Words count, at least for those interested in the truth. One cannot seriously invoke state power against one’s adversaries and later complain that he is the victim of a state witch-hunt; or else, there is some coherent explaining to do. Coherence and truth are related. Reporting on the investigation of the Trump Organization by the New York Attorney-General, remarks in this morning’s Financial Times may serve as an illustration: The Trumps have repeatedly denied wrongdoing and dismissed the attorney-general’s investigation as a politically motivated witch hunt. … In a civil case, jurors are allowed to make an “adverse inference” when a defendant refuses to answer a question and instead pleads the Fifth Amendment. Or, as Eric’s father put it during the 2016 presidential campaign: “If you’re innocent, why are you taking the fifth amendment?” At the time, he was casting aspersions on aides to his Democratic opponent, Hillary Clinton. “The mob takes the fifth,” Trump said. Of course, if it needs to be added, the Fifth Amendment was not meant to protect the state against individuals but, on the contrary, to protect individuals against the state. On the function of constitutional constraints from the point of view of the individual, it is worth reading the classic book by James Buchanan and Gordon Tullock, The Calculus of Consent, or at least my recent review in Liberty Classics. (0 COMMENTS)

Due to Social Desirability Bias, governments habitually impose bad policies that sound good.  Identity trumps prosperity.  Health trumps fun.  Safety trumps convenience.  And demagogues rule the world.  One of the most rhetorically powerful antidotes, as I’ve argued, is to appeal to freedom.  Don’t say, “Money matters more than patriotism,” “Vacations matter more than pandemics,” or “I can’t be bothered to follow these safety rules.”  Instead, when you want prosperity, fun, and convenience, cry “Freedom!” Another potent antidote against demagoguery, however, is to highlight the demagogues’ hypocrisy.  Instead of directly pointing out the absurdity of the principle of infinitely prioritizing health over fun, it is much more effective to mock, tease, scorn, and scoff at any demagogue who personally chooses to enjoy a little less-than-perfectly-health-conscious fun.   Such mockery has two anti-demagogic effects.  First, it helps less-demagogic politicians unseat more-demagogic politicians.  Second, it encourages all politicians to restrain their demagoguery.  A politician who “goes full demagogue” has to live like a saint to avoid charges of hypocrisy. Consider: How influential have cost-benefit analysis of Covid policies been over the last two years?  Quantitative risk analysis?  Though I’ve invested a fair amount of my time in such analyses, it’s not clear they’ve made a whit of difference.  In contrast, a story about California Government Gavin Newsom relaxing in a fancy restaurant without a mask jump-started a recall campaign.  Yes, the campaign ultimately failed.  But it was close for a while, and Newsom the Covid demagogue suffered a year of scorn and stress.  Why was the public reaction so negative?  Because of his egregious hypocrisy.  Newsom orders Californians to stay home and wear masks.  He fills the airwaves with hyperbolic self-congratulatory propaganda, like “We’re doing everything in our power as well, not only to message a recognition of the importance of minding your mental and physical health, but also to prepare.”  And then he flouts his own rules.  Like Daffy Duck, we can all sputter, “Despicable!”  Cost-benefit analysis requires rational thinking, which requires mental effort.  The loathing of hypocrisy, in contrast, comes readily to almost every human being – and at least one duck. Much the same goes every time someone tallies Bernie Sanders’ net worth.  “If he’s a socialist, why is he so rich?”  What a hypocrite, right? Or to consider a far more horrifying case: Why exactly did Communism crumble?  Sure, there were intellectually decisive economic and political objections.  But those were around before Lenin, and failed to stop his seizure of power.  What probably mattered far more for Communism’s collapse, rather, was the hypocrisy of its leadership.  They preached their love of the poor, common worker – while living in dachas, driving around in limousines, and eating caviar.  People can forgive the mass murder of landlords and money-lenders, but not if the mass murderers live in luxury. The danger, of course, is that hunting for hypocrisy will hand power over to sincerely puritanical fanatics.  And occasionally, that’s what happens: see the Protestant Reformation.  But if you take Social Desirability Bias seriously, you’ll see this as a fairly low risk.  Why?  Because literally living as Social Desirability Bias asks is almost inhumanly onerous.  In their hearts, virtually everyone wants prosperity, fun, and convenience for themselves.  As a result, demagoguery and vulnerability to hypocrisy go hand in hand.  During Covid, Florida’s Ron DeSantis almost certainly spent more time enjoying life than Gavin Newsom.  But almost no one would accuse DeSantis of Covid hypocrisy.  As a politician, he advocated a mild response; and as a person, he offered a mild response.  Since Newsom, in contrast, advocated a draconian political response, a modest personal response left him with egg all over his face. Upshot: While demagogues rule the world, the rhetoric of hypocrisy tempers their reign.  If no one cared about hypocrisy, politicians would devolve into a bidding war of wishful thinking.  If your rival promises to give every child in America a pony, you promise two ponies.  In the real world, though, you could instead respond, “My opponent doesn’t even like ponies!  In fact, I have proof that he has repeatedly refused his daughter’s pleas for a birthday pony.  Shame!  O thou hypocrite!”  While there’s no guarantee, harping on your rival’s hypocrisy is at least a plausible path to power.  And by the time the dust settles, perhaps both sides will have totally forgotten the great Pony Purchase Program. (0 COMMENTS)

[ANNUAL LISTENER SURVEY: https://www.surveymonkey.com/r/CQX28T6. Vote for your 2021 favorites!] Traditions and norms can seem at best out-of-touch and at worst offensive to many a modern mind. But Israeli computer scientist and Talmud scholar Moshe Koppel argues that traditions and norms–if they evolve slowly–create trust, develop our capacity for deferred gratification, and even, in the case […] The post Moshe Koppel on Norms, Tradition, and Resilient Societies appeared first on Econlib.

As promised last month, I’m posting Charley Hooper’s and my latest op/ed in the Wall Street Journal. This is number 61 for my lifetime WSJ op/eds and book reviews. Coercion Made the Pandemic Worse Freedom is the central component of the best problem-solving system ever devised. By David R. Henderson and Charles L. Hooper The online Merriam-Webster dictionary defines “anti-vaxxer” as “a person who opposes the use of vaccines or regulations mandating vaccination.” Where does that leave us? We both strongly favor vaccination against Covid-19; one of us (Mr. Hooper) has spent years working and consulting for vaccine manufacturers. But we strongly oppose government vaccine mandates. If you’re crazy about Hondas but don’t think the government should force everyone to buy a Honda, are you “anti-Honda”? The people at Merriam-Webster are blurring the distinction between choice and coercion, and that’s not merely semantics. If we accept that the difference between choice and coercion is insignificant, we will be led easily to advocate policies that require a large amount of coercion. Coercive solutions deprive us of freedom and the responsibility that goes with it. Freedom is intrinsically valuable; it is also the Free choice relies on persuasion. It recognizes that you are an important participant with key information, problem-solving abilities and rights. Any solution that is adopted, therefore, must be designed to help you and others. Coercion is used when persuasion has failed or is teetering in that direction—or when you are raw material for someone else’s grand plans, however ill-conceived. Authoritarian governmental approaches hamper problem-solving abilities. They typically involve one-size-fits-all solutions like travel bans and mask mandates. Once governments adopt coercive policies, power-hungry bureaucrats often spout an official party line and suppress dissent, no matter the evidence, and impose further sanctions to punish those who don’t fall in line. Once coercion is set in motion, it’s hard to backtrack. Consider Australia, until recently a relatively free country. Its Northern Territory has a Covid quarantine camp in Howard Springs where law-abiding citizens can be forcibly sent if they have been exposed to a SARS-CoV-2-positive person or have traveled internationally or between states, even without evidence of exposure. A 26-year-old Australian citizen, Hayley Hodgson, was detained at the camp after she was exposed to someone later found to be positive. Despite three negative tests and no positive ones, she was held in a small enclosed area for 14 days and fed once a day. Even the U.S. Centers for Disease Control and Prevention says quarantine can end after seven days with negative tests. Why didn’t the government let her quarantine at home? And why doesn’t it exempt or treat differently people who can prove prior vaccination or natural infection? Although U.S. authorities haven’t gone nearly that far, early in the pandemic the Food and Drug Administration used its coercive power to discourage the development of diagnostic tests for Covid-19. The FDA required private labs wanting to develop tests to submit special paperwork to get approval that it had never required for other diagnostic tests. That, in combination with the CDC’s claims that it had enough testing capacity, meant that testing necessitated the use of a CDC test later determined to be so defective that it found the coronavirus in laboratory-grade water. With voluntary approaches, we get the benefit of millions of people around the world actively trying to solve problems and make our lives better. We get high-quality vaccines from BioNTech/ Pfizer, Johnson & Johnson and Moderna, instead of the suspect vaccines from the governments of Cuba and Russia. We get good diagnostic tests fromThermo Fisher Scientific instead of the defective CDC one. We get promising therapeutics such as Pfizer’s Paxlovid and Merck’s molnupiravir. With authoritarian approaches, we get solutions that meet the requirements of those in power, regardless of how we benefit. Consider this hypothetical example: Policy A ends with 1,000 Covid-19 cases, 5,000 people who have completely lost their liberty for two weeks, 1,000 lost jobs, and 300 missed key family events, such as the funeral of a loved one. Policy B ends with 1,020 Covid-19 cases, 4,000 who have lost some of their liberty for one week, 1,000 who have completely lost their liberty for two weeks, 300 lost jobs, and 100 missed family events. The government may prefer Policy A because it is focused on one aspect of the problem. You might prefer Policy B because many aspects of life matter to you—not only coronavirus cases—and B is much better on the other dimensions. But your preferences don’t count. With coercive solutions, you’ll often deal with an official who will absolve himself of responsibility by pinning the rule on those giving the orders. With voluntary solutions, if it doesn’t make sense, we usually don’t do it. And therein lies one of the greatest protections we have to ensure that the solution isn’t worse than the problem. The supposed trump card of those who favor coercion is externalities: One person’s behavior can put another at risk. But that’s only half the story. The other half is that we choose how much risk we accept. If some customers at a store exhibit risky behavior, then we can vaccinate, wear masks, keep our distance, shop at quieter times, or avoid the store. Economists understand how one person can impose a cost on another. But it takes two to tango, and it’s generally more efficient if the person who can change his behavior with the lower cost changes how he behaves. In other words, to perform a proper evaluation of policies to deal with externalities, we must consider the responses available to both parties. Many people, including economists, ignore this insight. By what principle do we throw out the playbook of the more successful country, ours, and adopt one from less successful, more authoritarian countries? The authoritarian playbook has serious built-in weaknesses, while solutions based on free choice have obvious and not-so-obvious strengths. Freedom is beneficial in good times; it’s even more crucial in challenging times. Mr. Henderson is a research fellow with the Hoover Institution at Stanford University. He was senior health economist with President Reagan’s Council of Economic Advisers. Mr. Hooper is author of “Should the FDA Reject Itself?” and president of Objective Insights, whose clients include pharmaceutical companies.   (0 COMMENTS)

The FT recently ran an article by Philipp Hildebrand entitled, “The old inflation playbook no longer applies”, which warned against the Fed adopting an excessively hawkish policy: The Covid-19 shock and subsequent economic restart brought on supply constraints of a magnitude greater than for decades. Inflation has risen to levels not seen since 1982. Yet, far from running hot overall, the economy has not even reached its estimated potential level of output and employment.We therefore find ourselves in a fundamentally different situation from the one Paul Volcker faced when he became chair of the US Federal Reserve in 1979. Then, the economy was running hot and the aim was to drive inflation that had become embedded out of the system. I still have vivid memories of the 1970s.  At the time, we were told that the problem was “supply shocks”.  We were told that the economy was running below potential and hence the problem could not be excess demand. (It clearly was excess demand.) Economists aren’t very good at estimating the economy’s potential, and it is a big mistake to have the Fed target real variables such as an output gap. Contrary to Hildebrand’s claim, the economy is probably now operating above potential, given the drop in potential caused by Covid.  Many economists miss this fact because they rely on the assumption that potential should rise by a couple percentage points each year.  By that criterion, we are slightly below potential.  But Covid has clearly reduced potential output.  If Covid goes away or even becomes a minor issue, then potential might quickly rise back up to the trend line.  Or it might not.  In fact, the old inflation playbook still does apply.  Here’s my playbook: 1. If inflation rises sharply at a time of modest NGDP growth (as in 2008), then a more hawkish policy is not needed. 2. If inflation rises sharply at a time when NGDP growth is excessive (as in 2022), then a more hawkish policy is needed. Some people were hawkish in the 2010s and are hawkish in 2022.  Some people were dovish in the 2010s and are dovish today.  Wise owls were dovish in the 2010s and are hawkish today.  Don’t be a permahawk or a permadove. Note that there is also much I agree with in Hildebrand’s article: Needless to say, central banks should take their foot off the gas this year by removing the extremely accommodating stance of monetary policy and return rates to a more neutral setting. The resumption of activity — unlike a normal recovery — doesn’t require stimulus to be maintained. But what they should not do at this juncture is slam on the policy brakes, deliberately to destroy activity. So I differ not so much with his policy conclusions than how he gets there.  I’d like to see 3% to 4% NGDP growth over the next few years to restore Fed credibility.  I fear that nominal growth will be considerably higher.  Still, there are much worse problems, and we had them in the 2010s, in the 1970s, in the 1930s, and in the 1890s.  Be thankful for that. HT:  Julius Probst   (0 COMMENTS)

  I’ve been watching and enjoying the Agnes Callard interview of Bryan Caplan. I don’t think I had watched a 2.5-hour interview in the last two years, but this was well worth it. I’ll do more posting on it, but I want to highlight one thing that caught my attention and made me think of my own contributions to people’s decisions. At about the 36:25 point, Bryan makes the point that he has created enormous wealth by persuading over 100 parents to have more kids. It got me thinking about my own life. I haven’t done anything as dramatic. It’s hard to measure my effect in the Reagan administration. The odds are reasonable that I lowered the probability of some megadollar spending bills by 1 in 10,000 and these mega dollars would have been annually. So I probably paid my lifetime income in an expected value sense. The closest I can come to saying I had an identifiable impact was on a local issue in 2003. In expected value terms, my activity would have paid over 1/4 of my whole lifetime income. I wrote about it here, here, and here. (In this one, by the way, I talk about how people came out of the woodwork to support me. I take that as evidence of Bryan’s point about social desirability bias. They weren’t outspoken in my favor, probably for obvious reasons: it seems so cruel to say no to a tax increase to pay for a government hospital. But they told me to my face that they liked what I was doing.) So how did Bryan’s point make me think of this? To win the fight against a tax increase of $25 million annually, we needed to get a 33.4 percent or higher vote against. The present value of that increase over, say, 6 years (Why 6? Because eventually, I thought, they would get a tax increase for something) was about $130 million. Let’s say that my activity increased the probability of defeat by 1 percentage point. Then my expected value was $1.3 million. QED. I anticipate that some commenters will argue that this saving in taxes is not a net saving. I disagree. As a result of the defeat, Natividad Hospital brought in consultants who proposed changes that were accepted and saving millions of dollars a year. As we said during the debate, in opposition to the claim of the pro-taxers, without the tax increase, Natividad would still exist 5 years later. It has now been 18 years and it still exists. (0 COMMENTS)

There’s a lot of discussion about how the computer chip shortage is causing problems for US manufacturers. But I rarely see any plausible explanations of why there is a chip shortage.Articles on the subject occasionally mention the fact that auto producers did not order enough chips. But why should a reduced supply of chips cause a shortage? In the standard supply and demand model, a reduction in supply does not cause a shortage; it causes higher prices. I am still able to buy apples at the grocery store when there’s an unusually small apple crop; it’s just that the price is higher than usual. Why doesn’t that apply to computer chips?There could be many reasons, but I suspect one factor is that chip manufacturers and/or wholesalers fear political retaliation if they raise chip prices to market clearing levels: (Bloomberg) — The Biden administration has concluded that a global semiconductor shortage will persist until at least the second half of this year, promising long-term strain on a range of U.S. businesses including automakers and the consumer electronics industry.U.S. officials plan to investigate claims of possible price gouging for chips used by auto and medical device manufacturers, Commerce Secretary Gina Raimondo said Tuesday. Of course formal price controls are very bad. But laws against price gouging are equally bad. Even cultural norms against price gouging are bad. Price gouging is necessary for markets to do their job when there is a steep fall in supply or a steep increase in demand.Foes of price gouging often assume that it’s a zero sum game. In fact, price gouging serves two important roles. First, it boosts quantity supplied. Supply is almost never completely inelastic over a period of several months or years. Second, it leads to the limited supply being allocated to those who place the highest value on the good. Why don’t farmers get accused of price gouging?  One theory I’ve heard is that the public (and hence politicians) tends to sympathize with producers that appear in children’s stories.  Hence politicians favor farmers, teachers, fireman, police, etc. (0 COMMENTS)

In the last few months, news concerning antitrust or competition policy has focused mostly on the change in ideological mood, so to say, in the US. Whatever influence Robert Bork and economists and jurists of the so-called Chicago School ever exerted on antitrust, it is gone. Now it is the time of so-called New Brandesians. People like new FTC chair Lina Khan, who think their mandate extends well beyond the traditional scope of antitrust policy. Recently, Khan said that “Congress wanted enforcers not just to act when you know, the third and fourth companies are merging or the first and second, but actually in the incipiency, when you said see trends towards concentration that those can also be important moments for enforcers to jump in”- a sort of competition Precogs, in a reference to the movie Minority Report. In this context, unexpected news arrives from Europe, where antitrust enforcement traditionally tends to focus more on competitors (and preserving the weaker ones) rather than on consumer welfare. As the Wall Street Journal reports, The EU’s General Court in Luxembourg on Wednesday struck down much of a 2009 finding by the regulator that Intel had abused its dominant position by issuing loyalty rebates and payments that restricted rival chip maker Advanced Micro Devices Inc. from competing. The court said that “analysis carried out by the commission is incomplete” and didn’t make it possible to establish a requisite legal standard for judging the competitive impact of rebates. Significantly, the court said it couldn’t identify the damages linked to Intel’s practices and so completely annulled the portion of the commission’s decision that related to the fine. A central question for the court was whether the commission had completed a sufficient economic analysis to show that Intel’s alleged behavior harmed competition. Although the commission carried out an economic analysis of the case before imposing its fine, that work wasn’t assessed by the General Court when it dismissed Intel’s initial appeal in 2014. Back in the day, I wrote a short piece on the Intel case, published by Economic Affairs, with Luca Mazzone, back then a brilliant youngster, now an economist with the IMF. I think the paper is still informative. The gist of it is that the microprocessor market worked pretty well, supplying consumers with lower prices and better performing goods. The trustbusters’ interest in it can be explained perhaps because of the under quest for “imperfections” in the market, regardless of its successes. Deirdre N. McCloskey analyzed the phenomenon beautifully here. (0 COMMENTS)

Last October, Agnes Callard interviewed me at the University of Chicago on The Case Against Education.  I genuinely think it was the best audience I ever had the privilege to address.  Enjoy! (0 COMMENTS)

At today’s press conference, a reporter asked Fed chair Powell this question: Do you want to go below 2%, so that on average you get a 2% inflation rate? Powell responded: So no, there’s nothing in our framework about having inflation run below 2%.  That we would do that.  That we would try to achieve that outcome.  So the answer is no. What?!?!?  On the face of it, Powell just repudiated the Fed’s new 2% flexible average inflation targeting (FAIT) regime. Then he contradicted himself: What we are trying to do is to keep inflation expectations well anchored at 2%.  That’s always the ultimate goal.  We get to that goal by having inflation average 2% over time.  And if inflation doesn’t average 2% over time, then it’s not clear why inflation expectations would be anchored at 2%. If the Fed is serious about targeting the average inflation rate, then periods of above average inflation must be offset by periods of lower than average inflation.  That’s simple math. You might argue that Powell simply misspoke.  But recent inflation projections from the Fed (assuming “appropriate monetary policy”) foresee inflation not falling below 2% at any time.  So I doubt that Powell misspoke.  In any case, his answer was incoherent, which cannot be helpful when trying to build Fed credibility. Another possibility is that the Fed never intended to adopt average inflation targeting, and actually intends to implement something like Ben Bernanke’s proposal for temporary price level targeting (TPLT).  That would justify the Fed’s plan to bring inflation back to 2%.  But if TPLT is the actual policy, and not FAIT, then I wish they had told us. Most of all, I am disappointed that reporters did not follow up on this issue and ask Powell to explain the contradiction.  Is the Fed committed to FAIT?  If so, doesn’t that require lower than 2% inflation on occasion to offset a period of very high inflation?  So why does he suggest that they would never do that?  And why no follow up questions? (1 COMMENTS)