The battle between Starbucks and Workers United trying to barge in may not be sufficient to persuade the company and other large corporations that the woke are not so fun to work with after all. Such is the power of ideological fads. But the event does carry some political and economic lessons. One of Workers United’s organizers said (“Starbucks Prepares to Expand Worker Benefits That Might Exclude Unionized Staff,” Wall Street Journal, April 13, 2022): We will continue to fight to hold Starbucks accountable to the company we know it could be. I wonder why Workers United don’t acquire Starbucks (tip: SBUX on Nasdaq) or don’t create a competitor in order to have “the company [they] know it could be.” Because the new Starbucks or the new competitor would most likely fail or cost more than it would return? Would that serves the employees’ interests? On the other hand, if the unions and pro-union employees succeeded with their own money or with that of outside investors in such a free-market (that is, voluntary) adventure, glory to them! (1 COMMENTS)

Regular EconLog reader Kevin Corcoran sent me the following, which I, with his permission, edited slightly. I’ve been catching up on EconLog and I noticed your post on why sanctions rarely work. It reminded me of something from my time in the Marines: a different application of a similar idea. It helped lead me to my belief that collective punishment more generally rarely works. You’ll probably be unsurprised to hear that the Marine Corps is big on collective punishment. If Lance Corporal Smith gets busted for underage drinking, it’s very common for the Gunnery Sergeant to punish everyone in Smith’s entire squad or platoon. The theory behind it is that if we all got punished for Smith, then we’ll all resent Smith for it and will keep him under close surveillance to make sure he doesn’t drink underage anymore, because we’d come to understand how Smith’s actions actually affect all of us. [DRH note: This reminds me of the motivation for Code Red in A Few Good Men.] Of course, it never happened like that. Nobody ever resented Smith on account of the Gunny cracking down on everyone; they all just resented the Gunny and, if anything, would tend to rally around Smith. There are times when Smith’s actions actually, tangibly do affect everyone around him, but we already had incentives in place to apply social pressure to him if he was slacking in those circumstances. What the Gunny was doing was taking a situation that didn’t actually affect anyone (or at least not in a way anyone cared about) and make it start having a negative effect where none existed before. So, of course, the resentment went to the Gunny and not to Smith. Worse, it actually created incentives for more people to engage in underage drinking. I tried explaining it to one of my Gunnery Sergeants when I realized it. Start with the idea that some rules are selfishly desirable to break: breaking them confers some benefit to the rule breaker. If you enjoy drinking, then breaking the rule against underage drinking confers a benefit on you: you get to do something you like that you otherwise wouldn’t. On the other side of the scale, if you get caught, you can get in various degrees of trouble and you might be willing to pass up the benefits to avoid that trouble. Now, add to the mix the idea that whether or not you’ll be punished for breaking this rule is no longer a matter of your actually drinking underage or not– you can follow the rules to the letter, but still be treated as if you had violated them. This significantly undermines the incentive to stick to the rules. If there’s a good chance I’ll be punished for drinking whether I drink or not, I might as well have a drink and enjoy the upside. Sure, you might get caught, but someone else might get caught instead of you, so why not at least have the fun you’re being punished for? As an aside, the Gunnery Sergeant was not at all moved by a Lance Corporal telling him his punishment strategies were all wrong. Maybe this could have served as my “I should have known I’d be an economist” moment. Well said.   (0 COMMENTS)

In yesterday’s Financial Times, Janan Ganesh signs a strange column. He wonders why no political theory of international relations explains the war in Ukraine: not the optimistic “democratic capitalism” of Francis Fukuyama’s The End of History, nor the tribal (“cultural and religious”) concept of “nations,” nor the “realist” theory of state interests. Only a “pragmatic,” “case-by-case” approach, that is, no theory at all, can make sense of Vladimir Putin’s behavior, he suggests (“No Grand Theory Can Explain the Ukraine Crisis,” April 12, 2022). Throw a dice, flip a coin, or read tea leaves. This is puzzling. Hasn’t Mr. Ganesh ever heard of Leviathan as a model of the state? One of the most recent and, in my opinion, the most useful of these theories is the economics of public choice and its philosophical-political dimension that you find in the works of James Buchanan (or Buchanan and Tullock). Friedrich Hayek’s theory would be also a candidate. Anthony de Jasay stands on the liberal-anarchist wing of non-random explanations of the state. In this perspective, Vladimir Putin is not difficult to explain. Grant unrestrained power to any individual or group of individuals—whether it is Putin or Volodymyr Zelensky, Donald Trump or Joe Biden—and the ruler’s own interests will soon push him into growing a full-fledged Leviathan, whether of the Brave New World type or the 1984 type. (What often saves us is that the more powerful a dictator, the more inefficient he is, at least for those who are not his direct subjects.) We only have to look at Putin’s own interests as he evaluates them, with due concern for rewarding the most weighty of his supporters, and the Leviathan model of the state shows all its usefulness. This is why restraining the state and understanding the reasons why is so important. Instead of Ganesh’s “democratic capitalism,” an expression which is at best is meaningless and, incidentally, does not anyway appear in Fukuyama’s The End of History, liberal or constitutional democracy (emphasizing “constitutional,” as Buchanan says) and its underlying values would seem to be the solution. (0 COMMENTS)

Yes, with a very few exceptions. Every time there is a war, we see a predictable chorus of pundits calling for the end of globalization. Let’s hope they don’t get their way, because if globalization ends then wars will become much more frequent.My view is that sanctions are usually counterproductive. One exception is when one country invades its peaceful neighbor, as in the current Russia/Ukraine war or in the case of Iraq’s invasion of Kuwait. In that case, the international community has a clear interest in punishing the aggressor.  (Although as David Henderson points out, the current sanctions against Russia are not particularly effective.) But sanctions don’t work at all unless the target country is linked to the global economy. Free trade creates a situation where bad actors have more to lose from economic sanctions.  Over the years, I’ve argued that Russia is a much greater threat to world peace than China (although China is certainly a non-trivial threat, especially to Taiwan.) Thus I’ve opposed the economic sanctions the US has applied to China, as well as the broader US trade war against China. My critics counter that we can’t afford to be economically integrated with a dangerous country such as China.I respond that we cannot afford not to be integrated with China, precisely because it is dangerous. We need China to be so deeply enmeshed in the global economy that it would pay a heavy price if it were ostracized. A sullen isolated China, a North Korea with 1.4 billion people, would be a far greater threat to world peace.  Our current policy of isolating China makes it more dangerous, not less.  After WWII, the victorious powers realized that the best hope for peace was to have Germany closely integrated into the broader European economy.  This idea led to the European Common Market, and later the EU.When I point to recent events as evidence that I was right that Russia is the greatest threat to world peace, my critics respond that Taiwan is next. And then they say that if they are wrong, if China doesn’t attack Taiwan, it’s only because they are held back by the unexpectedly severe sanctions that the West imposed on Russia in recent weeks. I don’t think they realize that they are making my point. (0 COMMENTS)

  When I was a kid, the boy next door once played a nasty trick on my brother Paul: our neighbor held his cat in his arms, brought it within a few inches of Paul’s face, and pulled its tail. The suddenly angry cat bit Paul’s face. My brother and I were upset; the cat, we thought, should have bitten the perpetrator’s face. I think of that incident whenever I hear people call for economic sanctions against a whole country. When governments impose sanctions, the officials implementing the policy want to harm the dictator or bad guy heading the other country’s government. That’s the goal. What they do to achieve it is intentionally harm many innocent people in those countries by cutting them off—if the sanctions are effective—from food, medicine, and other goods that they need or value. The sanctions almost always work in a limited sense: they impose some harm on innocent people in the target country. But that’s not the goal. Nor is the goal to cut off the dictator from food, medicine, et cetera. You can be sure that Saddam Hussein and Fidel Castro are not hurting for antibiotics or high-quality food. No. The harm that the advocates of sanctions want to inflict on the bad guys is indirect. They are yanking innocent people’s tails so that those people, like our neighbor’s cat, will lash out at whoever’s face is right in front of them. They want those people to see their own government as the enemy and to try to overthrow it. But people are smarter than cats. When people suddenly find food, clothing, medicine, and other goods in short supply, when they find themselves a lot poorer and focusing desperately on day-to-day survival, they will take the time to find out who is responsible. And guess what? They do find out. Although governments in embargoed countries like Iran, Iraq, and Cuba strictly control what newspapers, radio, and television report, one piece of information that is sure not to be censored is the role of outside governments in the country’s economic distress. This is from David R. Henderson, “Why Economic Sanctions Don’t Work,” which I wrote in 1998. Later in the piece, I wrote: To understand how people in embargoed countries feel, you will have to use your imagination. Picture yourself back in 1974. President Nixon’s popularity has hit bottom. Many Americans want him out, but he holds on. Now imagine that the head of a freer country—say, Switzerland—thinks Nixon is a vicious leader and imposes sanctions on us. Because of these sanctions, we can’t get medicine and we can’t feed our families adequately. We spend our days scraping for the basics we need to survive. (Of course this is implausible in the United States, which is why I said you would have to use your imagination.) Now ask yourself: Is your first thought that you should organize and try to overthrow the president? I bet it’s not. For one thing, you don’t have much of a shot at succeeding. The Nixon administration is probably in charge of allocating the scarce medicine and food. But more important, you’re furious with the Swiss government. “Who are they to interfere in our country’s affairs?” you ask. So if Nixon offers you a war against the Swiss infidels, you’re likely to say, “Hell, yes,” and postpone thoughts of getting rid of your president until you’ve gotten those foreign bums off your back. And that’s probably how Iraqis are feeling right now about the United States and other governments that are participating in the embargo. I thought of all this when I read this article: David Lawler, “Inside wartime Russia, Putin isn’t losing,” Axios, April 11, 2022. One excerpt: Russian shoppers can no longer buy many Western products or use certain payment methods, and many goods they can buy are now more expensive thanks to the sanctions. But they don’t blame Putin, says Yana, a journalist in Moscow who asked that we not use her last name. Note: When I put the Concise Encyclopedia of Economics together, I had 3 experts on sanctions, Kimberly Ann Elliott, Gary Clyde Hufbauer, and Barbara Oegg, all of the Institute for International Economics, write the piece. This Institute is now called the Peterson Institute for International Economics. Their piece is more nuanced than mine, but I think they would agree that the kind of sanctions imposed on Russians will not cause people to overthrow Putin.   (0 COMMENTS)

It has often been claimed that economics has a bias towards capitalism, or as some socialists call it and what I personally prefer, “economics is bourgeois propaganda”. This means that it has an inherent tendency towards promoting the interests of the capitalist class. The first argument is that economics is by definition pro-capitalist since it explores how a market society works. This argument is false on two grounds. One, economists study all kinds of societies, free market societies like ours, socialist, agrarian, feudal, and more. Even in books by radicals like Rothbard’s  Man, Economy and State there is an unusually extensive discussion of resource allocation in societies without money (though almost all such discussions are highly critical). Two, the definition of economics is almost always something along the lines of “the study of how a society manages its scarce resources,” as Gregory Mankiw has suggested in his Principles of Economics. Modern economists do not drift much in their definitions. Some of the older definitions may appear different at first glance, for example Jean Baptiste-Say’s definition of economics as the “science” that treats “the production, distribution and consumption of wealth”. However, in practice the differences are more negligible and do not have a significant effect on the specific characteristic of economics that we are discussing here. If someone wishes to learn more or wants to verify my claims regarding these definitions, I suggest the article by Steven Medema and Roger Backhouse titled “Retrospectives: On the Definition of Economics.” The second argument is that economics is a way for the rich to provide elegant reasoning to justify their wealth. If you have an economics theory that glorifies the concentration of wealth, they say, then you are not immoral, you are providing a valuable service to society. This is not the case. Today the topic of inequality is prevalent in economic circles with figures such as Amartya Sen and Thomas Piketty leading the way. Piketty, although a self-proclaimed socialist, is by no means an outcast in the economics community. Economics has become as much a form of propaganda as is history, sociology, anthropology or any other field in the social sciences. Someone may be quick to say “Yes but this only happens now that people are more sensitive about inequalities”. I advise anyone saying so to read a bit more on the history of political economy. Economics has many times been a very revolutionary tool, one example instantly comes to mind. The Anti Corn League led by the British businessman Richard Cobden who fought hard to repeal the Corn Laws. These laws prohibited the import of wheat and protected the interests of the British landlords by raising prices.  There is a plethora of similar people like Henry George in his Single Tax movement, Benjamin Constant in the French Revolution and Frederic Bastiat, as a member of the French Legislative Assembly in 1849. Economists can change their mind if sufficient reasoning has been provided. Societies have moved from mercantilism  to free trade and David Ricardo’s comparative advantage, from the labor theory of value to marginalism. This does not mean that economics follows a straight line of constant progress, but it signifies the possibility of radical change in the discipline and the lack of a historical determinism toward free market policies. To sum up, economics is not inherently capitalist. It can shift direction if sufficient reasoning has been provided. Economics is not by definition capitalist, it is the study of resource allocation and to this regard is politically neutral. It is neither a tool to justify power and wealth, despite having been repeatedly used as justification by the powerful.   Chris Loukas was born in Greece and is an economic journalist and the youngest member of the Greek team in the international Economics Olympiad for 2022. His articles have been featured by the Foundation for Economic Education, the Mises Institute and Adam Smith Works. (0 COMMENTS)

While Austrian economist Carl Menger was a fan of Adam Smith and defended Smith’s favored economic policies in an article on the 100th anniversary of Smith’s death, I was surprised, on reading Menger, by how critical Menger was of Smith. Moreover, I thought that his 2 main criticisms were off base. On page 73 of his Principles of Economics, Menger, in explicitly criticizing Smith, writes: Indeed, the division of labor cannot even be designated as the most important cause of the economic progress of mankind. Correctly, it should be regarded only as one factor among the great influences that lead mankind from barbarism and misery to civilization and wealth. This has to be false. Menger argues after this quote that the increase in human knowledge is and will be an important contributor to economic progress. True. But a prerequisite for human knowledge having this effect is an extensive division of labor. Thomas Edison was a huge contributor to economic progress. How far would he have gotten if he had had to do everything himself, including producing light bulbs? In such a case, we would back to Smith’s example of one person carrying out all the steps of making a pin and, therefore, producing fewer than 20 pins a day. Whereas 10 people, each specializing in a couple of steps, could produce 48,000 pins a day. On page 172 of Investigations into the Method of the Social Sciences, Menger writes: What Adam Smith and even those of his followers who have most successfully developed political economy can actually be charged with is not the failure to recognize the obvious significance of the study of history for the politician. Nor is it failure to recognize the just as obvious principle that various economic institutions and governmental measures correspond to various temporal and spatial conditions of economy. It is their defective understanding of the unintentionally created social institutions and their significance for economy. It is the opinion appearing chiefly in their writings that the institutions of economy are always the intended product of the common will of society as such, results of expressed agreement of members of society or of positive legislation. (italics added by me.) This seems to me to be the opposite of the truth.       (1 COMMENTS)

Marine Le Pen, the “far right” candidate who came close to Emmanuel Macron, the “centrist” one, in the first round of the French election said she wants to be “president of all the French.” In America, Biden similarly promised to be “president for all Americans,” but failed. Trump, more realistically (it did not happen often), promised to be the president of half the Americans. It is indeed impossible to be the president of all in America or France given what is now understood to be the job. This can be seen with a simple model. Imagine a country where half the voters (plus or minus one) love wine and hate beer; and where the other half (plus or minus one) love beer and hate wine. Call that country “Syldavia” as in the adventures of Tintin (Hergé, Le sceptre d’Ottokar [Casterman, 1947], translated as King Ottokar’s Sceptre). We can also imagine that the voters in each group hide or supplement their tastes with strongly held values: the wine lovers strongly feel that wine production on family farms, being more labor intensive, creates more jobs; the beer lovers strongly favor the “good union jobs” in the beer industry. Presidential candidate B (slogan: “Make Syldavian Beer Great!”) promises to ban wine and divert to beer all the resources currently devoted to wine production. At the opposite end of the political spectrum (who said voters had no choice?), candidate W (slogan: “Make Syldavian Wine Greater Still!”) promises to ban beer and divert to wine production all resources used in beer. As we say in French, “to govern is to choose” (gouverner, c’est choisir). Clearly, however, neither B nor W will be the “president of all Syldavians.” Compromises can be imagined, including replacing beer and wine production by a single mixture made of X% wine and [100-X]% beer. But all voters would probably hate it and the compromise would make each of the candidates the president of zero Syldavian. Assuming no “externality”—that is, no Syldavian is made miserable by the mere thought of somebody else drinking beer or wine—there is only one way for a candidate to be “the president of all Syldavians”: it is to let each and every Syldavian produce and drink whatever he wants; it is for the government to discriminate against no one. The model neglects a few other complications, but the general result seems unimpeachable. The reader interested in more weighty complications should consider James Buchanan’s theories. My review articles at Econlib, “The State is Us (Perhaps), But Beware of It!” and “Lessons and Challenges in The Limits of Liberty,” may be helpful introductions.   (0 COMMENTS)

What do crossing rivers and investing in stocks have in common? Real education is seeing the connection between things that seem very different. EconTalk’s host Russ Roberts talks about education with Alex Aragona of the podcast, The Curious Task. Roberts argues that the ability to apply insights from one area to another with which we’re unfamiliar is one […] The post Russ Roberts on Education appeared first on Econlib.

Ross Douthat recently had this to say: It’s always been the case that a liberal society depends for unity and vigor on not entirely liberal forces — religious piety, nationalist pride, a sense of providential mission, a certain degree of ethnic solidarity and, of course, the fear of some external adversary. Liberalism at its best works to guide and channel these forces; liberalism at its worst veers between ignoring them and being overwhelmed by them. I have two problems with this claim.  First, the liberal societies of northern Europe seem relatively successful, despite lacking a high level of religious piety, nationalism or “providential mission”.   But my bigger complaint is that Douthat seems to use the term nationalism synonymously with patriotism.  People who defend nationalism this way remind me of those who say, “What’s wrong with socialism; look at Denmark”.  (Denmark has one of the most free market economies in the world; even the fire departments have been privatized.) Nationalism as a political movement is very distinct from patriotism.  The post-1990 nationalists in Yugoslavia did not “love their country”; they set out to destroy it.  Serb, Croat, Bosnian, and Slovenian nationalists tore apart Yugoslavia.  Hindu nationalists seem determined to destroy the tolerant, multi-cultural India set up in 1947.   Hungarian nationalists feel closer to ethnic Hungarians in Romania than to Roma people in their own country.  The same is true of Han nationalists in China.  In the 1930s, German nationalists felt no solidarity with German Jews. The Americans who fought in WWII were motivated by patriotism, not nationalism.  Our armies contained a diverse mix of ethnicities that lacked what Douthat calls “ethnic solidarity”, and defeated two military powers that were very much motivated by nationalism, by ethnic solidarity.  When I was young, WWII films actually highlighted this ethnic diversity.  In school, we were taught how nationalism had led to the two world wars. Some people claim that Ukrainian patriots are “nationalists”.  In fact, Russian nationalism is the cause of the current war.  Ukrainian patriots wanted their country to join the European Union, perhaps the least nationalist organization in all of human history.  Ask the British nationalists that pushed Brexit what they think of the EU.  Indeed, one of Putin’s foreign policy goals is to destroy the EU. I’m not interested in dictionary definitions of nationalism (or capitalism or communism.)  Actual existing nationalism is not patriotism.  Rather it is: 1.  Fake history, which glorifies the past and denies a country’s past crimes 2.  Bigotry against minority groups (and in many cases misogyny) 3.  Protectionism 4.  Opposition to immigrants 5.  Authoritarianism 6.  Militarism 7.  Intolerance of alternative lifestyles These are the things to expect when nationalists take power.  Douthat is correct that liberalism requires a certain level of solidarity.  People are not robots.  But it is important to distinguish between the positive solidarity that comes from patriotism and the negative solidarity that comes from nationalism.  Patriots come from all races and creeds. (0 COMMENTS)