Last summer I lamented the recent dearth of good news: In the last part of the 20th century, I greatly enjoyed reading news outlets such as The Economist, the Financial Times, the Wall Street Journal, and the Far Eastern Economic Review.  These news sources focused on public policy issues, especially economic and political issues. Those decades were dominated by good news, as one country after another abandoned authoritarianism and moved toward democracy.  Almost every developed country did major tax reform.  Many developed countries privatized state-owned enterprises and deregulated prices and production.  Free trade agreements were announced.  Immigration was liberalized.  There was one economic reform after another.  Inflation was brought down.  Democracy was on the march in Latin America, Eastern Europe and elsewhere. Now I pick up these news outlets with weary apprehension. I know there is unlikely to be a single piece of good news, just endless stories about the rise of nationalism, authoritarianism, militarism, statism, xenophobia, etc.  One counterproductive economic policy after another.  The world still progresses in terms of technology, with nifty inventions like the iPhone.  But on political and economic issues it seems like the news is unrelentingly bad. The Economist has a new piece subtitled “How the West fell out of love with economic growth”. A paper published in 2020 by the late Alberto Alesina, an economist at Harvard University, and colleagues at the imf and Georgetown University measured the significance of structural reforms (such as changes to regulations) over time. In the 1980s and 1990s politicians in advanced economies implemented a large number, making their economies sleeker. By the 2010s, however, they had lost their oomph: reforms practically ground to a halt. Our analysis of data from the World Bank suggests that progress has slowed still further in recent years, and may even have reversed (see chart 2). The American government introduced 12,000 new regulations in 2021, a rise on recent years. From 2010 to 2020 rich countries’ tariff restrictions on imports doubled. Britain voted for and implemented Brexit. Other countries have turned against immigration. In 2007 almost 6m people, on net, migrated to advanced economies. In 2019 the number was down to just 4m. The Economist cites a number of possible explanations, but in my view they miss the most important one—the turn against free market ideology in recent decades.  The question is not so much, “Why are governments ignoring the good ideas of economists?”, rather the question is, “Why have economists turned against pro-growth policies in a wide range of areas?” There is increasing support among economists for interventionist policies in areas such as labor market regulation, antitrust, barriers to free trade and investment, fiscal stimulus, and anti-growth tax policies.  Late 20th century ideas such as welfare reform, supply-side tax reform, fiscal conservatism and globalization are becoming less and less popular among economists.   There are several possible ways that this change in ideology might be related to the rise in anti-growth policies: 1.  The two changes might be totally unrelated. 2.  Economists might be opportunistically latching onto a change in the zeitgeist.  Telling policymakers what they want to hear. 3.  Economists might be reacting to the same stylized facts as policymakers, and interpreting the implications of those facts in a similar way. I lean toward the third view.  I believe that it was a mistake for economists to move in a more statist direction, but I also believe the move was a sincere (albeit misguided) response to a number of changes in the global economy, including the China shock, job losses in manufacturing due to technology, the rise in income inequality, near-zero interest rates, and the global rise in nationalism.    There are a few glimmers of hope on the horizon.  Economists are increasingly supportive of YIMBY policies such as building more houses and building more nuclear power plants.  The recent rise in inflation has reminded the profession of the importance of classical ideas such as the opportunity costs of government spending.  And they have not completely abandoned free trade. (0 COMMENTS)

Yet another reminder of how free markets undercut discrimination. Just how miraculously the world market works. See this picture? It is a pack of Chanukah decorations. Made in China!! How many Jews do you suppose are in China? How many celebrate Chanukah? How many people there even know what Chanukah is? Yet, some factory finds it profitable to find out about it and produce this stuff for Jews in the wider world, selling at a price competitive with alternative sources. Talk about the division of knowledge! Notice the miracles. My friend Peter Lewin, an economist at UT Dallas, posted the above on Facebook yesterday. He gave me permission to use it. Peter’s comment reminded me of this famous passage in Milton Friedman’s pathbreaking 1962 book, Capitalism and Freedom: No one who buys bread knows whether the wheat from which it is made was grown by a Communist or a Republican, by a constitutionalist or a Fascist, or, for that matter, by a Negro or a white. This illustrates how an impersonal market separates economic activities from political views and protects men from being discriminated against in their economic activities for reasons that are irrelevant to their productivity–whether those reasons are associated with their views or their color. The case Peter highlighted illustrates Friedman’s point. But it even goes further, noting that the people creating the product, who are unlikely to be Jewish, know that it will be bought almost entirely by Jews. Whatever their views on Jews, they want to make money by selling to them. (1 COMMENTS)

Dear Colleagues who teach at schools of business: Were you aware that our accrediting agency, the Association to Advance Collegiate Schools of Business, now requires member schools to incorporate the United Nation’s Sustainable Development Goals (SDG) into the curriculum? There are 17 of them. To meet the AACSB requirement, you only need to incorporate one of these goals, but you are free to incorporate more than one. Here is the list. No poverty. Zero hunger. Good health and well-being. Quality education. Gender equality. Clean water and sanitation. Affordable and clean energy. Decent work and economic growth. Industry, innovation and infrastructure. Reduced inequalities. Sustainable cities and communities. Responsible consumption and production.      Climate action. Life below water. Life on land. Peace, justice and strong institutions. Partnerships for the goals.   Here’s an easy way to meet the AACSB requirement. Assign this article for your students to read: Is the AACSB Requiring Member Schools to Teach Bad Economics? You can discuss it in class, or ask them to write a brief summary of the article, either as a nongraded requirement, or for extra credit, or as part of the course grade. You might include the following language in your syllabus or Learning Management System (LMS): The AACSB, which accredits our business school, requires us to incorporate the United Nation’s Sustainable Development Goals (SDG) into our curriculum. Reading this article will meet that requirement. To provide documentation that you have read the article, you are required to write a 200-word summary and upload it to Canvas (or other Learning Management System). Again, you can give them a grade for it or you can make it a noncredit assignment that they must complete as part of the course in order to document the fact that it has been incorporated into your course. (0 COMMENTS)

Now she tells us.  Martha Olney, an emeritus economics professor from UC Berkeley, tweeted that the American Economics Association lost about $900,000 on its recent meeting in New Orleans. Phil Magness, replying to her, claimed that it was due to the AEA’s “absurd pandering to Covidian zealots.” I’m sure that was a factor; I don’t know how important a factor. But Olney’s response was shocking. She wrote: Huh? I’m guessing that means you’re not here. Like all mask mandates, it’s more a suggestion than anything else. As is true everywhere. Take care of others, or do your own thing. Your choice. Wow! I knew of a few people, Phil being one, who said that they wouldn’t go to the AEA meetings because of the mask mandate. But now she says that a mandate doesn’t mean you have to; no, it means that you may if you want to. Phil replied by pointing to the actual AEA statement that preceded the meeting. There was no hint that it was a “suggestion.” Here’s the statement: COVID-19 REQUIREMENTS All registrants will be required to be vaccinated against COVID-19 and to have received at least one booster to attend the meeting. Those who are unable to be vaccinated or boosted for health or religious reasons should contact assa@vanderbilt.edu for information about an exemption. High-quality masks (i.e., KN-95 or better) will be required in all indoor conference spaces. These requirements are planned for the well-being of all participants. Participants are also encouraged to test for COVID-19 before traveling to the meeting. Notice the distinction between the rules about vaccinations and masks and the suggestion about being tested. The former are requirements, aka mandates. The latter is a suggestion. I doubt that more than 20% of potential attendees assumed that when the AEA said there was a masking requirement, it didn’t really mean it. But Professor Olney doesn’t give up. She responds: I suppose things are different depending on where we live but even in highly mask wearing SF Bay Area, a “mandate” is not enforced. That was my assumption re ASSA and also is what I’ve observed here. I doubt that more than 20% of potential attendees, when they read the rules, assumed that the AEA didn’t really mean it.     (2 COMMENTS)

If I were fighting for the civil rights of today’s most favored groups – women, BIPOCs, and LGBTQIA+s – and had 200 successful civil rights complaints resolved on behalf of those groups, I am confident that I’d be promoted in the mainstream media as a modern-day Martin Luther King. But given the unfavored groups I’m fighting for, my civil rights efforts and successes are convenient to ignore by the mainstream outlets like the Chronicle of Education and Inside Higher Ed. This is from Glenn Harlan Reynolds, “Fighting Campus Bigotry with Prof. Mark J. Perry,” Glenn’s Substack, January 9, 2023. You might wonder why I, who favor freedom of association, herald Mark Perry as a hero. It’s because I don’t favor allowing discrimination on grounds of race or gender when the organization doing it is funded by taxpayers. Here’s the crucial part of the interview in which Mark Perry addresses that issue: As recipients of Federal financial assistance (e.g., Federal Pell Grants and Federal student loans, research grants), US colleges and universities are legally required to enforce federal civil rights laws including Title VI and Title IX as a condition of receiving taxpayer-funded assistance. Recipient institutions are required to regularly certify in writing to the Department of Education that they are actively enforcing federal civil rights laws and prohibiting any discrimination against students, staff, or faculty on the basis of sex, race, color, or national origin.   (0 COMMENTS)

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

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

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

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

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