In one of his recent New York Times columns (“Too Much Choice Is Hurting America,” March 1, 2021), Nobel economist Paul Krugman worries about the US having become a country in which many of us are actually offered too many choices, in ways that can do a lot of harm. It’s true that both Economics 101 and conservative ideology say that more choice is always a good thing. … In the real world, too much choice can be a big problem. … Too much choice creates space for predators who exploit our all-too-human limitations. … people have limited “bandwidth” for processing complex issues. This is not an original opinion. It is typical of the authoritarian left and of the authoritarian right. Even Trump might agree, he who did not mind preventing people from buying dolls made in China. Krugman should know why, for nearly three centuries, mainstream economics, and not only at the 101 level, has taken the opposite stance. As a positive science, economics shows that individuals make their choices on the basis of their preferences and their constraints. Individuals generally prefer more choices because that increases the possibilities of satisfying their preferences. One is more limited if he can choose between only a rotary telephone and a push-button one.  If we use economics normatively on the basis of classical-liberal values (from which Krugman has far drifted), every individuals should have the right to choose what he wants—besides committing crimes such as murder because a social system allowing such crimes is presumably in nobody’s interest. When Prof. Krugman states that “many of us are actually offered too many choices,” he doesn’t include himself, but only the poor or those who he thinks don’t have his intellect. What would he say if some intellectual told him that he has too many book choices? What if we told him that he is manipulated by “predators who exploit our all-too-human limitations”? Of course, it is true that some individuals make choices that turn out to be bad for their own future. But what is the alternative? Mr. Krugman only dislikes individual choices. He loves the alternative: collective choices imposed on everybody, choices where individuals are much more impotent and blind. Impotent because the typical individual—as opposed to a Nobel prizewinner with a column in the New York Times—has only one vote that will not change the result of any election; and moreover because, “in the real world,” politicians and bureaucrats make most of the collective decisions anyway. Blind because, for the reasons we have just seen, the ordinary voter remains “rationally ignorant” (as public-choice economists say) of politics and spends less time getting information on politics than when, as a consumer, he buys a new car. Even if you think that you are buying something when you vote, it is nearly infinitely more difficult to figure out what you buy than when you purchase for yourself a car, a computer, a health insurance policy, or a mortgage. Given his predilection for collective choices, we can suspect that Krugman wants his elitism to be imposed by laws and regulations, mandates and bans. His columns are not meant to be about aesthetics and literary criticism. Isn’t he worried that, in collective choices, political predators, with the same cognitive limitations as “many of us,” will “exploit our all-too-human limitations”? Who is more dangerous, a political demagogue or the VP Marketing at Ford? Krugman cites the case of the Great Recession as an example of individuals being incompetent to make choices: One cause of the 2008 financial crisis was the proliferation of novel financial arrangements, like interest-only loans, that looked like good deals but exposed borrowers to huge risks. To be fair, he does speak of one cause but why does he not mention the major role played by the federal government, which was already guaranteeing nearly half of residential mortgages and was controlling the whole market? The main “novel financial arrangement,” the mortgage-based security, was created in 1970 by Ginnie Mae, a federal government agency that long boasted about it on its website. Krugman knows something about this because he wrote in a 2009 book that securitization was “pioneered by Fannie Mae,” a government-sponsored enterprise. Moreover, the federal government had spent decades encouraging poor people to buy mortgages and coercing banks into not discriminating against people likely to be incapable of reimbursing them. In 2003, congressman Barney Frank declared (all citations in my 2011 book Somebody in Charge): I believe that we, as the Federal Government, have probably done too little rather than too much to push them to meet their goals of affordable housing and to set reasonable goals. … I would like to get Fannie [Mae] and Freddie [Mac] more deeply into helping low-income housing and possibly moving into something that is more explicitly a subsidy. … I want to roll the dice a little bit more in this situation towards subsidizing housing. All that is a bit troubling. How can somebody like Krugman, who is, after all, an economist and obviously an intelligent man, defend such simplistic ideas? Should we just suppose that his New York Times columns are so heavily edited that they don’t really represent his own opinions? (The New York Times is apparently known as an “editors’ paper” as opposed to a “writers’ paper.”) But if so, why would he accept to play that game? (0 COMMENTS)

Last Monday, I got my COVID vaccine; the full effects should be kicking in soon.  How should I change my behavior?  How should anyone? One popular answer is: Not at all.  Why not?  The top reason I’ve heard is: Because even those of us who have been vaccinated can’t be absolutely sure we won’t be infected – or spread infection to others.  Some use the same reasoning to argue that people who have recovered from COVID shouldn’t change their behavior either.  As immunologist Alexander Sette puts it: Not taking any precautions—including wearing a face mask, practicing social distancing, or getting vaccinated—after an initial coronavirus infection is comparable to “driving a car where you’re 90% sure the car has brakes.” However, both common sense and economic reasoning virtually the opposite.  If a risk falls by 90%, and there are large gains to accepting the risk, you should not only accept more of the risk; you should probably accept much more risk.  This is what self-interest recommends; and when your risk-taking benefits others, this is what humanitarianism recommends as well.  Remember: Your social distancing doesn’t just harm your quality of life; it harms the quality of life of everyone who doesn’t have the pleasure of your company. What about the “90% sure the car has brakes” argument?  This posits an lopsided scenario where you have a 10% chance of killing or seriously injuring others for a trivial reason.  You shouldn’t die with 100% probability to see a movie; neither should you die with a 10% probability to see a movie.  Anyone who has ever driven to a movie, however, has accepted a .0000001% chance of dying en route.  And doing so is both prudent and considerate.  Or to tweak the hypothetical, it would be perfectly reasonable to drive regularly even though there is 10% chance that your brakes will go out sometime in the next twenty years of driving. The better argument against changing your behavior – or at least not changing it much – is that we still don’t know make you lonely; it makes people who would have interacted with you lonely as well.  make both you and other people lonely.  insofar as your risky activities benefit others, it is also what  accept much more risk. (0 COMMENTS)

In absolute terms, the US has vaccinated more people for Covid-19 than any other country. But in relative terms, the UK is doing far better. I see three reasons for the success of the UK: 1. The UK has provided about 34 total doses per 100 people, vs. about 26.5 per 100 in the US. 2. First dose first. In the UK, almost all of the jabs have gone to people who have not yet received any doses. In the US, a substantial share of the shots are second doses. 3. The UK has focused very strongly on vaccinating old people first. The US has a mixed system, where the old are just one of many groups that are prioritized. In recent weeks I’ve been told by friends and family of many cases of young and middle aged people receiving Covid shots. None of these were people with pre-existing conditions or essential workers.  I’ve heard of far too many such cases to assume these are flukes—the system is clearly flawed.  (And this isn’t sour grapes on my part; I was vaccinated way back in January.) The US decided to create a complex bureaucratic system. In this sort of rationing regime, those who are well connected or good at gaming the system go first. Here’s is my view of the various systems for rationing: First: Free market. The high prices induce a much stronger and more rapid supply response. Second: Old people first. This sort of simple system is harder to game.  In the UK, roughly 94% of people over 65 have been vaccinated. Third: A complex bureaucratic system. Fourth: The European system, where little vaccine is even available. I guess the US can take comfort from the fact that we are not last on the list. PS.  Deaths are falling faster in the UK, but only part of that is due to their superior vaccine role out.  Covid naturally tends to come in waves, and then people (or governments) respond to surges by changing behavior. Deaths in the UK are likely to continue falling rapidly, as by mid-April everyone over 50 who wants to be vaccinated (and under 50s with pre-existing conditions) will have already received a jab.  At that time, life should return to normal.  But will it?  A year ago I argued that we under-reacted at the beginning of the epidemic and that we would overreact at the end.  I’m sticking with that prediction.  I expect excessive precautions in many countries this summer, including the US. (0 COMMENTS)

In two Defining Ideas articles in 2009, “Who’s Afraid of Budget Deficits? I Am” and “Furman, Summers, and Taxes,” I criticized Lawrence Summers and Jason Furman, two prominent economists who worked in the Obama administration, for their dovish views on federal debt and deficits. They had argued that we shouldn’t worry much about high federal budget deficits and growing federal debt. Of course, that was before the record budget deficit of 2020. Now even Summers is worried. In two February op-eds in the Washington Post, Summers argues against the size and composition of the Biden “stimulus” bill. Summers makes a solid argument, on Keynesian grounds alone, that the proposed $1.9 trillion spending bill is much too large. He also, to his credit, digs into some of the details of the bill, pointing out how absurd they are. Had Summers looked at more details, he could have made an even stronger case against the measure. For instance, one major provision of the bill, the added unemployment benefits through August, will actually slow the recovery. And other provisions of the bill, like the bailout of state and local governments, are bad on other grounds. The fact is that this is not your father’s or your grandmother’s run-of-the-mill recession. It was brought about by two things: (1) people’s individual reactions to the threat of Covid-19 and (2) politicians’ reactions, in the form of lockdowns, to the same threat. These are the opening two paragraphs of my latest article for Defining Ideas, “An Unnecessary ‘Stimulus’“, Defining Ideas, March 5, 2021. And the ending: First, the economy is recovering. In January, the International Monetary Fund predicted that real GDP will grow by 5.1 percent in 2021. Possibly that’s because the IMF understands that this is not a typical recession. The slump we’re in was due initially to people’s fear of the virus, a fear whipped up by Dr. Anthony Fauci and others. But now it’s due mainly to lockdowns. As the percent of the US population that has had COVID-19 rises and the number of people vaccinated rises, we are getting closer to herd immunity. Then people will feel even safer going out and governments will have fewer excuses to keep their economies locked down. We can all become Florida or Florida-Plus. That will all happen without any stimulus bill. Second, the $1.9 trillion bill represents government taxing us or our children in the future to spend money in places where we the people have chosen not to spend it now. The bill is, in essence, a huge instance of central planning with government officials’ preferences overriding ours. The bill, for example, contains $28 billion for transit agencies, $11 billion in grants to airports and airplane manufacturers, and $2 billion in grants to Amtrak and other transportation. How does the government know that those are the right amounts? What if, as I predict, when the pandemic and lockdowns end we will still have fewer people wanting to ride transit because they and their employers will opt for a hybrid model of some at-home work and some in-office work? The effect of this misallocation of resources won’t necessarily show up in GDP because GDP measures government spending at cost rather than at value. But this spending will make us somewhat worse off. It’s far better to rely on people having the freedom to make their own allocations. If the government gets out of the way, the economy will recover. Maybe it takes an outsider to see that and to say that. I just did. Read the whole thing. (0 COMMENTS)

“Economics is really about two stories. One is the story of the old economist and younger economist walking down the street, and the younger economist says, ‘Look, there’s a hundred-dollar bill,’ and the older one says, ‘Nonsense, if it was there somebody would have picked it up already.’ So sometimes you do find hundred-dollar bills lying on the street, but not often—generally people respond to opportunities. The other is the Yogi Berra line ‘Nobody goes to Coney Island anymore; it’s too crowded.’ That’s the idea that things tend to settle into some kind of equilibrium where what people expect is in line with what they actually encounter.” ― Paul Krugman I love this quote. These two jokes do sort of describe economics, at least what you might call “pure” or celestial economics, where there are no real world frictions to worry about. If we add frictions to the mix we get terrestrial economics, the economics of the real world. Krugman’s first joke gets at the way economists think about information. It’s essentially epistemology, about whether to believe something is true. The second joke is about behavior, about how we model the response of people to changes in their environment. At the end I’ll add frictions, and try to give you a sense of how economists like me think about the world.  So here’s my 4-minute course on economics. 1. Information:  Imagine a giant encyclopedia, written in Japanese.  It contains a vast amount of information about the world.  But to read it one must first learn Japanese.  By learning economics we are able to read an enormous amount of information from prices, if we assume that people are rational utility maximizers.  Thus if conventional Treasury bonds yield 7% and indexed bonds yield 3%, we can infer that optimal forecast of inflation is 4%.  If that were not true, there would be $100 bills lying on the sidewalk for investors to pick up. Here’s another example.  Suppose there’s a neighborhood of cookie-cutter homes on the Irvine/Lake Forest boundary, here in Orange County, CA.  If we compare two similar houses on each side the border, we can infer the difference in value that people see in living in each city, capitalized into the home value (actually land value.)  Most likely, this reflects differences in the perceived value of the two school systems, with Irvine viewed as superior.  If the price gap didn’t reflect perceived amenity differences then homebuyers would take advantage of any mis-pricing. Here’s another example.  Assume that Mexican farm workers in California earn $11/hour on average while Central American farm workers in California earn $10/hour on average.  We can infer that the Mexican farm workers are probably about 10% more productive, on average, otherwise California farmers would choose to hire Central Americans, not Mexicans.  Again, no $100 bills on the sidewalk. The economy contains billions of such pieces of information, all embedded in prices, for those who know how to “read economics”.  It’s like a giant encyclopedia. 2. Behavior:  Economists assume that rational people will keep doing X up until the point where the benefit of one more (marginal) unit of X no longer exceeds the marginal cost of X.  This is the “equilibrium”.  X could be any activity: units consumed, hours worked, dollars invested, etc.: Urban planners often suggest that expanding highways does not reduce traffic congestion.  That’s wrong.  If you widen a highway, more people will travel on the highway.  That part is true.  But traffic congestion will be reduced; indeed it must be in order to induce more people to travel on the highway.  Why do urban planners get this wrong?  Because they noticed that traffic did not seem to improve when places like Orange County built more highways.  But that’s because both lines were shifting at the same time, as Orange County’s population was growing rapidly when it was building new roads.  It is still true that, other things equal, building more highways reduces traffic congestion.  Recently, Orange County’s population stopped growing.  Now if they were to build more highways in OC, it really would reduce traffic congestion. Or consider how firms respond to a change in the cost of inputs.  Most students understand that firms will respond to cost increases by raising prices, but often fail to see that firms will respond to price decreases by cutting prices.  But the model is symmetrical; a shift up in the MC curve has the opposite effect of a shift downward, even for a 100% monopoly.  In both cases, cost curve shifts move the optimal output point, which requires a price change.  And we know that firms don’t want to leave $100 bills on the sidewalk. So that’s celestial economics in a nutshell.  It describes a world where inefficiencies should be quickly eliminated, as utility maximizers do deals to improve efficiency and share the gains.  No $100 bills left on the sidewalk. 3.  Frictions:  Here in the real world, things don’t work so smoothly.  One friction is transactions costs.  In principle, inefficiencies related to externalities (pollution, etc.) and monopoly could be eliminated through negotiations.  Pollution victims could bribe factories not to pollute.  Monopolies could negotiate perfect price discrimination with consumers.  But such negotiations are often costly and hard to do, for all sorts of reasons.  Another friction is sticky wages and prices, which result in nominal shocks having real effects.  Bad real effects, such as high unemployment.  Another friction is illiquidity, which explains why the TIPS spread may not perfectly measure the public’s inflation expectations.  TIPS are less liquid, and hence less desirable.  Furthermore, information is costly.  So there may be a few $100 bills on the sidewalk because no one spent the resources to look for those $100 bills.  And there’ll be lots of coins on the sidewalk. Left leaning economists focus more on frictions.  Right leaning economists focus more on celestial economics.  I’m somewhere in the middle, but definitely leaning to the right.     (0 COMMENTS)

It is suggested that the good President Biden called off one air strike in Syria after being told in extremis that a woman and a couple of children were near the planned impact (Gordon Lubold et al., “Biden Called Off Strike on a Second Military Target in Syria Last Week,” Wall Street Journal, March 4, 2021), just the opposite of what happened in the movie Eye in the Sky. I suspect that Joe Biden is, in private life, a decent human being. But he has some potential, prefigured in his previous politician’s life, to be a monster in politics. Jason Brennan argues in Against Democracy (Princeton University Press, 2016) that “politics makes us worse.” But there are two related lessons of the aborted Syria strike that are perhaps less immediately obvious. The first one is that simple people like to think that their ruler is good. “If only the king (or the Party) knew what’s happening, he would stop it.” Biden didn’t let it happen because he is a good ruler. That may bring to mind—or at least to the mind of a critical Frenchman—the French nursery rhyme “Le bon roi Dagobert” (The Good King Dagobert), in reference to the 7th-century monarch. Interestingly enough, though, the song was composed to mock royalty a few decades before the French Revolution of 1789, that is, before the French replaced a weak king with a series of strong dictators—what frequently happens in revolutions. Trusting the rulers is an old habit of mankind, probably deeply embedded in our brains by evolution just like, according to Nobel economist Friedrich Hayek, tribal instincts are. In this perspective, the “Great Society” (to use Hayek’s formula) requires that we reject our tribal instincts in favor of an abstract and impersonal order based on individual liberty. Despite the glitch of 1789, we can view the Enlightenment—including the Scottish Enlightenment of David Hume and Adam Smith—as a major step towards Hayek’s Great Society. The American Revolution was another step. But can mankind stop trusting its supposedly benevolent rulers? This is a crucial question, especially pressing in our troubled times. James Buchanan, the Nobel economist whose work in “constitutional political economy” was devoted to the liberal ideal although in another perspective than Hayek’s, ended up sharing the latter’s pessimism. In a Public Choice article published a few years before his death, Buchanan wrote: The thirst or desire for freedom, and responsibility, is perhaps not nearly so universal as so many post-Enlightenment philosophers have assumed. Perhaps many people do want their security guaranteed and their lives ruled by a good king Dagobert? The second lesson illustrated by the cancelled strike is that it is in the state’s interest to have its subjects believe that the king or democratic ruler is good and benevolent. (In a state that is not perfectly autocratic, “the state’s interest” means the result of the interactions between politicians, courtiers, and government bureaucrats.) It is thus in the state’s interest to reveal, embellish, or leak instances of the rulers’ goodness. Isn’t there a good chance that the Syria incident was leaked under orders from our good king Dagobert? Even under a constitutional—that is, limited—government, the belief in a good ruler is dangerous because it can disarm essential mistrust. As often, Anthony de Jasay found the way to put a related but more general problem in a few unforgettable words: Self-imposed limits on sovereign power can disarm mistrust, but provide no guarantee of liberty and property beyond those afforded by the balance between state and private force. This suggests many other questions. Stay tuned. (0 COMMENTS)

For the most part, economists don’t give people advice on how to run their lives. Rather we tend to focus on explaining the behavior of consumers and businesses, usually assuming they are at least somewhat rational. One exception is when there is a “principal-agent problem”, the case where the people you hire (the agents) have interests that differ from you own interest. Thus economists might advise someone to be a bit skeptical if one’s dentist recommends that you get a new crown. Is it actually needed, or is the dentist merely trying to pad his income? There is one area where economists are especially likely to give advice–personal investments. The Efficient Market Hypothesis (EMH) suggests that it’s extremely hard for financial advisors to consistently beat the market. Because these professionals must be paid for their services, managed mutual funds tend to do worse, on average, than index funds. Thus almost all economists that I know recommend that average people invest in index funds. Because of the EMH, the field of economics has its own distinct epistemology. We believe in the wisdom of markets. We believe that the optimal forecast of many economic variables is embedded in the consensus market forecast. AFAIK, other sciences don’t use this approach to ascertain what is true. Thus meteorologists don’t typically assume that a prediction market forecast of global temperatures in the year 2050 represents the optimal forecast, even were such a market to exist. On the other hand, I do wonder if economists are being consistent in the way they apply concepts such as the principal-agent problem and the EMH. Doesn’t our criticism of managed mutual funds apply equally well to our own profession? Consider the following two approaches to policy: 1. Most economists seem to believe that it makes sense for our profession to do a lot of research on the macroeconomy, and then base our monetary policy on forecasts derived from computer models of the economy. 2. I believe that much of this research is wasteful, and that monetary policy should be guided by market forecasts of the relevant economic variables. In order to see who’s right, let’s take the same analytical framework that makes economists so critical of the managed mutual fund industry and direct it toward our own field. We immediately see two problems. Just as with the financial industry, it is in the best interest of economists if society spends a lot of money financing research on predicting future macroeconomic outcomes. These are good jobs! Second, the EMH suggests that the output of these investigations will be inferior to the consensus market forecast, and yet we usually argue that policymakers should rely on our computer models, not the consensus market forecast. Thus we seem to be dismissing the value of the EMH when it comes to our own profession, after using the EMH as a bludgeon to bash the financial services industry. Of course one could argue that research by individual economists is a valuable input into the market forecast of inflation and GDP, but one could equally well argue that research by individual financial experts is a valuable input into the market pricing of assets. And even if economic research should be subsidized because information has external benefits, that does not justify using a particular Fed model to set policy, rather than the market forecast. Economists are also “agents”, and our self-interest is not the same as society’s self-interest. On the other hand, I’m also an economist, so why should you believe me? My self-interest might be to carve out a career as a contrarian. I would respond as follows. I’m not trying to brainwash you; I’m merely pointing to some implications of ideas that many of you already know, especially those with some background in economics.  Back in 1996 (in a defense of free trade), Paul Krugman gave four suggestions to people trying to become public intellectuals.  This one struck home: Adopt the stance of rebel: There is nothing that plays worse in our culture than seeming to be the stodgy defender of old ideas, no matter how true those ideas may be. Luckily, at this point the orthodoxy of the academic economists is very much a minority position among intellectuals in general; one can seem to be a courageous maverick, boldly challenging the powers that be, by reciting the contents of a standard textbook. It has worked for me! That’s what I did in my new book, which comes out this summer.  And that’s what I’m doing here.  The principal-agent problem and the EMH are well-established ideas.  And it is well known that economists are highly skeptical of managed mutual funds, and often recommend indexed funds.  In this post, I’m merely pointing to the implication of applying this sort of analysis to my own profession.  Don’t automatically believe what I say—think about whether it makes sense. After all, my best interest doesn’t coincide with your best interest. PS.  You might argue that asset markets don’t exist for some key macro variables.  But that’s no excuse; the Fed can create them. PPS.  Part 2 of my MMT critique is now out.  Now there’s a theory that categorically rejects the EMH!! (0 COMMENTS)

[Scroll to the end for a couple final reactions to comments .] In a reflective moment, George Orwell wrote, “Every line of serious work that I have written since 1936 has been written, directly or indirectly, against totalitarianism and for democratic socialism, as I understand it.”  Yet if you actually read his oeuvre, you’ll find a striking disparity: Orwell’s anti-totalitarian writing is massive, but his pro-socialist writing is wafer thin.  As far as I know, the closest thing Orwell produces to an argument for democratic socialism appears in his review of Hayek’s Road to Serfdom: [Hayek] does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter. And: Capitalism leads to dole queues, the scramble for markets, and war. Collectivism leads to concentration camps, leader worship, and war. There is no way out of this unless a planned economy can somehow be combined with the freedom of the intellect, which can only happen if the concept of right and wrong is restored to politics. In Orwell’s day, many readers would have responded, “Orwell wrote little, but the few pro-socialist words he wrote suffice.”  Even today, many would sympathize.  Yet despite my love for Orwell, he he’s thoroughly mistaken.  Point-by-point: [Hayek] does not see, or will not admit, that a return to ‘free’ competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. Hardly.  As of 1940, quality of life for “the great mass of people” was near its all-time global high in the world’s most capitalist countries: the United States, United Kingdom, and Switzerland.  These countries were the richest and the freest – and not “just for the rich.”  Seriously, where on Earth would you rather be living in 1940?  You could say that the United States, United Kingdom, and Switzerland were even better for the great mass of people immediately prior to the Great Depression.  But that’s praising with faint damnation. The trouble with competitions is that somebody wins them. This is misleading even for athletics.  Yes, someone wins the game.  To continue winning, however, even the best teams have to keep practicing and improving.  Every day is another chance for losing teams to turn things around. The same goes for business.  On any given day, some firms are doing great.  That doesn’t mean, however, that they’ve permanently “won.”  Even if all of their direct competitors go out of business, successful firms have to worry about future competitors.  Amazon is by far the best store in history, but they tirelessly strive to improve because they want to stay number one. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led… “Monopoly”?!  What is Orwell even talking about?  I suppose he could be focusing on a few industries with large economies of scale, but even in his time that would have been a modest share of total output.  Or he might be thinking about industries like agriculture with state-sponsored cartels, but you can hardly blame “free capitalism” for that. and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter. Mass unemployment is a grave evil, and the evil was probably never graver than during the Great Depression.  But even in Orwell’s day, economists had a compelling diagnosis and effective cures. The diagnosis: Unemployment is caused by excessive wages.  The effective cures: Either (a) let wages fall, or (b) print more money to reduce wages surreptitiously.  Despite its popularity, “state regimentation” is a red herring that fails to address the actual problem. Capitalism leads to dole queues, the scramble for markets, and war. The dole was indeed a popular response to high unemployment.  But once you grasp the wage-unemployment connection, you start to worry that the dole prolongs unemployment by reducing the pressure to bring wages down to the full employment level. The “scramble for markets” story is Leninist dogma.  As the gravity model predicts, rich countries mostly trade with nearby rich countries, not their nation’s colonies.  The post-war loss of colonies was a big blow to nationalist pride, but economically trivial because the colonies were never economically important in the first place. And war?  Blame nationalism and totalitarianism, not “capitalism.”  If capitalist greed ran Europe in 1914, all of the major powers would have realized that preserving good economic relations with European neighbors was vastly more profitable than grabbing some remote, impoverished colonies. Collectivism leads to concentration camps, leader worship, and war. Yes, yes, and yes. There is no way out of this unless a planned economy can somehow be combined with the freedom of the intellect, which can only happen if the concept of right and wrong is restored to politics. On the contrary, the “way out” is to combine freedom of the intellect with a free market economy.  Fortunately, that’s easy because these two freedoms are not only compatible, but mutually supportive.  And if we restore the concept of right and wrong to politics, combining these two freedoms is precisely what we’ll do, because there is a strong moral presumption in favor of freedom. Final Reactions A few final reactions: Miguel Madeira: “Strictly hereditary dictatorship, per Pascal, has the lowest selection pressure for bloodthirsty power-hunger. ” Unless we follow the KevinDC model – if we assume that bloodthirsty power-hunger dictators will purge all other potential bloodthirsty power-hunger dictators (meaning that his successor will probably be a risk-averse yes-man)… I’d say that a truly risk-averse yes-man would steer clear of politics.  The most bloodthirsty dictators might select for underlings who are risk-averse by the standards of ruthless politics, but their absolute level of risk-aversion would still be low. BK: Thoroughly enjoyed this book club. I’ve been curious throughout whether you would ever touch on the meta-theory that Oceania is actually a lie and the totalitarian state is actually limited to a small autarkical geography. That the reasons that some of the balance of power arguments between the major powers seem shaky are attributable to the power of the government itself being a lie. The reference above to believing absurdities plays nicely into this, and reminds me somewhat of my travels in Cambodia and some of the reflections on the Khmer Rouge’s reign. I never heard this story, but it doesn’t seem plausible.  Winston Smith clearly lives in England.  They still have a train system, airplanes, and rockets.  And he remembers nuclear war.  So it doesn’t sound like he’s living in a small isolated country. (0 COMMENTS)

Amazon is in many ways a fascinating company and deserves to be defended against most of its mainstream critics. However, it would be simplistic to explain its campaign for a $15 federally-imposed minimum wage by identifying it with a corporate Mother Teresa. Its more obvious reasons to preach for minimum wages are not defendable. I will not repeat all the arguments against the minimum wage, summarized in a good article by Cato Institute’s Ryan Bourne (“The Case Against a $15 Federal Minimum Wage: Q&A”). My co-blogger David Henderson has also defended many of the standard economic arguments. There exist some disagreements among economists about the employment effect of minimum wages, but they mainly relate to the size and victims of the negative effect (see Bourne’s overview). One thing is sure: Amazon would benefit from forcing higher costs on its small competitors, including mom-and-pop businesses. A higher minimum wage would have exactly this effect while it would have zero effect on Amazon’s costs. As the company already pays a starting wage equal to the proposed $15 minimum, the latter would be non-binding and irrelevant for the retail behemoth. One reason why Amazon was able to bid up the wage of its entry-level workforce is that its technology and other capital embedded in its warehouses and distribution network increase the productivity of its employees, which justifies the bidding up from a pure profit-maximizing viewpoint. There is nothing wrong with profits, but there is something wrong wtith using state power to bankrupt one’s competitors. This is what is happening. Jonathan Meer, an economist at A&M University observes: It’s a lot harder for Joe’s Hardware. We should take note that Amazon—the place with no cashiers—is the one calling for a higher minimum wage. Other large companies—such as Walmart—have come out in favor of an increase in the federal minimum but not up to $15. In their case, indeed, $15 would be binding for some employees. (Cf. Eric Morath and Heather Haddon, “Many Businesses Support a Minimum-Wage Increase—Just Not Biden’s $15-an-Hour Plan,” Wall Street Journal, March 1, 2021) Amazon has another reason to be politically correct, that is, to signal its virtue under current faddish and unrealistic ideas. The company can hope to cajole DC’s powerful men to spare it from some regulation that would bite. The systemic effects of such behavior point to crony capitalism and groveling toward the state, which are not good for free enterprise and future prosperity. It is not clear, to say the least, what kind of acceptable ethics could justify Amazon’s current behavior. (0 COMMENTS)

When you do a Jack Stafford podcast, he writes and records an original song inspired by the interview. Are you ready for “Keyhole Solutions: The Song”? No joke! P.S. The actual podcast is here. (0 COMMENTS)