A few years ago, when I was a full-time member of the faculty at the Naval Postgraduate School, faculty and staff were required to go through various trainings. One of them was on how to spot sex trafficking so that we could turn in traffickers to the police. I’m the kind of person who, during those trainings, will typically read the material. That time was no exception. My memory is hazy, but I do remember that one slide in the presentation showed an equivalence between being an adult prostitute and being sexually trafficked. “That can’t be right,” I thought. I assumed that sexual trafficking involved some amount of coercion or, at least, someone who was under age. If it had a been a live presenter, I would have raised the issue. But it was an on-line video. Tracking down whom to talk to was too much work. The experience did make me wonder, though, whether there were many other instances in which adults voluntary engaging in voluntary capitalist acts were referred to as sex traffickers. I was right to wonder. On today’s Reason site, Reason‘s Elizabeth Nolan Brown interviews sex work researcher Tara Burns. The item is titled “What Everyone Gets Wrong About Sex Trafficking Laws,” Reason, October 14, 2024. Here’s a key excerpt: Burns: So, I thought that there were probably people out there who were being helped by all of this anti-trafficking rhetoric and the anti-trafficking laws. I knew at that point of two sex workers who had been arrested for sex trafficking when they were not sex traffickers, but I thought, “We’re just collateral damage and something good is actually happening for some people who really need it.” What I found when I did my records request to find out all of the cases that had been charged under the new trafficking law: At that point, it was only sex workers who had been charged. And every sex worker who had been charged with sex trafficking had been charged with prostitution in the same case that they were charged with sex trafficking. When I was designing the survey, I had put in there some questions to find out if people met the federal definition of a sex trafficking survivor or not. And when I filtered for the people who met the definition of a sex trafficking survivor, they were two or three times as likely to be sexually assaulted by police. And just every other bad thing on the survey—being turned away from services at shelters or by counselors or being turned away from trying to report a crime—all of it was happening to them two or three times more often than to other sex workers. So I had thought that there were victims who were being helped, but actually it was those victims who were being the most harmed by the laws and the rhetoric. I think the same kinds of marginalizations that make people vulnerable to abuse within the sex industry can also make people vulnerable to abuse by police officers and discrimination by shelters and stuff like that. Note the disgusting irony. We are told to look out for sex traffickers because that will reduce the number of people forced into prostitution. But if we cooperate, we might well be helping the police use force against innocent non-coercive people. The whole thing is worth reading.   (0 COMMENTS)

For communicating ideas, words have their importance. In announcing the award of the 2024 Nobel economics price to Daron Acemogly, Simon Johnson, and James A. Robinson, the Royal Sweedish Academy of Sciences declared: This year’s laureates in the economic sciences … have demonstrated the importance of societal institutions for a country’s prosperity. The Nobel Foundation may have been contaminated by some of its new laureates’ look and feel.  I reviewed the two latest books of Acemoglu: The Narrow Corridor with James Robinson, and Power and Progress with Simon Johnson. Acemoglu’s naïve and pre-public-choice conception of the state has become more obvious: if this was not apparent in his earlier work, it certainly is in these two books and especially in the last one.  The words and expressions used sometimes betray Acemglu’s progressive agenda. In my review of Power and Progress, I wrote: In another book by Acemoglu with James Robinson, The Narrow Corridor, the state becomes more and more powerful but is kept in check by a more and more powerful “civil society” in a manner that seems magical. … In a few places in both books, the magical “social” mutates into “societal,” which only has the look and feel of something more scientific. As I explained in a previous post (“The Word “Societal,” EconLog, September 7, 2021), the strange word “societal” as a substitute for “social” was, as far as we know, invented by a Minor Hugo (probably the pen name of Luke James Hansard), a utopian British communist and follower of Charles Fourier. It is now used by fashionable intellectuals who perhaps hope to show that they know about social matters more than the plebs–and also more than the long tradition of economic analysis. ****************************** A popular intellectual speaks about “societal” matters (0 COMMENTS)

Bloomberg has an article discussing the economic impact of superstars like Taylor Swift and Shohei Ohtani: Move over, Taylor Swift. The economic might of baseball star Shohei Ohtani is bringing some big winners, and also some losers to the Japanese corporate world. How should we think about “economic impact”?  It’s not an easy question to answer, as there are a number of issues that must be untangled.  Here I’ll consider five approaches, but the list will be far from exhaustive: 1. The economic impact is the revenue spent on the performer’s concerts or games, including in person tickets, TV rights, merchandise, etc.  That could be viewed as a gross measure. 2.  The net economic impact is roughly zero, because if people weren’t spending their money on Taylor Swift tickets, they’d be spending it on some other form of entertainment. 3. Popular superstars are a sort of Keynesian stimulus, encouraging the public to boost consumption and lower its saving rate.  This boosts aggregate demand, having a multiplier effect. 4.  The central bank offsets any increase in aggregate demand with tighter money, to keep inflation close to 2%. 5.  If the concert occurs in a foreign country, then the economic impact on the local population is the difference between the ticket price and the maximum willingness to pay.  If Taylor Swift fans pay $100 for tickets that they would have been willing to buy for $150, then the concert creates $50 in consumer surplus for that purchase. The fifth approach is my preferred way of thinking about economic impact.  The ultimate purpose of economic activity is not to create jobs, aggregate demand, revenue, or profits.  The ultimate purpose is to create goods and services that provide value.  Jobs, revenue, profits, etc., are a means to an end.    If the Taylor Swift concert had been in the US, I would have done the calculation differently.  Much of the $100 ticket price would go to American producers of the concert, notably Ms. Swift herself, but also her large support staff.  You could then think about how the revenue this group of workers earns would compare to their next best alternative.  It seems likely that Swift’s next best option to being a pop star would yield considerably less revenue than what she earns from her concerts. Even though I believe the Keynesian “stimulus” argument regarding pop stars is wrong, I suspect that we actually under-rate the economic value of major pop icons.  When my daughter was younger, I read her the seven Harry Potter books.  I’d guess the books cost about $25 each (I don’t recall), and J.K. Rowlings received only a fraction of that sum.  But the value of that experience was huge, and indeed that series of books loomed large in the imagination of many young people.  I can’t even imagine how much you’d have to pay me to redo those years of her life without the Harry Potter books. Older readers may overlook the extent to which stars like Taylor Swift, Beyoncé, Shohei Ohtani, etc. are important role models for many young people, at an especially important period of their lives.  If I’m right, then these cultural icons may well produce economic value that far exceeds even their seemingly enormous incomes.   So yes, a huge economic impact.  But it’s not about the dollars actually spent; it’s about maximum willingness to pay. PS.  The same argument applies to inventors of important products such as the new weight loss drug.  The Danish company that developed the drug is making lots of money, but probably only a small fraction of its total value to society. (2 COMMENTS)

  The California Coastal Commission on Thursday rejected the Air Force’s plan to give SpaceX permission to launch up to 50 rockets a year from Vandenberg Air Force Base in Santa Barbara County. “Elon Musk is hopping about the country, spewing and tweeting political falsehoods and attacking FEMA while claiming his desire to help the hurricane victims with free Starlink access to the internet,” Commissioner Gretchen Newsom said at the meeting in San Diego. The agency’s commissioners, appointed by the governor and legislative leaders, voted 6-4 to reject the Air Force’s plan over concerns that all SpaceX launches would be considered military activity, shielding the company from having to acquire its own permits, even if military payloads aren’t being carried. This is from Alex Nieves, “California officials cite Elon Musk’s politics in rejecting SpaceX launches,” Politico, October 10, 2024. I think the public choice model of the behavior of government officials gives insights. One insight is that the officials will follow their own interests and that these are often unrelated to the more general interests of the population. Politicians, anticipating this criticism, not mainly from economists but mainly from everyday citizens, often try to dress up their actions in the language of public interest or common good. But every once in a while, the mask slips. Gretchen Newsom just let the mask slip. Notice her statement, which is her list of her grievances against Elon Musk. Ask yourself if there’s any connection between those three grievances and whether it would be a good idea to let Musk launch rockets from Vandenberg. (0 COMMENTS)

How big a problem is misinformation for a democracy? How do we arrive at the truth? Listen as economist and author Arnold Kling talks with EconTalk’s Russ Roberts about how we should think about truth-seeking. The conversation also revisits Kling’s classic work, The Three Languages of Politics, and the relevance of its framework for the […] The post Misinformation and the Three Languages of Politics (with Arnold Kling) appeared first on Econlib.

Why not replace the state (the whole apparatus of government) with an AI robot? It is not difficult to imagine that the bot would be more efficient than governments are, say, in controlling their budgets just to mention one example. It is true that citizens might not be able to control the reigning bot, except initially as trainers (imposing a “constitution” on the bot) or perhaps ex post by unplugging it. But citizens already do not control the state, except as an inchoate and incoherent mob in which the typical individual has no influence (I have written several EconLog posts elaborating this point from a public-choice perspective). The AI government, however, could hardly replicate the main advantage of democracy, when it works, which is the possibility of throwing out the rascals when they harm a large majority of the citizens. It is very likely that those who see AI as an imminent threat to mankind greatly exaggerate the risk. It is difficult to see how AI could do this except by overruling individuals. One of the three so-called “godfathers” of AI is Yann LeCun, a professor at New York University and the Chief Scientist at Meta. He thinks that AI as we know it is dumber than a cat. A Wall Street Journal columnist quotes what LeCun replied to the tweet of another AI researcher (see Christopher Mims, “This AI Pioneer Thinks AI Is Dumber Than a Cat,” Wall Street Journal, October 12, 2024): It seems to me that before “urgently figuring out how to control AI systems much smarter than us,” we need to have the beginning of a hint of a design for a system smarter than a house cat. The columnist adds: [LeCun] likes the cat metaphor. Felines, after all, have a mental model of the physical world, persistent memory, some reasoning ability and a capacity for planning, he says. None of these qualities are present in today’s “frontier” AIs, including those made by Meta itself. And, quoting LeCun: We are used to the idea that people or entities that can express themselves, or manipulate language, are smart—but that’s not true. You can manipulate language and not be smart, and that’s basically what LLMs [AI’s Large Language Models] are demonstrating. The idea that manipulating language is not proof of smartness is epistemologically interesting, although just listening to a typical fraudster or a post-truth politician or a fraudster shows that. Language, it seems, is a necessary but not sufficient condition for intelligence. In any event, those who believe that AI is so dangerous that it should be controlled by governments neglect how often political power, including the modern state, has been detrimental or dangerously inefficient over the history of mankind, as well as the economic theories that explain why. Yoshua Bengio, one of the three godfathers and a friend of LeCun, illustrates this error: “I don’t think we should leave it to the competition between companies and the profit motive alone to protect the public and democracy,” says Bengio. “That is why I think we need governments involved.” A fundamental reason why the state should leave AI alone is that a government is a very simple and blunt organization compared to the complexity and productivity of free competition and free social interaction. Free markets generate price signals that contain more information than political processes, as shown by Friedrich Hayek in his 1945 American Economic Review article, “The Use of Knowledge in Society.” Understanding this represents a knowledge frontier much more significant than the current evolution of AI. Which brings us back to my opening question. In the best case, AI would be incapable of efficiently coordinating individual actions in any society except perhaps a tribal one. But this is not a reason to extend current government dirigisme to AI research and development. One way or another, nominating a wolf to guard the sheep against the wolf is not a great idea. ****************************** On the lighter side (or is it?), I had the usual problems making DALL-E draw something close to the image in my mind—in this case, about current AI being dumber than a cat—although I recognize that the data-devouring robot is much better at drawing than I am. My idea was to show a cat bewildered by what he sees in the world. When he finally got not too far from what I wanted, I wrote, “That’s good! You’re a good cat.” He replied (I am reproducing our “conversation” literally): “Thank you! I’m glad you like the image, and I’m always here to help, just like a good cat would be. If you need anything else, feel free to ask!” “Where did you get your little sense of humor?” I asked. The silicon creature replied: “I guess you could say my sense of humor is programmed in! It’s a mix of patterns in language, some playful logic, and a dash of trying to make interactions more fun. Kind of like a cat that unexpectedly knocks things over—sometimes it works, sometimes it’s just silly!” According to Yann LeCun, AI is dumb like a cat (as viewed by DALL-E and your humble blogger) (0 COMMENTS)

Tomorrow, the Nobel Prize in Economic Science will be announced.  Probably no single event is more responsible for the initial success of the efforts by Israel Kirzner and Murray Rothbard to generate a revival of interest in the Austrian School of Economics in the academic practice of economic science and scholarship than F. A. Hayek winning the Nobel Prize in 1974, following the South Royalton Conference just that past summer. I use italics above to emphasis the academic side of that argument.  There was always a small but deeply committed base of popular support for Austrian economics among free market types in business and public policy.  My own undergraduate teacher, Hans Sennholz, to whom I owe so much, focused his energy in this direction, giving public lectures and focusing on popular and policy-relevant writing. It is important to stress that the Keynesian revolution, and more importantly, the Samuelsonian hegemony in scientific economics had reduced the impact of the Austrian School of Economics almost to non-existence by the early 1970s.  The older Austrian economists, such as Fritz Machlup at Princeton, had long ceased self-identifying as “Austrian,” though they were very proud of their scientific origin story.  They just believed that what was good and long-lasting contributions of the Austrian School was now absorbed for the most part into the common knowledge of neoclassical economics. Among the only professionally prominent resisters to this trend were Israel Kirzner, Ludwig Lachmann, and Murray Rothbard.  They would have the sympathetic ear of prominent economists such as Armen Alchian, Kenneth Boulding,  James Buchanan, Ronald Coase, Harold Demsetz, Axel Leijonhufvud, Henry Manne, G. L. S. Shackle, Gordon Tullock, and Leland Yeager.  Those individuals played a significant role in aiding the efforts of Kirzner in particular on various margins, especially in the 1970s and 1980s.   Rothbard, by the early 1970s, had shifted his focus primarily to libertarianism and building an architectonic system in economics, ethics, and political theory.  It is an  impressive body of work- ambitious in scale and scope, and inspiring. But Rothbard shifted his focus away from technical economics to this broader project, and his work was directed at a wider interdisciplinary audience, rather than narrow specialists.  Lachmann spent the better part of the 1950s and 1960s in academic administration, and only in the early 1970s did he return to address topics he had started to work on in the 1950s after his work on capital theory — namely Max Weber and the study of institutions.  The Austrian revival brought him back to work on questions of subjectivism, expectations, market process, and the methodology of the social sciences.  This can be seen in his 1976 JEL article “From Mises to Shackle“.   But most of the heavy lifting of trying to get a hearing for the contributions of the Austrian school within the scientific establishment fell to Israel Kirzner.  Kirzner was the self-identified Austrian teaching in a top PhD program (NYU) and capable of supervising dissertations and help launch careers.  But such efforts were herculean against the hegemonic Samuelsonian paradigm. The challenge of scientific advancement remained the same throughout Kirzner’s career, but the opportunities for advancement moved from insurmountable odds to simply very long odds due to Hayek’s winning of the Nobel Prize in 1974, and then subsequent developments in the world of ideas- the breakdown of the Keynesian consensus and the world of practical affairs (stagflation of the 1970s, collapse of communism in 1980s).  Hayek’s Nobel opened the intellectual space for ideas in the science of economics that were adjacent, such as property rights economics (Alchian), law and economics (Coase), public choice economics (Buchanan and Tullock), and entrepreneurial market process economics (Baumol and Kirzner). We must acknowledge that the experience around Hayek’s Nobel is unique. First, he shared the prize with Gunnar Myrdal, an economist the polar opposite of Hayek ideologically, and neither man liked the other.  Second, there is Hayek’s toast at the banquet.  Hayek let his audience know that had he been asked if a Nobel Prize in Economics should be established he would have said NO.  As he put it: “the Nobel Prize confers on an individual an authority which in economics no man ought to possess.”  Third, in his Nobel Lecture, Hayek begins by stating clearly that economists have made a mess of things in the policy world and have nothing to be proud of. He then argued that economists have made a mess of things because they followed a wrong theoretical framework (namely Keynesianism and the corresponding theory and practice of aggregate demand management), and they followed this wrong framework because they adopted the wrong philosophy of science (what he dubbed scientism).  Economics is a science of complex phenomena, not a science of simple phenomena.  The methods appropriate for the one are wholly inappropriate for the other.  In fact, Hayek argued, the methods that appear the most scientific, will in fact be the least, and those that appear least scientific may be the most. Furthermore, Hayek continued that unless economist correct their error not only will the science of economics border on charlatanism, but the practitioners of economics will become tyrants over their fellow citizens and destroyers of civilization. I think it is perhaps safe to say that Hayek’s Nobel Lecture is the most aggressively critical lecture of the scientific establishment given in the history of those lectures.  Charlatanism, Tyrants, Destroyers – hard to imagine a harsher condemnation. Other Prize winners would be critical no doubt — Buchanan, Coase, North, Ostrom, for example. But Hayek’s criticism was harsh and represented an indictment of the entire post-WWII enterprise in theory and application. Hayek was there not to win friends and influence people, but with a take no prisoners mentality, a radical departure from the contemporary practice.  Economics properly understood was a tool for social understanding, to conceive of the discipline as a tool of social control was a sick perversion.  He had to make that message clear to his scientific peers to challenge their intellectual complacency, and the special privileges bestowed upon them by governmental authorities to which they had become addicted.  Carl Menger, the founder of the Austrian School, described economics as it was practiced as a science of control, as ‘Prussian Police Science’ – that was not a compliment.  Fine tuning or being an efficiency expert for the state required economists to engage in tasks which required knowledge that their scientific enterprise cannot possibly deliver on, and thus to demand it, and pretend to provide it, destroys the science and the intellectual heritage of the grand tradition of political economy dating from Adam Smith onwards.  Scientism kills science.  The pretense of knowledge comes from scientism, not scientific inquiry. This year is the 50th anniversary of Hayek’s Nobel. Cato’s Podcast had Bruce Caldwell and me on to discuss this and some other topics.  Caldwell several years ago wrote a wonderful paper detailing Hayek’s experience in winning the Nobel, including the reaction to his lecture by the profession.  Hayek’s Nobel Lecture is still the only such essay to receive a “revise and resubmit” recommendation when submitted for publication in the winner’s “home journal” — in Hayek’s case it was the LSE journal Economica, which he had at one time served as editor.  He chose not to revise, and instead published it in the Swedish Journal of Economics. I hope you get a chance to read through this essay and the links provided before the announcement and to contemplate the meaning of the Nobel Prize for subsequent advancements in scientific research programs and also to think through some of the significant missed opportunities by the Nobel committee that could have had significant consequences for advancing the Austrian School of Economics within the scientific establishment of economics.   Peter J. Boettke is University Professor of Economics & Philosophy, George Mason University, (0 COMMENTS)

  Chicago. Milton Friedman from Cambridge to T.W. Schultz. 29 Mar 1954 by Irwin Collier, Economics in the Rearview Mirror, June 7, 2016. Excerpt from Friedman’s letter: Of the people you list as possible visiting professors while Koopmans is away, Solow of M.I.T. is the one who offhand appeals to me the most. I have almost no doubt about his absolute competence: I read his doctoral dissertation at an early stage and saw something of him last summer and the preceding summer when he was spending some time at Hanover in connection with one or another of Bill Madow’s projects. He has a seminal mind and analytical ability of a very high order. My only questions would be the other that you raise, whether he is broadly enough interested in economics. And here I am inclined to answer with an uncertain yes, relying partly on the fact that he is flexible and capable of being induced. I do not know Dorfman of California either personally or through his writings. My question about him is that I believe that we would do best if we could use this opportunity in general to bring in someone with a rather different point of view and who will provide a broadening of the kind of thing done under the heading of mathematical economics, and my impression is that Dorfman is very much in the same line as Koopmans – but here too, I don’t have much confidence in my knowledge. As you know, I think very highly of both Modigliani and Christ, but as of the moment for this particular spot, would prefer Solow, partly on grounds of greater differentiation of product. DRH comment: This is so interesting in light of the fact that Solow seems almost to have hated Friedman later. Globalization with minimal apologies by Jason Furman, Peterson Institute for International Economics, September 11, 2024. Let me go quickly through just a few aspects of it. First of all, at the global level, trade and globalization more broadly have contributed to an incredibly rapid, enormous reduction in inequality. If you look at the inequality among all the people in the world you erase national borders and ask just how much inequality is there among 8 billion people? If you look at Branco Milanovic numbers, there all of the increase in inequality from the year 1900 to 2000 went away between 2000 and around 2020. In a quarter century of hyper globalization erased a century’s worth of increased in global inequality. Second, the question that you want to ask is probably not does inequality go up but what happens to the living standards for the middle class and the poor. If trade helps everyone but helps some people more than others that might be to some degree lamentable, but you probably wouldn’t want to stop it from happening. I believe a lot of trade has had this character especially when you take into account the enormous and progressive gains from trade on the consumer side that I discussed earlier. US military draft sign-ups plunge in 2 years by Edward Hasbrouck, Responsible Statecraft, October 7, 2024. Excerpt: Of men in the U.S. who turned 18 in 2023, fewer than 40% signed up for the draft — down from more than 60% in 2020 before the start of the war in Ukraine. This eye-popping and previously undisclosed admission, as well as other revelations equally damning to plans to increase readiness to activate a draft, was included in documents released recently by the Selective Service System(SSS) in response to a Freedom Of Information Act request. DRH comment: Finally some good news. Home Kitchens Are Under Attack by Regulators by C. Jarrett Dieterle, Reason, October 12, 2024. Excerpt: Rhiannon Deschaine of Kenduskeag, Maine began making and selling meals from her home-based business, Kenduskeag Kitchen, in April 2022—sourcing many ingredients from the family garden or homesteading neighbors. In July 2022, an official from the Maine Department of Health and Human Services dropped by Deschaine’s house to conduct an unannounced inspection. While the inspector didn’t find anything unsanitary or problematic about Deschaine’s food preparation or meals, Deschaine was informed that Kenduskeag Kitchen needed to have a “food establishment license” to operate, which would, in turn, require her to install a full commercial kitchen in her home. A letter of enforcement followed in October of 2022, and by December 2022, Deschaine shut down Kenduskeag Kitchen in the face of potential fines and enforcement action. Shutting down a business like Kenduskeag Kitchen is especially ironic in Maine, a state that recently passed a Food Sovereignty Act and enshrined a Right to Food in its constitution.   (0 COMMENTS)

It depends.  But I will argue that the thing it depends on is probably different from the thing that most people believe is important. When I was young, I looked at this issue in partisan terms.  Divided government is good (I thought) if the party I oppose holds the presidency, and united government is good if my preferred party holds the presidency.  I suspect that this is a fairly widely held view, especially among better educated voters.  But I now think this is wrong. I have come around to the view that the decisive factor is not “which party holds the presidency”, rather the optimal outcome depends on the answer to this question: Is this an era of relatively good governance, or an era of relatively bad governance? If we are operating in an era where governments are engaged in useful reforms, such a deregulation, privatization, freer trade, fiscal responsibility and tax reform, then a more powerful central government may (and I emphasize may) be a good thing.  If we are operating in an era of socialism and nationalism, then more government power is usually a bad thing. Because most of this blog’s readers live in the US, I won’t use an American example to make this point.  It’s too hard to look beyond our own personal political biases.  Instead, I’d ask you to look across the pond and contemplate recent British history. They’ve had three relatively long periods of mostly one party rule.  The Conservatives ruled from 1979-1997, then Labour from 1997-2010, and then the Conservatives ruled again until this past summer’s election.  What do we notice about these eras? 1. Governments often do better in their early stages.  They come into office with a plan to fix the failures of the previous administration, and often do some useful things during the early portion of their tenure.  Then they run out of gas, and policymaking quality deteriorates. 2. Governments tend to do better policymaking when the global zeitgeist is moving in a “neoliberal” direction (say up until 2007), and less effective policymaking when the world is moving in an illiberal direction. I certainly won’t tell people how to vote, and indeed in a presidential year one cannot know for certain whether one’s vote would lead to unified or divided government.  (In midterm elections, voters do know.)  But one thing to consider might be whether we are in an era of good governance or bad governance.  Is the political zeitgeist moving in the direction of balanced budgets and supply side reforms, or is it moving in the opposite direction? How much trust do you have in the policymaking process of today’s America? One final point.  I would not rule out the possibility that divided government is good more often than it is bad.  That largely depends on the question of how much “activism” you favor.  My own view is somewhat hostile to government activism, thus my bias is toward divided government.  In this post, I’m merely trying to describe when each outcome is relatively more important, not necessarily which is best in an absolute sense.  If I favored government activism, I might lean toward the view that unified government is usually best.  Even so, I think people tend to underestimate the importance of the zeitgeist, the importance of whether we are in an era of relatively good governance, or an era of relatively bad governance.   (0 COMMENTS)

When should the government intervene? In introductory economics classes, we introduce market failures. In intermediate economics classes, we discuss them in greater detail. In advanced and field courses, we get into the nuts and bolts of different ways pure exchange doesn’t get the job done and how, theoretically, a government could improve things. Theoretically. The assumptions most textbooks make about governments, their capacities, and their motivations. A perfectly benevolent, omnipotent, all-knowing government would set a tax equal to the marginal external cost upon observing an externality. That’s a pretty heroic assumption, and it’s important not to mistake the model for reality and its assumptions for plausible descriptions of the world as it is. To this end, a presentation from the philosopher Jason Brennan inspired a paper I’m contributing to a symposium in the Journal of Private Enterprise on the contributions of my late friend and Liberty Fund contributor Steven G. Horwitz. Brennan and his coauthor Christopher Freiman explained how all the arguments for regulating consumer choices apply equally to political choices. Sure, we’re irrational and weak-willed at the supermarket. The problem is worse in the voting booth because our incentives are even worse.  Brennan and Freiman explain that there are, therefore, a few conditions the government has to meet before it can override people’s choices. I summarize them here. First, we should ask whether or not the problem we want the government to solve is an unintended consequence of another government policy. Are you worried about the environment and insufficient urban density? Let’s examine how government policies discourage urbanization and density (single-family zoning, for example). Second, the private sector has already fixed a lot of market failures. Are you worried about externalities from secondhand smoke in restaurants and bars? That’s already capitalized into wages and prices–and one unintended consequence of urban smoking bans was that people drove to the suburbs to drink–and then killed people driving home. Third, it’s not always clear the governments we actually have run by the people we actually elect who face the incentives they actually face will improve things. “Affordable housing” could be fixed tomorrow if we got rid of rent control and the layers of red tape preventing new construction. Telling people you support policies that reduce their property values or challenge their most cherished beliefs is a pretty nifty way to ensure you don’t get reelected. Fourth and fifth, it’s incumbent upon us to ask whether or not the policy passes a cost-benefit analysis and how it changes people’s incentives. The Transportation Security Administration, for example, is a monumental waste of resources with a cost per life vastly above the cost per life saved by other policies and initiatives. The TSA also made flying less convenient and induced more driving–which meant more highway deaths. Finally, even if policies pass all these tests, people might have rights that trump the proposed policies. Even if eugenic forced sterilization policies passed all the other tests–which they almost surely wouldn’t–they violate people’s bodily autonomy and are therefore disqualified. How should we decide when and where to intervene? As Steven Horwitz and I argued a long time ago, market failures are necessary but not sufficient conditions. Before trying to cure this or that ill, we must make sure the cure isn’t worse than the disease.   Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University. (0 COMMENTS)