My recent post on the homeless elicited a bunch of comments citing surveys of homeless people.  I wish I had been more careful with my terminology, as I was not actually trying to discuss the homeless population, rather my focus was on people living on the streets. In America, there are an estimated 550,000 homeless people.  Within that group, about 85,000 live on the streets or in homeless shelters. Even this figure somewhat overstates the number who live only on the streets.  The focus of my post was on those actually living on the streets. It’s also important to understand that just as people move in and out of homelessness, they move in and out of living on the street.  One person might move to California and work for 2 years, lose their job, and end up homeless.  Another may be local and have an apartment, and then lose the apartment after being unable to pay rent due to a divorce.   Many of the families that are homeless but not living on the street are local residents that receive public assistance.  Every situation is complex, hard to describe with simplistic survey questions. There’s a reason that most economists are highly skeptical of using survey questions to ascertain motivations. Most of the critics of my post are correct if you look at the entire 550,000 population of homeless.  I stand by my claims for the subset of homeless that live on the streets.  I still believe there is a strong (and rational) preference to live on the streets of LA compared to Mississippi or Minnesota.  It’s very hard to get money in Mississippi and it’s very cold in Minnesota.  This has nothing to do with people “choosing” to live on the street, rather its about how people make the best of a very bad situation. One final point.  Many of our homeless stereotypes are about people living on the streets.  I suspect that YIMBY policies to build more housing would be most effective at reducing the number of homeless who do not currently live on the streets. (0 COMMENTS)

In a recent post at EconLog, I discussed several phenomena that limit the effectiveness of electoral feedback. One of these is bundling. Each candidate in an election will have power to make policies that impact a wide variety of issues. Yet each citizen has just a single vote. So it’s not clear whether a vote expresses preferences about health policy, foreign policy, or any number of other policy arenas. Moreover, a voter might vote for a candidate whose foreign policy they dislike if they like the candidate’s health policy enough. This bundling means that electoral feedback is at best a very noisy signal about voters’ approval or disapproval of particular policies or actions. Arnold Kling favorably quoted my post at his Substack, and made a very good point about how this bundling issue impacts not just electoral feedback, but also the feedback associated with interjurisdictional competition: In the widely-unread Unchecked and Unbalanced, I point out another way that bundling distorts the market for government services. Your local government bundles together law enforcement, property zoning, schools, and other services. There is no way to opt out of the services that you do not like, or to go with alternative providers. The Tiebout hypothesis, which claims that people move to get the mix of governments services that they want, falls apart because of this market failure (among other reasons). This is an excellent point! Bryan Caplan addressed similar issues in his recent plenary address at the Public Choice Society meetings, titled “Tiebout Was Wrong, but Why?”  While Kling focuses on problems of bundling, Caplan largely focuses on the proposition that “non-profit competition is far inferior to for-profit competition. The ‘competition’ between local governments is like an academic test that doesn’t count for your grade.” Kling addresses issues related to bundling and what that means for the options that citizen-consumers have. Whereas Caplan largely addresses issues related to the fact that political decision-makers are not residual claimants and therefore face very different incentives than entrepreneurs in a market do. It may be possible to address both of these issues, though doing so is somewhat radical. To address Kling’s concern, we could consider unbundling various aspects of governance and allowing for non-territorial entry and exit by citizen-consumers. Trent J. MacDonald proposes this and discusses the idea in detail in his excellent book The Political Economy of Non-Territorial Exit: Cryptosecession, which I reviewed for the Review of Austrian Economics. As I explained in my review: [MacDonald] draws from the literature on Tiebout competition but notes that Tiebout competition is limited by the costs of moving to a new geographical area. The costs of moving can render the quasi-market for governance and public goods effectively non-competitive. Moreover, public services are often bundled together. For example, in order to move to a school district they prefer, a family might move into a jurisdiction with police services they abhor. They cannot leave that police department’s jurisdiction while remaining in their preferred school district. Unbundling public services from one another and enabling non-territorial exit alleviates these related problems. If we can empower individuals to switch to a new provider of public services without requiring them to abandon the advantages of their current location, then this introduces far more meaningful competition. Likewise, if we unbundle services so that an individual’s choice of police services does not determine the educational services they receive, this too enables more competition. So MacDonald specifically discusses unbundling and non-territorial exit as a way to address real-world limitations to Tiebout competition. What about Caplan’s concerns about motivations, incentives, and residual claimants? Well, one thing that could be done is turning more local government services over to for-profit entrepreneurs operating in a competitive market. In the limit, this might take the form of market anarchism or anarcho-capitalism, in which even law and security are provided on the market! There’s plenty of room for research on the sources of “quasimarket failure.”  Perhaps one way to alleviate these failures is to take the “quasi” out of “quasimarket”! (1 COMMENTS)

Government inefficiency is not a metaphysical mystery nor an ideological incantation. It originates in two causes: the incentives of politicians and bureaucrats; and the need to constrain the capabilities of these government actors lest they become a full-fledged Leviathan. If one includes this last requirement, constrained government is efficient at a superior level, because tyranny is worse than inefficiency. Efficiency in a narrow economic sense requires entrepreneurship and discretion; in the case of government, this means arbitrary power. Whoever said something like “fortunately we don’t have the government we pay for” was right. (The aphorism has been attributed to many sources, but my friend and co-blogger David Henderson thinks the original author was Charles “Boss” Kettering, the head of GM.) This becomes more obvious as government power grows. On the one hand, more power means more opportunities to abuse it, that is, to use it in ways that certain citizens love but that harm other citizens; in other words, more state power means more official discrimination against certain citizens. On the other hand, the more power needs to be (hopefully) constrained, the most likely that Leviathan will be unable to supply simple public services in acceptable quality. A column in the Wall Street Journal just gave a good illustration. Laura Saunders, a Wall Street Journal columnist who happened to have a tax issue with the IRS, recounts her recent adventures (“The Saturday I Spent Five-and-a-Half Hours in Line Waiting for the IRS,” Wall Street Journal, May 20, 2022). A taxpayer must make an appointment to meet an IRS bureaucrat, but there is no way to do it online and only 10% of phone callers get through. The alternative is a walk-in, only available on certain days and at certain places (by now, no walk-in days are available for the rest of 2022). From 8:30 in the morning on May 14, Mrs. Saunders waited in line for five hours and a half, mostly in a queue that stretched one block outside the building. Only five bureaucrats were assigned to that waiting line. One of Saunders’ companions in the queue, with whom she had exchanged email addresses, tested positive for Covid the next day… A broader but certainly related question is how, ceteris paribus, a minimum level of decency, morality, propriety is encouraged or discouraged by different political regimes. (0 COMMENTS)

When an airliner crashes into the ocean, investigators generally consider the possibility of pilot error. But what about inflation? When inflation is too high, should we consider the possibility that the inflation-targeting pilot screwed up?Pat Horan recently pointed out that the NYT omitted the Fed as a possible cause of high inflation in its recent public opinion poll: We should not write this oversight off as the NYT being a “dumb” newspaper.  They are certainly biased to the left, and they often misinterpret economic stories.  But the NYT isn’t dumb.  At the bottom of this post I have a google screenshot showing many recent stories that indicate the Times does understand that the Fed is responsible for controlling inflation.   Furthermore, if you polled professional economists on the cause of the current high inflation, I am confident that many of them would not name monetary policy.  (I suspect that excessive fiscal stimulus and supply shocks would be the most often cited causes.) During the long slow recovery from the Great Recession, I used the fireman/arsonist analogy to illustrate why policy was so far off course.  Both the media and the economics profession tend to view the Fed as a sort of fireman, which comes in to solve economic problems that pop up spontaneously. People don’t generally blame fireman for causing fires. Fed critics like myself view the Fed as more like an arsonist that creates unstable NGDP growth.   Ideally, the Fed would be viewed like an airline pilot, except the goal would be to keep NGDP growing along a steady path.  When pilot error does occur, as on Air France flight 447 from Rio to Paris, it’s often in response to some sort of external shock.  In that case ice crystals interfered with instrument readings. Nonetheless, the cause of the plane crash was judged to be pilot error.  Similarly, Fed inflation targeting mistakes don’t generally happen in a vacuum, rather they tend to occur during periods when the economy is also being disturbed by non-monetary shocks. Nonetheless, if NGDP is too low (as in 2008), or too high (as it is today), then the Fed should be viewed as the cause of the problem.   Perhaps if there were widespread recognition bad inflation outcomes are caused by bad Fed policy, then bad Fed policy would occur less often. Even better, imagine if we could all agree on a simple and unambiguous metric for whether policy is too easy or too tight.  What might that policy indictor look like? How many times must we live through policy errors that could have been avoided if the Fed had focused like a laser on the level of NGDP? (0 COMMENTS)

I thought I had known the major government contributors to the baby formula crisis. But the following 3 paragraphs tell some things that are new to me: Regulation is a major reason only four large formula producers control most of the U.S. market. First, parents receiving WIC assistance are allowed to choose only certain brands. Second, consumers must pay a 17.5 percent tariff on any imported formula, which prices countless brands out of the U.S. market. It’s a nice arrangement for the companies — and for their lobbyists — but it raises prices for families and makes it difficult to boost supplies during shortages. When new formulas enter the market, regulations forbid sellers from letting anyone know about them for 90 days, even as manufacturers may advertise existing formulas all they like. Those first months on the shelf are make-or-break for many new products, which is why existing producers like this otherwise pointless regulation. At times like this, parents might appreciate hearing about new options. One of those options is toddler formula, which in many cases meets the Food and Drug Administration’s nutritional requirements for infant formula. However, FDA regulations prohibit many manufacturers from recommending this option. This is from Ryan Young, “Cronyism Makes the Baby Formula Shortage Worse,” AIER, May 24, 2022. The 90-day restriction is outrageous. Read the whole thing. HT2 Donald Boudreaux. (0 COMMENTS)

Here’s a link to the video of my OLLI talk that I gave last week, titled “The Wonder of Economic Growth.” I give the second talk tomorrow.   (0 COMMENTS)

Today would have been David Theroux’s birthday. David passed away, one month ago, on April 23. I met David a few times over the years and always found him interesting and kind, but he had the reputation of a difficult person. I admired him greatly, for the think tank he built. He was the founder and president of the Independent Institute. In the relatively small market of classical liberal/ libertarian think tanks, the Independent Institute wanted to be both scholarly and radical, a combination which sounds easier on paper – shouldn’t scholars be freer in their thinking and writing than policy experts, whose hands are somehow tied by relationships with the world of politics? – than it is in practice. But Theroux came close, and he did so by sticking with a most traditional set of think tank activities: by publishing serious books and by publishing one of the few openly libertarian journal, the Independent Review. It is a very long term approach. Of course the Independent Institute has its blog and its social media activity: you can’t avoid these things, if you want to look alive these days. But I appreciate that this is clearly of secondary importance, compared with the more long term dissemination of ideas. The books that the Independent Institute has published are remarkable: their catalog includes some “classics”, at least within the boundaries of our movement (I think of Dominick Armentano’s Antitrust and Monopoly, Bruce Benson’s To Serve and Protect, Dowd and Timberlake’s Money and the Nation State, the excellent The Voluntary City edited by Berto, Gordon and Tabarrok); some provocative pamphlets (like Alvaro Vargas Llosa’s The Che Guevara Myth) and a good number of titles which would deserve to be better known (our own Scott Sumner’s The Midas Paradox or The Economies of Immigration edited by Ben Powell, for example). The Independent Review is even more extraordinary. Its founding editor, Robert Higgs, is a remarkable (and much underrated) economic historian and left his impression in the journal. Besides Crisis and Leviathan, Higgs wrote a number of important works, my favorite being perhaps Depression, War, and Cold War. Challenging the Myths of Conflict and Prosperity, a genuine eye-opener. In many ways, he is that rare bird: a scholar who is both outspoken and rigorous. His successors as editors of the Independent Review (Chris Coyne, Mike Munger and Robert Whaples) are doing a splendid job. “Independent scholarship developed by independent minds” sounds a bit like an advertisement quip, but in this case is a fair description. His long time association with Higgs signals that David had a clear vision for his think tank, the philosophy (the kind of libertarianism, if you prefer) it should advance and the means by which it should promote it – and kept to it, for some 35 years. Not bad. His legacy is of great relevance, for classical liberal all over the world. (0 COMMENTS)

In our previous post, we examined the Inside Climate News (ICN) claims about Exxon’s research goals and processes with regard to climate change. Exxon had real doubts about the state of the science, and it supported reasonable public policies based on the science. From computer models of the earth’s climate to the Kyoto Protocol, today’s perspective does not contradict the company’s early impressions.   Computer Modeling ICN documents instances in which Exxon officials, advertisements, and lobbyists expressed doubt about the reliability of computer climate models even though company scientists used such models. In fact, however, climate modeling has always been problematic. Consulting for Enron, climatologist Gerald North of Texas A&M University stated in the late 1990s: We do not know much about modeling climate. It is as though we are modeling a human being. Models are in position at last to tell us the creature has two arms and two legs, but we are being asked to cure cancer. And: There is a good reason for a lack of consensus on the science. It is simply too early. The problem is difficult, and there are pitifully few ways to test climate models. The Economist in 2019 reported that “predicting the climate future is riddled with uncertainty” because “crude” modeling “misses much detail.” ICN offered a single defense of early modeling by quoting Martin Hoffert, a former Exxon modeling consultant: Exxon’s science turned out to be spot on, and the company’s early modeling projections still hold up more than 30 years later, Hoffert said in an email to Inside Climate News. The Arctic’s rapid warming and the extreme vulnerability of Antarctica’s ice sheets are “consistent with the results of our theory which predicted them before they happened,” Hoffert wrote. Hoffert’s “proof” is oddly specific. Did the model predictions apply to more than just the poles? If the embryonic models were in some predictive sense “correct,” was it for the right reasons? ICN doesn’t say.   Kyoto Protocol Several ICN articles note that Exxon Mobil opposed the Kyoto Protocol of 1997, a failed international global-climate agreement. Yet nowhere does ICN discuss the political problems with the agreement that existed from the beginning: limited participation and large pain for insignificant gain (a temperature reduction of 0.05° by 2050). As one scientist stated: Three scenarios for post-Kyoto emissions reductions [indicate that] … the long-term consequences are small…. The influence of the Protocol would, furthermore, be undetectable for many decades.[1] Nature concluded: The Kyoto target itself does relatively little to combat the rate of climate change…. We should, therefore, be thinking seriously about how we can best adapt to climate change.[2]   Prudence vs. ‘Denialism’ In one article, ICN accuses company lobbyists of being “denialist,” without defining the term. Richard Mueller, a physicist and philosopher at the University of California at Berkeley, has helpfully identified six categories in “The Classifications of Climate Change Thinkers”: Alarmists, Exaggerators, Warmists, Lukewarmists, Skeptics, and Deniers.[3] ICN claimed that an Exxon Mobil advertisement was misleading, while neglecting to mention the ad’s statement: Science has given us enough information to know that climate changes may pose long-term risks… Consequently, people, companies and governments should take responsible actions now to address the issue. The operative words are “may” and “responsible.” May means “possible,” not “probable.” The possibility of risk does not equate to catastrophe, and the risk of overreaching must be considered as well. “Responsible actions” certainly do not include compromising affordable, plentiful, reliable energy sources, much less subjecting U.S. policy to global governance.   Company Options? In its fifth article, ICN notes that in a speech by “Exxon chief executive Clifton Garvin… in April 1981, global warming was never mentioned among the environmental risks that he said the industry would be ‘held primarily responsible for solving.’” ICN insinuates that Exxon Mobil should have adopted a monolithic, alarmist view of climate science, leading the company to move away from carbon-based energies to … what? Exxon, in fact, invested in renewables—unsuccessfully. ICN never mentions Exxon’s 15-year foray in solar energy, which ended in 1984. Exxon entered solar in 1969 (wind power was not a business yet) and became the market leader with sales in 35 countries. Wholly-owned subsidiaries Solar Power Corporation and Daystar called it quits because of high costs and financial losses. “Solar power might eventually become price competitive and have an important long-term role as a major renewable energy source,” Joseph Pratt and William Hale wrote, “but Exxon’s core competencies in oil and natural gas had little direct application to solar power’s operation or development.”[4] Beginning in 1969, Exxon invested heavily in uranium mining and enrichment operations. Headed for a time by up-and-coming Lee Raymond, Exxon Nuclear Corporation was never profitable and was sold in 1986.[5] In recent years, the company has bankrolled research into biofuels derived from algae, so far with little success. Business profits matter, and the renewables industry has always been risky and government-dependent. ICN’s insinuation that Exxon should have abandoned oil and gas production is fanciful given the state of the climate science and the fiduciary responsibilities of the company—not to mention injury to consumers and to the nation. Billions of lives currently depend upon fossil fuels. Replacing them will require vast scientific, technological, infrastructure, political, regulatory, and diplomatic breakthroughs – breakthroughs that are far beyond Exxon’s capabilities or even those of the entire oil industry. Nor does the Biden Administration, if we can take them at their word, believe we can abandon fossil fuels. President Biden himself declared, “… no one has anticipated that this year we’d be in a position, or even next year, that we’re not going to use any more oil or gas.” Late last year, DOE Secretary Jennifer Granholm admonished U.S. drillers: “Get your rig count up.” And as even John Kerry admitted, “But you can’t just shut down everybody’s economy across the planet and say, ‘OK, we’re not going to use oil’ or whatever.”   Conclusion After reviewing thousands of internal documents, ICN did not find a “smoking gun” – that is, a document that said something like: “Even though we know global warming is an imminent threat, we’re going to obfuscate to protect our core business.” Instead, the authors, on a mission to incriminate, found documents written by different employees with different beliefs at different times. That the beliefs of Exxon’s leaders differed from those of ICN’s journalists is hardly damning, much less criminal.   [1] T. M. L. Wigley, “The Kyoto Protocol: CO2, CH4 and Climate Implications,” Geophysical Research Letters 25, no. 13 (July 1, 1998), pp. 2285–88. [2] Martin Parry, Nigel Arnell, Robert Nichols, and Matthew Livermore, “Adapting to the Inevitable,” Nature 395 (October 22, 1998), p. 741. [3] Elsewhere, ICN wrote about “5 Shades of Denial,” lumping deniers into a political box, without serious analysis. [4] Pratt and Hale, p. 189. [5] Pratt and Hale, pp. 185–89. Robert Bradley Jr and Richard Fulmer are coauthors of the primer Energy: The Master Resource (2004) and other writings on free-market energy and climate policy. (0 COMMENTS)

At first glance, it seems obvious why California has such a disproportionate number of America’s homeless.  Housing is very expensive in California.  But why should expensive housing cause homelessness?  If houses in Nome, Alaska were as expensive as in Los Angeles, would Nome have as much homelessness as LA? Commenter CaliNice had an interesting comment about the housing situation in California. Here’s an excerpt, although you may want to read the whole comment, which makes some other interesting points: Not that all the low income people are pushed out, as there are lots of poor people in California, but poor people have to work very hard to afford rent in California, and many people with serious social problems(drugs, addiction, mental illness, criminality) tend to just be priced out of the state since they don’t care to put in the extra work to afford rent. The poor in California who survive high rents are much more law-abiding and pro-social than those that get priced out. Therefore, the more exclusionary the zoning, the more desirable the location. The reverse is true for cities becoming cheaper, with social problems rising the cheaper the rents, causing a negative loop with respect to demand. . . . That’s also why the homeless problem is so bad in California. California just doesn’t enforce rules very much, but that is mitigated by the fact that the high rents have kept enough people with issues out so the state’s social situation is on average better than it would be (TX has a higher rate of crime than CA). Homeless people circumvent the issue of high rents completely, so the lack of enforcement becomes the defining factor, hence why the state has such a severe problem Thus expensive housing and homelessness are linked, but not because the homeless can’t afford housing.  Rather the correlation occurs because the homeless in expensive areas are not in the market for housing.  For the homeless, the relative cost of living on the street in Los Angeles (relative to an apartment) is much lower than the relative cost of living on the street in Arkansas.   So it would be rational for a homeless person to relocate from Arkansas to LA. Here’s a more intuitive way to see the point.  Ask yourself why housing in California is so expensive.  There could be many reasons, but some combination of good climate, well paying jobs, and constraints on building probably are the key factors.  Perhaps a lower crime rate than Texas.  But in a sense it doesn’t even matter what the reason is; the high prices are telling you that California is perceived as a very desirable place to live, at the margin.  So why don’t poor Arkansas people currently living in homes move there?  Because they’d be homeless.  But homeless people in Arkansas are already homeless, so they benefit from all of the positive factors that make LA a desirable place to live, without the drawback of paying high prices for an apartment.   You might respond that while California has a nice climate, all those good paying media and tech jobs are of no value to the homeless.  Not so.  The same factors that make housing really expensive in California also make it easier for the homeless to get some money.  In a rich place there is more public welfare, more private charity, and higher pay on part-time low skilled jobs.  Some of that wealth really does “trickle down”. These pecuniary advantages are small comfort to working class people who can’t find reasonably priced homes in LA, but a real benefit to homeless people that aren’t paying a mortgage.   I favor YIMBY policies in California, but they will have only a very limited impact on homelessness. PS.  This argument may sound insensitive, as I’m sort of claiming that the homeless benefit from “free street accommodation” in LA.  I do understand that they are often preyed upon, and are subject to cold weather at night.  I probably wouldn’t even survive.  Then the question becomes whether the negative factors associated with being a homeless person in LA are worse than being homeless in other states.  I’m no expert on that issue, but there is presumably some sort of equilibrium where the increasing number of homeless in California eventually makes street life just undesirable enough to stop any further inflow. PPS.  I don’t think this model provides a complete explanation for California demographics.  Both African Americans and Hispanics have somewhat below average incomes, on average.  California’s black population is declining, which is consistent with this model (recall that the vast majority of poor people are not homeless.) But its Hispanic population has been rising.  So there are a significant number of poor and working class people that are willing to live in California (in houses) despite high prices.  House prices in Hispanic areas of south and east LA (or Orange County) are quite high by national standards, albeit low by LA standards.  I don’t claim to know how working class Hispanics can afford those pricey homes.  It can’t all be explained by the fact that some were purchased at lower prices in the past—something is holding up the market on newly sold homes.  And it can’t all be due to gentrification; the sprawling working class parts of LA County are huge compared to the relatively small areas impacted by gentrification.  LA County alone has 4.8 million Hispanics, roughly the same as the total population of Harris County, Texas, America’s third most populous county.  Picture all of Houston and its inner suburbs—that’s just the Hispanic neighborhood of LA. As always, further research is needed. . . . PPPS.  Parts of LA are surprisingly beautiful.  Check out the four pictures in this Nolan Gray tweet. (0 COMMENTS)

The so-called shortage of baby formulas, which appeared earlier this year in the United States, is a strange phenomenon. It is actually, or at least it started with, localized “shortages” in free baby formulas for poor mothers under the Special Supplemental Nutrition Program for Women, Infants, Children (WIC). For the purpose of this program, about half the baby formulas produced in the United States are purchased by state governments with federal money. The production of baby formulas is a very regulated industry. In early 2022, the Food and Drug Administration forced the closure of a factory of Abbot Laboratories (producer of Similac) in Michigan. Abbot is the dominant American producer of baby formulas, partly because it is the monopolistic distributor chosen by most state governments. A germ had been discovered in the factory, but not in the products. Some 98% of all the baby formulas consumed in the United States are produced domestically, thanks to a customs tariff of 17.5%, not to mention the regulatory requirements. Industry concentration is a typical result of regulation and protectionism. (See “Why the Baby-Formula Market Is a Mess: Low Competition, High Regulation,” Wall Street Journal, May 20, 2022; and “The Baby Formula Shortage Was Made in Washington,” Wall Street Journal, May 19, 2022)). At least until very recently, anybody could buy baby formula, including families who are eligible to get it free from WIC. Those who can’t get their WIC allocation can purchase formulas on the open market at the market price. The Wall Street Journal illustrates with a few cases (“Baby-Formula Shortage Leaves Families Desperate, Prompting WIC Program Revamp,” May 20)—for example: Some low-income parents who rely on the federal Women, Infants and Children program said that shortages of approved baby formula have left them paying hundreds of dollars to purchase formula outside the program … Michelle Richter, 35, receives WIC baby-formula vouchers for her 9-month-old son. … She said she hasn’t been able to find formula at WIC-approved retailers. … As a result, Ms. Richter said, she has had to shop online for formula with her own money. Over the past month, Ms. Richter said, she ordered three cans of Enfamil formula for about $150 total from Amazon.com Inc. One can empathize with this mother, even without knowing her specific circumstances. But we have seen worse tragedies in human history than buying baby formula online for one’s own baby with one’s own money. Poor mothers can find baby formulas or smartphones or TV sets on the open market if they are among the highest bidders, that is, if they are willing to pay the  market price (by foregoing other things, of course). A free market is a continuous and invisible auction. Impersonal markets are more efficient than politicians and bureaucrats in allocating resources. Ms. Richter could buy on the market what the government was providing at a zero price but was unavailable. There is no mystery in these phenomena although understanding them does require some elementary economic knowledge, even if mainly practical, knowledge of how things work in a world where nearly unlimited human wants exceed what scarce resources can produce. In his book More, Philip Coggan (a former columnist at The Economist) reminds us of the Russian official who, after the breakup of the Soviet Union, asked British economist Paul Seabright: Who is in charge of the supply of bread to the population of London? Isn’t it striking that no “food czar” (as Peter Navarro was Donald Trump’s “equipment czar” at the height of the pandemic), no government apparatchik, is required to provide the 22,000 tons of food that residents of London consume every day in a great variety of diets? This must be as complicated as finding PPE (personal protective equipment) or baby formulas, and a food shortage in London (or Los Angeles or name your city) would be as much of a catastrophe. Like other dictators, the one in Venezuela, Nicolas Maduro, often calls in the army to solve shortages, which unsurprisingly never works. What is needed is economic freedom and valid price signals. Joe Biden is not Nicolas Maduro, nor was Donald Trump. But facing the baby formula “shortage,” Biden did what Trump did when confronted to the “shortage” of PPE: he invoked the Korean-war Defense Production Act (DPA) and its allocation powers, including ordering the air force’s civilian aircraft to fly in baby formulas from Europe. Were Biden to control prices as Trump did under the DPA, baby formulas would disappear from everywhere as PPE did. At the time of writing, baby formula is available online at Amazon and Walmart. The problem seems to have become more acute in the past few days, but there might be some propaganda involved: politicians have an incentive to make people believe that, without them, babes would have no milk. One reason for mounting formula problems could be the very invocation of the DPA and the possibility of price controls, forewarning that shortages are coming—real shortages: nothing on even the virtual shelves. With this prospect, consumers are more motivated to engage in panic buying and hoarding. Econometric research by Rik Chakraborti and Gavin Roberts found that this is exactly what happened during Covid: the residents of the 34 states with “price gouging” laws on the books, having had the experience of shortages in past emergencies, engaged in hoarding, worsening the shortages (“Effects of Preexisting and Surprise Price-Gouging Regulation During the COVID-19 Pandemic,” Journal of Consumer Policy 44 [2021]). Another, related reason for the possible worsening of the availability of baby formulas is that their prices did not apparently increase to their new market-clearing levels, even in the free half of the market. At least, this is what a look at Amazon’s price histories suggests. Price increases would reduce quantity demanded including consumer hoarding and provide a real incentive for manufacturers to increase production, thereby eliminating any temporary shortage. The observation of unchanging prices is partly deceptive, however, as producers can, up to a point, in order to serve an unsatisfied demand, raise prices stealthily by reducing the diversity of their products or the cost of their packaging. Reckitt Benckiser Group (producer of Enfamil) seems to have done that by “focusing on sizes it says allows it to provide the most formula.” (“Gerber Owner Nestlé to Fly Extra Baby Formula to the U.S.,” Wall Street Journal, May 17, 2022.) In our collectivist times, producers may be fearful of transparently letting consumers bid up prices. This fear is not without foundation: the Department of Health and Human Services warned that Biden would be “calling on the Federal Trade Commission and state attorneys general to crack down on price gouging.” Will this encourage producers to increase their output? (0 COMMENTS)