I may have a perfect betting record, but six years ago I made a big generalization that almost instantly blew up in my face. In my youth, I saw Industrial Organization as the heart of our secular religion.  My history textbooks loudly and repeatedly decried “monopoly”; teachers, peers, and parents echoed their complaints.  Since the late-90s, however, such complaints have faded from public discourse.  The reason isn’t that plausible examples of monopolies have vanished.  If anything, firms that look like monopolies – Amazon, CostCo, WalMart, Starbucks, Uber, Facebook, Twitter – are higher-profile than ever.  But the insight I preached in my youth – the main way firms obtain and hold monopoly on the free market is reliably giving consumers great deals – is almost conventional wisdom.  What modern consumer fears Amazon or Starbucks? As consumers, of course, people continued to eagerly patronize these “monopolies.”  As voters, however, people hastily turned on most of these amazing firms. Left-wingers turned on tech for the standard reason: Resentment of business and the rich.  Tech businesses are for-profits, and their leaders make lots of money.  That may seem unfair, but look: The proximate causes – “violations of privacy” and data breaches – were so trivial that any sober observer would have just rolled his eyes and scoffed, “Big deal.  Why are we even talking about this?”  In hindsight, the amazing thing is that the left waited so long to demonize the tech sector. Right-wingers turned on tech for their standard reason: Resentment of the left.  Tech leaders lean left personally, and their firms lean left institutionally.  Once they see you as left-wing, the right will happily unleash antitrust, privacy, campaign finance, child protection, or animal cruelty law against you.  What difference do the legalities make, as long as justice be done?  Honestly, I doubt many on the right will even offer an alternative story of their souring on tech; if tech was apolitical, they simply wouldn’t be mad at them. Verily, as I’ve said many a time before, the left is anti-market and the right is anti-left. What, though, are the likely consequences of politically punishing success as “monopoly”?  The obvious answer is: Less success.  The less obvious answer, though, is: Creating monopolies where none existed.  Mark Jamison provides a fine overview: Consider the misnamed Ending Platform Monopolies Act introduced by Rep. Pramila Jayapal (D-WA). According to the press release, this bill would make “it unlawful for a dominant online platform — such as Google, Apple, Amazon, and Facebook — to simultaneously own another line of business when that dual ownership creates a conflict of interest.” “Conflict of interest” means a store like Trader Joe’s selling its own products alongside rivals’ products. The bill would require companies such as Alphabet, Amazon, Apple, and Meta to either quit selling their own products or quit selling others’ products. So what? What does this mean for the impacts of Rep. Jayapal’s bill? If Amazon stopped selling its own products, it would look like eBay. But differentiation is critical for survival in digital markets, so only one of the two platforms would survive, leaving the small businesses with one choice where two had existed before. Something similar would happen if Amazon complied with the law by ceasing to let small businesses use its platform. eBay would dominate for small businesses given that three times as many small businesses use eBay over its next largest rival, Shopify. Rep. Jayapal’s bill would be a gift to eBay, which would become even more of a monopoly than is Amazon. Also: Consider also the poorly named Open App Markets Act, introduced by Sens. Richard Blumenthal (D-CT), Marsha Blackburn (R-TN), and Amy Klobuchar (D-MN). It largely targets Apple, prohibiting the inventor of the modern smart phone from continuing to provide the simple, seamless, secure customer experience it is known for. More specifically, the bill would ban Apple from requiring that app providers use Apple’s payment system and not cannibalize iPhone value by offering lower prices on other payment systems. Bad apps could also bypass App Store safety measures and load directly onto the iPhone. The bill would also require that Apple permit other app stores on the iPhone, also making the device less secure. One irony of the Open App Markets Act is that it would make the app ecosystem less open by effectively making Apple’s iPhone more like Alphabet’s Android system, which already offers features similar to those required by the bill. This forced change in the iPhone would harm the 113 million US iPhone users that prefer today’s iPhone features… And it would diminish the vibrant competition between Apple and Alphabet for app developers by removing developer options. Finally, by making the two operating systems more similar, it puts at risk their rivalry: As in the case of forcing Amazon to be more like eBay, it is hard to maintain competition between two very similar products in a digital market. A cynic might say that the tech industry deliberately pandered to the left, hoping to deflect the left’s default antagonism to any successful business.  An even bigger cynic would point out that deflecting the left’s default antagonism to any successful business is a fool’s errand.  The default is just too strong. My own view, though, is that the tech industry’s leftism is largely sincere.  They aren’t pretending to have left-wing sympathies; they really do.  Unfortunately for them, leftist thinking brands even the most sincerely left-wing billionaire as an arrogant sinner in need of humbling.  And at the same time, rightist thinking brands even the most productive left-wing billionaire as a leftist in need of immiseration. Either way, the fundamental economics of innovation are at once economically glorious and politically irrelevant.  The tech sector hasn’t just handed humanity an ever-growing wedge of utopian abundance; it’s often done so free of charge.  Yet politicians are still advancing their careers with hare-brained schemes to fix the greatest machine we’ve ever seen. (0 COMMENTS)

As a number of economists and others have noted, Richard L. Stroup died on November 18. He was a good and gentle man and a very good economist. He used straightforward microeconomic tools to investigate, and generate insights on, interesting issues. I’ll highlight some items from the 10th edition of his textbook, Economics: Private and Public Choice, co-authored with James D. Gwartney, Russell S. Sobel, and David A. Macpherson. I’ll point to sections for which there is a high probability that he wrote them. Question 14, p. 151: Do you think that the political process works to the advantage of the poor? Why or why not? Question 16, p. 151: The United States imposes highly restrictive quotas that result in a domestic price that is generally about twice the price. The quotas benefit sugar growers at the expense of consumers. Given that there are far more sugar consumers than growers, why aren’t the quotas abolished. Why do I think there’s a high probability that Rick wrote these? Because they’re about Public Choice and that was one of his areas of research and expertise. Another one on Superfund. This is too lengthy to quote so I’ll note a few nuggets in which the textbook’s authors summarize the research of James T. Hamilton and W. Kip Viscusi in their 1996 book, Calculating Risks. Superfund: A Highly Inefficient Cleanup Program Most supposed Superfund “risks” do not pose a threat to human health now and they will do so in the future only if people violate commonsense precautions and actually inhabit contaminated sites and disregard known risks there. Even if the risks of exposure above did occur, there is less than a 1 percent chance that the risks are as great as EPA estimates, due to extreme assumptions made by the EPA about the dangers. Replacing extreme EPA assumptions with more reasonable averages brought the estimated median cost per cancer case averted to over $7 billion. (p. 775) This item footnotes Rick’s Summer 2001 article in Regulation. On the unintended consequences of the Endangered Species Act (ESA): Under the rules set by the FWS [Forest and Wildlife Service], most potential uses of land are forbidden within several hundred yards of any tree, once the protected species [the red-cockaded woodpecker] has built a nest there. Many landowners dread the possibility that the species will be found on their land, leading to the imposition of restrictions by the FWS. Such landowners can take subtle management steps to make their land unattractive to the listed species, and evidence has appeared that they do just that. Economists Dean Lueck and Jeffrey Michael found that landowners located close to colonies of red-cockaded woodpeckers in North Carolina cut down their trees sooner than did those who were far away from the woodpeckers, where older trees were less likely to draw the listed woodpeckers which could trigger a transfer of control of their land to the FWS. The unwanted secondary effect of the ESA has been a reduction in the habitat for listed and candidate species–just the opposite of the goal of the law. (pp. 787-788) This section footnotes his articles co-authored with Thomas R. Bourland and with his wife, Jane S. Shaw. As you might guess from the above, Rick was one of the leaders in the free-market environmentalist movement and literature. Rick also wrote two entries in David R. Henderson, ed., The Concise Encyclopedia of Economics. They are “Political Behavior” and “Free-Market Environmentalism.” In one of my favorite passages from “Political Behavior” Rick makes the case that whether or not players in the political arena are always selfish, they are always narrow: An advocate of the homeless working in the political arena typically lobbies for a shift of funding (reflecting a move of real resources) from other missions to help poor people who lack housing. The views of such a person, while admirable, are narrow. He or she prefers that the government (and other givers) allocate more resources to meet his or her goals, even though it means fewer resources for the goals of others. Similarly, a dedicated professional, such as the director of the National Park Service, however unselfish, pushes strongly for shifting government funds away from other uses and toward expanding and improving the national park system. His or her priority is to get more resources allocated to parks, even if goals espoused by others, such as helping the poor, necessarily suffer. Passionate demands for funding and for legislative favors (inevitably at the expense of other people’s goals) come from every direction. And he nicely shows why the incentive for voters to become informed is so weak and the consequences that follow: An individual voter has virtually no chance of casting the decisive vote in an election. Even among the more than four thousand elections held each decade to fill the U.S. House of Representatives, a race decided by less than one hundred votes is newsworthy at the national level, and a recount is normally conducted. Moreover, the cost of an uninformed or mistaken vote that did make a difference would be spread among other citizens. This differs from the cost of a mistaken personal purchase, the full burden of which the buyer pays. People thus have little incentive to spend valuable time and effort learning about election issues beyond their narrow personal interest, monitoring politicians’ overall performance, or even voting. Instead, voters are “rationally ignorant” on most issues. Thus, it makes sense for a politician to pay attention primarily to special interests on most issues, and to use the financial support of special interests to campaign on “image” issues at election time. One of my favorite passages from his “Free-Market Environmentalism” is this: Environmental problems stem from the absence or incompleteness of these characteristics of property rights. When rights to resources are defined and easily defended against invasion, all individuals or corporations, whether potential polluters or potential victims, have an incentive to avoid pollution problems. When air or water pollution damages a privately owned asset, the owner whose wealth is threatened will gain by seeing—in court if necessary—that the threat is abated. In England and Scotland, for example, unlike in the United States, the right to fish for sport and commerce is a privately owned, transferable right. This means that owners of fishing rights can obtain damages and injunctions against polluters of streams. Owners of these rights vigorously defend them, even though the owners are often small anglers’ clubs with modest means. Fishers clearly gain, but there is a cost to them also. In 2005, for example, Internet advertisements offered fishing in the chalk streams of the River Anton, Hampshire, at 50 pounds British per day, or about $90 U.S. On the River Avon in Wiltshire, the price per day was 150 pounds, or $270. Valuable fishing rights encouraged their owners to form an association prepared to go to court when polluters violate their fishing rights. Such suits were successful well before Earth Day in 1970, and before pollution control became part of public policy. Once rights against pollution are established by precedent, as these were many years ago, going to court is seldom necessary. Potential plaintiffs who recognize they are likely to lose do not want to add court costs to their losses. And I must not leave without quoting from his analysis of Love Canal: Thus, liability for pollution is a powerful motivator when a factory or other potentially polluting asset is privately owned. The case of the Love Canal, a notorious waste dump, illustrates this point. As long as Hooker Chemical Company owned the Love Canal waste site, it was designed, maintained, and operated (in the late 1940s and 1950s) in a way that met even the Environmental Protection Agency standards of 1980. The corporation wanted to avoid any damaging leaks, for which it would have to pay. Only when the waste site was taken over by local government—under threat of eminent domain, for the cost of one dollar, and in spite of warnings by Hooker about the chemicals—was the site mistreated in ways that led to chemical leakage. The government decision makers lacked personal or corporate liability for their decisions. They built a school on part of the site, removed part of the protective clay cap to use as fill dirt for another school site, and sold off the remaining part of the Love Canal site to a developer without warning him of the dangers as Hooker had warned them. The local government also punched holes in the impermeable clay walls to build water lines and a highway. This allowed the toxic wastes to escape when rainwater, no longer kept out by the partially removed clay cap, washed them through the gaps created in the walls. The school district owning the land had a laudable but narrow goal: it wanted to provide education cheaply for district children. Government decision makers are seldom held accountable for broader social goals in the way that private owners are by liability rules and potential profits. Of course, anyone, including private parties, can make mistakes, but the decision maker whose private wealth is on the line tends to be more circumspect. The liability that holds private decision makers accountable is largely missing in the public sector. My condolences to his lovely wife, Jane Shaw. Many of us will miss him and all who care about the environment owe him some gratitude.   (0 COMMENTS)

In the past, I’ve called for replacing the aggregate demand curve with a curve representing a given level of nominal spending. Under this approach, a positive nominal spending shock occurs when NGDP growth is above target, and vice versa. It seems to me that the Covid economy provides a perfect example of why “aggregate demand” is not a useful way to think about the forces shaping the macroeconomy.  Over the past two years, prices have risen by more than normal while real GDP growth has been well below trend.  In the standard AS/AD model, this looks something like the following: (To be clear, the drop in output over the past two years is relative to trend; in absolute terms RGDP is up slightly.) So from an AS/AD perspective it looks like the US was hit by a negative supply shock.  But it’s equally true that the inflation is being driven by surge in demand for goods (as opposed to services.)  You could say that the increased demand for goods has caused a supply shock, as our economy cannot suddenly turn on a dime and produce far more goods and far fewer services.   You can see how terms like “supply” and “demand” don’t do justice to the complexity of the situation.  No matter how many times we say that aggregate demand is not the same thing as industry “demand”, people will continue to confuse the two concepts.  Consider the following word salad from Investopedia: Aggregate Demand Controversy Aggregate demand definitely declined in 2008 and 2009. However, there is much debate among economists as to whether aggregate demand slowed, leading to lower growth or GDP contracted, leading to less aggregate demand. Whether demand leads to growth or vice versa is economists’ version of the age-old question of what came first—the chicken or the egg. Boosting aggregate demand also boosts the size of the economy regarding measured GDP. However, this does not prove that an increase in aggregate demand creates economic growth. Since GDP and aggregate demand share the same calculation, it only indicates that they increase concurrently. The equation does not show which is the cause and which is the effect. I have no idea what any of that means.  Surely they can’t be equating AD and real GDP?  In fact, it’s even worse.  In the previous paragraph they equate AD with real consumer spending (i.e. C/P.)  By that definition, a burst of technological progress which shifts the AS curve to the right will cause aggregate demand to increase, even if the aggregate demand curve never shifted. It’s as if Investopedia was confused as to whether an increase in GDP caused more C+I+G, or whether an increase in C+I+G caused more GDP.  At least that’s what I think they are saying here: Since GDP and aggregate demand share the same calculation All this confusion could be eliminated if we changed the language of macroeconomics to something like a NS/RO model—nominal spending and real output.  Nominal GDP and real GDP most certainly do not “share the same calculation”. With that framing, the Covid economy is much easier to explain.  Over the past two years, nominal spending has grown at a normal rate, whereas real output has been depressed by structural problems.  Going forward, nominal spending over the next year is likely to be too high to maintain an average inflation rate of 2%.  If I am correct, then by the end of 2022 we will have had a period of elevated inflation associated with both above normal nominal spending and structural problems in production.  (0 COMMENTS)

Buy Nothing groups are in the news these days as hedges against inflation (WSJ), builders of community (NYT) and various and sundry other purposes. The basic premise of a Buy Nothing group is that it’s a group of people, usually on Facebook, who agree to post things for free and indicate interest in posted items. No selling, no trading. This might seem an odd topic for a blog post on economics, but in what follows I’ll argue that Buy Nothing groups can teach us a lot about this crazy species sometimes called Homo economicus.  I’m something of an expert here, because I am not only a political theorist and student of economics, I’m also the admin of our local Buy Nothing (BN) group and have watched its mechanics for years now, often with delight, sometimes with frustration. Friends of mine have elaborate BN set ups, complete with bins on their porches organized alphabetically by name. I love these people, but I am not one of them. I instead leave things on the rocking chair of my porch, including, to my husband’s chagrin, carefully labeled Ziploc bags filled with kombucha scobies or, occasionally, guppies. I’ve given away bed frames, bookshelves, bedside tables, half a toilet, expired Cream of Wheat, an Ethan Allen coffee table, and the aforementioned kombucha scobies and multiple rounds of guppy fry. I’ve received more than I can list, including rugs, a couch and chair, gardening advice and some irises, lots of crafting supplies, kids clothes, house plants and cuttings, and various other knickknacks. My husband finds the entire thing inexplicable and sometimes infuriating, though he has appreciated the occasional free rug that happens to fit the laundry room perfectly.  As a social scientist, broadly speaking, I’ve watched our BN page for years and have been fascinated by what it says about human nature and our general tendency to truck, barter, and exchange. In some sense, of course, it’s not bartering or exchanging at all, because those things aren’t allowed on the page. But what is present is a sense of both generalized and indirect reciprocity, whereby the more people gift the more they tend to receive, and where relationships between gifters play a role in decisions over allocations of resources, and where norms of behavior and decision-rules are both pluralistic but also fairly coherent.  Reputation, for example, is an important tool, though not a decisive one. Not everyone who gifts cares about questions of fairness and it is absolutely up to the gifter to decide where an item goes. Rules and norms themselves develop and grow. Our group has developed a norm of “simmering” on high-value items as a way to increase fairness for people who do not access Facebook all the time. There’s also a general norm of transparency, as when people indicate they’re picking someone quickly in order to get an item out of their house quickly. And you can see relationships develop as people who have gifted to each other over time start interacting in other ways both inside and outside the group. While some focus on BN groups reducing waste, I’m more interested in the way they solve knowledge and coordination problems. I posted the bottom half of a working toilet after my husband cracked it while doing plumbing work (don’t ask). I got some pushback because really, the bottom half of a toilet is, in fact, the definition of garbage, but an engineering professor scooped it up for a project her engineering students were putting together and it got a second life outside the landfill. The beauty of this exchange is that until that day I didn’t know I had the bottom half of a toilet to gift and she did not know she needed or wanted half a toilet at all (wanted might even be a strong term). And yet, via the beauty of modern technology and our human propensity to share, her needs and my needs were somehow beautifully compatible in a way no one could have predicted. There are also very interesting network effects, such as the time I went to pick up a rug from an older neighbor. Her husband, a retired professor, helped me load the rug into the car and we ended up talking about health care. This random meeting over a rug ended with me giving a talk on healthcare policy to a university downstate alongside a palliative care physician who works at a comfort care home, an area of research I’ve wanted to dig into more. We exchanged numbers and plan on meeting up over the summer. If you had told me before I left that picking up a rug would have resulted in valuable contacts on end-of-life care, I might have been concerned about what precisely was rolled up in that rug. But such is the spontaneity of these BN relationships.  And of course, given human nature, it’s not all sunshine and rainbows. There are definitely annoying things about BN membership: people don’t show up to grab items, a few times things have been stolen off porches, sometimes people post catty things, like the time someone didn’t like my offer of expired Cream of Wheat (someone eventually snagged it, so there), sometimes it’s just easier to bundle things to Goodwill than to wait for people to claim things and keep them organized, and sometimes you find yourself driving 20 minutes out of your way to pick up a $5 item only to realize on the way back that opportunity costs really do exist. On a deeper level, there’s debate within the BN community about whether the geographic focus of most BN groups and the ethos of “giving where you live” contributes to systemic racism and in fact the platform seems to be moving toward an app that many original BN folks resist. The political theorist in me wants to point out in response to these concerns that there will always be tradeoffs between community and equity. Aristotle knows this; Michael Walzer knows this; anyone who has thought about questions of distributive justice has thought about this. I’m personally less concerned with these issues precisely because I’m impressed by how often items do in fact leave the group. We have members of our relatively affluent group who run clothing closets for foster kids, people who organize winter clothing drives for refugees and homeless folks, and people who grab items for friends and relatives in need. Is it a perfectly equitable distribution mechanism? Of course not, but no such thing exists. For what it is, it’s pretty good and it’s 100% voluntary. While I sometimes see coverage of BN groups that discusses them as though they’re some new form of community made possible by technology, I actually think the most interesting parts of the BN project is how much of it is in fact very very old. BN is, in a sense, a kind of throwback to our pre-market lives, focused on mutual aid and generalized, indirect, and direct reciprocity. But the modernity of it means that it is, in fact, completely compatible with (and perhaps even relies on) a modern market economy. Someone posted a brand new rug the other day, one she had purchased but had waited too long to return. The rug was snapped up, to be appreciated by someone else for purposes unknown. People post food they bought but didn’t like, clothing that no longer fits, and a range of consumer goods that are only available because we live in a modern market society. But the posting of these items helps solve local knowledge problems in ways that ordering directly from Amazon may not. And they create local network effects that ordering from Amazon almost never does. So what can we learn from BN groups? In general, I don’t think there’s anything terribly new about the phenomenon. The main thing that’s new is the way humans are using technology platforms like Facebook and apps to do things they’ve been doing anyway for tens of thousands of years. Buy Nothing groups demonstrate the deep reciprocity that’s one of the foundations of human nature. Buy Nothing groups also may in fact demonstrate a kind of limit on markets. Not, mind you, a moral limit, but a practical limit. While humans like money, they also like giving and they also like receiving. What Buy Nothing groups highlight more than anything else is that human nature is a pretty stable thing. Humans love giving and receiving, we’re profoundly and weirdly social, and we have magpie tendencies that show up in funny ways. I love my Buy Nothing group not because it keeps things out of landfills or helps me save money, though it does in fact do both those things. I love it because it’s a microcosm of everything I find fascinating about human sociality in all its quirky, beautiful, and frustrating glory.  Lauren Hall is associate professor of political science at Rochester Institute of Technology.  She is the author of The Medicalization of Birth and Death (Johns Hopkins University Press, 2019) and Family and the Politics of Moderation (Baylor University Press, 2014) as well as  the co-editor of a volume on the political philosophy of French political thinker Chantal Delsol. (0 COMMENTS)

In his magisterial Making Comics, Scott McCloud provides a profound exploration of human emotions.  Anatomically speaking, there really are exactly six primary emotions: anger, disgust, fear, joy, sadness, and surprise.  McCloud even lists all of the facial muscles involved, but his visuals speak a thousand words each. The six primary emotions, like the six primary colors, can all be combined.  You can combine joy and fear to get “desperation.”  You can combine joy and sadness to get “faint hope.”  And you can combine joy and anger to get… cruelty.  Take a look! Spooky, right?  Yet all McCloud is doing is merging all of the facial muscles of anger with all of the facial muscles of joy. Now let’s think about political emotion.  Virtually every leader offers joy.  I’m going to feed the children, heal the sick, and defend our borders.  But virtually no leader offers unadulterated joy.  Instead, politicians almost automatically combine hopeful promises with threats against enemies.  If anyone gets in the way of our quest to feed the children, heal the sick, and defend our borders, let them beware.  When pure evil stands between us and utopia, we push back.  With all our righteous might.  Because evil makes us angry. To take one crystal clear example, here’s a 2020 Elizabeth Warren poster.  The top slogan evokes joy: “Dream Big.”  The bottom slogan evokes anger: “Fight Hard.”  Quintessential politics. Without McCloud, you might sense a contradiction between these promises of joy and threats of anger.  But even as a matter of basic anatomy, human beings are entirely capable of feeling joy and anger all at once.  And to repeat, we have a name for this emotional fusion: Cruelty. Cruelty is the main emotion that politicians pander to.  And cruelty is what every politician strives to deliver.  They don’t want to make everyone happy.  They want to make their friends happy by making their enemies suffer.  Which requires them to not only identify enemies, but create an endless queue of enemies lest they run out. That’s why totalitarian states, after they imprison and and murder all their admitted opponents, never declare final victory.  Instead, they launch a new search for enemies among their so-called friends.  Capitalist roaders.  Trotskyists.  Rootless cosmopolitans.  To declare final victory would be to abandon anger.  And to abandon anger is to abandon politics.  Cruelty is the lifeblood of power-hunger. An old adage warns us that, “It is easier to destroy than create.”  Once you accept cruelty as the driving emotion of politics, you can see why politics as such is a trainwreck.  Why?  Because it is vastly easier to attack your enemies than to build a good society.  Maduro and Ortega are, in a sense, successful politicians.  Why?  Because they’ve spent their careers battling their hated foes.  They’ve driven their countries into the ground.  They’re further from prosperity and peace than ever.  But they have given their merry warriors an epic struggle. Some years ago, I wrote a list of “apolitical reasons to hate politics.”  To that list, I would now like to add, “Cruelty rules.”  Politics doesn’t just unleash human sadism.  It anoints this ugly emotion.  And warns us that if we refuse to find joy in anger, anger in joy will soon find us.   (1 COMMENTS)

We undervalue our sense of hearing and we under-appreciate the impact sweet sounds and disturbing noises have on our well-being. Neuroscientist Nina Kraus of Northwestern University talks about her book, Of Sound Mind. Kraus argues that our listening affects our minds and brains in ways we ignore at our peril. (0 COMMENTS)

We undervalue our sense of hearing and we under-appreciate the impact sweet sounds and disturbing noises have on our well-being. Neuroscientist Nina Kraus of Northwestern University talks about her book, Of Sound Mind. Kraus argues that our listening affects our minds and brains in ways we ignore at our peril. The post Nina Kraus on Hearing, Noise, and Of Sound Mind appeared first on Econlib.

Many economists on both the left and the right support carbon taxes. Most politicians on both the left and the right oppose carbon taxes. A widely cited explanation is that carbon taxes are politically unpopular.  In a new column in The Hill, I argue that this perception may be based on a misunderstanding: To understand the politics of carbon taxes, we need to begin by recalling that economists view terms such as “taxes” and “subsidies” differently than the general public does. Economists know the concepts to be quite similar — two sides of the same coin. Both move money from one group to another, and both raise the relative price of some goods and reduce the relative price of other goods. Many non-economists see taxes and subsidies as being quite distinct: taxes as money taken from the people by the government, and subsidies as money provided from the government. In one case, the money seems to just disappear, and in the other, it magically appears almost as if from nowhere. Of course, neither perception is accurate, but this means that subsidies are the easier sell. I argue that a properly constructed carbon tax should be no less popular that its less efficient alternatives, such as clean energy subsidies.  Consider two policies that have an equal impact on the budget deficit: If we (hypothetically) say the government is spending $200 per adult on clean energy subsidies, then the total cost of the program would be $50 billion each year. Let’s also make the assumption that the full $50 billion is financed by the budget deficit, to match the mistaken perception that subsidies are free money. Now, consider an alternative idea: a carbon tax that instead raises $50 billion each year. By itself, this would reduce the deficit by that amount. Thus, to have an equal fiscal impact to the clean energy subsidies, the government would need to rebate twice as much ($100 billion) back to the public. It’s not that carbon taxes are unpopular; the problem is that all taxes are less popular than subsidies due to “cognitive illusions” held by the public.  To make a popular carbon tax, you construct it in such a way as to avoid this sort of cognitive illusion.  Create a carbon tax that impacts the budget deficit in the same way as clean energy subsidies. The perception that carbon taxes are less popular than subsidies is due to the fact that people are comparing it to alternatives with a different impact on the budget deficit.  Instead, any carbon tax program should be compared with an alternative that has the same budget impact. Read the whole thing. (1 COMMENTS)

A few days ago I was in a discussion on Facebook about Kyle Rittenhouse, the 18-year-old who was recently found not guilty of killing two men and wounding a third. His defense was that he acted in self-defense and I watched enough of the trial (between 7 and 9 hours) to be convinced that the jury got it right. But that’s not what I’m posting on here. I’m posting about a view I’ve heard many around me express, a view that I held and now don’t. The view is that Kyle Rittenhouse was a fool for putting himself in a volatile situation where he could be hurt. According to this view, he should have stayed home in Illinois, 15 miles away, where he would have been safe. Here’s why I’ve changed my mind. What came out at the trial was that Rittenhouse really did go to Kenosha, Wisconsin to defend people’s property after seeing rioters inflict substantial damage on various businesses. His father lived in Kenosha. He had a job in Kenosha. Presumably he knew a number of people in Kenosha whom he cared about. I’ve thought about other young people who have put themselves in situations where their lives are at risk in order to defend people whom, and property which,  they care about. There are many such examples. The young person who swims out to save someone from drowning even though he might drown too. The young person who enters a burning building to save someone trapped inside. Notice that those are both actions to save people’s lives whereas Rittenhouse’s goal was to protect people’s property. But property is pretty important too. When I was a kid, my family went to see Audie Murphy play himself in the movie To Hell and Back. Based on his own life, the movie told of his heroism in World War II. He falsified documents to join the Army 10 days after he turned 17. He received many medals for his heroism as an infantryman. It never occurred to me to call Audie Murphy a fool. He joined a cause that he believed in. The fact that he tried to join shortly after the Japanese government’s attack on Pearl Harbor strongly suggests that he saw himself as defending the United States. But what is the United States? It’s a collection of people and property. Many of these people, but not all, share important values. So that’s what Murphy saw himself as defending. You don’t have to think that Kyle Rittenhouse was as heroic as Audie Murphy to see that both put themselves in danger to work for something they believed in. Clearly Audie Murphy took more risks than Kyle Rittenhouse, but I don’t hear people saying that Kyle was a fool because he didn’t take enough risks. Maybe Rittenhouse was a fool because he was too young to take those risks. But then we’re back to Audie Murphy. Murphy was only months older than Rittenhouse when he actually saw combat. Was Audie Murphy a fool for doing what he did while still so young? I don’t think so. (0 COMMENTS)

The Economist devotes its last cover to “The triumph of big government”. The brief is an interesting piece on governments getting bigger all the time. A citation of Bob Higgs’ Crisis and Leviathan would have been nice, as the piece deals with the core ideas of that, marvelous book, but to its credit The Economist interviewed and quoted a couple of libertarians, like John Cochrane, Johan Norberg and Mark Littlewood of the IEA. Mark is credited with the only thing which looks like a proposal in the entire piece, albeit a vague one. He suggests allowing people to pay less in taxes in return for renouncing some state services. If the tax cut is attractive, but still less than the cost of supplying the service, that saves money”. But, writes The Economist, “because the people keenest to step out from under the umbrella of the state will always be those who already rely least on its protection, the state’s tax revenue would probably decline by a lot more than demand for its services.” The article insists on the many forces behind government growth and quite correctly puts the decade of the 1980s in perspective. Though Reagan and Thatcher’s rhetoric produced such a shock on the international left that they are still dreaded by many, in fact the cases in which government spending was reduced are very few: Examples of genuine state retrenchment in developed countries are few and far between. Sweden managed it in the 1980s. In the early 1990s Ruth Richardson, then New Zealand’s finance minister, cut the size of the state drastically. Wags called her plan “Ruthanasia”. The patient did not die. State spending is now six percentage points lower as a share of GDP than it was in 1990. But this is a rare achievement, and perhaps one doomed to pass. Grant Robertson, the current finance minister, pledged to “address the most inequitable of the changes made 30 years ago” as he promised a large boost to welfare payments. Even austerity, The Economist writes, has been little more than a left wing scapegoat: Some countries buck the trend, a bit, for a while. Germany’s spending as a share of GDP in 2019 was the same as it was in 2006, Angela Merkel’s first full year as chancellor. But the stable level was also a pretty high one. And German attempts to impose frugality elsewhere were short-lived. Spain and Italy both went on courses of strict austerity during the euro-zone crisis of the early 2010s. But in both cases public-sector spending, relative to GDP, was higher in 2019 than in 2006. The magazine’s editorial asks how classical liberals should respond to the new era of Big Government which has been ushered by the pandemic and generous fiscal policies made possible by non-conventional monetary policies. Its response is a catalog of good intentions: One task is to maximise the role of markets and individual choice. Climate change should be fought with a price for carbon, research-and-development subsidies and highly scrutinised public investments, not by rationing flights, promoting green national champions or enlisting central banks to distort financial markets. The welfare state should focus on redistributing cash and letting those in need choose what to do with it, not setting up new bureaucracies such as President Joe Biden’s proposed federal child-care system. Taxes should be broad-based and friendly to investment. The state must also seek to be nimble and efficient. Income support for households should be automated where possible as the financial sector becomes more digitised. Much form-filling can be eliminated, as Estonia’s war on paperwork has shown. If there were fewer, better-paid bureaucrats, the public sector could attract more talented staff. And politicians should be willing to start afresh when tackling new problems, rather than relying on lacklustre incumbent departments. The biggest successes of governments during the pandemic have come from internal startups like Operation Warp Speed, which helped bring about America’s development of vaccines. The state should strive to be impartial. Narrow interests, whether the unions and anointed victim groups favoured by the left, or the right’s chums in business, will always seek to capture it. To resist, bureaucrats do not need relentless cynical, self-serving attacks on their integrity from politicians, but transparency and support for the ethos of public service. Though rising total spending on the old is justified, a full-scale gerontocracy is not. Retirees with deep pockets do not need public handouts. On the contrary, they should bear a heavier burden as taxes shift from wages, towards property, inheritance and consumption. We have here something which is often troubling in classical liberal accounts of current affairs. Classical liberals tend to be realists: they see the “objective” forces behind government growth (pressure groups but also, for the Economist, “prices of the services welfare states provide, such as health care and education, grow faster than the economy because of their high labour intensity and low rates of productivity increase”) but then, when it comes to a positive program, they come up with a few good ideas which would nonetheless require a profound modification in the very system of politics which produced bigger government in the first instance. We tend to be (me included) consistent realists when it comes to the reason why we got here, but idealists when it comes to how to move forward, by appealing to the best sense of the people and leveraging the rationality of our message. Does this work? I would have expected, in the Economist’s piece, some attempt at creative constitutional engineering. Tipping points could be searched for to make the growth of government at least a bit more difficult. When it comes to how (if) the growth of government could be slowed or stopped, there are two relevant questions the Economist seems not to consider. The first one is to what extent is the growth of government economically harmful. Are people suffering, and will they be poorer because of it? Who will it harm the most? Answering this question will be useful to try to identify who could be the next constituency for limited government. The Economist seems to think that, since the world is more complex, governments needs to do more, hence the case for classical liberalism is intellectually more challenging now than it was at Thatcher’s time. I don’t think that is the case. Actually, perhaps the sophistication of the argument of statists would be an interesting test for that assumption. Do we find contemporary advocates of bigger governments to be more sophisticated than, say, John Maynard Keynes or William Beveridge? My impression is that the argument for government is actually less sophisticated and simply assumes that government is the best answer to a whole series of problems, without proving very much. I think the problem is different. In Thatcher’s time, it was pretty clear that the constituency for reducing the scope and action of government lay within the productive middle class that saw itself as penalized by taxation and regulation and which retained a strong culture of autonomy and self help. Is that still the case now? It seems to be that it is now, but another constituency for a smaller government hasn’t been found yet. (0 COMMENTS)