With the increases in oil prices since late December, it’s time to look at some basic facts about oil prices and oil markets. Doing so will help us understand where the Biden administration has gone wrong and where it has gone right. Yes, you read that correctly: Biden has done one good thing, selling oil from the Strategic Petroleum Reserve (SPR). If he followed my advice, he would do two more good things: push to repeal the Jones Act and make clear that he will drop his opposition to fossil fuels. The sale from the SPR helps us consumers and reduces Russian’s oil revenues. Repealing the Jones Act also would help us consumers and allowing more domestic oil production would cause future prices to be lower than otherwise, making us consumers better off and hurting the Russians in the longer term. This is the opening paragraph of David R. Henderson, “A Short Course in Oil Economics,” Defining Ideas, March 17, 2022. That wasn’t my original title but I liked this title, chosen by the editor, better. Another excerpt, in which I explain contango: In normal times, the relationship between the spot price of oil (the price you pay for delivery today) and the futures price for delivery in, say, a year, is one of “contango.” If you’re picturing people dancing in step with each other, you’re not far off because contango means that the spot price and the futures prices move together. And backwardation: Every so often, though, the futures price today for delivery in, say, a year is less than the spot price. This relationship between the spot and futures price is called “backwardation.” The spot market is telling us that oil is more valuable now than it will be, say, a year from now. In such a situation, arbitrage can’t work, for one simple reason: there is no time machine that lets us move oil from the future, when it will be less scarce, to the present, when it is scarcer. We are in that situation today. On Monday, March 14, the spot price of oil closed at $103.01, while the June 2023 futures price closed at $81.11. Read the whole thing. (1 COMMENTS)

A recent David Beckworth interview of Bill Nelson provided a number of fascinating observations, including this comment: Nelson: . . . A banker, a chief investment officer at one of the largest banks gave me an example that I like to use to explain how this works. You can be in compliance with all of the regulations by holding three days worth of cash for your emergency situation. But when reserve balances were cheap, meaning market rates were below the rate that the Fed was paying on reserves, they decided they would hold five days worth of cash rather than holding alternative types of liquid assets. Nelson: But then when the Fed started to shrink its balance sheet back in 2018 and market rates moved up above the Fed’s rate that it was paying, sooner than they expected, as an illustration of what I’m talking about, they thought, “Well, we’ll reexamine this. It might not be cheaper. Let’s hold three days of cash and then hold a couple days of money in reverse repos, because that’s earning a little bit more.” And they looked at it and they thought about it and they decided, “Well, but then we’d have to explain this to our examiner and they would want to know why they were doing it.” And it just wasn’t worth the hassle to make the change. Nelson is concerned that this might make it more difficult for the Fed to reduce the size of its balance sheet: Nelson: The Fed was, I think, following the right course of action, when you look back in 2018, and they started to reduce the size of their balance sheet by letting it roll off. It looks like they’re going to be doing that soon in May, or June, July, probably more quickly than before. The proof is going to be in the pudding in terms of what I’m saying about structural demand. If I’m wrong and that flat part of the curve is the right way to look at it, the Fed will be able to shrink its balance sheet quite a long way before it sees any response in rates. But if I’m right, then what will happen is that as it starts to shrink much sooner than it would anticipate, you’ll see rates moving up. And in that paper, there’s kind of an exhibit of how the responsiveness of rates is much different when the balance sheet is shrinking than when it’s increasing. Nelson: However, they’ll start reducing the size of the balance sheet, market rates will move up a bit above the interest rate that they pay on reserve balances, that will create an incentive for banks to reduce their holdings, find alternative ways to meet their liquidity needs. Bank supervisors, examiners will start getting used to the idea that not every problem will be solved by the banks holding more reserve balances. The Fed needs to encourage that process by educating examiners that they shouldn’t be building in this preference for reserve balances. Prior to 2020, reserve requirements were one of the Fed’s tools for controlling monetary policy (albeit not used very actively).  Higher reserve requirements increased the demand for base money, and hence were contractionary (ceteris paribus).  Today, banks no longer face explicit reserve requirements, but it seems that bank examiners are imposing a sort of implicit reserve requirement on banks.  I have two problems with this: 1. It’s not clear why bank examiners should care about reserves.  I can see why they might be interested in bank capital, or bank holdings of safe assets, but it’s not clear why bank reserves are important.  Prior to 2008, banks did just fine with extremely low levels of bank reserves, barely 1% of current levels.  If it is default risk that is the concern, T-bills are an equally safe asset.  As for liquidity, the Fed needs to be willing to fully meet the banking system’s demand for reserves in a crisis.  But that fact is true even if banks hold large amounts of reserves.  Nelson points out that the more reserves are injected into the system, the greater the bank demand for reserves to meet the preferences of bank examiners.  There is a sort of ratchet effect. Large reserve holdings do not solve the liquidity problem. 2.  Even if regulators should be focused on bank reserves, it is the level of reserves that ought to matter.  And yet according to Nelson (first quote above), regulators often respond to a change in reserves, not the level.  Thus one bank might find its reserve ratio of 25% to be acceptable, while another bank might face greater scrutiny from examiners if it reduced the ratio from 30% to 27%.  Why? Ideally, we’d go back to the pre-2008 “corridor system”, where banks held relatively small amounts of reserves and the Fed’s balance sheet was only about 6% of GDP.  A large balance sheet increases the risk of Fed policy becoming politicized, as when it engages in credit allocation. (0 COMMENTS)

Yesterday, I posted Part I of my commentary on Alex Tabarrok’s talk on Covid failures and successes. Here’s Part II. It starts at about the 41:00 point. Alex discusses four failures: failure to do an Operation Warp Speed for masks and trials; not getting the vaccine early to nursing homes; not experimenting and studying the virus; and not doing human challenge trials. On failure to do an OWS for masks and trials, I don’t have much to say. I don’t know how feasible that would have been in the time they had. Alex himself shows how heavy-footed and slow the government is on many of these things. We don’t know that OWS for masks and trials would have worked well. Not getting the vaccine early to nursing homes. This is a biggie. I totally agree with him on this one. As he notes, getting it to nursing homes 5 weeks earlier might have (Alex says “would have”) saved 14,000 lives. On the issue of nursing homes, that would have been the obvious to mention another huge nursing home failure in the spring of 202o: the decision of at least 3 governors of major states, Governor Cuomo of New York, Governor Phil Murphy of New Jersey, and Governor Wolf of Pennsylvania, to insist that nursing homes take in people who tested positive for Covid. Alex says nothing about this. Not funding experimentation and study of the virus. Alex points out that Fast Grants, run by Tyler Cowen and Patrick Tollison, handed out $60 million to study the virus before the National Institutes of Health had reviewed even one Covid proposal. Alex is justifiably upset by this.   He also points out that Fast Grants was the entity that funded Professor Anne Wyllie of Yale to do her Saliva Direct project. This is Yale, which, Alex points out, has a $42 billion endowment. So neither the government nor the non-profit sector shone on this, to put it mildly. In a toting of costs and benefits, though, which is what Alex’s talk is about, I wish he had commented retrospectively on whether it was a good idea for Fast Grants to give a grant to Neil Ferguson and his Imperial College colleagues for their model that, as noted in Part I, way overpredicted deaths for Sweden without non-pharmaceutical interventions. Does Alex think that funding Ferguson was a good move? We don’t know. Human challenge trials of the vaccine. Watch from 50:40 to 55:30. Alex is almost pitch perfect on this. Why almost? He should have a statement in there that anyone who engages in a human challenge trial does so voluntarily. When you say it, everyone gets it, but it needs to be said. One thing I wonder that it would have been nice for Alex to address. He points out (at about 49:20) that Moderna’s vaccine was designed on January 13, 2020. When he, Kremer, Athey and the others proposed Operation Warp Speed later in 2020, did they know that? If so, how did it affect their thinking? If not, would knowing that have changed their thinking?   (1 COMMENTS)

One can imagine a just war between a state representing individuals who want to be free and left alone and, on the other side, a tyrannical state aggressor intent on subjecting and looting the libertarian country. If the latter wins, liberty would increase in the world. But reality is never so simple and war instead typically reinforces, on all sides, the power of the state and the idea that the individual must submit to the collective. War does not bring the best in all people (contrary to what state propaganda suggests, including the parading women soldiers in Moscow shown on the featured image of this post). An interesting Wall Street Journal story about the successful resistance of a small Ukrainian town  illustrates how war arouses primitive instincts (Yaroslav Trofimov, “A Ukrainian Town Deals Russia One of the War’s Most Decisive Routs,” March 16), although I admit it is not the most tragic illustration in the history of warfare: Russian soldiers took over villagers’ homes in Rakove and created a sniper position on a roof. They looked for sacks to fill with soil for fortifications, burned hay to create a smoke screen and demanded food. A local woman who agreed to cook for the Russians is now under investigation, said Mr. Dombrovsky. “A traitor—she did it for money,” he said. “I don’t think the village will forgive her and let her live here.” In the practice of war if not generally in tribal morality, a traitor is anybody who takes another side than his tribe’s. But note the other element in the story: she did it for money! I suspect that Mr. Dombrovsky would not have been happier if she had done it for free, perhaps “for the cause,” and with a big smile. At any rate, money is apparently an aggravating factor (even if paid in deeply depreciated rubles), which corresponds to the reigning orthodoxy among our own academic philosophers. A moral case can be made that coerced cooperation with the violent aggressors of one’s neighbor is acceptable, but not cooperation for the purpose of obtaining personal benefits. But then, isn’t avoiding harm a personal benefit? Does it matter that Mr. Dombrovsky, who is a special forces commander, is presumably paid himself? What if the woman had cooked for free and was only paid a tip afterwards ? We don’t know enough about this case to make any serious ethical analysis, but I would bet that Mr. Dombovsky’s comment reflected a generalized suspicion toward individualist behavior on free markets. If that is true, we are not dealing with the pure war case of a group of libertarians defending themselves against aggressors, but with two more or less authoritarian camps. Not surprisingly, dealing with actual cases is more complicated than with stylized models. All that seems to confirm the classical-liberal or libertarian idea that an individual usually acts in his own personal interest and that only a minimal ethics—James Buchanan would say “an ethics of reciprocity”—should be recognized as a necessary constraint on personal behavior in a free society. (See my review of Buchanan Why I, Too, Am Not a Conservative in the forthcoming Spring issue of Regulation.) Female Russian soldiers of the Military University of the Russian Defense Ministry march along the Red Square during the Victory Day military parade to mark the 72nd anniversary of the victory over Nazi Germany in the 1941-1945 Great Patriotic War, the Eastern Front of World War II, in Moscow, Russia, 9 May 2017. (0 COMMENTS)

Alex Tabarrok has posted a talk he gave at Bowling Green State University in February. The title is “U.S. Pandemic Policy: Failures, Successes, and Lessons.” Alex does a good job of presenting his case. I’ll hit the main highlights on which he does well. At the same time, there are yawning gaps that leave me wondering whether he has no view on the issue (for example, he mentions zero about lockdowns) or whether he just is not familiar with what I thought were pretty well-known failures (e.g., nursing homes in New York, New Jersey, and Pennsylvania.) I’ll go through the talk seriatim. Because my comments are extensive, Part I is today and goes to about the 41:00 point of the 60-minute talk. Part II will be tomorrow. Alex starts off by pointing out the huge number of U.S. deaths due to Covid-19, now in excess of 900,000. He notes that this is greater than the total number of U.S. deaths in all foreign wars the U.S. has fought in. That’s correct. For completeness, though, it would have been good to point out that the median age of military members’ deaths in all U.S. foreign wars was almost certainly below 40 and probably below 35, whereas the median age of Americans who died of Covid was about 80. That means that the number of life years lost to Covid was substantially below the number of life years lost to all those wars combined. (I’m focusing on Americans here. Comparing worldwide deaths from Covid to worldwide deaths from World War II alone shows Covid to be a fraction of WWII, even putting aside life years.) Am I callous about people close to age 80 who die? No. For one thing, I’m only 9 years away from that age. I’m simply pointing out what Alex’s George Mason economist colleague Don Boudreaux has pointed out well here, namely, that we sensibly react differently to the death of an elderly person than to the death of a teenager. Next, Alex discusses the economic costs and shows that they are huge. Here’s where I first started wondering: are these the costs of the pandemic alone or are they the costs of the pandemic and of the lockdowns that governors of states with over 98 percent of U.S. residents imposed on those residents? Alex doesn’t address that. The losses in the first few months from early March 2020 to about June 2020 are likely due mainly to people’s voluntary reactions to the pandemic. But after that, the losses were probably mainly due to lockdowns. His next major point is that Covid-19 was not a “Black Swan” event but, rather, was a predictable and predicted event. Alex says that we were not ready for this pandemic. I’m not sure that’s true. I think we were somewhat ready. As Phillip W. Magness and Peter C. Earle pointed out in “The Fickle ‘Science’ of Lockdowns,” Wall Street Journal, December 19, 2021, in 2019, both the World Health Organization (WHO) and Johns Hopkins University’s Center for Health Security had concluded that large-scale quarantines were not a good way to deal with the pandemic. So it wasn’t so much that “we weren’t ready” as that we were somewhat ready but Donald Trump’s task force and a whole lot of similar organizations in other countries threw out the playbook, ignored tough tradeoffs, and went with widespread lockdowns even of people for whom there was no evidence of disease and people (children) for whom the risk of death was tiny. Alex mentions none of that. Regarding tradeoffs, Scott Atlas, one of my Hoover colleagues and an adviser to President Trump on Covid (too late in the game, given the disastrous decisions Trump made in the first few months) points out in his 2021 book, A Plague Upon Our House, that he (Atlas) tried unsuccessfully to get his colleagues who were advising Trump to look at tradeoffs. I talk about that in my forthcoming review of Atlas’s book in Regulation. Instead, Trump’s government and governments around the world were influenced by a model created by Neil Ferguson and his colleagues at Imperial College London. The model turned out to be way off-base. One fact that Magness and Earle cite: Imperial predicted up to 42,473 Covid deaths in Sweden under mitigation and 84,777 under uncontrolled spread. The country, which famously refused to lock down, had some 13,400 deaths in the first year. More on the Ferguson model later, in Part II. Here’s one recommendation from the Johns Hopkins study that caught my eye (p. 13): WHO and national authorities will need to provide strong evidenced-backed reasoning for the necessity of NPIs in order to effectively implement them and to communicate their role and necessity to the public, especially for NPIs such as social distancing that inherently limit civil liberties. Therefore, they should under- take directly or support research on NPIs and disseminate their findings on these analyses. NPIs are “non-pharmaceutical interventions.” Next Alex goes over a timeline showing some huge mess-ups by the CDC and the FDA. Alex does such a good job of this, and with a beautiful righteous anger. It goes from about 6:30 to about 14:30. I highly recommend this segment. It covers Helen Chu, whom I wrote about here on April 8, 2020, among others. A minute or two later Alex, justifiably goes after the FDA for slowing down tests and compares our experience to that of other countries like South Korea. That goes to about 24:00. His story about South Korea (from about 22:00 to about 24:00) is really powerful. Like Alex, I think these were huge mistakes. Because of these mistakes that slowed testing, we in the United States were flying blind. Well, almost. Stanford medical professor Jay Bhattacharya, who has a Ph.D. in economics and earned an M.D., was skeptical from the beginning about two things: (1) that the reported fatality rates of about 3 percent were real; and (2) that the virus had not already spread widely as, in his reading of the literature, had happened with previous viruses. On (1), his reasoning was that what was being measured was the case fatality rate and this was likely to be much higher than the infection fatality rate. Why? The people who went to get tested were disproportionately people who had symptoms, and not just symptoms, but bad symptoms. To test (2), he and some colleagues, in early April 2020, tested 3,328 residents of Santa Clara county (California) to see how widely the virus had spread.  What they did is called a seroprevalence study. They concluded that 1.1 to 2.0 percent of Santa Clara county residents had antibodies. This implied about 53,000 people, which was a large multiple of the 1,200 confirmed cases at the time. In private conversation, Jay told me that that percent was just too high for a society-wide lockdown to be effective. Alex doesn’t mention Bhattacharya’s seroprevalence studies or those of many others who were conducting such studies at the same time who found numbers broadly consistent with Jay’s. In Alex’s view, the big success was something he had a large role in: persuading the Trump administration to give drug companies many billions of dollars so that they could build capacity and be ready to quickly scale up production once a vaccine was found. This was Operation Warp Speed. OWS also guaranteed that the government would buy the vaccine once it had been produced, even if the virus went away. His story about how they went about that is very interesting and I recommend listening to it. It goes from about 24:30 to about 41:00. The best part, in my view, is getting the FDA to back off from business as usual (at about 25:50.) Also, Alex says (26:10) that OWS paid firms to start building factories now. I think he leaves out a major, and successful, exception. While Moderna, the company that vaccinated me 3 times, did take that money, I think I recall that Pfizer refused. (I can’t find the link: I remember reading it in the Wall Street Journal in the spring or summer of 2020. Please correct me if I’m wrong.) I’m a fan of the vaccines. I think they accomplished a lot. The big unknown is whether we would have had the vaccine without the subsidy elements of OWS. Alex clearly thinks we wouldn’t have. He emphasizes the importance of building capacity even before the drug is proven effective. Co-author Charley Hooper, who makes his living consulting to pharmaceutical companies, and I wrote an article in December 2020 titled “The FDA’s Deadly Caution.” We lay out a timeline where, without FDA regulation, we might have had the vaccine months earlier than we had it. As Alex agrees, a few months difference is huge. That’s it for Part I.         (1 COMMENTS)

Of course they won’t admit to this fact, but these projections make a mockery of the Fed’s commitment that inflation will average 2% over the longer run: The Fed is not supposed to raise its projection for the average inflation rate during the 2020s; it should adjust monetary policy so that its inflation forecast for the 2020s does not increase. Some might point to the “flexible” part of “flexible average inflation targeting”, which presumably refers to the fact that the Fed doesn’t just care about inflation, they also care about real GDP growth.  But the Fed just raised its implicit estimate of NGDP growth in 2022 from roughly 6.6% to over 7%, which is wildly inconsistent with the Fed’s dual mandate.  NGDP is already well above the pre-Covid trend line.  The economy is overheating and the Fed is about to pour more gasoline on the fire. St Louis Fed President James Bullard is right; the Fed should have raised rates by 0.5%.  But the bigger mistakes were made late last year, when the Fed allowed excessive NGDP growth and refused to commit to pushing inflation below 2% after a period of above 2% inflation. Just as in late 2008, this is a mistake happening in broad daylight.  There is no excuse.   (1 COMMENTS)

During the 2010s, I was frequently annoyed by claims that the Fed was “artificially” holding interest rates below their equilibrium level. If interest rates actually were being held below equilibrium for over a decade, then inflation would have quickly risen to a very high level.In response, some people claimed that through some sort of inexplicable process the inflation that would normally result from easy money was showing up in asset price inflation. And yet I know of no mechanism by which easy money could inflate asset prices without inflating the prices of goods and services. This was a classic example of ad hoc theorizing—a conclusion in search of a model. Given enough time, however, almost any macroeconomic claim will come true.  Today, Fed policy is indeed holding interest rates below equilibrium.  I don’t base that claim on the current high rate of inflation (which in principle might be due to supply shocks), rather the evidence for excessively expansionary monetary policy comes from the recent surge in nominal GDP, which most certainly is not caused by supply shocks. Nominal GDP growth is already well above the pre-Covid trend line, and the consensus forecast of economists is that NGDP will continue growing at over 6% over the next 12 months.  That sort of growth in nominal spending is not even close to being consistent with the Fed’s goal of 2% inflation.  In that sort of macroeconomic environment, it is difficult to understand how the Fed can justify its zero interest rate policy.  Just as in late 2008, I’m at a loss to understand what the Fed is doing. BTW, David Beckworth directed me to this tweet: I find it dispiriting that after everything we’ve experienced since 2008, the Fed still doesn’t understand that they need to focus on NGDP.  Of course there’s “one damn thing after another”, just as there was one damn thing after another in the 1970s, when NGDP was growing at 11%/year.  With spending growth that rapid, excessive inflation is inevitable.  If it’s not oil and cars, it will be rent and restaurant meals, or health care and food.  Inflation will always show up when NGDP growth is excessive, it’s just a question of where.  Why doesn’t the Fed see that?  Are they not paying attention to NGDP?   (0 COMMENTS)

Regular reader Kevin Corcoran sent me the following. I’m posting with his permission and then I’ll add my own thoughts. Here’s Kevin: While I was out on vacation last week, I had the opportunity to try some new craft beers. In general, this is a wonderful time to be a person who enjoys beer–the varieties of craft beer and number of local breweries have skyrocketed over the last few years. But, because I’m me, I couldn’t just enjoy some of the local offerings without having thoughts about the nature of government and freedom, and the following thought occurred to me. Isn’t the 18th amendment remarkable? You might take that to mean I think it’s remarkable that it was possible to get the support needed to pass a constitutional amendment banning alcoholic beverages in the United States–and that certainly is remarkable in its own right. But I have a different take on it. It’s remarkable because it illustrates the degree to which lawmakers used to be constrained by the constitution, and how little of that constraint is present today. Madison once described how the Constitution would limit the power of the federal government with these words: “The powers delegated by the proposed Constitution to the federal government, are few and defined. Those which are to remain in the State governments are numerous and indefinite. The former will be exercised principally on external objects, as war, peace, negotiation, and foreign commerce; with which the last power of taxation will, for the most part, be connected.” And, for a while at least, the powers of the federal government really were few and defined and focused in the way Madison advocated. That was enough the case that if the federal government wanted to ban the use of a mind-altering drug like alcohol, it lacked the authority to do so, because controlling what substances people were able to ingest was not among the “few and defined” powers enumerated in Article I Section 8 of the Constitution. For the federal government to pass such a law, and for that law to be consistent with the Constitution, the Constitution would need to be amended – and it was. These days, instead of amending the Constitution to allow for whatever new powers are believed should be given to the federal government, we seem to have fallen into a system where the courts interpret the enumerated powers in the Constitution so broadly that limitations have all but ceased to exist in practice. This is perhaps most infamous in the Wickard v. Filburn case, where the Supreme Court interpreted the federal government’s power to regulate interstate commerce in Article I, Section 8, Clause 3 so broadly that a person growing his own food to feed his own animals, and who did not sell that food to anyone, across state lines or otherwise, was still engaging in an act of “interstate commerce” by doing so, and under the authority of the federal government. With court rulings broadening federal authority so much, why spend the time on persuasion and debate to build the broad consensus and support necessary to amend the Constitution anymore? It used to be that if the federal government wanted to control alcoholic beverages, the Constitution needed to be amended to allow it. Now, it’s just taken as given that of course the federal government has the authority to control just about every aspect of what people can consume, food, drug, or otherwise–no Constitutional adjustment needed. I prefer the old system. Alas, I don’t know how to get back there from here. His thoughts led to 4 of my own. First, while I share Madison’s view of the U.S. Constitution, not everyone at the time, even those who put it together, did. As my economic historian friend Jeff Hummel put it to me once, the U.S. Constitution was a compromise. It was the most statist the statists could get. And it was the most pro-limited government the limited government people could get. In short, it was an equilibrium. That’s how to understand vague things like the first few words of Article I, Section 8: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; (italics added). Second, notice how selective the Madison view was even before Prohibition. The Harrison Act, which regulated drugs such as cocaine and opium, was passed in 1914. The players who were victorious didn’t seem to think that they needed a Constitutional amendment to do so. Although, to be fair, I should note that they did it in the form of a tax, which Congress had the power to do. Third, back to Madison’s, Corcoran’s, and my view, I’ve often wondered how so many Constitutional lawyers, even those who seem to share Madison’s view, can justify the federal government having any role in immigration. I’ve never received a satisfactory answer. A few years ago, I was at a conference in which I had a chance to ask a question about that. I can’t tell you the name of the law professor because the proceeds were conducted under the Chatham House rule. I asked, “Where in the U.S. Constitution do you find support for either the President or Congress having a role in immigration law?” I was shocked by his answer because he didn’t even try to answer. Instead, he painted a picture of what it would be like to have no federal role in immigration. Whether or not his dire picture was accurate, he seemed to think that was grounds enough for the federal role. Because of the rules at the time, I didn’t get a follow up. Fourth, Kevin’s thoughts reminded me of something I read about Biden in the summer of 2008, shortly after Obama chose him as his running mate, and how it contrasted with FDR. A reporter reported that because Biden regularly took Amtrak, he would almost certainly push to increase the subsidy for Amtrak. The reporter wrote this matter of factly, as if such a conclusion were obvious. It was obvious, but only because of the weakening of the belief in limited government. Contrast this with Franklin D. Roosevelt, who was not exactly a believer in limited government. FDR had polio, starting in 1921. He became president in 1933 and was president until his death in 1945. He founded the March of Dimes in 1938 to help people with polio. Think about that. While being the most powerful U.S. president in history up until that point, he founded a voluntary organization to go after polio. He didn’t start a government agency or push for government funding to do so. And that was probably as unremarkable then as Biden’s purported favoring of further subsidizing his own form of transportation was unremarkable 70 years later.   (0 COMMENTS)

The war in Ukraine has led some pundits to declare the end of globalization. We heard that after 9/11, after the Great Recession, after the US/China trade war, and again after Covid, and none of those predictions have panned out. Ukraine will likely be no different, as the threat of war actually makes the argument for globalization stronger. There are two valid arguments for sanctions.  First, denying money and material to an enemy nation can reduce their ability to wage war.  Second, the threat of sanctions makes countries less likely to “go rogue”.   In general, I am rather skeptical of the efficacy of sanctions.  I believe they are used far too often.  And yet even I would not have favored allowing US firms to sell steel and oil to Germany and Japan during WWII.  I don’t have strong views on what sanctions are appropriate for Russia today, except that the case for sanctions against Russia is stronger than for almost any other situation since WWII.   But sanctions only work when there is globalization.  If a country is an autarky, i.e., relying solely on domestic production, then sanctions are ineffective.   People say, “Obviously globalization doesn’t work, as we still have bad things happen in the world.”  Yes, the advantages of globalization have been oversold.  (Recall the McDonald’s test.)  But what is the counterfactual?  Suppose we end globalization and each country becomes as autarkic as North Korea.  Does that make the world more peaceful or more violent? Our best hope for world peace is to enmesh every country so deeply in a web of interdependence with its neighbors that even our dimwitted leaders will be able to see the negative sum nature of war.  Globalization may not prevent war, but it makes war less likely at the margin.  And if war does break out, economic interdependence gives us a weapon to use in place of violence. Globalization also makes the world a richer place.  Economic development doesn’t guarantee peace, but greater wealth does make countries more peaceful, on average.  They have more to lose from war. (0 COMMENTS)

A moving story by the Financial Times Berlin Bureau Chief, Guy Chazan, allows us to see a hidden kind of individual tragedies resulting from Putin’s invasion of Ukraine: its cost to ordinary Russians (“A message from Moscow: ‘It’s like I’m in a nightmare. And I can’t wake up,’” March 11, 2022): A week earlier, Russia had invaded Ukraine, unleashing the largest military assault on a European country since the second world war. The west responded with a fusillade of sanctions to isolate Russia and cripple its economy. Lena and her friends, a band of liberal intellectuals, found their lives turned upside down. … “I grew up in the Soviet Union and only ever wanted to live a normal life—to work . . . travel, drink delicious wine,” Lena wrote, in the 150-word message, bashed out on Facebook. “God knows, these weren’t exactly wild aspirations. But even they have now been taken from me . . . I watch, rigid with fear and shame, as my world collapses and rockets land on Kyiv . . . Where did we go wrong? Is it our fault? I just don’t know.” … She travelled widely, expanding her world, which now seems to be narrowing again to a vanishing point. “It’s pure Orwell,” she wrote. The journalist also writes about another Russian friend of his, Dima, who fled to Western Europe but whose Moscow business is now likely to go bankrupt: “I’ve lost everything and have to start my life here from scratch,” he wrote to me. Dima says he’s in favour of sanctions and is prepared to pay a personal price to see Putin punished. But he adds that they’re a double-edged sword, causing the most hurt for the 20 per cent of Russians who were always against Putin. One lesson is indeed that economic sanctions—Western governments prohibiting their own citizens from trading, directly or indirectly, with Russians—are a double-edge sword. A second lesson, lies in Lena’s question, “Where did we go wrong? Is it our fault?” Assigning any fault or blame to powerless ordinary individuals is not warranted, but we can answer the question of where “we” went wrong. “We,” in both Russia and the West, went wrong in not taking seriously enough the danger of unlimited political power as it stands in Russia and as it has been growing in the West for more than a century. Such a classical-liberal and individualist approach helps us focus on individuals behind the collectives such as “Russia” or “the West.” The individualist approach may also help answer the question: Isn’t the threat of admitting Ukraine in NATO or establishing closer relations between Ukraine and the West the main cause of Putin’s invasion? University of Chicago political scientist John Mearsheimer defends this argument in The Economist. It is a strange thesis that organizing the defense of a group of individuals can be viewed as an aggressive activity. It makes some sense in a world paved with powerful Leviathans or Leviathans-to-be—powerful enough, for example, to tightly control with whom their subjects exchange and how they spend their money. If the free world was populated by humble classical-liberal states, even assuming they enter into military alliances, defensive activities could not so easily be viewed as aggressions. We have to somehow escape the logic of state power and war, but it is not easy to go there from here. (0 COMMENTS)