As I get older, I become increasingly frustrated with having to repeatedly push back against widely held myths. One of those myths is that a recession occurs when there are two consecutive negative quarters for real GDP growth.  That’s not how the NBER determines recessions.  (One obvious example is 2001, which saw a recession but did not see two consecutive negative quarters.)Some people are now making a big deal of the fact that the Atlanta Fed’s GDP tracker is currently predicting a negative 2.1% real GDP growth rate in the second quarter. (Following a negative 1.6% growth rate in Q1.) Even if that forecast pans out, it doesn’t mean the US economy was in recession throughout the first half of 2022—an absurd claim—rather it suggests that six-month changes in RGDP are not a reliable indicator of business cycles.Not only was the economy not in recession in early 2022, it was experiencing the most overheated boom in many decades.  Consider that payroll employment soared by roughly 2.5 million during the first 5 months of 2022, roughly three times the normal rate of growth.  That’s some of the fastest job growth we’ve ever seen. And companies were still desperately short of workers. That’s not to say the US economy might not currently be entering a recession.  Perhaps the payroll employment data will soon turn down.  It’s even possible that a recession began a month ago.  But the US economy certainly wasn’t in recession this past winter.   (0 COMMENTS)

Assuming we can rely on the translated quotes and paraphrased statements in a Financial Times report, Chinese president Xi Jinping’s defense of his totalitarianism helps understand certain aspects of authoritarianism (“Xi Jinping Marks Hong Kong Handover With Call for ‘Patriots’ to Bring Order,” July 1, 2022): In his first big speech in Hong Kong since before it was rocked by pro-democracy protests in 2019, the Chinese president said on Friday the territory must be governed “only by patriots” while navigating a “new stage of development, from chaos to order”. One advantage of this pronouncement is to remind us that “patriots” can refer as much to those who are subservient to the state as to those who love their country. Another point of interest in the quote lies in its implicit rejection of the idea that a certain degree of chaos, in the sense of anarchy, is necessary for an efficient social order—”efficient” meaning that the order caters to the preferences of all individuals, presumed equal, as opposed to the preferences of the rulers. Much has been made of “the Xi Jinping thought,” which is now written into the Communist Party’s constitution and whose study is mandated by the government (see also “‘Xi Jinping Thought’ School Lessons Alarm Chinese Parents,” Financial Times, August 27, 2021). The “thought of Xi Jinping” does not look crystal clear, from either a logical or historical viewpoint, as the July 1 Financial Times story suggests: Xi also stressed that Hong Kong should maintain its capitalist system “with a high level of autonomy”. But he left in no doubt Beijing’s determination to continue its crackdown on dissent, despite accusations it is failing to respect the 50 years of “one country, two systems” autonomy it guaranteed Hong Kong after the end of British rule on July 1 1997. “All Hong Kongers should be able to respect and safeguard the fundamental socialist system of the nation,” Xi said. Xi apparently wants both a “capitalist system” and “the fundamental socialist system of the nation,” which is either a contradiction (if “capitalism” is taken to mean economic freedom) or a confusion. The confusion might be between economic freedom and crony capitalism. In his renewed pursuit of Marxism, Xi obviously ignores the Marxist-Leninist ideal of “the withering away of the state” that Lenin called for! Anarchy is good, not in the sense that is has no rules, but in the sense that the development of rules is spontaneous and multicentric. At the very least, if a totally anarchic society is not viable, it is desirable that the development of rules not be the preserve of a central coercive power. To authoritarians or totalitarians like Xi Jinping (the West also have some authoritarians in its midst), we must oppose some ideal of “ordered anarchy,” to use an expression dear to James Buchanan. Anarchy must be the guiding ideal. This is obvious in the economic area, as was so well expressed by French philosopher Raymond Ruyer in his 1969 Éloge de la société de consommation (In Praise of the Consumer Society): Real anarchism, feasible and actually realized, as opposed to mere sentimental talk, is simply the [classical] liberal economy and everything it brings with it: political democracy, civil (and not only civic) liberty, free, unsubsidized, and unplanned culture. Only the liberal economy can promote the “withering away of the state” and of politics, their withering away or at least their limitation; centralizing socialism cannot do that. [French original:] L’anarchisme véritable, réalisable et réalisé, et non resté à l’état de déclaration sentimentale, c’est tout simplement l’économie libérale, avec tout ce qu’elle entraîne : démocratie politique, liberté civile (et non simplement civique), culture libre, et non subventionnée et dirigée. C’est l’économie libérale qui, seule, peut favoriser le « dépérissement de l’État » et de la politique—le dépérissement ou du moins la limitation—ce n’est pas le socialisme centralisateur. It is also useful to remember the historical opposition between the Chinese imperial model and the comparatively anarchic development of the West. Perhaps it can serve as an antidote against the authoritarian temptation that the Chinese model represents for certain people. As French sociologist and historian Jean Baechler wrote (quoted in Walter Scheidel’s Escape from Rome), the expansion of capitalism owes its origins and its raison d’être to political anarchy. (0 COMMENTS)

I tutor on the side for a few extra bucks.  I enjoy the work and an hour or two on an otherwise boring evening can earn me enough for my weekend activities. This past week, I was working with a regular student.  They proposed going off of Wyzant and paying me via an alternative service like Venmo.  I refused, which surprised them.  They asked “But Wyzant takes a cut of your hourly rate.  This seems like a win-win to me: I pay the same rate and you get to keep more of it.  Isn’t Wyzant exploiting you?”  Me being me saw an opportunity for a discussion on transaction costs. It is true that Wyzant takes a cut, and a substantial cut at that.  They take 25% of my hourly pay.  I charge $40/hr, They get $10/hr and I keep $30/hr.  Why wouldn’t I want a 25% pay raise and take the student up on their offer?   The reason: Wyzant provides valuable services to me.  Services I value much higher than $10/hr: -Wyzant provides online meeting capabilities.  Without them, I would have to buy a Zoom account (or something similar) -Wyzant verifies, handles, and guarantees all payments.  No matter what, I get paid.  They absorb risk and track down delinquent accounts.  Without them, I would have to handle my own accounts payable. -Wyzant helps match me with students.  They do all the searching and advertising for me.  Without them, I would have to conduct heavy search and advertising costs. -Wyzant provides calendar software.  Without them, I would have to manage my own appointments. -Wyzant provides legal security.  They have an entire arbitration process in place in case of complaints or abuse.  Without them, I would have to invest in legal help. In short, Wyzant dramatically reduces the transaction costs I would face if I were to tutor privately.  They take $10/hr of my wage, yes.  That is the “seen” aspect.  But they save me many more dollars in transaction costs.  That is the “unseen.”  I am wealthier because of Wyzant.  If their goal was to exploit, they are doing a poor job.   I also pointed out that Wyzant reduces the student’s costs as well: -Wyzant thoroughly vets the tutors who use their platform.  The student doesn’t need to conduct a search to verify tutors or their competency. -Wyzant prevents payment fraud.  I cannot demand extra money or anything as Wyzant has a whole process for getting paid. Wyzant makes both the student and the tutor better off by providing a platform to reduce transaction costs of tutoring. This post may sound like an ad for Wyzant, but it is not.  Wyzant is simply a stand-in for the countless firms and institutions that exist in a market economy.  They exist not because they are exploitative, but because they reduce transaction costs.  If firms do not reduce transaction costs, then they would disappear in the market. Isadore Johnson is a campus free speech advocate, an economics and philosophy student, and regional coordinator for Students for Liberty. (0 COMMENTS)

While attending a vaccine center in Washington, D.C. last week, where Covid vaccines were being given to kids between the ages of 6 months and 5 years, President Biden stated: We’re the only country in the world doing this right now. This is a great day for you all. Thanks for the example you are setting. He was obviously proud. But measuring your country against other countries is not a good way to tell whether you’re doing right and they’re doing wrong, or vice-versa. In his book One Billion Americans, Matthew Yglesias made a similar claim in the other direction. He wrote: It’s true that the United States has been painfully slow compared with some peer countries to provide subsidized child care. In context, Yglesias was clearly saying that we in the United States should step up and imitate those peer countries. That’s why the words “painfully slow.” The best way to tell whether a policy is good or bad is to examine the principles behind, and the details of, the policy.   (0 COMMENTS)

Over at The Hill, I have a new piece discussing the risk of recession.  Here is the fundamental problem that we face: If the Fed’s contractionary monetary policy does succeed in reducing nominal GDP growth to roughly 4 percent, one of two things might happen. The best outcome would be for wage growth to slow sharply from current levels, which would allow firms to avoid large layoffs. But if wages continue growing at 6 percent while nominal GDP growth slows sharply, higher unemployment is almost inevitable. I favor a reduction in NGDP growth, despite the risk of recession. I also discuss some recent market indicators of recession: Today, market indicators are presenting a mixed picture of the risk of recession, with the market consensus viewing one as increasingly likely but not certain. For instance, while stock prices are down sharply, if there actually were a recession, they would probably fall even further. And while interest rate futures markets show rates declining slightly during 2023, if there were a recession, interest rates would probably fall much more sharply — perhaps to zero. These facts are certainly no reason for complacency. The patterns we see in the markets, including soaring oil prices, falling stock prices and a flattening yield curve, often occur right before an economic contraction. Read the whole thing.   (0 COMMENTS)

  If you, unlike Michigan Democratic senator Debbie Stabenow, have bought gasoline lately, there’s a good chance that you’ve seen a sticker on the gas pump with a picture of President Biden saying, “I did that.” Typically, those stickers are placed by customers, not gas station owners, and for that reason, I’m against them: they violate the owners’ property rights. But I’m more interested here in the substantive question: did Joe Biden “do that”? My answer is “somewhat.” It wasn’t Biden alone. The Federal Reserve had some role, and the recovery from the pandemic had a large role. But the many actions Biden took before Vladimir Putin’s invasion of Ukraine and some of his actions afterwards have certainly caused the price of oil and gasoline to rise. Biden didn’t do all of  “that.” Other governments have contributed to the problem, and various US government restrictions in the oil and gasoline markets have also contributed. These are the opening two paragraphs of David R. Henderson, “What Caused Gas Prices to Jump?” Defining Ideas, June 30 2022. Another excerpt: One factor is Biden’s and many European governments’ response in the oil market to Vladimir Putin’s invasion of Ukraine. They have colluded to keep Russian oil off the market. The Russian government has responded by selling oil to China and India that it would have sold mainly to European consumers. This could be just a game of musical chairs, with the qualification that the number of chairs equals the number of players. In such a case, the overall effect on the world oil market would be small. But the collusive agreement seems to be holding up. Why do I say that? Because the prices that Russia is charging China and India are deeply discounted from world prices. If the collusion had broken down, the prices would be close to equal. The EU and Biden have effectively segmented the world oil market. Chinese and Indian consumers move down their demand curve at the lower prices they pay, buying more than they would have, and we other consumers are bidding over a diminished supply. So, the EU and Biden have definitely contributed to the higher price of oil since the Russian invasion. Interestingly, Biden admits that his and the EU’s actions have increased oil prices. In a June 22, 2022, speech, Biden stated: We cut off Russian oil into the United States, and our partners in Europe did the same, knowing that we would see higher gas prices. Read the whole thing. (0 COMMENTS)

The reaction of a French voter to the good showing of the party of extreme-left Jean-Luc Melenchon against the “centrist” president Emmanuel Macron’s party in the legislative election illustrates how some people have an angelic view of government. The Wall Street Journal reported (“France’s Macron Lost Grip on Parliament Amid Russian Squeeze on Energy Prices,” June 20, 2022): Marie-Claude Dautricourt, 76 years old, was worried about the impact the rising cost of living is having on young families. The retiree no longer goes out to eat at restaurants because it is too pricey. On Sunday, she cast her vote for a candidate in Mr. Melenchon’s coalition. “Melenchon cares more about the everyday lives of people than Macron,” she says. Why would we expect the state to care about the everyday lives of people? Because politicians (or the right ones) and government bureaucrats are an especially altruistic class of people? Even if this answer were admitted, how can the state care for the everyday lives of people when there are millions of individuals with different lives, preferences, and values? The state can care about some people, but it is only, or at least typically, by harming others. It can care equally about all only in the limited and abstract sense that it protects the equal liberty of all individuals. James Buchanan would say that it is only when the state enforces rules that meet the consent of all individuals (which is not a less abstract criterion). Once this is realized, the question becomes: How can the state and the incentives of its agents be structured in such a way (if anyhow possible) that it protects the equal liberty of all individuals, that it does not discriminate against some citizens if favor of others? This is, I think, the basic questions that different schools of classical liberalism have tried to answer. (0 COMMENTS)

Kevin Corcoran, a regular reader of EconLog posts and a frequent commenter, sent me some interesting thoughts that are worth presenting here. I’ve made some slight edits, with Kevin’s consent. I’ll add my own example at the end. Here’s Kevin: I had a thought recently on how the underlying idea of subjectivity of value, as understood by economists, can be usefully imported to another hot topic issue these days – the concepts of advantage and privilege. To spell out this idea, I want to first be precise about what I mean when I talk about value being subjective. Many people use the term “subjective” to mean something like “a matter of opinion or preference,” but I mean it in a slightly different, more technical sense. Roughly, to say that a quality is “objective” is to say that it is “in the object,” whereas to say that a quality is “subjective” is to say that it is “in the subject,” as that subject relates to the object. As an example, consider a round picture frame. The fact that the frame is round is an objective quality – there is a property of roundness, and that property exists in the object itself. However, when I look at that picture frame, I might find that it looks very tacky. That quality is subjective – it exists as an internal experience of me, the subject, as I observe the picture frame. If you see the same frame and find it looks classy, that’s your subjective experience. If I say the frame is round and you say it’s square, we are contradicting each other, because we are asserting different objective properties about it. If I say it’s tacky and you say it’s classy, we are not contradicting each other, because we are simply reporting our own separate experiences as subjects. To say something is subjective isn’t quite the same as saying it’s simply a matter of opinion – if I accidentally smack my thumb with a hammer, the pain I feel will be subjective, but that doesn’t mean my thumb being in pain is just my opinion. With all that in mind, I would also say that whether a particular condition constitutes “privilege” is also subjective – not in the sense that there are differences of opinion on how beneficial some condition is, but in the sense that whether or not a condition is beneficial varies, depending on the subject of that condition. Some might say that being good-looking is a form of privilege, as though such privilege is objective in the sense defined above. But a little reflection makes it clear that whether attractiveness is beneficial is subjective in the above sense. Thomas Sowell outlines this in his book The Quest for Cosmic Justice: As just one example, a young woman of unusual beauty may gain many things, both personal and material, from her looks, without having to develop other aspects of her mind and character. Yet when age begins to rob her of that beauty, she may be left much less able to cope than others who never had the benefit of her earlier windfall gain. For someone like this, was natural attractiveness a net benefit or a net disadvantage? I have no idea. I can easily imagine circumstances where it could be either, depending on the person. And the same is true for almost any other condition to which privilege is usually ascribed. With a little empathy and effort, it’s very easy to see how the same set of initial conditions could be advantageous for one person but detrimental to another – even within the same family, let alone the same economic class, race, or any other category. A personal example comes to mind. I grew up in a very low income family – something many people would immediately peg as a “disadvantage.” However, on reflection, I’m not sure that it was a disadvantage. When I was the proverbial “starving college student,” and for the first couple of years in my career after college, I found it very easy to get by on my very limited income. Because I had grown up with so little, I was able to live a very Spartan lifestyle without even a hint of feeling that I was making any difficult sacrifices. I know many people from that time who had significantly more resources available to them than I did, but who were never able to “get ahead” because cutting back in the way I did, even in the short term, was to them an unspeakable and unreasonable hardship. So, was my low-income background actually an advantage in the long run? Maybe. Or maybe I would be in an even better position now had I come from a wealthier background. I can’t run the counterfactual, so I don’t know for sure – and neither does anyone else. In his book Seeing Like a State, James Scott argues that a major aspect in top down control is an attempt to make society seem more “legible” in the eyes of the planners. Reality and societies are fantastically complicated things. In order to work around this complexity, states and planners designate society in terms of broad, clear categories, with discrete boundaries separating one concept from another, in a way that doesn’t allow for (or more accurately, doesn’t acknowledge) the messy complications and complexities of reality. These broad, top down, centrally defined categories made society (seem) very “legible,” in the sense of easy to read and therefore (seemingly) easy to rearrange. But, Scott argues, this legibility was never more than an illusion – planners ended up with only a mirage of reality that was easy for them to understand, but fundamentally useless for understanding and adapting the complexities of an evolved social order. People who confidently classify all manner of conditions as objectively constituting either privilege or hindrance end up with a worldview that is very “legible” in James Scott’s sense, but far too simplistic to be of any value, or to provide any insight.   Well done, Kevin. Now to my own example, which is a lot like Kevin’s example of growing up. My father was variously a high-school principal and a high-school teacher and we had an income that reflected that. When the Manitoba Teachers’ Society got a big raise in the mid-1960s (I think, but am not sure, that it was due to the provincialization of schooling, which gave the union more power than it had when negotiating with local school boards), by the way, our family had steak for the first time and occasionally bought butter instead of margarine. My mother made a little outside money, I’m sure undeclared, bless her heart, teaching piano. I would say that our family income was somewhere between the 45 percentile and the median income in Manitoba at that time. We lived a little below that income because my father so badly feared another depression. So until I was about age 10, my weekly allowance was 10 cents; in my early teens, it reached a quarter, and in my mid-teens (about 1965-66), it was $1. But I wasn’t willing to settle. I wanted a higher income. So I earned it. From about age 7, I started collecting empty soda bottles by the road and turning them in for candy bars (each bottle was worth 1 cent in cash or 2 cents in merchandise) and then arbitraging to my mother. As I got older, I took on other tasks to make money. I could detail them here, because I’m still very proud of what I did, but I want to get to the moral of the story. The moral of the story is that I learned to manage money at a very early age. I paid most of my way through college and emerged with zero debt. I did that by not drinking alcohol, which didn’t appeal to me; by not dating much, which was probably a mistake; and by never going to expensive events like concerts. So, like Kevin, I think my family’s income and the choices it led my father to make for me, were an advantage. When I would teach my students the principles of Dwight Lee’s and Richard McKenzie’s book Getting Rich in America: 8 Simple Rules for Building a Fortune and a Satisfying Life, I realized that I was simply reporting what I had figured out early in life. (0 COMMENTS)

His [Steven Koonin’s] book is full of important, factual information and insights. One of his main messages is that there is much more uncertainty about where the climate is headed than many climate scientists and even a higher percentage of people in the media are willing to admit. And the good news is that the long-term economic effect of even substantial global warming will be small. Among the scientific sources Koonin uses to make his case are the very reports by the United Nations’ Intergovernmental Panel on Climate Change (IPCC) that reporters draw on. The difference is that Koonin spells out what the reports actually say, whereas reporters tend to draw selectively from the reports in ways that – according to Koonin – mislead the reader. It would probably come as a surprise to most people, for example, that the oceans are still rising slowly, that forest fires have not become more common, and that hurricanes are not more frequent than they were 100 years ago. Koonin, who agrees that the earth has warmed and will likely warm further, considers the various options for slowing global warming. He shows how hard it would be, especially in developing countries, to reach net zero emissions by 2050 or even by 2075. So he considers various alternative ways of slowing global warming and also the idea of adapting to global warming. This is from David R. Henderson, “Good Reasoning on Global Warming,” Financial and Economic Review, Vol. 21, Issue 2, June 2022. Another excerpt: One of people’s biggest worries is that global warming will cause glaciers to melt and, therefore, increase the global average sea level. The CSSR mentioned earlier added to this worry by pointing out that the average had increased much more quickly after 1993 than before, rising by 7 centimetres in the later period. Koonin wondered if one could find other recent 25-year periods in which sea levels also rose quickly. He found one, the period from 1935 to 1960, when the average rose by 6 centimetres. Koonin argues that one should look at the whole period and not “cherry pick” the periods in which sea levels rose particularly quickly. Koonin notes that he sent his criticism to the lead author of the CSSR report, Don Wuebbles of the University of Illinois, and to Robert Kopp of Rutgers University, the main author of the CSSR’s chapter on sea level rise. Both, he writes, agreed with his criticism, though claimed that they would have pointed this out in their report, but that it was too late. Read the whole thing. (0 COMMENTS)