This weekend I watched a CBS Sunday Morning show that I had taped a few weeks ago. There was a fairly depressing segment on the cost of child care versus the amount of money a parent, typically a woman, could make. The solution that one of the interviewees advocated was higher government subsidies for children. She misses an opportunity and it’s the same one that Matt Yglesias missed in his 2020  book, One Billion Americans: The Case for Thinking Bigger, although he has less excuse. I reviewed the book here. I liked it a fair amount but the book is a bit of a bait and switch. Whereas Yglesias says he wants the United States to have one billion people and understands that that would mean massive immigration, he doesn’t get into immigration in detail. He puts a lot more detail into his proposal for child subsidies even though he must realize that the number of Americans added because of the incentive effects of the subsidies would be a fraction of the number of people added by immigration. Even more frustrating, given the book’s theme, is that he passes up the chance to get some low-hanging fruit with a two-fer: get lower cost of child rearing by allowing way more immigration of people, typically women, who would provide a lot of child care. Here’s a relevant section of my review of his book: For instance, he advocates having the federal government give families $3,600 upfront for every birth and then $300/month, which is $3,600 per year, until the kid hits seventeen. A numerate reader will do the math: the United States has about 70 million people less than 17 years old. Therefore, the annual cost, ignoring the $3,600 baby bonus, would be over $250 billion. That’s not a small number. With almost five million births a year, the annual cost of the bonus would be an additional $18 billion. And those numbers assumee that Yglesias’s plan doesn’t work. If it works, then births would rise and so would costs. An important number missing from the book is what economists would call the elasticity of “supply” of children with respect to the “price” of children. Ygelsias’s purpose with the child subsidy is to bring down the perceived price of having children. A reasonable estimate is that the average amount of time spent raising children in their first 17 years is 10 hours per week, obviously front-loaded in the first few years. At even an average parental wage of $20 an hour, surely an underestimate, that’s about $10,000 per year. So his proposal would reduce the perceived price by about 36 percent. Would that lead to 10 percent more children, 50 percent more children, or some number in between? I don’t expect Yglesias to know. No one knows. But he needs to address the issue. Moreover, with my alternative proposal of having tens of millions of women from poor countries be nannies hired by parents, the price of raising kids could easily fall by 36 percent, with the huge additional benefit that the cost to the feds would be close to zero. He does cite a study that “finds that when low-skilled immigrants enter a metro area,” college-educated professional women work more hours and earn more money because they can hire housekeepers and babysitters. But he doesn’t pull the trigger and advocate letting more low-skilled workers in. Indeed, to the extent he discusses skills and immigration, it is to advocate that we get “as many smart, skilled immigrants to our shores as we possibly can.” That’s a good idea, but the U.S. government should let in many unskilled people too. Even if allowing tens of millions of women from poor countries to be nannies would cut the price of raising kids by “only” say, 15 percent, notice the difference between that and subsidies: subsidies cost us taxpayers whereas more immigrant nannies cost little. Remember the Bryan Caplan mantra: the U.S. welfare state is aimed mainly at the old, not the young. One proposal, immigration, increases the pie; the other proposal, subsidies, shrinks it, or, more accurately, causes it to be smaller than otherwise.     (0 COMMENTS)

Reason magazine makes a strong case for Colorado’s Jared Polis being America’s most libertarian governor: The 46-year-old governor is presiding over one of the fastest-growing states in the country and a place that has one of the lowest death rates during the pandemic. He pushed back against members of his own party to remove mask mandates, and he consistently argued that public health decisions should be made at as local a level as possible. Last fall, at a conference held by the conservative Steamboat Institute, he declared that the state income tax rate “should be zero” and has supported ballot initiatives that reduced the rate. Polis has embraced occupational licensing reform and was an outspoken defender of bitcoin back in 2014 when Sen. Joe Manchin (D–W.Va.) called on then-head of the Federal Reserve Janet Yellen to ban it. . . . The openly gay, married father of two recently signed a free-range parenting bill that effectively relegalizes the sort of Colorado childhood he recalls as the son of two ex-hippie parents: “Just because a kid is playing alone outside, it doesn’t mean they’re in danger,” Polis said at the signing ceremony. “It will help decrease false reports so…we can focus on the serious and the real instances of child abuse.” According to Reason, Polis is also: 1. Pro-choice on abortion. 2. Strongly opposed to government regulation of speech on social media. 3.  Opposed to President Biden’s restrictive policies on trade and immigration. 4.  Strongly supportive of school choice. The Reason article doesn’t mention drug laws, but Polis is a strong supporter of pot legalization.  (Recall that Colorado was the first state to legalize pot.)  Another article mentions that he threatened to veto a rent control measure. Polis is not a Libertarian, he is a Democrat.  But given his mix of policy views he might be the most libertarian governor since Gary Johnson.   It is interesting that Rocky Mountain states (plus Alaska) often seem more libertarian than other states.  I wonder why that is? (1 COMMENTS)

An effort at logical coherence is a necessary condition for any intellectual claim and a fortiori for any social theory. Speaking of vice-president Kamala Harris’s stance on abortion, the Wall Street Journal reports (“Biden at Center of Fight Over Abortion After Career of Reservations,” May 8, 2022): During her commencement address Saturday at Tennessee State University in Nashville, Tenn., [Ms. Harris] said the U.S. was forced to defend principles such as “the rights of women to make decisions about their own bodies.” Forget about what “the U.S.” is supposed to refer to. Ms. Harris probably means “the U.S. state apparatus.” It is likely that she does not have a clear vision of the problems involved in this way of speaking. Here is the blatant contradiction that I am not the first one to note. I have never heard Ms. Harris speak about the right of a woman to make decisions about how she uses her own body to work—for example, by accepting a wage below a government-decreed minimum wage if she wants to, as opposed to remaining unemployed. Nor is she known for defending the right of a woman to make decisions about the use of her own body by carrying a handgun to protect herself against anyone who would be trying to use her body in a way she does not want to. (In this later case, an original constitutional Amendment exists that the vice-president could buttress, instead of incoherently undermining it.) Such examples could be multiplied. Abortion is a complex and difficult issue, but a minimum effort of coherence is required. Perhaps Ms. Harris is instead speaking of the collective right of 50%+1 of American women to use the body of any individual woman as they see fit? But, then, since any human being can apparently decide he is a woman, is she invoking the collective right of 50%+1 of all Americans to make decisions about the individual body of any minority woman in the 50%-1 group? And why focus on Americans as opposed to, say, Mississippians? Not to speak of women in the rest of the world, whose majority may have a different conception of, say, microaggressions. And what is so sacred about a numerical majority anyway? Logical consistency is not collectivism’s strong point. (0 COMMENTS)

The conflict between Russia and Ukraine can be traced to Russia’s refusal to accept the recent cooperation that NATO and the European Union have with the former Soviet Republic;  Moscow considers Ukraine as part of its identity and within its sphere of influence, and whose control it believes is vital for its security. However, this conflict started a long time ago. Around 2013, after the so-called Maidan revolution, a popular revolt broke out at the end of that year in an attempt to postpone the signing of an agreement between Ukraine and the European Union. On March 21, 2014, Crimea and Sevastopol, considered an independent administrative unit, were annexed to Russia. In response to this, the European Union has imposed sanctions on Russia, which has also been excluded from the G-8 and the G-7. The conflict with pro-Russian military forces has also continued in the Donbas region, which borders Russia and has become a conflict-ridden and divided area.  In 2015, a year of apparent stability, Donetsk and Lugansk were split into two zones, one controlled by rebels and the other by Ukraine. Negotiation mechanisms were created through the Minsk Agreements. The first of them, Minsk-I, was signed in September 2014 but was not fulfilled. Since then, military clashes have been constant with an occasional ceasefire. In 2019, the election of Ukraine’s new president saw a renewed intention to process Ukraine’s entry into the European Union and North Atlantic Treaty Organization (NATO. But this stood in the way of the interests of Moscow, which is permanently wary of NATO’s movements in this area. To add to all these open fronts, in November 2021, the Kremlin mobilized almost 90,000 Russian soldiers from the Russian Black Sea Fleet, Air Force, and the Aerospace Forces near the borders of Ukraine and in the occupied territories of Crimea and Donbas. On February 24, 2022, Vladimir Putin ordered an attack on the  Donbas region. Although the Ukrainian and Russian delegations are currently resuming negotiations on Belarusian territory, there is still no clear horizon for a cease-fire in the conflict. In fact, the Russian Executive has threatened the possibility of awakening a “third world war” which would involve nuclear weapons.   How does this conflict affect the Latin American LNG industry? In 2021, the imbalance observed in the global Liquefied Natural Gas (LNG) market created high competition for LNG cargo due to a substantial increase in post-pandemic demand. The limited supplies couldn’t meet this demand. Russia ships about 230 million m3 of gas daily to Europe, of which one-third travels westward through Ukraine. In 2021, Russian natural gas accounted for almost 13% of all Russian exports. This was worth about US$62 billion and shows the magnitude of this trade with the other side of the world. While it has been argued that LNG cannot fully replace the Russian pipeline gas supply, LNG’s share of the gas mix in Europe is expected to increase. More specifically, Europe will likely have to rely on LNG imports from the U.S. in the face of limited possibilities to increase its own gas production. In 2018, the U.S. moved into first place as the top supplier of LNG to Latin America, a position that Trinidad and Tobago had held for nearly seventeen years (2000-2017). According to monthly figures released by the U.S. Department of Energy (DoE), last year, U.S. LNG exports to Latin America and the Caribbean grew 106% to nearly 13 million tons of LNG. An increased supply of U.S. LNG to the European market to cover a possible partial or complete disruption of Russian gas supplies to Europe could decrease U.S. LNG supplies to Latin America. It is also most likely that the region must compete for higher-priced LNG cargoes against much larger markets such as Asia and Europe.   What does the future look like? Regardless of the outcome of the conflict, the war and the sanctions that follow will have a rebound effect on different industries worldwide. This rings especially true in the case of LNG in Brazil and Argentina, which were the countries that purchased the most supplies last year. The conflict must be resolved as soon as possible. We must break free of the idea that conflicts in other continents do not affect us as a region; In the words of  Frederic Bastiat, “Let us then accustom ourselves, then, to avoid judging things by what is seen only, but to judge them by that which is not seen.”   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)

It’s tempting to explain Russia’s invasion of Ukraine with Putin’s megalomania. Economist Chris Blattman of the University of Chicago talks about his book Why We Fight with EconTalk host Russ Roberts. Blattman explains why only a fraction of rivalries ever erupt into violence, the five main reasons adversaries can’t arrive at compromise, and the problem with trying to […] The post Chris Blattman on Why We Fight appeared first on Econlib.

I never have trouble remembering Friedrich Hayek’s birthday (May 8) because it’s the same day as my late sister’s birthday and the same day as VE Day. Here’s a link to some reminiscences of the first time I met Hayek. A highlight from that link: In June 1975, when I attended the second Austrian conference in Hartford, Connecticut, I went up to Hayek, who was attending, and said to him, “Professor Hayek, your analysis in Prices and Production makes sense to me only if we reject rational expectations. Do you agree?” He winced and went on to disagree but I still don’t understand what he said. (By the way, when Hayek’s cab pulled up on the Sunday afternoon before the conference started and the driver pulled Hayek’s large suitcase out of the cab, I looked at a group of fellow graduate students who were more into Austrian economics than I was, figuring one of them would offer to carry his suitcase up the narrow stairs. None of them did, and so I went up and offered to do so. Hayek accepted gracefully. That suitcase was heavy. On the way up the stairs, I said, maybe a little too impudently, “This is heavy; what have you got in here.” Hayek chuckled and answered, “Books.”) One additional story I didn’t tell in the interview from which this is taken is that we got talking about Hayek’s appearance on NBC’s Meet the Press that was televised that morning. I think I said something like “I thought you did a good job.” (I did.) That got us talking about reporters as interviewers. Hayek said, with a twinkle in his eye, that he found it surprising that no U.S. reporter who had ever interviewed him took notes in shorthand whereas it was common for European reporters to do so. He couldn’t understand why a skill that would seem to be so crucial for someone who wanted to do his job well would be so rare. I also remember that the way I saw the interview was that Dr. William Hutt, his wife, and I were going through an airport (I think Cleveland) on the way from a Liberty Fund colloquium, my first, in Athens, Ohio to Hartford. This is vague recall, but I think we saw it on an overhead TV while waiting for our flight. Better than CNN. When researching this post, I found in my home library the transcript of the June 22, 1975 interview on NBC. I had sent my check for 25 cents to NBC and got it in the mail. Here’s an audio recording of the interview, but it misses about the first 3 minutes. Which means it misses one of the best parts: Mr. [Irving R.] Levine: How do you cure inflation? Dr. Von Hayek: You stop printing money. He later goes on to explain it more accurately: In a sense, stopping the printing presses is a figurative expression, because it is being done now by creating credit by the Federal Reserve System.     (0 COMMENTS)

In response to my post titled “Who’s Responsible for Student Loans?” April 28, 2022, frequent commenter Vivian Darkbloom wrote: At the risk of keeping this too simple, I’d say it’s the person(s) signing or co-signing the loan agreement. I LedOL when I saw this. It reminded me of something I read when I was 18 and was reading everything I could find by and about Ayn Rand. I can’t find where the original story was printed but Anne Heller, in her wonderful biography of Ayn Rand, Ayn Rand and the World She Made, tells the story. (Possibly the source is in the footnotes but my copy of Heller’s book is at work and I’m at home.) Ayn Rand had been invited to speak at Yale University in February 1960. Heller writes: To her surprise, and Yale’s, the flyer tacked to the law-school bulletin board attracted the largest audience in the history of the Yale series; the overflow was so great that the school placed loudspeakers in the building entryway and on two upper floors. During the question-and-answer period, one member of the audience shouted from the balcony, “Under your system, who will take care of the janitors?” She sang out, Young man: the janitors!” and the hall erupted in laughter. The thing I like about her answer, besides its terse accuracy, is that she was willing to enter the fray. Some speakers might have stood on ceremony, saying “How dare you question me out of turn?” But she seized the day, with excellent effect.   (0 COMMENTS)

It is an interesting phenomenon that a first-rate financial newspaper can, without adding a big smiley, run a major title like yesterday’s: “US Economy Added 428,000 Jobs in April Despite Worker Shortages.” Imagine the number of new jobs created if there were no “shortage”! At least in the economic sense of the word, there is no shortage of labor more than is a shortage of petroleum, ammo, or diamonds: these things are just expensive and more expensive than they have been in the recent past. One can define “shortage” as one wants, but if is defined as “high price” or “increasing price,” we need another word for “unavailable at any market-determined price,” which is how economics defines it. By promoting the confusion between market unavailability and availability at a price that many deem too high to justify buying, one renounces the possibility of useful analysis. That job openings look larger than job takers at a wage rate lower than the market-clearing rate is not, in itself, a useful bit of information. For example, I have a permanent job opening for a Ph.D. research assistant at $5 an hour. That there is no job taker does not mean that there is a labor shortage; it just mean that I don’t need a research assistant at the price these guys and gals are fetching on the labor market. We may sympathize with Fed chairman Jay Powell’s efforts to continue his crash course in economics since he was nominated by president Donald Trump, but this should not prevent us from realizing that a declaration like he just made does not make much economic sense (quoting the same Financial Times report): Labour demand is very strong, and while labour force participation has increased somewhat, labour supply remains subdued. A “subdued” labor supply is not a technical expression, so let’s try to see what if means. That these slaves don’t work as much as political authorities would like? Probably not. Perhaps Mr. Powell is just trying to dumb down for his listeners the idea that the supply (curve) of labor is not elastic enough and that it would be so nice, it would make employers so happy, if more people were willing to jump in the labor force for wages that they consider wouldn’t compensate for their lost leisure. It would be so good if workers were not such wage gougers! Or perhaps it was simply the way some in the Fed’s army of economists tried to it dumb down for their boss? If there is a market disequilibrium, it would more likely be a surplus of labor created by minimum wages and coercive union privileges, both of which prevent less productive workers from from competitively bidding their own wages down in order to find jobs. But note that the growth in real market wages that accompanied higher labor demand in the post-pandemic recovery (before inflation rose its ugly head) imply that any labor surplus has been reduced, which the low unemployment rate confirms. Inflation, created by the federal government’s high deficit financing is a true but different problem. As the Bureau of Labor Statistics notes, “over the past 12 months, average hourly earnings have increased by 5.5 percent.” Even if we add benefits, the increase in remuneration is probably lower, and certainly not much higher, than the current estimated increase in the general price level (that is, the inflation rate), depending on which index is used. Which suggests another problem in the “shortage” narrative: if the hypothesized temporary gap between quantity demanded and quantity supplied of labor existed, there would be strong upward pressure on real wages. Without such increases in real wages, no wonder that employers have problems attracting wage-gouging toilers. Perhaps the lack of strong increase in (average) real wages just shows a temporary lag, assuming a recession is not on the horizon. One way or another, it seems pretty clear that, at least in the overall labor market, there is no more shortage than in any other relatively free, or not too unfree, market. (0 COMMENTS)

“Something must be done. This is something. Therefore we must do it.” Those are my favorite three linesfrom Yes, Prime Minister, a British comedy series about politics. Most politicians who face a problem think that “something must be done.” Unfortunately, they tend to reach the same conclusion that the adviser reached in the Yes, Prime Minister episode. But in the US economy, in which governments at all three levels tax, spend, and regulate as much as they do, there’s another way to confront problems that does not involving taxing, spending, and regulating more. That way is to reduce taxes, spending, and regulation. In short, some things must be undone. There’s a long list of things that should be undone and that would help ameliorate, rather than exacerbate, some of the problems we face. I’ll settle for five: regulations on home food production, the Jones Act, protectionist trade policies, restrictive immigration policies, and occupational licensing. In each case, I’ll show a particular problem that undoing these policies would ameliorate. These are the opening three paragraphs of my most recent article for Hoover, “Don’t Just Stand There: Undo Something,” Defining Ideas, May 5, 2022. Another excerpt: One of the best sources for information about the effects of protectionism is the Peterson Institute for International Economics (PIIE). In a study published in March, Gary Clyde Hufbauer, a senior fellow with PIIE, and Megan Hogan and Yilin Wang, both research analysts with PIIE, advocated trade liberalization as a way to reduce inflation and increase real incomes for American households. They estimate that eliminating Trump’s trade war tariffs and ending his 25 percent tariffs on steel would achieve the equivalent of a 2-percentage-point reduction in tariffs. Based on this, they estimate, the consumer price index (CPI) would be 1.3 percentage points lower than otherwise. So, for example, if these measures were undertaken this year, and assuming that importers could adjust quickly, the CPI for 2022 would be 1.3 percentage points lower than otherwise. That would not be a permanent reduction in inflation, but it would mean that the CPI would be permanently 1.3 percentage points lower than it would have been. Hufbauer et al. estimate further that relaxing Buy America rules would lead to a further one-time 0.6-percentage-point reduction in inflation. What would that mean for the average American household? A lot. The authors note that in 2020 the average American household spent $61,334 on goods and services. A 1.3 percentage point in reduction in the CPI, due to repealing the Trump tariffs, would save that average household $797. And the saving would be 1.3 percent of spending every year. And a 1.9-percentage-point reduction in the CPI, which would occur if the Trump tariffs were repealed and the Buy America rules were relaxed, would save the average family $1,165 annually. Read the whole thing.   (0 COMMENTS)

It’s easy to end a transitory inflation.  It’s hard to end a persistent inflation.  That’s why it’s essential that central banks engage in “level targeting”.  Level targeting makes all inflation transitory. When the Korean War broke out in June 1950, the US economy was experiencing a period of mild deflation.  By February 1951, the 12-month CPI inflation rate had reached 9.4%.  By February 1952, inflation was back down to 2.2%.  How did the Fed achieve success so quickly, without triggering a recession in 1952? The transitory inflation of 1951 was not a supply shock—NGDP rose at an extremely rapid rate.  Inflation would not end just because the supply shock went away.  There were price controls, but it wasn’t just inflation that declined in 1952—NGDP growth also fell very sharply. So monetary policy did significantly reduce aggregate demand in 1952.  (Contrast this with the 1971-74 price controls.) The key to the Fed’s 1952 success was level targeting.  Between 1934 and 1968, the US pegged the price of gold at $35/oz.  This provided monetary policy with credibility, keeping long-term interest rates at relatively low levels.  As a result, the Fed was able to eliminate the high inflation of 1951 with a relatively small increase in short-term interest rates, as 3-month T-bill yields rose by only about 40 basis points between 1950 and 1952: (A similar small increase in interest rates eliminated the transitory inflation of 1936-37; although that policy was too contractionary, pushing the economy into a deep slump in 1938.) As recently as last September, the Fed’s FAIT policy still had some credibility.  Markets assumed that the Fed would keep inflation around 2%, on average.  Ten year T-bond yields remained around 1.3%.  At the time, markets (wrongly) assumed that the Fed would engineer a 1952-style soft landing. As Fed officials began moving away from their promise to keep average inflation near 2%, long-term bond yields rose sharply. Eliminating inflation will now be much more costly.  Interest rates will have to rise more sharply and the economy will slow by more than if the FAIT policy had been maintained. People often ask me how high the Fed needs to raise rates to control inflation.  The answer depends on the policy environment.  With a credible level targeting regime, only a tiny rate increase is required.  But as we saw in 1981, without policy credibility a dramatic rate increase is required. Right now the Fed is somewhere in between these two extremes.  It has less credibility than in 1951 but more than in 1981.  The longer they wait, the higher the price that must be paid. (0 COMMENTS)