Modeling Homer’s World An economic approach to Homer’s Odyssey1 is most definitely not about “what Homer really meant.” Instead, the economic approach views Homer through a lens that Homer himself probably never entertained, namely a series of relatively simple models about preferences and constraints. The economic approach is thus a distortion, but perhaps a useful or interesting distortion. It is taking the richness of ideas, presentation, and narrative in Homer and remixing it. For all the complexity lost, this process induces us to engage in a certain kind of reductive prioritization as to how Homer wrote about human nature and politics, and thus it will bring out some elements of the story more than others. In this series, I will use an economic approach to better understand the implicit politics and economics in The Odyssey. As a “naïve” reader with no training in ancient history, I find the comparative treatment of political regimes as one of the most striking features of the narrative, namely that Odysseus visits a considerable number of distinct polities, and experiences each in a different way. How does each regime operate, and how does it differ from the other regimes presented in the book? Economics forces us to boil down those descriptions and comparisons to a relatively small number of variables. Trying to model the polities in Homer’s Odyssey forces us to decide which are their essential, as opposed to accidental features, and what they might have in common, or which are the most important points of contrast. You don’t have to hold any special loyalty to the economic approach to think this method might be worthwhile. There is an adage that it is better to trade in a liquid market than an illiquid market. Economics is, in intellectual terms, a liquid market. There are a great number of economists, and many people are familiar with the basic modes of economic thought. So, bringing a new approach to Homer is putting an idea out into a relatively active discussion group, analogous to trading in a liquid market. This seems worth trying for Homer, since The Odyssey has received almost zero attention from economists to date. “The economic approach to Homer’s Odyssey also may help us understand both the strength and limitations of economics as a method. How does economics fare when confronted with extremely complex narratives, taken from a very different time and from a culture somewhat removed from the environment in which economics itself originated?” The economic approach to Homer’s Odyssey also may help us understand both the strength and limitations of economics as a method. How does economics fare when confronted with extremely complex narratives, taken from a very different time and from a culture somewhat removed from the environment in which economics itself originated? To apply a very “liquid” simple method—economics—to a very “liquid” famous and complex text—Homer’s Odyssey—seems like one way to test economics itself.2 Nonetheless, the rational choice approach to Homer still seems relatively underexplored, given the fame and influence of the text itself.3 Below, I define what I mean by an economic approach to Homer. In the next essays, I will consider the politics of the different polities in The Odyssey, applying a comparative perspective. What does an economic approach to Homer consist of? The economic approach to human behavior is given many interpretations, most commonly the view that people seek wealth or that people are economically selfish. Or an economic approach may be thought of as unearthing the underlying economic preconditions or circumstances of Homer’s world, or of the worlds he wrote about, or of the real polities which may have corresponded to his narrative treatments. Those are interesting approaches, but I intend something more general and more methodological, namely I define an economic approach in terms of modeling. If we take a situation, or for that matter a text, and divide up its information into “claims about preferences” and “claims about prices and constraints,” then, in my view, we are starting to build an economic model. Basic microeconomic models classify situations into more primitive or fundamental claims about preferences and constraints, and then they take those categorizations and see if the currently available toolbox of models—also defined in terms of both preferences and constraints—might apply to them. To be clear, this methodological approach involves a minimum of ontological commitment. It does not require that people are “actually rational” in any instrumental sense, nor does it require that individuals fully understand the constraints they face. Instead, the economic method, as stipulated here, is best thought of as a means of generating new hypotheses and testing old ones. To compare Homer’s Odyssey to simple neoclassical economic models, let us consider some of the claims about preferences and constraints typically made by mainstream economics: 1. Humans maximize their utility in a rational manner. 2. Humans care about goods other than just wealth, but in many market settings, wealth or profit maximization is a sufficient stand-in for utility maximization. 3. Humans are forward-looking and they will trade transparently with others if the marketplace is sufficiently liquid. In the world(s) of Homer’s Odyssey, in contrast, the assumptions about human behavior are different. In general terms I think of the core assumptions as looking more like the following: 1. Humans pursue quests rather than consumption as traditionally defined. 2. Humans are continually deceiving others and indeed often themselves. Gains from economic trade are scant, but the risk of death or imprisonment is high. 3. Humans seek out states of intoxication. Under the economic approach I am proposing, you can think of Homer’s Odyssey as what happens when you inject assumptions along the above lines (with some qualifiers) into a variety of settings. We will end up with a new take on what traditional economics is missing, and more practically, how we might understand real world polities and the political options before us.4 The mode of The Odyssey is striking in yet another way: the world is mostly “deglobalized.” That is, the different polities have virtually no contact with each other, or at least no such contact is shown, at least apart from the travels of Odysseus and his men. It is truly a world of separate islands and societies. The gods go everywhere, as they wish; Odysseus and his men are “global” travelers, but the societies themselves are held apart. A major instance of cross-societal contact, of course, is presented in The Iliad, namely the struggle between Sparta and Troy, and that is a brutal, destructive war. The suitors visiting Penelope and living in the house of Odysseus are another example of cross-cultural contact, and this is mainly a mix of coercion and plundering. In any case, the deglobalization helps us view each society in plain stand-alone terms.5 Let us now turn to the model of human behavior presented in The Odyssey, again noting that I see the key assumptions as humans pursue quests, most live in poverty with a high risk of death or imprisonment, and humans seek out intoxication. Quests and the poverty of the material world The most straightforward quest in the story is that of Telemachus, the son of Odysseus. Superficially, the travels of Telemachus to Pylos and Sparta are a quest to discover information about his father, but arguably he also wishes to mature and become strong enough to repel the suitors from his household. The major quest surrounding the entire story, and of The Iliad as well, is the quest of the Achaeans to recover Helen for Sparta and Menelaus, and as that story progresses, the desire for revenge and glory. By the time we reach The Odyssey, it is obvious that these struggles have not paid off in terms of material self-interest or physical security. Many of the fighters are dead or condemned to long periods of wandering, unable to reach home in any simple way. It is a more complex question how we should think about Odysseus himself, but for a start I reject the common portrait of Odysseus as the master manager and manipulator par excellence. It is true that he succeeds in returning home and exacting revenge on the suitors, but consider the costs along the way. He faces death numerous times, and it takes him twenty years to return. Worse yet, he loses most of his men along the way. The Ciconians, the Cyclopes, Scylla, and the Lastrygonians all kill some of Odysseus’ men, with the Lastrygonians destroying eleven of his twelve ships with all their crew [10: 112-132]. That hardly seems like managerial excellence, and in these narratives, Odysseus is at least partially at fault for the outcomes, if only because he did not beat a more rapid hurry back home. Just consider the take of Eurylochus on the Cyclopes episode: “Remember what the Cyclops did? Our friends went to his home with this rash lord of ours [Odysseus]. Because of his bad choices, they all died.” [10: 437-439]. It is hard to argue with that, and Odysseus himself realizes he made a big mistake [9: 227-228].6 Instead, I think of Odysseus as seeking knowledge and variety through a quest, even at the possible expense of practical consequences. His initial participation in the Trojan War can be thought of as a quest for victory and glory, and his later time spent wandering around to the different locales of The Odyssey morphs into a quest of a different kind, namely knowledge and self-knowledge. While there are plenty of passages where Odysseus expresses a strong desire to simply return home as soon as possible, a broader look at the story belies “return” as a simple account of his main motive. Odysseus, for all his talk about wanting to get home, often seems quite content to linger, to compete in Olympic games, to make love to Circe, and in general to explore the diversity and strange wonders of the worlds surrounding him. Once he is away from the moorings of either home or having to lead his men in combat, well… the resulting adventures seem pretty interesting. Indeed, that is part of what has made The Odyssey such a compelling tale. The actual desires of Odysseus seem ambiguous, a bit reminiscent of a possible St. Augustine paraphrase: “let me return home, just not yet.” It is perhaps Tennyson, in his poem “Ulysses”, who understands this side of Odysseus best.7 Odysseus is always looking to broaden his experiences. When Odysseus is on Aeolus, he doesn’t seem much to mind being trapped. He goes to bed with the beautiful Circe, albeit under the condition that she swears an oath that she will no longer make plans to hurt him [10:336-348]. At one point in the book, Odysseus even suggests that the men stay with Circe, “eating and drinking,” with “food enough to last forever” [10: 423-428; the men rebel against this suggestion]. Odysseus just doesn’t seem like a loyal guy who wants to get home to his home and wife, but rather he is a wanderer and curiosity-seeker. It is noteworthy that when it comes to the Sirens, Odysseus is indeed keen to hear the song and learn its nature, so rather than stuffing his ears with wax—the treatment for his men—he leaves his ears open and ties himself to the mast.8 Odysseus in fact never makes it back to Ithaca through his own volition. In Book 13 he is talking with the Phaeacians when he simply vanishes, and without any explicit intermediate travel, wakes up in Ithaca. There is an implication that this was the work of the goddess Pallas Athena [13; 160-193]. So, for all his talk, in the final analysis Odysseus was not the active agent of his return. And when Odysseus is leaving Circe, that might be an ideal time for him to return home or at least try to. But no, Homer reports to his men that Circe instructed him to go to the “house of Hades and Persephone” [10: 562-567] In Book 13 we are reminded that Odysseus is not exactly bursting with desire to see his wife. Pallas Athena tells Odysseus that an ordinary man would immediately rush home to see his wife and children, after the long trip he undertook. She tells Odysseus that he did not even ask about them at first, and he was suspicious, feeling the need to first test his wife [13: 332-337]. On several additional occasions Odysseus details his restlessness and his lack of attention to home and also Penelope. The account of Odysseus given by Odysseus-in-disguise, after his return to Ithaca, raises further doubts about the motives of Odysseus. Since Odysseus is talking in disguise, this is just a fictional account, designed to mislead, or is it? Odysseus narrates his own story, and he suggests that he deliberately sought a trip to Egypt, “with some pirates” [17: 420-446] to gather treasure, and he notes that along the way he and his men killed many people, until they were upended by Zeus. Earlier, Odysseus-in-disguise had told a comparable tale to Eumaeus the swineherd, when he mentioned that he had been safely at home with his children and wife and possessions after the Trojan War, but that, “Some impulse made me want to sail to Egypt, with nine ships and a godlike crew.” [14: 244-245] Again, we probably are not supposed to take that narrative literally, and Odysseus-in-disguise is trying to give an account of his movements while hiding his identity from Eumaeus. There is yet a third time when Odysseus describes his own motives, and that is when Odysseus-in-disguise is narrating his story, and his story of encountering Odysseus, to Penelope on Ithaca. When it comes to the encounter of Odysseus with the Phaeacians, Odysseus-in-disguise offers this account: “They honored him as if he were a god himself, and gave him abundant gifts, and tried to send him home safely. He would have been here long ago, but he decided he should travel more and gather greater wealth. No man on earth knows better how to make a profit.” [19: 280-286] The point here is not to accept all those stories as true accounts of the motives of Odysseus, but rather to see Homer as raising additional doubts about those motives. Do note that once Odysseus finally does return home, the first thing he tells Penelope is that he may need to leave home again, to make sacrifices to Poseidon [23: 248-280].9 Finally, compare Odysseus and Menelaus. Menelaus narrates how he was lost at sea for eight years, traveling through Cyprus, Phoenicia, Egypt, Ethiopia, Sidon and Araby, and Libya, seeking to accumulate wealth. He notes that someone entered his kingdom and killed his brother, who was betrayed by his scheming wife [4: 82-92]. After various sorrows and tales are exchanged, Menelaus winds back to how he returned home [4: 349 and onwards]. At first the gods prevented his exit, just as was the case with Odysseus, again a deliberate parallel. But Menelaus works very hard to make the proper sacrifices to the gods, and to learn what those sacrifices have to be. After considerable effort and machinations, and after Menelaus had “quenched the anger of the gods,” “The gods at last gave me fair wind, and sent me quickly home.” [4: 583-586]. The contrast with Odysseus could not be more marked, the implication being that Odysseus ultimately chose to dally outside his polity for as long as he did. The King who wanted to return comes back to order, whereas Odysseus ceded control of his household. In the consolidated story, across the two Homerian epics, Nestor, Diomedes, Idomeneus, Agamemnon, and Menelaus all eschewed the long-term wandering path of Odysseus. For instance, when Telemachus visits Pylos, Nestor is at home with his wife and apparently securely in command of his polity. Odysseus is still off wandering and unable to find his way home.10 So how should we imagine Odysseus? Maybe he is a variety-seeker, a love and sex-seeker, a wealth-seeker, a fighter, a glory-seeker, a master manipulator, and also someone who at times wishes to return home and seek vengeance, restoring Ithaca to its proper place. When he presents himself as simply wishing to return home, it is hard to tell if he is deceiving only others or also deceiving himself. In any case, the nature of his quest is a complex one, and he acts as if he is restless, and values discovery above homecoming, at least for most of the choices he makes. If there is any economic model for the consumption of Odysseus (but not the other characters more generally), it is one of high intertemporal substitution combined with low habit formation, or more prosaically, an extreme curiosity of temporarily intense sampling. That means a lot of one particular thing now (including intoxication, discussed below), and then later on a great deal of something else quite different. Those other goods can include warfare, family life, and travel. The life as a whole is varied and diverse, but most of the individual moments are quite specialized. Among its other insights, The Odyssey is a case study of what such a life would be like, how daunting it would be, how destructive it could be, and how few humans would be well-suited for such an existence.11 The economics of intoxication Economic historians disagree about the exact living standards during both Homer’s time and the earlier time he wrote about, but per capita incomes could not have been very high. Most technological revolutions had yet to happen, and opportunities for material accumulation were correspondingly limited, even for relatively wealthy people. Yet intoxicating substances, and of a wide variety, were commonly present. Wine is the most obvious example, but there are enough references to drugs in The Odyssey that intoxication can be seen as one of the major themes. One of the most important economic decisions a person could make was whether to become intoxicated, and which medium to choose for the intoxication. For those above subsistence and below kingship, there may not have been so many other consumption decisions which so influenced happiness, whether positively or negatively. Intoxication may have been the consumption decision number one for a significant portion of society. I am reminded of the one poor society I know best, a Mexican village called San Agustin Oapan, where I once did fieldwork. It seemed to me, and this was corroborated by a resident anthropologist, that the rate of male alcoholism there was about fifty percent. Although the resident population was only about 1500, not a day went by when you didn’t see a drunk person passed out in the street. Alcoholism and intoxication are common themes in other poor communities too, and a lot of wealthier ones. We don’t have direct evidence about the rate and degree of intoxication in Homer’s time, but you can take The Odyssey as indirect evidence that intoxication likely was a significant phenomenon. Our knowledge of intoxicating substances in Homer’s time is partial, but there was wine, poppy-related substances, intoxicating plants, and wine often was infused with further intoxicating substances—the compound pharmacy so to speak (Rinella 2010). Furthermore, the wine of that time may have been much more potent than the modern versions we buy in the supermarket. When Helen pours drugged wine at the evening festival with Telemachus and Nestor, we are told it will take “all pain and rage away.” [4:221] The wine is mixed with “powerful magic drugs,” from the fertile fields of Egypt [4: 228-230]. If you doubt the potential value of intoxication, consider the alternatives as presented by the voyages of Odysseus. He confronts numerous chances to have a bewitched, drugged, or drunk life, mostly under fairly pleasant circumstances (Calypso, Circe, the Sirens, and arguably the choice he faces to remain in Scheria). He may enjoy those situations for some time, but eventually, he opts for the long and dangerous journey back home, where he then faces a dangerous confrontation with suitors. Odysseus’s journey is often described as one of temptation, but it is less commonly emphasized that most of all he is faced with the temptation of various intoxications (Rinelli 2010, pp.74-76). Odysseus is the one character who can overcome or at least avoid falling into these temptations, and it is striking how Circe describes him: “I am amazed that you could drink my potion and yet not be bewitched. No other man has drunk it and withstood the magic charm. But you are different. Your mind is not enchanted. You must be Odysseus, the man who can adapt to anything.” [10: 326-331] This is consistent with the above description of Odysseus as a man who is addicted to change and the variety of exploration, an intoxication greater than what any particular drug can offer him, because those drugs would indeed bring his journeys to a final end. It is not obvious that all of Odysseus’s men would make the same choice, and often he is the one organizing the escape or deciding that his crew must not allow itself to be lured by the song of the sirens into a blissful indifference to worldly fates. The ultimate encounter with intoxication is of course the experience with the Sirens, “who bewitch all passersby,” and “will seduce him with piercing songs.” The songs are so compelling that men will end up as dead, rotting flesh, as they enjoy the songs at the expense of all other ends [12: 38-50]. There is no defense against their lure, other than to be bound to the mast and to have one’s ears plugged with wax, so that the songs simply are not heard. In that case “just a little intoxication” is not an option, and the song of the Sirens must be abjured altogether. The one who listens to the song, however, is Odysseus, who does not stuff his ears with wax, though he is bound to the mast [12: 192-200]. The Cyclops is an example of a creature unable to resist the lure of intoxication, and to his eventual detriment. Odysseus is able to escape, in part, because he manages to get the Cyclops drunk, and the end result is that the Cyclops has a sharp burning stick thrust into his remaining eye. Odysseus’s men face the lure of the sirens, and their song, and we never quite learn just how horrible or pleasant a fate that is going to be. Odysseus turns it down, as he knows it is forever and feels a greater need to keep on moving. For more on these topics, see Bret Devereaux on Ancient Greece and Rome. EconTalk. “The Odyssey: From the Liberty Fund Rare Books Room,” by Sarah Skwire. Online Library of Liberty, May 5, 2023. Tyler Cowen and Russ Roberts on Nation, Immigration, and Israel. EconTalk. Tyler Cowen on The Complacent Class. EconTalk. In essence, the intoxication theme is reading Homer through Aldous Huxley, in particular Huxley’s Brave New World. In Huxley’s imagined dystopia, people drug themselves to feel better, when their basic material needs already have been met, so what else is there to do? That might sound like the opposite of Homer’s world, but the emphasis of economics on marginal decisions indicates those apparent opposites may be pretty close after all. Both are instances of “intoxicate because you can’t do any better at the margin,” admittedly at very different absolute levels of consumption and comfort. At very low and very high levels of consumption, if marginal work effort does not yield much, the intoxication decision can be central to economic reasoning. In my next piece, I will turn from this sort of economic modeling of the tale of The Odyssey and to the variety of polities explored in the epic. From these descriptions, we can search for more even more lessons for political economy today. References Ahrensdorf, Peter J. Homer on the Gods & Human Virtue: Creating the Foundations of Classical Civilization. Cambridge: Cambridge University Press, 2014. Alvis, John. Divine Purpose and Heroic Response in Homer and Virgil: The Political Plan of Zeus. Lanham, Maryland: Rowman & Littlefield Publishers, 1995. Aronen, Jaakko. “Genealogy as a Form of Mythic Discourse. The Case of the Phaeacians.” 2002, 89-110. Bresson, Alain. The Making of the Ancient Greek Economy: Institutions, Markets, and Growth in the City-States. Cowen, Tyler. “Is a Novel a Model?” In The Street Porter and the Philosopher: Conversations on Analytical Egalitarianism, edited by Sandra Peart and David M. Levy. Ann Arbor: University of Michigan Press, 2008, 319-337. Dobbs, Darrell. “Reckless Rationalism and Heroic Reverence in Homer’s Odyssey.” American Political Science Review, June 1987, 81, 2, 491-508. Dodds, E.R. The Greeks and the Irrational. Berkeley: University of California Press, 1971. Dougherty, Carol. The Raft of Odysseus: The Ethnographic Imagination of Homer’s Odyssey. Oxford: Oxford University Press, 2001. Germain, Gabriel. “The Sirens and the Temptation of Knowledge.” In Homer: A Collection of Critical Essays, edited by George Steiner and Robert Fagles. Englewood Cliffs, New Jersey: Prentice-Hall, 1962, 91-97. Kearns, Emily. “The Gods in the Homeric Epics.” In The Cambridge Companion to Homer, edited by Robert Fowler. Cambridge: Cambridge University Press, 2004, 59-73. Levy, David. The Economic Ideas of Ordinary People: From Preferences to Trade. London: Routledge, 2011. Louden, Bruce. “An Extended Narrative Pattern in the Odyssey.” Greek, Roman, and Byzantine Studies, 1993. Osborne, Robin. “Homer’s Society.” In The Cambridge Companion to Homer, edited by Robert Fowler. Cambridge: Cambridge University Press, 2004, 206-219. Raaflaub, Kurt A. “Poets, lawgivers, and the beginnings of political reflection in Archaic Greece.” In The Cambridge History of Greek and Roman Political Thought, edited by Christopher Rowe and Malcolm Schofield. Cambridge: Cambridge University Press, 2000, pp.23-59. Redfield, James M. “The Economic Man.” In Oxford Readings in Classical Studies: Homer’s Odyssey, edited by Lillian E. Doherty. Oxford: Oxford University Press, pp.265-287. Rinella, Michael A. Pharmakon: Plato, Drug Culture, and Identity in Ancient Athens. Lanham: Rowman & Littlefield, 2010. Rose, Gilbert P. “The Unfriendly Phaeacians.” Transactions and Proceedings of the American Philological Society, 1969, 100, 387-406. Schmiel, Robert. “Telemachus in Sparta.” Transactions and Proceedings of the American Philological Association.” 1972, 103, 463-472. Scully, Stephen. Homer and the Sacred City. Ithaca, New York: Cornell University Press, 1990. Seaford, Richard. Money and the Early Greek Mind: Homer, Philosophy, Tragedy. Cambridge: Cambridge University Press, 2004. Segal, Charles. Singers, Heroes, and Gods in The Odyssey. Ithaca, New York: Cornell University Press, 1994. Whittaker, Helène. “The Status of Arete in the Phaeacian Episode of The Odyssey.” Symbolae Osloenses, 1999, 74, 140-150. Footnotes [1] Available at the Online Library of Liberty: The Iliad and the Odyssey by Homer, translated by Thomas Hobbes. Available for purchase: The Odyssey, by Homer, translated by Robert Fagles at Amazon.com. [2] Of course, this is not the first attempt to view Homer through a rational choice lens. Dobbs (1987) considers the Odyssey as a critique of political rationalism. Seaford (1987) considers both The Iliad and The Odyssey as narratives of a breakdown of “redistributive reciprocity,” in both cases leading to conflict, and Segal (1994) considers themes of reciprocal gift exchange in The Odyssey. Redfield (2009) considers the “economic ethic” in Homer. Levy (2011) considers Homer through the lens of history of economic thought. More generally, Cowen (2008) considers how we might read novels and other works of fiction as implicit models about characters and their interaction. [3] On the ancient Greek economy, including Mycenaean times, see Bresson (2016). [4] On the specific notion of “polis” in Homer, see Scully (1990) and also Raaflaub (2000) has some interesting remarks. [5] Strikingly, Homer’s own time was one of growing cross-cultural contact and “globalization,” as discussed by Dougherty (2001), but also one of political fragmentation Bresson (2016, pp.101-102). On the earlier deglobalization of Mycenaean society, starting around 1200 BC and extending for perhaps four centuries, see Osborne (2004). [6] See Ahrensdorf (2014, pp.206-209) for a further development of this theme, including the question of how much Odysseus blamed the men themselves for their disastrous fate. To be sure, there is plenty of rational calculation in The Odyssey, most of all from Odysseus. For instance, in book 7, when Odysseus is visiting the Phaeacians, over the succession of a mere few pages we are told he spoke “with careful calculation” [7: 206], or he answered “Planning his words with careful skill…” [7: 240], or he replied to the King “With careful tact” [7: 302]. Nonetheless procedural rationality, when combined with unusual preferences, will not always rebound to the social good. [7] On this theme, see also Alvis (1995, chapter two). [8] For this point on the Sirens, see Germain (1962, p.92). [9] You don’t have to believe any one of those accounts as the “real story” of Odysseus or the real account of his motives. Nonetheless the broader implication is that there are numerous stories of the wandering of Odysseus, not all of them have him as a heroic victim, and we also should not unconditionally privilege the particular account served up in the Odyssey either. When it comes to the motives of Odysseus, Odysseus-in-disguise should not be discounted entirely. [10] See Ahrensdorf (2014, pp.216-223). [11] For a discussion of some related kinds of preferences, see Elster (1979, 1982). For a general treatment of “the irrational” in Greek thought, see Dodds (1971). *Tyler Cowen is the Holbert L. Harris Chair of Economics at George Mason University and serves as chairman and faculty director of the Mercatus Center at George Mason University. With colleague Alex Tabarrok, Cowen is co-author of the popular economics blog Marginal Revolution and co-founder of the online educational platform Marginal Revolution University. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

It is pretty clear that an economist, like a poet, uses metaphors. They are called ‘models.’ The market for apartments in New York, says the economist, is ‘just like’ a curve on a blackboard. No one has so far seen a literal demand curve floating in the sky above Manhattan. —Deirdre McCloskey, If You’re So Smart: The Narrative of Economic Expertise, 1990.1 In 1966, Martin Bronfenbrenner pointed out that the critical question about economic models is whether or not they apply in the real world. A model is only useful if the mathematical symbols can be shown to fit reality. The problem of making sure that metaphors apply matter so more than just to economists. Steven Pinker, in The Stuff of Thought, says that metaphors pervade human communication, and in fact pervade thought itself. In many realms of human knowledge ranging from politics to physics, arguments are difficult to settle. The problem is not that one person believes that a metaphor is true and the other person believes that it is false. The problem is that one person believes that the metaphor applies and the other person believes that it does not apply. In physics, for example, one might describe light by using the metaphor of a wave. Alternatively, one might use the metaphor of a particle. For some purposes, describing electrons as orbiting around a nucleus is useful. For other purposes, that metaphor does not apply. Here I want to evaluate some of the metaphors used to describe aspects of the economy. I could not possibly discuss all such metaphors, because every economic proposition that I can think of is a metaphor. Instead, I will choose a few metaphors to evaluate in terms of how useful I believe they are. Metaphors I Believe Useful I believe that the supply-and-demand metaphor is useful. It guides a student toward thinking of prices as reflecting overall systemic forces, rather than treating prices as dictated by all-powerful businesses. It also is important to understand that supply and demand curves intersect. I wish that we did not call the intersection point “equilibrium,” because that suggests stability. The metaphor I would use instead is “market-clearing price,” meaning the price at which there is neither a shortage nor a surplus. The student should understand why we expect shortages and surpluses to be only temporary, unless the government imposes price controls. I like the metaphor of “roundabout production.” It can describe a production process in which you arrive at final output by first building tools to produce that output, which is how Austrian economics thinks of capital equipment. But it can also describe the process of obtaining output through trade, as in David Friedman’s classic description of Americans “growing automobiles” by growing wheat, loading the wheat onto ships for Japan, and having the ships come back carrying automobiles. Non-economists’ Metaphors “Non-economists wallow in some metaphors that I believe are misleading.” Non-economists wallow in some metaphors that I believe are misleading. Metaphors that ignore the complexity of specialization and trade are particularly problematic. For example, the metaphor of the economy as a camping trip, where we take turns doing tasks and share the results, is one of many metaphors that lead people to over-estimate the feasibility of socialism or communism.2 Recently, I was on an airplane, seated next to a woman who was reading a book about replacing capitalism with the principle of “solidarity.” I asked her to estimate how many people were involved in building the airplane. She quickly picked up on the fact that if one takes into account the subcontractors providing components, the steel manufacturers, the miners of materials, and so on, it would add up to very many people. I then pointed out that the coordination process involved was therefore very complex. You could not just get a small group together, discuss, and then go about building an airplane. She understood the point, but unfortunately, I do not think that she let go of her socialist persuasion. Another metaphor that disturbs me is what I call the GDP factory. You think of the entire economy as producing a single good. When “aggregate demand” falls off, the factory/economy lays off workers. Spending creates jobs, and jobs create spending. Newspaper stories about the economy are forever describing it in such terms. Worse, and, sad to say, this metaphor is hardly limited to non-economists. Much of mainstream macroeconomics uses this metaphor. I prefer to think of job creation as businesses discovering new patterns of sustainable specialization and trade. They are sustainable because everyone involved earns a profit. When something happens that makes a business unprofitable, the pattern gets broken and workers get laid off.3 Economists’ Misleading Metaphors In fact, non-economists are not the only ones stuck in misleading metaphors. In my opinion, there are many metaphors used by economists that lead to more confusion that insight. One such metaphor is the metaphor of perfect markets. A perfect market requires a simple good with very many sellers competing on a level playing field. There is a “fundamental welfare theorem” which says that perfect markets foster efficiency according to a criterion known as Pareto Optimality. But in practice, the metaphor of perfect markets almost never applies. Almost every real-world market “fails” in that it violates at least one condition required for perfection. Because “market failure” is everywhere, many economists argue for government intervention in a variety of markets. This I regard as an intellectual swindle. Just because the market will not produce the perfect outcome does not mean that government intervention will do so. For more on these topics, see “The Economy: Metaphors We (Shouldn’t) Live By,” by Max Borders. Econlib, August 1, 2011. “Sick of Metaphors: Reading Shiller’s Narrative Economics,” by Sarah Skwire. Econlib, April 6, 2020. Arnold Kling on Specialization and Trade. EconTalk. Interventionists accuse free-market economists of believing that markets are perfect. But in fact, free-market advocates look at markets and government intervention as processes. We see the market process as doing a better job of providing continuous improvement than the government intervention process. But that is a topic that is beyond the scope of this essay. The key point to take away is that every attempt at economic analysis uses a metaphor. Whether the metaphor applies, and how to apply it, is contestable. We should expect disagreement. We should live with uncertainty. Footnotes [1] If You’re So Smart: The Narrative of Economic Expertise, by Deirdre N. McCloskey. Amazon.com. [2] Arnold Kling. “Camping-Trip Economics vs. Woolen-Coat Economics.” Econlib, February 2, 2015. [3] See my book, Specialization and Trade: A Re-introduction to Economics, by Arnold Kling. Amazon.com. *Arnold Kling has a Ph.D. in economics from the Massachusetts Institute of Technology. He is the author of several books, including Crisis of Abundance: Rethinking How We Pay for Health Care; Invisible Wealth: The Hidden Story of How Markets Work; Unchecked and Unbalanced: How the Discrepancy Between Knowledge and Power Caused the Financial Crisis and Threatens Democracy; and Specialization and Trade: A Re-introduction to Economics. He contributed to EconLog from January 2003 through August 2012. Read more of what Arnold Kling’s been reading. For more book reviews and articles by Arnold Kling, see the Archive. As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)

A Liberty Classics Book Review of What Should Economists Do? by James M. Buchanan.1 In November 1963, James Buchanan–newly president at the 33rd meeting of the Southern Economic Association–gave a stirring and surprising address titled “What Should Economists Do?”2 It was immediately published in the January 1964 issue of the Southern Economic Journal. The address is still viewed as one of the most important Buchanan ever wrote. It is known as a clear and unambiguous statement of what economics should not be and, as the title goes, what it should be. Much has been said about this article, yet some underappreciated aspects ought to be emphasized to understand more clearly Buchanan’s political economy and the distinction he made in his article between choice and exchange. This is indeed why “What Should Economists Do?” has become so famous, the opposition Buchanan drew between two alternative ways of defining economics. Buchanan thus insisted that, The theory of choice must be removed from its position of eminence in the economist’s thought processes. The theory of choice, of resource allocation, call it what you will, assumes no special role for the economist, as opposed to any other scientist who examines human behavior. (217) Rather, economists “‘should’ concentrate their attention… on exchange” (p. 217). They should see their discipline as “a sophisticated ‘catallactics'” (p. 214). Buchanan not only opposed choice in favor of exchange, even more surprising, he set himself against two traditions in economics, starting with Lionel Robbins. He was particularly virulent toward Lord Robbins whom, Buchanan wrote, “I take… as an adversary” (p. 214)3 because his “overly persuasive definition of economics has served to retard rather than advance scientific progress” (p. 214). He did not hesitate to suggest that the economists who followed the path opened by Robbins had not remained “within the ‘strict domain of science'” (p. 213). By contrast, since he wanted to adopt a scientific approach, Buchanan chose to travel with Adam Smith. Buchanan made two major points against the choice perspective. The first was a slippery slope argument. If economics were defined as a science of choice, and groups as well as individuals were supposed to face allocation problems, it was easy to shift from analyzing individual choices to examining the choices made by groups, “to slip across the bridge between personal or individual units of decision and “social” aggregates.” (p. 215) Adopting Robbins’s definition made this slip not only possible, but actually too easy to make. Buchanan disagreed with this tendency. In his mind, groups do not exist independently from individuals; groups do not make decisions (about the allocation of resources, or any kind of decisions). Only individuals do. Buchanan’s second point was that a science of choice ignores uncertainty or assumes that individuals “know what [they] want” (p. 217), and therefore reduces choice to a “purely mechanical” (p. 217 & 218) behavior. In the absence of uncertainty, or if individuals are assumed to be certain of what they want, their choices are not genuine. Individuals choose what they are “predetermined” to choose. A computer or any external observer could easily determine the solution to the problems raised by choices in such situations or under such assumptions. Accordingly, these are problems for scientists or social engineers, but not for economists. Thus, when adopting such a framework, economists transform their discipline into a computational and a technical science, into applied mathematics or managerial science (p. 216). They therefore deal with problems they should not address, no longer being social scientists by having become social engineers. Such opposition to choice might seem surprising under the pen of someone who, with Gordon Tullock, had written in the recently published The Calculus of Consent, “that they were proposing a theory of political choice (p. 4, emphasis added), and even a theory of praxeological choice. (p. 29, emphasis added) The contradiction is apparent only. The choice Buchanan was mentioning was different from the choice economists were commonly using, and his economic analysis of politics—actually about constitutions—had not much to do with choosing an outcome. In his mind, collective action and the political choice he was talking about in The Calculus of Consent was not about choosing an outcome, but about devising institutions to make decisions. Buchanan was developing, and had long been developing, a form of economics that focused on the ways in which individuals organize themselves collectively to deal with the problems they cannot solve privately. Buchanan’s opposition to choice and the idea that economists should try to solve the problem of allocating scarce resources (means) efficiently to reach alternative or competing ends first came from his rejection of using social welfare functions to determine resource allocation; he preferred Knut Wicksell’s approach, centered on unanimity and Pareto optimality [see Vilfredo Pareto]. He had made the point in his criticism of Kenneth Arrow’s views on institutions as a social welfare function, because he viewed democracy as a means to make decisions but to promote discussion to reconcile conflictual interests (1954b). But why such a strong opposition to Robbins? To understand it, one must refer to the exchange Buchanan had with Israel Kirzner just after “What Should Economists Do?” was published. Kirzner indeed disagreed with Buchanan. To Kirzner, and by contrast with what Buchanan had written, exchange and choice were therefore not separable. And by extension, Robbins’s work complemented Ludwig von Mises’s. This was what Kirzner argued in his dissertation, written under Mises’s supervision. Kirzner explained that Mises had developed the praxeological dimension that Robbins had failed to fully recognize. Robbin’s definition was insufficient, according to Kirzner, but it nonetheless was a step in the right direction. And Mises linked the science of human action, praxeology, to exchange or catallactics; economics or catallactics was the “best-developed part” of “the theoretical science of human action, praxeology” (1944, p. 527; see also Mises, 1949, p. 3). Kirzner wrote a comment on “What Should Economists Do?” that he sent to Buchanan in March 1964 with a letter in which he noted that Buchanan’s “excellent” paper “had caught [his] notice”. Kirzner, however did not understand why there was no mention of Mises or Friedrich Hayek in the paper. His point was that what Buchanan thought economists should do was exactly what he, Mises, and Hayek were already doing; they were focusing on exchange but remained within a Robbinsian (choice) framework. Kirzner (1965, p. 258) even found it, … obvious that Buchanan’s own characterization of economics as concerned with the implications of the human propensity to truck, can, without strain, be subsumed under Robbins’ economics. After all men do seek out exchange opportunities in the course attempts to avoid “wasting” their resources. More problematic, by separating choice from exchange, by refusing to start with choice, Buchanan refused to assume that human beings have plans. Economics, Kirzner argued, had to start from individual choice and then analyze exchange and the market process as a consequence of these choices. This is what Mises, Hayek, and Kirzner himself were doing. With the exception of Kirzner, Buchanan mentioned none of them. Buchanan replied to Kirzner that he had a section in which he cited Hayek, Mises, and Kirzner “in the first draft of [his] paper”, which he eventually “left out in later drafts for space reasons.” (Buchanan to Kirzner, 25 March, 1964) Indeed, Buchanan had written one page to clarify the differences between their respective positions; he was aware that “there [wa]s an obvious affinity here, that deserves some clarification.” (1964b, 23) He thus copied and pasted the section that had been removed into his letter to Kirzner.4 In this section, Buchanan admitted that “the Hayek, Mises, Kirzner, argument does represent a significant improvement over the open-ended “logic of choice” conception of Robbins” (ibid.). However, he was also explaining that he opposed a definition of economics centered on choice because it implied that economists should or could study any kind of human choice—Buchanan had perceived what would become a reality 25 years later, when economics started to expand beyond its traditional boundaries. In his mind, boundaries should limit the subject matter of economics. “In addition, Buchanan did not want to study exchange that would result from choice, as Mises, Hayek and Kirzner did. To him, political economists should not study exchange when it results from choice, but exchange when it is the primary purpose individuals have.” In addition, Buchanan did not want to study exchange that would result from choice, as Mises, Hayek and Kirzner did. To him, political economists should not study exchange when it results from choice, but exchange when it is the primary purpose individuals have. To Buchanan, an individual who trades because he needs what others have treats others as a resource and therefore as a means (see Marciano and Meadowcroft 2025). The individual Buchanan was interested in is someone who is primarily exchanging with others, and therefore treats others as ends and not as means. Buchanan wanted to stress that political economy is a social science, a science that studies how individuals cooperate with others, how they organize collective action. Buchanan thus distinguished between an exchange that results from choice and the exchange that comes from a desire to exchange or, as Smith had said, “the propensity to truck and barter and the manifold variations in structure that this relationship can take” (p. 214). His focus was on the later, not on the former. It is thus not as decision-makers (as choosers), or because they make decisions (choices), that individuals are an object of study for economists, but “in so far as… they exchange, trade, as freely contracting units” (p. 221). This explains why Buchanan did not refer to Mises but to Archbishop Richard Whately, who supposedly coined the term ‘catallactics’ in his Introductory Lectures on Political Economy published in 1832. Among other important things, Whately had said that it is as “[a]n animal that makes Exchanges… alone that Man is contemplated by Political Economy” (Whately, 1832, 7). Not the acting man of Mises nor the economizing man of Robbins. As Buchanan said in his reply to Kirzner: “I concentrate only on that individual choice behavior that involves conscious cooperation among individuals, and upon those institutions that evolve as a result of such behavior.” (Buchanan to Kirzner, 25 March 1964) This is indeed what Buchanan explains in the part of his article devoted to exchange and catallactics. An economist for whom economics is a science of choice, for example, would focus on the choices Robinson Crusoe makes when he deals with his environment. In that case, Robinson Crusoe has a computational problem to solve (p. 217)—the kind of problem economists should not study. Robinson Crusoe also had computational problems when he interacted with Friday as if the latter was part of his environment, as part of nature. Crusoe then does not treat Friday as if he was a human being with whom interactions could develop, but “simply as a means to his own ends” (p. 218) Transactions could take place, obviously. They were exchanges, as if the two individuals were choosing goods and not exchanging with other human beings. These were purely computational problems; they were mechanical and involved no uncertainty. These were not problems economists should study. To Buchanan, economists (i.e., political economists) should study the interactions Robinson Crusoe and Friday have when they are primarily trying to exchange, when they do not treat one another as means but as ends. They should thus study the trades, exchanges that take place when individuals explicitly and consciously interact with one another. When Robinson Crusoe and Friday face each other, as long as they do not treat each other as a means, “a wholly different, and wholly new, sort of behaviour takes place, that of exchange, trade, or agreement” (p. 218). Here, one finds another issue of particular importance—conflict (versus cooperation). When Robinson Crusoe treats Friday as part of nature, as if they were totally independent from each other, he makes choices that are not part of the subject matter of economics because they are conflictual. Economists, Buchanan said, should study only the transactions that are cooperative. That was precisely what ‘catallactic’ meant to Buchanan. The research program Buchanan presented in “What Should Economists Do?” revolved around economics defined as a science of cooperative collective action. To discuss this aspect of economics, Buchanan introduced a second concept, “symbiotics”. “Symbiotics” means “the study of the association… mutually beneficial… between dissimilar organisms” (p. 217) and “conveys, more or less accurately, the idea that should be central to our discipline” (p. 217), the idea of a discipline that studies a “relationship” based on “association” and “cooperation” (p. 217). Thus, when Crusoe treats Friday as part of nature, “a ‘fight’ ensues, and to the victor go the spoils. Symbiotics does not include the strategic choices that are present in such situations of pure conflict.” (p. 218) Economics as catallactics, and thus as symbiotics, was not only a science of exchange, it was also a science of cooperation, a science that studies how individuals cooperate to exploit mutual gains from trade. It was also an optimistic science of cooperation since, as Buchanan noted, “Individuals are observed to cooperate, to make agreements, to trade.” (1964b, p. 219; italics added) Buchanan did not doubt that individuals would cooperate, trade, and devise arrangements to organize these trades. Certainly, Buchanan was no dreamer; cooperation was not always warranted. But he believed that individuals would always find a solution, if a solution exists. This is also in contrast with economists who believe in market failures. The latter believe that the failure to allocate resources efficiently is the end of the process. Buchanan believed that failure is only a step towards a solution. According to Buchanan, once a failure has been observed, if private arrangements fail, then individuals will nonetheless “search voluntarily for more inclusive trading exchange arrangements.” (p. 220) And if this kind of arrangement, private and collective, did not work, and if a solution was required, individuals then look at a higher stage, accepting “the need for transferring, again voluntarily, at least at some ultimate constitutional level” (221) the activities that were raising problems at the private level. For more on these topics, see “What’s the Economist’s Point of View?” by Adam Martin. Library of Economics and Liberty, September 7, 2020. “What Should Economists Do? An Appreciation,” by Donald J. Boudreaux. Library of Economics and Liberty, March 4, 2019. “Robinson Crusoe: Not Exactly Isolated,” by Steven Horwitz and Sarah Skwire. EconLog, January 17, 2020. From this perspective, “What Should Economists Do?” is also a paper that demonstrates Buchanan’s optimism and belief in human nature, his conviction that individuals were “reasonable men, capable of recognizing what they want, of acting on this recognition, and of being convinced of their own advantage after reasonable discussion” (1959, p. 134). This optimism progressively faded away. Barely two years later, in “Economics and Its Scientific Neighbors,” (1966) Buchanan was already reconciling choice and exchange—economics as a logic of choice and as a science of exchange (see also “Retrospect and Prospect”, 1979). Buchanan was still building his research program. This ultimate evolution makes the 1964 article even more important, as a moment in Buchanan’s trajectory, as a step towards a refined view on economics. References Buchanan, James M. (1954). “Social Choice, Democracy, and Free Markets.” Journal of Political Economy, 62 (2): 114-123. Buchanan, James M. (1959). “Positive Economics, Welfare Economics, and Political Economy.” Journal of Law and Economics 2 (October): 124-138. Buchanan, James M. (1964). “What Should Economists Do?” Southern Economic Journal 16(2), 168-174. Reprinted in What Should Economists Do? Indianapolis: Liberty Fund. Buchanan, James M. (1966). “Economics and Its Scientific Neighbors.” In What Should Economists Do? Indianapolis: Liberty Fund, pp. 115-142. Buchanan, James M. (1979:1). “Retrospect and Prospect.” In What Should Economists Do? Indianapolis: Liberty Fund, pp. 279-284. Buchanan, James M. (1979:2). What Should Economists Do? Preface by Geoffrey Brennan and Robert D. Tollison. Collection of essays. Indianapolis, Liberty Fund, Inc. Buchanan, James M., and Gordon Tullock. (1962). The Calculus of Consent: Logical Foundations of Constitutional Democracy. Ann Arbor: University of Michigan Press. Kirzner, Israel M. (1960). The Economic Point of View. An Essay in the History of Economic Thought. Kirzner, Israel M. (1965). “What Economists Do.” Southern Economic Journal, 31(3), 257-261. Marciano, Alain and J. Meadowcroft. (2025). “Buchanan’s theory of emancipation: Artifactual man in perspective.” in M. Novak (ed), Liberal Emancipation: Explorations in Political and Social Economy, Springer, forthcoming. Mises, Ludwig von (1944). “The Treatment of ‘Irrationality’ in the Social Sciences.” Philosophy and Phenomenological Research, 4(4), 527-546. Mises, Ludwig von (1949). Human Action: A Treatise on Economics, New Haven, Yale University Press. Whately, Richard. (1832), Introductory Lectures on Political Economy, London: B. Fellowes. Footnotes [1] James M. Buchanan, What Should Economists Do? Preface by Geoffrey Brennan and Robert D. Tollison. Collection of essays, including Buchanan’s “What Should Economists Do?” Indianapolis, Liberty Fund, Inc. [2] James M. Buchanan (1964). “What Should Economists Do?” Southern Economic Journal 16(2) [3] In a first draft, he had noted “an adversary” then switched to “my adversary”, making the claim even more personal, before switching back to “an adversary”. [4] In particular, Buchanan had noted, “I want, if possible, to be able to develop conceptually refutable hypotheses about this particular set of human behavior problems” (1964a, p. 24). This seems to show that Buchanan was aware of the criticisms that Kirzner could (and did) raise against his position. *Alain Marciano is a Professor at the University of Turin in the Department of Economics and Statistics and member of the LAMETA (UMR CNRS-INRA 5474) research center in Montpellier. He is also a distinguished affiliated fellow with the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics. His work focuses on the history and methodology of recent economics and, more specifically, Law and Economics and Public Choice. (0 COMMENTS)

The ESG agenda (an acronym for Environmental, Social, and Governance) was born at the United Nations and has been amplified by investors and governments year after year, quickly gaining substance and influence. The balance between the drive for profit generation and the implementation of the ESG agenda has presented a tremendous challenge to both managers and investors. A sort of conflict between traditional and new (which include ESG) models has been on the table, with solid support for the latter. At some point, this agenda started impacting the reputation of companies, and its influence on business decisions has been very significant. Rankings and certifications compare the performance of companies in meeting goals that are in harmony with the objectives of the ESG agenda and publicly promote those that stand out from the rest. The core topics covered by the ESG agenda are very relevant. It is common sense that everyone should care about the planet and avoid pollution; providing the same treatment to anyone is an essential goal in a free society, and improving corporate management is also a priority. But having said that, we also need to point out that, after becoming a hugely popular trend, an open debate on the pros and cons of the ESG agenda, as it has been conducted, has become unviable. Even without clear standards, the conclusion has been that either you comply, or you must be penalized. The strength of political correctness and semantic control further complicates this restriction. To better address this dilemma and understand how corporations should deal with the ESG agenda, we must first pose a fundamental question: what is the purpose of corporations? On one side is the shareholder model, any corporation should be concerned with generating profit and long-term value, always putting the company and its shareholders (noting a subtle difference between the American and British models) first. By generating profits and maximizing the company’s value in the long term, and by focusing on shareholders, companies end up generating results that benefit their employees, suppliers, and society in general through tax collection and other initiatives. This would be the actual social function of the company, and this would be the effective fulfillment of the public interest. Following this line of thought, the system of free exchange is decisive in generating wealth, and the public role should be directed only to ensure the integrity of such a contractual system. In this system of social cooperation, through which parties freely celebrate exchanges, development is generated, and poverty is reduced. On the other side is the stakeholder model, which places the interests of shareholders and all others who can be directly or indirectly impacted by the company, no matter how complex the extent of that list may be, on equal footing. This model, which has Germany as a reference, includes several themes beyond profit in the strategic decisions to be made by those who manage the companies. In addition, it demands more public regulation. When making a strategic decision in this model, the company may eventually renounce profit due to other social impacts such a decision could entail. In the shareholder model, customers may prefer to buy products and services from companies that care about protecting the environment and reducing environmental and social impacts. Similarly, investors may feel more secure investing in companies whose governance they consider solid, with management tools that ensure the correction of their internal processes, compliance with the law, and the implementation of a model focused, with transparency and consistency, on results. Companies will naturally consider all these aspects as they will positively impact their journey. The risk of political interference is also considered in the shareholder model. The lesser the risk of governments trying to interfere in the smooth running of businesses, such as trying to appoint politically oriented people to management positions, the better. Governments increase risk, raise financial costs, harm business strategy, and penalize the company, its employees, and society itself. Finally, both consumers and investors may freely choose companies that prioritize profit and long-term value generation and, at the same time, spontaneously take good care of their employees, respect people regardless of who they are, excel in management, and maintain a good relationship with the communities where they are situated. In the stakeholder model by contrast, the attention to the ESG themes reverses the order of the other model. Doing so creates a fertile environment for the company to be a victim of confusion between political interests and private property. By the nature of the model, there is a demand for increasing the regulation. Such demand, even clarifying duties and procedures, eventually imposes transaction costs and bureaucracy on companies, which often cannot meet many requirements. This can also happen in environmental, social, and governance issues, as they require more bureaucratic internal inspection and auditing procedures, such as those that emerged with legislation that appeared after major corporate scandals, like VW, Enron, and WorldCom. The public interference and the loss of balance between cause and consequence open space for a semantic war and tremendous pressure on companies, undermining private property and imposing, through regulation, what cannot be imposed through political pathways by legislative deliberations. “Companies can harm their results by following a more ideological orientation, while other companies can benefit from their competitors’ politically driven decisions.” It also opens space for business decisions to be made based on new trends but not necessarily observing them. Companies can harm their results by following a more ideological orientation, while other companies can benefit from their competitors’ politically driven decisions. The case of the energy company Glencore is an interesting example. At some point, while its competitors divested their businesses associated with carbon emissions, Glencore maintained its position (and even expanded it). When a significant increase in demand followed due to a series of externalities, Glencore saw its market value materially rise, in contrast with what its competitors observed. Another example is the fast fashion industry. There is a rapidly growing number of firms who, without taking care of the environment, without prioritizing their employees, and disregarding tax rules, offer cheaper products and as a result gain market share rapidly, with great success among the public who, theoretically, could be more sensitive to the ESG agenda. And there is the financial market, raising funds for allocation in businesses guided by the ESG agenda. In several cases, the costs charged for these investments are higher than those of traditional industry, and the financial results are worse. In other words, investors lose. To avoid this situation, managers quietly diversify green investments by moving to businesses of different sectors. This generates even more confusion in the criteria for certifying ESG businesses, undermining the credibility of this agenda, which also shows itself from this angle as more political than profit oriented. The interference of ESG in the business world begets even more demand for government due to the increasing regulation it prompts. The increases in transaction costs and tax burdens on firms, whether ESG oriented or not, will open space for rent seeking- for companies to demand subsidies, grants, and pleas for market reserves through the imposition of licenses or the taxation of imports. This inevitability is the root of corruption. Could there be anything more contrary to the ESG agenda than such consequences of negative social impact? Companies must care about their strategies. On the one hand, they must not lose sight of their reason for being, which is, by complying with the laws, to generate profit and value in the long term, prioritizing shareholders. For that, we should always get a more back-to-basic attitude. On the other hand, when seeking profit, corporations must strive to enchant customers with competitive products and services that, as much as possible, allow the identification and representation of feelings and values in an environment of freedom. For more on these topics, see Regulation, by Robert Litan. Concise Encyclopedia of Economics. Paul Mueller on ESG. AdamSmithWorks Podcast, August 23, 2024. Rebecca Henderson on Reimagining Capitalism. EconTalk. Emphasizing the success of corporations is crucial; their growth directly contributes to societal benefits. The wealth businesses generate plays a vital role in alleviating poverty. Since governments cannot and do not create value, introducing new agendas into corporate operations must be cautiously approached. Recognizing the importance of the ESG agenda and its implementation is essential. Yet, it is critical not to overlook the fundamental purpose of corporations: to generate profit while adhering to regulations and creating long-term value for shareholders. *Carlos Fernando Souto is an attorney and founding partner of the firm Souto Correa. He has wide experience in corporate law, having led complicated dispute resolutions, product liability, and corporate and regulatory matters for national and international clients in many different areas, including technology, finance, energy, consumer products, and manufacturing. (0 COMMENTS)

[ANNUAL LISTENER SURVEY: https://www.surveymonkey.com/r/KYV5XPG. Vote for your 2024 favorites!] Under settler colonialism, you’re either a settler or indigenous and the sin of the founding of America, Australia, and Israel, for example, is not just a past injustice but a perpetuating mistake that explains the present. Listen as poet, author, and literary critic Adam Kirsch explains […] The post Understanding the Settler Colonialism Movement (with Adam Kirsch) appeared first on Econlib.

In a recent post, Tyler Cowen offered the following criticism of my views on inflation: More seriously, Scott seems to dismiss the price level concept altogether. For instance he once wrote: “In the past, I’ve frequently argued that inflation is an almost meaningless and useless concept. I’m not even aware of any coherent definitions of the concept.” I don’t think this is a defensible point of view, and you have to compare Scott’s criticisms of the o1 model to his own approach, which is fairly nihilistic. And I think wrong. If inflation were higher and someone offered Scott an inflation-indexed contract to sign, would he be unable to evaluate such a transaction? Obviously not. In a previous post, I provided a fairly detailed response to this criticism. More recently, Bryan Caplan directed me to a 2004 post by Tyler that seemed almost as nihilistic: Peter Gordon looks at a 1902 Sears Roebuck catalog and asks whether money was worth more back then.Of course it depends how much you are given. $5.00 back then goes a longer way, but I would rather earn $100,000 a year today, and yes that is not adjusting for inflation. For Peter modern pharmaceuticals are the clincher: Would you want their best 1902 camera for $7.90? Probably not. High-end cutlery for 6 for $1.79? Why not? A great western saddle for $8.95? Sure.It’s the Sears “Drug Department” that is the real eye opener. “Fat Folks, Take Rose’s Obesity Powders and Watch the Result … $4.20 per dozen boxes.” Herb laxative teas for 16 cents a box may be OK. Dr. Rose’s Arsenic Complexion Wafers 35 cents a box may have few takers today. Vin Vitae for 69 cents (“Not a Medicine … Not Merely a Tonic”). The “White Ribbon Secret Liquor Cure” went for $2.50 a box. The list goes on and does focus the mind. My question for today: Does this mean that we should adjust the gdp deflator series to show ongoing deflation for the 20th century? At the time the post was written, official price level data showed the cost of living to be nearly 20-fold higher than in 1900, and yet Tyler expresses doubt as to whether there had actually been any inflation at all! Perhaps I expressed my views with more over-the-top language than Tyler, but I believe he shares my skepticism as to whether adjusting wage income by government price indices allows us to ascertain how living standards have evolved over time.  (1 COMMENTS)

  How I removed squatters in less than a day. from Outside the Box with Flash Shelton, from more than a year ago. Hard to excerpt. The guy tells how he creatively and non-violently (and even somewhat humanely) got squatters out of his house so that he could put it on the market.   The Best Medicine in the World? by Leonidas Zelmanovitz, Law & Liberty, January 1, 2025. Excerpt: Therefore, I hurried to consult a specialist to arrange for surgery to solve the problem definitively. He graciously received me the next day. After discussing the best procedure for my case, to my disbelief, he told me he was only able to schedule an appointment with a surgeon no earlier than three weeks later. The surgeon would then tell me how many weeks or months it would take him to schedule the surgery. Only after I insisted did the specialist give me an antibiotic to prevent an infection. By then, I realized that according to the “protocols” followed in the United States for similar cases, once the emergency has passed, the procedure to address the problem is considered an “elective” one. So, no priority is given to people in my situation—at least in the United States. When I called my old doctor in Brazil, he was able to perform the same procedure the American recommended the following Sunday. I do not question the technical skills or common decency of the professionals I interacted with in the United States—the service I got at the ER was fast and skillful, solving an issue that could have quickly escalated to a life-threatening condition. Nonetheless, there is no question that I got better and timely treatment in Brazil at a fraction of the cost of performing the same procedure here in the US. The question then is, why is that so?   Can We Have Health Care Without Health Insurance Companies? by John C. Goodman, Forbes, December 29, 2024. Excerpt: An important tool private insurers use to avoid unnecessary spending and inappropriate care is to require preauthorization for a particular drug, therapy, or procedure. Doctors tend to regard these procedures as burdensome and irksome. Yet only 7.4% of requests by patients in Medicare Advantage and Medicaid managed care plans are denied. Moreover, in the vast majority of appeals (83.2%), the initial denials are overturned. If you follow the health policy literature, you might be led to believe that the denial rate is a special problem in Medicare Advantage. In fact, the denial rate in Medicaid is twice that of the Medicare Advantage rate. Some policymakers have decided to take aim at the use of AI in generating denials. At the same time, some doctors are using AI to file their appeals—greatly reducing the time to file and increasing the success rate. Yet both trends should be applauded if the desire is to make the entire process more efficient. Overall, our health insurance system can be improved, and scholars associated with the Goodman Institute have proposed many ways to do that. But we cannot have a system that works well without companies that perform the functions health insurers are performing today.   Green Electricity Costs a Bundle by Bjorn Lomborg, Wall Street Journal, January 1, 2025. Excerpt: As nations use more and more supposedly cheap solar and wind power, a strange thing happens: Our power bills get more expensive. This exposes the environmentalist lie that renewables have already outmatched fossil fuels and that the “green transition” is irreversible even under a second Trump administration. The claim that green energy is cheaper relies on bogus math that measures the cost of electricity only when the sun is shining and the wind is blowing. Modern societies need around-the-clock power, requiring backup, often powered by fossil fuels. That means we’re paying for two power systems: renewables and backup. Moreover, as fossil fuels are used less, those power sources need to earn their capital costs back in fewer hours, leading to even more expensive power.     (0 COMMENTS)

If you urgently want a product from somewhere in the free world and you are willing to pay the price, the worst “shortage” you will experience is the cost of flying there or hiring a “personal shopper.” As I previously wrote in response to an EconLog comment, “if you were willing to pay and you need a croissant before tomorrow morning, you can hop on a plane for Paris.” If you find that too expensive, there is no shortage but simply a price you are not willing to pay (I previously called that a “smurfage” as opposed to a shortage). The most costly obstacle, sometimes prohibitively costly, would be government regulation. There are also companies, such as Grabr or AirWayBill, who offer to match the non-rich with travelers who will, for a modest fee, get what you want when they are there and deliver it to you in person when they are back. (See “Your Personal Shopper … On the Other Side of the World,” November 23, 2024.) It might take you a few days or weeks to get it, though. The beauty of trade (on which I wrote a previous EconLog post) does not stop there, of course. Most of the beauty is invisible in our daily purchases, thanks to the merchants and other professional middlemen including retailers who brought the product close to you, or imported some of its components from distant places. But a Wall Street Journal story of last week gave another micro and personalized example of how trade brings to ordinary people what they could not otherwise obtain (Joel Millman, “1,800 Miles to Satisfy a Craving: Meet the World’s Most Dedicated Food-Delivery Guy,” January 2, 2025). Maik Chavez, 36, is the owner-operator of Maik Express, a business in Guatemala where he lives. He is part of a cottage industry of individual couriers, called viageros or travelers, who deliver home-made meals and other goods from Guatemala to Guatemalan Americans who order them or receive them from friends or family in their country of origin. Last year, Maik made 38 runs to cities in five U.S. states, each individual run lasting less than 48 hours. He carries his wares as personal luggage on his flights. He charges a flat fee of $12 a pound. One of his new customers is Virginian resident Verónica Romero, who earns a living as a home-cleaner; she paid $240 in cash when Maik delivered her exotic home-made food for Christmas. Fortunately, our benevolent government surveils and controls: Chavez travels under a B1/B2 business visa that won’t expire until November 2027. Under the terms of his entry, he can’t stay more than five days at a time per excursion, nor can he make more than $2,000 on any visit. He says he averages $1,500 or so after expenses and pays Guatemalan taxes on his profits.   ****************************** When I was preparing to draft this post, I recalled reading an article on international personal shoppers, but I couldn’t find it. I have often joked that I face a big research assistant “shortage”: I direly need one but I can’t find one on the market for $3 an hour. Perhaps Chat GPT can solve my smurfage problem? I asked him or her: “Can you find the title or url of a story I read several months ago (perhaps one or a couple of years ago) about intermediaries who will go and get whatever somebody (presumably rich) wants in a foreign shop and delivers it in person?” After five seconds of “reflection,” she replied, “You might be recalling the article titled ‘Your personal shopper . . . on the other side of the world,’ published by the Financial Times on November 23, 2024. This piece discusses services like Grabr, which connect buyers with travelers to purchase and deliver goods from foreign shops, catering to clients seeking items unavailable or expensive in their own countries. The article highlights how these intermediaries operate, often delivering luxury items directly to consumers.” Included was the link to the FT story. This was precisely the article I was looking for and which I link to above—even if I was wrong on the timing and source! I told her she was “a good robot,” and instructed her to draw an image illustrating the Wall Street Journal story I also cite in my post and which I uploaded to her. The featured image of this post (reproduced below) is the best one of half a dozen images she produced; far from perfect, but for the price… An entrepreneur from Guatemala (0 COMMENTS)

How I saved almost half my gross salary by living like a graduate student for a little over a year. Kevin Corcoran’s post on toasters today was excellent. Early in the piece, he talked about how he managed to spend little money when furnishing an apartment. He didn’t say much about what his income was at the time, but I assume it was relatively low. It reminded me of my situation in 1975, when I moved to Rochester, NY as an assistant professor in the University of Rochester’s Graduate School of Management. My income wasn’t low; it was high. Including summer money for the summer of 1976, it was approximately $20,000. Adjusted by the Consumer Price Index (which, admittedly, overstates inflation), it was about $116,000 in November 2024 prices. But I had an added constraint. I arrived at the U of R on an F-1 student visa and without my dissertation being done. I was able to be a faculty member because I was engaged in “practical training.” The government allowed up to 3 6-month stints of practical training. That would take me to January 1977. I calculated that I had to finish my dissertation and have it approved by early December 1976 so that I could get the Ph.D. in 1976 and have the U.S. Labor Department certify that no American could do my job (I was that special!) and, therefore, I could get my green card. But what if I didn’t finish by then? I was still in the midst of getting data from various state mining authorities. (My dissertation was on the effects of safety legislation in underground coal mines.) I didn’t know how fast my main advisor, Harold Demsetz, would be at getting me feedback on chapters. (He turned out to be great, but I didn’t know that in advance.) A number of things could go wrong. I needed a Plan B. And having a plausible Plan B would reduce my stress at pursuing Plan A: writing my dissertation on time. Here was my Plan B. One provision of the immigration law at the time stated that if you came to the United States to start a business and invested at least $10,000 in the business, you could get a green card. (The amount today has been adjusted to $500,000.) So my goal was to save at least $10,000 and, if I didn’t get my dissertation done in time, start a business. What business? I would start a book store and have it open from 1:00 p.m to 5:00 p.m. I would spend my mornings, my most productive time, finishing my dissertation. I started off at a deficit. I owed my ex-wife $1,000 and, because she had to get major repairs on her car, I sent her an extra $1,000. So that took a large hunk out of my first few months’ pay. My plan was to live like a graduate student. I had already lived like that for 3 years and had done without a car in Los Angeles. I would buy a modest-priced car (which turned out to be a lemon, but that’s another story) on credit. I found a very modestly priced 2-bedroom apartment. I heard about it from two secretaries at the U of R who had shared it but were going their separate ways. When someone asked me how I would furnish my apartment, I replied that the motif was “early American graduate student.” I bought a used bed, a used couch, and a used kitchen table and chairs. (By the way, the kitchen table and chairs lasted well into the 1980s.) I already had dishes, a stereo, records, and a bicycle, all of which I brought from Los Angeles. I was set. I rarely went to restaurants and, if I did, it was closer to McDonald’s than to Steak and Ale. Funny story: when I interviewed there, Richard Thaler was on the faculty. He told me that there were almost no good restaurants in Rochester. It turns out that he and I had a very different view of “good.” To me, somewhat better than McDonald’s qualified as good. Remember that I also had moved to high-tax state and I was single. This was before inflation-indexing of the tax brackets, either in New York or in the United States. And I had few deductions and even less idea of how to maneuver within the tax system. So taxes took a large bite. The one saving grace–and it was a big one–was that because I wasn’t a resident, I was exempt from Social Security. So, with all that, how much did I save by the late fall of 1976? Are you ready? $9,200. It would have been easy to ask my father, a man of modest means, for a loan of $800 to get me to the magic $10,000 mark. And, to put it in perspective, I lived better than I had as a great student. If, for example, I wanted to take a woman for a drink, I could so occasionally. If I wanted to drive up to Toronto and see my sister and a few friends, I could do so. That was a good lesson in saving that served me well when, in the 1990s, we sent our daughter to an expensive private school from Grade 5 on and then to an expensive private college. If you detect more than a little pride in my telling of this story, you have a good detector. I’m still very proud of what I did. That saving turned to be important in my busing my first house, in 1978. By the way, my strategy didn’t work in the short run. In July 1977, the Immigration and Naturalization “Service” turned me down for a green card and immediately began deportation proceedings. But that’s also another story.   The picture above is of a used couch. (0 COMMENTS)

Watch what they do, not what they say.Government officials frequently tell us that global warming is an existential threat. And yet when it comes to public policy, the issue is treated almost as an afterthought. For example, the US currently blocks the importation of Chinese electric cars. If BYD’s excellent and very inexpensive EVs were allowed to be sold here, they would rapidly gain market share. It seems that a few union jobs are more important than global warming.We are frequently told that China is the greatest threat to US national security, and that we need to work with our “allies” to counter that threat. So what are we to make of the following story? President Joe Biden has blocked the $14.1 billion sale of United States Steel Corp. to Nippon Steel Corp., killing a high-profile deal that sparked a political firestorm and tensions between the US and Japan. . . .“We need major US companies representing the major share of US steelmaking capacity to keep leading the fight on behalf of America’s national interests,” Biden said in a written statement, adding that the deal “would place one of America’s largest steel producers under foreign control and create risk for our national security and our critical supply chains.” We claim that Japan is one of our closest allies.  We demand that they sacrifice economic growth by refraining from the export of high tech products to China.  They accommodate our wishes.  And then when a few union jobs are threatened, we turn around and treat them like an enemy nation. This is not about where the steel gets produced.  Nippon Steel would not be offering $14 billion for US Steel if they planned to shut the firm down.  Rather the fear is that Nippon would make US Steel more efficient, and that this might cost a few jobs.  In the long run, however, inefficiency leads to unemployment.  Thus it’s not even clear that US steelworkers will benefit from the president’s decision: Biden’s announcement was a massive victory for United Steelworkers President David McCall and his union’s leadership, who have been vocally opposed to the deal, even as some rank-and-file labor members spoke out in favor of it.   (0 COMMENTS)