Whether New York Governor Andrew Cuomo is guilty as charged, the statement he made in his defense illustrates what public choice theory has taught economists: as James Buchanan wrote, we must study “politics without romance.” At about 12:50 in the video (well worth watching), Cuomo declared: My job is not about me. My job is about you. What matters to me at the end of the day is getting the most done I can for you. And that is what I do every day. Perhaps we can find politicians genuinely devoted to doing good for their electors, who selflessly sacrifice themselves to that task, and who don’t realize that the benefits they provide to some (“you”) are at the cost of harming others (those who don’t agree or see their own opportunities reduced). Perhaps we can even find the rare politician who tries hard not to hurt some in order to give privileges to others but, instead, to do only what he thinks is unanimously wanted by all his constituents—that is, in conformity with the rules presumably meeting everyone‘s consent in an implicit social contract. But it is the contention of classical liberalism in general and public-choice economics in particular that it is unrealistic and perilous to found a political system on the assumption that the typical politician is or can be such a saint. John Stuart Mill wrote: The very principle of constitutional government requires it to be assumed that political power will be abused to promote the particular purposes of the holder; not because it is always so, but because such is the natural tendency of things, to guard against which is the special use of free institutions. This also applies to New York Attorney General Letitia James. (0 COMMENTS)

The questions we ask or the passing comments we make depend on the explicit or implicit theories we hold about the world, including normative theories and values. This is not to say that anything is as true as anything else or that any value is as defensible as any other, but that one’s theories and values should be examined. What one says can also be motivated by virtue signaling, that is, showing one’s good standing with the group one wants to endear or persuade. Unexamined passing comments are often influenced by the intelligentsia’s intellectual fetishes. I found a few examples in a book that is otherwise serious and challenging: Daron Acemoglu and James A. Robinson, The Narrow Corridor: Sates, Society, and the Fate of Liberty (Penguin, 2019). I will have a review of the book in the forthcoming (Fall) issue of Regulation. One example is about guns in the hands of ordinary citizens. The book tells us, as if it were obvious: The original wording of the Second Amendment … has left a long trail of violence and its wake. The well-known fact that 60% of gun deaths in America are suicides has some bearing on the evaluation of this sort of statement. And why do the authors, who are fond of “social mobilization” and (some) democratic resistance to Leviathan, criticize the National Rifle Association which, whatever one thinks of it (and the grave mistakes it has made over the past several years), is a major grass-root and anti-elite force in America? One would think that they would normally celebrate the private ownership of guns. George Orwell, the author of Nineteen-Eighty-Four, wrote in an article (quoted in Michael Shelden, Orwell: The Authorized Biography [HarperCollins Publishers, 1991], p. 328): That rifle hanging on the wall of the working-class flat or labourer’s cottage is the symbol of democracy. It is our job to see that it stays there. Totemic ideas are often dangerous. Could we similarly hypothesize that the First Amendment has “left a long trail of violence in its wake” because certain instances of free speech—say, about the meaningless of life or publicizing suicides—cannot be repressed? Have the automobile industry or the swimming pool manufacturers left a long trail of deaths in America? These trails of death were absent from the former Soviet Union and its satellite countries: with few cars and swimming pools, automobile deaths and children drowning were necessarily low. Only public guns, not private ones, left a trail of violence. Another example: Is it so obvious that, as Acemoglu and Robinson suggest, Sweden is a model country compared to the United States? Not all facts concur. Just as an example (I give others in my Regulation review), consider that the age-standardized suicide rate of women is 16% higher in Sweden (7.4 per 100,000) than in the United States (6.4). If we take the raw rates (without adjustment for differences in population age structure), the comparison is more impressive: the suicide rate of women is 46% higher in Sweden (10.5) than in the United States (7.2). (See World Health Organization, Suicide in the World: Global Health Estimates, 2019.) Does this mean that social democracy is tough on the fair sex? (Unfair to the fair sex—pardon the pun.) Okay, this fact may have no particular significance, but shouldn’t it give pause to the typical defender of the Swedish model? Incidentally, Sweden seems to have reached the highest rate of homicide by shooting in Europe. The Economist notes (“Sweden Is Being Shot Up,” July 24, 2021): Such violence is invariably fuelled by illegal drugs and ill-feeling between jobless, marginalised young men and the police. … In 1980 Gothenburg’s police solved 80% of all murders. Nowadays the figure is a dismal 20%. It’s not because the Swedes have a Second Amendment, far from that. Handguns are forbidden to peaceful private citizens. Only cops and thugs carry them. Immigration and gangs are apparently a big part of the problem, but it is worth asking to which extent important features of the Swedish model could play a role. In short, one must be prudent with the intelligentsia’s fetishes. (0 COMMENTS)

Scott Alexander has a new post on our highly dysfunctional FDA. He starts with the debate over the new Alzheimers drug, and then explains how FDA errors led to needless delays of Covid testing and vaccines, which caused thousands of unnecessary deaths. While that discussion is well worth reading, Alexander was just warming up: I worry that people are going to come away from this with some conclusion like “wow, the FDA seemed really unprepared to handle COVID.” No. It’s not that specific. Every single thing the FDA does is like this. Every single hour of every single day the FDA does things exactly this stupid and destructive, and the only reason you never hear about the others is because they’re about some disease with a name like Schmoe’s Syndrome and a few hundred cases nationwide instead of something big and media-worthy like coronavirus. I am a doctor and sometimes I have to deal with the Schmoe’s Syndromes of the world and every f@$king time there is some story about the FDA doing something exactly this awful and counterproductive. For example, there are only a few hundred cases nationwide of Infant Short Bowel Syndrome, a condition where some babies cannot digest food effectively. You can save their lives by using an IV line to direct nutrients directly into their veins, but you need to use the right nutrient fluid. The FDA approved an early draft of the nutrient fluid, but it didn’t have enough fish oil, which is necessary for development, so a lot of the babies still died or ended up with permanent neurological damage. In the 1990s, researchers figured out what was going on and recommended adding fish oil to the IV fluid. The FDA responded that they had only approved the non-fish-oil version, it would take them a while to approve the new version, and until they did that adding fish oil was illegal. A bunch of babies kept dying and getting permanent neurological damage, and everyone knew exactly how to stop it, but if anyone did the FDA would take away their licenses and shut them down. Around 2010, Boston Children’s Hospital found some loophole that let them add fish oil to their nutrient fluid on site, and infants with short bowel syndrome at that one hospital stopped dying or ending up permanently disabled, and the FDA grudgingly agreed to permit it but banned them from distributing their formulation or letting it cross state lines, so for a while if you wanted your baby not to die you had to have them spend their infancy in one specific hospital in Massachusetts. Around 2015 the FDA said that if your doctor applied for a special exemption, they would let you import the correct nutritional fluid from Europe (where, lacking the FDA, they had just added fish oil to the fluid as soon as researchers discovered it was necessary), but you were only able to apply after your baby had already sustained serious damage, and the FDA might just say no. Finally in 2018 the FDA got around to approving the corrected nutritional fluid and now babies with short bowel syndrome do fine, after twenty years of easily preventable state-mandated deaths. I CANNOT STRESS ENOUGH HOW EVERY SINGLE THING THE FDA DOES IS LIKE THIS ALL THE TIME. Obviously there’s a bit of hyperbole there at the end, but later on he has a nice explanation of why the problem is not the specific people that work at the FDA, rather it’s the incentive structure: I want to stress that, despite my feelings about the FDA, I don’t think individual FDA bureaucrats, or even necessarily the FDA director, consistently make stupid mistakes. I think that given their mandate – approve drugs that definitely work, reject ones that are unsafe/ineffective, expect people to freak out and demand your head if any unsafe/ineffective drug gets through, nobody will at all no matter how many lifesaving treatments you delay or stifle outright – they’re doing the best they can. . . . And it’s hard to even blame the people who set the FDA’s mandate. They’re also doing the best they can given what kind of country / what kind of people we are. If some politician ever stopped fighting the Global War On Terror, then eventually some Saudi with a fertilizer bomb would slip through and kill ~5 people. And then everyone would tar and feather the politician who dared relax our vigilance, and we would all restart the Global War On Terror twice as hard, and drone strike twice as many weddings. This is true even if the War on Terror itself has an arbitrary cost in people killed / money spent / freedoms lost. The FDA mandate is set the same way – we’re open to paying limitless costs, as long as it lets us avoid a very specific kind of scandal which the media will turn into 24-7 humiliation of whoever let it happen. If I were a politician operating under these constraints, I’m not sure I could do any better. If you are confused by Alexander’s reference to media irresponsibility, look at how the media is hyping a few cases of vaccinated people getting Covid. As with Matt Yglesias’s posts on passenger rail and Razib Khan’s posts on woke excesses, one ends up feeling a sense of almost complete hopelessness after reading Alexander.  And that’s why Alexander, Yglesias and Khan are the three Substacks that I read—I don’t want my information sugar coated. (0 COMMENTS)

On my vacation in Canada, I’m enjoying Gore Vidal’s novel Burr immensely. Of course it’s a novel and so it’s not necessarily accurate. Vidal admits in an Afterword that he attributes motives and makes up dialogue. But he also points out that he uses known phrases from various speakers. I’m becoming quite impressed with Aaron Burr, or should I say “aaon buhr.” Two U.S. historian friends tell me that the novel is right in many particulars. Here’s a short monologue in which Burr explains the various political parties in 1834 and how they had morphed: Van Buren will be nominated and he will defeat Clay or any other National Republican—no, no, Whig. I must get used to calling them that. How topsy-turvy it is! Those of us who were for the Revolution were Whigs. Those for Britain were Tories. Then there was the fight over the federal Constitution. In our state [New York] Governor Clinton wanted a weak federal government. So some of the Whigs became anti-Federalist and some like Hamilton became Federalist. Then the Tory-Federalists became Republican. Now Tory-Federalist-Republicans call themselves Whig though they are anti-Whig while the anti-Federalist Republicans are now Jacksonian Democrats. I posted about a non-fiction book on Burr here.   (0 COMMENTS)

In my Knowledge, Reality, and Value Book Club, I focus on my disagreements with Huemer, even though I agree with the vast majority of what the book says.  Recently, however, he wrote a separate piece that I disagree with almost entirely, entitled “Two Taxes that Aren’t Theft.”  Using Huemer’s common-sense approach to ethics, I say that he’s deeply mistaken on both counts. He starts by making reasonable points about pollution taxes: Pollution. Whenever you drive your car, you release a little bit of pollution into the air, which imposes a tiny expected harm on a huge number of other people and animals, including future generations. I bet you don’t get their consent, either. On some absolute deontological views, you always need consent before imposing (certain kinds of) harm on others. But that’s impractical. You can’t get the consent of everyone in the world, including the future generations who will be affected by your pollution. So we’d have to say either (a) “You can’t pollute at all.” This requires shutting down modern civilization. Or (b) “Pollution isn’t the right kind of harm” (it’s not aggressive, people don’t have rights against pollution, or something like that). But this would mean that it would be fine to completely destroy the atmosphere with pollution (if someone had the ability to do that). (a) and (b) are both bad. We shouldn’t completely prohibit all pollution, nor should we take no action at all against pollution. While complete destruction of the atmosphere may not be on the table (yet), we would surely have too much pollution if we didn’t do anything at all to polluters. […] Wait — you can see what the utilitarian rationale is for Pigouvian taxes, but why isn’t it still theft (even if a beneficial theft)? My thinking is that the person creating the negative externality actually owes compensation for doing so. Extracting owed compensation from someone isn’t theft. So this form of taxation isn’t theft. I’ve actually made a similar argument myself, so what’s my objection?  He seems to endorse Pigovian taxes not just on physical damage to person and property, but against negative externalities in general: This point of course applies to other kinds of externalities. If people get to impose negative externalities for free, there will be too many negative externalities. Lots of activities will get done that impose greater total costs than their total benefits. And almost everyone is going to lose out overall from all the negative externalities. Solution: Pigouvian taxes. These are taxes on externality-producing activities. They’re supposed to be set so that the tax is about equal to the amount of external harm produced by the activity. This deters people from doing the activity, if and only if the total cost created by it exceeds the total benefit. The problem: Anything can be a negative externality.  Saying things people dislike is a negative externality.  Painting your house an objectionable color is a negative externality.  Having an unpopular religion is a negative externality.  And yet common-sense says that human beings have a right to create such externalities, and those who object cannot legitimately use violence to prevent their creation.  (Of course, as The Problem of Political Authority explains, people appeal to the notion of authority to rationalize government’s use of violence in such cases; what common sense says is that private individuals must tolerate most negative externalities).  A society where all negative externalities were taxed might be economically efficient, but it would definitely be a tyranny.  In a deep sense, freedom is the freedom to create negative externalities with impunity as long as you don’t non-consensually use other people’s bodies or property in the process. To put this in the form of a common-sense moral dialogue:   A: Hail Satan! B: You just created a serious negative externality. A: How? B: Christians don’t like you saying, “Hail Satan!” A: So I’m not allowed to say that? B: You can, but there’s a $20 tax for doing so.  Pay up.   Huemer also seems to endorse Georgist land taxes: This one is more interesting and controversial. I think Henry George may be right. Henry George thought that (a) everyone is entitled to the value that they themselves produce, but (b) they’re not entitled in the same way to value produced by nature. If you happen to be the first person to claim some valuable natural object, that doesn’t really give you a greater claim to its value than other people who arrived later… Solution: A land tax. The first person to find some unused land gets to claim it, but also, the person who owns a particular piece of land at any given time has to pay a tax approximately equal to the intrinsic value of that land (the value not due to human labor). The tax money should then be distributed evenly among society. This implements the idea that everyone should get an equal portion of the unimproved value of land and natural resources. Unlike other taxes, it doesn’t discourage productive activity, but it does discourage inefficient uses of land. First, this directly contradicts common-sense.  If you’re the second person to arrive on an island, and the first-person has already farmed the best land, it seems very odd to claim that you’re “entitled” to half the surplus value of his land. Second, raw human talent is also a “valuable natural object.”  So by Georgist reasoning, everyone should be entitled to an equal share of the value of human talent.  Which is, in common-sense terms, slavery. To put this in the form of a common-sense moral dialogue:   A: Welcome to the island! B: Thanks.  Now hand over half the surplus value of your land.  You owe it to me. A: This is my land.  I’m the one who farmed it.  I was going to give you some to help you out, but you’re scaring me. B: You’re entitled to your value-added, sure.  But you have to share the raw productivity of nature with me. A: Seems unfair. B: Well, let me point out that you seem to have an inborn knack for farming. A: True, I’ve always had a green thumb. B: Interesting.  I wasn’t born with this talent, so you also owe me half the value of your inborn green thumb.  I think I’m going to like this island!   I say this is crazy.  Political authority might trick people into thinking that Georgist taxes are legitimate, but in Crusoe scenarios we can readily see them as theft.   P.S. My paper with Zac Gochenour argues that the category of “unimproved land” is much narrower than most Georgists suppose.  Whether we’re right or wrong, however, Georgist taxes are indeed theft. (1 COMMENTS)

The US spends about 18% on health care, and many experts believe that a substantial share of that expenditure is wasted. I tend to agree with that view, and attribute the waste to massive government subsidies combined with severe restrictions on health care competition, both of which tend to drive up prices. But this is not an easy problem to fix. If we were to cut health care spending to 10% of GDP, then health care providers would lose income equivalent to 8% of GDP, which is a really big number. One recent attempt to reduce health care expenditures was the “Cadillac tax” on expensive insurance plans. That tax was recently repealed, with substantial support for repeal in both political parties. It’s not popular to deprive a group of people of 8% of GDP. Matt Yglesias has an interesting new post on the problems facing Amtrak. The new infrastructure bill authorizes $30 billion to improve passenger rail service in the northeast corridor. In places like Europe, that would be more than enough money to build a nice high-speed rail line from DC to Boston, which at the moment is the only part of the US where high-speed rail makes much economic sense. While Yglesias is pleased with the push for more spending on infrastructure, he worries that Amtrak will end up wasting the money, as it is an extremely poorly run organization: Amtrak . . . is run by people who are not curious about trains. In March, Grabar interviewed Amtrak’s new CEO, William Flynn, and he asked him about the cost of the Gateway project “which is almost $5 billion a mile, and that’s many times the cost of similar projects in other countries. This is a recurring issue, as I’m sure you know, in tri-state area projects, where the cost is way out of whack with international best practices. What’s going on there?” Flynn just has no answer for this. He doesn’t say “look, there’s a good reason and here it is.” And he also doesn’t say it’s a big problem and he’s working on fixing it. And he also doesn’t say he finds it puzzling and he’s looking into it. He just reiterates that he thinks the project is important. Yglesias suggests that Biden bring in an expert from overseas to run Amtrak, as the current leadership is clearly in way over their heads.  He points to the example of New York’s subway system, where city officials brought in an outside expert and service improved substantially. Unfortunately, the gains did not last: This then led to two problems. One is that when you bring a skilled outsider in, he starts fixing some stuff and gaining credibility. But he also starts identifying stuff that for some reason or other he can’t fix and starts saying things like “I can’t fix this because of X Rule or Y Person or whatever we else.” Lifetime managers of dysfunctional systems learn to just live with these points of dysfunction, but outsiders have fresh eyes and they say “this is not how a world-class system would work.” At that point you start making enemies, and either the politicians have your back or they don’t. And in New York, they didn’t, seemingly in part because Andrew Cuomo was annoyed that Byford was getting so much praise. As a result, Yglesias is a bit pessimistic about the prospects for Amtrak: What I take from this is that an effort to make Amtrak good would probably fail because the relevant elected officials probably don’t actually want to make it good. But if they did want to make it good, then they could bring in an experienced passenger rail executive from a high-functioning European system and empower him to do some house-cleaning. It would be risky, but it would also be ambitious. This would say not just that the Biden administration is interesting in spending a lot of money on mainline rail, but that they actually want to create excellent passenger rail in the United States. I am even more pessimistic than Yglesias.  I doubt whether Biden would succeed even if he were to try to fix passenger rail service.  Recall what Truman said as Eisenhower was about to take office: He’ll sit here, and he’ll say, ‘Do this! Do that!’ And nothing will happen. Poor Ike—it won’t be a bit like the Army. He’ll find it very frustrating. Of course Eisenhower did set up the interstate highway program.  But that America is long gone. If I had my way, I would not just bring in an outsider to head Amtrak; I’d farm out the entire project to foreigners.  Management and engineering people would be from Western Europe and East Asia, while lower skilled workers would be from South Asia.  I’d favor a project that used zero American workers, as neither our labor nor management has a comparative advantage in building passenger rail.  But of course this won’t happen. Then I would have Congress pass a law saying that the high speed rail project would be 100% immune from all environmental laws and regulations, and that environmental lawsuits to stop construction would not be allowed.  That also won’t happen.  People may say they favor high-speed rail, but do they actually favor the things that would be required to get the project done? The root cause of inefficiency is misaligned incentives.  Because Amtrak has no incentive to be efficient, they will not be efficient.  Firms in the private sector have good reason to be efficient—fear of losing out to competition. In fairness, it’s not easy to set up a competitive private rail network.  Various developed countries have involved the private sector in their passenger rail service to a much greater extent than the US, but while the results are generally better than here, there are cost problems almost everywhere. Interestingly, freight railroads in the US are privately run, and (along with Canada) they are the best in the world.  So it’s not like Americans cannot do railroading; we cannot do passenger rail. My general view is that it will never be possible to fix government entities such as the public schools or Medicare, and that the only real solution is privatization.  You need a system where providers have a reason to be efficient, and Amtrak does not now and likely never will have a reason to be efficient. If you want good schools, you need competition. We have an infrastructure bill, but I remain very skeptical as to whether we will actually get infrastructure. (0 COMMENTS)

A Public Service. I posted recently about the mess at the Canadian border when I drove to Canada a week ago Sunday. One commenter, Dylan, found it useful. If that commenter and others read other websites, they might be misinformed about the return to the United States. It’s easier than you might think. Because there’s some incorrect information on two different posts at Marginal Revolution, I’m pointing out the facts here. On July 27, Alex Tabarrok wrote: In other words, a fully vaccinated citizen can now fly to Canada (with Canadian requirements) but if they want back in they need to have had a virus test. This is true only if the person is flying back to the United States. If the person is driving, no virus test is needed. You don’t even need evidence of vaccination. This is, of course, for U.S. citizens and permanent residents. On August 1, Tyler Cowen wrote: Yes you need a negative result on the test to return to the United States Again, true if you’re flying, but not if you’re driving.   (0 COMMENTS)

Here is a photo of a picture that hangs on the wall of a friend’s home. Karl Popper dons sunglasses. Hanging from his mouth is a broken rose of socialism, the color of congealed blood. Logik der Forschung is German for logic of research.   Four cards are shown, each card showing a character on the side shown, namely A, B, 2, and 3, respectively.   Consider the following proposition: Proposition P: If one side of a card has a vowel, then on the other it has an even number. To establish that none of these four cards falsify Proposition P, which cards must one turn over? When my friend put the question to his besotted dinner group, we puzzled over it merrily. Feel free to answer in the comment field. This exercise in falsificationism might help us discover the value and complications of falsification as scientific practice. If reader response seems to justify it, I will follow up. (1 COMMENTS)

The $1-trillion infrastructure deal between Congressional Democrats and Republicans may at least help us answer the question: What is infrastructure? Economic definitions, when you can find them, are not enlightening. They often provide a mere list of what are supposed to be instances infrastructure without providing a key to their common features. Criticizing the infrastructure deal, a Wall Street Journal editorial provides a list of its own of “traditional public works” (“A Not So Grand Infrastructure Deal,” July 29, 2021): The U.S. could use more investment in roads, bridges, cyber-security and ports, as well as for drought, wildfire and flood mitigation. The same editorial shows how different and wider is the list concocted by Democratic and Republican horse traders. Just a few quotes: Rail has long been an obsession of President Biden, though he’s lately become fixated with electric cars. He scored $7.5 billion for a “national network” of electric-vehicle charging stations. Even FDR didn’t get a New Deal program to build gas stations. Energy Secretary Jennifer Granholm is also a big winner. She’ll run a green venture capital fund rivaling Kleiner Perkins with tens of billions to throw around at carbon capture, hydrogen, electric flying taxis, buses and high-speed mass-transit hyperloop. She will also be in charge of creating a “smart” grid with no less than $73 billion for transmission lines and batteries to back up heavily subsidized wind and solar power. One of the worst parts of the deal is the $65 billion government intrusion into broadband markets. States—i.e., politicians—will get $40 billion to build out broadband in “underserved” areas. The nation’s broadband networks have been built by private companies, which invest tens of billion dollars each year, including $67 billion in a government spectrum auction that Senators plan to use to pay for their deal. … According to a White House summary, internet providers will have to abide by rules in Mr. Biden’s competition executive order. Could the return of Barack Obama’s net neutrality rules be coming by this back door? Whatever list one likes, the first question is whether these infrastructures need to be financed by the government. In their article for the entry “Public Infrastructure” in the New Palgrave Dictionary of Economics, Teresa Garcia-Milà and Therese J. McGuire define it as the stock of publicly provided physical capital comprising highways, sewage and sanitation systems, water systems, school buildings, hospitals and so forth. Other authors limit infrastructure to public capital that produces public goods or services in the technical sense, that is, goods or services that are both non-rival in consumption and excludable, which of course drastically reduces the extension of the concept. Others would insist that network effects are a necessary feature of infrastructure: for example, the longer the internet penetration, the more useful it is. But Garcia-Milà and McGuire are right to give a more general definition because it corresponds better to what laymen, politicians, and bureaucrats think: infrastructure is simply capital equipment financed by taxpayers and operated or controlled by governments. Reviewing the economic literature, the two authors conclude that public infrastructure is not very economically productive, except for certain region of industries that benefit for the displacement effect of government intervention. They write: Based on the aggregate analysis, we can conclude very little. The most credible aggregate production-function estimates of the impact of public infrastructure on private output hover around zero, as do estimates of the net social benefit of public infrastructure investment. A different approach would be to define infrastructure as any public spending that favors free and mutually beneficial exchange among individuals, like say the commercial fairs in the Middle Ages or, very generally, the peace and order and protection of property rights ideally provided by government. This could be made consistent with James Buchanan’s illuminating phrase (in James M. Buchanan and Richard A. Musgrave, Public Finance and Public Choice: Two Contrasting Visions of the State [Cambridge MA and London UK: MIT Press, 1999], p. 245): If I observe someone with apples and somebody else with oranges, I don’t want to try to say a particular allocation of oranges and apples in a final position is better than in the other allocation. If I observe them trading without defrauding each other, whatever emerges, emerges, and that is the way I define what is efficient. But note two caveats. First, promoting exchange by eliminating some transaction costs might be promoting inefficient exchange, trades that provide benefits lower than their costs. Second, an exchange-based definition of infrastructure is not consistent with how governments themselves use the term. A large part of their activities consists in prohibiting acts of exchange that they do not approve of. They regulate or prohibit mutually-determined hiring conditions (with minimum wage laws and trade union privileges); terms of exchange with foreigners; trade in, and consumption of, many goods and services (alcohol, tobacco, foie gras, plastic bags in grocery stores, certain drugs, guns, sex, etc.); a host of mutually agreeable financial transactions; and so on and so forth. Infrastructure is not a simple economic term but rather a concept in the economic analysis of politics or public-choice analysis. I thus propose the following definition: Infrastructure is whatever the government wants to pay for because it benefits from the expenditure. “Government” is defined as politicians, bureaucrats, and occasionally a majority of voters who approve a bundled package of complex measures that have unknown future consequences and that the ordinary voter is not motivated to study and understand anyway. This definition has the benefit of explaining what governments do in practice, instead of speculating on what their infrastructure spending would be in the Garden of Eden where everything is good and free. (0 COMMENTS)

Carl Menger Is 1871 the most important year in the history of social science? I think so. That year, Austrian financial journalist Carl Menger published his Grundsätze der Volkswirtschaftslehre—or Principles of Economics. Later that year another eminent British economist, William Stanley Jevons, published his Theory of Political Economy. Both treatises offered a (similar) solution to the famous “value paradox”: Why are diamonds, a frippery, so expensive compared to water, something essential to sustaining life? Some version of this question had stumped luminaries such as Plato, Thomas Aquinas, Copernicus, John Locke, Adam Smith, and Benjamin Franklin, to name but a few. When Menger, Jevons, (and a few years later) Leon Walras provided an answer based on the relative scarcity of diamonds to water, they changed economics forever. Only Newton and Leibniz’s near-simultaneous discovery of calculus rivals these three thinkers’ serendipitous breakthrough. Menger’s star rose quickly thereafter as students flocked from all over Europe to study with him. The so-called “Austrian School” of economics was emerging. An Enduring Legacy Fifteen decades after Menger’s seminal work, the Austrian tradition in economics survives as a vibrant community of scientific discourse. As was true only a few years after Menger’s 1871 publication, this community is currently characterized by sometimes-complementary, sometimes-rivalrous “sub-traditions”—a requisite mark of a progressive research program. Yet, all the identifiable traditions within the contemporary Austrian School have tended to emphasize several analytical propositions derived from the foundational idea that the “sciences of man” should employ different methods than the “natural sciences” (a position known as “methodological dualism”). “Academic Austrian economics is distinct from any ideological position—whether left or right—as well as recent populist movements, which have often appropriated the label.” Contrary to the views of some lay commentators, academic Austrian economics is distinct from any ideological position—whether left or right—as well as recent populist movements, which have often appropriated the label. Instead, it is a body of analytical work aimed at interpreting and understanding the social world. And while not always occupying the center-stage of social scientific thought, it would be a mistake to characterize the Austrian tradition as a “backwater” intellectual movement. Though a close intellectual cousin of what might now be called “mainstream” or “Neoclassical” economics, the Austrian School survives as a distinct intellectual tradition due to the explanatory power of its ideas and a series of social-historical events, which have repeatedly vindicated the Austrian perspective. I mention the most notable below. The Refutation of Theoretical Marxism Today, very few economists explicitly identify as Marxist [see Karl Marx]. This is largely attributable to the work of Menger’s greatest student, Eugen von Böhm-Bawerk. By the turn of the 20th century, Böhm-Bawerk was one of the world’s most recognizable living economists. His fame derived in part from his devastating critique of the Marxian paradigm.1 Among other technical contributions, Böhm-Bawerk showed that employees’ wages are discounted because they are paid in advance of the revenue they generate. If laborers were willing to be paid at the time of sale, their wages would rise—but it would also force them to go without income for a possibly extended period. After Böhm-Bawerk, most economists found Marx’s labor theory of value and exploitation to be indefensible. The full-orbed explanation for why socialism in practice fails, however, was left to Böhm-Bawerk’s most insightful student: Ludwig von Mises. The Great Depression Third generation Austrian Mises, like Böhm-Bawerk, rose to international prominence, eventually becoming a Distinguished Fellow of the American Economic Association. Indeed, MIT economist Paul Samuelson—not someone who could be mistaken for an Austrian—argued that Mises would have been honored with a Nobel Prize in Economics had the prize been awarded in earlier years. What made Mises’ renown more impressive was that he achieved it despite being displaced from his native Austria by the Nazis. He subsequently settled in New York City, where he was forced to speak and write something other than one of the four European languages he knew. According to Ben Bernanke, understanding the causes of the Great Depression is “the holy grail of macroeconomics.”2 Yet, in 1912, seventeen years before the infamous 1929 downturn, Mises published his Theory of Money and Credit, which offered a theory of depressions that matched the contours of the actual Great Depression. Briefly, Mises argued that artificial credit creation spurs investments that are later revealed as unprofitable. On this view, the Roaring 20’s was a manifestation of a credit-fueled boom, which resulted in an inevitable bust. Arguably, the theory is now the most distinguishing feature of the contemporary Austrian School. In 1974, Mises’ student, F.A. Hayek, was awarded the Nobel Prize in Economics for his extensions of Mises’ theory. Socialism and the Collapse of Communism If he had contributed nothing else, Mises’ fame would have been solidified based on his analysis of socialism. In 1920, Mises staked out his position on the impossibility of socialism, an argument he continued to refine up through the publication of his 1949 magnum opus, Human Action. Like many of the “greatest hits” in economics, Mises’ argument is disarmingly simple (though far from simplistic). Socialism eliminates markets for factors of production (land, labor, and capital goods). Without markets for factors, there are no money prices for them. Without money prices, there is no profit and loss. And without profit and loss, it is impossible to determine what to produce or how to produce it. While Mises (and subsequently his students, F.A. Hayek and Murray Rothbard) developed and extended this argument, leading economic lights, such as Paul Samuelson, insisted (through 1989!) that central planning would prove superior to unhampered markets. Shortly after Samuelson’s triumphalist pronouncements, the events of the late 20th century brought vindication to the Austrian position. Leading socialist thinker Robert Heilbroner concluded in 1989 that: “The Soviet Union, China, and Eastern Europe have given us the clearest possible proof that capitalism organizes the material affairs of mankind more satisfactorily than socialism.”3 The Underdeveloped World During the Socialist Calculation Debate, Mises, Hayek, Rothbard, and other Austrians explained the failure of central planning on the one hand and the primacy of private property rights for economic development on the other. Those important lessons were soon to find a new stage on which to be proven true. The post-World War II era saw the rise of large supranational organizations, like the International Monetary Fund and the World Bank, which sought to remake the Third World in the image of the West. Central to these organizations’ strategies was the funneling of aid dollars to the least developed countries to plan their societies top-down. Austrians saw little analytical difference between this initiative and the attempt to centrally plan the Soviet economy. Several trillion aid dollars later, the Austrian perspective has been vindicated.4 Despite meddling by Western governments, the second half of the 20th century also one saw the retreat of predation by many local governments worldwide. As the Austrians had argued, private property gives rise to profit and loss, which allows for producers to evaluate the consequences of their investment decisions. Private property rights also provide the incentive for entrepreneurs to undertake investment in the first place. In the second half of the 20th century, private property rights became stronger around the world. The anticipated growth quickly followed. Between 2005 and 2015, the number of people living on more than ten dollars a day grew by 900 million. The 2008 Financial Crisis For more on these topics, see “Ludwig von Mises’s Socialism: A Still Timely Case Against Marx,” by Steven Horwitz, Library of Economics and Liberty, October 1, 2018; and “Competition and Entrepreneurship: The Fountainhead of the Contemporary Austrian School,” by Steven Horwitz, Library of Economics and Liberty, December 7, 2020. See also Austrian School of Economics, by Peter J. Boettke; The 2008 Financial Crisis, by Arnold Kling in the Concise Encyclopedia of Economics; and the EconTalk podcast episode Peter Boetke on Austrian Economics. Like the Great Depression, the 2008 Financial Crisis was precipitated by a wave of “easy money” fueled by the world’s central banks. The pattern of boom followed by bust and sluggish recovery fit the pattern predicted by the Austrian business cycle theory like a glove. In the years prior to the crisis, some Austrians had warned that central bank policy was sowing the seeds of a significant downturn. Today In the 20th century, students and “grand-students” of Carl Menger held academic posts at the University of Chicago, the London School of Economics, NYU, Princeton, and Johns Hopkins. Whereas the Austrians of yesteryear illuminated many of the most policy-relevant debates of the 20th century, a new generation is applying the Austrian analytical lens to pressing 21st century issues. These include the study of war, economic development, entrepreneurship, private governance, paternalism, monetary policy, and much more. Judging by the output of today’s Austrians, Menger’s animating vision is alive and well. Here’s to another 150 productive and insightful years of the Austrian School. Footnotes [1] Eugen von Böhm-Bawerk, Karl Marx and the close of his system, a criticism. Online Library of Liberty. [2] Ben S. Bernanke, “The Macroeconomics of the Great Depression: A Comparative Approach,” Journal of Money, Credit, and Banking. Volume 27, Number 1, February 1995. [3] Robert Heilbroner, “The Triumph of Capitalism,” The New Yorker. January 15, 1989. [4] William Easterly and Tobias Pfutze, “Where Does the Money Go? Best and Worst Practices in Foreign Aid,” Journal of Economic Perspectives. Volume 22, Number 2, Spring 2008. * Caleb Fuller is an assistant professor of economics at Grove City College and a faculty affiliate at the Program on Economics and Privacy. (0 COMMENTS)