Humans work in groups all the time.  Indeed, I argue we are stronger because of it.  Specialization and trade allows for a team to achieve things no individual could accomplish on their own.  Economists since Adam Smith have highlighted the group efforts needed to produce even simple things such as wool coats, pencils, and bread.  Indeed, liberals have long celebrated the ability for people to cooperate without explicit coordination! However, these collectives sometimes get blended together.  What is good for one group is often asserted to be good for another.  Or that there is some overarching group, and all other groups are subsumed into that group.  Again, what is good for that overarching group is asserted to be good for all its parts.  We see this particularly in international trade, and with protectionism in particular.  Protectionism is rife with this fallacy of composition- in particular, the national defense justification for tariffs.   I have written a lot on the national defense justification for tariff. This 2018 piece from me here at Econlog remains one of my favorites.  I am working on a book with Don Boudreaux on international trade where we expand upon national defense justifications.  The essential idea is there is some good necessary for national defense, procuring it from a foreign source has a high risk of disruption, and therefore tariffs are required to attempt to develop the industry domestically. Theory often departs from reality, however, and there is mounting evidence that national defense tariffs actually weaken national defense capabilities (for example, see Colin Grabow and Inu Manak’s The Case Against the Jones Act or Mancur Olson’s The Economics of the Wartime Shortage).   But the argument for tariffs on military goods, at least how it is currently deployed, rests on a confusion about collectives.  Let us suppose that national defense tariffs are: Necessary,  Easily targeted Not prone to rent-seeking, political manipulation, or other forms of corruption In short, let us assume national defense tariffs work perfectly as intended.  It does not logically follow, however, that those national defense tariffs would be the best, or even a good, way to achieve their intended goals.  Tariffs, recall, apply to all users of a particular input, not just one.  Firms that use, say, microchips for their products must also pay higher prices for their inputs.   Justification for national defense tariffs is presented as “we” want a domestic source of the good.  But that is not the case.  The government wants it.  But most of us do not.  Why force others to pay a higher price when only one group needs it?  The government can buy from domestic suppliers.  There is no need to force everyone else to as well. In other words, we need to think of “The United States of America” not as a single collective entity represented entirely by the wishes and desires of the Federal Government, but rather as a collection of various groups, each with their own individual wishes and desires, and their own agency.  The Federal Government is not the representative of Americans.  It is a unique corporation with a specific purpose.  It may conduct its business as it sees fit.  But what is desirable for the government is not necessarily desirable for the people living under the government (and vice versa).   Collectivist ideologies have many problems.  One of the biggest is they ignore the complexities of society by subsuming everything under a broad umbrella and is coterminous with the government.  This, in turn, leads to many disastrous policy mistakes, such as protectionism.     Jon Murphy is an assistant professor of economics at Nicholls State University. (0 COMMENTS)

Jimmy Carter’s term as U. S. President (1977–1981) included major deregulation with airlines, motor carriers, and railroads. Other advances were scored in communications, tax policy, and regulatory budgeting. But the “great deregulator” had a very different approach with energy, which (along with inflation) defined his economic infamy. Carter began wellhead deregulation of petroleum and natural gas—but with a Windfall Profit Tax for crude oil and intrastate regulation for gas. Carter’s basic mindset was oriented toward the federal planning of supply and demand, outlined in the National Energy Plan of 1977. The visible hand of government, not the invisible hand of markets, was to be controlling. What Was the Problem? The energy crisis in Carter’s time was blamed on the irreversible, worsening depletion of oil and gas. Physical fixity meant an increasing cost of extraction, hence the problems of supply and price. The “economics of exhaustible resources” was mainstream fare in the textbooks and journals, spawning a new subdiscipline, energy economics. The engineering mind of the 39th President was determined to overcome a perceived limit to growth. Oil shortages in 1972–74, and natural gas curtailments in the winters of 1971/72 and 1976/77, had set the stage. To Carter, and his energy czar James Schlesinger, [1] crude oil and natural gas had to be replaced by super-abundant coal, synthetic oil and gas from coal (synfuels), and supplemented by renewable energies. (Nuclear, never embraced, was completely off the table with the Three Mile Island incident in March 1979.)  On the demand side, less energy had to be consumed in transportation, industry, and power generation, not to mention in homes and businesses. Major new legislation—interpreted in many thousands of Federal Register pages—empowered the newborn U.S. Department of Energy (1977). The new laws (in 1978) were the National Energy Conservation Policy Act; Power Plant and Industrial Fuel Use Act; Public Utilities Regulatory Policy Act; Energy Tax Act; and Natural Gas Policy Act.  And in 1980: the U.S. Synthetic Fuels Corporation Act; Biomass Energy and Alcohol Fuels Act; Renewable Energy Resources Act; Solar Energy and Energy Conservation Act; Solar Energy and Energy Conservation Bank Act; Geothermal Energy Act; and Ocean Thermal Energy Conversion Act.  Planning, More Planning The National Energy Plan of 1977 stated, “neither Government policy nor market incentives can improve on nature.” [2] While recognizing the perverse effects of price ceilings on supply and demand, Carter blamed foreign political control by OPEC for his activism (“there was no free market or effective competitive forces relating to world oil supplies and price,” he stated in his memoirs). [3] These false rationales resulted in a regulatory experience that was frustrating, wasteful, even bizarre. A new term, gapism, described the multitude of government programs passed to synthetically increase supply and reduce demand, given “disequilibrium” under price controls. “One can only conjecture that many gapologists do not really appreciate the fact that at higher prices consumers really do buy less and producers offer more,” observed Edward J. Mitchell, “or that they believe these tendencies are so weak that only astronomical prices will eliminate gaps.” [4] The Economists Error Experts, academics, and planners were all-in with the fixity-depletion premise of Carter energy policy. Forgotten or ignored was Scarcity and Growth: The Economics of Resource Availability (1963), which challenged depletionism and credited “man’s ingenuity and wisdom” with “increasing, not diminishing, returns.” [5] “There has been a certain tendency to regard technological advance as a chancy phenomenon, a bit of luck that is sure to run out sooner or later (with the ever-present implication that it will be sooner),” explained Harold J. Barnett and Chandler Morse. [6] But data suggested otherwise. “Every cost-reducing innovation opens up possibilities of application in so many new directions that the stock of knowledge, far from being depleted by new developments, may even expand geometrically.” [7] It would take a contrarian, Julian Simon, to resurrect Barnett-Morse’s “great 1963 book” in the Carter era. [8] And in the 1980s, with energy prices decontrolled, the resource optimists would win the debate. Energy economics was just economics, after all. And less dismal. Conclusion Jimmy Carter was apparently well-intentioned in choosing the bureaucratic means to provide reliable and affordable energy for Americans. But he could have ended the energy crisis quickly and simply with an opposite public policy.  Carter was under the sway of false theories about what human ingenuity could accomplish in a free market, with or without major negative foreign policy events. Those false ideas had resounding negative consequences. The energy lessons of the 1970s should not be forgotten.     [1]  “Schlesinger’s views on national economic policy were closer to French indicative planning than to the invisible hand ….” James L. Cochrane, “Carter Energy Policy and the Ninety-fifth Congress.” In Energy Policy in Perspective, Craufurd D. Goodwin, ed. (Washington, DC: The Brookings Institution, 1981), p. 553. [2] Executive Office of the President, Energy Policy and Planning Office, The National Energy Plan (Washington, DC: GPO, 1977), p. xiii. [3]  Jimmy Carter, Keeping Faith: Memoirs of a President (New York: Bantam Books, 1982), p. 94. In a 1977 address to the nation, Carter used the memorable phrase “the moral equivalent of war” to describe America’s challenge against OPEC and oil imports in general. [4] Edward J. Mitchell, U.S. Energy Policy: A Primer (Washington, DC: American Enterprise Institute, 1974), pp. 20–21. [5] Harold J. Barnett and Chandler Morse, Scarcity and Growth: The Economics of Natural Resource Availability (Baltimore, MD: Johns Hopkins Press, for Resources for the Future, 1963), pp. 3, 8. [6] Barnett and Morse, Scarcity and Growth, p. 235. [7] Barnett and Morse, Scarcity and Growth, p. 236.   Robert L. Bradley is the founder and CEO of the Institute for Energy Research. (0 COMMENTS)

One would think that businessmen should easily understand the importance of trade. Some certainly do who are trying to lobby President-elect Donald Trump not to follow through on his protectionist threats (“CEOs Want Trump to Change Course on Tariffs. He Isn’t Budging,” Wall Street Journal, December 15, 2024). They seem to be defending their freedom to trade, to buy and to sell goods (and services) as they want. I take “businessman” to mean roughly what “supplier” means in economics: anybody whose main occupation is to make some good or service available to its market demanders (consumers or other businesses). They include owners of business enterprises, corporate executives, and intermediaries like merchants or traders. Laborers are suppliers, but only of the services of human capital on labor markets, and would not generally be included among businessmen. (It goes without saying that the “men” in “businessmen” includes the two sexes of mankind.) According to Nobel economist John Hicks, the rise of the merchant or trader as a specialized middleman, buying goods only to resell them, marks the first stage in the rise of the market economy. Merchants governed city-states and largely autonomous medieval cities. These cities were not only wealthier than the rest of the country but also far freer. A legal maxim circulating in Europe was that “the city air makes you free.” A serf could be liberated from his landlord if he could “make it to a city and reside there for a year and a day” (see Alexander William Salter and Andrew T. Young, The Medieval Constitution of Liberty, which I recently reviewed in Regulation). Merchants understood that for them to be (relatively) free to trade, a general institutional climate of freedom was necessary. Many analysts, however, have noted that businessmen, especially perhaps corporate executives, have become bad defenders of trade and markets. Samuel Brittan, the late Financial Times columnist, wrote in his 1973 book Capitalism and the Permissive Society: A further difficulty is that the type of intellectual professionally qualified to explain the case for capitalism is the economist. Businessmen can usually be relied upon to defend the indefensible aspects of their activities while giving in to their collectivist opponents on all essentials. Nor is it a criticism: businessmen are paid to operate the system rather than to understand or expound it, and nothing is more pathetic than to see politicians of either party coming cap in hand to industrialists or bankers for advice that the latter are not qualified to give. A contrarian may note that Brittan’s expression “running the system” belittles the liberal idea of an autoregulated order that doesn’t need to be “run” and naturally resists authority from above. This slip of the tongue is of course nothing compared to the collectivist preaching of naïve business associations, of which the World Economic Forum is a paragon. Juan Perón, a former army officer, ruled the Argentine government as a left-wing populist politician from 1946 to 1955 and 1973 to 1974. His economic knowledge was inexistent, a phenomenon not rare among politicians, especially populist ones. He seemed to believe that businessmen who had become rich understood economics ipso facto. Economist Roberto Cortés Conde notes (The Political Economy of Argentina in the Twentieth Century [Cambridge University Press, 2009]): Perón did not have a very well developed or sophisticated economic ideas [sic]. During both of his administrations he put the treasury in the hands of men who knew how to get rich, demonstrating his exaggeratedly simplistic view of economic phenomena. Merchants, the ancestors of all businessmen, were pushers of trade, if we may use the expression. Today’s businessmen often seem to be the clients and courtiers of those in power. How is it that businessmen have become so estranged from economics and laissez-faire? One reason might be that the economy has become more complex and difficult to understand. Another hypothesis—formalized by public choice theory—is that when the state has reached a certain size or a certain level of what it has become fashionable to call “state capacity,” the name of the game becomes rent-seeking. The opportunity to put their hands in the public treasury through government contracts and subsidies grows more valuable. To obtain privileges from the good graces of the rulers, they have to align with, and obey, the state. When the rule of law fades before the government of men, businessmen come to fear that these men can ruin their businesses. To survive, they must kiss the ring of the state. As the Wall Street Journal puts it after observing how CEOs of large tech companies felt obliged to contribute to the inauguration of the new US president, it was “The Week CEOs Bent the Knee to Trump.” Yet, isn’t it still better to allow businessmen to bribe politicians or bureaucrats, directly or indirectly, legally or illegally, as opposed to silencing their customers’ demand intensity? Perhaps, but the cost of this crony capitalism is high. Pareto-enhancing corruption encourages politicians and bureaucrats to finance their activities through this sort of extorsion. It amounts to a tax that will carry a deadweight loss like any other tax. It also undermines the rule of law and the ethics of reciprocity on which a free and prosperous society rests. As James Buchanan suggests, the corruption of public morality can lead to the debasement of private morality (see Buchanan’s Why I, Too, Am Not a Conservative), which will further weaken the social institutions on which efficient cooperation depends. The degradation of public and private morality and the transformation of the businessman from a pusher of consumer satisfaction to a client and courtier of the state is illustrated by the automobile manufacturers threatened with arbitrary and disruptive tariffs on their imports from Mexico and Canada. They are vying to wheedle the politician who has the power to interfere with their trading (“Hyundai Goes All In on Effort to Woo Trump as Tariffs Loom,” Wall Street Journal, January 11, 2025): Hyundai in particular has launched an aggressive campaign to build relationships with Trump advisers. The company has told the president-elect’s aides that it is working to be a U.S. job creator and a supporter of the American auto industry. Hyundai executives, including Muñoz and Hyundai Motor Group Vice Chair Jaehoon Chang, may attend inauguration events, the people said. A $1 million donation provides six tickets to a private candlelight dinner with Trump and his wife Melania Trump on Jan. 19, one day before Trump is sworn in as president, according to a benefits package reviewed by The Wall Street Journal. The contribution also allows for six tickets to a private reception on Jan. 18. with Trump’s cabinet picks, as well as other exclusive events. Hyundai, of course, is only one example among many of the perverse incentives created by bully politics. ****************************** A caravan on the Silk Road around 200 A.D. according to DALL-E (0 COMMENTS)

[ANNUAL LISTENER SURVEY: https://www.surveymonkey.com/r/KYV5XPG. Vote for your 2024 favorites!] Can Musk use DOGE to reduce the size and power of the bureaucracy and big government? Michael Munger of Duke University thinks not, but EconTalk’s Russ Roberts isn’t so sure. Listen as they discuss the risks of empowering bureaucrats to rein in other bureaucrats and whether change can really […] The post Will DOGE and Musk Make a Difference? (with Michael Munger) appeared first on Econlib.

There is often a conflict between policies that make things feel good in the short run and those that are optimal in the long run. This is one reason why I am fairly pessimistic about global warming—the world’s political systems are not well suited to addressing this issue.Perhaps the most famous example in the field of economics is the public debt. Decisions to reduce the public debt (higher taxes and/or lower spending) are exceedingly unpopular in the short run, and only pay off in the distant future. Thus I expect our fiscal situation to get worse over time. Indeed it’s amazing that it did not become unsustainable until the mid-2010s.Bank regulation is another area where this problem occurs. The best regulatory structure is probably no regulation at all. Unfortunately, the creation of deposit insurance and too-big-to-fail has made that option infeasible. Without regulation, banks would have the incentive to take wildly excessive risks with the taxpayer’s money.  One option would be to eliminate both deposit insurance and bank regulation.The second best policy is higher capital requirements. But these are often so complex that clever banks can occasionally find ways to evade the intent of the rules.And then there’s “greater supervision”. This is roughly the equivalent of a politician telling voters they plan to reduce the budget deficit by addressing “waste, fraud and abuse.”A recent article in Bloomberg caught my eye: President-elect Donald Trump’s advisers are considering how they will reshape the leadership of the Federal Reserve including elevating Fed Governor Michelle Bowman to be the central bank’s next vice chair for supervision, according to people familiar with the matter. . . . She has spoken widely about bank regulation, often to community banking audiences. She strongly opposed Barr’s bank-capital proposal, part of an international agreement known as Basel III that is intended to prevent future bank failures and another financial crisis, arguing that increased capital requirements would likely curb lending activity at a time when the banking sector was healthy. Instead, she has said banks need better supervision. Why not someone like Christopher Waller? Fed Governor Christopher Waller, who has previously been considered a possibility for chair, may no longer be under serious consideration after he backed a half-point interest-rate cut in September, the people familiar said. Trump called the larger-than-usual Fed cut, just weeks before the presidential election, “a political move to try and keep somebody in office.” Even in the best of circumstances, it is unlikely that better supervision would adequately address problems in the banking system.  But after the recent reversal of the Chevron decision, it’s even less likely that bank regulation will be effective.  Here’s Amy Howe: In a major ruling, the Supreme Court on Friday cut back sharply on the power of federal agencies to interpret the laws they administer and ruled that courts should rely on their own interpretation of ambiguous laws. The decision will likely have far-reaching effects across the country, from environmental regulation to healthcare costs. Bank regulation is based on some of the most ambiguous laws on the books. (0 COMMENTS)

  Age-Verification Laws are a Verified Mistake by Corbin K. Barthold, Law & Liberty, January 9, 2025. Excerpt: Now legislators, both state and federal, are going the other way. They’re introducing, supporting, and (only, so far, at the state level) enacting bills that impose age-verification requirements on social media platforms and adult websites. Current online age-verification techniques erode digital privacy: they create vectors for learning users’ identities and snooping on their browsing habits. Online age-verification laws increase the chances that, one day, we’ll have a Bork tapes-style scandal for real. The point of online age verification is to protect children. But online age verification works only if everyone does it. On the Internet, nobody knows you’re an adult until you prove it (to the extent possible; all online age-verification systems can be gamed). To establish your age, you must tender some kind of personal data, thereby placing it at risk of exposure. Online age-verification laws thus burden the First Amendment rights of adults, by hampering their ability to post and view material on the Internet in anonymity. (They often burden the First Amendment rights of children, too, for example by excluding all minors from online spaces high schoolers are old enough to enter.) The courts have issued a string of preliminary injunctions blocking such laws from taking effect.   The Greatest Heist You’ve Never Heard Of New York Times, January 7, 2014. A tribute to some gutsy people, in particular a married couple with 3 children. If they had been caught, they might never have seen their children for more than an hour at a time until their children were teens or even adults. In this video, you’ll learn about COINTELPRO.   A Failed State by Liz Wolfe, Reason, January 9, 2025. Excerpt: Back in 2017 and 2018, when wildfires raged throughout the state, a lot of insurers drastically scaled back their coverage. Those wildfires had cost them $23 billion in total, about twice as much as the companies had collected in premiums over that same time period, and many of the companies decided some of these places were simply too costly to insure. Premiums, after all, are not arbitrary; they reflect risk. Teams of actuaries spend a lot of time trying to understand what prices to offer homeowners in any given area. Unfortunately, in California, the insurance commissioner—an elected official, Ricardo Lara—must approve premium increases. Lara generally won’t approve high premium increases, which leads to the predictable outcome of insurers pulling out. Something Lara is also seeking to, uh, “fix” via government coercion. “For the first time in history we are requiring insurance companies to expand where people need help the most,” he announced last month. “Major insurance companies must increase the writing of comprehensive policies in wildfire distressed areas equivalent to no less than 85% of their statewide market share,” he continued. Yes, you understand this correctly: He thinks bullying private insurers into covering costly wildfire-prone areas (as opposed to allowing them to accurately price risk) will result in more coverage for homeowners. Look forward to, when it gets costly enough, State Farm and the like totally pulling out of the whole state. Lara, contra his own hubris, can’t force the financials to work. (Somehow, many progressives cannot comprehend this cycle of cause and effect.) For more on price controls, see Hugh Rockoff, “Price Controls,” in David R. Henderson, ed., The Concise Encyclopedia of Economics.   Biden’s ‘security’ concern about TikTok and U.S. Steel is doubly specious by George F. Will, Washington Post, January 8, 2025. Excerpt: Nippon has promised to pay $5 billion more than the company’s market capitalization. And to keep U.S. Steel’s headquarters in Pittsburgh. And to give $5,000 bonuses to the company’s steelworkers. And to abide by all union contracts. And to let the U.S. government reject any reductions in U.S. Steel’s production capacity. And to spend $2.7 billion modernizing what Biden delusionally calls “this vital American company,” which has withered by becoming dependent on U.S. government tariffs, subsidies and “Buy American” rules.   The Laken Riley Act is Unjust – and a Trojan Horse by Ilya Somin, Reason, January 8, 2025. Excerpt: Yesterday, the House of Representatives passed the Laken Riley Act (LRA), in a 264-159 vote. This legislation – named after a student killed by an undocumented immigrant – is often sold by proponents as a tool for combatting murderers and sex offenders. In reality, it focuses on detaining undocumented immigrants charged with theft-related crimes, including minor ones. It also includes a Trojan horse provision making it easier for states to challenge a variety of programs that make legal migration easier. These policies are unjust, and likely to impede genuine crime-fighting efforts more than they help them. The main provision of the Laken Riley Act requires mandatory federal detention of any undocumented immigrant who “is charged with, is arrested for, is convicted of, admits having committed, or admits committing acts which constitute the essential elements of any burglary, theft, larceny, or shoplifting offense.” Notice that the provision is triggered by a mere arrest or charge, and does not require any proof of guilt beyond that. Moreover, even the most minor forms of theft, burglary, or shoplifting qualify. If a migrant is arrested on suspicion of stealing a dime or a paperclip from a store, that’s enough to trigger mandatory detention. Ditto if he or she is charged with even the most minor theft-related offense. Two comments: First, it’s too bad that Ilya has fallen into the trap of referring to an illegal alien as “undocumented.” “Undocumented” is the current euphemism for “illegal.” Euphemisms that distort should be avoided. I wouldn’t be surprised if many illegal aliens had documents such as birth certificates. They simply don’t have the document required by law. Second, I remember reading someone, a Congressman or a pundit, saying that it’s usually a bad idea to vote for a piece of legislation named after someone. This is a case in point.   We Could Use a Man Like Grover Cleveland Again by Matthew Rozsa, Reason, January 10, 2025. Excerpt: Even if Trump utterly fails in these geopolitical gambits, the fact that he is trying in the first place shows his hand. In his second term, Trump plans on using his executive powers to expand America’s global empire. By contrast, Cleveland spent his second term trying to roll back America’s then-nascent imperialist ambitions—and did so without flinching when genuine strength in our foreign policy was needed. The standout story from Cleveland’s presidency involves Hawaii. When he returned to office in 1893, Cleveland was greeted with a treaty that had been presented to the Senate for the annexation of Hawaii. Newspapers across the land waxed poetic about how the American flag would soon wave in the Hawaiian breeze, but few journalists questioned the official story about how this land had come into our possession. They were told the Hawaiian natives had willingly betrayed their own monarch, Queen Liliuokalani, by replacing her rule with that of white foreigners (mostly Americans). Cleveland suspected there was more to it. He knew that sugar plantation owners and other wealthy business interests were suspicious of Liliuokalani, who wanted to reduce foreign influence in her country. Once those Americans learned she was planning concrete policies toward achieving this goal, American jurist Sanford Dole and U.S. Minister to Hawaii John Stevens led a conspiracy to dethrone her. By the time Cleveland took office, they had succeeded in doing so (with the unwitting aid of American locals who believed they had support from Washington) and were only awaiting the Senate’s ratification of an annexation treaty to consummate their plot.   Note: The related pic is of J. Edgar Hoover of the FBI. (0 COMMENTS)

The eight Ivy League endowments averaged 8.3% return in fiscal year 2023-24 (July 1, 2023, to June 30, 2024). Comparable schools like Stanford and MIT returned 8.4% and 8.9% respectively.  In sharp contrast, the S&P 500 gained 23.5% for the same period, almost triple the Ivies. To make matters worse, universities allocate tens of millions of dollars from their general revenues to their fund managers.  Take Stanford, for example.  Its financial assets are managed by the Stanford Management Company.  For the current 2024/25 fiscal year, the Provost allocated $56.7 million to SMC.  Over the years these allocations have amounted to hundreds of millions.  Its head earns over $5 million a year.  The staff numbers 59 persons, hired to meet the University’s Diversity, Equity, and Inclusion requirements.  Its investments must also satisfy the University’s environmental concerns. What about long-term comparisons for average annual returns?   Time            SMC        S&P 500 5 years        9.9%         11.3% 10 years     8.6%         15.2% 20 years     9.3%         10.5%   Why the difference?  SMC invests in private equity, real estate, and bonds, with a much smaller share in publicly listed equities.  It must also take DEI and Environmental concerns into account.  Like generals fighting the previous war, fund managers invest on the old model. Boards of Trustees have oversight on their endowment managers, usually delegated to Committees on Finance and Investment.  Over a third of Stanford Trustees are in the money management business.  One would think that changes ought to be made among endowment fund managers when their budgets of tens of millions of dollars result in returns that pale in performance against the S&P 500 .  After all, every university claims that it has to be responsible stewards of their donors gifts. Blunting any change is the reality that serving as a Trustee of one of the great universities in the world conveys enormous prestige in the philanthropic world.  What most Trustees want is their name on a building, on one or more endowed professorships, and on research centers and institutes.  At Stanford, for example, a third of all professorships are named (endowed) and most buildings on campus are named.  Barring a financial shock like the 2008-09 Great Recession or a major scandal, Trustees generally leave the management of their universities to their Presidents, Provosts, Deans, and faculties.  The Ivies, Stanford, and MIT are blessed with fabulously wealthy alumni who are likely to donate fresh money every year.  (0 COMMENTS)

Earlier today, I heard a CNBC commentator discussing today’s decline in stock prices. He said something to the effect, “It’s all about the Fed.” In fact, it’s rare that there is a day when it was so little about the Fed. Yes, higher interest rates played a role in lower stock prices, but these interest rate movements had nothing to do with the Fed.There was no Fed meeting today, nor were there any important speeches. Instead, interest rates shot up after a strong jobs report.  You can think of rates being influenced by several factors.  The Fisher effect and the income effects impact the equilibrium rate of interest.  In addition, the Fed has some ability to move short-term rates above or below the equilibrium rate of interest.  Today’s jobs report probably led to slightly higher expected growth in nominal GDP (both higher inflation and higher real growth.)  That’s why interest rates rose—it had nothing to do with the Fed, at least in the way that most people think about Fed policy.  (One can argue that the strong growth partly reflects previous Fed stimulus, but of course that’s not what the reporter meant.) Some people say interest rates rose in expectation of future Fed rate increases.  That’s putting the cart before the horse.  Expectations of the future fed funds rate rose because market interest rates rose today.  The Fed mostly follows the market. Today’s jobs report also revised several previous reports.  The peak unemployment rate in 2024 was revised down from 4.3% to 4.2%, making a “mini-recession” less likely.  (I define a mini-recession as an increase in the unemployment rate of at least one percentage point.)  The cyclical low in unemployment was 3.4%, so it would have to reach 4.4% to rise by enough for me to consider it a mini–recession.  Last summer when the unemployment rate was reported as hitting 4.3%, I thought that outcome was very likely to occur; now I’m much less sure.  At the same time, I’m increasingly less confident that the Fed has inflation under control.  These two issues are related, as the Fed is trying to walk a fine line between too little NGDP (with a risk of recession) and too much NGDP (leading to high inflation.) To summarize, the soft landing hypothesis is still quite plausible, but not certain.  If inflation falls below 2.5% in 2025 and unemployment stays low, then I would view it as a soft landing—three years with very low unemployment and low inflation.  It would be the first soft landing in US history.  A trade war would make a soft landing more difficult to achieve.  As always, an NGDP growth rate of 4% makes a good outcome more likely.  My hunch is that we won’t land at all in 2025–inflation will stay elevated due to high NGDP growth.  I hope I’m wrong. (0 COMMENTS)

In Bryan Caplan’s book The Myth of the Rational Voter: Why Democracies Choose Bad Policies, he outlines four biases impacting how most voters think about economics. One of the biases he identifies is anti-foreign bias – the tendency of voters to become especially pessimistic about the economic impact of dealing with foreigners. A recent book by Diana Mutz looks at this very issue. The book is called Winners and Losers: The Psychology of  Foreign Trade. After reading this book I was left with the impression that if anything, Caplan may have understated the issue. Mutz’s book, as the title suggests, focuses on how the typical American thinks about trade. She’s well aware that most members of the public are not well informed about economics. As she rather genteelly puts is, “even when asked about something simple and straightforward, levels of economic knowledge are not high,” and that while the public holds strong opinions on trade, “to say that people have opinions on an issue is not to say that those opinions are well-informed.” She drops comments like this throughout her book just often enough to prevent any economists reading it from experiencing too many blood-pressure spikes, and she has my thanks for it. But the subject is well worth exploring, as she points out – “People’s perceptions of the national-level impact of trade may or may not be accurate, but these perceptions are key to understanding their opinions on trade policy.” As she explored the issue, Mutz found that her “studies did not paint as well-intentioned a portrait of trade opposition as I had anticipated.” Among the things she found was that “domestic ethno-centrism – differences in how positively Blacks, whites, and Latinos in the US judged their own group relative to other racial groups – was the best predictor of trade opposition. Those who didn’t like racial outgroups, didn’t like trade…I thought I was studying an economic issue, but people’s views were less about the bottom line than about what kind of people they viewed as deserving…In short, the roots of opposition to trade were not as rational and well-meaning as I had assumed.” Far and away, the most common objection to international trade is the belief that it costs American jobs. But here’s a result that surprised her (and me!). She also looked at how American’s felt about foreign direct investment (FDI), where foreign companies invest in the United States, building their factories here and hiring Americans to work in those factories. What Mutz discovered was that voters opposed to trade because they believed it caused Americans to lose their jobs were also opposed to FDI, even when they believed it would create jobs for Americans. Mutz writes, Contrary to my initial assumptions, the question tapping attitudes toward inward foreign direct investment was just as strongly correlated with the trade questions as the trade questions were with one another. This pattern is noteworthy for two reasons. First, it suggests that Americans’ attitudes on these questions are part of a single underlying attitude construct. Regardless of the particulars in any given question, people tend to be either drawbridge-up or drawbridge-down types when it comes to trade and economic globalization. Second, this pattern foreshadows some of the discoveries to come, namely that opposition to trade is not, in fact, strictly about job loss. Attitudes toward inwardly-directed FDI and support for international trade are strongly positively correlated, even though the former brings jobs into the country, while the latter is assumed to cause job loss. What these items share is involvement with foreign countries, not a connection to job loss. And this ties into why I think that Caplan, if anything, understates the extent of anti-foreign bias. Citizens aren’t merely pessimistic about the outcomes of interacting with foreigners – they are positively hostile to the idea, even if by their own lights it would be economically beneficial. Most surprising of all was that for trade opponents, a situation where trade results in a “win-win” scenario for America and its trading partner is still viewed unfavorably! As Mutz described it, Those Americans who care about “winning” at trade prefer policies that benefit the ingroup and hurt the outgroup over policies that help both their country and trading partner countries. In other words, for a policy to elicit mass support in the US, it is important not only that the US benefit, but also that it hurt the trading partner country so that the US achieves a greater relative advantage. This is pretty grim. While the anti-foreign bias described by Caplan seems to be a situation where Americans were unduly worried that foreign trade would harm Americans, it actually appears to be the case that those opposed to free trade would reject a scenario where even by their own lights free trade helped Americans if it also helped foreigners – they aren’t happy with Americans being helped unless foreigners are actively hurt in the process. (1 COMMENTS)

  The signers also made a criticism that we often hear from critics of the free market: the idea of market failure. They wrote: The laissez-faire model assumes that markets work perfectly if the government does not intervene. But unregulated markets are not benign—they reinforce unequal power relations that worsen inequality and hinder the application of key developmental policies—including industrial, social, and environmental policies. Whose laissez-faire model? No economist I know of who believes in laissez-faire or something close to it also believes that “markets work perfectly.” We understand that they work imperfectly. Our argument is more sophisticated: markets work imperfectly and so do governments. Moreover, the imperfections of government, due to bad incentives, poor information, and poor incentives to get information, are typically much worse than the incentives of for-profit providers. The economist critics also wrote: In Argentina as in most other countries with complex economic structures and challenges of income and asset inequality, inflation, and external debt, the need is for nuanced and multifaceted policies that recognize the needs of different social groups. Who could disagree with that? I would go further. In every country, “the need is for nuanced and multifaceted policies that recognize the needs of different social groups.” That’s what a free market or even a semi-free market is so good at handling. You want bacon. I want steak. She wants tofu. In a relatively free market, we can all get what we want. If you doubt that, then try this experiment. Next time you’re standing in line at a supermarket, check, without being too obvious, what the person in front of you and the person behind you have in their shopping carts. You already know the results of this experiment. What they have in their carts has at most a slight overlap with what you have. In the kind of Venn diagram that Vice President Kamala Harris has said she loves, the area that the three circles have in common is very tiny and might even be a null set. Now compare that to government provision. Governments, partly out of laziness, partly out of lack of information, and mainly due to lack of incentives, tends to favor “one size fits all” provision. The above is from my latest Hoover article: David R. Henderson, “Critics of Milei’s Policies Strike Out,” Defining Ideas, January 9, 2025. It’s about Milei’s economist critics, but it also respond to their general criticisms of free markets. Read the whole thing. (0 COMMENTS)