I was on San Francisco all-news radio station KCBS on Sunday morning to address the issue of student debt. The link is here. The whole thing is only about 5 minutes. You’ll see that the interviewer caught me off guard with his first question, but I adjusted. Thanks to Brandon Berg, who commented on my April 28 post on this issue. The numbers he cited and their source were valuable in helping me prepare. (0 COMMENTS)

Inflation, defined as an increase in the general level of prices, is not directly observable more than the general price level itself (also called “overall price level”).  You cannot go to your local convenience store and order one unit of GDP, asking, “How much is it?” —that is, how much is the general price level for one unit of GDP, made of a fraction of an automobile, a few words of medical advice, a bit of an Amazon delivery service, a dozen bubble gums, etc.? Inflation is estimated by measuring the increase in the average price of some “representative” basket of goods and services. It is incorrect to take this estimate of inflation (the consumer price index or CPI, for example) and try to trace the causes of inflation back to observed individual prices, for the latter also incorporate relative price changes (among goods and services) not caused by inflation. Consider the following standard pronouncement. The Wall Street Journal writes (“Record Diesel Prices Pressure European Drivers, U.S. Deliveries,” May 13, 2022): Rising energy prices are a major factor contributing to the persistence of inflation The following historical observation  can serve to falsify such a claim. On the chart below, let’s focus on the period from January 1999 to July 2008. Over this period the average price of energy for American consumers (calculated from a sub-index of the CPI) increased nearly non-stop and was 172% higher at the end of the period than at the beginning. But some other prices decreased. For example, the average price of consumer durable goods (including such things as cars and appliances) decreased by 12%; the cost of apparel, by 10%. While inflation was estimated to be 33%, some prices increased, other decreased. And that is the point. Without inflation, relative prices would continue to change, some prices increasing, others decreasing. The measured total change of a given price is, by definition, the sum of its relative change (relatively to other goods, without inflation) and of the inflation rate: total price change = relative price change + inflation. One cannot say that the total price change “contributed to” inflation, because inflation has already been added to the relative price change to produce the total. If you obtain 3 by adding 1 to 2 (2+1), it does not make much sense to conclude that 3 “contributes” to 1 (except perhaps in a very formal algebraic way). It is true that if a supply shock reduced  the production of oil and thus of all consumer goods that use this input, there would be a one-time increase in the general price level because the same quantity of money would be chasing fewer goods. But there is no reason why inflation would continue month after month, year after year, as we see for the CPI in our chart. A persisting inflation (what people usually mean by inflation) requires more new money chasing the existing (or a fortiori reduced) volume of goods. This argument rests on standard microeconomic theory (which deals with relative prices and is also called “price theory” for that reason) and on a macroeconomic theory called monetarism.  But note that any counter-claim must also be based on some economic theory, or else it is just a vague ad hoc intuition. The media and alas even the financial press often rely on the latter. Over the past few decades, monetarism of the Milton Friedman type has been abandoned or modified by economists. But this does not necessarily make it invalid, especially in its fundamental result that an increase in the money supply over and above the demand of the public for money will, after a lag, generate inflation. (I understand that co-blogger Scott Sumner defends a modified version of monetarism ,which does not seem to contradict my claim above, at least in ordinary circumstances.) An argument close to mine above is presented in a recent article by John Greenwood (Invesco, Ltd.) and Steve Hanke (John Hopkins University): “On Monetary Growth and Inflation in Leading Economies, 2021-2022: Relative Prices and the Overall Price Level,” Journal of Applied Corporate Finance 33:4 (2021). A paragraph from the abstract of the article provides a good summary: The authors argue that this consensus [on current inflation being largely generated by “supply chain disruptions”] will prove to be wrong because of its failure to distinguish between relative price changes and changes in the overall price level. The movement of any single set of relative prices fails to convey information about the overall inflation rate. And as asserted by the Quantity Theory of Money, the overall inflation rate and price level are determined by changes in the money supply broadly measured. Changes in relative prices, on the other hand, result from changes in demand and supply in the real economy, making them independent of changes in the money supply. So, while a doubling of the money supply will result in a doubling of all nominal prices, relative prices remain unaffected by monetary policy. (0 COMMENTS)

Tyler Cowen makes an interesting claim: 7. Consider a deal that does make sense: the U.S. buying Greenland from the Greenlanders and also Denmark. Can we really in essence pay the 56,000 or so residents to give up their country and territory? I agree that the Greenlanders would be unlikely to sell, but I’m skeptical of the claim that the purchase would benefit the US. American schoolchildren are taught that our 1867 purchase of Alaska for $7.2 million dollars was a bargain, but I’ve never seen any convincing evidence to support that claim. Yes, Alaska produces lots of oil, but what about all of the US government money that goes to subside Alaska? What’s the net benefit? In any case, Greenlanders are aware of their large oil reserves and would be unlikely to sell for $7 million, or even $7 billion. And as the world transitions to a low carbon future, the value of the oil (including the negative externalities) may be less than many people assume. There are also diseconomies of scale in governance, which suggests that we might govern Greenland less effectively than did Denmark. When we purchased southern Arizona from Mexico in 1854 (for $10 million), we should have pressed harder for Baja California. Even a small sliver of northern Baja (say the top 10%) would be far more valuable than Alaska. Heck, my own Orange County (only 800 square miles) is far more valuable than all of Alaska, a region roughly 800 times bigger. Greenland would be even less valuable than Alaska. Greenland might have a minor military value, but I doubt it. Between the US, Canada, Britain, Norway, and Iceland, NATO already controls the North Atlantic. Given the pathetic performance of Russia’s military in Ukraine, I doubt they’ll be setting their eyes on the North Atlantic anytime soon. There’s a lot of talk about state capacity. It’s pretty obvious that America’s state capacity has been in sharp decline for decades. Now is not the time to take on additional government responsibilities in Greenland (or outer space), rather we need to fix our dysfunctional government in its current areas of responsibility. For instance, just south of Orange County is the massive Camp Pendleton Marine Corps base. That land could be used to build a wonderful new city with a population larger than Alaska, with a glorious climate and a much smaller carbon footprint than the sort of places in Texas, Arizona and Florida where the extra population growth is currently expected to occur. These are the governance inefficiencies that we need to focus on addressing. Don’t buy Greenland—sell Camp Pendleton. Think big in terms of utility, not geography. (0 COMMENTS)

Coming out of the COVID-19 pandemic, we’ve seen an alarming increase in proposed scope of practice expansions. The American Medical Association is unrelenting in opposing these expansions on your behalf to ensure patient safety at every turn. We are determined to ensure that patient care is led by highly trained physicians. “We’ve had some important scope of practice wins in 2022, with more to come: “Colorado and South Dakota struck down legislation allowing physician assistants to practice independently without physician oversight. “Bills that would have expanded scope of practice for APRNs in Wisconsin, Tennessee, Mississippi, and Kentucky were defeated. “All scope expansion efforts in Washington were thwarted, and Alabama defeated multiple bills, including a law that would have allowed optometrists to perform surgery. “Maryland beat back multiple bills attempting to expand scope for physician assistants, clinical nurse specialists, and podiatrists. “You can be sure that the AMA has your back-and we will continue the fight for patient safety and quality care while resisting unjustified scope of practice expansions. Thank you for standing with us. Gerald E. Harmon, MD President American Medical Association The above is a note to doctors from the American Medical Association.  Notice the partial admission of motives in the first part of the sentence: “The American Medical Association is unrelenting in opposing these expansions on your behalf to ensure patient safety at every turn.” (italics added) Harmon does not explain why this will ensure patient safety. It could be true that with a doctor in charge, a patient will be safer than with a doctor not in charge. But what Dr. Harmon does not address is whether the higher rates due to restriction of competition will cause some people not only to not go to nurse practitioners but also to not go to medical professionals at all. HT2 Ross Levatter. (0 COMMENTS)

Woody Holton, Professor of History at the University of South Carolina, has written a nearly 800-page tome entitled Liberty is Sweet and sub-titled The Hidden History of the American Revolution…After Holton argued in the Washington Post on July 4th, 2021, that “Whites’ fury at the British for casting their lot with enslaved people drove many to the fateful step of endorsing independence,” six leading Revolutionary historians responded in a critical open letter. Tom Mackaman was more scathing at the Trotskyist “World Socialist Web Site,” which previously had published attacks on the 1619 Project by several scholars. The resulting debate even spilled over into Twitter. But the book itself is more guarded and restrained than either its early champions or detractors have presumed. [From Part 1.]   As I alluded to in my previous post, Holton does give far greater attention than other general accounts to African Americans, whatever their role, prior to, during, and immediately after the American Revolution. Which leaves me surprised that, in his discussion of “the emergence of a significant free African American population” in “the post-revolutionary United States,” he omits one notable factor contributing to this development. He does credit Vermont in 1777, as an independent republic, being “first in the modern world to abolish slavery.” He also mentions Pennsylvania’s adoption of gradual emancipation in 1780 and Massachusetts’ 1780 Declaration or Rights that made it “the first of the original thirteen states to abolish slavery.” What he fails to mention is that the upper-south states of Delaware, Maryland, and Virginia relaxed nearly universal slave-state restrictions on masters voluntarily freeing their own slaves. Virginia’s doing so in 1782 resulted in the manumission of an estimated 10,000 slaves over the next decade and a half, more than were freed in Massachusetts by judicial decree. Holton offers an equally expansive treatment of Native Americans. Indeed the book opens with a map delineating the boundaries of the numerous “First Nations” (a Canadian usage Holton frequently employs) east of the Mississippi. Members of these groups, like Black Americans, fought on both sides of the conflict, although preponderately for the British. A third group the book brings to the foreground is women, who crucially supported boycotts of British goods and frugality crusades; launched campaigns to make shirts for the Continental Army; participated in food riots; took over management of farms, plantations, and business while their husbands were absent; served as sources of valuable military intelligence; and were often army camp followers, even sometimes fighting alongside the men. The book’s second section is also unique in its detailed concentration on military events, with some nice maps (although even more would have been helpful). Holton covers many minor skirmishes and raids that are often not mentioned at all even in purely military histories of the war. And his descriptions are interspersed with telling vignettes about individual participants, conveying better than most accounts how chaotic and savage the conflict could be. It is fairly well known that, until the twentieth century, disease regularly killed more soldiers than battle, but Holton’s approach drives home this feature of the war. He also gives more attention than usual to resistance against state conscription. When dealing with commanders on both sides, he reveals how the eighteenth-century obsession with honor may have motivated them to make otherwise seemingly mistaken decisions. The downside of this heavy concentration on combat is that the book’s coverage of wartime politics and finance is comparatively abbreviated. (Given how economically inept is Holton’s brief, extraneous comparison of Revolutionary Financer Robert Morris with modern-day economist Arthur Laffer, though, perhaps it is best that he slighted finance.) The book’s third and final section deals with postwar events, extending beyond the Constitution’s adoption all the way to the Whiskey Rebellion and the Indian campaigns during the Washington administration. Holton’s take on the Constitution mirrors his earlier book on the subject, treating it as a counter-revolution “in favor of government.” This conclusion is consistent with nearly all recent scholarship, whether specific writers approve of the result or, like Holton, disapprove. The final chapter appropriately deals with the territory lost by the First Nations. In appraising the Revolution, Holton finds benefits and costs, with a bit more emphasis on the latter, but this is ultimately a glass half-empty, half-full question. At one point he warns “against any effort to explain the American Revolution in strictly ideological terms” [emphasis mine], but no serious historian I know of has ever argued that the Revolution was motivated exclusively by ideology, unaffected by economic self-interest, even if ideology was that particular historians specific interest or topic. The two motives generally operate in sync, with Holton attaching greater weight to self-interest. In short, there is considerable hidden history in Holton’s Liberty is Sweet regarding facets and details of the revolutionary era treated less copiously or ignored in other general accounts. But as far as dramatically overturning standard interpretations of the Revolution, the subtitle’s billing of the book as “the hidden history” turns out to be partly puffery.     [Editor’s note: An earlier shorter version of this review appeared in Reason (March 2022).] Jeffrey Rogers Hummel is an historian and professor of economics at San Jose State University. (0 COMMENTS)

What’s the single best thing happening in technology right now? According to entrepreneur and venture capitalist Marc Andreessen, it’s the ability to live in rural Wisconsin but still earn a Silicon Valley salary. Andreessen also explains to EconTalk host Russ Roberts why software is still eating the world, why he’s an optimist, and why he’s […] The post Marc Andreessen on Software, Immortality, and Bitcoin appeared first on Econlib.

I’ve held off writing an obituary for George Smith because I wasn’t sure that the obituary friends pointed to was truly of him. But David Boaz has convinced me that it was. I had lost touch with George and so I didn’t know that he had moved to Bloomington, Illinois. David Boaz’s obituary of George is an excellent summing up of George’s many contributions to liberty and to good thinking. So I won’t try to replicate it. Instead I’ll tell a few fun stories. I first met George in the fall of 1973, my second year at UCLA and my second year in the United States. I met him through his good friend Roy Childs, with whom I was becoming friends. George’s Entrepreneurial Ventures At age 23 or 24, if I recall correctly, George had already finished a book, Atheism: The Case Against God. Not only that, but it was a good book. I bought it when it came out in 1974 and read it quickly. George was a good writer early. George had dropped out of the University of Arizona and was determined to make it as an intellectual without a college degree. He did, although his income was spotty at times. One of his first ventures to make income came in the winter of 1974 when he rented a conference room at a hotel and advertised that he would be giving a talk. I assume the topic was his book’s topic. I remember Roy and me talking to him beforehand, with me encouraging him and Roy, surprisingly, telling him it would likely flop and he wouldn’t even make the room rent and mailing expenses back. (I say “surprisingly” because Roy was always the kind of person who encouraged people to take those kinds of relatively small risks.) Neither Roy nor I went to the event. I would have but didn’t have a car in L.A., which made transportation challenging. I still remember, though, George coming back from the talk with a bag of money. I have this vague recall that it was $262 net of hotel charges. He was gleeful as he counted it out, and I was relieved. Remember that this was 1974. So $262, adjusted for inflation, would be over $1,500 today. Austrian Economics Study Group The main way I got to know George was through our Austrian economics study group. My roommate, Harry Watson, and I were in our second year at UCLA and we wanted to study works by Ludwig von Mises and Friedrich Hayek, people who were not covered in any of our courses. (We did have Hayek’s “The Use of Knowledge in Society,” which we covered in at least 3 of our first-year courses at UCLA.) So Harry, Roy, George, his girlfriend Dianne Peterson, Tom Palmer, John McCarthy, and I formed an Austrian study group that met every Sunday night at George and Dianne’s place. We started with Mises’s Theory of Money and Credit, published in 1912, which was, I think, Mises’s Ph.D. dissertation. Each participant took a turn preparing and presenting a chapter and everyone was presumed to have read–and actually did read–each chapter. That’s when my respect for Mises as an economist grew. Mises’s book, by the way, was a monetary theory textbook for many courses in Germany and Austria. George Smith, Walter Cronkite, and King George VI David Boaz writes: One attendee at the seminar in those years, Nashville entrepreneur Crom Carmichael, told us, “These lectures are great, but you’re only reaching 75 people. You need to scale up.” Not long afterward he created Knowledge Products and hired George to conceive, write, and edit what ended up being dozens of professionally produced audio lectures on philosophy, history, economics, and current affairs. Some of the tapes were read by professional readers, but the narrators also included Charlton Heston, George C. Scott, Louis Rukeyser, Lynn Redgrave, and Walter Cronkite. I remember one amusing story George told me about Walter Cronkite. In one of the scripts George wrote, he referred to George VI as, wait for it, “George VI.” When Cronkite got to that part, he said “George vee eye.”  So George had to write it out as “George the sixth.” Hitler and JFK George was always a curious person. Growing up in Arizona, he had a friend whose mother had been a teenager or young adult in the early 1930s in Germany. George, like many of us, wondered how apparently normal people could go along with what Hitler stood for. He thought his friend’s mother was reasonably smart and fairly normal, and didn’t seem at all anti-Semitic. So in the early 1960s, George asked his friend’s mother how she and those around her had thought about Hitler. She answered that most of his speeches weren’t about Jews but were, rather, about the need to have a vital, dynamic Germany that would get back on track. She told George that when she saw JFK speak, she was reminded of how she and her friends had thought of Hitler back in the early 1930s. Tell Roy One last reminiscence, which I shared in my tribute to Roy Childs, after he died in 1992. I quoted George Smith’s affectionate humor about Roy. You have to remember that George said this in the early 1970s: The three fastest means of communication are telephone, telegraph, and tell Roy.   (1 COMMENTS)

I find it refreshing when a government agency says no to spending more money. Last month, in an editorial titled “Sandbagging a Alzheimer’s Treatment,” the Wall Street Journal editors criticized the Centers for Medicare and Medicaid Services for refusing to pay for Biogen’s new Alzheimer’s drug, Aduhelm. In their editorial, the WSJ editors rightly criticize various scientists who had insisted on further trials before the drug was approved. As readers of this blog know, I favor as light regulation as we can get from the FDA. Let the drug companies try their drugs and let us learn what works and what doesn’t. But approving a drug is different from having a government agency spend tax money on providing that drug. The Journal editors do state one major argument against having taxpayers pay: Their [the progressives] biggest beef seems to be that Aduhelm costs too much ($28,200 per year) and could balloon Medicare spending. They seem to think it’s a bad argument but they don’t really say why. For some years, the Journal editors have had a contradictory view on Medicare spending. They want to rein in entitlement spending generally but they want to have the CMS pay for pretty much any drug for the elderly on Medicare if the FDA approves it. They have never, as far as I know, resolved this tension. I think the Journal‘s view comes from their late, and brilliant, health care editorial writer Joe Rago. When he visited Hoover some years ago, I tried to get him to see the problem. His argument was that now that the government has Medicare, people on Medicare should be able to get whatever drug might help them, independent of cost. My argument was that Medicare is not all or nothing. I would like to see it ended. That’s extremely unlikely, as the most powerful voting group in the country is not about to give it up. But at least, we should applaud the CMS when it’s even somewhat careful with tax money. A letter writer to the Journal, S. Paul Posner, put it well in an April 20 (electronic version) letter. Addressing the point that progressives had pushed for the CMS to say no, Posner stated that the CMS: should spend money where it will do the most good. That means cost-benefit analysis, which progressives are not known to embrace. They shouldn’t be criticized for doing so now.   (0 COMMENTS)

Most fiscal policy consists of adjustments in taxes and transfers.  However, the effects of this type of fiscal policy are largely offset by changes in monetary policy, at least when the Fed is doing its job.  Defenders of fiscal policy respond that changes in real government spending can directly boost output even when there is complete monetary offset of the effects of budget deficits on nominal spending.  In practice, however, even this sort of “real” fiscal stimulus is unlikely to be effective at stabilizing the economy, as Congressional decisions to spend money on new projects is driven by political factors, not the state of the economy.  Here’s the National Review: As New Hampshire GOP governor Chris Sununu observed, Congress allocated $1.2 trillion for new infrastructure projects, but none of it has been spent yet, which means yet another inflationary pressure is looming. What’s more, 50 states and an untold number of localities are about to try to launch hundreds of large-scale infrastructure projects simultaneously during a period of runaway inflation, lingering supply-chain problems, price spikes in raw materials, a construction-labor shortage, and an unprecedented spike in the cost of diesel fuel. This is just about the worst possible time to try to start a massive number of construction projects from coast to coast. Of course it is possible that these projects will get built during the next recession.  But it’s also possible that they won’t get rolled out until the next recession is over.  We just don’t know. Intuitively, one might assume that a series of random fiscal shocks would make the business cycle neither more nor less unstable.  After all, random fiscal stimulus would be just as likely to occur when economic output is above average as when it is below average.  In fact, macro models suggest that adding random shocks to an unstable economy makes the business cycle even worse than otherwise. The Covid fiscal stimulus was mostly taxes and transfers, and hence was subject to monetary offset.  But even if you don’t believe that monetary offset occurred, the fiscal stimulus appears to have been a mixed bag.  The early portions of the stimulus would have made the Covid recession less severe than otherwise, whereas the fiscal stimulus in 2021 would have contributed to economic overheating. At the time, I argued that fiscal policy should focus on relief for the unemployed, not stimulus.  Subsequent events have made me even more confident of that view. At the time, I argued that monetary policy should focus on getting NGDP back up to trend, but not above trend.  Subsequent events have made me even more confident of that view. PS.  Commenter Cameron directed me to a graph showing fiscal policy tightening over the past year.  This may be why many economists underestimated the recent inflation surge.  If you (wrongly) assume that fiscal policy determines aggregate demand, then you might have assumed that the shrinking budget deficit would relieve inflationary pressures.  But it’s monetary policy that drives AD, not fiscal policy.   (0 COMMENTS)

Baseball is back, but it was in doubt for a while. It was only on March 13 that the second longest work stoppage in baseball history – 99 days – came to an end when the MLB and the MLB Players’ Association – the baseball players’ union – struck a deal. The Players Association was pushing for a number of things. One was more money: they wanted the Competitive Balance Tax – which is effectively an upper limit on spending – raised. They were also resisting the introduction of an international draft, something the MLB has long favored but which the Player’s Association opposes because it will increase the competition faced by its members. Nobody pretended that the Player’s Association was acting in the interests of anyone but its members. There was no pretense that higher salaries for players and less competition for their places would benefit the average baseball fan nor anyone else. And why should there be? A union exists to look after its members after all, nobody else. In Minnesota, while the Player’s Association was striking for more money, the government school teachers of Minneapolis were doing the same thing. On March 8, the city’s teachers began a strike which lasted for three weeks and affected 30,000 students already struggling to make up schooling lost during COVID-19 shutdowns. MPR News reported that the teacher’s union was seeking, among other things, “higher wages for paraprofessionals.” More money then, just like the baseball players. But there was a big difference between how these two strikes were presented by their respective unions. MPR News quoted one teacher saying: “Nobody wants to go on strike. None of the teachers do. None of the staff wants to…But for the kids, and for the students, and for their learning environment, it just needs to happen. We can bend, but we won’t break.” No baseball player ever said their strike was “for the fans.” Just like the Player’s Association, the teacher’s union represents its members, quite rightly, but unlike the Player’s Association, the teacher’s union pretends it is acting in the interests of some additional stakeholders. It is the same with Minnesota’s nurse’s union. This session, there is a bill in the state legislature which would sign it up the Nurse Licensure Compact. According to the Minnesota Board of Nursing: The Nurse Licensure Compact (NLC) allows a nurse (RN and LPN/VN) to have one compact license in the nurse’s primary state of residence (the home state) with authority to practice in person or via telehealth in other compact states (remote states). The nurse must follow the nurse practice act of each state. The mission of the Nurse Licensure Compact is: The Nurse Licensure Compact advances public protection and access to care through the mutual recognition of one state-based license that is enforced locally and recognized nationally. Currently 34 states are members of the compact. The COVID-19 pandemic demonstrated very clearly the benefits the NLC offers of being able to tap a larger workforce. Indeed, at the height of the pandemic in April 2020, Governor Walz signed an Executive Order allowing healthcare workers licensed in other states to work in Minnesota, effectively entering the state into the NLC. Despite being sensible policy, the Minnesota Nurses Association (MNA) opposed this bill. According to the Pioneer Press, the MNA believes that joining the NLC would “result in poorer quality of care at the bedside.” The real reason for the MNA’s opposition is that “the bill would threaten the jobs of Minnesota nurses.” So, just like the Player’s Association resisting an international draft, the nurse’s union wants to protect its members from competition. Again, acting in its member’s interests is what you should expect a union to be doing, but again, no baseball player ever pretended they were resisting this competition in the interests of a “poorer quality of baseball pitch side.” Strikes work by one party to a dispute imposing harm on some other party in the hope that the counterparty to the dispute will find this harm unbearable and give in. When baseball players strike, who is harmed? The fans, maybe, though not to any great degree. The owners certainly, and to a potentially significant degree. Who is harmed by teacher’s strikes and nurse’s strikes? Kids and patients, and they aren’t even the counterparty in the dispute. That explains why these strikes – which are essentially identical – are presented in such different ways. In all three cases the union is looking after its member’s interests, nobody else’s, exactly as it exists to. John Phelan is an Economist at Center of the American Experiment. (0 COMMENTS)