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The Library of Economics and Liberty
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18 октября, 02:14

Adam Silver Cut No Constitutional Corners, by David Henderson

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  Unfortunately, however, O’Rourke, Warren and Silver demonstrate the tendency of too many progressives to cut constitutional corners, to despise and bully adversaries, and to practice theatrical but selective indignation about attacks on fundamental American principles, some of which they themselves traduce. Just what we did not need in our dispiriting civic life: additional evidence that there really is no such thing as rock bottom. So writes George Will in “Progressives are all too willing to cut constitutional corners,” Washington Post, October 16, 2019. On all those charges, Will makes a solid case that Beto O’Rourke and Elizabeth Warren are doing what he says they’re doing. On the charge that the NBA’s Adam Silver is cutting constitutional corners, Will completely fails. He gives not a sliver (pun not intended)  of evidence that Silver is doing anything to violate the constitution; Silver doesn’t even advocate violating the freedom of speech clause in the Constitution, although he may not be good on other aspects of the Constitution. Private organizations like the National Basketball Association can have any rules they want about the behavior of players and executives. That means they can require that players and executives grovel before totalitarian governments. Interestingly, though, Silver even went above and beyond, defending Houston Rockets general manager Daryl Morey’s right to speak out on China. Here’s a snippet from the Matt Bonisteel, “NBA Commissioner Adam Silver says league supports free speech, must live with consequences,” Washington Post, October 8. “I want this to be clear, and I think there’s been some confusion around this: We are not apologizing for Daryl exercising his freedom of expression,” the commissioner said. Silver added that while the protests in Hong Kong are a “a third-rail issue in China,” there are values “that are deeply rooted in the DNA of the NBA, and that includes freedom of expression for our employees.” It’s possible that Silver squeezed Morey behind closed doors, but we don’t know that. What we can be reasonably sure of is that Silver did not fine Morey as that wonderful critic of oppressive governments LeBron James seemed to have urged. Moreover, according to this article, here’s how Silver responded to LeBron’s suggestion: But Silver pushed back against James, saying he’d never disciplined any of the myriad players or coaches who’ve routinely criticized President Trump, his administration or his policies. He said Morey deserved similar latitude, and reportedly told James the same freedoms enjoyed by anti-Trump players applied to Morey challenging China’s government. Sounds pretty good to me. There is one more way Silver could show that he doesn’t grovel: tell the Congressmen who gave him unsolicited advice to take a flying leap. HT2 Don Boudreaux (1 COMMENTS)

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17 октября, 22:40

Is It Sufficient to Just Believe?, by Pierre Lemieux

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What’s the importance of truth in economics? Has the presidency of Donald Trump taught us anything in that respect? By “us”, I mean we libertarians who have been tempted by populist enterprises. The Economist writes (“The Man Without a Plan: Donald Trump Suddenly Withdraws from Northern Syria,” October 10, 2019) that Trump’s advisers are coping with a commander-in-chief who, according to his own former secretary of state, “is pretty undisciplined, doesn’t like to read, doesn’t read briefing reports, doesn’t like to get into the details of a lot of things, but rather just kind of says: ‘This is what I believe.’” This characterization corresponds to what an observer can gather from listening to the President or reading his tweets. And it is independent of what one may think of the substantial issues in the withdrawal from Syria. It is at least as relevant to other issues, such as Trump’s total lack of understanding of trade and his disastrous trade policies. In general, Trump will have taught us that rulers who just “believe” are dangerous. It is important to be able or try to justify what one believes. In matters of simple tastes, such as preferring Coke to Bordeaux, it is ok to just express one’s preferences (even if trying to cogently explain them to oneself can lead to useful discoveries and perhaps to some wisdom, but this is outside the domain of economics). Intuition and faith, however, are not sufficient in matters of ideas and values, especially when the believer has the power to impose his beliefs on those who don’t believe. In public policy, truth matters. How truth matters in economics is a more complex question than it appears at first sight. At the epistemological level, economics needs to be based on true statements about the outside world if it is to be useful as a science. At another level, individuals act on the basis of what they believe to be true, so preferences and beliefs, whatever their relations to the truth, are essential to gain an understanding of individual behavior–a point made by F.A. Hayek in The Counter-Revolution of Science, notably Chapter 3 on “The Subjective Character of the Data of the Social Sciences.” And, of course, public policy must be consistent with physical and social reality. It is not sufficient for a ruler to just believe; at any rate, this should be obvious in a non-tribal society where individual preferences differ. Frank Knight touched both the epistemological and the public-policy level when he wrote, in a 1944 article reproduced in his book Freedom and Reform: Truth itself (where any question is at issue) is a value, a matter of what one “ought” to believe, of better and worse reasons for believing; and the obligation to believe what is true because it is true, rather than to believe anything else or for any other reason, is the universal and supreme imperative for the critical consciousness. [emphasis in original] Of course, Trump is not the only politician to govern on the basis of uncritical beliefs, which, not coincidentally, often correspond to what he thinks will win elections. Public choice theory has derived useful results from the simple hypothesis that politicians are as self-interested and imperfect as ordinary individuals. Trump also illustrates that politicians are subject to the same cognitive limitations as ordinary individuals; behavioral economists, please take notice. But let’s admit that Trump is an extreme case. Hence the prudent necessity, from a classical liberal viewpoint, of strictly restricting government power. (2 COMMENTS)

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17 октября, 22:30

Exporters Make Money, by David Henderson

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  In an otherwise excellent critique of Donald Trump’s trade policy, Mercatus economist Veronique de Rugy writes: Worst of all, the deal would actually reinforce these Chinese behaviors. For instance, the deal in question would require that China use its state-owned enterprises to buy $40 billion to $50 billion worth of American agricultural products annually—instead of the roughly $20 billion it bought previously. That’s no victory. That’s a concession China already agreed to more than two years ago. And that’s pursuing the very sort of top-down, government-directed policy Trump claimed he wanted to change in the first place. Unfortunately, thanks to a profound misunderstanding about the value of exports, the president may receive some praise for getting China to commit to buying more U.S. soybeans. While it may be very counter-intuitive to most people, economists understand that exports are valuable goods that we give up in exchange for imports; exports themselves are costs, rather than benefits. Think about it this way: When you go to work in the morning, you export your services to your boss in exchange for wages, which, in this illustration, are an import. Even if you love working and derive value from it, for the most part you export your work in exchange for your wages and the goods and services that you can then buy with them. Imports, and the consumption they allow, are the goal of trade—not exports. As George Mason University’s Donald Boudreaux notes, “What is true at the level of the household is here true at the level of the national economy: the goods and services that Americans export to foreigners are the costs that we willingly incur in order to be able to import into our country the goods and services that we receive from foreigners in exchange.” In this section, she starts out well, pointing out that it’s kind of weird for Mr. Anti-Socialist (my words, not Vero’s) Donald Trump to congratulate a government that moved away from destructive central planning of the economy for engaging in more central planning. So that’s not my criticism. My criticism comes in the next two paragraphs. Vero writes that exports are costs. That’s true. But then she writes that we exchange exports in return for imports. Not necessarily. What we know is true is that exporters typically exchange exports for money. They then use this money to buy other things–domestic goods and services or imported goods and services–or to invest. Notice that Vero writes: When you go to work in the morning, you export your services to your boss in exchange for wages, which, in this illustration, are an import. That’s stretching it. I don’t think money is an import. She then writes: Even if you love working and derive value from it, for the most part you export your work in exchange for your wages and the goods and services that you can then buy with them. OK. But wouldn’t it make sense for you to celebrate the fact that you got paid for what you love doing? When people export things, they get paid. So it’s not at all strange to celebrate American producers getting paid for things they produce. They aren’t giving the exports away; they’re selling them. Her analogy with individuals is apt. Just as exporters get paid for their exports, workers get paid for their work. So go back to the individual. Imagine Vero gets a lucrative contract for some free-lance work and when she receives her first big payment, she celebrates. Would it make sense to say, “Oh, Veronique, don’t celebrate. You had to work for that money. You should celebrate only when you buy things with the money, not when you get paid.”   HT2 Donald Boudreaux. (2 COMMENTS)

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17 октября, 17:28

Conformity and Perspective in Nickel and Dimed, by Bryan Caplan

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As you might expect, Barbara Ehrenreich didn’t like working at Wal-Mart.  Why not?  Low pay is a big part of the story, but it’s the demand for conformity that really rubs her the wrong way: With competence comes a new impatience: Why does anybody put up with the wages we’re paid? True, most of my fellow workers are better cushioned than I am; they live with spouses or grown children or they have other jobs in addition to this one. I sit with Lynne in the break room one night and find out this is only a part-time job for her-six hours a day-with the other eight hours spent at a factory for $9 an hour. Doesn’t she get awfully tired? Nah, it’s what she’s always done. The cook at the Radio Grill has two other jobs. You might expect a bit of grumbling, some signs here and there of unrest- graffiti on the hortatory posters in the break room, muffled guffaws during our associate meetings but I can detect none of that. Maybe this is what you get when you weed out all the rebels with drug tests and personality “surveys”-a uniformly servile and denatured workforce, content to dream of the distant day when they’ll be vested in the company’s profit-sharing plan. They even join in the “Wal-Mart cheer” when required to do so at meetings, I’m told by the evening fitting room lady, though I am fortunate enough never to witness this final abasement. But if it’s hard to think “out of the box,” it may be almost impossible to think out of the Big Box. Wal-Mart, when you’re in it, is total – a closed system, a world unto itself. I get a chill when I’m watching TV in the break room one afternoon and see … a commercial for Wal-Mart… Even the woods and the meadows have been stripped of disorderly life forms and forced into a uniform made of concrete… The only thing to do is ask: Why do you – why do we – work here? Why do you stay? I’m sorely tempted to recite the First Law of Wing-Walking: Never let hold of what you’ve got until you’ve got hold of something else.  Ignoring this Law is arguably the biggest flaw in Ehrenreich’s experiment, which requires her to keep quitting her jobs and finding others in distant cities.  On further reflection, though, Nickel and Dimed doesn’t even leave time for a given job to improve: So when Isabelle praises my work a second time (!), I take the opportunity to say I really appreciate her encouragement, but I can’t afford to live on $7 an hour, and how does she do it? The answer is that she lives with her grown daughter, who also works, plus the fact that she’s worked here two years, during which her pay has shot up to $7.75 an hour. She counsels patience: it could happen to me.  Melissa, who has the advantage of a working husband, says, “Well, it’s a job.” Yes, she made twice as much when she was a waitress but that place closed down and at her age she’s never going to be hired at a high-tip place. I recognize the inertia, the unwillingness to start up with the apps and the interviews and the drug tests again. She thinks she should give it a year. A year? I tell her I’m wondering whether I should give it another week. The sarcasm puzzles me.  For perspective, imagine someone proposed cutting food stamps by 10%.  How would Ehrenreich react?  I’m confident that she’d consider this a major blow for low-income families.  So why doesn’t a 10.5% raise after a year or two of steady employment count as a major improvement?  Why? (14 COMMENTS)

17 октября, 01:43

Is the UK about to become Canada?, by Scott Sumner

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Overall, I believe the EU has had a positive effect on Europe. Unfortunately, it has become too interventionist in some areas, especially when imposing regulations that are better left to national or local governments. At the same time, in many other areas it has not gone nearly far enough, especially in terms of creating a free trade zone in services. The UK is likely to leave the EU in the near future and there are indications that it may adopt a relationship that is roughly like the relationship between Canada and the US: What really matters is that Mr Johnson is seeking a goods-only or “Canada minus” deal for the rest of the UK.                              This will involve only minimal coverage of services, they write. “It will also involve significant non-tariff barriers on trade”, because there will be extra costs for business as the UK operates its own customs regime.  This means the Johnson deal is far worse for the economy than Theresa May’s. Menon and Portes calculate that, under the May deal, income per capita would have been 1.7 per cent lower than under continued EU membership. The equivalent figure for the Johnson deal is 2.5 per cent lower while that for a no-deal Brexit is 3.3 per cent. I believe “Canada minus” refers to Canada’s new free trade agreement with the EU, not Nafta, but what interests me is that a “goods only” relationship is similar to what Canada has with the US.  If this distinction is confusing, consider the difference between shipping goods from Belgium to France, vs. Ontario to Michigan.  Both are free trade zones.  But unlike in the EU, you have to go through customs at the US/Canada border. Generally, when I see those loss estimates from an opponent of a policy I take them with a grain of salt.  Industry is surprisingly adaptive; for instance, the cost of environmental regulations is often less than first estimated.  Perhaps the same is true of trade disruption.  So the 2.5% of GDP loss estimate may be too high. On the other hand, consider that Canada’s per capita GDP is more than 20% lower than in the US.  It’s not obvious to me why this is the case.  Consider some hypotheses: 1. Natural resources?  Nope; Canada has more in per capita terms. 2. Ethnic mix?  In America, whites and Asians earn considerably more than blacks, Hispanics, and Native Americans.  Canada has a smaller share of its population in the lower earning ethnic groups. 3.  Lack of free markets?  Canada is 1.2% freer in the Heritage ranking of economic freedom, while the US is 1.4% freer in the Cato ranking. Average the two rankings and they are virtually identical. 4.  Big government?  Canada’s government is a bit bigger as a share of GDP (sources differ on the precise figures) but not dramatically bigger. You can quibble about my comparisons, but the US/Canada income gap of more than 20% is really large.  Think about how British Columbia is sort of like Washington State.  Or how Toronto is sort of like Chicago.  Or how Alberta is sort of like Texas, or how Saskatchewan is sort of like the Dakotas, or how New Brunswick is sort of like Maine, or how Canada’s north is sort of like Alaska.  If there were no boundary line at the 49th parallel, wouldn’t you expect Canada to be as roughly rich as the US?  Maybe even bit richer, given that the northern US (which Canada most resembles) is a bit richer than the South. Thus I’m not so sure the 2.5% Brexit loss estimate is too high.  You might wonder why I don’t come up with an even larger estimate, based on the US/Canada income gap.  However, even with all the success of the EU, Europe remains far less integrated than the US economy.  A few weeks back, The Economist had a nice set of stories on the sad decline of the European economy: A decade ago ten of the world’s 40 largest listed firms by market value were based in the eu; now only two are—in 32nd and 36th place. This is because Europe doesn’t yet have a single market in services: European companies selling goods can make use of the single market, reaching scale and so profitability quickly. They have an edge over those that sell services. Partly as a result, Europe is a continent of goods companies. Fully 21 of the eu’s 25 biggest listed firms supply goods, including cars, make-up, alcohol and planes. Two decades ago the same was true in America—where now 17 of the 25 biggest companies provide services such as software, data plans and bank accounts. This matters: services companies are, on the whole, more productive than those making goods. That usually translates into higher salaries for their employees. Services companies spring up quickly. America’s five biggest companies are tech giants mainly focused on services (and gadgets, in the case of Apple) with an average age of just 30, worth $4.3trn between them, 35 times last year’s profits. Europe’s biggest firms all existed in one form or another a century ago—think of Unilever and Royal Dutch Shell. Combined, they are worth under $1trn, about 23 times last year’s profits. The UK’s GDP won’t fall by 20% because they start from a position less well integrated into a continental size market than the US.  They are already poorer than Canada. Will we ever know the effect of Brexit?  Probably not, but in my view the best estimate will be as follows:  Right now, the UK and France are amazingly similar countries in two respects.  The have almost identical populations and almost identical GDP/person in PPP terms (based on IMF or CIA estimates, the World Bank has a small difference).  Both countries have been growing slowly in recent years.  If nothing dramatic happens to public policy in France (which is a politically stable country), it may represent our best way of measuring the effect of Brexit on the UK.  If the UK’s GDP/person is still roughly even with France in 10 years, then Brexit probably won’t have hurt.  If it’s 2.5% behind, then the Financial Times will likely be correct.  In my view, either outcome is plausible.  If forced to offer an opinion, I’d guess the UK will be 1.5% behind in 10 years, if the rumored Boris Johnson proposal is adopted.  Somebody needs to remind me of this prediction if I’m still alive at age 74! (8 COMMENTS)

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16 октября, 17:33

A Coupon for Kids, by Bryan Caplan

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Imagine I offer you a coupon for “CHOCOLATE – 25% off!” and you respond… You fail to consider that chocolate is fattening!  Also, it can kill dogs.  And it’s linked to acne.  Furthermore, many people are diabetic.  And lots of people are too poor to buy chocolate even if it’s 50% off.  I also have to tell you that chocolate melts.  Sometimes it makes your hands sticky.  And when you’re hands are covered with melted chocolate, you might get ugly stains on your clothes.  And dry cleaning costs money. I trust you’ll agree that this is a bizarre reaction to a chocolate coupon.  Reasonable people will save their breath and do one of the following: a. Take the coupon, buy as much chocolate as they originally planned, and enjoy the extra consumer surplus. b. Take the coupon, buy more chocolate than they originally planned, and enjoy the extra consumer surplus. c. Discard the coupon. But after my Selfish Reasons to Have More Kids argued that parents could safely curtail many of the unpleasant features of child-rearing, critics often responded… You fail to consider that kids cost money!  Also, pregnancy is sometimes dangerous.  And moms have to do most of the work.  Lots of people just don’t find parenting appealing.  Many people can’t afford to have any more kids.  And it’s hard to travel if you have kids.  Also, kids nowadays aren’t much help with the chores, like they were back when we were farmers.  And once you’re kids start going to school, they’ll probably bring home some contagious diseases. While the critics naturally think they’re making telling points against my thesis, they’re not.  All I’m offering is a coupon for kids – a way to get the same kids with less pain and expense.  So even if all the critics’ “objections” are true, reasonable people will save their breath and do one of the following: a. Take the coupon, have as many kids as they originally planned, and enjoy the extra consumer surplus. b. Take the coupon, have more kids than they originally planned, and enjoy the extra consumer surplus. c. Discard the coupon. The story changes, admittedly, if the complaints were not just true, but weighty and surprising.  If I offered you a chocolate coupon, and you accurately responded, “Haven’t you heard that chocolate is the sole cause of cancer?!,” then I should definitely reconsider my marketing campaign.  Analogously, if I offered you a kids coupon, and you accurately responded, “Haven’t you heard that kids are the sole cause of cancer?!,” then I should definitely reconsider my natalist cheerleading. Otherwise, however, save your breath.  You can’t credibly counter a coupon with a long list of familiar drawbacks of the discounted product. (7 COMMENTS)

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15 октября, 18:49

The Latest Nobel Prize in Economics, by David Henderson

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  The Royal Swedish Academy of Sciences will award the 2019 Nobel Prize in Economic Sciences to Abhijit Banerjee and Esther Duflo of the Massachusetts Institute of Technology and Michael Kremer of Harvard “for their experimental approach to alleviating global poverty.” The award reveals a deepening fault line among economists about how best to fight poverty. What’s striking about the award is that the Nobel committee gave it to the three economists specifically for addressing “smaller, more manageable questions”—such as how to improve educational outcomes and child health in poor countries—rather than for big ideas. Mr. Banerjee and Ms. Duflo (a married couple) explicitly reject thinking about big questions in their 2011 book, “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty.” To be sure, breaking down big issues into smaller questions can sometimes allow quicker and more-direct solutions to unwieldy problems. Yet in the case of global poverty, economists actually do have pretty good ideas about how to fight the problem on a macro scale. Namely, immigration and economic growth, which are by far the most reliable ways to improve the quality of life among the world’s poor. These are the opening 3 paragraphs of my article, “Nobel Laureates Aim Too Low on Global Poverty,” Wall Street Journal, October 15, 2019 (print edition.) Under my agreement with the Journal, I can run the whole piece 30 days from now and I will do so. It’s not an ideal title. My point in the article is that the Nobel committee aimed too low, although I didn’t use that exact wording. If the Prize were awarded simply for good technical economics work, it would be well deserved. The problem is that the Nobel committee oversold the work, writing as if it’s small ideas that make the big difference in global poverty. It’s not. If you want to see someone who’s even tougher than me on the importance of this line of work, see Lant Pritchett’s piece written in June, “Randomizing Development: Method or Madness.” I read his piece after writing my first draft but it affirmed my strategy. (20 COMMENTS)

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15 октября, 01:31

Students Selling Notes, Part 2, by Michael Munger

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(Editor’s Note: Last week, Professor Munger told us a story about having seen a former student attempting to sell his notes for Munger’s final exam. Here is the second part of the story.) Given that, how should I have reacted to the Facebook post where the student tries to sell his/her notes?  Remember, I myself give out the questions, so no harm there. And I suggest that students share the burden of preparing the answers. The only wrinkle would be whether there is something wrong with selling the notes.   The simplest answer would be to accept the argument from the important book, Markets Without Limits (2015), by Jason Brennan and Peter Jaworski. They claim that if something is moral when you do it for free, that same thing cannot be immoral if you do it for money.  In other words, if there is no moral problem with the thing itself, then no moral problem is introduced by market exchange.   What I found mysterious about the “offer for sale” was that it seemed as if there was a way to make a lot more money, by selling copies of the notes rather than the one handwritten copy. I imagine that what happened was the student found the notes, started to throw them away, and then thought, “Huh. Someone else could use these. This was quite a bit of work. I’ll sell them!”   It could be, though, that the seller recognized that the value of the notes to one person is greater than the value to any one person of many, if the notes are xeroxed. After all, if the answers of many people are the same, or nearly so, the improvement in the grade may be reduced. And there’s a negative externality: if many people all do much better, that will raise the mean and the net effect, after the curve, may be zero. If only one student gets the notes, the answer will be unique (in that class, at least), and it won’t affect the curve; the buyer will capture all the benefits.   But there’s another aspect to this, one that actually says more about professors than about students.  I have noticed that the offer to sell notes elicits strong responses from some professors. They aren’t (only) worried that this is a genera ethical violation; it’s also an educational violation. Students should have to suffer through class, and synthesize the material themselves, before they can be said to have “learned” it.  Having it already synthesized, so that all the buyer of the notes has to do is review those few pages (I think it’s about 50 handwritten sheets), rather than the readings, is cheating all right. But it’s cheating the students who buy the notes out of the learning experience of the class.   This might be right, but in this case I have tried to make that less likely. The 12 essay questions constitute what I believe to be the important questions, the big questions, that a student being introduced to political economy should know.  If the students know those questions, and have good answers, I have done my job.  I frankly don’t care much about how that knowledge is transmitted, or acquired. Remember, the students probably can’t memorize an entire essay.  Each essay should be 500+ words, an entire blue book more, single-spaced.  If the student learns the material well enough to produce a quality essay on all 12 questions, I don’t care much how they came by this knowledge.   All this reminds me of a slightly ribald, but insightful, “Prof joke,” one well known to all professors I expect.  It goes like this:  A young woman is not doing well in the class, and comes to office hours to talk to the older male professor. The student talks about how worried she is, and says that she will need to do well on the final to pass the course. Then she says, “I have to do well on the final. I’d do anything to do well on the final, you know.”   The professor is a bit startled, and blurts out, “Um….anything?”   The young woman leans forward and whispers breathily, “ANYTHING.”   The professor nods, and looks down at his desk for several long seconds. Then he leans forward, looks over his glasses, and whispers back equally breathily: “All right, then. STUDY.”   Because, as the notes seller rightly says in the ad, “If you study and memorize them….”  That means this is not really a short-cut, but an economy.  There may actually an educational benefit, if the answers are good and the buyer takes the time to read carefully and understand the answers, because then that student will have learned about the questions more deeply than might have happened otherwise.   Or maybe not. Do you think I have this right? Are there problems with selling notes? And what are the conditions, if there are any, where selling notes should be sanctioned by the professor if he or she discovers the scheme?     Michael Munger teaches at Duke University and is Director of the interdisciplinary program in Philosphy, Politics, and Economics (PPE) at Duke University. He is a frequent guest on EconTalk. Read more of Michael Munger’s writing at Archive. (7 COMMENTS)

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14 октября, 21:01

Credibility, predictability, consistency, by Scott Sumner

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The title of this post describes some of the characteristics of a sound monetary regime. Does the same apply to foreign policy? During the first 4 decades of the 20th century, the US foreign policy lacked consistency. At times we intervened in European affairs, and at times we were isolationist. One can make good arguments for either approach, but the lack of consistency was likely destabilizing. We were interventionist enough to help defeat Germany in WWI, but not involved enough to set up a peaceful balance of power after the war. In 1990, the Bush administration told Saddam Hussein that his border dispute with Kuwait was none of our business. After the Iraqi invasion, we set out to free Kuwait and defeat the Iraqi war machine. I’m not sure what level of US involvement in the Middle East is appropriate, but it seems likely that the indecisive policy that was actually followed was unhelpful. The optimal policy was likely something either consistently and predictably interventionist or consistently and predictably noninterventionist. Foreign policy experts will argue that the sort of rules-based approach that I favor for monetary policy is not appropriate for foreign policy. A high degree of discretion is required because the world is so complex. We need to keep our intentions unclear to keep the bad guys guessing. I’m not so sure. The parts of the world where our intentions are clear (such as the mutual defense pacts with NATO, Japan, Australia, etc.) have been notably peaceful since WWII. The areas where our intentions have been ambiguous (the Middle East, Ukraine, Vietnam, etc.) have been less stable.   (Admittedly, correlation doesn’t prove causation.) In addition, those who advocate a discretionary regime have to account for the possibility that future decisions will not be made by a wise “philosopher king” that has immersed him or herself in studying the nuances of world trouble spots. Consider the recent decision-making on Syria: One day he was inviting Mr. Erdogan to visit the White House; the next he was threatening to “totally destroy and obliterate” Turkey’s economy if it crossed a line that he never defined. Mr. Erdogan just kept going. Mr. Trump’s error, some aides concede in off-the-record conversations, was entering the Oct. 6 call underprepared, and then failing to spell out for Mr. Erdogan the potential consequences — from economic sanctions to a dimunition of Turkey’s alliance with the United States and its standing in NATO. He has since threatened both, retroactively. But it is not clear Mr. Erdogan believes either is a real risk. The term ‘retroactively’ caught my eye.  There are lots of good arguments on both sides of the new Trump policy, but I can’t see any good argument for making threats “retroactively”. The NYT describes Trump’s approach as following his “gut”.  Here’s one consequence of the poor planning: And over the weekend, State and Energy Department officials were quietly reviewing plans for evacuating roughly 50 tactical nuclear weapons that the United States had long stored, under American control, at Incirlik Air Base in Turkey, about 250 miles from the Syrian border, according to two American officials. Those weapons, one senior official said, were now essentially Erdogan’s hostages. To fly them out of Incirlik would be to mark the de facto end of the Turkish-American alliance. To keep them there, though, is to perpetuate a nuclear vulnerability that should have been eliminated years ago. “I think this is a first — a country with U.S. nuclear weapons stationed in it literally firing artillery at US forces,” Jeffrey Lewis of the James Martin Center for Nonproliferation Studies wrote last week. For his part, Mr. Erdogan claims nuclear ambitions of his own: Only a month ago, speaking to supporters, he said, he said he “cannot accept” rules that keep Turkey from possessing nuclear weapons of its own. File under:  “Eh, what could go wrong?” Right now the US is heavily involved all over the world.  It’s quite possible (I’d say likely) that we’d be better off with a much smaller footprint.  However, we need to be very careful how we pull back from our commitments, as an unstable and unpredictable foreign policy can itself create global strife.  More importantly, we need to think much harder about making future commitments that we won’t be willing to keep. PS.  In the past, Trump has had favorable views of Erdogan.  Both are elected leaders with nationalist policy preferences, authoritarian instincts, and a habit of pressuring the central bank to lower interest rates.  Both are distrusted by big city elites.  I’ve often argued that nationalism has an internal contradiction; if all countries become nationalistic, they will end up clashing with each other.  No such contradiction exists for neoliberalism. (10 COMMENTS)

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14 октября, 18:04

Build, Barbara, Build: Reflections on Nickel and Dimed, by Bryan Caplan

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I finally read Barbara Ehrenreich’s Nickel and Dimed, and was pleasantly surprised.  Her runaway best-seller is what researchers call “radical ethnography”; to study low-skilled workers in America, Ehrenreich became a low-skilled worker in America.  Ehrenreich mostly just walks us through her experiment: how she found work, where she lived, what the jobs were like, how she made ends meet.  While there’s ideological commentary throughout, she’s less preachy than most of her competition.  My favorite part, though, comes in the final chapter.  Instead of simply complaining about low wages, Ehrenreich talks about the painful pairing of low pay with high housing costs: Something is wrong, very wrong, when a single person in good health, a person who in addition possesses a working car, can barely support herself by the sweat of her brow. You don’t need a degree in economics to see that wages are too low and rents too high. The problem of rents is easy for a non-economist, even a sparsely educated low-wage worker, to grasp: it’s the market, stupid. Confession: For a second, I was filled with hope that Ehrenreich was going to go full Yglesias and start denouncing our insanely strict housing regulation.  And as I read the next paragraph, the same hope returned: If there seems to be general complacency about the low-income housing crisis, this is partly because it is in no way reflected in the official poverty rate, which has remained for the past several years at a soothingly low 13 percent or so. The reason for the disconnect between the actual housing nightmare of the poor and “poverty,” as officially defined, is simple: the official poverty level is still calculated by the archaic method of taking the bare-bones cost of food for a family of a given size and multiplying this number by three. Yet food is relatively inflation-proof, at least compared with rent. In the early 1960s, when this method of calculating poverty was devised, food accounted for 24 percent of the average family budget (not 33 percent even then, it should be noted) and housing 29 percent. In 1999, food took up only 16 percent of the family budget, while housing had soared to 37 percent. Wise observations.  Housing costs have exploded – especially in high-wage areas of the country.  It is very hard for low-skilled workers to afford nice housing.  And superficially, the problem is “the market.”  Prices are high because developers produce so little housing. Why, though, do developers produce so little housing?  Regardless of their political views, almost any economist these days will blame government regulation.  The physical cost of erecting buildings hasn’t changed much, but the political cost of erecting buildings has skyrocketed.  Serious deregulation would dramatically increase the supply of housing, and sharply reduce its price.  And don’t say, “Only for the rich.”  Much of the regulation on the books – such as minimum lot sizes, height restrictions, and bans on multi-family construction – is consciously designed to zone out the poor. So when Ehrenreich was decrying housing costs, she could have segued to, “Despite decades of free-market rhetoric, hardly anyone wants to see a real free market in housing.  Yet almost nothing else would do more for the working poor.”  Furthermore, she could have so segued without breaking character.  There is no good reason why Ehrenreich couldn’t think everything else she thinks and advocate the abolition of a bunch of laws that deprive the poor of affordable housing. Alas, she said this instead: When the rich and the poor compete for housing on the open market, the poor don’t stand a chance. The rich can always outbid them, buy up their tenements or trailer parks, and replace them with condos, McMansions, golf courses, or whatever they like. Since the rich have become more numerous, thanks largely to rising stock prices and executive salaries, the poor have necessarily been forced into housing that is more expensive, more dilapidated, or more distant from their places of work. This is plainly false.  In a free market, the poor totally “stand a chance.”  Given current prices and twenty acres of land, developers would much rather erect a massive apartment complex than twenty single-family homes.  In desirable areas, however, getting such permission is almost impossible.  And while developers will build in remote locations if they must, most would far prefer to build up in urban centers.  Why don’t they?  Because getting permission to make your building taller is like pulling teeth.  For every skyscraper under construction in NYC, just picture all the landlords who would build a skyscraper of their own if the zoning authorities handed them permission. What then is Ehrenreich’s solution?  More government spending: When the market fails to distribute some vital commodity, such as housing, to all who require it, the usual liberal-to-moderate expectation is that the government will step in and help. We accept this principle-at least in a halfhearted and faltering way-in the case of health care, where government offers Medicare to the elderly, Medicaid to the desperately poor, and various state programs to the children of the merely very poor. But in the case of housing, the extreme upward skewing of the market has been accompanied by a cowardly public sector retreat from responsibility. Expenditures on public housing have fallen since the 1980s, and the expansion of public rental subsidies came to a halt in the mid-1990s. I can understand someone saying, “Deregulation isn’t enough.”  But you could double the supply of public housing without making a noticeable dent in the housing shortage.  Rent subsidies are much easier to scale up, but subsidizing demand without increasing supply is almost the definition of crazy policy.  Furthermore, if you want to create high-paid job opportunities for non-college workers, a rapidly growing construction sector is a dream come true. You could interpret all this as a “gotcha,” but I strive to be positive.  Yes, Nickel and Dimed overlooked the fact that government grossly deprives the working poor of affordable housing.  As far as Google knows, Ehrenreich’s continued to overlook this fact.  What’s important now, though, is that she could and should join the long list of left-leaning thinkers who champion deregulation of housing. So how about it, Barbara? (10 COMMENTS)

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14 октября, 14:00

Emergency and Shortages in Altruistic California, by Pierre Lemieux

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Sometimes, one gets the impression that knowledge of economics has progressed. It can be guessed that proportionately fewer people than in the 17th century now think that trade wars are good (except within some backward governments). At other times, it seems that knowledge has not progressed much: take “price-gouging” laws, whose effects the California power blackouts illustrate again. In rich California, the preventive power blackouts created many shortages, in the proper sense of non-availability of goods at current, legal prices: Within the Bay Area blackout zones, residents were rushing Tuesday to buy food, water and electric generators–almost as if a hurricane were approaching. Stores including Rite Aid and Target across Oakland had run out of flashlights and most batteries. (Providence Journal, October 9) Lines for gas snaked around the block … When Costco opened Wednesday morning, the rush immediately began anew. The store had 20 generators for sale. “They were gone in five minutes,” Mr. Bohn said. (Wall Street Journal, October 10) By sunset, the house was getting cold as the outdoor temperature dropped into the 40s. She took her 2-year-old son, Hunter, out to get food at Toni’s, one of the local restaurants running on a generator. She found the place mobbed; the wait for a cheeseburger was 90 minutes. (Wall Street Journal, October 10) Mairie Raxakoul was trying to keep her inventory of cheeses cool with dry ice at Raxakoul Coffee and Cheese. She tried to rent a generator, but none was available, she said. (Wall Street Journal, October 10) During the blackouts, Californians waited in long lines for essentials like gasoline, batteries and ice. (Wall Street Journal, October 13) Why didn’t entrepreneurial suppliers rush in from Arizona, Nevada or Oregon with goods that were not in short supply in their states? Consider what happened a 1996 hurricane that hit Raleigh (North Carolina) hard. A hundred miles away from Raleigh, four young entrepreneurs thought that they could make some money by selling ice there. They rented two small freezer trucks, bought 500 bags of ice at $1.70 each, and drove to Raleigh’s downtown area, chopping fallen trees in their way. They set up to sell their ice for perhaps $8.00 a bag, adding supply where there was none. It did not work for long. North Carolina’s price-gouging laws rapidly stopped the useful price gougers. In my review of an anthology of Philosophy, Politics, and Economics, I summarized Michael Munger’s description of the outcome: Enterprising ice sellers were arrested as they sold at higher prices something that hurricane victims could not otherwise obtain and for which they were obviously happy to pay more. These same customers applauded when their suppliers were led away by police before their eyes! “They clapped,” Munger writes in disbelief. The problem does not seem to be very complicated. It is better to have something available and more choice than nothing and no choice. Expanding supply would gradually push prices down until the normal supply chain can be reestablished. This sort of entrepreneurial relief is also banned in California, as in two-thirds of American states. It is instructive to read Section 396 of Title 10 (interestingly titled “Of Crimes Against the Public Health and Safety”) of the California Penal Code; a few quotes: Upon the proclamation of a state of emergency declared by the President of the United States or the Governor, or upon the declaration of a local emergency by an official, board, or other governing body vested with authority to make that declaration in any county, city, or city and county, and for a period of 30 days following that proclamation or declaration, it is unlawful for a person, contractor, business, or other entity to sell or offer to sell any consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight, and storage services, or gasoline or other motor fuels for a price of more than 10 percent greater than the price charged by that person for those goods or services immediately prior to the proclamation or declaration of emergency. It is unlawful for an owner or operator of a hotel or motel to increase the hotel or motel’s regular rates, as advertised immediately prior to the proclamation or declaration of emergency, by more than 10 percent. A violation of this section is a misdemeanor punishable by imprisonment in a county jail for a period not exceeding one year, or by a fine of not more than ten thousand dollars ($10,000), or by both that fine and imprisonment. A violation of this section shall constitute an unlawful business practice and an act of unfair competition within the meaning of Section 17200 of the Business and Professions Code. The remedies and penalties provided by this section are cumulative to each other, the remedies under Section 17200 of the Business and Professions Code, and the remedies or penalties available under all other laws of this state. Many local governments rapidly proclaimed states of emergency, such as Santa Clara County, Sonoma County, the City of San Jose, and the City of Santa Rosa. A bit later, on October 11, the governor of California also proclaimed a state of emergency in Los Angeles and Riverside counties. One thing is important to understand. Each time somebody pays a market price, he wins a bidding competition in an invisible auction. This is why the rich own the vast majority of Porche, but also why even anti-Second-Amendment billionaires cannot bid away all private guns or all the steel. This is why mothers can buy milk for their children instead of all the milk-making resources moving to the beer and wine industries. Every time you buy or sell something, there is so-called “price-gouging,” and you are very happy that there is. It’s nice to have altruism and benevolence around, but only up to a certain point. Suppose that, during an emergency, you want to give away your generator and that every household in your family already has one. How do you know who needs it most? How many hours or days are you willing to spend finding out? Self-interest generally works better for prosperity and human flourishing. Perhaps it is not as much ignorance that has persisted, as coercive values that have advanced. If more people believe it is better that nobody gets something if not everybody can have it, or that goods would be better morally allocated by queues or by lottery than by willingness to pay, then price-gouging laws become acceptable—to those people. (34 COMMENTS)

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14 октября, 02:37

Friedrich Engels Answers the Question All Libertarians Have Been Asked, by David Henderson

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Who will build the roads? Every libertarian I know who has been one for 5 years or more has been asked this question. Our answer is typically that for-profit firms will build roads and that sometimes neighborhood associations will do so. What I hadn’t known is that Karl Marx’s buddy Friedrich Engels answered the question with empirical evidence over a century and a half ago. Here’s Engels: The whole British Empire, and especially England, which, sixty years ago, had as bad roads as Germany or France then had, is now covered by a network of the finest roadways; and these, too, like almost everything else in England, are the work of private enterprise, the State having done very little in this direction. Before 1755 England possessed almost no canals. … [But now in 1845:] In England alone, there are 2,200 miles of canals and 1,800 miles of navigable river. In Scotland, the Caledonian Canal was cut directly across the country, and in Ireland several canals were built. These improvements, too, like the railroads and roadways, are nearly all the work of private individuals and companies. Philosophy professor Stephen R. Hicks quotes this in “Friedrich Engels answers: Who will build the roads?” October 13, 2019. Hicks is quoting from Engels 1845 “Condition of the Working Class in England.” (19 COMMENTS)