The mittens that Bernie Sanders wore at the inauguration of the new president have been a big hit in the media and in cyberspace. And we now know where the famous mittens came from, although most people miss the economic lessons of the story. The mittens were sown from recycled materials by a Vermont teacher called Jen Ellis, who moonshines in this artisanal hobby (Travis M. Andrews, “The Handwarming Story of How Bernie Sanders Got his Inauguration Mittens,” Washington Post, January 21, 2021). Remember Adam Smith’s pin factory. In the second part of the 18th-century, the division of labor allowed 10 men working together to each make the equivalent of 4,800 pins a day, while a single man working alone could only make 20 at most and perhaps not more than one pin (The Wealth of Nations, 1776). Now, apply that to mitten production. Ms. Ellis reportedly spent an hour making Mr. Sanders’s mittens. If she had spent that hour working in a clothing factory instead, she would have produced several pairs of mittens, perhaps dozens or hundreds of pairs. As Adam Smith saw for pins, the division of labor dramatically increases productivity—and even more dramatically with modern machines that did not yet exist in the early years of the Industrial Revolution. The numerous pairs of mittens produced by Ms. Ellis’s work in an hour could have been sold to Walmart or Dollar stores, keeping warm the hands of many poor. She chose instead to produce one pair for a wealthy Vermonter. (The 2016 purchase by Mr. Sanders and his wife of a house in a wealthy Lake Champlain neighborhood, documented by a local Vermont newspaper, has not been contradicted by Snopes.) Note that, except for the economic lessons, none of that is our business. Assume that Mr. Sanders’s income from taxpayers represents what has been necessary to incentivize him to give up private employment opportunities and be as productive or more productive for voters (and detrimental to none). Individual preferences (which guide individual actions) are subjective, and Ms. Ellis obviously preferred the recognition and gratefulness of Mr. Sanders to the contentment of several poor individuals.  She is, or should be, free to produce what she wants with the technology she prefers and sell or give her products to whom she wants. She is not, or should not be, obliged to bake a cake for the poor. On his side, Mr. Sanders is, or should be, free to wear the mittens he wants, however eccentric or ostentatious, just as people who want deodorant should be free to buy the sorts they want, despite what Bernie himself thinks; or just as people who want dolls for their daughters should be free to purchase them from Chinese producers or anywhere they find what they consider a good bargain, despite what Sanders’ co-politician Donald Trump proposed. What Mr. Sanders and Ms. Ellis have enjoyed is called economic freedom. It is the regime that, in general, best and most equally allows individuals to satisfy their preferences. (0 COMMENTS)

It’s generally recognized that our (American) response to the Covid-19 pandemic was disastrous. But I think far fewer appreciate the full scale of the disaster, or the most significant causal levers by which the worst effects could have been avoided. (Yes, Trump was bad.  But his public health disinformation and politicization of masking—while obviously bad—may prove relatively trivial compared to the mammoth failings of our public health institutions and medical establishment.) Much of the pandemic’s harm could have been mitigated had our institutions been properly guided by the most basic norms of cost-benefit analysis. This is the opening paragraph of Richard Yetter Chappell, “Lessons from the Pandemic,” DailyNous, January 19, 2021. The whole thing is excellent. Chappell is a philosopher but the piece reads like a well-written analysis by a policy economist. Another excerpt: In ordinary circumstances, the status quo is relatively safe and so untested medical innovations present asymmetric risks. That is, until they are proven safe and effective, it may be reasonable to assume that the potential risks of an untested product outweigh its potential benefits, and so block public access to such products until they pass stringent testing requirements. (There are arguments to be made that FDA regulations are excessively onerous even in ordinary circumstances, but I remain neutral on that question here. I take it that there is at least a reasonable case to be made in the FDA’s defense ordinarily. No such case for the FDA’s stringency seems possible in a pandemic.) A pandemic reverses the asymmetry of risk. Now it is the status quo that is immensely dangerous, and a typical sort of medical intervention (an experimental drug or vaccine, say) is comparatively less so. The potential benefits of innovation likely outweigh the potential risks for many individuals, and vastly so on a societal scale, where the value of information is immense. So the FDA’s usual regulations should have been streamlined or suspended for potential pandemic solutions (in the same way that any ethics barriers beyond the minimum baseline of informed consent should have been suspended for pandemic research). This should be the first thing the government does in the face of a new pandemic. By blocking access to experimental vaccines at the start of the pandemic, the FDA should be regarded as causally responsible for every Covid death that is occurring now (and many that occurred previously). This last sentence is almost correct and similar to what Charley Hooper and I argued last month in “The FDA’s Deadly Caution,” AIER, December 16, 2020. Surely there are some deaths that would be occurring now, even without FDA intervention, due to people not taking the vaccine or due to the vaccines’ not being 100% effective Yet another excerpt: Closely related to the above mistake is the implicit assumption that it’s somehow better to do (or allow) nothing than to do (or allow) something imperfect. Letting the perfect be the enemy of the good in a pandemic is disastrous. Blocking quick Covid tests for having lower accuracy than slow ones is an obvious example of this form of stupidity. Deciding in advance that a vaccine must prove at least 50% effective in trials to receive FDA approval is another. (Obviously a 40% effective vaccine would be better than nothing!  Fortunately it didn’t come to that in the end, but this policy introduced extra risk of disastrous outcomes for no gain whatsoever.) Compare Dr. Ladapo’s argument in the WSJ that “Doctors should follow the evidence for promising therapies. Instead they demand certainty.” (Steve Kirsch expands on the complaint.) Again, this is a very basic form of irrationality that we’re seeing from the medical establishment. Misguided perfectionism has also damaged the vaccine rollout due to prioritizing complex allocation schemes over ensuring that as many people are vaccinated as quickly as possible. (Some are letting doses spoil rather than “risk” vaccinating anyone “out of turn”!) More examples are discussed here. Do read the whole thing. HT2 Daniel Shapiro.       (0 COMMENTS)

In recent years, the reporting at The Economist has moved somewhat to the left. Here’s a recent example: But the assumption of rational self-interest constrains the welfare state significantly. Generous benefits, and the high taxes needed to fund them, will put rationally minded people off work, undermining economic growth and the government’s capacity to help people in need. In practice, though, Mr Saez explained, the world works differently. . . . Employment rates for prime-age men are remarkably similar across rich countries, Mr Saez pointed out, despite big differences in tax and welfare systems. Average tax rates in France are roughly 20 percentage points higher than those in America across the income distribution, yet about 80% of middle-aged men work in each country. (Americans do work more hours, but, as Mr Saez noted, this too reflects social choices, such as the shorter working week specified in French law.) There is strong social pressure for healthy men not to be seen as “freeloaders”, which pushes against the incentives created by higher taxes or bigger welfare cheques. Where social pressures to work are more ambiguous—as for the young or old or, in many places, women—generous benefits tend to have larger effects on employment decisions, Mr Saez noted. But this reinforces rather than undercuts the idea that social factors have important effects on economic decisions. This isn’t exactly wrong, but it seems a bit misleading.  The tone of the article is sort of dismissive of conservative arguments that the welfare state discourages work, but the actual empirical evidence suggests that it discourages work among the young, the old, women, and among men it leads to shorter work hours.  This is one reason why per capita GDP (PPP) is far lower in Europe than in America. It’s not true that “the world works differently”; it works exactly the way that classical economic theory predicts.  The European welfare state makes Europe a much poorer place.  That may be fine (perhaps people prefer the extra leisure time), but it’s foolish to minimize the effect. And to head off criticism, note that while some European welfare states have incomes well above the European average, so do some American states.  Lots of things affect income, not just welfare and taxes. Over the past quarter century, the center left has shifted a bit left on public policy issues: 1990s-style neoliberalism                                2021 post-liberalism 1. Singapore style forced saving                  Expanded social insurance programs 2. Private infrastructure projects.              Public infrastructure projects 3. Progressive consumption taxes              Progressive income/wealth taxes 4. Fiscal responsibility                                   Deficits don’t matter 5. Monetary stabilization policy                 Fiscal stabilization policy 6. Low wage subsidies                                   Higher minimum wages 7.  Privatization                                                More aggressive antitrust In 1996, Clinton ran for re-election on ideas such as “the era of big government is over” and “ending welfare as we know it.”  Fiscal stabilization policy was a complete non-starter.  We were moving toward budget surpluses, with an eye on the demographic time bomb created by lower birth rates and longer life expectancy. Why the recent move toward a slightly more socialist approach to policy?  (Yes, it’s far from outright socialism, but for the most part the list above is not a move toward the Nordic model, at least the post-1990 Nordic model.) Some might quote Keynes’s famous remark about how to respond to new information, but I’m not convinced that this can explain the shift.  I’m only an expert on one of the 7 areas above (stabilization policy), but in that one area I’ve seen a lots of bad arguments for the move toward fiscal policy, arguments that reflect a misunderstanding of macro theory and an ignorance of macroeconomic history.  So I have little confidence that the other 6 examples are any better justified.  Especially when I see dubious claims that a less effective policy (minimum wages) can be justified on the basis of being more politically acceptable than a more effective policy (low wage subsidies).  We have an EITC program!  And we have a new government where the Democrats have an easier time with new spending programs (requiring 50 senators) than regulatory changes (requiring 60 senators). So what explains the shift?  I suspect it’s a mix of various factors.  Monetary policy failures like the Great Depression and the Great Recession are almost always misdiagnosed as a failure of capitalism.  The move toward an information economy has made income less equal.  The zero lower bound makes monetary policy seem less effective than it is. More speculatively, the center right might feel increasingly comfortable viewing the center left as their “tribe”.  The days of P.J. O’Rourke’s “Republican Party Reptile” is long gone.  It’s no longer cool to be associated with an ideology that has become increasingly nationalistic and anti-intellectual.  Meanwhile, the demise of communism has removed some of the taint from the left.  Media outlets such as The Economist and the Financial Times, and think tanks like the Niskanen Center, seem increasingly at home in the center left. PS.  I used the term “post-liberal”, as its relationship to liberalism is analogous to the relationship of post-Keynesian to Keynesianism. Similarly, modernism was followed by postmodernism.  In any case, neoliberalism is already taken, and neo-neoliberalism just sounds stupid.   (0 COMMENTS)

If we want to combat violence in the world, what’s the best way to go about it? Perhaps thinking of people like Pablo Escobar, Joseph Kony, and Osama Bin Laden as criminals is insufficient. What if we were to think of them instead as entrepreneurs? What if we assessed their actions and organization as a venture capitalist, rather than a politician or soldier? These questions are at the heart of the work of Gary Shiffman, who EconTalk host Russ Roberts welcomed to talk about his book, The Economics of Violence, in this episode. Shiffman became an economist after a career in the military to understand conflict, violence, and coercion in the world. We’d like to hear what you took away from this week’s conversation. We’d love for you to share your thoughts- with us here or offline with others. Together we can keep the conversation going.       1- What’s wrong with thinking about terrorism as a religious issue, according to Shiffman?   2- What are “fictive kinships,” and how does this concept add to Shiffman’s entrepreneurship framework?   3- Consider Shiffman’s three “case studies” as entrepreneurs. Roberts reminds us all three died violent deaths at a young age. As Roberts asks, how is this rational??? To what extent are cases such as these really comparable to famous legitimate CEOs?   4- What does Roberts mean when he said, “The idea that you could make something illegal and therefore solve it is really important.” Consider the case of Escobar. Which government- the American or Colombian- had stronger incentives for the drug trade to be illegal?   5-Shiffman argues that understanding the incentives, institutions, norms, values that folks have can not only help us understand violence, but also fight it. To what extent has Shiffman convinced you?     (0 COMMENTS)

  On December 2, just hours after teaching his last class at George Mason University, economist Walter Williams died. He was eighty-four. That same day, I wrote a short appreciation of Walter that led to something unprecedented in my twelve years of blogging: comments by dozens of people, almost none of whom I knew, all complimentary. Our blog, EconLog, is one of the best at weeding out nasty, abusive comments. This time, though, there was nothing to weed out. It’s easy to see why because Walter was an attractive person in so many ways. He had an inquisitive mind, a powerful work ethic, incredible courage, a great sense of humor, a strong sense of justice, and an ability not just to teach economic understanding but also to sell economic freedom. He did so in hundreds of syndicated columns written over four decades. If you want to understand what was so compelling about the man, you could do no better than read his 2010 autobiography, Up from the Projects. But Walter would have been the first person to remind you that your time is your most valuable resource. So if you’re in a time crunch, read my article instead. These are the opening two paragraphs of David R. Henderson, “Appreciating Walter Williams,” Defining Ideas, January 22, 2021. Another excerpt about Walter’s mischievous but also courageous streak: Walter showed courage and creativity, along with a mischievous streak a mile wide, as a young man dealing with racism. Some of the most impressive and humorous parts of his book are his stories of his time as an Army draftee, from 1959 to 1961, in Georgia and South Korea. At Fort Stewart in Georgia, Walter quickly learned that although the Army was formally desegregated, the best jobs went to white men. When he was assigned to an Army motor pool, he had to wash trucks and jeeps rather than working as a mechanic or mechanic’s helper. A sergeant who caught him reading on the job ordered him to paint a truck. Although Walter knew that the sergeant meant for him to paint the flat bed, he saw his opportunity. “The whole thing?” he asked. The sergeant answered “yes,” but regretted it. After Walter started painting the window and the tires, a lieutenant asked him what the [expletive deleted] he was doing. Walter writes, “I responded, in my best Southern Stepin Fetchit accent, ‘Boss, de sergeant told me to paint de whole truck; Ah’s just doin’ what he say.’ ” Also, a note about Walter following the logic to wherever it leads: Walter also followed economic analysis to sometimes surprising conclusions. My favorite example is a 1997 column titled “Extortion or Voluntary Exchange.” In it, he tells of a young woman, Autumn Jackson, who asked Bill Cosby for $40 million “in exchange for her silence about being his illegitimate daughter.” Jackson was convicted of extortion. But Walter points out that she simply offered an exchange that Cosby was free to reject. Walter notes that we should worry about extortion when people threaten violence. If we did, he argues, we would put our attention not on Ms. Jackson, but on the US Congress, which, with legislation, regularly threatens us with violence. He gives the example of Social Security and Medicare. If you don’t pay those taxes, he writes, they will threaten to take our property and/or put us in jail. If we resist, they will authorize their agents to use violence. If Autumn Jackson had offered Cosby such a deal, writes Walter, he would say, “Jail her for life!” Read the whole thing.   (1 COMMENTS)

David Beckworth directed me to this Nick Rowe post: Let’s start with land, and assume we are not living in the Netherlands. The supply of land is fixed and hence the price is 100% demand determined. If consumer preferences do not shift, then the affordability does not change at all. But the concept of “price” is tricky, as it may be a composite variable that involves both the size of a required down payment (a function of the price of land) and the annual cost of a loan to buy land. Now assume the interest rate falls in half for reasons unrelated to the land industry (to avoid reasoning from a price change.) If the price of land were to double, then land would be less affordable for the reasons suggested by Nick. But if consumer preferences did not change, then this cannot be the equilibrium outcome. Instead, price will rise by less than 100%, and the added negative of higher down payments will exactly offset the added benefit of lower monthly loan payments (due to lower interest rates.) The price of land will rise, but the composite cost of owning land (down payment plus interest) doesn’t change. Now let’s think about how lower interest rates affect the price of mobile homes. Assume these homes are manufactured in industries where the long run supply curve is perfectly elastic. (That’s actually a reasonable assumption.) In that case, cutting the interest rate in half has no long run effect on mobile home prices. But it reduces the total cost of owning a mobile home and thus demand shifts right, which in the long run means higher quantity sold at the same price per unit. Now think about “housing” as a house/land hybrid. The land is fixed in supply, and the house can be produced in the long run at constant cost. Now when interest rates fall in half there is some net decline in the total cost of housing (down payment plus interest) and some net rise in house prices and house output. In Texas, the effect of lower interest rates mostly shows up as higher quantity. In California, the main impact of lower rates is to increase house (i.e. mostly land) prices. PS.  This is not an academic exercise.  Lower interest rates are the new normal. PPS.  Yes, it matters why rates fall.  In this example, assume the fall in rates is caused by some combination of more saving and fewer opportunities for business investment. (0 COMMENTS)

In the Financial Times John Kay reviews the new book by Mariana Mazzucato. The book is called Mission Economy. A Moonshot Guide to Change Capitalism. Mazzucato, like she did before, argues for governments “creating market” and “steering” capitalism in one direction or another. Ambitious goals should fuel mission-oriented capitalism, with government at the helm. Kay has many excellent points but I particularly commend these: But Apollo was a success because the objective was specific and limited; the basic science was well understood, even if many subsidiary technological developments were needed to make the mission feasible; and the political commitment to the project was sufficiently strong to make budget overruns almost irrelevant. Centrally directed missions have sometimes succeeded when these conditions are in place; Apollo was a response to the Soviet Union’s pioneering launch of a human into space, and the greatest achievement of the USSR was the mobilisation of resources to defeat Nazi Germany. Nixon’s war on cancer, explicitly modelled on the Apollo programme, was a failure because cancer is not a single illness and too little was then — or now — understood about the science of cell mutation. Mao’s Great Leap Forward, a vain bid to create an industrial society within five years, proved to be one of the greatest economic and humanitarian disasters in human history. At least 30m people died. The ‘new frontier’ of the late 1960s turned out to be, not space, but IT — characterised by a striking absence of centralised vision and direction Democratic societies have more checks and balances to protect them from visionary leaders driven by missions and enthused by moonshots, but the characteristics which made the Great Leap Forward a catastrophe are nevertheless still evident in attenuated version. With political direction of innovation we regularly encounter grandiosity of ambition and scale; the belief that strength of commitment overcomes practical problems; an absence of honest feedback; the suppression of sceptical comment and marginalisation of sceptical commentators. Read the whole thing. (2 COMMENTS)

On April 12, in “The VSL Quandary,” I wrote: That $65 trillion is not a typo. Luigi (who blogged briefly on EconLog) is actually advocating that the U.S. government be willing to sacrifice 3 years of GDP to save what he estimates to be 7.2 million U.S. lives. But here’s a good rule for reasoning about anything: if your model tells you that you should take measures to save 7.2 million people in a way that will likely cost the lives of over 30 million people, and if a large percent of those 7.2 million are in the pool of 30 million, there’s something seriously wrong with your model. If the government were to shut down the economy in a way that cost 3 years of GDP, who would produce food, who would ship food, who would work at hospitals, who would produce electricity, and who would assure clean potable water? I think 30 million lives lost, just under 10 percent of the U.S. population, is probably a minimum estimate of the lives lost from the shutdown. It’s nice to see that UC San Diego economist Valerie Ramey confronted the same issue. In an interview with David A. Price of the Federal Reserve Bank of Richmond, Ramey says: I am working on a couple of things. One is with Garey [Ramey] again. It’s called “The Value of Statistical Life Meets the Aggregate Resource Constraint.” There’s a concept called the value of statistical life that is used by regulatory agencies; researchers estimate how much wage people are willing to give up not to work in a more dangerous occupation. Ten million dollars for the equivalent of a lost life is a typical estimate. And regulatory agencies in government use those numbers to decide how much to spend to prevent death. People then started using those numbers to think about COVID-19. One thing we wondered was whether you could actually take those numbers and use them for bigger risks of death. Here’s the kind of stark example we can use for illustration. Suppose that Martians took the 330 million people in the U.S. hostage and said, “If you want them back, you need to pay a ransom of $10 million because we know that’s how much you value a statistical life.” Well, that would add up to $3.3 quadrillion. But the GDP is only $21 trillion. The total value of the wealth in the United States — if you add up all the capital stock, the minerals, and land — is about $125 trillion. This extreme example illustrates the importance of considering the resources available. By the way, David Price does excellent interviews. The picture above is of Valerie Ramey. (0 COMMENTS)

Back when Trump was President-Elect Trump, I made the following bet: If Donald Trump dies in office, resigns, is removed  by the Senate after impeachment, or otherwise is permanently removed as per the the 25th Amendment, or if it never happens that he takes the Oath of office as POTUS on Jan 20, 2017, the BC owes [redacted] $350. Otherwise, [redacted] owes BC $100. Since Trump has now completed his term, I have won this bet, bringing my cumulative public betting record to 22 wins, 0 losses.  False modesty aside, I take great pride in my track record. Surprisingly, I could have gotten much better odds if I had made this bet anytime from late 2017 to the present.  Check out the historical odds. This market wasn’t open when I made the original bet, but I discovered the existence of this Trump betting market by early 2018.  So why didn’t I leap on this opportunity to raise the stakes at much better odds?  If I leapt into the market when it opened, my odds would have been even instead of 7:2 against me. So what gives?  My honest answer is a combination of (a) I was disturbed to learn that the market was so against me, and (b) I didn’t (and still don’t) know how to place a bet in this market.  In hindsight, of course, I wish I’d bet the farm.  Live and learn. (2 COMMENTS)

If Donald Trump were not (alas) so ignorant, he would envy the quality of Joe Biden’s inaugural speech pronounced earlier today. But there is a deep question to ask: Why are political rulers so insistent on “unity.” It was the main theme of Biden’s speech, where the word appears eight times. It was also a constant theme with Trump—but muffled as time went on. Remember his remarkable 2016 campaign ad, which is well worth listening to: I will unify and bring our country back together. … We will be unified, we will be one, we will be happy again. The reason for the rulers’ obsession is simple: unity makes people easier to rule. If the multitude of individuals with different preferences and circumstances were united like a single individual, governing would be easy: just give “it” (or him or her) what it wants and take the rest for yourself including perks, money, and honors. What makes ruling difficult is that the ruled are different individuals so that, in fact, only minimal governing is possible without disagreement, dissent, and ultimately “war of all against all” (to use the expression that Thomas Hobbes thought only applied to the pre-Leviathan state of nature). In a democracy, “we can still disagree,” Biden said, and: If you still disagree, so be it, that’s democracy, that’s America. What he does not realize is that disagreeing but being forced to submit to the majority in actual actions, in lifestyle, is not a recipe for peace. Agreeing to disagree not only in words but in lifestyle is the key to (classical) liberal peace and prosperity. It is more difficult to understand this individualist methodology or (at another level) normative principle if one has not learned some economics or, perhaps, as a not-perfect substitute, some classical-liberal legal theory. (That Hobbes himself started with methodological individualism and ended up with a glorification of Leviathan is a puzzling contradiction that classical liberalism avoided.) A less spiteful Trump could have given basically the same speech as Biden because both men think in collectivist terms, not in individualist and (classical) liberal terms. To use an allegory to summarize individualist liberalism, let peaceful individuals have guns if they so desire, be atheist or deist, or import (and buy) what they want from where they want. (0 COMMENTS)