Dungeons & Dragons (D&D) is a massively popular tabletop role playing game.  While the game has been around since the 1970s, it has recently exploded in popularity with podcasts, TV shows, video games, and movies making the game more mainstream.  Each year, the intellectual property alone generates millions in revenue for parent company Hasbro (for the sake of ease, I will be referring to the corporation as D&D, even though Wizards of the Coast is the publisher and Hasbro is the parent.  Thus, I will sometimes attribute decisions to D&D even if they were made by Hasbro).   Originally, D&D published physical rulebooks and sourcebooks to help guide players and establish the rules of the game.  There were also modules players could buy: pre-made stories to ease new players into the system or challenge experienced players.  Players often “homebrew” content as well: they create their own stories, magic items, and so on.  Using a physical character sheet, players would track their character’s progress, abilities, inventory, spells, etc. Some character classes can get very complicated to track by hand, in particular spellcasters (wizards, warlocks, sorcerers, bards, and clerics).  Players need to roll die, add numbers, calculate probabilities on the fly, and determine results of actions. I like to call D&D “Homework: The Game” because of how complicated it can get.  To help players manage increasingly complex characters, the online game streaming company Twitch created a website called D&D Beyond which automated a lot of the process.  Players could simply buy the D&D rulebooks on the website, set up their characters, and the website would track and roll everything for them.  In 2022, D&D acquired D&D Beyond as part of a quest to bring all content under one roof (theirs) and capitalize on the move to digital gaming that had accelerated during the COVID-19 pandemic lockdowns.   On paper, it looked like D&D was becoming a monopoly.  By owning a popular IP, the firm could control large aspects of the tabletop gaming world.  Most homebrew content creation under the company’s Open Game License allowed for players to use large swaths of D&D content for their own uses, and even limited commercial uses, without needing to pay royalties.  This agreement had been around since 2000 and players treated it as a matter of course. However, in August 2022, D&D announced they would be moving toward a new content agreement with players called One D&D.  Players initially feared the new One D&D would limit their freedom to create without paying royalties to D&D.  While initially denied by the company, as more details emerged, player fears were confirmed.  The fanbase revolted by canceling subscriptions to D&D Beyond and searching out (or developing) new tabletop games.  By January 2023, D&D backed off, even putting much content under an irrevocable Creative Commons license.  D&D tried to flex their monopoly muscles and failed. More recently, D&D tried to flex their monopoly muscles again.  Following an announcement of a new edition of the rulebook, they announced on August 22, 2024 that anything tied to the previous rulebook would not function in D&D Beyond (or other digital content) unless players homebrewed the material or bought the new rulebook.  In other words, D&D was attempting to take away content people had already bought and force them to buy new content.  Again, the fanbase revolted.  Not one week later, on August 26, D&D announced they “heard fan feedback loud and clear” and were canceling the planned change to D&D beyond.  Players will be able to use content previously purchased on the digital platforms. There’s an important lesson here, one that the late mentor and friend Steve Horwitz used to repeat all the time: “monopoly” does not equal “big.”  Companies may be big, and they may even own lots of IP and content, but they are not necessarily monopolies with the ability to set market prices.  Any monopoly power they have will heavily depend on the availability of substitutes for their product.  If there are many substitutes, the firm, regardless of their size, may act much like a competitive firm.   Mistaking size for monopoly power is an error that runs in multiple directions.  Firms often overestimate their monopoly power and, as the case with D&D, are forced to back down.  Likewise, antitrust regulators often overestimate the monopoly power of firms and end up turning efficient markets inefficient.  Metrics like firm size, market share, profit, or profit margin do not accurately describe the monopoly power of a firm.  Sometimes, we may not know how little (or much) monopoly power the company has until they do something boneheaded like D&D. P.S. This is a picture of my D&D group.  My character, Vargen, is second from the right. (0 COMMENTS)

As we’ve become more vigilant in our attempt to revive price theory, we’ve been looking back through the archives for supporting material, and this early EconTalk episode with Richard McKenzie was at the top of our list! (We recommend McKenzie’s book Why Popcorn Costs So Much at the Movies, too!) We invite you to listen (or re-listen!) to this classic episode, and share your responses to the puzzles below. (Bonus points if you include graphs!)     1- The conversation starts with a discussion about the high price of water in California. Why is the price of water so high, if not for a shortage of rainfall?   2- How does flood insurance virtually guarantee more flood damage, and why is flood insurance generally cheaper in a flood zone?   3- McKenzie argues that terrorists killed more Americans after the 9/11 attacks. How could this be?   4- What explains steep price declines in retail after Christmas? Note that Roberts and McKenzie disagree on this answer. What is the nature of their disagreement? Whose solution do you prefer, and why? This question, even more than the others, may strike you as out of date. So I asked Richard McKenzie how he might update this story. McKenzie is not aware of any follow-up studies of this nature particularly with regard to highway deaths. He no wonders why there have been no follow-up studies on highway deaths, especially given how much more complex econometrics is today than immediately after 9/11? What would you say the answer to McKenzie’s new question would be?   5- Finally, and in a nod to the title of McKenzie’s’ book, why does popcorn cost so much at the movies? How might this relationship have changed since this episode aired, particularly given the advent of streaming? (0 COMMENTS)

There is a way and, I suggest, only one way to defend populism from a liberal viewpoint: it is to reject the populist concept of “the people.” Let the people be plural, that is, a collection of individuals. Let each individual be recognized as having a right to veto (at some contractual-constitutional level) any prohibition or mandate he (or she, of course) does not consent to. A fortiori, no subset of the people may use coercion against the individuals in another subset. It follows that the elite or the experts (“they”) or the politicians themselves may not legitimately boss people around. If populism is thus characterized, it is defendable from both a moral and an economic viewpoint as it would coincide with (classical) liberalism. Liberalism is about a negative veto right of each individual–at least as formalized by James Buchanan and Anthony de Jasay, but the paradigm runs deeper. Liberalism certainly and emphatically does not support an unrestricted positive right of some individuals, even a majority of them, to impose bans or mandates on individuals in the plural people. That is not how populism, in the standard meaning of the word, is defined and sold to the masses, that is, to a majority or a plurality of them. Populism requires the existence of “the people” singular (see, for example, Cass Mudde and Cristóbal Rovira Kaltwasser, Populism: A Very Short Introduction [Oxford University Press, 2017] for the academically accepted definition, which is close to the one I assign to the populists). If “the people” (singular) does not exist as such, then populism is not possible; it is just a label that hides an interventionist, collectivist, and authoritarian ideology. (See my “The Impossibility of Populism,” The Independent Review, Summer 2021.) To be both internally consistent and compatible with liberalism, populism would have to take “the people” in the plural and liberal sense of “individuals,” with none more deserving of power over his fellows. It would not be “populism” anymore. ****************************** The People in the populist sense, as an organism, by DALL-E (0 COMMENTS)

In my previous post, I expressed concern that the Fed may be planning to move policy even further away from a “level targeting” approach. One criticism of symmetrical level targeting is that it might be politically unpopular to bring prices down at a time when inflation has overshot the central bank’s target path. A recent article in the Financial Times suggests that the exact opposite may be true: Many big central banks have implicitly returned to setting monetary policy with reference to Taylor Rule models, where interest rates are anchored around how far the economy is from the inflation target, and the degree of slack in the economy. However, these elections suggest that voters would prefer more price-level stability, over low inflation rates, or full employment.If that’s the case, then central banks might want to revisit an alternative policy framework; the idea of price-level targeting, as proposed by Professor Michael Woodford of Columbia University. In this framework, policy targets a constant rise in the level of prices over time, so that if prices rise above that rate, policy has to respond sufficiently to reverse any price level divergence. This contrasts with the current framework, which can celebrate a return to 2 per cent inflation, even though the target has been missed for multiple years, and has left households with major losses in real purchasing power. By encouraging early action to limit the initial divergence from the desired price levels, this framework can, theoretically, deliver gains for consumers. We need to be careful in interpreting election results.  If we did see a return to high unemployment, then voters might start caring more about unemployment than high prices.  But I don’t see a tradeoff here.  A policy of NGDP level targeting, or even a true “flexible average inflation targeting” policy (not the policy adopted by the Fed) would deliver both more stable prices and more stable employment in the long run.  In the end, it is economic success that is politically popular. (1 COMMENTS)

Life and Fate might be the greatest novel of the 20th century or maybe ever. Tyler Cowen talks about this sprawling masterpiece and its author, Vasily Grossman, with EconTalk’s Russ Roberts. The post Tyler Cowen on Life and Fate appeared first on Econlib.

  Half of Ukrainians Want Quick, Negotiated End to War by Benedict Vipers, Gallup, November 19, 2024. Excerpt: After more than two years of grinding conflict, Ukrainians are increasingly weary of the war with Russia. In Gallup’s latest surveys of Ukraine, conducted in August and October 2024, an average of 52% of Ukrainians would like to see their country negotiate an end to the war as soon as possible. Nearly four in 10 Ukrainians (38%) believe their country should keep fighting until victory. Ukrainians’ current attitudes toward the war represent a decisive shift from where they stood after it began in late February 2022. Surveyed in the months after Russia launched its full-scale invasion, Ukrainians were defiant, with 73% preferring fighting until victory. Trump Will Want to ‘Confess Error’ by Chris Horner, Wall Street Journal, November 17, 2024. (November 18 print edition.) Wait. What? Trump confessing an error? But it’s not what you might think. Excerpt: Agencies aren’t permitted to lie about their reasons for imposing a regulation—a doctrine known as the rule against pretext. Yet it happens. EPA Administrator Michael Regan, for instance, has shown a willingness to use authorities unrelated to climate change to force closure of plants to achieve climate goals. This presents the new administration with an opportunity to rein in some of the most egregious Biden-administration overreaches before the rules achieve their intended outcomes. Trump administration officials will need to review promptly internal agency files to establish the record of pretextual rulemakings and other improprieties. Government lawyers will then need to acknowledge these improprieties in court. “Confessing error” is the practice by which government attorneys inform a court that the state has legally misstepped and that annulment of an agency’s judgment is warranted. A change in administration philosophy or interpretation is insufficient. But the courts would almost certainly accept a confession of error of law, fact or procedure supported by documents that illustrate the admitted wrongdoing.   The Democrats Made RFK Jr. by Alyssia Finley, Wall Street Journal, November 17, 2024. (November 18 print edition.) Excerpt: Then came the vaccines. Officials overstated their benefits and played down potential risks. People who claimed to have experienced adverse events were shunned. The Centers for Disease Control and Prevention was late to warn of myocarditis as a side effect. U.S. public-health authorities still haven’t acknowledged some rare side effects that European counterparts have, such as temporary facial paralysis and abnormal skin sensations. And: The Food and Drug Administration further eroded public trust by stonewalling a Freedom of Information Act request for data it relied on to approve Pfizer’s Covid vaccine. The agency also green-lighted shots for children, who were at low risk for Covid, a recommendation based on shoddy data, as I noted at the time. And some well-deserved skepticism about RFK Jr.’s world view: He’s also right that Americans would be healthier if they ate less processed foods and exercised more, which are better ways to lose weight than taking drugs. But calorie-rich foods, not additives, are what’s causing an increase in chronic illnesses and obesity. All-natural, non-GMO Häagen Dazs won’t make Americans healthy again.   Gitmo Continues To Haunt by Andrew P. Napolitano, antiwar.com, November 20, 2024. Excerpt: The military prosecutors – who initiated the plea negotiations two years ago because they recognized that they cannot ethically defend the torture regime of President George W. Bush – complied with Pentagon orders and asked Judge McCall to reject the plea. Last week, the judge denied the government’s request and rejected the Pentagon’s order and scheduled hearings at which Mohammed and the other defendants will presumably acknowledge their guilt under oath. The judge’s ruling is essentially unassailable. He ruled that when Defense Secretary Austin rescinded the authority of Gen. Escallier – a retired military judge – to agree to guilty pleas, it was too little and too late. By the time Sec. Austin removed Gen. Escallier’s authority to approve guilty pleas in all Gitmo cases, she had already approved these pleas. Thus, she was fully possessed with the power to approve them at the time she signed the approvals. DRH note: Every once in a while I’m reminded of the respect I have for many career military officers. Not so much for SecDef.   California Bucks Alaska and Missouri by Rejecting Minimum Wage Ballot Initiative by Jack Nicastro, Reason, November 20, 2024. Excerpt: Californians have voted against increasing the state’s minimum wage, despite raising that of fast food workers to $20 per hour with Assembly Bill 1228 in 2023. Of 31 minimum wage ballot initiatives since 1996, California’s Proposition 32 is only the third to fail. Proposition 32 would have raised the state’s current $16 per hour minimum wage to $18 per hour for businesses employing more than 25 employees in 2025 and for those employing 25 or fewer in 2026. One of the unintended consequences of such a staggered minimum wage increase is fewer job openings as firms would wait to employ their 26th employee. Under such a plan, the marginal cost of the 26th worker is $141,440 per year: the sum of one full-time worker paid $18 per hour plus 25 full-time workers paid $2 more per hour. Unless the marginal product of that twenty-sixth worker defies the law of diminishing marginal returns, the 25-person business delays expansion, producing less than it otherwise would. Californians’ rejection of Proposition 32 averts this distortion. DRH comment: This is great news. Also, note the nice use of thinking on the margin in the last paragraph quoted above. The bottom line is that you would virtually never see a firm hiring just a 26th employee. If the firm were to expand from 25 employees, it would almost certainly add 4 or more employees.   Backfire: Buying EVs Hasn’t Worked for Hertz by Matt Posey, thetruthaboutcars.com, November 15, 2024. Excerpt: Hertz foolishly bet the farm on vehicles where the primary benefit is being able to charge them conveniently at home as part of your normal weekly routine. Handing EVs to a customer base that was unlikely to be able to charge their vehicles overnight and would undoubtedly be driving more miles than the daily commute would warrant was, frankly, one of the worst ideas I’ve heard in a while.   DRH note: I could see this coming. I could see it in other customers’ and my resistance to Hertz trying to get me in an EV. And the reason is obvious: When you’re driving long distances, which you often do in a rental car, it’s much more difficult to recharge than if you’re doing a daily commute.   (0 COMMENTS)

  “Trump’s Oil and Gas Donor Don’t Really Want to ‘Drill, Baby, Drill’“. That’s the headline in a Wall Street Journal news story on November 22 about how U.S. oil and natural gas producers think about energy policy. That headline is not completely misleading because the story goes on to say that oil and gas producers are nervous about too much oil being produced–for the obvious reason that it would bring down prices. Competitors rarely like competition. But here’s what is misleading: the subhead. It reads, “Fossil-fuel tycoons helped return the president-elect to Washington. Now they are seeking to lock in the use of their products for years to come.” Wow, I thought. Are they trying to require people to use oil and natural gas? That would suck. Actually, they aren’t. What they’re actually trying to do, according to Benoit Morenne and Collin Eaton, the story’s authors, is get the U.S. government to quit locking in use of energy not produced directly by oil and natural gas. In their third paragraph, Morenne and Eaton write: They are pushing for policies that would lock in fossil-fuel use, such as easier permitting for pipelines and terminals to shuttle fossil fuels to new markets. They also favor eliminating Biden administration policies meant to put more electric vehicles on the road. It is true that making it easier for pipelines and terminals to exist would make it easier to sell more fuel. But notice the second sentence, where they admit my point. They want to eliminate Biden’s policies to “put more electric vehicles on the road.” And what are those policies? Morenne and Eaton don’t tell you. I’ll tell you. The policies they want to end are mandates that would require production of electric vehicles and subsidies to people who buy them. In other words, Biden has locked in EVs and they want to end that lock in. But that doesn’t quite fit the narrative, does it? I said above that the headline, as distinct from the subhead, is not completely misleading. But it’s somewhat misleading. Morenne and Eaton write: Trump has vowed to place tariffs on trade partners, a move that some people in the energy industry fear could affect the price of steel, an essential well-building component. With more-expensive steel, there would be fewer wells built. That means less oil and natural gas produced than otherwise. Do Morenne and Eaton see how that concern of oil producers is evidence that at least some of them do want to produce more? Apparently not. (0 COMMENTS)

On August 2020, Fed officials announced a new approach to monetary policy, which they called “Flexible Average Inflation Targeting”. The idea was to allow some variation in inflation in the short run, but aim for an average inflation rate of 2% in the mid- to longer run. What they actually did was something radically different. In 2021, the Fed adopted a 1960s-style highly stimulative monetary policy in an attempt to “create jobs” by printing money. Just as in the 1960s, that policy led to high inflation. Later, the Fed claimed that they had never intended to target the average inflation rate.  Rather the policy aimed to make up for periods where inflation ran below target, but not for periods when it ran above target.  I felt like a dummy, as I had naively believed that average inflation targeting meant average inflation targeting.  London School of Economics Professor Ricardo Reis is certainly no dummy, and he had the same view as I had: So where could Reis and I have gotten this crazy idea that average inflation targeting meant average inflation targeting?  Perhaps from the Fed itself.  In an April 6, 2021 paper, Dallas Fed economists Enrique Martínez-García, Jarod Coulter and Valerie Grossman also claimed that the policy was symmetric: Notably, the Fed changed its language on inflation, replacing its 2 percent inflation target commitment, and instead said it will “[seek] to achieve inflation that averages 2 percent over time.” This change is a substantial departure from the previous flexible inflation-targeting regime. Monetary policy under inflation targeting was symmetric—the Fed would equally respond to overshooting and undershooting of the target. The Fed lets “bygones be bygones,” since it does not attempt to make up for past inflation deviations from target. By comparison, average inflation targeting means that policymakers would consider those deviations and can allow inflation to modestly and temporarily run above the target to make up for past shortfalls, or vice versa. Note that the phrase “vice versa” is italicized in the original.  They thought this point was worth emphasizing. In a recent tweet, David Beckworth suggests that Jerome Powell is leaning toward an abandonment of FAIT, and a return to a flexible inflation targeting (FIT) regime: David’s entire twitter threat is worth reading.  He points out that the FAIT policy was based on a long series of important papers that I have dubbed the “Princeton School” of monetary policy.  These papers emphasize the need for some sort of level targeting regime, focusing either on the price level or nominal GDP.  These proposals aimed to correct very specific flaws in the previous inflation targeting regime, which led to the big policy failure of 2008-15. So let’s review what happened here: 1. In 2020, the Fed adopted FAIT, based on highly respected research into the question of what went wrong in 2008.   2. The plain meaning of the term “average” suggests the policy was symmetric.  I thought it was symmetric.  A Dallas Fed publication said the policy was symmetric. 3. The policy did generate a robust recovery, but it ended up creating too much inflation. 4.  To the extent that the policy failed, it failed because it was not symmetric.  The Fed aimed to correct inflation undershoots, but not overshoots.  It is not a question of the Fed failing to achieve flexible average inflation targeting after trying really hard; they never even attempted FAIT.  They attempted something entirely different, 1960s-style monetary stimulus. Unfortunately, in our culture words have an almost magical power, a talismanic power.  If an institution announces that it will undertake policy X, and then undertakes policy Y, any success or failure will be based not on the policy that was actually undertaken, rather it will be attributed to the policy that was announced.  The Fed announced that it would do FAIT, did something entirely different, and now (if Beckworth’s tweet is correct) seems about to abandon FAIT and replace it with something far worse. On the bright side, a cynic might argue that perhaps next time they’ll announce policy Y (FIT), but actually do policy X (FAIT).  Unfortunately, in order for these sorts of policies to work they need to be well understood by the financial markets, and at least somewhat credible.   I understand that the Fed feels a need to do something different after the fiasco of 2021-22.  So why not announce a policy of NGDP level targeting at 4%/year?  Given the long run US growth rate of roughly 2%, that sort of policy will produce an average inflation rate of close to 2%, and it will be more “flexible” when there are supply shocks like Covid and the Ukraine War.   PS.  In the 30 years before average inflation targeting, PCE inflation averaged 1.9%.  Since August 2020, it has averaged 4.2%, or 3.6% if you take a five year average to avoid Covid distortions. (0 COMMENTS)

A recent virtual reading group explored “what ifs” around the Reconstruction period. One avenue we explored was whether monetary compensation could have prevented the U.S. Civil War. The British compensated slaveholders in 1837 after the 1833 abolition of slavery. In 1862 the United States paid loyal slaveholders $300 per enslaved person freed as compensation for abolition in the District of Columbia. In both cases, slavery was abolished without bloodshed.  That “What if?” still looms large. Our group discussed Claudia Goldin’s “The Economics of Emancipation”, which estimated the cost of voluntary emancipation by giving enslaved people sufficient funds to purchase their freedom. (This would, of course, have failed to compensate the people to whom the greatest wrong was done: enslaved people.) We also talked about Richard K. Vedder’s “The Slave Exploitation (Expropriation) Rate”, which attempts to calculate how much more economic value enslaved people produced than they were “compensated” for via the cost of their care. There’s value to understanding that slavery isn’t just unjust, but also expensive. Still, questions of sufficient compensation for slaveholders and just compensation for freedmen miss something important if they try to stand alone. We can be led astray by focusing on what we imagine we can measure and forgetting what we’re actually trying to understand.  We’re better served considering some of the questions Liberty Fund is so keen on asking and consulting the reliable information available. Let’s apply a few of Liberty Fund’s favourite thinkers and some readings from this group. Putting on my Hayek hat: we don’t and can’t know the prices that either side here would have accepted because the choice was never put to them. The data do not exist for us to perform these calculations. The market was too corrupted by slavery.  What would Adam Smith say? The estimates of marginal product used to calculate exploitation are underestimates that would short-change freedmen as compensation for lost earnings. Smith says that the “liberal reward for labour” is what results in the industriousness and higher production of labourers. This goes beyond the simple motivation to work harder for good wages. Without the benefits of free labour, enslaved people would have been discouraged or prohibited from increasing their human capital; they were not rewarded for moving to—sometimes they were not allowed to move to—the jobs that solved the problems they thought they could solve best. Even if we could be sure the data were good, the realized marginal product and hours worked of enslaved workers could not be the counterfactual for which they would need to be compensated. Counterfactuals are hard even when we’re talking about contemporary situations! They seem insurmountable when talking about 19th-century American slave labour. If we have good reason to consider the available data extremely speculative, it might be more fruitful to more general observations about liberty, responsibility, and power. Smith had observations not just about slavery but about the motivation to sustain a slave society like the one sought by the Confederate South. He did not think that economic incentives would be sufficient to overcome that “The pride of man makes him love to domineer, and nothing mortifies him so much as to be obliged to condescend to persuade his inferiors.” (WN III.ii) We have good reason to think that such economic considerations were never—or at least not anytime soon—going to cut it in the Southern states. We read some of that evidence in our reading group. We learn more about the (implausibly low!) economic price the freedmen would have accepted after emancipation and Union victory by reading what they asked for (e.g., Freedmen of Edisto Island, South Carolina, to Andrew Johnson). While I’m sure they would have been happy to be fully compensated, were that even possible, what mattered most was freedom, not money. They wanted emancipation (which they got) and the means to secure it over the long term (which they did not).  We should also think of power and freedom rather than money to help us see that the exploitation of slaves was complete, not varied depending on how much value was extracted from them and how comfortably they were kept. From one of the most important passages in Wealth of Nations: “The blacks, indeed, who make the greater part of the inhabitants both of the southern colonies upon the continent and the West India islands, as they are in a state of slavery are, no doubt, in a worse condition than the poorest people either in Scotland or Ireland. We must not, however, upon that account, imagine that they are worse fed, or that their consumption of articles which might be subjected to moderate duties, is less than that of the lower ranks of people in England.” (WN V.iii) It does not matter what “wages” were paid to enslaved labourers when considering how exploited they were because the exploitation was not merely economic. There is no material compensation sufficient to make slavery just or eliminate its exploitation. We learn more about whether there was any price Confederates would have accepted by reading what they saw as their goals after Confederate defeat (Pollard, The Lost Cause; Black Codes of Mississippi and South Carolina). We could also look beyond our readings to the Confederate constitution. Not only the war, but the violence of the Redeemers and the century of segregation and despotism that they brought about and maintained despite the economic cost are difficult to explain if what Confederate southerners wanted was money. They are easy to explain if what they were worried about was power and domination. It is tempting to believe that there could be an amount of money that would have produced an economically just outcome, avoided the Civil War, and made things right with people who were enslaved. If there were, it would make the enormity of the horrors of war and slavery scientific, rational, and understandable. But at the end of the day, these estimates are more of an interesting exercise for a certain type of model-tinkerer than they are helpful as a matter of understanding what practical opportunities were missed by Lincoln, the Union, or the American government during Reconstruction.    — This piece is adapted from my comments in the recent VRG, Reconstruction: What if Lincoln Lived? If this kind of discussion appeals to you, check out the list of upcoming reading groups at the Online Library of Liberty.    (0 COMMENTS)

Economic illiteracy supports or encourages a lack of human decency. Consider the American government vis-à-vis the Vietnamese. The average Vietnamese produces a value of $15,194 per year, that is, of GDP per capita, which means that he earns that amount in income. The corresponding figure for the United States is $81,665, over five times more. Vietnamese are poor. (My comparisons of GDP per capita are in international dollars at purchasing power parity, or PPP, and come from the World Bank’s World Development Indicators. Purchasing power parities are meant to correct for the lower price on non-traded goods available in poorer countries—land, lodging, and many services. Other prices are equalized by trade which, when permitted, arbitrages price differences over and above transport and transaction costs. Corrections for PPPs increase the GDP of poorer countries compared to US GDP.) Let me add that the Vietnamese—the individuals living in Vietnam—have had a tragic history, if only in the last century. They have been exploited by their governments, notably in the North. Those in the South lived through an American-led war against communism, although being earlier victims of Russian, Chinese, and North Vietnamese communism would not have been fun either. The South was ultimately abandoned by the American government and all Vietnamese have since been living under communism, although the regime is softer now than it has been. Their government has allowed a measure of entrepreneurship and free enterprise under which the poor Vietnamese have been able to escape dire poverty. There are three ways to get rich or richer. You can loot the rich, as long as they remain rich. You can loot the poor, a specialty of the brand of collectivism called communism. Or you can trade with the rich or the poor. The third way is how, in general, Americans—individual Americans—have become rich. Thirty percent of the growing Vietnamese’s incomes come from selling goods to Americans, rich or not. More recently, the Vietnamese have benefited from the American trade war with the Chinese (whose GDP per capita is $24,558), whose exports to Americans were partly replaced by Vietnamese exports, legally or illegally. We should not put too much focus on the illegal part: in their time (I am thinking of the 1808-1909 trade embargo), Americans were also good smugglers. Many still are. Smuggling means trying to avoid the government-raised obstacles to trade between individuals. A GDP per capita of $15,194 does not mean dire poverty, but it is still poverty by the standards of the rich world. It places Vietnam in the World Bank’s category of lower middle income countries (among four categories: low income, lower middle income, upper middle income, high income). Using the longer Maddison Project series on GDP per capita (estimates in constant dollars but without PPP) suggests that Vietnam is now roughly where the United States was at the end of the 19th century, although the lack of PPP correction exaggerates the difference. Like China and many poor countries, Vietnam climbed to the lower middle income category not because it had a liberal government, which it has not had, but because its residents were partially allowed to participate in world trade. The first year available in the World Bank’s GDP per capita series shows that GDP per capita in Vietnam was then only 5% of the American level (and roughly the same as in China). Opening the door to international trade for poor countries’ residents had a momentous impact on the reduction of their poverty. It is not that Americans became poorer, quite the contrary, but that residents of these poor countries became much less poor. Regarding the lack of human decency and shame, consider this (A. Anantha Lakshmi, “Vietnam’s Largest Import Partner Is China, while the US is its top export destination,” Financial Times, November 16, 2024): While Trump did not mention Vietnam during the recent presidential election campaign, he called out the country in 2019 as “almost the single worst abuser of everybody”. “Vietnam takes advantage of us even worse than China,” he told Fox Business. These quotes and their underlying foundations are remarkable. Why would the government of people earning $82,000 a year want to forbid the latter to trade, or to impose tariffs limiting their opportunities to trade, with people earning $15,000? The economic illiterate excuse is the trade deficit with these people earning $15,000. Certainly, Americans and their middlemen, who are not forced to import goods from a country 8,000 miles away, have also benefited. Otherwise, they would not have done it. An engineer, say, benefits from trading with his butcher, and the butcher benefits too: otherwise, they would not trade. Economic theory confirmed by experience shows that a trade deficit between a group of people called Americans or engineers, and another group called Vietnamese or butchers, has no other significance than that individuals in the two groups benefit. Of course, any trade and any competition disrupts some producers, but there is no increase in wealth and progress without that. In the great scheme of things, “protecting” some people against the trades of others is not generally going to help the former, and certainly not their children, because in such a perverse system their own opportunities will be limited to protect still other people. Why would some Americans trade with some Vietnamese? Why do the poor and the rich trade together? The poor are less productive; that’s why they are poor. The rich are more productive; that’s why they are rich. “Productive” means producing something that some consumers (or producers of other goods) want at a competitive price. The poor produce some things that rich consumers (or intermediate producers) can’t find elsewhere at comparable prices. The rich produce some things that poor consumers (or efficient producers) can’t find elsewhere at comparable prices. Each group of producers—made up of individuals, remember—has a comparative advantage. Imagine yourself forbidden to trade with people poorer than you such as, say, your garbage collector; or imagine yourself forbidden to trade with people richer than you, like your doctor or many owners and executives of car manufacturers. But what about the rich or richer individuals disrupted by their fellow citizens trading with poor or poorer producers? Consider Mississippi, the poorest state in the Union. Their GDP per capita is estimated at $51,546 (current dollars in 2023, no PPP), which is less than two-thirds the level for the whole country. The interesting point here is that Mississippi is poor compared to all other American states. According to data from the Bureau of Labor Statistics, the average weekly wage in Mississippi in 2023 is $930, 45% lower than the $1,680 average weekly wage in California. If we could reliably measure it by constant customs and police surveillance at its frontiers, Mississippi certainly has a large trade deficit with California, but who cares? Not the Mississippians who import iPhones from California (where most of the value in iPhones is produced). If there is no problem with Mississippi’s trade deficit with California, what’s the problem with the trade deficit with Vietnam? Is it that the Vietnamese have not been born in Mississippi? That they have not moved to Mississippi? Californians do sell to Mississippians computers at lower prices than the computers that could be made locally in Mississippi. Or is the problem that some mighty and crony American businesses (and their unions) are outcompeted, abused, and taken advantage of by relatively unproductive and poor people living 8,000 miles away? The Christian God must not be proud of mankind, and not only because of its economic illiteracy. ****************************** God disappointed by economic illiteracy and the lack of human decency (0 COMMENTS)