Economist and author David Henderson talks about his book (co-authored with Steve Globerman) The Essential UCLA School of Economics with EconTalk host Russ Roberts. Much of the conversation focuses on the work of Armen Alchian and Harold Demsetz, who both saw economics as a powerful tool for understanding human behavior and how the world works. (0 COMMENTS)

Economist and author David Henderson talks about his book (co-authored with Steve Globerman) The Essential UCLA School of Economics with EconTalk host Russ Roberts. Much of the conversation focuses on the work of Armen Alchian and Harold Demsetz, who both saw economics as a powerful tool for understanding human behavior and how the world works. The post David Henderson on the Essential UCLA School of Economics appeared first on Econlib.

Don Boudreaux writes: One general lesson that I draw from facts such as this one [the fact he’s referring to is that during the pandemic, the FDA actually used the Covid-19 emergency as a pretext to slow the approval of SARS-CoV-2 tests, rather than what many of us would have liked, which is the opposite] is about the unfortunate but largely unalterable reality of government. Government has a nature no less than does any virus. It’s therefore not only pointless, but dangerous because distracting, to make declarations about what interventions government ‘should’ have pursued, and should pursue in the future, to better protect us from contagious pathogens as if government’s nature is amenable to good intentions expressed by persons adequately informed about science. Much of the disagreement among people about Covid policy springs from the different assessments different people make about the amount of knowledge to which government can reasonably be supposed to have access and the ability to process, and about the likelihood that government officials will act in the public interest when acting in this manner runs against these officials’ own interests. If our earthly affairs were governed by a supernatural power akin in both knowledge and motivation to the Christian God, then even I would trust this power with the authority to lock humanity down if and whenever this power deemed such a move to be the best. But of course the state is a power categorically and dramatically inferior on all dimensions to any such supernatural power. While no one directly and expressly denies the truth of the previous sentence, a shockingly large number of people endorse government policies as if the previous sentence were untrue. Among the many surprises of the past 18 months has been the number of people who, pre-Covid, understood that the state is not a godlike institution, but who, once Covid appeared, joined ranks with those who believe that the state is both capable of being, and eager to be, godlike.) This insight is simple yet profound. When I was a senior economist at the Council of Economic Advisers in the early 1980s, I saw this all the time and even participated in it to some extent. The easiest thing to do to be true to the above insight was to criticize the various proposals for more regulations and more spending programs coming from other agencies within the federal government. If I helped stop programs from being implemented or expanded, I helped minimize the probability that “government’s nature” would lead to some bad results. But if we (I have in mind my boss Martin Feldstein here) pushed for various programs, then my fear was that “government’s nature” would take over. The main one that Marty and I worked for and agreed on was a “tax cap” for employer contributions to employees’ health insurance premiums. Our idea was that any contribution over about $1,800 per year (this was in 1982-83 dollars) would be treated as taxable employee income. The idea was that then incremental increases in insurance premiums would be treated like other employee income and so the incentive to expand insurance due to its tax-free nature would end. (I tried to persuade Marty to advocate lowering marginal tax rates at every level somewhat in order to make it revenue neutral, but he was a deficit hawk and was having none of it.) But Marty wasn’t happy with that. He was a bit of a dirigiste. He wanted employers not to be able to deduct their payments for health insurance from their taxable income unless their insurance included at least a certain co-insurance rate (I think 20%) and a certain deductible. I argued with him until I was blue in the face that this would introduce a new distortion. I also pointed out that this would totally upset the Kasier Permanente business model. But he wanted what he wanted. His health economist friends from around the country would write me, tell me to say hi to Marty, and ask me to express their disapproval of his micr0-managing idea. I faithfully did so. Finally, after about the 4th one, Marty told me to quit raising the issue. The issue, by the way, got nowhere. (1 COMMENTS)

In a recent post, I listed a bunch of myths that we teach to our students. One of them was specifically applicable to the German population—the myth that hyperinflation put the Nazis in power. In fact, it was deflation (and unemployment) that transformed the Nazis from a small political party in 1929 to a major party in 1932. I don’t know if anyone at Bloomberg reads my posts, but just a couple of days later they did a story on this myth. They pointed out that the more educated the German, the more likely they are to believe the myth: There was hyperinflation during the Weimar era, and it did contribute to a general sense of chaos that undermined the fledgling republic. But that peaked in 1923, the year Hitler botched a putsch and went to jail — a full decade before he seized power. By contrast, the monetary and economic event that contributed directly to the Nazi takeover was the crisis of the early 1930s, and in particular the deflation, or general fall in prices, that caused mass unemployment (see chart). That’s not how Germans “remember” history, however. Haffert, Redeker and Rommel did surveys in which they asked participants to estimate inflation in 1923 and 1932. Most thought that prices were also soaring in 1932. Almost nobody knew that prices fell that year. The biggest surprise as that the more educated respondents were, the more likely they were to be wrong. As I pointed out in my previous post, the people putting out these myths have an agenda: There are at least two reasons why Germans and non-Germans alike should care about this backstory. The first is that the truth is always better than a myth. The second is that the myth in this case has for many years been a political power tool wielded by German conservatives against the ECB, which is a short taxi ride from the Bundesbank on which it was modelled. This myth partly explains why the Eurozone double-dip recession of 2008-13 was far deeper than the US recession, despite the supposed “cause” (subprime mortgage defaults and banking stress) occurring in the US.  Of course, the actual cause of both recessions was tight money—and money was much tighter in the Eurozone. (0 COMMENTS)

In a comment by Daniel Reeves on a recent post by my co-blogger Bryan Caplan, Reeves claims that I ignored the bathtub analogy in Gernot Wagner’s and Martin L. Wietzman’s Climate Shock in my review of the book. I didn’t mention it but I didn’t ignore it. It just struck me when reading the book that the bathtub analogy was obviously correct and, indeed, so obvious that it wasn’t worth mentioning. Maybe that’s because I’ve read a lot about global warming but it’s more likely due to the fact that I understand and, maybe unjustifiably, expected everyone in the debate to understand, the difference between stocks and flows. Here’s the analogy, from page 15 of the book: Think of the atmosphere as a giant bathtub. There’s a faucet–emissions from human activity–and a drain–the planet’s ability to absorb that pollution. [DRH note: notice how the authors jump from “emissions” to “pollution.”] For most of human civilization and hundreds of thousands of years before, the inflow and outflow were in relative balance. Then humans started burning coal and turned on the faucet far beyond what the drain could handle. The levels of carbon in the atmosphere in the atmosphere began to rise to levels last seen in the Pliocene, over three million years ago. The authors then go on to point out that simply stabilizing the flow of carbon into the atmosphere won’t do the trick: the bathtub will fill further. Nothing in my review contradicted this or demonstrated my ignorance of this. My review focused on other things that were problematic, like the authors’ weak criticism of geo-engineering.   (0 COMMENTS)

Except for psychopaths, we all hope that the four members of the Inspiration4 mission (watch a video) will safely return to earth. One remarkable thing is how, just a few years ago, most people would have not believed that a crew of civilians would soon orbit the earth in an adventure financed by a billionaire (Jared Isaacman) on a reusable and already-used spacecraft built by the company of another billionaire (Elon Musk). That only military officers flew to space in the past half-century illustrates how our societies are militarized. We cannot know in advance what new and unexpected possibilities individual liberty and entrepreneurship will open, just as we may not know which ones have been foreclosed by government regulation and standardization. One does not have to love billionaires to understand this idea, dear to Nobel economics laureate F.A. Hayek. In Law, Legislation and Liberty, Vol. 1: Rules and Order (University of Chicago Press, 1973, p.56), he wrote: Since the value of freedom rests on the opportunities it provides for unforeseen and unpredictable actions, we will rarely know what we lose through a particular restriction of freedom. Some surrealistic poetry and fun is part of what we missed before. The first stage of the rocket, also reusable, came back to Earth and landed on one of SpaceX’s drone ships, this one called “Just Read the Instructions.” Elon Musk certainly did not just read the instructions. The Economist writes (“SpaceX Sends the First-Ever Civilian Crew into Earth Orbit,” September 16, 2021): The Inspiration4 mission was conceived and paid for by Jared Isaacman, the founder of Shift4 Payments. Very rich entrepreneurs going into space has been something of a trend in recent months, with Richard Branson being flown to 85km in a rocketplane built by Virgin Galactic, a company he founded, and Jeff Bezos reaching 107km in a capsule launched by New Shepard, a rocket built by his company, Blue Origin. Mr Isaacman’s trip is different. It is being undertaken not to show off his own wares but to enjoy the possibilities afforded by someone else’s—specifically those of SpaceX, a company founded and run by Elon Musk—while at the same time raising money for St Jude Children’s Research Hospital in Memphis, Tennessee. Is it surprising that none of our loving governments hasn’t thought about all that before? The Economist seems to subliminally suggest that what’s happening is not really “a democratisation of space.” That is not the point. But it is a big step in opening space to consumers willing to pay for it, quite probably at decreasing prices. (0 COMMENTS)

A while back, Tyler Cowen wrote a book entitled “Average is Over“. If my memory is correct, one idea was that technology would allow some people to become much more productive than others, and/or technology would make it easier to identify who has been more productive all along. I’d like to play with this idea using a simple model economy with one firm—a newspaper with 101 journalists. Let’s say the newspaper pays each journalist $100,000.  Yes, some journalists are better than others, but . . . well . . . who’s to say how productive each journalist is?  It’s simpler to just pay them all the same. Now assume an innovation called “substack” comes along, which makes it possible to identify the productivity of each journalist.  It turns out that one journalist is far more productive than the others, and sets up his own company, which generates $1,100,000/year in revenue.  Since he’s still doing the same work as before, the total productivity of the journalism industry has not increased.  That means the remaining 100 journalists at the original firm must take a pay cut equal to the star’s pay increase—a $1,000,000 cut spread out over 100 journalists.  So their pay is cut to $90,000/year.  How should we think about this change? One answer is that the society in this tiny economy becomes more unequal.  But let’s make the society a tad more realistic.  In addition to the 101 journalists, there are 20 poor people with no jobs, who live off private charity and public assistance programs.  How do they feel about the extra inequality produced by this “substack” invention? If we assume that substack doesn’t impact total GDP, then the poor are likely to benefit if the total consumption of the 101 workers declines when society becomes more unequal.  And that seems likely to me.  The talented reporter will probably consume somewhat more, but the cut in consumption of the other 100 reporters is likely to be even larger, in aggregate. If the consumption of the 101 working people declines, then one of two things could happen.  First some of that consumption might be directly transferred to the poor.  That might occur because the rich have a higher propensity to give to charity, or face higher marginal tax rates—giving the government more money to redistribute.  But in a sense the exact mechanism doesn’t matter, all that matters is whether the 101 working people consume less in aggregate. A second possibility is that the lower consumption of working people leads to more investment.  At first glance that might not seem to help the poor.  In fact it does.  The poor sacrifice nothing to boost investment in this case, but gain from living in a more productive society for the same reason that you’d rather be a poor person in Switzerland than in Uzbekistan.  Even people with no jobs have a much higher living standard in rich countries than in poor countries.  One implication of this is that poor people with no jobs might be skeptical of socialist candidates who threaten to “kill the goose . . . “, and lean more toward “left neoliberals”, those who favor a highly productive market economy combined with redistribution to the poor.  And I’ve seen some polling results to support that claim. If my hypothesis about inequality leading to less consumption by workers is accurate, you might also see substack putting downward pressure on interest rates. I’m a proponent of the “rational expectations hypothesis”, which is often said to imply that the agents in the economy understand the underlying model.  (That’s not actually the implication of ratex, but let’s go with the idea for a moment.)  Since my toy model assumes that one journalist is especially talented, then he should understand what I am saying here.  In that case, he’d also be a “left-neoliberal”, for exactly the same reasons that the poor in this economy hold that perspective.  He would favor capitalism plus redistribution.  A big goose, with the golden eggs being redistributed. You might argue that someone making $1,100,000/year should oppose redistribution.  But this journalist is likely to be an idealistic utilitarian.  Why else would someone that talented take a lousy journalism job paying $100,000/year when he could have worked on Wall Street?  No, money is not his primary motivation.  (In any case, even if he weren’t idealistic, there’d be no cost in pretending to be, and a big benefit.) This post might seem rather abstract and unrealistic, but I’m quite serious about the ideas.  Bill Gates earned more than $100 billion from middle class consumers of Windows, and plans to redistribute almost all of that wealth to the world’s poor, as well as other charitable causes. PS.  Substack might slightly boost total GDP, but that strengthens my argument in this post. PPS.  Another implication of this post is that (nationalistic) progressives will huff and puff about the “obscene” profits earned by companies that rely on intellectual capital, but they won’t try to do anything to make the industry less profitable (before taxes.)  That’s because US companies dominate these industries at a global level.  The profits earned overseas on films like “Dune” can be taxed and redistributed to Americans. (0 COMMENTS)

Co-blogger Bryan Caplan’s tale of his children’s experience with home school is quite impressive. One slight danger is that readers might think you need to be anywhere near as prepared as Bryan and his two older sons to make it a success. But my experience, although way less impressive, also makes the case for some version of home schooling. Background My birthday is in late November and so I got into first grade just under the December 1 cutoff: I was the youngest kid in my class. We didn’t have kindergarten in my small town in Manitoba. Then, when my parents noticed how easy school came to me and how bored I was, they thought I should skip a grade. Believe it or not, my father, even though he was the principal and presumably ought to know such things, thought I couldn’t skip a grade. But after the first day of 3rd grade, I came home and told my parents that Bruce McPhail was in my class and had skipped 2nd grade. His mom, Dr. Ethel McPhail, was on the local school board. So my parents asked me if I wanted to skip 4th grade. Why 4th grade instead of 3rd? Because we agreed that I needed to bone up on 4th grade math while in 3rd grade in order to be ready. I could get into discussing what a child psychologist I visited told my parents about whether I should skip. (Answer: no.) But that would take me too far afield. Bottom line: I did skip. By halfway through 5th grade, I had caught up to the best of the 5th graders. But then we moved to another town after a fairly ugly incident involving my mother’s commitment to UNICEF. But that’s another story. Sixth grade in my new town, Carman, was tough. But by 7th grade, I had adjusted. By the time I hit high school, I was 12 years old. School was fine. I did well in classes and got along reasonably well with students and teachers. I was too shy, partly based on my age, to ask girls out. That was a downside of skipping. But that was the only sense in which I was shy. I was quite outspoken in class discussions. 12 Grade (or, for Canadians, Grade 12) I started 12th grade at age 15. Again, everything was going well. During the Christmas break, I attended something called Tuxis and Older Boys Parliament in Winnipeg. (If you check the link, you’ll see that they dropped the Tuxis in 1960, 6 years before I went. But I distinctly remember Tuxis. I had never heard the word and wouldn’t have thought to make it up.) My church, the United Church of Canada, had chosen me as the representative from Carman. I had a blast. We sat in the actual chairs in the Manitoba Legislative Assembly and debated issues. At one point, I got up to speak on one side of an issue and in mid-stream my reasoning process told me that the other side made sense, so I switched right in the middle of the speech. Two major players, by the way, were Tom Axworthy and Lloyd Axworthy, both of whom became big in Canadian federal politics. (Each newbie had to make a speech about his town. As I spoke for the first time, my fear dissipated as self-deprecating lines about Carman occurred to me and I used them: they got a lot of laughs. Tom Axworthy, of Welsh origin, wrote me a note congratulating me on my fine speech and saying that I must be Welsh.) When I got home, I was sick. I must have picked up the flu or something. But when school started back up in early January, I was still sick. Two weeks later, I was still sick. I was falling behind and afraid that I would never catch up. By about the third week of school, I was sick, but well enough to read and do homework. So a friend started bringing me his notes and homework assignments and told me what parts of the various textbooks to read. I got on a roll. After breakfast, I would work for about 3 hours on the readings and assignments. Then I would be a little exhausted. I would have lunch and occasionally a short nap, and would watch TV. Not all junk either. I distinctly remember a class on TV where the teacher shows segments from Huck Finn and discusses the lessons. It was really well done. After 2 weeks of working 3 hours a day, I had caught up; I had done 4 weeks worth of work in about half the time per day that people were spending at school. After about another week, I felt well enough to return to school so I did. I had really missed my friends. But within about 3 days of being back at school, I was exhausted by the little petty tyrannies of a normal school day. I wanted to work at home again. But I wasn’t sick. How to get sick? I was a pretty decent badminton player in those days and so after the school day ended, a friend, Jack McKay, and I set up a badminton net in the gym and played our asses off. I came home sick. Yay! So I spent a few days at home working on school, watching TV, and, something new, occasionally reading history books from the school library. Then I would miss my friends and go back to school for a few days, get exhausted, play badminton, and stay at home for a few days. Rinse and repeat. My mother and father weren’t paying a lot of attention. That’s a whole other story about what was going on in their marriage. But by sometime in March, my father, who also taught at the high school, noticed what was going on. His normal way of approaching me was quite stern. But this time was different. He asked me if I was bored at school. I said I was. Then came the great surprise. “You know that you don’t legally have to go to school, right? The age at which compulsion ends is 16.” I hadn’t known that. It got better. He said, “I’ll talk to Frank McKinnon (the principal) and see if you can arrange to come to school when you want to. Your record in the Christmas exams might be enough to persuade him.” It was. So I would go to school when I felt like it, which was about half the time, and I didn’t have to make myself get sick when I wanted to stay home. The Exam Results In Manitoba at the time (1967) we had a tradition in 12th grade (and, I think, 11th grade) of “departmental exams.” So when I sat down to write the 3-hour math exam at 9 a.m. so did about 15,000 to 20,000 other 12 graders. The exams would be graded anonymously in Winnipeg in the first 3 weeks of July by teachers who did it for extra pay. The teachers were obviously not likely be mine. I got 90s in Math (actually 99), Physics, French, and Chemistry. English? Not so well. I got 59. I paid $5 to appeal and got the grade up to 63. With that average, I qualified for a few hundred dollars in scholarships, which went a long way in 1967-68.     (0 COMMENTS)

Zero cities with over one million people currently have Republican mayors.  From the standpoint of the textbook Median Voter Model, this is awfully puzzling.  Even if urbanites are extremely left-wing, you would expect urban Republicans to move sharply left to accommodate them.  Once they do so, the standard prediction is that Republicans will win half the time.  But plainly they don’t. One possibility is that Republican politicians are too stubbornly ideological to moderate.  But the idea that virtually no one in the Republican Party is power-hungry enough to tell urban voters what they want to hear is deeply implausible. The better explanation, as I’ve explained before, is that urban voters have party preferences as well as policy preferences.  They don’t just want left-wing policies; they want left-wing policies delivered by the Democrats.   Even if Republicans were offering exactly the same policies, urban voters would vote for the Democrats anyway.  Hence, one-party democracy, as they have in Singapore. Once you buy this story, however, you just push the puzzle back a step.  Why exactly are big cities so uniformly inhabited by majorities who want left-wing policies delivered by the Democrats? Economists will naturally gravitate to the functionalist story that left-wing policies are in the material self-interest of urban dwellers.  Yet this hard to believe.  How, for example, do classic left-wing policies toward the homeless serve the material self-interest of urbanites?  If anything, you would expect urbanites to favor draconian policies to “encourage” the homeless to go elsewhere.  Much the same goes for urban crime. Even if this story were broadly true, however, it still wouldn’t explain the uniformity of left-wing cities.  You think there would be room for at least one mega-city that created a save haven for rich urbanites who want to complacently enjoy their riches without having to deal with – or pay to remedy – any of the classic “urban problems.”  And it seems like a staunchly Republican city could easily deliver this package by offering little redistribution (or actively redistributing from poor-to-rich!) combined with punitive approaches to homelessness and crime.  Such policies don’t need to “work” in the sense of solving the social problem; they just need to work in the sense of exporting the social problem elsewhere.  Yet even if you broaden the sample to cities with just over a quarter million people, the vast majority of cities still lean left. A popular alternative story emphasizes that cities are diverse and cosmopolitan, and Democrats are much more comfortable with diversity and cosmopolitanism.  But this answer dodges multiple questions, starting with: “Why can’t urban Republicans just get comfortable with diversity and cosmopolitanism, then win half the time?”  Plus: “Why isn’t there a single city that isn’t diverse or cosmopolitan?”  One can easily imagine a Patriot City of straight, white Trump supporters. A better story, in my view, is that (a) cities provide anonymity, (b) anonymity reduces the cost of violating traditional norms, and (c) Republicans value traditional norms more.  True, you still need voters to have strong party preferences for this story to work.  Main problem: This story implies that when left-wing norms become tradition, the socially conservative minority will move to cities to escape.   Hard to believe, but testable!  You could even tweak the preceding account into a habit formation story: when you lower the cost of violating traditional norms, people start violating them.  Eventually, they get used to violating them, which eventually makes them disfavor traditional norms. Main doubt: It is not entirely clear that norm violation is easier in cities.  Think about mask-wearing norms.  While you are more anonymous in cities, you are also surrounded by a much larger number of self-appointed norm-enforcers. Better stories?  Try to ponder both the Median Voter Model and the Tiebout Model before you answer. (0 COMMENTS)

Why are so many people interested in ancient Rome and Greece? We often think of these societies as the foundation of  our own. Historian Bret Devereaux, the guest in this episode, agrees. EconTalk host Russ Roberts welcomes Devereaux to explore his fascination with the ancients, whose history can still serve as a blueprint for our own future action. While history- ancient or otherwise- will always have a veneer of interpretation, it can still help us learn a lot about our own time, says Devereaux. Still, sometimes the way these ancient peoples are portrayed may not reflect the actual truth. How can we tell, and why should we care? Let’s hear your reaction to this episode. Continue the conversation here with us in the comments, and/or use the prompts below to start your own conversation offline.     1- What does Devereaux mean when he says of ancient Rome that the “people who began as its victims ended up its defenders?” Why does he insist the Romans were “not nice people,” and why were the ancient Romans able to administer such an enormous amount of territory so successfully over so long a period of time, according to Devereaux?   2- How does our knowledge of ancient societies compare practically to that of more modern ones? What role do archeology and epigraphers play on constructing our historical narrative? What about our lives today, for example, might be “archeologically invisible” to future historians, and what impact might thus have on the way our descendants understand us?   3- What are the biggest disparities between how the ancients have been portrayed in pop culture and the way they really were, according to Devereaux? How do you think this has influenced the way we think about the ancients today? As Roberts asks, why should we care how diverse ancient Rome was?   4- In their discussion of warfare, Devereaux and Roberts draw a distinction between “warriors” and soldiers.” What’s the nature of this distinction, and again, why does it matter? Why might warriors be antithetical to a free society while soldiers are not?   5- What does Deveraux say is the most important thing to understand about Sparta? Why does he suggest that Sparta is incorrectly understood as a might warrior society today? To what extent has this conversation changed your perspective on this ancient society?     (0 COMMENTS)