Gerrymandering by David Friedman, “David Friedman’s Substack,” December 25, 2024. Excerpts: In 2024 Republicans won just under two-thirds of the vote in Tennessee. Yet they won eight of the state’s nine congressional districts. All else being equal, were Tennessee gerrymandered less severely, Republicans today would likely have a slim one-seat majority in the US House of Representatives rather than a five-seat advantage. (The Economist: At the state level, democracy in America is fracturing) Two thirds of the voters getting eight congressional seats out of nine would be anomalous in a proportional representation system, but US congressional elections are first past the post. If the population of Tennessee were evenly distributed, with the same percentage of Republican and Democratic voters in each congressional district, the majority party would win all of them — even if the division of votes was 51/49. With a majority of almost two to one, the only way the Democrats get any seats is if their voters happen to be concentrated in one or a few districts. And: So far as the Economist article is concerned, its claim is supported by neither logic nor current law. No court has interpreted the Voters Rights Act to justify forced redistricting to make the number of congressional representatives of each party proportional to the number of votes cast for that party. If one ever does, the Libertarian Party, with .42% of the vote in 2024, should sue for its two congressmen.   Everybody Loves FRED: How America Fell for a Data Tool by Jeanna Smialek, New York Times, December 6, 2024. (HT to Tyler Cowen because I had missed this one at the time.) Excerpts: FRED — whose name stands for Federal Reserve Economic Data — was born in 1991. But he was a sparkle in the eye of the St. Louis Fed long before that. And: The story started in the 1960s, with an economist named Homer Jones (now sometimes referred to as the “grandfather of FRED”). Mr. Jones was the director of research at the Fed’s branch in St. Louis, and he wanted to make central bank decisions more data-based, so he started to mail typed data reports to Fed officials around the country. DRH note: The story doesn’t mention it but Milton Friedman has credited his teacher Homer Jones with getting him interested in economics. Grim Old Days: James Wynbrandt’s Excruciating History of Dentistry by Chelsea Follett, Human Progress, December 24, 2024. Excerpts: The writer P. J. O’Rourke famously quipped, “When you think of the good old days, think one word: dentistry.” So let us take his advice. James Wynbrandt’s The Excruciating History of Dentistry: Toothsome Tales & Oral Oddities from Babylon to Braces provides plenty to chew on. As the New York Times Book Review put it, “Wynbrandt has clearly done his homework.” Our ancestors’ teeth were in an appalling state. As Wynbrandt points out while quoting the Old Testament, calling a woman’s teeth white as sheep and noting that none were missing once counted as high praise worthy of a love poem. After all, healthy teeth were far rarer in the past than today. The first mass-produced bristle toothbrush did not appear until around 1780 in England during that country’s industrialization. Our preindustrial forebears had only a primitive understanding of what was causing their teeth to rot, fall out, and constantly ache. And: As noted, broken jaws were another exceedingly common outcome of tooth extraction. In 1530, the first printed book on dentistry, the German Zene Artzney, or “Medicines for the Teeth,” advised, “The sign by which you may judge whether the jaw be fractured or something of it broken off, is when the cavity wherefrom the tooth has been drawn bleeds more than usual, and the jaw swells so much that one cannot open the mouth, and the cavity festers and swells.” In the 17th century, as sugar became more widely available in Europe, tooth decay became an even more common ailment. The wealthy, who had the earliest and most abundant access to sugar, were the first and worst afflicted. By 1602, it was observed that Queen Elizabeth I “showeth some decay, which to conceal when she cometh in public she putteth many fine cloths into her mouth to bear out her cheeks. ”In other words, she was missing enough teeth to even affect the outward appearance of her face, with her skin sagging into the space where teeth would normally be. DRH comment: In 2015, I disagreed strongly with Milton and Rose Friedman’s following statement in Free to Choose: Industrial progress, mechanical improvement, all of the great wonders of the modern era have meant little to the wealthy. The rich in ancient Greece would have benefited hardly at all from modern plumbing–running servants replaced running water. I don’t know about Milton and Rose, but I definitely count modern dentistry as one of the wonders of the modern era. The excerpted article above says why.   What ‘Trading Places’ Can Teach You about Racism (the Old and the New)  by John Miltimore, The Daily Economy, December 25, 2024. Randolph’s racism appears less severe than Mortimer’s. After all, denying a man a job because of his race and using a racial slur is much harsher than observing musical talent (real or perceived) in a group of people. But both are examples of racism; and the audience sees this clearly. Moreover, we later see that Randolph’s kinder, gentler racism is not far removed from Mortimer’s, since Randolph agrees with his brother following his racist outburst. Not everyone might agree with this analysis, of course. Some may argue that Mortimer is more racist than Randolph. What’s important to understand is that the racism of the Duke brothers comes from the same place: they fail to see Billy Ray as an individual, even after testing his mettle. And: “[Racism] is the notion of ascribing moral, social or political significance to a man’s genetic lineage — the notion that a man’s intellectual and characterological traits are produced and transmitted by his internal body chemistry,” Rand wrote in The Virtue of Selfishness. “Which means, in practice, that a man is to be judged, not by his own character and actions, but by the characters and actions of a collective of ancestors.” Rand, an individualist, called racism “the lowest, most crudely primitive form of collectivism” — and she was right. Unfortunately, this primitive collectivism was institutionalized in America for much of the twentieth century through Jim Crow laws, which marginalized African Americans and enforced racial segregation and disenfranchisement in the South. And: “I don’t think white people worldwide have really reckoned with how much their own personal identity is shaped by constructions of whiteness,” Kendi said during a recent talk. “Whiteness prevents white people from connecting to humanity.” One needn’t have a PhD to see that despite all of this fancy language, Kendi’s “antiracism” is deeply racist. Like Randolph and Mortimer, he doesn’t see people as individuals; he sees them in terms of their race (in this case “whiteness”).   What Today’s Economics Students Aren’t Learning About Economics by Alexander William Salter, The James G. Martin Center for Economic Renewal, December 27, 2024. Excerpt: The economics major is in dire straits. Across the nation, econ curricula aren’t instilling an appreciation for, or even a familiarity with, the economic way of thinking. Theory classes limit the power of economic analysis by reducing markets to sterile exercises in “perfect competition,” or else subordinating social science to social control by obsessing over “market failures.” Empirical classes equip students with sophisticated statistical tools but at the cost of reducing applied economics to data-mongering. The unfortunate result is that econ majors are almost always half-educated and quarter-lettered. They can memorize models and run regressions. They will confidently make pronouncements about the necessity of corrective taxes and regulations to promote economic efficiency. But they’re unable to explain why popcorn costs so much at the movies, how we knowhigh oil prices aren’t the result of price-gouging, or—most worrying of all– what makes some countries rich and others poor. The situation is grim. Yet it’s not hopeless. All the materials that professors need to train economists well are already available. There are many ways to restructure curricula to produce competent economic reasoners. All of them require wide reading and deep thinking. Students whose attention spans run out at 280 characters have no place in an economics program.   (0 COMMENTS)

George Selgin is the most frequent guest on David Beckworth’s Macro Musings podcast, and listening to the recent interview it’s easy to see why. I would have trouble finding a single point on which I disagree. I see Selgin as a more eloquent and better-informed version of myself.While much of the podcast discusses issues such as Bitcoin and debanking, I’ll provide a few comments on the final portion, which covers the Fed’s upcoming monetary policy review.  Here’s Selgin: [A]ll this stuff, from just having a plain old 2% inflation target, to having a flexible average inflation target, to having God knows what they’re going to come up with next, some acronym with inflation in it— All of this is just a way of getting to what really works, which would be targeting nominal GDP. But they can’t say that. They don’t even want to talk about it because it doesn’t sound like the dual mandate. And this is really unfortunate, because NGDP targeting is a good way to come up with good behavior of both the inflation rate and employment. It’s a way to avoid severe unemployment. It’s a way to avoid overheating the labor market. It’s a way to gain a long run inflation rate of around 2%, but while also allowing prices to behave differently during supply shocks in a way that, again, best preserves stability in the labor market, which is the other thing you want. It accomplishes all of those things. The one thing NGDP has going against it is it is not obviously the same thing as stable prices or high employment. It doesn’t sound like the dual mandate. So, we have to figure out, I think, what the Fed has been doing has been stumbling its way towards strategy language that sounds like the dual mandate but is actually stable NGDP. They would save a lot of time doing this, and, maybe, who knows how many more strategic reviews if they would just acknowledge what they’ve been up to and at least, secretly, talk about stabilizing spending. Unfortunately, David Beckworth indicates that the Fed is not likely to move in the direction of NGDP level targeting. This is a good illustration of what concerns me about where I think the framework review is going, and that is, Jay Powell sat down with Catherine Rampell from The Washington Post. They did a little interview. She asked him about the framework review, and he said, “I see as a base case,” these are his words, “A reaction function where you don’t overcompensate or you don’t overshoot for past misses.” So, effectively, he’s saying, “I see as a base case, we don’t have makeup policy.” After 2008, the Fed screwed up by not trying to do any make-up policy.  In 2021 they screwed up in exactly the opposite direction, by doing far too much make-up, overshooting the previous NGDP trend line by 11%.   So when you’ve made one serious error going too much in one direction, and another serious error going too much in the opposite direction, isn’t the conclusion that you should aim for somewhere in the middle—do just the right amount of make-up?  Instead, it seems as though the Fed is planning to return to the policy regime that led to the Great Recession.  How can we explain that? The following is just speculation on my part, but it’s the only explanation that I can think of.  The Fed may be assuming that the zero rate problem is gone, and that for various reasons the (nominal) natural rate of interest will remain above zero.  Why might that be?  Perhaps some combination of slightly higher trend inflation than during the 2010s, slightly stronger real growth due to AI, and much bigger budget deficits for as far as the eye can see.  The bond market is certainly not forecasting a return to the zero lower bound. The second calculation may be that level targeting isn’t really necessary when you are not at the zero lower bound. They may be thinking that Alan Greenspan’s policy approach worked pretty well when rates were positive, and they can safety return to inflation targeting in a positive interest rate environment.   I don’t view that sort of reasoning as crazy, but in the end I do not agree.  First of all, NGDP targeting works better than inflation targeting even during “normal times”.  More importantly, macro history is full of unforeseen developments and thus you need a policy for all seasons.  I have no doubt that during the 1990s my students were bored when I taught them about what happened in the 1930s when there was a severe banking crisis and interest rates fell to zero.  That had never happened during their lives, or even in my (much longer) life.  “Why do we need to learn this old stuff?”  I hope that they saw the value of my teaching when they were working on Wall Street in 2008.   You never know what sort of changes will occur in the macroeconomy.  Rather that take policy shortcuts, adopting a policy regime that might work in “fair weather”, isn’t the more responsible course of action to adopt a regime that works under almost all conditions?  Indeed, isn’t that approach more responsible even if it is slightly harder to explain NGDP level targeting to Congress than it is to explain inflation targeting?  (0 COMMENTS)

I must begin this blog post with a confession. I have never been into game theory, and although I did take some undergraduate courses in it, I’ve always struggled to understand it all. But while I was somewhat uneasy about game theory (or at least parts of it), I couldn’t express the reasons for my reservations. It was more of a feeling. From these days, I still remember a conversation I had with a fellow undergrad (perhaps she had also recently graduated) about game theory. She was rather fond of it and gave nice arguments about why it was helpful and good. Back then, one of the criticisms I voiced was that game theory struggled to explain cooperation, or so I thought. What made me wonder was how exactly game theory could explain cooperation if it assumes that people are selfish and maximize their (narrowly construed) expected utility. She responded, “Oh, that’s not a big deal. Once you assume iterated games, it is rational to cooperate.” In and of itself, the answer seemed convincing. After all, if we anticipate seeing each other more than once, we should adjust our behaviour accordingly. And then it may really be “rational” to cooperate and not defect. So, that day, I left it at that. But I couldn’t quite shake off a feeling of uneasiness with that solution. Things changed when I read Joe Henrich’s monumental work The WEIRDest People in the World, published in 2020. Henrich does many things in this tract, but he also touches on life in prehistoric times. And in an intriguing passage, he reflects on interactions between humans. Henrich (p. 303) writes: WEIRD people tend to think that trade is straightforward: we have wild yams and you have fish; let’s swap some yams for some fish. Easy. But, this is misguided. Imagine trying to barter yams for fish in the hunter-gatherer world described by William Buckley in Australia. In this world, other groups were often hostile, and strangers were frequently killed on sight. To conceal their nocturnal locations, bands erected low sod fences around their campfires so they couldn’t be spotted from a distance. If I showed up at your campfire with some yams to trade, why wouldn’t you just kill me and take them? Or you might have thought we are only offering our toxic yams, which would slowly poison you and your band. Under such conditions, which were probably common over our species’ evolutionary history, it’s difficult to see how smoothly flowing trade could ever emerge. If Henrich is right, then we cannot simply assume that there will be a second round, not to speak of games with infinite rounds. Indeed, perhaps the usual kind of interaction would be the attempt to kill each other. Or the two would refrain from interacting with each other at all. But if, for this or that reason, there were a second round, that would presuppose that there was a first round of interaction and that it had been peaceful. For example, we had exchanged yams for fish. To the least, we did not kill each other, either with our spears or poisoned yams. But this is, or at least is very close to, cooperation in the sense of peaceful, coordinated, and reciprocal interaction—if only in a very crude and basic form. Following Henrich, then, the sheer fact that there is a second round of interaction, that is, that our game started at all, and if it started that it does not end after the first instance (because either I killed you or you killed me, or to the least, the interaction was so distasteful that none of us sees any reason to interact with each other again), requires a basic level of cooperation. But this implies that game theorists’ assumption of iterated games to demonstrate that cooperation is possible and does, indeed, follow in game-theoretic scenarios, is a petitio. They already assume that people’s interaction will be characterized by basic cooperation or at least peacefulness when they assume that people will face iterated and even infinitely iterated games, that is, do not kill each other at first sight. Therefore, game theory covertly assumes cooperative and peaceful interaction to explain cooperation. And that’s problematic. I want to come back to the remarks I made at the beginning of this piece. I am by no means an expert in the field of game theory. I am just an outsider who puts forward his thoughts about game theory—a critic who, surely, may miss the forest for the trees. But perhaps commenters on this blog can show me where my reasoning goes wrong. Or, perhaps, my critique has something to it, and game theory has some work to do.   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (0 COMMENTS)

Opponents of immigration often lament the fact that the US used to attract high quality immigrants from places like Europe, but now is supposedly being overwhelmed with immigrants from “backward” countries. A recent NBER paper by Ran Abramitzky, Leah Platt Boustan, Elisa Jácome, Santiago Pérez, and Juan David Torres suggests that the golden age of immigration is to be found in the present, not the past. Contrary to this anti-immigrant rhetoric, we document that, as a group, immigrant men have had a lower incarceration rate than US-born men for the last 150 years of American history. We combine newly assembled full-count Census data (1870–1940) with Census/ACS samples (1950–2020) to construct the first nationally representative series of incarceration rates for immigrants and the US-born between 1870 and the present day. From 1870 to 1950, immigrants’ incarceration rate was only slightly lower than that of US-born men. However, starting in 1960, immigrants have become significantly less likely to be incarcerated than the US-born, even though as a group immigrants now are relatively younger, more likely to be non-white, have lower incomes, and are less educated – characteristics often associated with involvement in the criminal justice system. Today, immigrants are 60% less likely to be incarcerated than all US-born men, and 30% less likely to be incarcerated relative to white US-born men. The similar incarceration rates between immigrants and the US-born in the past and the lower incarceration rates of immigrants today are broadly consistent with prior studies documenting immigrant-US-born incarceration gaps for specific states and time periods (Moehling and Piehl 2009, 2014; Butcher and Piehl 1998b, 2007). When I have pointed to the lower crime rate of immigrants, people have often responded that their crime rate needed to be compared to that of white native born Americans.  That always struck me as odd, as these were often the very same people who opposed “identity politics” and insisted that people should be judged based on their merits, not on the color of their skin.  If one insists that immigrants be compared only to white Americans, doesn’t that implicitly suggests that non-white residents of the US are not true Americans? In any case, it’s now pretty clear that even native born whites are more likely to engage in criminal behavior than immigrants.  There may be good arguments against more immigration, but it is increasingly clear that the following 5 arguments have been discredited: 1.  The US is in danger of overpopulation.  (The US fertility rate (births/woman) is down to 1.7, and still declining.) 2. Immigrants cause higher unemployment.  (The unemployment rate is determined by monetary policy, and regulations such as minimum wage laws.) 3.  Immigrants cause more crime.  (Immigration makes us safer, as immigrants cause crime to rise by less than total population. 4.  Immigrants lower wages for the unskilled.  (The wages of low income workers have recently been rising faster than the wages of higher income workers.) 5.  Immigration will favor one political party.  (Immigrants are rapidly adopting the political views of native born Americans.) And I haven’t even included the long discredited claim that immigrants won’t learn English, which was a popular idea in the 1990s. (0 COMMENTS)

A tale from my younger days, dear readers. (I mean, it would have to be from my younger days, wouldn’t it?) Upon joining the Marines, I went though boot camp in San Diego, followed by three weeks of additional combat training at nearby Camp Pendleton. After this, I was bussed to 29 Palms, California, out in the middle of the desert, for my next round of training. One of the new experiences I had at 29 Palms was that we were put up in barracks. At boot camp and MCT, everyone sleeps in squadbays – large open rooms with rows of bunk beds. But now, we were at a proper barracks, with individual barracks rooms. Granted, in the Marine Corps it was common for lower ranking enlisted Marines to be assigned three or four to a single room, but compared to what we had experienced so far this was an incredible luxury. One day early on, we were suddenly awakened at 5am. The Marines who ran the training program were having everyone line up in the hallways and one by one, they went through each room, calling in the Marines who lived in that particular room, and searched it top to bottom. They’d make you remove the locks that kept your wall locker secure so they could search through everything. They were looking for any unauthorized materials anyone might have – underage Marines trying to hide booze was the most common thing they’d discover. These kinds of searches would occur every so often for as long as I lived in the barracks. I didn’t think much of it at the time. But I later came to an interesting realization. It’s often said that while you’re in the Marines, you don’t have any rights, and those in command can do whatever they want, etc. But that’s not true. There actually are various rules and safeguards that must be followed during military investigations, thresholds that must be cleared, rules about how evidence must be collected to be admissible, and so on. So, what was going on here? This was simply a mass search, without any particular probable cause or evidence of wrongdoing to precipitate it. Thus if they did find that you had a bottle of Jack Daniels hidden in your underwear drawer, wouldn’t that be inadmissible and prevent them from bringing you up on charges? Well yes, it would – but only if they were actually conducting a search. But that morning in 29 Palms and on all the other occasions, they weren’t searching the barracks. You see, what they were actually doing was performing a “health and comfort inspection,” and no special threshold has to be crossed to carry out a health and comfort inspection beyond “I feel like it.” But when they made you remove the locks from your gear and went searching to ensure that no wasps had set up a nest in your underwear drawer, if they just so happened to find a bottle of Jack Daniels, then in that case it absolutely could be used to charge you. Because they didn’t find it while conducting a search! They were only trying to ensure your health and comfort! The result of this, of course, is that while de jure there were rules and restrictions regarding searches and the admissibility of evidence obtained in a search, de facto it was open season and you could be effectively searched at any time without restriction. The “health and comfort inspection” provided a shortcut around any need for things approaching probable cause or evidence of wrongdoing to warrant a search. And it also showed that when a shortcut around some legal protection exists, that shortcut swiftly becomes the main route. This is one reason I reflexively oppose anything that might loosen or lower the legal protections for those accused of crimes. As soon as an exception opens up, or a loophole is created, or a shortcut presents itself, that will immediately become the main path taken. You shouldn’t crack open any of those doors unless you’re willing for them to be thrown wide open – and you should remember to ask if you want to leave that door open when someone who is your worst political nightmare rises to power. (0 COMMENTS)

  Most people have heard of the thalidomide tragedy. Few people have heard that that tragedy led lawmakers to cause an even bigger tragedy. In short, there were two thalidomide tragedies. In the first one, babies were born with severe deformities after their mothers took the drug. The second tragedy was more serious and damaging. Lawmakers used thalidomide as an excuse to pass legislation that would have done little or nothing to prevent the first tragedy but has led to six decades of lost lives. Those lives were lost because the legislation led to fewer beneficial drugs being developed and sold. These are the two opening paragraphs of Charles L. Hooper and David R. Henderson, “Two Thalidomide Disasters,” Regulation, Winter 2024-2025. It’s the lead article. Another excerpt: The FDA’s rules were altered with the Kefauver–Harris Amendments of 1962. These amendments required drug companies to prove both safety and efficacy before a new drug could be marketed. Note the irony. What kind of problem did thalidomide have? An efficacy problem? No; it did what it was supposed to do: treat anxiety and morning sickness. A safety problem? Yes. The FDA already had rules in place to prevent unsafe drugs. The FDA could have rejected thalidomide based on rules that had been on the books since 1938. Anticipating by nearly half a century Rahm Emanuel’s maxim that “You never want a serious crisis to go to waste,” Congress and President Kennedy didn’t waste this one and the Kefauver–Harris Amendments were passed. The opportunist Kefauver got his bill because of the thalidomide tragedy even though his bill had almost nothing to do with the thalidomide tragedy. (italics in original) And: Part of the reason for this slowdown is the much higher cost of drug development after Kefauver–Harris. In the subsequent decades, capitalized drug development and approval costs per approved drug have increased at 7.5 percent per year in real terms: $179 million in the 1970s, $413 million in the 1980s, $1.04 billion in the 1990s through early 2000s, and $2.56 billion in the 2000s through early 2010s (all in 2013 dollars). If this 7.5 percent annual growth rate were to persist, costs would more than double every 10 years. But the cost increase seems to be accelerating: The annual growth rate over the last decade has been 8.5 percent. The cost today is probably already at least $8 billion (in 2024 dollars). In short, we have fewer drugs and the cost per drug has exploded. Is this attributable only to the bad drugs that were weeded out by the new rules? Multiple researchers have concluded that the answer is no. Peltzman came to this same conclusion, seeing the culling as if “an arbitrary marketing quota … had been placed on new drugs after 1962.” The adjective “arbitrary” isn’t something a supposedly scientific organization strives for. Read the whole article. The picture is of Estes Kefauver.   (0 COMMENTS)

In our era of increasingly sophisticated artificial intelligence, what can an 18th-century Scottish philosopher teach us about its fundamental limitations? David Hume‘s analysis of how we acquire knowledge through experience, rather than through pure reason, offers an interesting parallel to how modern AI systems learn from data rather than explicit rules. In his groundbreaking work A Treatise of Human Nature, Hume asserted that “All knowledge degenerates into probability.” This statement, revolutionary in its time, challenged the prevailing Cartesian paradigm that held certain knowledge could be achieved through pure reason. Hume’s empiricism went further than his contemporaries in emphasizing how our knowledge of matters of fact (as opposed to relations of ideas, like mathematics) depends on experience. This perspective provides a parallel to the nature of modern artificial intelligence, particularly large language models and deep learning systems. Consider the phenomenon of AI “hallucinations”—instances where models generate confident but factually incorrect information. These aren’t mere technical glitches but reflect a fundamental aspect of how neural networks, like human cognition, operate on probabilistic rather than deterministic principles. When GPT-4 or Claude generates text, they’re not accessing a database of certain facts but rather sampling from probability distributions learned from their training data. The parallel extends deeper when we examine the architecture of modern AI systems. Neural networks learn by adjusting weights and biases based on statistical patterns in training data, essentially creating a probabilistic model of the relationships between inputs and outputs. This has some parallels with Hume’s account of how humans learn about cause and effect through repeated experience rather than through logical deduction, though the specific mechanisms are very different. These philosophical insights have practical implications for AI development and deployment. As these systems become increasingly integrated into critical domains—from medical diagnosis to financial decision-making—understanding their probabilistic nature becomes crucial. Just as Hume cautioned against overstating the certainty of human knowledge, we must be wary of attributing inappropriate levels of confidence to AI outputs. Current research in AI alignment and safety reflects these Humean considerations. Efforts to develop uncertainty quantification methods for neural networks—allowing systems to express degrees of confidence in their outputs—align with Hume’s analysis of probability and his emphasis on the role of experience in forming beliefs. Work on AI interpretability aims to understand how neural networks arrive at their outputs by examining their internal mechanisms and training influences. The challenge of generalization in AI systems—performing well on training data but failing in novel situations—resembles Hume’s famous problem of induction. Just as Hume questioned our logical justification for extending past patterns into future predictions, AI researchers grapple with ensuring robust generalization beyond training distributions. The development of few-shot learning (where AI systems learn from minimal examples) and transfer learning (where knowledge from one task is applied to another) represents technical approaches to this core challenge of generalization. While Hume identified the logical problem of justifying inductive reasoning, AI researchers face the concrete engineering challenge of building systems that can reliably generalize beyond their training data. Hume’s skepticism about causation and his analysis of the limits of human knowledge remain relevant when analyzing AI capabilities. While large language models can generate sophisticated outputs that might seem to demonstrate understanding, they are fundamentally pattern matching systems trained on text, operating on statistical correlations rather than causal understanding. This aligns with Hume’s insight that even human knowledge of cause and effect is based on observed patterns. As we continue advancing AI capabilities, Hume’s philosophical framework remains relevant. It reminds us to approach AI-generated information with skepticism and to design systems that acknowledge their probabilistic foundations. It also suggests that we could soon approach the limits of AI, even as we invest more money and energy into the models. Intelligence, as we understand it, could have limits. The set of data we can provide LLMs, if it’s restricted to human-written text, will quickly be exhausted. That may sound like good news, if your greatest concern is an existential threat posed by AI. However, if you were counting on AI to power economic progress for decades, then it might be helpful to consider the 18th-century philosopher. Hume’s analysis of human knowledge and its dependence on experience rather than pure reason can help us think about the inherent constraints on artificial intelligence.   Related Links My hallucinations article – https://journals.sagepub.com/doi/10.1177/05694345231218454 Russ Roberts on AI – https://www.econtalk.org/eliezer-yudkowsky-on-the-dangers-of-ai/ Cowen on Dwarkesh – https://www.dwarkeshpatel.com/p/tyler-cowen-3 Liberty Fund blogs on AI   Joy Buchanan is an associate professor of quantitative analysis and economics in the Brock School of Business at Samford University.  She is also a frequent contributor to our sister site, AdamSmithWorks. (0 COMMENTS)

Much remains to be known about the murderer of UnitedHealthcare CEO Brian Thompson. I don’t know what “brain fog” is and whether Mangione, the young man charged with the murder, suffered from it as was reported. But there is certainly much mind fog in the support he received after his arrest and, more generally, in ideas about health insurance that lie around in the zeitgeist. For many people, health care and health insurance are special goods because they deal more directly with life, death, and bodily integrity. Food, clothes, and housing would also be candidates. Moreover, individuals do make trade-offs between health and other goods or activities such as smoking, drinking, and mountaineering. The source of the problem lies in the unbridgeable gap between scarce resources and infinite human desires—the subject matter of economics. The gap can only partially be bridged by wealth. For nearly 100% of mankind before the Industrial Revolution, the partial solution did not exist, as it still doesn’t for many inhabitants of the third world who are exploited by their own governments. A sign held by one of Mangione’s supporters in a demonstration read: Privatized healthcare is a crime against humanity Privatized? How was it before it was privatized? And who privatized it? Perhaps the implicit mind-foggy model is that, 100,000 years ago, healthcare was made freely available by benevolent governments but, as “neoliberalism” started its assault on nirvana, they gradually privatized it, or accepted its privatization, until the crime reached its zenith today after millennia of combat between the individual and the collective. Even in a rich society, healthcare is not a “right” except under at least one of three conditions. First, you obtain it through voluntary and private contracts. Second, you enslave somebody (some physicians, nurses, shareholders, or taxpayers) to provide it to you. There is a third possibility: that some public health insurance or healthcare is made publicly available at subsidized prices by the rules of a “social contract” à la Buchanan to which unanimous consent is arguably plausible, or perhaps by spontaneous-order rules à la Hayek. The justifications of this third possibility are more demanding than most people think and must be handled with great care. In rich countries, everybody can get a minimum of healthcare through a varying mix of the three conditions or justifications above. In the United States, publicly financed healthcare accounts for about half of total health expenditures. But remember that these countries became rich because, in economic life generally, the first condition—private contracts—was privileged. In matters of healthcare, the United States may remain the country that diverges the least from the private contractual ideal. Private health companies are not in the business of denying what their contracts obligate them to provide to their customers, who can go and shop elsewhere. But they do have to control their costs, lest they would be unable to offer their services to anybody because nobody would voluntarily invest in these companies. Economic analysis shows that competition between private insurers will bring the lowest prices for feasible insurance while providing a diversity typical of markets. The more you pay, the more likely it is that your insurance will cover a given claim, and mutatis mutandis if you choose a policy with less coverage. Note also that the more consumers in this market are directly or indirectly subsidized by the state, the more they bid up healthcare prices. We should not forget that the health industry is one of the most regulated in America, and that regulation limits competition. Most Americans get their healthcare insurance from their employers, an unfortunate sequel of WWII wage controls. They have to change jobs to switch insurer. Moreover, employers rather than insurance companies are often the ones trying to control insurance costs. (See “How American Health Insurance Got So Infuriating,” Wall Street Journal, December 20, 2024.) Partial or total nationalization of healthcare insurance or delivery cannot solve the problem of the unescapable allocation, by prices or other means, of what consumers want given the necessarily limited supply. Not all Americans can get the healthcare that, say, Elon Musk or Bill Gates must be getting. If the allocation by prices is abolished, waiting lines and bureaucratic decisions will be the new rationing mechanism. In Canada, where health insurance is a monopoly (at the provincial level), the median time between referral by a general practitioner and an appointment with a specialist is 15 weeks; another 15 weeks then elapse between the appointment and the start of treatment. These waiting times have tripled since 1993 despite recurrent and grandiose political attempts at internal reform of the system. (See Fraser Institute, Waiting Your Turn: Wait Times for Health Care in Canada, 2024 Report.) Not counted are the delays to see a general practitioner and the lack of amenities and privacy in hospitals, which are, formally or informally, all public. These problems are endemic in nationalized healthcare. We should beware of the simplistic argument that the state’s takeover of health insurance and healthcare would solve all problems. It certainly did not in the Soviet Union. But even a much lighter implementation would likely increase discontent among Americans, who are accustomed to being treated as customers, not as public wards. It would probably not restrain mind-foggy wackos and perhaps excite them even more—now against public officials. But this last bit is not sure: once a society has reached that point, individuals may have become submissive and resigned. ****************************** A piece of art, especially from AI, can be interpreted in many ways (0 COMMENTS)

Over a century ago, John Maynard Keynes, an economist and critic of unregulated, unmanaged markets, pointed to the miracle  that one could order the wonders of the world over the phone while lying in bed and have them delivered: The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he may see fit, and reasonably expect their early delivery upon his doorstep… That’s from Keynes’s 1919 book The Economic Consequences of the Peace, and at the time, Keynes described a fantastic privilege reserved for the richest of the rich who could afford phones and phone calls and buy on credit from people they couldn’t see and couldn’t see them. Keynes’s dream has come true in the 21st century for the poor and middle class, and not because of the interventionism he and his intellectual descendants thought was necessary. Whatever you want can be had with a few flicks of your thumb. With some planning, you can automate many of your groceries through Amazon’s Subscribe and Save and similar services. All the payment processing, ordering, and so on are automated and handled without you having to pay much attention to them. Paper towels? You can subscribe to them. Chocolate? Coffee? Shaving gear? Subscription box services will replenish you every month. People who earn higher incomes will have an easier time of it, but subscription boxes and subscribe-and-save services are widely available and largely affordable to just about anyone. By this point, someone is probably sneering and saying, “Great. My life has meaning now because I can get my groceries delivered.” If that’s you, then you expect the market to do something it can’t. The market can deliver bananas and spring rolls. It can’t deliver existential meaning–though you can support Amazon workers you might think are being oppressed by buying more stuff from Amazon. As Christopher Freiman pointed out on Twitter, even poor people today are richer than the Rockefellers in all the ways that matter. If you can get a cheap digital wristwatch, what does it matter that Elon Musk can wear a Rolex on each wrist? Elon Musk’s net worth might be many multiples of mine, but even a $200 billion net worth can’t buy him a smartphone and mobile service that is hundreds of thousands of times better than mine. A little later in the passage quoted above, after he has described the Londoner’s financial opportunities, Keynes continues:  But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice. Would that this life of peace and prosperity were the reality for everyone, everywhere. There is good news, though: as we embrace the Bourgeois Deal and (ironically) reject coordinated Keynesian macroeconomic management, it’s turning that way.   Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University. (0 COMMENTS)

In another post, I pointed out that most of the world’s richest countries are small. But it’s also true that many small countries are quite poor. Furthermore, the US is in many respects the world’s most successful economy, and it is obviously quite large. So what’s the relationship between size and wealth?You could do a “simple regression”, but I don’t believe that’s the right way to approach the problem. It seems likely that the relationship between country size and wealth depends on a variety of factors.A recent post by Noah Smith got me thinking about this issue. He discussed the case of Native American entrepreneurship in Vancouver: Vancouver, Canada shows us an example of how this can be done. Part of Vancouver’s downtown urban area is officially under the governance of the Squamish Nation, rather than the city itself. The Squamish Nation, realizing they could do whatever they wanted with that land, decided to build a giant high-rise housing development: [I discussed that example in an earlier post.] Smith also linked to a similar example in the US: Tesla is ramping up efforts to open showrooms on tribal lands where it can sell directly to consumers, circumventing laws in states that bar vehicle manufacturers from also being retailers in favor of the dealership model. Mohegan Sun, a casino and entertainment complex in Connecticut owned by the federally recognized Mohegan Tribe, announced this week that the California-based electric automaker will open a showroom with a sales and delivery center this fall on its sovereign property where the state’s law doesn’t apply. What do these examples have in common?  The Indian nations are located in densely populated areas that are fairly affluent, but also highly regulated.  When you look at a place like Africa, you see large countries that are poorly governed and poverty stricken (Nigeria, Congo), but also small countries that are poorly governed and poverty stricken (Equatorial Guinea and Gambia).  They are all located far from affluent markets to the north.  Even within the US and Canada, Indian nations located in remote areas tend to be relatively poor. You also see large countries that are located near rich places, but remain relatively poor.  Mexico is a good example.   The “sweet spot” seems to be small independent areas that are located near big affluent markets.  Is this because Native Americans are particularly libertarian?  I doubt it.  Some indigenous communities have communal land ownership and a prohibition on alcohol.  Rather, I suspect that these areas have discovered a market niche.  They can profit by providing goods in high demand that are severely restricted by nearby local governments. When you look around the world, you see many examples of wealthy enclaves that are located right next to bigger but more highly regulated markets.  For instance, Hong Kong and Macao are located right on the edge of Mainland China.  Luxembourg, Liechtenstein and Monaco are located right next to the big EU market.  Dubai is right next to larger but more regulated countries such as Saudi Arabia.  These tiny places have some of the highest per capita GDPs in the entire world. If Tijuana were a tiny independent country, I suspect that by now it would have been far richer than it is.  When you look at the recent economic success of the Dominican Republic, and then recall pre-revolution Havana, it makes one sad to consider how much the Cubans missed out on.  In the late 1950s, Cuba was much richer than the DR, and is located far closer to Florida.) Long time readers know that I’m pretty strongly opposed to some of the excesses of wokism (although I certainly oppose bigotry.)  But one woke initiative that I could get behind is just a few miles south of where I live.  There’s a 15-mile stretch of almost completely undeveloped land along the coast between Orange and San Diego counties.  Right now, the Marines use a portion of the land, but the military could easily be moved to a less desirable spot.  Perhaps we could make amends for our previous mistreatment of Indians by giving that land back to a Native American community. Imagine the sort of walkable urbanism that developers could come up with on 15 miles of coastal southern California.  The San Onofre nuclear power plant could supply carbon free electricity, if it were recommissioned.   I’m losing faith in the white man’s ability to make America great again by thinking big, but after seeing what the Squamish are doing in Vancouver, perhaps the Native Americans can restore America’s pioneer spirit. Here’s a picture of Miami Beach, to whet your appetite for the potential of Camp Pendleton: Merry Christmas! (0 COMMENTS)