As you will see, the title of this post is half joking and half serious. I’ll try to explain both halves, starting with the joking part. My brand new model of the macroeconomy is called the NS/RO model, which stands for nominal spending/real output.  The model shows how equilibrium output and the price level are determined.  The key insight is that changes in nominal spending have a short run positive effect on real output, but no long run effect. The following graph illustrates the basic idea: NS is the nominal spending curve.  It is a rectangular hyperbola, where each point along a given line represents a given amount of nominal spending, aka NGDP.  SRRO is the short run real output function.  LRRO is the long run real output function, reflecting the natural rate of output (Yn.) Those of you who are familiar with macro probably now see the joke.  This isn’t actually a brand new macro model; it’s one version of the old AS/AD model that has been dressed up with new terminology.  I say “one version”, because in the most popular version of AS/AD, the one used in most textbooks, the AD curve (NS in this case) is not a rectangular hyperbola.  The graph presented here is the less frequently used (monetarist) version of AS/AD.  Still, it is an AS/AD model. Now for the half serious part of the title of the post.  I’d argue that this should be viewed as a brand new model.  Deirdre McCloskey has shown that there’s more to economics that mathematical equations and graphs.  Much of what we do is persuasion, and that requires effective methods of communicating our ideas.  Historical examples, stories, metaphors, and many other forms of rhetoric all play a role in making an argument persuasive.  Even the terminology that we use matters.  Consider these two equations: MV = PY M = kPY To an unimaginative, mathematically oriented economist the equations might seem identical, as V = 1/k.  But these two equations trigger different ideas in the reader’s mind.  The first equation makes one think of money as a medium of exchange.  How much money is there in the economy (M) and how fast is it spent (V)?  The second equation makes one think of money as a store of value.  How much money is there in the economy and how much money do people choose to hold as a share of their gross income (k)? My “brand new model” of the macroeconomy is intended to dissuade people from thinking of this as a supply and demand model.  When I used to teach macro, students had all kinds of trouble understanding AS/AD, partly because they assumed it was basically a supply and demand model.  Thus if I asked them to show the effect of population growth, they might shift the AD curve to the right.  In fact, population growth shifts the AS curve to the right, causing deflation (as we saw during 1870-95). Why were students confused?  Probably because in microeconomics an increase in population really does shift demand to the right.  More consumers out shopping, etc., etc.  But aggregate demand isn’t really about demand at all; it’s about money.  More specifically, it’s about the medium of account.  In the late 1800s, gold was the medium of account, the thing in terms of which prices were measured.  Population growth didn’t cause more gold to circulate. [Yes, population growth might lead to new discoveries of gold, but I view that as a second order effect—the main impact is on supply.  And yes, short run effects are more complex, perhaps influencing velocity.  But for any given money supply, a doubling of the population will cause prices to fall by roughly 50% in the long run.] By removing the terms ‘demand’ and ‘supply’ from the AS/AD model, I hope to shake students out of their complacency, to show them how truly strange this model actually is.  It’s not a supply and demand model at all; it’s a model of how nominal shocks interact with sticky wages and prices to produce short run (but not long run) effects on real output. PS.  In an actual supply and demand model the long run supply curve is usually almost horizontal.  In AS/AD it is vertical.  Sorry, but AS/AD is not a supply and demand model. (0 COMMENTS)

A tough problem that many young people have in their late teens and early- to mid-twenties is “failure to launch.” They have trouble stepping out on their own and taking responsibility, whether it’s about money, jobs, studying, or a few other things. I was talking about that with a friend recently; he has a friend in his late twenties who, in his estimate, is “failing to launch.” Various government policies have played a role in making it last longer. One is the huge subsidies to college students, along with the expectation that most high-school graduates will go to college. For some, that’s liberation and they take responsibility immediately. That was my case when I started college at age 16. For others, it postpones their taking responsibility, compared to what would happen if, after leaving high school, they got a full-time job. The expectation that high-school graduates go to college does not, of course, count as a government policy. It’s more something that many prominent members of society push. But there is a government policy aspect, if only in the area of propaganda. President Obama pushed the idea that people should go to college after high school, for instance. Another policy that would extend failure to launch even more is a universal basic income (UBI). Imagine 4 friends–for some reason, I’m picturing guys–who become friends in college and graduate at about age 22. With an Andrew Yang-type UBI, each would get from the federal government $12,000 tax free. They could then say, “Hey guys, let’s find a 4-bedroom rental house in a low-rent part of the country. We could probably get it for about $1,600 a month. That’s $400 a month per person. We would then each be left $600 a month to spend on food, booze, video games, and occasional drugs.” At some point, even my hypothetic 4 guys would probably have higher aspirations and would get jobs, thus losing some of the $12,000 per year. But it’s easy to imagine their failure to launch lasting an extra 4 years. And that would be tragic. Why would it be tragic? For two reasons. First, taking responsibility is good in itself and would make them into better people and better citizen; they would miss out on that. Second, the UBI takes from taxpayers. So other people are forced to subsidize their life style. Here are some classic failures to launch; the picture at the top is a screen shot of a spectacular failure. There’s one big difference, though: they actually did launch. They just didn’t make it. When you try to launch, you will have failures. I can almost guarantee it. (2 COMMENTS)

My Book Club on Mike Huemer‘s new intro philosophy textbook launches Monday.  And I’m pleased to announce the Huemer himself will be joining the discussion. After I write the first post, you can direct your comments to either of us.  I’ll be responding later in the week.  Huemer will respond separately. While the book is 346 pages long, it’s so readable that you can easily be done Monday if you start now! (0 COMMENTS)

The US House of Representatives recently passed The Protecting the Right to Organize Act, known as the PRO Act by a 224 to 194 margin. What are its provisions? . It would pretty much “cancel” right to work laws now prevailing in 27 different states. . It would further empower the National Labor Relations Board to exact fines on corporations for so-called “unfair practices.” . It would require employers to give unions information about their employees’ . It would allow certification via “card check” rather than anonymous vote . Anything else you can think of that will advantage organized labor is probably in there too.   But do not be afraid, let alone very afraid- at least not yet: it is unlikely in the extreme that this initiative will gather anything like the 60-40 support in the Senate needed to implement it as law. Although it is never explicitly made clear in the bill, the underlying motivation on the part of its sponsors is to do good: to raise the compensation of American workers and improve working conditions. This leads to the very important question: do labor unions actually have this effect? At the outset, this would appear to be a silly question. “Of course they do, just look at the statistics,” might be the quick response. And, indeed, unionized workers do earn more compared to those working in similar capacities who are unorganized. But this leaves open the objection that the former are more highly skilled than the latter, and that this is the source of the wage differential. These deliberations lead in turn to the question of what determines wage levels in the first place. The theory seemingly animating the supporters of the PRO Act is, wait for it- employer generosity. Or, rather, the lack of it. The owners of firms, it is contended, are notoriously stingy when it comes to compensation. They need to be “poked” a bit into doing the right thing, and a strong labor union is precisely the remedy. But does LeBron James really earn an astronomical salary due to the big-heartedness of the Los Angeles Lakers? Does the person who asks if you “want fries with that?” impecunious because his employer is parsimonious? Of course not. Instead, productivity is the answer! This basketball star can sell tickets to watch him play, and attract advertisers who want to sell their wares. He adds a gargantuan amount to the bottom line of his employer. The burger seller adds value, too, but on a much more modest scale. Economists  have a simple proof that wages tend to equal productivity (actually, discounted marginal revenue product, but we can leave these complications to another day). Suppose someone adds $20 per hour to the bottom line, but is earning only $15. The employer is earning $5 per hour surplus from his labor (the Marxists would call this “exploitation”), but this is not sustainable. Someone else will offer $15.25 or so, and the bidding war for his services will take place. It will continue until $20 is reached (ignoring the transactions costs of finding him, convincing him to switch jobs, etc.) Nor can a wage of $22 per hour be sustained. When multiplied over numerous workers, it will spell bankruptcy for the hiring firm (assuming no bailouts). So, does organized labor raise or lower the productivity of the rank and file? It seems difficult to adopt the former viewpoint. For the union will divert the workers’ focus on the job with organizing; there will be internecine fights between different labor organizations; there will be political proselytizing; there will be “make work” schemes designed to increase the demand for this factor of production. See the Sopranos television series for “no show” jobs. And above and beyond all of these everyday considerations, there will be walkouts, strikes, demonstrations for more and “better” labor legislation, all at the expense of productivity. There will be “runaway” shops, which seek greener pastures, leaving in their wake “rust belts.” No, labor unions do not raise productivity; the very opposite is the case. They reduce real wages; they do not increase them. (0 COMMENTS)

Following a lawsuit brought by environmental groups, a court in The Hague (Netherlands) just ordered Shell to cut 45% of its carbon emissions by 2030 because the company “is partially responsible for climate change,” as the Wall Street Journal puts it (Sarah McFarlane, “Shell Ordered by Dutch Court to Cut Carbon Emissions,” May 26, 2021). The company will quite certainly appeal the ruling but, irrespective of the final result, it is interesting to ask what could have led to that and what are the implications. If Shell may be bossed around by a court not because it did anything illegal but to force it to do in the future something considered good, what prevents a court from giving direct non-purchase or lower-purchase orders to its customers? Consumers are the ones whose market demand leads the company to produce whatever it produces? Moreover, targeting a single supplier looks arbitrary, Governments have become addicted to the habit of preventing producers from satisfying consumers’ demand, probably because the coercion is thus less visible and more politically palatable. In America and in other countries, governments have long penalized and criminalized prostitutes but not their customers. Blame the prostitute! As the wind of political correctness has changed, prostitutes now tend to be viewed as victims and, in many places, their customers are now prosecuted. In the case of tobacco, alcohol, certain food, and books, government bans have targeted, and continue to hit, the producers and sellers in order to control the consumers and buyers. As many other businesses, Shell is in the position of the old-style prostitute. But if it ever becomes politically or technologically easier to prevent ordinary consumers from buying too much gasoline or fuel oil—through ration cards, for example—what would prevent governments and courts to directly hit them? In stark contrast with this approach, economists generally think that the seller is no more guilty than the buyer. Both (adult) parties exchange because they think it is in their mutual interest. The consumer benefits as much as the producer; on a free market, in fact, it is the former who determines what is produced. And except in mala per se markets (murder contracts, slave trade, and such), there is no sin and no reason for guilt. It is tempting to think that, in the case of oil and gas, a special problem comes from so-called “externalities”: a free exchange relationship between Shell (or any other oil company) and its customers is said to impose climate spillovers to third parties. But this case is not that different from other cases of government discrimination against sellers. Just like carbon, alcohol (think of the Prohibition), tobacco, sugar, indecent or subversive books are viewed by third parties and busybodies as imposing harmful externalities. As is well known by experts in the field, externalities also attach to consumption and not only to production activities. The late E.J. Mishan, a famous welfare economist, acknowledged that a consumption externality can arise “from an awareness of what is happening to others” (emphasis in original). Sometimes, these consumption effects are as physical as carbon: a cross reflects photons to the eyes of militant atheists, generating photon pollution. (On the many problems of externalities, see my forthcoming article in the Fall issue of Regulation.) Perhaps global warming will impose large costs on certain parts of mankind. (See my complacent review of Tyler Cowen’s Stubborn Attachments in the Spring 2029 issue of Regulation. Should it have been more critical?) Similarly, perhaps sinful behavior will endanger the eternal salvation of large parts of mankind if it doesn’t bring divine wrath on the whole species—consequences which, just from the “eternal” factor, represent infinitely higher costs than climate change. Externalities justify any control one might think of. The environmentalists’ scaremongering of the 1960s and 1970s were big hoaxes in pursuit of an ideological and political agenda. The New Republic thought that world hunger would be “the single most important fact in the final third of the 20th Century.” “If I were a gambler,” Paul Erlich said, “I would take even money that England will not exist in the year 2000.” (See Paul Sabin, The Bet [Yale University Press, 2013].) Is it much different today? A rational approach is required. Every individual is “partially responsible” for something that some other people don’t like and that (at least probabilistically) harms them to some degree. How to get out of that slippery imbroglio? I would suggest the following. To all extent possible, individuals should be allowed to make their own choices; collective choices should be minimized. A presumption of individual liberty should replace the presumption of the savior government’s coercive solutions. These principles are not necessarily a panacea but they are a good starting point for analyzing government action. (0 COMMENTS)

    The video of my debate on the $15 minimum wage, with Professor Alan Manning of the London School of Economics, is out. You’ll find that it starts abruptly. I had asked them to record it and then, after the introductions, reminded them. They had forgotten to record. That’s why it starts where it starts. 1:30 to about 12:30: Professor Manning makes his case for the $15 minimum wage. 12:40 to 23:40: I make my case against. 24:00: Professor Amanda Starc leads with a number of questions and Alan and I go back and forth. (About the 27:00 point is where I make the point I made in an earlier post about competition among employers.) 46:00: Student Q&As. 56:20: Poll. (0 COMMENTS)

Patrick Horan directed me to these tweets: Luther is right.  There are actually three issues that need to be disentangled here: 1.  The cost of high trend inflation 2.  The cost of high inflation volatility 3.  Supply vs. demand-side inflation High trend inflation increases the real tax rate on saving and investment, which hurts capital formation.  This reduces economic growth, lowering living standards. The negative effects are not offset by gains to borrowers, as the Fisher effect implies that nominal interest rates rise to reflect higher inflation expectations. As Appelbaum suggests, an unexpected surge in inflation can indeed help borrowers.  However, in the long run there will be just as many years where inflation is less than expected as there are years where it is higher than expected.  The gains to borrowers in the 1970s were offsets by losses in the 1980s, when inflation fell more rapidly than expected.  Hence lots of loan defaults and a big S&L crisis during the 1980s, followed by an expensive taxpayer bailout.  The 1970s were the party; the 1980s were the hangover.  There’s no long run gain to borrowers from a policy of higher inflation.  (Not to mention that there’s no plausible reason why we’d want public policy to favor borrowers.) A high level of inflation volatility (as we saw during 1966-81) tends to create business cycles.  (Actually, it is NGDP growth volatility that matters, but that was also very high during the 1970s.)  Because of the highly unstable monetary policy, the US experienced four recessions between 1970 and 1981, and two were quite severe.  The high inflation did not help workers. Nonetheless, there is a reasonable case to be made for the argument that the 1970s inflation was not as bad as it seemed.  The US was hit by two supply shocks (1973-74 and 1979-80), which resulted in real wages falling during those two spikes in inflation. In both cases, the fall in real wages wasn’t actually caused by the inflation; it was caused by a real shock to the economy, less energy to drive our economy.  Those two shocks would have hurt living standards even if the Fed had kept inflation at low levels. On the other hand, NGDP growth was very higher during the 1970s (roughly 11% from 1971-81) and hence the 8% inflation was not caused by supply side factors. (Real growth was a bit over 3%/year.) Rather the long run inflation was almost 100% demand side.  Don’t confuse temporary supply shocks that affect the volatility of inflation with long run demand policy that determines the trend rate of inflation.  If NGDP growth had averaged 5% during 1971-81, then inflation would have averaged 2% (or even less if the counterfactual monetary policy had boosted capital formation.)  Inflation shocks affect the volatility of real output, without boosting the long run trend rate of growth.   (0 COMMENTS)

For my 50th birthday, the noble Jason Brennan gave me Do What You Want: The Story of Bad Religion, signed by the whole band.  I love their music.  I listen to it all the time.  Greg Graffin, the lead singer, clearly has excellent knowledge of natural science.  Yet Bad Religion’s lyrics are sadly infused with economic illiteracy, one cliche of populist green leftism after another.  Listen to “10 in 2010,” “Modern Man,” or “Department of False Hope.”  It’s tempting to read “American Jesus” as an open borders anthem, but I’m afraid that’s wishful thinking. I feel sorry for the earth’s population ‘Cause so few live in the USA At least the foreigners can copy our morality They can visit but they cannot stay At the same time, however, Bad Religion is a business.  When you read the biography of the band, it’s especially clear that Brett Gurewitz, the main song-writer and founder of Epitaph Records, is a shrewd capitalist despite his official ideology.  I’m 98% sure that Brett supports the minimum wage.  If you warned about the disemployment effects, I have no doubt he would scoff.  Yet this happened: Lee wasn’t the first official Epitaph employee; that distinction belonged to Jeff Abarta, who literally knocked on the door at Westbeach.  He had just gotten off his shift at the drug store where he worked and was still wearing a collared shirt and tie. JEFF: Is this Epitaph?  I’m looking for a job. BRETT: Yeah, but I’m the only employee and I’m not even paying myself yet. JEFF: I’ll work for free. BRETT: You’re hired! Before long, Jeff becomes a critical employee – and has a job far better than working at a drug store.  That’s what I call “the joy of market-clearing wages” in action.  And while you could demur, “It’s just an anecdote,” it’s an anecdote that should give every populist leftist pause.  If working for free can easily be mutually beneficial, why are outsiders so quick to to see employment and cry “exploitation”? P.S. If any members of Bad Religion ever read this, I love you guys.  I would happily teach you economics for free.  I visit LA often, and there’s always Zoom. And you wouldn’t be exploiting me any more than Brett exploited Jeff when he knocked on the door at Westbeach. (2 COMMENTS)

F.A. Hayek‘s essay ‘Why I Am Not a Conservative‘ is often misremembered as a defensive claim that says conservatives are invested in traditions while liberals want to move forward, and since Hayek considers himself a liberal, he does not want to be mistaken for a conservative. Because Hayek was an advocate of emergent orders who argued against remaking them wholesale, this argument would set him up to fail. But it’s not his argument. ‘Liberal’ and ‘conservative’ as they’re used colloquially don’t fit Hayek’s definitions. As political identifiers, both are increasingly used as shorthand, along with “left wing” and “right wing”, for the two dominant political coalitions. As they’re used this way, they lose the substance of their original definitions. But these terms should be rescued—not because one is good and the other is bad, but because both are useful. Why I Am Not a Conservative isn’t mounting a defence against accusations of conservatism; it’s setting out definitions. Liberalism isn’t defined in Hayek’s essay, but from his body of work we know that Hayekian liberalism is a social and institutional system that supports and protects the Great Society. Because Hayek worried that the word “liberal” had been poisoned by “overrationalistic, nationalistic, and socialistic influences”, (531 )* he tries on the label “Old Whig”. Since he refers to liberals and liberalism throughout the essay, using “Hayekian liberal” to talk about his views is less confusing.  Hayekian liberals are politically agnostic about what sort of lives we ought to want, so they want few restrictions on the sort of lives we should be allowed to pursue. From this follows broad support for legal equality and for both civil and economic liberty. Hayekian liberalism emphasizes the rule of law, a set of rules that govern impersonally the otherwise open-ended change brought about by the actions of people who live under those rules. Also emphasized under Hayekian liberalism is the importance of the private property and market prices for making useful to each other the decentralized knowledge of the members of the Great Society and helping us to coordinate our plans.  Unlike “liberalism”, Hayek’s conception of conservatism is laid out in the essay. Hayek wasn’t describing what political “conservatives” believed in 1960 or predicting what they’d believe now. If we were to point that out that he hadn’t accomplished either of those things, he might respond, “Of course not. That’s not why I wrote the essay. It has another purpose.” Conservatism, like liberalism, has real meaning, but it doesn’t imply a timeless set of concrete policy proposals. And that meaning rules out membership for Hayek.  From the text: “… conservatives have been guided by the belief that the truth must lie somewhere between the extremes—with the result that they have shifted their position every time a more extreme movement appeared on either wing. “The position which can be rightly described as conservative at any time depends, therefore, on the direction of existing tendencies.” (520) Hayek doesn’t think conservatism is a bad thing. He says that “Conservatism proper is a legitimate, probably necessary, and certainly widespread attitude of opposition to drastic change.” (519) But conservatism’s alliance with the sort of liberalism Hayek advocated in opposition to socialism was coincidental, a result of “the direction of existing tendencies.” Again from the text: “Since the development during the last decades has been generally in a socialist direction, it may seem that both conservatives and liberals have been mainly intent on retarding that movement.” (520) Hayekian liberalism doesn’t depend on the existing state of politics, but always supports a political order meant to accommodate the open-ended change that comes from allowing people to pursue their own plans: “Though today the contrary impression may sometimes be caused by the fact that there was a time when liberalism was more widely accepted and some of its objectives closer to being achieved, it has never been a backward-looking doctrine. There has never been a time when liberal ideals were fully realized and when liberalism did not look forward to further improvement of institutions. Liberalism is not averse to evolution and change; and where spontaneous change has been smothered by government control, it wants a great deal of change of policy.” (521, emphasis mine) Don’t mistake this for Hayek claiming that conservatives merely want to stand still or go backwards, as is often claimed. He lays out a pretty clear (for Hayek) and robust definition: “This fear of trusting uncontrolled social forces is closely related to two other characteristics of conservatism: its fondness for authority and its lack of understanding of economic forces. Since [conservatism] distrusts both abstract theories and general principles, it neither understands those spontaneous forces on which a policy of freedom relies nor possesses a basis for formulating principles of policy. Order appears to the conservative as the result of the continuous attention of authority, which, for this purpose, must be allowed to do what is required by the particular circumstances and not be tied to rigid rule. A commitment to principles presupposes an understanding of the general forces by which the efforts of society are co-ordinated, but it is such a theory of society and especially of the economic mechanism that conservatism conspicuously lacks.” (522, emphasis mine) Let’s unpack this, since Hayek presents it a bit backwards (as was his way, alas). He claims conservatives can be identified by: their reliance on proof by experience rather than theory, and their focus on specific outcomes as political goals and because of this foundation, from a Hayekian liberal perspective conservatives tend to:  be over-skeptical of economic theory and open-ended change, and  be under-skeptical of authority and the use of government power.  Hayek also makes an offhand comment about conservatism not possessing a basis for formulating principles. I’ll explain this last. First, look at how Hayek expands on his definition. On proof by experience and a corresponding distrust of theory:  “Conservatives feel instinctively that it is new ideas more than anything else that cause change. But, from its point of view rightly, conservatism fears new ideas because it has no distinctive principles of its own to oppose them; and, by its distrust of theory and its lack of imagination concerning anything except that which experience has already proved, it deprives itself of the weapons needed in the struggle of ideas. Unlike liberalism, with its fundamental belief in the long-range power of ideas, conservatism is bound by the stock of ideas inherited at a given time. And since it does not really believe in the power of argument, its last resort is generally a claim to superior wisdom, based on some self-arrogated superior quality.” (526, emphasis mine) Conservatives’ respect for proven success explains why they try to replicate by purposeful design what were originally emergent processes when they believe those processes have shown they lead to desirable outcomes. Conservatives believe both that designing such a plan and having a vision to work toward is necessary and that change must be directed because they don’t trust change to be a positive force without oversight. There’s nothing overtly objectionable, insulting, or outdated and unrealistic about this description. Returning to the text: On requiring specific, outcome-based goals, rather than a framework of disinterested rules to govern change:  “I find that the most objectionable feature of the conservative attitude is its propensity to reject well-substantiated new knowledge because it dislikes some of the consequences which seem to follow from it—or, to put it bluntly, its obscurantism.” (526, emphasis mine) On distrust of open-ended change:  “But the admiration of the conservatives for free growth generally applies only to the past. They typically lack the courage to welcome the same undesigned change from which new tools of human endeavors will emerge.” (522) On acceptance of authority:  “In the last resort, the conservative position rests on the belief that in any society there are recognizably superior persons whose inherited standards and values and position ought to be protected and who should have a greater influence on public affairs than others.” (524) On the use of authority to direct change:  “Let me return, however, to the main point, which is the characteristic complacency of the conservative toward the action of established authority and his prime concern that this authority be not weakened rather than that its power be kept within bounds. This is difficult to reconcile with the preservation of liberty. In general, it can probably be said that the conservative does not object to coercion or arbitrary power so long as it is used for what he regards as the right purposes. He believes that if government is in the hands of decent men, it ought not to be too much restricted by rigid rules.” (523, emphasis mine) Hayek seems to unfairly claim that conservatives have no guiding principles on several occasions. But really, he’s just being persnickety with language. See here: “When I say that the conservative lacks principles, I do not mean to suggest that he lacks moral conviction. The typical conservative is indeed usually a man of very strong moral convictions. What I mean is that he has no political principles which enable him to work with people whose moral values differ from his own for a political order in which both can obey their convictions. It is the recognition of such principles that permits the coexistence of different sets of values that makes it possible to build a peaceful society with a minimum of force. The acceptance of such principles means that we agree to tolerate much that we dislike.” (523–4, emphasis mine) Conservatives can be pragmatic and choose to compromise, but it’s compatibility of ends, not a single, cosmopolitan political principle, that allows them to work with those who have different goals. When conservative goals are incompatible with Hayekian liberalism’s open-ended growth, we shouldn’t expect an alliance to hold. Conservatives can and do act consistently according to the principles of their individual or shared beliefs, but they are individual or shared, not political or general, and the people who hold them have specific ends in mind, not a principle meant to accommodate the myriad goals of as many people as possible. To summarize and lay to rest the claim that Hayek oversimplifies the issue (and admits his own conservatism in the process): “There would not be much to object to if the conservatives merely disliked too rapid change in institutions and public policy; here the case for caution and slow process is indeed strong. But the conservatives are inclined to use the powers of government to prevent change or limit its rate to whatever appeals to the more timid mind. In looking forward, they lack the faith in the spontaneous forces of adjustment which makes the liberal accept changes without apprehension…There is perhaps no single factor contributing so much to people’s frequent reluctance to let the market work as their inability to conceive how some necessary balance, between demand and supply, between exports and imports, or the like, will be brought about without deliberate control. The conservative feels safe and content only if he is assured that some higher wisdom watches and supervises change, only if he knows that some authority is charged with keeping the change “orderly.”” (522) Defining ‘conservative’ this way breaks it free of the left/right distinction, just as Hayekian liberalism defies that distinction when it pursues a late 20th-century ‘right-wing’ goal like liberalizing trade and also a ‘left-wing’ goal like liberalizing drug policy. Conservatism on the left tries to direct economic change by following a mid-20th century economic model that supported relatively high security and pay even for low-skilled workers. Conservatism on the right pursues social stability by trying to enshrine social institutions like the nuclear, heterosexual-parent family or to replicate western political success in the developing world with foreign intervention. This spectrum-straddling conservatism explains skepticism about global trade, the globalized food supply, GMOs, and modern medicine on both the left and right. So it’s true. The language in the essay is not always contemporary—but Hayek wrote this essay because he knew the language would not remain contemporary! The essay is more relevant, not less, because terms like ‘socialist’ and ‘fascist’ have devolved to pejorative and because most modern use of ‘liberal’ and ‘conservative’ refers to policies that self-identified liberals and conservatives like or dislike, rather than to more abstract political philosophies. We should push back against vacuous and pejorative terms so we can stop talking past each other. We can use ‘liberal’ and ‘conservative’ to talk about ideas without talking about partisanship. If we can, we might be able to break down some of the hostility across those lines, identify the potential for issue-by-issue coalitions, and improve the quality of the public debate that forms the backbone of successful liberal democracy. (0 COMMENTS)

Out of the mouths of Congressmen sometimes come gems. No one should ever be taxed twice on the same income. It’s not fair and it’s not just. So tweeted Jerry Nadler back in April. Nadler is a Democratic member of the U.S. House of Representatives. There’s something to what he’s saying. As I noted in my recent article on capital gains taxes, a tax on capital gains is a fourth tax on income. The first is the income tax, the second is the tax on corporate income (if you invest some of your earned income in corporate stock), the third is the tax on dividends that the corporation pays you, and the fourth is the capital gains tax when you sell the asset. There’s even a fifth tax if you die very wealthy: the estate tax. Unfortunately, Nadler doesn’t oppose the corporate income tax, the tax on dividends, capital gains taxes, or estate taxes. So he doesn’t really mean it. What he had in mind was much more parochial: his opposition to the $12,000 limit on the deductibility of state and local taxes (the so-called SALT limit) from taxable federal income. It’s interesting, though, that Rep. Nadler made a principled argument. Why did he make it? Presumably because he thought it would resonate with people. I agree with his argument and I think people should start making it and and, unlike Rep. Nadler, mean it.       (0 COMMENTS)