If you ask a good freshman student in Economics 101 what is the cause of a shortage, you will get a quick answer, almost but not quite by rote: demand is greater than supply and for some reason, price has not risen so as to stop the shortage. That is it. That is it in a nutshell. Not much more need be said: shortages are caused by prices being too low. End of story. This semi-automatic answer emanating from basic economics, however, has eluded a bunch of economists who really ought to know better. They ought to know better since they have advanced degrees in this subject. What is the question they were facing? It was: why is there a labor shortage? They correctly rejected COVID as a causal agent, but instead have resorted to demographics as an explanation: the baby boomers are retiring en masse, and leaving job slots unfulfilled. For example, according to a CBC analysis of the problem: “Boomers are exiting the workforce in droves, leaving more job vacancies than there are people to fill them.” Instead of pointing to wages (the price of hiring workers) not rising, these economists are looking at demographics. Here is the CBC’s summary of its survey of Canadian economists: “The reason isn’t that there are fewer jobs opening up — remember the help wanted signs? It’s that there are fewer workers available to fill them. And the reason for that, economists say, can be traced back to the post-war baby boom.” But this has been predicted for years. It has been widely recognized. For example, according to Armine Yalnizyan, an economist and Atkinson Fellow on the Future of Workers, “It’s the slowest-moving train on the planet. It was predictable 60 to 65 years ago, and we have done nothing about it. We knew this transition was going to happen.” Well, if so, why have not wages risen sufficiently or even approximately, so as to obviate this shortage? Just as nature abhors a vacuum, the market abjures shortages. No, we have to dig a little bit deeper to approach an answer. What, then, is the answer? And, how did government intervention become involved in the story? This can only be speculative, but we must address the issue of why wages did not already rise sufficiently to obviate the obvious demographic contribution to the help wanted ads? One possibility, and this is only a guess, is that not only is the massive boomer retirement easily predictable and thus well known, but so is the fact that it cannot last forever. Soon enough, its effects will lessen. Suppose wages had indeed risen to levels that would have obviated the labor shortage. When the demographic effect started to dissipate, those temporarily high levels of worker compensation would decrease, lest we be presented with the opposite difficulty, a surplus of labor and unemployment. But which employer wants to lower wages? In our hyper interventionistic economy, that would be deemed exploitative. The many merry Marxists in the country would have a field day lambasting evil profiteering employers. The government would penalize such heartless capitalists. Food for thought.   Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of An Austro-Libertarian Critique of Public Choice (with Thomas DiLorenzo). (1 COMMENTS)

A friend on Facebook writes: Many in the MSM (mainstream media) will lie to your face. Be discerning. Prices rose 8.5% year over year in July. That is NOT a significant slowdown. If you only lost 1/12th of your money since last July, that really is not an improvement in circumstance after losing 1/11th of your money since last June. That is what these malefactors are trying to argue here. I won’t mention the friend’s name: my policy when I quote from FB is to never name the person I’m quoting without first getting his/her consent. But actually, if the data say that you lost 1/12 of [the value of] your money since July rather than the 1/11 that you lost from June 2021 to June 2022, that is quite possibly a huge improvement. It depends crucially on your baseline. Here’s the first paragraph of the BLS’s August 10 report on the latest inflation numbers: The Consumer Price Index for All Urban Consumers (CPI-U) was unchanged in July on a seasonally adjusted basis after rising 1.3 percent in June, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 8.5 percent before seasonal adjustment. If your baseline is, as it seems to be for most people, that inflation will continue at a high level, then going from 1.3 percent in a month (June) to 0 percent in a month (July) is a huge improvement. If your baseline is the purchasing power of your dollar 13 months ago, then finding out that it has lost no additional purchasing power in the 13th month is not an improvement at all. What is clear, though, unless the data for July are updated to reflect an actual increase in the CPI in July, is that his statement, “That is NOT a significant slowdown” is incorrect. (0 COMMENTS)

We must of course remain vigilant that laws not be used to harass or destroy political opponents. A Wall Street Journal editorial of this morning says as much. But this is not a reason for rulers or former rulers to be above the law like dictators. The fear of Leviathan—the all-powerful state modelized by Thomas Hobbes—and a certain mistrust of those in power are inseparable of the classical liberal and libertarian tradition. A rule of law developed that is supposed to apply equally to government rulers. The constitutional structure is meant to prevent statocrats from treating the res publica as their private thing. (Res publica, which means “public thing” in the sense of “public affairs” in Latin, ultimately gave the word “Republic.”) Countervailing powers and institutions provide incentives to statocrats not to pursue authoritarian temptations. We have good reasons to think that controls over government have become much too weak. (Nobel economist F.A. Hayek has done important work in that area.) The strongest argument against the state—all levels and branches of government—is that there is no way to prevent even liberal rulers from nurturing the democratic Leviathan, which will become impossible to control. (See Anthony de Jasay, The State.) As the Latin poet asked, “Quis custodiet ipsos custodes?” When we live under a state, the truly dangerous abuse of power does not come from the constraints imposed on rulers and their agents. It is not to search the house of a former ruler who is apparently suspected of stealing public documents related to his tenure at the res publica. It is instead the sort of abuse of power targeting ordinary citizens, who have come to be engulfed in a net of minute and complex laws and regulations, . Looking at the federal government only, the number of restrictions and obligations (estimated by the number of the words “shall,” “must,” “may not,” “required,” or “prohibited”) contained in the Code of Federal Regulations has gone from less than 500,000 in 1970 (the first year the data is available) to more than 1.3 million in 2021 (according to the latest version of RegData developed by Patrick McLaughlin at George Mason University’s Mercatus Center). Some 8% of American adults have a felony record, which means they remain “convicted felons” for their whole lives (Sarah K.S. Shannon et al., “The Growth, Scope, and Spatial Distribution of People with Felony Records in the United States, 1948-2010,” Demography, vol. 54 [2017]). Note that none of the recent presidents and very few politicians have done anything, or even indicated any intention of doing anything, about this evolution. Even the “law and order” types, overt of covert, target their toughness towards the groups of citizens they don’t like, not against the holders of power. It is mainly rulers and government agents who need to be surveilled and controlled, including the Department of Justice and the FBI, and also what a former president did under his tenure. As I was putting the last hand on this post, the Wall Street Journal reveals that Mr. Trump has just pleaded the Fifth Amendment—probably repeatedly as his acolytes have often done in different proceedings—in an unrelated affair of “fraud” investigated by the New York Attorney General. Trump declared: I once asked, “If you’re innocent, why are you taking the Fifth Amendment?’ Now I know the answer to that question.”. Better late than never, but this guy was the president of the United States! Let us hope that the American institutions meant to protect individual liberty can withstand the 2016 election of Donald Trump.   (0 COMMENTS)

Kevin Corcoran, a regular reader, has yet again sent me an interesting basis for a blog post. Here’s Kevin: Senator Bernie Sanders once tweeted: Say Bill Gates was actually taxed $100 billion. We could end homelessness and provide safe drinking water to everyone in this country. Bill would still be a multibillionaire. Our message: the billionaire class cannot have it all when so many have so little. Advocates of government programs have a history of excessive optimism about the costs of their initiatives. When Richard Heffner interviewed Milton Friedman in 1975, Friedman stated, “John Kenneth Galbraith, in an article he wrote in The New York Times Magazine Section, said there are no problems in New York City that would not be solved if the New York City budget were twice what it is now. Now, the New York City budget has since then something like tripled. And all the problems are worse.” Let’s assume Senator Sanders is correct: that for a one-time cost of $100 billion, the federal government could not merely reduce or relieve homelessness, but actually end it outright, with the added bonus of clean drinking water for all. But if that is so, there’s an obvious question to answer: why hasn’t the government done so already? It’s not as though the government is insufficiently funded. In FY 2022, the federal government will take in revenues of about $4.4 trillion and will spend about $5.9 trillion. So, if Sanders is right about the cost of ending homelessness, the federal government could completely end all homelessness in America with just 1.7% of what the federal government already spends in a single year. Accepting Senator Sanders’ claim would significantly strengthen Bryan Caplan’s argument that priorities, not capacity, is paramount to explaining poor government performance. I’m sure Senator Sanders would agree that the federal government has demonstrated terrible priorities in how it directs the vast resources at its disposal. I can think of various reasons for these terrible priorities. Regulatory capture leads to the government using resources defending the wealthy and well-established against upstarts. Special interest groups and lobbyists exercise significant influence in the legislative process. In general, the powerful tend to favor the interest of the powerful, and the political process does little to improve that. But for some reason, Bernie Sanders seems to think that if he can just get his hands on another $100 billion from Bill Gates, then the money will finally be wisely spent in the pursuit of worthy goals. But why? The same incentive structure that created the existing terrible government priorities hasn’t changed, so why should we think the extra $100 billion will actually be put to better use? There is no reason that I can see. If you believe that the political system has been hijacked by powerful special interests to favor the rich and the politically powerful [DRH note: although there is strong overlap, these are not the same] over the masses, the last thing you should want is for even more resources to be funneled into that system, at least until after those structural issues have been addressed. If you had a wealthy friend who was financially struggling while extravagantly spending on frivolities, the appropriate response isn’t to give him even more money. Your priority should be on making sure he gets his act together and use his already immense resources more responsibly. So why is the Senator so fixated on putting even more resources into a system he also believes uses those resources so poorly? Lacking mind reading skills, I can only speculate. But I suspect it’s at least partly to do with the fact that “raise taxes on the billionaire class!” is an easy applause line, particularly among the people who will vote Sanders into power. By contrast, imagine a politician who says “Look, there are serious structural issues affecting how the government is using the taxes it already has, which results in the money being used in a way that’s contrary to everything we believe in. Unfortunately, until those issues are fixed, nothing will be solved by bringing in even more money: it will keep being put to the same poor use.” That’s not going to fire up a crowd, or drive people to the polls to tick his name on the ballot. The only thing it has going for it is that it’s the truth. But the currency of elected officials isn’t truth; it’s applause lines for their base. (0 COMMENTS)

Bloomberg has an article discussing the prospects for the economy going forward. One pessimistic pundit cited this survey of small business sentiment: At first glance, the recent drop looks worrisome.  But then I looked at the entire graph.  What do you notice?  There seems to be almost no relationship between small business sentiment and the state of the economy.  The two really big recessions (1981-82 and 2008-09) are hardly even noticeable.  I can’t ever recall seeing a worse forecasting tool. There are four odd surges in positive sentiment: late 1980, early 1991, late 2000 and late 2016.  Why would small business people suddenly become optimistic about the economy?  After all, the economy got worse in 1981 and 1982, and 1991 was a very mediocre year.  It also got worse in 2001.  It did get better in 2017, but nothing out of the ordinary.  So why those four surges in positive sentiment?  (Hint, what was going on politically at those 4 points in time?) To be sure, there are some very good reasons to be concerned about the future prospects of the economy, including high inflation, an inverted yield curve and falling stock prices.  I’m certainly worried.  But don’t be swayed by pundits displaying graphs and telling you what it all means.  Don’t be like a child hypnotized by a shiny object swaying in front of their eyes.  Don’t become a victim of conformation bias.  Look closely at the entire graph—does it make sense? (0 COMMENTS)

Back in 2020, Marc Andreesson wrote an excellent critique of NIMBYism entitled “It’s Time To Build“. Here’s an excerpt: You don’t just see this smug complacency, this satisfaction with the status quo and the unwillingness to build, in the pandemic, or in healthcare generally. You see it throughout Western life, and specifically throughout American life. You see it in housing and the physical footprint of our cities. We can’t build nearly enough housing in our cities with surging economic potential — which results in crazily skyrocketing housing prices in places like San Francisco, making it nearly impossible for regular people to move in and take the jobs of the future. We also can’t build the cities themselves anymore. When the producers of HBO’s “Westworld” wanted to portray the American city of the future, they didn’t film in Seattle or Los Angeles or Austin — they went to Singapore. We should have gleaming skyscrapers and spectacular living environments in all our best cities at levels way beyond what we have now; where are they? I’m not sure where those gleaming skyscrapers are, but they certainly are not in Atherton, an affluent Silicon Valley suburb with “surging economic potential”.  Here’s The Atlantic: The town of Atherton, California, is America’s most expensive zip code and is primarily reserved for very large homes (the minimum lot size ranges from one-third of an acre to 1 acre). The planning department proposed to modestly increase the zoned capacity of Atherton, legalizing the construction of smaller, multifamily properties in a few places—just a little more than 130 units total by 2031. Andreessen and his wife, Laura Arrillaga-Andreessen, a philanthropist, apparently submitted this public comment via email to the mayor and city council expressing their opposition, a portion of which reads: Subject line: IMMENSELY AGAINST multifamily development! I am writing this letter to communicate our IMMENSE objection to the creation of multifamily overlay zones in Atherton … Please IMMEDIATELY REMOVE all multifamily overlay zoning projects from the Housing Element which will be submitted to the state in July. They will MASSIVELY decrease our home values, the quality of life of ourselves and our neighbors and IMMENSELY increase the noise pollution and traffic. I’ll reserve judgment until I hear the other side of the story.  But one thing is clear; the following hypothetical statement would not constitute a satisfactory explanation:  In general we need to loosen zoning and build much more housing, but Atherton is not a good place for the new housing.  The richer the area, the greater the benefit from building more housing.  America would benefit if Atherton had more gleaming skyscrapers.  I suspect that even Atherton would benefit. PS.  Keep in mind that the actual proposal was to build 130 housing units in the entire city over an entire decade.  We aren’t talking about Manhattan or Singapore.  Atherton would still be Atherton.   (0 COMMENTS)

The adoption by the State of Indiana of a law restricting abortions offers an opportunity to review some economic, or economically-inspired, arguments on both sides of the debate (“Indiana Passes Near-Total Abortion Ban, Marking First State Restrictions Since Roe v. Wade Overturned,” Wall Street Journal, August 6, 2022). Because normative economics assigns value equally to all individuals, economists—or at least a large number of them, including this blogger—implicitly oppose murder, whatever the balance of utilities, even if the murderer gets more utility from it than his victim loses (if such comparisons have any meaning). Hence, the question of whether the fetus is a human being and, if so, whether abortion is murder or justifiable homicide has some importance. The defense of “reproductive rights” is suspicious. If “rights” mean anything precise, reproductive rights must the freedom to reproduce if one wants to, is physically able to, can get a partner (or a surrogate), and other such conditions. The paradigmatic violation of reproductive rights in recent times was the eugenic policies promoted by progressives (mainly) in the first part of the 20th century. Under American eugenic state laws, in force between 1907 and 1980, 65,000 women were forcibly sterilized. (See Paul Lombardo, Three Generations, No Imbeciles: Eugenics, the Supreme Court, and Buck v. Bell [John Hopkins University Press, 2008]; and Thomas Leonard, Illiberal Reformers: Race, Eugenics & American Economics in the Progressive Era [Princeton University Press, 2016].) Reproductive rights do not imply the right to kill the reproduced individual, just as marriage rights do not imply the right to kill your spouse. Doesn’t the life of a human being, even potential, have some value? Is the fetus less human than an old person victim of a stroke or Alzheimer? These questions underline the importance of affirming the value of human life. To those who invoke the welfare of future generations when it serves their own political purposes, we may ask what future individuals think about the probability of being aborted. If one imagines that future individuals are invited to our social contract (admittedly a big imagination stretch), what is the probability that many of them would consent to “reproduction rights” as conceived by the unconditional supporters of abortion? A time inconsistency problem is lurking here: the future individuals who consent to very permissive abortion rules now may in fact never be born and thus have no voice in any social contract. This being said, the principle“ My body, my choice” is enticing for whoever takes seriously the normative implications of economics. So is the “Bans off our bodies” slogan that some Indiana House Democrats were wearing—assuming it equally applies to the other sex. Economists naturally assume that an individual is the owner of his own body. In current discourse, however, the slogans above seem to apply only to abortion. Don’t they apply as clearly as, if not more clearly than, peaceful and contractual acts, like an adult choosing to work for less than a state-decreed minimum wage in order to use her body to earn a living? Don’t they apply if she wants to wear a gun on her body in order to protect that body against violent aggressions? And so forth. However, a consistent argument for “My body, my choice” cannot be summarily dismissed. It was used in a classic defense of abortion by philosopher Judith Jarvis Thomson, published in  1971 in Philosophy and Public Affairs and simply titled “A Defense of Abortion.” Jarvis Thomson argued that even if we admit that the fetus is a human being, there is no defendable philosophical argument for preventing his (or her—yes, fetuses can be girls too!) mother from detaching him from her body. If it leads to the death of the fetus, abortion would not be murder, but justifiable homicide like in self-defense. Thomson’s demonstration is a general libertarian my-body-my-choice argument that applies to any non-voluntary obligation to help others. She emphasizes the difference between, on the one hand, a morally commendable action (keeping the child you have conceived even if it implies large costs) and, on the other hand, owing to somebody a right to assistance because it has been voluntarily contracted for and can thus be imposed by force. (For this post, I reread Thomson’s article after several decades; it may be changing my opinion on abortion.) In the famous article, Thomson wrote: I am arguing only that having a right to life does not guarantee having either a right to be given the use of or a right to be allowed continued use of another person’s body—even if one needs it for life itself. So the right to life will not serve the opponents of abortion in the very simple and clear way in which they seem to have thought it would. … If a set of parents do not try to prevent pregnancy, do not obtain an abortion, and then at the time of birth of the child do not put it out for adoption, but rather take it home with them, then they have assumed responsibility for it, they have given it rights, and they cannot now withdraw support from it at the cost of its life because they now find it difficult to go on providing for it. If they have taken all reasonable precautions against having a child, they do not simply by virtue of their biological relationship to the child who comes into existence have a special responsibility for it. Note that Thomson does not think her argument morally or legally justifies all abortions: While I do argue that abortion is not impermissible, I do not argue that it is always permissible. … A merit of my account [is] precisely that it does not give a general yes or a general no. … While I am arguing for the permissibility of abortion in some cases, I am not arguing for the right to secure the death of the unborn child. … I agree that the desire for the child’s death is not one which anybody may gratify, should it turn out to be possible to detach the child alive. I don’t think she satisfactorily explained when impermissibility is only a moral obligation and when is should be backed up by a legal ban. And did she underestimate the degree of responsibility of the mother (and the father too) in the conception of a human being? Except for the ban on aborting fetuses with serious but non-lethal genetic abnormalities as well as some authoritarian features of its enforcement, the Indiana law may not be so radically different from Thomson’s guidelines—at least if the WSJ’s description is correct, notwithstanding the story’s title: The ban, which takes effect Sept. 15, includes some exceptions. Abortions would be permitted in cases of rape and incest, before 10-weeks post-fertilization; to protect the life and physical health of the mother; and if a fetus is diagnosed with a lethal anomaly. (0 COMMENTS)

More correctly, they understand Covid tradeoffs for themselves. “Senate Democrats, some of whom have decried their G.O.P. colleagues’ lenient attitude toward masking, have adopted an unofficial ‘Don’t Test, Don’t Tell,’ protocol of late, particularly as they endeavor to pass the historic Inflation Reduction Act this weekend,” a senior Senate aide told Puck News. “They’re not going to delay it if a member has gotten COVID… Counterparts are saying they’re not going to test anymore. It’s not an official mandate but we all know we’re not letting COVID get in the way. The deal is happening. Less testing, just wear masks and get it done.” This is from Matt Margolis, “Democrats Nix COVID Precautions to Ensure Vote on Spending Bill in Senate,” PJ Media, August 6, 2022. I’ve found that Margolis’s title writer sometimes overstates but this one appears to be accurate. We opponents of lockdowns and compulsory masking over the last 2.5 years have consistently pointed out that there are tradeoffs: even if the lockdowns and masking requirements that many people want would be effective, they will have costs. The Senate Democrats understand that. They are willing to throw caution to the wind, giving up their own Covid conventions so they can raise our taxes, spend money on green pork, and shelter even high income people from paying for health insurance. Tradeoffs for me but not for thee. (0 COMMENTS)

Waze and Google Maps tell us the best way to get to where we’re going. But no app or algorithm can tell us whether we should head there in the first place. To economist Russ Roberts, the reason is simple: Humans are dynamic and aspirational beings. When it comes to making life’s big decisions, from […] The post Russ Roberts and Mike Munger on Wild Problems appeared first on Econlib.

On July 25th, the ice cream company Klondike discontinued the Choco Taco, one of their popular novelty ice cream treats.  Fans were disappointed.  The Choco Taco has been a staple of Klondike’s offerings for almost 40 years now.  By all accounts, the product was popular and profitable.  So why the decision from Klondike to discontinue it?  Economics helps us understand why. The official statement from Klondike reads: “The Klondike Choco Taco has unfortunately been discontinued in both 1ct and 4ct pack sizes. Over the past 2 years, we have experienced an unprecedented spike in demand across our portfolio and have had to make very tough decisions to ensure availability of our full portfolio nationwide. A necessary but unfortunate part of this process is that we sometimes must discontinue products, even a beloved item like Choco Taco.” Firms, just like all economic actors, face scarcity.  They only have so many resources (labor, capital, etc.) and they need to decide how to deploy those resources in the most effective manner.  When resources are used to produce one item, they cannot be used to produce a different item.  Thus, we have the economic understanding of cost: whatever you must give up in order to take an action is the cost.  If Klondike wishes to produce a Choco Taco, the cost of the Choco Taco is the monetary price of the inputs plus whatever product could have been produced with those inputs instead.  In other words, if Klondike has to choose between the Choco Taco or a Klondike Bar, the cost of producing the Choco Taco is the price of inputs plus one Klondike bar. The economic understanding of costs as including what one has to give up helps us understand another key economic concept: economic profit.  When people hear the word “profit,” they tend to think of accounting profit: monetary revenue minus monetary costs.  But economics have a broader conception of profit.  Economic profit is total revenue minus total costs.  The Klondike Bar in the example above is included in “total costs” for a Choco Taco.  If the cost of a Klondike Bar (measured by the foregone revenue of the Klondike Bar if it was produced instead of the Choco Taco) was sufficiently high, then the Choco Taco could have negative profits. Indeed, it appears this is the case given Klondike’s statement:  As demand spiked for all of their goods, the cost of the Choco Taco rose: other goods, potentially earning higher revenue, were sacrificed to produce a Choco Taco.  In order to maximize their profit, Klondike decided to discontinue the Choco Taco.  Even though the Choco Taco was earning accounting profit, the economic profit turned negative.  The company could increase their profit by allocating resources to the marginally more profitable items.  As my friend and co-author Nathan Goodman quipped to me: “What would you do for a Klondike Bar?  Shift scarce resources away from production of the Choco Taco, apparently.” The Choco Taco may return.  Costs in economics are subjective: they depend on the situation and viable alternatives.  Some other firm may purchase the rights from Klondike to produce the product.  Some offers are apparently already out there (though it is less clear how serious those offers are).  Or, if the costs of producing the Choco Taco fall (that is, the value of the foregone Klondike Bar falls), it may come back.  Either way, the firm is led as if by an invisible hand to produce goods that people value more highly.   Jon Murphy received his PhD in economics from George Mason University and is an Instructor at Western Carolina University. (0 COMMENTS)