the base money to meet these. Again, given a wrong diagnosis, it is not weird to expect an incorrect solution. Finally, a notable mention is that Cuba’s budget deficit is only comparable to what it had in the 1990s when the special period was taking place. In fact, last week I tweeted the graph below, showing the budget deficits as a percentage of GDP. Although these deficits may not explain the increases in the monetary bases altogether, it partially puts color into why the Cuban government has been printing money lately. As a last remark, we must remember that Cuba is involved in a court case that would determine whether Cuba would default on its debt. Source: Trading Economics (2021)   Conclusion The monetarists‘ premises still apply to today’s economies, showing how increases in base money would inevitably lead to price increases. The Cuban case is one of the many still to be studied and described to the public. Old monetary doctrines are no longer dead; they were never killed, just forgotten.   Carlos Martinez is a Cuban American undergraduate student attending Rockford University. He is pursuing a BS in financial economics. Currently, he holds an Associate of Arts degree in economics and data analysis. (0 COMMENTS)

I read a lot of right-wing and conservative sites on the web and I often see the authors highlighting the huge number of illegal aliens crossing the southern border. What I rarely see is any of them noting progress, from their viewpoint, when it happens under Biden. That’s one of many reasons that the Cato Institute’s Alex Nowrasteh’s work is so valuable. He does careful empirical work to document what’s happening, On March 29, on Cato’s blog, Alex wrote a piece titled “Biden’s Border Immigration Policy Is Still Reducing Border Crossings and Illegal Immigration.” An excerpt: From December 2022 to February 2023, encounters of migrants crossing the southwest (SW) border with Mexico are down 39 percent. President Biden’s immigration and border plan that expanded legal migration to the United States through humanitarian parole should take credit for this decline. Under Biden’s plan, up to 30,000 migrants from Venezuela, Cuba, Nicaragua, and Haiti (VCNH migrants) are allowed to enter the United States legally each month through humanitarian parole. As a result, more of them are waiting to come legally rather than attempting to cross illegally. In February 2023, the number of VCNH migrants encountered, found inadmissible by Customs and Border Protection (CBP), or apprehended by Border Patrol decreased by 84 percent compared to December 2022. The number of VCNH migrants showing up at the border fell from 91,344 in December to 22,084 in January and then further down to 14,381 in February (see Figure 1). The picture above is Alex’s Figure 1. Read the whole thing. (0 COMMENTS)

A recurrent theme in public discourse centers on the “excessive“ profits that some firms make. These profits are depicted as “immoral“, and people urge the government to intervene. Profits should be distinguished from the remuneration that you receive for your labor or from interest payments on your capital. Profits, in contrast, are what entrepreneurs reap for having discovered a price discrepancy. That is, we make a profit because we correctly noted yesterday that the price for oil was too low; we bought the oil, and are today able to sell it at a higher price. This pure price difference is the profit we make. We are able to make profits because there is radical ignorance in an uncertain world – what Frank Knight famously described in Risk, Uncertainty and Profit: as we have limited knowledge in an unexpectedly changing and thus uncertain world, we falsely estimate the prices of things. Put simply, the reason we could profit from the oil trade is that the price was too low yesterday. If the supply and demand situation of today had been correctly priced in yesterday, we could not have made aprofit. “What makes profit emerge is the fact that the entrepreneur who judges the future prices of the products more correctly than other people do buys some or all of the factors of production at prices which, seen from the point of view of the future state of the market, are too low.” (Ludwig von Mises) So, what does this tell us about when the profits of some firms are very high? Apparently, some entrepreneurs had been able to estimate the ‘true’ price of the good much better than others. Only these entrepreneurs took the appropriate action and bought at prices that, as we know today, were too low the day before. There are two reasons for their high profit. Firstly, other citizens overlooked the price discrepancies and erroneously did not invest in these areas. This is the reason why entrepreneurs could buy goods at prices too low, and it is the reason why they now, as prices have surged, make such a huge profit. So, the first culprit for high profits are we all. It was our failure to see that the prices had been flawed. If we had bought up prices so that they had reached their ‘correct’ height, no excessive profits or rather no profits at all would have emerged. There is, however, a second culprit. And this is the government that creates barriers to entry. Doing so, the government makes it difficult for entrepreneurs to enter the market and gain profits – and thereby correct prices and, ultimately, decrease profits for the entrepreneurs overall. Imagine a young entrepreneur who yesterday had wanted to buy oil. If he had bought oil, his demand would have pushed prices higher and thus decreased today’s profits for the other entrepreneurs. However, the government had erected barriers: he first had to obtain a license to be able to buy oil. As such, it was the government that erected barriers to entry that hindered entrepreneurs from acting upon their perceived profit opportunity that, incidentally, would have decreased the profits for all while also driving prices nearer to their optimum that would have improved the situation today, as higher prices would have signaled to expand production. Today, there are manifold ways in which the government erects such barriers. High profits, at first sight, seem reprehensible to many. These greedy capitalists making money on the backs of other people! But a closer look at the economic mechanisms behind profits reveals a more nuanced picture. Profits are what entrepreneurs reap for their adept foresight and capacity to act out on their visions of the future. With this, they do consumers a huge favor, proved by our willingness to buy their products. But they, in most cases at least, do not restrict competition. Others can freely compete with them. If the would-be rivals do not enter and those in the market make huge profits, the established entrepreneurs are doing nothing wrong. The profits they make are so huge because others were bad entrepreneurs and did not enter the market as well. We should be thankful to those entrepreneurs who correctly anticipated and took a risk – and offered us goods that we now direly want. And we should rather look with scorn at ourselves. Why didn’t we sense the false prices and correct them earlier? That the profits for some are “excessively high“ is, in most cases at least, not their evil scheming. It is our failure to match their entrepreneurial skills. And, of course, sometimes these profits are the result of the government putting obstacles in the way of lucid entrepreneurs. It is to the government and to ourselves that we should look when we witness “excessive” profits. What we should not do is condemn those who make profits.   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (1 COMMENTS)

Imagine you’re out in the jungle and that in front of you is a steep, miles-long cliff on either side of your location. You see a stampeding herd of elephants coming your way. Unless something very unlikely happens, they will soon be trampling you. Should you act on that information now or wait until the elephants are on top of you? Easy answer, right? You should act now. The coming shortfall in revenues to pay for Medicare and for Social Security is like that herd of elephants. We can see it coming and if we do nothing, it will be here. Our one big advantage over the elephant scenario is that we have approximately one decade to make reforms so that we don’t get “trampled.” This is from David R. Henderson, “Medicare and Social Security: Tackle Them Now,” Defining Ideas, April 6, 2023. In the piece I lay out why it is much better to cut Medicare and make it into a system of per-capita subsidies than to cut Social Security. Here’s a flavor: If you had to choose between cutting the growth of Medicare spending and cutting the growth of Social Security spending, which would be the better choice? You might think there’s no way to tell. But if we accept the idea that people are, on average, better judges of their own welfare than the federal government is, then there’s a clear answer: cut Medicare spending and, at the same time, make it a program of per capita subsidies. Here’s why. When Medicare beneficiaries use the program, they are spending other people’s money. The co-pays and deductibles they pay are typically a small fraction of their medical bills. And we spend other people’s money much less carefully than we spend our own. Also I correct a common misconception about the Greenspan Commission on Social Security and give due credit to a Texas Democratic Congressman named Jake Pickle. Finally, I lay out why raising the FICA tax on the most-productive people in the economy is a particularly bad idea. Read the whole thing. (0 COMMENTS)

I have a new book out entitled Alternative Approaches to Monetary Policy, freely available at this link.  I plan to revise the book based on feedback I receive, and will eventually come out with a paper version. You can think of the book as fleshing out the implications of this 2003 comment by Ben Bernanke: The imperfect reliability of money growth as an indicator of monetary policy is unfortunate, because we don’t really have anything satisfactory to replace it. As emphasized by Friedman (in his eleventh proposition) and by Allan Meltzer, nominal interest rates are not good indicators of the stance of policy, as a high nominal interest rate can indicate either monetary tightness or ease, depending on the state of inflation expectations. Indeed, confusing low nominal interest rates with monetary ease was the source of major problems in the 1930s, and it has perhaps been a problem in Japan in recent years as well. The real short-term interest rate, another candidate measure of policy stance, is also imperfect, because it mixes monetary and real influences, such as the rate of productivity growth. In addition, the value of specific policy indicators can be affected by the nature of the operating regime employed by the central bank, as shown for example in empirical work of mine with Ilian Mihov. The absence of a clear and straightforward measure of monetary ease or tightness is a major problem in practice. How can we know, for example, whether policy is “neutral” or excessively “activist”? . . . Ultimately, it appears, one can check to see if an economy has a stable monetary background only by looking at macroeconomic indicators such as nominal GDP growth and inflation. [Ben S. Bernanke (remarks, Federal Reserve of Dallas Conference on the Legacy of Milton and Rose Friedman’s Free to Choose, Dallas, October 24, 2003).] I discuss three broad approaches to monetary policy: 1. The quantity of money approach (the base, M1, M2, etc.) 2. The rental cost of money approach (interest rates, etc.) 3. The price of money approach  (exchange rates, gold prices, NGDP futures prices, etc.) One goal is to help people better understand what went wrong in 1930 and 2008, when money was wrongly viewed as easy, and 1979-81 and 2022, when money was wrongly viewed as tight.  A second goal is to suggest some ways to make monetary policy more effective.  I conclude with three chapters that critically evaluate mainstream, left wing, and right wing views on monetary policy. Here is the table of contents: Preface v I: A New Way to Think about Monetary Policy 1 1: What Is Monetary Policy? 2 2: The Strange World of Interwar Monetary Policy 25 3: The Princeton School and the Zero Lower Bound 48 4: Which Approach to Monetary Policy Works Best? 99 5: From the Gold Standard to NGDP Futures Targeting 120 II: Problems with Alternative Approaches to Monetary Policy 145 6: A Critique of Interest Rate–Oriented Monetary Economics 146 7: A Critique of Modern Monetary Theory 183 8: A Critique of Libertarian Monetary Economics 198 Comments are welcome! PS.  Stephen Kirchner wrote a very helpful review of the first chapter, and plans future reviews of the later chapters. PPS.  Tyler Cowen recently linked to this tweet: Over the past 9 months, Europe has gone through a massive terms of trade shock worth 6% of GDP, followed by the fastest monetary tightening cycle in history. Today the services sector is booming and the labour market is super hot. It’s crazy when you think about it. It would be “crazy” if Europe had in fact tightened monetary policy in 2022.   (0 COMMENTS)