What is the best way to reconcile the results for these three polls? How good is the following heuristic? The resources you spend mitigating a problem should be directly proportional to its overall severity. — Bryan Caplan (@bryan_caplan) August 18, 2020 Medically speaking, how bad is coronavirus compared to flu? — Bryan Caplan (@bryan_caplan) August 17, 2020 How much time, inconvenience, and resources should we spend fighting coronavirus compared to flu? — Bryan Caplan (@bryan_caplan) August 17, 2020 I’m tempted to just say “cognitive dissonance.”  The initial effort heuristic makes great sense, and the medical estimate seems about right.  But that in turn implies that past and current coronavirus efforts (public and private) are grossly excessive.  Indeed, do we even spend five hours per year fighting flu?  If so, why should we spend more than twenty five hours per year fighting coronavirus?  But almost no one feels comfortable with that relaxed attitude, hence the dissonance. (0 COMMENTS)

It seems that economics and logic were not the strong fields of protectionist nationalists in college—or at least this is the case with the three lieutenant governors who published an op-ed in The Hill at the beginning of the Summer. In the just-published Fall issue of Regulation (the electrons are still hot and the paper version has not yet hit the newsstands), I write: The USMCA, the authors glowingly wrote, will “increase U.S. annual agricultural exports by $2.2 billion.” This crowing claim comes just a few lines after the statement that “agriculture is what puts food on the table, literally and metaphorically.” They better  take their “metaphorically” very literally because exported agricultural products actually take food away from American tables in order to feed foreigners. No wonder that with this sort of coherence, protectionists think they can prove anything, including that the only benefit of free trade lies in exports. For a view of the free-market view of trade, have a look at my article. One question it answers is, Why do American exporters work for foreigners? I also review recent data on the impact of the 2018 tariff on the domestic price of washing machines.   (0 COMMENTS)

A number of experts on technology have expressed concern about the national security implications of allowing Chinese companies/products like Huawei, TikTok and WeChat to have access to the US market. I’ve been skeptical of their arguments, although I concede that I am not well informed on technology issues. On the other hand, I wonder if tech experts have sufficient awareness of the “public choice” aspects of giving the government the power to run an industrial policy. Previously I noted that the US government’s original intention to protect US consumers from possible spying by Huawei has morphed into a crusade to destroy the Chinese company. Political considerations also seem to be showing up in the TikTok case. Oracle has offered to purchase a portion of TikTok and insure that user data is safe, but some Trump administration officials remain unconvinced: Several people said such a plan could satisfy career officials at Cfius. But some cautioned that the situation was not analogous to any previous case. “We have a president who is running a campaign against China and any indication of giving in to Beijing over TikTok will be seen as weakness,” said a person involved in the negotiations, who was concerned about the deal receiving approval from the Trump administration. . . . A veteran Cfius lawyer said any deal with ByteDance that let the Chinese company retain a majority ownership of the app in the US would be hard for the Trump administration to swallow. I get worried whenever I see news reports of economic policymakers wanting to avoid perceptions of “weakness”, or outcomes being “hard to swallow”.  Does this address national security issues, or doesn’t it? In the end, I expect the deal will likely go through, but I am not entirely reassured by the reasons why: Oracle was originally brought into the negotiations to provide an alternative to Microsoft Corp., MSFT +1.69% a rival bidder with Walmart as a partner, said one person familiar with the talks. The U.S. investment firms Sequoia Capital and General Atlantic, which are existing investors in ByteDance, went in search of a tech company with close ties to the administration and settled on Oracle, the person said. Oracle co-founder Larry Ellison hosted a fundraiser for Mr. Trump this year at his house, and Chief Executive Safra Catz also worked on the executive committee for the Trump transition team in 2016. It seems that the Chinese believe that US economic policy decisions are made based on personal connections with the administration.  I’m not sure if that’s true, but the perception is enough to distort the market.  Would a takeover attempt led by a Trump critic have had an equal chance of success?  I have my doubts. However you feel about this specific issue, it’s important to recognize that we are a long way from national security decisions being made by philosopher kings.  Once you grant the government the power to enact an industrial policy, don’t expect the decisions to be free of political/personal considerations.  On balance, I trust the market more than I trust any government. PS.  My wife traveled to China last week and I’ve started using WeChat.  I’m willing to accept the risk that the Chinese government is spying on my calls.  For years I’ve assumed that the NSA knows whatever they want to know about my digital communications. (0 COMMENTS)

Don Boudreaux, over at CafeHayek, has been posting about his debate with Branko Milanovic over whether middle class stagnation is a myth. I have some thoughts to add to that debate. I’ll do so at the end. But reading Milanovic’s comments reminded me of something he wrote in 1996 that I challenged in an article co-authored with my then colleague Robert McNab and my former student from Hungary Tamas Rozsas. The article is “The Hidden Inequality in Socialism,” The Independent Review, Winter 2005. Here’s that segment of the article: Referring to the effect of subsidies on essential items and to the quality of vacation homes for the top party brass, Milanovic argues that these privileges would not have altered measured income inequality to a great extent. He claims that others exaggerated the value of these privileges: “Elite privileges were exaggerated both by |the] indigenous population, because of the secrecy in which privileges were held, and by overly credulous Western analysts. In effect [as] anybody who has visited vacation homes previously kept strictly off-limits for all but the top Party brass can testify, their level of comfort and service is below that of an average Holiday Inn” (1996, 200). However, in dismissing the value of a vacation home by comparing it unfavorably to a Holiday Inn, Milanovic is, wittingly or not, implicitly appealing to Western standards. Although few middle-class Americans will regard a Holiday Inn as a luxury hotel, Americans are not the relevant group here; eastern Europeans are. In the mid-1970s, living space per person in the Soviet Union was approximately only 120 square feet (W. S. Smith 1973, 405, as cited in Pejovich 1979, 55). Every room at a Holiday Inn has its own bathroom, whereas in the early 1970s approximately half of all Soviet housing lacked running water or plumbing, and much of the other half shared bathroom facilities with other families (Pejovich 1979, 55-56). For almost anyone in the eastern European socialist countries, a Holiday Inn would have been the height of luxury. To “translate” Milanovic’s statement for Western ears, it would need to read something like this: “In effect, as anybody who has visited vacation homes previously kept strictly off-limits for all but the top Party brass can testify, their level of comfort and service is below that of an average Hyatt.” In other words, access to a vacation home of high quality by socialist standards for a couple weeks each year free of charge constituted a substantial perquisite for those with political connections, and it would have been widely envied by those without it. Milanovic might have made the following more telling and accurate criticism of the idea that vacation homes increased the inequality of incomes. Not just the politically connected had access to such vacation homes. Rather, even those not so connected could get such access if they did what the authorities wanted them to do: refrained from criticizing communism, refused to support many of the victims of communism, showed up at work, and so forth. In other words, access to vacation homes, like so many other perquisites under communism, was a means of creating loyalty to the regime and cementing workers into the system. Now to my criticism some of Milanovic’s recent claims. Don Boudreaux has handled it well but I want to add my own thought. Here’s Milanovic’s statement: But has real income of the American middle class gone down? Professor Boudreaux thinks it has not. To prove that, he engages into a doubly absurd exercise. He compares income of today’s middle-class Americans with income of the middle-class Americans 40 years ago using the goods that were inexistent 40 years ago. Indeed by that peculiar metric they are better off. It would suffice that one American out of perhaps 100 million middle-class American owns a smart phone today to obtain Professor Boudreaux’s result: since nobody had it 40 years ago, the growth rate of such income would be infinite. If we equally one-sidedly, but somewhat less absurdly, make a comparison in terms of individual goods or services that existed then and now, like health care, education, and housing, we would find the very opposite result. This is why, if we want to engage into such comparisons, we use Consumer Price Index which includes all goods and services. When we do so and compare real incomes at different percentiles of U.S. income distribution, we get the result shown below. Over the thirty-year period U.S. middle class income has cumulatively increased by between 20 and 30 percent, which on an annual basis gives a rate of growth between 0.6% and 0.9%. This is hardly satisfactory and is especially galling when we compare middle-class growth with that of the top 5 percent, or even better with the top 1-percenters, whose incomes have increased by more than 80% (cumulatively). Notice the first two sentences: But has real income of the American middle class gone down? Professor Boudreaux thinks it has not. That’s correct. That’s what Boudreaux does think. But here’s  something else interesting: Milanovic agrees with him. In the second paragraph, Milanovic writes: Over the thirty-year period U.S. middle class income has cumulatively increased by between 20 and 30 percent, which on an annual basis gives a rate of growth between 0.6% and 0.9%. In short, the real income of the middle class has risen, not fallen. What about Milanovic’s point that looking today at only smart phones gives a biased viewpoint? He’s right. And contrary to what I had thought when I first read Milanovic’s statement too quickly, he admits that having access to a smart phone now does, all other things equal, increase one’s real income, possibly by a lot. But Milanovic’s point is that all else is not equal. In particular, health care, education, and housing have all become more expensive. Of course, in each case, other than education (hmmm: which entity provides most of that?) quality has clearly gone up. So then we have to dig into details. That’s why Milanovic wants to use the CPI, because it includes a wide spectrum of goods. Don Boudreaux catches the problem, citing the Boskin Commission report of 1996. The CPI overstates inflation. But here’s something more. As the Report points out, and as Boskin has laid out in “Consumer Price Indexes,” his entry in The Concise Encyclopedia of Economics, there’s a particular problem with new items. Coincidentally, Boskin mentions the cell phone. He writes: Finally, an additional bias results from the difficulty of adjusting fully for quality change and the introduction of new products. In the U.S. CPI, for example, VCRs, microwave ovens, and personal computers were included a decade or more after they had penetrated the market, by which time their prices had already fallen 80 percent or more. Cellular telephones were not included in the U.S. CPI until 1998. In short, the introduction of new products does contribute to the CPI’s overstating of inflation. And it contributes substantially. Boskin writes: The CPI currently overstates inflation by 0.8–0.9 percentage points: 0.3–0.4 points are attributable to failing to account for substitution among goods; 0.1 for failing to account for substitution among retail outlets; and 0.4 for failing to account for new products. Thus, the first 0.8 or 0.9 percentage points of measured CPI inflation is not really inflation at all. This may seem small, but the bias, if left uncorrected for, say, twenty years, would cause the change in the cost of living to be overstated by 22 percent. Therefore, middle-class income has increased even more than Milanovic admits.   (1 COMMENTS)

The Theory of Moral Sentiments (1759) is the first book that Adam Smith wrote, and for decades it was contrasted to his most famous other book, The Wealth of Nations (1776). Most scholars today do not see the contrast anymore, but Ryan Patrick Hanley resumes this so-called Adam Smith Problem in his Our Great Purpose: Adam Smith on Living a Better Life. For Hanley, the Wealth of Nations is the book about self-interest (but not greed) and wealth accumulation, and Theory of Moral Sentiments is the book about “love” and living a good life. But there is no Problem because the two books complement each other. Wealth of Nations celebrates wealth accumulation and decreased poverty, and Theory of Moral Sentiments warns us against the moral costs of this wealth accumulation (181), helping us stay on the right path in a “capitalist” society. Hanley achieves his goal of showing that Theory of Moral Sentiments is a normative book offering prescriptions regarding how to live the good life (86), rather than a description of moral development, as it is typically considered, thanks to his usual beautiful prose and narrative. So the image of Adam Smith that we get from Hanley is the explicit opposite of “Greed is good” (13). Hanley’s Smith promotes a society in which “everyone loved each other and was loved by them in return” (90), a love of others that is so great and complete that our goal in life is “to feel much for others and little for ourselves” (132), a love that drives us to become a “wise and virtuous person, […] serving others and […] always striving for their well-being, [who] lives a life that is good for those who live with her. […] A person who ‘sacrifice[s]’ herself for others, […] for a life of active service, [who] sacrifice[s] promoting her own self-interest in order to promote the interest of others” (148). But if there is truth in this quest of “always working for others, never promoting herself, all the while knowing that nobody is ever going to recognize her for all this” (151) that for Hanley Smith asks us to have to live a good life, then the implication, which Hanley does not consider, is that Smith would also aspire to see the end of markets, as in a world of “love lover[s]” (88) markets become useless. For his reading to hold, Hanley has to ignore, and indeed does ignore, that for Smith people face binding time constraints: “In civilized society, [a person] stands at all times in need of the cooperation and assistance of great multitudes, while his whole live is scarce sufficient to gain the friendship of a few persons. […] But man has almost constant occasion for the help of his brether, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor and shew them that it is for their own advantage to do for him what he requires if them.” WN I.ii.2 So the implication of Hanley’s reading of Theory of Moral Sentiments is that the achievement of a good life is actually not a complement, but a substitute for markets. To achieve this unconventional reading of Smith, Hanley “arranged and ordered (each chapter) in such a way as to tell a story that starts with the first chapter and ends with the last” (10). Hanley’s Smith thinks that we should not just live, we should “live a better life”, a good life, a meaningful life, a purposeful life: “living a life requires that we be actively engaged in pursuing a trajectory that we can recognize as ‘a life’—that is, a trajectory that not only has a beginning and a middle and end, but also has a unity to it that enables us to see all its different parts as fitting together in a meaningful way” (1). In this journey that is our life, we are torn “in two very different directions. On the one hand, we are naturally led to be concerned with ourselves and our own well-being. On the other hand, we are naturally led to be concerned with the well-being and happiness of others” (10). “These competing demands raise key challenges to the project of living a single and unified life” (11). So we need to battle against natural tendencies that lure us to be blindly attracted to the “trinkets and baubles” of wealth, we need to fight against our ambition that deludes us into pursing wealth when we would be better off stopping and smelling the roses more often. The story that Hanley tells us is of a Smith’s “cautionary tale” (43), where we should quest to become perfect “wise and virtuous” people. It is a story that becomes even more powerful when compared to Tyler Cowen’s TedTalk “Be suspicious of stories”. Cowen does not talk about Adam Smith at all, yet he may capture an aspect of Smith that is absent in Hanley’s story. Cowen simply warns us about stories, stories that describe our life as journeys, as battles, as quests. “A story is about intention. A story is not about spontaneous order or complex human institutions which are the product of human action, but not of human design.” Hanley claims that for Smith “living a life requires more than just the activity of living. … [We are required] to see ourselves as a self, engaged in the project of living a life of virtue and flourishing, of unity and coherence, and thus, hopefully, of purpose and meaning” (12). For Cowen our life is a mess, and it is good that it is a mess: “If I actually had to live those journeys, and quests, and battles, that would be so oppressive to me! It’s like, my goodness, can’t I just have my life in its messy, ordinary – I hesitate to use the word – glory but that it’s fun for me? Do I really have to follow some kind of narrative? Can’t I just live?” The book is not for specialists and has very limited scholarly references. But it is a challenge for the people who think in terms of spontaneous order and unintended consequences, not only at the macro level but also at the individual level. Hopefully it will induce more people to read The Theory of Moral Sentiments.   *Maria Pia Paganelli is a Professor of Economics at Trinity University. She works on Adam Smith, David Hume, 18th century theories of money, as well as the links between the Scottish Enlightenment and behavioral economics. For more articles by Maria Pia Paganelli, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

The economic analysis of politics goes by many names: political economy, rational choice theory, formal political theory, social choice, economics of governance, endogenous policy theory, and public choice.  Each of these labels picks out a subtly different intellectual tradition.  Each tradition expands our understanding of the world.  My favorite, though, remains public choice. As a GMU professor, you may attribute this to home-team favoritism.  Yet before I was a professor at GMU, I was a student at UC Berkeley and Princeton, and neither school fostered the love of public choice… to say the least.  The main reason I prefer public choice, rather, is for its normative core.  All economists who study politics do cost-benefit analysis, but the public choice approach is wiser.  And heretical. What exactly is this “normative core” of public choice?  Simple: After doing standard microeconomic analysis of government policy, public choice adamantly states: That’s an upper-bound on how well government intervention can work.  In the real world, government intervention usually works much more poorly.  Before we claim government intervention passes a cost-benefit test, we can, should, and must use past government performance to predict future government performance. The upshot: Public choice economists end up opposing many government interventions blessed by textbook and policy wonk alike. Example: Most economists – even economists who study politics – are fans of Pigovian taxation to address externalities problems.  What public choice reminds us, though, is that Pigovian taxation is the best that governments can accomplish.  In the real world, however, governments are worse in dozens of ways.   Before you advocate a regime where government sets Pigovian taxes to address externalities, then, you should estimate what real-world governments will actually do when you give them that kind of power. Another case: When I was a grad student TAing Industrial Organization, I often argued with the junior professor teaching the class.  He knew a lot of theory, but almost no economic history, so I told him about quite a few famously anti-competitive antitrust decisions.  After a while, I recall a little exchange that went roughly like this: Junior Professor: Bryan, I don’t care about what government did in the past; I care about what government is going to do in the future. Me: Shouldn’t we use the past behavior of government to predict the likely future behavior of government? Junior Professor: By that standard, government should never do anything. Me: [double-take] Not really, but OK! For Junior Professor, the normative core of public choice was practically a reductio ad absurdum.  But that’s only because he started with a firm pro-government conclusion, and rejected even ironclad premises that undermined it.  So when I applied the normative core of public choice, he saw a big bias against government. This so-called “bias,” however, is simply well-justified pessimism.  If actual governments abuse the power to tax, subsidize, and regulate, then it makes cost-benefit sense to put the officials who set tax, subsidy, and regulatory policies in a few chains.  Or a lot of chains.  Or a solid block of concrete. Mainstream economists tend to scoff at this mentality.  Frankly, that’s because they’re fifty years behind the research frontier.  Although textbook demonstrations that well-crafted government policies can make the world better are fun homework problems, they end up being an intellectual smokescreen for demagoguery.  The normative core of public choice shows that laissez-faire is undervalued: Even when good government is plainly able to make things better, past experience teaches us to be deeply skeptical that government will do so in practice.  Until economists judgmentally study government in action, they have no business recommending that government do much of anything. (2 COMMENTS)

The latest EconTalk interview is with one of my favorite people, Bob Chitester. It’s well worth listening to, especially his story about how he, a manager of a small-city PBS station, decided to make the series that made him famous and made Milton Friedman even more famous than he was: Free to Choose. He talks briefly, by the way, about the students who spend a week at Capitaf at Vermont working through Milton’s Capitalism and Freedom. I was the discussion leader the first time they did this, and afterwards I recommended that the next time, we drop a few chapters of Capitalism and Freedom and add a few chapters of Milton and Rose Friedman’s Free to Choose. We did that the next summer. Each book is special in its own way, something that Russ Roberts and Bob agree with each other on. Both Russ and Bob talk about the importance of Friedman’s smile. I agree. The word I would use to explain it is “warmth.” Milton Friedman was a warm man and thus the smile. Near the end Bob talks about the power of poetry and then recites a poem. I agree about its power. Here’s one of my favorites, which I read aloud at an event on war at California State University, Monterey Bay about 10 years ago. Hate by James Stephens My enemy came nigh, And I Stared fiercely in his face. My lips went writhing back in a grimace, And stern I watched him with a narrow eye. Then, as I turned away, my enemy, That bitter heart and savage, said to me: “Some day, when this is past, When all the arrows that we have are cast, We may ask one another why we hate, And fail to find a story to relate. It may seem then to us a mystery That we should hate each other.” Thus said he, And did not turn away, Waiting to hear what I might have to say, But I fled quickly, fearing had I stayed I might have kissed him as I would a maid. (0 COMMENTS)

A key tenet of American’s civic religion is that the McCarthy-era persecution of Communists and Communist sympathizers was both paranoid and immoral.  Academics are especially strident in their commitment to this tenet.  And since they are academics, they’re especially dismayed by academia‘s persecution of Communists and Communist sympathizers.  The most infamous form of this persecution: the loyalty oaths many universities imposed on their employees.  Sign the oath, or lose your job. What exactly did these loyalty oaths say?  Here’s UC Berkeley’s Loyalty Oath of 1950. Constitutional Oath (Constitution of the State of California, Article 20, Section 3) “I do solemnly swear (or affirm, as the case may be) that I will support the Constitution of the United States and the Constitution of the State of California, and that I will faithfully discharge the duties of my office according to the best of my ability.” As passed by the Regents, April 12, 1950 “Having taken the constitutional oath of the office required by the State of California, I hereby formally acknowledge my acceptance of the position and salary named, and also state that I am not a member of the Communist Party or any other organization which advocates the overthrow of the Government by force or violence, and that I have no commitments in conflict with my responsibilities with respect to impartial scholarship and free pursuit of truth. I understand that the foregoing statement is a condition of my employment and a consideration of payment of my salary.” Notice the mild wording of this Loyalty Oath.  A person who personally advocates the violent overthrow of the government could truthfully sign it as long as he belongs to no organization that shares his position.  A philosophical communist in full sympathy with Stalin could truthfully sign it as long as he is personally an “impartial scholar” in “free pursuit of truth.”  Needless to say, every species of democratic socialist could readily sign, as could every kind of anti-anti-Communist. By way of contrast, let’s compare UC Berkeley’s new Diversity and Inclusion Oath.  Well, it’s actually much more.  An Oath merely requires you to parrot someone else’s words; what Berkeley now mandates is a self-authored Diversity and Inclusion Vow in order to determine eligibility for employment.  The university then scores your Vow for orthodoxy.  Part 1 of its rubric, “Knowledge About Diversity, Equity, and Inclusion” assigns you a prohibitively low score if your statement contains stuff like: Little expressed knowledge of, or experience with, dimensions of diversity that result from different identities. Defines diversity only in terms of different areas of study or different nationalities, but doesn’t discuss gender or ethnicity/race. Discusses diversity in vague terms, such as “diversity is important for science.” May state having had little experience with these issues because of lack of exposure, but then not provide any evidence of having informed themselves. Or may discount the importance of diversity. That’s right, merely “discounting the importance of diversity” virtually bars you from faculty employment.  Imagine if the 1950 Oath required you to, “Affirm the great importance of the fight against Communism.”  Or sanctioned those who merely “discussed anti-Communism in vague terms.” The rubric continues: Seems not to be aware of, or understand the personal challenges that underrepresented individuals face in academia, or feel any personal responsibility for helping to eliminate barriers. For example, may state that it’s better not to have outreach or affinity groups aimed at underrepresented individuals because it keeps them separate from everyone else, or will make them feel less valued. This would be akin to a 1950 Oath that mandated support for current anti-Communist tactics.  Something like: “For example, may state that it’s better not to support right-wing dictatorships because it creates the false impression that capitalism and democracy are incompatible.” What’s afoot?  Orwellian doublethink of the highest order. Sure, the hated 1950 Loyalty Oath seems far less onerous than the new Diversity and Inclusion Vow.  But the people who refused to sign the 1950 Oath were heroes standing up for freedom of conscience.  The people who question today’s orthodoxy, in contrast, are hate-mongers who need to be excluded from high-skilled employment. Newspeak-to-English translation: Full-blown Stalinism is no big deal, a mere difference of opinion.  Yet even tepid doubts about whether mandatory discrimination against high-performing groups has already gone far enough are anathema, anathema, anathema. (1 COMMENTS)

This article won’t come as a surprise to those, among our readers, that are partisans of standing desks (quite a few of them, I suppose, in the US, not so many in Europe). This piece by Sara Hendren, abstracted from her book What Can a Body Do? How We Meet the Built World, presents interesting arguments against the chair. “Sitting for hours and hours can weaken your back and core muscles, pinch the nerves of your rear end and constrain the flow of blood that your body needs for peak energy and attention. Most people’s bodies are largely unsuited to extended periods in these structures”. If the chair is an old invention, the widespread use of it is a rather new thing, “for most of human history, a mix of postures was the norm for a body meeting the world”. In part the article stresses the fact that a “chair-and-table culture” is actually a recent thing, basically a byproduct of our industrial society with its factory and its office, and thus our body has difficulties to cope with it. In part the article builds on Victor Papanek’s polemic against industrial design and the search for design virtuosism, rather than comfort, and the emergence of “universal design”. The conflict between beautiful and convenient is older than contemporary design, which seems to me has solved it better than most. Anyway, fascinating. (0 COMMENTS)

Once upon a time, a man had an idea for a documentary on free-market ideas. Then that man was introduced to Milton Friedman. The result of their collaboration was a wildly successful book and PBS series, Free to Choose, capturing Friedman’s view of the world, how markets work, and the role of individual liberty in […] The post Robert Chitester on Milton Friedman and Free to Choose appeared first on Econlib.