It is time to explore the principles on which human nature has been constructed and the social structures that are derived from behaviors embedded in the human genome. —Nicholas Wade, The Origin of Politics (46) Nicholas Wade is concerned that we are attempting to establish cultural norms and political structures that stray too far from traditions that are consistent with evolutionary biology and psychology. Two fateful collisions between politics and human nature are at present in progress.  One is the steady fraying of the social cohesion required to hold together the multiethnic society that the United States has become. The other is a worldwide decline in fertility that has set almost every country outside Africa on the path to eventual extinction  (1) Humans, like other species, come with a set of instincts and drives that were shaped by evolution. The desire to reproduce and successfully raise children is one that may not dominate our waking thoughts, but it’s the prime motivator of actions throughout life.  (53) We can connect some of our behavior to evolutionary prehistory. A striking link between early and modern armies is that of movement in unison.  Moving the body in synchrony with others engenders a feeling of unity and common purpose.  War dances were doubtless held for this reason.  The modern army’s equivalent is marching on the parade ground.  (62) Wade argues that our moral outlook has evolutionary origins. A society cannot function if its members have no compunction about harming or murdering one another, so evolution instilled in our minds a moral sense that such actions are prohibited. (85) He says that the same holds true for social arrangements at large.  Humans have built large-scale social structures, by drawing on such features of human nature as kinship, religion, warfare, the instinct for following rules and punishing violators, and the desire to pass on wealth and status to one’s children.  (97) What happens when culture conflicts too much with our deep desires?  Wade discusses the social experiment of the kibbutz in Israel, which attempted some cultural modifications that could not be sustained. The kibbutzim regained their footing only after they had abandoned their two primary policies that conflicted with human nature—the abolition of the family and separating work from reward.  (12) Other cultural changes have turned out to be more workable.  Substituting monogamy for polygamy served to reduce violence within groups and helped strengthen group solidarity with respect to external groups.  Replacing tribal society with formal political structures allowed societies to enlarge their economies and to increase wealth.  These effects had survival value. Wade insists that sex differences are natural and important. The two sexes have different aptitudes and interests, as would be expected from their long evolutionary history of specialization.  A society that substantially reallocates these natural choices according to feminist or any other ideology will raise social tensions and will risk deranging the natural distribution of talents within a society.  (109) He asserts that the drive to place women in high positions in organizations, especially universities, has had adverse consequences. Almost all social institutions have been created by men.  This is because men have always been concerned with forming coalitions with other men for reasons of governance and defense… The idea that men are on average better adapted than women for running institutions is therefore a reasonable hypothesis, though one that has yet to be proved… Two thirds of college administrators were female in 2021.  A principal function of these shadowy groups is to diminish the success of white male applicants in applying for faculty positions.  They also issue requirements for “safe spaces” and speech codes that make the campus resemble as much as possible the optimal female environment of security… There is scant evidence that today’s feminized universities place top priority on the pursuit of knowledge… Institutions that propel women into leadership positions for reasons other than merit risk slipping into the same disarray as that into which many once-renowned universities have collapsed.   (117–119) Such claims are inflammatory.  But I would note that Helen Andrews spoke similarly at a conference in the fall of 2025.  See also my review of Warriors and Worriers, by Joyce Benenson. Wade speculates that liberal and conservative political beliefs are sprinkled through humanity because circumstances vary. A group pressing into new territory would benefit if the “liberal” alleles became more common in the population, encouraging it to keep exploring.  But suppose the new territory is fraught with danger, whether of hostile neighboring groups or climactic variability.  In these circumstances, the “conservative alleles will start to become more common in the population because those who practice caution and traditional ways of doing things will have better chances of survival. (158) In his final chapter, Wade backs away from the seemingly conservative implications of the evolutionary perspective. Politics has to promote and govern change as well as the conservation of values and traditions.  The evolutionary perspective provides no basis for favoring conservative over liberal politics.  (211) But he concludes with a plea to pay heed to our evolutionary inheritance. The evolutionary mismatch between human nature and culture continues to widen, creating serious stresses… Lasting solutions will be found only within the framework of human nature.  This set of behaviors, whatever its frailties and failings, is the best that evolution could devise for constructing human societies and ensuring their survival.  Politics and culture can sometimes moderate these behaviors for the better.  But, stretched too far, the natural bonds that sustain the fabric of society will tear asunder.  (213) If I had written a book on these themes, I would have taken more care to take a stance of “Often, but not always.”   Often, cultural experiments fail when they go against evolutionary instincts, but not always (we have found ways to overcome nepotism).   Often, the way that women approach cooperation and competition differs from men’s approach, but not always (personality differences are prevalent among women and among men that may be as large or larger than average differences between the sexes).   Often, evolutionary mismatch is exacerbated by liberal policies, but not always (one can argue that dramatic income inequality is an example of a phenomenon that is an evolutionary mismatch that is exacerbated by conservative policies).   That said, one should not reject Wade’s speculations out of hand. (0 COMMENTS)

In any principles of economics class, students learn the difference between accounting profit and economic profit. Accounting profit, which is what one typically understands when discussing “profit,” is total revenue minus your monetary costs. It is what appears on the bottom line of an accounting statement as “profit.”  Economic profit is a broader term. Recall that, for economists, “cost” is a term of art: it is the highest-valued alternative not undertaken. This includes both monetary costs and alternative uses of your resources, often called implicit costs. Economic profit, thus, is total revenue minus total costs (both your monetary and your implicit costs). Implicit costs do not show up on an accounting statement, yet they are still vital to making life decisions.  It is possible for accounting profit to be positive (i.e., you are making money), but economic profit is negative (i.e., there are better alternative uses for your resources). In that case, the economically rational thing to do would be to reorganize your resources toward the higher-valued use.  A real-life example of economic and accounting profit is discussed in The Rise of the Cajun Mariners: The Race for Big Oil by Woody Falgoux. Woody’s book follows four Cajun families as they rise from humble beginnings to become major oil boat barons on the bayou. One such family was the Orgerons. The Orgerons, for the purposes of this post, were the father, Juan, and his two sons, Herman “Bouillien” and Bobby. During World War 2, Juan ran a boat, the “Herman J,” that serviced the oil rigs in the Gulf of Mexico. After the war, a dispute over submerged mineral rights flared between the coastal states and the federal government, known as the Tidelands Dispute. During this dispute, there wasn’t much need for oil boats, so Juan sold the Herman J and returned to his traditional source of income, muskrat trapping.  Muskrat trapping was a good business for Juan. It allowed him to purchase the Herman J, put food on the table, and put his sons through at least rudimentary schooling. The price of muskrat post-war was high and he had relatively low labor costs. His two sons worked for him (Bouillien full-time, Bobby when not in school) at no salary (pg. 23). Juan was certainly making accounting profit. But was he making economic profit? Was there a better allocation of his resources (labor)? Bouillien certainly thought so: “But then in 1946, Bouillien reminded him [Juan] that while trapping was a good living, the oilfield was a better one. Bouillien told his father things were picking up and convinced him to buy a 36-foot wooden crew boat with twin Chrysler engines, which was working for Texaco out of Lafitte, twenty-five miles to the northeast of Golden Meadow [their home] (pg. 23).” Bouillien saw that the economic cost of keeping all their labor on the muskrat trapping leases was greater than the revenue it brought in for the family. It made sense, then, to reallocate their resources. Juan agreed, bought a new boat, made Bouillien the captain, and resumed servicing the oil industry. By recognizing their accounting profit was positive but their economic profit was negative, Juan and Bouillien were able to increase their well-being (the family would become quite wealthy) and profit. But, ever the man with an economist’s insight, Juan intuitively understood that life happens at the margins. He did not reallocate all his resources to oil. He kept Bobby on the muskrat leases. Bobby was less-than-thrilled with that arrangement, but that is a story for another time. The economic way of thinking is both descriptive and prescriptive. It teaches both how people make decisions and shows how one can improve their decision-making skills. Not all can be as lucky as the Orgerons (they certainly were skilled, but luck plays a role in success, too). They were in the right place at the right time to capitalize on the oil industry. But the economic way of thinking does show how we can improve our lives, even if just incrementally. But incremental improvements can lead to substantial gains, thanks to the power of compounding. Recognizing economic costs (even when they are ephemeral and inarticulable) and opportunities is key to improving one’s economic position. (0 COMMENTS)

If technology is ruining the art of conversation, maybe it can save it, too. Anna Gat–poet, screenwriter, playwright, and founder of Interintellect–talks with EconTalk’s Russ Roberts on how she’s reviving the French salon in the digital age. They discuss why authority, moderation, and clear formats make conversation freer, not more constrained. They also explore why one of […] The post Conversation, Interintellect, and Arcadia (with Anna Gát) appeared first on Econlib.

On January 1, 1959, Fidel Castro and his bearded revolutionaries marched into Havana. Church bells rang across the island as Batista fled into exile. This January 1st marked the 67th anniversary of that revolution. Sixty-seven years of a system built on deception, imposed through violence, and sustained through repression. But now, for the first time since Castro’s march into Havana, genuine change appears inevitable. Throughout the 1950s, Castro repeatedly insisted he wasn’t a communist. He promised free elections, a free press, and the restoration of the 1940 Constitution. By April 1961—barely two years after marching into Havana—Castro declared the revolution socialist. Commanders such as Huber Matos and the American William Morgan, who believed his earlier promises and opposed this communist turn, paid dearly. Matos was convicted and spent 20 years in prison, while Morgan was tried and executed for treason. What followed was swift and total. Between 1959 and 1968, the regime nationalized every sector of the Cuban economy. Share of the Economy Under State Ownership (%) Source: Carmelo Mesa-Lago, The Economy of Socialist Cuba: A Two-Decade Appraisal, p. 15. By 1963, roughly 95% of industry was in state hands; by 1968, private enterprise had been effectively eliminated. Research by Marianne Ward and John Devereux indicates that in the 1950s (before Castro’s takeover), Cuba’s living standards were among the highest in Latin America, with per capita income levels comparable to those of countries like Italy. But that pre-revolutionary economy, grounded in markets and private property, was replaced by Soviet-style central planning, with severe social consequences. Between 1959 and 1981, some estimates suggest that between 35,000 and 141,000 Cubans died under the regime. Dissent was suppressed, newspapers were nationalized, and repression was brutal, especially against those most openly opposed to the government. For decades, the system Castro built appeared unshakeable. But on July 11, 2021, something unprecedented happened. Thousands of young Cubans flooded the streets of cities across the island, demanding freedom. “Libertad!” they shouted. “Patria y vida!” Homeland and life, a direct rebuke to the revolutionary slogan “Patria o muerte.” The regime responded with brutal repression. According to Prisoners Defenders, Cuba currently holds about 1,187 political prisoners, many of them young people who simply demanded basic rights. But this time, the repression backfired. Instead of crushing dissent, it triggered the largest migration in Cuban history. Between 2022 and 2023, Cuba lost roughly 20% of its population to emigration. The numbers are extraordinary. Entire neighborhoods in Havana have emptied. Doctors, engineers, teachers, and skilled workers of all kinds have fled. A few weeks ago, The Economist published a sobering assessment, noting that “most Cubans with get-up-and-go have got up and gone—a manpower hole is gaping at the heart of Cuba’s economy.” The economic situation compounds the crisis. Inflation is estimated to be anywhere from 20% to 100%. A recent survey reports that 89% of Cubans now live in extreme poverty. As one 52-year-old Cuban told The Economist, “This system is so screwed up it’s unfixable. All you can do is get rid of it and start all over again.” The regime has conducted some reforms, resulting from strong pressure to loosen controls in the import sector. But these have not been genuine market reforms. Access still depends on state discretion rather than predictable rules, open entry, and protected property rights. This limited liberalization thus favors rent-seeking behavior, with firms operating mainly to please party officials rather than compete in open markets. But there are concrete reasons to think change is coming. A recent poll by CubaData reveals a striking ideological shift: 21.7% of Cubans now identify as “liberal or pro-market”—seven times the 3% who still consider themselves “staunchly socialist.” Among these pro-market Cubans, 65% believe the regime must conduct serious structural reforms. The broader numbers are even more telling: 79% of all Cubans believe socialism is in decline, and 78.8%  no longer consider revolutionary principles relevant.  Even Cuban economists largely agree that the island’s problems stem not from the U.S. embargo but from the regime’s own policies. In addition, recent research by João Pedro Bastos, Jamie Bologna Pavlik, and Vincent Geloso found that the embargo explains only 3–10% of Cuba’s economic decline. The real culprits are nationalizations, the destruction of private property and markets, and their replacement with centralized economic planning. By 1989, even before Soviet support collapsed, these policies had already made Cuba approximately 55% poorer than it would have been otherwise. This matters because it means Cuba’s problems are solvable. They are the result of specific institutional choices that can be reversed. The regime now faces a perfect storm. It has lost people through mass emigration, and with them the manpower necessary to keep even basic services running. It has lost its ideological legitimacy. It has lost the ability to blame outside forces.  I believe we will witness the fall of this regime in the coming years. When that moment comes, Cuba could follow the path of Estonia or Poland, countries whose market reforms dramatically improved living standards. The transformation will require intellectuals, political leaders, and groups capable of implementing market reforms, property rights, and the rule of law. Paradoxically, the massive emigration may help provide this human capital. As Cubans assimilate into market economies abroad, they gain skills and institutional knowledge that Cuba will need. The exile community has already built infrastructure to educate new generations about the atrocities of communism and what prerevolutionary Cuba was like. These Cubans, with experience in functioning democracies and the motivation to help their homeland, will likely play a crucial role in Cuba’s reconstruction. Sixty-seven years ago, Castro marched into Havana promising freedom and delivered tyranny. Now his system is losing its grip. The Cubans who risked everything to demand liberty in 2021, who refused submission through exile, who have turned away from socialism, are writing Cuba’s next chapter. The question is no longer whether the regime will fall. It is whether Cubans will seize the moment to build a free and prosperous country on their own terms. (0 COMMENTS)

Question: Over the past several decades, the inflation-adjusted price of healthcare has increased. Based on this information alone, can you infer the source of the higher price–lower supply or higher demand? If not, what additional data would you need to determine whether higher prices are being driven by changes in supply or demand? Solution: I use this question, and others like it, in my principles of microeconomics class to emphasize a central lesson: you should never reason from a price change alone. As Scott Sumner has emphasized repeatedly, higher prices can result from an increase in demand, a decrease in supply, or some combination of the two. Observing a price change by itself is therefore not enough to identify the underlying cause. To determine why prices have changed, we must also examine what happened to quantity. Before turning to the analysis, it is useful to clarify the framework. In what follows, healthcare is treated as a composite good. While this introduces some measurement complications, it is a standard and appropriate simplification for a principles-level analysis. Likewise, the quality of healthcare has improved substantially over time. This does not undermine the supply-and-demand approach. Improvements in quality affect production costs and consumers’ willingness to pay, and therefore operate through shifts in supply, demand, or both. As a result, changes in quality can be incorporated within the same price-quantity framework used here. Suppose, for example, that we observe both the price of healthcare and the quantity of healthcare consumed rising over time. In this case, the data indicate that higher prices are driven primarily by an increase in demand. Importantly, this conclusion does not require that supply has remained constant. Rather, it reflects the fact that any supply-side changes were dominated by a sufficiently large outward shift in demand, resulting in a higher equilibrium price and quantity. By contrast, if we observed that the price of healthcare was rising while the quantity consumed was falling over time, we could conclude that higher prices were driven primarily by a contraction in supply. This reasoning follows directly from the logic of supply and demand, which treats each observed price-quantity pair as an equilibrium outcome. At any point in time, the market price and quantity reflect the intersection of the prevailing supply and demand curves. When we compare outcomes across time, we are therefore comparing different equilibria generated by shifts in supply, demand, or both. Observing how price and quantity move together across equilibria allows us to infer which shift was dominant, even though we do not directly observe the underlying curves themselves. This is why changes in prices must be interpreted alongside changes in quantities: together, they reveal the direction of the forces reshaping the market. Note that we do not need to identify the specific underlying factors—such as demographics, regulation, preferences, or technology—before drawing conclusions about whether supply or demand has changed. While these factors are important for explaining why supply or demand shifts, they are not necessary for identifying which side of the market shifted. In supply-and-demand analysis, such factors matter only insofar as they shift the supply curve, the demand curve, or both. By observing how equilibrium price and quantity change, we can infer whether demand or supply was the dominant force, even without knowing the precise source of the shift. In short, price and quantity data identify the direction of the change, while information about underlying determinants explains its cause. It is also important to emphasize that total spending—price times quantity—on healthcare cannot tell us whether higher prices are due to changes in supply or demand. An increase in demand would raise total spending, since both price and quantity increase. However, a decrease in the supply of healthcare could also raise total spending if demand is relatively inelastic, because price may rise by more than quantity falls. For this reason, total spending on healthcare does not allow us to identify the underlying source of higher prices. In short, a rise in the inflation-adjusted price of healthcare, by itself, does not tell us whether demand or supply is responsible. To identify the dominant force, we must examine how quantity changed alongside price. (0 COMMENTS)

Psychologist Gerd Gigerenzer explains the power of intuition, how intuition became gendered, what he thinks Kahneman and Tversky’s research agenda got wrong, and why it’s a mistake to place intuition and conscious thinking on opposing ends of the cognition spectrum. Topics he discusses in this wide-ranging conversation with EconTalk’s Russ Roberts include what Gigerenzer calls […] The post In Defense of Intuition (with Gerd Gigerenzer) appeared first on Econlib.

All major American professional sports have a time of year when they capture the eyes of the nation. America’s pastime, baseball, has the ‘Fall Classic’, the NFL dominates Thanksgiving, and the country has an entire weekend dedicated to the Super Bowl. Christmas Day is the NBA’s time to shine with action from noon to midnight (though the NFL tries to get in on the action). When Americans tune in to watch Lebron James and Kevin Durant battle it out on the court, they usually aren’t thinking about the referees, but it’s impossible to play without them.  The creation and enforcement of rules within sports is often overlooked despite their significance in determining the outcome of games and championships, at least until the referees make the wrong calls. In a 2010 World Cup knockout round match, English midfielder Frank Lampard shot a missile that rocketed against the crossbar and beat German goalkeeper Manuel Neuer. Nearly everyone in the stadium was sure that the match had been equalized 2-2. Everyone except the referees. Images in real time showed that Lampard’s shot had indeed crossed the goal line, but nevertheless, the goal was not counted. Germany went on to win 4-1, sparking a conversation among fans around the world about refereeing in the beautiful game, and resulting in the implementation of goal-line technology soon after. Nearly a decade later, the English Premier League instituted Video Assistant Refereeing, or VAR, out of a similar ambition to reduce the human error of refereeing and increase fairness in the game. However, in the six seasons since its introduction, VAR has produced more controversy than it has solved. How could that be? Don’t fans want more correct decisions?  Maybe not, says Daisy Christodoulou, author of the book I Can’t Stop Thinking about VAR, and guest of the February 2025 EconTalk episode, Coase, the Rules of the Game, and the Costs of Perfection. Christodoulou and host Russ Roberts apply economic theory to understand why the desire for perfection often leads to unsatisfactory results, why continuums are often more helpful than categories, and how comparative judgment can improve consistent rulemaking that accommodates individual preferences As the title suggests, the Coase theorem is a core theme of this episode. The Coase theorem states that in certain instances, individuals can resolve disputes involving externalities more efficiently than a governing body. This is partially because the attempt at making perfect rules that supposedly “solve” externalities leaves little room for the complexity of individual situations. However, Russ Roberts argues that rulemaking techniques like VAR can muddy the waters of refereeing, needlessly overcomplicating disputes that can be resolved through common sense. In his words, “We all know what a goal is. We all know what a handball is…and, yet once we get down to these details of making sure…somehow it gets harder.” Christodoulou agrees, adding that although VAR was brought in to make refereeing decisions clearer, it has thus far primarily served as a force of confusion and frustration. She finds that through the implementation of VAR, English football has smashed a top-down rulemaking structure on top of a once bottom-up process, and this has led to the conflict of accuracy with other preferences of fans. There is bound to be a trade-off between the accuracy of refereeing and the excitement of a game. Agonizingly long video review sessions may produce the correct result, but oftentimes they reduce the electricity of scoring a goal.  Christodoulou believes this is representative of the trade-off between consistency and common sense. Using the justice system as an example, Christodoulou argues that people often value a certain level of discretion in enforcing and interpreting the law. However, discretion inevitably leads to inconsistencies, accusations of bias, and potential injustices. In other words, beating tradeoffs is impossible, and trying to do so often results in the worst of both worlds.  This has been the result with VAR: Overcomplicated rules, applied inconsistently.  Christodoulou states that the handball rule increased from 11 words to 121 words since the institution of VAR, and yet what’s deemed a handball differs widely even from minute to minute within the same match. Christodoulou believes the handball rule misidentifies a continuous variable as a categorical one. Categorical variables describe concepts that are mutually exclusive, while continuous variables exist on a spectrum. Many decisions that referees make during matches are categorical: an incident is either a foul or it is not. The problem is when the line between two is blurry. For example, it’s exceedingly difficult to describe what is and what is not a handball in plain language. Indeed, many aspects of everyday life are almost indescribable through language itself. But this does not mean that it is impossible to determine what is or isn’t a handball. Christodoulou argues this can be done through comparative judgment and tacit knowledge. Christodoulou uses the example of grading papers to illustrate. make this point. It is far easier to decide which piece of two is better than the other, as opposed to deciding how good a piece of writing is on its own. Determinations of quality within a vacuum vary wildly both between individuals and, crucially, within the same individual. Comparisons, on the other hand, can be combined to create a quality distribution. According to Christodoulou, grading through comparative judgment leads to more agreement and consistency than grading based on a rubric. “So, you have this weird paradox, in that what feels like an incredibly subjective method of assessment, the data shows it is actually really quite objective. And the flip side is true: That when you have this very objective measure–seemingly very objective measure of assessment—which has all these tick lists, and you can say, ‘Does it feature this? Does this piece of writing feature that? Does it feature this?’ But when you crunch the numbers, people do not agree at all….it’s actually very subjective.” To apply this insight to refereeing, first, technology can create a collection of potential handballs, for instance. Then crowdsourcing can be used to prompt fans, players, and referees to decide which of two clips in this dataset is more of a handball. This, done repeatedly, creates a distribution for judging handballs. Here, Christodoulou suggests that AI can be trained to recognize patterns from examples that were considered handballs that can be relayed to referees during handball disputes. Referees would then determine whether the instance in question lies above or below the set line of handball. As always, there are no solutions, only trade-offs. Perfect rules don’t exist. Attempts to impose them, top-down, result in unclear rules applied inconsistently—and unhappy fans (and players). Counterintuitive as it might seem, the key to encouraging goodwill towards referees is less likely to come from more oversight or attempts to override referee judgment than through recognizing the power of common sense and tacit knowledge.   Kevin Lavery is a graduate student in the M.S. in Economics program at Georgetown University. He holds dual Bachelor of Science degrees in Economic Analysis and Political Science from Western Carolina University. (0 COMMENTS)

With the holidays upon us, what could be better than Christmas movies? And Christmas songs? And Christmas movies with great Christmas songs, like “Silver and Gold” as sung by Burl Ives in Rudolph, the Red-Nosed Reindeer? And of course, there’s the profit-seeking entrepreneur-prospector, Yukon Cornelius, obsessed with finding silver and gold. If silver and gold are so great, why don’t we use them for everything? Silver conducts heat and electricity more efficiently than any other metal. Why don’t we wire our houses with it? Make electric stoves out of it? Or why don’t we do these things with gold? Gold is less conductive than silver or copper but has many other valuable properties: it is highly ductile and can be drawn into the thinnest wires, for example, and it does not corrode or tarnish. It’s also pretty, which is why Burl Ives sings, “Silver and gold/Mean so much more when I see/Silver and gold decorations/On every Christmas tree.” The case of conductivity illustrates the importance of prices and monetary calculation. IT also explains why most silver and gold decorations on Christmas trees are fake. The “best” metal to use for a particular task is context-dependent. A bit of noodling around with Google and ChatGPT reveals several drawbacks to using gold for connections that require frequent plugging and unplugging, for example. Gold is conductive, ductile, and doesn’t tarnish; however, it’s also a lot softer than metals like chromium, nickel, and tin. It may not be what you want if you’re making the plugs for USB-C cables or vacuum cleaners. Sometimes, I hear people object to the argument that raising labor costs with things like minimum wages and other regulations, because companies “will want to use the best technology they can.” But “best” depends on prices. Look at the computers people have in your workspace. Is there a top-of-the-line supercomputer on every desk? No, because you don’t need the Frontier system at Oak Ridge National Laboratory to check email or make spreadsheets–or, if you’re McDonald’s or Dollar General, to run self-checkout lines. It all comes down to a version of the Great Economic Problem. The market is a continuous conversation among thinking, feeling agents, not a computational problem. When Ludwig von Mises and F.A. Hayek explained the problems with economic calculation under socialism, they were making an epistemic argument: rational economic calculation—perhaps, unfortunately, defined and described—is not a problem that can be solved with a sufficiently powerful computer, even the Frontier system. Resources have alternative uses, and competing bids and offers in free markets enable us to use broadly dispersed knowledge as we allocate resources among those uses. The best metal to use to make an electrical connection depends on people’s ideas about how to make jewelry and cookware. If we find enough gold—say, through advances in asteroid mining and harvesting—then perhaps we can look forward to futures where robots cook our meals in pots and pans made of gold and silver (right before they decorate our trees with silver and gold decorations). (0 COMMENTS)

A world-class physicist makes a shocking claim: across 2,500 years and every kind of society, there has been a recurring moral exception carved out just for Jews–the idea that hurting Jews is, in some sense, legitimate. Most of the time, this doesn’t erupt into pogroms. Instead, it lives as a background permission: a readiness to excuse, […] The post David Deutsch on the Pattern appeared first on Econlib.

Every line trending upward, every drop in cost, every additional ounce of efficiency we can squeeze from a bundle of inputs is the product of deliberate effort—of thousands of workers, engineers, factory managers, and line supervisors redesigning products, rearranging factories, testing and exploring new ways to do things. —Brian Potter, The Origins of Efficiency (304) Economists look at productivity gains in the aggregate. Rather than examine where they come from, we simply utter the phrase “technological change.” Brian Potter’s recent book, The Origins of Efficiency, 1 takes a bottom-up approach to looking at productivity improvement. Potter describes various ways that firms lower the cost of production. His many historical examples serve to illustrate and clarify the analysis. Potter looks at production in terms of transforming inputs into outputs, in which the efficiency of the process depends on five factors: the transformation method; the production rate; the cost of inputs; the size of the buffer (work in process); the variability of the output. For example, in a bread bakery, the transformation method is the set of instructions for making a loaf of bread. The production rate is the number of loaves per hour. The cost of inputs is the cost of flour, yeast, sugar, salt, energy, labor, and so on. The work in process consists of loaves that have been formed but not yet put in the oven. If the loaves are allowed to rise for different amounts of time, this will cause variability in output. “Through theoretical study as well as trial and error, enough of the problems get solved, and a dominant design emerges that attracts many tinkerers who proceed to improve the technology.” Potter points out that new transformation methods tend to follow an S-curve of improvement. A new technique may seem promising, but it starts out with a low level of performance and progress is slow, because there are many problems that make it costly or impractical. Through theoretical study as well as trial and error, enough of the problems get solved, and a dominant design emerges that attracts many tinkerers who proceed to improve the technology. Progress then accelerates rapidly. Eventually, there are fewer remaining opportunities to wring improvement out of the technology, and productivity levels off. “An S-curve pattern means that early on, a new technology often performs significantly worse than an established technology along the most important measures of performance, even if its theoretical performance ceiling is much higher.” (50) Mechanization can dramatically lower costs. Potter uses the example of glass bulbs for electric lights being blown by machines rather than by humans. But he points out that humans have better ability to adjust to different conditions and to work with softer and more variable materials. “Successful mechanization has thus historically required reducing or otherwise limiting the amount of information processing that must be performed and the environmental variation that must be considered.” (70) One interesting source of efficiency is removing unnecessary steps in the production process. For example, in an assembly line, if you raise the conveyor belt, the workers will not have to bend and lift objects. Modern writers often use scare quotes to describe “scientific management” or “Taylorism,” creating the impression that time-and-motion studies were instruments of oppression aimed at individual workers. But from Potter I learned that time-and-motion studies were used to discover ways to improve manufacturing processes. Raising the height of the conveyor belt is an example of scientific management that is a win-win for workers and for the manufacturer. As I was reading The Origins of Efficiency, I saw many ways in which the analysis applies to the latest developments in artificial intelligence. For example, the release of ChatGPT attracted capital and inventors to similar models using neural networks and the “transformer” algorithm. We are now on the steep portion of the S-curve of improvement. Although ordinary machines lack flexibility and adaptability, artificial intelligence may enable machines to overcome this limitation. Self-driving cars are one example. The field of robotics could improve dramatically using AI. Today, a nurse or phlebotomist is needed in order to start an intravenous drip for a hospital patient. Perhaps by using AI, a robot could handle this task. Construction workers today rely on subtle knowledge and experience that is beyond the capacity of ordinary machines. But perhaps in the future AI-enabled robots could perform more tasks in construction. I can see ample opportunity for AI to eliminate unnecessary steps in the provision of goods and services. For example, a corporation does not need to design an elaborate menu on its web site. Instead, users can rely on an AI interface to find the information that they need. But in important lesson from Potter’s book is that applications of promising technologies are slow to develop. “Fixing one problem with a nascent technology tends to simply reveal more problems, so significant time and effort might be invested without any noticeable increase in performance.” (40) For more on these topics, see “Two Steves and One Soichiro: Why Politicians Can’t Judge Innovation,” by Michael Munger. Econlib, October 2, 2006. Matt Ridley on How Innovation Works. EconTalk. “Innovation,” by Timothy Sandefur. Concise Encyclopedia of Economics. As of this writing, early adopters of AI may be feeling this pain. The Origins of Efficiency is a book that defies easy summary. The many useful concepts and well-chosen illustrative examples give it a richness that is best appreciated by taking it in as a whole. Footnotes [1]Brian Potter (2025), The Origins of Efficiency. Stripe Press. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)