Perfect markets make a nice fairy tale, but they don’t match reality. And few strawmen have been as repeatedly slain as the idea that the case for markets depends on market perfection, and thus the inevitable failure of real-world markets to match this textbook abstraction undercuts the argument for using markets. Some of the strongest defenders of the market system, like F. A. Hayek and Israel Kirzner, reject ideas like perfect markets, perfect information, perfect competition, and so forth. Their argument for the use of markets rests not on some abstract perfection of markets, but instead on the real-world dynamism inherent to the ongoing and evolving market process. Markets are useful not because in a market-driven world there are no $20 bills on the sidewalk. Markets are useful because they create the right environment for finding those $20 bills.  One real-world friction in real-world markets is price stickiness. In the fairy tale version of perfect markets, prices adjust instantly. In the real world, prices can be sticky – they might not change, or change slowly. One reason for this is transaction costs. Sometimes, changing a price isn’t free. The textbook example of this so-called “menu costs.” Even if the costs of various foods and ingredients change, restaurant prices can be sticky and remain unchanged. In order to change their prices, restaurants would have to print out an entirely new set of menus with the updated price for each dish. This costs money and time. If the price of potatoes slightly increases, it’s often not worth the time and effort for a restaurant to print out a new set of menus with updated pricing for every dish that includes potatoes. But just like asymmetric information, transaction costs have a half-life. In markets, there is an incentive to find ways to reduce transaction costs and thus reduce the stickiness of prices – because finding ways to reduce transaction costs is itself a money-making opportunity. Menu costs are an example of this too. One way I’ve seen restaurants get around menu costs is by simply not having a listed price for particular menu items. If a restaurant in a beach town frequently serves fresh and locally caught fish or lobster, they might face significant fluctuations in costs for those items. To accommodate this, they frequently list such dishes on the menu as “market price” rather than a set dollar amount. More recently, I’ve seen many other restaurants put their menus on digital displays rather than having them printed out, and some have dispensed with physical menus altogether and replaced them with a QR code at each table. You scan the QR code with your smartphone, and it opens up a website with the most recent menu. This drastically reduces the transaction costs associated with menu pricing, and makes prices more flexible. Price stickiness is a real problem – but at the same time, the very existence of that problem provides a market incentive to find solutions. Hence Arnold Kling’s dictum – “Markets fail. Use markets.”  On the other hand, there’s also an issue with policy stickiness. When governments create a policy to try to solve some social problem, those policies themselves become sticky. It’s surprisingly easy for people to overlook this issue. James C. Scott’s fantastic book Seeing Like a State provides an extended look at how policy interventions go awry. Toward the end of the book, he provides a few takeaways that might help improve the situation, such as: Favor reversibility. Prefer interventions that can be easily undone if they turn out to be mistakes. Irreversible interventions have irreversible consequences. Interventions into ecosystems require particular care in this respect, given our great ignorance of how they interact. Aldo Leopold captured the spirit of caution required: “The first rule of intelligent tinkering is to keep all the parts.” It’s not that this is bad advice in the abstract. But the idea that interventions “can be easily undone if they turn out to be mistakes” is less compelling when one takes into account that policies, too, are sticky. In practice, it’s often extremely difficult to undo interventions no matter how mistaken they turn out to have been. Policies become sticky because, as Pierre Lemieux frequently points out, any government policy necessarily benefits some at the expense of others. This quickly turns into a public choice problem. As soon as the government implements some kind of intervention, it creates a new interest group that will be invested in keeping that intervention alive, while the benefits of ending that intervention are so dispersed that there’s nobody in particular who has a strong incentive to try to put an end to it. It’s not for nothing that Milton Friedman quipped “‘Nothing is so permanent as a temporary government program.” This quip does overstate things – not all policies are so sticky as to become immovable objects. But it’s a real problem. One classic example is the mohair subsidy. This program was initially implemented to ensure that the United States military would always have an adequate supply of wool for their uniforms. But eventually, the military stopped using this wool in their uniforms and began using synthetic materials instead. Nonetheless, the federal government continued to spend tens of millions of dollars a year subsidizing mohair production long after the initial rationale for doing so was gone. The program was eventually (mostly) eliminated – over four decades after the switch to synthetic materials. This report from 1993 describing the ongoing efforts to eliminate these subsidies includes a comment from Senator Charles Schumer, who mentions that he’s been spending years trying to undo this policy. If ever there was a policy that should be “easily undone,” you’d think this one should be about as easy as it gets. But policy stickiness can be such a strong force that even something as ostensibly straightforward as “stop spending tens of millions of dollars per year subsidizing something you stopped needing decades ago” requires years of intensive effort to finally achieve. Pace James C. Scott, “interventions that can be easily undone if they turn out to be mistakes” are only found in fairy tales, and not in reality.    While markets provide an incentive to find ways to offset and lessen price stickiness, politics provides incentives for the beneficiaries of policies to make those policies as sticky as they possibly can. In markets, you can make money by finding ways to reduce transaction costs. In politics, you protect your largess by ensuring transaction costs are as high as possible. In the real world, price stickiness is the proverbial speck and policy stickiness is the proverbial log.  (0 COMMENTS)

Back in early 2022, there was a great deal of optimism that sanctions against Russia would cripple its economy. Those predictions have not come true. A recent article in The Economist shows why: Prior to 2022, Kazakhstan sold relatively little electrical machinery to Russia.  After the Ukraine invasion, Kazakh exports soared more than 7-fold.  How was Kazakhstan able to boost output so rapidly?  Notice that at the same time this occurred, Kazakh imports of electrical machinery from the EU also increased sharply.  It’s pretty clear that Russia was using this former Soviet republic as a way of evading sanctions.   For Europe’s policymakers, this is all bad news. “We expected some leakage,” says one official, “but not on the scale we now know about.” In December, the eu’s 12th round of restrictions targeted firms in Armenia and Uzbekistan for the first time. Bureaucrats have since threatened more sanctions on third countries and Europeans exporting to them, but have taken action only against a few firms. For each firm added to the blacklist, another is registered elsewhere. The same problem occurs when countries try to diversify their supply chains.  The US put high tariffs on Chinese imports in order to reduce our dependence on that economy.  As a result, US imports from neighboring countries like Vietnam increased sharply.  Not surprisingly, Vietnamese imports from China increased at the same time.  We are still buying lots of stuff from China, but in a more more roundabout way with higher transportation costs. None of this means that sanctions are necessarily a bad idea.  It’s plausible that sanctions on Russia have at least slightly reduced its ability to wage war.  Rather the point is that we should not expect sanctions to be leakproof. PS.  After writing this post, I noticed another example: Interestingly, the American media blames China but not Germany for aiding Russia’s war machine. (0 COMMENTS)

That nationalism is a kind of collectivism or modern-tribalism is illustrated by a current phenomenon: foreigners seem so disliked that, in some people’s views, “we” should neither import from, nor export to, “them.” On the import side, foreigners—foreign producers or their governments or the latter’s taxpayers—are disliked because they produce goods at such a low cost that “our” producers can’t compete. As for “our” greedy merchants who import things that “our” consumers want, all are greedy non-patriots. Since the 17th or 18th century, an important dimension of progress has been to economically and morally smother these emotions, or so one may have thought. On the export side, consider tourism, where a new protectionism seems to be rising. Incoming tourism is an export to foreigners, whether from other countries or other regions (and is entered as such in the national accounts and the trade balance). Tourists, like foreign importers, use “our” resources (capital, labor, land) to satisfy their demands. Hence, the emerging claims for restricting tourism. Tourists intrude into “our” environment and, at least temporarily, undermine the amenities they have no right to—even if some of “us” want to welcome some of them into their homes or commercial venues. The Financial Times reports (Eleni Varvitsioti and Barney Jopson, “Greece Cracks Down on Excessive Tourism,” September 8, 2024): Greece has said it will crack down on short-term holiday rentals and cruise ship traffic as part of a set of measures to curb excessive tourism in the Mediterranean country. … Following similar limits imposed in Spain, Greece is also taking steps to regulate short-term rentals on online platforms such as Airbnb. Mitsotakis announced a one-year ban on new short-term rentals in three areas of Athens. Tourists often start or finish their holiday in the historic Greek capital before moving on to an island destination. Andreas Chiou, president of the Greek Property Managers Association, said the ban was driven by pressure from hotel owners. It appears that “we” should not let “our” greedy shopkeepers, owners of restaurants, hotels, or Airbnb accommodations benefit from tourism. That these are citizens as much as the locals inconvenienced by travelers is ignored by many people, so accustomed are they to governments taking sides among their flock. Imagine a government (local, state, or national) posting, around the territory under its jurisdiction, signs warning “We hate tourists” or “Here, we only sell local.” This would be a reversion to previous ages of mankind, of which the tribal or collective “we” is reminiscent. These emotions ignore the idea so well developed in John Hicks’s book A Theory of Economic History: the rise of the merchant, which started in the city-states of Ancient Greece, marked the first stage of the passage from the custom or command society to the market society. Incidentally, note here an example of the symmetrical property of “externalities.” Tourists can be said to create externalities for certain locals, but locals also create externalities for certain tourists: if the locals were not there, many tourist amenities would be enhanced: unspoiled nature, less crowded beaches and Acropolis, and so forth. Private property is a powerful means of internalizing externalities but, in any liberal philosophy, the locals do not collectively own the shopkeepers nor any individual’s house, preferences, and liberty. It is true that travelers come with costs, but they reimburse them by paying for the resources they use and what they consume in hotels, Airbnb rooms, restaurants, etc. Only in public places, in the sense of the commons, do they, as well as the locals, generally do not pay fees. This is a general problem of public property, and few would object to non-discriminatory fees or taxes being equally charged to tourists and locals who use the commons. Higher general port fees might be justifiable, as opposed to special taxes on cruise ships. Even in public museums, foreigners and local alikes generally pay fees, or should. Note how on free markets, higher demand for private goods and services, whether by locals or tourists, will automatically lead to higher prices, lower quantity demanded, and thus rationing of the scarce amenities—assuming of course that the “benevolent” government does not cap these prices. In the case of protectionism as in dirigisme generally, discrimination substitutes for prices. A free-market society largely avoids such public discrimination by letting individuals and their voluntary associations or corporations solve any conflict through freedom of contract. Collectivism—whether rationalized by ideology, the greed of the rulers and their supporters, or through special interests capturing government—is a modern remnant of tribalism, as Friedrich Hayek argued. ****************************** The ideal of protectionism in tourism (0 COMMENTS)

Bruno Leoni (1913-1967) Friedrich Hayek credited Bruno Leoni with shaping his ideas on laws and legislation. James Buchanan said that Leoni identified problems that led to his own work on public choice. How is it possible, then, that so few of us know of the groundbreaking Italian political philosopher? Listen as Duke economist Michael Munger talks with […] The post The Underrated Bruno Leoni (with Michael Munger) appeared first on Econlib.

In my recent book entitled Alternative Approaches to Monetary Policy, I described two different low interest rate monetary policies, one expansionary and contractionary: Because of the interest parity condition, we know that these are both low interest rate policies.  International investors will accept a lower interest rates in safe assets located in countries where the currency is expected to appreciate over time.   And yet the US example (often dubbed overshooting) is an expansionary monetary policy, which leads to a weaker currency in the long run, while the Swiss example is a contractionary policy, with a stronger franc in the long run.  Reasoning backward, we cannot assume anything about the stance of monetary policy merely by looking at the change in interest rates.  Both countries saw lower nominal rates, but one policy shock was expansionary while the other was contractionary. Interest rates are not monetary policy! In a recent post, John Cochrane presents a very similar example, but with a different framing.  His graph shows two cases of higher interest rates (currencies expected to appreciate), but note that he also presents both expansionary and contractionary monetary shocks: Here’s how Cochrane explains the graph: The picture shows the possibilities. Suppose the interest rate rises for three periods, as shown. What happens to the exchange rate? Well, a higher interest rate at t must imply expected depreciation from t to t+1, so there must be three periods of depreciation while the interest differential persists. The solid red line shows that possibility. Once the interest rate returns to normal, the exchange rate stops moving, but at a permanently lower level. (The exchange rate is a difference of price levels, so it keeps going down as long as inflation is higher.) But as before, the international Fisher equation is by itself not a complete model. It does not say what happens to the exchange rate at time t. That rate can jump up or down. The dashed lines show three possibilities. The exchange rate could jump down and then continue on its depreciation. The exchange rate could jump way up, and then depreciate. Or, the exchange rate could jump up just enough so that expected depreciation brings it back to its original level. We’re back in the equilibrium-selection swamp of my last post. Standard models now add ingredients in order to pick the equilibrium where the exchange rate goes back to its earlier level. So, the standard answer: Why do higher interest rates raise the exchange rate? Well, higher interest rates cause a depreciation. But the exchange rate first jumps up so that it can now depreciate back to its initial level. But why should the exchange rate revert to its earlier level? That is the Achilles heel of this story. There is no natural force that brings nominal exchange rates back. Since the exchange rate is a ratio of price levels, we need to think about what the price-level nominal anchor is. Obviously there’s a lot of similarity about what John is doing and what I was doing.  We are both heterodox economists, critical of the standard model.  But there’s also an important difference.  My takeaway is that it is simply wrong to talk about monetary policy in terms of interest rates—that doing so represents the fallacy of reasoning from a price change. Cochrane believes that we need to think about monetary policy in terms of interest rates, because that’s how things work in the real world.  But he sees the problem, which he regards as a sort of indeterminacy, or “multiple-equilibrium” issue.  His search for a solution, a way of pinning down which path is the actual path, led him to the “Fiscal Theory of the Price Level”: The bottom line: The standard view of how interest rates affect exchange rates suffers many of the same problems as the standard view of how interest rates affect inflation. For young researchers, this is great news. The most basic policy exercise of all in international economics is up for grabs. I am hopeful that fiscal theory at last solves the gaping multiple-equilibrium hole, and that by treating inflation and exchange rates together as joint outcomes of policy we will make some big progress.  I’d prefer to pin things down by targeting the market forecast of NGDP growth, perhaps using futures contracts. It would be good to have John on the market monetarist team.  He has far better technical and writing skills than I have, and would immediately become the leader of this small school of thought.  Unfortunately, he’s a bit allergic to the monetarist approach.  We’ll have to content ourselves with having a powerful ally in our critique of the standard model, even if he is promoting a different alternative model. Over at my new blog, I have a related post for those who wish to take a deeper dive into the subject. (0 COMMENTS)

  Deregulation Can Fix the Housing Crunch by J.D. Tuccille, Reason, September 23, 2024. Excerpt: Building regulations reflect a wide range of government interventions, including zoning restrictions, land use regulations, energy efficiency codes, safety codes, and more. The intent behind such rules often started with public health, then expanded to encompass energy efficiency, home values, and even the aesthetic preferences of government officials. Regulations can affect construction, and require sign-off from local agencies, through the entire process—from planning, to building, to final habitation. The evidence that regulations play a major role in choking housing availability is very strong, Bryan Caplan, a professor of economics at George Mason University, wrote in July. “Before the rise of stricter regulation in the 1970s, the textbook model worked well: When demand pushed prices above the cost of production, more construction drove prices back down.” Since then, though, red-tape-bound jurisdictions have seen prices soar relative to less heavily regulated places. “Strictly regulated urban areas like New York City and the Bay Area have high prices and low construction, while more lightly regulated areas like Houston and Dallas have much lower prices and much more construction.” And: Extensive regulations entail compliance costs, not just in money, but in time. In March, real estate industry publication TheRealDeal reported a developer’s year-long wait to get an appointment with an official who could resolve a conflict between one New York City agency’s requirement for a ramp that complied with the Americans with Disabilities Act, and another agency’s demand for trees in the same space.   Texas Crime Data Help Discredit Haitian Migrant Pet Eating Claims by Alex Nowrasteh, Cato at Liberty, September 23, 2024. Excerpt: Conviction data in Texas for the crimes of animal cruelty are obviously not data on Haitian migrant consumption of cats and dogs in Springfield, Ohio. However, we don’t have data on criminal convictions by immigration status or country of origin in Springfield. The data from Texas are suggestive, and they may be generalizable, despite having some issues, as I explain here. Perhaps few immigrants who are cruel toward animals aren’t prosecuted or perhaps they’re less friendly toward our furry friends in other ways that wouldn’t be captured in criminal prosecutions for animal cruelty. Still, the Texas data help answer the questions of whether immigrants are crueler to animals nationwide than native-born Americans and whether more immigrants would result in more common animal cruelty in the United States. Immigrants in Texas are much less likely to be convicted of cruelty toward animals. See his second graph. Are Drug Prices Abroad Too Low? by H.E. Frech III, Mark Paul, and William S. Comanor, Regulation, Fall 2024. There is worldwide interest in supporting the development of new therapeutically advanced medications, and this commonality of interest provides the foundation for the global public good discussed here. While the United States and some other large countries continue to support more than proportionately the burden of funding this public good, that fact does not mean it is sufficiently supplied. Indeed, there are economic factors that suggest it is undersupplied. In Frech et al. 2022, we found that average launch prices of US branded pharmaceuticals lie well below $40,000 per Quality Adjusted Life Year (QALY) gained. But studies of consumer and labor decisions estimate that the US public’s revealed “willingness to pay” for an additional QALY well exceed $200,000. This difference of $160,000 or more per QALY suggests that even the United States is, on average, underpaying in support of global R&D, even during the life of the patent. After the end of patent protection, entry by generic pharmaceutical manufacturers typically drives prices far lower. This makes sense as a Nash equilibrium, as mentioned above. Even the largest country takes little account of external benefits. So, the United States would be a conservative model for the correct contribution. If the US contribution is too low, the ROW countries’ even lower contribution exacerbates the problem. This conclusion does not preclude the possibility that some branded pharmaceuticals are overpriced in the United States.   California Drivers May Soon Get Speed-Warning Devices as Standard by Greg S. Fink, Car and Driver, September 21, 2024. Now California is looking to emulate the EU with legislation that would mandate in-car speed-warning devices. The bill, SB 961, aims to make such systems standard in the Golden State by requiring just about every 2030 model-year vehicle equipped with either GPS or a front-facing camera to also have visual and audio warnings when driving more than 10 mph over the speed limit. Provisions within the bill would ensure that drivers can fully disable the systems. Those championing the technology argue that it could save lives—consider that in 2022, 18 percent of the passenger-vehicle drivers, or 8236 people, involved in fatal crashes in the U.S. were speeding, according to NHTSA. Yet even safety advocates struggle to believe that the regulations as written can do much good. Graziella Jost, who serves as projects director at the European Transport Safety Council and managed a campaign that helped lead the charge for speed-warning technology, finds the EU’s—and, by extension, the California bill’s—minimum requirements for the systems to be lacking.   War Is a Self-Licking Ice Cream Cone by Matthew Petti, Reason, September 25, 2024. Excerpt: Lebanon isn’t the only place where Washington’s wars are a self-licking ice cream cone. From Vietnam to Iraq, hawkish politicians have sent Americans to fight in faraway countries, then used the blowback as an excuse to fight even harder. You don’t think that they’re an enemy of America? Then why are they shooting at Americans in their country? And: Over the next few decades, Vietnamese communists learned that they enjoyed American capitalism more than they had thought. Today, Americans are free to come and go in Vietnam as guests. But first, we had to stop being invaders. U.S. policy is delaying that outcome in the Middle East as much as possible. As long as they can, politicians will try to keep the cycle of blowback and vengeance alive. We will stay in the Middle East to avenge the Americans who died to keep America in the Middle East. Petti’s last sentence is gold. (0 COMMENTS)

Over at National Review, Jim Geraghty has a series of articles suggesting that the Covid virus escaped from a research lab in Wuhan, China.  Today, he has a story with the following headline: Guess Where the Possibly Nuclear-Fuel-Leaking Sunken Chinese Submarine Is? I didn’t have much trouble guessing—it was Wuhan.  What did surprise me is the way he spun the story: You probably remember that one, on account of the fact that it completely disrupted your life for a year or two and caused 27 million or so “excess deaths” around the world. But I’ll bet you don’t remember the Wuhan University researchers who allowed artificial intelligence to control an Earth-observation satellite, which led the satellite to start looking at Indian military bases and a Japanese port used by the U.S. Navy. Lead researcher Wang Mi boasted, “This approach breaks the existing rules in mission planning.” Yes, and we all know all the great things that happen when scientific researchers in Wuhan break the existing rules. First the Andromeda Strain, then SkyNet. What other kinds of experiments are they doing over there in Wuhan these days? Summoning demons? Reaching out to say “hi” to some hostile alien empire in outer space? Are they just flipping through old Marvel comics, reading about the villains’ plots, and thinking, “Hey, that would make a cool experiment”? All the troubles in the world apparently lead back to Wuhan. That final paragraph—especially the final sentence—is the sort of thing I’d expect from a conspiracy theory skeptic, someone who wished to make fun of the idea that certain coincidences are suspicious.  I could imagine someone mocking the claim that, “Wuhan has only about 1% of China’s population, so how likely is it that the submarine would happen to sink in the same city where Covid started?”  In other words, making fun of someone for not understanding Bayesian reasoning. To see the problem consider how the final sentence of the first quoted paragraph could be re-written: Yes, and we all know all the great things that happen when wild animal wholesalers in Wuhan break the existing rules. First a repeat of what happened with SARS-1, then SkyNet. Yes, I understand that Geraghty is mostly just being humorous here.  But if you treat the column as humor, then he’s poking fun at his own views on Covid.  Thus I wonder if he’s being at least slightly serious.  At some level he seems to be assuming that digging up more dirt about Wuhan makes it somehow more likely that readers will believe (if only subconsciously) that something bad happened there back in late 2019.  But we already know that something bad happened in Wuhan—a man was selling raccoon dogs in the food market.   What this example actually shows is that weird coincidences happen all the time, and it would be foolish to make any causal claims based on their existence. Here’s another coincidence.  For the first time in 36 meetings, the Fed cut its fed funds rate target.  What are the chances that politics had nothing to do with a rate cut occurring at the final meeting before the November election? I’d say the chances are pretty good.  (BTW, the previous rate cuts were also in an election year.) Here’s another interesting pattern:  There has never been a time when the 3-month average of the unemployment rate rose by more than 0.5% without a recession.  What are the chances that the recent increase in the unemployment rate over that threshold will not lead to a recession? I’d say the chances are pretty good. If you seek out patterns, you will find them.  Lots of them.  But the world is full of unusual events.   (0 COMMENTS)

I don’t think so. Governor Newsom has called a special session of the legislature to consider his plan centered around a minimum inventory requirement on gasoline sellers. The idea is that when a spike occurs in California due to low supply, some state official or organization would allow – or require – release of the inventory, which would increase supply and push down prices. This is from Severin Borenstein, “Can More Reserves Solve California’s Gasoline Price Problem?” Energy Institute Blog, September 23, 2024. I think that pretty much any economist who thinks about price spikes for storable commodities such as gasoline will immediately think about futures markets. Why don’t futures markets take care of the problem? And even in the absence of futures markets, if gasoline producers can anticipate a price spike, why don’t they cut back on sales now to make more money when the price spikes? Borenstein is an economist who thinks a lot about gasoline prices. But read through his post and you won’t see a thing about futures markets. Maybe there’s a reason and maybe the reason they don’t work in this case is obvious to him. But it’s not obvious to me. He continues: If implemented carefully and operated without political intervention, an inventory requirement could help consumers.  California’s special blend of gasoline and limited sources of supply makes it vulnerable to supply disruptions, particularly in the fall when refineries often do maintenance that reduces their output. Those events upend the budgets of low-income working families. And because of the increasingly-concentrated ownership of refineries that produce our blend, it is not at all clear that a producer has a strong market incentive to raise supply, which would drive the price back down. So Borenstein admits that a regulation to take the place of apparently non-existent futures markets needs to be “implemented carefully and operated without political intervention.” In other words, it won’t work. Why? Because the people who would implement the regulation and operate it don’t have an incentive to do so carefully. Later, Borenstein writes: Others weighing in against the inventory requirement – including the governors of Nevada and Arizona – have claimed that holding these inventories would reduce supply and therefore drive up prices. This argument, however, ignores the whole point of inventories, which is to acquire them when the system has sufficient production capacity, and have them available when the system might be short.  Sellers would meet the minimum inventory requirement by building up stocks prior to periods when the system could be strained, whether due to high demand or reduced supply.  The price increase caused by the inventory-build at less constrained times would almost surely be minimal, while the price decrease when there are shortages could be substantial. That’s good reasoning, but why aren’t companies doing that already. What special information does Governor Newsom have about the gasoline industry that the gasoline producers don’t have? To his credit, Borenstein points out some problems with the proposed regulation: My own concerns with this proposal is [sic] that the real world implementation is likely to be much more complicated than the legislators or its proponents seem to acknowledge. Someone needs to set and enforce the rules for the inventory requirements: what counts as inventory (blending components? imports soon to arrive?), what’s the sales basis for calculating the required quantity (total gasoline sales? CARB gasoline sales? refinery capacity?), what’s the required ratio of inventory to sales? Even more importantly, someone needs to decide when to waive the requirement to address a price spike, how to make sure that inventory gets released, and when to require sellers to rebuild their inventories. This leads to my other concern, that the inventory would be managed in an unpredictable and political way. If the governor or some other political appointee makes the call on when to release inventories, it could easily end up being used for political advantage, including suppressing gas prices even when there is no evidence of a supply shortage (as has happened with the national Strategic Petroleum Reserve).  That’s why any inventory requirement should come with either a predictable rule for when it will be released – for example, when California spot prices exceed Gulf Coast prices by more than a certain amount – or by an independent Board that would make the decision. These are all good, well thought out concerns. Hopefully, they’ll be enough to talk other proponents, or those on the fence, to oppose this regulation. (0 COMMENTS)

A minor figure of the 18th century can teach a lesson to today’s rulers of the deep or shallow state of virtually all countries. René-Louis de Voyer, Marquis d’Argenson (1694-1757) was an early Enlightenment figure, friend of Voltaire, and, for a short time, minister of Louis XV. In his memoirs, he wrote (Vol. 5, p. 372, of the 1858 edition)–my translation follows the original French: Il est temps de prendre ce parti. Toutes les autres nations nous haïssent et nous envient. Et nous, ne les envions point si elles s’enrichissent : tant mieux pour elles et aussi pour nous ; elles nous prendront davantage de nos denrées, elles nous apporteront davantage des leurs et de leur argent. Détestable principe que celui de ne vouloir notre grandeur que par l’abaissement de nos voisins ! Il n’y a que la méchanceté et la malignité du coeur de satisfaites dans ce principe, et l’intérêt y est opposé. Laissez faire, morbleu! laissez faire! It’s time make that choice. All other nations hate us and envy us. But let’s not envy them if they get rich. Good for them, and good for us to. They will take more of our products and bring us more of theirs and of their money. It is a despicable principle to want our greatness only through lowering our neighbors! Only wickedness and malevolence of the heart are gratified by this principle, and interest is its opposite. Laissez faire, for God’s sake ! Laissez faire ! We should forgive d’Argenson’s collectivist way of speaking (the “nations” who hate, for example). On this, he is not worse than most of today’s rulers and “their” people. ****************************** DALL-E got my idea to imagine d’Argenson on the first try but with many errors including the candles dangerously close to bookshelves and the anachronistic desk lamp. No doubt that historians of 18th-century France will discover other anachronisms. D’Argenson, who was around 45 when he wrote the quoted passage, also looks a bit young (although I admit I don’t quite remember how one looks at that age). He also does not look like the real d’Argenson, but that is DALL-E’s standard practice. Moreover, the robot made a typo in “morbleu” and I was unable to have “him” correct it. Still not bad for a virtual machine! Certainly better than a pocket calculator. Perhaps he should run for office? How DALL-E imagines d’Argenson, with one big anachronism and a typo in “morbleu” (1 COMMENTS)

In a September 4 post titled “The Isolated Milton Friedman,” I quoted two paragraphs from Michael Hirsh, Capital Offense: How America’s Wise Men Turned America’s Future Over to Wall Street. I won’t quote the whole passage again. Here’s a passage that struck me as strange, given what a warm and welcoming person Milton was: For most of those years of the Cold War, he remained the leader of a maverick insurgency, isolated and condemned even on the Chicago campus as the 1960s counterculture grew. There were times when no one would eat with him in the faculty dining room.  (Italics added.) My commentary was on something else, but, still, I should have noted that this passage struck me as strange. A long time friend, Christopher Jehn (we’ve been friends since meeting each other at Richard Thaler’s house in 1977), sent me the following email and has given me permission to quote him: I wound up reading your Sept. 4 post on Friedman’s “isolation.” Your post and especially the quote from Hirsh didn’t ring true. Indeed Hirsh (and his references) sounds almost delusional. Recall I was a graduate student at Chicago from 1965 to 1970. I do not remember any discussion, none, among grad students or between us and faculty, consistent with this story. Odd. It is odd. I wonder where Hirsh got his information.   (0 COMMENTS)