In my earlier post on preference falsification, I argued that a culture of free speech and open debate is a necessary factor for the benefits of free speech to be fully realized. This post expands on that, examining a common fable involving preference falsification, how the dynamics of preference falsification are different in reality than the fable, and how what is commonly called “cancel culture” is a factor that undermines free speech culture and keeps preference falsification in place. The fable, as you might have already guessed, is The Emperor’s New Clothes. In that fable, people privately hold the belief that the Emperor is naked, but publicly they express the belief that the Emperor is adorned in splendid garments, because they worry that expressing their private belief will make them appear like fools. However, a child eventually breaks this spell by loudly declaring the Emperor is naked. As soon as he does, the rest of the townspeople join in, and everyone realizes the Emperor is in fact truly naked. In reality, however, a single person accurately declaring their private belief publicly is not sufficient to break the spell of preference falsification. People feel compelled to falsify their beliefs when they think the views they express are widespread — not universal. Take any proposition you care to imagine — call it p. Suppose 90% of people privately don’t accept p. However, people also think that 90% of people do accept p. To the extent that p has been moralized or politicized, there is a strong reason for those who reject p privately to affirm p publicly. A single person here and there who openly rejects p will simply seem like someone in the (assumed) 10% that rejects p. This is where marginal cost comes in. In the fable, the first person who accurately declares his public belief faces no sanction of any kind — and everyone immediately becomes willing to publicly admit that they, too, believe the Emperor is naked. In a more realistic scenario, as soon as someone says “the Emperor has no clothes!”, the rest of the crowd would still be strongly inclined to openly shun and mock the person who said it. After all, according to what everyone believed, only the foolish would be unable to see the Emperor’s new clothes — and certainly some foolish people exist. So obviously some people would see the Emperor as naked. A single person declaring the Emperor has no clothes may be nothing more than a fool exposing his own foolishness. Do you immediately join him and risk making yourself look like another fool in the crowd? What if, as soon as that first person declares the Emperor is naked, the crowd immediately mocks them as an unenlightened rube who can’t see the obviously splendid garb adorning the Emperor? Most people, I suspect, would feel the urge to pretend they could see the Emperor’s clothes an join in on the mockery. The marginal cost of being the first person to declare the Emperor naked would be very high. One of the arguments Musa al-Gharbi makes in his book We Have Never Been Woke is that each “Awokening” is strikingly parallel to the Awokenings that came before. Cancel culture, he points out, was a common feature of the second Great Awokening, although at the time it was described as “trashing.” He quotes from a magazine published in the 1970s describing the practice: Trashing has reached epidemic proportions…What is “trashing,” this colloquial term that expresses so much, yet explains so little?…It is not done to expose disagreements or resolve disputes. It is done to disparage and destroy. The means vary…Whatever methods are used, trashing involves a violation of one’s integrity, a declaration of one’s worthlessness, and an impugning of one’s motives. In effect, what is attacked is not one’s ideas, but one’s self. This attack is accomplished by making you feel that your very existence is inimical to the Movement and that nothing can change this short of ceasing to exist. These feelings are reinforced when you are isolated from your friends as they become convinced that their association with you is similarly inimical to the Movement and to themselves. Any support of you will taint them. Eventually all your colleagues join in a chorus of condemnation which cannot be silenced, and you are reduced to a mere parody of yourself. Whether it’s being mocked by the crowd watching the Emperor’s parade, or being trashed, or being canceled, the cost of accurately revealing one’s private beliefs can be very high, even when that private belief is actually widely held. In my previous post, I mentioned how nearly 90% of students feel pressured to present themselves are more left-wing than they actually are because they believe their social and academic success depends on it. But while costly, this is also a diminishing marginal cost. As the person most willing to defy the crowd makes their private beliefs publicly known, they make others slightly more willing to do so themselves, because those others feel slightly less alone in their beliefs. This can make someone who was slightly less willing to defy the crowd now willing to do so as well — and so on. Eventually, there is some tipping point where what was hidden private knowledge can all come cascading out as public knowledge, and everyone in the crowed becomes willing to admit that they, too, see the Emperor as naked. In the absence of a free speech culture, however, this tipping point may never be reached. Suppose there were 1,000 people in the crowd, and the tipping point would come at the 150th person. Once the 150th person says they, too, see the Emperor is naked, suddenly everyone’s true opinion comes out as well. If cancel culture, or trashing, or whatever you prefer to call it, keeps the cost of revealing one’s private preference so high that it remains above the marginal cost that 150th person is willing to pay, the Emperor will remain naked and the majority of the crowd will still continue to falsify their beliefs.   As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

Measure what is measurable, and make measurable what is not so. -Galileo Galilei Any science contends with a difficult problem: there are things we want to understand, but we cannot easily measure those things.  Any tool for measurement will be inherently have technical limitations (that is, limited by the technology of the time) and be subject to arbitrary choices by those doing the measuring.  Sometimes we may not even be able to directly measure the thing, instead we have to rely on proxies, or on a lack of information, to track what we’re interested in.  Consequently, the measurement one uses is not the same as the thing itself. It is merely a representation of the thing. Unfortunately, those untrained in scientific thinking will often mistake the measurement for the thing.  This is very common in economics.  Take, for example, the Consumer Price Index (CPI).  CPI is a measurement of inflation using a basket of consumer goods.  The basic idea is that if prices are moving independently of one another, there should be limited movement in the Index.  However, if the Index is consistently changing in a certain direction, there is likely inflation (the Index is rising) or deflation (the Index is falling).  However, the Index can rise for reasons other than inflation.  If even one price changes and all else is held equal, the Index would change simply because of how the Index is calculated.  It is a weighted average of all prices in the basket.  One change therefore moves the whole Index. To make my point more concrete, let’s say that the price of gasoline were to rise considerably and no other price were to change.  The CPI would naturally rise given gasoline is a component of the Index.  No economist would say there is inflation; inflation is a general rise in prices and this is just a single price rising.  But those who think that CPI is inflation would misunderstand and consequently misdiagnose the situation.  They confuse the measurement for the thing itself. We see the same thing for Gross Domestic Product (GDP).  GDP is a measure of economic growth, but it is not economic growth in and of itself (nor is it a theory of economic growth).  GDP, like the CPI above, is an accounting identity that attempts to act as a proxy for economic growth.  But, like with CPI, those who confuse the measurement for the thing erroneously conclude that an increase in GDP necessarily means an increase in economic growth.  GDP is defined as New Consumption + New Investment + New Government Spending + New Net Exports.  If any of those variables change, GDP will necessarily rise.  That is true.  But it does not follow that the rise in GDP necessarily means economic growth is occurring.  America in World War 2 and the USSR showed that conclusively.  US GDP rose significantly in World War 2 because of the huge increase in government spending.  But, by many measures, people were worse off than during the Great Depression: consumer goods were hard to find because so many materials were needed for the war effort, people had to grow their own food—it was not an economy that supports a good life.  In the USSR, GDP was rapidly approaching the US.  Indeed, some were even predicting the USSR would overtake the US.  But once the USSR collapsed and we saw behind the veil, the standard of living for Soviet citizens had barely changed since the fall of the Tsars.  GDP was propped up by government spending, and thus became an unreliable indicator of economic growth. The confusion between the measurement and thing I have discussed here is a perpetual problem for any sort of central planning or industrial policy.  The central planners must establish some goal, which in turn requires some measurement.  But then the project becomes all about hitting the measurement rather than promoting the goal.  Ultimately, this leads to the plan to fail in its goal even if it hits the measurements. (0 COMMENTS)

Last week, Anthropic, the AI company behind the Claude chatbot, settled a landmark class-action lawsuit for $1.5 billion. The amount is very large in the context of copyright legal cases, yet it represents just a fraction of Anthropic’s estimated $183 billion valuation. Authors and publishers, led by figures like Andrea Bartz and Charles Graeber, accused Anthropic of illegally downloading millions of pirated books from shadow libraries like Library Genesis to train Claude, violating copyright law. The settlement will compensate roughly 500,000 authors and publishers at about $3,000 per affected work. While Anthropic didn’t admit liability, it agreed to destroy the illicit files and pay authors, avoiding a trial. The Authors Guild hailed the outcome as a precedent for licensing content in AI development. This case raises questions about property rights in the age of Large Language Models (LLMs). Courts have ruled that recombining existing texts into new outputs qualifies as fair use, but the Anthropic lawsuit hinged on the piracy itself, not the training process. What should the law say about compensating authors whose works indirectly fuel AI innovation? The answer could shape not just fairness but the future quality of AI. The term “AI slop” increasingly describes low-quality, machine-generated text produced with minimal human oversight. If human writing ceases to be a viable career due to inadequate compensation, will LLMs lose access to fresh, high-quality training data? Could this create a feedback loop where AI models, trained on degraded outputs, stagnate? This dilemma mirrors the classic “access versus incentives” debate in intellectual property law: Access to a rich corpus of human-written text today enables entrepreneurs to build powerful, affordable LLMs. But without incentives for human authors to keep producing, the well of quality training data could run dry. This case also blurs the traditional divide between copyright and patents. Copyrighted material, once seen as static, now drives “follow-on” innovation derived from the original work. That is, the copyright protection in this case affects AI-content influenced by the copyrighted material in a way that previously applied to new technology that built on patented technical inventions. Thus, “access versus incentives” theory applies to copyright as much as it used to apply to patents. The Anthropic settlement signals that intellectual property law, lagging behind AI’s rapid evolution, must adapt. Authors might need compensation, but halting AI progress to resolve legal disputes risks stifling innovation. At $1.5 billion, the settlement’s size sends a clear message: bypassing legal channels could be costly. This could deter smaller AI firms from entering the market, especially as similar lawsuits loom against other companies. The precedent may push developers toward licensing deals or public domain data, raising costs and potentially concentrating the AI industry among deep-pocketed players like Anthropic, backed by billions in funding. Smaller startups, unable to afford licensing or litigation, may struggle. This would become a case of regulatory barriers favoring incumbents. Could Anthropic’s willingness to pay such a hefty sum reflect a strategic move to fortify a moat around well-capitalized AI firms, discouraging upstarts? In a 2024 post, I speculated that AI companies, flush with cash, might strategically hire writers to replenish the commons of high-quality text. In that post, I wrote:  “AI companies have money. Could we be headed toward a world where OpenAI has some paid writers on staff? Replenishing the commons is relatively cheap if done strategically, in relation to the money being raised for AI companies.” The Anthropic settlement partly validates this idea. For an AI arms race in which Mark Zuckerberg spends millions luring engineers from OpenAI, $1.5 billion seems like a modest price for a chance of establishing AI dominance. For now, the Anthropic case marks a pivotal moment. It underscores the need for a balanced approach and sets the stage for how AI and intellectual property law will coexist in an era of unprecedented technological change. Although, at a certain point, the LLMs might reach a take-off point where they are so intelligent and agentic that they do not need new input from humans anymore. That is a horizon beyond which I cannot see.   Joy Buchanan is an Associate Professor of economics at Samford University. She blogs at Economist Writing Every Day.  (0 COMMENTS)

El Camino Real (ECR), State Highway 82, the main thoroughfare connecting San Jose with San Francisco, is sandwiched between Federal Highways 280 and 101.  Maintenance and Rehabilitation is largely paid by the state with modest local government participation.  Indeed, Caltrans can repave and redesign ECR even without city approval. In 2024, Caltrans decided to repave ECR from Menlo Park southward through Palo Alto (which parallels Stanford University), Los Altos, Mountain View, to Sunnyvale.  The work included upgrading curb ramps and sidewalks to comply with the Americans with Disabilities Act.  It also added bicycle lanes.  The work was largely completed by July 1, 2025. Caltrans allocated $7,133,000 for the project, but did not explicitly list the cost of the soft white-posts-and-green-marker separated bike lanes.  I would guesstimate no more than $2 million. Restaurants and other commercial establishments complained about the loss of street parking and business before, during, and after the lane posts were installed.  Patrons sometimes have to search for street parking in residential neighborhoods.  It’s hard to know actual business losses, but I’ve watched some prospective customers give up and drive away. What about bicyclists’ use of the new dedicated bike lanes since their completion?  Every Sunday, my wife and I go out to lunch at a restaurant on ECR, or a side street off ECR.  On average, I drive weekly to Safeway Pharmacy and Grocery Store in Menlo Park along ECR.  My wife drives weekly along ECR to each of two big box stores and biweekly to Ranch 99 in Mountain View.  That’s four trips a week and nine biweekly.  On August 17, 2025, our 62nd anniversary, we went to our favorite Chinese restaurant on ECR.  We arrived early and were seated next to a large window looking out at the street.  And then, we remarked simultaneously, “Look, a bicyclist!” the first we saw using the new bike lane.  I estimate that we had driven about a hundred miles between July 1 and August 17. Several thousand students, staff, and faculty ride bicycles to Stanford each working day, having done so for years without dedicated bike lanes along ECR.  Stanford’s internal bike lanes are simply demarcated with paint and words. Are the new bike lanes worth the direct cost of installation and indirect cost of lost business?  I think not, unless and until they are more heavily used, with fewer automobiles on the road unclogging traffic and reducing carbon emissions.  Even if that occurs, businesses will continue to lose money.  But, hey, this is California!   Alvin Rabushka is the David and Joan Traitel Senior Fellow, Emeritus at the Hoover Institution. (0 COMMENTS)

American manufacturing of aircraft during WWII dwarfed that of its enemies. By the end of the war, an American assembly line was producing a B-24 bomber in less than an hour. But that success was far from inevitable. Structural engineer and writer Brian Potter speaks with EconTalk’s Russ Roberts about the logistical challenges of ramping up […] The post How Did America Build the Arsenal of Democracy? (with Brian Potter) appeared first on Econlib.

After spending ten posts (beginning here) outlining Musa al-Gharbi’s arguments in his book We Have Never Been Woke, it’s time to move on to my evaluation of those arguments. In this post, I’ll begin to cover some of my thoughts on al-Gharbi’s more big-picture ideas — the cause of “Awokenings,” and the motivation for “woke” symbolic capitalists in their support for policies that are harmful to the poor and vulnerable. Elite Overproduction Overall, al-Gharbi describes Awokenings as periods in which members of what he calls the symbolic capitalist class try to take the reins of social justice movements in order to preserve or enhance their own status. A key factor in this process is “elite overproduction” — the idea that there are too many people who see themselves as destined to join or remain in the elite class than there is actual capacity for elites. I think the idea of elite overproduction is basically sound. If I had to pick a nit (and I do love a good nitpick!), I’d probably have framed it as more of a supply and demand issue for elites — the term “elite overproduction” makes it sound like it’s purely a matter of excess supply. For example, when al-Gharbi talks about the overproduction of elites leading up to the first Great Awokening (in the 1920s–1930s), he points to data showing the increase in rates of college education, which was (and still is) often seen as a ticket straight into elite status. But while the increases were large in relative terms (the number of people with a PhD quadrupled!) it was still pretty tiny in absolute terms — the percentage of people with a PhD rose from 0.03% to 0.12% of the population. By itself, it doesn’t seem likely that 0.12% of the population holding a PhD would have amounted to much were it not for the impact of the Great Depression and the economic downturn that followed. In short, at least for that Awokening, it seems like the problem was more to do with the demand for elites collapsing, rather than the supply growing at an unsustainable rate. However, I do think that oversupply does a lot to capture much of the current situation. Many people in my generation grew up being told, in effect, that going to college and getting a degree was important because doing so would lock you into a strong career path. But many have graduated from college and discovered that holding a degree was far from the assurance of attaining a well-paying job they had believed. Part of the problem is that the strategy of ensuring career success by obtaining a college degree is the kind of thing that works well when most people don’t do it. Pushing more and more people into the college pipeline doesn’t ensure more and more people will be able to gain all the benefits that a degree historically provided. It just devalues the possession of a degree through inflation, leaving more and more graduates holding poor job prospects along with large student loan debt. A lot of anger over exactly this situation was visible during Occupy Wall Street. I recall at the time of those protests reading a news story about someone working in an office building overseeing an Occupy encampment who had printed out numerous job applications for basic retail and service jobs and tossed them out the window to rain down among the protesters. The not-so-subtle message was “just get a job, you unemployed losers!” And in the story, they interviewed the protesters about it. Their response was that they weren’t just random losers — they were all college-educated, had fancy degrees, and the whole reason they got those degrees was so they wouldn’t have to work those kinds of jobs — jobs they considered to be beneath their rightful station. They felt like the implicit contract they expected had been broken — they graduated high school, went to college, and got a degree, because they had been told their whole life that doing this was their ticket to the top. Yet they ended up feeling very far from secure in their prospects. (The actual details may have been slightly different, because I’m relying on my memory here, but the gist of the story was basically along those lines. But sprinkle some salt on it if you like. Memory can be a fickle thing.) Though al-Gharbi focuses mostly on the United States, “Awokenings” occurred across the world, and the methods and makeup of the “woke” were similar in different countries: largely highly educated, well-off elites. And the frustration was also about those elites (or elite aspirants) feeling insecure about their own status. This was documented by Martin Gurri in his book The Revolt of the Public (published in 2014), in the midst of the most recent Awokening.  This section of Scott Alexander’s review of that book, describing these movements in all these different countries, sounds strikingly parallel to what al-Gharbi describes: All of these movements were mostly their respective countries’ upper-middle classes; well-connected, web-savvy during an age when that meant something. Mostly young, mostly university-educated, mostly part of their countries’ most privileged ethnic groups. Not the kind of people you usually see taking to the streets or building tent cities… Gurri isn’t shy about his contempt for this. Not only were these some of the most privileged people in their respective countries, but (despite the legitimately-sucky 2008 recession), they were living during a time of unprecedented plenty. In Spain, the previous forty years had seen the fall of a military dictatorship, its replacement with a liberal democracy, and a quintupling of GDP per capita from $6000 to $32000 a year – “in 2012, four years into the crisis there were more cell phones and cars per person in Spain than in the US”. The indignado protesters in Spain had lived through the most peaceful period in Europe’s history, an almost unprecedented economic boom, and had technologies and luxuries that previous generations could barely dream of. They had cradle-to-grave free health care, university educations, and they were near the top of their society’s class pyramids. Yet they were convinced, utterly convinced, that this was the most fraudulent and oppressive government in the history of history, and constantly quoting from a manifesto called Time For Outrage! So again: There is something to elite overproduction as an idea. It is a well-founded fact that social justice activism, too, is primarily an elite activity. In my next post, we’ll look at how a well-known explanation of incentives and political coalitions might provide insight into al-Gharbi’s analysis.   As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

In the Christian Bible, there is a parable of two builders.  One built his house on stone and the other on sand: “Everyone then who hears these words of mine and acts on them will be like the wise man who built his house on rock.  The rain fell, the floods came, and the winds blew and beat on that house, but it did not fall, because it had been founded on rock.  And everyone who hears these words of mine and does not act on them will be like a foolish man who built his house on sand.  The rain fell, and the floods came, and the winds blew and beat against that house, and it fell – and great was its fall!” -(Matthew 7: 24-27, NRSV) This parable finishes the famous Sermon on the Mount, in which Jesus Christ lays out what one must do to live a good life, be a good person, and worship God.  A life built on solid principles can withstand many things: whether winds buffet, rain pours, or waters rise, the person soldiers on.  In contrast, a life built on unsolid principles collapses as soon as the bad times hit. The same is true of economic reasoning.  Econ 101 (or Econ 211 as it is called at my university), Principles of Microeconomics, is a foundational course.  One of the things I tell my students is that all their subsequent business courses build on these foundations.  If they can understand the foundations, then everything will flow from that. When I teach upper-level courses (International Trade, Money & Banking), I always reference back to Principles to reinforce appreciation of the power of principles-level economic thinking.  I frame things in terms of incentives: “Why is it that bond yields and bond prices move in opposite directions?  Don’t just tell me mathematically…what’s the incentive here?”  “Why do bonds trade at a discount when the coupon rate is below the market rate?  Don’t just tell me mathematically…what’s the incentive here”? These are questions that appear on my exams. Foundational knowledge is vital to understanding. Understanding the foundations makes economic relationships intelligible.  You may not know the precise answer (that’s where the math comes in), but often you can know when the answer you get is incorrect. Mathematics is a useful tool, but if not coupled with foundational economics, the findings are unstable—like building a house upon sand. A mathematical model may look pretty and still fall apart once the situation changes.  We see this all the time, especially with pundits like Michael Pettis and Oren Cass who toss out economic foundations and build towering edifices upon sand, only to have them collapse under scrutiny (see, for example, my post “Accounting Identities and Economic Theories” and Brian Albrecht’s post “Curing International Trade Confusion“). Even now, in a chaotic economic environment, I find that relying on the lessons learned in Econ 101 serves me well.  They help me filter out the noise so we can focus on the signal. So, my advice for anyone who wants to understand, truly understand, economics: learn your fundamentals.  Build your education on a solid foundation.  It’ll help keep your eyes clear when others try to dazzle with fancy mathematics or logical conundrums.  If they cannot link it back to economic foundations (or worse, make some appeal like “econ 101 is too simple!”), you will be able to see that you are being shown nonsense on stilts. (0 COMMENTS)

Economists are fond of talking about how people respond to incentives — and stress how social arrangements can produce suboptimal results when they give people counterproductive incentives. I recently saw a fun video on the history of how mathematicians developed the imaginary number system (hey, I think it’s fun anyway!) that shows an example of this in action. The video starts with the efforts of mathematicians to find a general solution to cubic equations. A cubic equation is one step up from a quadratic. Today, we write quadratics as ax² + bx + c = 0. A cubic would take the form ax³ + bx² +cx + d = 0. While the solution to quadratics had been independently discovered by different civilizations thousands of years prior, a general solution to cubic equations seemed impenetrable. This led Luca Pacioli, the mathematics instructor to Leonardo da Vinci, to declare the problem unsolvable. The story turns to the mathematician Scipione del Ferro, who taught mathematics in Italy during the Renaissance. In that time and place, university positions were handled very differently. Far from having the protection of tenure, a math professor could be challenged at any time for his position by another mathematician. Each would present the other with a series of math challenges to be completed — and whoever got the most correct answers would take the professorship, while the loser would be considered publicly disgraced. While this sounds like it would have created a highly meritocratic culture where only the best would be on top, it also created some unfortunate incentives. Around 1510, del Ferro made a new breakthrough, finding a general solution to what are called depressed cubics. A depressed cubic is a cubic with no x² term, and would be written out as ax³ + bx + c = 0. As the video goes on to describe: So what does he do after solving a problem that has stumped mathematicians for millennia? One considered impossible by Leonardo da Vinci’s math teacher? He tells no one. Why would he keep this breakthrough advancement in mathematics hidden away? Because of the incentives created by the aforementioned system: As far as del Farro knows, no one else in the world can solve the depressed cubic. So by keeping his solution secret, he guarantees his own job security. The system in place during del Farro’s time may have aimed at ensuring the most intelligent and capable scholars held positions at universities. To be clear, that’s not a bad goal in itself, obviously. In fact, at first glance it seems like an obviously good way to ensure each posting was held by the best possible scholar. But this would just be another case of what I’ve called Grey’s Law: solutions that are the first thing you’d think of, seem sensible, and are easy to put into practice often turn out to be terrible, ineffective ideas that once implemented will serve as a drag on civilization. To the extent that this system encouraged scholars to keep advancements and breakthroughs hidden away, it fell victim to Grey’s Law. It made it in the interests of individual professors to prevent new knowledge and discoveries from being better known, and to the extent that new breakthroughs are built on older discoveries, it had the potential to seriously slow down the advancement of knowledge. Even in situations we don’t think of as being part of “economics” like the system used to hire mathematics professors, the fundamental idea of economics – people respond to incentive, and we need to evaluate systems by the incentives they create — remains true. (0 COMMENTS)

The debate over Robert Triffin’s famous “dilemma” continues to animate policymakers and commentators. Stephen Miran, a leading economic advisor to Mr. Trump, in a November article revived the theme by arguing that the inelastic global demand for dollar-denominated assets imposes structural costs on the U.S. economy. Joseph Sternberg, in a recent column, by contrast, dismisses Triffin as a defunct economist whose predictions never materialized. Yet both approaches overlook the crucial fiscal dimension. The real problem is not that the world uses the dollar as a reserve currency; if nothing else, it is a blessing, an “exorbitant privilege,” as it is called. The problem is that the United States consistently couples this privilege with persistent fiscal deficits. Once the fiscal factor is brought in, the so-called Triffin dilemma looks less like a natural inevitability and more like a policy choice. Triffin originally argued that the Bretton Woods gold–dollar system was doomed. To supply the world with liquidity, the United States had to run external deficits, which would ultimately undermine confidence in dollar convertibility into gold. His reasoning was based on the assumption that the U.S. could never abandon gold convertibility. Yet Nixon’s decision in 1971 did exactly that, revealing the “dilemma” to be contingent, not inexorable. Triffin lacked the imagination—or perhaps the political realism—to foresee that the U.S. might decouple the dollar from gold and continue issuing liabilities without constraint. Sternberg seizes on this point to discredit Triffin wholesale. But this is too harsh. The deeper insight—that reserve currency status interacts with domestic policy in ways that can create global imbalances—remains valid. What Triffin missed was the political willingness to jettison gold, and what Sternberg misses is the way fiscal policy drives the pathologies associated with the dollar system. Miran argues that persistent foreign demand for safe dollar assets leads to chronic dollar overvaluation, weakening U.S. manufacturing and hollowing out industrial communities. He interprets the trade deficit as the mechanism through which the U.S. “exports” Treasury securities to supply the world with reserves. From this perspective, American deficits are not a vice but a structural necessity—a paradox that leads inexorably to twin deficits and eventual financial strain. Yet Miran’s framework treats the fiscal stance of the U.S. government as an afterthought. He emphasizes the demand side (foreigners want dollars) while neglecting the supply side (the U.S. issues them through public deficits). Contrary to those views, I would like to point out that there is no inherent need for perverse outcomes if the U.S. refrains from chronic fiscal deficits. Absent government dissaving, foreign demand for dollar assets would not automatically translate into unproductive flows into Treasury bonds. Instead, it would take two healthier forms: 1. Private Capital Allocation. Foreigners seeking dollar-denominated assets would need to invest in American private enterprises. This would direct global savings toward productive investment—expanding capacity, innovation, and ultimately generating returns sufficient to repay creditors. 2. Cash Balances via Asset Exchanges. Alternatively, foreigners could accumulate dollars by selling assets to Americans, as occurred during the interwar gold exchange standard and in the early Bretton Woods period. In such cases, capital inflows did not require U.S. fiscal deficits but arose from cross-border asset reallocations. These mechanisms disprove Miran’s claim that the Triffin dynamics necessarily trap the U.S. in permanent deficits. The pathology arises only when Washington runs structural fiscal imbalances, turning foreign demand for safe assets into a subsidy for public consumption rather than productive investment. Sternberg is correct that Triffin’s original forecasts failed: the world did not collapse into deflation, and the dollar survived the end of Bretton Woods. But his dismissal overlooks the fiscal innovation that made this possible. The U.S. effectively replaced the gold anchor with its own deficit-financed debt as the backbone of the system. This worked, but only by turning the American public sector into the main consumer of the world’s savings—a development Triffin never envisioned. The true “dilemma” is not an iron law of reserve currencies but a consequence of U.S. fiscal profligacy. If the United States balances its budget, global demand for dollar assets can be satisfied through private-sector channels that foster productive growth. It is only when the public sector runs persistent deficits that reserve demand translates into overconsumption and debt accumulation. Thus, the way forward is not to lament Triffin’s logic or resign to Miran’s determinism, but to recognize the conditional nature of the problem. The U.S. dollar can remain the world’s reserve currency without imposing perverse outcomes—if, and only if, American fiscal policy avoids exporting its deficits to the world.   Leonidas Zelmanovitz, a Senior Fellow with the Liberty Fund, holds a law degree from the Universidade Federal do Rio Grande do Sul in Brazil and an economics doctorate from the Universidad Rey Juan Carlos in Spain. (0 COMMENTS)

John Locke’s idea that tyranny is arbitrary power as opposed to the rule of law seems to underlie the whole classical liberal tradition (see Locke’s Second Treatise of Government [1690, Chapter 18]). Arbitrary power allows the state or any other central political authority to discriminate among its subjects by bribing its supporters and harming its opponents. In reality, public discrimination (in the sense of state discrimination) is probably a synonym of arbitrary power. The gradual discovery of the rule of law has come with the idea that the state should not discriminate among its citizens, residents, and often even foreigners. If, in your country, you kill a foreigner with no justification, your own liberal government will come after you. John Hicks, the 1972 laureate of the Nobel prize in economics, recalled a high form of this ideal in the 19th century (“The Pursuit of Economic Freedom,” in E.F. Jacob, Ed., What We Defend: Essays in Freedom by Members of the University of Manchester [Oxford: Oxford University Press, 1942]: The Manchester Liberals believed in Free Trade not only on the ground of Fairness among Englishmen, but also on the ground of Fairness between Englishmen and foreigners. The State, so they held, ought not to discriminate among its own citizens; also it ought not to discriminate between its own citizens and others. Contemporary classical liberalism is solidly anchored in that tradition. Friedrich Hayek defended the rule of law as a set of abstract and typically negative rules applying equally to all individuals (see the first volume of his Law, Legislation, and Liberty, which I reviewed at EconLib). James Buchanan’s concept of “generality” represents the same ideal with different conceptual foundations. Buchanan’s theory defines a social contract with unanimously accepted rules that also bind the state (see his The Limits of Liberty: Between Anarchy and Leviathan, which I reviewed at EconLib). He proposed constitutional amendments that would forbid government to discriminate through its expenditures (no cronies!), to incur budget deficits (in normal times), and to regulate free trade, internal and external (see his “Three Amendments: Responsibility, Generality, and Natural Liberty,” Cato Unbound, December 4, 2005). A simple example of the generality or no-government-discrimination principle can be seen in how to determine the age of majority. If one looks at particular cases, it seems obvious that some individuals reach maturity and personal responsibility at different ages. But granting a government the power to decide individual cases would entail an unacceptable discrimination between individuals granted full individual liberty and those forced to remain in adolescence (and until when?). The only non-discriminatory solution has been (with some undefendable exceptions, such as drinking or buying tobacco) to determine a general rule, such as 21 or 18. Everybody—black or white, man or woman, rich and poor, etc.—is assumed to enjoy full liberty at the same age (or the same truncated liberty if full liberty does not exist). Banning public discrimination is even more important given the power that contemporary states have acquired—even after the Civil War had stopped the power of governments to discriminate against the Blacks and to support slave owners in protecting their “property.” The state now seems capable of destroying any individual or group that the rulers hate. Even influential corporate executives grovel before the main ruler to avoid his wrath. We may even witness the state taking pride in its power to discriminate (sometimes under the excuse of non-discrimination), and even using the military to impose its decrees against some citizens. Economist and political philosopher Anthony de Jasay refers to the discriminatory state as the “adversary state” “taking sides” with some citizens against others (read his classic 1985 book The State, which I also reviewed at EconLib). The phenomenon has become so widespread that most people don’t even notice it. Just to take an example, why do governments want to reduce the price of housing (relative to other prices)? It takes sides against current homeowners, who typically have an important part of their savings in their houses. De Jasay also believed that the state is by nature discriminatory and that constitutions cannot change this—which puts him at odds with mainstream liberals such as Hayek and Buchanan. The objection that government discrimination is unavoidable by invoking bans on murder, theft, and other real crimes is a non sequitur. There is a virtual unanimity among citizens for banning these crimes. Even murderers don’t want to be murdered. Victimless crimes are another matter as well as the government harming Paul to help Pierre. Most drug consumers and dealers are adult citizens too! The example of Harvard University, which has been threatened by the current administration essentially for the ideas defended there, is telling. For Buchanan and Hayek, government subsidies to Harvard are legitimate if they are also available to other universities; at any rate, they can’t be used to blackmail private institutions into accepting diktats from politicians. I suspect that de Jasay, who alas left our valley of tears in 2019, would use this case to repeat his argument that generality is impossible because the criterion to define the group of entities to be treated equally (universities? plus educational institutions? plus think tanks?) is itself arbitrary (see his book Justice and Its Surroundings, which I reviewed in Regulation). (My apologies for quoting again a book review of mine; sometimes, I get the false and dangerous impression that I have reviewed all the important books of the past 100 years.) What is sure is that there is no classical liberal argument for supporting the naked discriminatory state. This reflection also suggests that three alternatives exist for the future of human societies: tyranny (of the left or the right, democratic or not), generality (standard classical liberalism), and anarchy (liberty without the state, if that can work).   As an Amazon Associate, Econlib earns from qualifying purchases. ****************************** Referee taking sides with the Black team       (1 COMMENTS)