A report from the Financial Times’s Beijing correspondent should leave everybody in the Western world laughing out loud (and the Chinese too if they were allowed to). It is only slightly exaggerated to say that the rulers of Western countries, and the US government at the first rank, have been dead scared of the Chinese government and the supposed mighty economy it runs with its visible fist. The US government has worked hard to change its trade policy and espouse industrial policies on the Chinese model. The Financial Times’s report describes how the development of Chinese AI and much else in that country rely on “the thought of Xi Jinping” (Ryan McMorrow, “China’s Latest Answer to OpenAI Is ‘Chat Xi PT’,” May 22, 2024); a few excerpts: The country’s newest large language model has been learning from its leader’s political philosophy, known as “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era”, as well as other official literature provided by the Cyberspace Administration of China. … The creation of the LLM follows extensive efforts by Chinese officials to disseminate Xi’s ideas on politics, economics and culture in a variety of formats. … CAC [Cyberspace Administration of China], which has led the way in issuing rules for generative AI and introduced a licensing regime, mandates that generative AI providers “embody core socialist values” and says generated content cannot “contain any content that subverts state power”. … The training set draws heavily from government regulations and policy documents, state media reports and other official publications, according to portions reviewed by the Financial Times. One of the dozens of text documents in the data package contains 86,314 mentions of Xi Jinping. “Let us unite more closely around the Party Central Committee with Comrade Xi Jinping at its core,” reads one line. We must “ensure that in thought, politics, and action, we are always in high alignment with the Party Central Committee with General Secretary Xi Jinping at its core,” says another. What we know from history and the invention of widespread prosperity by the Industrial Revolution in the wake of the Enlightenment, as well as from economic theory, strongly suggests that neither imperial dynasties nor Mao Zedong’s thought nor Xi Jinping’s thought nor any guru cult nor any Central Committee can produce such advancement. It looks like the poor Chinese people will long stay at no higher than their current real GDP per capita, which stands at about one-fourth of the American level. The book of Joel Mokyr A Culture of Growth (Princeton University Press, 2018) provides interesting perspectives on the requirements of general prosperity and individual liberty, which cannot be long separated. Two of my EconLog posts have also discussed this issue: “Fearing Leviathans With Feet of Clay” (EconLog, November 29, 2022), and “Why the Great Enrichment Stated in the West,” Regulation, Summer 2023. In a future age more rational than ours (let’s be optimistic), everybody will understand how China failed when its post-imperial state tried again to marry tyranny and planning with economic growth. Of course, a tyrannical state can still be very dangerous for freer countries as it diverts towards military power a high proportion of the (relatively meager) resources of its hapless people. ****************************** For the featured image of this post, I have borrowed one from a remarkable collection of propaganda posters dating from Mao’s Great Leap Forward (1958-1961): BG E16/33 (chineseposters.net, IISH collection); see also https://chineseposters.net/posters/e16-33 and https://chineseposters.net/about/faqs#rights. It is reproduced below.   Propaganda poster from the Chinese Cultural Revolution BG E16/33 (chineseposters.net, IISH collection) (0 COMMENTS)

A few months back, The Economist had an article on the drug problem in Scotland. This statistic caught my eye: Scots in the poorest areas are 16 times more likely to die a drug-related death than those in the richest places. The difference between the overdose death rates for the rich and poor is too large to be attributed to mere coincidence.  This discrepancy cries out for some sort of  explanation.   One possibility is that a lack of money makes people depressed, and depressed people are more likely to abuse drugs in order to ease the pain of poverty.  Another possibility is that both poverty and drug abuse are caused by a third factor.  How could we distinguish between these alternative theories? The same article in the Economist has a graph which shows some equally startling differences in drug overdoes rates across countries: There seems to be little or no correlation between the wealth of nations and the rate of drug abuse. Scotland’s per capita GDP is right at the average of the European Union, the US is far richer than the European average, while Portugal is much poorer than average.   And yet it is Portugal that has the lowest level of drug overdose deaths. So how can we reconcile the fact that drug abuse within a country like Scotland is highly correlated with income, while at the international level one sees little evidence of poverty causing drug abuse?  One possibility is that both drug abuse and poverty are caused by a third factor. Suppose that both poverty and drug use are correlated with some aspect of personality.  Also assume that all countries have a mix of personalities, some more susceptible to drug use than others.   And finally, assume that international difference in per capita income are not caused by difference in national personalities.  I’m not suggesting that any of these assumptions are completely true, rather I’m claiming that they allow us to understand why drug use with a country might strongly correlate with poverty, but not across countries. If we assume that in both poor and rich countries a fairly stable percentage of the population has a personality that makes them susceptible to drug abuse, then we would not necessary expect more drug abuse in poor countries than in rich countries. If we also assume that the same aspect of personality that leads to drug abuse also leads to poverty (say a lack of self control), then we can explain both the within country correlation and the lack of international correlation. Case closed?  Not quite.  This doesn’t explain why there is such a large difference in drug overdose deaths between different countries (and even between different regions, as we see in the UK.)  Something else is going on, but poverty alone doesn’t seem to be an explanation.  One possibility is that some countries have legal systems that are more tolerant of drug use.  But that also doesn’t seem to fit the data, as both Switzerland and Portugal rely more on a softer “harm reduction” approach, whereas the US and Scotland have much stricter enforcement of laws against drug use.  Indeed, it may be the case that strict enforcement of drug laws actually increases overdose deaths, by creating an underground market where drug quality is highly unreliable. Instead, I suspect that drug use is correlated with two factors—personality and regional culture.  Regions of the world where people lack community support systems may have higher rates of drug abuse, and people with certain personality types within any given area are more likely to abuse drugs.  The worst situation of all would be people who lack self control and live in relative isolation in countries without strong support systems for individuals struggling with life. In the US, the two states with the lowest rates of drug overdose deaths are Nebraska and South Dakota.  Both states have many small rural towns with a strong sense of community.  North Dakota used to be quite similar in a cultural sense, but the fracking boom in the Bakken region has brought in many younger workers who are isolated from their family and community.  North Dakota still has a fairly low drug overdose rate, but it’s now significantly worse than its two neighbors to the south.  And yet no one would argue that the oil boom has made North Dakota poorer—indeed just the opposite is true.   To conclude, poverty probably does not directly cause drug overdose deaths.  But within any given region, the factors that cause poverty likely do correlate with the factors that cause drug abuse. (0 COMMENTS)

Who’d have thunk it? Physicians have actually transferred a kidney from a pig to a human being, and the operation appears to have been a success (not for the pig; for the person!). The patient was helped by this transplant and her body did not reject the kidney she received as was initially feared. One would have thought that the first choice for this sort of thing from the animal kingdom would have been a gorilla, or a chimpanzee, since they are genetically closer to us than our porcine cousins, but the doctors indubitably knew better than that. This brings up the obvious question: Why do we need to resort to pigs, of all animals, when we fellow homo sapiens all have two of these organs and need only one of them for satisfactory performance. After all, we fellow members of our own species are far more closely related to each other, biologically speaking, than we are to any other animal, such as Porky Pig and his confreres. Why do we have to resort to pigs? This is because there are not enough human organ donors, given the far larger number of people in need of such transplants. Almost 90,000 patients are on a waiting list for a kidney transplant in the US alone. They must suffer, while in the queue, on kidney dialysis machines, a vastly inferior substitute. And, in turn, why is this? This is due to the fact that the law prevents any but token payments to donors. Young people on donor-mobiles (motorcycles) go into the grave with perfectly intact kidneys while others enter these domains way before their time for lack of same; thanks to this vicious, evil, monstrous zero price control law, never the twain are allowed to meet. One reason for this sad state of affairs is that left wing ethicists have successfully prevailed with their view that human organs are simply not “commodifiable.” Why not? Who knows? Pretty everything else under the sun may be bought and sold but transferring an organ for a profit is simply beyond the pale. Another justification for the present deadly situation is that if a market for this economic good is allowed, there will arise kidney pirates, who will steal these organs from innocent people and sell them to others. But the present black market price is higher than what would prevail under economic freedom. How do we know this? Logic and an Economics 101 level of knowledge of supply and demand will demonstrate this conclusion: at present, the supply is far less than would be the case if sales were allowed, and the less quantity there is, the higher the price will be. A third explanation for the status quo in this regard is the fear that the poor, particularly in third world countries, will become donors, for pay. But this is paternalism, pure and simple. It is plain unwarranted condescension on the part of imperialist colonialists in the first world. If these people in the less developed world engage in a voluntary exchange, it is because they value the money they receive more highly than the body part they must give up. Who are the socialists and regulatory interventionists to say them nay? No, the cause of justice requires that people be allowed to buy and sell whatever it is that they wish to buy and sell. Let us leave the pigs for bacon and allow free enterprise to reign supreme in this small but all-important for some people sector of the economy. As it should be all throughout our system of commerce. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans. (0 COMMENTS)

Recently, Tucker Carlson has committed the all-too-common mistake of suggesting that evolution by natural selection is an unproven idea, because evolution is merely a “theory.” As he put it on Joe Rogan’s podcast, “Darwin’s theory’s totally unproven – that’s why it’s still a theory, almost two hundred years later.”  This is an elementary misunderstanding of what “theory” means in a scientific sense. In the minds of people who make this mistake, theories are as-yet unverified ideas that need to be proven through the accumulation of facts and evidence. But that is a mistake. Theories are explanatory frameworks that tell us what facts mean. To put it another way, facts are not what prove or disprove theories. Theories are what explain facts – and allow us to predict future facts and evidence we should expect to observe in light of that theory. To say that evolution remains a theory after two hundred years is to say that evolution has remained a successful framework in its explanatory and predictive power regarding the facts and evidence discovered over the last two hundred years. This is not the devastating criticism Carlson seems to think it is. It would be just as off-base to suggest that the germ theory of disease is an unproven idea, because it remains a “theory” despite being proposed as far back as the 1500s.  Just as facts of biology need a theory to be made intelligible, so too do facts about economics. Just like with evolution, it’s not at all uncommon to find commentators dismissing the importance of economic theory because it’s just theory – whereas they engage in the presumably more sophisticated practice of simply dealing in facts. Paul Krugman provided a wonderful explanation of how this goes wrong when discussing William Greider’s book One World, Ready or Not: The Manic Logic of Global Capitalism: I think I know what Greider would answer: that while I am talking mere theory, his argument is based on the evidence. The fact, however, is that the U.S. economy has added 45 million jobs over the past 25 years – far more jobs have been added in the service sector than have been lost in manufacturing. Greider’s view, if I understand it, is that this is just a reprieve–that any day now, the whole economy will start looking like the steel industry. But this is a purely theoretical prediction. And Greider’s theorizing is all the more speculative and simplistic because he is an accidental theorist, a theorist despite himself – because he and his unwary readers imagine that his conclusions simply emerge from the facts, unaware that they are driven by implicit assumptions that could not survive the light of day. Needless to say, I have little hope that the general public, or even most intellectuals, will realize what a thoroughly silly book Greider has written. Some of the statements we make are factually wrong, others are theoretically wrong. It may sound like the former is the bigger error, but the latter is what really muddies our understanding. This is because, to repeat myself, we need a theory to tell us what facts mean. A mountain of correct facts interpreted by a bad theory will leave one badly confused about how the world works. For example, Congresswoman Alexandria Ocasio-Cortez once made the following comments about the low unemployment rate: I think the numbers that you just talked about is part of the problem, right? Because we look at these figures and we say, “Oh, unemployment is low, everything is fine, right?” Well, unemployment is low because everyone has two jobs. Many people responded to this by pointing out that she was simply factually incorrect in her assertion that “everyone has two jobs.” At the time she made that statement, the percentage of workers who held more than one job was hovering at an all-time low. She claimed the unemployment numbers were driven down because the number of people working multiple jobs was going up – but that was factually incorrect, because the number of people working multiple jobs was not going up as the unemployment rate fell.  But her statement being factually wrong was, in my mind, less serious that the fact that her statement couldn’t have even theoretically been correct. The unemployment rate isn’t decreased by people working multiple jobs. If anything, people working multiple jobs would have the effect of keeping the unemployment rate higher than it otherwise would be, not lower. To see how, consider this highly simplified example.  Imagine a town with ten people in the labor force. To be in the labor force means either having a job, or not having a job but looking for one. Suppose eight of the ten people are employed, and two people are unemployed and looking for work. In this case, the unemployment rate is 20%. Now, suppose a new job as a night watchman as a factory is created, and two people apply for that job. One of the applicants is unemployed, and the other applicant is employed but looking to take on a second job. If the unemployed applicant gets the job, the unemployment rate would fall from 20% to 10%. But if the already employed applicant gets hired and starts working a second job, the unemployment rate would remain at 20% instead of dropping. (Also, notice I chose my words carefully. It’s not strictly the case that working multiple jobs raises the unemployment rate – the rate here is unchanged at 20%. The idea is that working multiple jobs keeps the unemployment rate “higher than it otherwise would be,” and it certainly wouldn’t drive the rate down.)  The big problem with the Congresswoman’s claim isn’t that she got her facts wrong. The big problem is that even if she was correct on the facts, she still wouldn’t have understood what those facts actually meant regarding the unemployment rate. This is why it’s so important to have a good understanding of economic theory – because substituting incorrect facts with correct ones won’t do any good unless one has a proper theoretical framework to understand those facts.    For example, if I was challenged to explain why I thought the economy was doing poorly despite a low unemployment rate, here’s an answer I could give that is at least theoretically correct: Yes, the unemployment rate is low. But that’s only because so many people have given up hope on ever being able to find a job. As legislators continue to pass regulations that make employees more and more expensive to hire, more and more of the lowest skilled and most vulnerable workers are being priced out of the labor market. Eventually, they give up on ever finding a job, and when they do, they’re no longer in the labor force, and no longer count as unemployed. So even though the unemployment rate is low, it’s not the good sign it might appear to be.  This explanation might be factually wrong – to resolve that, we’d have to look at labor force participation rate data to see if people have in fact been dropping out of the labor force. But this explanation is at least theoretically correct, which means finding out the factual claim is wrong can actually lead to an improved understanding of the situation. (0 COMMENTS)

In her book The New Jim Crow (Alexander, 2010 ), Michelle Alexander makes the claim that while overt discrimination based on race is no longer socially acceptable, discrimination against those convicted of a crime is. She notes that while crime rates in America are roughly equal with those of other Western nations, incarceration rates have consistently soared, despite those domestic crime rates being below the international average. This exponential growth has been fueled by drug policy, whose enforcement has fallen disproportionately upon people of color. As a result, more people of color are incarcerated in the US than there were in South Africa at the height of apartheid.  While some, such as criminologist Barry Latzer, have taken issue with Ms. Alexander’s view, it is difficult to argue seriously that the War on Drugs™ impacts all population subgroups equally. Consider that, in 1985, prior to the passage of the Anti-Drug Abuse Act of 1986, of roughly 22000 inmates arrested primarily for drug offenses, 39% were black and 38% were white (Mitchell, 2009). By 2003, the number of arrests was five times larger, and the proportions of detainees were 53% black and 30% white. To frame the issue in even more depth, by 1999, roughly 2% of the black population was incarcerated, with 1 in 10 black males between the ages of 20 and 30 in state or federal prison (Bobo & Thompson, 2006). As Simon (2007) observes, with such a large proportion of incarcerated young, black males, prison plays a more important socializing roles in affected communities than college, marriage, the military, and has a similar socializing impact as the labor market. It must be asked; what justifies these disparities? A differential involvement paradigm would reveal that minorities are arrested, convicted, and incarcerated more often simply because they engage in more criminal activity. This is, in fact, the view of many policymakers, law enforcement officials, and much of the public. Yet, it has been repeatedly shown that blacks and whites use and sell drugs at similar rates (Rosenberg, Grooves, & Blankenship, 2017). Moreover, it has been shown that when looking at crimes unrelated to drug activity, such as rape, robbery and assault, blacks and whites of similar socioeconomic commit such crimes at roughly the same rate (Harrell, Langton, Berzofsky, Couzens, & Smiley-McDonald, 2014). Therefore, differential involvement cannot explain why blacks are up to 57 times more likely to be imprisoned for drug-related crimes than their white counterparts. The answer lies within the purview of differential selection, in which enforcement efforts trend towards specific characteristics which are more readily visible. As Mitchell and Caudy (2015) observe, blacks, as well as Hispanics (who also have higher incarceration rates than whites), tend to aggregate in lower-class, inner city neighborhoods where drug activity is much more public and transparent, such as street corners and “crack houses.” As opposed to larger, more clandestine transactions between associates in more affluent neighborhoods, transactions in these areas tend to be smaller, more frequent, and between strangers with little, if any, personal loyalty between them. Finally, with the surplus of smaller dealers and sub-traffickers, these entrepreneurs naturally form into gangs to protect their interests in the profitability of distribution territories, which leads to street violence. This makes targeting these areas a rational exercise for law enforcement. Operating under the mandate to deter both the supply and usage of drugs, street sweeps, raids of drug houses, and other such measures allow policymakers and law enforcement officials to claim a growing number of victories, despite no measurable decrease in either supply or demand. Adding to the absurdity of this differential selection is that the majority of blacks incarcerated have not been convicted of trafficking or distribution, but of possession, despite the acknowledgment of the United States Sentencing Commission that the vast majority of users are white (Nunn, 2002). This all creates a self-perpetuating cycle of racially motivated enforcement bias, justifying extant perceptions by creating and furthering the paradigm in which they are justified. Under current federal and most state laws, the majority of drug offenses – even possession of small amounts of illegal substances, are classified as felonies. This creates massive negative repercussions for individuals convicted of these offenses. Those with felony records have been shown to earn significantly less in the labor market than others over their respective lifetimes, even those who were skilled laborers before conviction. This is not due solely to the wages loss during the time incarcerated, but also because of the stigma private employers often place on felony records, as well as the loss of social networks that inform their members of legitimate opportunities. Convicted individuals are generally ineligible for student loans to further their education, admission into military service, and other similar avenues known to enhance socioeconomic mobility. Perhaps most insidiously, those convicted of felony drug crimes are disenfranchised, often unable to press their case to policymakers who have little incentive to address the concerns of those who can no longer vote. It is important to not that the above repercussions are consequences that accrue to the individual convict. Families and communities are also impacted, too often leading to intergenerational cycles of decreased socioeconomic mobility and increased criminality (Gust, 2012), (Foster & Hagan, 2009); a subject which will not be expanded upon here because it requires its own treatment.   Tarnell Brown is an Atlanta based economist and public policy analyst. (0 COMMENTS)

  In my latest OLLI talk, “Economic Growth: Crucial but Uncertain,” which I posted and talked about on Substack, I didn’t discuss one question that one of the participants asked. I didn’t think to do so because John, the A/V guy, made certain cuts and, for some reason, that question and my answer aren’t on the video. I took the audience on a quick tour of the top marginal rates through the 20th century: from 7% when the first income tax was implemented; to 77% under Woodrow Wilson; down to 25% under Treasury Secretary Mellon (working his way down in the Harding and then Coolidge administrations; up to 63% under Herbert Hoover then 79% during peacetime FDR and up to 94% during the last part of the war under FDR;  then down to 91% for most of the 1950s and early 1960s; then down to 70% under LBJ (as part of the Kennedy tax cut); then down to 50% early in the Reagan administration and 28% late in the Reagan administration; then up to 31% under George H.W. Bush; etc. Of course I gave a more summary statement than the above, but the audience got the point. One of the audience members, a guy named Ed, said, “Don’t the high marginal tax rates in the 1950s mean that high tax rates don’t matter that much for economic growth since growth was pretty good in the 1950s?” I answered that the highest marginal tax rates kicked in at a very high income level and that one needed to adjust for inflation to see how irrelevant they were for over 90% (and probably over 95%) of income earners. (I’m using “earner” in the broad sense; if I own stock that gave me a handsome dividend income, I count that income as earned.) I could have given a better answer if I had had the data handy, and I’m about to do that. But I completely left out another answer: the economy was much less regulated in the 1950s than now. It was much easier to get a permit to build a house, a bridge, a pipeline, an office building. Also the liability revolution that Walter Olson has written about so well had not yet happened, so that producers didn’t have to waste a lot of effort on idiot-proofing their products. Etc. All those positives can easily upset the negatives of high marginal tax rates for a small percentage of the population. (One caveat: we didn’t have deregulation of airlines, trucking, or railroads and that did hurt somewhat.) Now to the data on taxes. The Tax Foundation gives the data on tax brackets and tax rates from 1862 to 2021 here. Look at the marginal tax rates for 1954. For married couples filing joint, if you had $400,000 or more in taxable income, your marginal tax rate was 91%; for singles, it kicked in at $200,000. That rate with the same income brackets was the same from 1954 to 1963. But $400,000 in 1954 was $4.66 million. Moreover, the whole real income distribution is higher now, probably at least twice as high. So that would be like imposing a 91% marginal tax on a married couple with $9.32 million in taxable income. To be sure, marginal tax rates were well above today’s rates even for much lower incomes. Consider 1954 again. For a married couple with taxable income of $24,000, the marginal tax rate was a whopping 43%. In today’s dollars, $24,000 would be $280,000. So my point is not as strong as I originally thought. On the other hand there were no Medicare taxes and Social Security tax rates were much lower. In 1954, the combined SS tax on employer and employee was 4%, versus 12.4% now. Moreover, it was zero after an income of $2,400, which is $28,000 in today’s dollars. Here’s my speculation, although I don’t have time to do the math and check a lot of data. Up through 1963, for over 80% of U.S. taxpayers in the top half of the income distribution, marginal tax rates, including Social Security and Medicare, were lower than they are for over 80% of taxpayers in the top half of the income distribution today. (0 COMMENTS)

In my view, the best writer on economics today is Tom Hazlett. He has a way with words. And good writing necessarily requires good thinking. Tom recently had a recent post on the TikTok ban that was so good that I didn’t want to post it as one of many in Sunday my weekly reading post. He wrote: And so President Joe Biden signed the Protecting Americans from Foreign Adversary Controlled Applications Act of 2024, which requires the China-based company ByteDance to either spin-off TikTok or watch it be banned. Separating the company from the app would supposedly solve the other problem frequently blamed on TikTok: the circle linking U.S. users’ personal data to the Chinese Communist Party. The loop has already been cut, TikTok argues, because American users’ data are now stored with Oracle in Texas. That’s about as believable as those TikTok baby talk vignettes, retorts Congress. If Congress has got the goods on the Communists, do tell! Those Homeland Security threat assessment color charts from the 2000s are tan, rested, and ready. But slapping a shutdown on a company because of mere rumors—that really is an ugly import from China. Later: Rather than shouting about potential threats, TikTok’s foes should report any actual mendacities or violations of trust. Where criminal—as with illicitly appropriating users’ data—such misbehavior should be prosecuted by the authorities. Yet here the National Security mavens have often gone AWOL. New York Times reporter David Sanger, in The Perfect Weapon (2018), provides spectacular context. In about the summer of 2014, U.S. intelligence found that a large state actor—presumed by officials to be China—had hacked U.S.-based servers and stolen data for 22 million current and former U.S. government employees. More than 4 million of these victims lost highly personal information, including Social Security numbers, medical records, fingerprints, and security background checks. The U.S. database had been left unencrypted. It was a flaw so sensational that, when the theft was finally discovered, it was noticed that the exiting data was (oddly) encrypted, an upgrade the hackers had conscientiously supplied so as to carry out their burgle with stealth. Here’s the killer: Sanger reports that “the administration never leveled with the 22 million Americans whose data were lost—except by accident.” The victims simply got a note that “some of their information might have been lost” and were offered credit-monitoring subscriptions. This was itself a bit of a ruse; the hack was identified as a hostile intelligence operation because the lifted data was not being sold on the Dark Web. I was one of those 22 million. I well remember the anodyne letter I received from the U.S. government. More on that in the postscript. Here’s what I wonder: Which is the bigger threat to Americans’ privacy: the Chinese government or the U.S. government? The Chinese government has limits on what it can do with purloined private data. The U.S. government, because it is here, has wider limits. Hazlett ended with this: While keeping the American public in the dark about real breaches, U.S. officials raise the specter of a potential breach to trample free speech. The TikTok ban is Fool’s Gold. The First Amendment is pure genius. Let’s keep one of them. On the issue of the First Amendment, I found it striking that Senator Mitt Romney wants to ban TikTok because he wants to limit free speech. Here’s a segment from a report in The New Republic. “I mean, typically the Israelis are good at P.R. What’s happened here? How have they—how have they, and we, been so ineffective at communicating the realities there and our point of view?” Romney asked Blinken, seemingly in disbelief that images of Israel’s indiscriminate bombing of Gaza have prompted outrage in the United States. Then Romney explained that the TikTok ban overwhelmingly passed both chambers of Congress because of the widespread Palestinian advocacy on the app. “Some wonder why there was such overwhelming support for us to shut down potentially TikTok or other entities of that nature. If you look at the postings on TikTok and the number of mentions of Palestinians relative to other social media sites, it’s overwhelmingly so among TikTok broadcasts. So I’d note that’s of real interest, and the President will get the chance to make action in that regard,” Romney said. Politicians often like to attribute their own motives to others. I don’t know that the main motivation for voting against TikTok was the one Romney stated above. But it’s pretty clear from context that this was Romney’s motivation. P.S. I wrote about this issue in August 2020. I’ll end with an excerpt: What about the third objection to trade with China: namely, that it can use various apps to surveil Americans? Again, just as with the other two objections to trade with China, it’s true. But in the major recent alleged case of such surveillance, TikTok, it’s hard to see how that’s a problem. In an August discussion, Hoover economist John Cochrane challenged Hoover historian Niall Ferguson and Hoover national security expert H.R. McMaster to back their view that TikTok was dangerous for Americans. Ferguson argued that TikTok is addictive for young people. I’m sure it is, just as computer games are, but that has nothing to do with China. McMaster argued that TikTok is collecting data on Americans, especially young people. I’m sure that’s true also, just as Facebook and Instagram do the same with different audiences. But how does this hurt Americans in any important way? As Julian Sanchez of the Cato Institute wrote recently: One can imagine how such information might be abused by a government interested in monitoring its own citizens, but it’s harder to articulate any coherent reason midwestern teens posting cat videos should be fearful that Maoists are scrutinizing their system settings or geotags.  People cut a lot of slack for dance performances by young women, as we learned when a video was leaked of Alexandria Ocasio-Cortez dancing while a student at Boston University. My own reaction was that she was a heck of a dancer. H.R. McMaster argued that the Chinese government wants to “weaponize data.” He’s probably right. But how exactly do you weaponize data of, say, young women dancing? Interestingly, his best example of the Chinese government scooping up data that could hurt Americans was the Chinese government’s hacking the confidential government-held data of millions of federal employees a few years ago. That was serious. But notice that they did that without trade. [DRH additional note: and without TikTok.] Moreover, poor security by the U.S. federal government made the hacking easier than otherwise. I was a U.S. federal employee in 2015 when the hacking occurred and Beth F. Cobert, Acting Director of the Office of Personnel Management, wrote to tell me that my data were hacked. Here’s one excerpt from her letter: Since you applied for a position or submitted a background investigation form, the information in our records may include your name, Social Security number, address, date and place of birth, residency, educational, and employment history, personal foreign travel history, information about immediate family as well as business and personal acquaintances, and other information used to conduct and adjudicate your background investigation. She added, “Our records also indicate that your fingerprints were likely compromised during the cyber intrusion.” I clearly recall that the hacked form I filled out the year before asked me if I had engaged in adultery in the last seven years. That was important, you see, because the U.S. government needed to know if I could be blackmailed. Fortunately, my answer was no, but notice that the U.S. government  had made it easier for the Chinese government to blackmail federal employees who answered yes. It’s data like that that I would like the federal government to protect, not pictures of young girls dancing. (0 COMMENTS)

The consensus view is that the Great Recession of 2008-09 was caused by financial instability. I believe that view is wrong, and wrote an entire book arguing that it was tight money that caused the Great Recession. A recent Bloomberg article perfectly illustrates why it’s important to understand what went wrong in 2008: The FSOC on Friday released its first study of the threats introduced by nonbank mortgage firms, which have escaped the strong regulation reserved for traditional banks despite displacing them in the market. In 2022, nonbanks originated about two-thirds of mortgages and serviced most of them.The sector’s specialized business model makes the firms vulnerable to changes in housing prices, interest rates and delinquency rates, according to the report. Nonbanks rely more than traditional lenders on the value of mortgage servicing rights, and they can have high leverage, short-term funding and operational risks, the FSOC found.“Put simply, the vulnerabilities of nonbank mortgage companies can amplify shocks in the mortgage market and undermine financial stability, and the council has now laid this out in detail for the first time,” said Treasury Secretary Janet Yellen, who leads the FSOC. Not surprisingly, this view has led to calls for more federal involvement in the mortgage lending market, which would further exacerbate the problem of moral hazard.  Previous attempts to make our financial system more stable have failed because the underlying problems are being misdiagnosed.  Financial instability has two root causes: 1. Monetary policy that causes unstable NGDP growth. 2. Federal regulations that increase moral hazard by insuring depositors and designating some banks to be “too big to fail”. Commercial bank failures do have policy implications, as they may require FDIC bailout of depositors.  However, that argument does not apply to the failure of nonbank mortgage firms.  There is no reason for regulators to worry about nonbank failures, as any impact on aggregate demand can and should be offset by adjustments in monetary policy. This is why it’s so important to have an accurate understanding of what went wrong in 2008.  If policymakers correctly understood the causes of the Great Recession, they would put less focus on trying to prevent bank failures and more emphasis on stabilizing the path of nominal GDP. PS.  The same is true of the Great Depression.  In the US, the two primary problems were banking regulations that led to too many small and undiversified banks, and monetary policy that caused NGDP to fall nearly in half between 1929 and 1933.  Countries with less restrictive bank regulations and more expansionary monetary policy did considerably better than the US.  This abstract is from a Journal of Economic History paper by Richard Grossman: This article attempts to account for the exceptional stability exhibited by the banking systems of Britain, Canada, and ten other countries during the Great Depression. It considers three possible explanations of stability—the structure of the commercial banking system, macroeconomic policy and performance, and lender of last resort behavior—employing data from 25 countries across Europe and North America. The results suggest that macroeconomic policy—especially exchange-rate policy—and banking structure, but not lenders of last resort, were systematically responsible for banking stability.  The Fed was set up to be a “lender of last resort”.  But that didn’t address the underlying weaknesses in the US financial system, which was not a lack of liquidity. As a result, the financial system was even more unstable during the first few decades of the Fed’s existence than it had been in the two decades prior to the creation of the Fed.   If you do not correctly diagnose a problem, then the solution is likely to be ineffective. PS.  Some people tell me that surely financial instability must have contributed to what I called the “tight money policy” of 2008.  Consider a truck driver that dozes off and has an accident when the road turns.  In a sense, the bend in the road contributed to the accident.  But the driver dozing off was the far greater problem. (0 COMMENTS)

Zach Weinersmith joins EconTalk host Russ Roberts for the third time to discuss why ambitions of space exploration are unrealistic and overly optimistic, the danger of all-encompassing utopianism, and why space settlement is not like buying a hot tub. Weinersmith is a cartoonist and author/co-author of many books, including Bea Wolf, Soonish: Ten Emerging Technologies That’ll Improve and/or Ruin Everything, and the topic of this podcast episode, A City on Mars: Can We Settle Space, Should We Settle Space, and Have We Really Thought This Through? Weinersmith is also the author of Saturday Morning Breakfast Cereal, a daily comic strip.   The podcast revolves around understanding space settlement as an ambition with roadblocks. Weinersmith shuts down the possibility of a settlement on the moon, for example, due to its lack of water, difficulty of extracting resources, and lack of an atmosphere. He says even though Mars is far more promising, it carries its own drawbacks: It is six months travel away from Earth and has planetary-wide dust storms. In general, humans don’t have the technological ability for long-term space settlement. Despite this, Weinersmith sees the literature on space settlement as biased towards advocacy for space exploration, regardless of the resource constraints and trade-offs. We did try to take an economist perspective, because you will often hear more physics types say, “well we can have Titanium on the moon.” But we never talk about Earth this way. I never say I can have a house because my backyard has silicon for windows and aluminum for metal, and wood is of course made of carbon and hydrogen, so I’m all good. Yet somehow, it’s okay to talk about the moon like this, as if no trade-off exists. Negative trade-offs have always impacted space missions. Weinersmith’s example is the Apollo program, which he regards as politically unpopular, feasible only once, and far too costly in terms of resources only to briefly go to the moon. But the most concerning drawback comes with the question of whether space settlement is ethical given the negative effects of space on human biology, psychology, and development. I will shortly rattle off a bunch of bad stuff that space does to you. The longest an individual has ever been consecutively in space is 437 days, so all this bad stuff is in the context of a very short period of time. Space reliably degrades muscle density especially in areas of your body you just don’t use in space like your hips. You can get renal stones because so much calcium is coming out of your system. This is what your body does when you don’t use stuff, it goes away, and that is with a huge amount of exercise and strength training. Jerry Lininger was an astronaut who went aboard Mir, the big Soviet space station, he was very proud that after something like four and a half months aboard he was able to walk when he came out. Weinersmith outlines how the political showmanship common in space exploration projects, as opposed to earnest scientific curiosity, means we know almost nothing about how space affects pregnant people and newborn children. This would make any future children born in space lab rats. To Weinersmith, all these problems make it incredibly difficult and unethical, for very little upside, prompting the response from Roberts, “What’s the appeal of this?” Roberts asks Weinersmith if it worries him that his claim of the nearly impossible difficulty of space settlement is overlooking technological innovation. After all, there are many existing technologies that were once seen as impossible, like the airplane. Weinersmith dismisses this argument, as it’s more of a hope than a legitimate retort, and the necessity of remarkable innovation points more to space settlement’s infeasibility. When you talk to space people, the classic example they’ll bring up is aviation. Of course, you don’t want to fall foul of it, but you have to be careful with this kind of reasoning. It’s very indicative that the aviation comparison in space books about the incoming imminent future of awesome space stuff was being made in the 50’s…The extent to which a particular scenario requires extraordinary developments kind of tells you something about its nature. If it requires 100 Butlers per person to go to Mars then it’s not a libertarian frontier fantasy, it’s a Star Trek fantasy. As Space X has shown, space travel can be privatized. Should the lack of technology for settlement prevent companies from attempting missions into space? Weinersmith calls this the hot tub argument, as space travel can be as private as the decision of buying a hot tub. But Weinersmith disagrees. He believes that space travel presents a risk to humankind, large enough to the point where some veto power should be given to third parties. You can imagine the spectrum from going to buy a hot tub, which basically has no third party with any right to say no, and buying a nuclear weapon where essentially everybody should be able to say no. the question becomes, where does space settlement fall on that axis? You might think, why is it not a pure aesthetic choice. Well, try to imagine, as some people have proposed, putting a million tons of metal about 70 miles high in orbit. I think most of us feel like we should have a say whether anyone is allowed to just do that. Because it creates this huge hazard, not dissimilar from detonating nuclear weapons. Our ultimate conclusion is that the hot tub argument clearly won’t do. It’s not a simple personal choice. Even if you imagine fusion drives and whatever else, having a world where private actors can put enormous amounts of high-speed metal in space is a world where humanity is endangered. It seems like there just has to be some kind of regulatory framework. Though most of the podcast is spent discussing why a city on Mars or the Moon is a fantasy which hasn’t been thought through, Weinersmith acknowledges that the will to expand human civilization into space is an understandable application of the explorer mindset of humans. He lauds the questions prompted by space advocates as fascinating and intriguing. Weinersmith is not telling his audience to stop exploring, innovating, or asking questions. Instead, he is calling for the utopianism surrounding space exploration to slow down, an acknowledgement of the tall barriers and severe risk. I would say the other thing that should give you pause is that particular fantasy tends to be more libertarian in the American sense, a conservative Frontier fantasy. But I have seen it as a leftist fantasy, like we’ll avoid capitalism when we go to space. It should make you pause when space allows every utopia to exist. Quite consistently throughout the episode, Roberts says Weinersmith’s ideas are somewhat discouraging. But I don’t think so. Weinersmith’s work acknowledges that there are no panaceas, and the attempt to create one can have disastrous consequences. Given the occasionally depressing state of the world, it is appealing to be able to start anew. Weinersmith is asking the audience to examine the costs of doing that. In my opinion, those costs begin with climate change. Space exploration is a tactic of avoidance, not a genuine solution, as is often the case with utopian ambitions. For instance, socialism is not a solution to economic inequality, social alienation, or worker maltreatment; it is a hypothetical rocket-ship to a world where the faults of capitalism don’t exist, without regard for the ethical or economic constraints of the new system. Utopianism has a high opportunity cost, namely a counter-intuitive diversion of attention away from contemporary problems. The resources which could be devoted to the innovation necessary for planetary settlement over an undetermined length of time could instead be devoted to reducing carbon emissions and expanding green energy. Utopianism isn’t feasible, but it also isn’t preferable.   Related EconTalk Episodes Zach Weinersmith on Beowulf and Bea Wolf Kelly Weinersmith and Zach Weinersmith on Soonish Matt Ridley on How Innovation Works Mike Munger on Middlemen Patri Friedman on Seasteading Eliezer Yudkowsky on the Dangers of AI (0 COMMENTS)

A strange story echoed in Newsweek suggests that many people have not reflected on how democratic politics works, or perhaps they confuse politics as they wish it should be with what it actually is. The magazine writes (“Donald Trump Threatened With New Investigation,” May 11, 2024): Senator Sheldon Whitehouse, a Rhode Island Democrat, has threatened former President Donald Trump with a new investigation into his reported promises to Big Oil. The Washington Post reported this week of a deal that Trump, the presumptive GOP presidential nominee, reportedly offered to top oil executives at a Mar-a-Lago dinner last month—raise $1 billion for his campaign and he will reverse dozens of President Joe Biden’s environmental regulations and prevent new rules, according to people with knowledge of the dinner. According to the Post’s sources, Trump said gifting him $1 billion would be a “deal,” because of the taxation and regulations they wouldn’t have to worry about if he was in office. … “Put those things together and it starts to look mighty damn corrupt,” Whitehouse said. In reality, bribes, solicited or offered, are the bread and butter of politicians. They promise political goodies in return for one form of support or another, or they respond to interest groups’ support with favorable interventions. These deals represent the political form of economic exchange, which is why public choice theorists speak of the “political market.” Joe Biden openly seeks the support of trade union apparatchiks and members in return for “worker-centric” policies. Perhaps Donald Trump is just more transparent. And he plays the game on the side of different special interests—although, as any populist worth his salt, he also tries to bribe workers with tariffs imposed on consumers and on importing businesses. A qualification is needed: a political bribe aimed at extending freedom of contract to everybody equally—which we don’t see very often these days—should not be condemned; it is the system creating this necessity that is condemnable. Political bribing also occurs when a politician offers a certain class of voters to favor their interests or opinions or sentiments—and they are often the same thing—in exchange for their support for his own interest in the perks of power. Bribing is at the core of majoritarian politics. The consequences for public and private ethics, and for the survival of a free society, are far from insignificant. The more power the state has, the more widespread such legal corruption becomes. A defining characteristic of the classical liberal and libertarian tradition has been to argue against state power, democratic or not. James Buchanan, the 1986 Nobel laureate in economics, proposed one way of solution through the “constitutional political economy” that developed on the foundations of public-choice economics. The solution revolves around constitutional limits on day-to-day politics and is precisely meant to stop the negative-sum game of redistribution and exploitation of political losers by political winners. Buchanan and his collaborators argued that it is only at the level of constitutional rules unanimously accepted in a virtual social contract that political exchange can be non-exploitative; at this level (the “constitutional stage”), he argues, politics resembles an economic exchange in everybody’s interest. It is not exploitative because, in theory, any individual can oppose his veto to a system of rules that would have larger costs than benefits for him. (See his The Limits of Liberty, his seminal The Calculus of Consent with Gordon Tullock; and his The Reason of Rules with Geoffrey Brennan; the links are to my reviews of these books.) The most radical and subversive attack against majoritarian politics from an avowedly liberal viewpoint can be found in the writings of another economist and political philosopher, Anthony de Jasay, including in his appropriately titled book Against Politics (link to my review). If we wish to round up the picture of the main strands of liberal political philosophy in the 20th century, we might add Friedrich Hayek’s critique of majoritarian democracy. In pursuit of expediency (cost-benefit analysis writ large), democratic politics destroys the traditional rule of law that generated an auto-regulated social order. (See notably his Rules and Order and The Mirage of Social Justice; links to my reviews.) (1 COMMENTS)