In case you haven’t heard, my very favorite philosopher has just realized a new introductory philosophy textbook, entitled Knowledge, Reality, and Value. Yes, Mike Huemer has entered the textbook market.  And since he’s publishing via Amazon, the price is a rock-bottom $14.99. I’ll discuss KRV in detail once I finish it.  For now, I share a few highlights. Huemer on the psychological foundations of rational irrationality: When we are being biased (non-objective), we usually do not notice that we are doing this, nor do we actively decide to do it. It just happens automatically – e.g., we automatically, without even trying, find ourselves thinking of reasons why the person who is “on our side” shouldn’t be blamed for what he did. On the other hand, when a person “on the other side” is accused of wrongdoing, no such excuses occur to us. This is to say that bias is usually unconscious (or only semi-conscious), and unintentional (or only semi-intentional). That is why it requires deliberate monitoring and effort to attain objectivity. You have to stop once in a while to ask yourself how you might be biased. If you don’t, the bias will automatically happen. [italics original; bold-face mine] Huemer on deserving to win: Now, you might wonder: “If I do that, then how am I going to win debates?” If you have this concern, you’re thinking incorrectly about intellectual discussion. The purpose of intellectual discussion is promoting truth (for yourself and others). If your view can’t survive when you treat the opposing views fairly, then that pretty much means your view is wrong. As a rational thinker, you want your beliefs to be true, so you should welcome the opportunity to discover if your own current view is wrong; then you can eliminate a mistaken belief and move closer to the truth. If you are afraid to confront the strongest opposing views, represented in the fairest way possible, that means that you suspect that your own beliefs are not up to the challenge, which means you already suspect that your beliefs are false. Huemer on irrationalism: If you hear someone attacking the ideals of objectivity or rationality, how should you react? First, I would suggest that if a person attacks rationality/objectivity, this is evidence that some key point of their ideology is false, and that they themselves know or suspect that. (Alternately, it could be that they don’t understand what rationality and objectivity are.) If you were initially sympathetic to their views, you should greatly lower your confidence in those views, and in that person. Here is an analogy: During the Watergate scandal, after investigators learned that President Nixon had taped all of his conversations in the White House, the investigators ordered Nixon to hand over the tapes, so they could see if Nixon had illegally conspired with the Watergate burglars. Some Nixon supporters were happy to learn of the tapes and were eager for Nixon to turn them over, because they assumed that the tapes would vindicate Nixon and the scandal would end. Nixon, however, fought tooth and nail against turning over the tapes. And that was when many people realized that he was guilty of something serious. If he were innocent, the tapes would vindicate him. The best explanation of his refusing to turn them over was that he knew the tapes would prove his guilt. (Which, of course, is what ultimately happened.) Huemer solves the financial crisis: In the wake of the crisis, many people tried to explain why it had all happened. This included people with opposing ideologies. Roughly, there were people with pro-government and people with anti-government ideologies, and both tried to explain the crisis. Can you guess what the two sides said? The pro-government people said the recession happened “because” there wasn’t enough regulation – and they listed regulations that, if they had been in place, would probably have prevented the crisis. The anti-government people said the recession happened “because” there was too much government intervention – and they listed existing government policies that, if they hadn’t been in place, the crisis probably wouldn’t have happened. Notice that the basic factual claims of both sides are perfectly consistent: It’s perfectly possible that there were some actions the government took such that, if the government hadn’t taken them, the crisis wouldn’t have happened, and also there were some actions the government failed to take such that, if it had taken them, the crisis wouldn’t have happened. It’s perfectly plausible that the crisis could have been averted in more than one way: either by adding certain government interventions, or by removing some other government interventions. Which alternative you focus on depends on your initial ideology. Both sides took the episode to further support their ideology: “We have too much government” or “We need more government.” These conclusions were supported by their respective causal interpretations: “The recession was caused by government interventions” or “The recession was caused by government failure to intervene.” Who was right? Assume the facts are as stated (that some additional interventions would have prevented the recession and the repeal of some other interventions would have prevented the recession). In that case, we should either accept both causal claims or reject both causal claims, depending on what we mean by “cause”. If we mean “sole cause”, then we should reject both causal claims (i.e., we should say the recession was not caused either by government intervention or by failure to intervene). If we just mean “factor such that, if it were changed, the effect wouldn’t have happened”, then we should accept both causal claims (the recession was caused by intervention and by failure to intervene). More coming soon… (0 COMMENTS)

My Hoover colleague Tim Kane did a great job of interviewing me this morning. The interview (audio) will be available soon and I’ll post about it here when it comes out (assuming I didn’t say anything really embarrassing, and I don’t think I did.) Tim has a Brian Lamb-style way of getting his interviewee to go deeper on something personal than the interviewee (me) may have planned. So I talked about growing up in my family in a way that I hadn’t planned to. I told him in the pre-interview yesterday that when we discussed Richard Nixon and the draft, I would tell my personal story about Nixon. I forgot to. Here’s the background, which we did cover. Neither Tim nor I, as we made clear in the interview, was a fan of Richard Nixon, aka Mr. Price Controls. But we both gave him big credit for taking on the draft issue in 1967, speaking out against it in his 1968 campaign against pro-draft Democrat opponent Hubert Humphrey, and following through by letting the draft authority lapse in 1973. The story I didn’t get to tell is this. In the summer of 1993, shortly after Nixon’s wife, Pat, had died, Nixon was on the same flight my wife, daughter Karen, and I were on from Newark to Lost Angeles. He was, of course, sitting in first class with a Secret Service agent seated beside him. That kind of thing never stopped me. I thought I would tell Karen a little about Nixon having ended the draft and then take her up to say hi and thank you to Nixon. But something did stop me. In 1979-80, I had been living in Oakland and commuting to my job at the Cato Institute in San Francisco. I subscribed to the Oakland Tribune. Sitting on that flight, I suddenly remembered a long interview with Nixon in the Tribune. The interviewer had asked him what the biggest policy mistake in his presidency was. Of course, I had hoped at the time that he would answer “imposing wage and price controls.” He didn’t. His biggest mistake, he said, was abolishing the draft. I went through all this mentally in about 2 seconds and then decided, “The hell with him. I’m not going to take my daughter up there.” That was a mistake. It’s always important, at least to some degree, to “cool the mark.” That expression usually has a negative meaning, because of the term “the mark.” It typically means that one should persuade the mark that his bad decision was a good decision. But in this context, what I have in mind is positive: trying to persuade Nixon that his good decision, which he thinks was bad, was really a good decision. I should have tried to take my daughter to meet Nixon.     (0 COMMENTS)

In today’s world of hyper-political correctness, just stating the obvious can get a person into hot water.  Janet Yellen was widely criticized yesterday for making some very innocuous statements about the impact of fiscal policy on interest rates—stuff right out of a EC101 textbook.  Here’s the NYT: Treasury Secretary Janet L. Yellen said higher interest rates might be needed to keep the economy from overheating given the large investments that the Biden administration is proposing to rebuild the nation’s infrastructure and remake its labor force. . . . The Treasury secretary has no role in setting interest rate policies. That is the purview of the Federal Reserve, which is independent from the White House. But the words of Ms. Yellen, a former Fed chair, carry substantial weight, and her comments were seized on by investors and critics who said she was improperly exerting influence over her prior monetary policy portfolio. In separate remarks later on Tuesday, Ms. Yellen made clear that she respects the central bank’s independence and was not making a recommendation. Yellen did not say that the Fed should raise interest rates, rather she suggested that an expansionary fiscal policy and a recovering economy might put upward pressure on interest rates at some point in the future. I worry that more and more people seem to be equating “interest rates” with “monetary policy”.  They are not the same thing!  In almost any macroeconomics textbook, an expansionary fiscal policy—more government borrowing—tends to raise interest rates. The only exception that I am aware of is an MMT textbook that I reviewed here a few months ago, which suggested that fiscal policy cannot affect interest rates because interest rates are set by the Fed.  By that logic economic growth also does not affect interest rates, because interest rates are set by the Fed.  And rising inflation does not affect interest rates because interest rates are set by the Fed.  Indeed in that case there would be no such thing as a “Fisher effect”, the tendency for higher expected rates of inflation to raise nominal interest rates.  This would certainly simplify the process of teaching students how interest rates are determined.  That chapter could be one sentence: “The interest rate is set by the Fed.” Unfortunately, the media often gives the impression that Fed policy is the only factor that affects interest rates, rather than just one of many factors.  I’m no fan of the standard IS-LM model, as it sometimes gives students the mistaken impression that easy money leads to lower interest rates.  But now I realize that there are worse things, such as models where IS shocks don’t have any impact on interest rates. (0 COMMENTS)

There’s less disagreement than meets the eye between myself and my anonymous friend at the University of Texas.  He’s in blockquotes, I’m not.  Point-by-point: I respectfully disagree with Bryan’s recent post on anti-Communism and “anti-racism.”  I believe he falls into a classic false equivalence trap; just because two things sound similar does not make them fundamentally similar… Similarly, neither the problem being addressed not the proposed solutions discussed by Bryan have anything more than superficial parallels.  The historic loyalty oaths and anti-Communist pledges were generally narrowly tailored and required people to affirm that they did not belong to an organization that sought to overthrow the U.S. government in favor of a totalitarian socialist state.  Indeed, they only sought to exclude people who were actively seeking to bring about a system where no one who disagreed with that system would be allowed to express his ideas. Not only do I agree; my original piece linked to an earlier piece by me that explicitly says this!  After examining Berkeley’s notorious Loyalty Oath, I observed: “Notice the mild wording of this Loyalty Oath.  A person who personally advocates the violent overthrow of the government could truthfully sign it as long as he belongs to no organization that shares his position.  A philosophical communist in full sympathy with Stalin could truthfully sign it as long as he is personally an ‘impartial scholar’ in ‘free pursuit of truth.’  Needless to say, every species of democratic socialist could readily sign, as could every kind of anti-anti-Communist.” There is little evidence that these measures, which were put into place in response to a now-documented effort to take over institutions by foreign influenced revolutionary organizations, were routinely used to exclude left-wing voices from universities. Correct.  The point of my “Anti-Communism and Anti-Racism” piece was to present the case against a university policy that earnestly aims to root out “Communism.”  It’s hardly surprising that token measures like the historic loyalty oaths did not have the dire effects of which I warned. Indeed, leaders of actual murderous revolutionary Communist organizations in the U.S. were hired at prestigious universities; Northwestern Law even hired such a leader who literally supported the Charles Manson murders.  “Murderous” in the sense of advocating murder, or actually doing it?  There are numerous examples of the former, but only a few of the latter. These people and their supporters in many cases then took the lead in suppressing any dissent from their ideas at universities. If all actual members of murderous revolutionary Communist organizations had been excluded from U.S. universities, I can see things being slightly better today.  But only slightly.  Yes, full-blown Marxist-Leninists are loud.  But they are also few and low-status. I do not think it is reasonable to malign those who anticipated this threat and tried to take steps that might have helped preserve universities as a place where free exchange of ideas was remotely possible. There are two plausible positions here. (1) The historic loyalty oaths were strict and would have greatly protected the free exchange of ideas in U.S. universities. (2) The historic loyalty oaths were mild and would not have greatly protected the free exchange of ideas in U.S. universities. I hold to (2).  My friend seems to implausibly maintain that these mild measures would have made a big difference if maintained. The modern “anti-racism” movement, in contrast, seeks to exclude any ideas that reject their specific description of society and the policies that they seek to bring about in light of their views of how society works.  They seek to exclude as “racist” anyone who rejects their fundamental tenets, and they seek to use state resources to support specific political advocacy.  For example, our cultural diversity requirement can be satisfied through a class having a required “activism project.”  There is no legitimate parallel between those who sought to prevent universities, particularly public universities, from becoming tools of an extremist political movement that sought to suppress all dissent, and those today who seek exactly to turn universities into such a state-funded political tool under the guise of “anti-racism.”  Here at UT-Austin, in fact, we have just imposed a “Strategic Plan for Faculty Diversity, Equity and Inclusivity” that requires every faculty hiring and promotion decision to take into account and treat as a positive advocacy efforts for this ideological agenda. Again, my earlier piece says virtually the same: “By way of contrast, let’s compare UC Berkeley’s new Diversity and Inclusion Oath.  Well, it’s actually much more.  An Oath merely requires you to parrot someone else’s words; what Berkeley now mandates is a self-authored Diversity and Inclusion Vow in order to determine eligibility for employment.  The university then scores your Vow for orthodoxy.” It is absolutely crucial that people begin to understand and appreciate the importance of these distinctions.  Any effort to reign in the excesses permeating state universities will lead to hypocritical cries of suppression of free expression and academic freedom.  But, the “anti-racist” faction has claimed the right to dictate to every single school, department, and individual faculty member that promotion of this new ideology is an essential part of the job of every unit and employee of the university.  Undoing this situation would be striking a blow for academic freedom, not suppressing it.  University bureaucrats under pressure from faculty activists have no right to direct, say, the chemistry department to hire in part based on political advocacy.  Individuals and even departments, however, have virtually no means to stand against such demands, since they come from the central administration and also come with thinly veiled threats of attacks from activists if the directives are questioned.  Thus, trustees and where appropriate legislators have a responsibility to undo the current arrangement at universities, and false equivalences like those laid out in Bryan’s post make fulfilling that responsibility even harder. Our only clear disagreement: I’m not making “false equivalences” between historic Anti-Communist policies and modern Anti-Racist policies.  I’m making true equivalences between modern Anti-Racist policies, and purely hypothetical Anti-Communist policies of comparable intensity. Though while we’re on the topic of salesmanship, it is probably much rhetorically much easier to decry Anti-Racism as “McCarthyism reborn” than to first convince people that academic McCarthyism was fine but Anti-Racism is as bad as people today falsely believe academic McCarthyism to have been. (0 COMMENTS)

We find that the benefits of protection are disproportionately higher for older people. Consider two extremes: the 18-year-old and the 85-year-old. If the 18-year-old dies, he loses 61.2 years of expected life. That’s a lot. But the probability of the 18-year-old dying, if infected, is tiny, about 0.004%. So the expected years of life lost are only 0.004% times 35% times 61.2 years, which is 0.0009 year. That’s only 7.5 hours. Everything this younger person has been through over the past year was to prevent, on average, the loss of 7.5 hours of his life. This is from Charles L. Hooper and David R. Henderson, “Youth Pay a High Price for Covid Protection,” Wall Street Journal, May 3 (May 4 print version.) The article is gated but in 30 days I will post the whole thing. (0 COMMENTS)

My anonymous friend at the University of Texas has issues with yesterday’s post.  Here’s his critique.  Enjoy! I respectfully disagree with Bryan’s recent post on anti-Communism and “anti-racism.”  I believe he falls into a classic false equivalence trap; just because two things sound similar does not make them fundamentally similar.  For example, slicing someone’s stomach open with a rusty knife to try to cure a cold is unquestionably a bad idea.  Surgery in a sterile hospital to remove stomach cancer is, on the other hand, a reasonable treatment option.  Colds and stomach cancer are both illnesses, and both treatment options involve slicing open one’s abdomen, but the similarities really end there. Similarly, neither the problem being addressed not the proposed solutions discussed by Bryan have anything more than superficial parallels.  The historic loyalty oaths and anti-Communist pledges were generally narrowly tailored and required people to affirm that they did not belong to an organization that sought to overthrow the U.S. government in favor of a totalitarian socialist state.  Indeed, they only sought to exclude people who were actively seeking to bring about a system where no one who disagreed with that system would be allowed to express his ideas.  There is little evidence that these measures, which were put into place in response to a now-documented effort to take over institutions by foreign influenced revolutionary organizations, were routinely used to exclude left-wing voices from universities. Indeed, leaders of actual murderous revolutionary Communist organizations in the U.S. were hired at prestigious universities; Northwestern Law even hired such a leader who literally supported the Charles Manson murders.  These people and their supporters in many cases then took the lead in suppressing any dissent from their ideas at universities.  I do not think it is reasonable to malign those who anticipated this threat and tried to take steps that might have helped preserve universities as a place where free exchange of ideas was remotely possible. The modern “anti-racism” movement, in contrast, seeks to exclude any ideas that reject their specific description of society and the policies that they seek to bring about in light of their views of how society works.  They seek to exclude as “racist” anyone who rejects their fundamental tenets, and they seek to use state resources to support specific political advocacy.  For example, our cultural diversity requirement can be satisfied through a class having a required “activism project.”  There is no legitimate parallel between those who sought to prevent universities, particularly public universities, from becoming tools of an extremist political movement that sought to suppress all dissent, and those today who seek exactly to turn universities into such a state-funded political tool under the guise of “anti-racism.”  Here at UT-Austin, in fact, we have just imposed a “Strategic Plan for Faculty Diversity, Equity and Inclusivity” that requires every faculty hiring and promotion decision to take into account and treat as a positive advocacy efforts for this ideological agenda. It is absolutely crucial that people begin to understand and appreciate the importance of these distinctions.  Any effort to reign in the excesses permeating state universities will lead to hypocritical cries of suppression of free expression and academic freedom.  But, the “anti-racist” faction has claimed the right to dictate to every single school, department, and individual faculty member that promotion of this new ideology is an essential part of the job of every unit and employee of the university.  Undoing this situation would be striking a blow for academic freedom, not suppressing it.  University bureaucrats under pressure from faculty activists have no right to direct, say, the chemistry department to hire in part based on political advocacy.  Individuals and even departments, however, have virtually no means to stand against such demands, since they come from the central administration and also come with thinly veiled threats of attacks from activists if the directives are questioned.  Thus, trustees and where appropriate legislators have a responsibility to undo the current arrangement at universities, and false equivalences like those laid out in Bryan’s post make fulfilling that responsibility even harder. (0 COMMENTS)

Today the Madrid region in Spain is going to the ballot to elect a new regional government. The incumbent president is Isabel Díaz Ayuso, who represents the Partido Popular. The PP is the Spanish “traditional” right of center party, whose roots are in the tradition of so-called Christian democracy and that elected many a Spanish prime minister since the country transitioned to democracy: Adolfo Suarez, José Maria Aznar, Mariano Rajoy. The party has been tainted with charges of corruption which involved a good chunk of the old guard and, subsequently, it had to face competition both from the center and the right: on the one hand, it was challenged by Vox, an anti-immigration party which has a broadly free market agenda in economic policy, and on the other by Ciudadanos, which was born as a anti-secession party in Catalunya but quickly became a national force. Though it is a younger democracy than Italy (fascism ended in 1945, the Franco regime thirty years later), the Spanish party system has proven more resilient than the Italian one. After the “clean hands” investigations in the early 1990s, a good chunk of the party system was swept away and the parties which succeeded proved to be an easy target for anti-establishment insurgencies. Beppe Grillo, the comedian turned political leader, began as an enemy of Mr Berlusconi and of what he regarded as an insufficiently hard-nosed left. His party went on to get 30% of the vote and to have a lasting impact on Italian politics. Something similar happened with Podemos and the socialist left in Spain. The PP was challenged but resisted. A new secretary took over, the young Pablo Casado, and he endeavoured to reshape the identity of his party. In Madrid, some circumstances, including the fact that unlike in other European countries, in Spain the capital is also the business capital, conspired to emphasize the free market element. Then COVID came. Ayuso was at first accused of mismanaging the pandemic; even now her opponents are trying to prove that her government’s management of nursing homes was worse than she claims. Even if they were right and she was wrong, she would be in good company: almost no government understood the specific dangers of nursing homes in the early stages of the pandemic. Some of the criticism appeared, with the benefit of hindsight, ridiculous: Ayuso was criticized for delivering FFP2 and FFP3 protective masks to the citizens of the Community of Madrid for free. Her opponents maintained that those masks were far more needed in hospitals (which were supplied with this equipment, too). Later on, Ayuso went for a different solution than the one favoured by most European governments, including the Spanish left-leaning one. In the “second wave” of Covid19 after the summer 2020, Madrid kept restaurants and shops open, and even museums and theatres. While the opera in Milan was closed in April 2021, in Madrid they were staging Wagner’s Siegfried, a five hour-long monumental opera. Spain’s COVID numbers were not particularly worse than others: if they were, they would have been savagely attacked and shred to pieces by the Spanish left. Ayuso is no darling of the international press: she is a “lockdown sceptic”. Well, she is not the only one but perhaps she is the only one that really had skin in the game. It is one thing to write and petition governments to consider the overall costs of lockdowns. It is quite another to choose to consider all such costs, once in government, and to contrive a viable way to contain the virus without locking people down. I think that the key factor in the Ayuso administration is that they decided to fight the virus with two weapons: rules and “localism”. Instead of closing and banning activities, they defined rules to keep them open. Instead of going for a lockdown in the whole region, or even in the city of Madrid, they went neighbourhood by neighbourhood, deploying massively quick tests for COVID and imposing restrictions only on areas where the contagion was spreading at an alarming rate. The result is that Madrid and her citizens enjoyed more personal freedom and had a “normal” life more than anybody else in Europe. In a sense, this election is about that: are the people in Madrid people fine with having preserved their liberty, or would have happily traded it for a bit more sense of security? Center-right parties in Europe are a basket case from a classical liberal standpoint. Ayuso and the PP are hardly perfect, but they have been sceptics of using the pandemic to curtail individual rights and they have been among the less enthusiastic for the new wave of public spending coming as a result of the pandemic, and with the EU’s blessing. If Ayuso wins today’s elections (she is leading in the polls, but it all depends on her prospective allies’ (Ciudadanos and Vox) performance, as she’ll need to form a coalition), somebody else in Europe may begin to consider this an interesting policy mix to offer to voters. (0 COMMENTS)

I finally got to read the first two chapters of G. A. Cohen’s book Why Not Socialism? It was one of the readings for the colloquium on socialism that I attended this last weekend. Cohen starts with an analogy to a camping trip, pointing out that people often go on camping trips and share the responsibilities. At the end of the chapter, he writes: The circumstances of the camping trip are multiply special: many features distinguish it from the circumstances of life in a modern society. One may therefore not infer, from the fact that camping trips of the sort that I have described are feasible and desirable, that society-wide socialism is equally feasible and equally desirable. Well, yes. In particular, one of the distinguishing features of camping trips, at least for adults, is that everyone on the trip wanted to go camping. One of the distinguishing features of socialism is that people are forced into it and have no choice except to leave the country, often leaving much of their wealth behind and sometimes not even being allowed to leave. Yet when he gets to his Chapter 2, titled “The Principles Realized on the Camping Trip,” he doesn’t get to those two major differences. Amazing. (0 COMMENTS)

Coordination is a central term in economics. And malcoordination is what happened in historic, tragic fashion in the Great Texas Electricity Blackout of 2021, with a death toll nearing 200, damages and uncollectible expenses in excess of one hundred billion dollars, dismissals and resignations of involved regulators and planners, and countless lawsuits.[1] At fault was the “planned chaos” of central planning, not the (forgone) free-market order. The Great Blackout occurred in a heavily regulated, mother-may-I industry, involving various state and federal laws and different regulatory bodies. The malcoordination also resulted from “net zero” and “deep decarbonization” intervention favoring the least reliable energies at the expense of the most reliable in power generation. A witches’ brew of intervention came together in a way that shocked everyone, particularly the experts and planners of the Electric Reliability Council of Texas (ERCOT) and the regulators at the Public Utility Commission of Texas (PUCT). PUCT/ERCOT is the grid monopolist for 90 percent of Texas electricity, serving approximately 26 million Texans. The governmental entity oversees purchases and sales from 710 power generators (81,000 MW) involving 46,550 miles of transmission and 5,000 substations. Tax funded, PUCT/ERCOT implements price controls directly via discretionary price caps and indirectly via winning-bid rules. Amid the wreckage, more and better regulation is being proposed, not fundamental deregulation. The Conventional View Government regulation and planning were not the problem, PUCT/ERCOT defenders insist. Texas’s grid “worked as designed,” system architect William Hogan of Harvard’s Kennedy School stated. Instead, an Act of God (a severe, prolonged freeze) and private-sector mismanagement (lack of weatherization) came together to de-power a tightly coordinated, properly incentivized grid.[2] The fat-tail/business-failure interpretation, leaving 4.5 million Texas homes and businesses without power, focuses on the seen, the physical why of the debacle. It is based on recorded data of what-when-where-how much. And, in fact, the physical cause of the crisis centered on the unexpected falloff of gas-fired power generation owing to weather-related performance failures from the wellhead to the turbine. There was also weather-related underperformance in coal and nuclear plants. Consider a recent paper by the research arm of the National Association of Regulatory Utility Commissions (NARUC), Regulatory Questions Engendered by the Texas Energy Crisis of 2021. The authors track ERCOT data show the growing imbalance of demand relative to supply that grew to the point of emergency blackout orders.[3] Renewable energies expectedly tailed off from low winds, little sun, and freeze issues; it was counted-on conventional sources that could not answer the bell. As for the proverbial next time, weatherization and other reliability upgrades will become mandatory, and new incentives (including “smart meters”) will better regulate demand. New analyses are underway; with regulation as a process, the experts are “on it.” The moral of the story? Worst-case events happen, problems are part of the improvement process. Do not fundamentally alter the PUCT/ERCOT regime. Fine-tune it. A Deeper Look The view presented above ignores the why behind the why, the economic why behind the physical why. Why the failure of the price system to prevent shortages? Why the mass entrepreneurial failure to perform? Reliability, after all, has been the holy grail of electricity service ever since industry pioneer Samuel Insull invested in batteries 125 years ago. The major cause of the Blackout was government intervention writ large: highly subsidized renewable energies; centrally planned, one-sized design choices; and a forced disintegration of the natural gas and electricity industries. In more detail: Government mandated or enabled wind and solar generation, which has grown to 20–25 percent of annual Texas supply, virtually disappeared. While that is a feature of the summer peaks, the renewables drop-off happened during the February freeze. Wind and solar, available when it is least needed and least available when most needed, has complicated and compromised the overall system. PUCT/ERCOT price design allows low-marginal-cost (but unreliable) wind and solar generation to outcompete traditional baseload generation that has fuel costs (gas, coal, or uranium). Wind power, in particular, is sold at low-to-negative prices to receive the lucrative federal Production Tax Credit, which has been extended 13 times. Such underpricing has caused the premature loss of gas- and coal-fired plants and discouraged building new capacity in those areas. Various state and federal laws have required/incentivized the disintegration of the natural gas and electricity industries. Without “natural gas majors” and “electricity majors,” vertically and horizontally integrated, within and across state lines (such as exists with petroleum), the coordination challenge has been exacerbated. PUCT/ERCOT price caps, which are employed in emergencies and intended to reward reliable generators, proved to be too little and too late. Price spikes at the peak, far beyond what can be paid back, is anathema for a political regime. Getting incentives right between spot bids and backup reserve incentives to achieve reliability is a central planning quandary.[4] PUCT/ERCOT transmission-access socialism has depreciated the value of the grid for its owners and created a contrived profit center, retail marketing. (Prominent retailers went bankrupt because of the freeze, and others that passed along astronomical costs face lawsuits and collection issues.) Warmer winters in general was the consensus from climate models as well as the official releases from the National Oceanic and Atmospheric Administration. Industry decision-makers no doubt discounted a prolonged freeze event, last experienced in the state in 2011. In a government-neutral market, costly intermittent wind or solar would not have been built for the grid, and the economics of gas, coal, and nuclear plants would have been that much stronger. Higher margins would have made weatherization more affordable and prudent. More baseload capacity would have been at the ready to avoid shortages. In a free market, gas and electricity “majors,” integrated from the wellhead to the burner tip, would have simplified the coordination problem in contrast to the fragmented, high-transaction-cost industry that now exists.   [1] The blackout, lasting for 42 consecutive hours for many, caused 111 deaths from hypothermia, as well as deaths from carbon monoxide (CO) poisoning, medical equipment failure, and other related problems. Economic damages will surpass all previous power outages combined. [2] Weatherization for sub-freezing infrastructure operation was “a voluntary guideline,” an ERCOT official stated. “There are financial incentives to stay online, but there is no regulation at this point.” Weather models developed after the 2011 freeze, he added, were falsified by the February 2021 storm. [3] NARUC’s conclusions “elucidate a number of themes: 1) inherent design flaws, 2) insufficient regulatory oversight, 3) market manipulation, and 4) the distinction between reliability and resilience in designing and managing the electric market.” The central-planning framework of PUCT/ERCOT, well detailed by the study, goes unchallenged. [4] Energy payments are the low-bid winners, always wind and solar with the lowest incremental costs (but high average cost). Capacity payments reward reliability, generation that can meet peak demand. PUCT/ERCOT is wed to energy payments, unlike other power planning regimes that better reward capacity. Robert L. Bradley is the founder and CEO of the Institute for Energy Research. (0 COMMENTS)

Book Review of The Politics of Bad Options: Why the Eurozone’s Problems Have Been Hard to Resolve, by Stefanie Walter, Ari Ray, and Nils Redeker.1 The Euro and the Economic and Monetary Union were introduced to promote trade, deeper economic integration, and higher prosperity within the European Union. Largely this all came true. The Euro is today the second largest and second most traded currency in the world after the U.S. dollar. However, according to many economists, the institutional structure behind the euro was flawed or incomplete from the beginning, for two major reasons. The first is that the countries making up the euro area simply are too diverse. According to Nobel laureate Robert Mundell, a well-functioning currency area, with a common central bank establishing the same interest rate and without the ability for the participating countries to adjust their exchange rates to make their goods cheaper and more attractive, needs to be an area with internal factor mobility and external factor immobility. The implication is that the markets of the euro area needed to be fully integrated, and the participating countries needed to face similar challenges in situations of macroeconomic external shocks. None of this was true when the Euro and the European Central Bank (ECB) were introduced, in the early 1990s, and it became even less true when additional countries joined the monetary union. The second reason why the Euro was considered to have fundamental problems was that a monetary union most likely presupposes a political union, with common fiscal and social policies. Without deeper integration a common currency could not work, many economists argued; the statements concerning convergence criteria about budget deficits and public debt were simply not enough. However, the electorates in most EU member states do not want a stronger political union, as the referenda in both France and the Netherlands in 2005 showed. For more on these topics, see Monetary Union, by Paul Bergin, Concise Encyclopedia of Economics; “Greece and the Euro, All Over Again,” by Pedro Schwartz, Library of Economics and Liberty, February 2, 2015; and “The European Central Bank Changes Its Spots,” by Pedro Schwartz, Library of Economics and Liberty, April 1, 2013. See also the EconTalk podcast episode Crafts, Garicano, and Zingales on the Economic Future of Europe. It was the shock waves from the global financial crisis in 2008-2009, however, that served as a trigger and catalyst for a major debt and balance-of-payment crisis in the Eurozone. Major macroeconomic imbalances had developed in several countries in the Eurozone with slow growth, increasing public and private debt, and increasing unit labor costs. The causes were as always varied and complex, but one major reason was no doubt the low interest rates, easy credit, and capital inflows to current account deficit countries made possible by the common currency and the European Central Bank (ECB). With the exchange rate fixed, the only available adjustment mechanism was painful internal devaluation, something that few governments could endure. To avoid a feared meltdown when the credit worthiness of member states such as Cyprus, Greece, Ireland, Portugal, and Spain were reassessed, the euro group agreed on a bank rescue plan, where governments would support the banks and guarantee interbank lending. Moreover, with the risk of a default in Greece and other Euro members in late 2009-10, provisions for bailing out member states who could not raise funds were agreed upon. This was done even though the European Union’s basic treaties rule out any bailout of a Euro member, to encourage them to manage their finances better. In a new book by Stefanie Walter, Ari Ray, and Nils Redeker, The Politics of Bad Options: Why the Eurozone’s Problems Have Been So Hard to Resolve (Oxford University Press 2020), the authors argue that the costs of resolution in the Eurozone crisis were borne almost exclusively by indebted deficit countries, whereas the creditor-surplus states did little to share the burden. While debtor states were forced to implement austerity measures and structural reforms that were almost unprecedented in scale, surplus countries—their argument goes—did not significantly adjust their economic policies. The purpose of the book is to explain this by examining the politics surrounding the choice of crisis strategies in both debtor-deficit and creditor-surplus countries. It is an impressive original work of public choice they present, based on macro-level statistical data, comparative case studies and detailed survey data from about 700 European interest groups about their preferences of policy options and the trade-offs between them. They focus on three broad strategies: Internal adjustment, external adjustment, and financing (such as bailouts or debt relief). In summary, they show that distributive concerns—both within countries and among countries—shaped the politics of Eurozone crisis resolution. Within deficit-debtor and surplus-creditor countries, interest groups and voters fought to shift the costs of crisis resolution away from themselves. Creditor countries with current account surpluses fought with debtor countries with current account deficits over who should implement the policies necessary to reduce the current and capital account imbalances and who should take responsibility for the accumulated debts. Most interesting is that two of the policy options did not materialize: (1) external adjustment in terms of a breakup of the Eurozone by one or several countries leaving; and (2) internal adjustment in the surplus countries through Keynesian policies of boosting demand and inflation, an option that the authors themselves explicitly favor. But also, (3) financing policies of debt relief and bailouts, policies that were strongly opposed by the voters in the surplus countries, nevertheless became an important part of the rescue package. In (1), however, the surveys among interest groups in the deficit countries of Ireland, Spain and Greece clearly show that the interest groups became much more accommodative of the prospect of austerity and structural reform when they were confronted with the trade-off between internal adjustment and leaving the Eurozone. To have the common currency and benefit from the low interest rates guaranteed by the ECB apparently was considered very valuable. So much for the rhetoric and protests against austerity and long-needed structural reforms, reforms that in many cases actually have been implemented. In Spain, for example, a major labor-market reform became possible. In (2) the electorate and interest groups in surplus countries like Austria, Germany, and the Netherlands were strongly divided towards expansionary policies to boost internal demand through public investments and welfare spending. The reasons proposed by the authors are two: the dominance of ordo-liberal ideas and strong interests that feared that export-led growth models could be undermined by such Keynesian measures. However, equally important in my view were the hard-won lessons that the surplus countries themselves had learned in the decades before the Eurozone crises. Germany, for example, used to be called “the sick man of Europe” as late as the year 2000 due to sluggish growth, high unemployment, and public deficits. But the interest groups, voters, and taxpayers in the surplus countries also strongly disliked (3), the policies of debt relief and bailouts. As a consequence, the politicians and bureaucrats involved in crisis management had to frame their decisions around what was “politically possible without evoking resistance from a watchful public,” as attested by interviews conducted for the book. The policymakers resolved this problem by devising financing in a way that not only pushed the costs for taxpayers into the future, but also via indirect measures such as allowing the balances in creditors states’ central banks to grow. Moreover, they subjected the bailouts to significant conditionality. Also, as mentioned above, policymakers and bureaucrats shifted the responsibility to the European level by introducing a bank rescue plan and provisions for bailing out member states, which was in fact forbidden in the EU treaties. Famously, ECB president Mario Draghi in July 2012 stated that the bank stood ready to do “whatever it takes to preserve the euro,” as the bank unveiled a new bond-purchasing program. In the process of this successful Machiavellian manoeuvre of “obfuscation,” the politicians in the surplus countries at the same time managed to save their own domestic banks which had been the main lenders to the credit countries. “It is not unique for the handling of the Eurozone crisis that all policy options have their pros and cons, and that tradeoffs must be made between them. This is the essence of politics in general.” Overall, in my view this combined policy of debt relief, bailouts, strict conditions of austerity measures and structural reforms in credit countries is a good example of statecraft: it saved the Eurozone from breaking up, it promoted necessary reforms in the creditor countries, and it managed to keep the costs for surplus countries at reasonable levels. In this regard I disagree with the authors of The Politics of Bad Options. It is not unique for the handling of the Eurozone crisis that all policy options have their pros and cons, and that tradeoffs must be made between them. This is the essence of politics in general. Also, I think it is problematic to blame, as they do, the rise of populism and Eurosceptic parties across the EU on the austerity policies used to handle the Eurozone crisis. Populism started much earlier, especially in Southern Europe, and can well be considered a major cause to the questionable policies in the debtor countries in the decades before the crisis that others had to help to solve. In fact, those countries could no doubt benefit from a dose of “ordo-liberal” ideas. But apart from this, The Politics of Bad Options: Why the Eurozone’s Problems Have Been So Hard to Resolve is an interesting, well-researched, and thought-provoking book of real-world public choice that is well-worth reading. Given that the underlying problems of the Eurozone still are far away from being solved, we can surely look forward to upcoming crises in the future. Footnotes [1] The Politics of Bad Options: Why the Eurozone’s Problems Have Been Hard to Resolve, by Stefanie Walter, Ari Ray, and Nils Redeker. * Nils Karlson is Professor of Political Science and President of the Ratio Institute, Stockholm, Sweden. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)