What’s the empirical evidence that RCTs actually improve policy?  Incisive comments from the noble Lant Pritchett: The argument that RCTs would be more than a tiny component of the overall process of improving development outcomes seems, even now, 10 years in, at best not provable and at worst not very likely—as it is at odds with some basic known facts about development and about policy formulation and implementation. What “basic known facts” does he have in mind?  First, RCTs can’t be crucial for development, because many countries became highly developed long before RCTs mattered. First of all, the argument that RCTs had, until recently, been used sparingly, if at all, and yet are important in achieving good outcomes sits in kind of embarrassing counterpoint with the obvious fact that lots of countries have really good outcomes. That is whether one uses the Human Development Index or the OECD Better Life Index or any social indicator—from poverty to education to health to life satisfaction—there is a similar set of countries near the top… No one has ever made the arguments that these countries are developed and prosperous because they used rigorous evidence—much less RCTs—in formulating policy and programs. While one might have faith that RCTs can help along the path to development, RCTs didn’t help for those that are there now. Second, the highest observed economic growth in human history happened in the decades right before RCTs became fashionable: Second, at about the time (early 2000s) that the randomista movement, which often claimed to be about reducing poverty, was gaining steam, several countries were experiencing or had experienced the rapidest reductions in low-bar absolute poverty in the history of man. Indonesia, China, Vietnam had all seen dollar-a-day–like poverty measures fall from well over half of their population to under 20 percent in less than 30 years. In Vietnam the World Bank figures show dollar-a-day poverty falling from over 40 percent to 16.9 percent just between 2002 and 2008. If these countries did this completely without any use of RCTs (and they did), then from where exactly does the argument that using RCTs will accelerate poverty reduction come? Is there any evidence that countries that used more RCTs had more rapid poverty reduction than those that didn’t? No. While it might be the case that RCTs could accelerate poverty reduction this was (and is) a faith-based, not evidence-based, claim. Third, the past is the best predictor of the future – and past RCTs had little influence on policy: Third, there was the recent historical experience with RCTs in social policy in the USA. The randomistas were not proposing new methods or techniques but rather broader adoption into the field of development methods that already had a long history. There was a big fad toward the use of experiments in a variety of social policy domains in the USA in the 1970s. The Rand Health Insurance Experiment, carried out from 1971 to 1986, is still the largest health-policy experiment ever done. Income maintenance (negative income tax) experiments were carried out between 1968 and 1982 in four sites around the USA. A 1970 act of Congress authorized experiments such as the Housing Allowance Demand Experiment. The Kansas City Police Preventive Patrol experiment was carried out in 1972–73. This created ample capacity in the USA for doing social experiments inside organizations like Rand, Abt Associates, and Mathematica Policy Research, among others. At the founding of J-PAL there was 35 years of experience with RCTs in the USA on which to draw evidence of their efficacy (or not) as tools for improving policy and hence human outcomes. You would have thought that if the widespread use of RCTs had strongly impacted policy in the USA, this would have been put forward as evidence. Strangely, whether or not decades of social policy RCTs actually did have impact on policies and outcomes in the USA just kind of never came up in arguing that they would in developing countries. What’s the alternative?  Pritchett elsewhere argues that orthodox growth economics worked wonders for humanity but got almost no credit.  In fact, it got turned into the bizarre conspiracy theory of “neoliberalism” and denounced by left and right alike.  Fortunately, as Vanilla Sky teaches us, “Every passing minute is another chance to turn it all around.”  Growth economists have made plenty of mistakes, but they should admit that RCTs are a trendy distraction and pick up where they left off. (0 COMMENTS)

Andrew Batson has a very interesting article on China.  Here’s an excerpt. Does it matter what we call China? Does it really make a difference what term we, as outsiders to China’s political and economic system, attach to that system? Certainly it is not going to make much of a difference in terms of what actually happens in China whether foreigners prefer to call it communist, socialist, fascist, state capitalist, or what have you. Arguments about terminology are the classic academic dispute, the kind of thing only pedants can get excited about. Yet despite the low stakes involved, I’ve found myself repeatedly returning to this question, picking away at it like an unfinished home improvement project. The label may not make a difference to China, but it does make a difference to us: for better or worse, we use these simplifying labels to think with, and if the label is wrong then our thinking will be off. I would never deny that we need some labels in order to think. After all, words are labels and we cannot think about complex issues without some use of words.  At the same time, I worry that we overuse labels to the detriment of thinking.   China is a large diverse country, with a population nearly the size of the Americas and Western Europe combined.  We don’t typically think of Denmark and Bolivia as forming a unified whole, and we shouldn’t think of Xinjiang and Shanghai as having the same political-economic systems.  On the other hand, (mainland) China is ruled over by a single government (unlike Denmark and Bolivia), so some generalizations are appropriate. Jeffrey Sachs and William Schabas deny that China’s policies in Xinjiang constitute “genocide”.   This year’s State Department Country Reports on Human Rights Practices (HRP) follows Pompeo in accusing China of genocide in Xinjiang. Because the HRP never uses the term other than once in the report’s preface and again in the executive summary of the China chapter, readers are left to guess about the evidence. Much of the report deals with issues like freedom of expression, refugee protection, and free elections, which have scant bearing on the genocide charge. There are credible charges of human rights abuses against Uighurs, but those do not per se constitute genocide. They discuss a number of clear human rights violations, then (correctly) point out that these do not meet the definition of genocide.  When it comes to population control, however, things get a bit murkier: Another of the five recognized acts of genocide is “imposing measures intended to prevent births within the group.” The State Department report refers to China’s notoriously aggressive birth-control policies. Until recently, China strictly enforced its one-child policy on the majority of its population but was more liberal toward ethnic minorities, including the Uighur. Today, the one-child policy is no longer applied to the majority Han Chinese, but stricter measures have been imposed on Xinjiang’s Muslim minority, whose families are traditionally larger than China’s average. Still, Xinjiang records a positive overall population growth rate, with the Uighur population growing faster than the non-Uighur population in Xinjiang during 2010-18. I see a couple problems with this argument.  First, the one child policy aimed at the Han Chinese was clearly not reflective of animus toward the Han (who make up over 90% of China’s population and virtually all its leadership.)  On the other hand, the population control policies aimed at the Uighurs likely do reflect animus against that particular ethnic group.  That’s an important distinction.  Second, China’s earlier one-child policy was an extreme violation of human rights, an extremely brutal policy that caused enormous suffering.   I wonder of Sachs and Schabas believe that making this comparison will somehow make China’s policies toward the Uighurs seem less bad to most people.  If so, they are probably correct.  But this comparison actually should not make the policy seem less bad.  If it does so, that’s because most Western readers don’t fully understand the awfulness of the earlier one-child policy for the Han Chinese.   In the end, I’m not comfortable with the claim that China’s policy in Xinjiang is genocide, and I’m not comfortable with the claim that China’s policy is not genocide.  My discomfort comes from two facts.  First, labels oversimplify reality.  Second, labels have fuzzy meanings, at least in terms of a label’s connotation in everyday use.   At the end of Batson’s essay, he suggests that “Leninism” is the appropriate label for China’s system: All of these features were present in China before 1978, and are still present in China today despite many other changes. For Lenin himself, the designer of the system, politics was always the most important thing. He was the first to experiment with the combination of Communist Party rule and a market economy, in his New Economic Policy of the 1920s. The NEP was an important reference point for Deng and other leaders in the early years of reform, and it’s not unreasonable to see China’s entire reform era as a “long NEP.” Lenin used the term “state capitalism” to refer to that system: while admitting that Germany also practiced state capitalism, he insisted that state capitalism in Soviet Union would be different because the Communist Party was in charge. That is not too different an approach from Xi Jinping’s more recent insistence that Communist Party leadership is the most important feature of Chinese socialism.  That’s a good argument, but is that how most people understand the term “Leninism”?  I suspect that the vast majority of people equate Leninism with communism, not state capitalism.  Similarly, the term “genocide” is often seen as a label for mass murder, as with the Holocaust or the killing of the Tutsis in Rwanda. Rather than describe China’s system with a single term like “Leninism”, I’d prefer to say “a mixed economy with a highly repressive political system”.  Rather than describe China’s policies in Xinjiang as “genocide”, I’d prefer “mass incarceration, suppression of Uighur culture, and coercive population control aimed at reducing the number of Uighurs.”  Sachs and Schabas explain why this is important: The charge of genocide should never be made lightly. Inappropriate use of the term may escalate geopolitical and military tensions and devalue the historical memory of genocides such as the Holocaust, thereby hindering the ability to prevent future genocides. In some sense, it shouldn’t even matter if Sachs and Schabas are right or wrong.  Their view of China’s policies in Xinjiang in a factual sense are not much different from those of the US government, they simply attach a different label.  In an earlier post, I argued that we should focus on the underlying reality, not the label: Is graffiti an art? Is alcoholism a disease? Is economics a science? Is bombing cities during wartime terrorism?Who cares? Art, disease, science, terrorism are just words. How I feel about graffiti, alcoholism, economics, and bombing doesn’t depend in any way on how society labels those activities. Words are just words.I base my judgment on other factors. Do I like graffiti? How do I believe alcoholism should be addressed? Do I believe economics is useful? Do I support bombing cities during wartime? Labeling those activities one way or another does not in any way influence the way I evaluate those things. What China’s government is doing to the Uighurs is really bad.  At the same time, it’s obviously nowhere near as bad as what the Nazis did to the Jews.  Both claims can be true.  Our public policy should be driven by what we think of the specific policies, not how we prefer to define the term “genocide”. Of course readers might respond that I frequently use labels, and in some cases my use oversimplifies reality.  Mea culpa.  Here I’m trying to describe an ideal, not necessarily my current way of communicating. PS.  Is the current inflation “transitory”?  Yes, if you are thinking in terms of inflation targeting.  No, if you are thinking in terms of average inflation targeting.  Inflation will likely fall to 2% in a few years, even as the average inflation rate for the 2020s remains elevated. The ambiguous term “transitory” doesn’t help us to think more clearly. The real question is whether monetary policy is currently too expansionary.  (Yes, in my view.) (0 COMMENTS)

In a few high-profile markets, prices seem to stay far above average cost even though there are tons of competitors.  There are thousands of credit card issuers, but the average interest rate is 18.26%.  There are over 100,000 real estate brokerage firms, but the default commission remains 6%.  Sure, unsecured credit has a high default risk, but high enough to justify an 18.26% rate?  And why on Earth would it cost $60,000 to sell a million-dollar home? From the standpoint of economic theory, such industries are deeply puzzling.  In monopoly models, prices stay above average cost forever, but calling an industry with thousands of competitors a “monopoly” seems absurd.  In oligopoly and monopolistic competition models, prices stay above marginal cost forever, but entry should still drive prices down to average costs. My UT friends John Hatfield and Richard Lowery (plus Scott Kominers) have a model where realtors are basically a giant cartel that crushes price competition with the threat of ferocious retaliation.  (More elaboration here and here).  The HKL math is impressive, but ultimately it’s an incredible conspiracy theory.  What evidence is there that realtors really are unleashing hell on price-cutters?  I see cut-rate realtors in my neighborhood all the time.  And the same is even clearer for credit cards.  Zero-interest offers show up in my mailbox on a regular basis. What’s really going on?  I propose a much simpler model than HKL.  Namely: In some industries, many consumers foolishly fail to shop around.  Maybe they’re lazy.  Maybe they’re fatalistic.  Maybe they don’t want to look cheap.  Maybe they don’t want to look weird.  Whatever the non-shoppers’ motivation, however, the result is the same.  If firms know that many consumers don’t shop around, then one profit-maximizing business model is simply to charge a high price and see how many suckers come along.  Sure, rival firms will compete for the price-sensitive consumers.  Or maybe each firm will charge an easy-to-see high price for suckers and a (slightly) harder-to-see low price for bargain-hunters.   Either way, however, we’ll see a long-run equilibrium where a lot of people pay prices that far exceed average cost.  Indefinitely. Why is my model better than HKL?  Because it explains the same facts – lots of firms persistently charging above average cost – without straining credulity.  Look around with your own eyes.  Don’t you see lots of people who stubbornly fail to shop around, even though shopping around totally works?  I sure do.  For virtually any major purchase, I ask the vendor, “Can you do any better?”  And guess what?  They cut my price two-thirds of the time.  Everyone else pays full price.  The same goes for realtors.  Discount realtors advertise publicly.  And several of my friends have negotiated commission cuts with “full-price” firms.  A little self-advocacy can easily yield $10k in savings.  For credit cards, I know grad students who did 0% balance transfers over and over, receiving many thousands of dollars of unsecured credit for negative real interest rates despite their very low income.  All fueled by the power of gumption and frugality. As a classic Payless commercial from the 80s remarks, “You could pay more, but why?” Should we deem this situation a “market failure”?  Only if you hold markets to impossibly high standards.  If consumers pay high prices because they refuse to shop around, many businesses will naturally charge high prices.   But in such scenarios, it makes far more sense to say that it is not the market, but the consumers, who have failed.   (2 COMMENTS)

“Do you mean to tell me that you’re thinking seriously of building that way, when and if you are an architect?” “Yes.” “My dear fellow, who will let you?” “That’s not the point. The point is, who will stop me?” This is one of my favorite passages from Ayn Rand’s The Fountainhead. The conversation takes place early in the novel. It’s between the Dean of the architecture school and budding architect Howard Roark. The Dean wonders how Roark will survive in the architecture world, given Roark’s unusual approach to each design. Roark has no such worry. I thought of this when I was engaged in a discussion on Facebook last week. Someone had pointed to a “politically incorrect” movie and said that such a movie “couldn’t be made today.” If he had said “almost certainly wouldn’t be made today,” I would have agreed. But I disagreed that it couldn’t be made today. It’s true that the knives would be out for whoever made the movie and, knowing that, many potential funders would be scared off. But all funders? I think that’s unlikely. How about actors? The prominent actors are like NBA players: they’re the best of the best. But go down a notch and you can probably find some very good actors who are at least 80% as good as the top actors and who would gladly work for 20% of the pay of the top actors. In Charley Hooper’s and my book, Making Great Decisions in Business and Life, we discuss a similar issue, the issue of whether you have to do something. You typically don’t. Under the subtitle “I Must”, we write: Another way many of us think unclearly is by going through life with a list of made-up obligations. We wake up in the morning with a long list of “must do” items. After a while, our feet start dragging and we feel a heavy burden on our shoulders. But we “must” press on. Such phony obligations get in the way of clear thinking. There is very little in the world that we actually must do. Let’s face it, unless we are in jail or otherwise detained, we have complete freedom about how to spend our day. The reason we don’t just pack up and go sit on the beach every day is that our actions lead to outcomes—and many of our “have to’s” give us the outcomes we want. Going to work, for example, provides camaraderie and a feeling of importance, as well as the money to buy the things we need and want. The “I must” person tells himself that he must go to work. The clear-thinking person says, “If I work at this job for another year, I’ll be able to buy a house. I could quit my job today, but if I want that house a lot, I’d better show up for work on Monday morning.” The “I must” attitude increases our burdens and lessens our humanity. When we have goals in mind, we should reframe the issue from “I must” to “I want.” I want to go to work so that I can feed my kids, buy a car, buy a house, or change the world. If my goals don’t seem to justify the effort, then maybe I should rethink my goals and my overall strategy. When we act with clarity of mind, we cease being a fake prisoner and realize our true freedom. For more on this, see David Kelley’s powerful essay “I Don’t Have to.“ Back to the idea that something can’t be done. There are, of course, certain things I can’t do. I can’t become a player in the NBA, for example. But many people can become players in the NBA. Similarly, there are qualified people who can make a politically incorrect movie. They may choose not to and their choice may be wise, given their other preferences and constraints. But that’s very different from saying they can’t. When I was in my late 20s, I expressed to my friend Roy Childs that I  was feeling discouraged by the economics profession’s narrow view of what was considered publishable research. I told him I couldn’t publish what I wanted. He said I could. It’s just that I probably couldn’t publish it where I wanted. That simple insight lifted a burden. I had been focusing on the “I Have To’s” and forgetting that I didn’t have to. That conversation, plus a few others,  led me to leave a good well-paying tenure-track position at the University of Rochester and to work at the Cato Institute in 1979. I’m publishing what I want.   (0 COMMENTS)

You don’t learn much in college.  You endure insipid brainwashing.  And don’t me get started on the dehumanizing Covid theater.  Signaling is the only good reason to go.  Still, once you’re on campus, you might as well make the most of it.  I’ve been in college non-stop for the last 33 years, and I’ve been paying close attention.  Here is how I advise you to get good value for all the time and money you’re spending. 1. Read teaching reviews before you pick your classes.  Teaching ability varies widely, so even though the average is low, you rarely need to suffer with a mediocre teacher. 2. Always sit in the front row.  Ask questions.  Talk to the professor before and after class.  Even if they seem like crazy ideologues, you can learn a lot by asking thoughtful questions.  If only at the meta level. 3. Type your professors’ names into Google Scholar to see what they’ve been doing with their lives.  Then go to office hours and talk to them about their work.  Come with questions that clearly won’t be on the test. 4. Crucial: Start doing this when you’re a freshman!  At that stage, no one will wonder if you’re just trying to suck up for a future letter of recommendation. 5. Go to the Faculty webpage for every major you’re seriously considering.  Look at everyone’s research specialties.  If you think there’s a 5% or greater chance that you would find a professor interesting, type his name into Google Scholar.  If you still think there’s a 5% chance you would find the professor interesting, go to their office hours and ask him some questions about his work. 6. Don’t be shy.  Most professors are bored and lonely.  Even at top schools, they almost never meet anyone who knows and cares about their work.  They want you to show up… even if they don’t know it yet. 7. If you and a professor hit it off, keep reading their work and keep visiting their office.  Ask them to lunch.  Becoming a professor’s favorite student is easy, because the competition is weak. 8. Be extremely friendly to everyone.  Always give a good hello to everyone in your dorm every time you see them.  “Good hello” equals eye contact + smile + audible. 9. Never eat alone!  If you don’t know anyone in the cafeteria, find a small group of students that looks promising and politely ask to join them.  Almost everyone will say yes. 10. See if your school has an Effective Altruism club.  If it does, attend regularly.  Even if you have zero interest in philanthropy, EA is a beacon of thoughtful curiosity. 11. Be a friendly heretic.  Openly regard official brainwashing with bemusement.  This will generate propitious selection: Many students are as skeptical of the orthodoxy as you.  If you’re good-natured about it, they will reveal themselves to you. 12. During Covid, live your life as normally as possible.  Bend every rule you can, and associate with the most non-compliant students you can find.  Because your school is trying to dehumanize you, you must strive to retain your humanity. 13. Avoid drunken parties.  They really are grossly overrated.  Just counting hangovers and accidents, the expected value is probably negative.  Strive to be uninhibited without artificial assistance.  And remember: The people who really enjoy alcohol are also the people most likely to ruin their lives with alcohol. 14. While you’re avoiding drunken parties, try to find true love.  Despite the Orwellian propaganda, you are extremely unlikely to be persecuted just for asking someone out on a date.  Remember: You will never again have such an easily-accessible candidate pool.  In the modern world, dating co-workers is dead, but dating co-students lives.  For now. (0 COMMENTS)

A regular commenter on this site, Kevin Corcoran, sent me the writeup below. I thought it was so good that I asked his permission to post it. He granted it. Here it is. I was thinking the other day about how people prefer to frame issues, and how that can either clarify or distort our thinking. People can react very differently to statements or suggestions depending on how you frame them, so getting the framing right matters both rhetorically in making your case persuasive and intellectually in making your case honestly and accurately. One common framing device that the left uses is to use “taking less” as the literal equivalent of “actively giving.” How common is it to hear, for example, a statement like “This tax plan will give billions of dollars to the top 1% and to giant corporations”? This is certainly phrased that way for rhetorical effect, to make the case against the hypothetical tax plan seem more persuasive. The government is going to give money to already wealthy people!? Who could support that? And in some scenarios, there’s even an element of truth. Corporate welfare is a real thing, and the government often does give large amounts of taxpayer money directly to wealthy corporations. That is something libertarians and leftists can jointly oppose. But describing cases of sending someone a lower tax bill as the literal equivalent of cutting them a check is egregiously misleading. Am I tilting at a windmill, because obviously everyone knows the difference? No. At least one member of Congress does not. Alexandria Ocasio-Cortez was very vocal in opposing the building of a second Amazon HQ in her district, in part because of the tax breaks Amazon would have gotten. These were tax breaks, not direct subsidies or cash transfers. If Amazon had always existed there, it would have generated $30 billion in state and local taxes. But the government, as an incentive for Amazon to establish a new headquarters in her district, was offering to cut Amazon’s taxes by $3 billion out of the $30 billion. According to leftist rhetoric, this means New York would have engaged in the outrageous act of “giving” $3 billion to Amazon, one of the wealthiest companies in the world. When Amazon eventually decided not to locate there, AOC had this to say: “If we’re willing to give away $3 billion for this deal, we could invest those $3 billion in our district if we wanted to. We could hire out more teachers, we can fix our subways. We can put a lot of people to work for that money if we wanted to.” But “that money” she’s talking about didn’t actually exist. She seemed to genuinely believe that by keeping the Amazon HQ out of her district and, therefore, not “giving” Amazon $3 billion, the state will now have an extra $3 billion available to provide all these services. But that’s not true. By keeping Amazon away, it will now have 27 billion fewer dollars to do all of these things. Achieving your goals requires an accurate understanding of how the world works, and by inaccurately framing “taking away less” as the literal equivalent of “actively giving,” leftists make it more difficult for themselves to achieve the goals they claim to seek. Anyway, those are just some Monday morning musings. It’s back to work for me – this SQL code will not write itself, much to my chagrin. Well said, Kevin. The AOC example drives home the point that framing can mislead even the framer. (0 COMMENTS)

When I complain that the Fed has seemed to abandon average inflation targeting (FAIT), people sometimes respond that the Fed doesn’t seem to interpret the new policy in the same way that I do. After all, the first letter in the acronym “FAIT” stand for flexible.My problem with this is that I cannot think of any reasonable interpretation of FAIT that is consistent with recent statements by Jerome Powell. Yes, the policy does not require an exact mathematical average for the inflation rate. But if the term “average” is to mean anything, it must mean that there are periods where you’d want to overshoot 2% to make up for past undershoots, and vice verse.  And a recent Dallas Fed paper by Enrique Martínez-García, Jarod Coulter and Valerie Grossman seems to confirm my assumption: By comparison, average inflation targeting means that policymakers would consider those deviations and can allow inflation to modestly and temporarily run above the target to make up for past shortfalls, or vice versa.  [Emphasis in original] So “vice versa” it is.  The policy is symmetric.  The term “average” really does mean something.  Still, I am haunted by nagging doubts that I have missed something.  Maybe FAIT is like one of those ancient mystery cults, where only a few are initiated into the secrets of the temple.  Perhaps the Fed refuses to spell out a clear definition for FAIT because they don’t want the public to know; they’d prefer that only top Fed officials understand how the regime is supposed to work.  In that case, any criticism of Fed policy can be easily deflected by Fed officials who insist that we outsiders just don’t understand the nuances of FAIT. Chicago Fed President Charles Evans is clearly an insider, one of the top officials at the Federal Reserve.  And he has a radically different view than Martínez-García, Coulter, and Grossman.  Here’s Evans: With flexible average inflation targeting (FAIT), the FOMC allows for greater discretion as they aim for their average goal of 2%. The window over which the average is taken is not specified yet. Furthermore FAIT is asymmetric: If the FOMC finds themselves undershooting for any extended period of time, they are prepared to overshoot to compensate, but without the same worries for combatting high inflation. Excessively high inflation in the past is not compensated by low inflation in the near future. The reason is that we do not know how to deal with low inflation because of the effective lower bound. There is a second asymmetry depending whether the shock comes from the supply or demand side. Now there’s no longer a vice versa.  The policy has gone from being symmetric to asymmetric. So what’s going on here? I suspect that Martínez-García, Coulter and Grossman were never initiated into the secrets of the temple.  Like me, they are looking at things from the outside.  They read the Fed’s new policy directive adopting average inflation targeting, and assumed that average meant average.  But if Evans is correct, then average doesn’t mean average.  (Perhaps the FTC should investigate the Fed for misleading advertising.)  Evans seems to be suggesting that the Fed adopted something closer to temporary price level targeting. In any case, it’s now pretty clear that whatever the Fed was trying to do, they adopted the wrong form of FAIT.  A serious commitment to undo the effects of inflation overshooting would have largely prevented the sort of excess inflation that we’ve recently experienced.  To be clear, I am not claiming that they need to commit to undoing 100% of excess inflation.  I agree with the “flexible” part of the mandate.  There’s no need to offset supply shocks.  But surely the Fed should offset at least the portion of the recent inflation overshoot that is due to excessive NGDP growth.  Alas, they don’t even seem to be willing to do that, which is a minimal requirement for “average” inflation targeting to have any coherent meaning at all. HT:  Jeff (0 COMMENTS)

Ever since her book The Entrepreneurial State, Mariana Mazzucato has been engaged in a “discursive battle”. A fight for the control of the meaning of words. Claiming that the big problem of big government was the bad press it was saddled with, she strove to redefine, for instance, the meaning of some key words: such as innovation. In her last article for Project Syndicate, Mazzucato reacts to the the annual letter to CEOs by BlackRock Chairman and President Larry Fink. In that letter, Fink offered an interpretation of “stakeholder capitalism”. His starting point is the following: At the foundation of capitalism is the process of constant reinvention – how companies must continually evolve as the world around them changes or risk being replaced by new competitors. The pandemic has turbocharged an evolution in the operating environment for virtually every company. It’s changing how people work and how consumers buy. It’s creating new businesses and destroying others. Most notably, it’s dramatically accelerating how technology is reshaping life and business. Innovative companies looking to adapt to this environment have easier access to capital to realize their visions than ever before. And the relationship between a company, its employees, and society is being redefined. COVID-19 has also deepened the erosion of trust in traditional institutions and exacerbated polarization in many Western societies. This polarization presents a host of new challenges for CEOs. Political activists, or the media, may politicize things your company does. They may hijack your brand to advance their own agendas. In this environment, facts themselves are frequently in dispute, but businesses have an opportunity to lead. Employees are increasingly looking to their employer as the most trusted, competent, and ethical source of information – more so than government, the media, and NGOs. Confronted by a reputational challenge which he sees as investing the whole of the business world, Fink expects corporations to lead a change. In part, his letter suggests that capitalist enterprises are the best venue for innovation, and many contemporary challenges (like decarbonization) are technological ones and hence should see corporations at the forefront. In part, his letter embraces the rhetoric of stockholder capitalism, emphasizing the need for partnership of businesses with politics and society at large. Now, as always with stakeholder capitalism, it is hard to distinguish what is simply a description of reality (it is unlikely for a corporation to achieve success if people are unhappy to work there) and what is actually a normative program. But Fink’s letter is a testimony to the power of the words that Mazzucato and many politically committed social scientists like her have crafted and pushed in the agenda. Larry Fink speaks their same language, literally. For Mazzucato, that is not quite enough: consider climate change. Fink celebrates progress in dollar terms, stating that sustainable investments have reached $4 trillion. Yet the aim should not just be to invest trillions more in sustainable development; rather, those trillions should be coordinated democratically, by stakeholders, to support ambitious missions like global decarbonization. A carbon-neutral economy is what would maximize the benefits for all stakeholders. For missions to motivate action, generate momentum, and inject purpose into the economy, the gap between stakeholders and shareholders must be closed. In practice, that means empowering stakeholders. Workers, citizens, trade unions, community groups, state institutions, and NGOs must have strong financial and political stakes in the capitalist economy’s operations. Such a paradigm shift begins with recognizing the inherently collective process by which value is created in the first place. Value is co-created by producers and consumers, workers and managers, inventors and administrators, and regulators and investors. It does not simply spring from the heads of heroic entrepreneurs, risk-taking venture capitalists, and corporate leaders. It is the result of organizational and institutional configurations that enable all these actors to work together. Here Mazzucato hints at her dream of going back to the labour theory of value. She thinks society should look back, look at who *actually* originated inventions that later on come to be of use in other products or services, and reward them properly. As Deirdre McCloskey and I point out in The Myth of the Entrepreneurial State, Mazzucato confuses economics with past accounting. But production decisions are forward looking. Such decisions are matters of expected marginal utility or marginal product and expected opportunity cost. Any other way of deciding what to pay for present inputs will result in inefficient use of the inputs and smaller production of the outputs. For a critic of intellectual property, Mazzucato seems to conceive rewards in an economy pretty much like a version of copyright which extends way back in time. Her final stab at Fink is worth reading: For all the attention it has received, Fink’s vision of stakeholder capitalism focuses far too narrowly on intra-organizational corporate governance. In failing to address the wider landscape of extra-organizational, institutional relations between different domains and sectors of society, Fink maintains the traditionally stark distinction between stakeholders and shareholders. In short, Fink focuses too much on private companies as agents of change — but they can be such only and insofar they are properly led from above, by government institutions. So, if companies prioritize shareholder value, they are greedy and putting the future of the world at risk. But if they claim they are thinking of stakeholder value, insofar as they are not ready to become mere instruments in a planner’s hands, they are actually not serious about stakeholder value: it is only putting lipstick on a pig. Surrendering the vocabulary, Mister Fink, is not enough. (0 COMMENTS)

Why do people eat too much even when they don’t want to? Why are there so many bad managers? And why might anti-vaxxers be useful? Luca Dellanna, author of The Control Heuristic, thinks the answers to all of these questions are in our heads, or rather in our basal ganglia. Dellanna talks to EconTalk’s Russ […] The post Luca Dellanna on Compulsion, Self-deception, and the Brain appeared first on Econlib.

I began blogging for EconLog in 2005.  I hadn’t even published my first book, but Liberty Fund took a chance on me and made me a regular blogger.  After seventeen years and thousands of blog posts, I’m supremely grateful to Liberty Fund, my fellow bloggers, and of course you, dear EconLog readers. Starting on March 1, however, I have accepted a position running an all-new blog, Bet On It, hosted by the Salem Center for Policy at the University of Texas.  I will be the chief blogger as well as the editor.  As you may know, I’ve spent about four months of Covid as a visiting scholar at the University of Texas.  It’s been a great home away from home, thanks to Executive Director Carlos Carvalho.  And since the Salem Center is energetically expanding, this was a natural move.  Part of the deal is that I’ll be continue to spend several weeks in Austin every year – and work with Salem to recruit other visiting scholars, hold public events, and much more. The upshot is that this will be my last week as an EconLog blogger.  I sincerely hope you all keep following EconLog, but I’m also hoping that you’ll add Bet on It to your regular reading.  The thousands of posts I’ve written for EconLog since 2005 will of course remain in the Archives.  And Liberty Fund and I plan to continue working together on other projects.  But February 28, I’ll post my last piece for EconLog.  Starting March 1, expect all of my new blog posts to appear on Bet On It. The format for Bet On It is still evolving.  Since I run the website, I will have full power to respond to your suggestions and requests.  If the blog is perfect on day 1, please let me know.  Otherwise, though, please let us know how to craft the look and functionality to your liking.  Dwarkesh Patel, a great and enthusiastic programmer, is helping me out – and there’s little he can’t do.  (Check out our podcast interview). When I joined EconLog in 2005, it really was a different era.  Though the War on Terror was ongoing, the world looked brighter to me. Intellectually, while the economics profession continued to be mired in dull-yet-technical dead ends, there was still a strong consensus against the biases I criticize in The Myth of the Rational Voter: anti-market bias, anti-foreign bias, make-work bias, and pessimistic bias.  Although the Survey and Americans and Economists on the Economy has never been redone, I have little doubt that less rational people are gradually taking over the profession.  Even correcting for my own pessimistic bias, more younger economists than ever really do seem like they never learned the economic way of thinking.  A shocking share of top research is mere causal inference with no economic reasoning to guide it.  And most new Ph.D.s are casually woke at heart.  They’re oblivious to economics’ multi-century war on Social Desirability Bias and demagoguery.  Earlier generations of left-leaning economists spent a lot of energy curtailing the left’s excesses.  By and large, the latest generation of left-leaning economist is now part of the left’s excesses. Politically, while the rationalist and libertarian ideals that I cherish were never close to dominant, the landscape still looked markedly better in 2005.  With the collapse of the Soviet bloc still recent, socialism remained beyond the pale where it belongs.  And at least in the U.S., free-market economics seemed to have a place at the table.  George W. Bush even called for quite radical deregulation of immigration, albeit with little persistence.  Putin did not yet seem like the dictator of Russia.  China still looked like it was liberalizing.  Globally, it was not yet obvious that after the collapse of the Soviet bloc, political progress was practically over.  I never thought the War on Terror would end successfully or even smoothly, but the rise of the ISIS and the return of the Taliban startled me.  And while I was not shocked by the Covid vaccine – much worse has happened before – I remain horrified by the reaction.  In 2005, I would have predicted a shutdown of two weeks before life returned to normal.  So far, I’m off by a factor of fifty. Despite economic and political decay, we have enjoyed continuing economic and technological progress.  But continuing economic and technological progress was just what I expected when EconLog started.  I’m grateful for what we got.  My optimism was on-target.  Yet even there, I can’t help but muse that if telework technologies had developed more slowly, the Covid moral panic would have ended long ago. The good news: By the power of selective non-conformism, you can live a good life even when your society and subculture are in decline.  Since 2005, I’ve focused ever more strongly on doing the kind of work that means the world to me.  I’ve written big books of big ideas.  I’ve spoken to audiences all over the world.  I’ve even published a successful graphic novel, with more to come.  And I’ve blogged the topics that matter to me, while steering clear of ephemera.  It was the path of selective non-conformism that brought me to spend so much Covid time in Texas, which in turn inspired my new project with UT’s Salem Center.  As I keep saying, self-help is like a vaccine.  It works if tried. Liberty Fund has treated me extremely well over the years.  Extremely well.  I’d especially like to thank my long-term co-blogger David Henderson, who joined in 2008, and webmaster Amy Willis.  What fine people!  It’s been my privilege to work with them, and with the whole EconLog team. Soon after I started blogging, Tyler Cowen joked, “You’re not really a blogger.”  His point: Unlike most of the competition, I wasn’t reacting to the latest news or whatever’s hot.  My goal as a blogger has always been to write think-pieces that stand the test of time.  I hope I’ve done that during my seventeen years at EconLog.  At my new blog, starting March 1, I plan to stay the course.  Bet on it! (5 COMMENTS)