The increase in the relative price of housing (relative to the prices of other goods and services) is the consequence of supply increasing less than demand. Many economic factors are at play, such as a growing population, land prices, and construction costs. Many political mandates and prohibitions play a role in limiting the supply of new housing units. Zoning regulation is a major factor. Import tariffs on Canadian lumber impose a special tax on the construction of houses. Over the last two years, the Fed has pushed up interest rates–and thus, indirectly, mortgage rates–in order to control the inflation generated by the money it created to accommodate higher government expenditures. Other interventions work the other way. The federal government’s role in the supply of mortgages probably reduces their prices. On the demand side, the deductibility of mortgage interest from income taxes (as any subsidization of house purchases) pushes up housing demand and prices. The net effect of the multitude of government interventions on specific markets is often obscure. Contradictions in government policies are not unusual, but a more basic question goes unnoticed: Why should governments take sides in favor of or against some homeowners? Why should governments be at all concerned about the issue (except to question their extant interventions)? Consider the simple case of owner-occupied housing units (houses or condos) and their increasing prices. When house prices are on the rise, a new buyer has to pay more while an existing owner sees the value of his asset increase and can obtain more from its sale. Heirs of a deceased homeowner or any homeowner who wants to downsize are advantaged. A homeowner who sells at a higher price obviously figures out that the extra money is worth more for him (or her, of course) than the advantage of staying put. If a homeowner is upsizing, the price difference between his old and his new house may go up, but this is not necessarily true in a diversified market where house prices don’t increase in the same proportion. To repeat the question: Why would governments—by favoring lower house prices—discriminate between one group of citizens and another, like between new and current homeowners? Most if not all government policies consist in, and are only effective by, arbitrarily taking sides and discriminating among citizens. It is largely a political fairy tale that governments produce “public goods” that all citizens want, thereby benefiting everybody. When they do produce goods or services that can be called “public,” it is most often for a specific group of citizens. And nothing guarantees that most citizens will come out as net beneficiaries of the sum of government interventions. Governments are essentially, or at least mostly, redistributive machines. The underlying justification for redistribution is the utilitarian fiction that the favored citizens gain more than the ones discriminated against lose, that the former are more helped than the latter harmed. It is this danger of exploitation of some citizens to help others that led James Buchanan and the school of constitutional political economy to emphasize a “generality” requirement for government intervention: no discriminatory taxes, no unequal subsidies, and no regulation meant to distribute benefits and costs among groups (indeed, like zoning). The same observations led Anthony de Jasay to dismiss all moral arguments in favor of the state. Both approaches—Buchanan’s and de Jasay’s—can be seriously defended. (Friedrich Hayek provides another approach, which is less neatly contoured and can be left aside here.) The political function of government interventions that, in some cases, push up house prices and, in other cases, push them down is probably to appear to respond positively to the demands of different electoral clientèles and special interests. Provided certain general conditions of formal equality obtain, the beauty of the market is that a voluntary exchange without fraud between two adults takes care of itself: each one benefits or thinks he will according to his own lights. Trying to find out who benefits most in a free exchange, who gains more “utility,” is a fool’s errand: it is impossible to calculate, even conceptually. Using coercive means including special taxes to bring an individual to make a choice different than he would otherwise have made is arbitrary authoritarianism. We may repeat the injunction to governments that the Marquis d’Argenson, who was a friend of Voltaire and a former minister of Louis XV, immortalized in his memoirs: “Laissez faire, morbleu! Laissez faire!” (Laissez faire, for God’s sake! Laissez faire!). ****************************** The goddess of housing is coming to grab some, by DALL-E and your humble blogger (0 COMMENTS)

The substitution effect is an idea in economics that can understood pretty intuitively. When the price of some good rises relative to some alternative, people will tend to buy more of the alternative and less of the now more expensive good. If apples and oranges used to be the same price, but apples get more expensive while the price of oranges remains unchanged, people well tend to reduce the amount of apples they buy and get more oranges instead. And it’s worth remembering that this effect occurs with a change in relative prices, too – not merely absolute prices. If apples used to be $1 and oranges $2, but then the price of apples increases to $1.50 while oranges remain at $2, this can increase the number of oranges sold. Even though the price of oranges hasn’t changed, and its price is still higher than the price of apples in absolute terms, the relative price between the two has changed. Previously, for the price of three oranges you used to be able to get six apples. Now, for the price of three oranges you can only get four apples. Different people will adjust in different ways depending on their own preference between these two, but overall we can expect to see a greater proportion of oranges sold than before.  There is also a substitution effect for labor. As labor becomes more expensive, employers will tend to find substitutes for that labor. One way they can do this is by substituting workers for machines. This tends to happen over time on its own – as technology advances and becomes less expensive, the relative price of using automation as opposed to hiring workers falls, leading to increases in automation. But artificially increasing the price of labor also lowers the relative price of automation, causing more workers to be substituted with automation.  Among the many things one can say about the state of California is that it never fails to provide opportunities to show economics in action. I previously wrote about how the $20 minimum wage for fast food workers was causing fewer people to eat at fast food establishments and instead go to dine-in restaurants: So why would places that serve more expensive food be seeing their traffic increase, while the still-less-expensive fast food establishments see their traffic decline? The answer is that even though the price of dine-in chains hasn’t fallen in absolute terms, it has still fallen in relative terms compared to fast food. Fast food and dine-in restaurants differ in terms of price, quality, and convenience. But with fast-food establishments being forced to increase their prices in the face of increased labor costs, the gap in price between fast food and dine-in establishments has gotten smaller without any change in the other two dimensions. As a result, people are seeing what it would cost them to get a basic combo at McDonalds and thinking “Well, if I’m going to have to pay this much just to get some McDonalds, I may as well pay just a little bit more and go to Chili’s instead.” More recently, another change has been made by a major fast-food chain in California – Chipotle. After this wage increase was put into law, Chipotle has begun replacing employees with machines, as was detailed in this news report: Chipotle has introduced two robots that can take over tasks normally done by its workers.  The ‘autocado’ can peel, stone and cut an avocado for guacamole in 26 seconds. Meanwhile, a ‘digital makeline’ portions up salads and bowls based on orders on the app. The machines are part of an automation drive that Chipotle bosses hope will cut down the number of workers needed – slashing rising labor costs.  So, it is no surprise they are being put to use first in two of the Mexican chain’s restaurants in California, the company announced on Monday.  The author of that news article raises the issue of how expensive automation might be: It is not yet clear how the production costs of using Chipotle’s new machines compares to human labor when making Chipotle menu items. But this is why it’s important to keep in mind that it’s the relative rather than absolute cost that drives these adjustments. Even if the costs of the new machine are more expensive than human labor in absolute terms, the new minimum wage law has still made the use of machines relatively less expensive compared to human labor than before. And that’s all that needs to happen for the substitution effect to kick in.  As an aside, it’s also worth noting that many restaurants, fast-food and otherwise, have found a different substitute for employee labor than machines. They simply have the customer perform tasks they used to hire employees to do. At one of my favorite local restaurants, they used to have someone who took your order, but they don’t anymore. That person’s job consisted of having customers say what they wanted, then pushing some buttons on a computer to ring up the order. Now, they just have a self-serve kiosk and have the customers push those buttons themselves. When your food is ready, they don’t have servers come and bring the food to your table. They call out your order number, and you pick up the food from the counter and bring it to the table yourself. And when you’re done, you don’t leave your dishes behind to be bussed by an employee anymore. You bus your own tables – they have trays set out for you place your dirty dishes. Restaurants increasingly use customer labor to replace the cashier, the server, and the busser.  I’ve said it before and I’ll say it again – for all its simplifications, the world would benefit from a greater application of Econ 101 than what we have today.  (0 COMMENTS)

Today’s Bloomberg reports that China instituted a new program of monetary stimulus: China’s central bank unveiled a broad package of monetary stimulus measures to revive the world’s second-largest economy, underscoring mounting alarm within Xi Jinping’s government over slowing growth and depressed investor confidence. But is this what actually happened?  Here’s how the exchange rate for the Chinese yuan responded to Monday’s news: Note that this is actually the yuan price of dollars, so the sharp fall indicated an appreciation in the yuan.  The flat stretch is the weekend period, when markets were presumably closed. I cannot be certain, but it looks to me like the markets initially treated the news as monetary stimulus, and then sharply reversed course.  Michael Pettis has argued that China’s monetary policy has become intertwined with credit policy.  China’s financial system today and Japan’s then have been structured in ways such that monetary expansion results mainly in credit expansion that, for well-understood institutional reasons, is directed mainly into the supply side of the economy. If so, the markets may have treated this as more akin to fiscal stimulus than monetary stimulus.  Note that currencies generally depreciate when there is unexpected news of monetary stimulus, and currencies often appreciate on news of fiscal stimulus (at least in countries where there is little fear of fiscal default.)  The Bloomberg article provides support for the view that this might have been credit easing more than monetary easing: Those moves were followed by a slew of other announcements that fueled gains in China’s beleaguered equity market. The central bank chief also unveiled a package to shore up the nation’s troubled property sector, including lowering borrowing costs on as much as $5.3 trillion in mortgages and easing rules for second-home purchases. Another article in Bloomberg suggested that China is in recession: China now has all the symptoms of a “balance-sheet recession”: a protracted period of deflation, property market declines, and a debt overhang. And, just as in Japan, this has followed an amazing period of growth.  I don’t like the term “balance sheet recession”, as these are simply tight money recessions—periods of slowing NGDP growth caused by a tight money policy.  The property price declines and debt overhang are a symptom of tight money.  In a recent blog post, I suggested that China needed monetary stimulus.  I suspect that what they got is closer to fiscal stimulus. (0 COMMENTS)

Among my three articles in the Fall issue of Regulation, which is just out in printed and online formats, two are reviews of recent books that are, not surprisingly, related to individual liberty. The first one is about Matt Zwolinski and John Tomasi’s The Individualists, which provides a detailed intellectual history of libertarianism since its birth in the 19th century (see pp. 40-43 in the magazine). In the authors’ typology, which is defendable, libertarianism in its broad sense includes not only the most radical libertarians but also the contemporary version of classical libertarianism. It is a serious and well-documented book, challenging in many ways for both libertarians and non-libertarians. One of my critiques is the neglect of Anthony the Jasay. I write: There is a big absence in the book’s review of contemporary libertarian schools of thought. Nowhere is the work of economist and political philosopher Anthony de Jasay mentioned. In my opinion, de Jasay fundamentally renewed both the critique of the state and the liberal–libertarian argument for anarchy. (See “A Conservative Anarchist? Anthony de Jasay, 1925–2019,” Spring 2019.) De Jasay’s work also attenuates the relevance of the standard left–right, progressive–conservative distinction, and throws new light on political philosophy and libertarianism. For sure, he is far from an academic household name, but his first, seminal book, The State, was published four decades ago. Since I did not myself immediately discover its importance (Buchanan was quicker), I can’t really cast the first stone. My review concludes: Is libertarianism too large a tent, with too many diverse occupants? The authors of The Individualists believe that “libertarianism is not accidentally but intrinsically a diverse ideology” and that “the tension between radical and reactionary elements is not accidental but intrinsic to libertarian thinking.” They seem to attribute this characteristic to the different circumstances where the major threats to liberty changed. Perhaps it is also because libertarianism is defined along a different dimension than the standard left-right spectrum: the dimension of individual choice/collective choice. At any rate, analysis, discussion, peaceful diversity, and tolerance are pluses, not minuses. Zwolinski and Tomasi’s book is a useful guide in these interrogations. The second book I review in this hot issue of Regulation is a defense of the Middle Ages as a precursor of classical liberalism: The Medieval Constitution of Liberty: Political Foundations of Liberalism in the West (see pp. 51-54 in Regulation online) by two libertarian economists, Alexander William Salter and Andrew Young. The incipit of my review: The Middle Ages seem mysterious. The period from the fall of Rome in the 5th century through the 15th century is often—or used to be, anyway—referred to as the Dark Ages. Yet, this period was followed by the Renaissance, the Early Modern period and, in the 18th and 19th century, the Enlightenment, the Industrial Revolution, and (to borrow from Deirdre McCloskey) the “Great Enrichment.” There must have been something in the Middle Ages that was not antithetical to the birth of modernity. Salter and Young explain what that was. They also argue that we (in the West) owe the measure of liberty we have not to the “state capacity” (one of today’s academic buzzwords) that developed between the Middle Ages and the Enlightenment but, on the contrary, to the decentralized political power that characterized the High Middle Ages (11th-13th century). Let me quote the last few paragraphs of my review: The medieval constitution did not survive long after the High Middle Ages, notably because of the shocks of the 14th century. The Black Death, a plague or viral epidemic, ravaged Europe between 1347 and 1351. Depending on the region, it killed between one-eighth and two-thirds of the population. Another shock was the siege cannon, which produced economies of scale in coercion and eliminated the relative advantage of fortified places. Centralized nation-states rose with “state capacity” for producing what we would now call public goods. State-capacity scholars believe that the privatization of political authority in the High Middle Ages prevented state centralization and the building of useful state capacity, notably for supporting economic growth. They point to the correlation between high taxes and high economic growth since the Industrial Revolution. (See “A Shackled Leviathan That Keeps Roaming and Growing,” Fall 2021, and “A Fashionable Appeal to a Benevolent State,” Winter 2023–2024.) An example of the perverse effects of decentralized medieval institutions can be found in the guilds, which limited innovation and competition among artisans, and existed from the 11th to the 18th century. Local tolls offer another example. Only the modern central state, goes the argument, was able to abolish these obstacles to the Great Enrichment. Salter and Young consider the state capacity argument “a significant challenge,” which they endeavor to meet. The state capacity explanation for economic development has been challenged by several scholars such as Peter Boettke, Roselino Candela, Vincent Geloso, Ennio Piano, and Salter and Young themselves. Strong states can be predatory as much as producers of public goods. Historically, state capacity has generally stifled economic development; we only need to think about imperial China or, in recent times, North Korea or the Soviet Union. To support prosperity, state capacity must be limited by the rule of law and a market economy. The state must be constrained in the use of its capacity. Western countries’ march toward the Great Enrichment suggests that something must have prevented state capacity from becoming predatory. Salter and Young argue that this something “was the set of background constraints bequeathed by the constitutional heritage of medieval Europe.” Thus, we cannot explain “the bounty of modernity” without the conditions that existed in the High Middle Ages. “The rise of the West must be viewed not as an escape from the High Middle Ages,” the authors write, “but a continuation of the proto-liberal traditions that solidified in the High Middle Ages.” Salter and Young’s book confirms that capitalism or, more generally, individual liberty is the daughter of anarchy or, at least, of polycentric and limited political power. Let’s repeat that the Middle Ages were not perfect and mankind had to wait for 19th century classical liberalism to have a glimpse at the bounty that individual liberty can produce. Sociologist and historian Jean Baechler said something similar (his emphasis): The expansion of capitalism owes its origins and its raison d’être to political anarchy. ****************************** DALL-E hopes somebody is listening     (0 COMMENTS)

Early in her political career, Alexandria Ocasio-Cortez made a particularly noteworthy comment. During an interview with CNN’s Anderson Cooper, she was questioned about a claim she made about Pentagon spending that was rated “Four Pinocchios” by the fact-checkers at the Washington post. While she acknowledge her error, she also has this to say: If people want to really blow up one figure here or one word there, I would argue that they’re missing the forest for the trees. I think that there’s a lot of people more concerned about being precisely, factually, and semantically correct than about being morally right. Uncharitably, one might interpret this to mean she’s effectively saying, “it doesn’t matter if what you’re saying is true, what matters is that saying it shows you’re a good person.” But a more charitable interpretation is that she meant “morally right” here to mean something akin to when someone is said to be “morally certain.” Moral certainty falls short of fully established certainty, but close enough to it to justify acting on that basis. So perhaps being “morally right” in this context just means the claim accurately alludes to some kind of big picture truth even if the specifics don’t hold up on examination.  Recently published research suggests that partisans are often aware when leaders in their movement make factually incorrect claims. As the authors summarize, they find that, “voters often recognize when their parties’ claims are not based on objective evidence. Yet they still respond positively, if they believe these inaccurate statements evoke a deeper, more important ‘truth.'” For example, they found that many Trump supporters who support the former President’s claim that the 2020 election was stolen from him are fully aware that this claim is factually incorrect. Nonetheless, they still invoke these claims because they, “see these allegations as important for ‘American priorities,’ because they believe the political system is illegitimate and stacked against their interests.” In their mind, it doesn’t matter that Trump’s claim that the election was stolen isn’t “factually correct” because they see it as “morally right” – it speaks to a “deeper truth” about the political system being corrupt, claims of elites who seek to thwart the will of the people, and so forth.   Of course, people tend to apply this leeway about factual correctness rather unevenly. The authors point out that, “Voters from both parties cared more about ‘moral truth’ when they were evaluating a politician they liked. When evaluating a politician they didn’t like, on the other hand, voters relied more on strict factuality.” If you’re progressive, you’ll tend not to care about Ocasio-Cortez’s numerous factual errors because you’ll think her statements still gesture towards important truths – just as Trump supporters often overlook his factual inaccuracies for the same reason.” I think there is an additional factor at play for why people seem to accept and repeat political claims they know are factually incorrect. Making these kinds of statements serves as a sort of loyalty signal. Within a tribe, loyalty is signaled by making overly strong claims that one expects to be taken “seriously but not literally.” For this reason, fact-checking can often be ineffective because the people who make or repeat such claims don’t actually take them to be statements of fact in the first place. Just as many Trump supporters make claims about stolen elections they know are untrue in order to signal their dedication to some other ideas, I suspect that many people who have repeated so-called “woke” mantras do so simply as a way to signal their progressive bone fides, and not because they actually believe the statements themselves are in any way true. This brushes up against another idea I have called “political noncognitivism” – the idea that people’s political claims are often meant to express attitudes and are not intended as factual statements.  If these kinds of statements are meant to signal political loyalty and to gain status within an in-group, this creates unfortunate dynamics. Status is a zero-sum game – one can only increase in status by rising in status above others. In order to gain status with this kind of loyalty signaling game, there is a competitive pressure to make statements that are more and more disconnected from reality, in order to distinguish yourself. In a way, this also sends a stronger loyalty signal. You don’t signal your loyalty to a group by making statements that anyone from any group would agree with. “The sky is blue” won’t win you any points with any in-group. But consider one of the claims made by Ibram Kendi in his book Stamped from the Beginning: The Definitive History of Racist Ideas in America, where he claims “When you truly believe that the racial groups are equal, then you also believe that racial disparities must be the result of racial discrimination.” Kendi is claiming that all differences in aggregate outcomes among different populations can only be explained by racial discrimination, and if you believe there can possibly be any other explanation for even a fraction of the variance, then you are a racial supremacist of some sort. One’s willingness to endorse this sentiment sends a very strong loyalty signal precisely because of its tenuous connection to reality. In the same way, the more obviously absurd Trump’s claims about a stolen election are, the stronger a loyalty signal it becomes when one is willing to affirm and repeat those claims.  But there’s an externality problem here. Sending these kinds of signals raises one’s status at the cost of polluting public discourse. When ninety-nine people repeat these mantras while not personally believing them to be true, the one person in a hundred who makes such statements sincerely both gains confidence in the veracity of their disconnected ideas, and loses any opportunity to experience the collision between truth and error, as John Stuart Mill phrased it. People who repeat these mantras insincerely provide intellectual cover for true believers in these ideas to take power within institutions and put these ideas in practice.  One dramatic case of these dynamics, I believe, could be seen in the so-called Pizzagate conspiracy theory. In 2016, conspiracy theorists spread the idea that there was a wide-ranging operation in child-trafficking among the elites, and children were being held as part of this operation in the basement of Comet Ping Pong Pizzeria in Washington D.C. – despite the fact that this establishment didn’t even have a basement. Eventually a true believer went there wielding a rifle, intent on setting the children free. Luckily he was apprehended by the police and nobody was injured. But what stands out to me about this case is that while thousands – perhaps tens of thousands – of people online claimed to believe this child-trafficking ring existed, and while many sent harassing phone calls or left mean comments online, only one person actually tried to do something to stop it. This suggests to me that many – perhaps most – of the people who endorsed this conspiracy theory online didn’t really believe it to be factually true. They claimed to endorse it and promoted it as a form of loyalty signaling, and doing so would send an extremely strong loyalty signal to the in-group precisely because the whole idea was patently absurd. But when enough people are willing to do this, it opens the door for the occasional person who really believes it to do something terrible.. Recently, I saw the following claim on Twitter: “A good sign that wokeism is going out of vogue is that even leftists, who once blithely allowed the woke to hijack their movement, are starting to pretend that they saw through wokeism all along, as if they’ve always been at war with Eastasia.” I have a slightly different take here. I suspect that most leftists, privately, did in fact “see through wokeism all along,” but nonetheless vocally affirmed it for reasons of status and loyalty signaling. As the halo around Ibram Kendi and Robin DiAngelo has begun to tarnish, many leftists are now more willing to openly say that they never actually believed any of that stuff. But still, some people actually did believe it. And many of those true believers, with the cover given to them by such loyalty signaling, have moved into positions of significant institutional power. Much of Kendi and DiAngelo’s corpus have become official policy within governments, major corporations, and medical institutions – even if most of the people who publicly affirmed those ideas never actually believed them to be true.  (0 COMMENTS)

An owl will eat a rabbit whole, but owls can’t digest the fur or the bones. So how do they survive? Why do their eyes face forward rather than to the side? Long-eared Owls don’t have ears, so what’s up with the name and how do they hear? How can dogs help us track owls–that […] The post The Mysterious World of Owls (with Jennifer Ackerman) appeared first on Econlib.

Matt Yglesias has an excellent post discussing the way that US energy policies often work at cross-purposes. The administration many wish to reduce energy exports from adversaries like Russia, Iran and Venezuela, but not so much as to hurt the global economy. The administration may also wish to limit new domestic energy production to address global warming, but not so much as to hurt the economy.Yglesias points out that a possible win-win policy adjustment would ease domestic energy rules enough to boost production by X barrels per day, and simultaneously tighten sanctions enough to offset the US production increase.  It’s a clever way to tighten sanctions without any significant effect on either the environment or the global economy.  (To be sure, these sorts of policies always have second order effects, but the first order effects would largely offset.) I don’t have anything quite as innovative to offer, but I would point to a similar problem of conflicting goals within the sanctions regime.  Through experience, we’ve learned that sanctions are often easy to evade.  According to the NYT, Russia has found ways to export oil to places like China and India.  [As an aside, if you rely on certain parts of the American media you might not know that it was India that threw Russian the financial lifeline.] On the other hand, sanctions do have some effect, and Iranian oil exports are probably lower than they would be in an unconstrained market, particularly since sanctions also inhibit the transfer of technology to develop new oil fields. Let’s assume that sanctions on Russian energy were only able to reduce output by a small amount, say less than 10%.  In that case, the most effective technique for depriving Russia of money to fund its war would be a significantly lower global oil price.  But sanctions on Iran and Venezuela tend to raise global oil prices, which provides a boost to the Russian economy. Of course when there are conflicts of this sort, there are no easy answers.  But we can make some conditional observations.  If Russia’s Ukraine invasion is the biggest geopolitical threat, then the case for sanctions against other oil producers becomes somewhat weaker. To summarize, when the foreign policy establishment considers actions against any one of our adversaries, it is important to consider how the actions might indirectly impact the global market for a good such as oil, and thus how these actions will impact the behavior of our other adversaries.  Foreign policy conflicts cannot be analyzed in isolation, as the world economy is highly interconnected. (0 COMMENTS)

  The Economic Consequences of the French Wealth Tax by Eric Pichet, La Revue de Droit Fiscal, Vol. 14, p. 5, April 2007 Abstract: Despite attempts to ‘unwind’ the Impôt de Solidarité sur la Fortune (‘Solidarity Wealth Tax,’ the French wealth tax) during the last legislature (2002-2007), ISF yields had soared by 2006, jumping from €2.5 billion in 2002 to €3.6 billion. Analysis of the economic consequences of this ISF wealth tax has raised the following conclusions: Tax collection costs remain low (around 1.6% of proceeds); Not raising the threshold in line with inflation between 1998 and 2004 created windfall revenues for the French State of €400 million in FY 2004 alone; ISF fraud mainly involving an under-assessment of property assets has stabilised over time at around 28% of total revenues, equivalent; (had the legal framework remained unchanged) to a shortfall for the State of €700 million in 2004; Capital flight since the ISF wealth tax’s creation in 1988 amounts to ca. €200 billion; The ISF causes an annual fiscal shortfall of €7 billion, or about twice what it yields; The ISF wealth tax has probably reduced GDP growth by 0.2% per annum, or around 3.5 billion (roughly the same as it yields); In an open world, the ISF wealth tax impoverishes France, shifting the tax burden from wealthy taxpayers leaving the country onto other taxpayers. HT2 Tyler Cowen. Happy Yeltsin Supermarket Day! by Scott Lincicome, Cato at Liberty, September 16, 2024. Excerpt: Yeltsin, who’d two years later become the first freely elected leader of Russia, roamed the aisles of the relatively small Randall’s market that day and was astonished at the variety and affordability of the products on display. According to various reports, this visit — not the one to NASA — catalyzed Yeltsin’s exit from the Communist Party and his abandonment of the Soviet economic model. His 2007 New York Times obituary tells the tale: During a visit to the United States in 1989 he became more convinced than ever that Russia had been ruinously damaged by its centralized, state-run economic system, where people stood in long lines to buy the most basic needs of life and more often than not found the shelves bare. He was overwhelmed by what he saw at a Houston supermarket, by the kaleidoscopic variety of meats and vegetables available to ordinary Americans. Lincicome also quotes this from the New York Times obituary for Yeltsin: Leon Aron, quoting a Yeltsin associate, wrote in his biography, “Yeltsin, A Revolutionary Life”…: “For a long time, on the plane to Miami, he sat motionless, his head in his hands. ‘What have they done to our poor people?’ he said after a long silence.” He added, “On his return to Moscow, Yeltsin would confess the pain he had felt after the Houston excursion: the ‘pain for all of us, for our country so rich, so talented and so exhausted by incessant experiments.’” He wrote that Mr. Yeltsin added, “I think we have committed a crime against our people by making their standard of living so incomparably lower than that of the Americans.” An aide, Lev Sukhanov was reported to have said that it was at that moment that “the last vestige of Bolshevism collapsed” inside his boss. DRH note: This last quote reminds me of something Nikita Khrushchev said, something that was quoted in Red Plenty. Here’s what I wrote in “Plenty of Nothing,” my review of Red Plenty: The book ends with a sympathetic portrayal of Nikita Khrushchev in 1968. Khrushchev, who was forced into retirement in 1964, looks back, sadly and angrily, at the huge amount of blood spilled for communism. He had thought the losses were worthwhile because he and his comrades were creating paradise. But here are his actual words, which Spufford tells us in a footnote were on tapes that Khrushchev recorded but that were held back from the memoir his son smuggled to the West: “Paradise is a place where people want to end up, not a place they run from. What kind of socialism is that? What kind of s**t is that, when you have to keep people in chains? What kind of social order? What kind of paradise?”   Decoding the Sex Trafficking Case Against Sean ‘Diddy’ Combs by Elizabeth Nolan Brown, Reason, September 18, 2024. Excerpt: I can’t speak to whether the allegations against Combs are true. But reading the indictment, a few things jump out that I can comment on. The first is how—once again—the Mann Act rears its ugly head, making criminal what really should not be a crime. The second is how federal prosecutors are (once again) stretching the application of sex trafficking laws to conduct that goes beyond the sort of actions they were originally pushed to target. And the third is how the racketeering conspiracy charge opens up the government to seizing way more assets than they would otherwise be allowed to seize.   Tim Scott Wants to Deregulate Manufactured Housing by Christian Britschgi, Reason, September 17, 2024. On Thursday, a group of Republican senators led by Sen. Tim Scott (R–S.C.) introduced the Renewing Opportunity in the American Dream (ROAD) to Housing Act, which proposes a grab bag of reforms to federal housing programs. Unlike the slew of federal YIMBY (Yes in my backyard) bills that have been introduced in recent years, Scott’s bill doesn’t try to poke, prod, or bribe local and state governments into liberalizing their zoning codes. “Housing policy is inherently local, and federal legislators should encourage local solutions to local problems,” reads the press release on the bill. Nevertheless, the bill does include at least one idea to increase housing supply. That includes a repeal of the federal regulation requiring that manufactured housing sit on a permanent steel chassis.   80 Years Later, Are We Still on ‘The Road to Serfdom’? by Rainer Zitelmann, Wall Street Journal, September 17, 2024. Excerpt: In 1942 Hitler defended the Soviet planned economy to his inner circle: “One has to have unqualified respect for Stalin. In his way, the guy is quite a genius . . . and his economic planning is so all-encompassing that it is only exceeded by our own Four-Year Plan. I have no doubts whatsoever that there have been no unemployed in the U.S.S.R., as opposed to capitalist countries such as the U.S.A.” In July 1941, Hitler said: “A sensible employment of the powers of a nation can only be achieved with a planned economy from above.” And: “As far as the planning of the economy is concerned, we are still very much at the beginning and I imagine it will be something wonderfully nice to build up an encompassing German and European economic order.” Statements like these confirm Hayek’s basic thesis. And: Hayek’s book presents a second important thesis: The loss of economic freedom precedes the loss of intellectual and political freedom. Critics who dispute his concerns point to the U.K., which after World War II introduced extremely high taxes and nationalizations. Although the economic consequences were disastrous—and reversed only decades later by Margaret Thatcher, who greatly admired Hayek—there was no loss of political freedom. The critics are onto something. The loss of economic freedom doesn’t necessarily or immediately lead to the loss of political and intellectual freedom. But Hayek was more right than wrong. Look to the recent example of Venezuela, which lost economic freedom first. Political freedom disappeared next.   (0 COMMENTS)

Often, when we observe that something does not work correctly (that is, according to consumer demand and the likely opportunity cost of production), we discover that a restraining regulation is the culprit. Consider hearing aids. Why are they so expensive, typically thousands of dollars? Until two years ago, a Food and Drug Administration regulation forbade their sale over the counter and required an audiologist’s prescription (Dominique Mosbergen and Julie Jargon, “FDA Clears Hearing Aids for Over-the-Counter Sale,” Wall Street Journal, August 16, 2022). Whether we model the prescription obligation as a government restriction on supply or as an excise tax on consumers, the effect was higher prices, a reduction in the size of the market, and less incentive for innovation. Who knew what consumers were missing? We got part of the answer when Apple announced that it will soon offer a software update for its $250 AirPods Pro 2 that will give them a hearing-aid function for low-to-medium hearing loss (FDA restriction will remain in place for more severe cases). The conspicuous shape of the AirPods has the drawback of advertising that one is hard of hearing, but some old people may think that wearing them looks cool (see Ben Cohen, “Apple Has a Hot New Product. It’s a Hearing Aid,” September 13, 2014). This new competition from outside the previously regulated market will likely cause a fall in the prices of more conventional hearing-aid devices. How many months earlier would people with hearing problems have been able to use the new device if it had not been regulated out? It is true that a technological innovation or the adaptation of existing technology was necessary, but technology depends on research and research depends on the expectation that its products can be profitable. We still have to wait to see how well the AirPods will work as hearing aids, but we know that this innovation and many others are less likely to happen if they are legally impeded. The story illustrates a more general argument for individual liberty, well formulated by Friedrich Hayek (see Volume 1 of his Law, Legislation, and Liberty, originally published in 1973): Since the value of freedom rests on the opportunities it provides for unforeseen and unpredictable actions, we will rarely know what we lose through a particular restriction of freedom. … And so, when we decide each issue solely on what appear to be its individual merits, we always over-estimate the advantages of central direction. On the market, you don’t have to “vote” with your single ballot to get what you want or to hope that entrepreneurs and innovators will offer you goods or services you would want if only you knew they existed. The only requirement is that enough consumers, but not necessarily a majority or some politically vocal minority, will be probabilistically willing to pay for it. Contrast this with the ideal government of Rexford Guy Tugwell (1891-1979), a believer in government planning and close collaborator of Franklin D. Roosevelt. In a 1932 American Economic Review article, he wrote: New industries will not just happen as the automobile industry did; they will have to be foreseen, to be argued for, to seem probably desirable features of the whole economy before they can be entered upon. (See also my Regulation review of his 1933 book Industrial Discipline and the Governmental Arts; also available in pdf format, pp. 71 ff.) On the political “market,” could you have effectively voted for iPhones or AirPods that can be used as hearing aids? Lobbying politicians or regulators is costly, especially for what only exists in entrepreneurs’ or innovators’ minds. How do we know what we are missing with the 188,346 pages of federal regulations, not counting state and local regulations? The question is relevant in all countries. ****************************** (0 COMMENTS)

As I’m sitting here writing this, I’m in a record/cocktail lounge sipping on a negroni.  One of the owners, who makes the best cocktails west of the Mississippi River and is dressed like the guys from Wayne’s World, were sponsored by Buc-ee’s, and I were chatting about the comings and goings of the food scene in town.  In town we have this wonderful thing called the Beer-muda Triangle: three craft breweries that offer live music and a welcome respite from Busch Light and Stag.  The owners and brewmasters of these breweries are here with us in our conversation. The topic of the day: how to best support the town’s monthly First Friday, sort of a pub-crawl-meets-art-exhibit.    These guys working together is nothing new; they’ll collaborate with other businesses and each other to introduce novel ideas.  For example, two of these breweries don’t have food service licenses.  To save on the cost, they’ll stock some restaurants’ menus and you can order directly through them, add it to your tab, and get the food delivered from a few doors down.  Talk about a win-win-win!  The brewery doesn’t need to foot the expense and liability of a kitchen, and they get to keep your butt in a seat.  I don’t have to leave to get food and only have one bill to deal with.  The restaurant doesn’t need to foot the expense and liability of a liquor license and they get to keep selling their food to people who aren’t even on property!  These kinds of collabs are great ways to compete and still complement each other. Competition is often viewed as cutthroat.  Firms can use the political process to protect themselves from competition or target their competitors. For example, The Wright Amendment of 1979.  Repealed in 2014, the Wright Amendment was a federal law that governed traffic at Dallas’s Love Field.  Enacted after Southwest Airlines’s refusal to vacate Love for Dallas-Fort Worth airfield, it prohibited any airline from operating transport-category aircraft with more than 56 seats to anywhere beyond Texas and the surrounding states. (American Airlines, a major competitor to Southwest and also based in the DFW area was grandfathered in, of course.) As I sit sipping on my cocktail I’m mulling these ideas around in my head.  Who said competition needs to be cutthroat and adversarial?  At the end of the day, everyone around me is competing for my hard-earned entertainment dollar.  Yet, here they are, fully aware of their competition and seeking to create their own niche.  It seems counter-intuitive that they would be here, effectively undermining their competitive edge; however, these guys understand the environment they operate in.  They can’t compete with the macro-breweries and chain restaurants on price, but they can on variety.  This additional variety creates more wealth; not just for the Beer-muda Triangle, but for all of us as well.  We have a wealth of choices and novel experiences available to us to spend our entertainment money.  Working together, but with their own self-interest at heart, these guys compete, collaborate, and create. In a world where open and honest competition is in short supply, it is encouraging to see that at least in our own microcosm the utter cynicism of the world around us has yet to take hold.   (0 COMMENTS)