I know a guy who keeps getting hassled by his Human Resources Department.  Why?  Because he hasn’t submitted his official vacation paperwork. What’s the big deal?  It’s paperwork, and like most people, he hates paperwork. If the paperwork is so hateful, why does it exist?  Because the firm is located in a city where regulators require such paperwork, to ensure that every employee gets all the vacation they’re entitled to. Upshot: Due to regulation, this guy has to fill out piles of paperwork in order to receive… exactly what his employer was going to give him anyway. If you’re tempted to quip, “Thanks for nothing!,” you underestimate how Kafkaesque this situation really is.  This is not a “Thanks for nothing” situation.  It is a “Thanks for less than nothing situation.”  A situation where government “protection of your rights” makes you wish you didn’t have the rights in the first place. Nor is this an isolated case.  Consider HIPAA, the law that protects your “health privacy.”  Due to HIPAA regulations, I’ve been hassled dozens of times.  To fill out extra paperwork for myself.  To fill out extra paperwork for my kids.  To stand behind the red line at the pharmacy.  Most annoyingly, these regulations occasionally prevent me from handling my wife’s medical issues, or prevent her from handling mine.  You go through a serpentine phone tree, and at the end discover that – due to HIPAA – they’re not legally allowed to even discuss the patient with you. But don’t I get something in exchange?  Sure: Extra “health privacy” that I never wanted in the first place.  Even if I were dying of cancer – indeed, especially if I were dying of cancer – protecting my health privacy would be virtually the last thing on my mind.  Frankly, I couldn’t care less about my health privacy.  And I doubt more than a few percent of people care enough to personally do anything about it. Ergo: Thanks for less than nothing, HIPAA. The same goes for the confidentiality of letters of recommendation.  The law gives students the right to see their letters of recommendation unless they explicitly waive this right.  As a result, every request for a recommendation comes bundled with another piece of paperwork waiving confidentiality.  That’s how government “stands up for your rights.” Again, thanks for less than nothing. Or to take one last example: Suppose a law firm gives new law school graduates a cash advance the summer before they start working to help them focus on the bar exam.  At least back in the 90s, New York State made it illegal for firms to deduct the repayment for this cash advance from your paycheck once you started work.  Instead, beneficiaries of the cash advance had to write dozens of separate personal check to their employer to repay the debt.  The same funds flowed.  But thanks to regulators, they flowed with serial aggravation. Thanks for less than nothing, New York. Why do these crazy laws exist?  First and foremost: Social Desirability Bias.  Protecting workers from “vacation theft” sounds good.  “Health privacy” sounds good.  The right to see your letters of recommendation sounds good.  Protecting workers from “wage theft” sounds good. Under laissez-faire, market forces handle these problems well enough that almost no one wants to personally take action to handle them better.  Unfortunately, in politics, words speak louder than actions.  If leaders can loudly “do something” about trivial problems by forcing everyone to fill out yet another stupid form, they probably will. (0 COMMENTS)

[ANNUAL LISTENER SURVEY: https://www.surveymonkey.com/r/CQX28T6. Vote for your 2021 favorites!] What’s so bad about rising inflation? Why should we aim for a rate of 2 percent? Why is it a problem if interest rates are too low–and what do we mean by inflation, anyway? Stanford University’s John Taylor talks with EconTalk host Russ Roberts about these questions, […] The post John Taylor on Inflation, the Fed, and the Taylor Rule appeared first on Econlib.

and of many others who are not in the top one percent. I just finished being discussion leader of a colloquium on “Liberty and Power” in Fort Lauderdale. It was glorious to go into various establishments without wearing a mask. (I recognize that some of these establishments might have wanted to require masks and were prevented from doing so by the governor. I hope, but don’t know, that the ones I didn’t wear a mask in were ones that didn’t want to require masks.) And I had a great time. One of the readings was from a George Gilder book I hadn’t known of. It’s titled Knowledge and Power: The Information Theory of Capitalism and How It Is Revolutionizing Our World. I particularly liked this excerpt: Entrepreneurial knowledge has little to do with the certified expertise of an advanced degree from an establishment school. It has little to do with the gregarious charm of the high school student voted most likely to succeed. The fashionably educated and cultivated spurn the kind of fanatically focused learning undertaken by the 1 percent. Wealth all too often comes from doing what other people consider insufferably boring or unendurably hard. The treacherous intricacies of building codes or garbage routes or software languages or groceries, the mechanics of butchering sheep and pigs or frying and freezing potatoes, the mazes of high-yield bonds and low-collateral companies, the murky arcana of petroleum leases or housing deeds or Far Eastern electronics supplies, the ways and means of pushing pizzas or insurance policies or hawking hosiery or pet supplies, the multiple scientific disciplines involved in fracking for natural gas or tapping shale oil or contriving the ultimate search engine, the grind of grubbing for pennies in fast-food unit sales, the chemistry of soap or candy or the silicon-silicon dioxide interface, the endless round of motivating workers and blandishing union bosses and federal inspectors and the IRS and EPA and SEC and FDA—all are considered tedious and trivial by the established powers.       (0 COMMENTS)

Since 2009, I’ve spoken to many libertarian audiences. One point that I keep coming back to is that NGDP targeting minimizes severe recessions, and severe recessions lead to non-libertarian policies. A new study by Paola Giuliano and Antonio Spilimbergo in The Review of Economic Studies confirms the second part of that claim.  Here’s the abstract: Does the historical macroeconomic environment affect preferences for redistribution? We find that individuals who experienced a recession when young believe that success in life depends more on luck than effort, support more government redistribution, and tend to vote for left-wing parties. The effect of recessions on beliefs is long-lasting. We support our findings with evidence from three different datasets. First, we identify the effect of recessions on beliefs exploiting time and regional variation in macroeconomic conditions using data from the 1972 to 2010 General Social Survey. Our specifications control for nonlinear time-period, life-cycle, and cohort effects, as well as a host of background variables. Second, we rely on data from the National Longitudinal Survey of the High School Class of 1972 to corroborate the age–period–cohort specification and look at heterogeneous effects of experiencing a recession during early adulthood. Third, using data from the World Value Survey, we confirm our findings with a sample of 37 countries whose citizens experienced macroeconomic disasters at different points in history. The problem is simple.  While severe recessions are actually caused by governments (i.e., by unstable monetary policy), to the average person (and even the average economist) it looks like they are caused by the inherent instability of unregulated capitalism.  Hence the call for more socialism every time there is a severe recession. What makes me believe in the first part of my claim, that NGDP targeting minimizes severe recessions? This: (0 COMMENTS)

Social movements like #MeToo and #BlackLivesMatter, powered by social media, have given rise to heightened corporate activism on social issues. While these movements have drawn attention to the importance of addressing diversity issues for the workforce rather than simply at the board or even management level, corporate responses to these movements have unfortunately been short-sighted. As I argue in a recent paper, when companies play to the gallery and make decisions to address social media criticism in the moment, they might make temporary reputation gains, but open themselves up to future, more serious issues. While the conventional narrative of short-termism, i.e. activist investors (typically, institutional investors like hedge funds) pressure management to maximise profits in the short-term and prevent the corporation from pursuing long-term goals that benefit all stakeholder, is well recognized, short-termism in equity issues is something that we need to pay more attention to. Whether companies fire an executive who is the target of social media pressure or issue a statement in support of some cause or condemning some action in response to demands of the online crowd, such actions are not likely to help the company do better on diversity issues in the long term. On the contrary, it may be counter-productive. For instance, such actions can result in an environment where employees are afraid to voice a view that is different from the majority view, or cause employee dissatisfaction when they see that the company is not following through on its promises. Companies need to recognise that in most cases, the social media outcry only reflects the views of a small but vocal minority. Instead of catering to this group, which is probably only interested in the company for a short period of time, the company should work towards addressing its internal issues in a manner that addresses the concerns of its employees. Using tools like employee surveys to identify issues of firm culture and then introducing measures to address these issues will be far more helpful. Such measures will bear rewards over a period of time by ensuring that misconduct of any sort can be addressed ex ante, and by promoting talented employees. Beyond working on improving firm culture, boards and management should be prepared for social media activism on various issues. While these external pressures cannot be controlled, what companies can control is their own conduct. Clearly stating some guiding ethical principles and acting accordingly will be important in an environment where corporate actions are susceptible to online criticism that can prove costly. Such a statement of what social issues the corporation will prioritise and address will be firm-specific. Take the example of SkyUp Airlines, a Ukrainian Airline which announced in October 2021 that it would replace the old uniform for flight attendants with a comfortable alternative that includes trainers instead of high heels. This decision was based on a survey of its employees which revealed that female employees were fed up with the previous uniform which included tight blouses, pencil skirts, and high heels. Such tailored solutions would allow companies to distinguish themselves from their competitors. The competition could even lead to innovative solutions to social problems. This may still not prevent antagonising some individuals who are not well-informed and whose views may be coloured by their distrust of corporations. However, in the long run, those stakeholders that are regularly interacting with the corporation, employees and suppliers, will spread positive information about the company. From the perspective of social movements, it is more helpful to their broader causes if corporations genuinely work towards the goals sought to be achieved, rather than simply bowing to social media pressure. Insincere corporate initiatives on social justice issues are not uncommon, and have come to be known as woke-washing (similar to greenwashing in the context of environmental action).   Akshaya Kamalnath is a Senior Lecturer at the Australian National University College of Law and blogs at The Hitchhiker’s Guide to Corporate Governance. (0 COMMENTS)

A friend with a high-priced one-year-old Hyundai recently had a flat tire. When he looked in the trunk, he was surprised to see that he had no spare tire. In an article I wrote thirty-seven years ago, I explained why station wagons were disappearing and would likely never return. In the 1990s, auto companies began to produce millions of SUVs annually. These three phenomena may seem unrelated. They’re not. They are all consequences of regulations that the federal government imposed in a 1975 law in the midst of the energy crisis. The regulations mandate something called Corporate Average Fuel Economy, CAFE for short. At first those regulations made cars lighter and more fatal to their occupants in the event of a crash. Now they are lighter and, though safer than their lighter counterparts of decades ago, are still more dangerous than heavier vehicles. The rules also make cars look more and more alike. Have you ever looked for your Toyota Camry in a large parking lot and instead found yourself heading toward a Honda Accord or even a Chrysler? I have. The regulations also cause engineers in the United States and other countries, many of whose employers want to produce for the US market, to put a large percent of their effort into compliance. And, most important, beyond the other negative consequences, the CAFE regulations have substantially reduced the freedom of producers and car buyers. These are the opening 2 paragraphs of my latest article for Hoover, “Wake Up and Smell the CAFE,” Defining Ideas, February 3, 2022. Another excerpt: But whether the goal is to rein in global warming or to reduce dependence on foreign supplies, there’s a big problem with the regulations even beyond the ones I’ve discussed above: they don’t reduce fuel usage as much as advertised because of two factors: the “rebound effect” and what might be called the “older car effect.” Read the whole thing. (0 COMMENTS)

To which extent is private morality (moral rules not enforced by government) necessary in a free society? This is one of the many interesting questions raised by James Buchanan in his 2005 book Why I, Too, Am Not a Conservative. A tyrannical government faces a very different question: How much, and what sort of, morality will sustain or threaten its rule? This question is illustrated by the new purification campaign launched by the Chinese government (Ryan McMorrow, “China Launches Internet ‘Purification’ Campaign for Lunar New Year,” Financial Times, January 26, 2022): The Cyberspace Administration of China, the country’s top internet regulator, has instructed officials to sweep away “illegal content and information” and target celebrity fan groups, online abuse, money worship, child influencers and the homepages of media sites. … The edict is the latest step in Beijing’s clampdown on the entertainment industry as authorities purge content deemed immoral, unpatriotic and non-mainstream from online culture. The concept of private morality is fuzzy under a totalitarian government, which naturally wants to control all morality and shrink the private domain in that area too: President Xi Jinping has unleashed a broader effort to reshape Chinese social mores and culture, diminishing materialism and western influence in favour of a more nationalistic and homegrown approach. The most controlled societies typically show an austere and prudish ethics. The poverty that usually goes hand and hand with tyranny is an explanation. Yet, it is not clear that an austere morality is the only sort compatible with tyranny. The panem and circences (“bread and circuses”) offered by Roman emperors may be helpful to other tyrants. In the (literary) literature, we meet both the austere life of Orwell’s 1984 (although gin provides a security valve) and the medicated dolce vita of Huxley’s Brave New World. Our own soft tyrannies, as Alexis de Tocqueville foresaw for democratic regimes, are more of the brave-new-word kind. Can the state lead to Nirvana? What we can say is that the more totalitarian is the political regime, the more everything, including morality, must be oriented towards achieving Leviathan’s goals: Censors have also escalated their culling of content deemed to be misaligned with the Communist party’s priorities. It is a safe conjecture that publicly imposed morality undermines private morality, including habits of honesty, fair dealing, and trust. Generalized cheating and stealing were endemic under the Soviet empire. Those lucky enough to own a car, it was reported, had to remove their windshield wipers at night lest they were stolen (see Nina and Jean Kéhayan, Rue du Prolétaire Rouge (“Red Proletarian Street” [Paris: Seuil, 1978]). The tyrant can’t have both obedient and honest subjects. (0 COMMENTS)

A recent article on Sarah Bloom Raskin, who was recently nominated to be the Fed’s lead bank regulator, made these claims: “To the extent that her confirmation is viewed as a referendum on getting central banks involved in climate-related risks, it’s possible there’s going to be a lot of controversy surrounding that,” said Richard Berner, an Obama-era director of the Treasury Department’s Office of Financial Research. He currently co-directs New York University’s Volatility and Risk Institute. But ultimately, Berner added, “Ms. Raskin’s outspokenness on climate is completely legitimate because it is an existential threat, and because climate-related shocks do pose threats to financial stability, and to the safety and soundness of financial firms and markets.” Here are some of my views on climate change:1. Global warming is real and it is mostly man-made.2. Global warming is a very big problem.3. Governments should aggressively address global warming with policies such as a revenue neutral carbon tax.Based on these views, you might expect me to support Fed efforts to address climate change.  Not so.  To begin with, it’s absurd to claim that climate change is an existential threat, at least for humans over a time horizon relevant for current policy decisions.  (Some animal species might become extinct due to global warming.)  Even experts that worry about global warming typically predict only modest reductions in real GDP over the next 100 years.   Of course, even a small percentage decline in global GDP is a bad thing, and there are other factors such as distributional effects and impact on the natural world that deserve some consideration.  But it isn’t even close to being an existential threat.  It is discouraging to see the left, which has been so critical of anti-scientific vaccine opinions among some on the right, have such disregard for studies of the impact of global warming. Because climate change will not have a major impact on our economy for many decades, if not centuries, it makes no sense to try to figure out its impact on financial stability.  Most of the instability in our financial system comes from two factors, government-created moral hazard (FDIC etc.), and unstable monetary policy (i.e. unstable NGDP.)  All other factors, including climate change, are relatively unimportant for financial stability.  Furthermore, no one really knows how climate change would affect financial stability. I suspect that people who worry about climate change are using it as an excuse to inject the Fed into a policy area that should be the responsibility of Congress. PS.  While I’m skeptical of Raskin’s views on the Fed’s role in climate change, this particular post addresses the views of Richard Berner, as reported in the media. PPS.  In the past, I’ve advocated separate boards for monetary policy and banking.  I still hold that view, indeed now more than ever.  All Federal Reserve Board members should be outstanding experts on monetary policy.  Unfortunately, neither political party in America looks at things that way. (0 COMMENTS)

I promised last week to post some further highlights and thoughts on co-blogger Bryan Caplan’s recent 2.5 hour session with Agnes Callard at the University of Chicago. Here they are: About 42:00 to 46:00: Bryan wisely suggests that students who have interests talk to the most interesting faculty at the college they attend and makes the point that even at low-level schools there are interesting faculty just dying to share what they know. He tells a great story about Soviet historian Richard Pipes. I’ve already told mine about an early interaction with the great economist Arnold Harberger. Around 47:30: Bryan asks the students how many of them had a teacher before college who motivated them. We don’t see their hands but Bryan’s reaction suggests that many did. I couldn’t think of a single teacher, from Grade 1 to Grade 12, who motivated me about the material taught. The closest I came was Mr. Brian Parker, who noticed that it was April 1967 and I hadn’t even applied to college even though I was planning to attend in the fall. He hauled me into his office and we sat down and together we filled out the application forms to the University of Winnipeg and the University of Manitoba. I was accepted, with some of the remaining scholarship money, to both. Somewhere later, I can’t remember where, when Bryan was talking about the strong pressure to get a degree even when one isn’t needed for a person to do the work well, I thought of a true story and I wonder how it fits his signaling model. The daughter of a friend of mine finished high school but didn’t go to college. Instead she joined the Navy for 4 years and came out of it as a pretty self-confident woman. She worked her way up in a firm and they said a number of times that her work was very good. But she hit a glass ceiling. No, not the female one, but the “absence of a degree” one. They told her that if she wanted to be promoted further, she would have to get a bachelor’s degree and that they would give her time off so that she could attend college part-time. How does that fit Bryan’s signaling model? She sent a strong signal by lasting 4 years in the U.S. Navy. Once the firm had that signal and even admitted that she could do the next higher job, why put her and them at great cost so that she could get the job instead of simply promoting her? Were they simply on automatic pilot? Maybe, but I wonder. 1:09:00: No caste system and no underclass in Germany or Switzerland. And not a big prison population of young males. And the reasons why. I found this one of the most exciting and informative parts of the whole Interview. 1:22:00 to 1:24:00: Agnes Callard mistakenly says that people are “deprived” of the best things and Bryan corrects her: they aren’t deprived; they just don’t choose those things. Notice how Agnes still returns to the “deprived” language. 1:25:00: The impressive things people did in their teens 50 years ago. Why? They had time. They weren’t all going off to college. I remember thinking something similar when I used to read the local newspaper regularly 15 to 20 years ago. I noticed the amazing story about a 12-year-old girl flying an airplane from coast to coast, and similar stories. One day when I was reading such a story, the reason hit me like a ton of bricks. All these stories happened over the summer, when the kids were free to, pun intended, spread their wings. 1:50:00: Back to Bryan’s point just above. Read bios of people from 50 years ago and see the amazing things they did while young. When I was 16 and about to start college, I read Sammy Davis, Jr.’s autobiography, Yes I Can. I found it very inspiring. Also, he started working at age 2.5. I’m not recommending that, but it did have huge upsides: he learned the world of work and built some serious dancing skills at an early age. In my education chapter in The Joy of Freedom: An Economist’s Odyssey, I talked about a question on Sammy Davis’s child labor that I asked a bunch of education scholars at a Hoover Institution conference in the mid-1990s. Here’s the question I posed: One of my heroes when I was a teenager was Sammy Davis, Jr. In his autobiography, Yes I Can, he tells of going on the road with his father and uncle as a performer starting at age two-and-a-half. Sammy Davis, Jr. never went to school. But in every state today, governments require attendance at school. They enforce that requirement by threatening noncomplying parents with prison sentences. My question for each of you is, if you were in charge back then, would you have been willing to send Mr. and Mrs. Davis to prison? Three of them–Paul Petersen, Herb Wahlberg, and Williamson Evers–said they would not have been willing to send Sammy Davis, Jr.’s parents to prison. The other eight–John Chubb, Chester Finn, Jr., Eric Hanushek, E.D. Hirsch, Paul Hill, Caroline Hoxby, Terry Moe, and Dianne Ravitch–said that they would have sent his parents to prison. One of the eight, Dianne Ravitch, said, “For every Sammy Davis, Jr., there would be one thousand kids whose parents didn’t care.” The purpose of compulsory attendance, she implied, was to keep the parents in line. 1:51:00: Bryan’s tips sound like my tips to undergrads that I often give at the end of talks to undergrads: don’t automatically go to graduate school, law school, or an MBA. Many of your professors will try to lead you there, especially graduate school, but part of the reason is their own love for scholarship and the other part is that most of them don’t know much else about the world of work. 1:52:00: Low-skill jobs are NOT disappearing. 2:05:50: Bryan actually considered working at Target during lockdown. I get that. 2:10:00: When you’re reading a book or article, highlighting doesn’t work. I remember seeing a student from my class when I was over in the library just before class started. I went over to talk to him and saw that he was doing the reading for the class. I saw that he was highlighting. I had already graded enough of his work to see that he was not a strong student. So I thought I would try to build his morale by asking him a question in class, just 15 minutes later, the answer to which I had just seen him highlight. He had no clue. That was my ah-hah moment. (1 COMMENTS)

I get the impression that some people read works of economics, political science, sociology, philosophy, and political theory largely through the lens of who is on their “team.” There are some people you read because they’re on your side and you want to better understand the case for your own views. There are others who are your opponents and you read them as a sort of opposition research. You read them with the goal of fighting them or refuting them. This seems like a generally counterproductive way to engage with the world. Instead, I think it’s often best to read works with an eye towards the following: What analytical or methodological tools does this give me for understanding the world & learning more in the future? One reason that this question matters is that even if an author doesn’t reach the right conclusions, they may offer you useful tools for thinking about the world. Suppose you ultimately disagree with Bryan Caplan’s conclusions in The Case Against Education. Even if you’re unconvinced that the social costs of colleges and universities outweigh the benefits, reading the book will give you a clearer understanding of concepts like signaling and human capital. Those economic concepts have many applications, so learning about them is useful even if you’re not ultimately convinced by Caplan’s argument. And those concepts aren’t the only analytical tools you’ll learn by carefully reading Caplan. He also examines a body of evidence to try to evaluate what proportion of the increased wages associated with having a college degree results from signaling and what proportion results from human capital. Even if you are unconvinced by his analysis, reading his argument may offer you helpful insights about how to think through messy empirical evidence and adjudicate between competing theoretical explanations of observed reality. What description of the world does this offer me, and is this description true? That said, methodological and analytical insights aren’t the only things you are looking for when you read. Books and articles make claims about the world. They describe the world around you. The description they offer could be true, or it could be false. There are several ways to evaluate whether claims are true. One is how plausible they sound given the rest of your knowledge. But if that’s your only criteria, you’ll likely be quite resistant to changing your mind. So you should ask other questions as well. Are the arguments that are made in the text logically valid? Once you’ve determined that, you can ask whether the arguments are based on true premises. If the premises are true and the arguments are logically valid, then the arguments are sound. Often, however, a text may not give you a definitive logical argument. Instead, they may present a body of evidence. It’s worthwhile to consider the strength of that evidence. How credible are the sources the author cites? What methods do they use to gather and evaluate any empirical evidence they examine? These types of questions can help you figure out whether what you are reading is true. Does this offer compelling reasons to change my mind on some important issue? Sometimes our beliefs can feel like cherished friends. They’ve helped us interpret the world. They’ve guided us and shaped our actions. It can be hard to part with a belief we’ve had for a while. But none of us are infallible. We’re all wrong about at least some things. But we don’t know what we’re wrong about. So it’s worth asking whether what we’re reading should motivate us to change our mind. Does this offer compelling reasons for me to act differently or reconceive what is normatively desirable? Sometimes, this might happen because of a specific moral argument that the work we’re reading makes. For example, reading Michael Huemer’s Dialogues on Ethical Vegetarianism might convince you to stop eating meat, eggs, and dairy. But a book might also convince you to change your actions or your normative views by helping you learn something new about how the world works. For example, reading about the economics of housing may convince you that land-use regulations increase housing prices, reduce economic mobility, and substantially reduce GDP. This is a description of the world. It need not imply any normative judgement. But learning these facts may convince you that zoning laws are undesirable or that YIMBY activism is desirable. These aren’t the only questions to ask, but they seem like questions that are more aimed towards tracking truth than asking, “Is this author on my team?”  If we simply read to confirm our priors or do opposition research on our opponents, we miss opportunities to learn.   Nathan P. Goodman is a Postdoctoral Fellow in the Department of Economics at New York University. His research interests include defense and peace economics, self-governance, public choice, institutional analysis, and Austrian economics. (0 COMMENTS)