Classical liberals and libertarians tend to hold a dimmer view of occupational licensing laws than the general public. Do we really need official state certifications standing as barriers to so many potentially productive careers? George Will once described a particularly heartbreaking example the effects of such licensing had on a woman named Sandy Meadows: Meadows was a Baton Rouge widow who had little education and no resources but was skillful at creating flower arrangements, which a grocery store hired her to do. Then Louisiana’s Horticulture Commission pounced. It threatened to close the store as punishment for hiring an unlicensed flower arranger. Meadows failed to get a license, which required a written test and the making of four flower arrangements in four hours, arrangements judged by licensed florists functioning as gatekeepers to their own profession, restricting the entry of competitors. Meadows, denied reentry into the profession from which the government had expelled her, died in poverty, but Louisianans were protected by their government from the menace of unlicensed flower arrangers. But maybe I’m making things too easy on myself with this example? I mean, maybe it should be okay for people to arrange and sell flowers to willing buyers without anyone being branded a criminal in the process, but how far can we take that lesson? Surely, you ask, I wouldn’t go so far as to suggest people be allowed to practice law without proper certification? I’m glad you asked, because yes I would! And a recent article in Slate magazine (very far from a bastion of free market ideology, to say the least), makes several excellent points about why. The authors start off by noting how legal assistance is, to use a technical phrase, absurdly expensive. They point out a key reason for this is “restrictive rules governing the provision of legal services.” As they put it: Sweeping rules in almost every state give lawyers a powerful monopoly by mandating that only lawyers can do legal work or own law firms. These rules ostensibly protect consumers by ensuring a lawyer exercises independent judgment, untainted by commercial considerations. But like other restraints on trade, they also predictably constrain the supply of legal help, limit outside investment in law firms, shut out non-lawyer expertise, and drive up the cost of services. Innovative, lower-cost delivery models, whether via nurse-practitioner-like “paraprofessionals” or software, are literally forbidden. But perhaps that’s a necessary cost? After all, nobody would be crazy enough to cut back on these rules and let anyone less than full fledged lawyers practice law, would they? Well, it turns out, two states have done just that. The authors of this article seem genuinely puzzled that the states which have loosened these regulations “are an unlikely red-and-purple-state duo: Utah and Arizona.” They can’t quite understand why progressive, blue states would side with wealthy law firms, to the detriment of poor people, while right-leaning states are making services more available to the poor instead of protecting wealthy interests. And the reforms really do seem to be working as hoped: When first announced, these bold reforms drew criticism from both knee-jerk protectionists and good-faith skeptics worried about consumer harm. But the returns, so far, are quite promising…Perhaps most important of all, the reforms do not appear to pose a risk of consumer harm. Data reported by Utah and Arizona indicate that newly authorized entities do not draw a higher number of consumer complaints as compared to regular lawyers. Their article focuses on regulations restricting the practice of law, but the lesson behind it has much wider implications. Towards the end, they make the following observation: Moreover, it is important when evaluating outcomes to recognize that the choice for many Americans is not between a “real” lawyer and some kind of lawyer lite. It is between some measure of professional assistance and no help at all. Indeed. But this lesson goes well beyond lawyers. It applies to minimum wage laws. For many Americans, the choice isn’t between a low paying job and a high paying job. It’s between a low paying job and no job at all. It applies to price controls. For many Americans the choice isn’t between paying a high price for some good or paying a low price. It’s between paying a high cost for that good, or not being able to acquire it at any price. It applies to regulations requiring dwellings to be a minimum size. For many Americans, the choice isn’t between a tiny dwelling or a spacious one. It’s between a tiny dwelling and having nowhere to live. Anytime you take an option away, for some people, it will have been the best option they had available to them. Take that choice away, and they don’t substitute it with whatever you thought was better for them. It just leaves them with nothing. Would-be social reformers would do well to ponder Thomas Sowell’s words in his magnificent book Knowledge and Decisions: Freedom is not simply the right of intellectuals to circulate their merchandise. It is, above all, the right of ordinary people to find elbow room for themselves and a refuge from the rampaging presumptions of their “betters.” 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)

Having completed several degrees in environmental science, Hannah Ritchie nearly left the field out of helplessness and frustration, worried she would never make a real difference. Today, she’s a passionate advocate for changing climate messaging, replacing what she believes are paralyzing–and often false–claims with empowering arguments that people can embrace. Listen as the head of […] The post Hannah Ritchie on Eating Local appeared first on Econlib.

Considering the trade-off between tradition and change, we would quite certainly be unable find two individuals in the world whose wish for the New Year and beyond would strike the exact same point in multidimensional choice space. And we are unlikely to find a single individual who wants everything to change or who wants nothing to change. If we adopt the classical liberal principle that all individuals are moral equals (a natural postulate for the economist who ventures in the ethical realm, as James Buchanan well illustrated), it logically follows that neither change nor tradition is a value per se. Whether change or tradition is preferable depends depends on the individual and his circumstances. The problem, then, is the following: How to reconcile the individuals’ different preferences and values? (I take individual values as personal preferences regarding the state of the social world.) It is a major scientific discovery of 20th-century economic analysis, from welfare economics to Kenneth Arrow’s Impossibility Theorem, that individual preferences and values cannot be aggregated to form some sort of social equivalent. They can only be reconciled. The best way ever discovered (by 18th-century economics) to reconcile the preferences and values of multiple individuals in society is individual liberty and voluntary relations; in other words, it is the market model (outside family, friendships, and such small-group relations). Theory and history show that this model is way superior to political authority both for peace and prosperity and for individual equality. The voluntary-relations model assures coordination without coercion. This is the central point of Friedrich Hayek’s thought (see, for example, my Econlib reviews of his Rules and Order and his The Mirage of Social Justice). At the limit, one may be led to the anarchist ideal of an Anthony de Jasay. Life in society is of course impossible without some constraints on individual action. It is important to understand that, in the market or voluntary model, the constraints on an individual’s actions are made of the consequences of everybody else’s equal freedom, instead of resulting from the diktats of some group of individuals—the ancients in the tribe, the dictator and his minions, the democratic majority and its whims, the mob and its violence. We may add that in a (true) liberal setup, those who prefer change and progress and those who prefer tradition and security can be accommodated as well as it is possible. To the extent that most individuals, and especially the less rich, prefer economic progress and prosperity, constant change and “creative destruction” are bound to occur. But individuals who prefer tradition are in many ways able to protect their own private domains against the winds of change, even while keeping many benefits of the technological and economic progress they do want. A cultural conservative is not obliged to own a smartphone, but he may if he wants to. “Ordered anarchy,” to use Buchanan’s expression, allows both lifestyles to coexist to the maximum extent possible. A free society allows you to voluntarily set up constraints on yourself; you may even become a monk if you want to. In an unfree society, you are not allowed to free yourself from the constraints imposed on you. Nothing is perfect, but some things are more imperfect than others. Happy New Year, with hopefully as much change or tradition as you want! (0 COMMENTS)

A commenter recently asked me this question: Curious, are you a fan of the term “stimulus”? In general, I’m not very picky about terminology.  I know what people mean when the use terms such as “monetary stimulus.”  But I do worry that others will be mislead into thinking that monetary policy is a sort of medicine, which is given to treat a sick economy.  If that’s the framework people are using, then monetary policy will probably end up destabilizing the economy.  In the wrong dose, any medicine becomes a poison. I favor a monetary regime where the central bank stabilizes some sort of price.  Prior to 1933, the Fed stabilized the price of gold.  Hong Kong’s government stabilizes the exchange rates between the Hong Kong and US dollars.  I’d like to see the Fed stabilize NGDP futures prices.  Under NGDP futures targeting, the term “stimulus” has no clear meaning.  What does it mean to “stimulate” the economy, if all you are doing is stabilizing NGDP futures prices? You might argue that under my proposed regime there would be periods when the monetary base would rise sharply, and that these periods could be called “stimulus”.  I don’t find that term to be particularly descriptive, and more importantly that’s not how most people define monetary stimulus.  Indeed, people often argue that the Fed is stimulating the economy during periods where the monetary base growth rate declines, as long as interest rates also decline (as in late 2007).  I suppose one could call falling interest rates “stimulus”, but in what sense would falling interest rates reflect monetary policy if the Fed were targeting NGDP futures prices?  Is the Hong Kong monetary authority stimulating the economy when it fixes the HK/US exchange rate during a period of falling US interest rates? Again, I’m not particularly picky about terms.  I only get annoyed when someone redefines a term in a way that causes outright confusion, as when Austrians claim “inflation” means a rising money supply or when MMTers define “saving” as the budget deficit.  Nonetheless, I don’t regard “stimulus” as an ideal term, as it is likely to confuse the public as to the proper role of monetary policy.  Monetary policy should not be aimed at fixing problems; it should refrain from creating problems. Our recent inflation problem was caused by the Fed trying to use “stimulus” to create jobs.  That sort of policy gimmick never ends well.  A healthy labor market is a byproduct of a stable monetary regime. (0 COMMENTS)

Can Nonpartisanship Quell Horsetrading?  The relevant difference between markets and politics does not lie in the kinds of values/interests that persons pursue, but in the conditions under which they pursue their values/interests.  James M. Buchanan Jr., 1986 Nobel Prize Lecture  Many pundits of Indian politics recently expressed their anxieties about ‘horse-trading,’ the phenomenon of sitting legislators switching their political affiliations. They decried the politicians’ craft as a form of apathy towards the values of democracy. The overarching fear expressed, however, was that the political process was becoming like a marketplace characterized by moral ambiguity and money-grubbing. Such analyses have become platitudes, though they raise valid concerns about political funding and its limits. In fact, commentaries on the ethics of undeclared political transactions always traverse murky waters. This is because representatives are but people like us, and no more altruistically driven than those who elect them. If we, as voters, do not display transparent, disciplined motivations in the first place, there is little to be said about the ‘moral’ relapse of the system downstream. Nor is this to label ethics itself as irrelevant, but to give a finer resolution to our view.  Ironically, we can paint a fuller picture of ‘horse-trading’ by probing the etymology of the phrase. The term came to be used in the United States sometime between 1870-1900 to describe the market for horses, which was rife with information asymmetry. In other words, because a horse’s condition was difficult to assess at the time of the transaction, there was great scope for sellers to be dishonest about the merits of their goods. This idea supposedly entered the mainstream through a bestselling novel of the time, the theme of which was that business thrives on such practices. That business thrives in these conditions is true, but not in the way this view suggests. It is the general asymmetry of information amongst participants in the market that encourages entrepreneurs to compete to fill these gaps to reap profits. Deceitful practices are simply violations of the contracts that govern trade and are more likely when competition is restricted. Thus, the market is a process that helps us interact reliably despite imperfect knowledge and uncertainty. It does not at all thrive on cheating. In the market, through the exchange of different kinds of goods and services over time, we learn to pick up the signals communicated to us by prices. An adjustment process is constantly in motion throughout the system so that this communication is constantly in sync with reality. So when we apply the metaphor of ‘trading under information asymmetry’ to opportunistic political exchanges, we are effectively making an economic argument about the incentives of that institution. In other words, in wondering why already elected representatives need to re-enter a transaction to meet their aims, we are pushed to think in terms of institutional reasons. These are primarily two-fold: the quasi-federalism of the Indian polity and the country’s partisan political system. The electoral system in India embeds candidates in two distinct political contests, each with its own incentives: one where they compete for votes and another where they compete for stability and strong backing. Conventionally, we assume that the latter will neatly supervene upon the former. But this is hardly the case.  Shruti Rajagopalan lays out the question of fiscal federalism in her assessment of the state of Indian cities. At a more basic level, however, the false federalism of India is set up to maintain the country’s multi-party system. Historically, citizens’ negotiations with the Indian state have been carried out through several (even if evolving) identity groups. The problem with this kind of politics is that it hides from view the individual, and its corresponding economic policy resembles an ideological contest for resource allocation among two or more central planning boards. Since the party system is tied to voting and legislation, it also shapes both into collectivist processes. Whenever a political party gains a majority hold over the center, the concentration of financial power with it threatens to supersede any diversity in voters’ choices. Furthermore, the centralized party high-command is overpowered and constantly geared towards elections at various levels. Thus, the switching of allegiances post-elections can be seen as a relatively inexpensive way for politicians to signal their strength and demand greater control.  On the other hand, if we did away with the system of political parties, a substantial number of contradictions like horse-trading would cease to exist. In fact, nonpartisan democracy would approximate a competitive market for governance to the greatest extent possible, and as a byproduct, free the economy of state control. It is precisely for this reason that the moral view on the problems of governance, from selection to implementation, is limiting. The institutional view offers a better analysis of how context shapes behavior. Hence, nonpartisanship can be viewed as the right institutional context for decentralized experimentation in governance. It distributes the party-based top-down incentives (abetted by the lack of federalism) into the bottom-up incentives of the population of an economic locale (a city/town/village). Furthermore, as a general practice, this form of representative governance does have roots in the socio-historical experience of the Indian subcontinent.  Parth Shah, for instance, has written about M K Gandhi’s vision of the self-governing Indian village and how the idea could serve as a template for ‘politics without political parties’. He also cites historical records of the kudovolai system of the Chola period in India, in which anyone could contest for governance, the result being decided randomly through a ritualistic lucky draw. The selected individual would then serve for a year, was subject to certain criteria for disqualification, and was barred from being a candidate for the next three years. What this shows us is that alongside the specific incentives directly tied to administrative performance, the broader environment in which they play out deeply shapes the process of representation. It might not be enough to call for greater autonomy at smaller levels as long as ideological factionalism bears upon it. Even James Madison grappled with this tension in Federalist No. 10. He was against direct democracy (among a relatively small, territorial populace) because the ease of political communication within such systems created the risk of majoritarianism.  Madison’s idea of extending the sphere of the political process sounds similar in principle to Adam Smith’s notion of the extent of the market. If the extent of the market spurred greater specialization, absorbing the polity within the market such that the true prices of all its transactions are reflected might hold the same potential. This would enable the specialization of not just several government services but of institutional decision-making itself. Political costs would not be decoupled from economic costs, thereby diluting the ‘difference in conditions’ pointed out by James Buchanan. Moreover, Virgil Storr has shown that the understanding of the market “as a social space” includes forms of extra-economic social activity. Clearly, this is an underexplored frontier. Lastly, it would be useful to go back to F. A. Hayek’s “nomos” approach to rule-making. The idea of a nonpartisan, market polity is not to return to historically given institutions or abandon intervention in all realms of social life, but to develop a system that best facilitates the competitive process. The nomos approach seeks to find an institutional framework that can strengthen the adaptive capacity of private initiative under conditions of asymmetric information. The services of representation and governance ought to be thought of in these terms.    Jayat Joshi is a Writing Fellow and a Prometheus Fellow at Students For Liberty. (0 COMMENTS)

It was all too much for Moore. Too clear. Moore instituted the ban on Cuban weather telegrams and halted all direct transmission of West Indies storm reports from the bureau’s Havana office to its New Orleans station. The bureau even sought the help of Western Union. On August 28, Willis Moore, then serving as acting secretary of agriculture, wrote to Gen. Thomas T. Eckert, president of Western Union. “The United States Weather Bureau in Cuba has been greatly annoyed by independent observatories securing a few scattered reports and then attempting to make weather predictions and issue hurricane warnings to the detriment of commerce and the embarrassment of the Government service.” This is from Erik Larson 1999 book, Isaac’s Storm: A Man, a Time, and the Deadliest Hurricane in History. The subtitle is inaccurate. The Galveston hurricane was the deadliest hurricane in U.S. history. “Isaac” refers to Isaac Monroe Cline, the head of the Signal Corps’ Galveston station. Although Cline was very good at his job, he missed this one. It was inconceivable to him that the storm would move in the direction it did and so he ignored contrary evidence. Some of the prominent Cuban forecasters, by contrast, were saying that the storm would hit the Texas coast. As we now know, they turned out to be right. Willis Moore was chief of the U.S. Weather Bureau. The above quote is one of many mentions in the book of Moore’s attempt to centralize information and brand other information as misleading. The term that he probably would have used today is “misinformation” or “disinformation.” August 28, the date mentioned in the above quote, was in 1900. it was only 13 days before the hurricane hit Galveston and killed somewhere between 6,000 and 8,000 people. This tendency to centralize seems endemic in government organizations. If Moore had dismissed the Cuban experts the way Francis Collins of the National Institutes for Health dismissed the authors of the Great Barrington Declaration, he might have called them “fringe meteorologists.” Why mention this now? I joined a book group and this is the book we discussed last week. I couldn’t help but notice the parallels between the federal government’s handling of conflict information in 1900 and its handling of conflicting information in 2020 and later.   (0 COMMENTS)

The global economy experienced an inflationary boom during 2022. Prices rose rapidly and unemployment fell close to historical lows. This is what happens when you get excessive demand stimulus—fast rising NGDP and high employment. So how did traditional models do in 2022? In a new Bloomberg column, Tyler Cowen points out that 2022 was a good year for traditional macroeconomic theory.  We saw a great deal of monetary inflation, and we saw that the old rules regarding opportunity cost still apply.  Here’s Tyler: Not long ago, economists insisted that demand shortfalls were perpetual and that stimulus was almost never excessive. That extreme version of the Keynesian view has been laid to rest, while a version of Milton Friedman’s monetarism is ascendant once again. Nonetheless, I see a few problems with Tyler’s analysis: One of the most classical of economic lessons is that supply constraints truly matter. Along these lines, energy price hikes, most of all in Europe, showed that downturns and recessions can be brought on by old-fashioned scarcity. Sadly, this was the year that Nobel Laureate Edward C. Prescott passed away. Critics mocked Prescott for emphasizing the supply side as a force behind business cycles, but this year showed that Prescott was right. If not for the war in Ukraine and its associated energy supply disruptions, the global economy would be in much better shape. In fact, Prescott’s “real business cycle theory” cannot explain the business cycle, and 2022 was another example of this failure.  Fluctuations in employment are driven by changes in NGDP growth, whereas real factors play only a minor role.  In both the US and the eurozone, the unemployment rate fell close to an all time low during 2022: An expansionary monetary policy in 2022 generated fast NGDP growth, and that’s why we saw such robust job creation.  Real business cycle theory has never provided a plausible explanation of fluctuations in the unemployment rate in highly developed economies such as the US.  (Developing countries are a different story.)  Notice that RBC theory doesn’t even explain the (booming) labor market in Europe, which was affected much more directly by the Ukraine War. Economists should focus on NGDP when explaining the business cycle, and real factors when explaining long run growth trends. It is possible that there will be a recession in 2023, but if there is it will be caused by a sharp slowdown in NGDP growth.  It is fluctuations in NGDP (i.e. monetary policy) that drive the business cycle.  Real shocks do affect living standards, but have little impact on the business cycle. I would also reject Tyler’s claim that RBC theory is part of traditional macroeconomics.  It is a contrarian theory that is rejected by most macroeconomists, at least as an explanation of business cycles.  So in that sense the recent failure of RBC fits in with Tyler’s broader claim that contrarian theories did poorly in 2022. Meanwhile, Tyler has this to say about the UK: As for the UK: Economists predicted that a move away from free trade with the EU would hurt the British economy. And it has. Tyler is 100% correct about Brexit.  But there is no discussion of the Liz Truss fiasco.  Truss’s proposed budget provided an almost textbook example of reckless fiscal stimulus.  After the markets reacted very negatively, the Conservative Party replaced her with a more orthodox figure—Rishi Sunak.  Perhaps this oversight is due to the fact that in this one area it was Tyler himself that was a contrarian: I know an unpopular economic policy when I see one. And the consensus among economists about the tax cuts and deregulations announced last week by UK Prime Minister Liz Truss is almost universally negative. Larry Summers noted: “I think Britain will be remembered for having pursued the worst macroeconomic policies of any major country in a long time.” Willem Buiter described it as “totally, totally nuts.” Paul Krugman is skeptical. As Jason Furman summed it up: “I’ve rarely seen an economic policy that is as uniformly panned by economic experts and financial markets.” The contrarian in me rebels against such harsh assessments — even as I remain unconvinced that Truss’s plan will materially boost the rate of economic growth in the UK. Allow me to explain why I am not in a state of panic. (0 COMMENTS)

It should not be difficult to understand that if a firm is prevented from realizing excess profits when the price of its product rises unexpectedly, while it will have to support excess losses when the price drops below expectations, its owners will not incur costs to make sure it has enough productive capacity to profit from a possible future emergency. So why is it precisely what the government of the European Union is doing an excess-profit tax on European energy producers after Russian supply cuts? (See “Exxon Sues EU Over Windfall Profit Levy,” Wall Street Journal, December 28, 2022; “Exxon Sues EU in Move to Block New Windfall Tax on Oil Companies,” Financial Times, December 28, 2022.) Is it because politicians, bureaucrats, and voters are so cognitively impaired that they cannot understand this simple case of incentives? It would be a too simple and ad hoc hypothesis. The reason instead is that political processes and especially democratic processes are myopic, biased toward the short term and often the very short term. The typical politician may not be in power when the detrimental consequences may be recognized years from now—while, on the other hand, they are strongly pressured to do something now, anything, and especially with somebody else’s money. Government bureaucrats are sure to get their salaries and pensions whatever happens, short of widespread destruction of capital or a revolution. The typical voter has no incentive to spend time and other resources on getting and analyzing information on public policy since his individual vote will not change anything in a collective choice; and even if he made inordinate efforts to understand, he would have to cast his single vote on bundles of complex measures whose intricate and interrelated consequences are typically impossible to forecast. In the current climate of public opinion, moreover, government rulers don’t really care if oil supply from private companies drops because their incentives have been undermined. The rulers know (or think) that they will be able to recreate new incentives through subsidies or tax preferences, or just boss the companies around through fear of further regulation or expropriation. In fact, the rulers will normally benefit from enhanced state powers and  many of them would anyway prefer private companies to be gradually replaced by state corporations. (3 COMMENTS)

“Learn to keep coding.” You’ve probably heard the line that various politicians have thrown as a bone to people put out of work in the non-tech industries: “learn to code.” Well, there’s good news for people who already do know how to code. When they get laid off, they find jobs quickly. And there’s even better news for people who have lost any kind of job, tech or non-tech. A headline in Wednesday’s (print edition) Wall Street Journal says “Axed Tech Workers Find Jobs Quickly.” The title in the on-line version is slightly different: “Laid Off Tech Workers Quickly Find New Jobs.” The news story is by Sarah Chaney Cambon and Gwynn Guilford. Here are the first 3 paragraphs: Most laid off tech workers are finding jobs shortly after beginning their search, a new survey shows, as employers continue to scoop up workers in a tight labor market. About 79% of workers recently hired after a tech-company layoff or termination landed their new job within three months of starting their search, according to a ZipRecruitersurvey of new hires. That was just below the 83% share of all laid-off workers who were re-employed in the same time frame. Nearly four in 10 previously laid off tech workers found jobs less than a month after they began searching, ZipRecruiter found in the survey.  Of course, the odds are that a substantial percentage of workers laid off by tech firms are not coders. Nevertheless, it’s good news for those of us who think that being unemployed for a long time is corrosive to one’s psyche. Notice also the last sentence of the second paragraph: Laid-off workers as a whole do even better. (0 COMMENTS)

Americans are really good at telling other countries what to do, how to run their affairs. For the past year, lots of American pundits have been ridiculing China’s Zero Covid policy. (I am one of those pundits.). There’s a general view that it’s long past time to move beyond Covid, to get back to normal. “Vaxxed and relaxed”. China has finally decided to take our advice and open up to foreign travel. So how did the US react? Did we celebrate their decision?  Here’s the Financial Times: US will require negative Covid tests for air passengers from China I predict that most of America’s media won’t even notice the hypocrisy.  We are much better at noticing China’s mistakes than our own. PS.  The fig leaf being provided is concern about a possible new mutation of the virus.  But there’s no evidence for that claim, and no plan to stop a new variant from circulating here if it did exist.   (0 COMMENTS)