Why do economists who accept a theory oppose putting it into practice?  For example, I believe global warming is a rather significant problem.  I agree that it is internally consistent that carbon taxes (or some other variation like cap & trade) can reduce carbon emissions to a socially optimal level.  So, why then do I oppose carbon tax regulation? There are many reasons why I (and many other GMU-style economists) oppose regulation even though a logical argument can be made, it could improve a given situation.  We tend to focus on public choice reasons (such as rent-seeking and agency capture).  The knowledge problem, most famously discussed by F.A. Hayek, is also often cited: government agents can too seldom possess all information and knowledge necessary to regulate desirably and much less “optimally.” There is an element of the knowledge problem that warrants further attention, an element highlighted by Don Lavoie in his 1985 book National Economic Planning: What is Left? In this book, Lavoie greatly expands our understanding of the knowledge problem and its relevance for assessing central planning and more mundane government regulation.  He discusses Hayek’s formulation of knowledge as mostly tacit, but Lavoie also emphasizes that knowledge is built upon inarticulable foundations.  Attempts to articulate the inarticulate foundations are doomed to fail as each person carries with him or her different nuanced understandings of the language used in legislation authorizing regulations. Consider, for example, the phrase “2+2=4.”  Understanding the phrase’s meaning requires a tacit, inarticulable understanding of the elements: 2, +, =, and 4.  If one were to try to rigorously define every element in that phrase, he would eventually fall into a problem of recursivity.  As children, when we first encounter mathematics, it may seem weird and arbitrary.  We just learn that 2+2=4 by rote.  It is only through repeated interactions with mathematics do we start to understand it.  To paraphrase the great mathematician John von Neumann, you never really learn mathematics.  You just get used to it. The problem of inarticulable understandings of knowledge comes into play in the field of regulation.  The economist has a foundation of knowledge.  When he tries to convert that knowledge into policy, we run into a game of telephone.  At each step along the way, the knowledge and information get a little distorted. Each person has different foundations from which they understand the message the economist is delivering.  As such, the end policy would deviate considerably from theory, even if we assume away public choice issues.  In other words, the policy will look considerably different from the theory because of a sort-of language barrier. Consider, for example, the word “cost” in economics.  We define “cost” to mean what one gives up to take a particular action (it is sometimes called “opportunity cost” for this reason).  Cost is inseparable from choice.  Yet, “cost” takes on a very different meaning for the general public, as it usually refers to a negative consequence (“the cost of reading is a headache”) or the monetary price of something (“the coffee cost me $2”).  Thus, the economist already faces a problem communicating his theory to policymakers.  But even within the field of economics, “cost” has different understandings.  James Buchanan’s excellent short 1969 book, Cost and Choice, discusses how “cost” has changed understandings among the various schools of thought. I oppose regulation even when I understand the argument because argument and policy are not the same things.  When communicating, experts run into the telephone problem: the theory is misunderstood, misapplied, or miscommunicated.  Competition among experts helps solve these problems, yes, as experts become incentivized to be less wizardly and more like teachers.  But the knowledge problem remains, and regulation can only enhance the communication problems. (0 COMMENTS)

Rarely does one see such unambiguous good news as this: The Berkeley City Council has unanimously voted to become the first Bay Area city to end single-family zoning. . . . Berkeley was the first city in the country to enact single-family zoning more than 100 years ago. Opponents of single-family zoning say it was used to exclude people of color from moving into certain neighborhoods. Who wins? 1.  Conservatives that favor local control of zoning decisions. 2.  Conservatives that favor deregulation and free markets. 3.  Progressives worried about housing affordability for the poor and minorities. 4.  Urbanists worried that suburbia creates isolated, atomistic people, unconnected to their neighbors. 5.  Environmentalists worried about urban sprawl. Congratulations to Berkeley for ending 100 years of solitude. (0 COMMENTS)

In his textbook Public Finance, 7th edition, 2005, Princeton University emeritus professor of economics Harvey S. Rosen, discussing the idea that incentives to monitor are better in the private sector than in government, quotes Adam Smith’s statement to that effect in The Wealth of Nations. He also gives a famous modern example. Rosen writes: Anecdotal evidence for this viewpoint abounds. One celebrated case involved New York City, which spent $12 million attempting to rebuild the ice-skating rink in Central Park between 1980 and 1986. [DRH note: think about that–that’s 6 years.] The main problem was that the contractors were trying to use a new technology for making Iceland it did not work. In 1986, after spending $200,000 on a study to find out what went wrong, city officials learned they would have to start all over. In June 1986, real estate developer Donald J. Trump offered to take over the project and have it completed by December of that year for about $2.5 million. Trump finished the rink three weeks ahead of schedule and $750,000 under projected cost. I remembered this passage when I was preparing for a Zoom interview on Monday with a high school senior in Arizona. He asked good questions and I gave him this example and a number of others. (0 COMMENTS)

The New Yorker has a good article on nuclear power, which discusses the imminent shutdown of a nuclear power plant in California that produces 9% of their electricity, with zero carbon emissions: Today, the looming disruptions of climate change have altered the risk calculus around nuclear energy. James Hansen, the nasa scientist credited with first bringing global warming to public attention, in 1988, has long advocated a vast expansion of nuclear power to replace fossil fuels. Even some environmental groups that have reservations about nuclear energy, such as the Natural Resources Defense Council and the Environmental Defense Fund, have recognized that abruptly closing existing reactors would lead to a spike in emissions. But U.S. plants are aging and grappling with a variety of challenges. In recent years, their economic viability has been threatened by cheap, fracked natural gas. Safety regulations introduced after the meltdowns at Japan’s Fukushima Daiichi nuclear plant, in 2011, have increased costs, and, in states such as California, legislation prioritizes renewables (the costs of which have also fallen steeply). Since 2013, eleven American reactors have been retired; the lost electricity has largely been replaced through the burning of fossil fuels. At least eight more closures, including Diablo Canyon’s, are planned. In a 2018 report, the Union of Concerned Scientists concluded that “closing the at-risk plants early could result in a cumulative 4 to 6 percent increase in US power sector carbon emissions by 2035.” I’ve always found it to be ironic that environmentalists are often the ones that protest against nuclear power, given how good it is for the environment.  It would almost be like community housing advocates opposing new housing construction.  (Oh wait . . . )  Or public health experts opposing first-dose-first. Some point to the risks of a catastrophic accident, such as occurred at Chernobyl.  In fact, while nuclear power is very good for the environment when working safely, it’s even better for the environment when there is a major disaster.  Chernobyl created a vast nature reserve in northern Ukraine, full of wild animals that have disappeared from much of Europe. This doesn’t necessarily mean that we should be building more nuclear power plants—there may be sound economic or safety reasons for not doing so.  But we should not move away from nuclear for “environmental” reasons, as this energy source is extremely good for the environment.  And it seems rather foolish to shut down clean energy power plants that have operated safely for decades, and where the high construction costs have already been incurred. PS.  The post title is a reference to one of the greatest actresses of Hollywood’s Golden Age: (1 COMMENTS)

On Twitter, Ryan Bourne links to a series of tweets by Ben Riley-Smith, the political editor of the Daily Telegraph, on Boris Johnson’s reopening plan. Ryan’s comment is: “Why are the UK guidance and laws so much more specific and prescriptive than anywhere else? Absurd level of micromanagement”. If you read Riley-Smith’s tweets (which, if I understand correctly, are based upon political rumor), you will indeed be left with a similar question. It is notable, and troubling, how much “planning” has been going on in these matters. This is the consequence of an approach of fighting the pandemic in which most governments renounced early on the idea of using rules, as general as possible in these difficult times, and choosing instead a discretionary approach. Discretion has two benefits: on the one hand, it allows for faster adaptation as the pandemic situation evolves. On the other hand, it makes it easier for people in power to claim credit for whatever advancement recorded in the struggle with the virus. But by using prohibitions and bans, rather than rules, and emphasizing the government’s power to impose and revise plans for the whole of society, we are wasting the opportunity to mobilize knowledge and creativity on a larger scale. Your grocer is not an epidemiologist, and his opinions on the virus’ variants, for example, are unlikely to be particularly well-founded. But if you tell him that he can have a certain number of people per hour / per square meter in his shop, or that he can stay open provided he copes with a certain degree of social distancing, he is likely to busy himself in contriving ways to keep open and complying with the rule at the same time. Since the virus is a collective problem, governments have all somehow assumed that there can be no bottom up solutions. But the “struggle against the virus”, by any practical purpose, is in fact a series of attempts and actions aiming at keeping our lives together and similar to what they were before, as much as possible despite the pandemic. These attempts and actions could benefit a great deal from bottom-up, trial-and-errors endeavor. Governments have chosen to do without them. This may increase the costs of non pharmacological interventions, but it also means that we won’t benefit from tinkering solutions. It is an old story: the government assumes its experts have superior knowledge. When it comes to the virus, it is likely to be true. When it comes to how to adapt our lives to the fact the virus exists, perhaps no. (0 COMMENTS)

Serbia has adopted an approval mechanism for vaccinations, giving citizens the option to choose which vaccine they want to get and in which location they want to get vaccinated. This makes Serbia the only country in the world where citizens can choose the vaccine type, between shots from Pfizer-BioNTech, China’s Sinopharm or Russia’s Sputnik. This is from Sara Mageit, “Serbia reaches one million vaccines with help of AI framework,” Healthcare IT News, February 23, 2021. There are 6.9 million people in Serbia, of whom over one million have received their first dose of vaccine. That’s 14.5 percent of Serbia’s population. Let’s compare that with the United States. 64 million doses have been distributed in the United States. 64 million is 19.4 percent of the U.S. population, which makes the U.S. look better than Serbia. But that would be if everyone who got a shot here got just one shot. Such a policy would be quite sensible. But it’s not the one that U.S. governments have chosen. 13.3 percent of the U.S. population have received at least one dose. 13.3 percent of 330 million is 43.9 million people. So 20.1 million people in the United States have received 2 doses and 23.8 million have received 1 dose. Since 2 doses isn’t much better than 1, a reasonable comparison would be between our 13.3 percent and Serbia’s 14.5 percent. In other words, almost a dead heat (because getting 2 doses is slightly better than 1 dose.) Interestingly, 14 U.S. states plus the District of Columbia have populations in which the percent having received at least one vaccination exceeds 15 percent. 3 states (Colorado, Iowa, and Wisconsin) have exceeded 14% but not 15%.   (0 COMMENTS)

Louis XIV, pictured above, the king of France from 1643 to 1715, famously said, “L’Etat, C’est Moi.” Thus the title of this post. Ro Khanna, a Democratic member of the House of Representatives, was recently asked what his plan was for the small businesses that might be hurt by the Democrats’ (and some Republicans’) proposal to raise the minimum wage from its current $7.25 an hour to $15.00 an hour by 2025. The interviewer asked: I’m wondering what is your plan for smaller businesses? How does this, in your view, affect mom-and-pop businesses who are just struggling to keep their doors open, keep workers on the payroll right now? Khanna answered: Well they shouldn’t be doing it by paying people low wages. We don’t want low-wage businesses. What does Mr. Khanna mean by “we?” Many small businesses want to pay what he would regard as low wages. Many workers would like to work at those low wages if the alternative is higher wage rates but fewer hours, being worked harder, getting fewer benefits, or, in the limit getting zero hours. Many customers would like to buy goods and services produced by businesses paying wages less than $15 an hour. But none of these people count, in his view. His “we” means “he” or, more inclusively, people like him who are willing to ignore the desires of those three groups. Thus the title of this post. (0 COMMENTS)

[continued from yesterday] …This is a strange state of affairs.  Everyone – even the original researchers – insists that the success sequence sheds little or no light on who to blame for poverty.  And since I’m writing a book called Poverty: Who To Blame, I beg to differ. Consider this hypothetical.  Suppose the success sequence discovered that people could only reliably avoid poverty by finishing a Ph.D. in engineering, working 80 hours a week, and practicing lifelong celibacy.  What would be the right reaction?  Something along the lines of, “Then we shouldn’t blame people for their own poverty, because self-help is just too damn hard.” The underlying moral principle: You shouldn’t blame people for problems they have no reasonable way to avoid.  You shouldn’t blame them if avoiding the problem is literally impossible; nor should you blame them if they can only avoid the problem by enduring years of abject misery. The flip side, though, is that you should blame people for problems they do have a reasonable way to avoid.  And the steps of the success sequence are eminently reasonable.  This is especially clear in the U.S.  American high schools have low standards, so almost any student who puts in a little effort will graduate.  Outside of severe recessions, American labor markets offer ample opportunities for full-time work.  And since cheap, effective contraception is available, people can easily avoid having children before they are ready to support them. These realizations are probably the main reason why talking about the success sequence so agitates the critics.  The success sequence isn’t merely a powerful recipe for avoiding poverty.  It is a recipe easy enough for almost any adult to understand and follow. But can’t we still blame society for failing to foster the bourgeois values necessary to actually adhere to the success sequence?  Despite the popularity of this rhetorical question, my answer is an unequivocal no.  In ordinary moral reasoning, virtually no one buys such attempts to shift blame for individual misdeeds to “society.” Suppose, for example, that your spouse cheats on you.  When caught, he objects, “I come from a broken home, so I didn’t have a good role model for fidelity, so you shouldn’t blame me.”  Not very morally convincing, is it? Similarly, suppose you hire a worker, and he steals from you.  When you catch him, he protests, “Don’t blame me.  Blame racism.”  How do you react?  Poorly, I bet. Or imagine that you brother drinks his way into homelessness.  When you tell him he has to reform if he wants your help, he denounces your “bloodless moralism.”  Are you still obliged to help him?  Really? Finally, imagine you’re a juror on a war crimes trial.  A soldier accused of murdering a dozen children says, “It was war, I’m a product of my violent circumstances.”  Could you in good conscience exonerate him? So what?  We should place much greater confidence in our concrete moral judgments than in grand moral theories.  This is moral reasoning 101.  And virtually all of our concrete moral judgments say that we should blame individuals – not “society” – for their own bad behavior.  When wrong-doers point to broad social forces that influenced their behavior, the right response is, “Social forces influence us all, but that’s no excuse.  You can and should have done the right thing despite your upbringing, racism, love of drink, or violent circumstances.” To be clear, I’m not saying that we should pretend that individuals are morally responsible for their own actions to give better incentives.  What I’m saying, rather, is that individuals really are morally responsible for their actions.  Better incentives are just icing on the cake. This is not my eccentric opinion.  As long as we stick to concrete cases, virtually everyone agrees with me.  Each of my little moral vignettes is a forceful counter-example to the grand moral theory that invokes “broad social forces” to excuse wrong-doing.  And retaining a grand moral theory in the face of multitudinous counter-examples is practically the definition of bad philosophy. Does empirical research on the success sequence really show that the poor are entirely to blame for their own poverty?  Of course not!  In rich countries, following the success sequence is normally easy for able-bodied adults, but not for children or the severely handicapped.  In poor countries, even able-bodied adults often find that the success sequence falls short (though this would be far less true under open borders).  Haitians who follow the success sequence usually remain quite poor because economic conditions in Haiti are grim.  Though even there, we can properly blame Haitians who stray from the success sequence for making a bad situation worse. Research on the success sequence clearly makes people nervous.  Few modern thinkers, left or right, want to declare: “Despite numerous bad economic policies, responsible behavior is virtually a sufficient condition for avoiding poverty in the First World.  And we have every right to blame individuals for the predictable consequences of their own irresponsible behavior.”  Yet if you combine the rather obvious empirics of the success sequence with common-sense morality, this is exactly what you will end up believing. (0 COMMENTS)

Terence Kealey has an excellent piece in CapX on the influence of Mariana Mazzucato’s work on the British “conservative” government. Boris Johnson has announced a new Advanced Research & Invention Agency (ARIA), a brainchild of his controversial advisor Dominic Cummings. It is an ambitious effort, as the government itself describes it as a “new research agency to support high risk, high reward science”. Here you can see the reaction of a few scientists who welcomed the news. Terence begs to differ, and he does so by writing a short history of ARPA in the US, which he considers more a case of government failure than one of successful, “mission-oriented” public spending. At the very end of his piece, Terence reminds that some of Johnson’s voters, and Brexit fans, may have hoped to see the government shrinking once they regained “independence” from the EU. Sadly, they are going to be disappointed: Some Brexiteers had hoped that leaving the EU would be a chance to shrink the state. Sadly for them, Boris Johnson knows he’s Prime Minister only because of the votes of the ‘left behind’, and such folk are none too keen on the bracing winds of competition: they are keen on high public spending, subsidies, and a corporate state within which they can find shelter. And boy, is Johnson delivering for them, starting with an industrial policy based on vast corporate welfare – starting with research. I am not so sure what the “left behind” would make of the building of a “British ARPA”. Is that helping in any way the left-behinds? I suppose the Johnsons of this world would make the case that the new agency is indirectly strengthening British business, keeping it at the frontier of technology and thus “saving jobs” from globalization and international trade. It is sort of variation of the old argument for infant industry protection. But I also suppose that the left-behinds do care about improvements in their lives- here and now- and it is harder to make the case that a British ARPA would play any role in providing them with better job opportunities, or strengthening their purchasing power, or safeguarding their savings. It may please them as a symbol: the British flag waving over science- be proud of your government because it invests in science. We tend to overestimate the role of interests in real-life politics, but my takeaway from the last few years of ramping populism is that most of the time, people do not vote thinking of their immediate interests. They are mesmerized by symbols, and happy to be fed with them. (0 COMMENTS)

In a comment on my blog post about the proposed $15 federal minimum wage, frequent (and careful) commenter KevinDC quotes my statement: Here’s what they found. The vast majority of studies, 79.3 percent, found that a higher minimum wage led to less employment. He then comments: I like the precise wording here by using the term “less employment.” One thing I’ve tried explaining to people is that is possible for increases in the minimum wage to decrease employment without increasing unemployment, because economists are bad at naming things in a way that make intuitive sense to people outside the field. (“Public goods? Obviously that means goods provided by the public sector, right?” “Market failure? That’s whenever I personally don’t like a market outcome, isn’t it?”) So, even in the case where  particular study doesn’t find increased unemployment after a minimum wage hike, that doesn’t actually mean that the increase in the minimum wage didn’t decrease employment. Well said, Kevin. I want to add that the CBO study I cited makes this distinction also. Here’s a key paragraph: Taking those factors into account, CBO projects that, on net, the Raise the Wage Act of 2021 would reduce employment by increasing amounts over the 2021–2025 period. In 2025, when the minimum wage reached $15 per hour, employment would be reduced by 1.4 million workers (or 0.9 percent), according to CBO’s average estimate. In 2021, most workers who would not have a job because of the higher minimum wage would still be looking for work and hence be categorized as unemployed; by 2025, however, half of the 1.4 million people who would be jobless because of the bill would have dropped out of the labor force, CBO estimates. Young, less educated people would account for a disproportionate share of those reductions in employment.     (1 COMMENTS)