In recent months, my interest in financial bubbles, their causes, and how they form impelled me to buy an exciting book. Specifically, I purchased a copy of Boom and Bust: A Global History of Financial Bubbles by William Quinn and John D. Turner. Although they are not Austrian economists, and they do not cite the Austrian Business Cycle Theory (ABCT), their theories are very similar. At first, I was amazed by its theoretical framework and its way of addressing the concept of speculation bubbles.   What is the Bubble triangle? Quinn and Turner provided a simple explanation to understand financial crises and named their analytical framework The Bubble Triangle. This triangle is composed of 3 elements: speculation, marketability, and credit/money. Speculation they define as is the purchase (or sale) of an asset to sell (or repurchase) the asset at a later date with the sole motivation of generating a capital gain.” To Quinn and Turner, speculation can become a problem when novices enter the market when it is getting heated. This relates to the ABCT in that entrepreneurs sometimes may see speculative opportunities due to a mistake (usually, a governmental intervention), and sometimes they lose the capital saved. Another side of the triangle is marketability. When illiquid assets become relatively more liquid than they used to be, they can be purchased or sold with respective easiness. Of course, when an asset has high levels of liquidity, buyers and sellers can find each other without hassle. According to the authors, this aspect is critical because when an asset bubble forms, it increases its marketability; this has a similar effect on the economy as if someone trying to stop the fire pours gasoline on it. It becomes highly problematic, especially if everyone holds one through an investment or pension fund. The last and most crucial element is the credit and money available in the economy. In this aspect, Quinn and Turner have Austrian-like elements that are not present in many other accounts. Essentially, they point out that by increasing the credit available in the economy, entrepreneurs and enterprises would invest in deficient projects that otherwise would not have been undertaken.   How does the Bubble Triangle relate to the Austrian Business Cycle Theory? By incorporating the ABCT model, the increased marketability of malinvested assets, and the entrance of novices into the exchange system in a highly speculative period, we can explain why the bust part of the cycle is so hurtful. A good analogy is that sometimes the economy may spark a fire; if everything goes well and there are firefighters near, the fire remains under control. If, on the contrary, each person has a gallon of gasoline near them, the fire can spread more quickly and cause more damage. For instance, look at the malinvested mortgage loans in the Great Recession. Many agencies back in 2005 graded many of these securities as AAA. After the crisis hit, 83% of these AAA securities were downgraded because firms misinterpreted the real risk of these assets. In a non-liquid market, the failures of loans wouldn’t have the same impact as if these loans were made more liquid so anyone could purchase them. That is to say, when high-liquid assets result from an error induced by a decrease in interest rates, every economic agent seems to be affected in one way or another. This issue could explain the harshness of the bust stage and why it takes so long for the economy to recover. A greater focus must be put on the mismanagement of the central banks. Anyone who has read I, Pencil by Leonard Reed would understand how complex the various stages of production are, and how division of labor and voluntary cooperation are so impossible to coordinate through central planning. If  economists have agreed that central planning has failed to coordinate the production of goods and services, how can we expect that the manipulations of interest rates could bring any good? It is more challenging to coordinate intertemporal production than immediate future production. Overconfidence is not enough to explain why this generalization of bad investment happens not just among novice investors but also through investment firms. Yes, novices may commit mistakes when they are trying to speculate. But this part of the arbitrage process of the market is looking to clear and balance profit rates between different investment demands.   Conclusion There is still much to work to do on the theory of business cycles. Whether the explanation comes from one school of thought or the other is irrelevant to  each individual. Even so,  the introduction of different financial concepts to the Austrian analysis might help us understand the extent of the boom and the suffering of the bust.   Carlos Martinez is a Cuban American undergraduate student attending Rockford University. He is pursuing a BS in financial economics. Currently, he holds an Associate of Arts degree in economics and data analysis. (0 COMMENTS)

Inflation in the United States and elsewhere has generated a great deal of commentary. Some, such as Senator Elizabeth Warren (D-Mass) and Marxist economist Richard Wolff have attributed inflation and increased prices to the greed of capitalists and corporations and corporate concentration. Such claims are questionable at best.  Greed, or any kind of personal motivations, are a bad explanation for a rise in price, whether of specific goods or the general price level. If greed or self-interest are present, then they are behavioural constants. Such accounts fail to explain why prices ever go down. Are businesses less greedy when prices fall? If so, we never hear it, and that suggests motivated reasoning. Another reason for doubt. While a corporation might have a great deal of market power, it cannot affect the entire Consumer Price Index. Inflation is also unrelated to corporate concentration. Further, prices reflect decisions by a multitude of sellers with competing interests. Sellers are too numerous to collude and fix prices, because transaction costs rise as the number of colluding actors increases. The number of people who would need to be aware of each other, meet, and agree on a price is huge. Further, price-fixing agreements tend to break down due to defectors trying to beat out the competition by lowering their prices against the majority.  More generally, prices do not result from the will of specific actors. Prices are emergent products of supply and demand. They reflect the myriad decisions of producers and consumers with a variety of preferences and differing opportunity costs. Inflation (a general rise in the price level) tends to derive from an excess amount of liquid currency available, relative to the amount of real goods and services being produced at a given moment. In simple terms, inflation is a problem of “too much money chasing too few goods”. Overall, personal motives have no impact on specific prices or the general price level. Motives as an explanation for market equilibria is the social science equivalent of believing that hurricanes occur because the gods are angry. On the motive-centric account, greed or self-interest becomes a quasi-mystical, generalized force to be defeated, rather than a consistent (but partial) component of human nature.  Here’s an illustrative parody by the economist Mark Perry applied to oil:                           Folk intuitions and their discontents Why are motivational explanations intuitive to so many? Such errors are common in what Paul Rubin calls “folk economics”, or “the intuitive economics of untrained persons.” Put differently, what kinds of gut feelings or patterns of informal logic mislead us, and why are they present?  One reason might be the search for control, an impulse that contributes to conspiracy theorizing (among other tendencies). Attributing causal explanations from the triumph or failure of a select group with a great deal of presumed power is easier to cope with. Compare this with explanations based on multifactorial causes resulting from the emergent patterns of many different actors. The former provides a sense of psychic security about the world as a much more simple place with problems that can be resolved through moralized struggles between defined groups. The latter does not. This argument is related to (but not identical with) F.A Hayek’s claim that our minds are evolutionarily unsuited to the complexity of the modern world. We often reason using the logic of collective resource acquisition and distribution common in tribes, families, and other small groups with heavily shared inputs and outputs. Such groups were important for our survival in prehistory. However, centralized acquisition and distribution are not how contemporary economies with a complex division of labour function.  Tyler Cowen argues similarly in a recent book: One of humanity’s key problems is that human beings evolved to make sense of an environment where a lot of the main problems were caused by individual human agency. Our biggest benefactors, and also our biggest threats, were small groups of other people who sought to either aid or harm us with very deliberate, conscious intent. We evolved in groups of status-conscious primates, for whom building the right social alliances was a key to reproductive success and thus important to our well-being. So, for better or worse, we are geared to think in terms of what small groups of socially allied people will do to us and what their intentions are toward us. We are rather less well constructed for thinking about abstract systems, the import of rules, and how the secondary or tertiary consequences of those rules may improve (or harm) human well-being in non obvious ways. A related reason might be what I’ll call a desire for karmic justice. This is the idea that social or economic outcomes and patterns should track the moral virtue of actors. However, market dynamics such as inflation and price changes affect people regardless of their personal character. Likewise, all the market rewards is relative effectiveness in responding to the preferences of others and productive applications of capital. You can be a good person and do quite poorly on the market or a bad person and do very well (though markets do reward many virtues). The idea that systems do not reflect karmic justice is likewise hard for us to accept. The invisible hand relies on the incentives of rational self-interest, not benevolence, to give people their daily bread. Likewise, economic misfortune such as inflation is caused by rational actors responding to price changes, which they too must accept as givens, and thus they are not being not strictly virtuous or vicious.  Jacob Levy notes that while ancient thinkers sought to connect the character of institutions directly to the virtue of individual actors, modern social thought since Adam Smith has recognized that the parts don’t always equal the whole. Nor is it necessary for people to be virtuous in order to create good outcomes, as reflected in Smith’s famous discussion of the invisible hand. Further, Levy argues, as in cases of perverse emergent orders, social injustice can occur without it being any individual’s intention, as in Thomas Schelling’s analysis of white flight as a “tipping point” problem. Perhaps what popular responses to inflation tell us is that despite our highly advanced systems of economics and politics, we still need a lot of cognitive adaptation to our very abstract modern world, governed by general rules and the interactions of complex systems. Overall, they are the “result of human action, but not the execution of any human design.”   Akiva Malamet is an M.A candidate in Philosophy at Queen’s University (Canada). He has been published at Libertarianism.org, Liberal Currents, Catalyst, and other outlets. (0 COMMENTS)

I highly recommend a recent Matt Yglesias post on taxes. This caught my eye: My preferred framework for a progressive consumption tax is the one that Cornell University economist Robert Frank has outlined. It would work more or less exactly the same as today’s income tax, but with two major changes: There would be no differentiation based on the source of income — whether it’s wages, capital gains, dividends, interest, rent, whatever — it all goes into the “income” bucket.Instead of a little form where you list your 401(k) contributions and deduct them from your income, you’d deduct all contributions to any kind of savings vehicle (bank account, brokerage, whatever).This is separate from optimal tax theory, but the way it ought to work is the IRS sends you a pre-filled form saying what they think you owe based on what’s been reported to them by employers and financial institutions. In 80-90 percent of cases, you could just check “yes, okay, that’s right” rather than needing to do your taxes. This is similar to an idea that I often advocate—an unlimited 401k system.  People can put as much of their income as they like into a 401k account, and then take the money out for consumption whenever they wish.  That essentially converts an income tax into a consumption tax.  I especially like the last part, which would save me from having to spend lots of time doing my taxes.  But for many of us, that would require simplifying the tax system. So how does Yglesias come down in the debate over capital gains taxes?  Should they be taxed at the same rate as ordinary income, or at a lower rate (as in the current system)? The phrase “no differentiation based on source of income” might suggest that Yglesias sides with the progressives that favor a higher capital gains tax rate.  But things are not quite that simple, as when you reframe taxes as a function of consumption, everything looks very different. In theory, a flat tax on wage income is identical to a flat tax on consumption.  Yglesias prefers to tax consumption directly with the 401k approach, because he fears that wealthy business owners would evade a wage tax by claiming that income they earn working in their own company is actually capital income.  This is a general problem with our tax system—the problem of tax avoidance. Oddly, most people don’t see a wage income tax as being identical to a consumption tax.  In a 401k type consumption tax setup, it looks like capital gains are taxed at exactly the same rate as is wage income, although the tax isn’t paid until the income is consumed.  But this tax system is identical to a simple wage tax with no capital gains tax at all.  How is that possible? With a wage tax, you prepay taxes on your future investment income before the money is even invested.  With a 401k approach, you pay the tax in the future when the money is withdrawn and spent on consumption.  Consider a person determined to save 40% of their wage income, which is $100,000 before taxes.  Also assume the invested money increases 5-fold over 40 years, before being spent. A 50% wage tax:  After-tax wage income is $50,000, of which $30,000 is spent on consumption and $20,000 is saved.  After 40 years, the saving grows 5-fold to $100,000, when it is spent on consumption. A 50% income tax with 401k privileges:  The person saves $40,000 and pays a 50% tax on the other $60,000.  That leaves $30,000 for current consumption.  After 40 years the $40,000 grows to $200,000.  When that $200,000 is withdrawn and spent, half is paid in tax.  Future consumption is $100,000.  In both cases, current and future consumption is identical.  The two tax systems are essentially the same.  But one system looks like it taxes capital gains at the same rate as ordinary income, while the other looks like it doesn’t tax capital gains at all. This confusion occurs because “income” is such an ambiguous concept.  In economics, consumption has a clear meaning, while income does not.  We can say that both systems apply the same 50% tax rate to current and future consumption, but as for the “income tax rate”, that’s a pretty meaningless concept.  What do you mean by “income”?  Thus one person might claim that Yglesias favors taxing capital gains at the same rate as ordinary income, while another might claim he favors abolishing the capital gains tax.  Neither person is lying—those are two valid ways of looking at the same reality.  He favors no taxation at the moment the gain is realized, but full taxation at the point it’s spent on consumption. Readers might have noticed that the wage tax example is sort of like the Roth IRA approach to saving.  You pay the full tax on the money before it is put into saving, but then don’t have to pay a further tax when the money (plus investment income) is withdrawn at a later date.  Nonetheless, the two plans might differ in terms of ability to avoid taxes.  Consider the following example from Bloomberg: If Peter Thiel could use a special retirement account to accumulate $5 billion tax free, why can’t you? . . . According to ProPublica, Thiel was able to put 1.7 million shares of then-private Paypal into a self-directed Roth IRA in 1999. There are contribution limits for Roth IRAs, but the total value of the Paypal shares was below the $2,000 threshold at the time. Those shares have since exploded in value, along with other investments Thiel has made, but since they’re in the Roth, they aren’t subject to tax. For simplicity, assume the 1.7 million shares were worth exactly $2000.  Also assume that Theil paid a 50% wage tax on his income.  In that case, he needed to earn $4000 in wage income to accumulate the $2000 in after-tax income he put into the Roth IRA.  If it were a 401k system, he could have put the entire $4,000 into a 401k, which would have grown to twice the level of his Roth balance.  In other words, today he would have $10 billion in the 401k, instead of $5 billion in the Roth.  So while it seems like he’s getting by without having to pay tax on this huge capital gain, he’s implicitly given up the extra $5 billion that he would have accumulated if he’d spent $4000 on 3.4 million shares of Paypal stock, instead of $2000 on 1.7 million shares of Paypal stock.   You might wonder if the $4000 option was ever actually on the table.  After all, if $2000 could turn into $5 billion, then why not invest $200,000, which would later become worth $500 billion—making Theil the world’s richest man.  Our intuition tells us that this investment was not scalable.  And that intuition is probably linked in some way to our intuition that this investment option wasn’t available to average people.  That is, in some sense Theil’s investment success reflected his skill as an entrepreneur. This would imply that the $5 billion gain was partly wage income being treated as capital income.  While I don’t know anything about this particular case, I suspect that this is the general problem that Yglesias had in mind when he suggested that the 401k approach was superior to the Roth IRA approach.   Bloomberg points out that there is no evidence that Theil did anything illegal: Don’t assume that because the IRS didn’t challenge Thiel, they won’t go after you. First, it’s unclear whether Thiel engaged in any prohibited transactions — and he has ample resources to hire lawyers to argue the point with the IRS. For almost everyone else, the resources spent are likely to outweigh any benefit. Consider almost any highly successful entrepreneur that works hard and builds a very successful business.  When they sell that business, some of the capital gain will be a return on the initial investment, and some will reflect the increase in the business value from the entrepreneur’s hard work.  This is especially common in the high tech industry, where in some cases a clever idea combined with a relatively small capital investment can produce extraordinarily large returns.  It makes an ongoing issue with our tax system much more noticeable.  No one cares if a blue color worker purchases and fixes up a run down duplex, and then sells it for a profit that shows up as capital gains, not wage income.  In contrast, the Theil case received major news coverage. PS.  I still favor supplementing a 401k-style consumption tax with a wage tax (and a VAT), as I believe that multiple approaches to taxation make tax evasion more difficult.  But the focus should always be on taxing consumption.  Income should not be taxed at all. PPS.  Yglesias also favors taxing land and negative externalities.  I agree.  PPPS.  Have you noticed how many people suddenly have an opinion on whether the IRS should get more money?  I’d like to ask these people two questions: 1. What is the optimal IRS budget? 2.  What is the current IRS budget? Unless they can answer both questions, their opinion isn’t very valuable.  I suspect that most people (on both sides of the debate) cannot answer both questions. (2 COMMENTS)

A new article by Louis Larue in the Journal of Economic Methodology defends what he calls “reasonable pluralism.” Larue argues that pluralism provides epistemological benefits, as the contestation and debate that pluralism provokes can help us refine our theories and discover important truths. But he also contends that “pluralism has limits” and “we should only accept those theories and methods that can be justified by their communities with reasons that other communities can accept.” The epistemological benefits of pluralism arise because pluralism creates conditions where researchers operating from different paradigms challenge one another. In conditions of epistemological uncertainty this is vitally important, as a heterodox theory that turns out to be correct can challenge a false dominant theory. Contestability within the marketplace of ideas makes error correction possible in a way that it would not be under conditions where the mainstream approach is hegemonic. However, Larue argues that pluralism has epistemic benefits even if we can know that the dominant approach is correct: “What if one side has it right, though? Let us now suppose (for the sake of the argument) that we do have the good theory that fulfils plainly all scientific requirements. I argue that this is nevertheless not a sufficient reason to ignore competing theories or methods. For these alternative theories may help us refine the established scientific theory. As Longino (2004, p. 138) argues, it is still valuable to exhaust all possible alternatives so as to be sure to settle on the correct theory.” (page 5) Larue illustrates this point further with a couple of examples. One example deals with how methodological individualists like myself (and most economists) can benefit from engaging with research programs that do not rely on methodological individualism: “Let me take another example. Suppose we agree that methodological individualism is the ‘good’ method for the social sciences, including economics. Methodological individualism is the view that ‘all social phenomena (their structure and their change) are in principle explicable only in terms of individuals – their properties, goals, beliefs’ (Elster, 1982, p. 453). Does it follow that we should ignore theories that reject that core methodological assumption? No. Competing theories may nevertheless have a fruitful role to play. They may be useful if they lead economists to study questions and problems that they would not have studied otherwise. For instance, the fact that Marx’s work is filled with Hegelian thoughts has not prevented Analytical Marxists, such as Roemer (1982) or Elster (1985), from analyzing his work with the tools of rational choice theory. Marx might have erred in many ways, and both Roemer and Elster agree on this. Nevertheless, analyzing his theory has allowed the development of a rich and fruitful literature, which may not share all of Marx’s methodological or normative commitments, but that may not have come into existence without Marx either (For a similar conclusion, see Elster, 2011a).” EconLog readers may be more skeptical of engaging with Karl Marx, even through the methodological individualist lens employed by Roemer and Elster. I would encourage such skeptical readers to read Michael Munger’s Independent Review article on the complementarities between public choice theory and Marx’s work. I would also point to my own EconLog post about how Austrian economists sparred with Marxists regarding imperialism. Even if the Marxists were wholly wrong about imperialism, their work challenged Austrians such as Mises and Schumpeter to offer a different explanation of these phenomena. Pluralism makes space for these kinds of challenges. If pluralism has these epistemic benefits, should we simply declare that anything goes? Should all theories and methods, no matter how fringe, be welcome in our economics departments? No, argues Larue. He suggests “some criteria to limit the scope of pluralism” (pg. 7).  What are these limits? Larue offers two criteria. “There are limits to pluralism. These limits pertain to the justification that economists can offer in defense of their choice of method or theory. More specifically, I argue that an economic method or theory is justified (that is, can be included within the pluralist scientific realm) if it fulfils two conditions. (1) First, there should be a community of practitioners sharing this method/theory. (2) Second, this community should be able to defend its methodological choices with reasons that are acceptable to other communities.” (pg. 7) How does Larue justify these criteria? He points to the epistemological benefits that a community of scholars (even heterodox scholars) provides by promoting some set of agreed upon methods. “I will define a community as a group of economists whose theories and methods commit to the same core assumptions (see Caldwell, 1988; Dow, 2004, pp. 277–280). The existence of a community has been generally praised for enabling internal peer criticism, or what Longino (2004, p. 134) calls ‘narrow criticism’, which is an important and uncontroversial condition of scientific rigor and a first check on pluralism (see also Borgerson, 2011; Longino, 1990, 2002). Inclusion into a community also provides each individual economist with a reassuring environment, made of well-entrenched methodological principles and shared beliefs about the world and the meaning of concepts (Dow, 2004, p. 288). Contrary to what some of its opponents might think, pluralism need not plunge economists into uncertainty. Within their community, they may make use of a unified framework and do not necessarily need to bother with complicated methodological decisions. Nevertheless, they should acknowledge that this might not be the only framework, and that other competing theories are also acceptable (De Langhe, 2010). So scientific communities have a double role to play. First, by stimulating internal criticism, they provide a first check on pluralism. Second, by providing a stable methodological framework for researchers, they can also help guarantee that the work of their members satisfies some standards of rigor and produces epistemological benefits of a kind that is well-regarded within the community. This is not enough, though. Each community should also be able to justify its choice of methods and theories with reasons that are acceptable to other communities, under the assumption that each community is open to listen to these justifications and accepts them as potentially compelling” (pg. 7). Scholarly communities, even those built around a heterodox approach, provide an environment for scientific training, debate, and quality control. Then these heterodox scientific communities put forth arguments and research contributions that can be contested by mainstream scholars. While agreement may not be reached, Larue argues that fruitful conversation can take place through appeals to shared epistemic values. “Kuhn (1977, p. 357) originally listed five such values (accuracy, consistency, simplicity, fruitfulness and broadness of scope) but wrote that the list is probably longer than that. He also acknowledged that there may be conflicts between these values (simplicity may restrict the scope of a theory, for instance). His point was that different theorists may diverge on a number of important issues, but generally all share the same dedication to these epistemic values.” In these respects, heterodox economists, whether we are Austrians at GMU or Marxists and post-Keynesians at the New School, differ from lone cranks. We engage within scientific communities, both our own heterodox communities and the broader scientific community whose epistemic values we appeal to. Larue’s defense of reasonable pluralism nicely complements works on science as a social process that emphasize the role of contestation in scientific discovery. These include Roger Koppl’s excellent book Expert Failure and Michael Polanyi’s classic “The Republic of Science.” I’m also reminded of Peter Boettke, Chris Coyne, and Pete Leeson’s article “Earw(h)ig: I Can’t Hear You Because Your Ideas Are Old.” Contrary to the Whig theory of intellectual history, which argues that the best ideas from the past have been incorporated into the current scientific core, Boettke, Leeson, and Coyne argue that “the market for ideas, while no doubt competitive in terms of scientific rivalry, is not free of distortions in the incentives and signals that guide economic scientists. As a result, ideas that are flawed can come to dominate the profession, while useful ideas are left on the proverbial sidewalk of intellectual affairs.” Looking to older ideas is therefore not merely an interesting exercise in intellectual history, it can be a way of finding routes not taken, insights from past theorists that mainstream economists have yet to fully appreciate. Science is a social process, in which flawed, fallible human beings make arguments and strive to better understand the world. Pluralism and contestation are one key part of how this process works. Science thrives on polycentricity and competition among different research groups, not on the hegemony of a mainstream consensus or the drab, dirty dishwater of the orthodoxy.   Nathan P. Goodman is a Postdoctoral Fellow in the Department of Economics at New York University. His research interests include defense and peace economics, self-governance, public choice, institutional analysis, and Austrian economics. (0 COMMENTS)

In a recent Wall Street Journal news story titled “New Climate, Tech Bills Expand Role of Government in Private Markets,” senior writer Jon Hilsenrath notes that with two recent bills, the Biden administration “has grown the federal government’s imprint on major sectors of the US economy—including semiconductors, energy, and health—and further buried the idea once widely held in Washington that private markets should be left alone, without government involvement.” Hilsenrath is correct that Biden has grown the federal government and he correctly identifies the domestic areas in which he has grown it the most. (I’m leaving out Biden’s “imprint” on foreign policy in Eastern Europe.) He’s also correct that Biden has further buried the idea that private markets should be left free of government intervention. But is he right that the idea of refraining from intervening in free markets was “once widely held in Washington”? If “once” referred to, say, the first decade of the twentieth century, he might have had a point, although even then we were well into the Progressive era. But Hilsenrath is referring to the 1980s and 1990s. While the rhetoric in the 1980s and 1990s was more pro–free market, the follow-through was tepid. Government grew in the 1980s and 1990s also, but just more slowly than it did under Bush II, Obama, and Trump. I’ve followed Hilsenrath’s reporting in the Journal for many years. He has traditionally been good at sticking to facts, although now, as a senior correspondent rather than a reporter, he gets to put more of his interpretation on the facts. And in this article, that’s where he gets into trouble. This is from David R. Henderson, “Rhetoric Aside, ‘Big Government’ Only Gets Bigger,” Defining Ideas, August 25, 2022. Hilsenrath’s absence of evidence: Consider Hilsenrath’s evidence for his claim that the idea of leaving private markets alone was widely held in Washington in the 1980s and 1990s. It consists of only three pieces of evidence. First, Milton Friedman’s case for small government was “taken up by Mr. Reagan and the Republican Party.” Second, Friedman’s case was embraced by middle-of-the-road Democrats, including Bill Clinton. Third, Clinton “declared in a 1996 State of the Union address that the era of big government was over.” That’s it. That’s his evidence. What’s missing? Any evidence that politicians in Washington, either in the 1980s or in the 1990s, actually followed through on those views. If a bank robber told us yesterday that he had reformed but a camera caught him stealing from a bank today, we would say that he hadn’t reformed. Similarly, to make the case a view was embraced, you need to show evidence that the “embracers” acted on it. Hilsenrath doesn’t. He doesn’t even try. Read the whole thing.   (0 COMMENTS)

A friend on Facebook, Stanley Ridgley, posted this this morning: Congrats to everyone who didn’t have college debt. Now you do. A nice succinct statement of the problem with Joe Biden’s latest move: making people who didn’t take on debt for college or paid it off pay for those who haven’t paid off their college debt. Re the legality of Biden’s move, I find myself in the rare situation of agreeing with Nancy Pelosi, at least the Nancy Pelosi of July 2021. It’s illegal. (0 COMMENTS)

American Compass’s Oren Cass recently had a piece – co-authored with his colleague Chris Griswold – in the New York Times that I just got around to reading. In it, they advise Republicans on what policies to push if the GOP wins big in November. But it’s the following passage that especially caught my eye: Our organization, American Compass, has been developing a conservative agenda that supplants blind faith in free markets with policies focused on workers and their families.  Accusing proponents of free markets of being motivated by “blind faith” is a good soundbite. But with all due respect, it’s also a load of baloney. Those of us who support free markets are not remotely under the spell of blind faith. We have a well-worked out theory, with lots of history and empirical research to back it up- of how innovation is spurred, and resources are allocated efficiently by market prices. (Among the many works that give intellectual credence to support for competitive market processes are Hayek’s “Use of Knowledge in Society” paper, the economics of Armen Alchian, and the historical and theoretical works of Deirdre McCloskey. The empirical literature that shows that economic freedom is key to promoting all the major aspects of life we want like growth, better education, a lift out of poverty, a decline in crime, and more. As long as consumers spend, and investors invest, their own money and are allowed to keep the bulk of the gains of good decisions while suffering the losses of poor decisions, resources tend be released from less productive uses in order to be reallocated to more productive uses. At the very least, the competitive market process allocates resources better than does a system in which politicians and bureaucrats – spending other people’s money – override the market’s allocation with various forms of subsidies, restrictive licensing, and protective tariffs. National-security concerns might justify narrowly targeted restraints on competitive markets, but Cass and Griswold were writing here about how to improve the economy, not about how to strengthen national defense. No offense, but those who truly rely upon blind faith are industrial-policy supporters such as Cass and Griswold who continue to assert that, in the face of lots of evidence to the contrary, government officials can allocate resources better than can the price system. At the very least, unless and until they explain just how politicians and bureaucrats will get and use the knowledge that markets get and use with remarkable success each moment of each day, and how to prevent the fiascos and cronyism produced by past attempts at industrial policy, Cass and Griswold have shouldn’t accuse people other than their fellow supporters of industrial policy of being guided by blind faith.   Veronique de Rugy is a Senior research fellow at the Mercatus Center and syndicated columnist at Creators. (0 COMMENTS)

Communism is an idea. Ideas do not kill people; people kill people. Stalin, Hitler, and Mao killed millions in the name of, and to further, their respective utopian ideas.  Such ideas are inherently deadly.  They instill a religious fervor in their followers because they are attempting to create their notion of “heaven on earth.”  Anyone who gets in the way of “heaven” is denying future generations inestimable good and is therefore evil and can be slaughtered with no qualms. As German philosopher Friedrich Hölderlin observed, “What has always made the state a hell on earth has been precisely that man has tried to make it heaven.”   Socialism prevents corporate monopolies from forming. Why is it that monopoly by corporations – which must satisfy their customers to survive – is bad, while monopoly by government – which can use deadly force to survive – is good? Without government intervention, a company can maintain a dominant market position only by satisfying its customers well enough to discourage competitors.   Goods are distributed fairly under Socialism. Probably not. The issue is one of incentives. What incentives do the following economic actors have? Producers of goods being confiscated for redistribution Government personnel doing the confiscation Government personnel doing the redistribution People receiving redistributed goods Producers want to minimize their losses, so their incentives are to: Hide some or all of what they’ve produced. Produce less. Bribe the people trying to confiscate the fruits of their labor. The people doing the confiscation are just as “human” as anyone else and just as subject to temptation. They want to increase their own material well-being and that of their families and loved ones. So, their incentives are to: Confiscate more than is required so they can “skim off the top”. Accept bribes from people trying to keep their goods. The people redistributing the goods also want to improve their well-being, so their incentives are to: Skim off the top. Accept bribes from people who wish to receive confiscated goods. Always have goods available for important people (i.e., people who can affect their well-being), so they tend to… Skimp on the goods given to “non-important” people. The people receiving goods have incentives to: Exaggerate their needs. Bribe the people who are redistributing the goods. Obtain whatever goods they can; even things that they don’t need can be sold or exchanged on the black market.   Real socialism has never been tried. True, if by “real socialism” you mean “perfect socialism.”  By the same token, “perfect capitalism” has never been tried either. Because people are imperfect, perfect societies aren’t an option. What we’ve found through experience, though, is that imperfect capitalism works quite well – well enough to pull billions of people out of poverty.  By contrast, imperfect socialism always fails miserably and, often, fatally. The claim that real socialism has never been tried depends largely on the definition of socialism. Certainly, many forms of socialism have been tried in the last two centuries – both on large and small scales. Although Senator Bernie Sanders enthusiastically supported Venezuelan socialism until the country’s economy collapsed, he claims that what he’s wanted all along is the kind of “socialism” practiced in the Scandinavian countries. But none of the Scandinavian countries are socialist.  All are capitalist welfare states that, in many respects, regulate business more lightly than does the United States. Congresswoman Alexandria Ocasio-Cortez is a member of the Democratic Socialists of America, which claims to be the “largest socialist organization in the United States” and which supports the Maduro dictatorship.  Article II of the DSA’s constitution reads in part: We are socialists because we share a vision of a humane social order based on popular control of resources and production, economic planning, equitable distribution, feminism, racial equality, and non-oppressive relationships. [emphasis added] The highlighted text is far more in line with the Venezuelan, Soviet, Cuban, and North Korean regimes’ brand of economics than with that of any of the Scandinavian countries.   Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource. (0 COMMENTS)

Three recent articles in The Economist and in Reason suggest that the typical Republican and the typical Democrat hate each other more and more at the same time as they are becoming more and more similar. In the first article, The Economist reports on Pew Research Center surveys revealing that Republicans and Democrats have increasingly demonized individuals of the other group (“How Democrats and Republicans See Each Other,” The Economist, August 17, 2022): A survey of American adults conducted between June 27th and July 4th by the Pew Research Centre, a think-tank, found that 62% of Republicans have a very unfavourable view of Democrats, up from 21% in 1994. The share of Democrats with similar views of Republicans has increased from 17% to 54% during the same period. … Americans are increasingly willing to not only express their disapproval of members of the other party, but to assign them negative personality traits. According to Pew, large majorities of Democrats and Republicans now regard those in the opposing party as closed-minded, dishonest and immoral. … Roughly half of each group says that members of the other party are less intelligent. The second article is an impressive piece by Stephanie Slade, “Both Left and Right Are Converging on Authoritarianism” in the October 2022 issue of Reason. Slade documents how Republicans and Democrats are increasingly converging on the desirability of using the power of the state to intervene in the economy and in individual choices.  Just consider that both parties have become more protectionist and more tempted by industrial policy. Or consider how both want to control free speech, the Democrats by pushing social media companies to exert private censorship, the Republicans by preventing them from doing so (Florida governor Ron DeSantis is a beautiful example of the latter). Slade writes: This is what feels most broken in our politics. It’s not the ways left and right are further apart than ever; it’s the ways they’re closer together. The third article, in the current issue of The Economist, argues that, as its title indicate, “Republicans Are Falling Out of Love With America Inc.” (issue dated August 25, 2022). A few highlights: Mr Vance [backed by Trump to replace Ohio Senator Rob Portman] calls big technology firms “enemies of Western civilisation” and casts elite managers as part of “the regime”, with interests anathema to those of America’s heartland. … Executives and lobbyists interviewed by The Economist, speaking on condition of anonymity, described Republicans as becoming more hostile in both tone and, increasingly, substance. … Long-held right-of-centre orthodoxies—in favour of free trade and competition, against industrial policy—are in flux. … [Senator Marco Rubio (R-FL)] has backed the formation of workers’ councils at companies, an alternative to unions. In March Tom Cotton of Arkansas called for Americans to “reject the ideology of globalism” by curbing immigration, banning some American investments in China and suggesting Congress should “punish offshoring to China”. Republicans in Congress have co sponsored several bills with Democrats to rein in big tech. Mr Vance … has proposed raising taxes on companies that move jobs abroad. … These days, worries a business grandee, both parties see it as “acceptable to use state power to get private entities to conform to their viewpoints”. … Senator Ted Cruz of Texas has blamed Larry Fink, BlackRock’s boss, for high petrol prices. … Companies are adjusting to this new, more volatile political reality. Some are creating formal processes for reviewing the risks of speaking out on social issues that may provoke a political backlash, including from Republicans. … So far this year corporate PACs have funnelled 54% of their campaign donations to Republicans, down from 63% in 2012. How can the individuals of each party hate their fellow citizens of the other party more and more while the two parties are coming closer ideologically? The reason is that their ideologies are essentially two shades of political authoritarianism. Each group wants to coercively impose its preferences on individuals of the other group, to restrict the latter’s liberty. It’s only what exactly they want to impose on others that is different. Slade expresses the same idea: The two camps, of course, have different substantive moral visions for the society they wish to construct. But each views a broad conception of individual liberty as a barrier to achieving that vision. She also mentions a study that looks more encouraging: The American Aspirations Index, a study released last year that used survey research to rank Americans’ priorities for the future of the country, tested 55 “national aspirations.” … For all the sense that Americans are further apart than ever, guaranteeing that “people have individual rights” emerged as the No. 1 answer for every demographic group, regardless of age, ethnicity, urbanity, gender, and education level. Is this optimism justified? Casual observation suggests that when Americans are asked precise questions, instead of being polled on general statements of principles, a surprising proportion show clear authoritarian tendencies (although not as much as people in some other countries). An Ipsos poll of four years ago asked Americans if “the president should have the authority to close news outlets engaged in bad behavior.” Although a bare majority of 53% of the total sample disagreed, fully 26% agreed—43% among Republicans agree and 12% among Democrats. Moreover, The Economist shows, perhaps unwittingly, how the Republicans, to start with, were not, or not much, in favor or free markets, where consumers are sovereign and producers, if they want to make money, compete to sell them what they want. What they favored were rather corporate interests, which just happened to support the free market when they were not too much protected against domestic or foreign competition. The Economist writes: In the words of an executive at a big financial firm, “We expect Democrats to hate us.” What is new is disdain from those on the right. There used to be a time, one lobbyist recalls with nostalgia, when “you would walk into a Republican office with a company and the question would be, ‘How can I help you?’” In stark contrast to the “road to serfdom” on which both the Republican and Democratic tribes are pushing the country, the (classical) liberal vision and a large part of the libertarian beliefs want each individual to be free to think and live as he wants, within the confines of minimal, general, and impersonal laws that apply equally to everybody (including the politicians and bureaucrats, of course). (0 COMMENTS)

What is it that you do to practice on an almost everyday basis, that is akin to how a classical concert pianist would practice scales? How can you get others to notice this talent you hone- especially one who might fund your talent? In this episode, EconTalk host Russ Roberts welcomes back Tyler Cowen to talk about his new book Talent, co-authored with Daniel Gross. The conversation also highlights Cowen’s new VC-esque project, Emergent Ventures, though which Cowen is seeking not just talent, but transformational talent. Along the way, Cowen describes his unconventional interviewing process, what he looks for in a grant recipient, and why he thinks knowing how many tabs are open on your computer might be the best indicator of interest.     1- Roberts and Cowen agree that finding talent is more an art than a science, but how does Cowen define  it? Why is the question of what and how much someone practices of such importance to Cowen?   2- Cowen and Roberts spend a good bit of time discussing the emotional side of interviewing, and Cowen’s own idiosyncratic style of “unstructured” interviews. To what extent are interviews overrated today? What makes someone a good interview for Cowen? (And perhaps of most interest, who amongst YOU wants to be the next Russ Roberts??? We’ll need to set up a Zoom…)   3- Is meritocracy- out of fashion in 2022? Do we overrate credentials in modern economies? When Cowen says of credentialism, “it’s a barrier to minorities,  a barrier to women who had children earlier, who had children at the wrong time, or who left school to raise families. And, it’s one of the worst things we do in American society,” what does he mean? To what extent do you think this is true?   4- What’s the difference between stamina and grit for Cowen, and why might stamina be a negative characteristic?   5- Cornucopia question; take your pick: What do confession and therapy have in common? How can Zoom interviews sometimes be better than in-person interviews? How is status different in Zoom than in person? How much does humor correlate with success?     (0 COMMENTS)