Neuroscientist and author Sam Harris of the podcast Making Sense talks with EconTalk’s Russ Roberts about rising Jew-hatred in the West and what Harris sees as the dangers of radical Islam and Jihadism. The post Sam Harris on Jew-Hatred, Radical Islam, and the West appeared first on Econlib.

House Budget Committee Seeks to Reform Emergency Spending as Senate Prepares to Raid Rainy Day Funds by Romina Boccia and Dominik Lett, Cato at Liberty, July 24, 2024. Excerpt: The Senate is ready to raid the figurative emergency rainy day fund again. As we highlighted in a recent Debt Digest, Senate Appropriations Chair Patty Murray (D‑WA) and Vice Chair Susan Collins (R‑ME) have reportedly struck a deal to increase fiscal year (FY) 2025 discretionary spending by $34.5 billion by designating some ordinary spending as emergency funding. This is a common trick legislators employ to get around spending limits when sticking to a budget seems too politically difficult. Over at the American Enterprise Institute, Jim Capretta has pointed out how Congress has already fully reversed all of the $1.3 trillion in 10-year savings from the June 2023 Fiscal Responsibility Act (as scored by the Penn Wharton Budget Model) when it included emergency designations in FY 2024 funding bills and passed the unpaid-for Ukraine-plus foreign aid bill.   Home-Based Businesses Win Relief From Regulators by J.D. Tuccille, Reason, July 26, 2024. Excerpt: Recent years have seen a renewed surge in new small business start-ups after decades of slowing entrepreneurialism. Spurred by pandemic-era closures of large employers and in need of side hustles in the era of a higher cost of living, Americans are eager once again to be their own bosses. Standing in the way, though, are local regulations that often make it difficult to launch businesses out of private homes, where most startups are born. Fortunately, some localities are slowly getting out of the way. (italics in original)   The FTC Goes Evidence-Free by Joel Zinberg, Wall Street Journal, July 23, 2024. In this report, which addresses pharmacy benefit managers, the FTC argues that “amidst increasing vertical integration and concentration,” PBMs “may be profiting by inflating drug costs and squeezing Main Street pharmacies.” The qualifier “may” appears throughout the report, signaling a lack of empirical evidence and analysis to support its conclusions about PBMs. In fact, many studies, including several by the FTC itself, contradict those conclusions. PBMs are private businesses that manage prescription drug benefits on behalf of insurance-plan sponsors. They negotiate with drug manufacturers and pharmacies. Manufacturers trade lower prices for formulary access and more sales. Pharmacies trade discounts and increased retailing requirements for favorable placement in plan networks and more customers. This selective contracting allows PBMs to obtain rebates and discounts that lower drug costs. It also allows them to encourage the use of drugs that are cheaper (such as generics), more effective, or both. While plan sponsors aren’t required to contract with PBMs, most do, suggesting they value PBMs’ services. My own study for the Competitive Enterprise Institute, as well as studies by University of Chicago economist Casey Mulligan, found that PBMs foster competition that lowers drug costs. Mr. Mulligan estimates that PBMs produce at least $145 billion in annual value to society beyond their resource costs. The whole op/ed is gated.   Effects of the Immigration Surge on the Federal Budget and the Economy Congressional Budget Office, July 2024. Excerpt: The increase in immigration boosts federal revenues as well as mandatory spending and interest on the debt in CBO’s baseline projections, lowering deficits, on net, by $0.9 trillion over the 2024–2034 period (see Table 1).2  Some of the effects on the budget result from the increase in the number of people paying taxes and collecting federal benefits. Other budgetary effects stem from changes in the economy over that period that are brought on by the surge, including increases in interest rates and in the productivity of workers who are not part of the surge. Venezuela: How Monetary Mismanagement Contributed to Maduro’s Weakness by Daniel Raisbeck, Cato at Liberty, July 26, 2024. Far less speculative are the root causes of Maduro’s current predicament. It is thus fitting to ask how the once-formidable Chavista regime, which was so certain of its grip on power that it attempted to export its revolution aggressively across the region, ended up with its back against the wall on its home turf, even in Hugo Chávez’s old regional strongholds. The following graphs, pertaining solely to inflation and currency devaluation, will provide some hints.   (0 COMMENTS)

“Triangle Man” is now 100 years old. Long-time University of Chicago economist Arnold Harberger turned 100 years old today. Unless I am mistaken, he is still going relatively strong, even in the classroom. The Wikipedia article on some of Harberger’s accomplishments is actually quite good and so I won’t try to restate them. Rather, I’ll tell 3 stories about my interactions with, and observations of, Al. Number one: I first met Al at a cocktail party at the home of my colleague Ron Hansen in the late 1970s when I was a young assistant professor of economics at the University of Rochester’s Graduate School of Management (now the Simon School.) To me he was already a god because of ability to use basic price theory to reach important conclusions. But he didn’t act like a god. He was a normal and very welcoming human being. Number two: When I was at the Cato Institute in 1979, Al helped me with data for an article that my friend Roy Childs was writing. Here are the details. Number three: While the Chatham House rule applies to proceedings at the Mont Pelerin Society meetings, I can hue to the spirit of the rule in telling this story without naming names. At one of the events at the MPS meetings at the Hoover Institution in January 2020, there was a breakfast, if I recall correctly, at which Al spoke; he talked about what was going on in Chile. In the 1970s and later, Harberger had been very important, much more important than Milton Friedman, in helping move Chile’s economy in a free-market direction. I discuss his role very briefly in my review of Sebastian Edwards’ excellent 2023 book, The Chile Project: The Story of the Chicago Boys and the Downfall of Economic Liberalism.  (I would guess that his support of the Chicago Boys, even though he didn’t support Pinochet, is one reason he never was awarded the Nobel Prize in economics.) He had a long and tender relationship with various “Chicago Boys” from at least two generations and it was apparent in the way they questioned him and, to put it bluntly, showed their love for him. If you’re wondering why I call him “Triangle Man,” check out this link. It’s a nice extensive and understandable treatment of Harberger’s classic 1954 article in the American Economic Review, “Monopoly and Resource Allocation.” Economists had been stating for decades that monopoly caused deadweight loss but he was the first to try to estimate the size of the deadweight loss. Harberger found that, for U.S. manufacturing, it was unlikely to be above 0.1 percent of GNP. (Gross National Product was the conventional measure of the size of an economy at the time.) There are, to be sure, various criticisms of his argument and estimate. The point is that he did it and no one before him had done so. The deadweight loss from monopoly is typically measured by a triangle. Thus the nickname, one which was used in various skits put on by University of Chicago students and one that he wore proudly. Note: The pic above is of Al Harberger and me after his breakfast talk. (0 COMMENTS)

Julius Probst directed me to this interesting map: When looking at a graph, I often find it useful to consider more than one factor.  In this case, I see evidence of three independent factors at work: 1. Densely populated places are more expensive. 2. Fast growing places are more expensive. 3. Heavily regulated places are more expensive. Let’s consider these one at a time.  California and the Northeast corridor (DC to Boston) are both well above average in terms of median home prices.  But there are also some anomalies, such as the above average prices in much of the mountain west.  Even thinly populated states such as Nevada and Montana are relatively expensive, at least compared to midwestern states such as Illinois, Michigan and Ohio, which are far more densely populated. In recent years, the mountain west has experienced significant population growth, while the industrial midwest has had a stagnant population.  This probably explains why the more sparsely populated west is more expensive than the midwest, and also some other interesting pairs of states, such as Texas/Oklahoma, Tennessee/Kentucky, and Georgia/Alabama, where in each case the faster growing state is more expensive. Once again, however, there are some anomalies.  Some of America’s fastest population growth is now occurring in the southeast (Florida to the Carolinas), Texas and Tennessee.  And yet these states are still considerably cheaper than the mountain west, despite a denser population.  What’s explains that difference? I suspect that regulatory barriers to building are tighter in many parts of the mountain west.  This might partly reflect different attitudes toward zoning, but also the fact that much of the land in the west is owned by the federal government.  Even cities such as Las Vegas and Phoenix, which seem to have limitless land on their borders, are somewhat hemmed in by federally owned land or Indian reservations. It’s widely known that regulation in California is driving up housing costs, and that this is driving people to seek places with a lower cost of living. Because the mountain west is growing at a fairly good clip, one might be tempted to assume that these states do not face the same problems as California.  But the fact that places like Colorado, Utah, Montana and Washington are far more expensive than Texas or the Carolinas leads me to believe that housing policies in western states are reducing population growth.  Many younger Americans are probably choosing Charlotte, Nashville or Jacksonville over places like Denver, Salt Lake City or Seattle not because they prefer those locations, rather because housing costs make their desired location prohibitively expensive.  In a truly free market where the federal government sold off its land, I suspect the mountain west would be growing even faster than Texas and the southeast. PS.  The mountain west may also have a newer housing stock than the midwest, which may explain part of the discrepancy. (0 COMMENTS)

Late last May, OpenAI CEO Sam Altman testified before the Senate Judiciary Committee on the ascendant technology of generative AI. The putative motivation for Altman’s attendance at the Senate hearing was to allay congressmen’s concerns emanating from a combination of ignorance and Matrix-Terminator-Robocop dystopian fiction. The actual motivation was a combination of protectionist concerns for the technology’s negative distributional for domestic labor markets, the dissemination of misinformation, and outrage that technology outpacing the administrative state’s regulatory apparatus.  Though congressional treatment of tech firms is often antagonistic, as exemplified by Senator Josh Hawley’s (R-Mo.) belligerent treatment of Google CEO Sundar Pichai, the relationship between corporations and the state is usually one of mutual parasitism—with consumers as the host organism. Given Altman’s supplications for regulation—including a recent call for an international AI regulatory agency—private meetings with Senators, and dinner with House members, it should surprise precisely nobody that he found “a friendly audience in the members of the subcommittee” for privacy, technology, and the law.  Altman was practically courting policymakers for protection, albeit under the guise of concern for the commonweal. The former president of YCombinator has no excuse for such handwaving vagaries as “‘if this technology goes wrong, it can go quite wrong.’” If Altman has specific concerns that genuinely concern the public, he should have articulated them straightforwardly.  Though OpenAI was founded as a nonprofit in 2015, it became a capped for-profit in 2019. There is nothing ipso facto wrong with changing to a for-profit model. OpenAI required massive amounts of capital to afford tens of thousands of H100 GPUs (~$40k per GPU), attracting talent, and tens of millions of dollars to train its large language model, ChatGPT. In order to afford these expenses, OpenAI needed to attract shareholders, talent—including from startups like Inflection and Adept—and strategic investments from corporate competitors the way all firms do: with the promise of higher discounted future returns.  The result? A particularly user-friendly generative AI accessible for free to the public.  Nevertheless, since OpenAI is in the (constrained) profit-maximizing business, it is subject to the perverse incentive to achieve rents—and returns for its shareholders—through regulatory capture. Instead of maintaining  high profit margins through costly, relentless innovation and iterative improvements of ChatGPT, OpenAI can reduce the number of firms entering the market by government fiat. The proposal advocated by Altman at the hearing? Per New York Times reporting, “an agency that issues licenses for the development of large-scale A.I. models, safety regulations and tests that A.I. models must pass before being released to the public.” Read: Hurdles, obstacles, and barriers to entry.  The capital investment makes market entry difficult; regulatory capture makes it virtually impossible.  As Don Lavoie avers in National Economic Planning: What Is Left? (1985), central planning was “nothing more nor less than governmentally sanctioned moves by leaders of the major industries to insulate themselves from risk and the vicissitudes of market competition.” Regulation is merely central planning’s less ambitious corollary: in the words of Lavoie, a means for the corporate elite “to use government power to protect their profits from the threat of rivals.”  For more on Don Lavoie and an incisive analysis of his contributions to the Knowledge Problem, we refer the reader to Cory Massimino’s piece for EconLib.  In reality, OpenAI has adopted both of these strategies; it is profiting from the first-mover effect of its research and development efforts and, more recently, OpenAI has also entered a partnership with Apple to bundle ChatGPT with services like Siri, leveraging the incumbent firm’s pre-existing network of devices and apps. At the same time, OpenAI is attempting to maximize rents through regulatory capture. Though all strategies  reduce allocative efficiency, the first two are dynamically efficient while the latter is not; the two  increase total surplus and the third destroys it.  One would think that the current Neo-Brandeisian FTC regime would sound the alarm about such an obvious bid to restrict market entry and facilitate collusion—the staff in the Bureau of Competition & Office of Technology even released a statement, “Generative AI Raises Competition Concerns.” Unsurprisingly, though nevertheless unfortunately, the regulators do not articulate a single concern about collusion aided and abetted by government intervention.  Go figure! As AI proceeds apace, Luddism increases, and Congress holds more hearings on regulation, we should regard the purported public lashings with a wary eye to the all-but inevitable regulatory capture to follow.   Samuel Crombie is the co-founder of actionbase.co and a former Product Manager at Microsoft AI. Jack Nicastro is an Executive Producer with the Foundation for Economic Education and a research intern at the Cato Institute. (0 COMMENTS)

Part 3: Declining Inequality This is part three of three-part series. In part one of this series, I discussed different kinds of inequality and which ones we should be concerned about. In part two of this series, I discussed measuring inequality. You can find part two here.   There is a widespread but mistaken belief that the tremendous progress across a range of metrics has coincided with increasing global inequality, but in fact the data in the Inequality of Human Progress Index (IHPI) created by myself and Vincent Geloso unambiguously show a decline in global inequality. That’s true on a variety of metrics, including income inequality, education inequality, and most important, overall inequality. In fact, across all but two of the dimensions of inequality that we analyzed, the world has become more equal since 1990. Worldwide equality has grown continuously since 1990 for life expectancy, internet access, and education. Equality of political liberty has similarly improved almost continuously since 1990, although there has been a slight and troubling downturn in recent years. That recent reversal does not cancel out the long‐​term trend of widening access to political liberty but is a reminder that progress is neither inevitable nor irreversible. Political freedom can be lost if not safeguarded. Globally, incomes became less equal until the mid‐​2000s, but income equality has improved considerably since then. As for adequate nutrition, the trend line has been erratic, with a turn toward greater inequality in the early- to mid‐​2000s. Yet the long‐​term trend has been one of appreciable gains in nutritional equality, as access to an adequate food supply becomes more common around the world. What about the two exceptions? Two indicators in the index show trends toward more inequality: mortality resulting from outdoor air pollution and infant mortality. Regarding air pollution deaths, they may be a result of economic growth in progress. Economists talk about this with references to the environmental Kuznets curve (created by Simon Kuznets), which predicts that pollution rises along with economic growth until reaching a critical threshold beyond which pollution decreases. The growing disparity in outdoor air pollution deaths may indicate that some countries are in the midst of this transition. Those developing countries will almost certainly experience gains in environmental quality similar to those seen in today’s rich countries as they, too, grow richer. Regarding infant mortality, it is important to remember that in absolute terms, infant mortality has fallen around the world. The growing inequality in infant mortality outcomes could be attributed to the fact that reductions in child mortality in high-income countries have outpaced those in low-income countries since 1990. While infant mortality has, again, decreased globally as more and more children survive past their first year of life, advancements since 1990 appear to have simply occurred relatively faster in high-income nations with access to cutting-edge medical technologies. These exceptions are important but our most significant finding is that overall inequality is down. In fact, when compared with inequality trends in prior indexes of inequality, which surveyed fewer dimensions, the IHPI shows a far greater degree of improvement toward global equality. This result suggests that older indexes tended to underestimate how widespread progress has been, as well as the share of improvements in living standards that have gone to the poorest people in the world. Global equality has grown faster than many appreciate. In Adam Smith’s day, for each very rich man, there were at least 500 poor ones. Inequality was extreme. The wealth explosion since then has made even ordinary people today rich beyond the wildest 18th century dreams. In the past few decades, the world has become better off, and those gains have been widely shared. Increasing public awareness of the global decline of inequality may bolster support for the systems of free enterprise and liberalized international trade that Smith advocated and that have brought absolute poverty to record lows and made humans across the globe more equal.   Want more? Nils Karlson, Is Inequality a Problem? a review of The Poor and the Plutocrats at Econlib Angus Deaton on Health, Wealth, and Poverty at EconTalk Kerianne Lawson on Equal Economic Freedoms at The Great Antidote (with a Great Antidote Extra by Kevin Lavery)   Chelsea Follett is the managing editor of Human​Progress​.org, a project of the Cato Institute that seeks to educate the public on the global improvements in well‐​being by providing free empirical data on long‐​term developments. (0 COMMENTS)

The observation of social phenomena, sometimes apparently innocuous ones, can help confirm theories of society or invalidate them. I found an interesting story about residential generators in Kris Frieswick, “Your Generator Is Noisy as Hell. But Your Neighbors Don’t Have to Hate You for It,” Wall Street Journal, July 18, 2024. A residential generator is useful during a power outage, and close to essential if you are working from home. Properly speaking, no single good is literally “essential” as substitution possibilities always exist. One can bring his laptop to work in whatever coffee house or eating joint that still has power and offers power outlets. But for many, nothing beats a residential generator. Indeed, many American households own one, portable or standby. Those who don’t obviously made different choices, for a number of reasons revolving around personal preferences, prices, and incomes. Not many households in America would find it very difficult to sacrifice some other consumption goods, services, or activities to purchase one, even if its connection to the house electric system will add at least $1000. Most people elsewhere in the world don’t have these opportunities, and it is not because of capitalist exploitation! In rich countries and places with high population densities, residential generators are sometimes difficult to use. I suppose that most landlords do not accept generators on apartment balconies. They remain useful in isolated areas and in neighborhoods of single-family houses or duplexes. One problem, which is the topic of the WSJ story, is that the noise of a running generator may annoy neighbors. Perhaps envy reduces the tolerance of those who are stuck in dark houses with no heat (or air conditioning), and no power for the freezer, dishwasher, and so forth. But in a free or more or less free society, a generator’s owner will reason that he is on his own property; his neighbors will normally understand that too. The noise can be considered an externality (perhaps) if outages happen often or when they last a long time. Otherwise, it will not be unexpected—contrary to, say, mowing the lawn at night, which would be a real nuisance. Moreover, except if your neighbors are really close or live in a tent, the noise is supportable, even for the generator’s owner who hears it from much closer. We see that private property accomplishes its function of minimizing conflicts and facilitating life in society. In my Maine suburb, it would be surprising if a neighbor complained about a generator’s noise during a power outage. In fact, I had never heard about this possibility until I read the WSJ story. Now, if some neighbors are upset, the generator owner can compensate them, even if indirectly; The journalist writes: Lastly, work some bribery! During outages, offer to refrigerate your neighbors’ frozen steaks and ice cream. Put a power strip on your deck so people can charge their devices. Share your wifi password. In prolonged outages, give away ice. Have a movie night. The longer the outage, the more valuable these gestures will become. If the outage goes on long enough, your neighbors may grow to enjoy the sound of your generator, knowing they can sign into your wifi and download some eps of “Frasier.” What is interesting with these suggestions is that they represent normal behavior in a commercially-minded and free (or rather more than less free) society, where everybody is accustomed to free exchange and voluntary cooperation. When it breaks no contract or major convention, a “bribe” works just like the price in an ordinary exchange. (On conventions, see Anthony de Jasay’s Against Politics, especially Chapter 9.) Similarly, we can view every price in an exchange without fraud as an honest bribe. A bribe is more civilized and more efficient (in the economic sense) than a jail or fine threat or a boot kick. (0 COMMENTS)

The US economy has never had a soft landing. It is possible that we are about to have one. If so, it will likely be due to the fact that a massive surge in immigration has provided a big soft pillow for the economy to land on. [Note: I will not address the question of whether this immigration is good in any overall sense, just the impact on the macroeconomy.]Some of the recent economic data is about as bizarre as I’ve ever seen:Q2 NGDP up 5.2% annual rate, 5.8% over 12 monthsQ2 RGDP up 2.8% annual rate, 3.1% over 12 monthsAnd yet the household survey suggests that fewer that 200,000 net new jobs have been created over the past 12 months. That makes no sense. The real GDP data says we are in a major boom, and the household survey of employment suggests we are barely avoiding a recession. What gives?The answer seems to be immigration. The household survey is not picking up the surge in immigration, many of whom are undocumented. But the government’s payroll survey of employment is picking up the immigrants, and shows a very large 2.6 million increase (1.67%) in net new jobs over the past 12 months. That data is roughly what you’d expect with the 3.1% RGDP growth.The payroll survey has always been viewed as more accurate than the household survey for short run changes in employment, but I don’t ever recall seeing such a huge discrepancy. This discrepancy coincides with a historically large surge in immigration. Yesterday, Bill Dudley had a Bloomberg piece suggesting that “The Fed Needs To Cut Rates Now”.  Here are a few of his arguments: Slower growth, in turn, means fewer jobs. The household employment survey shows just 195,000 added over the past 12 months. The ratio of unfilled jobs to unemployed workers, at 1.2, is back where it was before the pandemic. Most troubling, the three-month average unemployment rate is up 0.43 percentage point from its low point in the prior 12 months — very close to the 0.5 threshold that, as identified by the Sahm Rule, has invariably signaled a US recession. As I suggested, I think the household figures are simply wrong.  I am a big fan of Sahm’s Rule, however, and indeed once developed a cruder version of this idea in an old blog post.  But in most cases, rising unemployment is triggered by a fall in labor demand.  In this case, a huge surge in labor supply seems to explain the uptick in unemployment (to a rate that is still low in absolute terms.)  Nonetheless, I would be concerned if unemployment rose up to 4.5%. I do not offer opinions on where the Fed should set interest rates.  But I see no need for the Fed to ease monetary policy, as NGDP growth is still excessive, even accounting for labor force growth.  So monetary policy is not currently too tight, at least based on recent macro data and the implied predictions in various asset markets (especially stocks.) Please do not take this as a statement that I am opposed to lower interest rates.  It is likely (but not certain) that interest rates will have to fall at some point over the next 12 months, if only to keep the stance of monetary policy roughly neutral.  Again, interest rates are not monetary policy. A Fed anti-inflation program during a period of low unemployment normally produces a recession.  Not usually, it always produces a recession within a few years.  If it doesn’t happen this time, it will be our first soft landing. [Note:  The media often applies the term “soft landing” to something like the mid-1990s, a period of rising and then falling interest rates with no recession.  I am using the term for a sustained period of cyclically low unemployment without rising inflation.  Say at least three years.  We’ve never had that, although without Covid we probably would have.  We are about 9 months away from me declaring this to be America’s first soft landing.  (Will Trump or Harris be able to take credit?)] If we do achieve this sort of result (which is not that uncommon in other countries), we need to consider how it happened.  In my view, it would be due to a mix of luck and skill.  The skill would be the Fed’s ability to slow NGDP growth at a steady rate, without overshooting in either direction.  In retrospect, money clearly should have been tighter in 2022 and 2023, as there was an outright labor shortage.  But it’s hard to be too critical when they seem to have inflation moving in the right direction, albeit too slowly.  On the other hand, I am extremely critical of the Fed’s highly inflationary policy of 2021-22. The luck part is the surge in immigration.  Consider the 5.8% NGDP growth over the past year.  Prior to Covid, the Fed estimated the economy’s trend rate of growth at 1.8%.  Thus you’d expect 5.8% NGDP growth to deliver roughly 4% inflation.  If inflation were still that high, the Fed would be under pressure to slam on the breaks, risking recession.  Instead, 12-month PCE inflation is down to 2.6%, mostly due to the fast growth in RGDP, caused by the surge in employment.  With inflation getting close to the 2% target, the Fed believes it can afford to be patient. I would encourage people to be wary of pundits warning that money is too tight.  Both inflation and NGDP growth are still excessive.  Anecdotes about this or that sector of the economy don’t tell the whole story—the overall economy is still booming and the markets are optimistic.  I don’t see persuasive evidence that money is too tight. PS.  Also be skeptical of people who say “Inflation would be only X is we adjusted for Y”.  NGDP confirms that underlying inflation is still too high.  Cherry-pickers want to only throw out the misleading data points that help their argument, not the misleading data points that hurt their argument. (0 COMMENTS)

In this Future of Liberty discussion, Governor Mitch Daniels interviews Philip Hamburger, legal scholar and founder of the New Civil Liberties Alliance, about the administrative state. The two agree that federal agencies have committed at least two sets of sins. First, they have unduly and unnecessarily violated the rights of citizens, and second they have done so on shadowy constitutional grounds.  Professor Hamburger attributes the rise of the administrative state to two intertwined factors. First, Congress has a strong political incentive to over delegate—especially  when it comes to politically risky details—and in doing so it unconstitutionally relinquishes legislative authority to bureaucrats. And second is a Progressive ideology that worships centralized, uniform administration and a larger role for government. By the turn of the twentieth century, these two factors would conspire to set the stage for the rise of the administrative state. A ray of hope has recently broken through. The Supreme Court’s reversal of the Chevron doctrine has drawn intense attention to the issue of judicial deference. What will be the actual effects of closing the Chevron deference door? Only experience will tell. If economic history provides a clue, it’s that human systems tend to adapt whenever institutional rules get rearranged. Bureaucrats are no exception. So, closing Chevron deference might not alter the balance of power—it will depend on how agencies adapt to new ways to do things. (See Lynne Kiesling’s take on the new incentives post Chevron.) Nor is the classical liberal grass necessarily much greener before the courts, which also have a history of trampling on economic rights. Most notoriously, 1938’s US v. Carolene Products relegated economic rights to the lowest priority for judicial review. Under 2005’s Kelo v. New London, courts defer to local majorities for the proper scope of eminent domain. And in 1992’s Lucas v. South Carolia Coastal Council, regulation does not count as a taking unless it destroys virtually the entire value of a property. The list goes on (see The Dirty Dozen by Bob Levy and Chip Mellor). Reining in judicial deference might move us out of the constitutional shadows, but there seems little to guarantee it will improve rights protection. How did we get here? Hamburger attributes the rise of the administrative state to an American form of classism, whereby Progressive elites foist their good intentions and faith in government on everyone else via the state’s monopoly on force. This certainly jibes with a disturbing 2023 Rasmussen poll showing stark contrasts between elite and mass opinion on economic, social, and political issues.  Yet, we would be remiss to neglect the forces of populism. A running theme in the work of James Buchanan is that Leviathan is us, and Big Government is ultimately the result of self-government. “When we speak of controlling Leviathan we should be referring to controlling self-government, not some instrument manipulated by the decisions of others than ourselves. Widespread acknowledgment of this simple truth might work wonders. If men should cease and desist from their talk about and their search for evil men and commence to look instead at the institutions manned by ordinary people, wide avenues for genuine social reform might appear.” (The Limits of Liberty, p.188) It is on Main Street and the kitchen table, not just on K Street and the administrative law bench, where the buck stops.   Edward J. Lopez, is Professor of Economics at Western Carolina University, Executive Director of the Public Choice Society, and author of numerous articles and books including Madmen, Intellectuals, and Academic Scribblers. (0 COMMENTS)

For all those who have taken an economics course, you’ve no doubt heard plenty about market failure. I suspect you’ve heard relatively less about government failure. Part of the allure of the public choice tradition for me has always been its very clear explication of the latter. But in this episode, leave it to perennial favorite Mike Munger to put a wrinkle in my contemplative ease. For starters, Munger places the earliest public choice insights well before the typical story (it even includes Pigou!). Munger describes the history of the concept of market failure as resulting from the quest to explain large fluctuations in aggregate economic activity. While economists of the time believed letting markets and the price system work would alleviate such “failures,” they wondered if there were interventions that might shorten this time period. As host Russ Roberts puts it well, “Can the government outperform the private sector, either by taking on some of its tasks or by improving, by intervening, by regulating, subsidizing, taxing, the choices that would emerge from a market private choice, a set of private activities?” We hope you’ll join us in digging into this tangled history, and we hope you’ll share your thoughts with us today.     1- For starters, why do YOU think laissez-faire is so difficult for politicians- and citizens!- to accept?   2- Why does Munger believe that Arthur C. Pigou should be considered the first public choice theorist? To what extent did he convince you? How should we really interpret what Pigou has to say about externalities, according to Munger? As Munger says, “He [Pigou] wants to get prices right. He has an economist’s intuition about this. He thinks democracy can’t do it.” As evidence, Munger points to the Pigou quote below: It is not sufficient to contrast the imperfect adjustments of unfettered private enterprise with the best adjustments that economists in their studies can imagine. [Pigou 1912, pp. 247–248.] Why does Munger say that most of our apparent misunderstanding of Pigou comes from Ronald Coase? And most importantly, what does all this mean as far as how we should think about market failure?   3- At  ~28 minutes in, Munger explains the four kinds of market failure. What are they? Which are more or less subject to the vicissitudes of democracy? Which are more likely to be solved be allowing the market to work, absent interventions? Which would benefit most from government action?   4- Munger suggests we need to devise a new set of government institutions based on expertise that will guide markets correctly by getting prices right. As Roberts says, “Markets fail, governments fail, and therefore we need a third thing.” Munger agrees, but says we don’t even know what the third thing is yet. How satisfactory is this answer for you? To what extent can government be sufficiently insulated from political pressures sufficient to innovate and experiment? Should we be directing attention toward making bureaucracies more effective, as Roberts suggests? What alternatives might you suggest? Explain.   5- If we are to rethink government action in the way Munger suggests, how does this change our approach to industrial policy? Munger references his article, “A Good Industrial Policy is Impossible” (in a democracy), in which he writes, …the usual separation between markets and politics, where markets are probably going to perform better than democracy in deciding how to allocate resources, was not only conceded by the Cambridge Welfare Economists: they anticipated Public Choice arguments by 60 or 70 years. They just had a different solution. Their solution was to have commissions of experts whose job will be in each sector to get prices right. An empirical question? Is this an empirical question? If so, how might we begin to answer it? Can we find the “third way” mentioned above by disaggregating government failure unto institutional versus procedural failures?   (0 COMMENTS)