Shoppers are filling their carts, both literally and digitally, with last-minute gifts. One tempting purchase, whether for gifting or for showing up in style at a holiday sweater party, is ultra-cheap clothing from Shein. Like many around the world, the French hunt for deals in December. During a recent interview with journalist Thomas Mahler, I learned that fast fashion has become a political flashpoint in France, the country known for haute couture. French lawmakers are considering measures aimed at threatening the economic viability of Shein, the Chinese company that dominates ultra-cheap clothing globally.  Millions of French consumers shop through Shein regularly. Mahler asked me: Can politicians persuade consumers to buy domestically-made clothes instead, in a country with a proud tradition in domestic fashion? My reply was that this dilemma extends beyond France. Wealthy countries do not manufacture much apparel at home. It’s cheaper to produce at scale in lower-income countries, and residents of rich nations rarely aspire to work in garment factories.  The French government’s proposed intervention is an “eco-penalty” on fast-fashion items, a tax that could eventually add €10 per garment. The purpose is to make French-made clothing more competitive while also discouraging the environmental excesses of disposable fashion. Fast fashion generates garbage. Trend cycles in cheap apparel last for only weeks instead of seasons. Shein adds many new items daily, while a traditional French fashion house releases only a few designs each year. Much of the clothing is so cheaply made that it’s worn only a few times before being thrown away. Even charities struggle to accept donated garments because of the flood of unwanted clothes. Discarded polyester shirts pile up in landfills at best, or pollute rivers and beaches at worst. Synthetic fibers shed microplastics. These are real externalities.  France’s approach thus combines modern environmentalism with a familiar protectionism. It may be politically easier to sell a tariff when it’s framed as discouraging “wasteful” consumption rather than only protecting domestic producers. Revealed preferences, meaning the preferences people demonstrate through their actual purchasing behavior rather than their stated ideals, show that consumers want affordability and variety. That puts them at odds with protectionist policymakers. When a Shein dress costs €15 and a French-made equivalent costs €100, even patriotic consumers face a hard trade-off. The price gap reflects not just labor costs, but supply-chain efficiencies, economies of scale, and a fundamentally different business model. Even if these measures succeeded in reducing the amount of clothing bought from Shien, would the French people take garment manufacturing jobs that are “brought back” to France? French youth unemployment hovers above 17%, but garment work doesn’t match the aspirations of an educated workforce. In the United States, the few apparel factories that remain largely employ recent immigrants. Is trying to rebuild a mid-20th-century industrial base like trying to resurrect typewriters? Nostalgia is not an economic strategy in a technologically advancing world. Furthermore, would robots soon “take” most jobs that could be done by French people today in garment manufacturing?  Mahler also asked me whether people could simply buy fewer clothes to help the environment. It’s an interesting question because we also see this dilemma with food in the rich world today. Calories were once expensive; now the binding constraint is waistlines, not income. Clothing has followed the same pattern. After the Multi-Fiber Arrangement ended in 2005, global textile trade boomed. For example, one Chinese city now produces more than 20 billion pairs of socks per year, which they can export at low prices. For many consumers, the price of clothes is not the main constraint on how many garments they purchase. The result has been the democratization of style and abundance. Reasonable people can debate the appropriate policy response. A Pigouvian tax on new garments to fund recycling or reduce waste, akin to a carbon tax, is worth considering. Better labeling, such as durability ratings, could help consumers make more informed decisions on how long garments will last so they can appropriately trade off price versus quality. Cultural norms are shifting such that some consumers brag about thrift-store finds rather than new purchases, somewhat reducing the flow of new clothes to landfills.  While addressing the excesses of cheap fashion, we should resist romanticizing the past. We should not return to a world in which only the rich could afford variety and comfort. Countries like Bangladesh and Vietnam have reduced poverty by joining global garment supply chains. Bangladesh’s GDP per capita was under $500 in 1998; today it is over $2,500.  Fast fashion is neither a triumph nor a catastrophe. It is the outcome of solving an important problem: how to clothe billions of people affordably. The French, along with many of us around the world, now face a more pleasant question: how much is enough once basic scarcity has been conquered? Someone from 1850, wearing his one patched coat, would be astonished to learn that we are debating whether people buy too many clothes. That we have the luxury to ask is evidence that, despite its problems, the system has delivered something extraordinary. (0 COMMENTS)

From the editors: We have an in-depth discussion about tariffs across two Liberty Fund sites today. EconLog contributor David Hebert has a piece on the consequences of America’s new, more protectionist trade policies on our sister site, Law and Liberty, this morning. This piece makes a good complement to today’s EconLog post by Jon Murphy, No Manufacturing Jolt from Tariffs. From Hebert’s piece: Who Really Pays the Tariff? Lynn’s central argument rests on a fundamental confusion between what economists refer to as the “legal incidence” and the “economic incidence” of a tax. Legally, because tariffs are a tax on imports, it is the US importers who must write the check to Customs and Border Protection. But this says nothing about who actually pays the tariff. For example, when landlords’ property taxes go up, who pays? The landlord will obviously write the check to the county assessor, but unless Lynn thinks that landlords are running charities, that cost gets passed on to tenants in the form of higher rent, less frequent maintenance, or fewer included benefits (utilities or access to designated parking, for example). The legal incidence falls on the landlord, but the economic incidence falls disproportionately on renters, i.e., young Americans already besieged by high housing costs. Tariffs work the same way. US Customs and Border Protection bills the American importer directly, which is the legal incidence of the tariff. But the economic burden gets distributed among American consumers, American importers, and foreign exporters, depending on the particulars of the individual markets. Read Hebert’s full essay here, and Jon Murphy’s EconLog post here.   (0 COMMENTS)

Writing on Facebook, AEI economist Mark Perry points to evidence that the tariffs imposed in April by the Trump Administration have not resulted in job creation for the manufacturing industry (Mark’s graph is recreated below for those of you who do not have access to Facebook. The solid red line indicates the day the tariffs were imposed). Prima facie, this decline indicates the tariffs are not working to “bring back” jobs.  Some folks have objected that this graph is deceptive. Truncating the Y-axis makes the decline appear worse than it is. This objection misses the point: the trend is negative. Trump et al predicted the trend would be positive; the tariffs were supposed to reverse this declining trend. They got the direction wrong. A more reasonable objection is that it takes time for manufacturers to hire. Even six months in, there’s no particular reason to think that manufacturing hiring would suddenly jump. What about future hiring trends? Fortunately, the Bureau of Labor Statistics publishes that data. The BLS publishes their Job Openings and Labor Turnover Survey (JOLTS). Job Openings (series IDJTS300000000000000JOL) would be an indicator of future hiring as firms need to post their jobs before they can hire people. Since the tariffs were imposed, job openings are down, too. Excluding the post-pandemic recovery years (2021–2022, when openings and hirings were unusually high as firms ramped back up after the lockdowns), manufacturing job openings averaged 543,000 job openings per month in 2023 and 2024. In other words, over the past two years, approximately half a million open manufacturing jobs were listed each month. These were not necessarily new job openings; they were just unfulfilled jobs. The BLS doesn’t track how long job postings are up. Since Trump’s inauguration and the initial tariffs declared in February, job openings have averaged 410,000. In other words, there are approximately 130,000 fewer job openings in manufacturing since the tariffs were imposed than before. The fewer openings indicate that firms are slowing their hiring, not increasing it. (Note: these data are seasonally-adjusted. In theory, there shouldn’t be seasonal swings.) As recently reported by the Wall Street Journal, China is merely shifting exports from the United States to other countries.  The US tariffs haven’t done much to reduce Chinese export share, and certainly aren’t doing anything to help increase US exports.  Indeed, these results indicate the “optimal tariff model,” invoked by certain members of this administration, such as Peter Navarro, to justify tariffs, likely doesn’t apply. The point here is that US tariffs do not seem to be improving US manufacturing in the global sphere. Do these data prove that tariffs are failing? Not necessarily. To do a causal analysis would require far more data, time, and research. But they are indicative that the tariffs are failing to accomplish their (oft-contradictory) goals. Why are the tariffs failing to accomplish these goals?  In theory, tariffs should shift jobs to the protected industries.  If these tariffs protect manufacturing, why aren’t jobs shifting there?   The argument for tariffs to protect manufacturing relies on an assumption that the imports are of final goods and that the protected country has tariff-free access to intermediate goods (the goods used in manufacturing).  In 21st-century America, that assumption doesn’t hold.  According to Dartmouth University trade economist Doug Irwin, approximately 75% of US imports are these intermediate goods (Free Trade Under Fire (5th ed) Table 1.1, pg 14).  This means that tariffs raise the cost of manufacturing in the US, and thus make US manufacturing less competitive against both foreign imports and in the global market.  As Irwin explains: “Any trade restriction that increases the price of an intermediate good raises the costs of production in downstream user industries with an adverse effect on employment in those industries. In other words, when domestic firms have to pay a premium on their productive inputs, particularly when they are competing with foreign rivals that do not pay those taxes, employment in those industries suffers” (ibid, pg 100, emphasis added). But let us steel-man and consider what other factors could cause a similar pattern: For one, these tariffs face legal challenges. As of this writing, a legal challenge to the tariffs has been argued before the Supreme Court (Trump v. VOS Selections, consolidated with Learning Resources v. Trump). These cases have been ongoing since the spring, with an initial challenge filed in April 2025 in the US Court of International Trade. Given the costs of hiring, firms may be hesitant to hire while this case is pending. It’s possible that a resolution in favor of Trump on tariffs could set off a hiring bonanza. A major problem I see with this argument: many of the plaintiffs in VOS are manufacturers themselves. It’d be odd that they are arguing against tariffs and, if the tariffs hold, they’ll just start hiring. There may be other reasonable claims out there, but I cannot think of any (share in the comments if you have thoughts). (0 COMMENTS)

Are we truly characters with agency, or are we just playing out our programming in the great video game of life? Contrary to those in his field who claim that free will is an illusion, neuroscientist Kevin Mitchell insists that we’re agents who wield our decision-making mechanism for our own purposes. Listen as the author […] The post Free Will Is Real (with Kevin Mitchell) appeared first on Econlib.

Sam works on innovation policy at Progress Ireland, an independent policy think tank in Dublin, and runs a publication called The Fitzwilliam. Most relevant to us, on his personal blog, he writes a popular link roundup; what follows is an abridged version of his Links for November.  Blogs and short links 1. Is Google search getting worse? The quality of evidence around this is remarkably poor. 2. On the game theory of $1 margarita night. As this post describes, it would be great to have a standing social occasion every week at the same time and place that could serve as my friend group’s “office hours”. The changeability of plans makes me feel that more and more of my time is being spent on social coordination. 3. Rest in peace to Peter Temin. I enjoyed his paper reviewing the economy of the early Roman Empire. At some point, we should be covering the economies of pre-industrial Europe in my reading group. 4. For Progress Ireland, I recently wrote about why more academics don’t start companies. I also gave an update on our efforts to support Olympiad-level mathematics in Ireland, and turned on paid subscriptions for my blog. 5. Climate predictions have been relatively accurate. 6. Is AI going to supercharge NIMBYism? The initial hope with efforts like Tract was the opposite, and I have no prediction on how these things will shake out. 7. VAT cuts to create more readers. Do I smell an arbitrage opportunity in the paper market?1 8. The conventional wisdom in urban economics is that minimum apartment standards for floor space and other matters of personal preference are a terrible idea. The Irish government’s stated reduction in minimum apartment standards is now being delayed, or possibly cancelled entirely, because of a challenge in the High Court. The court in question is intimating that the European Union may need to get involved. Even if you think that modestly reducing minimum apartment standards is a bad idea, I’m baffled by the worldview in which democratically elected officials had the authority to introduce these regulations in the first place, but not to modestly reduce them. Is this anarchism with respect to the problem of political authority, but only when changes are in the direction of less regulation, rather than more? Is there even a worldview here, or just bitterness and cynicism? 9. Another thought: Have I been looking at weird flag cones this entire time? 10. Stephen Webb on why Britain has too many lifeguards. I’m reminded of the Mitchell and Webb sketch about how much of an outrage it is when a year goes by and zero people drown in Britain: I’m trying to draw attention to the massive waste of public money that’s led to a situation in where absolutely nobody in a whole year drowns by accident. What that must mean in terms of fencing, warning signs, swimming lessons, people coming into school to tell children to be careful, life belts and the maintenance of waterside paths is just staggering. There has clearly been a massive overspend, because in any conurbation of up to half a million people such as Westchester that’s run with the proper priorities, at least two or three people should drown every year. I am familiar with the different methodologies for how to calculate the value of a statistical life, but can anyone explain to me (a) why different countries, even at similar levels of development, chose different methods, and (b) whether the large divergence in these numbers has any practical significance? (After you’re done with that, I have the same confusion about the different methodologies for calculating social discount rates.) [E]very government has a value for a human life which determines the appropriate level of investment in, say, road safety measures. The UK is typically at the lower end here—at around £2.5m (say $3m) compared to over $12m in the US and about $4.5m in the EU. Finally, from my email inbox, I have been informed of the mystery of the Scottish lifeguards: One of my minor obsessions is that it seems that ‘lifeguard’ is an extremely common teenage summer job in Scotland but not anywhere else in the UK. I have no idea why. Every time I speak to a Scottish person now I have to stop myself from asking “did you work as a lifeguard as a teenager?”. But every time teenage jobs come up in conversation, > >65% of Scottish people I’ve met say they were lifeguards, compared to

Any book that intends to provide a complete account of a chapter covering almost 70 years in the history of ideas is an ambitious achievement by itself, especially when it is centered around a fuzzy concept like neoliberalism. If such a book also attempts to cover decades of economic history, discussing the evolution of policymaking and the intellectual and political debates that shaped it, one would probably worry that the author is trying to accomplish too much. Now, add that the author will try to do so while navigating murky waters, surrounded by the history of a violent dictatorship and the overall context of Latin American politics of the Cold War era. It seems like a recipe for failure. Yet, to the great benefit of his readers, Sebástian Edwards accomplishes all this brilliantly. The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism1 is nothing short of a monumental achievement. Project overview A native Chilean himself, Edwards got his bachelor from the Universidad Católica de Chile (Pontifical Catholic University of Chile, hereinafter PUC), worked as a young economist in Allende’s government department of economic planning, and witnessed a famous British scientist who was visiting Chile to call out the madness of the task: “my friend, you really want to determine true, social, equilibrium prices for over three thousand goods, with a fifteen-sector input-output matrix?” (p. 62). An opponent of Pinochet’s regime, he fled Chile in 1977, and received his graduate training in economics at the University of Chicago, where he became “colleague, coauthor, and close friend of [Arnold] Al Harberger, who is the intellectual father of the Chicago Boys.” (p. 23). While, as the subtitle suggests, The Chile Project is mainly a book about the story of the Chicago Boys and the rise and fall of neoliberalism in Chile, it is also a tale of Chile’s modern economic history, told in three parts. The first part (Chapters 1–3) sets the stage for the rise of neoliberalism; from the deal between the University of Chicago and PUC, to Salvador Allende’s “one thousand days of socialism.” Edwards provides a careful definition for neoliberalism: “I define neoliberalism as a set of beliefs and policy recommendations that emphasize the use of market mechanisms to solve most of society’s problems and needs, including the provision and allocation of social services such as education, old-age pensions, health, support for the arts, and public transportation. […] neoliberalism is the marketization of almost everything” (p. 14, emphasis original). Part two (Chapters 4–9) begins with Pinochet’s rise to power and analyzes the economic policies over the length of the dictatorship (1973–1990). This includes debates over the initial shock treatment and Milton Friedman’s controversial visits to Chile (Ch. 4–5), the struggles for command over policy within the regime (Ch. 6), and the details about their eventual implementation (Ch. 7). Chapter 8 deals with the deep currency crisis of 1982, and the second part ends with an analysis of the second round of “pragmatic” reforms that follow the crisis in Chapter 9. The latter also explores the growing influence of Arnold Harberger, who was likely the man influencing the “pragmatic” part. Part two shines because theory and history come together to deliver a fascinating story that reads almost like a novel. The final part of the book (Chapters 10–16) covers the fall of Pinochet’s regime and the series of economic reforms that continued under democracy. This part tells a story of the model that led to Chile’s economic miracle, but also of its downfall. It started with a series of protests and riots in 2019 that eventually led to an ambitious attempt to draft an entirely new constitution that ultimately failed. While the end seems certain, Edwards also delves into its potential causes, drawing from a perceived widespread sentiment of unhappiness: “large numbers of Chileans lived in fear of retrogressing both socially and economically and rejoining the ranks of the poor,” (p. 209) which became known as the malestar (“malaise”) hypothesis. “Edwards’ first-hand testimony, combined with his use of archival material, provides a rich historical account.” Edwards’ first-hand testimony, combined with his use of archival material, provides a rich historical account. Many of these events are surrounded by controversy, and some have been elevated to the status of outright myths. Edwards recognizes upfront the limitations of what the archive tells us and is clear when he is filling the gaps with his conjectures. The result is an extremely well-balanced narrative that – perhaps except for a more technical chapter dealing with the currency crisis – is accessible for a more general audience. Thus, the main contribution of the book is to provide new (and, in some cases, arguably definitive) historical accounts of key events of Chile’s recent economic history. Clarifying misconceptions The agreement between the University of Chicago and the Universidad Católica de Chile (PUC) is the subject of an important misconception. It is often portrayed as a nebulous U.S. plan to train economists specifically to run Pinochet’s economic policy. Yet the plan was drafted in 1954–55, a decade and a half before even Allende rose to power, not to mention Pinochet. Edwards draws from archival records and reveals that the U. Chicago-PUC deal was, in many ways, accidental. The deal was intermediated by the International Cooperation Administration (ICA), and it first aimed at the Universidad de Chile, the country’s main public university, not PUC. However, “the [U. de Chile] faculty was reluctant to enter into a partnership with an American school, and particularly with the University of Chicago, with its reputation of being a white knight for monetarism, free trade, deregulation, and free markets” (p. 29). When the ICA reached out to PUC for a similar deal, both U. Chicago and PUC had concerns about the compatibility of the university’s religious affiliation. Eventually, PUC’s dean manifested their “desire is to sign an agreement between our university and an institution in the United States, such as the University of Chicago, or the Massachusetts Institute of Technology.” (quoted in pp. 30–31). Thus, it was not clear from either the U.S. or Chilean side that the University of Chicago would be ultimately paired with PUC. The government of Salvador Allende is also the subject of many misconceptions. Edwards recognizes that part of the confusion stems from the fact that Allende was from the Socialist (and not from the Communist) Party, which led authors to mistakenly portray him as a relatively moderate candidate even though, in Chile, the Socialists were much more to the left and had close ties with Cuba and North Korea.2 The book offers a detailed overview of Allende’s economic policies. For instance, Edwards reveals that the government’s grasp over the economy went significantly beyond the well-known nationalization of U.S.-owned copper mines. It also nationalized the banking sector and enforced its right to take control, for an undetermined period, of hundreds of factories producing goods “in short supply.” This short supply was often staged by unions stopping the factory floor and creating artificial shortages. He notes that every import required a license, with some tariffs reaching 250 percent. He also describes how perverse and arbitrary mechanisms were used to set price controls, which led to confiscation of goods, often imposed huge fines, and, sometimes, sent “speculators” to prison. Turning to controversy Part II of the book sheds light on more controversial topics: the Chicago Boys’ involvement in the Pinochet regime. Some early accounts attributed the economic plan to the CIA and placed Arnold Harberger and Milton Friedman as perhaps major contributors. Edwards again relied on archival materials and interviewed several of the Chicago Boys themselves to offer, it seems, a balanced account. The plan was known as El Ladrillo (The Brick), due to its sheer size. The controversy is whether the plan was knowingly drafted by the economists for Pinochet. What is known is that the plan was written before the coup, in 1972, as a blueprint for Chile’s development in the next presidential elections; eleven of the Chicago Boys contributed individual chapters. On the one hand, it appears that only one of them, Emilio Sanfuentes, then associated with the Chilean think tank Centro de Estudios Sociales y Económicos, had contact with a retired high-ranking navy official who worked for a private conglomerate and was interested in such a plan. Edwards also recalls that much of the content of the plan were quite similar to an earlier economic plan written by some of the same Chicago Boys for presidential Jorge Alessandri, a center-right candidate who faced Salvador Allende in 1970, and were also seen as extension to reports that two of the economists (Alvaro Bardón and Sergio Undurraga) were writing for the opposition, including the moderate Christian Democrats and former president Eduardo Frei Montalva. Edwards highlights that the latter plan, El Ladrillo, included more economists, some of them centrists. The main editor of the plan, Sergio de Castro, argued that to gain the support of Christian Democrats, it even included suggestions of “Yugoslavia-style firms, where workers owned the companies and participated actively in their management” (Arancibia Clavel and Balart Páez 2007, p. 144). He also emphasizes the idea that only Emilio Sanfuentes had connections with military officials.3 On the other hand, there is evidence that all authors met in a hotel to discuss it with the retired naval officer liaison. Edwards recognizes that it is ultimately a “mystery that will never be fully resolved” (p. 80), but doesn’t shy away from conjecturing that it is likely that the rest of the economists knew, at least to some extent, that the plan was intended for the military. In what follows, Edwards provides a comprehensive analysis of the policies contained in the plan. For every policy area (e.g., healthcare), he compares what the plan proposed and what was eventually implemented by the military, creating an extremely useful guide to researchers. Another statement to Edwards’s thoroughness is that he connects some policy choices to theoretical debates that were taking place at the time, both in Chile and elsewhere.4 Friedman’s role Chapter 5 offers a carefully researched examination of Milton Friedman’s involvement with the Chicago Boys and his two visits to Chile during the military regime.5 Friedman first visited Chile between March 20 and 27, 1975, and met with Pinochet on the 21st. In their one-hour meeting, Friedman argued—in seemingly broad strokes—that the country needed a “shock therapy” to fight rampant inflation that had reached 350% a year. “Indeed, the director of intelligence was spying on the Chicago Boys to convince Pinochet that ‘the Chicago Boys were not true patriots and that their only interest was to privatize state-owned enterprises at low prices in order to have private investors (including their friends and associates) own and run key strategic industries.'” In the following days, Friedman met with Chile’s business elite, gave a lecture to a group of military officials, and gave several interviews to newspapers. Friedman again argued for shock therapy. Edwards collects some of the questions asked by the business audience and Friedman’s reply to them, concluding that businessmen wanted the same gradualism they were used to. The military was mostly against privatizations and cutting unnecessary personnel needed for the fiscal adjustment. Indeed, the director of intelligence was spying on the Chicago Boys to convince Pinochet that “the Chicago Boys were not true patriots and that their only interest was to privatize state-owned enterprises at low prices in order to have private investors (including their friends and associates) own and run key strategic industries.” (p. 100). While critics treat Friedman as the mastermind behind Chile’s 1975 Recovery Plan,6 the Chicago Boys themselves downplayed Friedman’s influence. Several biographies don’t mention Friedman’s visit to Chile at all. Earlier research also suggested that he did not influence the plan (see Caldwell and Montes, 2015, p. 271). More broadly, Friedman defended himself by arguing that meeting a politician is not the same as advising him, and by noting that he also met with Chinese leader Zhao Ziyang in 1988. Moreover, what he said about Chile was a mere reflection of broad lessons from his academic research, not specific advice. 7 However, Edwards makes a convincing case that Friedman is responsible for the recovery plan, referring to the importance of a “before Friedman and an after Friedman.” (p. 97, emphasis original). The Chicago Boys would likely have proposed the same plan regardless, but Friedman’s visit weighed the scales in favor of their plan over the more gradualist approach that was being put forth by businessmen and military officials. What to make of the Chicago Boys? Recurring in Edwards’ narrative in the third and final part of the book is that, despite the breadth of the reforms implemented during the regime, much else was also done after the return to democracy to deepen and extend the reforms. This continuation was often undertaken by center-left politicians. This insight invites reflection on the role Chicago Boys. On the one hand, their ideas undoubtedly charted the path to greater economic freedom, much needed in Chile after Allende’s populist policies. On the other hand, Chile’s experience highlights the limitations to economic growth and prosperity under a dictatorship. Recent empirical research has analyzed this issue in Pinochet’s Chile from two different sides. Escalante (2022) shows that the Chilean GDP per capita underperformed for at least the first 15 years following the coup. Arenas, Toni, and Paniagua (2024) also question the timing of the “Chilean miracle”, arguing that it only really developed following the return to democracy. Indeed, other Latin American development “miracles” (in Uruguay and Costa Rica) occurred without a similar story of a liberalizing autocrat. For more on these topics, see “Foreign Aid,” by Deepak Lal. Econlib: Concise Encyclopedia of Economics. Colonialism, Slavery, and Foreign Aid with William Easterly. EconTalk. “Milton Friedman in Latin America,” by Ibsen Martinez. Econlib, December 4, 2006. Nonetheless, it is undeniable that the Chicago Boys completely shifted the Overton window in Chile. Even if by historical accident, they transformed perceptions of policies that were unimaginable in Latin America into a status quo that endured as the country returned to democracy. Hopefully, Chile will also endure its new challenges. Note: I refer the readers to another review of the book by Pablo Paniagua, which deals more extensively with Edwards’ hypothesis about the downfall of liberalism in Chile: the “malaise” hypothesis. Footnotes [1] Sebastian Edwards (2023) The Chile Project: The Story of the Chicago Boys and the Downfall of Neoliberalism. Princeton University Press. [2] To readers familiar with Edwards’s work on populism (see esp. Dornbusch and Edwards, 1990), it is no secret that Allende’s macroeconomic policies were disastrous, leading to hyperinflation in 1973. [3] “It is important to point out that only one of the members of the academic group [Emilio Sanfuentes] had contact with the high command of the national Navy, something the rest of us did not know about. Thus, [in September 1973,] our surprise was immense when we realized that the Junta had our document and was contemplating the possible implementation [of our suggested policies].” (De Castro, 1992, p. 11, as quoted in Edwards, p. 78) [4] For instance, Edwards connects the macroeconomic policies put forward in The Brick to Albert Hirschman’s “The Dynamics of Inflation in Chile,” published in 1963. [5] Edwards goes deep into the archives to illuminate the context of Friedman’s visit to Chile, also relying on Friedman’s own recollections. [6] During the awarding of the 1976 Nobel Prize in Economics to Friedman, as he was about to be introduced to King Carl XVI Gustaf of Sweden, a demonstrator screamed from the balcony: “Freedom for Chile! Friedman go home! Long live the people of Chile! Crush capitalism!” [7] Friedman also visited Chile a second time, in November 1981, to attend a meeting of the Mont Pèlerin Society. References Arancibia Clavel, P., and Balart Páez, F. (2007). Sergio de Castro: El arquitecto del modelo económico chileno. Santiago, Chile: Editorial Biblioteca Americana. Arenas, J., Toni, E., & Paniagua, P. (2024). Development at the Point of a Bayonet? Challenging Authoritarian Narratives in Latin-American Growth. https://dx.doi.org/10.2139/ssrn.5026133 Caldwell, B., and Montes, L. (2015). “Friedrich Hayek and His Visits to Chile.” Review of Austrian Economics 28(3): 261–309. De Castro, S. (1992). El ladrillo: Bases de la política económica del gobierno militar chileno. Santiago, Chile: Centro de Estudios Públicos. Escalante, E. E. (2022). The influence of Pinochet on the Chilean miracle. Latin American Research Review, 57(4), 831–847. *JP Bastos is a PhD Candidate in Agricultural and Applied Economics and a PhD Fellow at the Free Market Institute, both at Texas Tech University. He also co-founded the Public Choice in Latin America project. Read more by JP Bastos. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

This is the latest in our series of posts in our series on price theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed.Share your proposed solutions in the comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!   Question: Over the past several decades, the inflation-adjusted price of healthcare has increased. Based on this information alone, can you infer the source of the higher price—lower supply or higher demand? If not, what additional data would you need to determine whether higher prices are being driven by changes in supply or demand? (0 COMMENTS)

Can the promise of economic progress ever justify conquest, coercion, and control over other people’s lives? Economist William Easterly joins EconTalk’s Russ Roberts to argue no–and to rethink what “development” really means in theory, in history, and in our politics today. Drawing on his new book, Violent Saviors: The West’s Conquest of the Rest, Easterly […] The post Colonialism, Slavery, and Foreign Aid (with William Easterly) appeared first on Econlib.

If there’s one thing we can count on in America, it’s that our elected officials will see an affordability crisis and respond to it by stimulating the demand side of the market.  Today, we’re seeing this in the case of the housing industry, with Administration officials floating both a new (and improved!) 50-year mortgage and a portable mortgage.  Treasury Secretary Scott Bessent says that both of these will help break the “logjam” of owners who are stuck with their 3% mortgages and are reluctant to move, which will help with the affordability “crisis” in the American housing market.  After all, if more houses come on the market for sale, won’t that push prices down? This statement belies a fundamental misunderstanding of the difference between supply and quantity supplied.  This distinction matters not just so students can pass their economics exam, but for understanding the actual effects of policy. How do we use supply and demand in assessing the effects of any change?  Fortunately, once you have correctly drawn a supply and demand graph, there is a three-step process for allowing anyone to “command the heights of genius” as James Buchanan once described. Determine: will this affect demand or supply? Determine: will it increase or decrease? Read changes in price and quantity from the graph. The first step in understanding the impact of any change in policy is determining whether these new mortgage policies will affect the demand for housing or the supply.  Let’s start with the 50-year mortgage proposal.  The idea here is that this will make loans or credit easier for would-be home buyers to acquire.  That is a demand-side phenomenon.  At first blush, portable mortgages seem like they would affect the supply side.  After all, such a policy would make it easier for current homeowners to sell, right? However, notice that this policy only affects current homeowners who wish to move and buy a new house. Those who have a house and have no desire to move will be unaffected by this policy.  As a result, this policy also affects the demand side of the housing market. The second step in our three-step process is to determine what direction the (in this case) demand curve will be moving.  Here, it’s fairly obvious: the demand for housing is going to increase, which means it will move to the right. I depict this below in the move from D1 to D2.  The final step is to read the changes in price and quantity from the graph.  Here, we can see that as a result of these policies, we should expect the price to increase from P1 to P2 and the quantity to increase from Q1 to Q2.  Importantly, the supply curve did not move whatsoever. Note that what we have just shown is that Scott Bessent is correct! There will be more houses sold as a result of portable mortgages (and the 50-year mortgage).  The specific point-prediction of exactly how many more is beyond the scope of the analysis here, but the pattern prediction seems obvious.  But this is an increase in the quantity of houses, not an increase in the supply of houses.  As a result, he is incorrect to say that this will make housing more “affordable.”  It will most certainly not – housing prices will increase. The trick to implementing this three-step plan is to do the three steps in order.  People are often tempted to jump straight to step three and “get to the point.” After all, that’s what people really want to know! Some can jump straight to step three, but I’ve been a student of economics for almost 20 years now. I couldn’t even begin to venture a guess as to how many times I’ve drawn supply and demand on boards in front of classrooms, on sheets of paper during office hours, on exams that I’ve taken… you name it.  I still go through this exact process every single time when I’m confronted with a new problem. The reason why I go through this process every single time is simple: it works, and it avoids the trap of falling victim to the problem of reasoning from a price change.  It also forces us to really think about what is going on in the market and to think through it clearly and carefully before we rush to any judgments about what we really care about: will this allow more people more access to a good or service?  Will it allow people to live healthier and wealthier (however they choose to define those terms) or will it lead to impoverishment? These are the questions that really matter. Using supply and demand analysis and this three-step process is a crucial component to understanding the world around us. (0 COMMENTS)

Modular housing is gaining prominence as a proposed way to increase the housing supply. This is an approach where the majority of home building is done off-site. Factories will construct entire rooms of a house, including all the wiring and plumbing connections built in. At the final construction site, the actual building process consists of the final step of connecting the rooms, plumbing, and so forth, to complete the build. Building in this way is faster and less expensive than traditional home building. And in recent years, the technology has improved as well—companies around the world build modular homes that are distinctive, highly customizable, and of very high quality.  People might think that these companies increase the housing supply by, well, building more housing. But building more housing isn’t an increase in supply, it’s an increase in quantity supplied. An increase in supply means an increase in the capacity to produce something. A recent interview with engineer Ivan Rupnik describes two different ways modular housing can help increase supply.  One way is simply the technology itself. Changes in technology are important ways to increase the supply of anything. Once upon a time, all houses had to be built entirely using hand tools and by human muscle. As technology has improved, the potential number of homes that can be built by a given number of workers increases. Or, in economic parlance, the supply curve shifts to the right.  The other way to increase the housing supply is through changes in housing regulation. Rupnik talked about how Congress attempted to encourage modular housing as far back as the 1960s, and  “funded [Nixon-era HUD program] Operation Breakthrough to encourage experimentation, and to figure out the effect of local housing codes and zoning regulations on large-scale use of new housing technologies. For reasons that still aren’t clear to me, those regulatory changes — which had bipartisan support — were never implemented at scale in the U.S.” As a result, the potential increase in supply that the new technology represented was not able to be realized in the United States because regulatory barriers that would have allowed it were not removed.  But other countries were watching, and took advantage of the lessons, even if the United States did not. Rupnik points to Sweden, where he says “85 to 90 percent of single-family is made in a factory.” Japan, too, “streamlined regulation for manufacturing and innovation,” allowing the new technology to be put to use to increase the housing supply.  My favorite point that Rupnik makes is the distinction between prescriptive regulations and performance regulations. As he describes it, prescriptive regulations are those that tell a company to do very specific things – make the walls at least this thick, use these specific materials in these quantities, etc. Performance regulations, on the other hand, just stipulate thresholds that need to be met but leave it entirely up to the companies to find the best ways to go about meeting those goals. As he put it,  “Performance codes say that a wall needs to prevent fire from penetrating for X hours or minutes, and you can achieve that goal with any material that works. For example, in Sweden, instead of mixing sheathing for structural rigidity and drywall for fireproofing, they used two layers of a more expensive gypsum product because for their factory processes, it was more efficient.” A change from prescriptive to performance regulations allows companies a great deal of flexibility to find the most effective and efficient ways to achieve goals that work best with their own unique circumstances and processes. Because performance goals don’t impose a one-size-must-fit-all approach, a multitude of competing and customizable approaches can be taken, learned from, and continuously improved. This flexibility in the regulatory structure also helps increase the housing supply.  The goal of increasing the supply of housing is an important one. Any serious discussion of achieving it will require either some mention of technological improvements or regulatory reforms. If those aren’t part of the discussion, then we’re not talking about increasing the supply of housing—we’re merely discussing increasing the quantity of housing supplied. An increase in quantity supplied without an increase in supply means rising prices. (0 COMMENTS)