Even more impressive than Ukraine’s will to fight is the vast network of volunteers that underpins the armed forces and the defense of the country. At the Kyiv School of Economics, Tymofiy Mylovanov, its president, told me how in the first weeks of the war the school had formed a group of some eighty friends abroad—partners at global consulting firms, for example. They raised money with which the school bought flak jackets, medical kits, and helmets to distribute to soldiers at the front. When I asked him how many people had volunteered in one capacity or another across the country, he said that the numbers must run into the hundreds of thousands, but that it was impossible to know for certain. This is from Tim Judah, “Ukraine’s Volunteers,” New York Review of Books, January 19, 2023. It’s an informative and inspiring article. It gives example after example of volunteers in Ukraine helping out some of the victims of Putin’s invasion and also helping out Ukraine’s military. Reading through it, I thought of Friedrich Hayek and his famous 1945 article “The Use of Knowledge in Society.” The people in Judah’s account act on the basis of decentralized information and pivot quickly when circumstances change. This is so different from how governments typically act, whether in war or peace. One example: Oleksiy Goncharenko is a deputy from Odesa in Ukraine’s parliament. Before the invasion he had set up a network of centers aimed at, among other things, improving education in small towns, where children have fewer opportunities than those in big cities. When the invasion started, they pivoted to helping the war eort. At the center in Odesa I saw dozens of people, mostly elderly, diligently making white winter webbing to drape over bunkers, tanks, and artillery as camouflage. Some whose families have fled are lonely and bored and want to help; here they can, but that is not the case with everyone. Polina Kolupailo, a retired eighty-year-old seamstress who was sewing cushions for soldiers, said she had plenty of family in Odesa but wanted to make a contribution toward Ukraine’s victory and came every day. The two other women at her table had jobs and dropped in after work. Read the whole thing. HT2 Jeff Hummel. (0 COMMENTS)

The U.S. Consumer Financial Protection Bureau, no bureaucrats they, rather public-spirited civil servants, are proposing a new regulation: credit card late fees, which can now reach a maximum of $41, will be capped at a mere $8. One would think, based on this new initiative, that the reason we have late fees for credit card non or late payments in the first place is out of sheer meanness and profiteering. That would appear to be the level of understanding enjoyed by the promulgators of this new directive. If you thought that, you’d be right. According to Rohit Chopra, CFPB director, excessive fees such as $41, serve “no purpose beyond padding the credit card companies’ profits.” And in the view of Aaron Klein, senior fellow in economic studies at the Brookings Institution: “The rule brings to the forefront the reality that credit card late fees are designed to be excessive to create incentives for consumer behavior. They are not in proportion to the cost to the lender…” Let’s hold on for a second. Suppose, to take the extreme case (often, it is easier to see economics in action when you do so: it is easier to see the mountain rather than the molehill) the new dictat mandated no late fees at all. What would be the effect of that? Obviously, poor people and those without good credit ratings at all, would be charged very high rates of interest for the borrowing that they do, in effect, between the time of their purchases and when their credit card payments are due. But suppose, further, that our masters in Washington DC precluded that option (they would call it usury, ignoring the fact that the high rates of interest would emanate from their foreclosure of late fees in our hypothetical example). What, then, would be the result? Why, those who are presumed by the CFPB to be the beneficiaries of their largesse, the poor and those with bad credit ratings, would not be able to enjoy the benefits of credit cards at all (unless of course, the government granted these to them in an entirely new and very costly program). Now that we have seen the effects of no penalties at all, it is easy to discern the results of reducing the upper limit from $41 to $8: moves in this malevolent direction. The impecunious will not be entirely bereft of credit cards, although some will. Most such people will either be charged higher rates of interest and/or find it more difficult to initially obtain and then retain their cards, and almost certainly be subject to lower limits on how much they may spend initially. What about that present upper bound of $41? Was that given down to mankind on tablets of stone? No. That, too, originated from our friendly central planners in the booty-seeking capital of the country. How would this fee be determined under the free enterprise system? Simple: different credit card companies would charge different combinations of interest charges and late fees to their clients. The competitive process would tend to ensure that the amalgamation that came closest to maximizing consumer welfare would be approached. Too high, and the company would lose customers. Too low, and they would court bankruptcy. 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 ). (0 COMMENTS)

Economists often speak of money being fungible. Thus if one country donates money to another with strings attached, the receiving country can often circumvent those constraints by diverting their own funds from one account to another.A recent article in The Economist suggests that weapons and munitions are also fungible. The article begins by noting that South Korea refuses to exports military goods to Ukraine: Under its Foreign Trade Act, South Korea is forbidden to export arms except for “peaceful purpose[s]”. That seems pretty clear.  But on closer inspection, it’s not obvious that the restriction has much force: South Korea’s defence companies, which are known for producing lots of high-quality weapons rapidly at competitive prices, are booming on the back of the global demand for arms that the war has unleashed. The country’s defence exports increased from nearly $7.3bn in 2021 to $17bn in 2022. And a lot of them are going to countries arming Ukraine, ostensibly to allow them to replenish their depleted stocks. A recent deal with Poland, worth a reported 20trn won ($16.4bn), allowed the Poles to replace the howitzers they gave Ukraine last year.In such circumstances, South Korea’s legalistic distinction between arming Ukraine and its allies looks moot. In reality, says Jang Won-joon of the Korea Institute for Industrial Economics and Trade, a government think-tank, South Korea’s view is that once its arms have been shipped, “it’s none of our business” where they end up. This also explains why economic sanctions against Russia have been less effective than hoped.  If Europe stops buying oil from Russia, the oil can be shipped to India and China.  Then, Europe can buy the non-Russian oil that was formerly going to India and China.  The only impact is slightly higher transportation costs, as trade gets rerouted. (0 COMMENTS)

President Biden recently visited the humanitarian crisis along the U.S.-Mexico border but mostly used it as a political stunt to offer more failed policies and chastise Republicans. Republicans have also had years to solve immigration issues, but the situation continues. Meanwhile, Biden and former President Trump have similar protectionist trade policies, which have come at a cost to Americans. Given the gains from immigration and trade in a globally connected economy, many on the left and the right overlook how government failures of a broken visa system and costly big-government are the source of these problems. And this oversight leads to  many of their big-government solutions that aren’t rooted in sound economics but rather winning votes. Immigration and trade overlap in many ways as they are exchanges with people across international borders. Given the rule of law and private property rights are essential in our republic, there are roles for government to enforce the rules of the game but otherwise politicians should address bad policies in the U.S. before trying to blame tangential problems on other countries or “market failures.”  For instance, have you ever heard that “immigrants and trade steal jobs”? It’s a myth.  The notion that immigrants “steal jobs” supposes that adding more people and different kinds of knowledge and innovation to the economic pie somehow prohibits the native-born population from prospering. Simply put, the aversion to immigrants joining the American workforce is rooted in fear of competition.  Moreover, much of the skepticism fueling fear of more working immigrants tends to also be directed at international trade. But the gains to be acquired from immigration and trade outweigh the suspected costs.  We would be wise to let markets work within the rule of law instead of imposing arbitrary restrictions and growing government.  Working immigrants do not steal jobs. But, as economist Ben Powell recently noted in my conversation with him, they do change the mix of jobs as they expand the capacity of the economy with more workers. Similarly, when young people graduate college and enter the labor market each year, they don’t “steal jobs” but often accept the lower-skilled positions while increasing productivity.  These groups support increased competition, fuel the creation of new jobs, and permit the native-born population to work in positions in which they’re more productive. They also increase demand for goods and services provided by lower-skilled workers. So, immigrants and new graduates alike can increase net jobs.  When I hire a contractor to install my ceiling fan, I don’t view it as them stealing my job because someone else is better at it. Even though I pay for the service, it’s a trade that ultimately benefits me or I wouldn’t do it, as not learning how to install the fan gives me more time to do things which I enjoy.  The contractor and I mutually benefit, just like with all exchanges with people whether in the same community, same state, same country, or another country. Barriers to immigration and trade, such as visa limitations, border walls, tariffs, and quotas, are barriers to human cooperation enforced by politicians with limited knowledge.  A more productive path forward would be pursuing immigration reform that improves the visa system, making it easier for immigrants to come legally. Border walls, such as the one in Texas, are a scapegoat and far cry from addressing the real issues needing reform.  Similar to the fear of immigration, proponents of trade protectionism often fail to understand that the exchange is as economically simple as it is non-threatening.  Whether a Texan is trading with a New Yorker or someone from China, it’s individuals, not places or entities, trading for mutual benefit. A greater exchange of goods and services through trade promotes competition as the expanded pool of resources for consumers encourages producers to innovate to stay competitive or risk closing.  International trade doesn’t steal U.S. profits any more than immigrants steal jobs. But, like immigration, it allows people to focus on producing the goods they have a comparative advantage instead of being pressured to supply everything for themselves. The goal should be to reduce costs of doing business so there are abundant opportunities for American workers and businesses to flourish by cutting government spending, taxes, and regulations. Restricting trade and immigration ultimately restricts the prosperity supported by free-market capitalism by keeping out an influx of knowledge, skills, and goods and services that made the American melting pot so great for so long.  Anti-trade and anti-immigration are anti-growth. Free markets are really free people. We ought to find free-market solutions to advance freedom and opportunity rather than impose costly barriers that hinder them.  As economist Peter Boettke recently in my conversation with him: when ordinary people are given elbow room to grow, economies thrive and people can prosper.    Vance Ginn, Ph.D., is founder and president of Ginn Economic Consulting, LLC. He is chief economist and senior fellow at several think tanks across the country. He previously served as the associate director for economic policy of the White House’s Office of Management and Budget, 2019-20. Follow him on Twitter @VanceGinn. (0 COMMENTS)

The economic paradigm of economizing on limited resources is universal. For example, mental resources are limited and must be economized, that is, allocated to some tasks instead of others. Choices and trade-offs must be made. Writing in the Wall Street Journal, Anthony Vance, a professor of business information, and C. Brock Kirwan, a professor of psychology and neuroscience, give an interesting example (“Why Do We Fall for Hackers? Blame Our Brains,” Wall Street Journal, February 15, 2023): Many people believe they are good multitaskers, but the human brain is actually lousy at it—people can only take in and process so much information at one time. The brain must prioritize how best to allocate its limited resources. So, whatever people say about multitasking, performing two tasks at once leads to worse performance on both, a phenomenon known as dual-task interference. Saying that the brain is lousy is, however, an unfortunate and misleading formulation. What happens is that brain resources are limited and must therefore be allocated to what appears to be the most important task, however lazy or energetic is the individual who owns, or is, the brain. We are speaking of individual choices in allocating limited mental powers. Errors can of course be made, but limited resources make choices unavoidable. Non-human animals, who have even more limited brain resources than us, must similarly use them for their most urgent tasks, which are to survive and reproduce. (Humans have more options and choices, especially in a prosperous society.) More of the animals’ brain resources are hardwired in the form of instinct.  Animals certainly economize on the physical energy they have to expend. I often observe how, when a deer was going from point A to point B in a snowy field, it will often make a detour to follow a snowshoe or snowmobile tract so as to minimize the energy used. Its brain resources being very limited, the deer is guided by instinct only, in the sense that it does not to calculate mathematically, or conceptually guess, the extent to which the energy saved by running on harder snow is more than the additional energy spent on the longer path. A human doesn’t only depend on instinct. That the hypothenuse of a right triangle, which can be imagined as the deer’s original direction, is always shorter than the sum of the two other sides of the triangle, representing the detour, was mathematically proven more than 25 centuries ago. A human individual can make conscious, if not necessarily exact, calculations of the costs and benefits of different courses of action for him, and often reprogram his brain’s software. Combine that with humans’ unlimited desires and the different preferences among individuals (and the more different they are as civilization advances up to Friedrich Hayek’s “Great Society”), and it becomes easy to understand that social life in human society is much more complicated than among non-human animals. Every non-comatose human individual has a keen conscience of his self-interest. How can such individuals live peacefully in society? How is it in their interest to do so? Can they be equally free? Or, looked from a different viewpoint, who makes the trade-off and choices? As I noted in another EconLog post, an efficient allocation of the limited resources in human society does not require a central planner or strong political (coercive) authorities. No authoritarian “brain,” no central allocator, is needed. The limited resources we are talking about encompass everything that is useful to produce goods, services, and “utility” (in the economic sense of better situation) for individuals. Resources are limited mainly because human desires are even more unlimited than is human ingenuity in satisfying them. Markets and, more generally, free interactions between individuals guide the allocation of resources in a way to maximize individual opportunities. If I may quote my previous post: One of the greatest discoveries of the 18th century did not come from physics or astronomy but from the nascent science of economics. It is the theory that if individuals independently and freely pursue their ordinary self-interest, the resulting social order will be efficient, that is, will allow virtually all these individuals—or at least their vast majority, given their starting points in life—to better satisfy their own preferences. (0 COMMENTS)

In 2022, the U.S. government approved expenditures of $113 billion on aid to Ukraine. The Committee for a Responsible Federal Budget writes: In total, CBO estimated that $6.6 billion of the $113 billion would be spent in FY 2022 and another $37.7 billion in FY 2023. Furthermore, CBO estimated more than half of the approved funds would be spent by the end of FY 2024 and more than three-fourths by the end of FY 2026. How much will that cost the average household? There are approximately 131.2 million households in the United States. So the average cost per household is $113 billion divided by 131.2 million, which is $861. Of course, averages are often under-informative. That’s true of this one. In 2018, according to the Brookings Institute, high-income households, those in the top 20% of the income distribution, paid about 68 percent of all the tax revenue that the federal government collected. To be in the top quintile that year, you needed to have an income of $153,301 or more. Assume for simplicity that these numbers, adjusted for inflation, are about the same today. Also, I’ll assume, even though I know it’s false, that this $113 billion will be paid entirely out of taxes rather than new debt. It’s not as bad an assumption as it looks. To the extent it’s paid out of new debt and to the extent future taxes pay off that debt, based on a progressive tax structure such as the one we have now, it would be a pretty good assumption. So the top quintile would pay 68% of $113 billion, which is $76.8 billion. There are approximately 26 million households in the top quintile. So the cost per top-quintile household is $76.8 billion divided by 26 million, which is $2,956. That’s a lot to fight someone else’s war. Consider my wife’s and my case. In 2018, our income put us in the top quintile, probably just below the top 10 percent. So because we aren’t socked by high income tax rates to the same extent as the top 10 percent, our cost is probably closer to $2,000 than to $2,956. Let’s say it’s about $2,200. Put it in perspective this way. In the first month of the war, my wife and I wanted to “do something” to help Ukrainians. A friend recommended giving money to a local restaurant owner who has relatives in Ukraine. She trusts him and we trust her. So we gave him $100. I know that that’s not much, but the $2,200 number above gives an idea of just how “not much.” We’ll pay in federal tax revenues about 22 times the amount we contributed voluntarily. (0 COMMENTS)

with Charlie Mathews  Generations of students ​​learned that the Great Depression was a conspicuous failure of free-market capitalism that only ended with the New Deal. Instead, the New Deal and other policies enacted to fight the Depression prolonged it. The Smoot Hawley Tariff was a conspicuous political failure. The New Deal was a conspicuous fiscal failure. The Federal Reserve’s response was a conspicuous monetary failure. Altogether, they worsened the depression. With the onset of the Depression, people panicked and adopted isolationist, protectionist attitudes. To soften the Depression’s blow, Congress passed a sweeping tariff that raised import duties. Over the objections of 1,028 economists who signed an open letter urging him not to, President Herbert Hoover signed it. The effects were familiar. Americans wasted resources producing what they used to import domestically. There was deadweight loss because consumers could not consume as many of the newly-protected goods. The tariff made goods like Swiss watches much more expensive. American factories could no longer import the parts and materials they needed. This video from Marginal Revolution University explains: The Smoot-Hawley Tariff was the first (perhaps unintentional) shot in a trade war. Not to be outdone by Americans, Europeans retaliated with tariffs on American goods. As a result, unemployment rose, industries failed, and the global economy became less efficient because of less specialization. The Federal Reserve did not help matters. Its responsibilities include maintaining full employment and stable prices. Monetary policy during the early years of the Depression failed on both counts. A rapidly-contracting money supply and the subsequent deflation bankrupted farmers and others responsible for repaying debts in appreciated, harder-to-get currency. The money supply fell by some 30%. Loans and mortgages went unpaid. Bank runs and panics happened across the country. As Anna Schwartz and Milton Friedman would later explain, monetary mismanagement turned what might have been an ordinary recession into a Great Depression. Upon taking office, President Franklin Delano Roosevelt inherited an economy already in shambles. So he set out to implement the New Deal, a sweeping array of programs to stabilize the economy and help Americans recover from the economic devastation. Instead, Roosevelt oversaw a massive increase in spending and a sweeping assumption of new powers by agencies like the National Recovery Administration and the Agricultural Adjustment Administration. These agencies and others, some of which ultimately did not survive challenges in the Supreme Court, aimed to correct “underconsumption” and “overproduction” and to keep farm prices high so that farmers’ incomes would rise and they would have more money to spend.  Efforts to control prices and centrally plan production, however, did not work. As the economic historian Robert Higgs has argued, the New Deal’s challenge to established property rights created regime uncertainty, with many people deciding not to invest out of the fear that their government would expropriate them. Economists and historians will continue to debate the causes and consequences of the Great Depression, and as they make discoveries, they will refine their explanations. They will no doubt find that many supposed “cures” actually made the disease worse. The response to the Great Depression combined political, fiscal, and monetary failure in a way that made the Depression longer rather than shorter.   Charlie Mathews is a student, and Art Carden is an economics professor at Samford University. (1 COMMENTS)

Minnesota State Senator John Jasinski recently argued in favor of continuing the drug war on the basis of sunk costs. He argued that because police have spent thousands and thousands of dollars on training drug-sniffing dogs, that investment is lost if the drug war ends. He sees this as a cost. In fact, ending the drug war would reduce costs because police in the future would not have to spend thousands and thousands of dollars training drug-sniffing dogs. You can see it here. HT2 Eric Garris. (0 COMMENTS)

Last week, economist Tim Kane put on YouTube a civil and brief 3-way discussion among himself, Robert Litan, and Allison Schrager about what 3 economic policies each would advocate to “save” U.S. democracy. One of Schrager’s policy proposals (at the 9:04 point) was to federalize occupational licensing rules. She argued, correctly, that state rules reduce mobility across states because someone who is licensed in state X might not be able to practice in state Y due to different rules in state Y. Schrager’s case is that if we had federal licensing, people with particular licenses could move freely between states and not have to retrain, attend classes, etc. before practicing in the new state. That’s the upside. But in the discussion following, Tim Kane notes the downside: that someone in the Labor Department 20 years down the road (I would say fewer than 5 years down the road) will require a 5,000-word essay for plumbers or whatever. How, Tim asks (at the 10:40 point), do we stop that. Schrager doesn’t answer. Instead she says that we have that at the state level. She’s right. But if we get it at the federal level, the federalism exit option is blocked. There is some good news here. Federalism is working to some extent. The Arizona government, under previous Governor Ducey, changed the law to allow people who are licensed in one state to automatically get a license for the same occupation in Arizona. Also, New Hampshire governor Chris Sununu, in his Executive Budget Summary proposed the following: [T]he budget eliminates 692 unnecessary statutory provisions, 14 unnecessary regulatory boards, and 34 license types. Licensing timeframes will be standardized for all professionals to eliminate administrative burden and ensure that everyone in New Hampshire who applies for a license receives it in a timely manner. At the same time, universal recognition of licensed professionals in other states is established making it simple to relocate and join our state’s workforce. Florida governor Ron DeSantis has moved Florida somewhat in that direction. And, although this isn’t quite the same, Pennsylvania governor Josh Shapiro, in his first day in office, signed an executive order eliminating the college degree requirement for 65,000 state government jobs. If we had state governments representing even 40% of the U.S. population implement such reforms, that would be so much better than shifting things to the federal level.   (0 COMMENTS)

In his new book entitled The Federal Reserve: A New History, Robert Hetzel notes the following: The 1912 Democratic Platform opposed “the so-called Aldrich bill or the establishment of a central bank” and demanded “protection form the control of . . . the money trust” A year later Woodrow Wilson signed the Federal Reserve Act. One can find many similar examples throughout US history.  President McKinley held dovish views on foreign policy, and then led us into war against Spain.  The Democratic platform of 1932 promising a balanced budget.  Lyndon Johnson warned that Goldwater would lead us into war in Vietnam.  The examples are endless. Does this mean that elections do not have consequences?  I don’t think so, for several reasons.  First, there are many examples of candidates fulfilling their campaign pledges after being elected.  But in my view the most important role of elections is in encouraging good behavior.  Leaders know that when the country does poorly, the incumbent is likely to be thrown out.  This gives leaders more of an incentive to please the voters by producing peace and prosperity.  Elections are a device for disciplining politicians. It’s no surprise that elected leaders often abolish democracy when they are about to engage in ruinous ventures.  Thus Hitler abolished German democracy in the 1930s, and Putin has abolished Russian democracy in recent years. (0 COMMENTS)