Quickly, without looking, guess what has happened to the S&P 500 in the last 5 years. Ok, now check to see how close your guess is. In the last 5 years, the S&P 500 has risen by 72.21%. Does that surprise you? It did me. That amounts to an annual growth rate of 11.5 percent (not inflation adjusted.) Since inflation was low for almost 4 of those 5 years, it’s still a healthy rate of return. The Consumer Price Index has risen by 17.3 percent over that time. That means that the S&P 500 index has risen, in real terms, by 46.8 percent over the last 5 years. That’s an annual growth rate, in real terms, of 8.0 percent. Not bad. Confession: I should know, but don’t, whether the S&P 500 is based on reinvesting all dividends. If it is, then end of story. If it is not (and I suspect that it’s not), the rates of return are even higher. Why do things look so bad now? Because April and, indeed, the first 4 months of 2022, have been horrible for stocks. Since the start of the year, it has fallen by 13.86 percent. But I learned decades ago, mainly by reading both the popular and the academic literature on finance, not to time the stock market. I’m in it for the long run. Former co-blogger Bryan Caplan learned that the hard way between March and June 2020. That one bad bet caused losses an order of magnitude larger than all his gains from all his explicit bets with individuals. One of the most valuable articles published in David R. Henderson, ed., The Concise Encyclopedia of Economics is the one titled “Stock Market.” In it, author Jeremy Siegel, a finance professor at Wharton, shows that stocks have outperformed bonds, gold, and commodities by large margins over long periods. (0 COMMENTS)

How large is the running race industry? It amounts to about a billion and a half per year. If you toss in associated products such as running shoes, race t-shirts and other such paraphernalia, it nears $5 billion on an annual basis. In a recent year, some 1.8 million Americans entered races of 5k, 10k, half and full marathons. The Boston marathon limits participation to roughly 30,000; many thousands more wanted to attend but we not deemed fast enough. Covid, of course, has put a damper on the upward trend in this industry, but the outlook remains a good one. Yet, all is not well in this sector of the economy. It is guilty of rampant age discrimination. Nor is this practice even slightly hidden. For example, here are a few typical instances of this blatant practice. One race organizer announced prizes as follows: Overall and Division Awards: 1st, 2nd, 3rd Overall Male and Female 1st Masters Male and Female (age 40-over) 1st Grand Masters Male and Female (age 50-over) 1st Senior Male and Female (age 60-over) 1st Youth Male and Female (age 17-under)   Here is another example: Award Info: Awards will be given to overall male & female for the half marathon as well as the top 3 male/female finishers in each age group for the half marathon. Top 3 male/female finishers in each age group 10k & 5k. •             5K Age Groups: 0-7, 8-12, 13-19, 20-29, 30-39, 40-49, 50-59, 60-69, 70+ •             10K Age Groups: 19 and under, 20-29, 30-39, 40-49, 50-59, 60-69, 70+ •             Half Marathon Age Groups: 19 and under, 20-29, 30-39, 40-49, 50-59, 60-69, 70+ Where is the discrimination? It’s hard to notice after a brief perusal. It seems that every age is covered. But a more careful examination will dispel this thought. Notice that in the typical announcement, virtually all runners are separated into 10-year age gaps. This is important, since number of years on the planet strongly affects ability. It does so in most sports, and running is certainly included in this phenomenon. For example, here are world record times based on age: 5 kilometers M40       13:38 M45       14:29 M50       15:00 M55       15:31 M60       16:06 M65       17:23 M70       18:21.2 M75       18:45 M80       22:41 M85       24:57 M90       33:46 M95       40:52 Half Marathon M40       1:01:09 M45       1:05:01 M50       1:06:23 M55       1:10:23 M60       1:11:31 M65       1:16:25 M70       1:22:23 M75       1:29:26 M80       1:38:59 M85       1:50:47 M90       2:56:26     Now return to those age-based award announcements. A careful perusal will indicate that there is one exception to the general rule that competition occurs, only, within single decade age groups: people aged 80 and above. They are the only ones who are required to compete with runners 10 years or more younger than themselves. If the cut off point is 60 years and older, then an 80-year old must race against others 21 or more years younger; if 70+, then 11 or more years. Everyone else is limited to a 10-year age gap. (Full disclosure. I am 80 years old. I will benefit if this system is changed. True confession: before I turned 8 decades of age, I was blissfully unaware of this issue.) What is the source of this age disparity? Did race organizers sit down one day and ask themselves, How can we make it difficult for octogenarians to compete with others? Not bloody likely. Many of them, presumably, have parents and grandparents who have reached this number of years or more. That was the last thing on their minds. Rather, the reason is that there are very, very few people 80 years and older who seriously compete in 5k, 10k, half and full marathons, and race organizers implicitly took this into account. No, this ageism is not likely purposeful. But it is systemic. It is not intentional, but it has real effects nonetheless. Consider the plight of Ed Whitlock, an 85-year-old marathoner who broke the four-hour mark. That is truly phenomenal. It is, surely, deserving of a medal. But if the age cut-off point is 70+, there will be dozens if not hundreds of 70 and 71-year old “kids” in who will be able to run rings around this world class athlete in a race with thousands of participants. Nor is money likely an issue. The medals given out at most races are pretty cheap. Sometimes, ribbons are the only award. Do race organizers have a right to discriminate against elderly athletes? Of course they do, at least in a free society. They are private individuals and business concerns, and that is what freedom is all about: the right to do whatever you wish, provided only that you do not violate rights. Elderly runners have no “right” to have their competition limited to nine-year age gaps. However, and here I presumably speak for all of my geriatric fellow racers, it would be the nice thing to do to stop this petty annoyance. It is time, it is past time, for this petty annoyance to be ended. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans and is co-author of An Austro-Libertarian Critique of Public Choice (with Thomas DiLorenzo). (0 COMMENTS)

A meme on Facebook has been viral in the last 24 hours. It states: “If your liberal arts degree doesn’t have enough value for you to pay it off, it certainly doesn’t have enough value for me to pay it off.” When one libertarian friend posted it, another libertarian friend answered: This is true of all degrees; there’s no reason to pick on liberal arts. I know computer science and biology and psychology and marketing grads who are out of work. Either debt forgiveness is a good idea or it’s a bad idea, but either way it wouldn’t depend on what your major was. Good point and well said. Another libertarian friend on the same thread wrote: Libertarians: the reason tuitions are so high is because government subsidies and government credentialing make them artificially high. Also libertarians (now): if you can’t pay off that high tuition yourself, that’s totally on you. I agree with him that government subsidies and government credentialing artificially increase the demand for education and that pushes up tuition substantially. Those aren’t the only factors. Economist Richard Vedder has written on the causes in his 2004 book Going Broke by Degree: Why College Costs Too Much. Moreover, Vedder proposes some solutions. I highly recommend at least perusing his book, which is free on line as a pdf. Vedder discusses the vicious circle of more government aid leading to higher tuition leading to more government aid, etc. Here’s a key paragraph on page 193 of his book: To this point, the response of governments to the rising cost of education has been largely to throw more money at the problem. Recall the vicious circle. Tuition charges rise, so the public complains loudly. The federal government increases guaranteed student loans and other programs to help students finance the rising cost of attending college, while state governments increase subsidies to universities. More financial aid increases the demand for higher education, enabling universities to raise prices further. With no profit-based “bottom line,” universities try to maximize their income or their prestige—the latter often pursued by spending more money to improve their standings in the USN&WR or other ratings. The universities then increase spending more, necessitating still further tuition increases. So I agree with the second libertarian friend. But here’s what I said in response: I’m not sure where you go with this. You’re right that the government subsidies and credentialing are a huge part of this. But who’s more responsible for a student taking on debt: the student or taxpayers in general, almost none of whom had an appreciable role in formulating that policy? I think it’s the former. (0 COMMENTS)

In 1968, urban theorist Jane Jacobs (1916-2006) reminded readers of her book The Economy of Cities that “[w]ild animals are strictly limited in their numbers by natural resources, including other animals on which they feed. But this is because any given species of animal, except man, uses directly only a few resources and uses them indefinitely.” Fortunately, once humans “stopped living like the other animals, on what nature provided us ready-made, we began riding a tiger we dare not dismount, but we also began opening up new resources – unlimited resources except as they may be limited by economic stagnation.” Jacobs rejected any analogy between “human population growth [and] animal population growth, based on the relation of population to current resources.” She even stated that the “idea that, under sensible economic planning, population growth must be limited because natural resources are limited is profoundly reactionary” for it was not “planning for economic development at all,” but rather “planning for stagnation.” Fortunately for our species, economic and environmental indicators unmistakably convey that, at least in the context of market economies, Jacobs and other past Promethean writers proved much more right than their opponents. This is not to say that environmental challenges are non-existent, but that their root causes are more ideological and institutional than to be found in some immutable natural laws that constrain human actions. Although these facts are insufficiently appreciated, the eco-optimistic narrative is ultimately based on the observation that humans have developed at two unique abilities. The first is the trading of physical goods. As the economist Adam Smith (172?-1790) wrote over two centuries ago, the “propensity to truck, barter, and exchange one thing for another” is “common to all men, and to be found in no other race of animals.” Because of this ability, individuals increasingly came to specialize in what they did best and traded over ever longer distance with others, in the process producing far more, both in terms of quantity and quality, than if each individual or family had remained self-sufficient. Humans have also developed, or perhaps more accurately taken to a new level, the ability to address problems by continuously (re)combining existing things in new ways. More people who specialize in ever narrower pursuits can therefore create ever more advances. A young Friedrich Engels (1820-1895) thus stood Malthus on his head in 1844 when he wrote that the “productive power at mankind’s disposal is immeasurable” and the “productivity of the soil can be increased ad infinitum by the application of capital, labour and science.” A key problem with Malthus, Engels argued, is that he did not understand that science also increases “in a geometrical progression” under “the most ordinary conditions.” A century later, the American economist Clarence Ayres (1891-1972) explained the exponential growth of technical devices because “the more devices there are, the greater is the number of potential combinations.” New and better technology, in turn, meant that natural resources were really “materials” that could become ever more abundant as “natural resources are defined by the prevailing technology” rather than what nature had made available to humanity. The Progressive historian Charles Beard (1874 –1948) similarly observed at the time that there can never be anything final about technological advances for the “solution of one problem in technology nearly always opens up new problems for exploration” and “activities in one specialty produce issues for its scientific neighbors.” Beard saw no end to this process, at least as long as humans remained “passionate” in their quest for “physical comfort, security, health, and well-being”. Indeed, until “people prefer hunger rather than plenty, disease rather than health, technology will continue to be dynamic.” What critics of market economies like Engels, Beard, and Ayres failed to understand, however, is that the price system was always the best way to factor in innumerable trade-offs in order to achieve a rational (i.e., economic) allocation of scarce resources out of an incredibly large number of possible combinations. In short, when the price of a commodity increases, market actors look for more of it, use it more efficiently and develop substitutes. As a result, resources for which there is a sustained demand have become more abundant while their inflation-adjusted prices have decreased. While some environmentalists grudgingly acknowledge the virtues of this feedback system, they remain systematically blind to two additional ways through which vigorous economic growth has made possible a significant greening of our planet. The first is the substitution of resources produced or harvested from biomass on the surface of the planet by subterranean substances. This idea is now generally associated with the late historical geographer and demographer E. A. Wrigley (1931-1922), but it is older. For instance, the geologist Kirtley Fletcher Mather (1888-1978) noted approvingly in 1944 that one “hundred years ago, nearly 80 per cent of all the things men used were derived from the plant and animal kingdoms, with only about 20 per cent from the mineral kingdom. Today only about 30 per cent of the things used in industrialized countries come from things that grow; about 70 per cent have their sources in mines and quarries.” In the last two centuries, carbon fuels and the synthetic products made from them, along with various metals and other substances such as sand, clay, silicon, potash, and phosphate, progressively reduced overall demand for wild fauna such as whales (e.g., whale oil, baleen, perfume base), birds (e.g., feathers), elephants, polar bears, alligators and countless other wild animals (e.g., ivory, fur, skin); trees and other plants (e.g., lumber, firewood, charcoal, rubber, pulp, dyes, green manure); agricultural products (e.g., fats and fibers from livestock and crops, leather, dyes and pesticides from plants); work animals (e.g., horses, mules, oxen); and human labor in various forms (e.g., lumbering, weeding). Although not perfect, these substitutions resulted in the creation of lesser problems than those that existed before and made possible an otherwise unthinkable level of material abundance, along with the abandonment and eventual rewilding of much marginal agricultural land. Unfortunately, the current emphasis on decarbonisation and net zero, with its short-sighted promotion of wind turbines and solar panels and the banning of plastic products, can only reverse past achievements and result in the sacking of biodiversity on our planet. Market processes also spontaneously improved the state of our environment through the large-scale creation of lucrative by-products out of production residuals. As an anonymous contributor to the Illustrated Magazine of Art observed in 1853, the “operations of chemistry have brought into employment a thousand substances which had otherwise been useless or pernicious.” Some of these had at first been dissipated through the erection of huge chimneys, but as “the best way of destroying an enemy is to make him a friend, so the best way of getting rid of a noxious gas is to find a method by which it may be retained in a useful form.” Once this had been accomplished, “those old chimneys remain[ed] as so many huge monuments of the ignorance of the past.” An 1886 encyclopedia entry similarly described how “in the earlier days” of many manufacturing branches “certain portions of the materials used [were] cast aside as ‘waste’.” Over time though, “first in one branch and then in another, this ‘waste’ material has been experimented upon with a view to finding some profitable use for it; and in most instances the experiments have had more or less satisfactory results.” Writing in 1904, the American industrial chemist Leebert Lloyd Lamborn observed: “If there is one aspect more than any other that characterizes modern commercial and industrial development. . . it is the utilization of substances which in a primitive stage of development of any industry were looked upon as worthless.” To give but one illustration: Petroleum extraction was first pursued to produce kerosene as a substitute to whale oil in lighting. Most of the raw material was at first wasted, but by the mid-1860s a few by-products had been created out of the liquid residue that proved superior substitutes to substances created from animals and plants, including lubricating oils, greases, paraffin, petrolatum (better known by the trademark Vaseline), candles, insect repellents and solvents. Although gasoline found a limited market in paint and varnish production, it was too flammable and volatile for household lighting and heating. Needless to say, the development of the internal combustion engine eventually turned it into the main product of petroleum refining. After writing that over 5000 different products had been developed from crude oil, the geographer Joseph Russell Smith (1874-1966) and his collaborators observed over sixty years ago that the “meat-packing industry has long boasted that it uses all parts of a pig except the squeal. The petroleum industry sometimes adds the odor of oil to odorless gas to help detect leaks in pipelines. The petroleum industry claims that it uses everything in crude oil, including the smell.” As was once better understood, the profit motive rewarded manufacturers who turned freely available polluting emissions into marketable by-products. The business and technology journalist Peter Lund Simmonds (1814-1897) thus observed a century and a half ago that “as competition becomes sharper, manufacturers have to look more closely to those items which may make the slight difference between profit and loss, and convert useless products into those possessed of commercial value.” Instead of focusing only on the latest scenarios of imminent environmental doom then, let us celebrate and learn from the achievements of past generations of creators and innovators who, by using ever larger quantities of carbon fuels and turning polluting residuals into valuable by-products, gave us an ever more prosperous, greener and cleaner world. Environmental despair needs not spring eternal in market economies. Pierre Desrochers is Associate Professor of Geography, University of Toronto Mississauga. (0 COMMENTS)

The Mercatus Center has just published an excellent new working paper by Robert Hetzel.  Here’s the abstract: In response to the pandemic, which unfurled starting in March 2020 and raised unemployment dramatically, the FOMC adopted a highly expansionary monetary policy.  The policy restored the activist policy of aggregate demand management that had characterized the 1970s.  It did so in two respects.  First, the FOMC rejected the prior Volcker-Greenspan policy of raising the funds rate preemptively to preserve price stability.  Second, through quantitative easing, it created an enormous amount of money by monetizing government debt.  In the 1970s, activist policy was destabilizing.  Reflecting the “long and variable lags” phenomenon highlighted by Milton Friedman, a temporary reduction in unemployment from monetary stimulus gave way in time to a sustained increase in inflation.  In response, the succeeding Volcker-Greenspan FOMCs rejected an activist monetary policy in favor of a neutral policy.  That policy concentrated on achieving low trend inflation and abandoned any attempt to lower unemployment by exploiting the inflation-unemployment trade-offs promised by the Phillips curve.  The success or failure of the FOMC’s activist monetary policy offers yet another opportunity to learn about what kinds of monetary policies stabilize or destabilize the economy. Hetzel has closely followed Fed policy for many decades, and has a deeper understanding of how the Fed works than almost anyone else I know.  In 2020 and 2021, Hetzel saw many warning signs in the statements made by Fed officials, which emphasized the need to run the economy hot in order to create jobs.  I initially dismissed these statements as empty rhetoric to please politicians and pundits, and instead focused on the Fed’s commitment to its new “flexible average inflation targeting” policy, which would assure an average inflation rate of 2%.  It turns out that I was wrong and Hetzel was right—the 1960s-era views expressed by Powell and other Fed officials were the real policy, and FAIT was just empty rhetoric. You might argue that lots of people saw the inflation coming, so why focus on Hetzel?  What makes Bob Hetzel so unusual is that he also correctly diagnosed the Fed’s policy errors back in 2008, a time when Fed policy was too contractionary.  Many of the people who worried about inflation in 2021 were permahawks, who were right in 2021 but totally wrong in 2008.  There are only a tiny number of people who correctly called Fed mistakes in both cases (Tim Congdon and Lars Christensen also fall into this group.)  Permahawks will be right when policy was (ex post) too easy, and permadoves will be right when policy was too tight.  Yawn. In a rational world, this record of success would lead people to take Hetzel’s views much more seriously.  I hope his paper is read by professional economists who wish to learn why they got things wrong in 2008, or in 2021.  I worry that people tend to dismiss relatively non-technical studies where the analysis is informed by a deep knowledge of monetary history. Please read the whole thing.           (0 COMMENTS)

EconTalk listeners have long known host Russ Roberts‘s fascination with Russian literature. In January, Richard Gunderman wrote an Econlib Feature Article, The Beef with Greed: Leo Tolstoy and Adam Smith, which- not-surprisingly- got Russ’s gears turning.* In this episode, Gunderman joins Russ to continue the conversation started in that piece, with a particular focus on Leo Tolstoy’s short story, Master and Man. (SPOILER ALERT: If you haven’t read the story yet, you might to read it before you continue!) The story centers on the relationship between two characters- Vasili, a wealthy businessman, and his servant, Nikita. Gunderman aptly describes how Vasili’s identity is wholly bound up in his wealth, and Roberts adds that he also revels in “keeping score” regarding how his wealth compares to others’. What does Tolstoy want us to think about Vasili? What do you think of him? Share your thoughts with us here, or use these prompts to start your own conversation offline. As always, we love to hear from you!     1- Roberts and Gunderman agree that Vasili sees himself as an exceptional person, and “operates with a sense of invincibility. Gunderman characterizes him as a zero-sum thinker. To what extent is this an apt description?   2- Gunderman argues that Tolstoy is not about showing us moral rules. So what is the moral of the story?   3- The conversation turns to Thomas Hobbes and Adam Smith.  What would each think about Vasili, according to Roberts and Gunderman? How do each philosopher’s ideas about self-interest compare with respect to Vasili?   4- Roberts tries to play a “typical” economist when he says, “People choose–whatever they do is what they prefer. And so, in a way we have no right to judge Vasili. And to do so is to be paternalistic, to impose our preference function on his. And, yet, I think the key to thinking about this in an economist’s way is to recognize the possibility of self-deception.” What right do we have to judge Vasili? How is Vasili a “master of self-deception” himself?   5- What does Gunderman mean when he says that what we (choose to) attend to is a moral act? Regarding this art of paying attention, Russ thinks there are two things going on. What are these two things, and why is the second so much harder than the first? How might “commensalism” serve as an opportunity to help us foster our ability to attend?     P.S. As a follow-up to that last question, if you make a regular practice of communal meals, we’d like to hear about them. We’d also like to hear about it if this episode prompted some communal meals. Share in the comments, or you can always reach out to us at econlib@libertyfund.org.   *Gunderman wrote a related piece, Tolstoy, Smith, and the Perils of Loneliness, at our sister site, AdamSmithWorks. (0 COMMENTS)

Someone named Shaun King has claimed that Elon Musk was raised in Apartheid by a white nationalist. The claim is at best questionable since we don’t know what Elon Musk’s father believed. In response, Reason writer Liz Wolfe writes: This is false on multiple counts. Musk was born in Pretoria, South Africa, in 1971. His parents divorced when he was a child, and Musk lived with his father Errol, an engineer who amassed a large fortune, for several years. Musk moved to Canada in 1988 when he was 17. He and his father became estranged later on, though Musk said in 2019 that Errol contributed “10% of a ~$200k angel funding round” to Zip2, one of Musk’s early business ventures.* The oft–repeated claim that Elon Musk is a racist or an Apartheid supporter likely originatesfrom the [sic] Errol‘s claim that he owned a Zambian emerald mine in the 1980s. Many people have since used Errol’s claim to argue that the family must have profited from Apartheid, with some detractors alleging that this fortune was then funneled to Elon and used by him at the start of his career. So it’s not Apartheid in South Africa: it’s a completely different country. Wolfe continues: But this story doesn’t hold up. Errol, who has been embroiled in salacious scandals and whose own family members say is unreliable, claims he owned a stake in an emerald mine in Zambia in the ’80s, after the Musk parents divorced. The mine was in Zambia, not South Africa, and we have no evidence that whatever profits the mine produced actually was given to Elon in the late ’90s as angel funding. Nor do we have any evidence that Musk was fond of South Africa’s terrible segregationist policies, which all white South Africans benefited from, regardless of whether they supported them. Good reasoning, except for the last line. It ignores the economics of Apartheid. Not just black people, but also many white people, lost from Apartheid. The main white people who lost were employers, who were forcibly kept from hiring black people. One of the best entries in my Concise Encyclopedia of Economics is “Apartheid” by Thomas W. Hazlett. The relevant section for the issue at hand is Hazlett’s discussion of the “Colour Bar,” which was a milder version of Apartheid: The South African gold rush made the natural synergy between white-owned capital and abundant black labor overpowering. The gains from cooperation between eager British investors and thousands of African workers were sufficient to bridge gaping differences in language, customs, and geography. At first, however, the white capitalist could deal directly only with the few English and Afrikaner managers and foremen who shared his tongue and work habits. But the premium such workers commanded soon became an extravagance. Black workers were becoming capable of performing industrial leadership roles in far greater numbers and at far less cost. Driven by the profit motive, the substitution of black for white in skilled and semiskilled mining jobs rose high on the agenda of the mining companies. White workers feared the large supply of African labor as the low-priced competition that it was. Hence, white tradesmen and government officials, including police, regularly harassed African workers to discourage them from traveling to the mines and competing for permanent positions. Beginning in the 1890s, the Chamber of Mines, a group of employers, complained regularly of this systematic discrimination and attempted to secure better treatment for black workers. Their gesture was neither altruistic nor founded on liberal beliefs. Indeed, the mine owners often resorted to racist measures themselves. But here they had a clear economic incentive: labor costs were minimized where rules were color-blind. This self-interest was so powerful that it led the chamber to finance the first lawsuits and political campaigns against segregationist legislation. In short, white workers gained because they didn’t have to compete with black workers. But white employers lost. But notice that the Colour Bar and, later, Apartheid, made South African mining more expensive. So if mining in South Africa is more expensive, guess what? Mine owners in nearby countries would gain from not having as low-cost a competitor as otherwise. So Elon Musk’s father, who owned a mine in Zambia, might have gained from Apartheid. On the other hand, if he had owned a mine in South Africa, he would definitely have lost.       (0 COMMENTS)

One of the few bright spots in the 2022 Economic Report of the President is the section on occupational licensing. Here are two key paragraphs (from pages 152-153): Occupational licensing policies are often introduced to ensure safe, high-quality services from professionals, like dentists and electricians, whose safety and quality are difficult for consumers to ascertain themselves. These policies frequently establish minimum standards for workers’ human capital investments—such as by mandates to acquire specific credentials or to pursue continuing education. Kleiner and Soltas (2019) show that these standards induce workers who enter these occupations to invest more than they otherwise would, especially in occupation-specific forms of human capital such as vocational associate degrees and master’s degrees. However, occupational licensing can make it more difficult for workers to enter fields or move to places where their human capital would be more productive by increasing the cost of mobility in terms of fees for obtaining a license or time to complete required training or other licensing requirements. Research finds that licensing requirements decrease employment and churn within an occupation (Blair and Chung 2019; Kleiner and Soltas 2019; Kleiner and Xu 2020). On the positive side, licensing increases wages and wage growth within licensed occupations (Kleiner and Krueger 2010, 2013; Gittleman, Klee, and Kleiner 2017; Kleiner and Soltas 2019; Kleiner and Xu 2020). One analysis suggests that the magnitude of the licensing wage premium is comparable to the premium associated with union membership (Kleiner and Krueger 2010). Though licensed workers may benefit from higher wages, other similarly skilled workers who lack the resources to acquire a license may be prevented from moving into jobs where they would be more productive and better paid. There is also evidence that occupational licensing reduces interstate migration (Johnson and Kleiner 2020), making it more difficult for workers to relocate and deploy their human capital where it would be most beneficial for them. This especially affects mobile populations such as military spouses, who are 10 times more likely to have moved across State lines in the last year than their civilian counterparts and experience persistently high unemployment due to relocations (U.S. Department of the Treasury and U.S. Department of Defense 2012). Not bad. I’ll highlight and comment on a few things, in order of their appearance. Occupational licensing policies are often introduced to ensure safe, high-quality services from professionals, like dentists and electricians, whose safety and quality are difficult for consumers to ascertain themselves. There’s actually very little evidence, at least that I know of, that this was an important purpose of occupational licensing. It was an important stated rationale, but that’s different. Typically, the people lobbying for occupational licensing are the existing members of the occupation. They make the safety/quality argument, but if safe, high-quality services were the main goal, one would expect to see consumers, at least occasionally, pushing for licensing. It’s true that a given consumer does not have much incentive to do so, but organizations like Consumers Union do, if they regard this as a problem. Also, although “safety and quality are difficult for consumers to ascertain themselves,” this is true only in a narrow sense; they can ascertain quality if they rely on various certifiers, certifiers that already exist and that would be more numerous if licensing didn’t exist. Think of Underwriters Laboratories for many products, for instance, or the Physician’s Desk Reference, which guides doctors on pharmaceuticals. Kleiner and Soltas (2019) show that these standards induce workers who enter these occupations to invest more than they otherwise would, especially in occupation-specific forms of human capital such as vocational associate degrees and master’s degrees. That’s true, and it’s probably not good. The very next sentence is: However, occupational licensing can make it more difficult for workers to enter fields or move to places where their human capital would be more productive by increasing the cost of mobility in terms of fees for obtaining a license or time to complete required training or other licensing requirements. True, but there shouldn’t be a “However.” It’s the very fact that occupational licensing induces workers to invest more than they otherwise would that’s a problem. That’s why occupational licensing makes “it more difficult for workers to enter fields or move to places where their human capital would be more productive by increasing the cost of mobility in terms of fees for obtaining a license or time to complete required training or other licensing requirements.” Research finds that licensing requirements decrease employment and churn within an occupation (Blair and Chung 2019; Kleiner and Soltas 2019; Kleiner and Xu 2020). Yes. On the positive side, licensing increases wages and wage growth within licensed occupations (Kleiner and Krueger 2010, 2013; Gittleman, Klee, and Kleiner 2017; Kleiner and Soltas 2019; Kleiner and Xu 2020). Hmmm. That’s like looking at the local-government-sponsored cable monopolies in the United States before there were competing alternatives and saying, “On the positive side, regulation to limit competition increases the amount of money earned by cable companies.” The CEA shouldn’t celebrate monopoly rents. One analysis suggests that the magnitude of the licensing wage premium is comparable to the premium associated with union membership (Kleiner and Krueger 2010). I think this is their subtle way of saying, “Don’t take our previous sentence as indicating anything other than monopoly power due to government restrictions.” Though licensed workers may benefit from higher wages, other similarly skilled workers who lack the resources to acquire a license may be prevented from moving into jobs where they would be more productive and better paid. Ok. Now they really seem to be telling the reader not to regard the higher wages to licensed workers as an unmitigated benefit. There is also evidence that occupational licensing reduces interstate migration (Johnson and Kleiner 2020), making it more difficult for workers to relocate and deploy their human capital where it would be most beneficial for them. This especially affects mobile populations such as military spouses, who are 10 times more likely to have moved across State lines in the last year than their civilian counterparts and experience persistently high unemployment due to relocations (U.S. Department of the Treasury and U.S. Department of Defense 2012). Good for them for pointing this out. They could also have pointed out that in 2019, the Arizona state government “became the first state to recognize all out‐​of‐​state occupational and professional licenses.” They didn’t mention this. Is this because the legislation in Arizona that did so was passed by a Republican-majority legislature and signed by a Republican governor? One of the links in the above two quoted paragraphs from the Economic Report of the President is to Morris M. Kleiner and Evan J. Soltas, “A Welfare Analysis of Occupational Licensing in U.S. States,” October 2019. Kleiner is the guy when it comes to analysis of occupational licensing. Soltas is a staff economist at the Council of Economic Advisers, on leave from MIT where he is getting his Ph.D. in economics. I’ve been around the blogging world enough to remember that people were citing his work when he was a precocious high schooler. Here’s the abstract of the Kleiner/Soltas study: We assess the welfare consequences of occupational licensing for workers and consumers. We estimate a model of labor market equilibrium in which licensing restricts labor supply but also affects labor demand via worker quality and selection. On the margin of occupations licensed differently between U.S. states, we find that licensing raises wages and hours but reduces employment. We estimate an average welfare loss of 12 percent of occupational surplus. Workers and consumers respectively bear 70 and 30 percent of the incidence. Higher willingness to pay offsets 80 percent of higher prices for consumers, and higher wages compensate workers for 60 percent of the cost of mandated investment in occupation-specific human capital.     (0 COMMENTS)

[This was written before I read Pierre Lemieux’s recent post on this topic, which makes some related points.] There’s a famous old saying (by John Marshall?): The power to tax involves the power to destroy. Subsidies are essentially the same as taxes, when viewed from a certain angle. Not surprisingly, it’s also true that the power to subsidize is the power to destroy.Suppose you are a libertarian, and you oppose government subsidies to farmers. A new president is elected in 2024 and he announces that henceforth any farmer caught criticizing the president on social media will no longer receive government farm subsidies. How should you feel about that?Some people might think to themselves, “This new provision will make the bad farm subsidy program smaller, and hence it’s a good thing.” I would focus on the way the new policy inhibits free speech, and oppose the policy.In a recent post, David Henderson correctly pointed out that in trying to punish Disney for speech they didn’t approve of, Florida’s legislators were ending a very useful public policy. I agree. But I’d go even further. I would oppose this action even if I thought Disney’s special status was a bad policy. (And perhaps it’s not so special, given that Florida has 1844 such “special” districts.)   Even when government policies are bad, they should not be selectively dismantled if the change is being used as a bludgeon to go after speech of which they don’t approve.  If we go down this road, we’ll end up like Viktor Orban’s Hungary.   Years ago, Hayek pointed out that expanded government control over our economy threatens our liberty.  This is why policies such as replacing the public school system with education vouchers are so important.  If Florida Republicans were serious about liberty, rather than merely looking for weapons in the culture wars, they’d abolish the public school system and let parents decide what sort of education their children would have.   Unfortunately, it’s becoming increasing clear that many conservatives are no more serious about liberty than are the extremists on the left. PS.  Fortunately, Florida’s punishment of Disney is likely to be ruled unconstitutional.  However, other forms of implicit censorship are harder to police. PPS.  National Review has a good article on the broader issues involved here: On one side, there are those on the right who see conservatism as a set of clear and timeless principles that should be consistently adhered to, regardless of whether they lead to preferred short-term outcomes in every circumstance. Those on the other side of that line may be sympathetic to many of the same principles, but they believe that any principle that gets in the way of achieving their preferred outcomes should be discarded without remorse. . . .  [I]f we look at the battles on the right that in recent years have ended friendships, severed institutional relationships, and pitted long-time conservative allies passionately against each other, they all, at their core, come down to the same disagreements over the proper approach to politics. PPPS.  FWIW, I don’t think Florida’s state government should be policing the curricula of local schools and I don’t understand what this poorly written law was supposed to accomplish.  Should legislators incapable of writing a law in plain English be lecturing school teachers on how to teach? (0 COMMENTS)

  Technopopulism by Christopher J. Bickerton and Carlo Invernizzi Accetti is a very interesting book. Different than most, the two authors consider populism and technocracy as faces of the same coin, political sensibilities which share a common root. Both strains consider politics a matter of technical solutions, rather than a battlefield of values and ideas. I’ve reviewed the book for City Journal. Here’s a bit: The current debate resembles an older tradition, which claimed that ideologies have come to an end. In the mid-twentieth century, some theorists celebrated the disappearance of ideological politics with relief, as it implied the disappearance of the risk of a totalitarian involution of the West. For these thinkers, such as Raymond Aron or Daniel Bell, the end of ideology was a good thing, since it marked the retreat of fanaticism. Bell was convinced that “the tendency to convert concrete issues into ideological problems, to color them with moral fervor and high emotional charge,” would eventually end. Aron celebrated the fact that “neither Marxism-Leninism, nor fascism, nor liberalism awake the faith which moves mountains any more.” Since ideology had meant a politics concerned with perfecting human beings at gunpoint (and eradicating the imperfect ones), it’s understandable that its alleged death was met with relief. But Bickerton and Invernizzi Accetti see the end of ideology having different implications today. They reason that “politicians claiming to stand for an unmediated conception of the common good are less likely to recognize the democratic legitimacy of their opponents, compared to politicians claiming to represent a particular interpretation of it.” Polarization and reciprocal delegitimization are common traits of liberal democracies in our allegedly post-ideological times. The demise of organized systems of ideas has not eradicated fanaticism; it has simply given it new clothes. The perfectionism of old ideologies that strove to shape man in their image gave way to a quest for solutions no less ambitious—promising to solve such global problems as climate change and inequality—but focusing on power-holders rather than ideas. Bickerton and Invernizzi Accetti suggest that polarization in liberal institutions owes not to the intensity of political passions but rather to the weakening of political institutions. Technocracy and populism thrive on the exhaustion of political parties, while the authors of Technopopulism would like to revitalize parties by increasing competition within them. This should allow for parties to internalize conflicts that would otherwise burst out into society, and perhaps to attract people who would otherwise challenge them from the outside. Declining but alert establishments always seek to embrace their adversaries before they become lethal enemies. It could be argued that something similar happened in Spain, where traditional parties succeeded in surviving a populist outburst. In the Anglo-Saxon world, instead of being besieged by populists, traditional parties welcomed them. The results of such a strategy are not always uplifting, however. I recommend Technopopulism. It is a book you may find puzzling but it offers you a different, seldom heard, perspective on current affairs. (0 COMMENTS)