Justin Smith has an excellent article in Harpers, discussing how and why we are moving toward a surveillance state: When I say the regime, I do not mean the French government or the U.S. government or any particular government or organization. I mean the global order that has emerged over the past, say, fifteen years, for which COVID-19 served more as the great leap forward than as the revolution itself. The new regime is as much a technological regime as it is a pandemic regime. It has as much to do with apps and trackers, and governmental and corporate interests in controlling them, as it does with viruses and aerosols and nasal swabs. Fluids and microbes combined with touchscreens and lithium batteries to form a vast apparatus of control, which will almost certainly survive beyond the end date of any epidemiological rationale for the state of exception that began in early 2020. The last great regime change happened after September 11, 2001, when terrorism and the pretext of its prevention began to reshape the contours of our public life. Of course, terrorism really does happen, yet the complex system of shoe removal, carry-on liquid rules, and all the other practices of twenty-first-century air travel long ago took on a reality of its own, sustaining itself quite apart from its efficacy in deterring attacks in the form of a massive jobs program for TSA agents and a gold mine of new entrepreneurial opportunities for vendors of travel-size toothpaste and antacids. The new regime might appropriately be imagined as an echo of the state of emergency that became permanent after 9/11, but now extended to the entirety of our social lives, rather than simply airports and other targets of potential terrorist interest. My wife recently told me a story about someone she knows who lives in China.  This woman had a toothache and went to the pharmacy to buy a painkiller.  A few hours later she got a call from a government official asking for the purpose of her visit.  She explained the purpose, and the caller seemed satisfied.  (Presumably the official was suspicious that she might be buying medication for Covid.) To most Americans, this story sounds rather creepy.  But how far behind China are we? Even tyrants would be foolish to pass down an iron law when a low-key change of norms would lead to the same results. And there is no question that changes of norms in Western countries since the beginning of the pandemic have given rise to a form of life plainly convergent with the Chinese model. Again, it might take more time to get there, and when we arrive, we might find that a subset of people are still enjoying themselves in a way they take to be an expression of freedom. But all this is spin, and what is occurring in both cases, the liberal-democratic and the overtly authoritarian alike, is the same: a transition to digitally and algorithmically calculated social credit, and the demise of most forms of community life outside the lens of the state and its corporate subcontractors. It’s a cliche to suggest that people “read the whole thing”, but in this case it’s true.  Indeed Justin Smith’s relatively long piece in Harpers contains material that is even more interesting than the three paragraphs I cited.  He is one of our most insightful intellectuals.      (0 COMMENTS)

When one studies a reported “shortage,” one usually discovers that there is no shortage at all. This is to be expected in a free economy with no price control and no widespread misguided altruism. Take the case of Dijon mustard (“real mustard,” as I tell my wife), which requires a special kind of brown mustard seeds. A French producer of the mustard, Luc Vandermaesen, is quoted in the Financial Times (“France’s Great Dijon Mustard Crisis,” July 12, 2022): We didn’t think we would have such a shortage. Except in this quote, the Financial Times does not use the word “shortage.” There is indeed no shortage. The price of the special seeds have doubled and the price of the mustard has increased by 10% or more but, at these prices, a buyer can find as much as he is willing to pay. Many other newspapers, less economically literate, fell (again!) in the trap of confusing shortage and high prices, including the New York Times, USA Today, et cetera. It’s like if they said “plethora” to describe a price decrease! Reminder: a shortage in the economic sense is a situation where something is unavailable at any price on the (legal) market. Temporary local shortages (if we want to call them “shortages”) can happen, usually signaled by longer delivery delays, but freedom to trade should rapidly arbitrage the disequilibrium. Looking at Amazon.fr (the French Amazon) yesterday, I found that many brands are indeed out of stock, but some are available for delivery in about two weeks. On Amazon.com, from which anybody in the world can order if one pays transportation and possibly local customs tariff, many brands of Dijon mustard are available now, but the price of well-known French brand Maille is more than 25% higher than two and a half months ago. (Note that “antitrust” threats and government bullying are often more intense in Europe, as a Wall Street Journal article on Amazon suggests this morning.) Price adjustments, when they are not forbidden by government (and perhaps sometimes by misplaced altruism or commercial virtue-signaling), is why shortages don’t happen. More generally, so-called problems of the “supply chain,” the current buzzword, cannot be seriously analyzed without factoring in prices. In the Summer issue of Regulation, my article “Dispelling Supply Chaim Myths” reviews the issue with many current examples and a dip in basic microeconomic theory (complete with graphs). The most famous (real) shortage in recent history is probably the one that affected cars for ordinary individuals in the Soviet Union (apparatchiks had privileges). A peek at my article: An oft‐cited example concerns the former Soviet Union and its Eastern European satellites, where not enough cars were produced given demand at the state‐determined prices. Like for most goods, the car shortage was endemic: it took about 10 years for an ordinary citizen to get the car he ordered, with a deposit that could reach 50%. I note that on free markets, supply chain problems are solved if consumers are ready to pay for solving them. Otherwise, if consumers are unwilling, there is no supply chain problem. (0 COMMENTS)

For my summer cottage reading, the first non-fiction book I’m reading is The Mayor of Castro Street by Randy Shilts. It’s about Harvey Milk. (Incidentally, I saw Milk speak in a downtown church in San Francisco in May or June 1978 at an event held by BACABI, the Bay Area Coalition Against the Briggs Initiative.) Here are 4 interesting highlights from the first third of the book. Harvey Milk’s early political views A staunch conservative, Milk was then looking forward to Barry Goldwater’s getting the 1964 Republican presidential nomination. That could get the true conservative message out to the nation, he thought. His fiercest argument with Rodwell was not about gay equality, but [about] President Kennedy’s move against the steel companies. The raw use of federal power in the economy made Harvey’s blood boil. DRH note: I remember reading in the late 1960s about JFK’s 1962 attack on steel companies for raising prices. Ayn Rand wrote about it at the time also, and Wabash College economics professor Ben Rogge talked about it in a talk in early 1969 at the University of Winnipeg that my Libertarian club sponsored. It was a big deal to us. Destruction of a Vital Part of San Francisco The Latino Mission district’s businesses had never recovered from the digging up of the central shopping strip for the Bay Area Rapid Transit. DRH note: After I graduated from the University of Winnipeg in May 1970, I set out in June to hitchhike from Winnipeg to Vancouver and from Vancouver to Los Angeles, stopping at various places on the way. I stayed at a cheap, divy hotel in San Francisco (I think it was about $5 a night) and explored San Francisco. I remember the chaos created by the building of the BART at the time. I had to walk over boards in various parts of the city and it was difficult for people to get to certain businesses because the streets were so ripped up. Later I learned in George Hilton’s transportation economics class at UCLA just how badly BART failed a cost/benefit analysis test even judged by the optimistic estimates of its proponents. The Leftist Attack on Milk’s Business Some [left-wing gays] took to scolding Scott Smith [Milk’s business partner at Castro Camera], saying if Castro Camera really cared about people, the would give away free film and offer developing services gratis. DRH note: No comment necessary. John Barbagelata’s Confusion about the Economics of Discrimination [Barbagelata, who was running for mayor of San Francisco against George Moscone] would continue to oppose the law banning anti-gay bias among city contractors because the city might be forced to accept higher bids from nondiscriminating companies over the low bids of biased employers. DRH note: At the time, employers were discriminating against gay employees even in San Francisco. This presumably made gay employees a bargain for employers willing not to discriminate. So Barbagelata had it exactly backwards. He didn’t understand his Gary Becker. For the concise version of the economics of discrimination, see Linda Gorman, “Discrimination” in David R. Henderson, ed., The Concise Encyclopedia of Economics. (0 COMMENTS)

Inflation is a period during which price indices increase.  But price indices can increase for all sorts of reasons; hence it makes absolutely no sense to study the impact of “inflation” on any other variable.  That impact will always depend on what causes the inflation. David Beckworth recently directed me to a speech by Lael Brainard: While national data do not directly disaggregate the differential effects of inflation by household income groups, a variety of evidence suggests that lower-income households disproportionately feel the burden of high inflation. Lower-income families expend a greater share of their income on necessities; have smaller financial cushions; and may have less ability to switch to lower-priced alternatives. Arthur Burns noted in the late 1960s that “there can be little doubt that poor people…are the chief sufferers of inflation.” Today, inflation is very high, particularly for food and gasoline. All Americans are confronting higher prices, but the burden is particularly great for households with more limited resources. That is why getting inflation down is our most important task, while sustaining a recovery that includes everyone. This is vital to sustaining the purchasing power of American families. Brainard is right that we need to get inflation down, but the rest of the analysis makes little sense. Here it might be helpful to distinguish between two broad types of inflation, stagflation and boomflation.  Stagflation occurs when the short run aggregate supply curve shifts to the left.  This reduces real output and real income, while boosting the price level.  Boomflation occurs when aggregate demand shifts to the right, boosting real output and real income (in the short run), while increasing inflation.  The late 1960s were an example of boomflation while 1974 was an example of stagflation.  (Today we have some of each.) In the late 1960s, Arthur Burns suggested, “there can be little doubt that poor people…are the chief sufferers of inflation.”  Actually, boomflation raises real income in the short run, including the real income of the poor.  Indeed the 1960s saw one of the largest reduction in poverty rates in all of US history.  The inflation of the late 1960s was bad, and should have been prevented by tighter Fed policy.  But it wasn’t bad because it hurt the poor (in the late 1960s); it was bad because it led to greatly increased economic instability during the 1970s. In contrast, stagflation does hurt the living standards of the poor.  But the reduction in living standards is caused by the “stagnation” part of stagflation, not the “inflation” part of stagflation.  Given the existence of an adverse supply shock, a non-accommodative Fed policy that prevented any temporary increase in the overall inflation rate would hurt the poor by even more than did the stagflation.  I would add that stagflation hurts both the poor and the rich, whereas boomflation helps both the poor and the rich in the short run, and hurts both the poor and the rich in the long run.  Income inequality is not the issue here. Whenever you encounter any study of “the impact of inflation”, run for the hills.  It’s likely to be complete nonsense, an exercise in reasoning from a price change.  It would be as silly as a study evaluating the impact of high oil prices, without first ascertaining whether the price increase was caused by more oil demand or less oil supply.  In the former case, oil consumption will rise.  In the latter case, oil consumption will fall.  Or a study looking at the impact of higher interest rates, without first considering why interest rates had risen.  Tight money?  Higher inflation?  A booming economy? PS.  Notice that I had to invent a word to do this post?  (Boomflation.)  Also notice that the economic profession has no word for “NGDP growth rates”.  When a science lacks words for some of the most important concepts in their field, it’s a pretty good indication that the subject is hopelessly confused. PPS.  Shorter version of this post:  NRFPC (0 COMMENTS)

After the splendid book on Capitalism in America which he coauthored with Alan Greenspan, Adrian Wooldridge published a book on meritocracy and is understandably trying to rejuvenate its arguments. He is intellectually reckless enough, to use the British Tory leadership as a case in point. Boris Johnson’s resignation has opened a contest in which ten candidates are running for leadership: which means being head of the government but also presumably the face of the party when new elections come. England is supposed to be a “class society” more than most. Indeed the Etonian backgrounds of David Cameron and Boris Johnson have reinforced the idea of the Tory party as pretty much the projection of whatever is left of the British elite. The most successful Conservative politician of the second half of the 20th century, Margaret Thatcher, is the rare case of a Tory with a middle class background who was a social outsider in her own party (of course, the first woman prime minister of her country). But Thatcher, so most people think, was definitely one of a kind. Wooldridge however thinks differently: The candidates for the Conservative Party leadership are strikingly diverse. Six of the 10 declared candidates are members of ethnic minorities; three (Suella Braverman, Rishi Sunak and Sajid Javid) are the children of immigrants; two (Nadhim Zahawi and Rehman Chisti) were born abroad, in Iraq and Pakistan respectively; and one (Kemi Badenoch) was brought up in Nigeria. Four are female. Only two are White men. … The Conservative Party has done a much better job of diversifying than other parts of the British establishment, which has focused instead on the politically correct trappings of rainbow flags and diversity courses. … How did this extraordinary revolution come about? The Tories grasped the enormous power of “sponsored mobility” — that is, spotting potential superstars when they are still young and promoting them rapidly through the party ranks. The Labour Party should have far more potential ethnic minority leadership candidates than the Conservatives, given that Labour won some 62% of that demographic at the most recent election compared with the Conservatives’ 24%. But Labour relies on talent bubbling up on its own rather than being given a helping hand. The result is that many Labour minority MPs are unimpressive machine politicians and a few are self-dealers. Labour’s leader, deputy leader and shadow chancellor are all White. The Tory breakthrough came in 2005. David Cameron came up with the idea of the party’s central office nominating A-list candidates for local districts to consider. That preserved the constituencies’ much-prized sovereignty but forced them to consider people different from the White men they’d traditionally favored. It is an interesting and thought-provoking piece. Broadly speaking, as Wooldridge point out, it would be important for political parties to represent minorities without appealing to a rhetoric of victimhood. This goes together with having representatives who claim to be “success stories” in their countries, and aim to speak for those like them. I don’t know how many of these people are attracted by politics and political parties in the West at the moment. But somehow the Tory party did it. (0 COMMENTS)

Capitalism creates inequality. Nature creates inequality. Different socioeconomic systems reward different natural inequalities – intelligence, physical health, strength, and beauty – by the incentives they create. Capitalism rewards the “bourgeois values” at which the left sneers: thrift, honesty, persistence, hard work, prudence, tolerance, and civility. Socialism rewards ruthlessness. Material inequality is the inescapable result of material progress. If a new product is created, it cannot possibly be instantly and simultaneously distributed to every person on earth. So, the first time someone invented something – the stone hammer, perhaps – inequality instantly appeared in the world. To demand complete material equality is to demand an end to material progress.   Capitalism results in the concentration of wealth in the hands of the few. Wealth is more concentrated in many socialist and socialist-leaning countries (e.g., South Africa, Zimbabwe, and Nicaragua) than it is in free market countries.  Moreover, the free market automatically channels resources to those who most efficiently use them to improve the lives of consumers worldwide.  By contrast, socialism and communism have historically channeled resources to the most ruthless and murderous: Lenin, Stalin, Mao Zedong, Castro, Pol Pot, Mugabe, Ortega, Chavez, Maduro. Trade used to mean the literal exchange of one good or service for another good or service.  Today, it more often means the exchange of goods or services for paper IOUs that we call “money.”  In a free market, money is documentary proof that the bearer has provided goods and services that others valued as demonstrated by the fact that they willingly exchanged the products of their own labor for them. In other words, people with money in their pockets have benefitted others but have not yet received anything of comparable value in exchange. The idea that such people “owe society” or should “give back to society” is exactly backwards. They don’t owe, they are owed.   Unregulated markets result in wealth inequality. Regulated markets result in even more inequality. In fact, much regulation is designed to enable the “haves” to retain and increase their material advantages. The problem of “regulatory capture,” in which regulatory agencies work to benefit the industries they were intended to control is very real. First, when an agency is initially created, it needs experts on the industry it is supposed to monitor. Where can it go but to the industry itself? Second, no one has a bigger interest in lobbying the agency than do the companies being regulated. Third, if the industry were to disappear, the agency’s reason for existence would also disappear, so agency employees have a vested interest in keeping “their” industry alive, even if it’s at the expense of consumers. Finally, there is no such thing as an “unregulated” market or “unfettered” capitalism. A company’s heaviest fetters are forged by its customers and its competitors. In a free market, no company, however large, can long survive if it doesn’t satisfy its customers with products and services that are at least as those offered by its competitors.   Capitalism is a winner-takes-all game. Free market countries tend to have the largest middle and upper classes, which means that most people who “play the game” do quite well. Yes, the 1% owns the lion’s share of “symbolic” or “paper” wealth, but they don’t own most of the physical wealth and they certainly don’t own more than a tiny fraction of the country’s human capital (e.g., knowledge and experience). Jeff Bezos is a multi-billionaire, but most of his wealth is in the form of Amazon stock.  He doesn’t own a significant share of the country’s houses, cars, aircraft, computers, TVs, microwaves, dishwashers, washing machines, and so on and on. Confiscating his wealth would mean that he would have to sell his stock in Amazon, which would tank its value, causing much, if not most, of that “wealth” to vanish. Most of us are neither geniuses nor inventors, but the free market enables us to benefit from the genius and inventions of others. When someone “wins” and gets rich by producing a good or service that improves our lives, we win too.   Capitalism turns workers into wage slaves. Slavery is an economic system in which people can arbitrarily demand others’ time, labor, and produce.  Socialism is an economic system in which the politically favored can arbitrarily demand others’ time, labor, and produce. In a capitalist system, no one can enslave me or compel me to work. But by the same token, neither can I enslave others; I cannot compel them to provide me with food, clothing, and shelter. If I want those things, then I must either make them myself – in which case I will likely live in abject poverty – or I must produce goods and services that I can exchange for them.   Capitalism rewards merit and rewarding people based on merit is discrimination. Well, yes. Selecting people on merit is discrimination – that is, it’s the “recognition and understanding of the difference between one thing and another.” But if I’m faced with the necessity of choosing between candidates – whether for a job, a promotion, or for admission to a university or club – I’m forced to, well… choose. And if I have any basis at all for making the choice, then I’m looking for differences between one person and another. My responsibility to my organization requires me to discriminate on “merit” as defined by those traits that my organization deems will best help advance the goals of the organization.   Capitalism drives corruption. After the Civil War, corporations repeatedly tried and failed to form cartels to keep prices high and to prevent competitors from entering markets. Every attempt failed because none of the cartels could employ force to keep cartel members from cheating. Incentives to lower prices and grab market share were too great. The problem was “solved” during the Progressive Era, when government created cartels to prevent “ruinous” competition and created agencies like the Interstate Commerce Commission, the Federal Trade Commission, and the Federal Reserve Bank to enforce the rules. FDR’s New Deal extended cartels to agriculture and to the automotive and airline industries, while LBJ’s Great Society Medicare and Medicaid programs extended them to healthcare. In short, progressives created government-backed cartels and monopolies and now blame capitalism for the unfortunate results.     Read Part 1 here. 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)

However, a careful reading of the NEJM article finds it is not nearly as conclusive and persuasive as the two doctors’ quotes and other media coverage would lead us to believe. In fact, because the results of the TOGETHER Trial suggest that ivermectin actually did benefit the Brazilians in the treatment group—results that are in agreement with 87% of the other clinical trials that tested ivermectin—there is still good reason to continue studying the drug as a possible preventative or treatment for COVID-19. This is one of the opening paragraphs of Charles L. Hooper and David R. Henderson, “Ivermectin and the TOGETHER Trial,” Regulation, Summer 2022. One of the many problems with the study: Further, ivermectin is widely available in Brazil as an over-the-counter drug — unlike in most clinical trials, where the drug under study is available only via the trial. Prospective participants who wanted ivermectin because they believed they had COVID could have taken it on their own and thus would be disinclined to enroll in a trial where they faced a 50 percent chance of getting a placebo. Further, those who wanted ivermectin likely would have had a serious case of COVID; hence their desire for the drug. Therefore, we can assume that the trial participants skewed toward those who considered themselves at low risk from the illness. This conflicts with the stated goal of the trial, which was to study high-risk patients. Read the whole thing. (0 COMMENTS)

It has been over 11 years since I posted on how asymmetric loss functions affect my behavior. Recall that many situations are situations with asymmetric loss functions: the asymmetry is that a mistake in one direction has a much lower cost than a mistake in the other direction. I faced this situation big time in shopping in Kenora, Ontario Saturday evening for food to use at my cottage in Minaki. Minaki is a good 40 minutes one way from Kenora. So if I buy too little of something or don’t buy any because the chance I’ll use it is low, the loss from making up for it by driving into Kenora is huge. The gasoline cost is rounding error. The major cost is my time. I get just a little under 2.5 weeks at my cottage each year and so an extra trip to Kenora takes away very valuable cottage time. I can use the time to swim, which I love even though the water temperature is only about 63 Fahrenheit, visit friends, read and fall asleep in the verandah, and listen to the wildlife. I thought I might have enough bacon but I wasn’t sure, so I bought another package. I could have bought 1.5 pounds of ground beef but, to be safe, I bought over 2 pounds. Those are 2 of about 5 or 6 examples. I’m a fairly good planner and so my guess is that at the end of trip I’ll have not much more than US$40 of food extra. Also, since I like all of my neighbors (oops, I’m in Canada, “neighbours”) a lot, the $40 is an overestimate of the net cost to me because most of my overage will be useful to my neighbours. The pic above is me in the water by my cottage. The water this year is higher than it has been since I started going to the cottage in 1951. Thus the fact that I’m wading to get to the gangplank that goes to the dock. (0 COMMENTS)

In the Summer issue of Regulation (rubric “From the Past”), I review Joseph Schumpeter’s most famous book, Capitalism, Socialism and Democracy, first published in 1950: In the book, Schumpeter argued that capitalism will naturally evolve into socialism, that socialism can work, and that it is not logically incompatible with democracy. I will argue against all three of these claims. This celebrated book is well-known for its defense of “creative destruction,” but it also offers puzzling arguments in defense of socialism. I write: Didn’t the reservations [Schumpeter] expressed overcome the putative advantages of socialism? Why didn’t he see that? One hypothesis echoed by Harvard business historian Thomas K. McCraw in his introduction to the 2008 edition of the book is that Schumpeter’s praise for socialism was irony. He had to camouflage his conservative opinions lest his socialist readers put it down. In this view, apparently shared by other scholars, we would have to read the satire between the lines. One puzzling argument I report about (the quoted part is from Schumpeter): If income inequality … were not deemed acceptable under socialism, the high-level bureaucrats could be “compensated not only by honors but also by official residences staffed at the public expense, allowances for ‘official’ hospitality, the use of admiralty and other yachts,” and such. OK, perhaps we can find some satire there! McCraw wrote (and I have kept this part exclusively for my EconLog readers) that the famous Harvard professor of economics was known for his good cheer, polished manner, and mischievous wit. He often said that he aspired to be the world’s greatest economist, lover, and horseman. Then came the punch line: things were not working out well with the horses. As you will see if you read my essay (scroll down after following the link) I cannot but conclude about Capitalism, Socialism and Democracy: Perhaps, after all, it is a long, devastating satire against socialism. (0 COMMENTS)

Are you worried about the influence Big Tech holds over your life? Does the power (or data) these companies hold constitute monopoly power? Should antitrust law be applied to these companies? Can the antitrust laws written in the pervious century even apply to today’s tech behemoths? In this episode, EconTalk host Russ Roberts welcomes back fan favorite Mike Munger to discuss these questions and more. We’d like to hear your thoughts. Share your reactions to the prompts below in the comments, or use them to start your own conversation offline. Let’s keep the conversation going!     1- How does Munger characterize the role of antitrust today as compared to in the past? Who is antitrust supposed to favor- consumers or producers- and to what extent has this changed over time?   2- What’s behind the common notion that firms can “set” prices? Munger insists that firms always want to raise their prices, but he also says firms always have an incentive to cut their prices.   3- Munger stops Roberts to nail down the definition of competition. How does the way economists view competition differ from the way the rest of the world views it? Why does this matter in terms of public policy?   4- How does Munger characterize the differences between economic conservatives and economic libertarians with regard to antitrust, specifically the Sherman Act? And why does he say, “I think most economic conservatives would agree with libertarians that what antitrust law had become by the post-World War II period was wrong, incorrect, a mistake.”   5- What’s the real argument against monopoly? (Munger tells us it’s not about excessive profits on the part of the firm in question…) To what extent does this argument apply to firms like Google, Facebook, and Amazon?   6- In speaking of these Big Tech firms, Roberts muses that traditional remedies of antitrust may not be appropriate for these firms; “I think the real issue is these issues of power over what I can see, what I discover, the things that are hidden from me in the search engine and the algorithm.” This leads him to ask Munger, “What can policy do? And, a side note, what could economists contribute to the design of the policy that might be helpful in thinking about whether there should be any constraints on these kind of firms?” What are the components of Munger’s answer, and how plausible do you find each? Why does he insist the answer is a standard property rights solution? Is he right???     (0 COMMENTS)