Friedrich Hayek argued that only action can be just or unjust. So, when the famous Austrian playwright and novelist Ödön von Horváth was promenading on the Champs-Élysées during a thunderstorm and was hit—and ultimately killed—by a bough of some tree, we cannot speak of injustice. The tree did not intend to kill him; it just happened. But Hayek’s view that justice only meaningfully applies to actions has further (and perhaps more important) implications. It also implies that the income and wealth patterns in a pure market economy are neither just nor unjust. While it certainly can be just or unjust how two people in the market economy interact, the specific order resulting from the interaction of millions of people is neither just nor unjust. As nobody plans the overall order (there is no action, no guiding will behind it), it is beyond justice. Today’s economies are mixed systems. In these systems, there is generally a free market process. Therefore, generally, the specific order that emerges is beyond justice. However, governments do intervene, that is, they, relying on coercion, interfere with people’s free actions. While perhaps not all, some interventions are intended to shape the income and wealth patterns in society. And to the degree that these interventions then impact the overall pattern of wealth in society, justice becomes applicable: how the government shapes these patterns can be just or unjust. For instance, governments tax inheritances with the purpose of preventing rising inequality, or they bail out ailing banks (as occurred after the 2008 crisis). You need not find this problematic per se. Perhaps there are good reasons for the interventions. However, even if generally fine, it is only unproblematic if all government interventions are actually just. As soon as some government interventions are unjust, however, a delicate situation emerges, because then we have an income and wealth pattern that is partly the result of unjust actions and that can thus be partly called just or unjust. To make this clear, if in a pure market economy you are poor or lose your job, you are just like Ödön von Horváth. You may be angry with your fate, but you haven’t been treated unjustly. But if you are poor or lose your job in a mixed economy, this may be (partly) the result of governmental action, that is, government’s unjust coercion-based actions. But then you may have justified claims to governmental action in order to retribute the prior injustice. And perhaps more. In Sanford Ikeda’s words, “once the redistributive intervention takes place, those who lose as a result now have a legitimate and identifiable target, i.e., the central authority and its supporters, to blame.” If this reasoning is correct, our evaluation of numerous actions of citizens within the mixed economy becomes very difficult, if not impossible. It’s a mess! For instance, if the bakery around the corner evades taxes, is this unjust? (That it is illegal is surely the case, but legality is not morality.) Once you acknowledge that the government has erected an insidiously complex regulatory regime that favours big companies who, with their lawyers and consultants, are better able to manoeuvre the mixed economy, it is no longer possible to pronounce a clear verdict. But also when we examine the actions of big players such as Apple it soon becomes evident that it is really difficult to find a good vantage point from whence to judge their actions, including attempts to capture regulation. For they may also be victims of unjust government intervention—a point in case is probably the EU Commission’s decision to punish Apple for allegedly exploiting its power in the music streaming business. In the imperfect mixed economy, then, people and companies who evade taxes, who violate the law, who implement schemes to circumvent government interventions, may even have the moral high ground. They may be justified to do illegal stuff. And they may be justified to capture regulation or even fight for new regulation that favours their industry. I am not saying that they are justified. These are moral questions and these, if they have definite answers at all, surely require detailed and intricate analysis of each specific case. But what is evident is that in an interventionist society, things really get messy and murky. It is not clear that those who do stuff that would definitely be reprehensible in the pure market economy, act reprehensibly in the mixed economy.   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (0 COMMENTS)

I’ve posted twice on this, here and here. This is either the last or second-last post, depending on what further thoughts I have. I had never wondered, but should have, how Jews in Germany and Austria made out day to day under the Nazis before they were hauled away. One thing that comes across in about the first 60 pages is the day-to-day difficulties, and sometimes actual torments, that Jews had to deal with. Here’s one story from the author: I refused to let the political situation keep me from my studies. I had taken both state exams and passed with high grades. One last exam, and I would be a doctor of law, qualified to serve not just as a lawyer but also as a judge. I felt that if I earned my degree, if I was trained, qualified, certified, I would have a much easier time emigrating. In April 1938 [DRH note: the Anschluss had happened the previous month] I went to the university to pick up my final exam papers and to receive the date for my doctoral exam. A young clerk there, actually someone I knew, said: “You will not be taking the examination, Edith. You are no longer welcome in our university.” She gave me my papers and the transcript of my grades. “Good-bye.” For almost five years, I had studied law, constitutions, torts, psychology, economics, political theory, history, philosophy. I had written papers, attended lectures, analyzed legal cases, studied with a judge three times a week to prepare for my doctoral exam. And now they would not let me take it. My legs buckled. I leaned on her desk for support. “But…but…this last exam is all I need for my degree!” She turned her back on me. I could feel her sense of triumph, her genuine satisfaction in destroying my life. It had a smell, I tell you–like sweat, like lust.     (0 COMMENTS)

In 1999, Sally Clark, a young British lawyer, was convicted of killing her two newborn babies over a period of two years and she received a life sentence. A pediatrician had testified for the prosecution that the probability that the two boys had died from the Sudden Infant Death Syndrome (SIDS) or “crib death” was about 1 over 73,000,000. This was the only real evidence of the crime. But the probability estimate, which persuaded the jury, was defective. It assumed that the two deaths were statistically independent events, justifying the multiplication of their respective probabilities for both events to happen: 1/8543 × 1/8543 is approximately equal to 1/73,000,000. In reality, however, two SIDS deaths in the same family are not independent events: one such death increases by 10 the medical probability that a second one will happen. Moreover, a professor of mathematics at the University of Salford, Ray Hill, later calculated that the probability of two SIDS in the same family is between 4.5 and 9 times the probability of two infant siblings being murdered. (See Ray Hill, “Multiple Sudden Infant Deaths—Coincidence or Beyond Coincidence?” [Paediatric and Perinatal Epidemiology 2004, 18, 320–326].) Ms. Clark’s conviction was overturned on appeal after she had spent three years in prison. Statistician David Hand notes that “she never recovered from her ordeal” and, in 2007, was found dead “from acute alcohol poisoning.” As Tim Harford, the Financial Times‘s “undercover economist,” put it, “she drank herself to death at the age of 42.” A very tragic and troubling story. There have been other documented cases of murder verdicts resulting from similar ignorance of probabilities. On probabilities and coincidences, I recommend Professor Hand’s book The Improbability Principle: Why Coincidences, Miracles, and Rare Events Happen Every Day (Scientific American and Farrar, Straus and Giroux, 2014). I think this book is accessible to intelligent lay readers with no prior knowledge of probability theory. (Probability theory is the basis of statistical analysis.) By discovering the laws of chance–the laws of chance–probability theory is one of the great achievements of the human mind. A testimony to the beauty of probability theory is the name that Mike Lynch had given to his superyacht which sank along the Italian coast last week, claiming his own life and the lives of many of his guests: “the Bayesian.”  Thomas Bayes was an 18th-century statistician, who developed an important theorem of probability theory. Tim Harford notes that “in 2010, the UK Court of Appeal ruled against the use of Bayes’ Theorem as a tool for evaluating how to put together a collage of evidence.” He adds that “a little bit of statistical education for the legal profession would go a long way.” If you are charged with a crime, your liberty may depend on the understanding of probability theory by lawyers and judges. A necessary condition is that it be familiar to the educated public, the pool from which legal professionals come. But this is not generally the case. If it were, conspiracy theories would have another hurdle to overcome, besides the straight obstacle of rational choice. Politicians don’t know more. A debate is going on in the United Kingdom on the public’s poor knowledge of science, mathematics, and statistics. The recent trial of British nurse Lucy Letby, who was condemned to several life sentences for allegedly murdering many patients, after a trial with weak factual evidence and again misleading statistical estimates. Many statisticians have voiced strong criticisms. The Economist writes about former prime minister Boris Johnson (“The Trial of Lucy Letby Has Shocked British Statisticians,” August 22, 2024): Mr Johnson is paradigmatic of what has gone wrong. He is not—despite what his actions often imply—a stupid man and certainly not, after Eton and Oxford, an ill-educated one. His education was etiolated; it was not ineffectual. He could read Archimedes in the original; he could not begin to understand Archimedes’s maths. He is the product of what [the late physicist and novelist C.P.] Snow called Britain’s “fanatical belief in educational specialisation”. And that belief, says David Willetts, a former universities minister, is “as acute as ever”. I would argue that the problem is as serious regarding people who know only science and are illiterate in the humanities and in economics. This is especially and emphatically true for people who, be it in their official functions or with their votes, intend to coercively intervene in the lives of other people. I don’t think that a court should ever condemn a person only or mainly on the basis of probabilities: there should be some weighty factual and testimonial evidence. But the lesson of the Sally Clark case and others is that if probabilities are invoked, they should be calculated correctly. The cure for “bad statistics,” Harford argues, “isn’t ‘no statistics’—it’s using statistical tools properly.” This problem is related to the presumption of innocence and the requirement that guilt be proven by the prosecution “beyond a reasonable doubt.” We largely owe our liberty, however imperfect it is, to these legal principles in the Western tradition. But whatever is the allowed level of reasonable doubt—which, in a free society, must correspond to a tiny probability of error—lawyers and judges need to understand statistical theory enough to get a sense of the probabilities involved. ****************************** Chance and the goddess of death, by DALL-E inspired by your humble blogger (0 COMMENTS)

This is the first of my two responses to Matt Zwolinski’s critique of the moral parity thesis, focusing on his claim that this idea suggests that welfare and taxation are morally illegitimate. Is this so? My answer is no, not necessarily.  I say “not necessarily” because it depends on if one is an absolutist deontologist – someone who thinks there are certain rights/duties it is always and everywhere impermissible to violate, regardless of the circumstances. If you think property rights violations or theft can never be justified, no matter what, then the moral parity thesis does force the conclusions Zwolinski identifies. But absolutist deontology leads to other implications that are clearly absurd. Here are a few thought experiments, none original to me, to illustrate what I mean.  Suppose you’re on the balcony of your 20th story condo, when suddenly, the railing you were leaning against gives way and you plummet toward the ground. Luckily, you manage to grab a flagpole hanging off the balcony of the 15th story condo. You start to shimmy your way to the balcony to pull yourself up, when the owner of that condo arrives, and forbids you from making any use of his property. Over your pleas, he refuses to grant you permission to climb onto his balcony and exit through his condo, and demands that you release your grip on his flagpole immediately – this is, after all, his property.  You live in a house out in the country on a one acre plot of land. One day, I buy all the land within a hundred yards of where your property line ends, such that your home is now effectively contained within a hundred-yard bubble of my land. I of course assure you I will respect your property and will not lay a finger on what’s yours, but I insist that you do the same and furthermore, I insist that you have no permission to set foot on my land. Doing so will constitute trespassing on my property, against which I will retaliate. You cannot travel to work or get any supplies or food without crossing my property.  Your child is starving to death, and the only options you have are to steal some bread to save your child’s life, or let them starve. (Stipulate there are no other options available – it’s one or the other.) If one is an absolutist deontologist who holds property rights are always and everywhere inviolable, they are forced to say the proper response in these scenarios is to let go of the flagpole and plummet to their death, to remain trapped in their house and starve, and to let their child die rather than steal bread. If those are indeed your conclusions, this is your off-ramp to exit this conversation, because nothing I say after this will make you budge. But to the other 99.9% of us, it seems obvious that in these cases, you’re justified in climbing into the condo, crossing across the land, and taking the bread to save your child’s life. This doesn’t entail that doing these things are not rights violations – it only means that sometimes rights violations can be justified. All of this is accepted by prominent defenders of the moral parity thesis cited by Zwolinski. Michael Huemer, who advocates for anarcho-capitalism, has no problem admitting this. For example, he wrote “Compare this case: Jean Valjean steals a loaf of bread to feed his sister’s children. Assume that the children would otherwise have starved. It does not follow from this that he didn’t really steal the bread. At most, what follows is that the theft was justified.” Because of this, Huemer says the idea that “taxation is justified even if it is theft” is a “perfectly understandable view.” Huemer also allows that “stealing in order to provide social welfare might be justified.” Now, let’s bring the moral parity thesis back into play. Since individuals would be justified in engaging in rights violations in these circumstances, by moral parity a government would also be justified when it engages in relevantly similar behavior. If I’m justified in taking a loaf of bread to prevent little Marvin from starving to death, then a welfare program that provides Marvin with bread would be justified by the moral parity thesis. The concern Zwolinski expresses comes about as a result of absolutism, not of moral parity.  This ties into one other objection Zwolinski raises about the moral parity thesis along similar lines – how one should act regarding children. Zwolinski says that if “you try, as the moral parity thesis does, to build a political philosophy out of micro-level examples about adults interacting with each other, then you’re going to wind up a little stumped regarding what to say about kids. They simply don’t fit the model, and so your theory winds up treating them like a kind of strange fringe case.” But this seems off base to me. The moral parity thesis, as I understand it, doesn’t say we must build “a political philosophy out of micro-level examples about adults interacting with each other.” The moral parity thesis simply holds that agents of the state don’t gain special moral exemptions simply by virtue of being agents of the state. That leaves the question of the specific content of moral obligations completely open, along with how those obligations are derived. You can believe in moral parity without believing that all moral obligations must be rooted in “micro level examples about adults interacting with each other.” One can believe there are special obligations and responsibilities when children are involved – I certainly do – but that is completely orthogonal to the moral parity thesis.  In fairness, there are certainly some thinkers in the libertarian tradition who are as bad at the case of children as Zwolinski says. Murray Rothbard held that children should be free to run away from home as soon as they are old enough to do so, and that parents can’t be compelled to feed or care for their children because that would violate the parent’s absolute right to self-ownership. But this defect in Rothbard’s thinking is, as in the above thought experiments, a result of his absolutism and not of moral parity.  Let me add one more point could be made in favor of a welfare state one could make. In cases where theft might be justified in order to, say, feed starving children, there could be practical (rather than moral) advantages to having those children fed through something like a government welfare program rather than through individuals engaging in acts of justified theft. If Billy the Baker finds someone trying to steal some bread, he’d obviously seem justified in trying to stop that person, or turning him in to the police. But he can’t immediately know if the potential thief is Jean Valjean personified, or someone who can easily afford bread but just doesn’t want to pay. A well-run program could remove this uncertainty, because if people can prevent their children from starving by accessing this program they don’t need to steal from Billy, therefore Billy can be sure that anyone he catches trying to steal bread from him is acting wrongly and can justly be stopped. Another consideration could be raised. While Jean Valjean might be justified in stealing to feed his sister’s starving children, the costs of that theft will necessarily fall on someone else. On whom should those costs justly fall? It doesn’t seem like there is anyone in particular to single out for that. Valjean may steal from Billy the Baker, but there’s no specific reason for Billy rather than anyone else to bear the cost of the theft. And if Billy runs his bakery in a part of town with lots of people in Valjean’s situation, he might find himself burdened by these thefts in a way that Carl’s Croissant Shop in the rich and well-guarded part of town never has to experience. If someone is justified in engaging in an action that will inevitably impose a cost on someone else, but at the same time there is no particular “someone else” on whom this cost should justly fall, then everyone sharing the costs prevents anyone from arbitrarily bearing an undeservedly disproportionate burden from these (justified) thefts.  Now, I can certainly think of counters to the above arguments, along with responses to those, and counter responses in turn. But my point is simply that contrary to what Zwolinski claims, one could both accept the moral parity thesis and still accept that, say, taxation or welfare might be justified.  However, this still doesn’t mean the moral parity thesis doesn’t have very strong implications. Even if one could justify taxation and welfare based on moral parity, the range of programs that can be justified in this way is very small compared to the scope of what government actually does. A program that feeds starving orphans could be justified. But taking hundreds of millions of dollars a year to subsidize the art interests of the wealthy through The National Endowment for the Arts certainly doesn’t clear this bar. Nor does subsidizing and thus encouraging housing construction in areas with a high risk of floods and other natural disasters. So in that sense, Zwolinski is correct that much of how the government actually behaves is unjustified by the moral parity thesis – but not in the cases he seemed to cite.  (0 COMMENTS)

Physicist J. Doyne Farmer wants a new kind of economics that takes account of what we’ve learned from chaos theory and that builds more accurate models of how humans actually behave. Listen as he makes the case for complexity economics with EconTalk’s Russ Roberts. Farmer argues that complexity economics makes better predictions than standard economic theory and […] The post Chaos and Complexity Economics (with J. Doyne Farmer) appeared first on Econlib.

The argument that tariffs raise imported goods prices is exactly the same as the argument that gasoline taxes raise gasoline prices. You might object that it’s theoretically possible that a given tariff doesn’t raise prices.  That’s true.  It is also theoretically possible that a gasoline tax increase doesn’t raise gas prices.  In both cases, the seller might absorb 100% of the tax.  The chances of that occurring in the real world are vanishingly small, especially for tariffs that apply to all countries. Matt Yglesias recently retweeted a Scott Lincicome tweet and added a comment: Here I think Yglesias is greatly overstating the extent of disagreement.  That might seem an odd claim, as he uses the phrase “very little disagreement” and points to a study that shows only 5% disagreement.  Nonetheless, I still believe he’s massively overstating the degree of disagreement, which I suspect is actually far below 1%. The poll question asked about the effect of tariffs on “general economic welfare.”  A few economist (not many) favor tariffs because they think they might boost welfare.  But that’s almost certainly not because they think tariffs will avoid raising prices.  For instance, suppose an economist thought that the loss of blue color jobs to imports was a bigger problem than higher prices.  It’s not a nonsensical claim, although I happen to think it’s wrong, partly for reasons expressed in my previous post. (I don’t believe it would save jobs.)   The small number of economists that do favor protectionism do so precisely because they believe a tariff would raise prices.  If it didn’t raise prices, if it didn’t protect domestic industry from cheaper imports, then it would fail to protect jobs in import competing industry. You might think I’m making a mountain out of a molehill, making too much of the difference between a 5% minority and something like a 0.5% minority.  But I worry that people might assume that a proposition is almost certainly true if 95% of economists believe it to be true.  If 50 economists out of 1000 hold a heterodox opinion on a given subject, it’s certainly not all that implausible that they might be correct—certainly much more than 5% odds.  Consider a case where 95% of economists thought it was 75% likely that X was true, and 5% of economists thought it was only 25% likely that X was true.  If polled, you might see 95% of economists saying they believe X is true, but in fact it would be only 75% likely that X is true, even if those 95% were completely correct. I am part of a tiny percentage of economists that believe that the Fed caused the 2008 recession with a tight money policy.  But even if a poll shows that 99% of economists believe that I am wrong, that would not suggest that there is a 99% chance that I am wrong.  Indeed I doubt many of those economists who disagree with me would accept a wager where they could win a measly $102 on a $100 bet, on the question of whether an alternative monetary policy in 2008 could have prevented the big drop in NGDP, especially given that we weren’t even at the zero lower bound!  (Yes, this would be hard to test, but imagine if there were a test.) Polling economists certainly tells us something useful about what experts believe.  But it’s important not to overstate the significance of a strong majority of economists lining up on one side of an issue.  It’s not meaningless, but also not definitive. PS.  It’s also possible that a poll question on whether tariffs raise prices would also yield the same heterodox 5%, in which case it may be that there are a small number of economists who are simply highly eccentric.  But I still believe the figure would be well below 5%, particularly if the two questions were asked back-to-back, reminding the economists being polled that they are two distinct questions. PPS.  Less than an hour after completing this post, I was reading The Economist and came across the following story about the Russian economy: Russian GDP will rise by over 3% in real terms this year, continuing its fastest growth spurt since the early 2010s. In May and June economic activity “significantly increased”, according to the central bank. Other “real time” measures of activity, including one published by Goldman Sachs, a bank, suggest the economy is accelerating (see chart 1). Unemployment is close to an all-time low. Inflation is too high—in July prices rose by 9.1% year on year, above the central bank’s target of 4%—but with cash incomes growing by 14% year on year, the purchasing power of Russians is rising fast. In contrast with people in almost every other country, Russians are feeling good about the economy. I’d estimate that back in 2022, far more than 95% of economists (including me) were wrong about how the Ukraine War and the resulting sanctions would impact the Russian economy.  More often than not, 95% of economists will be right.  But in a disturbing number of cases they are not. (0 COMMENTS)

Industrial Policies Aren’t Working by Donald J. Boudreaux, American Institute for Economic Research, August 21, 2024. Excerpt: This development is unsurprising. No matter how smart and clever are President Xi and his lieutenants, they cannot work miracles. If the Chinese have no comparative advantage at producing EVs on a scale as large as the one desired by these government officials, diverting resources on this scale into EV production is likely to backfire — as it’s now doing. It’s possible that if Beijing diverts yet more resources into this industry that eventually the Chinese will come to have the necessary comparative advantage at producing EVs. But as things now look, this possibility is a bad bet — although it’s a good bet that Beijing will in fact strive to buoy China’s troubled EV producers with yet more subsidies and special protections. After all, the money that Chinese-government officials are spending isn’t their own; it’s money forcibly taken from Chinese taxpayers and consumers.   Tax Incentives for Having Children Are Pushing the Wrong Buttons by Ryan Bourne, Cato at Liberty, May 16, 2024. Excerpt: Fewer babies mean pay-as-you-go welfare states will face increasing financial strain, and many economists worry that fewer people will mean fewer groundbreaking ideas that drive economic growth. In response, there’s been a pro-natalist push for government baby bonuses, tax breaks, or subsidies for childcare or other costs to make child-rearing more affordable. The problem is that these policies typically yield tiny results. Nordic welfare states still grapple with below-replacement birthrates despite numerous “family-friendly” policies. Childcare subsidies haven’t meaningfully shifted the dial here. Australia’s former baby bonus, worth thousands of pounds, caused only a temporary birth spike and the country’s fertility rate is now back around 1.6. The main effect of financial incentives seems to be the “re-timing” of births, where those already planning to have children do so sooner to obtain the cash benefits. DRH comment: This is an issue I discussed in my review of Matt Yglesias’s 2020 book, One Billion Americans. Here’s a relevant section of my review: In a book that advocates massive increases in immigration, a natural next step to take would be to argue for reducing the cost of child rearing by allowing millions of immigrants, probably disproportionately women, into the United States from the poorest countries in Latin America, such as Guatemala and El Salvador, the poorest countries in Africa, such as Zimbabwe and the Congo, and the poorest countries in Asia, such as India. It would not be hard to get 50 million immigrants from those places in a period of, say, five years. They would benefit and many current U.S. families would benefit from a dramatic fall in the cost of childcare. But that is not where Yglesias goes. Instead, he advocates massive new government programs to subsidize the provision of childcare. He writes that “the United States has been shamefully slow compared with some peer countries to provide subsidized child care.” But the closest he comes to explaining why U.S. policy is shameful is to argue that because other countries are doing it, we should too. I say more in that review. ‘Transparency’ Mandate Would Burden Small Brewers and Distilleries by C. Jarrett Dieterle, Reason, August 24, 2025. Excerpt: It’s hard to oppose “transparency,” “common sense,” and “informed choices.” But labeling mandates always fall heaviest on the smallest of businesses. The concept of nutritional and ingredient labeling is even more complex in the alcohol space since the TTB uses a pre-approval system for alcohol labeling, meaning that alcohol producers have to submit their proposed labels to the agency for approval before the product ever hits the market. No approval, no market access. This is in marked contrast to most food labeling, which the Food and Drug Administration enforces after a product goes to market. Not only are most craft breweries, distilleries, and wineries small, local businesses, but much of their appeal is the ever-changing array of products that they offer. Some of the most cutting-edge and popular microbreweries in America release multiple new beers per week or month alongside seasonal releases that vary in availability depending on the time of year. Breweries often release annual products, such as Christmas Ales, that use the same base set of spices but may have some small variations and tweaks from year to year. If these mandates are in place, a brewery could face the prospect of having to get new labels preapproved every single year, a time and cost burden that few small breweries could absorb. Who knew that we in America, the land of the free, would be hemmed in by central planning on beer labels? Ford Wants To Build Hybrids Instead of All-Electric Cars. The EPA Hates That. by Joe Lancaster, Reason, August 23, 2024. Excerpts: One of the country’s largest automakers announced this week that it was shifting its focus away from battery-powered electric vehicles (E.V.s) in favor of hybrids that still use some amount of gasoline. The decision to prioritize a transitional technology makes sense, even though federal regulators might not be happy. And: Unfortunately, federal regulations adopted this year by the Environmental Protection Agency (EPA) could complicate the switch. In March, the EPA released rules that would cut the number of new gas-burning vehicles on the road over the next decade. Under its “more stringent emissions standards” for consumer vehicles, the agency foresaw that by 2032, 56 percent of all new vehicles on the road would be electric, while only 16 percent would be hybrids.   (0 COMMENTS)

A recent post of mine explored the market for restaurant table reservations. Restaurants in high demand with long waitlists for tables could increase prices so that the market more easily clears. For potential reasons discussed in the article, they do not do this, which leaves the door open to third parties to buy and sell reservations for a profit.  The same economics applies to third-party concert ticket sales containing add-on fees. With popular unrest about the prices of event tickets with added fees, embodied recently by the Justice Department’s lawsuit against Live Nation and the passage of the Ticket Act in the House of Representatives, it is instructive to look at the economics of third-party ticket sales. Although the complaint issued by the DOJ and 29 state attorneys general is multi-faceted and deals with a number of practices by Live Nation and its subsidiary Ticketmaster in different markets, it’s discussion of the primary ticketing market is relatively devoid of this analysis.  Popular artists, like Taylor Swift, are holders of a monopoly. They are the sole producers of a good in high demand and are able to earn economic rents because of this. Ticketing companies exist because of the huge transaction costs that artists, their agents and promoters, and venues would incur in finding all of the fans interested in attending a show and selling them a ticket at an acceptable price.  If artists and venues set prices for their shows that are too low, there will be more ticket-demanders than there are tickets. This is what allows third-party sellers some leeway to affix fees at the end of sales – artists are not fully capturing the potential rents from fans and the new price with added fees better represents the true demand.  The online crash that occurred when Taylor Swift’s “Eras” concert went on sale in November 2022 is a demonstration that quantity demanded far outstripped the quantity supplied to a huge extent at the original, or “face”, price. Therefore, there was a shortage of tickets at the stated price. To be sure, third-party intermediaries like Ticketmaster typically add fees on top of the face price in order to cover their costs and to earn a return for aiding in distribution. The power they have to add these fees onto the final selling price, however, is derived primarily from the artists’ popularity – the artist’s monopoly power – not their own.  To take an example from baseball, if you wanted to go to a regular season game at Camden Yards in Baltimore in 2018, you could confidently skip purchasing the tickets online and buy them at the gate instead right before entering the park. With the Orioles only winning 47 of their 162 games that season, tickets were not in high demand. Third-party sellers didn’t have much power to increase the selling price.  Given this, the extent that the add-on fees vary by artist or show could be driven by the popularity and demand for tickets. The add-on fees to see the Dave Matthews Band at Jiffy Lube Live in Bristow, Virginia could be expected to be higher than add-on fees for seeing a local D.C. band without much of a nationwide presence at the 9:30 club. Simply put, shows that are in higher demand will have higher fees and the further underpriced tickets are, the greater the expected add-on fees. Economists have long discussed the economics of ticket resale by third-party brokers and “scalpers” (see a great EconTalk podcast on the topic here). A key question for economists follows from the insight given above: if the artists have monopoly power, why don’t they capture the monopoly rents? Why leave any of the profit for third-party sellers or scalpers to gather for themselves?  One reason the literature gives is that artists and promoters cannot profitably sell tickets in the late market at higher prices because they will be undercut by third-party brokers. To maximize profits, they have to sell at one price in the early market only. Other explanations involve artists giving fans more surplus on ticket sales to encourage spending on other items like merchandise. To avoid leaving profits on the table, promoters will often feed tickets to third-party sellers in exchange for a cut in late market sales. Whichever way you slice it, higher ticket prices derive from increased demand and inelastic supply.  Overall, ticket resale likely increases efficiency, i.e. the overall gains from trade in the market. Concert-goers who either don’t know about the opportunity or who don’t know they want to take advantage of it until the show is close at hand benefit from the existence of a vibrant resale market. Consider the business executive who purchased Taylor Swift tickets from a woman for $20,000 in the resale market.  Policymakers should keep this in mind when considering actions to combat “junk fees” or ticket prices that are considered “too high”. If policy makes market transactions more difficult, you will likely reduce efficiency without any offsetting benefits.  As is often the case, a scene from The Simpsons provides some wisdom here: back in season 5, Homer sleeps in line a week in advance to get tickets to a high-demand show. Excitedly he exclaims “I’m second in line, and it only took me a week off of work!” A passer-by comments, “with the money you would have made working, you could have bought tickets from a scalper”. Homer retorts, “in theory yes… jerk.”     Giorgio Castiglia is the Program Manager for the Project on Competition at the Mercatus Center, and a PhD student in economics at George Mason University. (0 COMMENTS)

Over a long period of time, the US economy has been shifting away from goods and toward services.  If the US switches to a high tariff policy, this would accelerate the shift to services.  To see why, we need to review some basic concepts in trade theory. To illustrate some of the ideas, I’d like to consider a 20% tax on all imported goods.  By assumption, services are exempt.  Let’s begin by considering the example of imported oil.  For simplicity, we’ll assume the US imports most of its oil (an assumption that is no longer valid.) If the global price of oil were $80/barrel, then a 20% tax would tend to raise the price by $16.  However, the price would probably rise by slightly less than $16, because the tariff would encourage domestic production and discourage domestic consumption.  Thus $16 would be the upper limit of the resulting price increase.  That’s equivalent to about 40 cents a gallon.  I suspect the actual increase would be slightly smaller, let’s say about 37 cents, which is roughly double the 18.4 cent federal tax on gasoline. Today, the US is a major oil producer.  We still import lots of oil, but we also export a significant amount.  In that case, the net effect of the tariff is more complex.  Some oil that is currently being exported might be diverted to domestic consumption in parts of the US that are currently importing oil. In that case, the major effect might be higher transport costs, as oil gets re-routed. Most economists assume that tariffs are paid by consumers in the domestic economy.  In principle, part of the burden might be borne by foreign exporters if the tariff had the effect of depressing the global price of the good being imported.  On the other hand, if other countries retaliate with their own tariffs (which seems plausible), then it again makes sense to assume that almost all the tariff is borne by domestic consumers.  In my view, that is the most reasonable assumption. So is a 20% tariff like a 20% VAT?  Not quite, because the VAT applies to both goods and services, while a tariff applies only to goods. Does a tariff improve the current account balance?  Probably not, as the current account balance is domestic saving minus domestic investment.  In most cases, it would only increase the current account balance if it boosted domestic saving, which would only occur if the tariff revenue were used for deficit reduction.  And even in that unlikely case, the effect would be rather small.  The main effect of tariffs is to reduce all trade in goods, both imports and exports.  With a high tariff policy, both our imports and our exports would become smaller.  Most importantly, the goods sector of the economy would be taxed at a much higher rate than the service sector, which would reduce goods as a share of GDP. This may seem counterintuitive, as we tend to think of tariffs leading to more production of goods that were formerly being imported.  And they do.  But the negative effects on goods production are even greater.  This is because the positive effect to domestic production from fewer imports is offset by the negative effect from fewer exports.  But tariffs also tilt consumption away from goods and toward services.  It’s this extra effect (beyond the trade balance) that results in the economy shifting from goods to services production. Would a 20% tariff increase inflation?  That depends on the response of the Fed.  It’s likely that the Fed would allow a one-time price increase, on the grounds that the effect of tariffs is “transitory”.  If the Fed wished to avoid higher prices, they would be forced to have a tight money policy that reduced nominal wages.  Either way, tariffs tend to reduce after tax real wages, unless offset with tax cuts elsewhere. A high tariff on imported oil would discourage the consumption of oil, which is something that many environmentalists favor.  I’ll leave it to the reader to determine whether this is the goal of most advocates of a high tariff policy. PS.  Obviously the world is complex, and you can make assumptions that yield different results.  But I suspect that many people don’t understand that the first order effects predicted by standard trade models are that tariffs will boost services production and reduce goods production. Here’s the simple trade graph in the special case where the importing country has no effect on the global price:   (0 COMMENTS)

  As I said in my previous post on The Nazi Officer’s Wife, I see economics everywhere. This book is no exception. Here are two. First, some background for the first one. In April 1941, Edith Hahn Beer was forced to sign a contract obligating her to go to an asparagus farm in Germany to do slave labor. She and her Jewish fellow workers were forced to wear yellow stars at all times. But in the times they had off, they wanted to go into town and shop for things. That presented a dilemma. She writes: The police told us we must write to Vienna for the yellow stars, and that when they arrived, we must wear them at all times. But if we had done so, no shopkeeper in town would have waited on us. So we didn’t wear them. Our supervisors on the farm seemed to care not at all. I  believe that in their way they had began [sic] to want to keep us content enough to go on obediently working for them, even more than they wanted to please the police. Incentives at work. Economic self-interest on the part of the supervisors, who were trying to reach their production quota, overcame obedience to government rules. The second is about adjustment to Hitler’s price controls. The farmers outside the city made fortunes from bartering, because people would bring their most valuable furnishings to trade for some carrots, maybe a slab of bacon, or some fresh cheese. People joked that the farmers now owned so many Persian rugs that they put them in the cowsheds. By the way, I wrote in some detail about how this barter continued after the war in response to the Allies continuing to enforce Hitler’s price controls. It’s in “German Economic Miracle,” in David R. Henderson, ed., The Concise Encyclopedia of Economics. The barter ended as soon as the price controls ended–and the German economic miracle commenced.   (0 COMMENTS)