What if math isn’t about grinding through equations, but about training your intuition and changing how your brain works? Mathematician and author David Bessis tells EconTalk’s Russ Roberts that the secret of mathematics isn’t logic–it’s the way we learn to see. He explains why math books aren’t meant to be read like novels, how great […] The post A Mind-Blowing Way of Looking at Math (with David Bessis) appeared first on Econlib.

This is the latest in our series of posts in our series on price theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed. Share your proposed solutions in the comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!   Question: The Texas Minimum Construction Standards require that all plumbing fixtures be WaterSense certified. Examples of requirements under these standards include low-flow faucets, shower heads, and toilets.  Suppose, for the sake of argument, that before the requirement for low-flow toilets went into effect, installing a normal-flow toilet cost $250. Suppose also that installing a low-flow toilet costs plumbers an additional $100 under the regulations, and that their customers value the savings from low-flow toilets at $25 per toilet.  Illustrate how the demand and supply curves for toilets shift as a result of the law. What happens to the price of a new toilet (providing a range of new prices is sufficient)? Who gains from the law: plumbers, their customers, both, or neither? Justify your answer. (0 COMMENTS)

In times of crisis, we consider what can be done to return to a path of prosperity and wealth. However, there is a tendency to mistake the previous manifestations of economic success—the sectors and products that an economy has, in the past, successfully produced—for the more fundamental source of success. When, in 1947, Ludwig Erhard lifted price regulations and decisively shifted the German economic system away from heavy interventionism towards a free market economy, the stage was set for what is commonly—though perhaps misleadingly—referred to as the “German Economic Miracle.” The rest is history.  Today, there is a fundamental misunderstanding of the origins of wealth that endangers the already struggling German economy’s future. This misunderstanding is also observable in other societies. The mistake is taking the really-existing businesses and sectors that have emerged under a successful economic system to be the decisive element in an economy’s growth. For example, Germany’s economic system has produced an economy focused on, put very roughly (and, strictly speaking, of course, falsely), cars. So, one may conclude that all that is necessary for protecting and reinvigorating the German economy is to protect and support the German carmakers’ ability to produce cars. Precisely this is what many commentators on the German economic situation, as well as politicians, seem to believe. According to this view, the focus must be on ensuring favorable conditions for the auto sector, a proven powerhouse of the economy in the past. This is not necessarily false—but if it is correct, it is correct contingently, not necessarily. Consider that a system of free enterprise will lead to the production of certain goods and services, and those may well lead to a focus on cars. But it could also lead to specialization in another industry, or to more diverse economic activity.  The goods and services that entrepreneurs focus on are not given or predetermined. Rather, in a free market, entrepreneurs who can produce profitably will succeed, regardless of the industry they operate in. It may well be that carmakers are exceptionally profitable. But the success of carmakers, or any other industry for that matter, is only worth celebrating when it is a manifestation of the healthy market economy.  So, what’s the lesson? It is that not industrial production, nor cars, nor any other sector was the decisive element for Germany’s economic success. These are just specific manifestations of that economy in this specific time and place. What the economy needs is a system that ensures market-tested success, not the prospering of any particular industry. Instead, the decisive factor is the economic system, where entrepreneurs must be free to flourish while also being responsible for their actions. In other words, the free market is crucial—and, historically, it was the reason for the tremendous economic growth Germany experienced. In any economy’s past, this economic success will have manifested in certain sectors being central to the economy; tomorrow, it may be precisely these sectors again, but it could also involve completely different ones.  To retain—and in Germany’s case, regain—its economic clout, a society’s focus must be on its economic system, not on the sectors that have historically emerged as the strongest under that system. Put simply, what is required is a return to the free market, not the bolstering of one specific sector that has recently achieved success.  Now, let me be clear that there are certainly measures that would not only promote the specific sector that has historically brought success, such as the automotive sector in Germany, but also represent a return to free market principles. Consider deregulation and lowering corporate income taxes. However, the focus must always be on the market if the objective is to rekindle the economy, rather than on any specific sector that seems promising to politicians, such as subsidizing energy prices for industry. This misunderstanding of what constitutes economic success permeates not only German policy recommendations but also those of many other countries. To some extent, it is understandable as the success of an economy manifests, or at least is primarily visible, in specific industries. However, this is precisely to misunderstand the true origins of a society’s economic miracle. You do not enrich your citizens by protecting an industry that has been successful in the past. Rather, at the basis of economic growth we find a solid market economy—just what Ludwig Erhard had restored in 1947 when he eliminated a host of government interventions to free the citizens from the constraints that had prevented them from enriching themselves and others. (0 COMMENTS)

In his 1980 book, Knowledge and Decisions, Thomas Sowell highlights the importance of social authentication and verification processes. Does this work? Is that a good idea? If it works, it survives. If not, it doesn’t. Over time, we accumulate rules, norms, and practices that make it easier for us to get things done. Some of it might be analogous to non-functional or “junk” DNA, which is “a DNA sequence that has no known biological function.” As I’ve heard it put, however, any social institution has endured because, at some point, it solved a problem. Markets are notable institutions because they make the signals and the solutions especially clear. Profits and losses take people’s ideas out of the world of speculation and into the world of verification. A hunch becomes more than a hunch: either it is authenticated as a good idea or rejected as a bad idea. Suppose a particular type of new toaster is profitable. In that case, it means that after we tally up all the “votes” people cast by spending or saving dollars, there are more votes for making the toaster than for using the necessary resources for something else. In a free market, the question, “Who decides?” has a simple answer. We each do, and in so doing, we all do.  In the 1930s, the economist W.H. Hutt popularized the term “consumers’ sovereignty” to describe the market process. Consumers are sovereign, Hutt argued, when they do not delegate to a centralized, coercive authority the power they exercise by buying or abstaining. He put it this way in his classic book Economists and the Public: A Study of Competition and Opinion: “The consumer is sovereign when, in his role of citizen, he has not delegated to political institutions for authoritarian use the power which he can exercise solely through his power to demand (or to refrain from demanding).” Hutt sometimes uses the singular, but the plural possessive “consumers’ sovereignty” is important. As he explains, the market is a genuinely social process. What emerges—a structure of prices—is something no one designed or intended, but that takes account of everyone’s voice. That’s cold comfort to people worried about inequality because some individual voices speak louder than others. Someone with ten times my income can “speak” ten times as loudly in a free market. However, there are far, far more people of relatively modest means than there are people of very high incomes. In aggregate, they command more purchasing power and speak as a louder chorus.  One of the great ironies of elite humanitarianism is the way people dismiss the “voice of the people” when it cries out loudly for things the elites don’t like, like Walmart Supercenters, action movies, and professional wrestling. What the people demand loudly, as measured by letting their money talk, however, is what the market will supply dutifully. When elites claim that the market doesn’t give the people what they want, their complaint is really that the market is all too happy to oblige unwashed masses who want the wrong things. Hutt argued that this illustrates the importance of tolerating bad taste. He equated it with religious tolerance. We might disagree with people and think them vulgar and base. But they have voices to which we should listen carefully, precisely because they are human and because those voices have important things to say about how the world operates—or should operate. In a society of free and equal people, consumers’ sovereignty means that people with refined tastes have to accept a lot of what they might consider chaff along with their cultural and commercial wheat. Money talks in all walks of life, or more accurately, people “talk” with their money. Money and prices translate people’s inchoate ideas and preferences into a meaningful “social will,” or at least something akin to it.  In the stage production of Les Misérables, we’re asked, “Do You Hear the People Sing?” Profit-seeking entrepreneurs can answer “yes.” When we rely on prices, profits, and losses to help us figure out what to produce and how, “the people’s”—i.e., the sovereign consumers’— messages come through loud and clear.   As an Amazon Associate, Econlib earns from qualifying purchases. (1 COMMENTS)

Discussions on what constitutes a “fair” (or just) price are quite old.  Classical market liberals will typically classify a fair price as any price that is voluntarily agreed upon by the parties in an exchange.  That’s all well and good, but I wonder how useful the concept of “fair price” is. First, a bit of technicality: while price and cost are related, the price of something and its cost are not the same thing.1  The cost of a thing is the highest-valued alternative individual must forego when making their consumption choice.  The price is the money outlay.2 For example, the price of a gallon of milk is $3.75.  But the cost of that milk is what was given up to acquire it (i.e., what the consumer would have done otherwise if they were not driving to the store, going to the dairy section, grabbing milk, checking out, and driving home). Cost, and subsequently price, arise out of the fact that we exist in a world of scarcity: there are limited resources and virtually unlimited wants.  These wants are often mutually exclusive, and the resources available cannot satisfy all the competing wants.  Thus, we necessarily must make choices, which subsequently involve costs.  And those costs imply prices when an exchange occurs. Because of scarcity, which is a condition of existence, we can say that, despite their subjective nature, cost and price are natural phenomena. In other words, they are caused by nature, even though they exist in the minds of humans.3 If cost and price are natural phenomena, do we get much purchase when we speak of a “fair” price?  Is it fair that the Mississippi flows for thousands of miles, enriching the lands around it while deserts remain parched?  Or, that in dry seasons, seawater starts to flow up the Mississippi, threatening the wildlife?  These are also natural events and things, yet we do not ascribe morality or a sense of “fairness” to them.  Why do so with prices? Activities like fraud or theft do suggest that “fairness” can be applied to price. But again, I am not sure it is a proper use of the word.  When we condemn the fraudster or con-man, we condemn the fraud, not the price.  It is the deception that is unfair, not the price per se. Price gouging legislation, like that in Louisiana, often appeals to fairness (or “appropriateness” as the Louisiana legislation describes) when determining if prices are gouging consumers.  But that seems to make no more sense than complaining about any sort of damage.  Is it “appropriate” that the winds ripped the roof off a building in a storm? In short, I understand the impulse to discuss a fair price.  But I think the fact that prices are tied to the human mind deceives us into trying to put a moral spin on them when really what we are morally judging is the action that led to the price. By the way, this post is experimental.  I’d love to see how you, Dear Reader, react to my argument here.  Please share your thoughts in the comments.   [1] [Distinguishing between prices and costs is also an old concern—in his Wealth of Nations, Adam Smith dedicated Book 1, Chapters 5 (Of the Natural and Market Price of Commodities, or of their Price in Labour, and their Price in Money), 6 (Of the Component Parts of the Price of Commodities), and 7 (Of the Natural and Market Price of Commodities) to teasing out the differences between value, price, and cost. These are interesting, but written before the emergence of marginalism. – Ed. Janet Bufton.] [2] Technically, the price would be whatever you use to make the exchange.  I am assuming money here, since we live in a money-based economy.  But it could be another commodity, for example, in the case of barter economies. [3] Costs are ephemeral and occur at the moment of choice (see Cost and Choice by James Buchanan, especially chapters 2–3 and “The Ruler” by G.F. Thirlby in The South African Journal of Economics, 14(4), 253–276).  Consequently, costs exist in the mind of the chooser; they are subjective, not objective.  The cost of an action will always be mental, but it is still a condition of nature.  Same with the evaluation of a price.  Relative prices influence choices, and the relevant relative price is determined by the chooser. (0 COMMENTS)

Quantitative, contrarian, and nuanced: these are the hallmarks of the Freakonomics approach. Hear journalist and podcaster Stephen Dubner speak with EconTalk’s Russ Roberts about the 20th anniversary of the popular-economics book Dubner co-authored with Steven Levitt. They discuss how the book came to be, how the journey changed Dubner’s life, and how it changed his […] The post Twenty Years of Freakonomics (with Stephen Dubner) appeared first on Econlib.

In the early 20th century, America was buzzing with Progressive Era reforms aimed at taming the excesses of industrialization. One landmark was the Pure Food and Drugs Act of 1906, hailed as a victory for consumer safety. It banned poisonous ingredients in food and drink, required accurate labeling, and cracked down on imitations. But when it came to whiskey, was it truly about protecting the public from deadly adulterants? Or was it a classic case of dirty politics, where special interests use government power to disadvantage competitors? Economists have long debated the origins of regulation through two lenses: public interest theory and public choice theory. Public interest theory sees regulation as a noble response to market failures like asymmetric information, where consumers don’t have the expertise to spot hidden dangers. Public choice theory, pioneered by scholars like James Buchanan and Gordon Tullock, flips the script: regulations often emerge from rent seeking, where powerful industry groups lobby for rules that boost their profits at the expense of consumers and competitors. Oftentimes, rent seeking is most successful when there is at least a semblance of a public interest concern to bolster the argument for regulation among those hoping to shape it. In my recent paper in Public Choice, coauthored with Macy Scheck, “Examining the Public Interest Rationale for Regulating Whiskey with the Pure Food and Drugs Act,”  we explore a case in which the historical evidence leans heavily toward the explanation offered by public choice theory. Straight whiskey distillers, who age their spirits in barrels for flavor, pushed for regulations targeting “rectifiers,” who flavored neutral spirits to mimic aged whiskey more cheaply. The rectifiers were accused of lacing their products with poisons like arsenic, strychnine, and wood alcohol. If true, the regulation was a lifesaver. But was it? Whiskey consumption boomed in the decades before 1906, without federal oversight. Sales of rectified whiskey were estimated at 50–90% of the market. From 1886 to 1913, U.S. spirit consumption (mostly whiskey) rose steadily, dipping only during the 1893–1897 depression. If rectifiers were routinely poisoning customers, you’d expect markets to collapse as word spread, an example of Akerlof’s “market for lemons” in action. No such collapse occurred.  Chemical tests from the era tell a similar story. A comprehensive search of historical newspapers uncovered 25 tests of whiskey samples between 1850 and 1906. Poisons turned up infrequently.  Some alarming results came from dubious sources, like temperance activists. One chemist, Hiram Cox, a prohibitionist lecturer, claimed to find strychnine and arsenic galore—but contemporaries debunked his methods as sloppy and biased. Trade books for rectifiers, which contained recipes, reveal even less malice. These manuals, aimed at professionals blending spirits, rarely list poisons. When poisons did appear, their use was in accordance with the scientific and medical knowledge of the time. Many recipe authors explicitly avoided known toxins, noting it was more profitable to keep customers alive and coming back. We examined home recipe books for medicine and food. We found that the handful of dangerous substances that were included in whiskey recipes were often recommended in home medical recipes for everything from toothaches to blood disorders. This suggests people, including regulators, did not know of their danger at that time.  Strychnine was found in niche underground markets where a small number of thrill-seekers demanded its amphetamine-like buzz, or in prohibition states where bootleggers had no viable alternatives. But rectifiers avoided it; it was expensive and bitter. What about reported deaths and poisonings? That is our final piece of evidence. Newspapers of the day loved sensational stories such as murders or suicides. Yet a keyword search for whiskey-linked fatalities from 1850–1906 yielded slim pickings outside of intentional acts or bootleg mishaps. Wood alcohol, which was listed in no recipes, caused the most issues, but often in isolated cases, like a 1900 New York saloon debacle where 22 died from a mislabeling.  Overall, adulterated whiskey was hardly a serious safety concern. Harvey Wiley, the USDA chemist who championed the Pure Food and Drugs Act, admitted under questioning that rectified ingredients weren’t inherently harmful—they just weren’t “natural.” His real motive? Rectified whiskey was a cheap competitor to straight stuff. Wiley’s correspondence, unearthed by historians Jack High and Clayton Coppin, shows straight distillers lobbying hard and framing regulation as a moral crusade while eyeing market share. President Taft’s 1909 compromise allowed “blended whiskey” labels but reserved “straight” for the premium, aged variety— a win for the incumbents. The lesson? Regulations are rarely the product of pure altruism. As Bruce Yandle’s “Bootleggers and Baptists” model explains, moralists (temperance advocates decrying poison) team up with profiteers (straight distillers seeking barriers to entry) to pass laws that sound virtuous but serve narrow interests. The Pure Food and Drugs Act may have curbed some real abuses elsewhere, but for whiskey, it was more about protecting producers than consumers. Cheers to that? Not quite.   Daniel J. Smith is the Director of the Political Economy Research Institute and Professor of Economics at the Jones College of Business at Middle Tennessee State University. Dan is the North American Co-Editor of The Review of Austrian Economics and the Senior Fellow for Fiscal and Regulatory Policy at the Beacon Center of Tennessee.  (0 COMMENTS)

Question: Russ buys 5 sirloins per week. True or false: If the price of sirloin rises by $5 apiece, and if Russ’ preferences and income remain constant, he will have $25 a week less to spend on other things. Solution: One of the first things I emphasize in my micro principles course is that the behavioral patterns we observe in the real world are shaped by prices. When prices change, so does behavior. This idea comes straight from consumer theory. In standard models, people maximize utility by consuming each good up to the point where the marginal value of one more unit equals its market price. When the price of a good rises—as in the example we’re considering here—the marginal value at the optimum must also rise. In this case, the marginal value at the new optimum must be $5 higher to match the new price of sirloin. Because marginal value falls as Russ consumes more sirloin, he can restore the equality between marginal value and price—the condition for his optimum—only by consuming less. Without more information about his income or preferences, we can’t say exactly how much less, but we do know that he will buy fewer sirloins than before. Thus, the statement in the original question is false: Russ will reduce his consumption of sirloin when its price rises, so it doesn’t necessarily follow that he has $25 less to spend on other things.   Once More, With Math We can also see this result by examining Russ’s budget constraint. Suppose Russ uses his income, M, to purchase sirloin, S, and a composite good we’ll call “all other goods,” Y. His budget constraint is therefore M=PSS+PYY Here, PS​ and PY​ denote the price of sirloin and the price of all other goods, respectively. The question tells us that the price of sirloin rises by $5, so his new budget constraint is M=(PS+5)S+PYY Since Russ’s income, M, and the price of other goods, PY,​ remain constant, the maximum amount of “all other goods” he could buy if he purchased no sirloin remains the same at M/PY​. In that sense, the maximum quantity of all other goods he can consume hasn’t changed. However, the slope of his budget line has changed: sirloin has become relatively more expensive, so the budget line pivots inward around that intercept. This change in relative prices reduces Russ’s feasible combinations of sirloin and other goods, prompting him to move to a new optimum with less sirloin and more of other goods. In this sense, Russ’s real income has fallen even though his nominal income remains the same. But because he reoptimizes—reallocating his spending between sirloin and other goods when the price changes—it does not follow that he has $25 less each week to spend on other goods. (0 COMMENTS)

…for the economy to function well, you don’t just need good property rights, you also need what we could call, somewhat vaguely, “economic freedoms.” You need labor mobility; you need to get rid of guilds; you need to get rid of monopolies, both local and global; you need to get rid of all kinds of regulations; and above all, you need free trade.  And if you don’t have that, you’re going to end up in a society that will not be able to grow. —Joel Mokyr1 The usual case for free trade is not the best case for free trade.  The usual case is based on static efficiency, meaning making better use of a fixed set of resources.  Economists use the term comparative advantage to describe how, if humans choose to specialize and trade with one another, each can end up better off than if they produce everything for themselves. But trade has an even more important role to play in what economists have come to call dynamic efficiency, which is the ability of an economy to exploit innovation and increase living standards over time.  This dynamic efficiency is a central concern of the economists who shared the 2025 Nobel Prize:  Philippe Aghion, Peter Howitt, and Joel Mokyr. Aghion and Howitt explored the process that Joseph Schumpeter famously labeled creative destruction.  One hundred years after Schumpeter, we see that process all the time in the realm of computers, communications technology, and software.  Mainframe computers were displaced by personal computers and the Internet, landline phones were displaced by smartphones and cellular communication, and artificial intelligence now threatens to upend many industries. Mokyr was recognized for his study of economic history, particularly the Industrial Revolution.  He pointed out that technology improves through a virtuous cycle in which practical inventions inspire curiosity, leading to scientific discovery, enabling improvements to practical inventions.   Mokyr also emphasized how the process of innovation and growth can be stifled by protectionism. It is dynamic efficiency that is stymied when barriers to trade are erected.  That is an important lesson that today’s policy makers seem reluctant to learn. For our  2011 book, Invisible Wealth,2 Nick Schulz and I were fortunate to be able to include an interview by Nick with Mokyr, as well as interviews with other proponents of dynamic efficiency, including Douglass North, Robert Fogel, and Paul Romer.  Given his recent recognition with the Nobel Prize, the themes from that interview are worth revisiting. Mokyr argues that the Enlightenment included a rebellion against economic protectionism.   I argue in my book that one of the things that happens in eighteenth-century Europe is a reaction against what we today would call, in economic jargon, “rent-seeking,” and that this, to a great extent, is what the Enlightenment was all about…It was about freedom of religion, tolerance, human rights—it was about all of those things. But it was also a reaction against mercantilism… Adam Smith isn’t, you know, as original as people sometimes give him credit for…All these people were saying essentially the same thing: we need to get rid of guilds, monopolies, all kinds of restricted regulatory legislation.  And above all, you need free trade, both internal—which Britain had but the Continent did not—and international…. …when you look at the few places in Europe where the Enlightenment either didn’t penetrate or was fought back by existing interests, those are exactly the countries that failed economically.  You think of Spain and Russia, above all.  (p. 119–120) Mokyr argued that ideas spread through the circulation of people. Much of the communication about technology is in fact through personal transmission…You can only learn so much from books, even now.  (p. 122) Tacit knowledge is acquired in person. Mokyr warned that protectionist interests always lurk within a prosperous society. Looking back at the record, it is quite clear that nobody has held technological leadership for a very long time. The reason for that is primarily that technology creates vested interests, and these vested interests have a stake in trying to stop new technologies from kicking them out in the same way that they kicked out the previous generation…And they have all kinds of mechanisms.  One is regulation, in the name of safety or in the name of the environment or in the name of protection of jobs.  They will try to fend off the new to protect the human and physical capital embedded in the old technology.  (p. 123) Without the pressure of international trade, an industry can stagnate. Let’s look at the American automobile industry in the 1950s.  Absolutely zero technological change…in the late 1960s they were still making things like the Vega and the Pinto, which were the worst cars ever made… But then something happened: the Japanese showed up…the Japanese made better cars from better materials.  They made them cheaper.  The cars lasted longer. And guess what? Today’s American cars are far, far better than they were in the late 1950s to early 1970s—not because Americans couldn’t have done it earlier, but because openness forced them to do it. (p. 126) Today in America, many politicians are listening to the siren song of the restrictionists.  Industrial policy, which means protectionism, is popular.  Globalization and neoliberalism are bad words.   But if the past is any guide, anti-globalization is going to degenerate into crude special-interest politics.  Instead of dynamic efficiency, we will end up with economic stagnation.  The 2025 Nobel Laureates can remind us of that.   [1] Quoted from an interview in Arnold Kling and Nick Schulz, Invisible Wealth, p. 119. [2] Invisible Wealth was originally published in 2009 as From Poverty to Prosperity As an Amazon Associate, Econlib earns from qualifying purchases.  (0 COMMENTS)

The conclusions we reach about the world are, to a large extent, influenced by our underlying intuitions. Various writers have discussed how our immediate sense of how the world works has a huge influence on how our worldviews develop.  Thomas Sowell’s A Conflict of Visions posits that there are fundamentally different “visions” about the world that drive the differing worldviews we see. Following Joseph Schumpeter, Sowell defined a vision as a “pre-analytical cognitive act”—a sense of how things are prior to deliberate consideration. People who naturally hold what he called the constrained vision (or, in later works, the tragic vision) have very different reactions to the world from those who hold what he called the unconstrained vision (or the utopian vision).  Knowing someone’s intuitive framework could explain a lot about how they evaluate different questions of public policy. One’s initial reaction to hearing about  “click-to-cancel” regulation seems like a useful way to gauge overall instincts regarding regulation. Some businesses make it very easy to sign up for services, and very time-consuming to stop paying. The easiest example is fitness centers. I once had a membership at a gym where you could sign up for a membership online in about thirty seconds, without ever setting foot in the facility. But canceling a membership required first a notification through the website or app, then coming in person to the facility with a handwritten statement declaring your desire to end your membership, and then your membership would be canceled after the end of the next billing cycle. I’ve seen some people speculate that this is how Planet Fitness stays in business while only charging $10 a month for a membership. They make it easy for people to join in a moment of inspiration (I’m sure New Year’s resolutions cause a jump in membership), and they make it a hassle to close your membership. Because the membership is so inexpensive, it’s also easy to overlook. People can go years before they finally jump through the hoops to cancel an unused membership.  The click-to-cancel rule would prohibit these arrangements. Under such a regulation, if the business provides a way to join with low transaction costs, they must provide a way to cancel with equally low transaction costs. Here are three reactions people might have after hearing about this regulation: I’ll call the first reaction a classical welfare economics perspective. To the textbook welfare economist, economic policy should improve economic outcomes by streamlining and optimizing economic arrangements. Negative externalities should be taxed. Positive externalities should be subsidized. Transaction costs should be minimized because they often prevent efficient outcomes. These kinds of contracts, it is argued, create unnecessary transaction costs. Therefore, a click-to-cancel rule would have the effect of lowering transaction costs, which in turn will tend to bring about more efficient outcomes. Thus, this regulation would be welfare-enhancing. Seems like a good idea. But it’s not so simple.  Martin Gurri expressed concern with this optimization mindset in his book The Revolt of the Public: Our species tends to think in terms of narrowly defined problems, and usually pays little attention to the most important feature of those problems: the wider context in which they are embedded. When we think we are solving the problem, we are in fact disrupting the context. Most consequences will then be unintended. The second reaction is more cautious. It is inspired by the type of thinking often associated with Hayekian economics, but is also in the work of economists like Vernon Smith. This mindset sees the economy not as an optimization problem but as an unfathomably complex ecosystem. We can know general conditions that allow the ecosystem to grow and thrive, like property rights and freedom of contract. But attempting a targeted intervention to bring about a specific result is a bit like trying to eliminate a pest from an ecosystem by introducing a new predator. You’re not simply adjusting a static variable with no further effects. You’re interacting with an adaptive ecosystem.  The Hayekian perspective encourages those who share it to point out that there’s always been an option for gyms to compete against other gyms by making it easy to cancel a membership. If customers want it and entrepreneurs could provide it, but that arrangement isn’t offered, it reveals something. We can interpret this as a sign that this seemingly obvious problem-and-solution combination isn’t as simple as it appears. Here’s where the caution comes in: If things are more complicated, tread lightly.  The third reaction is a harder-libertarian take based on freedom of association and the associated freedom of contract. This reaction is one against interfering with a private agreement. As long as the terms for signing up and leaving are clearly stated in the contract without fraud, and people willingly sign, then that is that. Whether or not it would be welfare-enhancing to forbid these arrangements is beside the point. Nobody has any right to try to force a change in the terms of that contract, or to tell people they can’t draw up and sign such contracts if they so choose. End of story. Which of these reactions, dear reader, most closely describes your initial impulse regarding the click-to-cancel rule?   As an Amazon Associate, Econlib earns from qualifying purchases. (0 COMMENTS)