Most of us would be appalled by the lack of consumer choice in the old Soviet Union.  We like walking into a big grocery store and seeing many options to choose from.  But is more choice always good? Suppose there were many systems of weights and measures in our daily life.  You drive down the street and choose between gas stations that sell gas by the gallon  and those that use quarts or pints.  A few even use liters.  That would be quite confusing.  Because of “network effects”, we generally prefer a single unit of measurement. Similarly, the unit of account is a way of measuring value.  One could imagine some gas stations pricing their product in terms of Citibank dollars, while others used JP Morgan dollars or Wells Fargo dollars.  But if the exchange rate between these various currencies fluctuated from day to day, then there would be multiple units of account, which would be pretty confusing. On the other hand, that sort of competition in currency would present no problem at all if the economy had a single unit of account, and all the competing private currencies were backed by a common medium of account (something like gold or Federal Reserve Notes.)  In that case, gas stations might accept any of the reputable competing currencies, just as they accept multiple credit cards. When discussing monetary reform possibilities with libertarians, I am often frustrated by people conflating multiple media of exchange (the free banking debate) and multiple units of account (the monetary standard debate.)  There’s no problem at all with competing media of exchange.  In contrast, competing units of account seems so unlikely as to be hardly worth considering.  (Countries with hyperinflation are a different story; they often have competing units of account. But that’s not a good sign!) To be clear, I believe that people should be free to offer competing media of account.  Let 1000 Bitcoins bloom.  Because of network effects, however, I see it as overwhelmingly likely that a single medium of account will win out in the competition to become the unit of account in the US.  Life is short, and I don’t plan on wasting lots of time thinking about hypothetical economies with multiple units of account. If I’m right, then we need to think about what sort of media of account is best.  Over its history, the US has had one official unit of account (the US dollar) and two types of media of account (initially it was commodities like gold and silver, and more recently fiat base money.)  Going back to gold as the medium of account is an option, albeit not a wise option in my view.  Silver might be slightly less bad.  (BTW, the US going back to gold would not restore the classical gold standard.) Is laissez-faire an option?  Not immediately.  There is trillions in US dollar base money out in circulation—some sort of decision must be made.  You could legalize counterfeiting.  That’s a decision.  You could freeze the monetary base and allow private banknotes—that’s a decision.  You could go back to the gold standard at 1/2000 oz. per dollar—that’s a decision.  But it’s sheer fantasy to think that from this position in history we could simply move to laissez faire, abolish the Fed, and let the market decide on a new medium of account.  People who speak of “ripping off the band-aid” have no idea how much blood would flow.  You may not care about the value of the US dollar, but people who have their life saving in that currency have a lot at stake.  And that’s equally true even if it the initial decision to move from gold to fiat money was a mistake. Smaller countries such as Canada have more options.  If the Bank of Canada decided to fold up shop it might agree to exchange all Canadian base money for foreign currency.  In that case, Canadians would probably adopt the US dollar.  But that doesn’t eliminate the need for thoughtful monetary policy; it simply outsources the decision of how to manage the medium of account to the US. As a practical matter, the future status of America’s medium of account is a decision that will be made by the US government.  There is no plausible alternative. My preference is for a system of NGDP targeting, where market forces determine the money supply and interest rates.   But even in that case the NGDP target would be set by the government.  If we go back to gold, that’s a decision that would be made by the government. Commenters have provided lots of counterarguments, but none of them amount to anything much beyond: Assume a libertarian paradise where a freely chosen monetary regime magically appears. If only things were that simple. PS. Surprisingly, America once had a Morgan dollar.  Here’s what it looked like:   (0 COMMENTS)

Do we kid ourselves about the reality of seeing patterns in our experiences? Are our assumptions about our ability to transfer knowledge from one circumstance to another more tenuous than we believe? Michael Blastland, author of The Hidden Half: The Unseen Factors that Influence Everything, engages in a discussion with host Russ Roberts in this episode about the reality of how much we don’t know, and the importance of knowing that we don’t know. Overconfidence by experts in development aid initiatives like “new” toilets in India has led to counterproductive outcomes, while other “fixes” have been disastrous. Perhaps you’ll reflect with us about how our own understanding is often imperfect, and why this also keeps life exciting!  We would love to hear your thoughts.      1- Have you faced a recent challenge to a personally settled presumption that is based on a worldview? Was it difficult to realize you were wrong? Explain.   2- In his story about the genetics and environment experiment with crayfish in Germany, how does Blastland conclude that a third cause makes up the hidden half?  If science misses the recognition of a “vast range of uncertainty because it is unpredictable”, should the book title be changed to the Hidden three-quarters or more?   3- What point does Roberts make regarding the difference in Blastand’s hidden half view of randomness and F.A Hayek’s view about the multitude of variations in behavior in The Pretence of Knowledge?     4- The probability studies of medicine efficacy don’t inform us about how medicines might work or don’t work on an individual. What are other examples of how we are prone to confuse probability outcomes with individual outcomes?   5- Nobel Prize winner Esther Duflo emphasized that the knowledge of contextual details is as important as the grand idea in economic development. How do the stories of aid disruptions further complicate the weakest link theory?   (0 COMMENTS)

A Texas civil court found that Alex Jones defamed the parents of a young child killed in the 2012 Sandy Hook massacre. He was ordered to pay $49 million in damages, including punitive damages. Among others, Jones had been claiming that the massacre was a hoax, a government-staged fake shooting. Let’s consider some social consequences of the sort of conspiracy theorists that Jones represents—what we might call, at a very elementary level, the political economy of the Alex-Joneses. What I say below should not be interpreted as an argument in favor of defamation laws, nor as an argument against economic progress. For nearly all the history of mankind, an individual handicapped by social illiteracy or limited cognitive abilities could only earn his keep by, at best, being a bottom-level manual worker (which is of course honorable) or a beggar or, at worst, a peddler of snake oil or a petty criminal. Economic progress and the reduction of communication costs have greatly increased the capability of such individuals to act and have an influence in the social world. The reduction of communication costs has extraordinarily expanded the availability of information. Much of it is available online and is formally free of charge. But the cost of discriminating among information bits has not decreased in the same proportion. One still needs some research time and previously accumulated knowledge to determine where the truth lies in pieces of information broadcasted by, say, Alex Jones, Paul Krugman, the Census Bureau, or the Wall Street Journal. The mere fact that there is quantitatively more available information means that, ceteris paribus, the cost of sifting through it has increased. At virtually no cost to them, conspiracy theorists throw at their audience a swarm of troubling or intriguing little facts (see what was the most popular conspiracy video on Sandy Hook), most of which are false or tendentiously interpreted. Most if not all of these little facts could be checked, albeit often at high cost (travel, for example), and there is always another ad hoc explanation that can be invoked to save the conspiracy. Anybody with a connection to the internet and a cheap smartphone can access that. According to some estimates, one fourth of Americans came to believe that Sandy Hook, where 10 young children and 6 adults were killed, was a government-organized hoax. Such propaganda relies on the technique of the “firehose of falsehoods” mentioned by Financial Times columnist Gideon Rachman in his recent book The Age of the Strongman (Other Press, 2022); I am reviewing this book in the Fall issue of Regulation, forthcoming next month). Rachman writes: Vladimir Putin and his propagandists established the technique of a “firehose of falsehoods” as a fundamental political tool. The idea is to throw out so many different conspiracy theories and “alternative facts” (to use the phrase of Trump’s aide, Kellyanne Conway) that the truth simply becomes one version of events among many. Not only do conspiracy theorists incur low costs, but they can make handsome profits if, like Jones, they have gullible followers anxious to buy physical snake oil. When I visited Jones’s Infowars site two days ago, the special deal was a “combo pack” of two bottles, “Survival Shield X2” and “Super Male Vitality,” at 40% off. For such ventures, the cost of marketing has gone down with the cost of communications—although, on the other hand, competition has become fiercer. Besides the spreading of implausible falsehoods, another consequence of the Alex-Joneses of this world is that they compromise serious ideas by claiming to be their defenders. Alex Jones and his ilk have given Judas kisses to a few libertarian (and classical liberal) causes. His company is called “Free Speech Systems.” He claimed that the Sandy Hook hoax was organized by dark government forces because they want “to get our guns.” Some people have such strong opinions that they are unable to imagine they could be false. If their opinions are obviously and necessarily true, anything consistent with them or implied by them might have happened, including conspiracies to suppress them. “Might have happened”? If we ignore logic, they must have happened. From there, it is not too difficult to ferret out strange factoids to support the conspiracy or to invent facts that must have occurred. I have explained in other posts how economic analysis strongly suggests that the typical “conspiracy theory” is invalid. See my “Epistemology, Economics, and Conspiracies” (EconLog, December 3, 2020) and its two links to previous posts of mine; and also “A Disreputable Fringe” (EconLog, August 2018), partly about Alex Jones. Of course, some low-level conspiracies with little risk involved happen all the time and we must keep a critical mind. The solution cannot be to silence the Alex-Joneses, because distinguishing brilliant eccentrics and innovators from fools cannot be trusted to anybody. Only a free market in ideas can ultimately separate the grain from the shaft. Trusting political authorities to separate falsehoods and true statements may turn out into trusting fools. (In America and elsewhere, we have had some recent experience with that.) The minimum knowledge necessary to discern obvious falsehoods puts in sharp focus the classical-liberal argument that some level of schooling is necessary in a liberal or democratic society. Friedrich Hayek, for example, wrote (in his 1976 “The Mirage of Social Justice,” Vol 2 of Law, Legislation, and Liberty in the new Jeremy Shearmur edition, p. 285): There is also much to be said in favour of the government providing on an equal basis the means for the schooling of minors who are not yet fully responsible citizens, even though there are grave doubts whether we ought to allow government to administer them. Education helps to acquire the ability to recognize what one does not know and to learn some intellectual humility—or at least we can hope so. To know what it is that you don’t know is a tricky department of knowledge. One aspect of the complex problem was described by James Buchanan (pp. 16-17): “the person who qualifies for membership in the stylized order of classical liberalism,” he believes, must have either an understanding of simple principles [of social interaction] or a willingness to defer to others who do understand. (0 COMMENTS)

Back in 2019, entrepreneur Nick Hanauer gave a Ted Talk called “The Dirty Secret of Capitalism – And a New Way Forward.” Recently, a quote from the talk (which starts at the 14:53 mark of the linked video) has been making its way around social media.  Hanauer says: “Unlike the laws of physics, the laws of economics are a choice.  Neoliberal economic theory has sold itself to you as unchangeable natural law, but in fact it is social norms based on pseudoscience.  If we want a new economics, all we have to do is choose it.” This statement by Hanauer is confused.  He conflates three very different things: 1) economic laws, 2) economic theory, and 3) social norms.  Theories are distinct from laws.  Different theories can use the same laws to arrive at different outcomes.  For example, both socialist and liberal economic theory accept the validity of the Law of Demand (which he bizarrely calls “equilibrium” at the 4:30 mark), but the theories contain different assumptions.  Economic laws derive from the problem of scarcity, just like many physical laws derive from conditions of the physical world.  We can no more choose to do away with scarcity than we can choose to do away with gravity. Then, he dismisses what he calls “neoliberal economic theory” as “social norms based on pseudoscience.”  But all science is, to some extent, based on social norms.  Science is a process done by humans who exist within larger professional and societal institutional frameworks.  Those, in turn, all have their own societal norms which influence behavior. In the video he is trying to argue that “neoliberal economic theory” is attempting to impose social norms onto a group.  Perhaps, but again, any theory that becomes policy is doing the same thing.  COVID-19 policy, for example, attempted to impose many social norms onto groups including (but not limited do) constant masking, social distancing, and following technocratic advice without question.  So, it’s not clear why he thinks “neoliberal economic theory” is any different.  To the extent that “neoliberal economic theory” is a theory, then it is not attempting to impose social norms onto a group, but rather explain what is; social norms are generally taken as given. There is a lot to criticize in Hanauer’s talk. The talk is very confused and he makes very basic mistakes.  But I want to end with praise.  In one of the few items he gets conceptually correct, Hanauer criticizes modern economic theory’s over-reliance on utility maximization.  Classical liberal economics, from Adam Smith in 1776 through Friedrich Hayek, James Buchanan, Deirdre McCloskey, and my teachers at GMU have been arguing against strict utility maximizing and more “sympathetic” behavioral explanations of human behavior.  One of the virtues of free market economics is that it treats people as people rather than mindless utility maximizers who simply respond predictably and unerringly to incentives.  I agree with Hanauer that economics should refocus along virtuous behavior and social behaviors.  But that means embracing liberal economics and capitalism, not rejecting it.   Jon Murphy received his PhD in economics from George Mason University and is an Instructor at Western Carolina University. (0 COMMENTS)

Communism worked very well for the early Christians (Acts 2: 44–45). The early Christians shared their worldly possessions voluntarily. Communists and socialists take other people’s possessions by force. As Winston Churchill once quipped, “The Socialism of the Christian era was based on the idea that ‘all mine is yours,’ but the Socialism of [today] is based on the idea that ‘all yours is mine.’” In the parable of the good Samaritan, the Samaritan freely chose to use his own time and resources to help the injured man. He did not vote to force other people to do it in his stead. Like progressives, libertarians believe in helping other people. Unlike progressives, we believe that compassion should be voluntary and not coerced.   Karl Marx got his definition of economic justice (‘from each according to his abilities; to each according to his needs’) from the Bible. Socialists say they want an economy based on the rule: “From each according to his ability, to each according to his need.” The incentives under such a system are to demonstrate minimum ability and maximum need. In a free market, people produce according to their ability and are rewarded in proportion to the benefits they provide to other people – as judged by those people. The incentive, therefore, is to produce what others want at prices they are willing and able to pay. Supporters of government control often admit that free markets deliver the goods, but argue that governments distribute them more fairly. They point to people who, because of age or disability, are incapable of producing anything. The government must control the economy, they claim, so that it can redistribute goods to these few. But rewarding need yields more of it, adding those who will not produce to those who cannot. And taxing demonstrated ability yields less ability demonstrated. Need, which socialism claims to address, can therefore only grow under socialism. By contrast, under the free market, need does not pay, production does, so production grows and need declines. The choice between government control and the free market is the choice between government coercively combating growing need amid growing poverty and individuals voluntarily combatting shrinking need amid growing wealth.   Socialism redistributes the wealth, making society more just. Justice means to give to each what is her due – what she has earned. Redistribution gives to some what is due to others – the opposite of justice. As economist Thomas Sowell asked, “What is your ‘fair share’ of what someone else has worked for?   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)

Communism worked very well for the early Christians (Acts 2: 44–45). The early Christians shared their worldly possessions voluntarily. Communists and socialists take other people’s possessions by force. As Winston Churchill once quipped, “The Socialism of the Christian era was based on the idea that ‘all mine is yours,’ but the Socialism of [today] is based on the idea that ‘all yours is mine.’” In the parable of the good Samaritan, the Samaritan freely chose to use his own time and resources to help the injured man. He did not vote to force other people to do it in his stead. Like progressives, libertarians believe in helping other people. Unlike progressives, we believe that compassion should be voluntary and not coerced.   Karl Marx got his definition of economic justice (‘from each according to his abilities; to each according to his needs’) from the Bible. Socialists say they want an economy based on the rule: “From each according to his ability, to each according to his need.” The incentives under such a system are to demonstrate minimum ability and maximum need. In a free market, people produce according to their ability and are rewarded in proportion to the benefits they provide to other people – as judged by those people. The incentive, therefore, is to produce what others want at prices they are willing and able to pay. Supporters of government control often admit that free markets deliver the goods, but argue that governments distribute them more fairly. They point to people who, because of age or disability, are incapable of producing anything. The government must control the economy, they claim, so that it can redistribute goods to these few. But rewarding need yields more of it, adding those who will not produce to those who cannot. And taxing demonstrated ability yields less ability demonstrated. Need, which socialism claims to address, can therefore only grow under socialism. By contrast, under the free market, need does not pay, production does, so production grows and need declines. The choice between government control and the free market is the choice between government coercively combating growing need amid growing poverty and individuals voluntarily combatting shrinking need amid growing wealth.   Socialism redistributes the wealth, making society more just. Justice means to give to each what is her due – what she has earned. Redistribution gives to some what is due to others – the opposite of justice. As economist Thomas Sowell asked, “What is your ‘fair share’ of what someone else has worked for?   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)

In a comment on my most recent post, co-blogger Scott Sumner makes a good point: Ricardian equivalence should probably be called “Barro equivalence”, as the economics profession generally names concepts after their modern (re)discoverer. That reminds me of another fun story. Background: Barro’s article rediscovering Ricardian equivalence was in the Journal of Political Economy in 1974. (He didn’t mention Ricardo in his article.) I had my head down that year, starting to work on my Ph.D. dissertation and so I completely missed it. I did know of Barro because we had read some work by Barro and Grossman in my macro classes at UCLA. He and Grossman wrote those pieces when, I think, Barro could arguably be called a Keynesian. In June 1975, I was invited to my first Liberty Fund colloquium. Svetozar Pejovich organized it at Ohio University in Athens, Ohio, and I attended. There were a number of economists there whom I regarded as economic stars. Because of the story I’m about to relate, I won’t give the name of the particular economic star. One Liberty Fund rule is the Chatham House rule, which says that you’re not allowed to report on something someone else said without that person’s consent. Call this person “X.” In a discussion about deficits, X, kind of out of the blue, criticized Bob Barro for that article, saying he was reinventing the wheel. (Bob Barro wasn’t one of the participants.) He then explained to the group pretty well what the article said and seemed to be critical of two things: (1) Barro’s reinventing the wheel and (2) the actual point Barro, and Ricardo, had made. I didn’t get this guy’s point, so I did what I always do in such circumstances: asked a question. “X,” I said, “I’m trying to figure out your criticism: is it that Barro reinvented the wheel or is it that the wheel isn’t round?” I can’t remember getting a clear answer but I think it was basically that the wheel wasn’t all that round. Fast forward to September 1975, when I arrived at the University of Rochester as an assistant professor in the Graduate School of Management (now the Simon School.) The president of the university, Robert Sproul, had a really nice reception and dinner for all the new hires across campus. I found myself sitting at the same table as Bob Barro. He had arrived at the economics department as, if I recall correctly,  an associate professor with tenure. So I told him the story without telling the question I asked. Then, I said, I asked X “is the wheel round?” Barro laughed out loud. We later became close and I’ve always enjoyed his laugh. By the way, here are some fun reminiscences by Barro about his 1974 article. And here is my biography of Ricardo in David R. Henderson, ed., The Concise Encyclopedia of Economics. (0 COMMENTS)

I rarely think of the Internal Revenue Service as a “service:” when it takes my money, I don’t think the agency is serving me. But in this case, it really did perform a service: It reminded us of who its agents are and of the fact that they are willing to use deadly force “if necessary.” Various other commenters have noted that this is not something new. For many years, the IRS has had about 2,000 agents who carry guns and are willing to use deadly force. I knew that. Maybe you knew that. But a lot of people probably didn’t. This is from my latest TaxBytes piece for the Institute for Policy Innovation. It’s titled, “The IRS Shows Its Guns,” IPI, August 17, 2022. Read the whole thing, which is very short. (0 COMMENTS)

We’ve all been super excited waiting for the release of EconTalk host Russ Roberts’ new book, Wild Problems. It’s now out, and both I and Russ hope you all choose to read it! (How else will you catch the chapter on Bill Bellichick?!?!?) This episode is icing on the cake, as Russ brings back Mike Munger- this time to interview him!. (P.S. Many other interviews with Russ are now available. Here’s a link to the one he did recently with Tim Ferriss.) What are wild problems? The big ones. The decisions where data doesn’t matter, where cost-benefit analysis can be misleading. This has been a challenging kind of problem for Roberts to acknowledge, given his early Chicago-school training. (Don’t miss the part at the end when Munger asks him when he stopped being an economist!) Today, Roberts worries that our apparent obsession with “life hacks” may distract us from the important questions that make life worth living. How’s your  quest for a well-lived life coming along? Use the prompts below to help us continue the conversation.     1- Roberts and Munger compare the approach of scholars like Milton Friedman and Gary Becker with that of Frank Knight and James Buchanan. According to Munger, what is the difference between the process of becoming and the process of deciding, and how has this distinction come to  shape the way Roberts thinks about wild problems? (And just for fun- how does this also relate to the decision to become a vampire?)   2- About 10 minutes in, Munger and Roberts discuss the pool problem posed by Daniel Gilbert. Why does Munger insist Gilbert’s conclusion is wrong, and to what extent do you agree? What about Roberts’ implicit borrowed claim about the unexamined life not being worth living… should you teach this to your children? (Think again about the pool… would you rather your children be happy for 23 hours and miserable for one, or the reverse?) Are today’s wild problems harder than they were in the past?   3- What is the Secretary Problem, and how does it relate to the problem of finding a life mate? Related, what’s wrong with the way scholars of decision theory think about making these kinds of decisions? Have you ever tried to apply “rational” decision-making to a wild problem (or vice versa)? If so, we’d like to hear how it went!   4- What does it mean to “privilege your principles?” How might someone cultivate being the sort of person that privileges their principles?   5- Consider the story Russ tells about finding a wallet in San Francisco and the one Mike tells about his recent fender bender in the university parking lot. Why do you think each made the choice they did? How much cost was borne in each story? In other words, how costly does virtue need to be to qualify as virtue?     (0 COMMENTS)

In the comment sections to various posts, I see lots of ideas being conflated. Here I’d like to separate out some distinction policy questions:1. Should the value of the medium of account be stabilized in terms of gold or NGDP? Or should its quantity be fixed?2. Should the monetary system be determined by the government or the private sector?3. Should banking be regulated, or should we allow free banking?In my view, these are three completely unrelated questions. Any of the 12 possible combinations are at least theoretically feasible. I make this point because people will say things that make no sense to me, such as that they oppose NGDP targeting because they favor free banking. Or that they want to abolish the Fed because they favor a gold standard. Huh?Here are some feasible systems:The monetary authority (public or private) might do nothing more than define the US dollar as 1/2000 ounces of gold. Or it might define the dollar as 1/20,000,000,000,000th of NGDP, as measured by an NGDP futures contract. Or it might fix the monetary base at a constant level. None of those options are any more libertarian than the other two. In each case, you either artificially fix the value of the dollar or you artificially fix the quantity of dollars.  Any of those three systems could in principle be done by either the government or the private sector. So that makes six possible combinations.And for each of those six possible combinations, you could either regulate the banking system (our current system), or allow a completely unregulated free banking system, even allowing banks to issue banknotes to be used as currency.FWIW, my own preference is to have NGDP targeting, done by the government, combined with a 100% unregulated free banking system. But even if you don’t agree with me, try to keep the issues separate. The role of the government in monetary policy is one thing. The price or quantity of the medium of account is another thing. And the status of commercial banking regulation is a third thing. (0 COMMENTS)