A recent article in the NYT criticizes Larry Summers, who correctly predicted that economic policy in 2021 was too expansionary. This caught my eye: Mr. Summers has been focused on a different story, warning that government spending could increase inflation. With prices rising at the fastest rate in 40 years, he has been lauded for making the right call. “Does the WH owe Larry Summers an apology?” Politico asked last November. The problem with this reading is that the economy hasn’t really overheated. Real gross domestic product and employment are still lower than prepandemic projections, according to government statistics. Yes, consumer spending patterns have shifted from services to goods, but that began two years ago; the fact that our supply chains still cannot adjust reflects a bigger problem with how they were designed. It is frustrating to see respectable outlets like the NYT repeatedly make EC101 level mistakes.  Economic overheating has nothing to do with real GDP; rather it represents excessive growth in nominal spending.  And nominal GDP has risen to well above the pre-pandemic trend line.  The economy is clearly overheating to some extent. In 2008, real GDP in Zimbabwe was sharply depressed.  Would anyone claim their economy was not overheating at a time when inflation reached a billion percent? The NYT has a wealth of talented reporters.  I am convinced that they try to be accurate, at least most of the time.  That’s why I find this sort of story to be so maddening. I also blame the economics profession.  If the top economists in America (who mostly share the NYT’s ideology) were more critical of its reporting of economic issues, then it would face pressure to clean up its act.  Conservatives might not believe this, but the NYT does care about elite opinion.  Instead, we repeatedly see this sort of sloppy reporting. It doesn’t seem to be getting better. PS.  If the NYT hired a competent economist to proofread their economics stories, they could weed out dozens of mistakes each month, making it a better paper.  Why don’t they do that—they have lots of money?  (Yes, they have editors, but I’m talking about proofreaders with knowledge of economics.) Off topic, I really like this Matt Yglesias tweet: If you want more than a tweet, check out this article.   (0 COMMENTS)

Mike Huemer has yet another great thought experiment: Suppose you learned that there was a school staffed mainly by right-leaning teachers and administrators. And at this school, an oddly large number of lessons touch upon, or perhaps center on, bad things that have been done by Jews throughout history. None of the lessons are factually false – all the incidents related are things that genuinely happened and all were actually done by Jewish people. For example, murders that Jews committed, times when Jews started wars, times when Jews robbed or exploited people. (I assume that you know that it’s possible to fill up quite a lot of lessons with bad things done by members of whatever ethnic group you pick.) The lessons for some reason omit or downplay good things done by Jews, and omit bad things done by other (non-Jewish) people. What would you think about this school? I hope you agree with me that this is a story of a blatantly racist and shitty school. It would be fair to describe the school as promoting hatred toward Jewish people, even if none of the lessons explicitly stated that one should hate Jews. I hope you also agree that no parent or voter should tolerate a public school that operated like this. Now, what if the school’s right-wing defenders explained that there was actually nothing the slightest bit racist or otherwise objectionable about the school, because it was only teaching facts of history? All these things happened. You don’t want to lie or cover up the history, do you? I hope you agree with me that this would be a pathetic defense. Huemer’s target is Critical Race Theory, but his insight generalizes nicely.  If you spend your life making one-sided true complaints about markets, it is fair to call you “anti-market.”  If you spend your life making one-sided true complaints about the rich, it is fair to call you “anti-rich.”  If you spend your life making one-sided true complaints about men, it is fair to call you a “man-hater.”  If you spend your life making one-sided true complaints about rare risks, it is fair to call you a “fear-monger.” Granted, there’s no shame in being “one-sided” about things that are, on balance, terrible.  But if that’s your position, you should be prepared to defend it, not hide behind the misleading claim that you’re “just teaching the facts.” Thus, as you may have noticed, I habitually complain about voters and politicians.  But my method is not to sift out all the good that voters and politicians do, then share the bad stuff that’s left.  Rather, I explicitly argue that, on balance, voters are severely irrational and politicians are deeply evil.  I’m not trying to trick readers into these conclusions with a selective reading of the evidence.  Indeed, I go out of my way to argue that what most people like about voters and politicians is actually bad, so the “offsetting good” mostly just compounds the bad. If you take Huemer’s thought experiment to heart, you will realize that mainstream media is scarcely better than bona fide “fake news.”  Epistemically speaking, the purpose of one-sided true complaints and full-blown lies is the same: to spread false beliefs about the Big Picture.  The news doesn’t have to be propaganda, but in practice, it almost always is. Reminder: This is my last day blogging for EconLog.  Starting tomorrow, March 1, look for my posts on the all-new Bet On It, brought to you by the Salem Center for Policy at the University of Texas. (1 COMMENTS)

What did author and Washington Post columnist Tamar Haspel learn from her quest to eat at least one thing she’d grown, caught, or killed every day? For starters, that just-caught fish always tastes better (unless you’ve caught a false albacore). That all it takes to build a coop is the will and the right power […] The post Tamar Haspel on First-Hand Food appeared first on Econlib.

Before reviewing some lessons from the “sanctions against Russia,” we should realize how misleading this expression is. They are not, properly speaking, sanctions from “Western nations” against “Russia,” but from Western countries’ states against residents of Western countries who trade with Russian government rulers and entities. They will hit Russians because they hit Americans (and other individuals in the West) first (See my previous posts on this general point). And they will hit ordinary individuals in both the West and Russia. One lesson of the current sanctions is that they are quite certainly preferable to World War III. They do involve discrimination against individuals and companies (who are made of people) in our own countries, but it is a safe assumption that virtually all the individuals hit would prefer the sanctions to actual war. My formulation tries to avoid the standard cost-benefit approach in favor of the constitutional-economics approach proposed by James Buchanan: which general rules would individuals unanimously accept ex ante? Note, however, that the sanctions may themselves provide another casus belli to the autocrat and authoritarians who rule the Russian state. Putin has been showing his nuclear teeth. Heightened tensions increase the probability of a mistake. A cornered tyrant is not necessarily less dangerous than an unchallenged one. Difficult game. Anther lesson, it seems to me, is the following: the situation illustrates how dangerous a world government would be. Observe the enormous power that a cartel of states (in this case: NATO, the G10, the European Union or, more fuzzily, states sharing the Western culture) can wield to “cancel” individuals and groups by crippling them economically and making them international pariahs (to use Joe Biden’s terminology). This power rests on the power of each government to control its citizens’ or subjects’ assets and economic transactions. In the normal course of things, thanks God, a national government’s power to cancel an individual or group is limited by the decentralization of political authority in the world. Individuals can, at some cost, escape a too powerful state. I agree on the necessity of making Vladimir Putin an international pariah, but a world government would have the power to do the same against any individual or group as a matter of course anywhere on earth. It could “disconnect” a rebellious individual or group of individuals from even a nominally private payment system (as illustrated by the partial disconnection from SWIFT that we are witnessing). (0 COMMENTS)

Tomorrow is Bryan Caplan’s last day as a blogger on EconLog. I will sorely miss him. There’s so much I’ll miss: his clear thinking, his frequent insights, many of which are surprising, and his positive attitude to life. I could highlight a lot of his blog posts, but then this tribute would turn overly long. Instead, I’ll highlight two major things that I’ve learned from his blogging. The first is the importance of the Social Desirability Bias. I’m someone who speaks my mind on pretty much any issue, no matter how much pressure there is not to do so. So it was hard for me to grok why I was so often alone even though people would come up to me at an event, look furtively around, and tell me in low decibels that they basically agreed with what I had just said. Now I do understand: it’s Social Desirability Bias. They are afraid to come out openly and say what they think. The second is the Ideological Turing Test. Not very many people in economics come up with terms that are widely used. I’m still working for people to refer to the part of the capital gains tax on the inflation component of capital gains as a “tax on phantom gains.” So far no takers. I’ve made only a little progress in getting people to be understood by non-economists when they want to discuss rent seeking. There’s nothing necessarily wrong with rent seeking, if you keep the full economic meaning of “rent.” I want to call it “privilege seeking,” which is more apt. But Bryan, well before age 50, has introduced the term “Ideological Turing Test” and it is often used. It’s a great term. In that sense, he’s kind of like my mentor Harold Demsetz, who coined the term “Nirvana approach,” which has morphed into the widely used “Nirvana Fallacy.” Good on ya, Bryan bro. (0 COMMENTS)

Back in 2018, I wrote an Article for EconLib entitled “Does National Security Justify Tariffs?”  In that piece, I argued against the national defense justification for protectionist tariffs.  My main argument was tariffs on goods vital to national defense were unnecessary for the United States given our stable allies and that any supply disruptions would be short-lived as producers adjust. But here it is in 2022.  For nearly two years, the US and the world have been dealing with chronic shortages of goods and services.  Many items needed for national defense and consumer demand, such as computer chips, are very difficult to procure.  The idea of tariffs to protect domestic supply chains are becoming vogue again, with none other than a prominent former Federal Reserve chair floating the idea.  My predictions seem to have failed.  Now seems to be the perfect time to revisit the case for free trade. First, let me discuss why my predictions failed.  I did not foresee the events of the past two years.  They are unprecedented.  Never in human history has the entire world essentially closed up and gone home.  Global trade fell 25% and domestic producers were shut down or severely curtailed.  Even in my most pessimistic thoughts, I could not imagine such a collapse in trade.  In my 2018 article, I assumed trade flows would remain fairly stable, if only over land.  But that assumption did not apply to the policy responses to the COVID pandemic. Additionally, I assumed a well-functioning price mechanism.  Prices would rise for needed goods, encouraging more quantity supplied.  During the COVID pandemic, prices were not allowed to function.  Price controls were slapped on all sorts of goods in the early days.  Firms faced rapidly increasing costs, coupled with decreased labor productivity, and the inability to raise prices.  Naturally, this would combine to reduced quantity supplied.  Add in forced closures and “work from home” orders, and firms could not increase productivity to meet rising demand. The predictions I made in my 2018 article did not come true.  But does that imply that there is a case for protectionist tariffs after all?  Does the pandemic prove free trade is wrong?  I do not think so for two reasons: First: Protectionism would not have helped in 2020.  It is true that other nations were shutting their borders and cutting off trade, but domestically the US was shutting down factories, too.  No amount of protectionism is going to help if workers cannot work. Second: People respond to incentives.  Since costs 1) take place in the future and 2) depend on the realizable alternatives each person face, expectations play a large role.  Prior to March 2020, no one had expectations of a major forced global shutdown of economic activity.  But now, in 2022, expectations have changed.  Producers now must expect some probability of such behavior going forward.  Consequently, they face new costs and new benefits of global supply chains and “just-in-time” production networks.  How producers will respond to these new costs and benefits is anyone’s guess, but I suspect we will see more “near-shoring,” at least in the near term.  Market interventions only make sense if there is some reason for why the market fails to provide “proper” incentives.  But that is not the case for firms in 2022.  They do not need incentives from the government; markets have provided that for them. One of the advantages to free trade is it allows people the leeway they need to make decisions given the costs and benefits they face.  As a rule, it is solid.  If society is to be truly progressive and forward-looking, we need general rules that are also forward-looking.  To impose protectionist tariffs based off the events of 2020 and 2021 would be reactionary, not proactive.  It would be binding, not freeing. (0 COMMENTS)

This is a theme I’ve considered in numerous previous posts, but it’s worth revisiting in light of recent events. Tyler Cowen directed me to the following tweet: Consider what would happen if you surveyed 1000 Russians with the following question: A.  Do you favor using Russian troops to liberate Ukraine from its Nazi-like government? Then ask another 1000 Russians the following question: B.  Do you favor invading Ukraine if the locals greet Russian troops with hostility? I suspect the poll results would differ.  So which poll result reflects actual Russian public opinion?  It depends what you mean by actual opinion.  Do you mean views prior to being well informed of the facts, or views after being well informed on the facts? Views on the invasion they might have imagined, or views on the actual invasion? Here’s an analogy.  You’ll get one set of answers if you ask Americans if we spend too much on foreign aid, and another if you first tell Americans the relatively small amount we actually spend on foreign aid, and then ask them if that’s too much.  Which one is the actual opinion?  The poorly informed answer or the well-informed answer?  I’d say both, but for different purposes. People sometimes resist my claim by suggesting that public opinion exists, but that it’s not solid like the trunk of a tree, rather it’s fragile and easily blown about like the leaves on a tree.  But even that isn’t quite right.  We are dealing with something more akin to the Heisenberg uncertainty principle.  Merely asking the question actually changes the answer.  The answers on the foreign aid questions differ because the question can be framed in a way that provides more or less accurate information.  The same is true of the two Ukraine invasion questions shown above. Because I’m a philosophical pragmatist, for me the bottom line on truth is always usefulness.  If you want to consider public opinion, you also need to consider the purpose for which it will be used.  For instance, are you trying to win an election?  Putin might be interested in Russian public opinion before launching a war.  But he can also shape public opinion because he controls the Russian news media.  So Putin would make a mistake to rely too much on artificially “manufactured” public opinion.  To employ a term used by economists, it’s not “structural”.   If he’s smart, he’d also be interested in what public opinion in Russia will be once the Russian people learn that Ukrainians view them as aggressors, not liberators.  So when I say there is no such thing as public opinion, I don’t mean that people don’t have opinions.  Rather I am suggesting that there is no single public opinion that is invariant to the way a question is asked.  Public opinion can be manufactured in many ways, including political propaganda, but also including the framing of survey questions.                    PS.  In my previous post, I was skeptical of the willingness of Western governments to impose tough sanctions on Ukraine.  (Whether sanctions would be wise is a different question.)    This tweet caught my eye:                            (0 COMMENTS)

Based on the title of this post, you might assume that I am about to propose cutting Russia out of the SWIFT system for facilitating money transfers through the banking system. Not so.  Based on what I’ve read, it seems unlikely that Western powers have the stomach for sanctions severe enough to have big impact on Russia, as our voters would be upset.So here’s another idea. How about punishing Russia by removing sanctions? Specifically, why not allow Iran back into the SWIFT network, and allow Iran to dramatically boost its oil exports. The goal would be to punish Russia by depressing global oil prices. It is bizarre that we ban Iran from the SWIFT network while allowing Russia to continue using the network. Iran’s government is certainly bad, but Russia’s is far worse.Here’s a second proposal—restart the German nuclear power industry. Then sharply reduce German imports of Russian gas. Neither of my proposals will be adopted. The sad truth is that the US and Europe simply don’t care very much about Ukraine. We should care, but we don’t.  We’d like to help Ukraine.  We wish them well.  But . . .  PS.  National Review has another good idea. (0 COMMENTS)

  Senator Mark Kelly (D-AZ) has a new campaign ad out. In it, he talks about how hard finances were for his family when he was growing up. Nothing wrong with that. It’s nice to see that someone has a concept of a tight family budget. Maybe that would make him more sympathetic to opponents of the government’s white elephants, such as the medium-speed rail in California. These white elephants cause huge waste, which means fewer resources for other projects or higher taxes at some point. The problem comes with this statement Kelly makes at about the 0:07 point: I remember my mom sitting at our kitchen table, all these papers scattered around, and she was having to make decisions about what bill to pay. The clear implication is that she was deciding not to pay some bills. Why? Check his bio and you learn that he’s the son of two retired police officers, who must certainly have been active police officers at the time. That would seem to have given them a decent middle-class income. Even if not, what kind of people don’t pay their bills? I understand deferring payment by a month or two to the providers of goods and services who don’t charge interest. Is that what he means? He doesn’t say. I think we’re supposed to think that his family was really strapped for funds. But ironically, less than one second after the part about choosing which bill to pay, he shows a home movie of, presumably, him and his twin brother. So his parents had enough money to buy a video camera and the expensive tape that those cameras used. My family had priced them in the mid-1960s and concluded that there was no way we could afford a camera and multiple films. Of course we could have afforded them, but it would have meant not going to movies or not doing something else. My parents made tradeoffs. Our family of 5 people and one dog lived on one income, the income of a high-school teacher. There’s no way my father and mother refused to pay a bill. My guess is that his parents did pay their bills and what he saw was a parent feeling some distress because the bills made up most of their income and made it hard to save. Fortunately for them, they are retired police officers and, I bet, are making a good retirement income. My objection here is not partisan. I remember Senator Phil Gramm from Texas, when he was running for the 1996 Republican presidential nomination talking about “my mama” trying to decide which bills to pay and which bills not to pay. If Gramm’s memory is right, his mama set a terrible example. My guess, though, is that both Mark Kelly is doing and Phil Gramm was doing was what politicians often do: lying.     (0 COMMENTS)

Over the past decade, I have been sounding the alarm about the recent resurgence of nationalism all over the world. Many commenters have had trouble understanding what the fuss is all about. Some confuse nationalism with patriotism.If you are still having trouble understanding why the rise of nationalism is the crisis of the 21st century, then I suggest you take a peek at today’s headlines. Utilitarianism is based on the idea that the welfare of all humans is equally important.  It’s not the only alternative to nationalism, but in my view it is the most persuasive. The 20th century saw a giant battle between nationalism and utilitarianism.  By the 1990s, it looked like utilitarianism was winning.  Now those gains are being reversed. PS.  You will likely encounter a great deal of misinformation about Putin’s motives.  Here is what actually happened: When Mr Putin became president in 2000, he showed no overt hostility towards America or the West, despite a recent NATO bombing raid on Belgrade without a UN resolution that had triggered a shrill anti-American response. In his first interview with Britain’s BBC, Mr Putin said: “I cannot imagine my own country in isolation from Europe, so it is hard for me to visualise NATO as an enemy.” Russia, he said, might become a member of NATO if it were treated as an equal partner. Even when the three Baltic states joined NATO in spring 2004, Mr Putin insisted that relations with the defence organisation were “developing positively” and he had “no concerns about the expansion of NATO”. The breaking-point in Mr Putin’s relationship with the West came towards the end of that year when several seemingly unrelated events coincided. The first was a terrorist attack on a school in Beslan, in the north Causasus, in which 1,200 people, mostly children, were taken hostage. After Russia’s special forces stormed the school, leaving 333 people dead, Mr Putin accused the West of trying to undermine Russia. He cancelled regional elections and handed more powers to the security services. Let’s hope that Russia can join NATO someday. (1 COMMENTS)