In 2018 or 2019, I attended a local meeting of about 30 people, virtually all of whom were pro-Trump. What many of them liked most about Donald Trump’s policies was what I disliked most: his policies on immigration. Many of the pro-Trumpers argued that he was cracking down on illegal immigration. I agreed that he was but I also said, “Look at virtually every issue on which Donald Trump has been able to increase or decrease legal immigration and on almost every margin on which he could act, he acted to reduce immigration.” Although I didn’t want Joe Biden to win the presidency because I feared, correctly as it turns out, that he would work hard to extend government control over our lives, both through government spending and regulation, I at least comforted myself with the idea that Biden would reverse some of the worst of Trump’s policies on legal immigration. So I was disappointed when I thought Biden hadn’t. But it turns out he has. The person who has documented this well is David J. Bier, associate director of immigration studies at the Cato Institute in Washington, D.C. In “What Donald Trump Has Gotten Right on Immigration,” Cato at Liberty, November 29, 2022, Bier lists a full 20 measures the Biden administration has taken to liberalize immigration. I won’t list them all here because you can easily check for yourself. I will highlight a few. Here’s a big one: Rescinding the labor protectionist immigrant visa ban On February 25, 2021, President Biden fully rescinded President Trump’s worldwide ban on permanent immigration by almost everyone other than spouses and minor children of U.S. citizens. The ban was based on the fear that they would compete for jobs with U.S. citizens. Here’s another: Allowing the labor protectionist nonimmigrant visa ban to expire On April 1, 2021, President Biden allowed President’s Trump’s worldwide ban on most nonfarm temporary work visas to expire on the terms originally set by President Trump. The ban was based on the fear that these workers would compete for jobs with U.S. citizens. Even the one of the 20 that I didn’t totally like is better than what it replaced. It’s this: Ending the nonessential travel ban with Mexico and Canada In November 2021, Biden replaced the Trump administration’s nonessential travel ban on noncitizen travelers through the land borders with Mexico and Canada with a vaccination requirement. I don’t think Biden should have replaced the ban with anything. Why require vaccines? We know that vaccines don’t prevent transmission of the coronavirus. What happened to “following the science?” But still, replacing a ban with a regulation, one that most potential travelers are probably already complying with, is a move in the right direction. One of the main things I liked about Trump’s policies was his deregulation of the domestic economy. But he heavily stepped up regulation of immigration, which, of course, affects the domestic economy.  So by reversing some of Trump’s regulation, Biden should get a few points for deregulation.   (0 COMMENTS)

A well-funded group had put a proposal on the ballot, Measure Q, that would have levied an annual $49 per parcel (of land) in Monterey County for ten years. The money would go to child care. In early August, when I read the proposal, I just knew that almost all the major players in the county would favor it or, if they didn’t, would stay silent. Who would oppose a subsidy “for the children”? But I also believed that it was a bad subsidy. Should taxpayers pay for other people’s child care? And should they be taxed to pay for an ill-defined and relatively open-ended subsidy for which there was close to zero accountability? I wanted to write a ballot argument against Measure Q. I didn’t think opponents of the measure would win, but even so it was important to offer voters an argument against the tax increase rather than a blank page in the voter guide. I won’t keep you in suspense. We did win. Moreover, our side was outspent by approximately 600 to 1. This is one of the opening paragraphs of David R. Henderson, “Tax vs. Facts: An Election Story,” Defining Ideas, December 1, 2022. Another excerpt: At the same time, though, debate was occurring on social media. Chris Kramer, a friend and ally who follows the Nextdoor social network more closely than I do, told me that people were quoting my argument that the tax was regressive. Rosemarie Barnard had told me that most people wouldn’t understand what a regressive tax is. I had more confidence than she had, but it later occurred to me that their understanding of economic theory might have mattered less than I had thought. The word “regressive” sounds, well, regressive. Many people call themselves progressives. What group of people go around calling themselves “regressives”? I love the editor’s line after the title: “A proposed tax increase meets a small but determined band of opponents.” Read the whole thing.There’s some good economics in there about whether the burden of a land tax is on renters or landowners. The picture above is of a juggernaut, which is what the side in favor of the tax, the side that spent $600,000 to our $1,000, felt like. (0 COMMENTS)

When you hear that something is refundable, you probably think that means that someone gets a refund on something he or she paid. But the IRS and even economists who study tax policy don’t mean that at all. By “refundable,” they mean that someone gets a payment even if he or she paid nothing in the first place. That issue comes up when one examines the Earned Income Tax Credit (EITC.) As Cato Institute economist Chris Edwards points out, of the $71 billion of the EITC given to 27 million people in 2021, $69 billion, or almost all, was “refundable.” That is, it was given to people who paid no income tax. The EITC is almost wholly a welfare-spending program, not a tax-cutting program. These are the opening two paragraphs of David R. Henderson, “Tighten the Earned Income Tax Credit,” November 30, 2022, my short TaxBytes column for the Institute for Policy Innovation. Another excerpt: Moreover, the program is rife with fraud. Interestingly, Hilary Hoynes, an economics professor at the University of California, Berkeley, wrote an article in 2014 calling for an expansion of the EITC without ever mentioning fraud. Around that same time, Professor Hoynes gave a talk at the Naval Postgraduate School, where I was an economics professor. In her talk, she defended the EITC and didn’t mention fraud then either. However, in Q&A, she readily admitted that many recipients of EITC funds got them fraudulently. What would you expect from a program that one can benefit from simply by filing a false tax return and receiving a check from the U.S. Treasury? Not all of the mistakes are fraudulent. But the Government Accountability Office estimated that the error and fraud rate between 2016 and 2020 averaged 24 percent. Did I do a complete analysis? No. I can’t do that in the allotted 450 words. Read the whole thing. (2 COMMENTS)

To understand how monetary policy went off course, it might help to look at Lael Brainard’s recent speech on monetary policy. Here is an excerpt: Inflation in the United States and many countries around the world is very high (figure 1). While both demand and supply are contributing to high inflation, it is the relative inelasticity of supply in key sectors that most clearly distinguishes the pandemic- and war-affected period of the past three years from the preceding 30 years of the Great Moderation. Interestingly, inflation is broadly higher throughout much of the global economy, and even jurisdictions that began raising rates forcefully in 2021 have not stemmed the global inflationary tide. In the United States, as a result of significant fiscal and monetary support, the level of private domestic final purchases recovered extremely rapidly in 2020 and 2021 to levels consistent with the pre-pandemic trend before moving below trend in 2022 (figure 2). Although demand came in near the pre-pandemic trend on an aggregate level, the pandemic induced a shift in composition that concentrated large increases in demand in certain sectors where the supply response was constrained. To keep inflation at 2%, the Fed needs to keep growth in demand at roughly 3.5%/year in the long run.  Since 2019, nominal demand has risen by a total of about 8% more than the growth rate consistent with the Fed’s 2% inflation target, and PCE inflation has also overshot its target by roughly 8% over the past three years.  Thus almost all of the excess inflation is demand side. So how does Brainard reach the opposite conclusion?  She links to a figure showing growth in real spending, which she uses as an indicator of aggregate demand.  It isn’t.  It is nominal spending that represents demand, not real spending.  In 2008, Zimbabwe saw an astronomical increase in nominal spending, even as real GDP declined.  By Brainard’s criterion, there was no problem with excess demand in Zimbabwe, as real spending was falling at the time. It isn’t just Brainard; I’ve seen many other economists confuse nominal and real spending.  Real spending reflects the interaction of supply and demand shocks and is an unreliable indicator of whether there is excess demand in the economy. A positive supply shock will boost real spending without impacting the aggregate demand curve at all.  It’s the macroeconomic equivalent of conflating oil consumption and oil demand. Brainard discusses the fact that central bankers traditionally tried to look past energy supply shocks, assuming that their effects on inflation were transitory.  She then suggests: Although these tenets of monetary policy sound relatively straightforward in theory, they are challenging to assess and implement in practice. It is difficult to assess potential output and the output gap in real time, as has been extensively documented by research. This is correct and is the reason why the Fed should completely ignore the output gap.  Instead, policymakers should focus like a laser on promoting slow and steady growth in nominal spending.  If they do so, the economy will stay relatively close to its natural rate.  But they should not try to figure out the natural rate of output, which (as Brainard rightly suggests) is impossible to determine in real time. So what causes so many respected economists to conflate real spending and “demand”?  I blame Phillips Curve models, particularly the view that causation runs from strong real economic growth to high inflation.  Milton Friedman had a much better interpretation.  Positive nominal shocks have real effects in the short run, which explains the negative relationship between inflation and unemployment seen in the Phillips Curve.  Output adjusts in the long run, and the economy goes back to the natural rate, even if inflation remains elevated.  In that case, the observation that real output is near the natural rate tells us next to nothing about whether the economy has experienced excess demand. PS.  Brainard’s graph refers to “real final sales”, not real GDP.  But while those two variables are slightly different in an open economy, Neither variable measures anything close to “demand”.  The slight difference between the two in no way changes the conclusion that only nominal variables can adequately measure aggregate demand conditions.   (0 COMMENTS)

Yesterday, I did a dive into different levels of the idea of unintended consequences. Here, I want to focus on the implications of different types of unintended consequences. Specifically, I’m looking at how we should apply these ideas to policy makers, and the policies they enact in order to achieve specific goals. The simplest level is consequences that are anticipated even though they are not strictly intended. I used the example of a medication that is known to cause drowsiness as a side effect. When you take that medication, you don’t do it with the intent of becoming drowsy, but you can nonetheless anticipate it will occur. In this kind of situation, the usual dictum is to ensure that the treatment isn’t worse than the disease. In the world of policy, the dictum is to be sure that the benefits of the policy will outweigh the costs. Consequences which are unintended as well as unanticipated are harder to judge. Part of how we evaluate them turns on whether the unanticipated consequences are deemed to have been predictable (or at least reasonably so). That’s why the phrase “you should have seen that coming” usually denotes blame, while the phrase “there’s no way you could have known that would happen” is considered exculpatory. I think hindsight bias leads us to overestimate how predictable a specific unanticipated consequence should have been. Descriptions of how programs have backfired due to unanticipated consequences are often tinged with a sort of schadenfreude, or a barely concealed smugness about how these fools didn’t see how things would turn out even though it’s so obvious. I’m not suggesting it’s never true that an adverse outcome could have been reasonably predicted. But I do think we should be cautious in saying so, given that we have the advantage of being in the future and are looking back on the outcome. Just because it seems obvious to you in hindsight, doesn’t mean it would have been as obvious to you prospectively. However, my charity only extends so far. While I’m willing to grant that many (perhaps most) adverse outcomes probably couldn’t have been specifically predicted, I’m less forgiving on the meta level issue of the predictability of predictability. For me, most of the time, the seemingly exculpatory statement “There’s no way you could have predicted this outcome” is immediately followed by the indictment “and you should have known that.” The more complex a system is, the less predictable the outcomes of our interventions will be. Martin Gurri put it well in his book The Revolt of the Public: Our species tends to think in terms of narrowly defined problems, and usually pays little attention to the most important feature of those problems: the wider context in which they are embedded. When we think we are solving the problem, we are in fact disrupting the context. Most consequences will then be unintended. To which I would add, not merely unintended, but also unanticipated in a way that was predictably unpredictable. Here, however, one might suggest that just because there will be unanticipated and unpredictable outcomes, that doesn’t mean these outcomes will be deleterious. Perhaps they will be salutatory instead? Albert Hirschman suggests this in his book The Rhetoric of Reaction, arguing “it is obvious that there are many unintended consequences or side effects of human actions that are welcome rather than the opposite.” What should we make of this possibility? While it’s possible that unanticipated consequences might turn out to be beneficial, this doesn’t do much to recommend them. More importantly, the more complex, dynamic, and interwoven a system is, the less likely it is that unanticipated consequences of an intervention will be beneficial. It’s an unfortunate fact that there are more ways to make things worse than to make things better. The human body is one example. Our biology is highly complicated and still not fully understood. This system is, by virtue of its complexity, also very delicate. There are far more ways to injure or sicken someone than heal them. Without detailed knowledge of human physiology, most interventions will be damaging, if not outright fatal. Only recently have doctors begun to understand the human body well enough to provide genuine and consistent improvements to health. The biosphere is another example. We simply don’t understand the natural order well enough carry out targeted interventions in a way that brings about specific results. When Australian authorities decided to reduce the beetle population by introducing the cane toad into the local ecology, there was no way they could have anticipated how much the ecological equilibrium would be disrupted. But the fact that they couldn’t have anticipated the outcome is itself something they should anticipated. Altering the ecosystem is an area where the political left tends to be very sympathetic to arguments about complexity and negative unintended consequences. They freely grant, at least on this topic, that intervening in a system that is highly complex and only partially understood is far more likely to do damage than good. If you granted that we don’t understand ecology well enough to fully predict the outcomes of our interventions, but followed up by suggesting that this shouldn’t discourage us from intervening because maybe those unexpected outcomes will actually be improvements, almost nobody would find that compelling. Those of us with a strong prior against intervention in the market order see things in the same way. Indeed, it’s very common for libertarians and classical liberals to explicitly describe both the market order and social order as an ecosystem – that is, a complex adaptive system that can’t be fully understood, predicted, or reliably controlled or steered by targeted interventions. In that kind of system, interventions made with limited and partial understanding are far more likely to cause more overall harm than good. Those who bring about this harm are properly blameworthy, because of their fatal conceit.   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)

Diving is an important skill in soccer. No one has touched you, but, like a toddler throwing a tantrum, you throw yourself on the ground and cry out in faux agony, usually while clutching a body part such as your knee or ankle. If you do it right, the referee will think there has been a serious foul and penalize the opposing team. It’s not fair play, but it’s part of the game. Diving is part of the game of politics as well, and Massachusetts Senator Ed Markey is a master. On Veteran’s Day (11 November) this year, he sent Twitter owner Elon Musk a letter howling over “a fake Twitter account in my name.” And it had a blue check!  Imagine! It was Veterans Day, but poor Senator Markey was so triggered by a misplaced blue check that he could muster no more than an embarrassingly perfunctory thank-you tweet for our veterans.  Yes, yes, we appreciate your sacrifice. But a blue check, his blue check, was on the wrong account! “That is unacceptable,” he sniffed. Markey’s letter to Musk was skillful political diving. Twitter’s blue-check error was quickly corrected, and no harm came to Markey or his career. The account was created by a Washington Post reporter who acted “with the permission of a U.S. senator, Edward J. Markey.” Far from triggered, Markey was likely delighted by the opportunity to throw himself on the political floor and cry out in faux agony over Twitter’s “removal of safeguards against disinformation.” There is one big difference between diving in soccer and diving in politics.  In politics, the diving player is also the referee. And sensitive Senator Markey is calling the foul on Musk. His letter demands, “Twitter must explain itself.” The good (at diving) Senator demanded that Musk answer a series of questions by 25 November. The questions read more like threats. “What was Twitter’s process for issuing paid-for blue checkmark verification of a Twitter account?” “Specifically, did Twitter fail to follow its internal policies for paid verification, and, if so, which ones?” And so on. Adding farce to comedy Markey got the date wrong by 20 years. He growls, “Please respond to the following questions in writing by November 25, 2002.” Without the aid of a time machine, Musk will find it difficult to respond to Markey’s demand. Markey tweeted out the letter croaking, “Twitter must explain how this happened and how to prevent it from happening again.” Elon Musk demonstrated proper contempt for Markey’s letter by responding, “Perhaps it is because your real account sounds like a parody?” This was too much for the sensitive Senator. As if to eliminate any doubt that this is a shakedown Markey answered Musk’s snark, “One of your companies is under an FTC consent decree. Auto safety watchdog NHTSA is investigating another for killing people. And you’re spending your time picking fights online. Fix your companies. Or Congress will.”  Those are some nice companies you got there, Mr. Musk. Be a shame if somethin’ should happen to them. Markey’s march on Musk is being conducted under that banner of fighting “disinformation.” But his real motives are not hard to guess. Diving is deception. And the good (at diving) Senator Markey’s pretense of fighting disinformation is deception.  His goal is to decide for you what you are to believe. If he can to that, he gets to stay in power. “Disinformation” is an empty word and a bogus bogey held up to hide this dishonorable end.  The first and highest freedom is freedom of speech.  We must not let them take it from us. We should honor those who gave their last full measure of devotion to defend freedom by fighting for freedom from domestic oppression, including Senator Markey’s assault on free speech. Let the blue checks fall where they may.   Roger Koppl is Professor of Finance in the Whitman School of Management of Syracuse University and Associate Director of Whitman’s Institute for an Entrepreneurial Society (IES). Abigail Devereaux is a Research Fellow at the Institute for the Study of Economic Growth and Assistant Professor of Economics in the W. Frank Barton Business School at Wichita State University. (0 COMMENTS)

What prompts a young scholar to leave the academy…and open a distillery? If you’re Sonat Birnecker-Hart and her husband, it seemed clear. Thus, Koval was born. In this episode, EconTalk host Russ Roberts welcomes Hart to talk about her journey. And yes, he brings out the economics in the story, too! The couple learned a lot about making whiskey- and perhaps more about business and politics. Just to get started, for example, they had to get laws changed so they could operate a bar in their space. It’s fair to say the duo changed the nature of all distilling in Illinois. They also found advantages to being a small producer. There were less than 50 distilleries in all of America when they started Koval. Today, there are more than 2,000. Hart hoped they could make something better, both in a traditional whiskey and in whiskeys made from new grains, such as millet. I learned a lot about this business- the good, the bad, and the ugly- from this episode. And now I wonder what you took away from the conversation. I hope you’ll help us continue it. Cheers!     1- How does Hart describe the initial division of labor at Koval? How did they “play futures with their growth” and begin replicating vertical business models around the world? What did you find most unique about this start-up story?   2-Hart and Roberts spend a good bit of time discussing quality control. How can you make the same whiskey (or sourdough bread) every time? How has Koval managed to leverage technology in their production process, yet still maintain the advantages of small-scale craft distilling?   3- Among the many things I learned from this conversation was that the center of US distilling in the early 1900s was in Peoria, Illinois! How did the “Chicago barley mafia” alter the industry after the discovery of using enzymes, rather than malting, to distill? Roberts starts to dub this a Bootleggers and Baptists story, but changes his mind. Why isn’t it a Bootleggers and Baptists story?   4- Roberts asks Hart how they know how long to distill, “because there’s a trade-off–classic economics–that your money is sitting in the barrel.” What does this trade-off entail, and how do they manage this at Koval?   5- The episode closes with discussion about the challenges Hart initially faced with distribution. What were these challenges, and why don’t these challenges create an opportunity for a newcomer to create a different model, as Roberts suggests? What are the barriers to entry, and what would you recommend be done to mitigate them? (0 COMMENTS)

Those of us who are friendly to decentralized market processes and are skeptical of centralized intervention in the market often speak about unintended consequences of intervention. The idea of unintended consequences is important, but it also comes in a few different degrees and forms worth unpacking. For now, I want to elaborate and expand on the varieties of unintended consequences – I’ll discuss some implications of these distinctions in a future post. I’ve often heard the terms “unintended consequences” and “unanticipated consequences” used interchangeably, but there is an important distinction between these two phrases. Not all unintended consequences are unanticipated. It’s possible to anticipate an outcome which you don’t necessarily intend or even desire, but still find the action worth carrying out. An easy example of this is known and predictable side effects of medication. When a doctor informs a patient that some drug will treat their condition but is also known to cause drowsiness as a side effect, the drowsiness is an unintended but still anticipated consequence of the medical intervention. The doctor does not intend to make the patient drowsy, but nonetheless still anticipates drowsiness will occur. Unanticipated consequences are exactly what they sound like – a result which was neither intended nor predicted. In this framing, unanticipated consequences are a subset of unintended consequences. Not all unintended consequences are unanticipated, but all unanticipated consequences are unintended. One example of unanticipated consequences comes from a program putting bounties on cobras in India. The British government wanted to reduce the number of cobras, and so decided to pay people for every cobra they killed. Seems reasonable, right? But the policymakers didn’t anticipate how people would react. Many people simply began to breed cobras in large numbers, in order to kill them and turn in their skins for money. Eventually, the British government realized what was happening and terminated the program. This in turn led the snake breeders to release their now worthless breeding stock. As a result, the cobra population actually increased. This consequence was both unintended and unanticipated. Even within the framework of unanticipated consequences, a further distinction deserves to be made – between predictable and unpredictable unanticipated consequences. Just because an outcome was unanticipated (and thus unintended) doesn’t necessarily imply that it was unpredictable. If you’ve ever said to yourself “I should have seen that coming,” when something catches you off guard, you’re acknowledging that whatever just happened was in principle predictable, even if it was unanticipated in practice. One could argue that the outcome of the snake bounty program was unanticipated but was still predictable, if the architects of that program had thought more clearly about the incentive structure they were creating. However, it’s worth pointing out it’s much easier to retrodict an explanation for why an outcome should have been anticipated than it is to predict that outcome in advance. Hindsight bias probably makes many instances of what was unpredictable at the time seem predictable in retrospect – not in every case, but at least some of the time. To all this, I would add one further meta level distinction – the predictability of predictability. Was the fact that an outcome turned out to be unpredictable itself something that could have been predicted? A clear example of predictable unpredictability would be a Powerball drawing – you can’t predict what any given drawing will be, but you also know the result can’t be predicted. By contrast, an outcome can be called radically unpredictable when the unpredictability of the result was not itself predictable. Black swan events, as described by Nassim Taleb, are events which are radically unpredictable. Not only can you not see them coming, but you don’t even know that you can’t see them coming. To sum up: when we act, we do so to bring about a particular result. Some results of our actions are unintended but still anticipated. Other times, there will be results which are both unintended and unanticipated. Among this result set, some of the unanticipated results were predictable in principle, while others could not have been predicted. And among the results that were fundamentally unpredictable, some of them will have been predictably unpredictable, while others would be radically unpredictable.   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.  (1 COMMENTS)

Milton Friedman often argued that corporations should concentrate on maximizing profits, and not spend resources on other social objectives. He was once asked if this meant that corporations should do evil things if it led to higher profits. Friedman quite sensibly responded that firms should maximize profits under the constraint that they adhere to legal and ethical norms. This reminds me of the recent discussion about whether Sam Bankman-Fried (SBF) was implementing utilitarianism in his attempt to get rich and donate lots of money to charity.  Some even claim that the recent failure of FTX somehow shows a flaw in utilitarianism.  There are a number of problems with this claim. 1. To begin with the obvious, what evidence is there that SBF was a utilitarian?  It’s true that he occasionally claimed to have altruistic motives, but at other times he made statements that seemed to contradict this view.  Recently, he basically admitted that much of what he said was merely PR, not reflecting his actual beliefs.  More importantly, can we rely on the word of a person that claims to seek wealth for altruistic reasons?  I’ve met many people that claimed to be generous, but in fact were quite selfish.  Oddly, people that try to link SBF with utilitarianism also seem to believe he was a fraud, a sort of con man. There’s a term for people that trust con men who profess to have altruistic motives.  They are called “marks”.  As an aside, I have no specific knowledge that SBF committed fraud.  I do know that he’s been tried and convicted by the media, and I have no reason to suspect that that view is incorrect.  Where there’s smoke, there’s usually fire.  But I’m old school—innocent until proven guilty.  Woody Allen was also tried and convicted by the media, and yet there’s not much actual evidence for his guilt.  Nonetheless, I’m going to assume SBF’s guilty for the sake of argument.  Let’s say he did commit fraud—what does that say about utilitarianism?  2. Let’s suppose that SBF is a sincere utilitarian.  Does that prove that there is some sort of flaw in utilitarianism?  Not at all, for multiple reasons.  To begin with, people often make mistakes.  Suppose a farmer rejected utilitarianism and had the “natural rights” view of the world.  He believed that property rights were sacred.  Now assume that the farmer shot at some kids that trespassed onto his land.  That’s obviously an overreaction.  Should we then blame people that advocate the natural rights view of the world?  Clearly not, as in this case there were other rights at stake, including the right to life.  The farmer misjudged the implications of his ethical system.  To take another example, the terrorists of 9/11 might have believed they were according to the beliefs of Islam, but that doesn’t make it true.  Similarly, SBF might have believed he was implementing utilitarian ideas (although I doubt it), but that doesn’t make it true.  There are delusional people within any ideology. 3.  People that link SBF’s behavior to utilitarianism often seem to employ the Robin Hood defense.  He stole from the rich to help the poor.  But Robin Hood is a children’s story, not a serious guide to ethical behavior.  All societies need consistent rules to guide behavior, and they need these rules for good utilitarian reasons.  Just imagine if there were no 1st Amendment to the US Constitution.  Assume that every single news article had to be pre-approved by the US government.  I believe that this system would have disastrous consequences, and I suspect that you agree with me.  And yet it probably is the case that there are a few articles that society would be better off not having seen published.  Because we don’t trust the government to isolate those articles, and to let the rest go through, we’ve decided that it makes more sense to have a blanket provision allowing freedom of the press. One could imagine a law that said, “Fraud is illegal, except in cases where the beneficiary of fraud achieves more benefit that the victim loses.”  At first glance, that might seem like a utilitarian approach to law.  Instead, all fraud is viewed as illegal, and for two very good reasons.  First, if the law were made conditional on the distributional consequences of the crime, then it would be difficult for people to know ahead of time if they were breaking the law.  More importantly, this ignores all of the negative side effects of crime.  Average people view the cost of theft in terms of the loss to the victim.  But to an economist, that’s just a transfer.  Economists emphasize that the big deadweight cost of crime comes from the effort expended to avoid becoming a victim.  Society devotes a massive amount of resources to crime prevention, of which things like door locks are merely the tip of the iceberg.  People rearrange their lives in all sorts of ways to avoid being victimized.  In addition, bad guys devote enormous resources to perpetrating crimes.  The deadweight losses in this “arms race” really add up, making a high crime society a much worse place to live. I suspect that SBF’s fraud, if it occurred, made the world worse off.  So by the most basic test of utilitarianism it failed to achieve its objective.  The counterargument is that one could imagine a hypothetical crime that made society better off.  But that’s not what I see SBF’s critics saying in this case.  I have yet to read a single article claiming, “SBF made the world a happier place, but what he did was wrong.”  Most people seem to believe he made things worse. Nonetheless, let us suppose that a future SBF does somehow engineer a successful fraud that boosts global utility, even accounting for the fact that fraud reduces economic efficiency due to the deterioration of trust in our financial system, a cost that is above and beyond the direct loss to victims.  Let’s imagine a successful “Robin Hood” escapade.  What should utilitarians think of that act? I’m a rules utilitarian, as rules often make aggregate utility higher.  I believe we should be a nation of laws, not a country where every action is judged according to someone’s (whose?) idea of its impact on aggregate utility.  Thus I believe a criminal should be prosecuted even in the odd case where the crime has a net positive benefit to society. Consider a case where a man rushes his pregnant wife to the hospital, as she’s about to give birth.  He parks the car outside in an illegal spot.  He has obviously decided that in this case the benefit of the “crime” (misdemeanor in this case) exceeds the cost of a parking ticket.  That’s a rational utilitarian decision.  But notice that in that case he should be willing to pay the parking ticket.  Our system of parking tickets probably works better if we have a blanket prohibition on parking in illegal spots, rather than evaluating each person’s “excuse” individually.  Similarly, our laws on fraud work best if it’s always illegal, not illegal only when the funds are not redistributed to the poor.  A society with clear and transparent rules works best—even in utilitarian terms. To summarize: 1. Rules should be clear and uniform, and not make case-by-case distinctions based on hard to measure utilitarian considerations.  People need to know, ex ante, if their actions are legal. 2. Occasionally, it will be the case that breaking rules has a positive net effect, especially for minor crimes like parking violations.  But even in those cases, rules should be enforced and parking fines paid.  That’s how we assure that the violator had a sincere justification for his action. 3.  Inevitably, some utilitarians will wrongly assume that certain actions improve aggregate utility, ignoring the corrosive effects of crime on a society’s well being and thinking only in terms of redistribution.  Serious crime has a major negative sum effect on total welfare, at least in the overwhelming majority of cases. PS.  Many people will argue that my “rules” approach is not “true utilitarianism”, just as they might see Milton’s Friedman’s suggestion that corporations behave ethically as not being “true profit maximization”.  But those are just word games.  I’m advocating the philosophical approach that I believe maximizes aggregate utility.  It makes no difference to me what label people wish to place on that approach.  Is my approach consistent with the traditional definition of utilitarianism?  Perhaps someone can investigate whether people like John Stuart Mill advocated fraud.  I rather doubt it.   (0 COMMENTS)

Foreign tyrants are leviathans with feet of clay, and our own government should not limit our liberties in order to supposedly protect us against them. This reflection is supported by a revelation of this morning’s Financial Times: Chinese billionaire Jack Ma, founder of Alibaba and Ant, has apparently more or less fled China to avoid both Covid lockdowns and his government’s crackdown on high-tech companies (“Alibaba Founder Jack Ma Living in Tokyo After China’s Tech Crackdown,” November 29, 2022). It is strange that after the post-WW2 scare that the Soviet model inspired, so many people now fear the economic domination of China. It is even more strange that so many now think that the US government should strive to imitate the economic policies of these failed regimes. At least, the fear of Japanese competition in the 1980s involved a country with some economic freedom. People fear that somehow trade between Americans (or others in the West) and people living under the Chinese totalitarian regime could harm the former. The current situation in both Russia, the remnant of the USSR, and in China illustrates how fragile are authoritarian states. The poor Russians are dominated by a dictator who have pushed them into an unwinnable war and made them international pariahs. The poor Chinese are living under the domination of a totalitarian government whose inherent desire to control “its” population has led to public-health lockdowns that threaten the economy, adding to the woes of government control of high-tech companies and the fragility of the real estate and financial sectors. (On the recent demonstrations in China, see Lingling Wei, “Chinese Protests Put Xi Jinping in a Bind,” November 28, 2022.) If we exclude possible wars, there is only one reason why residents of a free, or more or less free, country should feel economically threatened by a foreign authoritarian state. It is that the subjects of the latter will have limited opportunities to trade, both among themselves and internationally, and will thus be poorer. And it is more beneficial to have trading partners, either as suppliers or customers, who are richer than poorer. Incidentally, it is somewhat misleading to describe China as “the world’s second-largest” economy, as the Wall Street Journal and many others do. This is true only as far as total GDP is concerned because there are so many individuals living in China. But each of them has a relatively low productivity, so that GDP per capita or standard of living is low. On the basis of GDP per capita in purchasing power parity (IMF data), China comes at the 90th rank of 220 countries, between Belarus and Thailand. It is true that leviathans like the Russian, Chinese, or North Korean states finance themselves out of the total production of all their subjects. Especially with nuclear weapons, they represent a security risk for other individuals in the world; I think that they would even be dangerously to an anarchic society if such a society ever exists. But trying to become like “them” in order to protect us against them provides only an illusion of security. Protectionism is one big step in this fool’s errand, at least when an actual war is not raging. Interestingly, Peter Navarro, the former “economic” advisor of Donald Trump and protectionist tenor, defended anti-protectionist arguments before he became a politician. He even criticized the national-security excuse for protectionism. In his book The Policy Game: How Special Interests and Ideologues Are Stealing America (John Wiley & Sons, 1984), he wrote: It is highly possible that our defense capability might actually be enhanced—not damaged—by import competition. Without the umbrella of protectionism, our defense-related industries would be forced to operate at lowest cost, engage in more research and development, aggressively innovate to stay one step ahead of the competition, and modernize their plants at a faster pace. Thus, while import competition might shrink these industries, they would be leaner, tougher, more efficient, and more modern and in all likelihood outperform a bigger and inefficient (protected) version of those same industries. (0 COMMENTS)