On the (almost) 10-year anniversary of 9/11, I gave a speech at Western Kentucky University. The speech was titled “Lessons Not Learned from 9/11: An Economic, Numerate, and Constitutional Perspective.” Here are the opening lines: It’s altogether fitting and proper that we should take time to remember the innocent people whose lives were lost on September 11. Fortunately, I didn’t lose anyone on that horrible day. But some friends of mine did lose people they knew and cared for; one friend lost two of his friends: one in the airplane that flew into the Pentagon and one in the World Trade Center in New York. And anyone in this audience who has ever watched a rerun of Cheers or Frasier has some connection to someone murdered on 9/11: TV producer David Angell, who, with his wife, Lynn, was on American Airlines #11, the first plane to hit the World Trade Center. Before I go on, let me ask: is there anyone here who lost any of the 2,977 victims of 9/11? PAUSE But if all we do is remember and mourn the dead, we will lose an important opportunity to learn from what happened on 9/11. That’s why I’m here: to tell you what we can learn.   (0 COMMENTS)

Once upon a time, Newt Gingrich could say that Boris Johnson was “Margaret Thatcher with wild hair”. Now that would be difficult to argue. Matthew Lesh, Head of Research at the Adam Smith Institute, reports on CapX that “the UK could sacrifice a deal with the EU — which would in the short run seriously disrupt trade in goods and services, undermine security service data sharing, and raise serious legal issues around the Northern Ireland Protocol — for the worst possible reason: an interventionist economic agenda.” Lesh adds: “For a supposedly conservative Government that just vanquished Corbynite socialism, that would be quite something.” Lesh’s article is well worth reading. As an outsider, I can see that a “No Deal” path would energize Brexiters and thus strengthen the government’s position in the country. It is an expensive way of making your supporters happy: nasty divorces often are. But it may well be that Johnson and his cabinet think the price is worth paying. Yet in politics, you can hardly do stuff claiming that you are doing it only for the sake of pleasing your voters: that would defy their very purpose, as voters themselves want high motives and nice sounding reasons, for you to do stuff which actually pleases them. The high motive and nice sounding reason the British government worked out is that it should be able to support- with taxpayer money- all the companies it cares for. The Guardian (which is not Reason magazine) perfidiously reminds us that “Margaret Thatcher thought Europe allowed too much of it [state aid], Jeremy Corbyn believed there was not enough”. On the one hand, then, the fact that the British government thinks the state aid issue is palatable to its voters as an excuse for a “No Deal” Brexit tells us something. Namely, that perhaps our vignette of the Tory voter as by and large more free-market oriented than others does no longer resemble reality. Sure, these voters detest the EU more than anything else, but their leaders’ vocabulary used to imply that the EU ought to be detested because it is bureaucratic and protectionist (do you remember “Global Britain”?), a petty organization that regulates anything which moves. Now should it be detested because it puts a brake on government subsidies…? On the other hand, it may well be that conservative politicians, on top of believing a “No Deal” Brexit will be good for their popularity, actually believe that England needs more latitude in spending taxpayers money to the benefit of businesses of government’s choosing. On that, I have little to add to the point Lesh makes: Forsyth claims the Government is concerned that without subsidies the UK risks becoming “a technological vassal — reliant on either the United States or China, both of whom are unafraid to use the state to shape these markets”. This is crazy technological isolationism. No single country can or should develop every single technology and keep it for themselves. We are much richer because of technologies developed and produced in other countries. Imagine how awful everything would be if we only used British-made goods no iPhones, no Zoom, no Samsung TVs, no Amazon, no Microsoft Windows. The list is endless. Remember too that the great tech success stories in the US, and even in communist China, are led by the private sector, not the state. According to [ITV’s journalist Robert] Peston, Dominic Cummings [the main adviser to Boris Johnson] believes that the key to British success in the first industrial revolution was being the first mover in many key industries. Again, though this had little to do with state intervention. In fact, quite the opposite. The reason Britain was successful during the industrial revolution was a combination of freedom to disrupt existing modes of production and a strong emphasis on entrepreneurship, underpinned by property rights. We should take the same approach today by getting rid of cumbersome red tape and taxes that hold businesses back. Among contemporary ruling classes, the “technological isolationism” Lesh underlines is going strong. Everybody wants “his” science and “his” technology to be on top of everyone else’s. This is quite bizarre because one would think that if there is one area in which the benefits of international cooperation are clearly apparent is science and research. When a safe and effective vaccine about Covid-19 is happily produced, will you be refusing it, if it does not come out of your national labs? (0 COMMENTS)

“Populism” has received many definitions and historical interpretations. Some analysts take it simply as a more active form or stretch of democracy, but this may underplay the existence of very different theories and practices of democracy. One analytically useful definition of populism was given by political scientist William Riker in his 1982 book Liberalism Against Democracy. He defines the essence of populism as a political ideal in which the will of the people ought to be public policy: “what the people, as a corporate entity, want ought to be social policy.” “The people” and “the will of the people” have long been invoked by populists of the right and populists of the left. Carlos de la Torre (University of Florida) summarizes the history of populism in Latin America (see his article of the Oxford Handbook of Populism, 2017): I understand populism as a Manichaean discourse that divides politics and society as the struggle between two irreconcilable and antagonistic camps: the people and the oligarchy or the power block. Under populism a leader claims to embody the unitary will of the people in their struggle for liberation. The idea of the will of the people being incarnated in a popular leader was strongly expressed by Hugo Chávez, whom de la Torre quotes as saying: This is not about Hugo Chávez, this about a people. … I am not an individual, I am the people. Closer to us, both Donald Trump and Elizabeth Warren have invoked the will of the people, in a less flamboyant manner: Elizabeth Warren (quoted by David Frum in The Atlantic, December 2019): “We have to … have leadership from the inside, and make this Congress reflect the will of the people.”   Donald Trump at the 74th session of the United Nations General Assembly, on September 25, 2019: “A permanent political class is openly disdainful, dismissive, and defiant of the will of the people.” Jack Holmes, politics editor at Esquire, who believed that Alexandria Ocasio-Cortez’s primaries platform was reasonable, wrote (“The President’s War on Democracy Is a War on the American People,” August 14, 2020), speaking of president Donald Trump: Since democracy is our mechanism for communicating the will of the people into the laws and policies that govern our lives, this does not merely make the president an enemy of democracy. It makes him an enemy of the people. He ought to recognize the phrase. Populists of the left and populists on the right invoke the same will of the people against each other. Populism is the people against the people. Which brings us back to William Riker, who explained, on the basis of Arrow’s Impossibility Theorem and social choice theory, that the “will of the people” simply does not exist. It does not exist because there is no “the people” to have a will like an individual has. The “will of the people” is a rhetorical device to exploit a large proportion of the individuals who are the only reality under “the people.” The people’s preferences cannot be aggregated into a sort of social superindividual without being either dictatorial or incoherent, which is the essence of Arrow’s theorem. Those who pretend to represent the will of the people, from the French Revolution until 20th-century populist experiments, can only be authoritarian rulers, with or without the legal forms of democracy. (See also my Econlog post “Missing Something About Populism?“) The tyrannical strand of the French Revolution—there was also a classical-liberal strand, rapidly overcome—was anchored in the thought of Jean-Jacques Rousseau, who made “the people” and “the will of the people” the foundation of his political philosophy (see his The Social Contract, 1762; see also Graeme Garrard’s short piece, “The Prophet of National Populism“). Rousseau may be the father of modern populism of the left and of the right. Perhaps this illustrates what John Maynard Keynes wrote at the end of the General Theory: The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. (0 COMMENTS)

“Populism” has received many definitions and historical interpretations. Some analysts take it simply as a more active form or stretch of democracy, but this may underplay the existence of very different theories and practices of democracy. One analytically useful definition of populism was given by political scientist William Riker in his 1982 book Liberalism Against Democracy. He defines the essence of populism as a political ideal in which the will of the people ought to be public policy: “what the people, as a corporate entity, want ought to be social policy.” “The people” and “the will of the people” have long been invoked by populists of the right and populists of the left. Carlos de la Torre (University of Florida) summarizes the history of populism in Latin America (see his article of the Oxford Handbook of Populism, 2017): I understand populism as a Manichaean discourse that divides politics and society as the struggle between two irreconcilable and antagonistic camps: the people and the oligarchy or the power block. Under populism a leader claims to embody the unitary will of the people in their struggle for liberation. The idea of the will of the people being incarnated in a popular leader was strongly expressed by Hugo Chávez, whom de la Torre quotes as saying: This is not about Hugo Chávez, this about a people. … I am not an individual, I am the people. Closer to us, both Donald Trump and Elizabeth Warren have invoked the will of the people, in a less flamboyant manner: Elizabeth Warren (quoted by David Frum in The Atlantic, December 2019): “We have to … have leadership from the inside, and make this Congress reflect the will of the people.”   Donald Trump at the 74th session of the United Nations General Assembly, on September 25, 2019: “A permanent political class is openly disdainful, dismissive, and defiant of the will of the people.” Jack Holmes, politics editor at Esquire, who believed that Alexandria Ocasio-Cortez’s primaries platform was reasonable, wrote (“The President’s War on Democracy Is a War on the American People,” August 14, 2020), speaking of president Donald Trump: Since democracy is our mechanism for communicating the will of the people into the laws and policies that govern our lives, this does not merely make the president an enemy of democracy. It makes him an enemy of the people. He ought to recognize the phrase. Populists of the left and populists of the right invoke the same will of the people against each other. Populism is the people against the people. Which brings us back to William Riker, who explained, on the basis of Arrow’s Impossibility Theorem and social choice theory, that the “will of the people” simply does not exist. It does not exist because there is no “the people” to have a will like an individual has. The “will of the people” is a rhetorical device to exploit a large proportion of the individuals who are the only reality under “the people.” The people’s preferences cannot be aggregated into a sort of social superindividual without being either dictatorial or incoherent, which is the essence of Arrow’s theorem. Those who pretend to represent the will of the people, from the French Revolution until 20th-century populist experiments, can only be authoritarian rulers, with or without the legal forms of democracy. (See also my Econlog post “Missing Something About Populism?“) The tyrannical strand of the French Revolution—there was also a classical-liberal strand, rapidly overcome—was anchored in the thought of Jean-Jacques Rousseau, who made “the people” and “the will of the people” the foundation of his political philosophy (see his The Social Contract, 1762; see also Graeme Garrard’s short piece, “The Prophet of National Populism“). Rousseau may be the father of modern populism of the left and of the right. Perhaps this illustrates what John Maynard Keynes wrote at the end of the General Theory: The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood. Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. (3 COMMENTS)

  I found this video by Ivor Cummins quite informative. Of course, I’m open to being told why he might be, or even is, wrong. The data on Sweden and “dry tinder” are particularly interesting. Economists Dan Klein, Joakim Book, and Christian Bjornskov have written about this and he quotes it. One thing I think Cummins brushed by unconvincingly is the difference between the USA Midwest and the USA Northeast, at about the 23:40 point. He says the shape is similar. He and I have a different view of the word “similar.” One of the most upsetting parts is about how the lockdowns during the summer lengthened the time to herd immunity and therefore might themselves create an increase in the deaths in the fall and winter.       (0 COMMENTS)

What’s the difference between invention and innovation, and which conributes more to our everyday lives? In this episode, EconTalk host Russ Roberts welcomes back Matt Ridley to discuss his newest book, How Innovation Works. Ridley’s book vividly illustrates that “innovation is the child of freedom and the parent of prosperity.” Innovation more often comes from practical people than scientists, he observes, and goes all the way back to Adam Smith’s pin factory. There’s a lot of food for thought and conversation here; we hope you’ll consider joining in!   1- What is the relationship of “tinkering” or “bricolage” to the scientific discovery method? Why do we tend to honor singular individuals versus tinkerers, and which do you think makes the greater contribution?   2- What does Ridley mean when he says, “Jobs, Bezos, and Edison have this one thing in common, which is that they spotted that innovation itself could be a product?” Why does this strategy work in some fields, such as electronics, but not others, such as vaccines?   3- Ridley says, “…the degree to which you have to get permission to go off and innovate in certain areas has become a real problem.” What sorts of problems is he referring to? How might we rediscover the virtues of “permissionless innovation“?   4- Ridley says, “There are cases where you can take the consumer to water, but he doesn’t want to drink.” He cites Google glass as an example. What other examples can you think of?   5- What is the dark side of innovation? Has innovation today become “just gadgets”? Does social media qualify as a positive innovation? What about your family dog? Explain.     BONUS QUESTION– Roberts asserts the following: “You could teach a whole class of economics around this line, I think. You (Ridley) say the following, ‘The chief way in which innovation changes our lives is by enabling people to work for each other’.” What economic concepts does this suggest? What activities/explorations could you build around this quote?   (0 COMMENTS)

Thanks to everyone who participated in the Escaping Paternalism Book Club, and special thanks to authors Mario Rizzo and Glen Whitman for joining the discussion.  In case you missed any of the installments, here’s the full list. Book Club Announcement Book Club, Part 1 Book Club, Part 2 Book Club, Part 3 Book Club, Part 4 Book Club, Part 5 My Response to Questions My Final Response to Questions Jubal Harshaw’s Reaction Rizzo and Whitman Response #1 Rizzo and Whitman Response #2 Rizzo and Whitman Response #3 Rizzo and Whitman Final Response #4 (0 COMMENTS)

We live in societies where we see a “near-universal appreciation for the aesthetic benefits of a thriving small business community,” but almost no empathy for small business owners. This is an interesting point made by Will Collins in an article published by The American Conservative and that makes use of James C. Scott’s work. Collins is thinking of the recent riots in the US which, as you would expect from riots, resulted in physical damages and looting at the expense of restaurants and shops. If many left-leaning commentators typically express enthusiasm for “neighborhood restaurants, locally-sourced produce, and independent bookstores”, “in the wake of the riots, however, condemnations of looting and arson have been strangely muted”. Though you may detect in the article a hint of nostalgia for a world of smaller shops and a certain antipathy towards big retailers, I think Collins has a point in highlighting that our societies tend to foster “a culture inimical to the character of the independent business owner.” The US is, or at least used to be, different the most European states in that regard, but certainly on my side of the pond there was a good deal of antipathy for shopkeepers. I was always struck by how it was common to refer to Margaret Thatcher with a certain disdain as “the daughter of a grocer”. You would expect that even people who deeply disagree with her would celebrate the upward social mobility and the achievement of somebody who comes out of a “petty bourgeois” environment. Not quite. The petty bourgeoisie is considered rather crass and vulgar, petty, a collection of prudes. The pursuit of money, an utter necessity for somebody who lives out of the oranges or the shirts she manages to sell, is seen as incompatible with higher pursuits. The great enemy of small business is red tape. It seems to me that those having a strong “appreciation for the aesthetic benefits of a thriving small business community” tend to think of it as a fish tank , which shall be preserved as it is, with exactly those fishes it came with. They take a static view of their community and care about it not changing. They are not sympathetic, instead, with people who are trying to set up a small firm or shop, that is: with more people trying to find meaning in the “zone of personal autonomy” that their shop comes to represent. Collins also makes a point many are making about the future of cities should Internet commerce take over the world. Will neighbourhoods simply be empty? As “small businesses help keep neighborhoods safe by attracting foot traffic and providing “eyes on the street” to informally monitor public spaces”, are we going to see crime spiking, as shops close? I tend to believe shops will be more resilient than people think. For one thing, somebody may be willing to buy an iPod online, but not necessarily her apparel or her medicines. Niche and highly specialised activities can benefit from personal contacts and handshakes (whenever we’ll go back to shaking hands). But also, for example, immigrants may prefer to go to small groceries run by people in their own community. Foodshops and small restaurants and takeaways can take over from shops that cannot compete with online retail. We will see. Cities are so central in our civilisation because, clearly, they are good at adapting to changing human needs. Still, the pandemic drove many to predict the end of the office as we know it, and thus to people preferring to live in suburban areas, fearing new pandemics and the consequent lockdowns, instead of in city centres. We will see. One interesting feature of crises like Covid19 is that they leave our imagination unbridled, but also, in the midst of an emergency, my impression is that we tend to overestimate changes that will be permanent and underestimate changes that will be transient. (0 COMMENTS)

You’re back in Salem during the 1690s.  After an exhaustive hunt for witches, the Lord High Witch Hunter files a bombshell report: Despite his best efforts, he’s failed to find any witches in Salem.  Don’t imagine, though, that the fight against witchery is over.  During his investigation, the Lord High Witch Hunter uncovered an enormous volume of “implicit witchery” and “structural witchery.”  For example, residents of Salem occasionally skip church, or lose interest during the sermon.  That’s implicit witchery, pure and simple.  Even worse, some leading merchants happily trade with Catholics and pagans.  That’s structural witchery at the highest levels of society. If you’re part of this society, you’d better not laugh.  That’s implicit witchery, too.  For anyone else, however, the Lord High Witch Hunter’s report is absurd.  The magistrate launches a massive witchhunt.  He fails to detect actual witches.  So he redefines “witchery” as “Lack of single-minded devotion to my faith.”  Why bother with this farce?  To make a thinly-veiled threat:  If you’re not part of the solution to witchery, you’re an implicit/structural witch.  And will be burned like a witch. Similarly, imagine that during the McCarthy era you fail to uncover any actual Communists.  The Lord High McCarthyite could admit he was wrong, but where’s the fun in that?  Wouldn’t it be better to declare that you’ve discovered a massive dose of “implicit Communism” and “structural Communism”?  As long as your society fears you, anything could count.  Perhaps support for progressive taxes is implicit Communism.  Perhaps the overrepresentation of left-wing academics in state-funded universities is structural Communism.  Yes, you can cry, “Bait-and-switch.”  But that sounds dangerously close to implicit Communism. Or suppose you’re in modern Iran.  The Lord High Inquisitor hunts for atheists, but can’t find any.  So he declares war on implicit atheism and structural atheism, which abound even in the Islamic Republic.  Shocking?  Not really, because almost anything qualifies as implicit atheism or structural atheism.  If this is such an obvious scam, how come hardly anyone in Iran says so?  Fear.  Minimizing the danger of implicit atheism is a prime example of implicit atheism. In the modern West, hardly anyone worries about in-the-flesh witches, Communists, or atheists, much less implicit or structural versions of these creeds.  But that’s because the targets have changed, not because the age of moral panic is over.  And while the list of targets is long, racists and sexists are plainly at the top.  The most obvious result is that people spend ample time trying to find racist and sexist individuals.  In practice, however, this is as frustrating as trying to find witches in Salem.  People today are about as likely to declare themselves racists and sexists as people in 17th-century Massachusetts were to declare themselves brides of Satan.  Part of the reason, no doubt, is fear; avowed racists do get punched in the face, after all.  The main reason, though, is that almost no one sympathizes with creeds that almost everyone hates. So what are you supposed to do if you want to continue the good fight against social ills you’ve already practically driven to extinction?  Move the goalposts all the way to Mars.  These days, the world’s best detectives would struggle to find outright racists and sexists.  Yet implicit racism, structural racism, implicit sexism, and structural sexism will always be in plain sight, because the definition expands as the phenomenon contracts. (0 COMMENTS)

We are in the midst of a real business cycle. So this should be a feather in the cap for real business cycle theory, right? Actually, it’s looking more like the death knell of RBC theory. That’s because when we finally have an honest to God real business cycle, it looks utterly unlike anything we’ve ever seen before. For example, consider the unemployment rate, which increased from 3.5% in February to 14.7% in April. The entire 2020 recession lasted for only two months, far less than any previous recession in US history. But the weirdness doesn’t stop there. In the next 4 months the unemployment rate fell by 6.3 percentage points, down to 8.4%. For comparison, during the recovery from the 2008-09 recession it took an entire decade for the unemployment rate to fall 6.5 points, from a peak of 10% in 2009 to 3.5% in 2019. That means that during the recovery from the 2020 recession, unemployment fell roughly 30 times as fast as during the recovery from the 2009 recession. Read that again. I didn’t say 30% faster, I said 30 times faster. And before anyone says this is no surprise, let me assure you that when Lars Christensen predicted that unemployment would fall below 6% by November, almost everyone thought he was being wildly optimistic.  At the time, the most recent data showed 14.7% unemployment, and many people were throwing out figures like 20% unemployment for the summer months.   (Christensen’s May 11 post is excellent, well worth reading.) I suspect we may end up falling a bit short of Lars’s optimistic forecast (although it’s still very possible he will be correct.)  But what is even more amazing is that this striking fall in the unemployment rate occurred against very strong and unexpected headwinds.  As of June, Covid–19 deaths in the US were falling very rapidly (down 75% from April), following the previous pattern seen in Europe.  Many people anticipated that there would eventually be a second wave, but it was expected to occur when the weather got colder.  Instead, in the hottest part of summer the US got hit by a huge second wave, while deaths in Europe and Canada continued at a very slow pace.  Many states that had been re-opening their economy reversed course, and started restricting certain business sectors.  Here in California, significant parts of the economy were shut down once again. And yet, despite that backdrop of a severe and unexpected second wave of Covid-19 cases in the US, and renewed shutdowns in many southern states, we saw unemployment fall 30 times faster than during the recovery from the 2009 recession.  Imagine our recovery if the pandemic here had followed the European/Canadian pattern!  Real recessions look absolutely nothing like normal US business cycles.  They are radically different phenomena with radically different causes. [In fairness, the total employment data is somewhat less impressive than the unemployment rate data, but even total employment has increased at an explosive and unprecedented rate in recent months.] When market monetarists like me argued that the problem in 2009 was too little NGDP, i.e. tight money, we got lots of pushback on two grounds.  One group argued that the real problem was real.  The financial crisis was a real shock, and recoveries from financial crises tend to be slow.  These pundits were not well informed on US economic history.  The US has had lots of recessions associated with financial crises, and economic growth was typically quite rapid after the crisis ended.  And when you asked people why a financial crisis would cause RGDP to fall, the explanations tended to center around consumer loss of wealth and a lack of access to credit.  But why would a loss of wealth make people want to work less?  Why would less access to credit make people want to work less?  Ultimately, the answer was that the loss of wealth and access to credit reduced consumer spending and investment spending. So the problem wasn’t too little NGDP, it was too little consumption and investment spending?  Okay . . . On the left, economists were more sympathetic to the view that a shortfall of NGDP was the problem, but suggested that there was nothing more the Fed could do.  (As if the Fed had run out of paper and green ink.)  Actually, we now know there were lots more things the Fed could have done: 1.  Don’t pay interest on bank reserves. 2.  Do much, much, much more QE, buying unconventional assets if necessary to hit the target. 3.  Switch to price level targeting, which would raise inflation expectations and lower long-term real interest rates.  This policy would have meant the Fed would not have tapered in 2014, or raised interest rates in 2015.  Indeed they never would have stopped QE1 or QE2. The Fed’s recent move toward average inflation targeting is a tacit admission that they blew it in the 2010s with an inappropriately tight monetary policy that caused NGDP to grow too slowly, delaying recovery from the recession. I’m not sure the recovery in the unemployment rate during the 2010s could have been 30 times faster, but it surely could have been 4 times faster.  Indeed in the 18 months after December 1982, unemployment fell by 3.6 percentage points, which is 4 times faster than the 0.9 percentage point reduction in unemployment in the 18 months after the October 2009 peak.  Money was clearly much too tight in 2009. The market monetarist view of the Great Recession is looking increasingly persuasive, and if unemployment falls to 6% by November then Lars Christensen will be crowned king of the market monetarists. PS.  Because Lars made such an extreme contrarian prediction, let’s be generous and assume he meant the actual unemployment rate in November (announced in early December) would be below 6%, not the announced unemployment rate in November, which refers to October. (0 COMMENTS)