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)

The symposium on Thomas Sowell’s work went very well. A great group of people from whom I learned a lot. Here are more of my favorite quotes from Sowell. The first three are from his 2009 book Intellectuals and Society. Why the transfer of decisions from those with personal experience and a stake in the outcome to those with neither can be expected to lead to better decisions is a question seldom asked, much less answered. On payday loans: As for the low-income borrower, supposedly the reason for the concern of the moral elites, denying the borrower the $100 needed to meet some exigency must be weighed against the $15 paid to meet that exigency. Why that trade-off decision should be forcibly removed by law from the person most knowledgeable about the situation, as well as most affected by it, and transferred to third-parties [sic] far removed in specific knowledge and general circumstances, is a question that is seldom answered or even asked. The difference between decision makers in the market and in government: The fundamental difference between decision makers in the market and decision makers in government is that the former are subject to continuous and consequential feedback which can force them to adjust to what others prefer and are willing to pay for, while those who make decisions in the political arena face no such inescapable feedback to force them to adjust to other people’s desires and preferences. By the way, I reviewed Sowell’s book here. You’ll see that I had a fair number of criticisms but the parts I was most critical of were not in the readings. From The Economics and Politics of Race: An International Perspective. I like this because of its simplicity, clarity, and implicit passion: The most ghastly example of racial fanaticism in history was the Nazi extermination of millions of defenseless, men, women, and children who were so similar to themselves in appearance that insignia, tattoos, or documents had to be used to tell the victims from their murderers.   (0 COMMENTS)

Participating in a mob carries a risk similar to that of reveling in being part of the majority (or “the people,” or the righteous). The risk is that the mob or the majority can turn against you. It happened to some Red Guards in Mao’s time, and it is occasionally happening in America too, arguably more and more often on the left as on the right, among the Trumpians and the woke. Consider the story of Ray Epps (“A Trump Backer’s Downfall as the Target of a Jan. 6 Conspiracy Theory,” New York Times, July 13, 2022) and its latest twist. Mr. Epps was a business owner in Arizona and a fan of Donald Trump, whose self-serving lies about the stolen election he believed. At the last minute, he decided to travel to the January 6, 2021 demonstration at the Capitol. During a pro-Trump rally the preceding night , he was videotaped encouraging people to peacefully march to the Capitol the next day. It is reported that some in the mob already accused him of being a federal agent. He did go to the Capitol on January 6, also showing  the direction to some demonstrators. He interposed between the police and a demonstrator, telling him that the cops were only doing their job. He left before the violence started. After January 6, Trump’s followers tried to shift the blame for the violence on antifa demonstrators, and then on federal agents provocateurs. They saw the videotape of January 5. The New York Times explained what followed: The problems began for Mr. Epps almost as soon as Revolver News published its first article about him in October. Suddenly, there were emailed death threats; trespassers on his property demanding “answers” about Jan. 6; and acquaintances, fellow members of his church, even family members who disowned him, he said. NBC (“Pro-Trump Protester Ray Epps Seeks Retractation of Conspiracy Theory from Tucker Carlson,” NBC News, March 23, 2023) further explains: The video gained significant attention among some prominent conservatives in Congress. In addition to being spread by Fox News, the Epps conspiracy theory was featured in right-wing outlets such as One America News and Carlson’s Jan. 6 documentary series “Patriot Purge.” At some point, Mr. Trump joined the fray, mentioning Mr. Epps at one of his political rallies and lending fuel to a viral Twitter hashtag, #WhoIsRayEpps. Epps was being witch-hunted by his own mob. Under threats and intimidation, banned from righteous populist company, Mr. Epps and his wife sold their house and the family business, and fled incognito to a mobile home in the foothills of the Rockies. The latest twist is that Epps is threatening to sue Fox News and Tucker Carlson if the latter does not publicly retract his “false and defamatory statements.” I don’t personally condone antidefamation laws, which make some people scared to speak and others more gullible (if he has not sued, it must be true!). But it is easy to understand Mr. Epps’s anger at being betrayed by the political mob he followed; and to sympathize with his plight. A related fact illustrates the dismal state of politics, the gullibility of large part of the public, and the immorality of media enablers. Former Playboy model Karen McDougal had previously sued Fox News after host Tucker Carlson opined that she had extorted presidential candidate Trump into indirectly paying $150,000 to prevent her from revealing an affair between them. In September 2020, U.S. District Judge Mary Kay Vyskocil ruled in favor of Fox News by accepting the argument that Carlson should not be known for reporting facts, as her decision suggests: Fox News first argues that, viewed in context, Mr. Carlson cannot be understood to have been stating facts, but instead that he was delivering an opinion using hyperbole for effect. … This “general tenor” of the show should then inform a viewer that he is not “stating actual facts” about the topics he discusses and is instead engaging in “exaggeration” and “non-literal commentary.” … Fox persuasively argues … that given Mr. Carlson’s reputation, any reasonable viewer “arrive[s] with an appropriate amount of skepticism” about the statements he makes. … Whether the Court frames Mr. Carlson’s statements as “exaggeration,” “non-literal commentary,” or simply bloviating for his audience, the conclusion remains the same—the statements are not actionable. One could claim that all this only proves the existence of a conspiracy to hide Mr. Epps’s status as a FBI agent provocateur. This is not totally impossible, but very unlikely. Which illustrates again the poor epistemological status of conspiracy theorizing. (0 COMMENTS)

What is the worst of President Biden’s latest proposed tax increases? It’s hard to say. There are many strong candidates. So rather than choose the worst, I’ll choose what I think are the two worst: the increase in the corporate income tax rate from 21 percent to 28 percent and the increased tax rates on capital gains. Consider first the corporate tax rate. Seventy years ago, economists believed that the burden of the corporate income tax fell largely on corporations. But the increasing globalization of capital in the last 40 years has changed that. Because people can set up corporations in other countries, they have an incentive to choose countries where their income is taxed lightly or even not at all. The late Walter Wriston, former chairman and CEO of Citicorp, put it well: “Capital goes where it’s welcome and stays where it’s well treated.” One main way to treat capital well is not to expropriate it; another is not to tax it heavily. These are the opening two paragraphs of David R. Henderson, “The Worst of the Biden Tax Increases,” IPI TaxBytes, March  23, 2023. Also: Biden also proposes to increase capital gains tax rates. Under the current law, the top federal and state tax rate on capital gains is 29.1 percent, which, the Tax Foundation points out, is already well above the 18.9 percent average for OECD countries excluding the United States. Biden would raise that top rate to a whopping 49.8 percent making it 163 percent higher than the non-US OECD average. That would also discourage investment in capital. Read the whole thing. (0 COMMENTS)

Photographer, author, and visionary Kevin Kelly talks about his book Excellent Advice for Living with EconTalk’s Russ Roberts. His advice includes how to have a deep conversation, why it’s better to control time than money–and whether, in the end, we should give advice in the first place. Other topics of discussion include the right object of our […] The post Kevin Kelly on Advice, AI, and Technology appeared first on Econlib.

The horrible treatment of a speaker at Stanford Law School by some law students and a dean a couple of weeks ago reminded me of something that happened over 50 years ago. In November 1971, when I was attending the University of Western Ontario in London, Ontario, my newfound friend Harry Watson (who, sadly, died last Sunday) and I drove down to New York City to attend a libertarian conference at Columbia University. The speakers I remember were Milton Friedman, Murray Rothbard, and David Friedman and, in my mind, both ex ante and ex post, the star was Milton. First up was Milton who said that he wouldn’t be making a speech but would take questions that we wrote out and sent to the front. The emcee was Gary Greenberg, who sorted through the questions and read them out. There were about 150 people in the auditorium and about 5 to 10 of them were in the back wearing all black. Some of them carried copies of Murray Rothbard’s Man, Economy, and State. They stood and held their copies in one hand and made a fist with the other. (One of them, I think, was my fellow Canadian Sam Konkin.) That was annoying enough but, hey, they had the right to dress and hold themselves however they wanted. But then when Milton started speaking, they interrupted by booing and shouting out hostile comments and questions. Milton ignored them at first but they kept it up. So finally, Milton stopped and said, “Is that any way for people to behave?” Harry and I were in front and, along with many others in the audience, we shouted “No.” Then all but a few stopped heckling, but one or two shouted out something. A guy behind us yelled, “I came to here him, not you.” Then it stopped. But as Milton started to answer the first question, a few people in the back hissed long and hard. Milton stopped what he was saying and then said, “Well, in that case, sssssss.” The audience, including Harry and me, roared with laughter. The hissing stopped and the event proceeded. The reason I remember this so well is that I taped the talk and played it a number of times. Also, I think I taped over it because cassette tapes were pricy relative to my wealth. (That was a mistake, even ex ante.) I’m not comparing the awful actions of 5 to 10 people in an audience of 150 to the awful and persistent actions of dozens of people in an audience of 100 or so. So the judge probably would not have been able to use Milton’s technique effectively.   (0 COMMENTS)