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I've heard many arguments against homeschooling.  Here's the worst:

"Bryan, you've got to send your kids back to public high school."


"Well, you've got to understand that high school is miserable."

"I remember it well.  How is that an argument for high school?"

"Because it prepares you for the misery of life.  Having a job is just like being in high school.  Without that preparation, you'll never make it in the real world."

The obvious objection: Suppose your kid is incredibly happy in high school.  Everyone's nice and encouraging.  He's learning piles of material.  Day after day, he comes home and says, "High school is a dream come true."  What kind of a parent would react not with elation, but alarm?  As in: "Eek!  My kid's may be excelling academically, but he's totally not being prepared for the harshness of adult life.  I'd got to immediately move him to a school where he's unhappy... for his own good!"  None I've ever encountered. 

Sure, parents occasionally sentence their kids to military school, but they do so because the kid is behaving badly now, not because they fear their studious, well-mannered kids will grow up to be snowflakes.

So what's the best argument against homeschooling?  Conformity signaling, of course.

David R. Henderson  

Keep Your Eye on the Prize

David Henderson


In a comment on a recent blog post I wrote on United Airlines, The Original CC highlighted one of my sentences and wrote:

You seem to be the master of deescalation. Can you explain this interaction and what you said in a little more detail? We could probably all learn from it.

The sentence he highlighted was this one:
One guy got defensive but, because I didn't get angry back, cooperated.

I might disappoint CC a little because I was so moving so fast that my memory of what I said is somewhat of a blur. What I do remember clearly was that the attitude that I take in these situations is that the people I'm asking for a favor owe me nothing. They are doing a favor, and I am the supplicant. So I don't get on my high horse and come off as someone who feels entitled. There's a very good reason I don't sound like someone who's entitled: I don't think I'm entitled. It would be nice for them to do what I'm asking, and it would probably cost them very little whereas my gain would be great, but that's for them to decide.

Back to the United incident. Once I explained that my plane would leave in about 12 minutes from a different wing of the airport, the guy said, with a tone, "The door isn't even open yet." I answered, "Yes, sir, I understand but I'm trying to get as close to the door as possible when it does open." He seemed to get it because he said, "Oh, alright" and stepped back into his seat to let me pass. [These are my rough recollections. I could be off a little.]

My attitude that has worked for me from about age 30 on can be summarized as "Keep your eye on the prize." Someone on Facebook recently asked what one line of advice people would give someone about living his/her life. I answered, "In any conflict or issue of controversy, keep forefront in your mind what goal you want to achieve." What that will typically mean is that you don't escalate, you probably ignore insults, you let people save face when they back down, when they give you even some of what you want you thank them, and you don't gloat when you win, to name five.

Ezra Klein has a good essay on the Singapore health care system. He starts off with the conservative case for the Singapore system, quoting the AEI:

What's the reason for Singapore's success? It's not government spending. The state, using taxes, funds only about one-fourth of Singapore's total health costs. Individuals and their employers pay for the rest. In fact, the latest figures show that Singapore's government spends only $381 (all dollars in this article are U.S.) per capita on health--or one-seventh what the U.S. government spends.

Singapore's system requires individuals to take responsibility for their own health, and for much of their own spending on medical care.

Most of the essay is spent partially (but not completely) debunking the conservative view. For instance:

According to the World Bank, in 2014 Singapore spent $2,752 per person on health care. America spent $9,403. Given this, it's worth asking a few questions about what Singapore's model really has to teach the US.

Are Singaporeans really more exposed to health costs than Americans? The basic argument for the Singaporean system is that Singaporeans, through Medisave and the deductibles in Medishield, pay more of the cost of their care, and so hold costs down. Americans, by contrast, have their care paid for by insurers and employers and the government, and so they have little incentive to act like shoppers and push back on prices. But is that actually true?

I doubt it. The chasm in total spending is the first problem. Health care prices are so much lower in Singapore that Singaporeans would have to pay for three times more of their care to feel as much total expense as Americans do. Given the growing size of deductibles and copays in the US, I doubt that's true now, if it ever was. (It's worth noting that, on average, Singaporeans are richer than Americans, so the issue here is not that we have more money to blow on health care.)

I think he's overstating the case here (I find that even many of my small health expenses are heavily subsidized) but there is some truth to what he says here. And I think this points to the necessary first step in health care reform---getting costs down. Indeed Klein's basic argument is that the Singapore system is actually a pretty effective health care regime, but it would be hard to implement in America because the cost of health care is so much higher here.

But this leads to what I see as the one major blind spot in Klein's article:

Singapore's system is probably better designed in terms of how consumers spend their own money. But the lower overall prices make them much less exposed to health costs than both patients and employers inside the American system -- which suggests to me that Americans have at least as much incentive as Singaporeans to try to use their power as consumers to cut costs.

The fact that that hasn't worked is, I think, a reason to believe we've gotten the lesson of Singapore's health system backward. Singapore heavily regulates both the pricing and provision of medical care to keep costs low (as do all other developed countries) and then, working off that baseline of low costs, has Singaporeans pay out of pocket in order to keep them mindful of how much they're spending.

Unless Klein doesn't consider America to be a "developed country", the statement is flat out wrong. In America the government heavily regulates both the pricing and provision of health care to keep costs high. In America:

1. There are massive subsidies to employer provided health insurance. This leads to enormous consumption. My personal lifetime health care consumption has been at least doubled by various subsidies (including tax breaks), and it has not improved my health one iota.

2. There are huge regulatory barriers to the efficient provision of health care, at virtually every level of the system. It's too difficult to become a doctor. Nurses are prevented from doing too many things. There are insurance mandates. There are restrictions against patients signing contracts making it more difficult to sue for malpractice. There are restrictions on importing foreign drugs, even foreign generics. There are barriers to the immigration of foreign doctors and nurses. I could go on and on.

My dream policy would start with massive deregulation, as well as the elimination of all tax deductions for health care, to get costs as low as possible. Then add mandatory health savings accounts to get costs even lower.

Klein also overlooks the fact that the argument he uses against conservative supporters of the Singapore system applies equally well against progressive supporters of the European approach. He argues that since health care in America is so much more expensive than in Singapore, we probably pay almost as much out of pocket as they do, despite paying a lower percentage.

But that's also true of socialized medicine. Thus our government spends about 8% of GDP on health care (out of a total of roughly 18% of GDP), whereas European governments spend about 8% of GDP on health care out of a total of 9% to 10%. So we are already spending roughly as much as in Europe. If a single payer regime were actually feasible in America, then our government should already be able to provide universal coverage out of the already existing health care programs. We should to be able to put all 325 million Americans on Medicare/Medicaid/VA, etc., without spending a dime more. Obviously that won't work.

So our current bloated health care spending levels means that America is not able to choose either the Singapore or the European system, we are stuck with a far worse, system---the American health care system.

But if we insist on dreaming the impossible dream, then why not shoot for the best? And that's clearly Singapore, not Europe. And the first step toward getting there is cutting costs, by doing things like replacing the tax deductibility of health insurance with a lump sum tax credit.

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David R. Henderson  

Reply to Adam Ozimek

David Henderson


Adam Ozimek has written an article on titled "Libertarianism Needs To Become More Realistic." HT to Tyler Cowen. Although authors rarely get to choose their articles' titles, the title does seem consistent with his message. Ozimek is friendly to libertarianism, and so his suggestions should be seen as friendly amendments to the strategies pursued by some libertarians.

Here's his final paragraph:

Instead, people want quality of life, economic growth, and good government. All three of these can be helped on some margins by utilizing market forces, deregulating, and increasing freedom. Libertarianism should focus on these margins, and accept that the all-too-popular vision of radical freedom and minimal government at all costs is not wanted by enough people to actually matter. Realistic libertarianism would unabashedly accept limits of markets, and embrace in rhetoric, theory, and practice the first order importance of quality government, which on many margins trumps small government.

I agree with some of it, and disagree with much of it.

I agree that libertarians are in a minority. He gives strong evidence for this, focusing on a factor that many libertarians, and almost all libertarian economists, would accept: the evidence on voting with one's feet. If libertarianism were really popular, he argues, more people would be moving to New Hampshire and fewer people would be moving to Texas. So, yes, we are in a minority.

But what follows from that? Ozimek thinks we should give up trying to persuade people to be more libertarian.

Consider, though, two historical episodes where libertarians were in the forefront: the decriminalization of homosexuality in the 1970s and the anti-draft movement of the 1960s.

I remember returning to the University of Rochester from the national Libertarian Party convention in 1977, where I had allowed the Gay Caucus of the Libertarian Party to use my room for a cocktail party. When I told some colleagues about it, I got an icy glare. Now, I would bet, the reaction would be much different. What happened to change the landscape? I don't quite know. I do know that we were right to pursue this issue. More important, if Adam Ozimek were writing on this in the 1970s, what advice would he have given? It seems that he would said that we should give up.

Or the take at the anti-draft movement in which Milton Friedman, Walter Oi, and others were leaders in the mid-1960s. My impression is that the majority position was pro-draft. Would Adam Ozimek have counseled us not to pursue this?

I said above that I agree with some of his bottom line. Here's the part I somewhat agree with:

Instead, people want quality of life, economic growth, and good government. All three of these can be helped on some margins by utilizing market forces, deregulating, and increasing freedom. Libertarianism should focus on these margins

It makes sense for some of us to focus on these issues. But it also makes sense for some of us to pursue apparently quixotic causes that turn out to be quite realistic.

Bryan Caplan  

What Is Self-Righteousness?

Bryan Caplan
What exactly does it mean to be "self-righteous"? 

1. "Self-righteous" is definitely not the same as "hypocritical."  A hypocrite talks the talk but doesn't walk the walk.  A self-righteous person can definitely do both; in fact, you're probably more likely to be called "self-righteous" if you're strictly observant of your own principles.

2. "Self-righteous" also seems distinct from simply being morally mistaken, or even extremely morally mistaken.  Indeed, we occasionally accuse people on "our own side" of self-righteousness.

3. You are likely to be accused of self-righteousness if you loudly brag about your moral virtue - even if (especially?) your claims are literally true.  But is that all that's going on?

4. When I call people "self-righteous," the subtext is normally that they're loudly observant but morally unreflective.  (As Nietzsche said in Human, All Too Human, "The most dangerous party member.-- In every party there is one who through his all too credulous avowal of the party's principles incites the others to apostasy.")  But perhaps that's just my pet peeve.

Further thoughts?

CATEGORIES: Economic Philosophy

David R. Henderson  

Score One for United Airlines

David Henderson


With all the negative publicity United Airlines has had lately, I want to share a positive. Yesterday morning, I was flying from Washington Dulles to LAX, with a short time for my connecting flight from LAX to Monterey. We boarded late because one of the runways at LAX was closed for construction and the LAX air traffic controllers were rationing landings. Our pilot explained that to us when we boarded and told us that even though we were not allowed to take off until about 9:50 a.m. (the flight was scheduled to leave the gate at 8:30 a.m.) he was going to go out and hope for a slightly earlier takeoff. We got near the runway and then he announced that we would wait 15 to 20 minutes, the seatbelt light would be turned off, and the flight deck was open for those who wanted to come up. There were about 30 New Zealand boys on the flight from some sports team and I thought there would be a rush to the cockpit. There wasn't. I'm convinced that almost no one listens to announcements any more because so much of it is boilerplate. Somehow I've trained my ear to not listen to boilerplate but to hear the new stuff. I quickly unbuckled my seat belt and headed to the front. I was the first one there. I talked to the pilot and second officer, who were both friendly, and took some pictures. The pilot invited me to sit in his seat and wear his hat. Thus the picture above.

I wanted to make room for other people in line--as it turned out, there was only one--and so after a minute or two, I headed back. I saw almost everyone in first class as I walked back to coach grinning at me and I assumed that they were just enjoying my enjoyment of the opportunity. Wrong. The pilot came on the PA system and announced that his hat was missing. Sheepishly, I walked back and returned it. I'm so used to wearing a Golden State Warriors hat, especially during the playoffs, that I had only minutes earlier taken it off and put it in my backpack. So the hat on my head didn't feel unusual.

We landed at LAX at about 11:45 and I got on my phone and found out that my Monterey gate for my flight leaving at 12:20 was 88, and that the gate we were landing at was 70A. That meant a long walk, but I know the airport well and knew I could do it. The problem: another United flight was at our gate. So we didn't get to the gate until about 12:07 p.m. So when I saw this coming, I asked the flight attendant if she could announce that some people have tight connections so if you don't, please stay seated for a few minutes. She said she would and she did. But notice what I said above: few people listen. So, sure enough, as soon as the seat belt light went off, almost everyone in front of me stood, many in the aisle. I politely explained to those ahead of me that my flight was leaving in 10 minutes (it was now about 12:10) and asked if I could get ahead. One guy got defensive but, because I didn't get angry back, cooperated. I got off the flight at 12:12 p.m. and ran through the airport. The gate agent at 88 was waiting for me and I got on at 12:20 p.m. The big burly guy sitting next to me hogged the arm rest but I didn't care. I would be home by 2 p.m. and have the afternoon with my wife.

When we got off the plane, I thanked the flight attendant and pilot for waiting.

HT to my friend Eric Garris for using photoshop to lighten the picture.

CATEGORIES: Economics and Culture

Scott Sumner  

Trump and Le Pen

Scott Sumner

The stock market behaved rather strangely in the period before and after the November elections. Before the election, stocks reacted negatively to each Trump surge in the polls, and stock futures fell late in the evening of November 8th, immediately after it became clear that Trump would win. Stock investors normally "root" for the GOP candidate. Indeed a GOP win in the presidential elections usually boosts stock prices by about 2% (although stocks actually have not done very well during GOP administrations.) To make matters even more confusing, stocks rallied strongly in the days and weeks after the election.

One possibility is that prior to the election investors were worried about Trump's call for protectionism and expelling illegal aliens. After the election, they were reassured that Trump would behave more pragmatically, and heartened by expectations that Trump would sign GOP tax cuts and also engage in deregulation.

A similar pattern occurred in the UK after the recent Brexit vote, where stocks initially fell and then rallied strongly.

One can discern two types of Trumpism. One type is very populist and nationalistic. Trump adviser Steve Bannon has been pushing for nationalistic economic policies and FDR-style spending programs to boost the economy. In contrast, Jared Kushner and Gary Cohn have a more internationalist perspective, and are more aligned with both Wall Street and the free market wing of the GOP.

Last night, Emmanuel Macron came in first in the French presidential election, and is now widely expected to win in the second round against Marine Le Pen. Think of Le Pen as being like the Steve Bannon side of the Trump administration. Le Pen is like Trumpism without the attachment of the GOP (or the UK Tories.) Like Trump, Le Pen is a nationalist on economics and immigration. Unlike Trump, she's also very left wing on broader economic issues.

The French stock market is up over 4% as I write this post, reflecting relief that Le Pen is not likely to win. While the election outcome was in line with the polls, the recent surge of a far left socialist had led to some concern that Macron would not even make it to the second round. Indeed four candidates ended up bunched together in the 19% to 24% range, with Macron being viewed as the most electable alternative to Le Pen. If Macron had not made it to the second round, the French stock market might well have plunged sharply, especially if the only two choices had been on the extreme right and the extreme left. (Le Pen is viewed as being on the right, despite her vaguely socialist views on government spending.)

Screen Shot 2017-04-24 at 1.27.51 PM.png
To summarize, the recent market response to the French elections helps us to better understand the previous market reactions to Trump (and perhaps to Brexit.) Investors are less concerned by moderate nationalism if it is embedded within a "conservative" administration that it sees as relatively business friendly. But there is one additional factor in the French election that differs from the earlier US and UK votes. France is part of the eurozone, and a win for Le Pen might have cast doubt on the future of the single currency project. This may explain why markets rallied strongly all across the eurozone. Indeed, stocks in Italy rose even more sharply than in France, as Italy has been widely viewed as a potential domino if the euro should start to unravel.

Bryan Caplan  

Earth 2.0?

Bryan Caplan
The latest Freakonomics Radio is on "Earth 2.0: Is Income Inequality Inevitable?"  I'm pleased to be prominently featured alongside Jeff Sachs and Alice Rivlin.  A few highlights:

And we'll remember to keep our eye on the economic ball:

CAPLAN: Any time you're trying to analyze a complex problem, just forget all the other stuff at first, and just say, "Well, what does this do to the productivity of mankind?"

But not everyone shares Kanter's views on inequality.

CAPLAN: It's definitely the kind of problem that we should worry a lot less about.

Bryan Caplan is an economist at George Mason University.

CAPLAN: The main predictor of living standards of not just most people but the poorest people in the country is productivity in that country. Countries that produce a lot of stuff aren't just good places to be rich or middle class; they're good places to be poor. So when people complain about people being left behind ... China's got 1.3 billion people. Sure, someone's going to be left behind in there. But is it better to be poor now in China than it was 20 or 30 or 50 years ago, when people were starving to death? There is no question. It is only by going and forgetting history, forgetting comparisons, and then searching through a vast number of people to find a sad story that we can forget the big picture. What is the big picture? Not that we can find something that happened that is bad in the world so vast we can't even imagine it, but seeing what is happening overall. What is the general trend, and how can we keep the general trend good?

I even get to make the case for not just open borders, but desert itself:
CAPLAN: I am old-fashioned enough to like the distinction between the deserving and the undeserving poor. Right now, we have a lot of very expensive government programs that give money to everybody eventually. Old-age programs. Social Security writes checks to Bill Gates like anybody else. Again, to me, this is insane! Why tax everybody to pay for them in a situation that everybody knows they'll eventually reach, as long as they don't die young? Thinking about kids and the elderly in the same breath is crazy. You're born an orphan and there's nothing you could have done about that. That's totally not your fault. But if you are starving when you're elderly, then there's a question: why didn't you plan for this, which was totally foreseeable in every way?
Hear the whole show.

I now favor a monetary policy rule that I have dubbed the "guardrails" approach, although a more accurate metaphor might refer to the beeper you hear if you are about to hit a car in the front or rear when parallel parking. Under this approach, the Fed would offer to sell unlimited NGDP futures contracts at a price featuring 5% growth, and also offer to buy unlimited NGDP futures contracts at a price featuring 3% NGDP growth. Someone expecting more than 5% NGDP growth would buy these contracts from the Fed, and profit if growth did indeed exceed 5%. A bearish investor would sell 3% NGDP futures contracts to the Fed, anticipating sub-3% growth.

Because this is an unfamiliar concept, I'd like to compare it to the Bretton Woods regime. Under that system, central banks promised to keep the foreign exchange value of their currencies within a band of plus or minus 1% around the official par value.

To make things simple, let's suppose the Canadian dollar had been pegged to the US dollar at one for one. Then the Bank of Canada (or their Treasury) would promise to sell unlimited US dollars at a price of $1.01 Canadian, or buy unlimited US dollars at a price of $0.99 Canadian. As long as the actual exchange rate was within the band, traders would have no incentive to buy and sell US dollars with the Canadian government. But the plus or minus 1% exchange rate band would provide "guardrails" or limits on the amount of exchange rate volatility that the Canadian government would tolerate.

Now let's compare the two approaches, Bretton Woods and NGDP futures guardrails:

1. Under both systems, the central bank would be completely free to conduct discretionary monetary policy as they saw appropriate, as long as they adhered to their promise to buy and sell their currencies at the specified guardrails. Despite this flexibility, these are clearly rules-based approaches, which put important limits in discretionary policy. (Just as the US government promise to buy dollars at $20.67/oz. allowed some flexibility, but also put clear limits on discretionary monetary policy during the 1920s.)

2. Under both regimes the system can be "calibrated" to become either more discretionary or more rules based by widening or narrowing the width of the guardrails.

3. The Bretton Woods regime can be regarded as a wager that the Canadian economy would perform best if the exchange rate were kept roughly stable vis-a-vis the US dollar. My guardrails proposal is a wager than the US economy would perform best if NGDP futures prices remained close to a 4% growth target. That wager has two components; the assumption that 4% NGDP growth expectations are desirable, and the assumption that the market price of NGDP growth contracts is close to the market expectation of NGDP growth.

4. Neither system requires the central bank to do anything, unless asked to by the public. Thus the Fed would not have to set up a NGDP futures market, and it would not matter at all if no such market existed. The Fed would not have to watch for fluctuations in NGDP futures prices. They could simply sit back and wait for traders to approach them with offers to buy and sell NGDP futures contracts at the specified price.

5. Both regimes expose the central bank to investment risk, but only if they allow the future value of their target to move outside the guardrails. Thus if the Canadian dollar were to fall to below 99 cents, the Canadian government would suffer losses on the Canadian dollars they had purchased to prop up the exchange rate. If the future level of NGDP fell below 3% growth, then the Fed would lose money on its purchases of 3% NGDP contracts.

6. Neither regime is susceptible to the zero bound problem. The Swiss recently pegged their currency to the euro for a period of over three years, despite being hard up against the zero bound (actually negative rates.) They could have chosen to do so for much longer. At the time, speculators were also buying the Danish krone, and Tyler Cowen suggested that Denmark would provide a good test of the claim that the Swiss were somehow "forced" to revalue. Of course the Danes did not revalue, despite also being at the zero bound, and the Swiss could have also avoided revaluation if they had chosen to. Indeed the Swiss probably erred in revaluing their currency upward, which will make the zero bound problem in Switzerland even more deeply entrenched.

PS. About the guardrails vs. beeper metaphors. My proposal can be seen as like a car beeper in the sense that the "driver" (i.e. the Fed) is free to ignore the warning if he thinks the computer (i.e. market) is not accurate.

Screen Shot 2017-04-24 at 11.37.09 AM.png
On the other hand it can be seen as a guardrail in the sense that it commits the Fed to keep the market price of NGDP futures contracts within the 3% to 5% growth range.

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Alberto Mingardi  

Adam Smith's pins

Alberto Mingardi

Any book is the child of its own times, rather obviously. This means that sometimes parts of even great books do not necessarily age well. Examples the author uses to make his case may appear rather obvious to the contemporary reader, but alien to posterity.

Some examples are immortal, such as Leonard Read's magnificent little story, "I, Pencil", which resembles Walter Lippmann's breakfast and Adam Smith's woolen coat. But, giving lectures to high school students in Italy and using "I, Pencil" regularly, I can tell you that sometimes I have the impression that youngsters today find the very idea of talking about pencils so...exotic. Well, they have still seen pencils, and some of them still use them, so in a way that adds up to the power of Read's story: see the marvels of cooperation in objects of sheer simplicity.

But what about Adam Smith's pin factory? What are pins really for? I can picture a young kid asking this question, particularly as she may have never seen her grand-mother working at her sewing machine or mending clothes (a far more common picture just a few years ago; my grand-mother always had a sewing machine in her apartment).

Virginia Postrel has a great article on Reason on what pins were, at the time Adam Smith picked the pin factory example to explain a more and more complex division of labour. She explains:

Nowadays, we think of straight pins as sewing supplies. But they weren't always a specialty product. In Smith's time and for a century after, pins were a multipurpose fastening technology. Straight pins functioned as buttons, snaps, hooks and eyes, safety pins, zippers, and Velcro. They closed ladies' bodices, secured men's neckerchiefs, and held on babies' diapers. A prudent 19th century woman always kept a supply at hand, leading a Chicago Tribune writer to opine that the practice encouraged poor workmanship in women's clothes: "The greatest scorner of woman is the maker of the readymade, who would not dare to sew on masculine buttons with but a single thread, yet will be content to give the feminine hook and eye but a promise of fixedness, trusting to the pin to do the rest."

Read the whole thing.


David R. Henderson  

Crash Pad

David Henderson

On a United flight from San Fran to Washington Dulles yesterday, I found the flight attendants particularly professional and courteous. When I went to the back to stretch my legs, I did what I often do: asked a flight attendant where she was based. This particular one answered that she's based in San Fran but lives in Miami. So she arranges her schedule so that she is in San Fran for 3 weeks and Miami, with her boyfriend, for 5 weeks. I asked her how that works: where does she stay in San Fran?

Her two word answer: crash pad. I didn't know what that was. She explained that 18 flight attendants share a 3-bedroom apartment near SFO. She said it's illegal, but I don't know whether that means that the local government has a regulation forbidding it or it means that it violates the rental contract. I asked her what the maximum number of people sleeping overnight it is at any one time. The most she's seen is 7: two in each bedroom and one on the couch. Her share of the rent: $420.

I love hearing about the various ways people with unusual schedules adjust to high housing costs in the Bay Area.

On a later stretching-my-legs trip to the back, I asked another flight attendant what she did. She led by saying that she doesn't have a "crash pad." Her familiarity with the term made me think that it must be a common living arrangement. She lives in Fresno and drives to San Fran.

I've categorized this under "Revealed Preference," but it's really about people doing the best they can, given their knowledge, within constraints, in ways that no central planner would be able to figure. So I've also added "Central Planning vs. Local Knowledge."

The Financial Times reports that the Trump administration is considering steel tariffs:

The US has set the stage for a global showdown over steel, launching a national security investigation that could lead to sweeping tariffs on steel imports in what would be the first significant act of economic protectionism by President Donald Trump. 

The decision to use a 1962 law allowing the US government to limit imports that threaten its security readiness is intended to deliver on Mr Trump's campaign promises to bolster heavy industry and "put new American steel into the spine of this country", officials said on Thursday.

A few observations:

1. Congress erred in delegating to the executive branch the power to set national security tariffs. Almost any industry could be deemed essential for "national security".

2. The US steel industry currently produces about 80 million tons per year. That's more than enough to meet our essential military needs. And this doesn't even account for the fact that steel production could be increased, as we are not operating at capacity. Yes, it might take a bit of time to bring mothballed plants back online, but as the following quotation suggests, new weapons now take far longer to develop than they did back in WWII:

Civilian manufacturing capacity is now ALMOST ENTIRELY USELESS for defense purposes. Whereas in WWII, auto assembly lines could be used to make planes & tanks, and Singer made guns instead of sewing machines... Now all but the most basic defense products (personal firearms, sewing of uniforms, etc) must be made by specialized expert-firms. Super-weapons such as the F-22/F-35, M1A3 Abrams (it's under development now), and whatever we make when we finally field a next-generation artillery piece (cancelling the Crusader was a mistake, btw) require such a specialized knowledge-base & facilities, that they MUST be made by a dedicated defense industry - something we have (on a best-in-the-world level). Re-purposing a factory that built 2-ton SUVs to build 70-ton tanks just isn't happening. Even if it could, how much experience does your average auto-worker have in assembling uranium-ceramic-steel-composite armor properly, so as to maintain it's ability to take 125mm KE hits?

A final point on this issue, is that modern war moves to fast to 'develop and manufacture new products after the fact, using civilian industries'. It's a 'run what ya brung' sort of affair

And this doesn't even account for the fact that the US would likely have access to steel produced in friendly countries such as Canada, Mexico, Brazil, Japan and Germany. Sure, one could construct scenarios where some of that steel is cut off in a war (i.e., Japanese exports are disrupted by a war with China, or German exports in a war with Russia), but unless the US is fighting the entire world at once, we'd surely have access to at least some markets. And if steel imports really were cut off, where would we get our iron ore? Today we don't need much iron because of our use of scrap metal. But if we stopped building cars during a war, then far less scrap metal would be available.

This also fails to account for the fact that warfare in the modern world tends to be asymmetric. The threat of nuclear annihilation means that we fight small countries, not large nuclear powers.

The development of missile technology tends to make steel-intensive weapons (such as ships and tanks) more of a "sitting duck" than in the old days. I recall that a single Argentine missile took out a British destroyer in the Falklands War--and that was way back in 1983. Think about today's cruise missiles, and also consider that the sort of powerful adversary that would require the US to have a massive steel industry would be far more militarily advanced than Argentina in 1983. I'm not expert on modern weapons, but I'd wager that in today's warfare a big steel industry is less important than back in WWII.

3. One possibility is that the national security argument is simply being used as an excuse to save jobs in the steel industry. As an analogy, recall that when Trump campaigned for President he promised to ban Muslim immigration. When Rudy Giuliani told him that this was a legally dubious proposal, Trump asked for a version of the plan that would be accepted by the courts. This led to the recent dispute over the ban on immigration from seven (later six) majority Muslim countries.

I don't have strong views either way on whether Trump's immigration ban was legal. But I will say that the legal argument for protecting the US steel industry on national security grounds seems far less plausible than the claim that the immigration ban protects national security (and I'm dubious of even that claim.) So you might expect the courts to question the steel tariffs on exactly the same grounds they challenged the immigration ban---Trump is on the record favoring this sort of action on entirely different grounds---jobs. On the other hand, courts have tended to show more deference to the government on economic regulation than on civil rights/equal protection issues, so I'm not making any predictions here.

4. It is likely that a suitably high steel tariff could save some jobs in the US steel industry. However, it seems much less likely that this would serve Trump's broader goals of restoring jobs in manufacturing. Tariffs protect industries by driving up the price of the commodity being imported. But if steel prices rise, then this puts other American manufacturers (cars, white goods, etc.) at a competitive disadvantage to imports. Mexican firms making cars or washing machines would be able to buy steel more cheaply than American manufacturers, and this would cost jobs in other sectors of the US economy. The net effect on the total number of jobs in manufacturing is likely to be pretty trivial, and could be either positive or negative.

5. Policies based on metaphors that romanticize and/or anthropomorphize the economy are unlikely to be wise:

The decision to use a 1962 law allowing the US government to limit imports that threaten its security readiness is intended to deliver on Mr Trump's campaign promises to bolster heavy industry and "put new American steel into the spine of this country", officials said on Thursday.
Sorry folks, those days are long gone:

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The late Kenneth Minogue was a forceful advocate of universities being and remaining peculiar institutions. Their peculiarity should include independence and pluralism for universities to become the instrument of ideological homogeneity, or of political power generally speaking, meant to become something other than what they traditionally were and were meant to be.

one way.jpg In these days, the newspapers are paying much attention to what is happening in Hungary, where the government passed a law aimed to change the requirements for foreign universities operating in that country. Such a move is by and large considered an attempt to shut down the Central European University, set up by George Soros in the early Nineties to help the development of a new Hungarian intellectual elite. The President and rector of the university is a distinguished scholar, Michael Ignatieff.

The New York Times has a pretty good and comprehensive piece on the matter.

Bloomberg points out that the Orban government has also "filed a separate bill to force civil society groups funded from abroad to be labeled as "foreign" agents. That bill mimics a 2012 law in Russia that was the first step in an exodus of U.S.-based and other non-governmental organizations there. It aims to "stigmatize" groups and to silence criticism, according to Soros's Open Society Foundations, which has given $400 million since the 1980s to Hungarian civil society groups.

A group of classical liberal/ conservative think tankers signed a letter protesting against these new rules a few weeks ago. I am sure few of them have sympathies with most of the initiatives George Soros funds, but they all recognize the importance of a free, pluralistic and competitive public debate.

But to have a public debate worth of its name, you should begin with a belief in the fact other people may have something to say which is worth listening too.

What is so tragic of attempts to shut independent universities, or think tanks for that matter, is the fact that societies renounce sources of possible new wisdom, information, and ideas. Answers (and questions!) that may be worth listening to.

Attending the APEE annual meeting recently, I learned of the initiatives of a group aiming to "unKoch your campus". I shall confess I didn't pay much attention to their activities before. The more I learned, the more I was shocked. Check out this article, particularly the little bit devoted to Ed Lopez, a scholar and educator who has been at the center of a smearing campaign.

These people purport to reveal whatever "inconvenient" truth about the Koch family's donations to universities and the alleged strings attached to them (you know, they may actually suggest students read Ayn Rand...), and to counter the influence exerted by these arch-libertarian billionaires. The Koch brothers have long been important donors to libertarian organizations:* think tanks, grassroots groups, university centers. They operate like many other foundations which support research programs that they consider promising in addressing questions they consider important. Whatever their influence, they are far from having any hegemony in the academic world, which is predominantly hostile to limited government and free market ideas. On the background of this anti-Koch protests, you should really read this great piece by Phil Magness.

These "unKoch my campus" people think differently and they think they're unveiling a terrible conspiracy.

But make no mistake. What these people are trying to is not "unKoch my campus" but, in the case of Western Carolina University, to "unLopez" it. It sounds much better to say "refuse that money" than "fire that professor" but at the end of the day the two things are appallingly similar.

In the case of CEU, we have a government declaring war on a private university and attempting to close it down. The enemies of a certain ideological perspective, and of certain people, have been able to resort to coercion and law making. This is certainly bad.

In the case of "UnKoch My Campus", we see an organised grassroots organisation putting pressure on a local university NOT to allow some people to teach, not because they are not competent, but simply because they do not share a certain ideological perspective. Here we see a "bottom up" rather than "top down" censorship attempt. In a free society, we shall accept that people organise in institutions which are akin when it comes to entry rules, akin to clubs; they may decide whom they want in and whom they don't want. And yet academic freedom, which is a concept so crucial to the very idea of the university, requires these clubs to be different than others: to allow in their bylaws, so to say, for pluralism and difference of opinion.

Both the Hungarian government and the "unKoch" people are aiming at striking down the university's independence - independence from government, politics, and a unique set of ideology. These are attempt to reduce ideological pluralism, but on campuses and in society at large.

I hope that, like conservative/libertarian think tankers had no problem in siding with freedom of speech and inquiry in Hungary for people whose ideas they don't like, at some point some socialist/left wing intellectuals will pen a letter supporting teachers and researchers whose ideas they don't like but think deserve nonetheless to be part of the debate.

Voltaire is credited for having said: "I disapprove of what you say, but I will defend to the death your right to say it". That's very much the spirit of the enlightenment, and of a healthy public discussion. One hopes this should be a common denominator of people on the right and on the left that care deeply about a civilised, serious public debates. Hopes are not always fulfilled.

*The present author has never been funded by any organization related with the Koch brothers. At the same time, he thinks he has profoundly benefited from knowledge and research generated by Koch-ounded programs over the years.


David R. Henderson  

Two Cheers for Fox News Channel

David Henderson

Fox News Channel's decision to fire Bill O'Reilly caused me to reread a piece I wrote about Fox back in 2004. Were I to grade Fox, now, independent of O'Reilly, I would give them 1.5 cheers.

An excerpt:

Back to foreign policy, where Fox fails to earn the third cheer. Even here, though, there is some good news, and it's mainly due to Bill O'Reilly. O'Reilly is neither liberal nor conservative nor neo-conservative. Rather, he is a populist. Night after night he talks about how he's looking out for "the folks," a term I've never heard him define. I get the impression that "the folks" means, to O'Reilly, what former President Richard Nixon referred to as "the silent majority," a large group whom Nixon imagined populated the United States and favored the Vietnam war, but, somehow, never bothered to speak up in favor of it.

So what is the good news? Simply this. O'Reilly is neither incisive nor particularly thoughtful. But O'Reilly seems to have a high opinion of his own intellect. Because of that, he often hosts smart guests whom, I get the impression, he thought he could refute, but sometimes can't. Moreover, these are often guests who are more articulate and whose views are fresher, than the guests and views you typically see on the liberal networks. In December, for example, he hosted a University of Chicago law professor named Geoffrey Stone, who argued that U.S. defeat in Iraq would be good. O'Reilly regarded this as traitorous and that was about the extent of his argument. But Stone pointed out that if the U.S. government responded to defeat by exiting Iraq, many American lives would be saved. O'Reilly became muddled when faced with this argument -- he didn't know what to do with it. And millions of Americans got to see a guy with some gravitas saying, without animus, that the U.S. government should be defeated.

Don't miss the part about NBC fraudulently blowing up a GM truck and getting caught.

CATEGORIES: Competition , Media Watch

David R. Henderson  

More Highlights from Hayek

David Henderson

As I promised, here are some more highlights from Friedrich Hayek's The Constitution of Liberty.

The Role of Accidents:

Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.

The endnote at the end of this quote is great. Hayek quotes J.A. Wheeler from an article in American Scientist, 1956: "Our whole problem is to make the mistakes as fast as possible."

The Gain to Unfree Societies from Relatively Free Societies

There can be no doubt that in history unfree majorities have benefited from the existence of free minorities and that today unfree societies benefit from what they obtain and learn from free societies.

On this latter, I thought of China and Iran.

A Subtle Implication of the Above Quote

The significant point is that the importance of freedom to do a particular thing has nothing to do with the number of people who want to do it; it might almost be in inverse proportion. One consequence of this is that a society may be hamstrung by controls, although the great majority may not be aware that their freedom has been significantly curtailed.

Think, for example, of the developer in coastal California who has great difficulty getting permission to build a residential development. Many people are not aware of this, but it certainly hurts them if they are renters. Also, homeowners might not be aware but when they go to add that extra bedroom or bathroom and learn that they can't do it without permission and that permission isn't always straightforward, they learn something about the importance of this freedom to build.

Hayek's Overly Pessimistic (I think) Conclusion

There can be little doubt that man owes some of his greatest successes in the past to the fact that he has not been able to control social life [DRH note: that is, the lives of others.] His continued advance may well depend on his deliberately refraining from exercising controls which are now in his power. In the past, the spontaneous forces of growth, however much restricted, could usually still assert themselves against the organized coercion of the state. With the technological means of control now at the disposal of government, it is not certain that such assertion is still possible; at any rate, it may soon become impossible. We are not far from the point where the deliberately organized forces of society may destroy those spontaneous forces which have made advance possible.

Certainly the government's ability to exercise control and surveillance over us has increased. And yet we still see spontaneous forces all around us. It's a race.

CATEGORIES: Economic Philosophy

Three followups on my last post:

1. Most of the brutal policy advocacy I've heard comes from consumers, not producers, of intelligence research.

2. Why didn't I name names or link links?  Because the brutal policy advocacy is almost entirely off-the-record. 

3. In response to this post, many IQ realists have told me they've never heard anything horrifying first-hand.  I totally believe you.  But many other IQ realists have told me they have heard such things.  I totally believe them, too.  Since these horrifying views are (a) rare, and (b) normally concealed, a 50% detection rate strongly suggests that such views are indeed greatly over-represented in the IQ-realist community.

Scott Sumner  

Let them eat quality?

Scott Sumner

Bruce Sacerdote has a very interesting new NBER working paper looking at growth in American consumption, income and wages. His study was motivated by the apparent disconnect between reports of stagnant real income and what seems to be rapid improvements in living standards:

In the first part of this descriptive paper I consider growth in household consumption for households with below median income. The pessimistic narrative on real wages is somewhat at odds with casual empiricism about material goods consumption. If you spend time working with high school students, you notice that even in low income areas, many of the students have cell phones and have access to cable TV and internet service at home. Access to these powerful and modern tools suggests that low income families have seen important gains in at least some areas of consumption. The quality and variety of home appliances and electronics (TVs) in the average home is surely vastly superior to what people owned in the 1970s. American homes have become more spacious and cars are both higher quality and there are more cars per family.
Last week I purchased a one-year-old Nissan Maxima SL (with 6600 miles) for $26,350, and was stunned by how much cars had changed since I bought my last car (a one-year-old Altima, in 2008.) I recall reading that (in the 1990s) Bill Gates used to drive a Lexus LS400. I would much prefer this 2016 Maxima to the car driven by the richest guy in the world, just a couple decades ago. The monthly payments are about $480, which means it's within reach of tens of millions of Americans. There are an amazing number of safety innovations since I last bought a car.

I recently passed by a store selling TVs, and was floored by the improvement in picture quality since I last bought a set (in 2008). For the first time in my life, good TVs don't seem inferior to what you get at a movie theatre. I don't think I even need to talk about calculators, cameras, flashlights, calendars, movie cameras, iPods, GPSs, encyclopedias, weather reports, timers, clocks, TVs, taxi summoners, and a dozen other appliances, all of which are incorporated into your telephone. My scanner recently broke, but I quickly realized that I don't need one--the iPhone can scan as well.

Some argue that all these quality improvements don't matter, "you can't eat quality". But even there it seems living standards are rising fast:

The Hamilton (1998) technique of calculating CPI bias is ingenious in that it only requires a modest number of data inputs. Hamilton's insight is that food's share of the household budget over time should depend only upon income and the price of food relative to all other goods. If incomes are not rising, changes in food's budget share should be attributable to changes in the relative cost of food. In reality, PSID (Panel Study of Income Dynamics) data show food's budget share falling over time even holding the relative price of food and CPI adjusted income constant. This is a strong indication that the CPI is over adjusting and that true real incomes are indeed rising. It is easy to calculate the CPI bias as that adjustment to CPI needed to explain the difference between true food budget share and predicted food budget share. Hamilton finds that CPI is overstated by 3 percent per year from 1974-1981 and 1 percent per year from 1981-1991.
Sacerdote estimates that consumption for families with below median incomes has risen by an astounding 164% since 1960, which is about 1.7% per year. That seems far more plausible to me than reports that real incomes are stagnant. Admittedly the fastest growth occurred between 1960-72, but even in the post-1972 period, consumption is up by 81.5% in the "below median income" category.

David R. Henderson  

Hayek on Case for Freedom

David Henderson

As mentioned in my previous post, I had forgotten how good Hayek's Chapter 2 of The Constitution of Liberty is. A large part of his case for freedom is based on ignorance and uncertainty. He makes the case well, but, in the following two passages, he badly overstates.

First, on p. 29, point 4:

If there were omniscient men, if we could know not only all that affects the attainment of our present wishes but also our future wants and desires, there would be little case for liberty.

Second, on p. 31, point 5:
If we knew how freedom would be used, the case for it would largely disappear.

Imagine that you, I, and everyone else know all our future wants and desires and how exactly we would use our freedom. There's still a strong case for freedom. Why? Because without freedom, we would be subject to government force. There is no reason on earth to think that a government that knows exactly what we want and exactly how we will use our freedom will give us what we want.

CATEGORIES: Economic Philosophy

Bryan Caplan  

IQ With Conscience

Bryan Caplan
I'm an IQ realist, all the way.  IQ tests aren't perfect, but they're an excellent proxy for what ordinary language calls "intelligence."  A massive body of research confirms that IQ predicts not just educational success, but career success.  Contrary to critics, IQ tests are not culturally biased; they fairly measure genuine group differences in intelligence. 

Yet I've got to admit: My fellow IQ realists are, on average, a scary bunch.  People who vocally defend the power of IQ are vastly more likely than normal people to advocate extreme human rights violations.  I've heard IQ realists advocate a One-Child Policy for people with low IQs.  I've heard IQ realists advocate a No-Child Policy for people with low IQs.  I've heard IQ realists advocate forced sterilization for people with low IQs.  I've heard IQ realists advocate forcible exile of people with low IQs - fellow citizens, not just immigrants.  I've heard IQ realists advocate murdering people with low IQs. 

When I say, "I've heard..." I'm not just talking about stuff I've read on the Internet.  I'm talking about what IQ realists have told me to my face.  In my experience, if a stranger brings up low IQ in Africa, there's about a 50/50 chance he casually transitions to forced sterilization or mass murder of hundreds of millions of human beings as an intriguing response.  You can protest that they're just trolling, but these folks seemed frighteningly sincere to me.

Don't such policies flow logically from IQ realism?  No way.  If someone says, "I'm more intelligent than other people, so it's acceptable for me to murder them," the sensible response isn't, "Intelligence is a myth."  The sensible response is, "Are you mad?  That doesn't justify murder."  Advocating brutality in the name of your superior intellect is the mark of a super-villain, not a logician.

But don't low-IQ people produce negative externalities - negative externalities that well-intentioned consequentialists will want to address?  I'm no consequentialist, but the consistent consequentialist position is: Not if the "solution" is worse than the problem!  And if your "solution" involves gross human rights violations, there's every reason to think it is worse than the problem.  We should be especially wary of self-styled consequentialists who rush toward maximal brutality instead of patiently searching for cheap, humane ways to cope with the social costs of low IQ.

Why do IQ realists go so wrong?  Stigma is part of the story: If IQ realists face grave social disapproval, sensible IQ realists will tend to keep their views quiet.  Remaining spokesmen for IQ realism therefore lean crazy.  But stigma aside, IQ realists tend to be smart - and self-consciously smart people are often attracted to what I call high-IQ misanthropy.  If you marinate in your own misanthropy long enough, common decency fades away.

To repeat, I'm an IQ realist myself.  As a result, I'm tempted to deny ugly generalizations about my tribe.  But I won't.  As I've said before:
If you really want to improve your group's image, telling other groups to stop stereotyping won't work. The stereotype is based on the underlying distribution of fact. It is far more realistic to turn your complaining inward, and pressure the bad apples in your group to stop pulling down the average.
So here's what I say to every IQ realist who forgets common decency: You embarrass me.  You embarrass yourself.  You embarrass intelligence itself.  Teaching IQ with conscience probably won't end the stigma against the science of intelligence.  But if we teach IQ without conscience, we deserve that stigma.

Next month, my homeschoolers are taking the Advanced Placement Microeconomics test.  Here's a thought-provoking question from a practice exam:
Which of the following constitute the fundamental questions every economic system must answer?

I. What goods and services will be produced?
II. How will they be produced?
III. When will they be produced?
IV. For whom will they be produced?
V. Where will they be produced?

(A) I, III, and V only
(B) I, II, and IV only
(C) I, II, and V only
(D) II, IV, and V only
(E) II, III, and IV only
The textbook answer is of course B: "What will be produced, how, and for whom?"  But does the textbook answer make sense?  Anyone with a good knowledge of comparative economic systems will see some compelling doubts.  Starting with:

1. At least officially, one of the main divisions between Western and Communist regimes was on "When will they be produced?"  The Western answer was basically, "Whenever interest rates make it profitable," while the Communist answer was, "Heavy industry for you, consumer goods for your grandkids."

2. Another less-publicized Western/Communist gap appears on "Where will they be produced?"  The Western answer was basically, "Wherever the wage/rent/locational desirability package is enough to attract a workforce," while the Communist answer was, "Wherever the government orders."  This was clearest in the Soviet Union, where internal passports trapped many farmers in wretched rurality and many resource extractors in hellish locations like Siberia.  But the same held in Maoist China, and other Communist regimes to a lesser extent.

3. As readers of this blog are well-aware, immigration restrictions probably reshape the global economy more than all other regulations combined.  On reflection, this is another huge "where" question that economic systems answer.  The current answer is basically, "In whatever country the workers are born."

4. The same goes for building regulations, which make major cities much smaller (in area and population) than they'd be under laissez-faire in countries as diverse as the U.S. and India.

Bottom line: Questions of "where" and "when" are very important features of any economic system.  Important enough to call "fundamental"?  It's hard to see why not.

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