A journalist is someone who knows all the facts of a story and none of the truth. That melancholy reflection is prompted by the twentieth anniversary of Enron’s historic collapse into bankruptcy: December 2, 2001. In its day, Enron’s bankruptcy was the largest in U.S. history, and, given Enron’s enormous prestige (voted “most innovative” of the Fortune 500 for its final six years), the bankruptcy of Enron remains perhaps the most shocking. Inevitably, some of the reporters and newspapers who broke the story twenty years ago returned last year to exult in their scoops. That is human nature. Personally, I return every year to read those reporters’ annual remembrances out of curiosity: I want to see whether any of the major Enron journalists have been able to move beyond their “first rough draft” of the story. I want to see if any of them have come to realize that they got the Enron narrative fundamentally wrong, and thus got wrong one of the central symbolic stories of modern capitalism. The short answer is no, every year. Reading journalists’ annual retelling of the Enron story, one has the sense of walking down a familiar street but seeing it reflected in a fun-house mirror. “The top national journalists, products of their elite education, cast blame on capitalist greed, free-market ideology, and a lack of strict bureaucratic supervision.” As the researcher for Robert Bradley Jr.’s ongoing Enron tetralogy, I had to read many hundreds of those original Enron stories that appeared in the leading newspapers as the story was developing. I then had to read dozens of books that the journalists involved wrote in the years following the bankruptcy and the trials. What I found was what one could have predicted: The top national journalists, products of their elite education, cast blame on capitalist greed, free-market ideology, and a lack of strict bureaucratic supervision. It was the stock story that their Progressivist professors had predisposed them to write about every American business failure. But, in the case of Enron, that whole Progressivist perspective on the story was basically wrong. It was made up from three myths that Bradley, who was at Enron during virtually its entire existence, began to expose in his third volume (Enron Ascending: The Forgotten Years, 1984-1996) and that we will thoroughly rebut in his final volume, Contra-capitalism: Enron and Beyond. Those myths are: (1) The Ethical Myth: Enron’s corporate culture was characterized by money-grubbing, greed, avarice. (2) The Political Myth: Enron’s corporate culture was ardently libertarian or classical liberal. (3) The Economic Myth: Enron’s lobbying helped drive a free-market deregulation movement that swept America during and after the Reagan administration. The Ethical Myth Thesis: “Skilling believed that greed was the greatest motivator, and he was only too happy to feed it. ‘I’ve thought about this a lot, and all that matters is money,’ Terry Thorn, a managing director, recalls Skilling telling him. ‘You buy loyalty with money. This touchy-feely stuff isn’t as important as cash. That’s what drives performance.'”1 Such was the management philosophy of Enron’s COO (and later CEO), according to the most famous journalistic Enron book, The Smartest Guys in the Room, by Fortune reporters Bethany McLean and Peter Elkind. This is the master myth governing journalistic interpretations of Enron: Its corporate culture was dominated by an avaricious spirit of money-grubbing. In 2002, six months after Enron’s fall, Lawrence E. Mitchell of George Washington Law School wrote an essay called “Learning the Lessons of Enron (Before It’s Too Late).”2 In it, he traced the origins of Enron to “the election of Ronald Reagan in 1980, who gave voice to the basest human instinct captured by the contemporaneous film Wall Street: ‘Greed is good.'” The very first crop of books about Enron played up that theme. For example, also in 2002, Enroner Robert Cruver published: Anatomy of Greed: The Unshredded Truth from an Enron Insider. And again in 2002, Robert Bryce published Pipe Dreams: Greed, Ego and the Death of Enron. In 2003 came Infectious Greed: How Deceit and Risk Corrupted the Financial Markets, by law professor Frank Partnoy. (His 50-page chapter 10, “The World’s Greatest Company,” is about Enron). After the Enron trials, the popular financial website “Investopedia” published its “Enron” article (written in 2011 by Chris Seabury). It concluded simply: “Enron will remain in our minds for years to come as a classic example of greed gone wrong.”3 The dictum that “the love of money is the root of all evil” is so deeply embedded in the Western mind that few analysts of white-collar crime ever go beyond it, and only the rarest analyst omits it as a partial explanation. Counter-Thesis: This is the myth closest to the truth, because capitalism is indeed wealth-seeking. The spirit of Bourgeois Capitalism (epitomized by the works of Samuel Smiles) is precisely money-grubbing. It entails producing genuine human values (however intangible or abstract) to earn money from counterparties. And that is hard work; it is grub work. But Enron embodied a different spirit. The Enron spirit might be described as the spirit of Bohemian Capitalism, to borrow from David Brooks’s book BoBos in Paradise. It might be called Rock ‘n’ Roll Capitalism: the comparison of Enron and Elvis was elaborated in a famous Fortune article.4 Or it might be called Sixties Capitalism, by those who remember the Go-Go markets. Whatever term is used, the philosophic essence of this anti-bourgeois capitalism is the belief that one cannot speak intelligibly of “the earned” in a market economy. Friedrich Hayek and Milton Friedman and Robert Nozick and John Rawls would all have agreed with that proposition. In this view, there is only money-winning. If you follow the rules, no further questions can be asked about how your money was won. Jeffrey Skilling frankly admitted that that was indeed Enron’s viewpoint, in his Frontline interview on PBS, which took place in March 2001, immediately after he had become CEO. His questioner said: “Once you see what the rules are, you guys push those rules to the edge in an effort to make a buck.” Skilling responded: “That’s probably fair, yes…. If they set up rules, we adhere to them.”5 A Bourgeois Capitalist would ask: “But are you committed to earning your money?” A postmodernist would reply: “The question makes no sense. Is a tax deduction earned? It’s just rules all the way down.” The central insight of Bradley’s Enron tetralogy is that Enron’s employees, from top to bottom, seized upon the company’s postmodern rejection of “the earned” and applied it both externally and internally. Exploiting “infrastructure socialism” in the gas pipeline industry? Great. Promoting vaporware at the annual stock-analysts meeting? Go, stock price, go! Rent-seeking for Ex-Im Bank subsidies at taxpayer expense? Fine. Booking profits from 30-year deals based on hypothetical projections? Give that kid a million-dollar bonus. The result was a syndrome of ethically interconnected corporate behavior that inspired Bradley’s term, “contra-capitalism” (the title of his fourth volume). As his yardstick for bourgeois capitalism’s ethical baseline, Bradley takes its 200-year moral tradition, from 1760 to 1960 (from Adam Smith to Ayn Rand), and he finds that its essence was: the concept of the earned. By that standard, Enron and its employees were thoroughly imbued with the spirit of contra-capitalism. They no longer believed in “the earned,” certainly not as a moral imperative. Probably, they no longer even understood the idea. And that, fundamentally, was the cause of Enron’s fall. The Political Myth Thesis: “I believe in God, and I believe in free markets.” Yes, Enron founder and longtime CEO Ken Lay did couple together those two aspects of his creed. It was in a February 2001 interview with Sandi Dobie, religion and ethics reporter for the San Diego Union-Tribune. (“Prophet or Profit? Energy Chief, Religious Leaders Dispute God’s Role in Utility Price Spiral.”6) A year later, after the fall of Enron, Lay’s one-time big booster, New York Times columnist Paul Krugman, quoted the phrase and then mocked his former associate for exhibiting blind “faith” in laissez-faire. McLean and Elkind allege that Skilling was also a libertarian. At Harvard Business School (1977-79), the two authors write, Skilling stood out “in part because of his harshly libertarian view of business and markets. The markets, he believed, were the ultimate judge of right and wrong.”7 (p. 31). In 2011, Progressivist economist and historian Thomas Frank (What’s Wrong with Kansas?) wrote “The Age of Enron” for Harper’s magazine as a tenth anniversary piece. In 2014, he reprinted the essay in Salon, but retitled it “Ayn Rand’s Libertarian ‘Groundhog Day.'” His thesis was that Enron and other white-collar-crime scandals were and forever would be simply an endlessly repeated phenomenon (like the plot of the movie Groundhog Day) that derived from an ultra-libertarian political philosophy, exemplified by philosopher-novelist Ayn Rand’s Objectivism. “We deregulate… because the John Galts who rule us won’t have it any other way. If we want them to create jobs, we must do as they instruct.”8 In 2016, writing in the Huffington Post, Tom Koechlin, director of Vassar College’s International Studies Program, stated as though it were an obvious fact: “Libertarianism is rooted in a philosophy that aggrandizes capitalism’s winners…. That’s why Kenneth Lay, the late, repugnant CEO of Enron, was a libertarian.”9 In 2018, Gavin Benke wrote in Risk and Ruin: Enron and the Culture of American Capitalism: “Lay, Skilling, and others inside Enron, of course, had long held the view that free and open markets were, universally, the best systems for running industries… Executives like Lay and Skilling saw their ideal world as one that was united through a free market that operated identically in all parts of the world.”10 They sought a utopia of global libertarianism. Counter-Thesis: This is the myth furthest from the truth. “Libertarianism,” or classical liberalism, is the political-economic philosophy based on private property rights and voluntary contract. Enron’s corporate culture, by contrast, might be described as market-friendly Progressivism. It was “progressivist” in its ideals: pro-consumer, pro-environment, pro-uplift for less developed countries and hard-pressed Americans. As for Lay’s statement about God and free markets: He was not saying, as Krugman implied, that God and free markets were the two unchallengeable pillars of his creed. He was simply saying that it was possible to believe in both things. He was saying: We at Enron are caring and Christian in our ends (we are Progressives), but we are market-friendly in our means. He phrased it as he did because he was being interviewed by a religion-and-ethics reporter and because he anticipated (rightly, as it turned out) that the clergymen Dolbee was going to interview for her piece would say that there was a contradiction between those ends and those means. The very next person quoted in the piece, Protestant clergyman Glenn Allison, said: “The marketplace is not the best way to mediate the claims of those who have and those [who] have not.”11 Skilling was saying the same thing as Lay when he told Frontline viewers: “We are the good guys.”12 He meant: We are the good guys by the standards of your Progressivist PBS viewers. We are working to help those who suffer economically under the current system of regulatory capture at home and state-run industries abroad; we are just exploiting quasi-market structures to do it. As for Tom Koechlin’s blunt statement “Ken Lay… was a libertarian,” it happens to have a very easy refutation. Enron historian Bradley was Lay’s speechwriter and worked closely with him. Bradley also happens to be a lifelong classical liberal, and he has testified to his first-hand knowledge that Lay was very far from being a libertarian in ideology. Lay saw himself as a business-statesman and never dreamt of walling off the pursuits of his business life from the pursuits of his life as a citizen. What was good for Enron, he believed, was good for America, and Texas, and Houston—and vice versa. As for the description of Skilling by McLean and Elkind: It illustrates perfectly why we need historians rather than journalists to tell the Enron story. McLean and Elkind say: Skilling, as a libertarian, believed markets were “the ultimate judge of right and wrong.” An intellectual historian would know that libertarians for a century have famously insisted that market judgments are not to be confused with judgments of ethics or morality, with rankings of a good’s or service’s objective usefulness or aesthetic value, with estimates of a counterparty’s personal worth, or with any other non-market evaluation. The distinction between markets and morals is a central tenet of libertarianism, known to everyone who has the slightest familiarity with the philosophy. It is the whole basis of classical liberalism’s attack on the concept of “social justice.” The Economic Myth Thesis: The third myth follows from the Political Myth: Libertarian Enron advocated for, lobbied for, and then profited from a vast movement of free-market deregulation that swept through Ronald Reagan’s America and continued thereafter. New York Times business reporter David Leonhardt stated the thesis almost immediately after Enron’s bankruptcy “Let the reforms begin. For more than 20 years, the federal government has given companies fairly free rein, allowing them to operate with less and less regulation. Enron’s collapse may well halt that trend” 13 Robert Kuttner, writing in Businessweek, put the matter stridently: “The deepening Enron Corp. scandal should hose away an entire world view about how capitalism is supposed to work…. For three decades now, the dominant strain of economics from the University of Chicago has been teaching gullible undergraduates and journalists that there is no such thing as the public interest. Efficient outcomes are just the aggregation of selfish private interests, and government’s main job is to get out of the way. Well, after Enron, these theorists should learn some other useful trade.”14 The allegation has been made endlessly. The Smartest Guys in the Room said immediately, on page 2: “Lay believed powerfully in the dogma of deregulation.”15 Partnoy’s Infectious Greed said of Lay and Skilling: “Both men were zealots for deregulation and free markers.”16 The legend continued with Sharon Beder’s book Power Play. ‘The disaster in California could have been foreseen had it not been for the blinkers imposed by free-market ideology promoted by think tanks and front groups and funded by corporate interests…. It was these self-interest companies that largely drove and shaped the new rules for the electric industry. Enron is a prime example.”17 A decade later, Thomas Frank wrote, in the Harper’s/Salon piece cited above: “Enron was not merely a business—it was also an ideological endeavor. ‘We believe in the inherent wisdom of open markets,’ read the first sentence of their vision-and-values Web page. The second sentence read: ‘We are convinced that consumer choice and competition lead to lower prices and innovation.’ In pursuit of that vision and those values, Enron pushed deregulation across the land.”18 Counter-Thesis: First, the so-called “de-regulation movement” that took place in late-twentieth-century America had nothing to do with creating policies based on some free-market philosophy—libertarianism or classical liberalism. It was in fact a “re-regulation movement.” The old New Deal bureaucracies were supposed to be a form of anti-business Interventionism, whereby bureaucratic experts controlled largely private property to serve the public interest. But those bureaucracies had been captured (quite rationally and in self-defense) by the businesses they were regulating. The result was Political Capitalism, whereby business exploited Progressivist Interventionism for its own benefit. The so-called “de-regulation movement” was simply an attempt to liberate the bureaucracies from capture by giving business a degree of self-control. Second, as Democratic Party websites correctly insist, this re-regulation movement reached Category Five under President Jimmy Carter (assisted by Progressivist Senator Edward Kennedy), well before Reagan took office. Third, the focus of the re-regulatory movement—and this was a Chicago School element—was consumer satisfaction, especially low prices, achieved by competition. There was zero concern for private property and voluntary contract, the twin pillars of classical liberalism. Carter’s re-regulation focused mostly on the area of transportation. Apparently, he also wanted to re-regulate the energy industry, but he could not bear the thought that oil and gas producers might thereby benefit from their property. 1n 1984, FERC (Federal Energy Regulatory Commission) did bring the re-regulation movement into the natural gas industry. Under FERC’s arrangement, the federal government turned gas pipelines into a common resource (mandatory open access) but allowed companies to meet the market demand for gas with relative discretion. Enron embraced the scheme, and it became both the key and the model for much that happened at Enron during the next 17 years. So, if 1970s and 1980s re-regulation was not free-market, what political-economic philosophy did the policies represent? The libertarian Cato Institute called FERC’s arrangement “infrastructure socialism.”19 That phrasing certainly captured the collectivist nature of the arrangement, but it did so in an unfortunate American way: by labeling as “socialism” anything (e.g., welfarism) that is contrary to the free market. Considered theoretically, “infrastructure socialism” is a misclassification of mandatory open access. Under genuine socialism, government bureaucrats would not only tell pipeline owners what they must do; bureaucrats would operate the system. Under FERC’s regime, the government was ultimately in charge, determining the fundamental arrangements but farming out to private citizens the tasks of construction and operation, production and distribution. Looked at historically, the “mandatory open access system” of energy infrastructure, ardently embraced by Enron, was a new form of feudalism. In theory, under feudalism, the nation (the king, the people) owns everything and sets the terms for the economy. But the production and distribution of economic goods is farmed out to people on the scene. Feudalism devolves immediate economic decision-making to certain of its private citizens, rather than to government employees. Feudalist re-regulation is not socialism, but it is a collectivist political-economic system completely distinct from free-market capitalism and de-regulation.20 Conclusion For more on these topics, see “The Business Subversion of Markets: Contra-Capitalism,” by Roger Donway. Library of Economics and Liberty, October 4, 2021. “Enron: The Perils of Interventionism,” by Robert L. Bradley. Library of Economics and Liberty, September 3, 2012. “Enron’s True Lesson: Political Opportunism,” by Fred S. McChesney. Library of Economics and Liberty, March 11, 2002. “News is the first rough draft of history,” so journalists like to say, perhaps because it simultaneously elevates them to the rank of historian and yet offers an excuse for their errors. Anyone who has worked in a newsroom can cite a more honest saying of the craft: “Never believe the first reports.” Which also means: Never believe the first rough draft. The trouble for the rest of us is that, on the twentieth anniversary of Enron’s fall, the journalists who broke the story and now return to it periodically are still stuck in the world of their scoops—the world of false first reports, based on the reporters’ Progressivist educations. It is time for those Enron journalists to take their last bows and leave the stage. If we are going to dispel the myths of Enron, we must send in the historians, perhaps in time for the twenty-fifth anniversary, in 2026. Footnotes [1] Bethany McClean and Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (New York: Portfolio, 2002), p. 58. [2] Lawrence E. Mitchell, “Learning the Lessons of Enron (Before It’s Too Late),” University of Pittsburgh Law School’s “Jurist” website, June 13, 2002. Available at: https://web.archive.org/web/20020613041506/http:/jurist.law.pitt.edu/forum/forumnew55.php, Wayback Machine WebArchive.org. [3] Chris Seabury, “Enron: The Fall Of A Wall Street Darling,” Investopedia, December 5, 2011. Available at: https://web.archive.org/web/20111220155744/http:/investopedia.com/articles/stocks/09/enron-collapse.asp, Wayback Machine WebArchive.org. [4] Brian O’Reilly, “The Power Merchant,” Fortune, April 17, 2000. Available at: https://money.cnn.com/magazines/fortune/fortune_archive/2000/04/17/278071/index.htm [5] “Interview with Jeff Skilling,” “Blackout,” Frontline, PBS, March 28, 2001. Available at: https://www.pbs.org/wgbh/pages/frontline/shows/blackout/interviews/skilling.html [6] Sandi Dolbee, “Prophet or Profit?—Energy Chief, Religious Leaders Dispute God’s Role in Utility Price Spiral,” San Diego Union-Tribune, February 2, 2001. [7] McLean and Elkind, p. 31. [8] Thomas Frank, “Ayn Rand’s Libertarian ‘Groundhog Day,’: Billionaire Greed, Deregulation, and the Myth That Markets Aren’t Free Enough,” Salon, August 3, 2014. Available at: http://salon.com/2014/08/03/ayn_rands_libertarian_groundhog_day_billionaire_greed_deregulation_and_the_myth_that_markets_arent_free_enough/ [9] Tim Koechlin, “Free to Plunder: The Case against Gary Johnson and Libertarianism,” Huffington Post, October 24, 2016. Available at: https://www.huffpost.com/entry/free-to-plunder-the-case_b_12614342 [10] Gavin Benke, Risk and Ruin: Enron and the Culture of American Capitalism (Philadelphia, PA: University of Pennsylvania Press, 2018), pp. 90-91. [11] Dolbee. [12] “Interview with Jeff Skilling.” [13] David Leonhardt, “How Will Washington Read the Signs? New York Times, February 10, 2002). Available at: https://www.nytimes.com/2002/02/10/business/how-will-washington-read-the-signs-revived-debate-on-stock-options.html?searchResultPosition=4 [14] Robert Kuttner, “Enron: A Powerful Blow to Markets Fundamentalists,” BloombergBusinessweek Magazine, February 3, 2002. Available at: http://www.businessweek.com/stories/2002-02-03/enron-a-powerful-blow-to-market-fundamentalists [15] McLean and Elkind, p. 2. [16] Frank Partnoy, Infectious Greed: How Deceit and Risk Corrupted the Financial Markets (New York: Henry Holt and Company, 2003), p. 299. [17] Sharon Beder, Power Play: The Fight to Control the World’s Electricity (New York: The New Press, 2003), p. 85. [18] Thomas Frank, “Ayn Rand’s Libertarian ‘Groundhog Day.'” [19] Adam Thierer and Clyde Wayne Crews Jr., What’s Yours Is Mine: Open Access and the Rise of Infrastructure Socialism (Washington, DC: Cato Institute, 2003). [20] Robert L. Bradley Jr. and Roger Donway, “Capitalism, Socialism, and ‘the Middle Way,'” Independent Review 15, no. 1 (Summer 2010), p. 78. Available at: https://www.independent.org/publications/tir/article.asp?id=789 *Roger Donway is a research assistant at the Institute for Energy Research and freelance editor and writer. (0 COMMENTS)

Whether to have a child is what I call a wild problem—a fork in the road of life where knowing which path is the right one isn’t obvious, where the pleasure and pain from choosing one path over another are ultimately hidden from us, where the path we choose defines who we are and who we might become. Wild problems are the big decisions all of us have to deal with as we go through life. —Russ Roberts, Wild Problems: A Guide to the Decisions that Define Us,1 p. 2 Wild Problems is a book about making difficult decisions. Should you get married? Should you have children? Should you get into a potentially exciting extra-marital affair? Should you change careers? Should you depart from the religious observance of your parents? Russ Roberts spent most of his career as an economist. Accordingly, you might expect Wild Problems to include a lot of the methods of economics: choices based on costs and benefits; risk-reward trade-offs; data-driven analysis and statistical modeling. But Roberts deliberately discards the standard economic tool kit for dealing with these problems. He explains, In most areas of life, especially the important ones, our desires aren’t fixed in the way economists usually think of them. Many of our desires are in conflict. We all have urges that we long to indulge and sometimes these urges sit uneasily with us. Sometimes we long to limit our urges, whether food, sex, money, or the app on your phone that you spend time with compulsively. We have a good dog and a bad one fighting each other all the time. Feed the good dog. p. 156 It struck me in reading the book that many of the wild problems Roberts describes are in our intimate world. That is, they involve friends, loved ones, and co-workers. In contrast, many of the problems that economists like to work on are in our remote world. That is, they involve allocation of resources by business executives, policy makers, and markets. These decisions mostly affect people who are not known to the decision-maker. To give advice in the remote world, economists attempt to calculate the best decision given the trade-offs involved. For example, the economist can attempt to determine the optimal policy to reduce carbon emissions. These calculations assume, either explicitly or implicitly, that the people affected by the decision can be represented abstractly as a “typical agent.” In making decisions in the intimate world, Roberts cautions, we cannot assume that everyone is typical. But will it be good for you—the actual you and not some average experienced by others—a flesh-and-blood human being who will live the experience in real time? p. 25 “Suppose you read about a survey that shows that people aged 30-40 without children are on average happier than people that age with children. Does that tell you not to have children?” For example, suppose you read about a survey that shows that people aged 30-40 without children are on average happier than people that age with children. Does that tell you not to have children? First, you have no idea how respondents interpreted the survey. Were they asked to blurt out a number between 1 and 7 to describe their general happiness at that moment? Or were they asked to reflect on how their specific decision to have children or not affected their happiness? Second, you do not know whether their reasons for feeling happy or unhappy would apply in your instance. A couple might have decided not to have children because they prefer to be able to go skiing often. You might have different priorities. You may not even know how to ski. Finally, you do not know how people will feel later in life. Suppose that a different survey finds that grandparents are much happier than elderly people who don’t have grandchildren. What does that tell you about the decision to have children? For more on these topics, see Adam Smith. Biography. Concise Encyclopedia of Economics The Theory of Moral Sentiments Reading Guide. AdamSmithWorks.org. Dan Klein on The Theory of Moral Sentiments, Episode 1–An Overview. EconTalk. Part of 6-part series on Adam Smith’s The Theory of Moral Sentiments What this illustrates is that there is a difference between momentary happiness and what Roberts calls flourishing. He writes, The economist and moral philosopher Adam Smith thought that flourishing, and the contentment it produces, is trickier than it looks. In his little-known master piece The Theory of Moral Sentiments, he wrote that “man naturally desires, not only to be loved, but to be lovely.” By “loved,” he meant not just cared about but praised, appreciated, admired, and respected. We want to matter. And by “lovely,” Smith meant worthy of praise, appreciation, admiration and respect… Smith observed that there are two ways to matter—two ways to earn the praise, appreciation, admiration and respect of people. One way is to be rich, powerful, and famous. The other is to be wise and virtuous. p. 86 Roberts emphasizes that wisdom and virtue are most evident in the intimate world. It shows up not in our politics but in the way we treat people with whom we come into personal contact. He writes, The rule is simple: Privilege your principles. Your decisions define who you are. Don’t make trade-offs when it comes to your essence. Live with integrity. Do the right thing and respect yourself. p. 145 For more on these topics, see Russ Roberts and Mike Munger on Wild Problems. EconTalk. “Wild Problems: Homebuying Edition,” by Kevin Corcoran. EconLog, August 22, 2022. All of us face choices of the type that Roberts calls “wild problems.” Reading his book will help remind you to step back from your smart phone and your immediate urges and instead follow your conscience when you come across these situations. Footnotes [1] Russ Roberts, Wild Problems: A Guide to the Decisions that Define Us. Portfolio, 2022 Available at Amazon.com. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

In this episode, “curiosity snobs” Russ Roberts and Ian Leslie talk about Leslie’s book, Curious: The Desire to Know and Why Your Future Depends On It, how parents can help kids be curious (ask questions back, provide things to be curious about), and how puzzles like Wordle are different from mysteries like how the universe began. A question that Leslie says was motivating for him is, “Why are some people incurious?” And I found myself wanting to respond that everyone is incurious about most things. Even children asking 40,000 questions a year come to the end of what they want to know at some point. How does my brain grow, where was I before I was born, and why can’t I wear mermaid make-up all the time. To focus on topics like “Curiosity” and “Conflict,” Leslie must turn away from many other topics. Roberts’ different shifts in the guests and topics for EconTalk are also a turning away from other infinite possibilities.  One exchange I particularly liked was this:  Russ Roberts: “It’s interesting to me that mysteries, you’re suggesting because they’re bottomless, there’s always more to discover, but for some people that’s just a source of endless frustration. ‘Why would I learn about that? Tell me about something I can figure out.’ Ian Leslie: Yeah. That’s true. But, I think it ultimately is a deeper satisfaction; and not just in terms of fiction or art, but I think that’s how scientists think about their fields of investigation. They think about them as mysteries, not puzzles. They’re not kind of thinking, ‘Okay, if I write one more paper, I can kill this whole field of inquiry.’ Maybe some of them are actually some of the time; but generally speaking, they feel like they’re part of a kind of great river of inquiry that’s going to go on a long time and won’t be solved with one more bit of information. And, that’s why they love it: they’re enthralled to the mystery. Much of what researchers and academics do is turn big mysteries into small, solvable puzzles. How did the prohibition of French cambrics into England in the 18th century affect the market for cotton from India? This is a puzzle in the larger mystery of the nature and causes of the wealth (and poverty) of nations. The scientific method and the Enlightenment increased the number and quality of puzzles and people engaging with them.  Much of the conversation is about education and learning, including thinking about the relationship between knowing things (the geography of Europe) and knowing how to think about things (like the causes of World War II). Your memory gives you the material for thinking and this is part of why good early education for children is so important.   Both Roberts and Leslie are fans of the open-ended seminar (listen to more on that here with Zena Hitz), because it encourages a kind of exploration that is different from listening to an expert lecture. And much of what a good education should consist of reminded me of a favorite Adam Smith quote:  The great secret of education is to direct vanity to proper objects. (TMS, Section III.: Of Self-Command) While there’s much one could disagree with (I, for one, would much rather reread Agatha Christie’s Murder on the Orient Express than reread F. Scott Fitzgerald’s The Great Gatsby. Hercule Poirot is as fascinating as Jay Gatsby and better company) the episode has clearly earned the EconTalk tagline, “Conversations for the Curious.”  Leslie has been on EconTalk once before talking about his book Conflicted. He also has a substack called The Ruffian that you can sign up for. He must have been an early adopter because his first post is dated Aug 27, 2017. You can read a recent, unlocked (free) post here: https://ianleslie.substack.com/p/creating-thinking-deciding.   In the meantime, we’d like to hear what you took away from this episode. We hope you’ll take a moment to consider one or more of the prompts below:   1- Leslie projects a rosy perspective of changes as a result of curiosity being mostly positive and good. To what extent do you think this is true?    2- Both Roberts and Leslie express skepticism about trusting academic studies but also both think that knowledge can be acquired and that the acquisition of knowledge has improved the lives of many people. What sorts of processes or structures for curiosity-based inquiry should people look to?   3- Cities and strangers are presented as “engines of curiosity.” Jane Jacobs would agree, as we can learn from Janet Bufton. But cities often have serious challenges with things like violence and illness and poverty. Does curiosity necessarily cause conflict between those who value it and those who don’t? (Maybe we’ll have to read Leslie’s other book to find out…)   4- Speaking of conflict, Leslie suggests that curiosity and judgment often conflict. When you are curious, you are abstaining from judgements. When you are actively judging, you aren’t engaging in the same kind of open-ended curiosity as when you are not. Is he right about that? Can one be judging and curious at the same time? If not, why not?    5- A young girl who reads Fitzgerald’s The Great Gatsby (or, perhaps worse, watches one of the many quite glamorous movie versions) could be forgiven for wanting to be more like Daisy Buchanan. That, presumably, isn’t the kind of transformation that Roberts and Leslie would likely encourage and yet it’s part of curiosity and sympathy. How can curiosity be guided to proper objects? Roberts and Leslie discuss the importance of reading literature and being sympathetic in entirely positive ways but are they missing a concern about improper sympathy? When is sympathy bad?      (0 COMMENTS)

I was on a Zoom discussion on Friday put on by the Atlas Society, an organization whose employees and contributors subscribe in various degrees to Ayn Rand’s philosophy of Objectivism. David Kelley, who ran the discussion, noted that we are coming up next month to the 65th anniversary of the publication of Rand’s magnum opus, Atlas Shrugged. It was published on October 10, 1957. The discussion caused me to go back to my dog-eared copy and reread various passages I had noted. Between now and October 10, I’ll highlight some of my favorite passages. Here’s one that caught my eye Sunday morning. It’s a statement by James Taggart, one of the villains in the novel, about Hank Rearden, who has invented Rearden Metal, which is much more durable than steel: He didn’t invent smelting and chemistry and air compression. He couldn’t have invented his Metal but for thousands and thousands of other people. His Metal! Why does he think it’s his? Why does he think it’s his invention? Everybody uses the work of everybody else. Nobody ever invents anything. The person talking to Taggart, Cherryl Brooks quickly points out that all those other things were there for quite a while and asks, “Why didn’t anybody else make that Metal, but Mr. Rearden did?” In short, Brooks gets that there’s a division of labor without which Rearden could not have invented Rearden Metal. But none of that means that he didn’t invent Rearden Metal. This passage, which I first read when I was 17, reminds me of President Obama’s famous 2012 statement to business people and entrepreneurs: “You didn’t build that. Somebody else made that happen.” Note: I posted about “You didn’t build that” here and here. (0 COMMENTS)

Philosopher William MacAskill of the University of Oxford and a founder of the effective altruism movement talks about his book What We Owe the Future with EconTalk host Russ Roberts. MacAskill advocates “longtermism,” giving great attention to the billions of people who will live on into the future long after we are gone. Topics discussed include […] The post Will MacAskill on Longtermism and What We Owe the Future appeared first on Econlib.

The Economist, a venerable magazine created a century and a half ago to promote free trade, argues against rent controls, which have been spreading in the United States during the past few years (“American Cities Want Rent Control to Rein in Housing Costs: Economists Still Think They Are a Bad Idea,” August 25, 2022). It would be inconsistent to defend international free trade and oppose domestic free exchange. It may be an excess of pessimism for me to wonder if the magazine’s opposition has a bit mellowed in the past couple of years (see “Rent Control Will Make Housing Shortages Worse,” and “Democrats Clamour Again for Rent Control,” September 19, 2019). By weakening price signals that rental accommodations have become scarcer, rent control (a form of price control) prevents market adjustment including supply increases. Moreover, rent control hurts many poor households, who can least avoid the queues that are generated by prices below market equilibrium. For example, richer households are more capable of buying the apartments that landlords transform into condominiums to avoid rent controls. The magazines writes: Rent control also tends to benefit rich tenants more than poor ones. “The targeting of the benefits of rent control is completely backwards,” says Rebecca Diamond, one of the authors of the Stanford study. She notes that rent-controlled tenants in San Francisco have higher incomes, on average, than those living in unregulated properties. Another factor often neglected is that waiting lines increase the incentives of landlords to discriminate against poorer (and more risky) potential tenants. It is less costly to discriminate when ten persons want your available apartment than when only one potential tenant answers your ad. Defenders of the poor and virtuous promoters of income redistribution are often only proponent of “solutions” that increase government power. According to the OECD, Sweden suffers from the most restrictive rent controls among its member states. A consequence is that the average waiting time for legally renting an apartment in Stockholm is 8 to 10 years. Interestingly, 10 years was the typical waiting time for the delivery of a brand-new car in the old Soviet empire; the powerful, including the apparatchiks, were the ones able to jump the queue (see my Regulation article “Dispelling Supply Chain Myths” and the research by Luminata Gătejel referenced there). Note that rent increases are not only a matter of inflation, which boosts wages too, but also of higher relative prices caused by fewer housing units due to zoning regulations, especially in large cities where population is growing. Rent control, clamored for by social activists, is in large part a response to the perverse effects of previous government intervention—a frequent phenomenon. It used to be that Democrats favored rent control while Republicans opposed it. The difference is less obvious now: Enthusiasm for such policies is less partisan today than it was in the past. For years rent-control regulations existed in just five Democratic strongholds: California, Maryland, New Jersey, New York and Washington. … Since 2019 rent-control laws have been enacted in three additional states—Maine, Minnesota and Oregon—and they are being considered in half a dozen more. In 2019, The Economist observed that it is normal for politicians to respond to vocal discontent with measures that, like rent control, have no apparent cost for government itself. The Economist wrote: It is unrealistic to expect politicians to ignore voters’ demands. But the danger is that one abuse of power is replaced by another as renters, just like nimbys, campaign for regulations to lock newcomers out of the market. Although today’s residents might benefit from capped rent increases, outsiders, faced with less supply and fewer opportunities, will suffer. … Rent control harms almost everyone eventually because the housing stock deteriorates. This calls for some additional observations. First, it is indeed unrealistic to expect politicians to ignore voters’ demands, at least the vocal or weighty ones. Second, politicians who introduce rent control are likely the main beneficiaries in terms of political support. Third, it is understandable, and perhaps inevitable, that the typical individual does not understand supply and demand, not to mention more complex economic phenomena: he has little incentive to learn since his own vote or political participation has a near-zero chance of changing the outcome. This factor explains the popular support for rent control. Fourth, the only acceptable solution lies in constitutional or institutional limits to governments’ capacity to satisfy all demands addresses to it. (0 COMMENTS)

It was just reported that South Korea’s birth rate fell to a record low: Korean women were estimated, based on 2021 data, to have an average of just 0.81 children over their lifetimes, down from 0.84 a year earlier, the statistics office said Wednesday. A graph in the Bloomberg article provides some context: People need to stop talking about Japan’s birth rate and start talking about Korea. The world’s highest fertility rate is in Niger, at 6.7 children per woman.  Of course, South Korea and Niger differ in all sorts of ways.  But it’s worth noting that South Korea’s lifetime fertility rate was roughly 5 per woman back in the 1950s, a time when Korea was as poor as sub-Saharan Africa. If you talk to people in Korea, they’ll say that the birth rate is low because Koreans cannot afford large families.  That’s a bit odd given that (since 1960) South Korea has become richer at a faster rate than any other country on Earth.  How could Koreans in the 1950s afford large families? How can residents of Niger afford large families?  Yes, you can amend the argument to reflect rising expectations of the Korean middle class, but it still seems somehow inadequate.  It’s too easy an answer—for instance it doesn’t explain the huge gap with equally rich Japan. There’s another area where Korea is a world leader—putting pressure on students to do well in school in order to get accepted at good universities (and ultimately to get good jobs.)  Perhaps that competitive drive is pushing down birth rates, as Korean families try to maximize the average success of their children, not the total success. I sometimes wonder if highly competitive cultures are engaged in a sort of zero sum game arms race, trying to do better on arbitrary academic tests in order to get one step ahead of their neighbor.  That seems wasteful. And yet, I just said South Korea has the world’s fastest growing economy since 1960, so it’s not obvious that a relentless drive to succeed is a bad thing.  But perhaps even a good thing can be pushed too far.  How important is lots of extra hours of studying, at the margin? People often like to compare the educational regimes of Sweden and Finland.  By conventional measures such as test scores, Finland’s approach is more successful than Sweden’s.  The Swedes seem to focus more on making students happy. But there’s more to life than test scores.  For instance, Sweden is richer than Finland, despite its less competitive education system.  It’s also worth noting that Sweden has a higher birthrate.  Notice that blue tinted Sweden is an island of fertility between the reddish-orange of Finland and Norway: (In fairness, the gap between the Swedish and Finnish educational systems has narrowed in recent years.) I am agnostic on the optimal fertility rate, and I’m also agnostic on the question of what makes people happy.  Is having students study hard a good thing?  Is more fertility a good thing?  Does more GDP per capita make us happier (once we are a developed country)?  I don’t see the answers to any of these questions as being obvious.  And yet I see other pundits talk about what’s best with a high degree of confidence. PS.  Israel is a case worth thinking about.  Secular Jews have about 2 children per woman, whereas the most highly religious groups have about 6.6 children per woman, comparable to residents of Niger.  This explains why Israel is an outlier among developed countries. Sci-fi books often have Earthlings exploring the universe in the year 3000.  But I never see sci-fi books where most of the starship crew is Amish people, Haredi Jews, and Africans.   Seriously, it’s foolish to extrapolate current exponential growth rates, as the one constant in fertility is unexpected change. (0 COMMENTS)

Libertarians often get worked up over issues that seem trivial to others. I recall more than a few snickers years ago about libertarians and their obsession with stuff like “drinking raw milk.” What makes raw milk such a big deal? Why make such a fuss if a farmer in Wisconsin is told he can’t produce or drink unpasteurized milk? Aren’t there more important things to worry about? At the object level, yes, there are many things more important than the kind of milk one drinks. But the object level isn’t always the right view. Seemingly trivial issues can ultimately turn on issues of great importance, and the raw milk case is one such event. It’s worth looking at why that is. Briefly, a couple who owned a small dairy farm wanted to be able to sell raw milk through their private store to shareholders of their herd, as well as drink the milk they had produced on their farm. The government said no, the case went through the court system, and the farmers lost. To some, this might look like an unfortunate ruling but still not worth getting too worried about. But a closer look reveals why this case is much more significant than it might appear, because of what exactly the courts said when they issued their ruling. In the ruling dismissing the appeal of the farmers, the courts agreed with the claims of  the FDA and the Department of Health and Human Services that, among other things, “There Is No Generalized Right to Bodily and Physical Health,” writing in support of this claim that “Plaintiffs’ assertion of a ‘fundamental right to their own bodily and physical health, which includes what foods they do and do not choose to consume for themselves and their families’ is similarly unavailing because plaintiffs do not have a fundamental right to obtain any food they wish.” The court also agreed that “There is no fundamental right to freedom of contract.” In a later ruling meant to clarity the position of the court, Judge Patrick Fiedler wrote: no, Plaintiffs do not have a fundamental right to own and use a dairy cow or a dairy herd; no, Plaintiffs do not have a fundamental right to consume the milk from their own cow; no, Plaintiffs do not have a fundamental right to produce and consume the foods of their choice. Notice how strong the language is in these rulings. The courts are not making the (comparatively) moderate claim that people have a right to eat as they wish or preserve their health as they see fit, or to engage in voluntary private contracts, but that these rights can be overridden by some compelling public need and that this is one such case. Instead, the courts, FDA, and HHS maintain that you have no such rights to begin with. To the extent that you currently eat as you wish, or maintain your health as you see fit, that is only allowed if your chosen means of doing so align with what the state has decided should be permitted. But if the state decides everyone should adopt, say, a vegan, plant-based diet, according to these rulings, you would have no grounds to object. After all, what kinds of food you eat was, apparently, never your decision to make in the first place. That choice belongs to the state. So what looks like a trivial worry over raw milk actually involves serious questions about bodily autonomy and free choice, with implications going far beyond the milk offerings available in a private store on a small farm. To badly paraphrase a certain poet – First they came for raw milk, and I did not speak out, because I did not drink raw milk But they haven’t come just for raw milk. They came for, and took, bodily autonomy, contract rights, property rights, rights to health, and even the right to decide how you wish to eat. That’s why raw milk matters – and that’s why libertarians were and are right to be alarmed by its infringement.   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)

Whether a right of revolution exists, whether a revolution will happen, and whether it will be successful are three different questions. The first question is a normative or moral question; the second, an economic question (see Mancur Olson’s The Logic of Collective Action); the third one, both a normative question (what are the criteria of success?) and an economic question (how does the revolution develops?). The answer to the normative question—is there a right of revolution?—depends on one’s ethical philosophy, and many were developed since homo sapiens started thinking. A right of revolution exists if one adheres to a consistent individualist philosophy where all individuals have equal value and rights. More specifically, it exists in the individualist political philosophy (and probably the zenithal one) that underlies the work of economists James Buchanan and Gordon Tullock, as presented in their 1962 classic The Calculus of Consent: Logical Foundations of Constitutional Democracy (see also my Econlib review). An individual right of revolution follows from the primacy of the individual over the collective, which is not to say that waging a revolution is easy nor that it will necessarily be successful. The French Revolution, for example, was rather unsuccessful by any classical-liberal criterion, except perhaps in a long-term perspective. The right of revolution is a typical belief of modernity, which Buchanan and Tullock have pushed to its logical conclusion: The individual may choose to reject the [social] “contract” entirely; he may revert to a “state of nature”—in this case a revolt against established social order. On ethical grounds the individual must always be granted the “right” to make such a choice, but, once he has done so, the remaining members of the group have no contractual obligation to consider the revolutionary to be subject to the protections of the “contract.” (p. 261) In his appendix to the book (each of the two authors has one), Gordon Tullock points out one important, but often neglected, corollary: The State should not have a monopoly of force. The oriental states were “too strong for society” and we should do everything in our power to avoid a similar situation. The State should have enough power to “keep the peace” but not enough to provide temptation to ambitious men. The State should never be given enough power to prevent genuinely popular uprisings against it. … In this, as in other aspects of our construction of the constitutional implications of a consistent individualistic philosophy, the shifts in the fraction of the population approving or disapproving certain changes are not of central importance. (p. 348) The last sentence—which captures the gist of our authors’ philosophy—means that it is not morally “of central importance” whether it is one or 75 million individuals who revolt against the state because their rights have been trampled upon. (In my opinion, though, Tullock should have written “individualist” instead of “individualistic.”) See also James Buchanan’s 2006 book Why I, Too, Am Not a Conservative (and my review in the spring 2022 issue of Regulation). Whether or how such a state is possible appears to be a crucial question of political economy. (0 COMMENTS)

Most recessions begin from a position where the economy is operating at close to its natural rate. Therefore, when we visualize recessions we tend to think of economies where output is depressed to a level well below its natural rate.In principle, recessions could begin at any point in the business cycle. A recession could begin when the economy was already operating at well below potential, with the 1937-38 recession being the most famous example. A recession could also begin from a position where the economy is operating well above potential, as in the case of the 1946 recession (and to a lesser extent 1969). In some recent blog posts, George Selgin provides a really insightful analysis of the post-WWII recession (here, here and here), which in many respects didn’t look much like a recession at all. For instance, unemployment remained low even as measured RGDP fell sharply (as wartime industries were unwound.)This period is difficult to evaluate due to the distortions caused by the imposition of wartime price controls and their removal after the war, which artificially boosted measured RGDP during the war and artificially depressed growth after the war. It is difficult to accurately measure the value of war output that doesn’t sell at market prices. In my view, a situation where the economy returns from a position of above potential back to the trend line is so different from an ordinary recession that another term would be appropriate—say “correction”.  But I don’t get to make the rules, and I accept that the profession as a whole refers to this situation as a “recession”. During this sort of period, you might expect output figures to look much worse than employment figures.  That’s because when the economy is overheated, firms are not able to hire as many workers as they would like.  There is a shortage of workers.  Why don’t firms simply raise wages to eliminate the shortage?  Because they are monopsonists in the labor market. When the economy slows, firms will continue hiring workers for a period of time.  You will see very weak RGDP growth numbers combined with very strong gains in employment.  Sound familiar?  As long as the economy merely returns to the previous trend line, unemployment need not rise to very high levels.  It might look like a recession, but it won’t feel like one. This has implications for monetary policy.  Those of us that favor level targeting argue that the economy will be more stable if the Fed promises to return its target variable (prices or better yet NGDP) back to the previous trend line after a shock pushes it away from equilibrium.  The Fed accepted this argument, but only for making up demand shortfalls, not offsetting demand overshoots.  In 2020, they committed to make up the undershoot in inflation with higher than normal inflation in the future.  But in late 2021 they refused to commit to offsetting an overshoot in aggregate demand with lower than target inflation in future years.  That was the Fed’s key mistake.  (BTW, supply-side inflation over or undershoots need not be offset under the Fed’s dual mandate.) Why did they make this mistake?  I’m not sure, but perhaps they confused economic corrections with garden-variety recessions.  They might have assumed that if the economy had overheated, bringing aggregate demand back to the previous trend line would push us into recession.  In a technical sense that might be true (depending on how sharp the adjustment), but it would be a recession utterly unlike anything we’ve experienced since 1946.  A sort of painless recession. To be sure, the Fed could very easily overshoot and create an ordinary (painful) recession, with output well below trend and high unemployment.  Ironically, the Fed’s refusal to do symmetric level targeting makes that unfortunate outcome much more likely.  With level targeting, monetary policy mistakes have less severe consequences, as market anticipation of future make-up policy corrections prevents demand from moving as far off course as otherwise.  In other words, the Fed is making it hard on itself with its “let bygones be bygones” approach to stabilizing demand.   (0 COMMENTS)