Russell Roberts's Blog, page 38

Quotation of the Day…

(Don Boudreaux)

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… is from page 12 of Thomas Sowell’s excellent 1987 volume, A Conflict of Visions:

The moral limitations of man in general, and his egocentricity in particular, were neither lamented by [Adam] Smith nor regarded as things to be changed. They were treated as inherent facts of life, the basic constraint in his vision. The fundamental moral and social challenge was to make the best of the possibilities which existed within that constraint, rather than dissipate energies in an attempt to change human nature – an attempt that Smith treated as both vain and pointless.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 276 of the 1993 Third Edition of the late Carlo Cipolla’s 1976 book, Before the Industrial Revolution: European Society and Economy, 1000-1700:

Between 1780 and 1850 an unprecedented and far-reaching revolution changed the face of England. From then on the world was no longer the same. Historians have often used and abused the word “revolution” to mean a radical change, but no revolution has been as dramatically revolutionary as the Industrial Revolution. The Industrial Revolution opened the door to a completely new world, a world of new and untapped sources of energy such as coal, oil, electricity, and the atom; a world in which man found himself able to handle huge masses of energy to an extent inconceivable in the preceding rural world.

DBx: Indeed so.

Today’s environmentalists – able to obsess about the environment only because of modernity’s immense innovation- and energy-fueled prosperity – want to return humankind to the dark and desperate days when humans relied for energy only on water, gravity, wind, sunlight, vegetation, animals, and themselves. Although most ‘green-energy’ fanatics are too clueless to realize the implications of their demands, their policies – were these adopted on a huge scale – would literally return what survives of humanity to the dark ages.

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(Don Boudreaux)

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Christy Lynn talks with Juliette Sellgren about Adam Smith and her (Juliette’s) superb podcast, The Great Antidote.

Phil Magness busts the myth that the U.S. government would be acting constitutionally were it to tax unrealized capital gains. A slice:

The Biden Administration’s 2023 budget bill made headlines by proposing a so-called “billionaire tax,” imposing a 25-percent minimum rate on the “unrealized capital gains” of the wealthiest Americans. The Biden measure rests on an economic falsehood. The new proposal rests on the work of far-left academics such as Thomas Piketty and Gabriel Zucman, who erroneously claim that wealthy Americans pay a lower tax rate, on average, than the poor. This assertion arises from a compounding of basic empirical errors, beginning with the blurring of the distinction between income (annual earnings) and wealth (net worth) as well as a fair amount of intentional statistical manipulation.

In addition to being premised on bad economic reasoning and contrived evidence, Biden’s proposed wealth tax will also likely face another obstacle: it is blatantly unconstitutional.

Also writing on the constitutionality – and “un” – of the U.S. government’s power to tax is Steve Charnovitz, in this letter to the Wall Street Journal:

Your editorial raises the important question of what legal limits exist on the power of Congress to redefine “income” to include accretions in the value of assets. The editorial gives examples of wealth not currently subject to federal tax, such as increases in the market value of a house, stock or painting. Let me offer another example of wealth whose value appreciation shouldn’t come within the constitutional meaning of the term “incomes” in the 16th Amendment. That’s money, such as the U.S. dollar. A rise in the market value of the dollar (relative to other currencies) isn’t itself income to the owner of the dollar. The Constitution gives Congress the power to “coin Money,” but not the power to tax as income a rising market value for the coin.

Prof. Steve Charnovitz
George Washington U. Law School
Washington

Arnold Kling busts a myth about moral hazard. Two slices:

I’ve seen a lot of commentary, by public officials and pundits, that because shareholders lost everything in the Silicon Valley bank bailout, there is no problem of moral hazard. This is Baloney Sandwich.

Moral hazard in banking is the incentive of owners to take large gambles with depositors’ money. That incentive exists even if the owners lose everything in a bailout.

…..

Suppose that my bank is under water, but you let me pretend that it isn’t by lending me money as if my assets are still worth what I paid for them. What am I going to do? I am going to take your loan and go to Las Vegas. If I win, yes, things will work out fine for me and for the taxpayers. But if I lose, then the taxpayers will have to cover even more losses. That is what happened in the 1980s. Go back and read Mark to Market Sooner, Not Later.

I apologize for putting up two posts in the same day. I apologize for talking about the Current Thing, which I try not to do.

But I am an old man, who remembers how past crises were bungled by authorities who were blind to the moral hazard problem. And it is painful to watch it happening again.

Here’s GMU Econ alum Dominic Pino on John Cochrane on moral hazard and banking risks. Here’s Dominic’s conclusion:

The Fed has spent nearly all of its worrying over the past two years on rate increases causing unemployment. It has said hardly a word on rate increases causing a banking crisis. Yet unemployment remains historically low, and there’s potential for more banking problems in the future, even though SVB was an outlier.

Elizabeth Nolan Brown reports some good news from California.

Roy Mathews reveals why heating costs in New England are so high. A slice:

Multiple energy infrastructure projects have met their demise in New England in recent years, with consumers shouldering the twin burdens of higher rates and worsening emissions. The Northeast Energy Direct pipeline would have delivered 2.2 billion cubic feet of natural gas a day to Western Massachusetts and New Hampshire, helping to slash New England’s emissions. Pipelines emit 61% to 77% less carbon than other overland transport options. But Kinder Morgan, the company behind the project, spiked the pipeline in 2016 in the face of local environmental resistance.

In addition to blocking natural fuel production in the region, New Englanders also prevent the construction of new clean-energy infrastructure. Only two nuclear plants remain in the region, and supply constraints and emissions restrictions limit the future viability of several non-natural-gas power plants across New England. The closure of the Vermont Yankee Nuclear Power Station in 2014 led emissions in the Green Mountain State to increase 16.3%, while wiping out 70% of Vermont’s in-state electricity generation capacity. Pilgrim Nuclear Power Station in Plymouth, Mass., closed in 2019.

New England now depends on expensive imports of natural gas that are subject to supply bottlenecks because of the lack of pipelines. No wonder New Englanders pay nearly twice as much for electricity than the average American household.

Writing in the New York Times, Christopher Caldwell warns Americans against getting accustomed to rule by executive diktat. A slice:

President Biden’s plan would forgive a quarter of the roughly $1.6 trillion in federal student debt held by some 43 million Americans — about $400 billion, or roughly 2 percent of gross domestic product. Unfortunately, for all Mr. Biden’s successes in passing infrastructure and industrial-policy legislation, this part of his agenda never got voted into law. He has simply decreed it.

Americans are getting used to this form of rule, though they probably shouldn’t be. After Mr. Bush declared a terrorist emergency in 2001, his administration took unseemly shortcuts in a variety of policy domains, including interrogating criminal suspects and managing aspects of the economy. Governing in the wake of another emergency, the financial crisis of 2008, Barack Obama acted without Congress to protect immigrant children from deportation in 2012 and to adjust his Affordable Care Act in 2013.

Since 2020, the Covid pandemic has created an even more tangled and undemocratic chain of accountability. Donald Trump declared a national emergency. The Centers for Disease Control and Prevention even imposed a moratorium on evictions. All without Congress weighing in.

When it comes to student loans, Mr. Biden’s people do not believe they are just lawlessly winging it. As they see matters, Mr. Bush’s Higher Education Relief Opportunities for Students Act of 2003, usually called the HEROES Act, gives them a legal basis for clearing out those loans. The law permits the secretary of education to “waive or modify” student loan provisions during a national emergency.

But claiming the vast authority Mr. Biden does is really a stretch. The point of the HEROES Act was to make sure soldiers didn’t get their school finances tangled up in red tape while fighting in Afghanistan and Iraq. It was quite specifically aimed at four classes of people: active-duty military; activated National Guard members; those serving or living in disaster areas; and those who “suffered direct economic hardship as a direct result of a war or other military operation or national emergency, as determined by the secretary.” To a layman, that last category implies war wounds or something just as grave. To the education secretary, Miguel Cardona, it is apparently vague enough to provide interpretive leeway. It cannot have been meant, however, to let him dispose of 2 percent of G.D.P. as he sees fit.

Either way, Trump deserves much blame for covid lockdowns and other restrictions in the U.S.

Christian Parenti explains “how lockdowns primed the current financial crisis.” (HT Jay Bhattacharya) A slice:

Those who advocated an alternative to ham-fisted lockdowns, like the authors of the Great Barrington Declaration, which called for “focused protection” of vulnerable groups like the elderly, were viciously targeted in a reputation destruction campaign covertly orchestrated by former NIH director Francis Collins and de facto Covid czar Anthony Fauci. Never mind that the document’s authors were three eminently qualified scientists: Sunetra Gupta, professor of Theoretical Epidemiology at Oxford University; Jay Bhattacharya, professor of medicine at Stanford; and Martin Kulldorff, formerly a professor of medicine and biostatistics at Harvard. They were portrayed as far-right cranks who were almost eager to see millions die. But now, they have been vindicated.

Ultimately, the federal government spent $4.2 trillion propping up the economy that it was simultaneously choking to death with lockdowns. These two contradictory pressures laid the groundwork for the recent bank failures. Government mandated lockdowns hit the economy like a body blow. Factories closed, small businesses went under, ports and logistic hubs reduced operations, and about 2 million mostly older workers simply resigned. But at the same time, the federal government injected vast amounts of purchasing power into the economy, thus boosting consumption.

Quotation of the Day…

(Don Boudreaux)

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… is from page 7 of Thomas Sowell’s monumental 1980 volume, Knowledge and Decisions (original emphasis):

What then is the intellectual advantage of civilization over primitive savagery? it is not necessarily that each civilized man has more knowledge but that he requires far less.

DBx: This truth is doubly – triply, quadruply, quintuply! – true for our modern, global, commercial civilization. The amount of human knowledge and information that you take advantage of every moment of your life today in countries such as the United States, Germany, Singapore, and Australia is indescribably vast compared to the amount of knowledge and information that you possess. Your knowledge and information is like a miniature mite beside the Jupiter-sized amount of knowledge and information that you daily use.

Consider your clothing, your breakfast, your bathroom, your smartphone, your automobile, your pencil – each of these modern goods is brought to you by the undesigned cooperation of literally millions of individuals from around the globe. Each of these individuals possesses unique knowledge and information that are, through his or her actions in the economy, used to produce his or her tiny contribution to global economic output. Each individual’s contribution is coordinated with the contributions of each of the countless other producers by the market.

The key player in the market is the price system and its ever-changing pattern of relative prices, expressed in money. This pattern reflects and conveys far better than any other possible institution the relative scarcities of different resources, as well as the relative intensities of different desires of consumers.

That the market isn’t ‘perfect’ is a trivial insight. Of course it isn’t; only an immature mind supposes that perfection is possible or that perfection is an appropriate standard against which to judge reality. But that the market actually works, and works pretty darn well – and (most importantly) works far better than any realistic alternatives – cannot be doubted by any mature mind that surveys history and existing realities.

The overall result is the modern cornucopia of goods and services that is so abundant and robust that we take it for granted. Its abundance is so vast and its regularity so excellent that Marxists and many other economically uninformed people suppose that this process of production is somehow automatic, a gift of nature or a product of history, something that ‘grows’ according to simple ‘laws’ that French economists obsessed with income and wealth ‘distributions’ write down as if they’ve discovered the economic equivalent of the laws of thermodynamics.

Yet there is nothing automatic about the modern economy, if by ‘automatic’ is meant ‘independent of institutions and of human ideas and individual efforts.’ If the price and profit-and-loss system that performs this massive feat of globe-spanning coordination of the efforts of billions of individuals worked less smoothly than it does we would perhaps take more notice of it and behold it with wonder and appreciation for its magnificent fruits. But instead this system works so very smoothly and so silently that it goes unnoticed. Its occasional ‘failures’ and hiccups are then interpreted as obscene violations of, or breakdowns in, some imaginary laws of nature – violations that people posing as priests of secular salvation promise to prevent.

A great irony is that the interventions of these officious and arrogant priests – a more common name for these priests is “politicians” – almost always make matters worse. How could these interventions not do so? The amount of knowledge and information that any of these priests can possibly have of the details of the complex system into which he or she intervenes is, again, as a miniature mite beside Jupiter. Yet the belief in the possibility of the miracles that would be necessary for such interventions to work as promised is unshakable, and it is a mystical belief clung to with special, often fanatical, fervor by intellectuals.

Trade Is Amazing: It Empowers Us to Turn Almost Anything Into Almost Anything Else

(Don Boudreaux)

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In my latest column for AIER, I steal an idea from David Friedman and Steve Landsburg and sing heartfelt praises to the amazing cargo ship. A slice:

The lesson of the cargo ship applies more generally, not merely to trade that crosses political borders. Like the trade that’s carried out using cargo ships, all trade – from the simplest to the most complex – works wonders. Trade allows each of us to turn our unique talents into the fruits of the talents of everyone with whom we trade.

All that I, Don Boudreaux, produce is economics instruction. That’s it. Yet I consume an uncountably large number of different goods and services, from food to pharmaceutical products, from housing to health care, from wine to weather apps, from clothing – and corn – to cars. Not only do I not produce any of the things that I consume, I couldn’t if given a million years possibly do so. I acquire what I consume through trade – an institution that turns each of our talents into the fruits of the talents of our fellow human beings.

Amazing.

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(Don Boudreaux)

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Gabrielle Bauer, writing in the Wall Street Journal, explains that normal people say ‘no’ to masks. Two slices:

We’ve won the war. By “we,” I mean normal people who want normal things: community, connection, creativity, with a bit of dancing on the side. For three years, we’ve had to battle those who were unwilling to tolerate any Covid risk and demanded that the world conform to their fears. At times I was sure we would lose.

…..

In October 2020, Tom Frieden, a former Centers for Disease Control and Prevention director, proclaimed that “masks are in and handshakes out for the indefinite future.” A March 2021 Vox article marveled at the oddity of watching maskless gatherings in movies and on TV, as though this behavior belonged to some quaint prehistoric era.

I am happy to report that the prognosticators were dead wrong. The year 2023 is marching to a new drumbeat—an infectiously catchy rhythm that sounds remarkably like the Old Normal. International travel, leisure travel, business travel—it’s all back, and then some. And let me tell you about the medical conferences I attended over the past six months in Barcelona, Milan, New York, Montreal and Miami Beach. There were a lot more handshakes than masks, and these are doctors we’re talking about. People are even blowing out their birthday-cake candles: I’ve seen it happen twice in the past two months. It’s only on Twitter that people still insist we must #BringBackMasks to stave off the apocalypse.

It seems that the expert class and its acolytes hoped Covid would fundamentally change human behavior. That it would make us keep our distance from each other, retreat into ourselves, dedicate more of our lives to gardening, sourdough-bread making and the like. They really wanted this. But it turns out human nature is more powerful than their smug and classist vision of remote work and socializing. With their blinkered focus on a virus, they failed to consider that most of us want more from life than avoidance of illness. We’re even willing to tolerate getting Covid to get to the good stuff. Imagine that.

“In the affluent West our fear of death has made us susceptible to public health tyranny” – so argues David Bell…

… and yet, David Henderson reports the happy development that some U.S. states have recently taken steps to rein in the gruesome powers of public-health officials.

Anthony LaMesa tweets: (HT Jay Bhattacharya)

Covid lockdowns and restrictions undoubtedly distorted the global economy in ways that we don’t even understand yet.

Thorsteinn Siglaugsson fact-checks the benighted recent ‘fact checker’ of the Cochrane mask study.

Writing in the Wall Street Journal, Charles Calomiris explains what shouldn’t, but what in fact does, need explaining – specifically, government-arranged “deposit insurance encourages bank failures like SVB.” Three slices:

Silicon Valley Bank’s failure makes many Americans grateful for deposit insurance, which protects accounts holding $250,000 or less. But the SVB episode also illustrates the dangers of deposit insurance. A banking system dominated by government insurance, plus too-big-to-fail protection that effectively insures all deposits at the largest banks, lacks essential market discipline, is systemically unsafe, is more likely to see episodes like SVB’s failure, and is more costly to taxpayers and bank customers.

Historically, unprotected well-informed depositors, especially other banks, gauged and responded to each bank’s risk, creating an incentive for banks to manage risk responsibly. Uninformed depositors—like those now at risk at SVB—were free riders on informed discipline. Now, informed depositors can easily get around the $250,000 limit on insurance, which eliminates their incentive to monitor banks. The recent disappearance of the interbank loan market means that banks don’t monitor each other to gauge creditworthiness as short-term borrowers of reserves either. That leaves only bank regulators to mind the store, and they often lack incentives and knowledge to measure and punish risk on a speedy basis. That’s how predictable messes like SVB happen.

…..

Deposit insurance was absent from nearly all other countries’ banking systems before 1980, and from the U.S. (with some temporary exceptions) until 1933. It was adopted for political reasons, and it hasn’t been a stabilizing influence. Virtually every academic study of deposit insurance shows that it promotes, rather than reduces, banking system fragility, with major costs borne by the insurers—which means ultimately by insured depositors and potentially taxpayers. The popularity of deposit insurance reflects public ignorance about its costs and about how a disciplined, uninsured banking system could operate as an alternative.

…..

This episode points to a continuing failure of regulatory discipline, which lacks the incentives and smarts of the market, to substitute for market discipline. It also points to the need for business managers to learn more about banking, and for the Fed to learn that its own monetary-policy mismanagement for many years has lots of consequences for reducing financial stability. Those consequences include the insidious elimination of interbank discipline by ending the last vestige of informed discipline on imprudent risk management by banks.

Wall Street Journal columnist Mary Anastasia O’Grady writes with great good sense about the ‘drug war’ in Mexico. Two slices:

The latest bromide aimed at combating the availability of dangerous drugs in the U.S. comes from conservatives inside the Beltway, who propose to use the U.S. military to take out the cartels by striking Mexico, our sovereign, democratic neighbor. This isn’t only insane, it’s unlikely to alter the availability of street narcotics in the U.S.

…..

Some Americans want other Americans to stop doing so many drugs. Mexicans want this too, since it’s the billions of dollars their rich next-door neighbors pay in cash for the stuff that has empowered the gangsters and overwhelmed the country’s young, weak democratic institutions. The trouble is that the use of U.S. military force on foreign soil has never worked to reduce American demand for illegal drugs, and the unintended consequences could be costly.

The recent saber-rattling by American conservatives is the best thing that has happened to Mexican President Andrés Manuel López Obrador in his four years in office. His policy of nonconfrontation with the cartels has been a failure. As Mexican journalist Jorge Ramos explained in a March 3 column in the newspaper El Norte, there have been 139,077 homicides in Mexico since the start of the López Obrador presidency, which runs another 18 months. To put that in context, there were 124,478 homicides during the full six years of the government of Enrique Peña Nieto (2012-18) and 121,683 killed during Felipe Calderón’s presidency (2006-12).

“Students at ‘elite’ law schools behave like thugs.”

Samuel Gregg is rightly dismayed by ‘stakeholder capitalism’ (so-called). A slice:

A particularly forceful critic was one of America’s leading corporate law scholars. In his new book, The Profit Motive: Defending Shareholder Value Maximization, Stephen M. Bainbridge has systematized his many criticisms of the BRT’s 2019 statement and used it as one of his “principal foils” for a systematic takedown of the very idea of stakeholder capitalism. This is accompanied by a rigorous defense of shareholder primacy on Bainbridge’s part. He not only shows that maximizing shareholder value is “descriptively accurate” of the corporation’s purpose. He also claims that it can be “normatively appealing.” Bainbridge thus seeks to steal the ethical thunder that stakeholder theorists generally assume to be their ace-in-the-hole.

Quotation of the Day…

(Don Boudreaux)

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… is from page 53 of the 2008 Third Edition of the late Vincent Ostrom’s 1973 book, The Intellectual Crisis in American Public Administration (reference deleted; link added):

[Gordon] Tullock suggests that the limits on control in very large public bureaucracies will engender “bureaucratic free enterprise” when individuals and groups within an organization proceed to formulate their own missions with opportunities for side payoffs, including graft and corruption. Goal displacement and risk avoidance motivated by individual self-interest will generate organizational dysfunctions as elaborate justifications are fabricated to cover potential exposures to the scrutiny of superior authorities. The social consequences generated by an organization become increasingly contradictory and unreal to an independent observer when compared with public rhetoric about organizational purposes and goals.

DBx: Pictured here – sometime in the mid or late 1980s in his office on George Mason University’s Fairfax campus – is my late, great colleague Gordon Tullock.

Taxing An Intelligent Person’s Patience

(Don Boudreaux)

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Here’s a letter to the Wall Street Journal:

Editor:

Frank Clemente asserts that “[t]he richest Americans don’t pay their fair share of income taxes for the simple reason that a lot of their income is never taxed” (Letters, March 14). Yet the “income” that Mr. Clemente identifies as escaping taxation is – his words – “unrealized capital gains.” Upon reading this line I split my side laughing. Unrealized capital gains aren’t income; they’re increases in asset values which, Mr. Clemente leaves unmentioned, might disappear tomorrow. Also unmentioned by Mr. Clemente is the fact that when assets are sold, any gains in their values are then taxed.

Using legerdemain to try to fool your readers into thinking that unrealized capital gains are the equivalent of income, Mr. Clemente notes that asset owners can borrow against asset values and, by implication, use the funds for consumption. True dat. But every cent borrowed registers as a liability on a debtor’s balance sheet; debts must be repaid. Unlike with receipts of income, a debtor’s net worth doesn’t change as a result of borrowing funds to be spent on consumption; the debtor simply transfers to the present spending power that would otherwise be realized in the future – spending power that, should the asset retain its value, will then be taxed. No matter how viewed, unrealized capital gains are not income.

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

Pittsburgh Tribune-Review: “Ford’s pay hike: It wasn’t about [having his workers buy his cars]”

(Don Boudreaux)

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In my column for the November 26th, 2013, edition of the Pittsburgh Tribune-Review I relayed what serious economic historians (and economists) know about Henry Ford’s famous January 1914 hike of his full-time workers’ daily pay from $2.34 to $5. (The title that the Trib put on this piece of mine – “Ford’s pay hike: It wasn’t about profit” – is inadvertently misleading. Contrary to the assigned title of my piece, Ford’s pay hike was indeed about profit, although it was not about profiting by paying his workers enough to afford to buy Ford automobiles.) You can read my column in full beneath the fold.

(more…)

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Writing in the Wall Street Journal, Vivek Ramaswamy warns of the government’s bailout of Silicon Valley Bank. Two slices:

Treasury Secretary Janet Yellen announced Sunday evening that Silicon Valley Bank’s uninsured depositors would gain access to their deposits on Monday. The Federal Deposit Insurance Corp. insures only deposits up to $250,000. The bailout creates incentives for risky behavior, teaching large depositors that they can throw money at risky banks without diversifying or conducting diligence. SVB long lobbied for looser risk limits by arguing that its failure wouldn’t create systemic risk and thus didn’t merit special intervention by the U.S. government. Yet on Sunday, Treasury deemed SVB “systemically important.”

…..

SVB’s situation is different from that of most U.S. banks. Only 11% of its deposits were insured. While the operating accounts of small businesses often exceed the FDIC limit, large banks usually sweep the excess into cash-management programs that buy Treasury bills and other securities. As the nation’s 16th-largest bank, SVB simply chose not to do so. For some reason Roku, the publicly traded maker of streaming devices, had a $487 million balance with the bank.

SVB also had a concentrated client base of tech startups whose needs for capital were highly sensitive to rising interest rates. Yet SVB itself had the highest concentration of any major bank in mortgage-backed securities, also especially sensitive to that risk factor. This is an egregious oversight specific to SVB. Its investment portfolio was 57% of total assets, more than twice its peer average of 24%.

And here’s the Wall Street Journal‘s Editorial Board on the SVB bailout. Three slices:

This is a de facto bailout of the banking system, even as regulators and Biden officials have been telling us that the economy is great and there was nothing to worry about. The unpleasant truth—which Washington will never admit—is that SVB’s failure is the bill coming due for years of monetary and regulatory mistakes.

…..

SVB executives made mistakes, and they will pay for them, but they were encouraged by easy money and misguided regulation. As the Fed flooded the world with dollar liquidity, money flowed into venture startups that were SVB’s customer base. The bank’s deposits soared—far beyond what it could safely lend.

In a world of near-zero interest rates, SVB put the money in long duration fixed-income assets in search of a higher return. Regulators after the 2008 crisis had deemed these Treasury bonds and mortgage-backed securities nearly risk-free for the purpose of measuring bank capital. If regulators say they’re risk-free, banks and depositors may be less careful.

…..

Thus the cries for federal intervention. Treasury Secretary Janet Yellen said Sunday there will be no “bailout” for SVB, but she is indulging in semantics. The feds said they will guarantee even uninsured deposits at SVB as well as at Signature Bank in New York. Typically in a bank failure those depositors would get their money back with a 15% to 20% haircut. This would no doubt be a hardship for many customers, but the $250,000 limit was known.

Will a universal uninsured deposit guarantee be next? This would be a monumental policy surrender, essentially admitting that the regulatory machinery established in 2010 by Dodd-Frank failed. We may be the only people in the world who still worry about “moral hazard.” But a nationwide guarantee for uninsured deposits, even for a limited time, means this will become the default policy any time there is a financial panic.

Here’s the publisher’s description of my teacher Randy Holcombe’s soon-to-be-released book – Following Their Leaders – from Cambridge University Press:

Models of democratic decision-making tend to assume that voters have preferences and that candidates adjust their platforms to conform with those preferences; however, the direction of causation is largely the opposite. Political elites offer policy platforms to voters, and voters adopt those policies – they follow their leaders. Following Their Leaders argues that policies are designed by the elite and the electorate has little say. Preferences for public policy tend to be anchored in a political identity associated with a candidate, party, or ideology; voters’ preferences on most issues are derived from their anchor preferences. Holcombe argues that because citizens adopt the policies offered by the elite, democratic institutions are ineffective constraints on the exercise of political power. This volume explores political institutions that help control the elite who exercise political power and discusses the implications political preferences have on democracies.

Kimberlee Josephson offers some history of ESG ‘investing’ (so-called). A slice:

ESG assessments are a daunting matter for firms, and any fall from grace in a ratings review can be put on full display, to which Mark Zuckerberg and Elon Musk can attest. Unlike financial data that is audited by accountants who are in a credible and specialized role, ESG measurements are conducted by so-called sustainability experts – a fairly new field encompassing a vast array of concerns and production processes.

David Henderson persuasively argues that “stock buybacks are good, not bad.” Here’s his conclusion:

Fortunately, Erica York, a senior economist at the Tax Foundation, nicely shows why stock buybacks often make sense. They tend to happen when a firm doesn’t have better investment options. Stock sellers can then use the funds to invest in firms that do have better investment options. Oh, and by the way, who owns a large percent of corporate America? Pension funds. Many workers rely on these funds for their retirement. Those tears that Schumer and Biden are shedding for workers are crocodile tears.

Fraser Nelson warns that, despite the data, “Britain may well repeat its lockdown blunders sooner than anyone thinks.” Three slices:

Almost exactly three years ago, Chris Whitty explained the trouble with lockdowns. Pandemics, he would say, kill people in two ways: directly – and indirectly, via panic and disruption. It’s hard to measure the latter but you can count the total number of deaths, from all causes. Such figures are coming in now. The country with the smallest rise isn’t Australia or New Zealand, who closed their borders. Nor is it Italy or Canada, who had some of the toughest lockdowns. The winner, with the smallest rise in “excess” deaths since the pandemic began, is Sweden.

For those who had accused the lockdown-rejecting Swedes of pursuing a “let it rip” policy that left people to die, this is all rather baffling. And it raises some interesting questions. Australia had hardly any Covid: just lockdowns. So how did it end up with “excess deaths” – at 7 per cent – more than twice the level of the Swedes? If choosing lockdown was to “choose life” (as Matt Hancock put it) then where, in the world’s data, is the correlation between lockdown severity and lives saved?

…..

The Lockdown Files give three main insights into what went wrong. First, we have firm examples of “the science” being invoked to impose various measures that turn out to be politically motivated. Then we see the slapdash method in which major decisions were made: how WhatsApp replaces normal government. And finally, the tone. How after taking emergency powers, this group of men go from being thoughtful and open-minded to being flippant and gung-ho. Once again, we see how power corrupts – and absolute power corrupts absolutely.

…..

By showing us the psychology of a group in a crisis, the Lockdown Files explain why previous pandemic planning failed: it didn’t factor in human nature. The public panic was so deep that there was huge pressure to impose restrictions, whether they worked or not. This created a gravitational pull that sucked in the government, opposition and much of the media – crushing the normal safeguards (cost-benefit analyses, etc). No one wanted to go against it. Even academics found a huge pressure to be quiet if they had doubts. Oxford’s Carl Heneghan calls this the “silence of science”.

Sweden had the unflappable Anders Tegnell as chief epidemiologist, who went all-out to argue against what he saw as populism: lockdowns that were not backed by science and could cause more harm than good. He never stopped arguing, giving television interviews while waiting on train platforms and publishing study after study. He won people over. Sweden ended up with middling Covid but among Europe’s least economic damage and lowest increase in deaths. In an interview last week, Tegnell offered advice for his successor: “Have ice in your stomach.”

Wall Street Journal columnist Joseph Sternberg reflects on Britain’s Lockdown Files. Two slices:

Many of the messages are disgraceful. Mr. Hancock and others chortle about the fate of travelers subjected to expensive hotel quarantines on their return to the U.K. during one phase of the Covid response. Officials debated whether pandemic regulations could be used to arrest political gadfly and lockdown critic Nigel Farage—who for years has been an archnemesis of the governing Conservative Party.

Personal political concerns of the principals—whether the desire to appear tough on the virus or a scramble to avoid further embarrassing policy pirouettes—intruded into many decisions. In a discussion in November 2020 over whether contacts of positive cases should continue to be required to quarantine for 14 days, Mr. Hancock resisted scientific advice to loosen this onerous restriction for fear that a new rule would “imply we’d been getting it wrong.” The government chose saving face over saving lives or liberties.

The recurring theme is that British officials inflicted an unprecedented lockdown on their citizenry based on flimsy and conflicting scientific evidence. Politicians and their advisers (often communications aides) decided for political reasons to push a measure. Scientists hemmed and hawed about the measure’s likely efficacy. The politicians then chose to heed either the “hem” or the “haw” that offered support for what they already wanted to do.

The debate in August 2020 over mask mandates in English schools shows how it worked. Mr. Hancock noted an absence of clear medical advice in favor of masking. But Mr. Johnson’s communications director, Lee Cain, observed that Scotland’s government was about to impose a mask mandate in schools, which would create pressure for England to follow suit. “Why do we want to have the fight,” he asked, while a senior civil servant worried “nervous [English] parents will freak out.”

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But neither should one overlook the public’s eagerness to have its pants scared off. Messages from early March 2020 expose the administration’s realization that, even before the first lockdown, the public’s self-imposed social-distancing measures—a huge signal of risk-aversion—were running far ahead of official guidance.

The lockdown files expose a governing class happy to exploit scientific uncertainty and public fear to expand its powers to an unprecedented degree in service of its own parochial interests and ambitions—reason enough to say “never again.”