Economist and Nobel Laureate James Heckman of the University of Chicago talks about inequality and economic mobility with EconTalk host Russ Roberts. Drawing on research on inequality in Denmark with Rasmus Landersø, Heckman argues that despite the efforts of the Danish welfare state to provide equal access to education, there is little difference in economic mobility between the United States and Denmark. The conversation includes a general discussion of economic mobility in the United States along with a critique of Chetty and others’ work on the power of neighborhood to determine one’s economic destiny. (0 COMMENTS)

Two weekend stories in the Wall Street Journal remind us of two weaknesses of socialism or, for that matter, of any collectivist control of the economy. The first story reports on how the federal and state governments have blundered in distributing a trove of money to landlords and tenants in order to prevent evictions due to the Covid and lockdown recession (Andrew Ackerman, “End of Eviction Moratorium Puts Many Tenants at Risk of Losing Their Homes,” Wall Street Journal, July 23, 2021): “The capacity to process applications does not match the volume of need,” said Jim MacDonald, chief community investment officer at the United Way of Greater Kansas City, which is helping distribute about $30 million in the area. In other words, the capacity to process applications does not match the volume of free goodies that people want. One could argue that the problem is due to partnerships with a private organizations (United Way in this case) that are typical of American governments—an objection related to the lack of government “capacity” criticized in Daron Acemoglu and James Robinson’s latest book, The Narrow Corridor (Penguin Book, 2019). But even a more monopolistic and bureaucratized delivery system has its limits. Governments cannot have all the information about individual preferences and circumstances of time and place that are necessary for efficient central control; nor do they have good incentives to respond to whatever information they have. This problem is illuminated in The State and Revolution (1918) where Lenin defends the ideal of the whole economy organized like the state postal service. Speaking of the intermediary stage of communism, he wrote: A witty German Social-Democrat of the seventies of the last century called the postal service an example of the socialist economic system. This is very true. … To organize the whole economy on the lines of the postal service so that the technicians, foremen and accountants, as well as all officials, shall receive salaries no higher than “a workman’s wage”, all under the control and leadership of the armed proletariat—that is our immediate aim. The second story is about Leonard Erdman, a New Mexico mechanic and body shop expert, who spent several months restoring a 1952 Ford pickup and inventing a new purple color for it. Speaking of his restored pickup, he said (see A.J. Baine, “He Invented a New Shade of Purple for His Souped-Up Ford,” Wall Street Journal, July 24, 2021): I tinkered with it for eight months until I came up with a vision of what I wanted to do. I wanted it to be in your face, almost like something you would see in a comic book. My vision included purple paint. Everyone told me I was crazy—even my wife. I kept saying, “It’s going to be OK. Trust me.” (The color invented by Mr. Erdman is roughly reproduced on the featured image of this post. Look up the Wall Street Journal if you have access to it.) A Marxist may reply that this sort of esthetic venture is exactly what Marx had in mind when he described the ultimate stage of communism (The German Ideology, 1845): In communist society, where nobody has one exclusive sphere of activity but each can become accomplished in any branch he wishes, society regulates the general production and thus makes it possible for me to do one thing today and another tomorrow, to hunt in the morning, fish in the afternoon, rear cattle in the evening, criticise after dinner, just as I have a mind, without ever becoming hunter, fisherman, herdsman or critic. The economic problem here is quite basic. Resources are scarce in relation to human desires. Once all factors of production are deemed to be “our national resources” or “our collective resources,” why would the collectivity permit a little mechanic to divert his labor to a time-consuming hobby, not to mention the material inputs (all the parts) that went into “his” old Ford pickup, while, as our democrat socialists in DC would say, American children are hungry and people lack medical care? Any Supreme Soviet would find this unacceptable and contrary to the collective priorities. Any woke government would force the crazy mechanic to devote to feeding children or building medical equipment the time that he selfishly spends restoring old cars,  hunting, fishing, or literary critique. The two lessons are that (1) government management of the economy is at best bureaucratic and inefficient and that (2), at worst, it requires the arbitrary control of “our” national or collective resources, that is, of us individuals. (0 COMMENTS)

Matt Yglesias has a post discussing the new cold war with China. In the end, he’s skeptical of calls for more military spending to counter China, but along the way I think he concedes too much to the other side: But when defense spending went down in Obama’s second term, that was part of an across-the-board austerity agenda that was economically harmful. Under Trump, Congress cut deals to lift the sequester, and both military and non-military spending went up. That, it seems to me, was good. We should not let concern about China deprive us of funds for useful domestic spending. But whether or military spending actually crowds out or crowds in domestic spending depends on the situation. I strongly disagree with the first paragraph, and the second is also somewhat misleading. As I’ve pointed out in numerous previous posts, the 2013 austerity program represented a spectacular failure of Keynesian economics.  Keynesians predicted that the fiscal austerity would slow growth, perhaps triggering a recession, and instead both real and nominal GDP growth sped up after January 1, 2013.  That’s because the impact of fiscal shocks is normally offset by monetary policy, as was the case in 2013. I don’t accept Keynesian models of fiscal policy, but even if we accept the standard textbook Keynesian model, a persistent increase in military spending, say from 3% to 4% of GDP, completely crowds out domestic spending.  That’s because in the standard Keynesian model, military spending can only avoid being zero sum by reducing the volatility of the business cycle.  In other words, it would need to be “countercyclical.”  That’s presumably what Matt means by “depends on the situation”.  But that phrase doesn’t mean what many people think it means. If you permanently raise military spending from 3% of GDP to 4% of GDP, it doesn’t even have the effect of boosting GDP during a recession period.  The economy adjusts to the new trend rate of military spending, wages and prices reflect those levels, and shocks are just as likely to produce big recessions at 3% of GDP military spending as at 4% of GDP military spending.  In the more sophisticated Keynesian models, it’s not government spending that matters, it’s changes in government spending.  Again, to boost growth the military budget would have to be countercyclical. And here’s the basic problem, it’s very unlikely that military spending would be meaningfully countercyclical.  In any case, that would not be an argument for a bigger military, it would be an argument for a more countercyclical military.  If we are talking about long run changes in the military as a share of GDP, we need to assume 100% crowding out, if not more. In practice, the crowding out is more than 100%.  That’s because higher military spending requires higher taxes.  As taxes as a share of GDP rise, other things equal, the level of GDP per capita declines.  While rich countries often have fairly high taxes (i.e. Sweden), between two otherwise similar rich countries the one with lower taxes usually has higher per capita GDP.  (And even Sweden’s economy improved after it cut back on its extremely high tax rates during the 1990s.)  That’s one reason why America’s per capita GDP is higher than Europe’s—we have lower tax rates. In general, rich countries with lower taxes (the US, Canada, Australia, Switzerland, Ireland, Singapore, etc.) tend to be richer than those with higher taxes. PS.  A tiny part of military spending may involve growth generating R&D.  But that’s an argument for the government funding some R&D, not an argument for massive military spending. (0 COMMENTS)

What exactly, is a non-compete clause? It appears, typically, in a labor contract. In view of the wages and working conditions and other benefits the employer will be bestowing on the employee, the latter agrees that for the duration of his employment there, and if and when his relationship with the firm is later severed, he will not compete with his employer. This is usually stipulated for two years or so afterward, although the noncompete duration may vary. The fear on the part of the company is that the employee will either set up on his own as a competitor, or work for a different firm in the same industry. He will have the benefit of his first employer’s trade secrets, ways of doing business, etc. The employee, presumably, is paid a bit extra for agreeing to limit himself in this manner. Why then, is there any opposition to contracts of this sort? What is the case against them? First, a little history. In 2016, the Obama Administration determined that these agreements were not in the public interest. With the help of his pen and telephone this former president issued in April of that year an Executive Order, “Steps to Increase Competition and Better Inform Consumers and Workers to Support Continued Growth of the American Economy”. This was followed up in March 2016 by a Treasury Department report, “Non-Compete Contracts: Economic Effects and Policy Implication”. Hard on the heels of that came another White House report, in May 2016, “Non-Compete Agreements: Analysis of the Usage, Potential Issues, and State Responses.” This was followed by yet another October 2016 White House report, “State Call to Action on Non-Compete Agreements.” What were the justifications of this plethora of attacks on these agreed upon contracts? First, it was charged, the welfare of workers was decreased, because they had fewer options with them than without them. Well, superficially, this is indeed true: they cannot compete for a given time period. However, they were paid for this restriction on what they would otherwise be free to do, presumably with a higher wage. The employees are also precluded from outright stealing from the company, and this, too, curtails their freedom. Not all limitations are illicit. Second, they these stipulations are accused of artificially restricting competition. This is indeed correct, if by “competition” we mean, literally, numbers of competitors. Each such agreement reduces that number by exactly one. But these contracts are part and parcel of the competitive system. They were reached because of competition among employers for employees, and of the latter for the former. Mergers, too, as well as bankruptcies, decrease the number of firms still in operation. Shall we prevent them by law also? Hardly. A third criticism is that non-compete contracts hamper economic efficiency. But this, too, is difficult to accept. Suppose they were entirely outlawed. Then, firms would be loath to share with their employees trade secrets, formulae, methods of doing business, etc. that could later be used against them. If this would not stultify progress, inhibit innovation, then nothing would. Non-compete clauses help guard against such an eventuality. Another supposed flaw is that these pacts limit mobility. Of course they do. But we do not want infinite mobility, wherein workers switch jobs every millisecond. Rather, if we want economic development, we need optimal mobility. It would appear we could locate closer to that ideal on the basis of freely agreed upon contractual arrangements rather than by precluding options. Then there is the charge of depressing wages. This is perhaps the weakest of all the counter-arguments, in that first, remuneration will tend to rise, not fall, other things equal, when employees give up a bargaining chip. Second, wages depend upon productivity, and this will increase, not decrease, if firms do not fear sharing information with members of their teams. It has also been bruited about that these institutional arrangements are particularly onerous for minority group members, and thus constitute an instance of systematic racism. But this too is difficult to accept, since this demographic tends to be lower on the industrial jobs pyramid. If these clauses hurt workers, which they do not, minorities would thus be the least vulnerable to them, not the most. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans (0 COMMENTS)

Last year, fellow UCLAer Steve Globerman and I wrote a short book for Canada’s Fraser Institute on the distinctive UCLA school. It’s now out. We’re pretty proud of it. It’s part of Fraser’s series on particular economists and on schools of thought. The schools of thought books are harder to do because you have to decide whom to exclude or say little about. The book is here. Here are two paragraphs from Chapter 1: The most important member of the School was Armen Alchian, who died in 2013. Alchian taught at UCLA from 1946 until his retirement in 1984. As you will see throughout this volume, Alchian’s insights and writings underlie a distinctive theme of the School’s approach to economics: in most productive activity, the profit motive, combined with private property rights, successfully aligns the interests of producers and consumers, often in subtle ways. As Susan Woodward, a former graduate student of Alchian’s, has noted, Alchian had no use for formal models that did not teach us to look somewhere new in the known world. Nor had he any patience for findings that relied on fancy statistical procedures. Alchian saw basic economics as a powerful tool for explaining much of human behaviour in both market and non-market settings. Much of Alchian’s work was guided by the insight: “You tell me the rules and I’ll tell you what outcomes to expect.” As Woodward has noted, Alchian believed that a huge amount of human behaviour could be understood if one got straight what the property rights (i.e., the rules) were. The chapters are: What was the UCLA School? Can Property Rights Help Us Understand People’s Actions and Even Reduce Conflict? How the Profit Motive Reduces Racial and Other Discrimination. When Do Property Rights Come About? Firms Exist to Solve Problems. The Nirvana Approach. Does the High Market Share of a Few Companies Imply Market Power? Regulation: The Economics of Unintended Consequences. Do Firms Need to Maximize for the Model to Fit? Can Economies Recover Quickly  from Disaster? Concluding Comments. Enjoy. The pic above is of Armen Alchian. When I post on other UCLA economists’ work, I’ll use their pictures. (0 COMMENTS)

Dan Sutter, an economist who heads the Manuel Johnson Center for Political Economy at Troy University, interviewed me in June about my recent article in Reason titled “Economic Lessons from COVID-19,” Reason, June 2021. The 30-minute interview is up. Some highlights: 3:00: How incentives matter. 5:25: Extra federal unemployment benefits and a free summer vacation. 8:00: Opportunities for teenagers. 8:50: Mises, Hayek, and the socialist calculation debate. 9:50: Polanyi, The Tacit Dimension. 10:30: How the central planning insight applies to COVID. 12:00: How the private sector responded. 13:20: Value is subjective. 15:00: My value of going to my cottage. 16:00:  What my wife tells people that I do as an economist. 17:00: What’s wrong with one size fits all and why “We’re all in this together” is literally true but figuratively false. 19:15: Externalities. 20:50: What happens when the polluter pollutes himself. 21:40: Least-cost avoider. 22:20: Focus on elderly. 25:15: COVID vaccine–subsidies versus price controls. 29:00: My summary.     (0 COMMENTS)

I am Christopher Nolan’s fan: from Batman to Tenet, there is no movie of his that I didn’t love. I highly recommend this article by Titus Techera for Law and Liberty. Techera searches, so to say, for Churchill in Dunkirk (the movie, of course). As you may remember, Dunkirk describes the British evacuation on the beaches, on the sea, and in the air. The movie has a complex timeline (well, it’s a Nolan’s movie), so it provides us with the perspectives of soldiers of the BEF, of the sailors of the unlikely fleet of ships (transports, fishing boats, yachts of different sorts, etc.) that participated in the Operation Dynamo, and of a RAF’s pilot. Churchill is evoked at the very end, when a soldier, who feels defeated and depressed upon returning, reads the prime minister’s June 4th speech (We shall fight on the beaches). In that incredible piece of political rhetoric, Churchill says indeed that wars are not won by evacuations but then he emphasizes the heroic nature of the Dunkirk’s evacuation and thus makes it a token of hope for the English people. Techera maintains that “Nolan’s movie Dunkirk is a necessary introduction to Churchill’s greatness because it shows in a uniquely persuasive way the crisis he overcame, the possible defeat of his country and the entire collapse of Europe in one fateful moment when the entire British Expeditionary Force was about to be destroyed or captured.” It is an interesting point, in a most interesting and eloquent essay. Interestingly enough, in The Nolan Variations. The movies, mysteries, and marvels of Christopher Nolan, Tom Shone explains that “the immediate impetus for Dunkirk came after a visit by Nolan and the family to the Churchill War Rooms in London, the secret bunker located beneath the Treasury, where you can see the western front planned out by Churchill’s general”. There is no Churchill and there are no politics in the movie – but that’s not to the detriment of our understanding of the audacity of Operation Dynamo and the dire predicament of Churchill (and England) in those days of May 1940. It emphasizes, as Techera pointed out, the role of  individuals, their importance, their heroism in the face of terror. (0 COMMENTS)

The National Commission on Military, National, and Public Service issued a report in March recommending that Congress “eliminate male-only registration and expand draft eligibility to all individuals of the appropriate age cohort,” because “expanding draft eligibility to women will enable the military to access the most qualified individuals, regardless of sex.” Women have been eligible to occupy all combat roles since 2015. This is from Ella Lubell, “Senate Considers Requiring Women to Register for the Draft,” Reason Hit and Run, July 22, 2021. Lubell also points out the ACLU’s disappointing stance: “Like many laws that appear to benefit women, men-only registration actually impedes women’s full participation in civic life,” says the ACLU on its website. “Limiting registration to men sends a message that women are unqualified to serve in the military, regardless of individual capabilities and preferences. It reflects an outmoded view that, in the event of a draft, women’s primary duty would be to the home front—and, on the flip side, that men are unqualified to be caregivers.” This is appalling, especially coming from the ACLU, one of whose founding members, Roger Baldwin, went to prison for refusing to be drafted during World War I. Notice that the ACLU doesn’t mention rights but, instead, wants equal oppression. What would send a message to women that they are unqualified to serve would be a policy by the U.S. military that they can’t serve. But they can. The actual message that the U.S. government is sending to women by not forcing them to register for a draft is that the government respects women’s rights. The government should also start respecting men’s rights. Here’s what Chad Seagren and I wrote on this issue a few years ago. One excerpt: Note the irony: feminists and their allies, in arguing for greater inclusion of a sometimes marginalized element of the population, actually seek to extend an institution that ruthlessly exploits the most marginalized segment of the population. Women’s advocates who favor opening selective service for women are correct that doing so will result in more “equality” between the sexes. However, this is equality of oppression. It is as if, rather than argue for the total elimination of slavery in the name of freedom and equality, nineteenth-century abolitionists advocated extending slavery to whites. There is an alternative that serves both equality and freedom: end the selective service system altogether. I do have one major disagreement with Ella Lubell. Here’s her last paragraph: If Democrats are considering making changes to the draft, they should not exchange women’s liberty for gender equality. Rather, they should extend to men the privilege that women already enjoy. My disagreement is with one word she uses in the second sentence of that paragraph. Can you guess the word? Postscript: I have long been a fan of Roger Baldwin, and still am. It was partly because of my admiration for him and for the ACLU’s actions defending free speech in the 1970s, that I joined the ACLU only a few weeks after getting my green card. (I had worried, probably unnecessarily that listing my membership in the ACLU would hurt my chances to immigrate.) But in researching this post, I learned something about Baldwin that I found disappointing. This is from the NYT obituary: Under the threat of Hitlerism, he modified his views of the draft in World War II, and was among those A.C.L.U. members who opposed organizational support in the courts for draft resistance in the Vietnam conflict.         (1 COMMENTS)

This tweet caught my eye: Notice that sales have recently increased much faster than employment.  A bit of that might be inflation, but surely that cannot explain such a massive divergence occurring over just a few months.  Another part of the increase might reflect a make-up rise in productivity after the recent recession.  But even that cannot explain the size of the increase. More likely, the productivity numbers seem higher because restaurants are understaffed.  I base that claim on three facts: 1. Personal observation.  In recent weeks I’ve experienced some of the worst restaurant service in my entire life, most notably long waits in line at times of day when there would normally be no line at all. 2. News reports.  There are many stories in the media indicating that restaurants are severely understaffed. 3.  Logic.  How could restaurant productivity all across the country soar in a period of just a few months, after rising at very slow rates from almost the beginning of recorded history?  If there were some incredible recent technological breakthrough in providing restaurant services, wouldn’t we all have heard of it? Restaurants had the option of raising prices enough so that sales matched the staffing levels available to serve customers, but prices are sticky in the short run for all sorts of reasons. To summarize, restaurants have recently become more “productive” in the sense of delivering more pounds of food per worker.  But in terms of actual economic productivity—delivering a nice experience to customers—I see no evidence of a recent surge in restaurant productivity.   (0 COMMENTS)