Russell Roberts's Blog, page 221
October 17, 2021
Some Non-Covid Links
George Selgin pens a brilliant open letter to Comptroller of the Currency nominee Saule Omarova. A slice:
In my opinion, the changes you advocate, were they to come about, would have harmful, if not disastrous, consequences. By saying so, I don’t at all mean to suggest that bankers today allocate credit flawlessly: far from it. I know that they sometimes fail to get credit to certain credit-worthy applicants, while lending recklessly to less worthy ones; and I understand that the government, besides attempting to correct such errors through regulation, must sometimes compensate for them through its own credit programs aimed at supporting certain groups or industries. I also understand that, owing either to market failures or to the effects of government guarantees and other kinds of regulation, bankers’ profit motive doesn’t necessarily cause them to steer credit to where it does the most good.
But it hardly follows from such truths that a comprehensive Fed takeover of deposit banking would boost “productive economic enterprise, in the long-term interests of the American people.” To claim that it would is, I think, to underestimate both the extent to which the profit motive encourages competing commercial bankers to invest the public’s scarce savings productively, and the difficulties bureaucrats are bound to encounter in their efforts to do the same.
Randy Holcombe asks if we’re too distracted to notice inflation. Here’s his conclusion:
The experience of the 1970s shows us that once started, inflation is difficult and painful to stop. Isn’t it better to prevent inflation in the first place rather than trying to stop it once it’s here? Yet policymakers seem unconcerned. They are saying “Move along; nothing to see here,” but as policymakers tell us this spike in inflation is nothing to worry about, I’m not so optimistic.
Speaking of Randy Holcombe, back in March his book Liberty in Peril was reviewed by George Leef.
Doug Bandow reports that the push for legalizing marijuana is now being led by corporate America. A slice:
The only way to prosecute a widespread victimless, or self-victim, crime is to violate civil liberties on a national scale—intrusive searches and seizures, wiretaps, informants, coerced cooperation, punitive sentences, SWAT teams, property confiscations, predawn raids, and more. Millions of people were arrested and imprisoned. Millions of Americans lost their economic and educational futures. Millions more were turned into felons. And the entire criminal justice system was corrupted, with prosecutors acknowledging that cops often lied about searches and arrests. Judges ignored the Constitution in what was known as the “drug exception” to the Fourth Amendment. All to convict people of hurting themselves, at worst.
Good news on oil spills. (HT David Henderson)
The Wall Street Journal‘s Jason Willick talks with the Robert Woodson. A slice:
Mr. Woodson changed course, earned a master’s in social work at Penn, and in the early 1960s led neighborhood protests against segregation in West Chester, Pa., as head of a local human-relations council. “The civil-rights movement had its own tea-party movement,” he says, and Mr. Woodson sided with younger activists who favored civil disobedience. But later he clashed with the local civil-rights leadership who favored busing schoolchildren to achieve racial balance. He says he was told,“ ‘Your position is consistent with the Klan and the John Birch Society,’ and I said, ‘I don’t care.’”
Mr. Woodson says he eventually migrated to conservatism not out of an “ideological embrace,” but because conservatives “have strategic interests that are compatible with the poor.” He explains: “If you own a restaurant, you need 100 people who can come in and wait on tables and be trustworthy and reliable.” As an advocate for the poor, “I have 100 people who need jobs to feed their families,” so “you and I have the foundation of a strategically beneficial relationship,” he says. “I don’t care whether you’re racist or not.”
Janet Daley explains that “[t]he climate change cult now owes more to religion than rationality.” A slice:
The clue is in the way that government ministers described the scientific opinion to which they were adhering so assiduously. Matt Hancock in one memorable moment actually said that “with science on our side” we would inevitably defeat Covid. What was notable about this fatuous statement was not just the idea that “science” (as opposed to individual scientists) can ever be on anybody’s side, but its startling resemblance to a testament of religious belief.
Just replace the word “science” in that phrase with the word “God”. Our trust in the omnipotence and benevolent protection of scientific authority was put beyond doubt or criticism. “Science” (always referred to as one indivisible thing) was the fount of all certainty and therefore to raise objections to its pronouncements was irresponsible and, by implication, wicked. Only with hindsight, as the Prime Minister is often heard to say, can we see the mistaken calculations that were made and the consequences that arose from them.
My GMU Econ colleague Dan Klein writes about David Hume’s friendship, then rift, with Rousseau.
Also not very bright is Jen Psaki.
Nick Gillespie talks with Steven Pinker.
Casey Mulligan reports on “Build Back Better’s hidden but hefty penalties on work.” (HT Arnold Kling) A slice:
BBB also creates and expands employer mandates, with compliance enforced with penalties that are proportional to employment, regardless of how rich or poor the employees may be. An example of a proportional employer-penalty scheme is BBB’s new requirement to administer IRA deductions from employee paychecks, with all employees enrolled by default. The penalty for non-compliance is $10 per employee per day (Section 131101), which is similar in magnitude to the ACA’s penalty for failing to provide health insurance.
Section 21004 increases penalties on employers for failure to comply with federal occupational safety, health, and labor-standards requirements. The increases are tenfold or more. For example, the penalty for a large (100+) employer to employ an unvaccinated person is between $50,000 and $700,000 per violation and an additional $70,000 per day. This could amount to $26 million (sic) for every year that each unvaccinated person remains on the payroll.
These and other parts of BBB further reduce employment by suppressing competition in the labor market. Such provisions seek to prevent non-union workplaces, which are almost 95 percent of all private employment, from distinguishing themselves from unionized workplaces. Others put nonunion workplaces at an outright disadvantage. [The labor union movement, of course, is an attempt to restrict or monopolize the supply of labor in order to extract higher employee compensation.] Section 138514 would allow union dues to be deductible from federal income tax, putting about $400 million per year on the union side of the economic scale. Other sections, such as 132002, target “infrastructure grants” to “labor unions and other employers … that pay the prevailing wage.” Section 136401 creates a credit for the purchase of an electric vehicle that “satisfies the domestic assembly qualifications” (that is, unionized).
Some Covid Links
In New York City, I often see people walking down the sidewalk, masks hanging low over their chins, looking fearful and dodging one another. The health benefit from these wary rituals is minimal to nonexistent, and they illustrate the toll that fear of Covid-19 has taken on mental health.
A new global study published in the Lancet examines 48 data sources in an attempt to quantify that toll. The authors report a world-wide increase of more than 129 million cases of major depression and anxiety disorders compared with pre-pandemic figures. They attribute this to the “combined effects of the spread of the virus, lockdowns, stay-at-home orders, decreased public transport, school and business closures, and decreased social interactions, among other factors.”
The media headlines I’ve seen mislead people about the likelihood of Covid causing brain loss / impairment. Headlines about “long Covid” also mislead by failing to consider the nocebo effect seriously enough.
I’m glad I’d barely heard of “long Covid” back when I had Covid in September 2020. It would have sucked to be worrying extra about that, when the odds of any problem sticking around are so slim.
But everyone should judge for themselves how much they care about the small risk that “long Covid” poses.
I’ll add that one study found that the risk of “long” symptoms is 1.5x that of the flu. Goes to show that we’ve always been taking risks with our health; we’re just more conscious of these risks now, because of the novelty of Covid.
Jay Bhattacharya tweets, about this study:
In Kaiser study vax effectiveness vs. infection drops to ~45% after 5 months, while vax effectiveness vs. hospitalization remains high (87%+) after 5 months.
Team Sweden tweets (HT Martin Kulldorff):
I was living in Colombia when it deployed one of the world’s strictest lockdowns.
After a few weeks residents of the poorest barios (where I had volunteered) began saying “I’d rather die of the virus than starvation”
At that point I knew public health had gone off the rails.
Laura Dodsworth explains that “[t]he truth is, lockdowns don’t work and cause great harm.” A slice:
I put it to [Prof. Simon] Wood that, in circular and fallacious reasoning, the modelling is being used to measure the success of lockdown by deaths ‘saved’ against those predicted by the unsubstantiated and flawed simulated forecasts of the modelling. He agreed: “the post hoc justification for the measures using modelling often looks like bending the model to the conclusion you want to achieve.”
There is a growing body of evidence that light interventions and voluntary behaviour changes – ie not lockdowns – are sufficient to reduce the R. Real world examples support this, namely Sweden, South Dakota and Florida. Conversely, as economist Professor David Paton reported, early and strict lockdowns did not always work. Czechia’s did not stop subsequent surges of the virus and further lockdowns. Czechia currently has the sixth highest death rate per million in the world. Peru, another country which enforced very strict and early lockdown, has the worst death rate in the world.
Which brings me back to Vision Zero. It is not put forward as a philosophical statement; it is a slogan, meant to keep street engineers and city planners focused on traffic safety. But the Vision Zero rhetoric has a way of taking over. No breast cancer death is inevitable! No football brain injury is acceptable! No AIDS death is tolerable! What may seem high-minded—promoting health and safety—is in truth dangerous. A single-minded defense of bodily life can quickly become an enemy of living.
…..
Safetyism is reinforced by the punitive, take-no-prisoners consensus that attacks anyone who raises doubts about the necessity or efficacy of the extreme measures of the last eighteen months. And there’s no question that safetyism does spiritual damage. A socially reinforced preoccupation with bodily life can disorder our priorities just as surely as does social messaging that makes sex the supreme good. In truth, our disordered fears can be even more damaging than our disordered desires. And that includes fears of illness, suffering, and death.
…..
Over the last eighteen months, the barrage of public health messaging about the perils of COVID coursed down the same deep riverbed carved by the doomsday rhetoric we’ve been hearing for years: warnings about climate apocalypse, rampant racism, and other social evils. In September, the Wall Street Journal reported that as many Americans have died of COVID as perished during the Spanish Flu pandemic (675,000)! This breathless report ignored the fact that the population of the United States is more than three times greater today than it was in 1919, when the Spanish flu took its toll. And it did not notice that a century ago there were no incentives and few resources to support today’s zealous recording of COVID deaths, which in all likelihood means that the death toll of the Spanish Flu was four or five times greater than that of the current pandemic.
But facts don’t seem to matter. Today’s journalists and editors are imbued with the conviction that they have a moral duty to accentuate peril and danger in order to motivate ever more vigilant efforts to promote health and safety. This pseudo-philanthropy—saving lives!—intensifies the role of fear in our collective psyche, deepening the damage of safetyism. We’ve put masks on children for two years, convincing ourselves that, even if they are ineffective, it’s a harmless measure. But it is not harmless to tell children, in effect, “The world you are entering is a very dangerous place.”
“Zero-Covid has transformed Melbourne into a RoboCop-style dystopia.” A slice:
Democracy has crumbled under zero Covid, with parliaments shut for months under health orders. The twitching curtain brigade, encouraged by government campaigns urging them to inform on their neighbours, watch for rule-breakers and use special hotlines to summon the police. Melbourne police were recently ordered to patrol playgrounds until a public outcry forced a U-turn. In a park near me, children on scooters flee as a police car pulls up. It’s like a scene from RoboCop.
Masks are mandatory outdoors even if walking on a windswept beach or a deserted street. Those caught disobeying may be fined, handcuffed, forcibly masked and arrested if they refuse to comply. In another Orwellian twist, health orders banning protests are issued by bureaucrats reporting to the very leaders the protesters are demonstrating against. Protest organisers, including a pregnant woman, have been arrested in their homes and hit with conspiracy charges. Religious worship, even in small groups outdoors, has been banned.
Getting into Australia has been near-impossible. Getting out requires a North Korea-style exit permit. Border closures have separated families and caused untold hardship. Babies have died, unable to access urgent medical attention at the nearest hospital across a locked state border. Thousands of holiday-makers who were travelling when border closures were imposed have been made homeless, some having to sleep in cars or live for months in refugee-style campsites, unable to return home even if they are double vaccinated. Some have been prevented from visiting dying relatives in other cities. Yet state leaders have held firm, only lifting interstate bans for celebrities and sports stars.
Quotation of the Day…
… is from page 105 of Michael Cooper’s 1974 article “The Economics of Need: The Experience of the British Health Service,” as quoted on page 33 of the soon-to-be-published 2021 35th anniversary edition of Steven Rhoads’s 1985 book, The Economist’s View of the World: And the Quest for Well-Being:
The conception of sickness as an unambiguous and absolute state led to the false hope that unmet need could be abolished. In practice, sickness has been found to be a relative state capable of almost infinite interpretations by both potential patients and the medical profession.
DBx: This important insight is quoted in Rhoads’s chapter titled “Marginalism” (a summary version of which is available free-of-charge here). To understand marginalism is to understand that no particular benefit is a supreme good greater quantities of which are worth acquiring regardless of cost. Acquiring additional units of (say) reduced risk of exposure to some pathogen might be worthwhile, given the cost of the acquisition, if little such risk-reduction has yet been acquired. But there comes a point at which the benefit, though real, of additional risk-reduction becomes less than the cost of achieving that benefit.
When failure to understand this reality results in the elevation of any particular benefit into a goal regarded as always supreme above all – as a benefit to be pursued, regardless of cost, until the maximum possible amount of this benefit has been secured – the result is much worse than economic inefficiency; it is derangement.
Further, an understanding of marginalism reveals the deep confusion of those persons who make such claims as “health care should be affordable to all.” Sounds lovely. But what counts as health care? If we classify as “health care” only aspirin, bandages, and first-aid items, then in modern America health care is already (and has been for some time) affordable to all. But given our level of prosperity health care in modern America surely also includes access to, consultation with, and treatment by, trained physicians as needed, as well as treatment in hospitals as needed.
Ah, but when are such treatments “needed”? If health care were as naturally abundant as breathable air, there would be no additional quantum of health care that would not be worth acquiring if such acquisition provided even the slightest benefit. But health care is not and never will be so abundant as breathable air. And so there will always be some additional units of health care that, while acquisition of these units would indeed further improve health, are not worth acquiring. Providing every person afflicted with the seasonal flu with a month-long stay in his or own exclusive floor of a hospital whose every staff member, including office clerks and janitors, is a graduate of a world-class medical school would no doubt provide some health benefit, currently unachieved, to each person with the seasonal flu. But our level of prosperity isn’t yet close to prompting us to regard such medical treatment as “needed.”
It’s easy to see that there comes some level of medical treatment that no sane person today would classify as “needed.” Yet the deeper point is that determination of what levels and kinds of health care are “needed” is not a technical problem. It is a problem not to be determined by physicians, health-care ‘experts,’ government panels, or MD-sporting Washington Post columnists. The ‘correct’ level of health care not only differs from person to person (if for no reason other than that different persons have different preferences for risk), but is ultimately determined by economic considerations – that is, by trade-offs, by the value of what is sacrificed in order to obtain any level of health care.
October 16, 2021
The Amount of Government Spending Is Not Independent of the Means of Financing
Here’s a letter to my friend Richard McKenzie:
Richard:
In your latest, excellent post at EconLog you quote Milton Friedman’s insistence that “the true tax” is “how much government is spending.” You quote Friedman further: “If you’re not paying for it in the form of explicit taxes, you’re paying for it indirectly in the form of inflation or in the form of borrowing.”
Friedman’s point is both correct and important, and you’re right to remind readers of it. It’s a reality that too many people – including too many economists – ignore.
But I disagree with you on one small matter – specifically, with your claim that:
How the added government outlays are financed—through taxes, newly printed dollars and inflation, or debt—is of secondary importance, perhaps only marginally affecting people’s incentives.
If the amount that government spends were independent of the means of financing, then I’d agree with you. But the amount that government spends surely is not independent of the means of financing.
Spending financed with newly created money gives, at least for a time, citizens-taxpayers the false impression that government-supplied goods and services are less costly than they really are. Therefore, resort to spending financed with newly created money, by lowering the perceived prices of government programs, increases the quantity of such programs that the public demands beyond what it would be were these prices more accurately perceived.
Resort to deficit spending works similarly. By allowing today’s government spending to be paid for by tomorrow’s citizens-taxpayers, deficit financing allows today’s citizens-taxpayers to free ride on future generations. The inevitable result is that today’s citizens-taxpayers will demand more government spending today than they would demand were deficit financing unavailable. Indeed, because, unlike money creation, deficit financing doesn’t itself fuel inflation, deficit financing plausibly fuels an even greater and longer-lasting excess of government spending than does money creation.
In short, while Friedman correctly insisted that the real cost of government is the amount that it spends, it’s a mistake to suppose that this reality implies that the means of financing government are of little importance. Because financing with money creation or debt causes government spending to be higher than it would otherwise be, the means of financing are of paramount importance.
Sincerely,
Don
Some Non-Covid Links
My GMU Econ colleague Dan Klein takes a careful look at the history of the use of the word “liberal.” Here’s his conclusion:
We make our own semantic decisions, and they reflect our ideology. If a historian were to speak of the “liberalism of the Bolshevik Revolution,” my beef wouldn’t be that he didn’t study the Bolsheviks carefully enough. It would be a broader beef about how he uses “liberal.” Our decisions on semantics express broader moral and political sensibilities.
In my semantics, the revolutions of 1848 were not liberal. Nor, overall, was the revolution of 1789. As Edmund Burke put it in 1790: “Their liberty is not liberal.”
everywhere you look is another cave man with anther axe disrupting markets and peeling off the parts of capitalism that make it fuction.
then they all look baffled when it stops working.
George Will rightly criticizes Progressives and their situational ethics. Here’s his conclusion:
Progressives, like many others among the highest animals, are situational ethicists. They think parental insurrections against religious fundamentalism are wholesome but that parental objections to anti-racist fundamentalism are impertinent. Darwinism ignited culture wars — skirmishes, at least — in the 1920s when high school education became common in the South, where religious fundamentalism was strong. Today’s resistance to teaching children that the nation is permeated by “systemic racism” perhaps derives somewhat from parents at home hearing political propaganda pouring from their children’s computers during virtual classes. If so, two cheers for virtual learning.
Deirdre McCloskey talks with Lipton Matthews:
I also spoke recently with Lipton Matthews.
And I spoke recently with Dan Proft and Amy Jacobson.
Alan Reynolds offers an important warning about inflation comparisons across time.
Here’s Arnold Kling’s theory of “woke takeovers.”
After 40 years of brilliant publication, the Cato Journal is ending.
Economists Have Long Been Aware of the Theory of Monopsony
Here’s a letter to a new correspondent:
Mr. C__:
Thanks for your e-mail.
You call my defense of Phil Magness – and his defense of the late Nobel-laureate economist James Buchanan – “unconvincing.” Your assessment springs from your belief that both Phil and I “cherry pick examples” of the mention of monopsony by economists who wrote prior to the 1994 publication of David Card’s and Alan Krueger’s famous paper. “Fact is,” you conclude, “almost nobody paid attention to labor monopsony until Card and Krueger’s paper appeared.”
With respect, I disagree.
I took intermediate microeconomics at Nicholls State University during the Fall 1977 semester. My professor, Lloyd Elliott, taught the monopsony model and explained how it can be used to justify minimum-wage legislation. I don’t recall which textbook was assigned, but this model was taught as a regular part of undergraduate economics instruction. And I’ve no reason to believe that my instruction at Nicholls State was in this regard unusual.
But you can be forgiven for putting little stock in my long-ago experience as a sophomore. More difficult to dismiss is another source of discussion of the monopsony model – one not mentioned in my earlier letter – namely, the famous textbook by Armen Alchian and William Allen, University Economics. I own the 1972 third edition. Discussion of the monopsony model and its implications for minimum wages appears on page 439. Using the familiar monopsony graph, Alchian and Allen explain how in theory a minimum wage can increase employment. These scholars then identify three reasons why minimum wages in reality are unlikely to have this happy effect. The third of these reasons is this:
[F]ew employers are large enough relative to the market from which they draw labor to have significant long-time effects on wages by individually varying their rates of employment. Over a longer period, the flow of workers from other employers and areas makes this case of little significance.
This third reason explains why few economists prior to the mid-1990s paid attention to monopsony: It’s a theoretical curiosity that’s not remotely descriptive of reality. I believe that the passion that some economists have, over the past quarter-century, developed for writing about monopsony reflects not an increase in monopsony power but a decrease in economic understanding among people who sport economics degrees.
If you disagree with my conclusion, then I put to you the same challenge that I put to others who claim to identify evidence of widespread monopsony power: Exploit this reality for your personal gain. Underpaid workers, like all under-priced assets, are profit opportunities. If you truly believe that American labor markets are widely infected with monopsony power, then prove it by putting your money where your mouth is. Start a company and hire underpaid workers on the cheap, but at wages above those that these workers are now paid. You’ll do well (by becoming rich) while doing good (by putting upward pressure on wage rates).
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
Some Covid Links
In retrospect, it seems clear that the Great Barrington authors were on target in doubting the advisability of sweeping lockdowns. Numerous studies have found that shutting down the economy was largely futile in preventing COVID’s spread and achieved little that could not have been done through less restrictive means. “No two states have been more different in approaches to fighting coronavirus than California and Florida,” noted one CNN commentator, “yet both ended up with roughly the same outcome.”
Whatever effect the lockdowns had on containing the coronavirus, there is no disputing that they damaged public health in many other ways, including domestic abuse, mental illness and addiction, anxiety and depression among children, deterioration in oral health, missed cancer diagnoses, and thousands of additional deaths from untreated heart disease.
None of this means that the Great Barrington Declaration was unassailably correct, let alone that its prescriptions, if adopted, might not have caused other problems. But did it have to become a flashpoint in the culture war? In the midst of a pandemic, respected epidemiologists ought to be able to raise questions about prevailing public health policy without being savaged as fools or apostates. The fact that they couldn’t is appalling, and should make all of us uneasy, lockdown supporters and detractors alike.
The Brownstone Institute’s Jeffrey Tucker talks with Bill Walton, and also with Robin Koerner.
Virologist Greg Brewer’s letter in today’s Wall Street Journal is excellent (although I’m less optimistic than he is about the political process):
Kudos to Gary Saul Morson for “Partisan Science in America” (op-ed, Oct. 12) and to David Klein for his accompanying illustration of scientists chained to a politician in groupthink. As a trained virologist and practicing neuroscientist, I am appalled at the scientific and political censorship regarding Covid-19 immunization.
Every medical student learns that viral immunity can be achieved by natural infection or by vaccination, but natural immunity is better. Natural immunity is recognized in Europe. An Israeli study earlier this year showed the stronger and longer-lasting benefit of natural immunity. But this may be a win-win situation: Either we’ll get cessation of vaccine mandates, as in Texas, or politicians will insist on them at the expense of jobs, education, healthcare and more—and then be voted out.
Greg Brewer, Ph.D.
Laguna Hills, Calif.
Why, when children are at far less risk of being hospitalised and dying from coronavirus, are we treating them like we are still in peak pandemic mode? Adults aren’t being obliged to take two lateral flow tests a week, so why are children?
All of this also raises the bigger question of what the point of continued mass testing really is when the only route back to normality is to treat Covid as we would any other endemic disease.
Journalist Ole Skambraks protests the media’s failure to report objectively on Covid. A slice:
The Gates and Rockefeller Foundations drafted and financed the WHO guidelines for digital vaccine passes. These passes are now being rolled out everywhere. Only with these passes will public life be possible – whether you want to take the tram, have a coffee or get medical treatment. An example from France shows that this digital pass will stay even after the pandemic ends. MP Emanuelle Ménard demanded the following addition to the legal text: The digital vaccine pass shall end when the virus spread no longer presents a level of danger which justifies its use. Her proposed amendment was rejected. Thus we are but a small step away from global population control or even a surveillance state via projects such as ID2020.
Australia is currently testing a facial recognition app, to ensure that people stay at home when in quarantine. In Israel, electronic wristbands are used for this purpose. In one Italian city, drones are being tested to measure the temperature of beachgoers, and in France, the law is changed to allow large-scale drone surveillance.
All these topics must be subject to intensive and critical scrutiny within our society. This is not happening to a sufficient extent in the reporting by our broadcasting organisations and, indeed, was not an election campaign issue.
There is widespread agreement among scientists that COVID-19 vaccines are highly effective at reducing the risk of developing severe COVID symptoms, which can result in hospitalization and death.
Their effectiveness at reducing transmission of the virus, however, remains a subject of debate, particularly since the CDC released findings in June that show vaccinated individuals still contract the virus, transmit it, and carry just as many virus particles in their throat and nasal passages as unvaccinated individuals do when they contract the virus.
Jay Bhattacharya tweets, in response to this report in Newsweek:
The vax mandates were supposed to keep hospitals from being overwhelmed by high patient demand.
Instead, they will lead to hospitals being overwhelmed due to low labor supply.
Quotation of the Day…
… is from page 168 of George Stigler‘s 1973 paper “Regulation: The Confusion of Means and Ends,” as it is reprinted as Chapter 10 of Stigler’s excellent 1975 collection, The Citizen and the State: Essays on Regulation:
To be sure, a list of good things will seldom create controversy if each person is allowed his own priorities, or, differently put, it the price tags are not attached.
DBx: Yep.
When we pretend that there‘s no scarcity – or when we believe that the costs of any benefits that we receive will be borne exclusively by unknown, silent, or evil others – then among us there is no more controversy than there is among us over access to air or to the force of gravity. But while many of us are easily fooled into thinking that the reality of scarcity can be avoided for benefits such as health care and a cleaner environment, reality‘s bite is relentless. We might believe that this goodie and that fine outcome can be gotten for us free of charge. But when we act on such a belief we invariably – because this belief is false – create for ourselves even greater problems.
Alas, though, the will to believe that reality is optional – or that our favorite politicians are miracle workers who can suspend reality – is strong, not least among so-called “intellectual elites.” Hordes of these “elites” believe ridiculous practical impossibilities, such as that minimum wages can be raised without any ill-consequence to low-skilled workers, that tariffs can be raised to increase abundance in the home country, that mandating more paid leave will actually improve workers‘ welfare, that the mere creation of spending power creates the real goods and services upon which this spending-power will be spent, that making monetary incomes more equal makes society more equal, and on and on with such childishly fantastical notions.
October 15, 2021
Quotation of the Day…
… is from page 389 of Michael Oakeshott’s 1948 essay “The Political Economy of Freedom” as this essay is reprinted the 1991 Liberty Fund collection of some of Oakeshott’s work, Rationalism in Politics and Other Essays:
The history of institutions,’ says Acton, ‘is often a history of deception and illusions.’ Arrangements which in their beginnings promoted a dispersion of power often, in the course of time, themselves become over-mighty or even absolute while still claiming the recognition and loyalty which belonged to them in respect of their first character. To further liberty we need to be clear-sighted enough to recognise such a change, and energetic enough to set on foot the remedy while the evil is still small. And what more than anything else contributes to this clear-sightedness is relief from the distraction of a rigid doctrine which fixes upon an institution a falsely permanent character, and then (when the illusion is at last recognised) calls for a revolution.
October 14, 2021
Supporting Phil Magness’s Defense of Jim Buchanan
Here’s a note that I just sent to the indispensable Phil Magness:
Phil Magness
American Institute for Economic Research
Great Barrington, MA
Phil:
Congratulations for masterfully defending Jim Buchanan against the uninformed criticisms recently leveled at him by Noah Smith. You’re correct that Jim’s “camp-following whores” comment was not explicitly aimed at David Card and Alan Krueger.
Even more important is your documentation that Jim had – in his 1954 economics textbook (co-written with Clark Allen and Marshall Colberg) – expressly discussed the theoretical possibility of monopsony power creating an exception to economists’ standard prediction that minimum wages reduce the employment of low-skilled workers. In doing, Jim and his co-authors even used the word “monopsony.” And so Smith reveals only his own ignorance of economic thought when he writes that in 1994 “Card and Krueger’s finding seemed revolutionary and heretical.”
But to strengthen your point, I note here two other instances of prominent economists explicitly recognizing the monopsony point long before Card and Krueger came along. One of these economists is George Stigler, who, on pages 360-361 of his June 1946 American Economic Review paper, “The Economics of Minimum Wage Legislation,” wrote the following:
If an employer has a significant degree of control over the wage rate he pays for a given quality of labor, a skillfully-set minimum wage may increase his employment and wage rate and, because the wage is brought closer to the value of the marginal product, at the same time increase aggregate output.
Stigler then explained the practically insuperable difficulties of designing a real-world minimum wage that will not, even when employers have monopsony power, reduce employment.
The second such economist is the late Columbia University scholar Donald Dewey. On pages 203-204 of his 1975 intermediate price-theory text, Microeconomics: The Analysis of Prices and Markets, Dewey explicitly mentioned this point about monopsony. In addition – and as Buchanan himself also did in 1996* – Dewey recognized a reality that is overlooked by all who try to justify minimum wages by shouting “monopsony!” Dewey explained that for artificially raised wage rates not to reduce employment, “the monopsonist must also have the monopoly power in the market for his final product that earns him an economic rent.”
The future of economic analysis would be brighter if economists today were more knowledgeable about its past.
Sincerely,
Don
* James M. Buchanan, “Adam Smith as inspiration,” Korea Economic Research Institute, 1996; reprinted in James M. Buchanan, Ideas, Persons, and Events, Vol. 19, The Collected Works of James M. Buchanan (2001).
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