The governor of Maine’s letter accompanying the $850 “relief checks” sent to taxpayers contains interesting statements: This money comes from the record surplus that State government recorded this year. My Administration and Democrats, Republicans, and Independents in the Legislature agreed that, in the face of  [the rising costs of everyday goods] it would be best to send most of that surplus back to you—the people of Maine—and to do in a way that allows you to use it as you wish. Mind you, the argument would have been equally valid even if the cost of everyday goods had been decreasing. Many economic-like statements in the letter are confused or debatable. Moreover, the beneficiaries only include taxpayers who earned an adjusted gross income of less than $150,000 in 2021, which is discriminatory toward the other taxpayers who may have most contributed to the budget surplus. Among questionable statements in the governor’s letter, I note the following: You—the people of Maine—are our greatest asset. Whom does the “our” refer to? If it is “the people of Maine,” the clause is a useless truism: the people of Maine are the people of Maine’s greatest asset. At worst, the clause is a collectivist statement reminiscent of the slogan repeated by Lenina in Aldous Huxley’s Brave New Word: “everyone belongs to everyone else.” A third possibility is that “our” refers to the government of Maine, which would mean that the people are deemed an asset belonging to the government. A charitable interpretation is that Governor Janet T. Mills is simply confused by what F.A. Hayek called our poisoned collectivist language (see his 1988 book, The Fatal Conceit). (0 COMMENTS)

Last week, I visited Venice, a neighborhood in LA that is full of wealthy tech entrepreneurs and homeless people. While strolling along one of the canals, I noticed a sign, “Stop the Monster”.  This led me to google the phrase in order to learn more about the issue.  The monster is a proposed 140 housing project that would be built on a parking lot along Venice’s grand canal, just over a block from the beach in the very center of town.  Roughly half the units would go to the homeless, while the other half would be provided to low-income workers and artists.  The LA Times suggests that the project would cost $75 million, or just over $500,000 per unit, while critics suggest that the full cost could be as high as $1.4 million per unit.  I believe the critics are adding in the opportunity cost of using 3 acres of prime Venice real estate, and some other opportunity costs. I was struck by that fact that critics often complained that the project was an example of YIMBYism, the advocacy of more housing construction as a way of addressing America’s housing crisis.  I consider myself a YIMBY, but have trouble understanding the logic behind this particular housing proposal. While I’m not as wealthy as the residents who live along Venice’s canals, my economic situation is certainly much closer to the typical Venice homeowner than the typical Venice homeless person.  So my views may be biased by the fact that it’s easier for me to put myself in the shoes of those who oppose the “monster”.  But I don’t see why this project makes sense even if one prioritizes the interests of the homeless, as philosopher John Rawls would have encouraged us to do.  Venice has between 1000 and 2000 people living on the streets, and this project does nothing for the least fortunate of that group, i.e. those who would not be lucky enough to get one of the 68 units set aside for the homeless in the new project.  Indeed one would not even have to be a Venice resident to qualify.  (Venice is not a separate city like Santa Monica; it’s a neighborhood within Los Angeles.) Let’s suppose there are 1500 homeless people in Venice.  Also assume that the opportunity cost of this proposed project is $150 million, when the land costs are included.  In that case, instead of housing 68 homeless people, why not house all 1500 at a cost of $100,000/person.  That’s roughly the cost of housing a typical American.  (I’m assuming a $300,000 home with three residents.)  You might argue that my proposed policy would not solve Venice’s homeless problem, as the supply of homeless in California is somewhat elastic.  I agree!  Indeed, I was criticized for making this “elasticity” claim a while back, as commenters pushed back against my claim that California attracted homeless people from other areas.  In fairness, I should have been more specific and referred to “street people”, rather than “homeless.”  Consider this data from Reason magazine: In San Francisco, 73 percent of the city’s homeless population is considered unsheltered. That’s not normal, even for a big city: In New York City, the figure is about 3 percent.  The homeless live in many areas, but California is a relatively desirable spot for street people.  Obviously I don’t mean absolutely desirable, just that it’s preferable to live on the street in California rather than in New York.  Due to its high housing costs, New York has plenty of homeless people, but only 3% of them live on the streets. If I’m wrong about street people, if incentives do not influence their behavior, then Venice really could solve its homeless problems at a relatively low cost.  I imagine there are some tech billionaires in Venice that are rich enough to write a check for $150 million, enough to buy ranch houses in the Midwest to house every single homeless person in Venice.  If they did so, however, another 1500 homeless people would quickly replace them on the streets of Venice.  That’s not “effective altruism”. I’m not sure if progressives are willing to face the fact that the quantity of street people is to some extent a function of how attractive we make the solution to homelessness.  Venice will have more street people if their solution to homelessness is $1.4 million dollar units a block from the beach in the center of Venice, and it will have fewer street people if the solution involves buying a massive unused warehouse in a hot, polluted industrial area of East LA, and then installing hundreds of military style barracks inside. Yes, my proposed solution is punitive.  The progressive solution is completely ineffective.  I don’t particularly like either solution.  Is there a third way?  Here we need to return to the distinction between the homeless and street people.  The vast majority of homeless people in America do not live on the streets.  Many have jobs.  For that group, the best solution is building more market rate housing.  Lots more.  Most homeless people will not be able to afford that new construction.  They certainly wouldn’t be able to live in new construction in central Venice.  Nonetheless, building new houses, even mansions, helps the homeless by reducing the price of existing housing, just as building new cars helps lower income people by reducing the price of old used cars.  (Did you notice what happened to used car prices when a chip shortage limited production of new cars?)  In that sense, I’m a YIMBY. For those who do live on the streets, I have no easy answers.  Many have drug, alcohol, and mental illness problems.  Some people claim that a “tough love” approach works best, encouraging the unfortunate to get treatment.  If so, my punitive “barracks” proposal might actually reduce the problem.  Or maybe not.  I don’t know enough about the problems faced by street people to have a firm opinion one way or another.  All I know is that the sort of solutions advocated by progressives in Venice won’t work.  So perhaps it’s time to at least try something else?  There seems to be some confusion as to the meaning of “YIMBY”.  Critics of the Venice “monster” blame the YIMBYs.  So let me just say that I’m a fan of “Market priced housing in my backyard”.  Call me a MIMBY. PS.  I’m simultaneously appalled and impressed that the US is willing to fund such projects.  Appalled that we try to solve homelessness with such an expensive and ineffective policy.  Impressed that we have enough compassion to spend lots of money housing homeless people in million-dollar housing units placed in desirable SoCal beach areas right next to the homes of the wealthy.  Most other countries would not be willing to do this.  Indeed I wonder if any other country would enact this sort of program. (0 COMMENTS)

My friend Yusuf and I recently started a Substack called Longterm Liberalism, which aims to bring together insights from classical liberalism and Effective Altruism. Yusuf has two posts up that introduce the blog. One covers the motivation for starting the blog, while the other discusses our principles. He also recently published a post that discusses how Effective Altruists evaluate which problems to work on. In this post, I want to discuss one big reason that I think EconLog readers should appreciate both Effective Altruism and classical liberalism. Both philosophies appreciate the reality and importance of opportunity cost. We live in a world where resources, including time, are scarce. As a result, whenever you make a choice, you necessarily give something up. Time you spend reading this blog post is time that you’re not spending on some other task. The money I spent on coffee today is now money that I cannot use to buy concert tickets. The workers in the coffee shop spent time making me coffee, and they cannot use that time for other purposes. Every day, we make choices, and every one of those choices has a cost. Choose wisely. Classical liberalism is a philosophy of liberty. The liberal favors a presumption of liberty and supports a broad scope for individuals to make choices about their lives, as well as to make voluntary agreements and exchanges with others. What does this have to do with opportunity cost? First, we should understand that opportunity costs are subjective. James M. Buchanan emphasizes this subjective nature of costs in his excellent book Cost and Choice. Since costs are subjective, an external observer cannot directly discern how much another individual values one option or another. Individuals are therefore likely to better understand what they are giving up when they make a choice for themselves than an external authority will when choosing to impose a choice upon another. But a question remains: when it comes to any scarce resource, who gets to decide how it will be used? Liberals typically resolve this question using property rights. Property rights are an institution, a rule. When individuals hold exchangeable property rights, then they can choose whether to keep or trade away the resources that they have a right to. If they value their own use of these resources more than what others offer them, then they may keep these resources for themselves. If, on the other hand, someone offers them something that they value more than their next best use of a resource, they will likely make an exchange. In this way, mutually beneficial exchanges occur and goods and services flow to more highly valued uses. Exchanges give rise to exchange ratios, which we call prices. Prices convey knowledge about the relative scarcities of different resources. When the price rises, whether due to a reduction in supply or an increase in demand, more people have an incentive to enter the market as sellers. And prospective buyers have an incentive to economize on their use of the higher priced resource, as they must give up more to acquire it. Sellers invest in production plans. The scarce resources invested in these production plans are necessarily taken away from alternative uses. Because capital is multispecific, each capital good could be used for some alternative project. Moreover, because capital is heterogeneous, it cannot be instantaneously reallocated to any other use if a production plan fails. Therefore, an entrepreneur risks wasting resources whenever they initiate a production plan. They do not necessarily know what consumers will value in the future, and their expectations about the future could be wrong. However, if they sell their products in a relatively free market, profit and loss feedback will tell them whether consumers value their products more than the opportunity cost of the inputs. If they make profits, that’s a signal to continue what they are doing. If they incur losses, that suggests they should revise their plans, as their products or services may not be worth the cost. Liberalism provides an institutional environment characterized by private property rights, which enables the emergence of prices which act as guides and profit & loss which provide feedback. Together, the Three P’s of property, prices, and profit & loss enable individuals to coordinate their plans and take into account the opportunity cost of their use of scarce resources. Note, however, that most of this involves individuals seeking to satisfy their own subjective preferences. What about when people wish to act altruistically, to help improve the lives of others by their own lights? Effective Altruism is a movement that applies opportunity cost reasoning to the realm of individual altruistic actions. As Yusuf explains: “What makes EAs (Effective Altruists) unique is that they take scarcity of resources very seriously. They recognize that our ability to improve the world, whether through the political process, advocacy, or charity, is constrained by limited time, money, and energy.” Political advocacy, charity, and similar non-market actions lack the tight feedback that markets provide. Altruists cannot look into the minds of others and perceive what their subjective preferences are. Effective Altruist methods will not provide a true substitute for property, prices, or profit & loss feedback. However, thinking carefully about opportunity cost and the comparative effectiveness of different ways to change the world can help us use our resources and time more effectively. (0 COMMENTS)

Pollsters ask the public all sorts of questions about their political beliefs. But what does the public actually believe? Is there any reason to assume that people are responding truthfully to the questions asked by pollsters?That may seem like an odd question. Why would people lie to pollsters? I’m not sure, but there is evidence that they do lie about their beliefs. Reason magazine has an excellent article by Ronald Bailey, which discusses the tribal nature of expressed views on factual questions with political implications: A 2015 study in the Quarterly Journal of Political Science sought to distinguish partisan cheerleading from sincere partisan divergence. The Northwestern University political scientist John Bullock and his colleagues found that offering participants small payments for giving correct and “don’t know” answers to politically salient questions reduced the partisan gap between Republicans and Democrats by about 80 percent. “To the extent that factual beliefs are determined by partisanship, paying partisans to answer correctly should not affect their responses to factual questions. But it does,” they observe. “We find that even modest payments substantially reduce the observed gaps between Democrats and Republicans, which suggests that Democrats and Republicans do not hold starkly different beliefs about many important facts.”  The article cites another academic study that reported some truly astounding results after people were shown pictures of the modest crowds at the Trump inauguration and the large crowds at the Obama inauguration: But are partisans really seeing different things? Perhaps they are mostly cheerleading their team rather than asserting actual beliefs. This is the thesis explored by the University of Nottingham philosopher Michael Hannon in a 2020 paper for Political Epistemology. He points to a survey of nearly 1,400 Americans conducted in January 2017. Researchers showed half of the respondents photos, simply labeled A and B, of the crowds on the National Mall during Barack Obama’s 2009 inauguration and Donald Trump’s 2017 inauguration. They were asked which photo depicted the crowd for each president. Forty-one percent of Trump voters said the photo with the larger crowd depicted the Trump inauguration, which was actually the one from the Obama inauguration. Only 8 percent of Hillary Clinton voters picked the wrong photo. The researchers argue that it is likely that Trump voters picked the photo with the larger crowd as a way to express their partisan loyalties and show their support for him. More tellingly, the researchers asked the other half of the respondents which photo depicted the larger crowd. One answer was clearly correct. But Trump voters were seven times more likely (15 percent) than Clinton voters (2 percent) to assert that the much less populous photo of Trump’s inauguration had more people. Remarkably, 26 percent of Trump voters with college degrees answered incorrectly. “When a Republican says that Trump’s inauguration photo has more people, they are not actually disagreeing with those who claim otherwise. They’re just cheerleading,” argues Hannon. “People are simply making claims about factual issues to signal their allegiance to a particular ideological community.” Former Econlog blogger Bryan Caplan occasionally bets with people on specific factual questions, because he felt that people have less incentive to engage in wishful thinking when money is on the line.  These academic studies provide support for Bryan’s claim that people don’t always believe what they say they believe. Robin Hanson has argued that some public policy decisions should be guided by prediction markets, and I have specifically advocated using NGDP futures markets to guide monetary policy.  Public policy is likely to be more effective when based on views that will prove costly if incorrect. PS.  In a recent post, I reported this story: In 2006, lawmakers passed a bill banning almost all abortions, which Gov. Mike Rounds signed. It set off a brutal campaign that became the dominant issue in a busy election year that featured a governor’s race and 10 other ballot issues. Voters rejected the ban by 56% to 44%. Abortion opponents decided to make another run in 2008, collecting enough signatures to return abortion to the ballot. The key difference between the two measures was that the 2008 effort included exceptions for rape and the mother’s health. Opponents figured the lack of exceptions in 2006 had doomed their efforts. They were wrong. The 2008 vote was nearly identical to 2006, with 55% rejecting the measure. I suspect they were wrong because they took seriously poll results that suggest a wide range of views on abortion.  If you give people 4 or 5 options to choose from, the responses will spread out among these options.  People don’t like to sound extreme or unreasonable.  But in a binary up and down vote, it turns out that people are simply pro-life or pro-choice, with very little in between. PPS.  North Dakota had a similar referendum, with a similar result. (0 COMMENTS)

One of my biggest disappointments with blogs (and don’t get me started on Twitter, which is way worse) is that many of the people who comment on posts don’t engage with the author’s argument. I’m not applying this objection to commenters on EconLog because I think that, by and large, they (you) do better than commenters on the vast majority of other blogs. I find that this failure to engage happens a lot with discussions of immigration and open borders. Recently, philosophy professor Chris Freiman, filling in on Bryan Caplan’s new blog titled “Bet On It,” wrote a post titled “There Are No Libertarian Objections to Open Borders.” His post was a little too terse and I wouldn’t have titled it that way because it doesn’t allow for libertarian objections that neither he nor I have heard of. But what’s striking is how many of the commenters literally refused to respond to his arguments. One of Freiman’s arguments is one that Bryan Caplan makes and has made in his and Zach Weinersmith’s graphic novel titled Open Borders: The Science and Ethics of Immigration. Freiman writes: The most popular objection alleges that “we can’t have open borders and a welfare state.” (This position is sometimes affiliated with Milton Friedman, but his view was actually more nuanced than it seems.) Even if we set aside the finding that estimates of the fiscal impact of immigration “are clustered around zero,” this argument is easy enough to refute. Libertarians advocate for legalizing heroin with a welfare state in place. They don’t defend state restrictions on reproductive rights even when the children will attend public schools. In short, if we took the “welfare state objection” seriously, it wouldn’t stop at the freedom to immigrate. One commenter quoted the line, “Libertarians advocate for legalizing heroin with a welfare state in place” and replied “No, they don’t, they advocate for legalizing heroin.” Notice how that nicely allowed the commenter to ignore Freiman’s point. The key question to ask this commenter is, “Given that we have a fairly large welfare state in place, do you advocate legalizing heroin?” Unless he’s really dense, the commenter knows that this is the issue but fails to engage. Freiman also writes: The second objection claims that taxpayers have the right to determine how public infrastructure is used and thus the right to restrict immigrants’ access if they choose. But this argument also proves too much. Do taxpayers have the right to prohibit people from driving on public roads if they have copies of Anarchy, State, and Utopia in the car? Surely not. Freiman’s point is that if taxpayers have the right to determine how public infrastructure is used, there’s no stopping point. That’s why he gives the reductio ad absurdum of having Robert Nozick’s book. How does this same commenter answer? He says: “Ok. So what does that have to do with open borders?” What is has to do with open borders is that one of the objections to open borders has to do with taxpayers’ alleged right to determine who uses tax-funded infrastructure. One gets the idea that the commenter didn’t read the objection or just decided to ignore it and to ignore Freiman’s argument against the objection. This failure to engage doesn’t happen only with blogs and Twitter, of course. When I used to be a regular guest on Salinas-based radio station KION, this kind of thing happened a lot when I defended illegal immigration. I would start by pointing out that the case for illegal immigration is in some ways easier to make than the case for legal immigration because illegal immigrants tend to be more afraid of signing up for welfare programs and are even emore likely than legal immigrants to come here to work. Sure enough, the comeback would be “But it’s illegal.” That was, in the caller’s mind, the slam dunk argument. Recognizing that the implicit principle on the part of the objector was that one should obey laws, I would point out that there are laws against adultery in some states and also laws against going over the speed limit. I would ask the questioner if he (it was always he) thought that the laws against adultery should be enforced, or I would ask if the questioner had ever speeded and gotten away with it. Invariably, the questioner would refuse to answer but would say, instead, “How can you compare illegal immigration, with all its bad effects, with adultery or speeding?” I would answer that I wasn’t comparing them. I was simply trying to to get the questioner to recognize that the principle of “Obey all laws” was one that he didn’t really believe. I would then point out that I noticed that he was distinguishing between illegal immigration on the one hand and adultery and speeding on the other, based on the effects of both. That, I pointed out, was where I was trying to go all along, before the questioner raised the issue of obedience to laws. “So let’s look at the effects of illegal immigration,” I would say. Can you guess what happened next? The caller, if he was still on the line, argued that illegal immigration was wrong because it was illegal.   (0 COMMENTS)

South Dakota put abortion bans on the ballot several times, and each time the initiative was soundly rejected by voters: In 2006, lawmakers passed a bill banning almost all abortions, which Gov. Mike Rounds signed. It set off a brutal campaign that became the dominant issue in a busy election year that featured a governor’s race and 10 other ballot issues. Voters rejected the ban by 56% to 44%. Abortion opponents decided to make another run in 2008, collecting enough signatures to return abortion to the ballot. The key difference between the two measures was that the 2008 effort included exceptions for rape and the mother’s health. Opponents figured the lack of exceptions in 2006 had doomed their efforts. They were wrong. The 2008 vote was nearly identical to 2006, with 55% rejecting the measure. Despite these votes, the South Dakota government went ahead and made abortion illegal.  Does this sound familiar?  Perhaps you recall the following: South Dakota has voted to legalize marijuana use for adults.  Constitutional Amendment A, which passed with 53.4% of the vote, “legalizes the possession, transportation, use, and distribution of marijuana and marijuana paraphernalia by people who are 21 or older.” The legalization was to take effect in 2021, but it never happened.  The amendment was rejected by the South Dakota Supreme Court on a minor technicality.  You might think that’s no big problem.  They can vote again on a cleaner initiative in 2022.  But the anti-democratic elements in South Dakota are unwilling to give up so easily: South Dakota voters will decide later this year whether to become the 20th state in the nation to legalize marijuana for recreational use, after supporters filed thousands of signatures with state elections officials earlier this month.But five months before Election Day, it’s not clear exactly what share of the vote supporters must rally in order to win approval. That’s because those same voters head to the polls next week in a primary election that could rewrite the rules just ahead of November’s vote. On Tuesday, voters will decide whether to approve Amendment C, a proposed change to the state’s constitution that would require most ballot measures to win 60 percent of the vote in order to pass, rather than a simple majority. Fortunately, Amendment C was defeated by a margin of more than 2 to 1.  It will be interesting to see what tricks the South Dakota government tries next after the pot referendum once again passes this November. The cynical side of me suspects that neither the left nor the right favors democracy.  The left tries to thwart the will of the people by having unelected bureaucrats and judges make the rules.  The right tries to make it harder to vote, contests elections results, and gerrymanders districts so that 45% of Americans can rule over the other 55%. People care more about getting their preferred result than having a democratic process. PS.  Think about the fact that South Dakota is one of the most conservative states in the union, and yet even there voters reject bans on pot and abortion. Just imagine a nationwide vote on these issues.  (BTW, I’m not suggesting we have national referenda, just commenting on how out of line our politics is from public opinion.) (2 COMMENTS)

How much of life can be solved by algorithms, and how much just can’t be solved? Listen as A.J. Jacobs, author of The Puzzler, talks with EconTalk host Russ Roberts about the lessons he learned from solving every kind of puzzle imaginable, including the biggest stumper of all: what it really means to be a human […] The post A.J. Jacobs on Solving Life’s Puzzles appeared first on Econlib.

People often suggest that a fast growing economy is inflationary.   I would argue that exactly the opposite is true.  Consider this data for Venezuela and Singapore from an old Robert Barro textbook: Venezuela (1950-90):  Average RGDP growth = 4.4%    Average inflation = 8.0% Singapore (1963-89):  Average RGDP growth = 8.1%    Average inflation = 3.6% Singapore grew much faster and had much lower inflation. On the other hand, you might argue that I’m not holding “other things equal”.  Actually, I did: Venezuela (1950-90):  Average money (base) growth rate = 10.7% Singapore (1963-89):  Average money (base) growth rate = 10.8% Inflation is too much money chasing too few goods.  Because Singapore produced lots more goods, the double-digit money growth created less inflation than a similar money growth rate in Venezuela.  You might think of the faster RGDP growth as “absorbing” some of the extra money, leading to less inflation.  BTW, the numbers don’t precisely add up because velocity also changes gradually over time.  (Recall MV=PY, or m + v = p + y using rates of change.)  But that doesn’t change the basic point.  For any given money growth rate, faster RGDP growth leads to lower inflation in the long run. Some might argue that long run increases in RGDP are not inflationary, but at cyclical frequencies an economic boom is still inflationary.   But even at cyclical frequencies the correlation between growth and inflation is unstable.  Fast growth driven by an increase in aggregate demand is inflationary, while fast growth driven by an increase in aggregate supply is deflationary.  That’s the basic AS/AD model.  It’s why I keep saying “never reason from a price change” and “never reason from a quantity change”.  (Compare inflation in the hot economy of 2000 and recessionary 1974.) Paul Krugman has a piece in the NYT discussing various approaches to the Philips Curve—the relationship between inflation and unemployment. The piece begins as follows: It is a truth universally acknowledged — well, anyway, a truth acknowledged by everyone I know who thinks about the subject — that a hot economy leads to higher wages and prices. When demand for labor is strong, workers can and do demand wage hikes; when demand for goods and services is strong, businesses have “pricing power,” or the ability to raise prices without losing customers.But does a hot economy lead to a higher level of prices? Or does it lead to a higher rate of change in prices, i.e., ongoing inflation? Or maybe even to accelerating inflation, a higher rate of change in the rate of change? If a hot economy meant fast RGDP growth, then I would disagree.  But in the second sentence Krugman defines “hot” as strong demand.  So he’s not making the mistake I see so many others make. But in that case, maybe we shouldn’t even be using inflation as our nominal aggregate when analyzing Philips Curve models.  The relationship between inflation and unemployment depends on the cause of the inflation.  Is the higher inflation due to more aggregate demand or less supply?  A more useful nominal aggregate would be something like NGDP growth, which much more accurately tracks shifts in aggregate demand, and thus clarifies the real issue in the Philips Curve debate.  It really is a truth universally acknowledged that a nominally hot economy leads to more inflation.  And it also leads to more jobs (in the short run.)  The profession made a serious mistake when it spent decades on macro models where inflation was the key nominal aggregate, instead of NGDP growth.  (Both monetarists and New Keynesians are to blame.)  The Phillips curve ought to look at the relationship between NGDP growth and unemployment.  Do reason from a price times quantity (PY) change. Even if we switch to NGDP, we still face the same sort of unresolved issues that Krugman wrestles with in his column.  Is it the level of NGDP that matters?  Or the growth rate?  Or the change in the growth rate? The answer is that all three matter.  On average, the job market will be stronger with 6% NGDP growth than with 2% NGDP growth.  But it’s also true that the job market will be stronger with 4% NGDP growth and the level of NGDP 2% above trend, than with 4% NGDP growth and the level of NGDP 2% below trend.  In a sense, it is all about where NGDP is relative to expectations.  But expectations formed when?  That depends on the extent of wage stickiness.  The longer that wages are sticky (i.e., the longer the duration of wage contracts), the longer the period over which NGDP expectations matter. If one defines economic “hotness” as strong nominal demand, then the question of whether hotness leads to a one-time rise in inflation or a permanent rise in inflation is actually pretty simple.  If you have a one-time increase in demand (NGDP growth) then you get a one time increase in inflation.  If you have a permanent increase in NGDP growth then you have a permanent increase in inflation.  It depends on monetary policy (broadly defined to include velocity.) Some Keynesians wish to define aggregate “demand” as a real concept.  I’ve seen graphs that conflate “demand” and real GDP, which makes no sense at all.  Consider the AS/AD model.  If the AD curve is stable and AS shifts to the right, then RGDP rises and prices fall.  Do you want to call that an increase in “demand” just because consumers are buying more stuff?  I’ve seen prominent economists do just that. Here’s Krugman’s conclusion, which makes some good points: Pessimists who insist that we’re doomed to years of high unemployment are basically asserting that we’re back to the inflation environment of the 1970s and early 1980s, that expectations have gotten unanchored and that to reduce inflation we’ll need to go through an extended period of unemployment well above the NAIRU. I don’t agree; when I look at various measures of medium-term inflation expectations, they still look pretty anchored to me. But I could, of course, be wrong — the brief history of inflation theorizing I’ve just recounted doesn’t inspire much confidence that any of us has a really solid grip on the relationship between economic hotness (or coldness) and prices. The point I want to make, however, is that you do need a theory. The evidence is fairly overwhelming that the U.S. economy is currently running too hot and needs to cool off. But how much cooling it needs isn’t a question that can be settled without deciding what kind of inflation process you think is currently operating. HT:  Ken Duda (0 COMMENTS)

A widespread belief is that the political system must be responsive to voters’ demands. But this is not obvious at all. Consider the following statement in the Wall Street Journal’s report on the adoption of a gun control bill by Congress (“House Expected to Approve Landmark Gun Legislation,” June 24, 2022): The House was expected to pass the widest firearms legislation in decades Friday, hours after the bipartisan package won Senate approval, clearing the way for President Biden’s signature and giving supporters hope that the country’s political system can respond to mounting gun violence. Suppose the majority of the voters are in favor of slavery or that they are at least willing to accept it in return for something else as part of political bargaining. Or suppose that, in order to reduce murders by 39%, a majority of American voters wanted to jail all young males from their 17th birthday until they turn 25. Should the political system be responsive to this? Many people, including libertarians, classical liberals, and your humble blogger, would answer no. What other people mean when they say that the political system should be responsive is that it should be responsive to what they want. Libertarians and classical liberals believe that the political system should not be responsive to majority demands on certain issues. A constitution, written or unwritten, should aim at protecting individual rights in an autoregulated social order, whatever a political  majority happens to want. Some “constitutional” principles are beyond politics. But what should be and should not be beyond politics? To try and answer this question, it is useful to be cognizant with James Buchanan’s “constitutional political economy.” In this perspective, what should be beyond politics are general rules that could presumably meet the consent of every and all individuals—constitutional rules that govern and constrain day-to-day politics. Under these constraints, politics is the way citizens bargain toward non-unanimous collective choices that are presumed necessary for efficient social cooperation. (On this approach, you may want to have a look at my Econlib review of James Buchanan and Gordon Tullock’s classic The Calculus of Consent; and my review of Buchanan’s Why I, Too, Am Not a Conservative in Regulation.) The implications of this abstract theory are not always obvious. They require reflection and analysis. To take a current example, the Second Amendment of the American constitution guarantees residents of this country the “right to keep and bear arms,” which cannot be abrogated nor abridged trough ordinary politics. The Supreme Court just reaffirmed the primacy of the Second argument over politics (although it still allowed political regulations that arguably contradict the principle). Imagine if the First Amendment was subject to constant political meddling. Citizens may unanimously want to change the constitution, but it is not crystal clear how we make sure that the amendment process is not corrupted by politics. It is pretty clear that there could be no unanimity on abrogating or even weakening the Second Amendment, in which case the constitutional rule would stand and remain beyond politics. In practice, of course, if authoritarians or bigots become a massive and stable majority and cannot peacefully persuade the rest of the citizenry, the Constitution will likely be violated. Yet, the longer it holds and the more gridlock it creates, the more likely a temporary majority will be unable to abolish the liberties of a minority. There is another answer the question of how to preserve the rules that should be beyond politics but are undermined by politics. It is to escape politics completely. Anthony de Jasay thus took a stand against politics, including in his book with this very title (Against Politics, Routledge, 1998). In this perspective, one believes or hopes that a system of individual liberty will work better without an overpowering state (see my review of Michael Huemer’s defense of anarchy in Regulation). If anarchy can work, any individual would of course be free to keep and bear arms, or not, as he (or she) wishes. One thing is pretty sure: a system where politics, defined as the making of collective choices without unanimous consent, cannot be trusted to preserve individual rights. The pollical system should not be responsive to every wish. And it cannot responsible to every wish be as long as individuals holds different preferences and values. (0 COMMENTS)

Corporate law as a subject has significantly changed in recent years. These changes have led to an exhaustive review of the systems, procedures, and standards of corporate stability, governance, control, and democracy as elements of analysis and starting points for generating modern responses to the various challenges and economic risks faced by companies in the execution of their corporate agenda. Historically, the use of the term “corporate governance” with the connotation it has today, according to Cheffins, dates back to 1976, in an official report by the U.S. Securities and Exchange Commission (S.E.C.), and its subsequent consolidation crystallized in 1978 when a report by the American Law Institute promoted the multidisciplinary study of corporate governance (Cheffins, 2012). One of the first widely accepted definitions of corporate governance is offered by Cadbury Report (1992), in which corporate governance is defined as the system by which companies are directed and controlled. Through good corporate governance, key aspects of companies and societies are strengthened, such as good practices, trust, commitment, participation, communication, and transparency.   Blockchain: The future of corporate governance Blockchain is an immutable, anonymous, inviolable, and decentralized ledger, which is also the underlying force behind cryptocurrencies such as Bitcoin. According to Magnier (2018), blockchain offers a revolutionary application of cryptography and information technology to the age-old problems of financial record keeping, while creating high hopes regarding lower cost, greater liquidity, more accurate record-keeping, and transparency of ownership. Haber and Stornetta (1991) initially proposed the blockchain structure to time-stamp the creation of intellectual property, such as a digital document, in order to fix ownership rights with the creator before it can be copied by others. The first reference to this data structure as a “blockchain” came from Nakamoto (2008), whose innovations with bitcoin included connecting the blockchain concept to a public ledger jointly updated by numerous participants in an open-source network. The blockchain market is relatively small but has grown since Bitcoin gained popularity in the last decade. According to a 2017 global market study by Juniper Research, worldwide, 40% of all enterprises and 60% of large corporations are considering implementing blockchain over the next 10 years (Akgiray, 2019). Services that rely on the decentralized nature of the blockchain, such as identity or voting, change the balance of power, increasing citizens’ control over democratic processes. Taking these benefits into account, Blockchain can inspire new service delivery models for governments. At this point, it is also necessary to think about other governance structures, such as business or corporate ones. One of the biggest challenges of governance over the blockchain is understanding how to design and build systems that balance the interests of each of these stakeholders and ensure the success of the network, regardless of how that success is defined (De Filippi and Loveluck, 2016). Thus, blockchain governance is about how decisions are made, not the decisions themselves: who chooses and how they choose, rather than what is chosen. According to Yermack (2017) and Lafarre (2018), blockchain has great potential to provide efficient solutions to many problems that negatively affect current corporate governance systems, for example: Increased transparency of ownership and ownership changes Efficient and fair shareholder meetings Real-time accounting Each and every one of these changes could drastically affect the balance of power amongst investors, directors, and shareholders. For investors, blockchain could enable the identification of ownership positions and reduce the opportunity for rent-seeking or unfair behavior by regulators, exchanges, and listed companies. For directors, the technology could enable faster and more affordable stock acquisitions, but possibly with much less secrecy than under the current system. For shareholders, blockchains could offer lower trading costs and more transparent ownership records, while allowing real-time visible observation of share transfers from one owner to another. However, it should be noted that the impact of these benefits will depend on the type of blockchain used, whether public, as is the case with Bitcoin and other digital currencies, or restricted, such as the model currently being tested by several established financial institutions and consortiums.   Latin America, Blockchain and Corporate Governance: A long way to go According to Lee (2016), the most prominent proposed use of blockchain technology in corporate finance has occurred in Australia, Estonia, and the United States. In Australia, the Australian Stock Exchange announced in January 2016 its intention to redesign its clearing and settlement systems using blockchain technology. In Estonia, the Stock Exchange began in 2016 to conduct shareholder voting on a blockchain platform. In the United States, a U.S. public company called Overstock.com began accepting subscriptions for a stock rights issue via a private blockchain in 2016. In Latin America, the use of blockchain technology has been growing gradually and is expected to reach US$1,356 million by 2024, according to data from the consulting firm Frost & Sullivan and calculations by Procolombia’s vice-presidency of Innovation and Sector Intelligence in 2019. While the potential of blockchain may be extraordinary, it may not promote trust without effective governance. For blockchain technology to have a transformative impact on financial markets and institutions, regulatory methods must also be able to adapt. Trust is imperative for any area of social life. When divorced from legal enforcement or regulation, blockchain-based systems can be counterproductive or even dangerous. Poor corporate governance can assume a major role in financial scandals and crises. On the other hand, excessive or premature enforcement of legal obligations could also hinder innovation and thus miss the opportunity to leverage technology to implement policies that promote more efficient, transparent, and scalable corporate governance built on trust. The generation of trust without the need for an intermediary, is one of the great contributions of Blockchain technology, due to the immutability of blockchain records. Therefore, this is an opportunity for corporate governments to innovate and redefine their value in the market, and improve their internal processes and organizational structure. Moreover, by including blockchain in their innovation programs, and establishing it as a critical component of the enterprise architecture, corporate governments will learn how to unleash the full potential of the data-driven service. Today the world is facing not only an economic but also a social crisis, so it is relevant to establish corporate governance linked to the promotion of efficient and transparent markets, in line with current legislation and the needs of each particular nation. The future of blockchain is yet to be determined, but for such a future to be prosperous, the technological, legal, business, and political sectors of society must work together, as long as each sector recognizes the possibilities and unique characteristics of the other sector.   Bibliography: Akgiray, V. (2019). The Potential for Blockchain Technology in Corporate Governance. OECD Corporate Governance Working Papers, No. 21, OECD Publishing, Paris. Available at the following link. Cámara de Comercio de Bogotá. (2019). Así va el negocio de blockchain en Colombia. Available at the following link. Last accessed on June 4, 2021. Cheffins, B. (2012). The History of Corporate Governance. Cambridge: European Corporate Governance Institute. Filippi, P; Loveluck, B. (2016). The invisible politics of bitcoin: governance crisis of decentralized infrastructure. Internet Policy Review, 5 (3). Haber, S. and Stornetta, S. (1991). How to time stamp a digital document, Lecture Notes in Computer Science 537, 437–455 (Advances in Cryptology—CRYPT0’ 90). Lafarre, A;  Van der Elst, C. (2018). Blockchain Technology for Corporate Governance and Shareholder Activism. ECGI Law Working Paper (390/2018) Lee, L. (2016). New kids on the blockchain: how bitcoin’s technology could reinvent the stock market, Hastings Business Law Journal 12, 81–132. Magnier, V; Barban, P. (2018). The Potential Impact of Blockchains on Corporate Governance: A Survey on Shareholders´ Rights in the Digital Era. InterEULawEast: Journal for the International and European Law, Economics and Market Integrations. 189-226. Nakamoto, S. (2008). Bitcoin: A Peer-to-Peer Electronic Cash System. Available at the following link. North, D. (1991). Institutions. Journal of Economic Perspectives, 5 (1), 97-112. Shah, N; Napier, C. (1992). Shared Vision and Beyond. Cadbury: London, Inglaterra. Available at the following link. Last accessed on June 3, 2021. Yermack, D. (2017). Corporate Governance and Blockchains. Review of Finance, Vol. 21.   Michelle Bernier is an attorney specializing in international law and commercial law. She is currently studying Master of Laws and International Business, with a double degree from the Universidad Internacional Iberoamericana in Mexico and the Universidad Europea del Atlántico. She is also a part of Students for Liberty’s inaugural cohort of Fellowship for Freedom in India. (0 COMMENTS)