As EconTalk listeners know, host Russ Roberts recently relocated to Jerusalem, taking on the role of president of Shalem College. We’ve heard a lot of Russ’s thoughts on what a good education might look like, and we’ve been enjoying watching him put it into practice. In this episode, he welcomes a friend with a similar-and now radical- path. Pano Kanelos, a Shakespeare scholar who served as president of St John’s College and is now the president-in-waiting of a college-to-be (UATX) in Austin, Texas. The two discuss what makes both Shalem and St John’s unique, with particular emphasis on the study of the “Great Books.” They ruminate on what happens to a person who goes through such an experience, as well as how we might replicate such a unique experience for other learners- and toward what end. Now we’d like to hear both what you took from this episode, as well as how you are learning to exercise “the critical muscle that’s essential to a flourishing life.”     1- Roberts says an ideal education teaches one how to learn: how to think, read, write, and listen. Kanelos goes even further, suggesting we must listen not only to one another, but to the texts themselves. What does this mean? (Hint: it includes no shouting and no running…)   2- What is the proper goal of a liberal arts education? To what extent do you think the demand for liberal arts graduates will increase rather than decrease; why? Is the age of the college major coming to a close, as Kanelos asserts? Again, why?   3- So here’s a question you’ve heard here before: Why should we spend time reading such old books? To what extent do you agree that a large part of the value of this practice is because it’s hard? How can reading such texts transport you to a Green World, and what might that enable you to do?   4- The conversation turns toward the end to the state of education today, which Roberts characterizes as being both in decline and under attack. What do you think are the major problems with (higher) education today? Are these problems exogenous (as Roberts believes) or endogenous (as Kanelos argues)? Explain.   5-  Roberts asks Kanelos to describe what UATX will be like, and he describes his task thusly, “How do you bring together the thinkers and the doers? How do you create in young people, thoughtful people of action?” How is thinking though this question helping Kanelos and his colleagues design an education institution? What is their institution for (as he cautions against building something against something else)? How plausible do you think this model is- are you as optimistic about demand for UATX as Russ? What aspects of UATX sound most radical to you? Most appealing?   Bonus: Kanelos recounts a lovely experience discussing Shakespeare’s Macbeth with his middle school son, focused largely on a single word in the text. Have you experienced any similar deep, slow learning experiences with a classic text? If so, we want to hear about it! Share your story here, or send your thoughts to econlib@libertyfund.org. (0 COMMENTS)

My latest issue (March) of “Economic Indicators,” prepared by the Council of Economic Advisers for the U.S. Congress’s Joint Economic Committee, arrived on Saturday. It’s always fun (and sometimes scary, especially for federal government spending) to go through it and look at the data. Aside: What finally came out also is the 2022 Economic Report of the President. This is the latest it has ever been. Back to the March report. What I’m about to say won’t surprise economists who follow the data closely, but it’s worth saying because not everyone follows the data closely. We hear about the “Great Resignation” and we sometimes picture a whole lot of people out there looking for jobs and being picky about them. There’s something to that story. Nevertheless, the good news for those of us who want people to actually have jobs is that the employment to population ratio is finally back above 60%. To be precise, it’s 60.149 percent. (This is the ratio of civilian employment to the civilian noninstitutional population. The civilian noninstitutional population, in turn, is the number of people of age 16 years or older in the United States who are not inmates of institutions (penal, mental, or homes for the aged) and who are not on active duty in the Armed Forces.) In March, civilian employment was 158.458 million and the civilian noninstitutional population was 263.444 million. The last time it was above 60% was in 2019, when it was 60.8 percent. Moreover, 2019 saw the highest E/P ratio for the last decade. (The all-time high was in April 2000, when it hit 64.7%.) This means that we were only about 1.7 million jobs shy of the 2019 number. (1 COMMENTS)

Most experts seem to believe that our inflation problem is largely caused by supply bottlenecks in everything from food to oil to computer chips. But what if that isn’t true? What if some other factor is the actual cause of high inflation? And how would we know this to be the case?One way of addressing this issue is to look at inflation rates across countries. The following graph shows 12-month inflation in the US and Japan: Inflation over the past 12 months is running at over 8.5% in the US, vs. about 0.5% in Japan.  Admittedly the Japanese data is two months behind, but even their March CPI data is likely to show 12-month inflation at only about 1%.  Why is inflation in the US roughly 7.5 percentage points higher than in Japan?  Doesn’t Japan also have to pay much higher prices for imported oil? One possible explanation is differences in monetary policy, which is best measured by looking at growth in NGDP.  Over the past 4 quarters, NGDP growth is running at about 11.8% in the US versus negative 1% in Japan.  Thus looking at monetary policy alone, and completely ignoring supply bottlenecks, one would expect inflation in the US to be about 12.8% higher than in Japan:  Why is US inflation only about 7.5% higher than in Japan, and not 12.8% higher?  In an accounting sense the difference is due to greater real GDP growth in the US.  That’s not surprising as (in the short run) monetary stimulus doesn’t just boost inflation, it also boosts real GDP.  Because the economy in the US has recently overheated, some of that excessive RGDP growth will eventually turn into inflation.  Fortunately, a significant portion of the rapid RGDP growth represents recovery from a depressed economy in 2020. To summarize, the high inflation in the US is mostly due to expansionary monetary policy.  Almost any time NGDP grows at 11.8%, you can expect relatively high inflation.  That’s not to say that supply bottlenecks have had no impact; even in Japan you can see an uptick in inflation over the past year.  But as a first approximation, inflation problems are excessive NGDP growth problems.  Stabilize NGDP growth at 4% and the minor blips in inflation we continue to observe will truly be “transitory”.  PS,  Strictly speaking, NGDP growth is the sum of RGDP growth and GDP inflation, not CPI inflation.  But inflation in the US is much higher than in Japan, however measured. (0 COMMENTS)

The Foyle’s War television series is one of the most satisfying, electrifying shows ever to have been shown to a wide audience. If you have not yet seen it, you will be forever grateful to me for introducing it to you. It takes place during and after World War II, from the perspective of a British policeman, who later in the series becomes an MI5 intelligence officer. The Sunflower episode is as dramatic and riveting as any other; however, this is the rare chapter in this series in which the writers reveal their economic illiteracy. The main plot here concerns Mr. Foyle tasked with protecting an evil Nazi officer who is of great help to the United Kingdom government in the early days of the cold war against the USSR. But it is the sub plot that interests us in terms of the dismal science. An English landowner has been cheated out of his land by a Minister in the Labor Government. The time is circa 1945 or 1946 when the British are still reeling from all sort of difficulties stemming from the recent bombings. Pretty much everything is in short supply– certainly food, clothing, housing and many other necessities. One thousand acres of prime farmland are at stake. The Labor Minister, from the best motives we are led to believe, wants to keep this territory from its rightful owner. He does so because he maintains that the owner is a profiteer who wants to develop housing on this property, when there is a crying need for food. Our hero, Adam, the husband of the female lead in the series, is a newly elected Member of Parliament who forces this Minister to resign, given the fraud and violence he has perpetrated upon the property owner. Yet even Adam buys into the notion that the government knows best how resources should be allocated, and that yes, this land would far better be retained for farming than housing development. He stuck, however, to his honesty principles, even though, he thought, this would not be in the interests of the British economy. Both actors, and certainly the writers of this episode, misunderstood the economics of the situation. If profits could indeed be maximized by development, this is an excellent indication that the need for housing was greater than that for food. If the developer can “profiteer” from so doing, while earning only a modest return from agriculture, this is the market’s way of indicating the relative importance of the two needs. Profit, rather than a dirty word, is the free enterprise system’s way of rationally allocating resource. Suppose that the desire for peas and carrots on the part of the populace was 50% for each, but that right now, the proportion of the two items in the stores was 90% of the former, 10% of the latter. Namely, there is now a surfeit of peas, and a shortage of carrots. Which product do you think, gentle reader, would garner more profits for the supplier? Go to the head of the class if your answer was carrots. Yes, this would be the market’s way of guiding entrepreneurs into reallocating their efforts in the direction of promoting consumer satisfaction. They would be led by Adam Smith’s “Invisible Hand” to promote economic welfare thanks to the operation of profit. Much the same situation prevailed in this Foyle’s War episode. There were more profits to be made in housing than in agriculture.  This demonstrates that fulfilling the former need was more important than the latter. Yet, the Labor Minister was willing to fraudulently override this profit market signal, supposedly for the benefit of the public. The writers of this episode can be awarded an A+ for drama and keeping us at the edge of our seats; unfortunately, they deserve an F for their economic understanding. 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). (1 COMMENTS)

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

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

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

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

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

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