After last week’s post on apologies, a few readers sent me links on the psychology of effective apologies.  Maximally effective apologies include the following elements: Expression of regret Explanation of what went wrong Acknowledgment of responsibility Declaration of repentance Offer of repair Request for forgiveness A similar piece elaborates: Taking responsibility means acknowledging mistakes you made that hurt the other person, and it’s one of the most important and neglected ingredients of most apologies, especially those in the media. Saying something vague like, “I’m sorry if you were offended by something I said,” implies that the hurt feelings were a random reaction on the part of the other person. Saying, “When I said [the hurtful thing], I wasn’t thinking. I realize I hurt your feelings, and I’m sorry,” acknowledges that you know what it was you said that hurt the other person, and you take responsibility for it. Overall, this seems like plausible advice.  Ideal apologies will indeed have all six elements.  The harsh reality, though, is that ideal apologies often require the superpower of telepathy.  Why?  Because the person who wants to apologize doesn’t understand why the other person is upset, and the person who wants an apology refuses to explain themselves.  So unless the would-be apologizer can read minds, “sorry for whatever I did” is the best he can do. The bigger question, though is: How will people actually use this research?  Will they learn to make better apologies?  Or simply to expect better apologies? I suspect that the latter effect will far exceed the former.  If this suspicion is correct, the ironic result of this research is to exacerbate conflict rather than defuse it. Why do I have this pessimistic view?  For starters: As far as I can recall, I have never received an ideal apology – or anything close to it.  In fact, I doubt I’ve received a dozen halfway decent apologies in my entire life.  If I held this dearth against people, I wouldn’t have a friend left in the world.  Instead of expecting apologies from others, I generally make excuses on their behalf. My motives are partly strategic and partly sincere. Strategically speaking, I know that demanding good apologies probably won’t work.  People are stubborn and self-righteous.  Unless I bite my tongue and appease them, I will be very lonely.  You could object, “With friends like that, who needs enemies?”  But if a friend unapologetically tramples my feelings five days a year, but makes me happy the other 360 days, I count myself lucky. Sincerely speaking, I know that lively social interaction is an inherently risky activity.  Boring, superficial conversations are safe: “Nice weather we’re having?” “Yes, quite.”  As soon as you stray from that time-worn path, you might accidentally say the wrong thing.  So if someone hurts your feelings as a result, the wise reaction is normally, “It’s all part of the game, no big deal.” Wouldn’t I like to receive an apology every now and then?  Sure.  Wouldn’t I prefer apologies that contain an expression of regret, explanation of what went wrong, acknowledgment of responsibility, declaration of repentance, offer of repair, and request for forgiveness?  Sure again.  But in my book, even a “Sorry I hurt your feelings” with a sincere tone is amazingly above the bar.  If offered, I’ll cheerfully take it.  So should you. (0 COMMENTS)

My biggest frustration over the past decade is how often I see economists misdiagnose the stance of monetary policy, either reasoning from price changes or reasoning from quantity changes. The “reason from a price change” problem has been discussed extensively in this blog, so today I’ll focus on reasoning from a quantity change. Many economists assume that a country that has done extensive QE has, ipso facto, adopted an expansionary monetary policy. That is certainly true in some cases, but in other cases the QE is a defensive move, an endogenous response to previous tight money policies that drove nominal interest rates to zero and money demand to very high levels. Thus I was very pleased when David Beckworth directed me to an article that gets the causation right. The article is by Daniel Kaufmann, with the following subtitle: This is Part 5 of a series of articles on Swiss monetary policy I wrote jointly with Simon Schmid for Republik. They kindly agreed that I can publish an english version on my blog. Much like Japan, Switzerland has seen extremely low inflation “despite” the fact that their central bank’s balance sheet has ballooned to more than 100% of GDP.  I put scare quotes around ‘despite’, because it would be more accurate to say that the balance sheet has ballooned “because” of very low inflation.  Here’s Kaufmann: The crucial point is, however, that the appreciation is not merely caused by exogenous foreign factors but can be partly traced back to the SNB’s monetary strategy and mandate. The low inflation target reduces the scope for interest rate cuts and therefore amplifies appreciation pressures in crises. Small interest rate cuts and large balance sheet expansions In other words, there is a connection between the Swiss definition of price stability and the large foreign exchange interventions by the SNB. I generally explain this in a simpler way.  Low inflation leads to low nominal interest rates via the Fisher effect.  And low interest rates boost the real demand for base money.  Kaufmann’s explanation is more detailed and will probably be more persuasive to mainstream economists, as he focuses on how Switzerland’s low inflation target leaves it with less room to cut rates in a recession, and hence it must substitute massive QE to prevent the sort of currency appreciation that would otherwise drive Switzerland into deflation. He then discusses some alternatives to having a bloated balance sheet: The first kind, uses changes in the composition or size of the balance sheet to affect financial markets. The main idea is that financial markets are inefficient (or subject to substantial transaction costs) and the central bank can correct distortions through direct interventions in particular markets (for example in the mortgage market or in the foreign exchange market). The second kind, affects expectations of market participants about future monetary policy. A central bank can, for example, promise to defend a foreign exchange peg in order to increase future inflation. Another option is price level targeting. In the past, I’ve argued that the Swiss made a mistake in January 2015 when they abandoned their exchange rate peg to the euro.  They seem to have been partly motivated by a desire to avoid having to buy up lots of foreign assets to defend the peg, but in the long run the appreciation of the Swiss franc merely pushed inflation in Switzerland even lower, making the SF an even more attractive asset for foreign speculators. I wish my fellow economists would internalize this message.  It is dangerous to draw policy conclusions from big central bank balance sheets, for exactly the same reason that it is dangerous to draw policy conclusions from very low nominal interest rates.  Both variables are a mix of exogenous policy tools and endogenous responses to previous policy decisions.  To see them only as policy tools is to miss the more important part of the picture. PS.  Switzerland may seem like a small and unimportant country, but the message here also has important implications for Japan and the Eurozone. PPS.  David Beckworth recently interviewed me on what I am now calling the “Princeton School” of macroeconomics.  I plan to write a paper on this topic.   (0 COMMENTS)

Is it true, as House Speaker Nancy Pelosi claimed, that Congress is a temple of democracy (“U.S. Capital Police Officer Brian D. Sicknick, who died after assault on Capitol, Protected With a Kind Touch,” Washington Post, January 8, 2021)? She said: The violent and deadly act of insurrection targeting the Capitol, our temple of American Democracy, and its workers was a profound tragedy and stain on our nation’s history. This invites a reflection on how Congress, democracy, and the state work. Any moral value attached to these institutions must be consistent with, although not limited to, their likely functioning and consequences. Anthony de Jasay is one of the many economists who, over the last eight decades of so, have tried to understand the state (the whole apparatus of government). For him, the state is, in positive reality, a redistributive machine that favors some individuals and harm others. One’s ultimate judgement on the state depends also on moral values related to what the state should do. If it is considered good to harm some individuals in order to benefit others (and if de Jasay’s positive analysis is correct), then the state is good. If coercively harming some for the benefit others is morally rejected, then the state is morally bad. Could we, de Jasay asked, imagine a sort of state that would not be a redistributive Leviathan, that would not be in the business of redistributing pleasure and pain, happiness and submission, but would instead only aim at preventing invasion by, or evolution of, such a state? A sort of state that would not aim at governing? This minimal state, he calls the “capitalist state.” It has never existed anywhere near its pure form but some systems of political authority have been farther from it than others. Many anarchist theorists such as de Jasay think that the capitalist or minimal state cannot survive because it would, by its very logic, soon grab the redistributive function in order to reward its supporters at the cost of other (less loyal) subjects. The state who democratically steals from Paul to give to Peter because the Peters are more numerous than the Pauls is one instantiation of that. In this perspective, the temple of democracy appears more like a den of thieves and a gang of bullies. It is often difficult to distinguish the state from an organized and heavily armed mob. Although I have come to believe that Lysander Spooner’s attack on the state on that basis is weak, it is still worth reading his 1870 pamphlet The Constitution of No Authority, which describes the democratic state of being “a secret band of robbers and murderers.” The economic and philosophical issues involved are more complicated than they may appear at first sight. For example, suppose that the state is far from the capitalist state but does prevent the installation of another state that would be even worse—or that it prevents the descent into violent anarchy, as Thomas Hobbes feared. Many politicians commenting on last week’s troubles seem to believe, strangely, that, hic et nunc, anarchy is a more pressing problem than tyranny. (In the Washington Post, David Ignatius even uses an oxymoron: “the Trump anarchists”!) The mob was in effect calling for more state power even if some of its participants may have been duped into believing the contrary. Little exercise: Why is it easier to be duped on the political market than on ordinary economic markets? And all this is not speaking of what sort of democracy Pelosi is referring to. If it is majoritarian democracy, which majority do specific electoral methods and institutions favor? What happens when the majority wants both A and non-A, as the paradox of voting and Arrow’s impossibility theorem show is unavoidable? If it is not majoritarian democracy, which minority rules? Does the specific sort of democracy used pursue an illusory “will of the people”? On these questions, economics and, in its wake, political science have had much to teach over the past few decades. (Many of my Econlog and Econlib pieces have been concerned with these issues.) At any rate, it is not sufficient to simply assume that glorified individuals (“lawmakers”) voting laws thousands of pages long (without knowing what’s in them except for their pious labels and professed intentions) constitute a temple of democracy. (0 COMMENTS)

George Orwell’s 1984 contains excerpts from a fictional book, The Theory and Practice of Oligarchical Collectivism.  Orwell provides a short passage from Chapter 1, entitled “Ignorance is Strength” and a much longer passage from Chapter 3, entitled “War Is Peace.”  Although 1984 is a work of dystopian fiction, TPOC has long struck me as a profound work of social science.   The book is a wonderful meditation on not only totalitarianism (especially Stalinism), but politics itself. The upshot: I’ve decided to run a new book club – not on 1984 as a whole, but merely Orwell’s book-within-a-book. You can read TPOC online here, or just take out your handy copy of 1984 and read the relevant parts of Part 2, Chapter 9.  The whole read should take just 40 minutes or so. The first installment will run on January 18.  Who’s in?       (1 COMMENTS)

I’ve written before about how “The Box,” that is, containerization, slashed the cost of international trade, thus leading to more of it. My guess is that that reduction in cost was the equivalent of dropping tariffs by at least 5 percentage points. I quoted the famous statement by Paul Krugman that put it nicely: The ability to ship things long distances fairly cheaply has been there since the steamship and the railroad. What was the big bottleneck was getting things on and off the ships. A large part of the cost of international trade was taking the cargo off the ship, sorting it out, and dealing with the pilferage that always took place along the way. So, the first big thing that changed was the introduction of the container. When we think about technology that changed the world, we think about glamorous things like the internet. But if you try to figure out what happened to world trade, there is really a strong case that it was the container, which could be hauled off a ship and put into a truck or a train and moved on. The quote is from here. Like Krugman, I’m a big fan of Marc Levinson’s The Box: How the Shipping Container Made the World Smaller and the World Economy Bigger, Princeton University Press, 2006. I happened to page through Levinson’s book the other day looking for something on the famous Harry Bridges, leader of the International Longshoremen’s and Warehouseman’s Union (ILWU). He was very important in the West Coast economy in the 1950s and 1960s, and especially the San Francisco Bay Area economy. Not that I was looking for this, but, as one wag put it when Bridges’s power was near its height, “In San Francisco, there are three bridges: the Golden Gate Bridge, the Oakland Bay Bridge, and Harry Bridges.” In the process I found an interesting tidbit on Eric Hoffer, the author of The True Believer. (That’s a picture of him above.) In 1960, employers on the West Coast were trying to clear the decks (pun intended) for mechanization and so they had a bright idea: compensate port workers with the amount of compensation scaled according to how long they had worked. Levinson writes that in return for “near-total flexibility, the employers agreed to pay $5 million per year.” That was a lot of money in 1960 dollars. Longshoremen with 25 or more years of service would get $7,920, which was about 70 weeks’ base pay, upon retirement at age 65. They would also get the $100 per month ILWU pension. Workers aged 62 to 65 “would be paid $220 a month until age 65 if they retired early.” Others were guaranteed wages on 35 hours of work weekly even if their services weren’t needed. Levinson adds, “Anyone hired as a longshoreman after the agreement was signed would never be eligible for the guarantee because, as a union spokesman explained, ‘they will not have given un anything.'” I think that most economists who looked at this agreement would approve of it as a way of compensating losers in a relatively efficient way. Eric Hoffer didn’t like it. Levinson writes: More than one-third of the ILWU’s members voted no. Some opponents, such as San Francisco’s famed longshoreman-philosopher Eric Hoffer, were outraged on ideological grounds. “This generation has no right to give away, or sell for money, conditions that were handed on to us by a previous generation,” Hoffer stormed. In short, Hoffer saw the right to a job as an inalienable right. (0 COMMENTS)

***** TAKE THE 2020 ECONTALK SURVEY: https://tinyurl.com/y6tzqvg6. VOTE FOR YOUR FAVORITE EPISODES OF THE YEAR! ***** Economist and author Don Boudreaux of George Mason University discusses the life and work of the economist James Buchanan with EconTalk host Russ Roberts. Buchanan received the Nobel Prize in 1986 for his work creating and developing public choice–the […] The post Don Boudreaux on Buchanan appeared first on Econlib.

This is another in my continuing series of excerpts from Joseph E. Stiglitz’s excellent 1988 textbook, Economics of the Public Sector. I’ve previously posted about this textbook here and here. Thus an income tax that taxes interest can be viewed as a differential commodity tax in which future consumption is taxed more heavily than current consumption. The question of whether it is desirable to tax interest income is then equivalent to the question of whether it is desirable to tax future consumption at higher rates than current consumption. Just as, with a well-designed income tax, there may be little to be gained by adding differential commodity taxation, so too there is little to be gained from taxing consumption at different dates at different rates. This means, in effect, that interest income should be exempt from taxation. An income tax that exempts interest income is, of course, equivalent to a wage tax, and we showed in Chapter 17 that a wage tax was equivalent to a consumption tax (in the absence of bequests. This suggests that it may be optimal to have a consumption tax. That’s very tight reasoning on Stiglitz’s part. Even though I hate taxes, I love analyzing the economics of taxation. Co-blogger Scott Sumner is, I believe, an advocate of consumption taxes. If you’ve read me closely over the years, you’ll know that I’m not. I’ve been very critical of a VAT, for example, which comes close to a consumption tax. So why am I not a fan? Because the analysis of a VAT that finds a VAT to be superior, on efficiency grounds, to other taxes, holds constant something that empirical evidence says should not be held constant: the amount of revenue raised. Because VATs tend to be less visible, they lead to less political resistance and result in a much larger amount of government tax revenue and government spending. Because so much of government spending is inefficient–how much do you value, relative to cost, the occupation of Iraq and Afghanistan or defending wealthy Germany or the middle-speed train in California’s central valley or agricultural subsidies?–the inefficiencies from higher government spending probably outweigh the inefficiency of a less-efficient form of collecting government revenue.   (0 COMMENTS)

Writing about the final (with some luck) fireworks of the Trump presidency, Wall Street Journal columnist Holman Jenkins proposes many interesting or challenging insights, up to and including a final contradiction (“Don’t Expect Police to Shoot at Crowds,” January 8, 2021). The penultimate sentence states a deep and science-based idea that you don’t meet often in the press, even the serious press. Writes Jenkins: Elections should strive to be above reproach in accuracy and lawfulness but they can’t manifest the “will of the people” when there is no unambiguous will to manifest. I have tried to explain this idea in a few Econlog posts and, along the same lines, I have a forthcoming, more elaborate article in The Independent Review, titled “The Impossibility of Populism.” In short, there is no ambiguous “will of the people” to manifest because “the people” does not exist as a superindividual mind and because there is no way to aggregate individual wills into a social or political will that is not either dictatorial or logically incoherent. However, he following sentence, which closes the Jenkins column, seems to contradict what the author has just  said: This problem will only be solved by Americans reaching a greater consensus among themselves about what kind of society they want to be. What can be the meaning of Americans deciding “what kind of society they want to be”? As Jenkins suggests, individuals have different preferences and values and each entertains a different—sometimes widely different—idea of the society they want (see “The Vacuity of the Political ‘We’,” Econlib, October 6, 2014). The solution to this contradiction is to implicitly agree to live and let live. Perhaps one can formulate this solution in terms of a social contract à la Buchanan, but a presumed unanimous agreement can only be on very general and abstract rules close to the live-and-let-live principle. (0 COMMENTS)

Post-modernists often claim that science reflects cultural biases, and that scientific objectivity is a myth. Conservatives have traditionally been quite hostile to this message. But at least some conservatives are beginning to see that “science studies” may have some merit. Here’s a Razib Khan tweet, quoted by Chad Orzel: one change btwn 2000 and 2020 is that i respect ‘science studies’ a lot more. in fields i keep close track of i’ve seen wholesale reinterpretation of the same data which reflects cultural shifts, not underlying data. The solution is not to blindly accept left-wing post-modernism, which has its own biases (humorously exposed in the Alan Sokal hoax.)  Rather, we need to guard against blindly accepting any pronouncements from scientists, and instead think about how those claims might be shaped by various cultural forces.  Here’s Razib Khan: In November I did a quick interview with a producer for a Spanish television program. He reached out for comment because so many scientists who off the record, would credit the idea of lab escape wouldn’t speak on the record. He related how demoralizing he was finding the difference in how scientists talk off-camera versus what they were willing to say on the record. He had grown much more skeptical of scientific pronouncements in public as a consequence. I wish I had a more positive spin on this. Much of what you see pronounced with certainty about COVID-19 is likely wrong. SARS-Cov-2 is a new virus, and COVID-19 is a new disease. We don’t have all the details. The experts have a great deal of experience with pathogens and pandemics in general, but there remain limitations to their accrued wisdom in novel situations like this. As a consumer of news and analysis, you have to be personally critical-rational. The consequences of your conclusions, of your actions, are going to impact you, as well as society. Buying fully into the consensus du jour may have more than abstract consequences. Remember washing produce with baking soda? Or the conventional wisdom that droplets, not aerosols were the major vector? No one was lying. But experts were not nearly as certain about the truth as they signaled to the public. Some people have too much faith in the scientific consensus, believing that scientists hold some sort of “objective truth” above and beyond their empirical observations.  But as Tyler Cowen suggests, when you pull back the curtain there is no objective observer: The most striking thing about the Biden administration shift to a version of “First Doses First” is how little protest there has been.  Given how many public health experts were upset about the idea only a few days ago, you might expect them to organize a Wall Street Journal petition from hundreds of their colleagues: “Biden administration proposal endangers the lives of millions of Americans.” . . . as I had explained, sins of omission are treated as far less significant than sins of commission.  Now that a version of “First Doses First” is on the verge of becoming policy, to do nothing about that is only a sin of omission, and thus not so bad.  Remarkable!  Status quo bias really matters here. I haven’t seen a single peep on Twitter opposing the new policy. Just keep all this in mind the next time you see a debate over public health policy.  There is often less behind the curtain than you might think. Just a bunch of empirical observations.  The first dose is estimated as 80% effective.  A new and more virulent strain is on the way.  Manufacturing capacity is limited and hard to expand rapidly.  An inadequate dose of vaccine risks creating a mutant form of the virus.  Lots of facts, which point in different directions.  But these facts don’t by themselves solve complex public policy problems, and we should not expect the scientists who study these facts to be good at solving complex public policy problems.  Their expertise is in ascertaining empirical facts and building useful models of causality from those facts. Speaking for myself, I mostly tend to defer to scientists on empirical questions, and also questions of how to model those empirical facts (except on controversial political issues).  But once I’ve learned their views, I bring my own area of expertise (economics) into the picture before forming my view on how scientific data should inform public policy.  That’s why I favor kidney markets and price gouging for masks. When I first read yesterday’s story about the Biden administration’s decision to go with “first dose first”, I thought to myself, “Wow, this is going to be incredibly controversial.”  After all, when I suggested the idea to a professional vaccine researcher than I knew, she said I didn’t know what I was talking about.  And yet apparently the decision is not controversial at all.  I learned something today. We need to keep our eyes open and pay attention to what the world is telling us.  I wonder how many people read Tyler’s post today without changing their views of how the world works.  If so, they made a mistake. People often respond, “Of course I know that’s how the world works”.  But do they?  I once raised the puzzling fact that roughly 100% of the people claiming the election was stolen were Trump supporters, and zero percent were Biden supporters.  Why should there have been any correlation at all?  It doesn’t seem rational.  Of course commenters rolled their eyes at my naiveté.  They told me that there was nothing surprising about this; this is how we all form beliefs. I had two reactions.  First, I’m not sure it is how everyone forms beliefs.  And second, if the commenter were correct then I should never read another comment from that individual, as he has admitted that is unable to think rationally.  It’s like when an economist tells me that he can’t understand why people leave tips at a restaurant that they never plan to revisit.  I think to myself, “I’ll never trust that guy.” I’d encourage people to think a bit harder about the question of “bias”.  How do we recognize it in others?  How do we recognize it in ourselves?  Am I special?  I don’t believe the answers are as simple as lots of people assume. PS.  Speaking of unconscious bias, check out this amazing video. (2 COMMENTS)

“Today’s violent assault on our Capitol, an effort to subjugate American democracy by mob rule, was fomented by Mr. Trump,” Mattis wrote. “His use of the Presidency to destroy trust in our election and to poison our respect for fellow citizens has been enabled by pseudo political leaders whose names will live in infamy as profiles in cowardice.” This is from Lara Seligman, “Mattis blames Trump for inciting ‘mob rule’“, Politico, January 6, 2020. I was playing pickleball Wednesday morning Pacific time and so I didn’t see Trump’s speech. I think I had my priorities right. As a result, I made a mistake I make too often: I took people’s word for what Trump said. I wonder if my Hoover colleague Jim Mattis did too. What I’ve always liked about Ann Althouse, an emerita professor at the University of Wisconsin Law School, is that she’s independent: she thinks for herself. Professor Althouse read the whole transcript, looking for where Trump incited the crowd. She listed the 7 most violence-inciting statements in Trump’s speech. Check the list of 7 and see if you can see “incitement” or “fomenting.” Or possibly she missed something. So go to the transcript and see if you can see something important she missed.   (0 COMMENTS)