Bryan Caplan and David Henderson

January 2014

A Monthly Archive (75 entries)
In my discussion with Alan B. Krueger on NPR on Wednesday, I pointed out that governments in the United States hamper or prevent entry into many hundreds of occupations. I gave as an example the taxicab monopoly in Monterey and... MORE

Gochenour-Nowrasteh on the Political Externalities of Immigration

Behavioral Economics and Rationality
Bryan Caplan
Does immigration expand the welfare state by increasing the share of voters that benefit from government programs?  Or does immigration contract the welfare state by undermining voters' sense of national identity?  Critics of the welfare state tend to think the... MORE

How to measure the influence of think tanks?

Economics and Culture
Alberto Mingardi
Think tanks very often claim they are "fighting the war of ideas" - but indeed it is difficult to assess success and casualties in this kind of "war". All non-profits have problems in finding suitable metrics for their achievements -... MORE

Confusion about Income Inequality

Income Distribution
David Henderson
My Econlog co-blogger, Scott Sumner, on his own blog, The Money Illusion, writes that G.I.'s (he thinks this is Greg Ip) post on The Economist blog is a "wonderful post." My view: it's good in some ways and not in... MORE

Keynesian confirmation bias

Monetary Policy
Scott Sumner
When you read Keynesian blogs you get the impression that Keynesians think their model has been somehow confirmed by the events of the last few years. And yet figuring out what their model actually predicts can be maddeningly difficult, like... MORE

I'm Too Busy Fighting Tyranny to Feed My Family

Behavioral Economics and Rationality
Bryan Caplan
Suppose your Facebook friend, John, is a political junkie.  Every day, he floods your Newsfeed with the latest political news and op-eds.  He provides play-by-play coverage of protests and rallies around the globe.  He travels hundreds of miles every week... MORE

Self-Harm is a Luxury

Behavioral Economics and Rationality
Bryan Caplan
From Cutler and Lleras-Muney, "Understanding Differences in Health Behaviors by Education" (Journal of Health Economics 2010):Differences in prices or in response to prices are a second potential reason for education-related differences in health behaviors. This shows up most clearly in... MORE

Henderson and Krueger on NPR Today

Upcoming Events
David Henderson
This morning (Pacific Time) and noon (Eastern time), I'll be on the show "Here and Now," discussing income inequality. The other economist is Alan Krueger, formerly the chairman of the Council of Economic Advisers under President Obama. Here and Now.... MORE

In Praise of Passivity

Behavioral Economics and Rationality
Bryan Caplan
"In Praise of Passivity" is another gem from Mike Huemer, my favorite philosopher.  Thesis:Voters, activists, and political leaders of the present day are in the position of medieval doctors. They hold simple, prescientific theories about the workings of society and... MORE

Why so glum?

Income Distribution
Scott Sumner
America's pretty much the same place as it was 6 years ago. If you drive around the country you see the same sorts of neighborhoods you saw 6 years ago. Incomes haven't changed very much. But Kevin Drum has a... MORE

Marginal Tax Rates: Singing Taxman to My Class

Economic Education
David Henderson
UPDATE BELOW: Often, when I teach my classes about marginal tax rates, I give them a little history about such rates. They're shocked when I tell them that the top U.S. federal marginal tax rate on individual income in the... MORE

German President defends the market economy

Eurozone crisis
Alberto Mingardi
Germany's President, Joachim Gauck, has given a talk at the Walter Eucken Institute. The Eucken Institute keeps the tradition of the Freiburg school of economics alive. For an introduction to Ordoliberalism, you may give a look to this paper by... MORE

Pritchett on Private vs. Government Schools

Cross-country Comparisons
Bryan Caplan
From The Rebirth of Education:Whereas formerly only the elite may have gone to private schools, there has been a massive proliferation of private schools, especially in Asia and Africa.  These budget-level private schools are producing better learning outcomes, often substantially... MORE

Over at TheMoneyIllusion I used to do occasional stories on why China will not get stuck in the middle income trap. Here's another interesting piece of evidence: BEIJING (Reuters) - Zhong Jian and his wife are willing to pay... MORE

Liability, Disclaimers, and Adverse Selection

Information Goods, Intellectual Property
Bryan Caplan
Suppose the law says that parking garages are liable for whatever damages occur on the premises.  However, there's a big loophole: Garages can disclaim liability by posting a big "ENTER AT YOUR OWN RISK" sign.  What happens?Non-economists usually conclude that... MORE

The old doctrine that the slavery of the black, is essential to the freedom of the white race, can maintain itself only in the presence of slavery, where interest and prejudice are the controlling powers, but it stands condemned equally... MORE

Poverty and Income Inequality are Separate Issues

Income Distribution
David Henderson
"One reason that action to limit growing income inequality in the United States is difficult is that the growth in inequality is not a simple picture. Old-line leftists, if there are any left, would like to make it a single... MORE

Schooling Ain't Learning, But It Is Money

Economics of Education
Bryan Caplan
Lant Pritchett is enjoying justified praise for his new The Rebirth of Education: Schooling Ain't Learning.  His central thesis: schooling has exploded in the Third World, but literacy and numeracy remain wretched.  The average Haitian and Bangladeshi today have more... MORE

The Auction/Bidding Metaphor: Geico and Roy Childs

Economic Education
David Henderson
Geico ad beautifully illustrates the problem Roy Childs pointed out to me 40 years ago. "You economists are so careless in your thinking. You use so many metaphors without really thinking about them." So said my friend, the late Roy... MORE

NGDP isn't "the economy"

Central Planning vs. Local Knowledge
Scott Sumner
Which of the following three concepts is the outlier, i.e. very different from the other two? 1. Real GDP 2. Nominal GDP 3. The $/pound exchange rate ($ price of pounds = E) I'd guess most econ students would say... MORE

Spiderman and the trust-busters

Books: Reviews and Suggested Readings
Alberto Mingardi
I am no big reader of business books, but I was recently most fascinated by "Marvel Comics. The Untold Story" by Sean Howe, published by HarperCollins in 2012. Howe does a superb job in telling two stories at once: on... MORE

Mankiw on Parental Advantages

Family Economics
David Henderson
The recent paper by Chetty et al. finds that the regression of kids' income rank on parents' income rank has a coefficient of 0.3. (See Figure 1.) That implies an R2 for the regression of 0.09. In other words, 91... MORE

Friday Evening Video: Henderson on Fox News Channel

Upcoming Events
David Henderson
If all goes according to plan, an interview I did with Jim Angle will air on Fox News Channel today: 6:00 p.m. EST and 3:00 p.m. PST. It started out as an interview on this study I wrote for the... MORE

Steve Moore's Alternative Maximum Tax

Taxation
David Henderson
Last week, I credited John Cochrane for his idea of the alternative maximum tax. I pointed out, though, that there was a basic problem with his having it apply to all levels of taxation: federal, state, and local. Then I... MORE

Predicting the Popularity of Obvious Methods

Behavioral Economics and Rationality
Bryan Caplan
Imagine a Question in social science.  The Question can be analyzed using an Obvious Method - a simple, standard approach that social scientists have used for decades.  The Question has a Welcome Answer  - an answer that the typical social... MORE

Warren Gibson on Bad Libertarian Arguments

Economic Education
David Henderson
I'm a dedicated libertarian but my first allegiance is to accuracy. It pains me when I see libertarians making arguments that are inaccurate, irrelevant, or just plain wrong. When they do so, they do themselves and our movement a big... MORE

Mandela and Communist Villainy

Economic History
Bryan Caplan
Bill Keller in the NYT:But Mandela's Communist affiliation is not just a bit of history's flotsam. It doesn't justify the gleeful red baiting, and it certainly does not diminish a heroic legacy, but it is significant in a few respects.I'm... MORE

I'm associated with the "pro-inflation" crowd because of my advocacy of monetary stimulus over the past 5 years.  This is actually sort of ironic because I'm an inflation hawk who was trained at the University of Chicago in the late... MORE

Amazon's crystal ball

Economics and Culture
Alberto Mingardi
Amazon has already revolutionized the delivery of many goods, but may still have some surprises in store. The Wall Street Journal Digits blog reported that the Seattle-based company has patented the so-called "anticipatory shipping," a method to start delivering packages... MORE

Correction on Mandela

Economic History
Bryan Caplan
Yesterday, I wrote:While I'm convinced that Mandela was never a Communist, his priorities were thoroughly Leninist: "The point of the uprising is the seizure of power; afterwards we will see what we can do with it."Today, however, I've learned that... MORE

Henderson on Jonathan Macey

Finance
David Henderson
Advocates of free markets and deregulation are often accused of being apologists for big business. The main reason for this seems to be that we defend the rights and accomplishments of big businesses that achieve great things under economic freedom.... MORE

Mandela: Reckless But Lucky

Cost-benefit Analysis
Bryan Caplan
I've heard ugly rumors about Nelson Mandela for years.  Was he a Communist - or a terrorist?  His recent death inspired me to learn more.  Alex Tabarrok nudged me to start with Mandela's autobiography, which presumably puts his career in... MORE

Some historians argue that colonialism was an outgrowth of nationalism.  Once the people in the leading industrial powers started to strongly identify as British, French, German, American, or Japanese, they fell in love with the idea of planting their national... MORE

In a post earlier this month, I reported on a Brief Analysis I did for the National Center for Policy Analysis, drawing on a journal article by Sabia and Burkhauser, showing that a hypothetical increase in the minimum wage from... MORE

Recently, there has been a brouhaha in the blogosphere over comments made by Paul Krugman and then responded to critically by Russ Roberts and Bob Murphy. Chris Dillow then defended Krugman. The issue--and everyone on both sides agrees that this... MORE

Imagine there's no economic inequality

Income Distribution
Scott Sumner
Now let's see why there would still be enormous income inequality. 1.  Suppose everyone had identical lifetime wage income and inherited no money.  Also assume all investments were risk-free.  Incomes would still vary greatly due to different preferences regarding... MORE

Why So High? Economics and the Value of Life

Behavioral Economics and Rationality
Bryan Caplan
Economists are widely-seen as heartless.  Their use of the phrase "value of life" is often seen as damning confirmation of this heartlessness.  Nice people say, "You can't put a value on a human life" and change the subject!What's striking, though,... MORE

Drowning Redheads is Wrong Even Though Water is Wet

Behavioral Economics and Rationality
Bryan Caplan
Suppose we lived in a society split between the following intellectual package deals:Package #1: Water is wet, so we should drown redheads.Package #2: Water isn't wet, so we shouldn't drown redheads.What would happen if a lone voice of common sense... MORE

You read that headline right. This last Wednesday, I sat for over an hour in a waiting room while my wife was having a medical procedure. On the way to the outpatient facility early that morning, I picked up my... MORE

Multiple Bandits are Roving Bandits

Public Choice Theory
David Henderson
What I learned from my local anti-tax activism UPDATE BELOW: One of the late Mancur Olson's most-valuable insights was his distinction between roving bandits and stationary bandits. His basic idea was as follows. Consider an anarchist society in which there... MORE

Back in 1933 the US had experienced years of deflation and nominal interest rates were close to zero.  FDR sharply devalued the dollar over a period of 10 months, and stock prices closely tracked the value of foreign exchange during... MORE

The Prudence of the Poor

Behavioral Economics and Rationality
Bryan Caplan
Ari Fleisher in the WSJ:Given how deep the problem of poverty is, taking even more money from one citizen and handing it to another will only diminish one while doing very little to help the other. A better and more... MORE

"Fear is Why Workers in Red States Vote Against Their Economic Self-Interest" is the title Robert Reich gives yesterday's post on his site. Reich starts by addressing why no one in West Virginia complained [I'm taking his word for it... MORE

John Cochrane Views the World

Taxation
David Henderson
One of the big advantages of having been an economist for a long time and having been at the Council of Economic Advisers 30 years ago is that I've gotten to know and follow a lot of people and their... MORE

Why are Keynesians so far-sighted?

Economic History
Scott Sumner
I recently did a post pointing out that higher interest rates don't reduce AD.  Indeed even higher interest rates caused by a decrease in the money supply don't reduce AD. Rather the higher rates raise velocity, but that effect is... MORE

The Discipline of Dismissal

Behavioral Economics and Rationality
Bryan Caplan
Tyler has some dismissive observations about the practice of dismissal: One of the most common fallacies in the economics blogosphere -- and elsewhere -- is what I call "devalue and dismiss."  That is, a writer will come up with some... MORE

Economists Joseph J. Sabia and Richard V. Burkhauser examined the effects of state minimum wage increases between 2003 and 2007 and reported that they found no evidence the increases lowered state poverty rates. Further, they calculated the effects of a... MORE

Do barriers create "bubbles?"

Finance
Scott Sumner
Ryan Avent discusses a recent speech by Larry Summers:The basic set-up of his narrative remained unchanged from last year. Imagine a world, he said, in which resources are increasingly concentrated in the hands of those with high propensities to save and... MORE

Robert Frank's Confusions

Income Distribution
David Henderson
Cornell University economist Robert Frank has become the Johnny One Note of economics. His one note: how bad wealth and income inequality (he often doesn't distinguish between the two although he should) are, along with his particular reasoning about why... MORE

Sitting on an Ocean of Hypotheticals

Behavioral Economics and Rationality
Bryan Caplan
David senses a weakness in my "Sitting on an Ocean of Talent": But I don't think people's opposition to more immigration is that different from how they would react to those who would prevent them from getting at precious resources.... MORE

Could we have another Arthur Seldon?

Economics and Culture
Alberto Mingardi
The Online Library of Liberty is hosting an interesting symposium on the contributions of Arthur Seldon, the first, unforgettable editorial director of the IEA. Seldon studied at the LSE, where, like Ronald Coase, he found a mentor in Arnold Plant.... MORE

My Top 10 Picks

Books: Reviews and Suggested Readings
David Henderson
Thanks again to all who gave me suggestions for economics books that would "expand the universe" of some interns at a conservative think tank. I sent my own list, as well as a link to this blog post, on to... MORE

Market monetarism in 2013

Monetary Policy
Scott Sumner
Yes, it's been a very good year. Of course what's been getting all the attention is that the year began with our opponents saying that 2013 would be the test of market monetarism. Then when we passed with flying... MORE

How Rival Is Your Marriage?

Family Economics
Bryan Caplan
Two childless singles, each earning $50,000 a year, marry.  Both keep working, living by the old-school principle of "share and share alike."  What happens to their material standard of living?  If all depends on how rivalrous their consumption bundle is.If... MORE

Sitting on an Ocean of Alaskan Oil

Energy, Environment, Resources
David Henderson
Co-blogger Bryan wrote an excellent post yesterday, "Sitting on an Ocean of Talent," in which he compared people's actual opposition to major increases in immigration to their supposed lack of opposition to producing a hypothetical precious resource named Leonium. As... MORE

Hayekian arguments for basic income

Economic Philosophy
Alberto Mingardi
Matt Zwolinski has an interesting article which attempts to answer the question "Why Did Hayek Support a Basic Income?". His answer is that Hayek did so because such a minimum endowment of economic means grants people the essential freedom to... MORE

Walter Oi, An Appreciation

Obituaries
David Henderson
UPDATE below: Walter thought the draft was wrong because he thought that people should be able to make such an important choice--whether to join the military or not--for themselves. His passion for free labor markets was what motivated his work... MORE

Free Market Economics Books Bleg

Economic Education
David Henderson
An economist friend of mine at a conservative "think tank" in Washington, D.C. asked me to recommend 5 to 10 free-market oriented economics books that he could recommend to interns so as to "expand their universes." I quickly came up... MORE

What's Wrong With IVs? [wonkish]

Economic Methods
Bryan Caplan
Labor economists love using instrumental variables - like your distance to the nearest college - to estimate the education premium.  Heckman, Lochner, and Todd point out a recurring problem with this approach:[M]ost of the candidates for instrumental variables in the... MORE

Here's Larry Summers: Last month I argued that the U.S. and global economies may be in a period of secular stagnation; in which sluggish growth and output, and employment levels well below potential, might coincide for some time to come... MORE

Sitting on an Ocean of Talent

Cost-benefit Analysis
Bryan Caplan
Imagine scientists discover a new substance that reverses aging.  They name it Leonium, after Ponce de Leon.  The catch: Leonium is vanishingly rare.  Some years later, though, the scientists discover a trillion dollars worth of Leonium directly under the Empire... MORE

NSA Spying: A Cost/Benefit Analysis

Cost-benefit Analysis
David Henderson
Why does the National Security Agency (NSA) spy on Americans? In short, it is attempting to reduce even further the small probability of terrorist attacks on Americans. That reduction in probability, times the value of the damages averted, is the... MORE

Self-Help: The Obvious Remedy for Academic Malemployment

Behavioral Economics and Rationality
Bryan Caplan
Megan McArdle surveys the harsh realities of academic malemployment, then despairs:A substantial fraction -- maybe the majority -- of PhD programs really shouldn't exist.But of course, this is saying that universities, and tenured professors, should do something that is radically... MORE

In a recent post I discussed how Keynesians like Mike Konczal began the year claiming that we were going to have a test of market monetarism, and specifically the doctrine of "monetary offset."  [As recently as 2007, monetary offset (roughly zero fiscal... MORE

Noah Smith on Redistribution

Income Distribution
David Henderson
If you read blogs much, which, presumably, you do, you know two things: (1) bloggers are often rude to each other, and (2) bloggers often talk past each other or refuse to answer each other's questions. That's why I think... MORE

Is Average Over?: Two Equivocal Graphs

Economic History
Bryan Caplan
Here are the unredacted graphs from "Tell Me What 'Average Is Over' Looks Like."Graph #1 is from 1978:Graph #2 is from 2008:What's equivocal?  Although the 2008 graph definitely has more inequality, the 2008 labor market consistently offers more continuous rewards... MORE

Great Moments in Crowd Sourcing

Economic Education
David Henderson
One highlight of my third year at Columbia was the Industrial Organization course that Larry [Moss] and I took along with several Randians. The professor, Donald Dewey, started off the semester by stating that there were three respectable views on... MORE

Tell Me How It Feels to Be a Bad Student

Behavioral Economics and Rationality
Bryan Caplan
Being a bad student must be a miserable experience.  Teachers, parents, and other kids point out your failings day after day.  Even if they sugarcoat their negative feedback ("Billy needs to improve in... everything"), that's gotta hurt.Why then do we... MORE

Keynesianism: It's not just resting

Macroeconomics
Scott Sumner
During late 2012, market monetarists like myself argued that fiscal austerity in 2013 would not slow growth.  We based that on an idea that was relatively uncontroversial as late as 2007 (even among New Keynesians)---monetary offset.  If the central bank... MORE

The Orange Moon

Behavioral Economics and Rationality
Bryan Caplan
When I was around 4 years old, my family took a trip to Nevada.  While there, I saw my first orange moon.  I couldn't believe my eyes.When I returned home, I told my best friend, Adam, what I'd seen.Me: In... MORE

Great Moments in Cost/Benefit Analysis California's S.B. 375 mandates that cities increase the population densities of targeted neighborhoods because everyone knows that people drive less in higher densities and transit-oriented developments relieve congestion. One problem, however, is that transportation models... MORE

Will on Somin on Judicial Review

Behavioral Economics and Rationality
Bryan Caplan
George Will shines a spotlight on Ilya Somin's Democracy and Political Ignorance.  Highlight:Political ignorance, Somin argues, strengthens the case for judicial review by weakening the supposed "countermajoritarian difficulty" with it. If much of the electorate is unaware of the substance... MORE

People with more education don't just make more money if they have jobs; they're more likely to have jobs in the first place.  As a result, the earnings premium now greatly exceeds the wage premium.  Consider the following caricature approximation... MORE

Don't follow the money

Money
Scott Sumner
I'd first like to thank David for his very kind introduction.  It's an honor to be invited to do a stint as a guest blogger at one of my favorite blogs.  I do plan to keep my other blog (TheMoneyIllusion.com)... MORE

Tell Me What "Average Is Over" Looks Like

Books: Reviews and Suggested Readings
Bryan Caplan
Here are two graphs of lifetime male income distribution broken down by educational attainment.  One is for 1978, the other from 2008.  I deliberately redact the years and dollar values to preserve the mystery.Graph #1:Graph #2:Now you tell me: Without... MORE

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