Washington Post Global Social Security Comparison Misses the Forest for the Trees by Romina Boccia and Ivane Nachkebia, Cato at Liberty, September 5, 2024. Excerpt: The article fails to acknowledge the total replacement rate of the US retirement system, which includes both Social Security and voluntary pensions. When considering this broader perspective, the US approach replaces more than 73 percent of pre-retirement earnings for average workers, significantly higher than the OECD average of 55.3 percent. This places the United States ahead of many countries, including some with more robust government-run systems. For example, the article shows that French public pensions replace 57.6 percent of pre-retirement earnings of an average worker, compared to Social Security’s 39.1 percent replacement rate. (As mentioned, when voluntary pensions are included, the total replacement rate for the US retirement system exceeds 73 percent.) On the other hand, the French system remains at 57.6 percent due to the limited coverage of voluntary pensions, so low that the OECD does not factor them into total replacement rate calculations. OECD data also highlight that American seniors are far less dependent on government for their retirement income compared to their French counterparts. Public benefits make up 39.3 percent of American seniors’ total income, while in France, they account for 78.1 percent. DRH comment: This article is interesting in another way also. It shows a substantial degree of understanding among Americans that they can’t depend on Social Security for a large percent of their retirement income. W.H. Hutt: An Economist for the Twenty- First Century by Art Carden and Ilia Murtazashvili, SSRN.Com, September 2, 2024. Excerpt: As Thomas Hazlett wrote in a 1983 article for the Wall Street Journal, W.H. Hutt “may be the most important economist of this century.” Hutt’s University of Dallas colleague Samuel Bostaph prophesied that Hutt might be one of the most important economists of the twenty-first. Economists who know W.H. Hutt likely only know him because he popularized the phrase “consumers’ sovereignty.” This is unfortunate because he made many more substantial contributions that deserve revisiting in the 21st century. They still have much to teach us about how free societies function and flourish. Personal note: I was at 3 different weeklong seminars with Hutt. The first was the first Austrian Economics conference in South Royalton, Vermont in June 1974. The second was a Liberty Fund seminar (and the first one I ever attended) at Ohio University in Athens, Ohio in June 1975. The third was immediately after and, indeed, he, his lovely wife, and I marched through an airport together to catch a flight to attend it. It was the second Austrian Economics conference, held at Hartford College in Hartford, Connecticut. Although I was very impressed with him, I had only an inkling of an idea at the time of his importance.   Industrial Policy: A Dissent by Charles L. Schultze, The Brookings Review, Fall 1983. Excerpt: The second of these new theories-and the latest entry in the competition for the hearts and minds of political candidates-is a set of economic ideas and policy recommendations that goes by the name “industrial policy.” It has been the subject of a growing stream of books and articles; it has been endorsed as a concept by the AFL-CIO; its precepts have been incorporated in a number of bills now before the Congress; and it is receiving a sympathetic hearing from many of the candidates for the 1984 Democratic presidential nomination. The phrase “industrial policy” means somewhat different things to different people; it refers not so much to a single theory as to a loose collection of similar diagnoses and proposals. The diagnoses generally cluster around two basic propositions: DRH comment: This is an oldie but goodie. I reread it while writing my latest Substack post, “Brad Delong’s Unsatisfactory Case for an Industrial Policy,” I Blog to Differ, September 8, 2024. It’s full of good content. I read it when I was researching industry policy while I was a senior economist with President Reagan’s Council of Economic Advisers. It affected my work in two ways. First, I drew on it in writing my first article for Fortune, “The Myth of MITI,” August 8, 1983. I quote from that piece here. Second, I was one of the people at the CEA pushing hard for a chapter on industrial policy. My side won and we wrote it. I wrote the first draft and it was thrown into the trash can as being too basic. (I ultimately agreed.) But I had a lot of input on the version that finally emerged. Indeed, I made it into a talk that I gave to students at the Naval Postgraduate School in February 1984, a talk that led to my getting an offer to be on the faculty. (0 COMMENTS)

  “Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose.” –John Maynard Keynes   I thought about this passage while reading David Henderson’s EconLog post about further declines in the quality of the $1.50 Costco Hot Dog. Episode 374 of Anthony Davies’s and James Harrigan’s podcast “Words and Numbers” talks about how much beer and hot dog prices have risen at baseball stadiums. The $1 Kahn’s hot dogs I used to buy at Riverfront Stadium in Cincinnati live on in memory only. According to polling data from Data for Progress, likely voters left, right, and center blame corporate food manufacturers and retailers “raising prices to maximize profits” for rising prices. The closest thing the poll has to any variation on “too much money chasing too few goods” is “The Policies of President Joe Biden,” which could mean just about anything President Biden has done. The Federal Reserve is conspicuously absent from the list of potential suspects. I’m not sure it would have occurred to Data for Progress to include monetary policy in the poll. The shrinkflation blame game illustrates John Maynard Keynes’s argument–and it’s not clear Lenin ever actually said anything like what Keynes attributes to him. Inflation doesn’t just make prices and money balances harder to interpret. It also engages all the visible forces of political law on the side of destruction because higher prices for gas and groceries have a lot of salience for voters, which means populist politicians have something to stamp their feet and pound the podium about during election season. Which is more likely to boil the blood and stir the soul: huffing denunciations of C-suite vultures sticking it to average Joes and Janes so they can maximize profits or the quantity theory of money? Costco, after all, chose to stop offering sauerkraut and onions to hot dog customers. Their suppliers chose to charge higher prices. Some anonymous schmuck in an office building somewhere chose to recommend price hikes to the bosses and directors of the big, faceless agribusiness corporation who are accountable only to bloated, faceless shareholders. Which is easier to do: believe that sinister forces are at work or explain all the terms in the equation M*V = P*Y, total spending–the money supply times the velocity of money, which is the frequency with which each dollar is used–is equal to the product of the price level and the amount of real output (Lawrence White explains this equation in his Concise Encyclopedia article on inflation). When there is more money and productivity isn’t growing by leaps and bounds, Costco basically has no choice but to lower quality if they want to keep the price fixed at $1.50–but if you start trying to explain how Costco and their suppliers are working in a world where too much money is chasing too few goods, and most voters will tune you out faster than you can say “velocity.”   Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University. (0 COMMENTS)

The title of this post might strike some readers as being odd, given that I hold a number of contrarian views—most notably the claim that the Fed caused the 2008 recession with a tight money policy.When I say don’t be a contrarian, I mean don’t be someone whose entire identity is contrarianism. Don’t be a person who notices, “The elites say X, therefore I need to search out evidence that ‘not X’ is true.” Guess what, it is almost always possible to find at least some evidence that not X is true; that doesn’t make it wise to hold the view that not X is true.Instead, I’d suggest that the best way to respond to the claim that X is true is to look for all sorts of evidence about X, both supportive and opposed. In most cases, you will discover that the elites are correct; X really is true.  The moon landing was not faked.  Oswald did kill JFK.So by all means you should be willing to hold contrarian views. But don’t be a contrarian. Don’t adopt contrarianism as an identity in the way that a person might be a Cubs fan or a Yankee fan, rooting for their team. This post was motivated by an Axios article that contained this tweet: Imagine a pundit starts their career by making a bold contrarian claim, and achieves a certain degree of fame.  Perhaps their initial bold claim actually turns out to be true.  Over time, the pundit may begin to see him or herself as a contrarian, and feel pressure from their audience to supply increasingly contrarian takes.  It’s at that point when the key mistake gets made, when a person moves from being someone that holds a particular contrarian view to someone whose stock and trade is contrarianism. And this does not happen in a vacuum.  Other pundits may be pursuing the same general career path.  In the competition for readers, pundits are pressured to supply more and more edgy takes, to stand out from the crowd.  This competition can only end in one place, dipping one’s toes into the most taboo political opinions of all.  Just as all political debates eventually make the Nazi comparison, descents into contrarianism eventually soft peddle Nazi crimes.  (Or, if the contrarian pundit is on the left, they end up excusing communist crimes.) (0 COMMENTS)

  I posted last month on my Substack, “I Blog to Differ,”  the first part of my interview with financial planner Drew Benson, a former student of mine in the Masters Macro class I taught at San Jose State University in early 2009. I posted on the last 35 minutes today on Substack and have decided, for the first time, to post the same thing here. Here’s the last 35 minutes Some highlights. 3:50: Lockdowns led to a less-robust civil society. 5:35: Connection between lockdowns and George Floyd riots. 6:25: How our daughter adjusted to the San Francisco lockdown and our fear of getting caught going to see her. 8:10: Judge Steve Williams dying in the hospital alone. 8:48: Why Bryan Caplan would be proud of Drew Benson. 10:10: The huge cost of lockdowns to people in poor countries. 11:40: The worldwide decline in extreme poverty and its brief reversal during lockdown. 14:30: Risk from COVID by age. 15:00: I referred to Heritage Foundation; I meant Hillsdale College. 15:40: Multiple co-morbidities. 17:30: Fed behavior, 2008-09 and 2020-21. 19:00: Fed mistake—paying interest on reserves. 19:50: Bernanke broke his promise made at Friedman’s 80th birthday party. 21:25: Who predicted low inflation in 2009 and high inflation in 2021? Jeff Hummel. 22:15: Taking Jeff Hummel’s Masters in Monetary Theory class. Getting the highest grade. 24:10: Commodity money. 24:30: How Hummel’s class helped me write the Wall Street Journal article in which I criticized Diamond/Dybvig model. 25:59: Has WSJ ever dialed me back? 27:10: Having my WSJ article count equal my age. 29:10: Inflation: True and False. 30:00: What Alan Greenspan did in 1987 in response to a greater than 22% fall in Dow-Jones in one day. (The biggest fall in our history.) 31:30: The 1951 Treasury/Fed Accord is dead.   (0 COMMENTS)

The title of this post is a reference to an excellent book edited by Dan Klein and Fred Foldvary, The Half-Life of Policy Rationales: How New Technology Affects Old Policy Issues. The book looks at how many of the arguments given to justify state intervention – such as public goods arguments – are not intrinsic realities. They can quite often be down to little more than technological limitations. As new technology develops, the issues associated with public goods or common-pool resources can be eliminated, and the justification for state intervention eliminated along with it.  One example of this I recently experienced relates to asymmetric information. When there is asymmetric information in a market, one party has more information relevant to a transaction than another party. This can lead to suboptimal outcomes. Probably the most famous statement of this issue is the famous paper by George Akerlof, The Market for Lemons. To quickly recap, this paper considers the used car market. There is asymmetric information between prospective buyers and sellers of used vehicles. If I’m selling my used car, I know more about the condition of that car that you, the prospective buyer. You might naturally suspect my car is a lemon – that is, a car with significant issues. The risk that I might be trying to sell you a lemon will tend to make you push for a lower price. This, in turn, can lead to an adverse selection problem. When buyers of used cars want to push prices down to offset the risk of lemons, prospective sellers who have the highest quality used cars will pull their cars from the market. This in turn makes the used car market more concentrated with lemons, which further pushes down the price people are willing to offer, leading those with the highest quality cars remaining to pull out of the market as well, and so on. Enough iterations of this process, and the used car market will consist of nothing but overpriced junk. Or so the argument goes.  There is also an asymmetric problem with insurance markets. I know more about my life, health, and habits than insurance companies do. Of course, they can attempt to use broad statistical regularities to account for this. For example, auto insurance companies know that teenage boys are riskier to insure than middle aged women, and will tend to charge higher rates for the former than the latter. But this doesn’t fully offset the issue – auto insurance policies are issued on an individual basis. Maybe I am a reckless driver, and the fact that I haven’t been in any accidents lately is down to sheer luck on my part. This is something I can know about myself, but the auto insurance company doesn’t know – there’s asymmetric information here. But, like most things in life, it turns out there’s an app for that.  I get my auto insurance through my bank, USAA. And I discovered a few months back that there’s an app called USAA SafePilot that you can use to impact your auto insurance rates. If you download the app and sign up for the program, the auto insurance company can gain additional information about your driving habits. So USAA can get a sense of how I drive, how often I stomp on the brakes, whether I’m unlocking and using my phone while driving, and so on. And, as a result of reducing the information asymmetry between myself and USAA, my auto insurance rates were reduced by 18%. Not bad at all. In fact, simply knowing that I have this app downloaded on my phone itself nudges me to act differently when I drive. The other day I was on my way home in the morning from the gym and stopped at a red light, when I saw that there was a particularly striking sunrise in progress. I was tempted to take my phone out and snap a picture of it – but then I realized that if I did, the app would ding me for unlocking and using my phone while driving, so I kept my phone away.  The more general lesson is that the market itself has a tendency to find ways to address market imperfections. There is asymmetric information between myself and a life insurance company – but that can be accounted for with a requirement that approval for a given life insurance policy requires undergoing a medical exam for the insurance company to review. The prospect of a market for lemons creates an opportunity for companies like Carfax to emerge to help reduce information asymmetries about used cars. And the advent of new technologies like smartphones can reduce the information asymmetries in the auto insurance market in ways that were unavailable not all that long ago.  As Arnold Kling would say – markets fail, use markets. Where you see a market failure, some entrepreneur out there sees a market opportunity. The more competition and innovation there is being put to use to take advantage of those opportunities, the better. And as the pace of technological innovation increases, the half-life of market imperfections correspondingly decreases.  (0 COMMENTS)

Note to the readers: This article contains many spoilers for both The Mummy (1999) and The Mummy Returns (2001).   This year marks the 25th anniversary of the cinematic masterpiece starring Rachel Weisz, Brendan Fraser, and Oded Fehr The Mummy (1999). With books of gold and trowels of steel, the battle between the mummy of a high priest and the clumsy Egyptologist librarian stole the hearts of an entire generation. This action-packed adventure movie also inspired a book series, multiple roller coaster rides, and ONE impressive sequel (we leave the proof of which it is to the reader).  However, when you think of this 1999 cinematic classic, you could also think about the economic themes guiding the behavior and decisions of the major characters. Revisiting Hamunaptra provides us with an opportunity to think about how the economic way of thinking can help us solve problems – or at least help us avoid the curse of the Hom-Dai. This movie has nuances and themes for both the introductory student of economics and for the Medjai-like educators who ensure that economic knowledge is not used to bring about the end of the world.  Classic Questions in Economics Especially for an introductory student of economics, The Mummy and The Mummy Returns present clear examples of subjective value, rational choice behavior, trade-offs, and cost-benefit analysis. One of the core principles in economics is that value is subjective to the individual. Rick demonstrates that value is subjective when he notes in the first film that “These men are a desert people; they value water, not gold.” We see Rick, Evelyn (Evy), and Jonathan use market exchange to solve their sudden supply shortage in The Mummy, although Jonathan gripes about the cost of the camels (but – he still pays for the camels). Market exchange also does not require currency, and instead may be supported by any exchange of goods and services between two or more parties where items with perceived value may be exchanged for the gain of the participants. In The Mummy Returns, we instead see Rick using barter exchange with Izzy to secure passage across the desert on Izzy’s airship. The golden scepter that Rick grabbed from Jonathan, catches Izzy’s attentions with Rick’s appeals for help get him nowhere. The market price for the gold scepter would likely be much higher if sold to a jeweler or collector, but Rick has an inelastic demand – they need to leave immediately, and have few substitutes for travel. If there were a complete market with security in all states of nature, the amount exchanged for the scepter would certainly be more than the cost of one round-trip dirigible flight, but with incomplete markets, the gains from trade are not fully realized.   Most characters in both films also exhibit rational choice behavior, even if their behavior appears outwardly humorous or ridiculous. For example, Rick’s old buddy Beni understands cost-benefit analysis, at least in the short-term. When his team is about to trigger a curse by removing the sacred jars from a sealed box, he flees the scene rather than remain where a potential curse could reach him. Later, the lost lives (and organs) of the Americans who removed the jars reveal that Beni made the optimal decision. Beni similarly exhibits rational choice behavior in working for Imhotep, as the cost of losing his life far outweighs any benefit he would receive from refusing to partner with the undead. Beni also exhibits the consequences of a high time preference, however, as his focus on wealth in the present at the risk of his own life leads to his death. You might even say that his economic analysis has…bugs. Calculating between the short-term gains of wealth extraction and the long-run gains of a long life are not the only example of trade-offs in this film. Trade-offs are everywhere, such as when Evelyn tells Rick to leave her with Imhotep in The Mummy, as he still needed to return her to Hamunaptra, trading Rick’s life for her perceived safety. Evelyn is also engaging in game theory against Imhotep and Beni, as she is treating her kidnapping as a multi-period game, rather than a single-period game with a different solution. Similarly, in The Mummy Returns, Medjai Ardeth has to choose between helping to save his friends’ son Alex and warning the Medjai of the imminent rise of another immortal monster. A core principle of economics is that often, on the edge of the possibility frontier, the choice of one outcome does ensure you will lose another. For example, to awaken the Scorpion King, Hafez loses the skin and muscle on his arm in order to place the bracelet into the statue. Hafez may have been able to avoid this fate if he had been as well versed in hieroglyphics and hieratics on the relic bracelet as the Bembridge scholars or Evelyn. The set of information – be it perfect, imperfect, or asymmetric – matters for the choice matrix and whether we achieve efficient outcomes. Lastly, the films also provide good opportunities for discussion of the broken window fallacy and sunk costs. When Imhotep destroys Cairo in his quest to complete the curse, some might argue that at least Cairo could rebuild. However, as Frederic Bastiat wrote in What Is Seen and What Is Not Seen, “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” Instead of having to rebuild, Cairo could have instead invested its resources elsewhere, such as human capital investment or innovation. Similarly, when Ahm Shere sinks back into the desert, we might lament the loss of such an oasis. However, what is lost is lost – and the opportunity cost of going after either the wealth of Hamunaptra or Ahm Shere comes with high economic costs. But that’s not all! In our next post, we’ll turn to more economic concepts, such as labor markets, comparative advantage, and externalities. Darwyyn Deyo is an Associate Professor of Economics at San José State University. Alicia Plemmons is an Assistant Professor and Director of the Center for Free Enterprise at West Virginia University. (0 COMMENTS)

Among the many things about which philosophers disagree, one of the debates I find interesting is the debate between actualists and possibilists. Roughly, possibilists believe you should engage in the best possible action you could, whereas actualists think you should do the best thing you will actually do given your imperfections, even if it’s technically possible for you to do better. To try to see the disagreement play out, consider this scenario. I’m engaged in a tennis match with Bob, and Bob handily beats me. I’m a hothead with a terrible temper, and I really want to smack Bob over the head with my tennis racquet, but of course that would be bad to do. Let’s say there are three possible ways things can go. In the best scenario, I approach the net, shake hands with Bob and congratulate him on a good game like a good sport. A less than ideal scenario is that I storm off the tennis court in a huff. And the worst case scenario is that I go over to Bob and whack him over the head with my tennis racquet. Let’s say that I know myself and my temper well enough to be sure that if I go near Bob right now, I will give in to my anger and whack him over the head. It’s metaphysically possible for me to not do this, but in practice this is what I will in fact do. Should I approach the net? The possibilist would say that since the best thing I could possibly do would be to walk up to the net and shake hands like a good sport, I should approach the net. The actualist says that, given the facts of my personality and weakness, the best thing I will actually do is walk off the court in a huff, so I should not approach the net. This debate often plays out in discussions of utilitarian and consequentialist ethics. Suppose a philosopher named Seter Pinger concludes that if you don’t take the highest paying  job you can find, work as many hours as you can before you collapse, and donate every penny beyond what you need to provide yourself with the barest of subsistence, then you’re morally no better than a serial killer. And let’s suppose that given certain plausible features of human psychology, if you demand people live up to this standard, they’ll end up feeling overwhelmed and just not donate to charity at all. However, if you instead argue people live up to a more moderate standard, like taking the Giving What We Can pledge and donating 10% of their  income to effective charities, the actual result of this will be more money given and more lives saved. If Pinger is a possibilist, he will push people to work like madmen and live like monks. If Pinger is an actualist, he will push people to take the aforementioned pledge. Though he doesn’t use this terminology, Scott Alexander would seem to describe himself as an actualist in this post. He accepts that much of what goes on in the meat industry is morally unacceptable. He also says he “tried being vegetarian for a long time” but that he found it “really hard” and that he “kept giving up” on it. But then, rather than being vegetarian, he decided to follow what he called “a more lax rule,” namely, “I can’t eat any animal besides fish at home, but I can have meat (other than chicken) at restaurants. I’ve mostly been able to keep that rule, and now I’m eating a lot less meat than I did before.” A possibilist would say Alexander should give up meat altogether, whereas an actualist would say Alexander should stick to his more lax rule. In a very actualist vein, Alexander says “if I am right that this is the strictest rule I can keep, then I’m not sure who it benefits to remind me that I am scum. Deny me the right to feel okay when I do my half-hearted attempt at virtue, and I will just make no attempt at virtue, and this will be worse for me and worse for animals.” This divide strikes me as being very similar to a difference in how people consider what the government should do – there is a possibilist and actualist divide here too. For example, I once wrote about how Bernie Sanders claimed that if the government levied a $100 billion tax on Bill Gates, the government “could end homelessness and provide safe drinking water to everyone in this country” and Gates “would still be a multibillionaire.” Sanders is talking very much like a possibilist here – he claims that since the best results the government could possibly achieve with $100 billion would be very good, the government in fact should take that $100 billion. My criticism of his claim, on the other hand, was to take something more like the actualist line. After all, I said, “if Sanders is right about the cost of ending homelessness, the federal government could completely end all homelessness in America with just 1.7% of what the federal government already spends in a single year.” Yet I notice that homelessness has not been eliminated. It’s worth noting that Sanders didn’t claim that the federal government could end homelessness and provide clean drinking water to everyone at a cost of $100 billion per year. He claimed that both issues could be completely solved both issues with a one time cost of $100 billion. So, by Sanders’ lights, the government could possibly have already ended homelessness scores of times over with its vast resources, but has not actually done so for various reasons. Yet at the same time, he thinks the government taking another $100 billion in taxes should be evaluated, not on the basis of what real-world experience shows the government will actually do, but on what he thinks is the best thing the government might possibly do, according to his ideal standard. In another post, Scott Alexander evaluates the prospect of taxing billionaires to try to produce good results, where he also takes something very much like the actualist perspective: Two of the billionaires whose philanthropy I most respect, Dustin Moskovitz and Cari Tuna, have done a lot of work on criminal justice reform. The organizations they fund determined that many innocent people are languishing in jail for months because they don’t have enough money to pay bail; others are pleading guilty to crimes they didn’t commit because they have to get out of jail in time to get to work or care for their children, even if it gives them a criminal record. They funded a short-term effort to help these people afford bail, and a long-term effort to reform the bail system. One of the charities they donate to, The Bronx Freedom Fund, found that 92% of suspects without bail assistance will plead guilty and get a criminal record. But if given enough bail assistance to make it to trial, over half would have all charges dropped. This is exactly the kind of fighting-mass-incarceration and stopping-the-cycle-of-poverty work everyone says we need, and it works really well. I have donated to this charity myself, but obviously I can only give a tiny fraction of what Moskovitz and Tuna manage. If Moskovitz and Tuna’s money instead flowed to the government, would it accomplish the same goal in some kind of more democratic, more publicly-guided way? No. It would go to locking these people up, paying for more prosecutors to trick them into pleading guilty, more prison guards to abuse and harass them. The government already spends $100 billion – seven times Tuna and Moskovitz’s combined fortunes – on maintaining the carceral state each year. This utterly dwarfs any trickle of money it spends on undoing the harms of the carceral state, even supposing such a trickle exists. Kicking Tuna and Moskovitz out of the picture isn’t going to cause bail reform to happen in some civically-responsible manner. It’s just going to ensure that all the money goes to making the problem worse – instead of the current situation where the overwhelming majority of money goes to making the problem worse but a tiny amount also going to making it better. It seems to me that there is likely a strong overlap with how much one finds the actualist line of thought persuasive, and their proclivity to view public policy decisions through the lens of concepts like public choice economics, or to evaluate economic regulation with the theory of regulatory capture as opposed to the public-interest theory of regulation. Just like James Buchanan described public choice as evaluating politics without romance, actualist philosophers think behavior should be guided by a similarly unromantic view of human nature. (0 COMMENTS)

The rise of populist politicians is a worldwide phenomenon. An interesting article by the bureau chief of the Wall Street Journal in Germany analyzes the phenomenon in light of last weekend’s electoral advance of two populist parties, one at the extreme right, the other at the extreme left, in two German states (Bertrand Benoit, “Europe’s Populist Surge Isn’t Only About Immigration, It Is About Fading Trust,” Wall Street Journal, August 2, 2024). The portrait Benoit and his sources draw is roughly the following. Some crisis happens, which the government is unable to solve because of the checks and balances of liberal democracy. This fuels popular discontent and mistrust of government. As a result, the voters turn to populist politicians. This analysis raises many questions. Why are today’s democratic governments less able to find solutions than before? How can voters mistrust government while they elect populist rulers who promise more government? Populism is and has always been interventionist. And how can voters believe that populist governments will be able to solve all the problems, given for example (as Benoit mentions) the level of public debt—a problem that was caused by governments intent to solve all problems? I suggest there is a better explanation, inspired by the work of economist and political philosopher Anthony de Jasay. The growing discontent with the state comes from its inherent incapacity to simultaneously satisfy non-identical individuals. Otherwise, its growing powers over more than a century would have done it already. What happens is that democratic governments and their politicians vie to respond to the demands of a majority of voters and thus buy their support (as well as the support of vocal special interests). This generates discontent among those who finance the buying or are handicapped by the government’s new interventions. Think about individuals who find themselves on the wrong side of official discrimination. These angry voters stake their own claims to government largesse, calling it “social justice.” A new vague of discontent is generated that the government will try to defuse to the detriment of other citizens. The more interventionist the state is, the more people will complain. Like the Red Queen and Alice in Lewis Carroll’s Through the Looking-Glass, the state must run faster just to stay in place and even more to move forward. We should not discard the valid complaints of ordinary people against the bullying they have been subject to by the political establishment over the last several decades, from licensure laws to galloping criminalization and coercive discrimination. Remember the legal apartheid initiated against smokers, who were mostly from the low classes, and the private venues that wanted to welcome them–bars, fast food joints, or even outdoor places. (I would add and change a few things in my Econlib article of a quarter of a century ago on “The Economics of Smoking,” but my private-property argument against the so-called “externalities” of smoking was correct.) The major cause of discontent lies in the pretensions and power of interventionist democratic governments. But it is an error to believe that a populist government can stop the discontent cascade. Populism is nothing but totalitarian democracy with a human face: that of a strongman. It generates further dirigisme, polarization, and discontent. How will the Red Queen race end? Not well, de Jasay believes (see the last chapter of his seminal book The State—the interpretation that follows differs only slightly from de Jasay’s). Being continuously asked to give and not to take away, to intervene and not to harm, state rulers will use up all their discretionary power just to remain in command. They have to promise more to outbid their political competitors. The state will thus need more and more economic power. It will fuse political and economic power into “state capitalism.” It will stealthily nationalize the economy, through regulation and cronyism rather than via the Marxist route. Eventually, it will have no choice but to abolish electoral competition and the other checks and balances in order to effectively pursue the happiness of the people–and the power of the rulers. The state will have gained unlimited power. In this brave new world, the former citizens will in effect have become property of the state like slaves belonged to their masters on the plantations of yesteryear. The state will have become the Plantation State. We don’t have to be as pessimistic as de Jasay to understand that, all over the world, such is the path our democratic leviathans are following. ****************************** Sometimes, one must render to Caesar what is Caesar’s and to DALL-E’s what is DALL-E’s. The featured image of this post was produced by DALL-E after only one prompt: “Create an image showing the Red Queen and Alice (in Lewis Carroll’s *Through the Looking-Glass*) running faster and faster just to stay in place.” The Red Queen and Alice, by Lewis Carroll and DALL-E (0 COMMENTS)

Here are three possible answers to this question:1. No, they are not income and should not be taxed.2. Yes, they are income and should be taxed.3. Yes, they are income, but they should not be taxed. We should tax consumption, not income.I favor the third view. People often say that you haven’t really earned income on an appreciating asset until the asset is sold.  I understand their intuition, but I think they are conflating two issues, income and consumption. Consider two investors that have identical big gains on Nvidia stock.  One holds onto the stock, and the other sells the stock and then buys it all back just one minute later at roughly the same price.  One guy has no income tax liability while the other faces a huge capital gains tax bill.  But their underlying financial situations are essentially identical. I suspect that the intuitive belief that income is only real when the asset has been sold is based on the perception that until it is sold there is a risk that the price goes back down.  But if you sell an asset and put the money into a different investment, that new investment also might go back down. Even cash is slightly risky due to inflation.  The only way of being 100% sure that you’ve realized your gain is by spending the profits on consumption. To an economist, the person that holds the Nvidia stock has earned income every bit as much as the person who sells it and puts the funds into an alternative asset.  Both hold portfolios that have appreciated.  Both hold portfolios that might go back down. And yet I understand why people are reflexively hostile to the idea of paying taxes on assets that haven’t yet been sold.  The real problem is that basic tax theory suggests that taxes should apply to consumption, not income.   Under a consumption tax, it makes no difference whether you hold the asset or sell it and buy an alternative investment.  There’s no tax until the funds are spent on consumption.  This reduces lock in effect of capital gains taxes.   Of course the real world is very complex, and it’s possible to argue for the taxation of capital as a second best policy.  In my view the real problem is not which capital gains to tax, rather it is the entire concept of income.  It is very difficult to define income in a way that is both logical and useful for real world tax systems.  You either give up on logic and consistency, or you impose a true income tax system (including unrealized gains) that many people will think makes no sense. (0 COMMENTS)

I was checking a reference in a book for something I’m writing. The book is Michael Hirsh, Capital Offense: How America’s Wise Men Turned America’s Future Over to Wall Street, 2010. There are various passages about Milton Friedman, and the author had interviewed Milton years earlier. This is one passage I found striking: 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. At the campus bookstore Friedman’s works were on a bottom shelf, far out of view of the Marx and Lenin posters on the walls. When he gave talks at other colleges, he would sometimes go in through the kitchen, the better to avoid protesters. Even to some who admired him, he was something of an oddity. “I had to see for myself what that black magician from the Middle West was like,” one Harvard graduate announced to him upon arriving in Chicago. It was a lonely time. Chicago graduate students couldn’t even get placed, except at lesser schools. “We were on the outs, the East Coast and West Coast basically had no use for them,” said Gary Becker. “Columbia was the exception; they were broadminded about it. But Harvard, MIT, Stanford, Berkeley, Yale, they were hostile to all these types of ideas. We were considered extremists.” (italics added) The long years in the ideological wilderness took their toll. Friedman never forgot the snubs. “You have no idea of the climate of opinion in 1945 to 1960 or 1970,” he later told author Alan Ebenstein. This reminds me of a story about a September 1968 meeting with two friends who had visited Milton and Rose in August. I wrote about the meeting in my book The Joy of Freedom: An Economist’s Odyssey, but didn’t tell this story. These two friends, Michael Prime and my mentor to be, Clancy Smith, along with two others, drove to Capitaf, Milton and Rose’s summer home in Vermont. Milton and Rose welcomed them warmly. The four young people started playing what I call “Ain’t it awful,” talking about current government policies and how bad they were getting. But I still remember Milton’s answer that my two friends reported: “You should have been around in the late 1940s. Totalitarian thinking was dominant in academia.” By the way, I do think there was a problem with dates in the quote from the book. I don’t doubt that Milton said it, but my impression is that Milton was way less isolated in 1970 than in 1960.     (0 COMMENTS)