First, his admission:

Here's what is true: there's respectable research -- e.g., here -- suggesting that unemployment benefits make workers more choosy in the search process. It's not that workers decide to live a life of ease on a fraction of their previous wage; it's that they become more willing to take the risk of being unemployed for an extra week while looking for a better job.

But all of this is totally irrelevant to our current situation, where inflation is running below target, the target is too low anyway, and the reason we have mass unemployment is that there just isn't enough demand, and hence there just aren't enough jobs, no matter how desperately people search for them.

One way to think about this is to say that unemployment benefits may, perhaps, reduce the economy's speed limit, if we think of speed as inversely related to unemployment. And this suggests an analogy. Imagine that you're driving along a stretch of highway where the legal speed limit is 55 miles an hour. Unfortunately, however, you're caught in a traffic jam, making an average of just 15 miles an hour. And the guy next to you says, "I blame those bureaucrats at the highway authority -- if only they would raise the speed limit to 65, we'd be going 10 miles an hour faster."

Dumb, right? Well, so is the claim that unemployment benefits are causing today's high unemployment.

Do high unemployment benefits account for all of the high unemployment? No. Do they account for some? Absolutely.

By the way, here's what Larry Summers said about the effect of unemployment insurance on unemployment.

In their opening essays, Humes and Innes reiterate the claim that recycling makes economic sense because we are discarding so much "valuable" material in landfills. I put "valuable" in quotes intentionally: as Munger notes, in this context, something is only a resource (and only "valuable") if people will pay you for it. Paraphrasing Munger, people would be hustling to pay you for your bottles and cans if they were valuable resources. The fact that they aren't suggests that these aren't resources. They're garbage.

Here's where prices (and profit and loss signals) are useful. If the resource savings from recycling were as substantial as people claim, we should expect to see greedy entrepreneurs and businesses hustling to enjoy these savings by bidding up the prices of recycled materials. It might be true that we save substantial energy by producing from recycled aluminum. Why, then, don't firms take advantage of these cost savings? I'm pretty sure it's because these savings are more than offset by other costs.

Humes and Innes question the wisdom of discarding materials, but there's another way to think about it: holding materials in a landfill is just another way of keeping them in inventory. As Munger details, recycling is costly--usually more costly than producing from virgin materials. If we exhaust our supplies of virgin materials, rising prices will encourage people to develop substitutes. One substitute for mined virgin materials would be...mined materials in landfills. At first glance, this looks wasteful, but again, prices allow us to figure out whether it is more efficient to recycle an aluminum can or save it for later. Munger makes this point explicitly with respect to plastic in his first follow-up essay:

We recycle plastic by shredding it and using it as a fiber. Or by burning it, recapturing no more than 15% of its energy potential. It would be better to bury it, so in the future it could be strip mined when it is actually more valuable.

It's true the prices are distorted by interventions and policies, but the appropriate fix isn't subsidized recycling. It's clearly-defined and well-enforced property rights. I addressed this in my very first article for Forbes. The paper on which the Forbes article is based was recently published in the Quarterly Journal of Austrian Economics and can be found here. Murray Rothbard's essay "Law, Property Rights, and Air Pollution" is one of the contributions on which I rely.

[T]he GOP has managed to alienate not just Hispanics allegedly collecting welfare and living below the poverty level. With a few exceptions like Cuban and Vietnamese Americans, it has alienated every ethnic minority: high- or low-skilled; Asian or Hispanic; rich or poor; on- or off-the-dole; with intact families or without them -- as I have written here, here and here.

Happy birthday, David. May your name be a constant reminder that you are more valuable than you can imagine.

...stereotype accuracy -- the correspondence of stereotype beliefs with criteria -- is one of the largest relationships in all of social psychology.  The correlations of stereotypes with criteria range from .4 to over .9, and average almost .8 for cultural stereotypes (the correlation of beliefs that are widely shared with criteria) and .5 for personal stereotypes (the correlation of one individual's stereotypes with criteria, averaged over lots of individuals).  The average effect in social psychology is about .20.  Stereotypes are more valid than most social psychological hypotheses.

[T]he strongest conclusion from the present review is that purely cognitive mechanisms of stereotype exaggeration are inadequate to explain the pattern of results...

It is still too soon to throw out the exaggeration hypothesis, however.  Exaggeration of stereotype characteristics may be a powerful tendency in perceptions of a group seen as an enemy.  U.S. perceptions of the Japanese in World War II, for example, certainly suggest the possibility of caricature and stereotypic exaggeration in perceptions of an enemy group.  Thus, motivational mechanisms for stereotype exaggeration may be more powerful than the purely cognitive mechanisms featured in current literature.  This possibility is not easily evaluated on the basis of available research, none of which contain any indication that the stereotyping group felt real hostility toward the stereotyped group.

My "Recent Reading" posts are (I suspect) pretty obviously inspired by Tyler Cowen. My last entry mentioned a re-reading of Atlas Shrugged, which got me thinking about the books people should not merely "read wholly, and with diligence and attention," but re-read, perhaps several times.

Which books (fiction and non-fiction) fit the bill? Off the top of my head, I'd say Atlas Shrugged, Les Miserables, CS Lewis's The Screwtape Letters and Mere Christianity, 1984, Animal Farm, The Brothers Karamazov (which I've read once but which I know I'll be re-reading carefully), and obviously a bunch of others I'm forgetting. In economics, I'd put Mises's Human Action and Hayek's Individualism and Economic Order at the top of the list. I'm also planning to read and re-read as much of the collected works of Adam Smith as I can over the next year or so.

She sounded so cocky that Catelyn had to smile.  "Do you have a name, child?"

"Mya Stone, if it please you, my lady," the girl said.

It did not please her; it was an effort for Catelyn to keep the smile on her face.  Stone was a bastard's name in the Vale, as Snow was in the north, and Flowers in Highgarden; in each of the Seven Kingdoms, custom had fashioned a surname for children born with no names of their own.  Catelyn had nothing against this girl, but suddenly she could not help but think of Ned's bastard on the Wall, and the thought made her angry and guilty, both at once.  She struggled to find words for a reply. (A Game of Thrones)

They still think me a turncloak.  That was a bitter draft to drink, but Jon could not blame them.  He was a bastard, after all.  Everyone knew that bastards were wanton and treacherous by nature, having been born in lust and deceit. (A Storm of Swords)

As "competition" between states tends to involve armies instead of goods, I'm glad that Dambisa Moyo suggests that Western democracies should "cooperate", by "expanding trade and investment around the world, demonstrating how western liberal democracy and free markets are a good choice". Going the other way will do nothing to impose the "Western way of life" but it will almost certainly require the government seizing the liberty of Western citizens, in its attempt to succeed: paraphrasing William Graham Sumner, it would be the conquest of America by China.

I think Moyo is right in pointing out that there is no strong evidence that "democracy is a prerequisite to growth", whereas the opposite is true, i.e. a polity needs to enjoy a certain degree of prosperity to prompt a yearning for political equality, that typically resides within the middle classes.

What I am not so sure about is the extent to which we can talk of homogeneous "models". Opening trade (not to mention lower barriers to immigration) is often opposed, in Western democracies, precisely because it jeopardises the political distribution of entitlements - which characterizes, nowadays, our polities. On the other side, I am not convinced by the notion that the Chinese Communist Party and its leadership are an homogeneous bloc either.

It may be that the US and other Western countries will follow Moyo's advice. That can happen for a variety of reasons: in a sense, our societies may find it difficult to digest a bellicose attitude towards China, as they already suffer from anxiety concerning our efforts in the Middle East. Also, organizing "the West" as a trade bloc may turn out to be so difficult, that freer trade with China will be an inescapable bottom line. Again, perhaps China is already such an important trading partner for us, and that increasing the cost of trading with it might have a devastating effect. You can go on speculating.

What I think will not happen, is that neither Western publics nor Western ruling classes will acquire the consciousness to embody a different "model of development", and thus act upon that. Deliberate political determinations, if anything, will move us farther away from freer trade, not closer to that goal.

She's "Taylor" because it's my wife's maiden name. She's "Grace" because grace--God's unmerited favor--conquers sin. She loves cooking, she loves pretending to cook, she loves planning pretend and real parties and picnics, and she's now addicted to "My Cupcake Addiction" on YouTube. If you have followed me on Twitter or Facebook, you are probably familiar with some of her wit and wisdom:

Me: "Taylor Grace, would you fight Daddy for the chocolate doughnut?" Taylor Grace: "Yeah."

I discuss one of our recent adventures in a post for my friend Jason Womack's blog here.*

Happy Birthday, Taylor Grace. I would love to come to your party. And you can have the chocolate doughnut.

*-Disclosure, not sure if this is obligatory, but just to be safe: I have done contract work for the Jason Womack Company in the past and am working with Jason on several projects, but I have received no compensation for mentioning him on EconLog.

Here are two excerpts from an ABC news story done by Brian Ross. Excerpt one:

"These were just really everyday, average, ordinary Americans who happened to be in the Middle East, in our area of intercept and happened to be making these phone calls on satellite phones," said Adrienne Kinne, a 31-year old US Army Reserves Arab linguist assigned to a special military program at the NSA's Back Hall at Fort Gordon from November 2001 to 2003.

Kinne described the contents of the calls as "personal, private things with Americans who are not in any way, shape or form associated with anything to do with terrorism."

"By casting the net so wide and continuing to collect on Americans and aid organizations, it's almost like they're making the haystack bigger and it's harder to find that piece of information that might actually be useful to somebody," she said.

Another intercept operator, former Navy Arab linguist, David Murfee Faulk, 39, said he and his fellow intercept operators listened into hundreds of Americans picked up using phones in Baghdad's Green Zone from late 2003 to November 2007.

"Calling home to the United States, talking to their spouses, sometimes their girlfriends, sometimes one phone call following another," said Faulk.

"Hey, check this out," Faulk says he would be told, "there's good phone sex or there's some pillow talk, pull up this call, it's really funny, go check it out. It would be some colonel making pillow talk and we would say, 'Wow, this was crazy'," Faulk told ABC News.

Yes, government officials might conceivably misuse some of the trillions of bits of metadata they examine using sophisticated algorithms. But one abuse is no pattern of abuses. And even one abuse is not likely to happen given the safeguards in place. The cumulative weight of the evidence attests to the soundness of the program. The critics would be more credible if they could identify a pattern of government abuses. But after 12 years of continuous practice, they can't cite even a single case. We should be thankful that here, at least, government has done its job and done it well.

The advice of Switzerland's popular saint, Nicholas of Flüe (1417-87), "Don't get involved in other people's affairs" has been the hallmark of Swiss policy for nearly 500 years. The country has in effect been neutral since 1515, a status formally recognised and guaranteed by the great powers of Europe after the Napoleonic Wars in 1815.

Swiss neutrality thus has deeper roots than any of Europe's other major neutral states: Sweden (1815), Eire (1921), Finland (1948) and Austria (1955).

Neutrality is defined as non-participation in a war between other states. The rights and duties of neutral countries in time of war were laid down by the international community in 1907. In times of peace neutral states define their own rules, but take it for granted that they should stay outside military blocs, like NATO.

The status of neutrality has not only protected Switzerland from war, but has helped prevent the country from being torn apart when its different language communities might have been tempted to side with different belligerents in cases of conflict.

The Swiss experience seems like something to brag about.  I think the whole world can learn valuable foreign policy lessons from their success story.  First and foremost: Don't just do something; sit there.

Responses from people who know the Swiss well are especially appreciated.

The moral of the story: if you want to make a lot of money quickly, go to work somewhere where labor is in high demand and others don't want to go. Alaska: check. Then don't spend.

It reminds me of my less dramatic story about how I followed the same principles at an earlier age. I've posted about it here and here.

I wasn't in debt when I decided to work in a nickel mine in northern Canada. My net worth was about $20. But my goal was not to get into debt and to make enough money in 3 months to pay for my whole last year of college: tuition, room and board, and books.

I've told most of the story in the above-noted posts but one part I didn't tell much about was on the spending side. I was in a mining camp 40 miles south of Thompson, Manitoba with 300 men. Single guys who spent money spent it on three main things: cigarettes, booze, and prostitutes. I did none of those. Out of about $2,000 I made that summer (in 1969 dollars), I definitely spent under $100.

Oh, and I made my goal. In fact I quit on August 15 with an extra $350 that I used to fly down to Chicago, attend an Intercollegiate Studies Institute conference at Rockford College, and then travel across eastern United States and tour Philadelphia and New York.

HT to Tom G. Palmer.

So far, so good. This is what, I suspect, almost all economists teach.

But then, to drive the point home, he shows these two dimensions in a matrix, with whether it's rivalrous in consumption on the horizontal and whether it's excludable on the vertical. In the "rivalrous in consumption but not excludable" cell, he puts, as an example, "congested nontoll roads." His idea is that if it's congested, it is rivalrous in consumption. That's correct. But he's saying the fact that it's a non-toll road makes it non-excludable. That's wrong. Excludability has to do with whether someone can be prevented from using it, not whether someone is prevented from using it. And by "can," I don't mean, and economists don't mean, the legal idea of "can" but the technological idea. It is technologically doable to prevent someone from using a road. So a road is excludable.

You might argue--and some of my students in the past have argued--that because a law says you can't exclude people, then that makes it non-excludable. But I point out that if that's the case, the government could make things non-excludable simply by not allowing people to exclude others. That's clearly not what economists had in mind in coming up with this characteristic. (It was Paul Samuelson in a 1954 article who stated this idea clearly.) What they had--and have--in mind is that there are no low-cost ways of excluding people.

In short, excludability is a technological characteristic, not a legal one.

My favorite example of a public good is a radio signal before scrambling was invented. It fit beautifully both characteristics of a public good: (1) your tuning into the radio signal did not diminish other people's doing so, and (2) it was prohibitively costly, before scrambling, to exclude people. One delicious aspect of this example is that it shows another thing that economists often want to show: namely, establishing that something is a pure public good does not establish that it can't be provided at a profit. Radio in the United States was, of course, provided at a profit for many decades. I first got this example back in the 1970s, from either Randy Holcombe or David Friedman.

Two paragraphs:

At the time, prior to the existence of the tablet device market that Jobs created with the iPad, Apple did not sell e-books. Amazon sold nine of every 10. Justice claims Jobs then forced Amazon and every other e-book distributor to adopt a new e-book pricing model that harmed consumers.

Yet the average retail price for "trade" e-books has since dropped to $7.34 from $7.97, and Amazon's Kindle is still the industry leader with Apple trailing in third. Over the same period readers bought 447% more e-books, and they can choose from dozens of tablets for titles and other media content.

Fourth, seen from the perspective of a world in which goods and their markets are not given, but must be created, firms need solid incentives to develop them, which means they also need market pricing power. The resulting "monopoly profits" can be welfare-enhancing. Even collusion (or collaboration) on price among competitors or among suppliers and resellers (e-book publishers and Apple, for example) can also be welfare-enhancing because the collaboration can expand the array and quantity of the goods sold. Monopoly pricing power and the resulting monopoly profits can cause producers to bring more goods than otherwise into existence. Seen from this perspective, consumers don't lose the inefficiency, or "Harberger," triangle from underproduction (which, in conventional monopoly graphics is the area bounded by the marginal cost curve and the demand curve to the right of the monopoly price); they gain as consumer surplus the rarely mentioned "Dupuit" triangle (which is the area above the monopoly price and bounded by the demand curve and the vertical axis). In short, you can't consume what doesn't exist. The prospect of temporary monopoly profits is what entices producers to develop new products. Consumers might not get the "statically optimal" amount of the good (which, again, is grossly unrealistic and unachievable), but at least they get the good.

Interestingly, since 2010, when Apple and the publishers were supposedly conspiring against consumers, e-book sales have escalated by several hundred percent and as a percentage of all book sales, perhaps, in part, because of the so-called "anticompetitive conspiracy." That fact is prima facie evidence that the "conspiracy" is pro-competitive.

Lower prices, more sellers and better products don't sound like a return to the days of Standard Oil . . . .

He did so [Rockefeller of Standard Oil, New Jersey increased market share] by cutting prices and almost quadrupling sales. University of Chicago economics professor Lester Telser, in his 1987 book, A Theory of Efficient Cooperation and Competition, points out that between 1880 and 1890, the output of petroleum products rose 393 percent, while the price fell 61 percent. Telser writes: "The oil trust did not charge high prices because it had 90 percent of the market. It got 90 percent of the refined oil market by charging low prices." Some monopoly!

The NSA's formerly secret surveillance programs have been part of the expansionary process. If they have done little to prevent terrorist attacks in the United States, and if we are now having what President Obama has characterized as a "healthy" debate about the programs, it seems reasonable to suggest that the debaters should at least be supplied with information about how much the programs cost.

Knowing the cost would scarcely help the terrorists. It might, however, amaze American taxpayers. Perhaps that's another reason the programs have been kept secret.
These are the closing paragraphs of John Mueller and Mark G. Stewart, "3 Questions about NSA Surveillance," The Chronicle of Higher Education, June 13, 2013. The whole piece is worth reading.

One other key paragraph:

It is difficult to see how earlier exposure of the programs' existence would have aided terrorists, who have known at least since the 1990s that U.S. intelligence was searching communications worldwide to track them down. It is possible, however, that the secrecy of the programs stems from the Obama administration's fear that public awareness of "modest encroachments" on privacy would make further efforts to encroach more difficult.