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John Podhoretz engaged my proposed nuclear Iran bet on Twitter.  Highlights of the exchange:

My offer remains open.  And I'm happy to negotiate the terms.  O ye of great knowledge, come take my money!


Scott Sumner

Predicting failure

Scott Sumner

Lars Svensson has argued that the Fed should "target the forecast", which means they should adjust policy so that their predicted outcome is also their targeted outcome. Information accidentally leaked by the Fed indicates that they are not doing this, rather they are setting policy at a position expected to lead to failure:

All but two of the Fed's 17 policymakers said last month they think rates should rise in 2015. They were divided between whether it would be best to raise rates once or twice this year.

The staff views were less optimistic about the economy than several key policymaker forecasts.

In the projections, which stretched from 2015 to 2020, the staff did not expect inflation to ever reach the Fed's 2.0 percent target. By the fourth quarter of 2020, they saw the PCE (personal consumption expenditure) inflation index rising 1.94 percent from a year earlier.

And the prospects for growth are also quite bleak:

The Fed's staff also took a dimmer view of long-run economic growth, expecting gross domestic product to expand 1.74 percent in the year through the fourth quarter of 2020. The views of Fed policymakers for long-term growth range from 1.8 percent to 2.5 percent.

The Fed goes to great lengths to manage the release of sensitive information. Policymakers and staff avoid making public comments just ahead of policy meetings, and the Fed makes journalists turn in their phones before letting them into a locked room to see a policy statement and prepare news stories just before the interest rate decision is published electronically.

It's not clear why the Fed is planning to raise rates this year. Are they still committed to a 2 percent inflation target? If the U.S. avoids recession, then inflation would have undershot 2 percent during almost the entire 2009-20 expansion. But why? And if we have a recession between now and 2020, how will the Fed avoid the mistakes of the last recession? Recall that in 2009 the U.S. experienced deflation during a period of high unemployment, a clear violation of the Fed's dual mandate.

Congress is now trying to get the Fed to adopt a clearer policy rule. This leaked report makes it clear why more transparency is needed. I've spent my entire life studying monetary economics, and especially the Fed, and yet even I would not be able to explain to an economics student what the Fed is trying to achieve with the forthcoming rate increase.


Bryan Caplan

Nuclear Iran Bet

Bryan Caplan
John Podhoretz:
The United States and its allies have struck a deal with Iran that effectively ensures that it will be a nuclear state with ballistic missiles in 10 years, assuming Iran adheres to the deal's terms, which is a very large assumption.
Such supreme confidence cries out for a bet.  Draft terms: John gives me 10:1 odds that Iran possesses a nuclear weapon by July 31, 2025 according to (a) any major U.S. newspaper (NYT, WSJ, up to three others of John's choice) or (b) any major international agency (Atomic Energy Commission, U.N., up to three others of John's choice).  If this happens, I immediately owe him $100.  Otherwise, he owes me $1000 on August 1, 2025.

I'm happy to make the same bet with any prominent individual on their honor, or with anyone willing to prepay me. (When the bet starts, PayPal me whatever you owe me if you lose.  If you win, I refund your money + whatever I owe you + some interest if you like).


Megan McArdle has a most enjoyable piece on air conditioning. It is true that when we Europeans are traveling, sometimes it is more difficult to "adjust" to air conditioning than to the time zone. We have the impression that Americans like their buildings to be chilly in the summer, and comfortably hot in the winter. While we may appreciate this as a formidable victory of Man over natural difficulties, we are used to putting on our jackets when we walk outside, not inside buildings. McArdle explains well how these cultural differences have little to do with climate moralism, and more with average summer temperature. A case in point: in a very hot summer like the current one, I know lots of people who would be happy to "Americanise" and pump their A-C even in Milan.


McArdle's piece reminded me of Pope Bergoglio's condemnation of air conditioning. More specifically, Bergoglio thinks A-C is the quintessential example of a need induced by market forces (i.e. companies that spend big on advertising) and not by genuine necessity.
The Pope wrote:

People may well have a growing ecological sensitivity but it has not succeeded in changing their harmful habits of consumption which, rather than decreasing, appear to be growing all the more. A simple example is the increasing use and power of air-conditioning. The markets, which immediately benefit from sales, stimulate ever greater demand. An outsider looking at our world would be amazed at such behaviour, which at times appears self-destructive.

Of course what is staggering here is the deeply-rooted (do you remember Vance Packard's "Hidden Persuaders?") notion that businesses can easily manipulate the behaviour of millions of people - in this case, the millions of people that use air-conditioning. It seems to me that this has to do with the idea that money may translate into power over people's lives. That might be the case, if the Pope had accused air-conditioning devices' producers to be lobbying for, say, a lax policy over climate change, so that we all of us can feel hotter and thus buy more of their products. No, here the problem is different. The problem is to believe that it is more likely that advertising is changing the behaviour of millions of people, rather than just assuming that they do what they genuinely believe it is best for them. It seems to be a tremendously demeaning vision of the human person.

On A-C and the Pope, Shubhankar Chhokra had a good piece on National Review. On the papal enciclycal Laudato Si, I can't do better than recommending the excellent WSJ commentary by Fr. Robert Sirico.


Heaney and Rojas close Party in the Street by comparing the antiwar movement to the Tea Party and Occupy Wall Street.  This naturally required even more original data collection.  What they found:
[T]he antiwar-Democratic relationship is an intermediate case among these three party-movement pairs. The antiwar movement was more closely connected with the Democratic Party than was the Occupy movement, but it was considerably less bonded than were the Tea Party and the Republican Party. Thus, we believe that it is reasonable to conclude that our conception of the party in the street extends beyond the antiwar-Democratic case...

When compared with the Tea Party and Occupy movements, the antiwar movement had an intermediate degree of overlap with its closest major-party ally. At the peak of party-movement synergy after the 2006 congressional midterm elections, slightly more than 50 percent of antiwar activists identified as members of the Democratic Party (see Figure 4.3). The results of our interviews with Tea Party and Occupy activists reveal that the Tea Party had a somewhat higher level of partisan fidelity (58 percent), while Occupy had a
lower level of fidelity (30 percent). The antiwar movement differed notably from Occupy in that the antiwar movement embraced lobbying and electoral involvement, whereas Occupy did not. The antiwar movement could be considered to be roughly on par with - if not superior to - the Tea Party movement with respect to lobbying and legislative work. The Tea Party and antiwar movements both sparked the creation of legislative caucuses, sponsored grassroots lobby days, hired professional lobbyists, and championed signature legislation (which mostly failed to become law). In the electoral arena, the antiwar movement and the Tea Party can each reasonably claim to have helped to swing the balance of power in one congressional election (2006 for the antiwar movement and 2010 for the Tea Party movement).

The Tea Party was unambiguously more aggressive than the antiwar movement in sponsoring candidates and attempting to influence party primaries. There are several notable cases of antiwar-movement-inspired candidates - Ned Lamont's attempt to unseat incumbent Democrat Joe Lieberman in the 2006 U.S. Senate election in Connecticut (Pirch 2008), Cindy Sheehan's bid to defeat Democrat Nancy Pelosi in the 2008 election for California's 12th district of the U.S. House of Representatives (Ewers 2008), and various antiwar candidates who sought the Democratic nomination for the presidency in 2004 and 2008 (e.g., Howard Dean, Dennis Kucinich, Barack Obama). Yet, antiwar electoral efforts do not compare to the pervasive attempt by the Tea Party to remake the Republican Party through the primary process. Tea Party-affiliated organizations endorsed at least 201 Republican candidates in the 2010 Republican primaries, of whom 74 percent were nonincumbents (Bailey, Mummolo, and Noel 2012, p. 773). Tea Party organizations made across-the-board moves to become players in the Republican Party in ways that the antiwar movement never did in the Democratic Party.
The generality of the protest cycle:
The protest cycle of the antiwar movement (see Chapter 2) bore some similarity to the protest cycle of the Tea Party. Both the antiwar movement and the Tea Party saw grassroots participation in their causes plummet after congressional elections that appeared to respond to their concerns. In both cases, the removal of a partisan threat served to pacify the movements. Antiwar protests, however, persisted somewhat longer than did Tea Party protests. While the Tea Party grass roots were appeased by a congressional victory alone, antiwar protests did not abate fully until a Democrat was elected president. We can only speculate as to the reasons for this difference. It could be the antiwar movement was fixated on President Bush - as the commander in chief of the armed forces - while the Tea Party was more content to stop the progress of new legislation, which was closer to their substantive grievances (on taxes, spending, debt, and health care). The Occupy movement, on the other hand, appears to have had little correspondence with partisan rhythms. The mobilization of the antiwar movement post 2008 somewhat resembles Occupy. This correspondence may result from a rise in antipartisanship in the antiwar movement after 2008 (see Figure 4.3), which placed the antiwar and Occupy movements on par with respect to this factor.

The evolution of the antiwar movement similarly follows an intermediate path when compared to Occupy and the Tea Party. If we were to regenerate Figure 7.5 to include party-movement associations for the antiwar movement and the Democratic Party from January 2003 through December 2006, we would find that the antiwar movement tracked the Tea Party in the early months of its existence but then followed the Occupy movement as the movement evolved beyond its first year.12 As is the case for the Tea Party and Occupy, antiwar-Democratic associations trended upward in the first year of the movement. After thirteen and fourteen months, antiwar-Democrat associations in newspaper articles rose to an average of 60 percent, matching Tea Party levels at that stage of the movement and far surpassing the highest threshold reached by the Occupy movement. Nevertheless, antiwar-Democratic associations settled into an average of about 28 percent in the second through fourth years. This level was below the rate of Tea Party-Republican association, but above the rate of Occupy-Democratic association.
Heaney and Rojas never cite Robin Hanson, but Party in the Street is definitely a Hansonian book.  They could easily have titled their conclusion "Politics is not about policy."  Indeed, they could have titled the whole book "Movements are not about moving."

P.S. I'll be away the rest of the week, attending GenCon in beautiful Indianapolis.  If you see Team Caplan there, please say hi. :-)


Scott Sumner

Race and progressivism

Scott Sumner

Pat Buchanan used to complain about imports from Asian and Hispanic economies, but was strangely silent about our large trade deficits with mostly white northern Europe. Donald Trump makes similar complaints. Now Kevin Williamson says that Bernie Sanders likes to complain about imports from Asian and Hispanic countries, but is strangely silent about our large deficits with northern Europe:

Like most of these advocates of "economic patriotism" (Barack Obama's once-favored phrase) Bernie worries a great deal about trade with brown people -- Asians, Latin Americans -- but has never, so far as public records show, made so much as a peep about our very large trade deficit with Sweden, which as a share of bilateral trade volume is not much different from our trade deficit with China, or about the size of our trade deficit with Canada, our largest trading partner. Sanders doesn't rail about the Canadians and Germans stealing our jobs -- his ire is reserved almost exclusively for the Chinese and the Latin Americans

Perhaps that's because when asked about their views on socialism, Sanders' supporters often point to the Nordic economies, even though these countries are actually highly capitalist economies with large welfare states. They didn't get rich with the sort of autarchic economic policies now fashionable on the American left. They relied on privatization, deregulation, free trade, large private multinational corporations and relatively low taxes on capital income.

Like the Occupy Wall Street movement, Sanders's supporters are mostly white. Matt Yglesias has an excellent post on the tension between progressivism and minority rights:

The bad run-ins with #BlackLivesMatter activists that Bernie Sanders and Martin O'Malley had at the Netroots Nation conference were in part verbal gaffes, failures to identify in a linguistically appropriate way with the specific claims about racial justice that BLM activists are trying to advance.

But Julia Azari, a political scientist at Marquette University, points out that there's a deeper tension between economic populism and the cause of racial justice.

"Populism," she writes, "identifies elites who are to blame for oppressing the masses" and generally "calls for majoritarian processes to alleviate the problem."

. . .

Obviously, you can be for criminal justice reform and also for raising taxes on the rich or whatever else.

But what you can't plausibly do is cram the issue of structural racism in the criminal justice system into a frame that's about the perfidy of economic elites. Prosecutors, cops, and correctional officers aren't economic elites, they're hard-working middle-class Americans who often enjoy the labor union protections and collective bargaining rights that populists want to stand up for.

It's not just the racial specificity of BLM that is tough for populism, it's the focus on institutional reform. BLM charges that public sector institutions -- in this case, specifically the ones focused on law enforcement -- can perform poorly for reasons that are not explained by underfunding or by "revolving door" corporate capture. If that's true of police departments, then maybe it's true of schools and mass transit systems and any number of other public agencies.

That's a very perceptive point about the internal contradictions of American-style (left) liberalism. If we abolished all corporate influence and let unions run the show, where would we end up? Here's one indication:

Although opponents of legalization initiatives typically have not managed to raise much money, Kampia thinks California might be different. "First of all, the opposition tasted victory in Florida," he says. "Also, California's the only state that's consistently had major opposition to its serious criminal justice reforms. The narcotics officers and the prison guards in California have real money, and they're willing to spend it."
Hundreds of thousands of black and brown prisoners languish in jail because their freedom is less important that the economic well being of our mostly white criminal industrial complex. (Didn't we used to have an agricultural system run on that principal?)

I'm always bemused when white American liberals regard libertarians as "conservatives." It shows you where their priorities are. Apparently those liberals view economic issues like campaign finance reform, Dodd-Frank and net neutrality as being more important than hundreds of thousands of unfairly imprisoned blacks and Hispanics, or minorities getting shut out of jobs by occupational licensing laws, or millions of poor people being shut out of the US by our immigration laws. I suspect that there are lots of black and brown people all over the world that have different priorities. Perhaps that partly explains the racial make-up of Sanders' crowds.


If aspiring econ Ph.D.s are going to read one article about their prospects for academic success, Stock, Siegfried, and Finegan's "Completion Rates and Time-to-Degree in Economics PhD Programs" (American Economic Review, 2011) is probably the single best piece to read.  Their survey included 586 Ph.D. students from the 2002 classes of 27 programs, and tracked them for a full eight years.  The raw results:


[Larger-print version of the table here]

Key observations: Completion rates vary heavily by school rank.  In top-6 programs, 33% finish in five years, and 75% finish in 8.  In programs ranked 7-15, rates are almost as high: 32% in five years, 71% in eight.  Outside of the top-15, rates crash.  Much but not all of the completion gap appears in the first two years of the program.

Of course, if you're contemplating a Ph.D. in economics, you won't be satisfied with simple bivariate results.  What happens if you regress completion probabilities on a wide range of traits?  The results are extremely messy.  There are so many independent variables and sufficiently few observations that almost nothing has statistically significant effects on completion - including school ranking. 

At least in my view, however, Stock et al. controlled for so many program characteristics - including "program-level two-year attrition rare"! - that it's hard to interpret this result.  I would have rather seen regressions that controlled for program tier (or precise rank), student characteristics, and that's it. 

In the absence of such regressions, here's how I'd interpret the results: If you're good enough to get into a top program, but choose a lower program, your odds of completion probably remain high.  But if, like most Ph.D. students, you plan to attend the best program that accepts you, Table 1 provides good estimates of your prospects.  Caveat emptor.


David R. Henderson

Krugman on Greece

David Henderson

Athens, we have a problem.

I missed seeing Paul Krugman on Fareed Zakaria's show on CNN on July 19. The transcript is worth looking at, not because it's that informative about Greece but because it's informative about how--and how carefully--Krugman thinks about Greece.

On austerity:

I mean, really nothing has changed in the strategy, which is still cut, cut, and, you know, austerity your way to back to solvency,

Krugman has been completely obstinate about distinguishing between austerity in the form of budget cuts and austerity in the form of tax increases. Notice that, in describing austerity, he says "cut, cut." Yet the new austerity plans involve huge tax increases; those are not cuts--they're increases. Here's CNBC:
The sales tax that Greeks have to pay on a range of goods and services--from every products [sic] to taxis and restaurants, rose on Monday [July 20] from 13 percent to 23 percent as the Greek government implements reforms in return for a third bailout package.

It is estimated that the new hikes will cost Greeks 1,500 euros ($1,625) per year on average in an effort to generate 5 billion euros in revenue for the government, according to Greek newspaper Proto Thema.

On the referendum:
ZAKARIA: Ken Rogoff on last week's show actually said that you bared [sic] some responsibility here, because you advocated that the Prime Minister of Greece voted no, supported the no proposition, the referendum he took, in a sense defying the European creditors. The result of that was that he got worse terms. Do you think that's fair?
KRUGMAN: Well, it's certainly true that - I assumed - it didn't even occur to me that they would be prepared to make a stand without having done any contingency planning. I...

Get it? Krugman advocated a No vote because he just assumed that they had a Plan B.
ZAKARIA: You assume that Greece had an exit plan from the Euro?
KRUGMAN: Yes, that they - not that - at least something they could hold up, "this is what we will do if we can't get any new cash." And, amazingly, they were - everything hinged on them - they thought they could simply demand better terms without having any backup plan. So certainly this is a shock. But, you know, in some sense, it's hopeless in any case. They - with - they - it's not as if the terms that they were being offered before were feasible. I mean, the new terms are even worse, but the terms they were being offered before were still not going to work. So I, you know, I may have overestimated the competence of the Greek government.

Yes, Krugman does tend to overestimate the competence of governments.

On regulation:

ZAKARIA: Steve Rattner and several others - I mean, this is the general view in the business community - feel, look, the truth of the matter is, the fundamental problem is Greece is massively uncompetitive - is a highly overregulated economy. Its retirement - you know, if you look at its retirement age, if you look at areas like pharmacy, you look at, you know, vast swaths of the Greek economy, there's too many regulations, very business unfriendly, and a Swiss cheese-like model of tax collection, and that if you don't reform that - and that's what really the Germans are asking for, more than austerity.
KRUGMAN: Well, let me say on - the one about tax collection, while it's true that there are a lot of holes and a lot of evasion, Greece, nonetheless, does manage to collect a lot of taxes. People, you know, look at it and say, well, they must be, you know, they can't be collecting any money. In fact, they're collecting, you know, a higher share of GDP in taxes than the United States is, one way or another. So it's not as if they don't manage to raise revenues. Maybe they should do it better. They should, obviously. As for all the other stuff, yes, Greece is an over-regulated, problematic economy - not as much as it was. It's done much more reform than people think. But also it - all of these structural issues -
ZAKARIA: Structural reform, not just cutting budgets?
KRUGMAN: They've done a lot of structural reform. You look at the World Bank survey of doing business, and Greece is not a great place, but it's not as bad a place as it was. So - but the main point is, all of these things were true of Greece 10 years ago, 15 years ago, but Greece was not in the midst of an incredible Great Depression-level slump back then. What - so these are part of the background noise, if you like. It is, in fact, the Euro - the trap that the Euro has turned into and the austerity policies imposed in an attempt to keep Greece in the Euro that are responsible for the disaster that's taking place now. It's like looking at - you know, they're - every country has problems - Greece maybe more than some, less than others. But it's the Euro that is responsible for this disaster.

Good for Zakaria for pointing this out. Krugman does make a good point that those regulations were bad 10 years ago but the Greek economy was not doing as badly 10 years ago. But they had the Euro ten years ago too. I agree with Krugman that the Euro is a huge culprit, but Krugman minimizes the problem of regulation. Transparency International ranks Greece, by the Corruption Perceptions Index, at 69th out of 175 countries rated. Germany's? 12th. Canada? 10th. (Low numbers are good.) Economic Freedom of the World puts Greece at 84th. Germany? 28th. Canada? 7th. (Again, low numbers are good.) Narrowing it down to regulation, Economic Freedom of the World puts Greece at 144th, Germany at 31st, and Canada at 10th. Athens, we have a problem.

HT to Francois Melese.


David R. Henderson

Good for Jared Bernstein

David Henderson

Those who know me well know how much I like civility in debate. And, beyond civility, I like even more when people on one side of an issue will grant a point made by someone on another side of an issue. One nice result is that both sides can narrow the issue down to where they disagree. When I'm in an audience and I see one speaker say that everything the other speaker is false, my red flag goes up and I lose interest.

For that reason, I was pleased to see Jared Bernstein's response to Chris Edwards. Jared is a senior fellow with the Center on Budget and Policy Priorities. From 2009 to 2011, he was the Joe Biden's chief economist. Chris is the director of tax policy studies at the Cato Institute. Those two places are ideologically pretty different and I am almost always on the Cato side of things.

I was about to write a blog post pointing out how devastating Chris's critique of Jared was. But now I don't have to--because Jared pointed it out. It turns out that it was all a misunderstanding. I particularly liked the opening two paragraphs of Jared's response:

I recently touted the benefits of a financial transaction tax (FTT), and in the intro, I made a comment about how our tax code is titled toward the wealthy. Chris Edwards very reasonably takes issue, correctly noting that our federal tax code is, in fact, quite progressive, meaning that low-income households face a much lower tax burden as a share of their income than higher income households.

My piece wasn't about the broader code so I didn't take the time to elaborate what I meant. My bad, but let me do that here.

He then goes to explain what he meant and it's very different from what Chris or I thought:
The fact is that our tax system contains a large number of provisions that disproportionately benefit wealthy taxpayers, many of whom are the same folks on whom the incidence of the FTT will fall. So while I did not sufficiently articulate the point, for which Chris fairly dings me, I was trying to say that one distributional rationale for the FTT is that it pushes against some of the tax preferences I'm about to show you.

After laying out his data and showing some striking graphs, Jared ends with:
So good for Chris for pushing me to explain myself, but more to the point, I take the fact that he said nothing about the central theme of the oped--it's time to seriously consider implementing a small FTT--to be an implicit endorsement.

I'm guessing Chris doesn't.

By the way, Timothy Taylor recently had an excellent post on financial transactions taxes.



My co-blogger Bryan Caplan, as well as many other bloggers and friends, have recommended Scott Alexander's (that's not his real name) blog, slatestarcodex. I have had it on my feed for a number of months now and, like them, find it refreshing and informative.

Which is not to say that I think he understands economics as well as economists do. Why should he? It's not his area of expertise. On July 22, he wrote:

We don't trust the free market to necessarily preserve racial equality - that's what anti-discrimination laws are for. We don't trust the free market to necessarily preserve worker safety - that's what OSHA and related regulations are for. We don't even trust the free market to necessarily preserve fire safety - that's why federal inspectors have to come in every so often to make sure you're not secretly plotting to let your employees fry.

Now I don't trust the free market to preserve racial equality either. You can't preserve what has never existed. But what I do trust the free market to do is to undercut racial discrimination--by making those who discriminate pay for discrimination even if a government can't catch them. There's a large economics literature on this. And I do trust free markets more than I trust government. After all, governments in the South, in South Africa, and in Nazi Germany, to name three, had pro-discrimination laws. Here's what Linda Gorman writes in "Discrimination" in The Concise Encyclopedia of Economics:
Many people believe that only government intervention prevents rampant discrimination in the private sector. Economic theory predicts the opposite: market mechanisms impose inescapable penalties on profits whenever for-profit enterprises discriminate against individuals on any basis other than productivity. Though bigoted managers may hold sway for a time, in the long run the profit penalty makes profit-seeking enterprises tenacious champions of fair treatment.

And worker safety? Read W. Kip Viscusi's piece "Job Safety" in the Concise Encyclopedia. Here's the opening paragraph:

Many people believe that employers do not care about workplace safety. If the government were not regulating job safety, they contend, workplaces would be unsafe. In fact, employers have many incentives to make workplaces safe. Since the time of Adam Smith, economists have observed that workers demand "compensating differentials" (i.e., wage premiums) for the risks they face. The extra pay for job hazards, in effect, establishes the price employers must pay for an unsafe workplace. Wage premiums paid to U.S. workers for risking injury are huge; they amount to about $245 billion annually (in 2004 dollars), more than 2 percent of the gross domestic product and 5 percent of total wages paid. These wage premiums give firms an incentive to invest in job safety because an employer who makes the workplace safer can reduce the wages he pays.

Bot the Gorman and the Viscusi articles are worth reading it total.

CATEGORIES: Labor Market , Regulation


Alberto Mingardi

Re-regulation in the UK

Alberto Mingardi

For quite a while, the British electricity market (in itself, an interesting case of successful liberalisation) has been the object of a campaign aiming at its re-regulation.

Now it is the turn of the British Competition & Markets Authority (the antitrust-on-steroids body which ironically resulted from the merger of the Competition Commission and the Office of Fair Trading) to make its proposal. Carlo Stagnaro and Philip Booth report that the CMA considers the electricity markets to be plagued by "over-regulation and low consumer engagement". But to solve the second problem, they may actually aggravate the first going back to what Stagnaro and Booth call "the mother of all regulations: price control, or, to be fair, a softer version thereof".

CMA is proposing a "transitional safeguard regulated tariff" to be introduced, in order to "provide direct protection to disengaged customers". Protecting disengaged consumers may be a praiseworthy goal but I don't quite understand how you can wake them up, by "protecting" them with a special tariff, that is, by decreasing their incentive to get better informed.

Carlo and Philip point out that a similar approach has already been tried: in Italy. Results aren't exciting.


I highly recommend this. Warning: some language.



In a blog post yesterday, "Standing with Rand? Maybe Take a Seat," Independent Institute Research Fellow and recent George Mason University Ph.D. Abigail Hall makes a case against supporting Rand Paul, but then generalizes and makes it a case against supporting any politicians.

Although I once was a fan and supporter of Rand Paul, I am not now, and so I won't defend him here. But Abby goes further, writing:

Arguing that "more libertarians" or "the right people" in office will bring the changes they desire is like asking the fox to guard the henhouse. It's placing trust in the broken and backward bureaucratic system they claim to despise and magically expecting it to achieve a different result.

So she seems to be saying that one should put zero resources into supporting politicians who agree with you on some important issues. It's hard to see how this is an optimal strategy.

Some would argue that one shouldn't give money even to politicians who share your views because of the free-rider problem. The resources you can give to a politician aren't important enough to get him elected and, besides, you can free ride on the contributions of others.

But Abby makes clear that that's not her argument, as the quoted passage shows. Her argument is that supporting politicians is futile.

Now, if she were to argue that there are many ways to work for freedom and she has chosen to be a teacher, a scholar, and a blogger to influence the way the world works, then I get that. And, because I know her a little, I think she will be a first-rate teacher and scholar and is already a good blogger.

She might also argue that she finds politicians repulsive. I get that too. I don't find them all repulsive, but I understand why many libertarians do. But then that comes down to her preferences. That's not a good universal argument against supporting politicians.

Here's the basic economic argument against her view. Think of many of the margins on which one can affect policy: writing op/eds, blogging, teaching, researching, protesting, resisting, writing letters to politicians, and trying to get certain politicians elected, to name a few. Basic production theory says that you use each method up to the point where ratio of the marginal product to marginal cost is the same. It would be a very strange production function which gave the result that the ratio of the marginal product of working for a politician to the marginal cost was everywhere below the ratios of the other MPs to their MCs.

Abby is essentially arguing that it's a corner solution. But then she needs to say why. She hasn't.

CATEGORIES: Public Choice Theory


Common sense from Campos' Don't Go to Law School (Unless):
You can find a version of each school's employment statistics on the ABA's website. In addition, a school should have even more detailed employment and salary numbers for its most recent classes on its own webpage.  (If a school doesn't publish this information in a way that allows you to fairly evaluate how well its graduates are doing, do not apply to it.
Again, with feeling:
Here again you should apply a bright line rule: Do not consider applying to any school that does not publish reasonably comprehensive data regarding the salaries obtained by its graduates. "Reasonably comprehensive" means the following: the school must reveal the percentage of graduates in a class for which it has such data, along with the distribution of salaries in terms of medians, means, and percentiles.
Third time pays for all:
Here's a simple rule: if a school won't share some piece of information you need to help you understand what its graduates end up doing, and how much they're paid to do it, don't apply.
Confession of a professor of something other than law: As far as I can tell, B.A., M.A., and Ph.D. programs make law schools look transparent by comparison.


David R. Henderson

Some Practical Advice

David Henderson

Play the Hand You're Dealt

One of the things I do around the margins with my students--it's not part of the curriculum--is give them my "words of wisdom" about dealing in the world. A lot of it has to do with playing the hand you're dealt. So, for example, many of them are the way I was some years ago, thinking that the best way to deal with police, when suspected of something you didn't do, is to explain that you didn't do it. That's the wrong answer. Here's why. All you need do to get the point is watch the first 27 minutes. This is the best law professor's talk I have ever seen. And if you don't want to watch the follow-on talk by the cop whom he invited to refute him, watch only the first one or two minutes of the cop's talk.

If you've seen the video of the cop stopping the late Sandra Bland, your sympathy is probably with her sticking up for her rights. This young, promising woman is now dead. And, whether or not she committed suicide in jail, she would not have ended up in jail had she acted differently. I am not defending the cop; he acted horribly.

But I am getting back to my point: play the hand you're dealt. When you get stopped by a cop who is acting unreasonably, recognize that and be compliant. That's what I do. I once was stopped by a cop who started yelling at me for speeding. A ticket? I get that. I was speeding. But once I saw how he was, I did what I could to calm the situation. A little tip here that a younger friend of mine didn't understand and it got him in trouble: Never tell a cop to calm down. They never need to calm down because, by definition, they're calm. And I paid the ticket and went to traffic school to get the point off my record. (And, by the way, that particular traffic school, taught by that particular person, was valuable, unlike another one I went to 14 years later. You could argue that it saved my life the next year when I got in a pickle on I-80 near Denver because the scenarios we had worked through--what should you do if?--got me thinking about other scenarios I hadn't thought about. I could have sat thorough 8 hours and stewed, but I didn't. Back to the principle: play the hand you're dealt. Make the best of it.)

So what would I have done if that ugly man--I'm not talking about physical looks here--Texas Trooper Brian Encinia, had stopped me. I would have lowered the window, kept my hands on the steering wheel in a 10 to 2 position, and, when he told me to put out my cigarette, complied without arguing. And I would have lived. So I think that Jacob Sullum's thoughts here are valuable, with a couple of tweaks. Jacob writes:

Given the practical power that police have to mess with us and the wide discretion they have in exercising it, an attitude of meek subservience may seem advisable. That expectation is not fair, reasonable, or compatible with the principles of a free society. But it is demonstrably safer than the approach that Bland took, which was based on the assumption that she was a citizen whose constitutional rights should not be blithely violated by an authoritarian bully with a badge and a gun. I do not by any means fault Bland for questioning Encinia's authority to order her around for reasons unrelated to her traffic offense, any more than I fault Jessica Cooke for questioning the Border Patrol's authority to detain her at an internal immigration checkpoint in upstate New York. To the contrary, both young women showed exceptional bravery in standing on their rights. But as the outcomes in those cases (an arrest and a Tasing, respectively) show, such resistance to arbitrary power is brave because it is dangerous.

I do question "meek subservience." What I advocate is politeness and compliance. There's a difference. I'll give an example. Once I was stopped by a Pacific Grove cop who had attitude. I figured out quickly that I should be polite and comply with what she said. But then she said, "Do you know what I stopped you for?" I actually didn't because I was pretty sure I had stayed at the speed limit and I couldn't think of anything else I had done that was illegal. But even if I had "known" what she stopped me for, I would have said what I did say: "Actually, officer, I don't." Let her explain. Why incriminate myself?

While I'm on "playing the hand you're dealt," I'll mention one other thing that I hear professors complain about where I think that even though the complaint is valid, they would be better off, unless they're on an admissions committee, playing the hand they're dealt: the quality of the students. A large percent of my American students seem to have forgotten, if they ever knew, basic algebra. Do I think that's bad? Yes. But I don't complain about it. Instead, I work out examples in class and then give different problems using algebra on problem sets. Then I grade harshly when they blow it. Some of them learn from that.

What I'm trying to get across, possibly successfully and possibly not, is that it can be very empowering for you to recognize a situation and then use what power you have to do the best you can for yourself.

One last example that might make the point. When I deal with angry cops, I think of how I dealt with my father when he got irrationally angry. I pictured him as a big angry bear. You don't morally judge a bear; he does what bears do. I didn't morally judge my father--or, at least, tried not to appear to judge him in the moment. I just treaded carefully.


Bryan Caplan

Sadie Hawkins Rant

Bryan Caplan
[T]he practical basis of Sadie Hawkins Day is one of simple gender role-reversal. Women and girls take the bold initiative by inviting the man or boy of their choice out on a date--almost unheard of before 1937--typically to a dance attended by other bachelors and their assertive dates.
Nowadays, gender roles are pretty flexible.  Ideological roles, in contrast, seem more rigid than ever.  Hence, the main role reversal I'd like to see: For just one day, criticize people on "your" ideological side instead of "their" ideological side.  All day.  Full sincerity.  No irony.  No mischief.  No Strauss.  Just candid independent fault-finding, written as politely as you usually address your ideological opponents.

Maybe like this.


Paul Krugman recently had this to say on the minimum wage:

Until the Card-Krueger study, most economists, myself included, assumed that raising the minimum wage would have a clear negative effect on employment. But they found, if anything, a positive effect. Their result has since been confirmed using data from many episodes. There's just no evidence that raising the minimum wage costs jobs, at least when the starting point is as low as it is in modern America.
This struck me as very odd. I've done work that suggests that minimum wages probably cost jobs (although admittedly my research was on the Great Depression, and hence may not be applicable to today.) But it's widely known that there is lots of other research suggesting that minimum wages cost jobs. In addition, economic theory suggests that when you make something more expensive, people will buy less of it. Perhaps strangest of all, Krugman's claim is contradicted on the very first page of the study he links to as having "confirmed" his claim:
On balance, case studies have tended to find small or no disemployment effects. Traditional national level studies, however, have produced a more mixed verdict, with a greater propensity to find negative results.
Paul Krugman has said that he doesn't read conservative blogs, so obviously he may not be familiar with the literature on how the minimum wage costs jobs. But that's no excuse for not even reading the first page of the study he links to in support of his claim.

Krugman doesn't come right out as say that the Card-Krueger study provides support for the Democratic Party's recent attempt to raise the minimum wage, but that's surely the implication that most readers will draw from his post. And yet even the Card-Krueger study doesn't necessarily support the Obama administration's proposal for a $10.10 minimum wage, or the Congressional Democrats attempt to raise the minimum wage to $12/hour. The studies he cites look at the effects of small increases in the minimum wage.

There are conflicting empirical studies of the effect of minimum wages. When that occurs, it's probably safest to go back to the basic theory. That doesn't necessarily mean that minimum wages are bad policies, perhaps the gains in income outweigh the cost in unemployment. But it's disingenuous to claim that we can raise minimum wages without any disemployment effects.


David R. Henderson

Econlib in Top Three!

David Henderson

We have just learned that has listed Econlib as one of the top three sites for Economic Education in 2015. I agree. :-)

The announcement is here.

An excerpt:

We are delighted to publish the award winners for 2015. In determining the awards we received recommendations for 6,052 sites from 51,230 people who voted on our site. When we decided on the sites that should be given the awards, we looked at the quality of content, usability, timeliness of content and the extent to which much of the content is accessible to all web users. We are pleased to announce the following award winners that met all of these criteria and were judged to provide an excellent service to internet users.

CATEGORIES: Economic Education


Delighted to see Noah Smith introduce Bloomberg readers to the case for open borders.  Two reactions:

1. When Noah describes the economic benefits of immigration, he makes it sound redistributive: Our GDP goes up because we gained people, which presumably means the sending countries' GDP goes down by the same amount because they lost people.  At least that's the natural way to read this passage:

The way to get 4 percent growth is open-borders immigration policy.

Gross domestic product is simply the product of output per person and the number of people. The more people in your country, the higher the output. That's why China, whose output per person is only about a quarter of the U.S.'s, is now the largest economy on the planet. It just has more bodies. 

The growth numbers you usually hear about in the news are total GDP growth numbers, not per capita figures. To boost those numbers, get more population. For example, when Great Britain conquered India, the GDP of the British Empire went way up. If the U.S. really wanted to supercharge its GDP numbers, it has a much better option than military conquest -- it could simply invite tons of immigrants to move here.

The point I'm confident Noah grasps, but fails to communicate: Due to vastly higher labor productivity in the U.S., U.S. GDP would rise more than sending countries' GDPs would fall.*  Any chance you can write a followup explaining this, Noah?  Please please please.

2. Noah generously hands me some free publicity, but what he says isn't quite right.
Exactly this sort of open borders immigration policy has received enthusiastic support from a dedicated core of libertarian economists, notably Bryan Caplan of George Mason University. These economists believe in relaxed immigration rules not because they want higher GDP growth, but because of principle -- they view national borders themselves as an unacceptable form of government intervention in the economy.
Actually, I believe in open borders for both reasons, and many others.  Yes, I have a moral presumption against regulation in general.  But regulations that impoverish billions are much worse than regulations slightly harm hundreds.

Noah continues:
The open borders crusaders are so zealous that moderate supporters of increased immigration, such as tech entrepreneur Vivek Wadhwa, are often the targets of their ire. University of Chicago economist John Cochrane has also voiced support for the open borders idea.
Here's what I previously said about Vivek:
I'm glad the world has moderately pro-immigration thinkers like Vivek.  I don't think the heretic is worse than the infidel.  Even baby steps towards open borders are steps in the right direction.
That's zeal?  That's ire?

* This is true even though U.S. per-capita GDP would go down!  Under open borders, both current residents and new arrivals would be richer.  The composition of the population would however heavily shift toward low-skilled workers. 

Example: Suppose initially, a country has 100% high-skilled natives earning $40,000 a year.  Low-skilled foreigners earn $1000 a year in their home countries.  After open borders, the U.S. population shifts to 50% high-skilled natives earning $50,000 a year, 50% low-skilled foreigners earning $10,000 a year.  All individuals are richer.  But U.S. per-capita GDP just fell from $40,000 (1*$40,000) to $30,000 (.5*$50,000 + .5*$10,000).


From Paul Campos' Don't Go to Law School (Unless):
It's not merely that it's common for a law professor to have never tried a case, or negotiated a deal, or drafted a real-life version of the sorts of documents he's discussing in a Contracts, or Corporations, or Wills and Trusts class - it's that legal academics almost never know anything about the business side of legal practice. The two most important practical skills that any lawyer working in private practice must possess are the ability to acquire clients, and to get them to pay their bills, which happen to be two things that most legal academics have never done in their lives.
Rule of thumb: The more you know about any specific kind of "vocational" education, the less vocational it looks.


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