Intellectual omnivore Tyler Cowen of George Mason University and EconTalk host Russ Roberts talk about their reading habits, their favorite books, and the pile of books on their nightstands right now. The post Tyler Cowen on Reading appeared first on Econlib.

Over the past decade, I’ve felt like the world has become much dumber. Political decay once associated with a few countries such as Italy and Philippines has spread almost everywhere. But maybe that’s just me getting older and grouchier. Maybe the world is not any dumber than before.Jonathan Haidt has a thought-provoking essay in The Atlantic entitled: WHY THE PAST 10 YEARS OF AMERICAN LIFE HAVE BEEN UNIQUELY STUPID So it’s not just me.  I have a few reservations with Haidt’s views on social media (as does Matt Yglesias), but the essay is well worth reading.   When dumb ideas are popular, sophisticated people look for deep explanations.  Who gains and who loses from that dumb policy?  But perhaps public choice models with special interest groups don’t provide the answer.  Perhaps it’s just the stupidity, stupid. This headline from Reason magazine caught my eye: Congress Should Not Legalize Marijuana, Marco Rubio Says, Because Black-Market Weed Is ‘Laced With Fentanyl’ So given a choice between legal weed and black market weed, Senator Rubio prefers the latter because it’s laced with fentanyl.  That’s seems like a pretty punitive attitude toward drug users.  Yes, they are breaking the law, but do they actually deserve to die from a fentanyl overdose?  I suspect that there is an alternative interpretation of Rubio’s position, he is simply confused. A third possibility is that Rubio is not confused, and that he is cynically exploiting the ignorance of voters.  I’ve met many, many people who have told me that legalizing drugs is a bad idea because the drug trade is very violent.  Sigh. . . . But what makes you think Rubio is not one of those people?  Intelligent people often hold dumb opinions. In a previous post, I pointed out that low carbon energy sources like solar, wind, hydropower and nuclear are being held back because of objections by environmentalists.  Maybe they are simply confused. Matt Yglesias recently linked to a survey that has urban experts shaking their heads in disbelief: There’s also a widely held belief that building more housing makes housing more unaffordable.  Once again, here’s Yglesias: What is the common thread in all of this stupidity?  Things are not as they seem at first glance.  You need to analyze a situation.  Here is how things seem at first glance: 1. The Chernobyl disaster hurt the environment.  Nope, it helped the environment so much that the area around Chernobyl is now one of Europe’s greatest nature preserves, full of wild animals. 2.  Solar, wind and hydropower can hurt the environment.  But the coal-generated electricity they replace hurts the environment much more. 3.  The leafy suburbs of Long Island are better for the environment than the concrete jungle of  Manhattan.  Nope, Manhattan houses 2 million people using far less land and energy than does Long Island. 4.  In cities where they are building lots of luxury high rises, housing is getting more expensive.  Yes, but the net effect of the new construction is to slow the rate of increase in housing prices. 5.  The drug trade involves a lot of crime and violence.  Yes, but the crime and violence occur precisely because the drugs are illegal.  The moral of the story is that bad policy does not always result from nefarious special interest groups.  In many cases, it’s simply a question of stupidity.  If Jonathan Haidt is correct that the world is getting even stupider, then we might expect even more dumb legislation going forward. PS.  Partial drug legalization does not necessarily shrink the illegal drug trade.  Complete legalization does (even with fairly high taxes), as we’ve seen with cigarettes.   (1 COMMENTS)

If higher taxes on capital cause the budding investor not to start a new firm, then the capital that would have been created won’t be created. If that happens, wages won’t be as high as they would have been. Thus a tax on wealth, which, as noted, is what the proposed Biden tax really is, will hurt workers as well as investors. A tax on wealth, moreover, has another effect that makes productivity and wages lower than otherwise: it takes wealth away from people who are using it productively and gives it to the government. So even in the highly unlikely case that the tax doesn’t reduce the incentive to create capital, it will cause the amount of capital to be less than otherwise. Less capital, once again, means that productivity will be lower and real wages will be lower than if there had been more capital. This is from David R. Henderson, “A Tax-Based Attack on Capital and Labor,” Defining Ideas, April 14, 2022. In it, I deal with Jason Furman’s argument for the mislabelled billionaire tax. An excerpt from that section: Finally, argues Furman, the current system narrows the tax base and, for the government to increase taxes, it would be better to have a broader base than higher tax rates on a narrow base. But notice his implicit assumption: that the federal government should increase taxes. What about cutting spending or even just cutting the rate of growth of spending? Furman seems allergic to such an idea. In “Furman, Summers, and Taxes” (Defining Ideas, May 1, 2019), I noted how hesitant Furman and his co-author Lawrence H. Summers are to propose any cuts in government spending. And, as I noted in “Who’s Afraid of Budget Deficit? I Am” (Defining Ideas, February 20, 2019), I pointed out that Furman and Summers “assume, for every single problem they address, that the solution is more spending.” Read the whole thing.   (0 COMMENTS)

  Consumer prices rose 8.5% in March, slightly hotter than expected and the highest since 1981 That’s the headline on a CNBC report on April 12, 2022. Prices rising 8.5% in March? That’s really scary. I don’t blame the reporter, Jeff Cox. His first bullet gets it right: Headline CPI in March rose by 8.5% from a year ago, the fastest annual gain since December 1981 and one-tenth of a percentage point above the estimate. That’s somewhat scary too, but not nearly as scary as the misleading headline. The Wall Street Journal headline writer also misled readers: U.S. Inflation Accelerated to 8.5% in March, Hitting Four-Decade High This is misleading in two ways. The first is similar to the way the CNBC headline misled. Inflation didn’t go to 8.5% in March. But also, inflation didn’t clearly accelerate. It rose. So the headline writer is off by one derivative. By the way, as Alan Reynolds at the Cato blog recently pointed out, the good news is that “core inflation” is less high. On April 12, he wrote: After stripping out direct energy and food prices, the core consumer price index rose only 0.3% in March – down from 0.5% in February and 0.6% in January. The graph shows that core inflation was highest in the second quarter of last year, when it rose by 0.8% a month. I think Alan is showing a lot of integrity here. Libertarians and conservatives are often tempted to bash Joe Biden. There’s a lot that should be bashed. But we should never overstate the case. Of course, what matters, as Alan recognizes, is the overall inflation rate, not just core inflation. But his point, which he has made in other posts, is that there is some reason to think that energy prices won’t rise further, and might even fall from their high level, which means that the inflation rate is likely to fall. Fall, not “decelerate.” Don’t get me–or Alan–wrong. Inflation is still too high. But my prediction a year ago that we won’t hit 10 percent in any 12-month period between May 2021 and December 2022 is looking good. I hedged it with probabilities but here’s what I wrote on May 20, 2021: I would put an 80 percent probability on the prediction that before the end of 2022, there will be at least one twelve-month period in which the CPI has risen by at least 5 percent. I would also estimate less than a 20 percent probability that in the same time period, there will be a twelve-month period in which the inflation rate hits Carter-era 10 percent.   (0 COMMENTS)

Robin Hanson has a very interesting blog post discussing the fact that authorities do not update their forecasts as frequently as an optimal forecaster would: The best estimates of a maximally accurate source would be very frequently updated and follow a random walk, which implies a large amount of backtracking. And authoritative sources like WHO are often said to be our most accurate sources. Even so, such sources do not tend to act this way. They instead update their estimates rarely, and are especially reluctant to issue estimates that seem to backtrack.  The random walk observation reminded me of a column I wrote for The Hill back in 2018, criticizing the way the Fed conducts monetary policy: In December 2015, the Fed raised its interest rate target for the first time in more than a decade. At the time, Fed officials signaled another four rate increases for 2016 in order to prevent the economy from overheating. Unfortunately, the economy quickly slowed, and the Fed would not raise rates again until the following December. Indeed by early 2016, it was clear that the previous rate increase should not have occurred. So why didn’t officials immediately admit their mistake and cut rates back to zero in early 2016? It turns out that the Federal Open Market Committee (FOMC) has been exceedingly reluctant to quickly reverse course after setting out on a new policy track. This is very different from how asset markets work. If stocks fall on Tuesday due to worries about a trade war, the market is not at all reluctant to shoot right back up again on Wednesday, if new information makes that scenario less likely. Unlike Fed policymakers, markets don’t have egos and they don’t worry about “credibility.” Then I suggested a reform to make Fed policy more accurate: Given modern technology, there is no reason why the Fed can’t adjust its settings far more frequently. FOMC members could, for example, email their preferred interest rate target to Chairman Powell each business day, and the actual Fed target could be set at the median vote. Instead of quarter-point increments, FOMC members could select an interest rate target to the nearest “basis point”—which is 1/100th of 1 percent. Daily movements would look more like a financial asset price, moving up and down each day in a sort of “random walk” as new information about the economy comes in. Toward the end of the article, I cited an example of what can go wrong when Fed officials are reluctant to shift course: Consider the following quotation from the minutes of a November 1937 Fed meeting. In this meeting, Fed officials considered reversing their earlier decision to raise reserve requirements — a decision now blamed for helping to trigger a severe double-dip depression in late 1937, throwing millions out of work: We all know how it developed. There was a feeling last spring that things were going pretty fast… If action is taken now it will be rationalized that, in the event of recovery, the action was what was needed and the System [Fed] was the cause of the downturn. It makes a bad record and confused thinking. … I would rather not muddy the record with action that might be misinterpreted. Here we see a Fed official arguing that a reversal of the previous mistake would be taken as evidence of Fed guilt — especially if it was successful! (0 COMMENTS)

In order to determine if something adds up, one must know basic arithmetic. In social matters, one must know some elementary economics. Wondering why gasoline prices haven’t decreased as fast as crude oil prices in the last few days, Rep. Diana DeGette (D., Colo.) declared: Something just doesn’t add up. The Wall Street Journal of yesterday had a good story on this (Collin Eaton, “Why Is Gasoline Still So Expensive if Oil Prices Have Dropped?,” Wall Street Journal, April 13, 2022). It is a story in the journalistic sense, that is, it is not heavy on theory—economic theory in that case. Yet, some economic knowledge underlies it, including explanations of how the last producer in the chain before the consumer, the service station owner, “sets” “his” price. To reformulate: he basically tries to charge what the market will bear without charging more than his competitors. The WSJ piece also shows an instructive chart, reproduced below, of the parallel movements of wholesale and retail gasoline prices. Of course, gasoline prices don’t include only crude oil, even if it is the main component at 61%. Transportation, refining, and taxes are the other components. Crude oil, transportation, and refining include profit, which is a residual and is expected to be the normal profit in these industries given the specific market risk of each. If you think that the profits are not normal, you can make a fortune by outcompeting the “gougers” and still making a normal return on your investment. Moreover, if the thousands of crude producers and the more than one hundred (only counting those localized in America) were so efficient at gouging the consumers, why would they ever decrease gasoline prices? Who seriously believes that transferring all oil fields and all other inputs necessary to produce crude oil and gasoline would reduce the final price to consumers and taxpayers? Both history and economic theory strongly suggests that politicians and their employees have been the most efficient gougers in the history of mankind. In defense of Rep. DeGette, she is not the only politician to spread untruths. (On this very topic, see also “Gas Prices, Oil Executives Take Center Stage at Congressional Hearing,” Wall Street Journal, April 6, 2022.) What Joseph Schumpeter said of the rationally ignorant voter applies even more to the rationally blabbing politician (see his Capitalism, Socialism and Democracy [1942-1950], an otherwise puzzling book as my anniversary review will show in the summer issue of Regulation). Schumpeter wrote: The typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his own interests. He becomes a primitive again. Source: Wall Street Journal (0 COMMENTS)

The battle between Starbucks and Workers United trying to barge in may not be sufficient to persuade the company and other large corporations that the woke are not so fun to work with after all. Such is the power of ideological fads. But the event does carry some political and economic lessons. One of Workers United’s organizers said (“Starbucks Prepares to Expand Worker Benefits That Might Exclude Unionized Staff,” Wall Street Journal, April 13, 2022): We will continue to fight to hold Starbucks accountable to the company we know it could be. I wonder why Workers United don’t acquire Starbucks (tip: SBUX on Nasdaq) or don’t create a competitor in order to have “the company [they] know it could be.” Because the new Starbucks or the new competitor would most likely fail or cost more than it would return? Would that serves the employees’ interests? On the other hand, if the unions and pro-union employees succeeded with their own money or with that of outside investors in such a free-market (that is, voluntary) adventure, glory to them! (1 COMMENTS)

Regular EconLog reader Kevin Corcoran sent me the following, which I, with his permission, edited slightly. I’ve been catching up on EconLog and I noticed your post on why sanctions rarely work. It reminded me of something from my time in the Marines: a different application of a similar idea. It helped lead me to my belief that collective punishment more generally rarely works. You’ll probably be unsurprised to hear that the Marine Corps is big on collective punishment. If Lance Corporal Smith gets busted for underage drinking, it’s very common for the Gunnery Sergeant to punish everyone in Smith’s entire squad or platoon. The theory behind it is that if we all got punished for Smith, then we’ll all resent Smith for it and will keep him under close surveillance to make sure he doesn’t drink underage anymore, because we’d come to understand how Smith’s actions actually affect all of us. [DRH note: This reminds me of the motivation for Code Red in A Few Good Men.] Of course, it never happened like that. Nobody ever resented Smith on account of the Gunny cracking down on everyone; they all just resented the Gunny and, if anything, would tend to rally around Smith. There are times when Smith’s actions actually, tangibly do affect everyone around him, but we already had incentives in place to apply social pressure to him if he was slacking in those circumstances. What the Gunny was doing was taking a situation that didn’t actually affect anyone (or at least not in a way anyone cared about) and make it start having a negative effect where none existed before. So, of course, the resentment went to the Gunny and not to Smith. Worse, it actually created incentives for more people to engage in underage drinking. I tried explaining it to one of my Gunnery Sergeants when I realized it. Start with the idea that some rules are selfishly desirable to break: breaking them confers some benefit to the rule breaker. If you enjoy drinking, then breaking the rule against underage drinking confers a benefit on you: you get to do something you like that you otherwise wouldn’t. On the other side of the scale, if you get caught, you can get in various degrees of trouble and you might be willing to pass up the benefits to avoid that trouble. Now, add to the mix the idea that whether or not you’ll be punished for breaking this rule is no longer a matter of your actually drinking underage or not– you can follow the rules to the letter, but still be treated as if you had violated them. This significantly undermines the incentive to stick to the rules. If there’s a good chance I’ll be punished for drinking whether I drink or not, I might as well have a drink and enjoy the upside. Sure, you might get caught, but someone else might get caught instead of you, so why not at least have the fun you’re being punished for? As an aside, the Gunnery Sergeant was not at all moved by a Lance Corporal telling him his punishment strategies were all wrong. Maybe this could have served as my “I should have known I’d be an economist” moment. Well said.   (0 COMMENTS)

In yesterday’s Financial Times, Janan Ganesh signs a strange column. He wonders why no political theory of international relations explains the war in Ukraine: not the optimistic “democratic capitalism” of Francis Fukuyama’s The End of History, nor the tribal (“cultural and religious”) concept of “nations,” nor the “realist” theory of state interests. Only a “pragmatic,” “case-by-case” approach, that is, no theory at all, can make sense of Vladimir Putin’s behavior, he suggests (“No Grand Theory Can Explain the Ukraine Crisis,” April 12, 2022). Throw a dice, flip a coin, or read tea leaves. This is puzzling. Hasn’t Mr. Ganesh ever heard of Leviathan as a model of the state? One of the most recent and, in my opinion, the most useful of these theories is the economics of public choice and its philosophical-political dimension that you find in the works of James Buchanan (or Buchanan and Tullock). Friedrich Hayek’s theory would be also a candidate. Anthony de Jasay stands on the liberal-anarchist wing of non-random explanations of the state. In this perspective, Vladimir Putin is not difficult to explain. Grant unrestrained power to any individual or group of individuals—whether it is Putin or Volodymyr Zelensky, Donald Trump or Joe Biden—and the ruler’s own interests will soon push him into growing a full-fledged Leviathan, whether of the Brave New World type or the 1984 type. (What often saves us is that the more powerful a dictator, the more inefficient he is, at least for those who are not his direct subjects.) We only have to look at Putin’s own interests as he evaluates them, with due concern for rewarding the most weighty of his supporters, and the Leviathan model of the state shows all its usefulness. This is why restraining the state and understanding the reasons why is so important. Instead of Ganesh’s “democratic capitalism,” an expression which is at best is meaningless and, incidentally, does not anyway appear in Fukuyama’s The End of History, liberal or constitutional democracy (emphasizing “constitutional,” as Buchanan says) and its underlying values would seem to be the solution. (0 COMMENTS)

Yes, with a very few exceptions. Every time there is a war, we see a predictable chorus of pundits calling for the end of globalization. Let’s hope they don’t get their way, because if globalization ends then wars will become much more frequent.My view is that sanctions are usually counterproductive. One exception is when one country invades its peaceful neighbor, as in the current Russia/Ukraine war or in the case of Iraq’s invasion of Kuwait. In that case, the international community has a clear interest in punishing the aggressor.  (Although as David Henderson points out, the current sanctions against Russia are not particularly effective.) But sanctions don’t work at all unless the target country is linked to the global economy. Free trade creates a situation where bad actors have more to lose from economic sanctions.  Over the years, I’ve argued that Russia is a much greater threat to world peace than China (although China is certainly a non-trivial threat, especially to Taiwan.) Thus I’ve opposed the economic sanctions the US has applied to China, as well as the broader US trade war against China. My critics counter that we can’t afford to be economically integrated with a dangerous country such as China.I respond that we cannot afford not to be integrated with China, precisely because it is dangerous. We need China to be so deeply enmeshed in the global economy that it would pay a heavy price if it were ostracized. A sullen isolated China, a North Korea with 1.4 billion people, would be a far greater threat to world peace.  Our current policy of isolating China makes it more dangerous, not less.  After WWII, the victorious powers realized that the best hope for peace was to have Germany closely integrated into the broader European economy.  This idea led to the European Common Market, and later the EU.When I point to recent events as evidence that I was right that Russia is the greatest threat to world peace, my critics respond that Taiwan is next. And then they say that if they are wrong, if China doesn’t attack Taiwan, it’s only because they are held back by the unexpectedly severe sanctions that the West imposed on Russia in recent weeks. I don’t think they realize that they are making my point. (0 COMMENTS)