… people see minds in terms of two fundamentally different factors, sets of mental abilities we label experience and agency. The experience factor captures the ability to have an inner life, to have feelings and experiences. It includes the capacities for hunger, fear, pain, pleasure, rage, and desire, as well as personality, consciousness, pride, embarrassment, and joy… The agency factor is composed of a different set of mental abilities: self-control, morality, memory, emotion recognition, planning, communication, and thought. The theme for these capacities is not sensing and feeling but rather thinking and doing. —Daniel M. Wegner and Kurt Grey, The Mind Club, p. 10-111 The late Daniel Wegner was a professor of psychology at Harvard University, and Grey was one of his graduate students. The Mind Club is the best book that I have read on the issue of the “theory of mind,” an issue that interests philosophers and cognitive neuroscientists. I only came across it in April of 2021 through an email from one of my blog readers. I believe that it has important implications for moral, social, and political philosophy. Wegner and Grey conclude that when we perceive that an entity falls short of having a mind of the same nature as our own, we tend to categorize it in one of two ways. An entity could lack the ability to experience feelings; or it could lack the ability to make intentional decisions. Of course, we may regard some inanimate objects, such as rocks, as lacking both feelings and the ability to make intentional decisions. Wegner and Grey see a baby and a robot as occupying opposite ends of the spectrum of incomplete minds. The baby lacks the ability to plan and make choices. The robot lacks the ability to feel sensations and emotions. Imagine that the baby and the robot were just about to tumble off a cliff and you could save only one of them. Which would you save? Likely you would save the baby… imagine that the baby and the robot have found a loaded gun and are playing with it, when it goes off and injures someone. Which of them would you hold responsible? If you’re like most people you would forgive the baby and condemn the robot to the junkyard. p. 14 The authors call this combination of an innocent feeler and a guilty doer the moral dyad. It consists of an agent and a patient, an intentional thinking doer and a suffering vulnerable feeler. (p.49) What is interesting is that we tend to interpret events using this moral dyad in cases that lack the clarity of the robot-baby example. Our attributions of mental qualities tend to be inconsistent and poorly justified. Inconsistency shows up in the way that most of us view the painful death of animals. Why is the death of a pet a tragedy and the death of a chicken a routine step toward dinner? (p. 44) A vegan might proudly claim consistency in opposition to animal suffering. Then perhaps the vegan supports abortion, which would seem inconsistent to those who believe that a fetus can feel pain. One of my favorite cartoons shows a man holding a giant sledgehammer, threatening a computer. The caption reads, “Hit any key to continue.” “Who of us has never gotten angry with a computer, at an automated response system that claims to be ready to “help” with our service problem, or at a traffic jam?” Who of us has never gotten angry with a computer, at an automated response system that claims to be ready to “help” with our service problem, or at a traffic jam? When we get upset at these mechanical systems, it is because we cannot help but assign to them the mental quality of a thinking doer. Wegner and Grey write, … the tendency to see mind in technology occurs primarily when it disobeys our desires. When machines function smoothly, we feel in control, but when they misbehave, we see mind to help us understand… … people search for an agentic mind to take the blame when they feel vulnerable and exploited. (p. 63-64) Wegner and Grey say that we use two different approaches for trying to enter the minds of others. When we try to understand their feelings, we use simulation. We try to imagine ourselves in a similar situation. When we try to understand their actions, we use theorizing. We try to imagine the chain of reasoning that someone used in order to arrive at an action. It seems that often we can understand either feelings or motives, but not both. When we perceive only feelings, we see a moral patient. When we see only motives, we see a moral agent. It seems that being a moral patient reduces agency, and being a moral agent reduces patiency. When we see others—and ourselves—as vulnerable feelers, it is hard to see them as thinking doers; and when we see others—and ourselves—as thinking doers, it is hard to see them as vulnerable feelers. (p. 111) The rest of the book contains interesting insights. Nevertheless, for the remainder of this essay, I want to focus on some of the ways that the moral dyad appears to play out in contemporary culture. For example, in the highly charged issue of deaths of African-Americans at the hands of police, it seems that many people can only see those killed as vulnerable feelers, without agency. And they see police as cold-hearted agents, without feelings—no one takes to the streets to protest the killing of a cop. From the moral dyad perspective, George Floyd’s death in Minneapolis could in no way be blamed on his choices to abuse drugs and resist arrest. It could only be blamed on the intentions of the police officer who restrained him. By the same token, a policeman who in April 2021 shot and killed a woman who was getting ready to stab someone with a knife is regarded as having disregarded non-lethal options available (“shoot at the knife”), rather than as feeling urgency about protecting the potential victim. People have a natural moral bias against groups and abstract entities. In term of the moral dyad, we place organizations in the thinker-doer role, not the feeler role. Wegner and Grey use the example of a survey in which people were asked about a corporate CEO who cares only about profits. If the company reduces its environmental impact in pursuit of profit, people give the CEO no moral credit. But if its environmental impact worsens in pursuit of profit, people assign the CEO moral blame. Psychologically we perceive the good act to be merely incidental and the evil act to be intentional. (p. 212) I would infer that people are likely to be prejudiced against both the market and the government. That is, when the market or the government produces a good result, this will be regarded to be taken for granted or viewed as accidental. When the market or the government produces a bad result, this will be regarded as wrong and intentional. For more on these topics, see “The Social Learning Animal,” by Arnold Kling, Library of Economics and Liberty, June 5, 2017, and the EconTalk podcast episode Franklin Zimring on When Police Kill. Accordingly, I come away from the book with a pessimistic view of culture. Our instinct to interpret events using the moral dyad model means that we are biased toward moral outrage. We want to see every unhappy outcome as the result of bad intentions on the part of some perpetrator. In a democracy that responds to popular opinion, this is not likely to end well. Footnotes [1] Daniel M. Wegner and Kurt Grey, The Mind Club: Who Thinks, What Feels, and Why It Matters. 2016. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

According to the World Bank, the US now has by far the highest tariff rates in the entire developed world (excluding a couple of tiny places like Bermuda.) I used to hear people say that the US was a free trading nation and that our trade partners had lots of barriers.  That was not true, as in recent decades the US tariff rates (and non-tariff barriers) were similar to other developed countries.  Now it’s true in reverse.  We are an extreme outlier, but in the protectionist direction. Check our our new neighbors:   In 2016, we helped create the TPP and then refused to sign on.  Now China wants to join: The TPP was originally meant to be an economic counterweight to China’s growing heft. But instead, it could end up amplifying China’s might. That’s why there’s growing interest in revising the trade pact, rebranding it and bringing the United States into the bloc, after all. “If China joined, this would be the irony of all ironies,” says Wendy Cutler of the Asia Society, who called for the United States to rejoin the deal recently in Foreign Affairs. “It was a U.S.-brokered trade agreement, and China is putting itself up to join. China wants to put the other countries on notice, and see how they respond.” (0 COMMENTS)

I recently criticized Don Boudreaux’s two major arguments against legal scholar Eric Posner’s claim that monopsony in U.S. labor markets is widespread. But I do agree with Don that Posner’s case is defective. Posner writes: Economic theory says that when a pool of workers has only one potential employer, or a small number of potential employers, those workers will be paid below-market wages. Actually, economic theory doesn’t say that. I’ll put aside the quibble that wages couldn’t be below-market because whatever we’re observing is the market. It’s clear from context that Posner means below the wage that would be paid in a competitive market, so that’s what I’ll consider. (By the way, if you follow the link in the Posner quote above, it will take you to a lengthy study on monopsony by former President Obama’s Council of Economic Advisers. I critiqued that study here, here, here, and here.) Posner is right that economic theory says this is true when there is only one potential employer. But it’s silent on the issue when there are “a small number of potential employers.” There are often industries in which there are only a few firms and these few compete aggressively in the output market. It’s hard to believe that they wouldn’t compete aggressively in the market for inputs, in this case, labor. In his article “Monopoly” in David R. Henderson, ed., The Concise Encyclopedia of Economics, economist George Stigler referenced a study by fellow University of Chicago economist Reuben Kessel on underwriter spreads in the bond market. Kessel found that when there were 20 bidders, the spread (the price charged by the underwriters) was $10 and when there was one, it was $15.74. That latter price is consistent with Posner’s claim. But, Kessel noted, just adding one extra competitor brought the spread down to $12.64, a major drop. Having 6 competitors brought it down to $10.71, almost all the way to the spread charged by 20 competitors. In short, 6 competitors led to a very competitive result. In most people’s eyes, 6 is a “small number of potential competitors.” Posner writes: In one paper, José Azar, Ioana Marinescu, Marshall Steinbaum and Bledi Taska found that more than 60 percent of labor markets exceeded levels of concentration that are regarded as presumptive antitrust problems by the Department of Justice. Ok, but that’s not enough evidence. That’s simply evidence that the Department of Justice has a presumption. Has the Department of Justice dealt with Stigler-type reasoning and Kessel-type empirical analysis? (The paper he cites does have evidence that concentration is correlated with lower wages, but I haven’t examined it.) Posner does give some good evidence, writing: For example, Elena Prager and Matt Schmitt examined hospital mergers and found that when hospitals expand through mergers and gain significant market power, the wage growth of employees declines. Notably, this decline affected skilled health care professionals like nurses — but not administrators and unskilled staff members like cafeteria workers, who could easily find jobs outside hospitals. I wonder if Posner’s aware of two major factors that lead to concentration in the medical sector. One is regulation. The medical industry is one of the most regulated industries in America and became even more regulated with ObamaCare. When an industry is regulated, there are typically what I call “economies of scale in compliance.” A firm with 10 times the size of another firm bears costs of compliance that are less than 10 times the cost for the other firm. Even without mergers, that knocks out small firms and it also leads to mergers so that firms can take advantage of those economies of scale in compliance. The other factor is Certificate of Need Regulations that many states have. The acronym is CON, and it’s a great acronym because it is a con. These regulations prevent surgery centers from arising to compete with hospitals and prevent hospitals from expanding to compete with other hospitals. When a surgery center or a hospital goes before a regulatory board to get government permission, guess who often intervenes to object to the new competition? That’s right: the current competitors. In fact, some of the toughest CON regulations are in Posner’s state of Illinois. And in his 2008 book, Code Red, a health economist just up the street from Posner, David Dranove of Northwestern University, exposed some of the bad effects of CON regulation in Illinois. Prices and wages aren’t the only thing that matter. Dranove writes that due to CON regulations: Illinois hospitals today are located where Illinoisians lived in the 1950s. Posner also contradicts himself in his last paragraph, writing: Labor monopsony affects people at all income levels, but it is a particular problem for lower-income workers and people living in stagnant rural and semirural parts of the country. But lower-income workers tend to be less specialized. They tend to be the unskilled workers whom Posner says are not affected by monopsony. What gives? Note: The picture at the top is of George Stigler, whose work is referenced in this post. (0 COMMENTS)

Quick, What’s the Fourth Estate? Bet you didn’t know. No fair peeking at Google. Ok, ok, I’ll tell you. The fourth estate consists of newspapers, radio and television stations and other such mass media. Why pray tell are these institutions considered the Fourth Estate? Are there any other “estates?” If so, there ought to be three others. What are they? The first estate is the executive branch of government; it sees to it that the rules are obeyed, the country defended. The second is the legislature; it enacts the laws; declares war. The third is the judiciary, a sort of referee for the other two, and, between them and the general public. Hark back to when you took civics in high school; you would have heard lots about all of this. What was the point of breaking up government into three constituent elements? Each of the first three estates were supposed to serve as a “check and a balance” against the other two. For the natural proclivity of government is to expand, and, if and when it gets past a certain point, liberty suffers. Here’s where the fourth estate comes in. According to this not totally incoherent and irrational theory, it is supposed to serve the function of a “check and balance” regarding the other three. Newspapermen, journalists, editorialists, commentators, have many other roles beside keeping a jaundiced eye on big bad government: they tell us all about the weather, what’s on tv, which athletic team is doing what to which others, who’s who on the gossip front, which business is now accused of exploiting which consumers, etc. But these are all secondary to its main political process: poking at, commenting on, uncovering hypocrisies, making sure the other three estates are behaving themselves. This system worked out for a while not at all too badly. Who guards the guardians? Why, the fourth estate does just that. But the other three estates didn’t much like being monitored; having their peccadillos uncovered; being made fools of; laughed at. How to stop this arrogance from the untermenchen journalists? This continual sniping at their betters? Politicians had a GREAT idea: buy up, suborn, bribe and subsidize the public media. He who pays the piper calls the tune. This worked out pretty well for a while, but then someone had an even better idea: government ownership and explicit participation in newspapers, radio and television. (The state has not yet nationalized the likes of Google, Twitter, Facebook, YouTube, etc., but if this process continues, keep your eyes peeled for such initiatives.) Insofar as serving the oversight function, this would be akin to the judiciary taking over the legislature, or parliaments and congresses subsuming the executive, or any other such combination and/or permutation. What is the empirical evidence on this matter? There are two theories in play. One is the public interest explanation. In this view, government media ownership is needed to cure market failures. Without its input, the public would be deprived of needed information. Can you think of anything more self-serving, particularly in an age of widespread use of cellphones? The other is that “government ownership undermines political and economic freedom” which is based upon an important study of the matter published in the prestigious Journal of Law and Economics. Where we are at present? Governments the world over are taking more and more control over the print and electronic media. China has just closed down Apple Daily and incarcerated its founder and publisher Jimmy Lai. The countries with the least press freedom are North Korea, Turkmenistan, Eritrea, China, Djibouti, Vietnam, Syria, Iran, Laos, Cuba and Saudi Arabia. Canada, happily, is on that list. But the Great White North is located further down this totalitarian road than its neighbor to the south. None of the fifty states, nor the U.S. government, own any local newspapers, radio or television stations. Yes, there is the Public Broadcasting Service. But the PBS is privately owned; it is not a branch of government. In sharp contrast, Canada has its Canadian Broadcasting Company which is part and parcel of government.  It is supported by tax revenues. So, if Canada wants to move in the direction of support for the Fourth Estate, the CBC should be privatized, and a full arm’s length relationship established between the two organizations. Then and only then would CBC be able to be part of the Fourth Estate, not part of the other three. And here we say nothing of the fact that the CBC has its own political slant. It is one thing if a private media baron is able to push his views onto the public ear. He does so with his own funds. But when the CBC promotes its message, it does so with money mulcted from people who support and oppose it, alike. Unfair. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans (0 COMMENTS)

One way to learn macroeconomics is to figure out when money is neutral, super-neutral, and non-neutral, and when it is not. Money is said to be neutral when a once-and-for-all change in the money supply or money demand has no real effects. Money is super-neutral when a change in the growth rate of the money supply (or demand) has no real effect. And money is non-neutral when a change in the supply or demand for money does have real effects. My new book begins with an examination of money neutrality, then covers money super-neutrality, and then covers money non-neutrality. No macro model is perfect, but the following claims seem like a good approximation of reality: 1. Money is neutral in the long run, but not the short run. 2. Money is approximately super-neutral in the long run, but not exactly so. This is especially true if there are other distortions such as taxes on nominal investment income. 3. Money is strongly non-neutral in the short run, as monetary shocks affected real wages, real output, employment, real interest rates, real exchange rates, debt defaults, and many other real variables.  The short run can last for years. With this framework, one can avoid a number of fallacies.  Thus you should be very skeptical of claims that a particular monetary policy is impacting highly persistent structural issues such as income inequality or chronic trade deficits.  But you should also be very skeptical of claims that printing money cannot possibly produce short run benefits, such as recovering more quickly from a recession. I’m surprised by how many people struggle with the fact that you can’t print your way to prosperity, but you can print your way back to prosperity. You can think of my new book as an attempt to justify the claims made in this post, and also to flesh out the implications of these claims for recent macroeconomic events in America and elsewhere. (1 COMMENTS)

On September 21, 2021, Winnipeg Free Press editor Paul Samyn wrote, in an email I received: Carville made those comments in a piece for The Hill in 2014, but that same vexing question resonates today as we look at some of the success Bernier’s anti-vaxx stance as leader of the People’s Party of Canada had at the ballot box Monday night. Bernier didn’t win his seat. His party didn’t elect a single MP. But there was enough in that platform built upon anger over COVID restrictions and mandatory vaccinations to capture 5.1 per cent of all ballots cast. In case you are wondering, that’s more than twice the share of votes the Green Party attracted. The Carville comments that Samyn referred to were: A chief complaint of many Republicans is that Asian-Americans and Jews strongly support and vote for Democrats despite the affluent economic standing many have achieved. Similarly, Democratic strategists struggle to understand why 77 out the 100 poorest and most government-dependent counties in the United States voted for Mitt Romney in 2012. Samyn argues that people who voted for the People’s Party of Canada didn’t understand their true interest and “were willing to shoot themselves in the foot in many ways Carville never imagined.” It’s possible he’s right, but he doesn’t make the case. The reason? Bernier opposed vaccine mandates. Nothing that Samyn quoted has Bernier opposing vaccines. Samyn fails to make a basic distinction between being against mandatory vaccine and being against vaccines. When you fail to make such distinctions, you are going to be mystified a lot of the time. That distinction is not difficult. Let’s try a few others. I think it’s a good idea for over 90% of people to get married. Therefore everyone should be required to marry. I think that eating food every day is a good idea. Therefore everyone should be required to eat food daily. I think that exercising at least 6 times a week is a good idea. Therefore everyone should be required to exercise at least 6 times a week. Do you agree with me on each of the first sentences in the 3 paragraphs above? If so, then surely you must agree with each conclusion. Or is there another possibility?   (0 COMMENTS)

Dear University Presidents: We all know that higher education falls far short of its promise.  I’ve spent a large part of my twenty five years as a research professor documenting the shortcomings of our system.  Perhaps you’re even familiar with my The Case Against Education (Princeton University Press, 2018).  In recent years, however, we’ve begun failing our students in new and improved ways.  In the past, we failed to transform our students into thoughtful and knowledgeable adults, but at least most of them had a great four-year party (or often a five- or six-year party).  Now we’re making the college experience itself actively dehumanizing. This is most obvious when we look at our forever war on Covid.  Virtually every college in America has a vaccine mandate – a wise move, in my view.  Yet instead of using these amazing vaccines to return to normalcy, virtually every college in America continues to aggressively “fight Covid.”  Our policies would have been unthinkable two years ago: Indoor mask mandates.  50% seating in dining halls.  Excluding guests from live performances.  Social distancing.  All combined with sporadic yet self-righteous enforcement. These policies aren’t merely “inconvenient.”  They are dehumanizing.  Showing other people how we feel – and seeing how they feel in turn – is a basic part of being a human being.  A basic part of making friends.  A basic part of connecting with a community.  True, most students in the Covid era continue to make friends – and even smile on occasion.  As Jurassic Park teaches us, “Life finds a way.”  But this is still a stunted and twisted way for young people to live. Sometimes, sadly, dehumanization is the price we pay to survive.  But this is not one of those times.  Even pre-vaccine, universities absurdly overreacted to Covid.  Now that virtually everyone on campus has the vaccine, the overreaction is absurdly absurd.  A conservative estimate of Covid’s Infection Fatality Rate is .6%.  For the college-age, divide that risk by 30.  For the vaccinated, divide by 10 again.  That means we’re talking 1-in-50,000, assuming a student even gets infected.  And of course, vaccines also greatly reduce infection and hence contagion. I beg you, don’t reply with the fashionable preamble, “Out of an abundance of caution…”  Life is full of trade-offs.  Americans’ annual risk of dying in a car accident is roughly 1-in-9000, yet I doubt you would ban students from driving.  Similarly, please don’t start telling me about high-risk students and older members of our campus community.  I am an “older member of our campus community,” and I know the risks.  That’s why I got vaccinated as soon as possible.  That’s enough to put my mind at ease; I face dozens of more serious risks every day.  But if that’s not safe enough for me, then I, not an entire generation of students, should bear the burden of isolation. You could insist that we have a fundamental difference of values.  I’m a pluralist, while you put safety first.  Actions, however, speak louder than words, and your actions clearly show that you do not “put safety first.”  If you really put safety first, why not move all classes outside?  Why have any social events at all?  Indeed, if you really put safety first, why did you re-open campus in the first place?  Despite your pious rhetoric, you don’t put safety first any more than I do. Frankly, I’m not even sure that you care more than me about safety.  Why would I doubt your stated priorities?  Because both your Covid rules and your Covid enforcement are so arbitrary.  You enforce your mask rules fanatically, often refusing lecturers the right to remove their masks so their audience can hear them.  Yet you’ve long since abandoned any effort to enforce social distancing.  If it weren’t for the ubiquitous propaganda, you’d think that social distancing policies were abolished a year ago.  Similarly, you “fight Covid” by getting rid of self-service at buffets, ignoring all the extra crowding that ensues as a result.   You deny parents the chance to see their own kids perform in concert, but don’t even ask students to avoid live music off-campus.  Frankly, you seem far more concerned with “doing something” than actually making campus safe. How much do all your efforts actually reduce the spread of Covid?  Unless your campus is extremely isolated, it would be amazing if you were cutting transmission more than 10%.  Which means you’re dramatically reducing students’ quality of life in order to reduce fatality risk if infected by 1-in-500,000. We have a word for extreme fear of ultra-low risks.  The word is “paranoia.”  Paranoia is what you are teaching students.  The good news is that, based on past educational experience, most students will eventually forget the lesson.   Yet in the meanwhile, you are sickening many students with childish anxieties. Nor is Covid the only issue where you are teaching paranoia.  Many schools – and probably most of the top ones – now kick off the academic year with a long series of mandatory brainwashing sessions.  You gather students together, then have your most fanatical employees preach against the evils of racism, sexism, homophobia, transphobia, and much more.  As with Covid, you show near-zero interest in measuring (a) the on-campus prevalence of these ills, or (b) the effectiveness of your inhumane remedies.  Instead, the brainwashing sessions just try to sow as much pessimism as possible. I doubt that most of this matters much; preaching against “racism” at college is like preaching against “sin” at church.  The people who need to hear the message are rarely in the audience.  Nevertheless, there is one kind of brainwashing that probably does make a difference.  For the worse. I’m talking about your training in sexual harassment and sexual assault. How can I say such a thing?  Because most young adults are naturally shy around the opposite sex.  Many if not most female students are so shy that they will never ask out a male student.  Many if not most male students are so shy that they have to spend weeks or months “working up their courage” to propose a date.  Social anxiety toward the opposite sex is a human universal, visible around the world and throughout history.  And what does your training in sexual harassment and sexual assault do?  Strive to maximize students’ anxiety.  You try to convince female students that virtually any male is a plausible sexual predator.  And along the way, you make male students wonder if any social interaction with their female peers will be labelled “harassment” or even “assault.” None of this means that higher education should take sexual violence lightly.  The wise path, however, is to define sexual violence narrowly – and punish it harshly.  To treat it as an easily-identifiable aberration, a clear-cut crime, not something that an unbrainwashed person might do by accident. Instead, you’ve taken the opposite path, of sowing paranoia.  And, though your brainwashing is only one small part of a sad Zeitgeist, the patterns are what you’d expect: High gender segregation, loneliness, and lovelessness.  Yes, extraverts land on their feet, but when I look at college campuses today, I feel sorry for the silent majority of shy kids.  In the past, they only had to worry about being ignored and rejected.  Now they have the added burden of paranoid fears of being victimized and demonized.  And if you protest, “Such problems are unlikely,” you’re telling the wrong person.  The people who need to hear that “Such problems are unlikely” are the students that you’re scaring to death. Or better yet, stop trying to terrify them in the first place. I realize, of course, that you didn’t reach the apex of the academic pyramid by defying the academic consensus.  As a tenured professor, I have the luxury of speaking my mind, secure in the knowledge that I won’t lose my job.  To become a university president, in contrast, you had to play ball, to compromise, to go along to get along. Still, the key word here is “become.”  Now that you are the university president, you are clothed in immense power.  You have the power to return your campus to normalcy.  You have the power to end mandatory brainwashing.  You have the power to draw a bright line between criminal violence and normal human misunderstandings.  Admittedly, your power is neither absolute nor permanent.  You are more likely to keep your job if you go with the flow.  But where is the honor or fun in that?  Take a stand.  Stick your neck out.  And give your students a college experience they will remember with nostalgia, not disgust.   Sincerely, Bryan Caplan Department of Economics George Mason University (1 COMMENTS)

My good friend and fellow blogger Don Boudreaux argued yesterday against Eric Posner’s claim that monopsony is widespread in U.S. markets. I agree with Don that it’s not. However, I don’t agree with either of his two major arguments for why it’s not widespread. Here’s Don’s first argument: To back his assertion, Prof. Posner refers to “academic research on labor markets” that allegedly shows that “millions of Americans are paid thousands or even tens of thousands of dollars less than they should be paid.” Well, I can point to academic research on labor markets that shows the opposite, namely, that growth in worker pay has kept pace with growth in worker productivity. (See, for example, here and here.) This finding is inconsistent with the prevalence of monopsony power. The problem with this argument is what we at UCLA when I was a graduate student called a “rate versus levels” issue. Let’s say we accept, which I do, that growth in worker pay has kept pace with growth in worker productivity. That does not mean that pay has kept pace with productivity. It could be the case that productivity and real pay each grow at 1 percent a year. It could also be the case, at the same time, that pay is 10% below productivity. The latter would be evidence of monopsony even though the former is correct. I’m not saying that there is a monopsony. I am saying that if there’s a systematic gap between pay and productivity, both could be growing a the same rate and that would not be evidence against monopsony. Don’s second argument is a version of “If you’re so smart, why aren’t you rich?” Don writes: If Prof. Posner, along with the academic researchers he cites in support of the claim of widespread monopsony power are correct, they should stop writing papers and op-eds about the problem and instead start their own companies – companies that will bid away these underpriced workers from their current employers and, in the process, raises workers’ wages. Because in this case there is no good reason why Prof. Posner should not put his own money and effort where his mouth is, the fact that he doesn’t do so tells me that he either does not really believe his assertion or, more likely, that he doesn’t understand just what it is that he’s asserting. Here’s my problem with that argument. Many skills are required to run a successful business. Understanding that workers are underpriced is not the only element required for Posner or others to succeed. They also need to know how to market a product, how to produce a product, how to respond to competitors, how to find workers, how to motivate workers, how to deal with intrusive governments, etc. I’ll give an example from my own life. In the early 1980s, when I was an economist in President Reagan’s Council of Economic Advisers, I thought I had a way of importing Japanese cars from Guam and avoiding Reagan’s restrictions on Japenese imports. Reagan and his U.S. Trade Representative Bill Brock always emphasized that these were not formally Reagan’s restrictions but, instead, were a voluntary export restraint imposed by Japan’s government on its own car exports. So I thought that one could buy cars in Japan and ship them to Guam and then ship them to the United States. The Japanese exporters would not be violating their government’s restraint and the U.S. government had no legal say. So I went to a major free-market-oriented lawyer in the Reagan administration who was in my building to run my idea by him. I wanted to see if he thought my legal reasoning held water. Also, he was independently wealthy and I thought he might be willing to put in $1 million or so to make it happen. He told me that my idea might hold water and we should think about it. After about a day, he got back to me with the slam-dunk argument against going ahead. He pointed out that if I was right, that’s all I knew. I didn’t know how to buy 1,000 cars, how to ship them, how to sell them in the United States, etc. So even if our margin on the cars was as much as $1,000 on each (a big number in 1983) we could easily lose that or more by screwing up on the other elements.e (0 COMMENTS)

In the early 2000s, I coined the phrase “rational irrationality,” and later made it the foundation of my The Myth of the Rational Voter (and well as my case for betting).  It’s very gratifying, then, to see that Steven Pinker is on board.  From his recent interview with Richard Hanania, entitled “Rationality Requires Incentives.” Richard: Yeah, I think that’s right. I guess, a different way to ask that question, is there a rationalist case against rational irrationality as far as, “Okay, I accept your arguments. I participated in this project of having a discussion and giving reasons for my belief.” But when it comes to religion, when it comes to politics, when it comes to my ultimate views of the universe, there’s no instrumental reason for me to believe in the truth. So I’m going to indulge in whatever I feel. And most people don’t think like this, but … Steven: Actually I think most people do think in that monologue that you just shared… Richard: Not consciously … Steven: Not consciously, but I think, in fact, I think that’s a huge part of the answer to one of the puzzles that motivated the book. Namely, why does it appear that humanity is losing its mind? How could any sane person believe in QAnon or chemtrails, the conspiracy theory that jet contrails are really mind-altering drugs dispersed by a secret government program? And part of the answer is that people are in fact, most people, most of the time are rational about their day-to-day lives, about holding a job and getting the kids to school on time. They have to be. We live in a world of cause and effect and not of magic. So if you want to keep food in the fridge or gas in the car, you pretty much have to be rational. But then when it comes to beliefs like cosmic, metaphysical beliefs, beliefs about what happened in the distant past and the unknowable future, in remote halls of power that we’ll never set foot in, there people don’t particularly care about whether their beliefs are true or false, because for most people and for most times in our history you couldn’t know anyway. So your beliefs might as well be based on what’s empowering, what’s uplifting, what’s inspiring, what’s a good story. And people divide, I think, their beliefs into these two zones. What impinges on you and your everyday life, and what is more symbolic, mythological? It’s really only with I think the Enlightenment more or less that the idea that all of our beliefs should be put in the reality zone, should be scrutinized for whether they’re true or false. It’s actually in human history a pretty exotic belief. I think it’s a good belief, a good commitment, but it doesn’t come naturally to us. (0 COMMENTS)

You occasionally see people debate whether money is “endogenous” or “exogenous”. I will try to explain that debate using the analogy of endogenous and exogenous steering of a car. Imagine a road network with a series of relatively straight but bumpy highways, and then occasional intersections where people can turn onto an alternative highway, which is also straight but bumpy. On the straight sections, drivers occasionally nudge the steering wheel to the left or right to keep the car in its lane, after a bump in the road throws it slightly off course. This sort of endogenous steering is done almost without thinking, and involves the driver reacting to the situation in a relatively deterministic fashion. Endogenous steering is analogous to how the money supply is controlled when a central bank is targeting a short-term interest rate (and doesn’t pay interest on bank reserves.) Prior to 2008, the Fed used to instruct its open market desk to passively adjust the money supply as needed to keep the fed funds rate equal to the target rate for a period of 6 weeks. In this analogy the fed funds target is like the road, bumps in the road are like shocks to money demand, and adjustments in the money supply are like nudges in the steering wheel that keep the car on track. Every so often, the driver comes to an intersection. At this point the driver must make a choice; which road is most likely to achieve the driver’s travel goals? Occasionally, they will sense they are not going in the best direction to achieve their destination, and turn the steering to move onto an alternative road. This is exogenous steering, not just a passive response to bumps in the road. Similarly, every 6 weeks Fed officials would meet to consider whether they are on track to hit their inflation target. If not, they would decide to adjust the money supply in such a way as to move inflation toward their target. If inflation is too high, they’d raise their target interest rate enough to slow money growth enough to bring inflation back on target. Once the new interest rate target was set, money growth again became endogenous—until the next “intersection” was reached. But in a broader context, the interest rate was also endogenous; the target interest rate was set at a position expected to lead to the sort of growth in the money supply that would achieve the inflation target. So if you ask me whether steering a car is endogenous or exogenous, I’ll answer, “it depends”.  If you asked me whether the money supply is endogenous or exogenous, I’ll answer, “it depends”.  If you ask me whether interest rates are endogenous or exogenous, I’ll answer, “it depends”.  If you see people debating whether a policy variable is endogenous or exogenous without this sort of context, move on and read something else. (0 COMMENTS)