The historic—and horrific—fires that have decimated Los Angeles-area neighborhoods have been attributed to obvious causes, not the least of which include the two recent “wet years” that increased vegetation growth on hillsides and in backyards, followed by the last twelve months of drought that turned the added foliage into highly combustible fire fuel. Many experts have pointed to climate change as the reason behind the rainfall variation and weather extremes, such as the hurricane-force Santa Ana winds that rapidly spread the fires.  Fire abatement readiness has also come under attack, with cuts in fire department budgets contributing to fire hydrants losing water pressure and running dry as firefighters fought desperately to save homes and lives. Consider another unheralded but aggravating cause of the fire damage, the area’s low water rates. In a 2022 study, John McKenzie (at the time with a major water-pipe manufacturer) and I reported that LA-area residents, who live in a near-desert climate, pay lower water rates than people in states with four or more times SoCal’s annual rainfall. At the time, in Irvine, I paid less for a hundred cubic feet of water than the price of a large Snickers bar, which is one reason I and many Irvine residents maintain overgrown backyard plantings. Of course, low water rates have had several effects, including increasing the recent fire damage. The lower rates have induced people to use more water in a variety of ways, which has been a factor in draining the area’s reservoirs and making aerial water drops more difficult. They have encouraged individual homeowners to develop tropical backyards. In doing so, they will be imposing greater fire risks (or costs) because this added foliage eases the spread of flames across neighborhoods (an outcome that has all the markings of a tragedy of the commons, similar to pollution, or an outcome few could have wanted). Those added fire risks can become real costs with the recent confluence of months of drought and the advent of fierce Santa Ana winds. This means that the conflagrations in Pacific Palisades, Altadena, and Malibu can be partially attributed to politically set low water rates, not just to “acts of God” and governmental incompetence, as critics have emphasized.  But there is more: The city of LA loses more than a billion gallons of water annually from known water pipe leaks. Of course, it doesn’t know how many more billions of gallons are lost to unknown pipe leaks. Water authorities sometimes delay repairs until the pipes erupt into thirty-foot geysers, imposing serious property damage and injuries.  Why aren’t leaking pipes repaired when discovered? The economic answer is well worn: Costs exceed benefits, which in LA’s case means that the cost of repairing pipes is greater than the saleable value of the recovered water—at low water rates! Unknown leaks could be detected with available surface detection technology but SoCal cities, not just LA, sometimes avoid searching for repairable leaks for economic reasons. First, detecting leaks can cost hundreds of dollars per mile. Second, if more leaks were detected, water authorities would be pressed to cover the costs, which, because of low rates, can’t be recovered. The additional repair costs can force curbs in other water-infrastructure projects needed. Higher water rates can be “rainmakers,” of a sort. Higher water rates can cause water conservation through less water “waste” and replacement of tropical foliage with more drought-tolerant landscaping. The greater water revenues can governments with the means to repair out-of-commission fire trucks. Homeowners will also have an added incentive to find and repair leaks. The resulting higher water levels in reservoirs can make aerial firefighting more effective.  Higher water rates can fire damage, deaths, and injuries—as well lowering coming fire insurance hikes (and maybe even the overall costs of living in paradise).   Richard McKenzie is an economics professor, emeritus, in the Merage School of Business at the University of California, Irvine and author, most recently of Reality Is Tricky: Contrarian Takes on Contested Economic Issues. He is co-authored with John McKenzie of “California Leaking: People, Pipes, and Prices.” (0 COMMENTS)

Once in a blue moon, President Donald Trump has a fleetingly good intuition or does something seemingly good (“good” from the point of view of preserving the hope of a free society). This is part of the problem. Consider the announced closing of the “Environmental Justice and External Civil Rights Office” in the Environmental Protection Agency (“EPA Begins to Put Environmental-Justice Workers On Leave,” Wall Street Journal, February 6, 2025). The very name of the bureau indicates that it should not exist. Let’s forget the mystery of the “external civil rights” (perhaps related to the future civil rights on Mars?) and focus on “environmental justice.” It degrades the central ideal of justice in law and political philosophy into a faddish political pursuit. But this does not justify fighting this unicorn or other woke ideas with similarly absurd or authoritarian approaches. Interestingly, since the electoral campaign of 2016, Mr. Trump has been undermining real justice, of which the rule of law is inseparable, whenever it appeared to conflict with his self-interest. Different clowneries do not make a better political philosophy than wokeness. As a sample, consider the threat of tariffs against Americans (a tariff is a tax on importers), which will also harm Canadian and Mexican producers; saving TikTok after trying to ban it in 2020, and even proposing to transform it into a state or mixed corporation (see my forthcoming “TikTok, Public Choice, and the Theater of the Absurd” in the Spring issue of Regulation); annexing Greenland by force if necessary or transforming Gaza in “the Riviera of the Middle East,” despite Mr. Trump’s promise to end “forever wars.” And counting. Trump does a few good things in bad ways and lots of bad things in between. If he has any (intuitive) ideology, it is the supremacy of collective choices, especially when he is the one to make them in his own personal interest. Federal government practice has tried to make wokeness compulsory. Now, Trump is trying to ban it, as if there were only two modes for any individual choice: compulsory or banned. (However, I have defended the case that sexual mutilation of children should be off-limits.) This approach leads to funny government rhetoric, such as his February 5 Executive Order “Keeping Men Out of Women’s Sports”: the Secretary of Education, it is said, shall promptly prioritize Title IX enforcement actions against educational institutions (including athletic associations composed of or governed by such institutions) that deny female students an equal opportunity to participate in sports and athletic events by requiring them, in the women’s category, to compete with or against or to appear unclothed before males. The United States is a large, diverse country. Suppose that somewhere a private college, which nobody is forced to attend, offers mixed athletic competition. Why would the federal Big Brother object? But if both A and non-A are true, nothing can be surprising. In the department of funny things, recall what Trump said before the 74th Session of the United Nations General Assembly on September 24, 2019: We stand in solidarity with LGBTQ people who live in countries that punish, jail, or execute individuals based upon sexual orientation. Of course, there is nothing funny in tyrants punishing unusual private sexual tastes. Such tastes should be neither forbidden nor encouraged. The danger is that bad or incoherent intuitions and their ultimate failure will lead both bad-faith individuals and well-meaning people to reject individual liberty because they have also been led to believe, incredibly, that this is what Trump and his sycophants defend. (See my New Year post “A Dangerous Pass in 2025 and Beyond.”) (0 COMMENTS)

Why do we buy stuff we don’t need? Maybe for the same reason that some people can’t stand stuff at all. Listen as author Michael Easter speaks with EconTalk’s Russ Roberts about how two seemingly opposed approaches to our possessions–minimalism and hoarding–may stem from the same impulse to cope with uncertainty. They also discuss the downsides of minimalism and how […] The post Minimalists and Hoarders (with Michael Easter) appeared first on Econlib.

I’ve been very discouraged by the global rise in nationalism. But there is one glimmer of hope. Nationalism is often its own worst enemy.Consider the current situation in North America. President Trump clearly dislikes Canada’s Liberal party (especially Justin Trudeau), and would vastly prefer a Conservative government take power north of the border. But Trump has recently antagonized the Canadian public, mostly over border control issues that seem of minor importance. [You might think that Trump’s comments on Canada becoming the 51st state and the threat of 25% tariffs are no big deal, but recall this scene in Mad Men.] Right before Trump’s recent criticism of Canada, the Conservative party had more than a 20 point lead in the polls, a lead that was expanding over time.  Just a week later, much of that lead has vanished: [As in most normal countries, red refers to the left of center party.] A few caveats: There is still a great deal of time before the fall election, and I still expect the Conservatives to win. The Canadian Conservative leader is not an authoritarian nationalist. But the second point actually strengthens my argument.  The US as a whole and Trump in particular is now so unpopular in Canada that a more Trump-like Canadian politician would have suffered an even bigger drop in the polls.  The US national anthem is now being booed at sporting events in Canada.  Trump recently split with Britain’s nationalist right over Trump’s support for a politician considered too extreme even for the Reform Party leadership. If the US starts imposing tariffs on our trading partners, that might further reduce the popularity of Trump among the European right.  Given enough time, nationalism always breeds international conflict.  Let’s hope it remains economic conflict. PS.  Slightly off topic, in a recent post I suggested that bigotry was becoming more fashionable on the right, an unfortunate side effect of a very welcome pushback against woke cancel culture.  Do I have any recent evidence for that claim? When Marko Elez recently quit his DOGE job after he was shown as having been behind some offensive tweets, many people focused on the “racism” aspect.  I was much more interested in the fact that he thought his own views were now becoming “cool”: In his online comments under a pseudonym, Elez within the last year advocated for “eugenic immigration policy” and rolling back the Civil Rights Act, according to a Wall Street Journal report. “Normalize Indian hate,” one post said. “Just for the record, I was racist before it was cool,” another said. “You could not pay me to marry outside of my ethnicity.” Elez is correct–racism is becoming cool, at least on twitter. Vice President Vance (who’s wife is of Indian descent) had this to say: I obviously disagree with some of Elez’s posts, but I don’t think stupid social media activity should ruin a kid’s life. I actually agree with Vance that social media activity should not ruin an immature kid’s life.  I suppose where I disagree with Vance is that I sort of wonder whether it makes sense to put immature “kids” into important positions in the federal government.  Perhaps wait until they grow up? (0 COMMENTS)

  Macro myths by Scott Sumner, The Pursuit of Happiness, February 5, 2025. Excerpt: I recently spoke to some Bentley University students (via zoom) about my views on the Great Recession. In this post, I summarize the substance of my talk. Long-time readers will have seen these arguments, but this blog has attracted some new readers who have asked me to justify contrarian claims such as, ”Tight money caused the Great Recession.” Here (in bold print) are 18 common misconceptions about the Great Recession: DRH note: Like his long-time readers, I’ve seen Scott make these arguments. This is the first time I’ve seen them in one place. The New Consensus on the Minimum Wage by Alex Tabarrok, Marginal Revolution, February 4, 2025. Excerpt: My take is that there is an evolving new consensus on the minimum wage. Namely, the effects of the minimum wage are heterogeneous and take place on more margins than employment. Read Jeffrey Clemens’s brilliant and accessible paper in the JEP for the theory. A good example of the heterogeneous impact is this new paper by Clemens, Gentry and Meer on how the minimum wage makes it more difficult for the disabled to get jobs: Alex quotes Clemens, Gentry, and Meer: We find that large minimum wage increases significantly reduce employment and labor force participation for individuals of all working ages with severe disabilities. DRH note: I’m glad to see that Clemens, Gentry, and Meer looked at the bad effects of the minimum wage on severely disabled people. From July 1986 to January 1987, I was the economics editor of National Review. My job, assigned to me by William F. Buckley, Jr., was to write two short unsigned pieces for every biweekly issue. They took all my pieces but one and rarely changed them. One of the two exceptions was my editorial on this issue: I expressed upset at the effect of the minimum wage on disabled people and gave an example from my hometown, Pacific Grove. The editor kept the piece but edited out the emotion: I still think that was a mistake.   Don’t Believe Him by Ezra Klein, New York Times, February 2, 2025. Excerpt: I had a conversation a couple [of] months ago with someone who knows how the federal government works about as well as anyone alive. I asked him what would worry him most if he saw Trump doing it. What he told me is that he would worry most if Trump went slowly. If he began his term by doing things that made him more popular and made his opposition weaker and more confused. If he tried to build strength for the midterms while slowly expanding his powers and chipping away at the deep state where it was weakest. But he didn’t. And so the opposition to Trump, which seemed so listless after the election, is beginning to rouse itself. There is a subreddit for federal employees where one of the top posts reads: “This non ‘buyout’ really seems to have backfired. I’ll be honest, before that email went out, I was looking for any way to get out of this fresh hell. But now I am fired up to make these goons as frustrated as possible.” As I write this, it’s been upvoted more than 39,000 times and civil servant after civil servant is echoing the initial sentiment. In Iowa this week, Democrats flipped a State Senate seat in a district that Trump won easily in 2024. The attempted spending freeze gave Democrats their voice back, as they zeroed in on the popular programs Trump had imperiled. Trump isn’t building support; he’s losing it. Trump isn’t fracturing his opposition; he’s uniting it. DRH comment: I’m not sure Klein is right, but it’s an interesting perspective. Time will tell.   Getting better: How Louisiana is raising reading and math scores by Joanne Jacobs, Thinking and Linking, February 3, 2025. Excerpts: Louisiana, never known for education excellence was the big winner on the 2024 NAEP when it comes to progress in the last few years, writes Chad Aldeman. “It was the closest state to recovering from COVID-related declines in 8th grade reading and math, and it was the only state in which fourth-grade reading scores were higher in 2024 than in 2019.” And: The state will not waste time “chasing shiny things,” says Brumley. Teachers will not be asked to serve as social workers or nurses. “Smart, responsive school systems are thinking about ways to be more efficient and allow their teachers as much time on task as possible.” Some of the NAEP reporting assumes Louisiana’s success is all about teaching the phonics part of the “science of reading,” writes Natalie Wexler. There’s a lot more. The state has ensured that “educators understand the connection between reading and knowledge.” DRH comments: First, I love the phonics part. That’s how I learned to read, before I got to Grade One. (Thank goodness we didn’t have kindergarten in my small rural Manitoba town. That way I got one additional year of freedom.) Second, I’ve been impressed by Joanne Jacobs, and her focus, for a few decades. I first met her at a Hoover conference on education in the mid-1990s. Here’s her bio. When I met her, she was with the San Jose Mercury News.   Recommended Readings on Free Trade Versus Protectionism by Williamson M. Evers, January 24, 2025. Economists, going back to Adam Smith and David Ricardo, are virtually unanimous that free trade benefits consumers and the overall economy. But there exist special interests who would gain in the short run from protectionist barriers. And there is a large segment of the public that doesn’t understand the arguments for free trade. Not surprisingly, there are politicians who are all too willing to gain votes by catering to protectionist interests. People, farms, firms, and factories in America should be able to trade freely with people, farms, firms, and factories across international boundaries. You should, for example, be able to buy shoes made in Ethiopia. Economist William Niskanen stresses the moral case for free trade: Individuals have the right “to make consensual arrangements across national borders.” Without governmental interference, such voluntary interaction is harmonious and mutually beneficial. People don’t trade unless they believe they will be better off afterwards. Much international trade can be explained by comparative advantage. Economist Donald J. Boudreaux explains that “the chief nontrivial insight” found in the idea of comparative advantage is that an economic concern’s “technical ability to produce a product” is, by itself, “irrelevant” for resolving whether “that entity should produce that product itself” or “acquire that product by first producing something else and then trading that something else” for the desired product. DRH comment: As with everything Bill Evers does, this set of readings is extensive and impressive.   Trump’s Tariffs Require Customs Agents To Check All Mail from China by Jack Nicastro, Reason, February 6, 2025. Excerpts: President Donald Trump announced his promised tariffs on Saturday and paused those levied against Mexico and Canada on Monday for 30 days. In addition to threatening to impose double-digit duties on all products imported from Canada, Mexico, and China(whose tariffs took effect on Tuesday), each of the president’s executive orders eliminates duty-free exemptions for low-dollar-value imports, known as de minimis exemptions. Eliminating these exemptions would increase the price of goods from international bargain brands enjoyed by cash-strapped consumers. De minimis is Latin for “concerning trifles,” per Merriam-Webster. The aptly named exemption applies to shipments “imported by one person on one day having an aggregate fair retail value in the country of shipment of not more than $800,” according to U.S. Customs and Border Protection (CBP). The Congressional Research Service (CRS) reports that the U.S. imported $54.5 billion worth of de minimis products in 2023, 34 percent ($18.4 billion) of which came from China. Chinese e-commerce firms Temu and Shein had grown to make up 17 percent of the entire American discount market by 2023, according to the CRS. These discount brands contract with Chinese firms to make and ship goods directly to consumers, avoiding expensive tariffs via de minimis, explains Bloomberg. This business model caters to lower-income Americans who are willing to wait weeks instead of days to save more of their hard-earned dollars. Eliminating the de minimis exemption means that the cheap consumer goods sold by these brands will be subjected to the additional 10 percent duty on Chinese products, some fraction of which will inevitably be passed on to American consumers. The rule announced by CBP to carry out Trump’s executive order imposing duties on China goes even further, requiring formal inspection for all mail shipments from China “without regard to their value.” Christine McDaniel, senior research fellow at the Mercatus Center, tells Reason that this will require CBP to subject roughly 917 million more parcels to formal entry, a process so complex that CBP recommends importers outsource it to third-party brokers (whose services cost around $100). McDaniel says processing so many more parcels “could be prohibitively costly in terms of resources for CBP.” The accompanying pic is of Joanne Jacobs. (0 COMMENTS)

In 1976, American voters registered their anger at Watergate, Richard Nixon, the Republican Party, and the Federal government generally by electing as President Jimmy Carter – with a term each in Georgia’s State Senate and Governor’s mansion and no experience of Washington D.C. whatsoever.  Carter frequently denounced “Washington” on the campaign trail and did little to discern between the city’s Republicans and Democrats. “All of them done stole my water,” George Wallace, who pioneered anti-Washington rhetoric, complained of both Ronald Reagan and Carter, “They’re drinking out of my dipper.” Challenging President Ford for the Republican nomination, Reagan warned that, in a country seething with anger at “Washington,” a man who had served in Congress for 24 years before appointment to the White House was at a significant handicap against the Georgia peanut farmer. So he was.  Carter was, too, a Democrat from an increasingly Republican region who had learned to trim his sails accordingly. “I stated during my campaign [for Georgia governor in 1970] that I was not in favor of doing away with the right-to-work law, and that is a position I still maintain,” he wrote in 1971. In 1976, he told union leaders: I think that the major responsibility for repeal of 14-B rests with labor, and when you see if you can get it passed, I’ll co-operate…I would be glad to see 14-B, the right-to-work law repealed, but I think the major responsibility ought to fall on you. This, he claimed, “has always been my position since 1970.” Many voters see him as “vague, two-faced, too political,” and Democratic “liberals” distrusted him. One reporter wrote that “old -time Democratic politicians greet him more often than not like a naturalized Martian rather than as a fellow soldier.” This culminated in Edward Kennedy challenging Carter in 1980.  If Carter could be ideologically supple, he was not a blank slate. Jules Witcover wrote that: …Carter said, concerning his stated advocacy of full employment, that he was reluctant to use the public sector – the federal government and payroll – to provide jobs. Jobs should come out of the private sector; only as a very last resort should the government take up the slack…In contrast, the other Democrats were calling for aggressive use of the government as employer of those who could not be absorbed by the private sector. Carter’s skepticism towards Federal jobs programs stemmed from a broader critique of the role of government. “We need patience and good will,” he told Congress in 1978: …but we really need to realize that there is a limit to the role and the function of government. Government cannot solve our problems, it can’t set our goals, it cannot define our vision. Government cannot eliminate poverty or provide a bountiful economy or reduce inflation or save our cities or cure illiteracy or provide energy. And government cannot mandate goodness. Only a true partnership between government and the people can ever hope to reach these goals. This was a break with the “liberalism” of “The Great Society.” As recovery from the recession of 1974-1975 faded and the economy worsened, Carter largely rejected the Keynesian remedies of more money printing and government spending. Despite claiming ignorance of the causes of or remedies for rising inflation, he acted as though he did grasp that inflation was, in the popular formulation, “too much money chasing too few goods.”  If that was the problem, one half of the solution lay on the supply side by increasing the number of goods on which the money could be spent. To this end, Carter deregulated the airline, trucking, rail, and telephony industries. “These actions,” Susan Dudley writes, “allowed new entrants into the markets, increased efficiency, lowered prices, offered consumers more choices, and likely contributed to declining inflation.”    The other half of the solution lay on the demand side by reducing the amount of money. Carter appointed Paul Volcker chair of the Federal Reserve in 1978. “We needed a new approach,” Volcker wrote, “Put simply, we would control the quantity of money (the money supply) rather than the price of money (interest rates).” As money growth fell, interest rates soared. The economy shrank in 1980, and unemployment hit 7.2% but inflation would fall from 13.5% to 3.2% in 1983. By then, Carter was out of office and Reagan was cruising to a landslide reelection due to an economic boom thanks, in some small part, to Carter’s deregulatory and sound money policies.  The economic chaos of the 1970s forced even center left governments, like James Callaghan’s Labour government in Britain, to acknowledge the death of Keynesianism. The global shift towards economic freedom in the 1980s and 1990s was not the result of some nefarious ideological coup, but of a widespread realization that the alternative simply didn’t work. In some respects, Jimmy Carter was the first Reaganite.      John Phelan is an Economist at Center of the American Experiment. (0 COMMENTS)

Commonly accepted ideas are often encapsulated in analogical or metaphorical expressions that people use unthinkingly. What they suggest may be true, false, uncertain, misleading, or meaningless. The most dangerous ones look deep or scientific even if they are meaningless. Experts in the exact sciences are often fond of them when speaking about social, political, or economic matters. “We as a society” is one such expression. I saw it again in a statement on AI by computer scientist Dennis Hassabis, who was attending the World Economic Forum’s annual meeting in Davos (a high place of sociological mumbo jumbo). Interviewed by the Financial Times, he said (“AI Leaders Clash Over Safety and $100bn Stargate Project,” Financial Times, January 26, 2026): “There’s much more at stake here than just companies or products,” the Nobel Prize winner said in an interview with the Financial Times. “[It’s] the future of humanity, the human condition and where we want to go as a society.” A society or a people cannot go where it wants to go. It is not some kind of biological organism or anthropomorphic being who decides where to go and walks there. It has no brain and no legs. The only way the expression makes sense is when, as we just saw in south Gaza, many people in a society or a group actually walk toward the same place because each individual wants to go there. A society does not think and does not have opinions or intentions, even if its individual members do. Friedrich Hayek emphasized this reality (see The Counter-Revolution of Science [1952], and Volume 1 of Law, Legislation, and Liberty [1973]). Modern welfare economics and its social-choice successor have shown that a society or a people do not have preferences (tastes or values) that can be coherently and meaningfully aggregated without being dictatorial, that is, without ignoring some individuals’ preferences. Except for sacrificial lambs (or perhaps saints), anybody who has an opinion on where “we” should go “as a society” does not think that society should go where he himself does not want to go. Only common preferences incorporated in unanimously agreed rules or voluntary private contracts can preside over a non-authoritarian society. The paradigmatic common preference of individuals is that each wants to be free to go where he wants. Whether this implies some limits on where an individual may go, and what these limits may be, is the main question of political philosophy. Two opposite stances are those of James Buchanan (see The Limits of Liberty [1975]) and Anthony de Jasay (The State [1985]). Many will reply that “we as a society” is just a way of speaking and that it does not matter. Perhaps Hassabis just found the expression in the zeitgeist. Perhaps some people use the collective “we” as the impersonal “on” in French. These innocuous interpretations may be correct in certain cases but ways of speaking typically express beliefs or lead to them. It is not by happenstance that social organicism and anthropomorphism have been associated with authoritarian or totalitarian ideas. I give some examples in my article “The Impossibility of Populism” (The Independent Review, Summer 2021), including the eugenicists of the early 20th century (“in prolonging the lives of the defectives, we are tampering with the function of the social kidneys,” proclaimed Leon J. Cole) and Adolph Hitler, who thought that the “body of the people” could suffer from diseases such as the Jews, the Marxists, and the press. “Society” is the part of human interaction that constitutes an unregulated or spontaneous order within which individuals and their organizations act. Even the most totalitarian rulers, who know where “we as a society” should go, never bring it where they want—except to the extent that they cater well to their own self-interests. ****************************** Where we want to go as a society (0 COMMENTS)

Today’s jobs report provides more evidence for the view that inflation remains a very significant problem. Average hourly earnings rose by 0.5%, well above the 0.3% rate consistent with the Fed’s inflation target.Over the past 12 months, wage inflation has averaged 4.1%, which is only modestly above the roughly 3.0% to 3.5% figure consistent with 2% price inflation. Unfortunately, progress against inflation seems to have stalled, and may be going into reverse. Over the past 6 months, wage inflation has average 4.6%. We seem to be moving in the wrong direction.  High nominal wage inflation increases the risk of recession. Jed Kolko suggests that there is evidence of a cooling job market: The first thing to know is that the job market is cooler than previously reported. As foreshadowed last August, average monthly job growth was revised downward from 251,000 to 216,000 in 2023, and from 186,000 to 166,000 in 2024. Whether job growth is too fast and risks overheating the market and pushing up inflation, or too slow and risks pushing up unemployment, depends on how job growth compares with the growth of the labor force. Unfortunately, the annual adjustment to the household survey is not applied historically, so you aren’t supposed to compare labor force estimates over time. But I did a quick-and-dirty simulation in order to do just that. It shows that the big upward adjustment to the population implies that the labor force grew by 150,000 people per month on average in 2024, versus 90,000 as officially reported. He’s referring to revisions in the jobs data for previous months.  The payroll survey of businesses is generally viewed as more reliable, and job growth in that series was revised downward.  Job growth in the household survey (used for constructing the unemployment rate) was revised upward.  Kolko points out that these two revisions mostly closed an unusual gap in the two series that had opened up during 2024: The upward adjustment to employment in the household survey and the downward revision to employment in the payroll survey closed most of the gap in reported employment between the surveys that opened in recent years.  In my view, we put too much weight on the employment figures, at least when it comes to forecasting inflation.  It is true that wage inflation and employment are correlated, but the link depends on a number of factors.  For instance, the recent immigration crackdown (which began in mid-2024) has likely led to slower population growth.  This means that a slower pace of job growth does not necessarily imply a “cooling” jobs market.    I expect job growth to slow fairly significantly in 2025, as the recent immigration crackdown filters through to the job market, and also because the Fed may tighten policy to bring inflation down to its 2% target.  And that’s not even accounting for possible Trump administration policies such as the expulsion of illegal immigrants and a trade war with the rest of the world. In the end, it is the wage inflation figures that matter most for macroeconomic stability.  At the most fundamental level, good macro policy is mostly about getting low and stable nominal wage inflation.  All the other outcomes that we wish to see (a strong jobs market, low price inflation, etc.), require low and stable nominal wage growth. Unfortunately, nominal wages are sticky.  Thus we may not know whether wage growth is excessive until it is too late.  That’s why economists look at “real” indicators such as job growth when trying to figure out if the economy is overheating or underheating.  But these real indicators are also hard to interpret, because just as we don’t know the underlying rate of wage inflation in real time, we don’t know the underlying rate of labor force growth in real time. Given all of these uncertainties, I still believe that NGDP level targeting is the least bad monetary policy framework.  We are now almost 5 years past the Covid lockdowns.  The Fed is running out of excuses and losing credibility.  It is time to take the inflation target seriously, or else set a new target that honestly reflects what the Fed is trying to achieve. PS.  The Bloomberg article linked to at the top of the post has a graph of monthly employment gains in the payroll survey: (0 COMMENTS)

In “Undoing Past Policies: How Likely Are Repeals in the 119th Congress?” political scientist Jordan Ragusa lays out a number of conditions that must obtain if repeal of past policies is to succeed. He makes very good points. The main example of a successful repeal that I know of is one that does not fit all of Ragusa’s criteria: the 1989 repeal of Ronald Reagan’s Medicare Catastrophic Coverage Act. I remember it well. I was home from school that day sick, and I turned on C-SPAN to watch the vote. I realized that I was watching something historic: the repeal of an entitlement program. Those are among the hardest programs to repeal. How and why did it happen so soon after the law was passed the previous year? I used to give the example in my class when I was teaching a segment on public choice. Public choice provides the answer. The usual program that passes is one that imposes dispersed costs to create concentrated benefits. Think of the farm program, which taxes tens of millions of people, and imposes costs on over 300 million consumers, to subsidize about 3 million farmers. Or think of Medicare, which taxes over 160 million people to subsidize 66 million people. [Note: this difference with Medicare and taxpayers is not as stark as I expected when I started writing this post: I had expected that under 50 million people were subsidized by Medicare.] But Reagan’s act was different. It gave catastrophic care benefits to everyone on Medicare. But to finance the benefits, it imposed higher taxes on only the highest-income recipients of Medicare. Here’s how New York Times reporter Carl Hulse put it: Angry Americans voice outrage at being asked to pay more for health coverage. Lawmakers and the White House say the public just doesn’t appreciate the benefits of the new health law. Opponents clamor for repeal before the program fully kicks in. He got a key verb wrong. They weren’t “asked.” If they had been asked, they probably wouldn’t have had a problem with the program. They were forced. That’s how taxes work. The measure had passed by a bipartisan vote: 328 to 72 in the House and 86 to 11 in the Senate. But once higher-income seniors saw their new taxes, they were pissed. Hulse wrote: The dramatic climax came on Sept. 17, 1989, when Representative Dan Rostenkowski, the gruff and burly chairman of the Ways and Means Committee, was hectored in his Chicago district by a band of angry older voters. They surrounded and blocked his car and forced him to escape on foot before he could make his automotive getaway. A news crew caught the episode on camera. The video he references in the quote above, which is only 1:27 long, is worth watching. A lot of people saw this. The next month, Congress voted to repeal. The vote was bipartisan. The reason this illustrates a public choice insight is that the costs of Reagan’s 1988 bill were concentrated and the benefits were dispersed.   Interesting note: Rostenkowski later went to prison for mail fraud. Here’s what Wikipedia writes: Charges against Rostenkowski included: keeping “ghost” employees on his payroll (paying salaries at taxpayer expense for no-show “jobs”); using Congressional funds to buy gifts such as chairs and ashtrays for friends; diverting taxpayer funds to pay for vehicles used for personal transportation; tampering with a Grand Jury witness; and trading in officially purchased stamps for cash at the House Post Office.[22][23] The picture above is of Rostenkowski. (0 COMMENTS)

Before we explore both sides of this intriguing suggestion, let it be said that it deserves serious consideration, and not just because the president-elect of the United States suggested it. It also deserves our perusal on its own grounds. After all, that more than 3000-mile border between the two countries is not ordained by the Man Upstairs; it is an artificial, human, edifice that can be deconstructed. It calls for more than mere laughter, which has been forthcoming from all too many quarters. What is the yes side of this? Canadians would gain, economically. There would not be any capricious tariffs on the export of goods southward, as threatened by President Trump. Nor would there be any such impediments to trade at all, as at present. (I once thought NAFTA was set up to accomplish this element of the free trade philosophy, but that did not work out…) There would be zero such legal commercial obstacles between the US state of Canada and its 50 other political jurisdictions, in the same manner, for example, as exists between, say, Iowa and all the other forty-nine. This would enhance specialization and the division of labor, Adam Smith style, and immeasurably enhance Canadian prosperity. The present United States would also gain in this regard, but less so, as they already have a gigantic internal fully free trade area (one of the important sources of great wealth in this country). In contrast, there are economic illiterates who want to set up and maintain internal tariffs within Canada. Others who would gain include the US Democratic Party. Canada is far more woke, socialist and egalitarian than the United States. Adding this country to the US collection of states would be akin to tallying another California. The Democratic Party has long wanted to confer US statehood on Washington D.C. and Puerto Rico to enhance their vote totals. Why cavil at Canada? Who would lose? Obviously, the US Republican Party. Does the President not realize he is opening up a Pandora’s Box with this suggestion of his? The President specifically placed off the table any military attempt to swallow Canada. But he did threaten economic sanctions. If a 25% tariff did not bring this northern country to its economic knees, one of 100% most likely would. Certainly, a total prohibition of trade with the US would greatly reduce Canadian economic prosperity. So, should Canada make a different sort of deal with the United States, if anything like this threat ever actually comes to pass? One offer would be to enter the country to the south of it not as one state, but as eleven: each and every province, plus the North West Territories, the Yukon and Nunavut combined into one. The argument against this latter idea is that these latter three hardly have any people in them, even all together. Well, Wyoming is not overpopulated either. The case against the former is that Prince Edward Island is so small, hardly deserving of the honorific of statehood. But Rhode Island is no giant, either. Further, the Canadian population is roughly one tenth that of the US. Since the latter has 50 states, Canada should join the union not as one single state, but as a compromise, as five of them. There is yet another reason to oppose this amalgamation. Sometimes we can see the true effect of complicated situation by expanding upon it. If Canada joined the United States, there would be one less country on the face of the earth. Let us extrapolate. Suppose amalgamation became the order of the day. After the United States imbibed Canada, it would proceed with Mexico and Central America. China would certainly gobble up Taiwan. Continuing, each of South America, Europe, Asia and Africa would each become one country. There would now be five nations, one per continent. Anyone remember a novel that featured something like that, only three nations? Yes, in Orwell’s Nineteen Eighty-Four, the world is divided into three super states: Oceania, Eurasia and Eastasia. Do we really want to go in this direction? Let us take this even one step further: world government. If this entity were run democratically, the globe would take on the political economy of China and India or, maybe even worse, the United Nations (God forbid: Israel has been indicted for various crimes by the latter twice as much as all other nations combined!). Speaking as a Jew, I would not like this one bit. My people are continually being chased out of one country after another.  With a one world government, there would be no place to run. Mars is not yet open for settlement. No, the optimal number of counties is not one, nor three, nor five, nor, even, the present number of them, 195. If anything, we should move in the very opposite direction, more of them, not fewer. We should encourage Alberta and Quebec to secede from Canada (for very different reasons); the Basques from Spain; Greenland from Denmark; dare I say it, the South from the North (well, at least the coasts from the central part of the United States). Well, maybe better to leave all of this alone. Here’s to inertia, Mr. President. Obviously, Canada will accept no such deal. But waitasec. Why be so standoffish? Why not demonstrate the much vaunted Canadian welcome mat? This country should offer the US provincial status! “Province-hood for the United States” should be the motto for this new initiative.     Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans. (0 COMMENTS)