In my recent post, The Wielders of One-Bladed Scissors, I talked about why supply-and-demand doesn’t automatically lead to the conclusion that the more workers there are, the lower wages become, and that it’s a fallacy to infer “more labor means cheaper labor.” After writing it up, a thought experiment occurred to me that helps make the point, and possibly helps shed light on some differing background assumptions that might be animating different conclusions. So here’s the thought experiment. Scenario one – consider a situation like the film Castaway starring Tom Hanks. In this movie, Hanks depicts a man who survives a plane crashing into the ocean. And because movies are allowed as much leeway as they want with basic probability, he just so happens to wash ashore onto an uninhabited but fertile island. He has to survive on his own, using what meager resources he can gather from the debris that washed ashore combined with what he can harvest from the island. The island has more than enough resources to support him – but he lacks the ability, working alone, to use those resources very productively. He survives, but at a very low standard of living. Scenario two – consider a situation like the crash Uruguayan Air Force Flight 571, dramatized in the 1993 movie Alive. In this event, a plane crashes in the Andes mountain range, but a large portion of those on board initially survive the crash. The survivors are force to try to salvage what supplies they can from the plane and everything it was carrying in their desperate struggle to survive. Now, in the first scenario, what would happen if the castaway stranded on the island, through a sheer glitch in the laws of probability, suddenly found that another person washed up, now also stranded on the island? This would be a stroke of incredible luck. Working by himself, he could harvest enough resources to survive, but just barely. But with two people working together, things could improve dramatically. They could combine efforts and divide tasks. “I’ll focus on foraging for fruit, tubers, and other food, you focus on hunting for game. I’ll focus on building better shelter, you focus on crafting a garden to make harvesting food easier going forward.” And so on. The problem facing the lone castaway isn’t a lack of resources, it’s a lack of ability to make productive use of resources working alone. To see it from a less fictionalized angle, consider the case of the Tongan castaways, six teenage boys who washed ashore on the abandoned island of Ata in the Pacific ocean. Working together, they managed to survive and remain in good health on the island for over 15 months before they were, through a stroke of luck, found and rescued. Suppose that instead of six teenagers stranded together, it had been one teenager stranded alone. The lack of people to work and combine efforts with wouldn’t have been a benefit to that lone stranded teen – it would likely have meant doom. But in scenario two, things are different. Suppose the survivors, huddled together amidst the wreckage of the plane, one day heard some noise outside and discovered, to their shock, that a small group of lost cross country skiers had stumbled into the crash site. (Perhaps one of those skiers insisted he “knew a shortcut” and stubbornly refused to admit he was lost.) In this scenario, things would be very different. The addition of new people would not be a fortunate opportunity to improve everyone’s standard of living by creating new wealth through cooperation. In this case, the arrival of new people would mean everyone at the crash site would be made worse off – there would be even fewer resources available for any given person. The crash survivors might reasonably feel like the arrival of the skiers was akin to a hostile invasion. And that also brings up the difference between the two scenarios. In the castaway scenario (both the fictional and real-world cases), additional people would be beneficial, because it would allow a division of labor to form and in turn allow the castaways to harvest more resources and improve their condition. In the mountain crash scenario, resources are fixed and their distribution is a zero-sum game. The only way for one person to get more is for someone else to get less. In that case, adding in more people would necessarily lower the living conditions of those who were already in place. The idea I criticized in my previous post tacitly assumes something like the mountain crash scenario. The idea that more labor means a lowering of living standards for existing labor would be true if we assume a situation where all transactions are zero-sum, where for one person to gain another must lose, and that the supply of wealth is both exogenous and fixed, already existing out there somehow so that more people means smaller slices for everyone. On the other hand, if instead you don’t see things as fixed and static, but as part of an active and ongoing dynamic process, where wealth is continually and newly created from productive, mutually beneficial interaction rather than divvied up from a pre-existing, fixed supply, then the addition of new people isn’t some kind of harbinger of doom. It’s an opportunity for growth and for mutual benefit. You stop seeing new people as outsiders and threats who must be kept down for your well-being to be preserved, and you start seeing them as fellow people who can help make you better off and whom you can make better off in turn. (0 COMMENTS)

For most of 2023, Javier Milei advocated a number of libertarian policies aimed at reversing Argentina’s long economically downward trend. Among them was a proposal that was noted for its difficulty in a country known for its ever-increasing level of public spending. ‘It can’t be done,’ they said. Yet he did it: Under the presidency of Javier Milei, Argentina just finished 2024 with a balanced budget for the first time in 16 years. So how was Milei able to end Argentina’s deficit so quickly? First and foremost, it seems like his determination was key to achieving that goal. Milei, an economist, believed that for the country to achieve some sort of stability and credibility it had to send a strong signal that it would cut back on its expenses, which were paid for through inflation. Enough was enough. Milei’s determination is not the end of the story, though. In fact, the President was aided by a unique institutional feature in Argentina, which is the extension of a given year’s budget if none has been passed for the following year. In that case, the government can simply extend its most recently approved budget. But in a country with a 211% inflation rate in 2023, maintaining allocations nominally translates into drastic real cuts, and Milei took advantage of this to cut public speding by a whooping 25%. With just over 15% of seats in Congress, Milei introduced a budget bill but chose not to negotiate over it in Congress, thus extending the budget from 2023 and turning a major weakness into major strength. Cutting real spending, though, was not easy nor enjoyable. Public works were frozen. Pensions decreased. Cuts were also applied to public employees, and over 30,000 were fired altogether. All of this caused some social unrest. Protests over university resources were among the most closely watched, as they gathered not just students but also key opposition figures. So what did balancing the budget achieve? Why was Milei so intent on cutting spending? So far, the payoff for the government’s efforts is considerable. Ending the deficit, as well as the expectation that Milei will continue with this policy in the future, has helped him control inflation, which is down from a monthly 25% rate in December of 2023 to less than 3% in December of 2024. Markets have celebrated this, with Argentina’s stock market delivering the best returns in the world in 2024. The end of the deficit signals a new era of fiscal responsibility, which is key to stabilizing Argentina and implementing other reforms. Milei knows that an unbalanced budget will bring back inflation. He also attributes the failure of liberalization policies in the 1990s to excessive public spending, which means balancing the budget cannot be a temporary measure.  Milei’s success in cutting public spending is, when taken into account, historic. In Argentina, there is no prior record of a 25% real spending reduction over the course of one year that does not involve hyperinflation or defaulting on the debt, none of which happened this time. During the past two decades, there was only one other administration that attempted to cut spending (Mauricio Macri, from 2015 to 2019), but in none of its four years was it able to deliver a balanced budget.  It is hard to recall a time when an Argentine President exerted pressure on his Minister of Finance to cut spending and not the other way around, but Argentines live in such times now. Argentina needed a chainsaw and it certainly got it. Milei is making history.   Marcos Falcone is the Project Manager of Fundación Libertad and a regular contributor to Forbes Argentina. His writing has also appeared in The Washington Post, National Review, and Reason, among others. He is based in Buenos Aires, Argentina. (0 COMMENTS)

[Editor’s note: We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can view the previous problem and Cutsinger’s solution here and here. Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next two weeks, and we’ll again post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!]   Question: Suppose that cotton and wool are substitutes. In addition, suppose that the supply of cotton is upward sloping while the supply of wool is perfectly elastic. Evaluate: A new production technique that increases the supply of cotton will reduce the quantity of wool supplied, but there will be no change in the price of wool and, thus, no change in the demand for cotton. Solution: We can illustrate this solution graphically. The figure on the left hand side represents the market for wool, while the figure on the right hand side represents the market for cotton.   (0 COMMENTS)

On December 21, 2024, my friend Dan Klein, an economics professor at George Mason University, sent out an email to a list that I’m no longer on but cc:ed me, with the following offer: Anyone want to give me 8:1 odds that on Jan 21 Trump won’t have been inaugurated? He linked to this post on X. I didn’t even bother clicking on the link because those odds looked good to me. We went back and forth a few times. I worried about things like intense storms that might slow it down by a day, and Dan was quite gracious in making the deadline midnight on January 21. So I offered $800 against his $100 and he accepted. We both hoped that I would win. I did win, and Dan has already informed me that he has sent the check. He gave me permission to post on this. Would I have offered 20:1 odds? No. A number of things could have gone wrong. Trump could have been assassinated—he missed one attempt by turning his head. He could have been shot but not killed and laid up unconscious in bed. Dan’s worry, which I now know by having clicked on the X file (pun intended), is that the Democrats would have figured out a way to slow it down. I thought that to be highly unlikely. Whatever the reason for a delay, you can probably see why both Dan and I hoped I would win.   By the way, I have rarely had anything nice to say about Kamala Harris. But I thought she showed tremendous grace in overseeing the reporting of the electoral college votes on January 6. (0 COMMENTS)

This post might be misinterpreted in a couple ways, so read the following two points carefully:1. I’m not defining liberalism in the American sense of left-of-center Democrat. I am using the term in the international sense of supporter of free speech, human rights, a market economy, democracy, civil rights, opposition to nationalism, etc.  2. In general, I don’t believe it makes sense to accuse people of being Nazis or Maoists. Almost everyone, including even extremists, now understand that these were highly flawed political movements.Nonetheless, it’s worth thinking about why Maoism and Nazism were once so popular. Why did so many Chinese college students join the Red Guard and enthusiastically persecute their professors (and others)? Why did 37% of the German electorate vote for the Nazi Party in 1932? These questions cry out for an explanation.Here’s an explanation that doesn’t work. “People were different then. Today’s people are much better.” Sorry, but that’s too simple. Do you really think that if you transported today’s college students back in time, and had then live under the conditions of 1966 China, they would have behaved much differently? And what if you put modern Germans into a time machine and sent them back in time to 1932. Yes, with their current knowledge base they would not vote for the Nazis. Not even the most right wing would do so. But what if they had lived in Germany during the Depression, and knew nothing about what happened next?Of course, not everyone joined the Red Guard, and not everyone voted for the Nazis. So which people alive today would have joined the Red Guard? And which people alive today would have joined the Nazis?Consider the woke extremists that enthusiastically denounce and shun people for not being sufficiently left wing on a check list of issues. Does anyone seriously believe they would not have been part of the contingent that joined the Red Guard? And think about people that are so anti-immigrant that they don’t even want us to accept high-skilled people from India and China because they worry about America’s European heritage being diluted. Does anyone seriously believe they would not have been among the 37% who voted for the Nazis? I wish more people would do some serious soul searching, and honestly ask themselves how they would have behaved in some of these extreme situations.Again, I’m not accusing modern nationalists of literally being Nazis. I don’t even think the 37% of Germans who voted for the Nazi Party were “Nazis” in the modern sense of the term. Most were presumably average people that made a bad decision.  Nor do I believe that today’s woke extremists wish to beat and torture their professors. Instead, I see far left and far right wing ideologies as a sort of virus, which can infect people’s minds, even otherwise reasonable minds.  And I see liberalism as a sort of vaccine. In July 1932, most Germans voted for either the Nazis or the Communist Party. The minority that didn’t lose their moral bearings voted for centrist parties such as the Social Democrats. Many of those centrists were “liberals”, using the international definition of the term.  Who would you have voted for?When politics gets extremely contentious and extremely tribal, people are pressured to take sides. We get told that extreme tactics are required because the other side is not playing fair. Of course the other side gets told the same thing. It’s hard to hold on to your principles when you are being accused of being a wishy washy moderate, unwilling to fight fire with fire.  People hate it when they are ostracized by fellow members of their “tribe”.  Sorry, but the enemy of your enemy is not your friend.  Your only reliable political allies are those that share your core principles. Bryan Caplan is a good example of someone who sticks to his principles, even when they might make him unpopular.  I presume his fellow professors don’t agree with his opposition to feminism.  I presume his fellow right wingers don’t like his advocacy of open borders.  But he is passionately devoted to the cause of freedom.  That core value acts as a sort of vaccine, making him immune to the lure of authoritarian ideologies.   I have no doubt that if he had been born in another time and place, he would have avoided becoming an authoritarian of either the left or the right.  How many people can honestly say they are sure that they would have done the right thing, if they had lived in a very different time and place? Again, you are not a commie or a fascist. You do not favor slavery. But perhaps there’s still something wrong. You should express views that convince the thoughtful reader that had you lived in Weimar Germany you would have opposed both the communists and the fascists. You should express views that convince the thoughtful reader that you would have been an abolitionist in 1850. You should hold views that convince the thoughtful reader than in 1900 you would not have viewed the Irish, Italian and Jewish immigrants as scum that must be kept out of the country.   Think about how you are expressing your views. There are ways to favor redistribution without giving the impression that you would have been a Maoist. There are ways of opposing woke excesses without giving the impression that you would have been against the abolitionists. There are ways of opposing current levels of immigration without giving the impression that you would have been on the wrong side of that issue in 1900. Unfortunately, not everyone is giving the right impression. Too often, I see people make arguments in such a way that I immediately recognize that they would have been on the wrong side during an earlier period in history. Don’t be that guy. PS.  Here’s today’s Bloomberg, discussing the mood among CEOs: Now, with the return of Trump, many appear to be willing to do what it takes to protect and advance their interests. If that means abandoning, at least for now, some of the ideas celebrated at Davos, so be it. Making noises about equality, diversity and the fierce urgency of climate change just might have to wait. “It’s sort of like, ‘OK, which time were you lying?’” Tom Glocer, a fixture on corporate boards like Morgan Stanley and Merck & Co. Inc., said of the abrupt change. Yes indeed, which time were they lying?  And were they even lying to themselves? PPS.  Here’s a FT article on the likely new Austrian chancellor: “The probability is now very high of Kickl as chancellor,” said Thomas Hofer, a prominent Austrian political analyst. . . . Kickl’s pro-Russian views, embrace of conspiratorial thinking around the Covid-19 pandemic and unsavoury flirtations with Austria’s Nazi past have made him too toxic for Nehammer and other centrists, who vowed to keep him out of power. Kickl is obviously no Nazi, but who would he have voted for if he’d lived in 1932 Germany? PPPS.  Over at the now defunct MoneyIllusion, I used to do a lot of political blogging, arguing that the United States was becoming a banana republic.  At the time, my views were regarded as rather eccentric.  Based on this recent Matt Yglesias post, these views are now becoming mainstream among respected centrist pundits.   (1 COMMENTS)

The experience of the two last federal elections in America suggests that “the left” is more interested than “the right” in a peaceful transfer of power. (By “the left” and “the right,” I simply mean most individuals who identify with either the Democratic Party or the Republican Party.) Kamela Harris gave a  magistral lesson to Donald Trump. But there is more to the left’s support for the peaceful transfer of power. One reason may be that the peaceful transfer of power constitutes the main content of their thin democratic ideology. Isn’t majoritarian democracy the only thing they believe in? This hypothesis is not satisfactory because it is not clear why they would invoke the peaceful transfer of power in favor of a contender who, they claim, wishes, or is tempted to, abolish majoritarian democracy and who has already tried to interfere with it. Another hypothesis is that the left believes in more than just the peaceful transfer of power, they believe in the peaceful transfer of unlimited power in order to engineer the sort of society defined by their century-old ideology or its remnants. But why wouldn’t they then object to a contending party gaining power to engineer a different kind of society? The simplest hypothesis and perhaps the most plausible one is that the left believes that a majoritarian and unlimited democracy is bound to ultimately approve their program. “The people” cannot vote against itself—which, interestingly, is also what the populist right believes, a paradox that portends interminable strife. These justifications for a peaceful transfer of power stand in stark contrast with the classical liberal tradition. For the latter, the peaceful transmission of power is not a means to impose on minorities the preferences and values of the majority, but simply a sort of veto against a totalitarian design from the party in power, to prevent unlimited power. The expression “liberal democracy” is not a pleonasm but emphasizes limited democracy. A good (albeit a bit technical) expression of this opinion can be found in the book of political scientist William Riker, Liberalism Against Populism (1982). It is interestingly close to Friedrich Hayek’s conception of democracy as a way to keep the state constrained by long-term (thus “traditional”) and abstract “opinion” of what is just (see his book Law, Legislation, and Liberty [1973-1978], the three volumes of which are referenced at the bottom of the post just linked to). James Buchanan added a test of (plausible) unanimity for the general rules that result from an autoregulated social order; his book with Geoffrey Brennan, The Reason of Rules (1985), may be the best exposé of this theory. If we follow Anthony de Jasay, one problem is that the left may very well be correct: in a regime of majoritarian democracy, he argues, it will ultimately prevail. De Jasay had two arguments which, however they fit together, lead to the same result. First, in a majoritarian democracy, those who promise to redistribute from the “rich” to the “poor” will necessarily win because the 51% at the bottom of the income distribution are arithmetically more numerous than the 49% at the top. Second, electoral competition will lead politicians to try to satisfy every grievance group at the expense of other people, simultaneously generating growing government power and mounting discontent, until the government has no choice but to abolish electoral competition. To counter this prospect, is our only recourse to James Buchanan’s call to have “faith” in the maintenance of an autoregulated social order and in the classical-liberal ideal that “we can all be free”? (See his Why I, Too, Am Not a Conservative [2006].) This would still imply, it seems, that the peaceful transfer of power only makes sense for the classical liberal if it is a limited power that is trnasferred, and that the social, political, and economic institutions will protect its limitation. The invocation of the peaceful transfer of power is generally taken to imply that power has not been gained fraudulently. This introduces another level of fuzziness. Anybody can claim that an election has been fraudulent because “the people” cannot vote against itself (even if tens of different independent courts find no technical fraud). If we expect an election to represent the “will of the people,” anybody can easily find that it doesn’t because, for “the people” does not exist (see Riker again). Anybody can claim that the will of a unicorn is on his side. It seems that the peaceful and non-fraudulent transfer of power is only meaningful if the transferred power is not unlimited and if voters consequently don’t expect too much from, or fear too much of, an election or referendum. An illiberal democracy is one where, at each election, many people fear for their peaceful lifestyles—“peaceful” meaning not imposed on, or coercively supported by, others. Another argument for the peaceful transfer of power is that a temporary break in legality or a vacancy of constitutional legitimacy raises the age-old problem of who will rush into the breach. Those who will are not necessarily the most enlightened and liberal specimens of mankind. And judges may not be able to protect anyone against them. Reestablishing the rule of law and the so-called “norms” is not a simple matter. All these considerations depend on where we are on the road to serfdom. And except if the “we” means 100%, it is not a numerical “we.” (0 COMMENTS)

[ANNUAL LISTENER SURVEY: https://www.surveymonkey.com/r/KYV5XPG. Vote for your 2024 favorites!] How can opera, with words we rarely understand, make us cry? Why does opera, filled with melodrama, move us? Listen as poet and librettist Dana Gioia explains to EconTalk’s Russ Roberts why words matter more than we think, in both opera and on Broadway. The post Weep, Shudder, Die: The Secret of Opera Revealed (with Dana Gioia) appeared first on Econlib.

  Regulations Keep Millions of Bedrooms Empty During a Housing Crisis by Howard Husock, Reason, January 17, 2025. Excerpts: The U.S. is facing a housing affordability crisis, and new data from Realtor.comhighlight an often missed contributing factor: millions of empty bedrooms. Census data reveal 31.8 million “excess” bedrooms in American homes—compared to just 4 million in 1970. Overregulation, particularly in zoning and local occupancy laws, is among the culprits. And: But even if homeowners would like to make use of those “guest” rooms, they can run afoul of local laws. Research I conducted for the American Enterprise Institute found that in 23 of the 30 largest U.S. cities, there are laws that limit occupants deemed “unrelated,” defining a “family” only as a group whose members are related by blood, marriage, or adoption. In St. Louis, no more than three unrelated persons may live together. In Sugar Land, Texas, the limit is four. Private homeowner associations may be even more strict. In the Chase Oaks Homeowners Association in Plano, Texas, a “household” can comprise no more than two unrelated persons, though there is an exception for live-in employees.   Cutting Off Trade Will Make the U.S. Poorer and China More Totalitarian by Johan Norberg, Reason, February 2025. Excerpt: But as a newly emboldened Trump assembles a Cabinet of national security hawks and economic nationalists, we seem to be heading for much more than that. Several of his choices to staff his administration have agitated for decoupling the American and Chinese economies and imposing harsh technology restrictions. And that would not make the situations that worry people about China better. It would make them much, much worse. The first casualty of any trade war is the economy. Many Americans have the impression that only Beijing benefits from U.S.-China trade. But a one percentage point increase in imports from China caused a 1.9 percent decline in U.S. consumer prices, saving a representative American household roughly $1,500 a year, according to one estimate by London School of Economics professor Xavier Jaravel and Federal Reserve Board of Governors economist Erick Sager. The effect was largest in product categories more popular among low-income consumers, such as apparel and consumer electronics. After winning an election largely because of discontent over inflation, Trump seems ready to start his second administration with tariffs that would raise consumer prices. DRH comment: While I agree with the overall thrust of the article and also agree that opening to imports lowers prices, I think the 1.9% decline has to be wrong. It seems highly innumerate. It means, for example, that we could cut consumer prices by 3.8 percent if there were a two-percentage point increase in imports from China. I would spell out my reasoning, but I invite the reader to think about it. Price Controls Won’t Build Homes in L.A. by Jack Nicastro, Reason, January 17, 2025. Excerpt: Wildfires in Greater Los Angeles have claimed at least 25 lives and over 12,000 structures. To help the city rebuild faster, California Gov. Gavin Newsom waivedburdensome California Environmental Quality Act (CEQA) reviews and Coastal Act requirements for properties damaged and destroyed by the fires. Newsom also declared a state of emergency that triggered various provisions of California’s anti-price-gouging law. Suspending CEQA reviews and Coastal Act requirements will expand housing by reducing the time and cost of construction. Outlawing prices from rising according to market forces will produce the opposite effect. Section B of the anti-price-gouging law, effective until January 2026, forbids sellers from increasing the price of food, emergency services, and housing by more than 10 percent relative to pre-emergency prices. Section C, also active until January of next year, applies the same restriction to reconstruction services. Sections D, E, and F prohibit similar price increases on hotel and motel rates and rent, while outlawing evictions, until March 8. Price controls cause shortages. That’s the opposite of pro-recovery policy. For more on a major recovery from a much more decimated economy, a recovery that was due in substantial part to the ending of price controls, see David R. Henderson, “German Economic Miracle,” in David R. Henderson, ed., The Concise Encyclopedia of Economics. (0 COMMENTS)

It turns out that “greedflation” is not just an American misconception, the same fallacy exists in many other countries.  Kürşad Görgen has a blog discussing Turkish monetary policy issues, from a market monetarist perspective.  Last year, he did a post discussing some rather unconventional views: After the 2023 elections, Turkey abandoned its infamous NeoFisherian interest rate policy (which Erdoğan formalized as “interest is the cause, inflation is the result“), and adopted a more conventional policy with a new Central Bank head (who was recently fired). As of February 2024, Turkey’s interest rate is at 45%, and inflation increased to 64.8% in December. Meanwhile, the Turkish lira reached a new record low against the US dollar in early January, trading at over 30. . . . Mahfi Egilmez, a relatively popular left-of-center economist in Turkey, recently discovered the concepts of greedflation and shrinkflation and decided to use them, claiming that there is a “greedflation problem” in Turkey. Görgen did a very nice job of explaining the fallacy of greedflation, and included this graph of Turkish nominal GDP growth rates: In my view, the best way to refute greedflation is to use an indirect approach.  When someone insists that greed is the cause of inflation, tell them you’d be glad to discuss the issue, but first you’d like to discuss the role of greed in NGDP growth.  After that issue has been addressed, it will be easier to see whether greed might have anything useful to add to the inflation issue. Let’s think about the 110% growth in Turkish NGDP during 2022.  As you know, NGDP is both aggregate nominal income and aggregate nominal spending.  Wages and salaries are a big part of aggregate income. Is it plausible that greed caused Turkish companies to pay dramatically higher wages in 2022 than in 2021?  I suppose their decision to pay higher wages was consistent with profit maximization, but I think it’s fair to say that a firm’s decision to pay higher wages is not generally viewed as “greedy” in the ordinary sense of the term. Consumption is a big part of aggregate spending.  Is it plausible that greed caused Turkish shoppers to spend twice as much as they were spending the year before?  Again, I cannot see how the decision to spend much more money on roughly the same quantity of goods can be regarded as “greed”, in the ordinary sense of the term.  Greedy people generally prefer not to spend lots of money. To summarize, it seems inconceivable that greed could provide an explanation for a sharp acceleration in NGDP growth, especially given that we have alternative explanations that don’t rely of the mysterious surge in Turkish greediness between 2021 and 2023: Tunc Satiroglu points out that there has been a 245% increase in the money supply since the CBRT started interest rate cuts in 2021 Once we have established that greed did not cause the 110% rise in NGDP, we can switch over to the inflation question.  We know that NGDP growth is inflation plus real GDP growth (plus a compounding term.)  What sort of trend real GDP growth rate seems plausible for Turkey?  I don’t know the precise answer, but I suspect that nearly all experts would chose a figure between 0% and 10%.  Which means that an NGDP growth rate of 110% made it almost inevitable that the inflation rate in 2022 would be extremely high. To summarize: It seems highly implausible that greed can explain very high NGDP growth rates. Very high NGDP growth rates make high inflation almost inevitable. Therefore . . . Seriously, it’s embarrassing that we need to even discuss this issue.  Astronomers discovered that the Earth went around the sun way back in the 1500s.  Much of economics is still mired in views that are the equivalent of “the Earth is flat” in astronomy. (0 COMMENTS)

Financial education is an essential component for the economic and social development of nations. In an increasingly interconnected world, understanding how personal finances and markets operate is an indispensable skill for individuals and economies alike. However, in countries like Colombia, the lack of financial education negatively impacts financial inclusion, investment, and economic growth. From a liberal perspective, this issue can be analyzed through the principles of authors like Leonard Read, Friedrich Hayek, and Milton Friedman, who emphasize the importance of individual choice and free markets as engines of progress. Financial Education: A Tool for Economic Freedom Leonard Read, in his iconic work I, Pencil, illustrates how markets enable cooperation among millions of people, even without direct interaction, to produce complex goods and services.  Similarly, financial education equips individuals to understand this system, empowering them to participate more effectively in the economy. Without basic knowledge of concepts such as compound interest, savings and investment, people cannot make informed decisions to maximize their well-being. The lack of financial education not only limits individual potential but also restricts markets’ capacity to generate wealth and growth. Friedrich Hayek contributes to this discussion with his concept of “dispersed knowledge.” According to Hayek, knowledge does not reside in a central authority but is fragmented across society. Financial education, therefore, should not be viewed as a set of top-down rules but as a means for individuals to acquire the tools needed to interpret and use the knowledge available in markets. A financially educated citizen can act autonomously, making decisions that not only enhance their personal well-being but also contribute to market dynamism. The Impact of Financial Education Deficiency in Colombia According to the World Bank, approximately 2.5 billion people worldwide do not use formal financial services, and 75% of the poor do not have a bank account. Inclusion is key to reducing poverty and fostering prosperity. In Colombia, access to the financial system remains limited. According to data from Banca de las Oportunidades, in 2023, 15% of the adult population still lacked access to basic financial services such as savings accounts. Moreover, many individuals who access credit are unaware of how to manage their debts, leading to over-indebtedness problems. This not only affects families but also creates inefficiencies in the financial system and limits economic growth. Milton Friedman, in Capitalism and Freedom, notes that a market-based economic system depends on individuals making rational decisions. Without financial education, this rationality is compromised, affecting both consumption and investment. In this context, financial education should be seen as a strategic investment to empower citizens and strengthen the national economy. Financial Education and Investment: A Virtuous Circle Financial education not only fosters saving but also promotes investment, a fundamental pillar of economic development. Hayek argued that savings and investment are essential for capital accumulation and innovation. In Colombia’s case, improving financial education would allow more people to participate in the stock market, invest in ventures, and generate employment. Moreover, in a global context where technological innovation and the digital economy are redefining markets, financial education enables citizens to seize opportunities in areas such as crypto assets, crowdfunding, and e-commerce. These tools can serve as catalysts for Colombia to diversify its economy and reduce dependence on traditional sectors such as extractive industries. Financial education is more than a practical tool; it is a pathway to ensuring economic freedom and social progress. As Leonard Read emphasizes, every economic choice we make is interconnected with millions of others’ decisions. For these choices to yield the best outcomes, citizens must be empowered with the necessary knowledge. Colombia, and the world, face the challenge and opportunity of strengthening their populations’ financial education. This effort will not only drive economic development but also help build freer societies where individuals can fully enjoy the fruits of their labor and creativity. Ultimately, financial education is not just a matter of individual well-being but a driver for sustainable growth and shared prosperity.   Omar Camilo Hernández Mercado is a law student at the Universidad Libre de Colombia, Senior coordinator of Students for Liberty in Colombia, and a seminarist in “The Austrian School of Economics” at the International Bases Foundation.  (0 COMMENTS)