I am getting increasingly annoyed by all of the discussion of whether the Fed will succeed in getting inflation back to 2%. That should not be the Fed’s goal.In 2020, the Fed instituted a policy of “flexible average inflation targeting”. Unfortunately, the exact nature of that policy is somewhat ambiguous, but under no reasonable interpretation could “getting back to 2% inflation” be viewed as consistent with FAIT. Inflation is currently running far above 2%, and is expected to continue to exceed that rate for at least the first half of 2022. If FAIT is to mean anything, the Fed needs to shoot for an inflation rate well under 2% during the mid-2020s.Now you might argue that pushing inflation down to say 1.6% is not consistent with full employment. I doubt that. In the late 2010s, we had the lowest unemployment in 50 years and PCE inflation ran slightly 2%. But given the fact that the Fed adopted a 2% average inflation target, they should try to hit that target. If Jay Powell doesn’t believe that low inflation in the mid-2020s is consistent with full employment, then the Fed never should have adopted FAIT in the first place. Instead, they should have adopted something like NGDP level targeting. Unfortunately, the Fed went in a different direction, and so now it needs to establish credibility by hitting its target. The term “transitory” can have one of several meanings.  Under ordinary inflation targeting, transitory inflation means an inflation rate temporarily above 2%, before reverting back to 2%.  But under average inflation targeting, transitory inflation requires a period of above 2% inflation be followed by a period of below 2% inflation.  The TIPS markets seem to be forecasting above 2% inflation over the next 10 years.  That’s bad news for Powell.  Monetary policy is currently too expansionary. (1 COMMENTS)

British journalist Nicholas Wapshott, who earlier wrote Keynes Hayek: The Clash that Defined Modern Economics, is out with a new book, Samuelson Friedman: The Battle Over the Free Market. Wapshott traces the differences in views between MIT’s Paul Samuelson and the University of Chicago’s Milton Friedman and tells of their interactions over the eight decades they knew each other, especially from the 1960s to Friedman’s death in 2006. The two were the most important players in economics in the last half of 20th century. From the 1950s through the 1970s, Samuelson, a Keynesian, thought fiscal policy was more powerful than monetary policy as a tool to manage the economy. Throughout his career he believed in a large amount of regulation, taxation, government spending, and redistribution. Friedman believed monetary policy was more powerful than fiscal policy and believed that the United States and other countries should reduce government intervention substantially and bring all countries’ economies much closer to free markets. Although Friedman and Samuelson never agreed on the proper role of government, in the 1980s Samuelson did come around to Friedman’s view on the power of monetary policy and also to Friedman’s view that there was no long‐​run tradeoff between inflation and unemployment. Misunderstanding monetarism / Many of the stories that Wapshott tells are fascinating, but he does not understand economics well enough to explain Friedman’s views. Wapshott seems to be an unreconstructed Keynesian and so explaining Samuelson’s views comes relatively easily to him. But he never shows a solid grasp of Friedman’s monetarism and so, in explicating Friedman’s thinking, tries to do the analysis within a Keynesian framework. My criticism is not that Wapshott doesn’t agree with monetarism, although he doesn’t appear to; it’s that he doesn’t seem to understand this school of thought. These are the opening 3 paragraphs of David R. Henderson, “Great Stories and Weak Economics,” Regulation, Winter 2021-22. Read the parts in between to see why I chose the title I did. One of my favorite parts: One of the nicest parts of the book is the quotations from public statements each made about the other’s work and from highly complimentary letters that Friedman and Samuelson wrote each other from the 1960s through the early 2000s. They had known each other since the 1930s, when Friedman was a graduate student and Samuelson an undergrad at the University of Chicago. After the announcement of Samuelson’s Nobel Prize in October 1970, Friedman wrote in Newsweek that Samuelson was “a brilliant and original mathematical economist” who was “the leader in creating a great center of economic study and research at MIT, raising a run‐​of‐​the‐​mill department to one of the premier departments in the world.” After Friedman’s Nobel was announced in October 1976, Samuelson used his Newsweek column to congratulate Friedman for “his scientific contributions and his scholarly leadership.” Then Samuelson gave a more personal appreciation, writing: What I have failed to convey is Milton Friedman’s bounce and gaiety, his rapier intelligence, his unfailing courtesy in debate. The world admires him for his achievements. His intimates love him for himself. Has anyone ever said it better?     (0 COMMENTS)

I received two compelling emails from Northwestern University student Davis Parks, who recently read my Case Against Education.  Reprinted with his bold permission. Email #1 Dear Professor Caplan, I hope this email finds you well in the new year! I may not have a PhD—or even a BA as of now—which makes my opinion irrelevant to academics, but I found your book to be a soberingly accurate depiction of my experience with the education system. I was devastated by the “Afterward” to see that critics had dismissed all the research in favor of optimism that defies all common sense. As a student at Northwestern University who’s finished a triple major in econ, stats and math but can’t graduate, I’ve found myself disenchanted with (and frankly insulted by) the education system. I’ve finished all the relevant coursework in 7 quarters (2 1/3 years), but they have an arbitrary 9 quarter requirement that “is an important component of that undergraduate experience” according to the Provost (that sounds like an admission that signaling is more important than academic credentials!). When my labor economics professor mentioned your work in class, I joked that I should get your book after I saw its title. My dad took that seriously and put it under the Christmas tree. I wanted to personally thank you for writing “The Case Against Education.” I’ve found it comforting to know that I’m not alone in this belief. Your position is so similar to the one I’ve developed that, while reading your book, I felt like someone had transcribed and compiled all my futile Facebook comments from the past 6 months. It’s relieving to know that I’m not (that) crazy and to know that there’s at least one academic out there willing to admit what seems obvious to those who aren’t blinded by the glow of the ivory tower. I initially wrote out a super long email detailing my experience growing up in the first generation to have technology embedded in their education. I thought my own experience would vindicate your personal stance on the wonders of instant-access education for the “eager student” who wants to learn. But I’ll save that because I’m sure you’re busy in preparation for the next semester. Thank you again for your work! You’ve given me great inspiration in the past week. Take care, Davis Parks P.S. If I have one criticism, it’s that you never took the opportunity to invoke one of my favorite Simpsons quotes: Email #2 Thank you for replying! I’ll have to stop by George Mason if I’m ever out visiting my uncle in Manassas!Feel free to use anything I said. There’s no need to anonymize—I’ve gotten to the point where it’s not worth hiding my beliefs to fit in. For a little context, I loved class in high school, but I skipped several grades of math by watching lectures on YouTube. As you said, we’re at a point where anyone who wants to learn can learn. After years of being told by teachers to go into engineering, I thankfully realized I’m interested in statistics far more than hard science. That led to me taking the first actuary exam in high school, getting the top score. But of course, I was unable to get an internship because employers love college credentials. Fast forward to 2020 and NU suspended in-person classes for four consecutive quarters. I took the time to take extra classes thinking they’d let me graduate early given that the school offered an inferior product for over a year. But as I said, they deem the “college experience” to be an important part of the diploma. It’s all absurd because I only need two classes per quarter and I can even take one pass/fail (ahem, I mean “pass/not pass”) and fail it without impacting my GPA. Pragmatically, I have no reason to not find full-time employment. The “college experience” does have a $10k+ opportunity cost per quarter after all. It prompts the question: what do supporters of higher education think I’m getting out of this? It’s clearly not capital gains, since I already took the classes necessary to get a triple major. It’s clearly not the college experience, since the cost/benefit analysis makes employment more beneficial for me than being on campus. It’s clearly not nourishment of the soul, since I’m dedicated enough to learn things that interest me from the internet or even a book like yours. Ironically, college only ever made me “hate” math because it mutated math from fun problem solving to 20 hours of tedious proofs per week. Even my labor econ professor decided to give us exams worth 84% of the grade with multiple choice questions like, “Was the ratio of earnings of latina women to white women higher or lower in 1980 than in 2010?” I was a bit jealous of your class when you mentioned that your labor econ exams are open notes. I’m not sure what I accomplished by memorizing those random facts only to have forgotten them in the past two weeks. Instead of rehashing random stats I learned in class, I spent my time watching lawyers on YouTube and listening to oral arguments from SCOTUS because law is one of my few remaining interests that hasn’t been polluted by academia. It’s becoming a running joke that I should try to pass the bar exam without going to law school. What can you possibly get from a classroom in today’s world that you can’t get online for cheaper and better quality? Thank you again for replying! No professor at my school will admit how ridiculous it is that I have to pay for classes I have no incentive to attend. I’m desperately hoping that my generation is the one that finally says enough is enough. Best, Davis Parks (0 COMMENTS)

  Law professors and lawyers instinctively shy away from considering the problem of law’s violence.  Every law is violent.  We try not to think about this, but we should.  On the first day of law school, I tell my Contracts students never to argue for invoking the power of law except in a cause for which they are willing to kill. They are suitably astonished, and often annoyed. But I point out that even a breach of contract requires a judicial remedy; and if the breacher will not pay damages, the sheriff will sequester his house and goods; and if he resists the forced sale of his property, the sheriff might have to shoot him. Thus said Yale Law professor Stephen L. Carter. He is pictured above. Does this mean there shouldn’t be laws? No. And Carter realizes that. He goes on to say: This is by no means an argument against having laws. It is an argument for a degree of humility as we choose which of the many things we may not like to make illegal. Behind every exercise of law stands the sheriff – or the SWAT team – or if necessary the National Guard. I thought of this when reading co-blogger Bryan Caplan’s recent post titled “Escalation and Obedience.” Carter was making essentially the same point. Here’s what I take from Professor Carter’s thinking. Think about all the laws and regulations you want. Then think about whether you want the government to be willing to kill people if those who disobey escalate their disobedience. (Bryan discussed government escalation and he’s right; but to put yourself at great risk of being killed by the government, you typically, although not always, have to be willing to escalate your disobedience.) Then ask yourself if that affects your thinking about any of the laws that you previously said you wanted. Laws that make gasoline cans almost useless? Laws that say you can’t have more than a certain volume of water per minute coming out of your shower head? Laws against using marijuana? Laws against growing marijuana? (0 COMMENTS)

I am opposed to the imposition of wage/price controls. As we saw in the early 1970s, they are a terrible idea. Nonetheless, there is an argument for wage/price controls. But it’s not the argument that most of its supporters or opponents might assume.Wage/price controls cannot stop inflation, which is caused by monetary policy. What wage/price controls might be able to do is prevent high unemployment. The real purpose of wage/price controls is to boost employment, not to reduce inflation.Suppose you believe (as I do) that nominal wages are sticky in the short run. In that case, a monetary policy that sharply and unexpectedly reduces inflation may lead to a temporary period of high unemployment, until wages adjust to the lower level of nominal spending.  In that policy environment, controls on wages might, and I emphasize might, be able to prevent the tight money policy from causing high unemployment. Notice that I mentioned wage controls, not price controls. The dirty little secret of wage/price controls is that the government’s actual objective is to control wage growth, and the price controls are a fig leaf added to make the policy seem more “fair”, thus making it more politically feasible.  The UK government was more honest than most, calling them “incomes policies”.So why don’t wage/price controls work in the real world? Because they only work if you assume a competent and well-intentioned government, and if you had a competent and well-intentioned government then you never would have had the high persistent inflation in the first place. Thus in 1971, the corrupt Nixon administration tried to juice the economy with expansionary monetary and fiscal policy in order to get re-elected in 1972, and then simultaneously imposed wage/price controls to delay the adverse effects of this stimulus until after the election. If you have a credible 2% inflation target, then there is absolutely no benefit to wage/price controls.  If you don’t have a credible monetary policy, then wage/price controls won’t solve your problem. (0 COMMENTS)

Last month, I put the following on my list of potentially popular deregulations: Create an ironclad free speech limitation on discrimination law, which explicitly includes both (a) political speech, and (b) jokes.  Along the lines of, “Expression of political opinions or jokes by co-workers, managers, or owners are Constitutionally protected free speech and can never be treated as evidence of discrimination or a hostile workplace environment.” “Potentially” is of course the key word.  I’m not saying that a free speech limitation on discrimination law is currently popular.  I’m saying that actually-existing politicians could plausibly sell the idea and gain votes for their trouble.  This is not true, in contrast, for full deregulation of discrimination.  The best reading of the social science is that modern discrimination law is a combination of witch-hunt and shake-down operation – as well as a thinly-veiled mandate for discrimination against whites, Asians, and males.  But speaking these truths will probably cost you votes in even the most conservative states in America. What makes my alternative so much more palatable?  1. It pits one sacred value against another.  Few Americans care much about workforce productivity or entrepreneurial autonomy.  So if you point out that discrimination law conflicts with either, they’ll just yawn.  Many Americans, however, care about free speech.  So if you point out that discrimination law conflicts with the Constitutionally-protected right to speak your mind, you won’t just strike a chord; you’ll strike many chords. 2. My alternative doesn’t challenge beloved existing law.  Instead, it subtly makes beloved existing law harder to enforce. 3. A free speech exception highlights the sheer pettiness of many discrimination cases.  If you can’t make your case without lamenting on-the-job jokes, you don’t have much of a case, do you? 4. Opponents of my deregulation face an awkward rhetorical quandary.  If they say, “Hardly anyone wins cases using such evidence,” you can counter, “Well, then what’s the harm?”  If they say, “We can’t win cases without such evidence,” you can counter, “Then your cases sound pretty bogus.” 5. My proposal allows for a supportive coalition of multiple somewhat disjoint groups: (a) people who care about free speech; (b) people who care about privacy (since legally nervous employers may fire you for objectionable social media activity); (c) people who think discrimination law has gone too far; and (d) the anti-woke.   Admittedly, you could admit that my deregulation is sellable, but question its merits.  What’s the point of excluding political speech and jokes as evidence in discrimination cases? 1. To be blunt, excluding such evidence reduces the probability that plaintiffs in discrimination cases will win.  In my view, no such plaintiffs should win, so this is a clear step in the right direction. 2. Excluding such evidence is especially detrimental to the most bogus cases.  If jokes are the marginal factor that puts a plaintiff over the top, he doesn’t have a leg to stand on. 3. There is very little risk of “capture” by defenders of the status quo.  A political discrimination law could easily be taken over by fanatics who think that right-wing jokes are political discrimination.  All my deregulation does is deprive plaintiffs of one important form of supporting evidence to make their cases. 4. My deregulation removes much of employers’ incentive to censor their own employees.  True, many employers censor because they’re true believers, or simply to preserve workplace harmony.  But many more are only marginally committed.  And some are intimidated dissenters.  Once the legal danger of work-related speech disappears, at least we’ll see a wide range of personnel policies, rather than the near-monoculture we now endure. 5. On reflection, current discrimination law parallels the set-up of the new Texas abortion law.  The new law notoriously evades Supreme Court rulings forbidding governments from punishing abortion.  How?  By giving private parties the right to sue medical providers for offering abortions.  Existing discrimination law, similarly, evades Supreme Court rulings forbidding governments from punishing job-related speech.  How?   By giving private parties the right to sue job providers for offering free speech.  Especially in the age of social media, this amounts to severe censorship virtually anytime you use your real name. Not convinced?  Here’s my challenge: Name any better way to weaken discrimination law and restore free speech with a prayer of political victory.  Self-serving bias aside, I have yet to hear one. (0 COMMENTS)

When [Jackie] Robinson joined the [Kansas City] Monarchs, [Buck] O’Neil believed, the Monarchs started learning from him very quickly. Previously, they had always traveled by bus, and as they swung through the South, there were certain places they always stopped for gas and food. There was a place in Muskogee, Oklahoma, where they had always gassed up, but where the owner never let them use the rest rooms. Robinson had not known that, so when the bus pulled in, ready to fill up its twin fifty-gallon tanks, he got out to go to the men’s room. “Where you going, boy?” the owner said, and Robinson answered that he was going to the men’s room. “No, you’re not,” the owner said. “You boys know that.” Robinson never even hesitated. “Take the hose out of the tank!” he said immediately, and that was no idle threat, for one hundred gallons of gas was a big sale, a fair percentage of the amount of money the man might make on a given day. The man looked at Robinson and saw the anger and strength in his face. He was not the first, and certainly not the last, white man to see that conviction, and he immediately backed down. “You boys can use the rest rooms,” he said. “Just don’t stay there too long.” This is from David Halberstam, October 1964. I’m enjoying learning a lot about early baseball. I didn’t follow it much until the late 1980s. And of course the interplay of baseball and racial discrimination is a major theme of the book. The Kansas City Monarchs were a baseball franchise in the Negro American League. Jackie Robinson joined the team in 1945. Buck O’Neil was the Monarchs’ manager from 1948 to 1955. Although I don’t know if economist Gary Becker knew this story, I’m pretty sure, given his insights about how free markets undercut racial discrimination, that he wouldn’t have been surprised and, of course, would have been delighted. (0 COMMENTS)

Airports and airlines, governed by federal law, never relaxed their mask mandate, even for the fully vaccinated.  Yet if you actually fly nowadays, you’ll notice plenty of scofflaws on the ground and in the sky. Which raises a big question: What exactly is the punishment for failing to wear a mask? Until you board the plane, the punishment is simply: An authority orders you to put on your mask.  Once they’re out of sight, you can safely remove your mask until another authority orders you to put on your mask. Indeed, as long as you wear your mask in the security line, you probably won’t even experience this minor punishment.  From what I’ve seen, airport enforcement is now near-zero.  Airport police walk past scofflaws in silence.  Some of the police are wearing their masks below the nose themselves. Once you’re on the plane, however, the strategic situation changes.  Some flight attendants just look the other way.  Others, however, are actively hunting for scofflaws.  So what kind of punishments do these enforcers mete out? For the first offence, the sky is the same as the ground: They order you to wear your mask.  But since you’re stuck together in a flying tube, you can’t simply obey, wait for the enforcer to disappear, then remove your mask again.  If the attendant cared enough to enforce the rule once, they care enough to keep enforcing it.  And each time they ask, they escalate.  The first pseudo-polite “request” becomes a stern order.  Then they start threatening to report you to the authorities.  I’ve seen the situation reach this level more than once. Are these all empty threats?  Probably, but only probably.  If you’re ordered to put your mask on six times on a single flight, perhaps there will be a police officer waiting for you when you exit the plane.  How far you can push your luck?  I’m not the right person to ask.  What I am confident of, however, is that if you bluntly defy the flight attendant, there is at least a 20% chance that the police officer will be waiting for you when you land.  And if you combine your defiance with profanity, I’m confident that the odds that the police are waiting for you rises to at least 35%. Escalation.  If you really pay attention, that’s the standard mechanism of government coercion.  You can break most of the laws most of the time.  But once you’re on the government’s radar, they keep ramping up the punishment until you back down.  Speeding goes unpunished 99.9% of the time.  Once you get a ticket, however, you’d better pay it.  If you don’t, the amount you owe keeps rising.  Eventually, you’ll probably lose your driver’s license.  If you then drive without a license, they’ll arrest you.  If you keep driving without a license, they’ll jail you.  And if you vigorously resist that, they’ll kill you. The same applies, as libertarians have been saying for ages, to taxation.  No agent of the government has ever held a gun to my head and told me, “Pay your taxes or I’ll kill you.”  But the government will predictably escalate to gunplay if you are loudly defiant.  Indeed, you could say that predictable escalation is the essence of government.  Almost everyone else in society peacefully backs down if you refuse to obey them.  In the classic Milgram “obedience to authority” experiment, self-styled authorities kept subjects in line with solemn words like: The experiment requires that you continue. It is absolutely essential that you continue. You have no other choice, you must go on. Nevertheless, subjects were perfectly free to flatly say, “No” and walk away.  And about a third of Milgram’s subjects ultimately did. Government does not work that way.  Government will not accept “No” as your final answer.  You can hide, you can weasel, you can even get a lawyer.  Still, if you stubbornly and openly refuse to obey the government, it will probably kill you.  Act accordingly.   (0 COMMENTS)

In an email, monetary economist Jeff Hummel, of San Jose State University, writes: There have been some significant Fed changes under Jerome Powell, the most notable being the elimination of reserve requirements and the redefinition of M1 so that it now practically mirrors M2. Unfortunately, in the process, Fed reporting has become slightly less transparent in several ways, reversing the Fed’s increasing transparency under former chairman Ben Bernanke. One of the most annoying of these decreases in transparency is that, as a result of eliminating reserve requirements, the Fed has ceased directly reporting the amount of bank reserves held in the form of vault cash rather than in interest-earning deposits at the Fed. Before eliminating reserve requirements, banks could use their vault cash to satisfy reserve requirements. Until then, the data on vault cash were most readily accessible in the Fed’s H.3 Release, but the Fed discontinued publishing it after September 2020. My interest in vault cash stems from tracking what I call the “outside” monetary base, which excludes interest-earning reserves. But you can still derive the amount of vault cash from the Fed’s H.6 Release. The Release’s Table 1, “Money Stock Measures,” now lists only total reserves deposited at the Fed and has a column for “Currency in Circulation” that includes vault cash as well as currency held by the public. But Tables 2 and 3, “Components of M1 and non-M1 M2,” have columns for “Currency” that exclude vault cash and count only currency held by the public. So to derive vault cash, you now need to subtract the latter from the former. DRH note, based on Jeff’s analysis: The most recent data the Fed lists are for November 2021. Currency in circulation (not seasonally adjusted), from Table 1, was $2,214.3 billion. Currency that excludes vault cash (not seasonally adjusted), from Table 3, was $2,116.4 billion. Therefore, vault cash was $2,214.3 billion minus $2,116.4 billion, which is $97.9 billion. Now back to Jeff: For those interested, the currency figures in the Fed’s H.4.1 Release, which reports the Fed’s balance sheet, have always included vault cash.   (1 COMMENTS)

Colin Thubron might be our best living travel writer.  (If he isn’t, please tell me who is better.) I recently finished a book he wrote on travels in Mongolia, Eastern Russia and Manchuria (mostly following the course of the Amur River.)  I was struck by the highly negative attitude of many people toward foreigners, and the positive feelings toward some of the worst people in all of human history—including Genghis Khan (in Mongolia), Stalin (in Russia), and Mao (in China.)  The Russians that Thubron met disliked the Chinese, and vice versa. One thing I noticed is that this hatred is being exacerbated by nationalistic propaganda that demonizes foreigners.  At one point Thubron interviewed a Russian who worked in the oilfields of eastern Siberia: “Half the time you don’t notice, and the propaganda seeps into you.  When I was working for the Canadians in Chukotka, I realized that I was starting to resent them and getting angry, and I wondered why.  I never watch our television — it’s too boring — but up in Chukotka there was nothing else to do, and I realized that I was being brainwashed by watching, and starting to dislike Westerners.”  He grins at me, as if I wasn’t one. “So I checked myself and went back to normal.” I have a pretty low opinion of authoritarian nationalists such as Vladimir Putin and Xi Jinping.  But after reading some of the interviews in Thubron’s book, I’m almost tempted to say how lucky we are that Russia and China are led by such enlightened cosmopolitan globalists, rather than the “man on the street” in these two giant countries.  Some of the views expressed were pretty appalling. Authoritarian nationalists often try to rewrite history0 in order to justify their hold on power, or to justify the invasion of a neighboring country.  The newest issue of The Economist has one such example: Russian history rich in shameful dates, many of them marking show trials and mass executions—or liquidations, as they were then called. December 28th, 2021, should be added to the calendar. On that day Russia’s supreme court “liquidated” Memorial, the country’s most vital post-Soviet civic institution, dedicated to the memory of Stalinist repression and the defence of human rights. The same is occurring in China.  Just ten years ago, a Chinese citizen could criticize the Cultural Revolution (1966-76).  Now that subject is taboo in China. With the dramatic rise in nationalism during the 21st century, we can expect to see an increase in xenophobia, especially among residents of the great powers.  This dehumanization of foreigners makes war more likely. PS.  I was interested in the fact that Thubron described northern Manchuria as being much more prosperous than southern Siberia, right across the border.  Of course that’s a subjective evaluation that may reflect dynamism (i.e. growth rates) more than levels of GDP/person.  In addition, eastern Russia is relatively depressed, but then so is Manchuria.   In any case, most estimates show Russia’s GDP/person to be much higher than China’s in PPP terms (and about the same in dollar terms.) (0 COMMENTS)