March 7, 2019


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Lobby groups express disappointment with chancellor’s ‘empty’ keynote speech
While markets have made a strong recovery, the prospect of more rate rises looms
Insiders say outline of framework agreement on post-Brexit trade is crystallising
Also in this newsletter: US consumer spending falls, suitors for Britishvolt, boost for emerging markets
China is vital market for lower-tech chip machinery makers such as Nikon and Tokyo Electron
Also in today’s newsletter, UK engineering group compared to a ‘burning platform’ and Intel slashes forecasts
Focus has shifted to the European Central Bank and Bank of Japan after last year’s big increase in US borrowing costs
Once, twice, three times a Brady
There will be greater divergence between companies and countries
Leftwing leaders Lula and Alberto Fernández push ahead despite questions over unequal benefits of proposal
Trade show attendance is growing again, but some big industry names are still staying away in favour of different formats
Resilient fourth quarter data come as Fed’s rate rises weigh on business activity
More than $1bn has flowed into stocks and bonds every day this week in strong start to 2023
Beijing has more work ahead to rebuild the trust of investors and business
America’s central bank should have been quicker to tackle the risks of its post-crisis policies
#ReadWithMe: Power Without Knowledge Part 7: Friedman on Economists

As was evident in my previous posts in this series, Jeffrey Friedman thinks there are serious, systemic, possibly insurmountable problems with establishing an effective technocracy, whether it takes the form of a democratic technocracy or an epistocracy. While Friedman’s critique applies to anyone who might attempt to claim the mantle of technocrat or epistocrat, he focuses extra attention on a particular profession – economists. He believes economists are particularly guilty of the intellectual sins he highlights.

At the simplest level, economists are no more resistant to any other profession to the lures of ideological bias. Friedman reviews the debate among economists about the minimum wage that erupted after Card and Krueger’s famous paper suggested an increase in minimum wages could increase employment. Here I learned, to my surprise, that after making additional adjustments to their models in response to critics, Card and Kruger ultimately walked back their claim by a significant degree:

Still, after controlling for these objective heterogeneities and making other adjustments, Card and Krueger concluded that “the increase in New Jersey’s minimum wage probably had no effect on total employment in New Jersey’s fast-food industry, and possibly had a small positive effect.” In short, their original finds and conclusions were probably wrong, but might have been a little bit right.

Despite these rather tepid findings, however, economists began to shift their opinion in droves:

Seventy-eight percent of the empirical studies that appeared in the 13 years after the publication of Card and Krueger’s paper affirmed the orthodox view that minimum wages cause unemployment. Yet opposition to raising the minimum wage dropped from 90 percent among surveyed economists in 1978 to 46 percent in 2000, and by 2005 – five years after Card and Krueger acknowledged, in the pages of the American Economic Review, that they could no longer sustain their original claims – some 52 percent of surveyed economists favored raising the minimum wage or keeping it the same.

Why such a strong reaction on such weak evidentiary grounds? Friedman thinks the economist David Colander suggests an answer:

According to Colander, liberal economists such as himself, who constituted a clear majority in the discipline, had, in general, been “extremely hesitant to apply economic analysis to real-world situations because it often comes to results that don’t fit their moral view of how things should be.” If Colander was right, then when the Card and Krueger study opened the door to doubts about the minimum-wage orthodoxy, liberal political predispositions may have pushed those doubts farther than what the evidence would appear to have justified.

But this tendency to indulge in political bias doesn’t get at the core of Friedman’s criticism of economists. He believes that economists, more than any other profession, see themselves as uniquely qualified to serve as epistocrats, because economists are uniquely bad at committing the intellectual errors of technocracy he has criticized throughout the book.

A core tenet among economists is that incentives matter – people respond to the incentives they face and changing people’s incentives changes their behavior. Thus, an economist with technocratic aspirations would seem to hold the perfect tool to carry out technocratic policies – manipulation of incentives. The more strongly an economist believes they can use policy to alter incentives in a way that will yield predictable results, Friedman says, “the more one’s economics will seem suited to the predictive task of epistocracy; but the less suited it will be to judiciously determining the limits of epistocratic knowledge. This is because incentives alone cannot actually produce behavioral predictions or, therefore, policy advice.”

Why can’t behavior be predicted from incentives? First, because “an incentive is powerless to affect behavior if it is not first perceived as an incentive by the agents whose behavior it is supposed to affect. Second, knowing that the perceived incentive will affect these agents’ behavior is useless—for predictive purposes—if the economist does not also know exactly how it will affect it. But this requires knowing exactly how agents will interpret their situations in light of the perceived incentive. Only if they interpret their situations the way the economist does will the incentive ‘matter’ in a way the economist will be able to predict.

By assuming away the problems of ideational heterogeneity and unknowable subjective interpretations, “economists turn the incentives-matter intuition into the basis for a technocratic policy science that can, they believe, reliably predict the behavior of agents about whom the science knows nothing—except the incentives the agents will objectively face if a given policy is enacted.”

As is his wont, Friedman gives a detailed description of how this approach can go wrong:

Suppose the economist envisions a policy that will create incentive I, which would, the economist believes, make action A1 optimal for agents (about whose idiosyncratic ideas she knows nothing) who find themselves in situation S1. By enacting the policy, the economist predicts, the higher incidence of A1 will solve, prevent, or mitigate an economic problem. But if some of the agents in S1 were to interpret A2 or A3 or A4 as the optimal action, and if no homogenizing norm counteracted this conclusion by dictating A1 (in the agents’ judgment), the economist’s prediction about these agents’ behavior would be rendered inaccurate. This is possible insofar as the agents are ignorant or fallible. Ignorant or fallible agents might misconstrue the objective situation: they might think that S1 is actually S2 or S3 or S4. Or they might misinterpret which action is optimal when S1 is conjoined with I. Furthermore, if agents interpret their situation correctly but the economist does not, or if agents are right to deem A2 or some other action optimal when the economist does not, the economist’s behavioral predictions will once again be inaccurate.

Therefore, what “a technocrat needs if she is to make reliably accurate behavioral predictions is not the ability to infer optimal actions from future agents’ objective circumstances, but the ability to predict future agents’ subjective interpretations of how to behave under future circumstances as the agents themselves will perceive and interpret them.” However, “the economist cannot read minds. How, then, can she know how anonymous agents who may not even have appeared on the scene will perceive and interpret their situations? The only way she can know this, or believe that she knows it, is by tacitly assuming that the truth about the agents’ situations will be self-evident to them, requiring neither fallible perception nor fallible interpretation.”

Friedman is unimpressed with the supposedly more sophisticated branch of “behavioral economics.”  In his view, this field of study is just as guilty as mainstream economics as overlooking subjective interpretation and ideational heterogeneity and is no better equipped to serve technocratic goals. Behavioral economists claim to identify ways in which peoples’ behavior deviates from what a neoclassical economist might predict. But as Friedman notes, “these deviations, as canonized in the ever-growing list of irrational ‘heuristics and biases,’ are supposed to be shared by everyone, at least in the aggregate—such that they can ground ex ante behavioral predictions.”

Behavioral economists, like all epistocrats, think they can manipulate behavior to produce predictable results because “behavioral economists attribute predictability to [agents] by assuming that their mistakes, established a posteriori through laboratory experimentation, reflect homogeneous cognitive defects rather than unpredictably idiosyncratic ignorance, or the unpredictably fallible interpretations of either the agents or the psychologists studying them.” As a result, “while behavioral economics offers the superficial promise of epistemic realism, the actuality so constrains the realism as not to disturb the technocratic faith the predictability of human behavior.”

Friedman does not charge all economists with being guilty of these intellectual mistakes. Indeed, throughout his criticism of the profession, he bolsters his case by quoting similar observations from economists like Deirdre McCloskey. But the presence of sensible economists is no salve for technocracy – “Economists who recognized this type of unpredictability would thereby select themselves out of the pool of potential epistocrats” and in turn would be “replaced by people who had selected themselves into it by ignoring ideational heterogeneity and fallibility.” Therefore, while many economists have the wisdom and intellectual humility to recognize their own limitations, they will be subjected to the same selection effects as epistocrats more generally.


Kevin Corcoran is a Marine Corps veteran and a consultant in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason University. 


I went to a brown bag talk at the Naval Postgraduate School yesterday and the topic was ChatGPT. The speaker, Rodrigo Nieto, gave a great, energetic talk and it was fun to watch the interaction between him and one of the members of the audience who had used ChatGPT a lot.

I had signed up with ChatGPT last month but hadn’t done much with it. So I spent a big part of the afternoon playing with it. For example, I gave it prompts to explain the harm caused by high marginal taxes, in the style of Ogden Nash, Edgar Allan Poe, and the King James Bible.

Here’s the King James Bible version:

And it came to pass that the people did cry out against the high marginal tax rates, which did burden them greatly. For the tax rates were so high that the people did lose their incentive to work and to create wealth. And the economy did suffer greatly, for the people had not the means to invest and to grow.

And the government did take a great portion of the people’s earnings, leaving them with little to sustain themselves and their families. And the rich did find ways to evade the tax, leaving the burden on the shoulders of the poor and the middle class.

And the Lord did speak, saying: “Thou shalt not burden thy people with high taxes, for they shall lose their incentive to work and to create wealth. And the economy shall suffer greatly, for there shall be no means to invest and to grow.

“And thou shalt not take a great portion of the people’s earnings, for they shall have little to sustain themselves and their families. And thou shalt not let the rich evade the tax, but shall ensure that all do bear their fair share.

“And thou shalt lower the tax rates, that the people may have the means to work and to create wealth. And the economy shall flourish, and the people shall prosper.”

And the people did listen to the Lord, and they did lower the tax rates. And the economy did flourish, and the people did prosper. And there was joy and peace in the land.

The one part that was off was this:

And the rich did find ways to evade the tax, leaving the burden on the shoulders of the poor and the middle class.

If you know anything about the progressive tax system, you know that “the rich,” which pretty much everyone understands to mean “high-income people,” bear a huge burden from high marginal tax rates. The burden is in the form of both taxes paid and deadweight loss.

Interestingly and disappointingly, but understandably, both the Ogden Nash and the Edgar Allan Poe poems had a similar thought: the idea that rich people successfully avoid taxes is widespread.

Time for Some Soul Searching

Matt Yglesias had a post discussing the fact that people are reluctant to admit when they’ve been wrong:

My two least-favorite moments in the 2022 discourse were 1) left-wing people confidently asserting that Joe Manchin’s objections to Build Back Better were offered in bad faith due to his fealty to the coal industry and 2) right-wing people confidently asserting that Sam Bankman-Fried would be immune from legal consequences due to his campaign contributions to Democratic Party elected officials.Those assertions rankled in my view not because being wrong is such a terrible sin, but because when those assertions were proven wrong, I saw almost no effort by the people who’d made them to grapple with their own wrongness.

Back in the 2010s, monetary hawks were reluctant to admit that they were wrong about monetary policy. They argued that Bernanke’s policies were too inflationary. In fact, the Fed mostly undershot its target for inflation and even more so for the dual mandate. Have the hawks admitted their error?

A year ago, it had become obvious that the Fed had erred in implementing an excessively expansionary monetary policy. Policy doves warned against tightening too much and thus pushing the economy into recession. With the 4th quarter NGDP figures released today, it’s 100% clear that the doves were wrong. NGDP growth came it at 6.5% and 7.3% over the past four quarters. I estimate that NGDP growth needs to average about 3.5% if the Fed is serious about its inflation target, but even if you use the figure of 4%, growth has been way too strong in 2022.

We also know that the people arguing that inflation was a supply side problem were completely wrong. While a few of the monthly figures were affected by supply shocks, over the past three years all of the inflation has been demand side. Here are the relevant figures:

Total NGDP growth from 2019:Q4 to 2022:Q4:  20.4%

Total trend NGDP growth assuming 1.5% trend RGDP and 2% inflation = 10.9%

Total trend NGDP growth assuming 2.0% trend RGDP and 2% inflation = 12.4%

Thus excess NGDP growth equals 9.5% assuming trend NGDP is 3.5%/year, and excess NGDP growth equals 8% assuming trend NGDP is 4%/year.

This means that if there had been no supply shocks at all, then we should have expected somewhere between 8% and 9.5% excess inflation over three years. That is the price level over the past three years should have risen by between 8% and 9.5% more than it would have under 2% inflation targeting.

The actual rise in the price level (PCE) over the past three years has been 12.9%. That’s an excess of 6.8% inflation over the 6.1% you would have gotten with prices rising at 2%/year for three years (with compounding.) This suggests that more than 100% of the inflation has been demand side; the effect of the supply side has been to reduce the price level. (If you use the implicit price deflator, total inflation has been 14.5%, and roughly 100% of the excess inflation is due to demand increases. RGDP has risen at trend.)

This outcome is perfectly in accord with standard AS/AD models. In those models, the SRAS curve slopes upward. Thus if aggregate demand (NGDP) rises by an extra 8% or 9% over three years, much of that will show up in excess inflation, but a portion will show up in rising RGDP. Output will rise to above the “natural rate.” In my entire life, I’ve never seen output so far above the natural rate as it is today. When I travel, I find service to be almost laughably bad, due to severe labor shortages. In my view, trend RGDP actually fell during COVID, and RGDP is a couple points above the new and lower natural rate.

Unfortunately, it’s hard to find decent graphs for demand shocks on the Internet. (And what does that tell us?) For the graph below, assume Y1 is the natural rate of output and Y2 is our current level of output. Also assume that AD (i.e., NGDP) shifted to the right by 9% (relative to trend), the price level rose by 7% more than target, and real GDP rose to 2% above the natural rate. That’s a graphical presentation of where we are today:

At the beginning of 2022, the Fed should have adopted a much tighter monetary policy. The doves were wrong. How much tighter is debatable. Would 6.0% NGDP growth have been optimal? How about 5.0% growth? How about 4.0%? I don’t know, but 7.3% was clearly way too high. Not only did we not get a soft landing, we didn’t even come close to getting any kind of landing at all. It’s like a skittish rookie fighter pilot who’s so timid he remains 100 yards above the flight deck when trying to land on an aircraft carrier. Yes, you don’t want to crash land, but if you don’t try harder to land the plane then you’ll run out of fuel and the consequences will be far worse.

The Fed didn’t want to suddenly bring NGDP growth down to 2.0% in 2022. But 7.3% was wildly excessive. Not only did we not impose too much pain on the labor market, we didn’t impose any pain at all. Indeed we imposed negative pain, akin to the euphoria induced by heroin addiction. Nominal wages are still rising way too fast. The 3.5% unemployment rate today represents an even more overheated labor market than the 3.5% unemployment of late 2019. There’s a severe shortage of workers.

The Fed is missing both sides of its dual mandate in the same direction—too much inflation and an extreme labor shortage.

For America’s doves, it’s a time for some soul searching. (Larry Summers was right.)

PS.  This post is about the mistakes of 2022. It’s entirely possible that the Fed will make the opposite mistake in 2023. It’s too soon to say. But the mistakes of 2022 will make their job this year that much harder. If they had not overheated the economy to such a large extent in 2022, a soft landing would have been easier to achieve in 2023.

PPS.  The media keeps referring to growth in real consumption as “demand.” Sigh . . . 

If aggregate demand is to mean anything, it must be a nominal variable.

PPPS.  And no, monetary policy does not affect the economy with long and variable lags. Interest rates affect monetary policy with long and unpredictable leads and lags. But interest rates are not monetary policy.

Renewable versus Non-Renewable: The Difference Doesn’t Matter

One of the unfortunate failures caused by society’s focus on natural sciences is that we often overlook crucial social scientific applications. One such failure is the idea that there is an important difference between “renewable” and “non-renewable” resources. There isn’t. In fact, some non-renewable resources—such as oil—are not even meaningfully finite.

This insight, original to the late economist Julian Simon, is based on a proper understanding of economics. To explain why the concept of renewable resources is vacuous, we’ll start by talking about the relationship between physical quantity and human wants.

What Do You Want?

When you go to the gas pump to fill up your car, what is your goal? I think the straightforward answer is that you want to go somewhere relatively fast. Likewise, when you turn on a gas stove, what do you want? Well, likely you aren’t turning it on for the smell— you want to eat something.

People don’t ultimately care about physical quantities of resources. A person doesn’t go to the pump to get X gallons of gas. People fill their tanks so they can drive.

Humans demand the services that resources provide, not the physical amount of resources themselves. Another way of putting it is resource use is teleological in nature. That just means that resource use relates to human purposes.

How many gallons of gasoline there are doesn’t matter to people. Instead, they care about getting to their destination.

Renewing the Non-renewables

This is the first key to understanding why your science textbook wasn’t teaching you much in the chapter about “renewable” resources. Since we care about resources for the services they provide, we don’t need to “renew” resources to make them more plentiful. Instead, all you have to do is increase the services yielded by a given quantity of resources. Consider this example:

Imagine you live in a small country with only 500 gallons of oil available. Your cars get 10 MPG and the small population drives 100 miles/day in total. How many days will the supply last? Well, if you drive 100 miles getting 10 MPG, that means you use 10 gallons a day. At this rate, the 500 gallons are used in 50 days. Engineers calculate this and panic sets in. “We’ve reached peak oil” headlines top newspapers.

However, let’s say a clever entrepreneur invents a more efficient engine—efficiency jumps up to 20 MPG. Now your country only uses 5 gallons per day, and there are 100 days of gas. By improving technology, the amount of services gasoline provides has increased. As far as human wants are concerned, our non-renewable resource has doubled in size.

Can this process continue? Of course! So long as the efficiency of energy use improves at a faster rate than the stock falls, the resource will continue to grow in size. In fact, it’s possible technological progress could make increasing the services of gasoline cheaper than harvesting a renewable alternative.

Our growing supply of “non-renewable” resources

Technology can improve in several ways: plant oil can be mixed with fossil fuel to make it last longer, new techniques for harvesting previously unharvestable oil can be used, and efficient improvements in commutes can all increase the amount of oil.

Skeptics may still respond, “maybe something like this can work on paper, but surely this isn’t how things work in the real world.” But skeptics are wrong. Over the last century, several doomsayers have announced the end of peak oil. Each step along the way, they have been wrong.



Further evidence comes out of Drs. Tupy and Pooley’s work at HumanProgress with the Simon Abundance Index. The Simon Abundance Index measures the amount of time it takes to acquire resources by considering the price of the goods compared to hourly income. If a good were becoming more scarce, it would be increasing in this “time price.” However, crude oil has become more abundant. The same amount of time working today can purchase 2.84x more oil than in 1980.

The Ultimate Resource

So, if you have been feeling pessimistic, renew your hope! People’s capacity to think of innovative, creative solutions to problems is the well that never runs dry. Our world is more complex than being pigeonholed into working with only one of two categories of resources. So forget the broken renewable/non-renewable dichotomy. As Julian Simon pointed out, people are the Ultimate Resource, and all other resources are created from the same place: the human mind.


Peter Jacobsen is an Assistant Professor of Economics at Ottawa University and the Gwartney Professor of Economic Education and Research at the Gwartney Institute. His research is at the intersection of political economy, development economics, and population economics. 


Well-written Constitutions Matter

If you read much about taxes and spending in the state of Illinois, you know that the state’s in a world of hurt. The state government has dramatically underfunded its pension system for state government workers. Sometime in the next decade, the government will likely need to rein in state pensions, cut the growth of other spending to come up with funds to finance those pensions, or raise taxes.

I’m sure the state’s elected officials will consider all of those options in the future. But fortunately, there is one major barrier to raising taxes: the Illinois state Constitution.

This is from David R. Henderson, “Constitutions Matter for Tax Rates,” IPI, TaxBytes, January 25, 2023.

Another excerpt:

But that’s not the only advantage. The other major advantage is that it makes a legislature think twice, or at least once, before imposing higher tax rates. The legislators know that what’s sauce for the high-income goose is also sauce for the low-income gander. Most people don’t like having their taxes raised, but many people don’t object to having other people’s taxes raised. The requirement for a flat tax rate on individual and corporate income means that people who support raising taxes on others know that they will also end up being taxed more.

That’s where a constitution comes in awfully handy. Under the Illinois Constitution, all individuals must pay the same rate on their individual income and all corporations must pay the same rate on their corporate income.

Read the whole thing, which is short.

Burning the Koran

The row between the government of Sweden and that of Turkey over the burning of a Koran by demonstrators in Stockholm brings us back to fundamental problems of politics, on which the economic method of analysis has thrown much light. The Financial Times reports (“Sweden’s Nato Application Imperilled After Koran Burnt Outside Turkish Embassy,” January 22, 2022):

Sweden, which has some of the strongest protections of free speech in Europe, granted permission for the Koran-burning protest, as it has done several times previously—even after it sparked riots in April.

“Freedom of expression is a fundamental part of democracy. But what is legal is not necessarily appropriate. Burning books that are holy to many is a deeply disrespectful act. I want to express my sympathy for all Muslims who are offended by what has happened in Stockholm,” Ulf Kristersson, Sweden’s prime minister, wrote on Twitter.

Turkish president and dictator-to-be Recep Tayyip Erdogan invoked the incident as a reason to block the Swedish government’s application to join NATO (“Turkey’s Erdogan Threatens to Block Sweden’s NATO Entrance Over Quran Burning,” Wall Street Journal, January 23, 2022):

“If you speak about freedoms and rights, then first things first, you should show respect to the religious belief of Muslims and Turkish people,” Mr. Erdogan said in televised remarks after a cabinet meeting. “If you do not show such respect, then you cannot see any kind of support from us on NATO.”

If the Swedish government did not have to “grant permission” (even just as a mere administrative matter, as is apparently the case), it would be logically more difficult to blame “Sweden”; but logic is not the strong point of autocrats. Let’s focus more generally on the basic social problem, which is how individuals with different preferences and values can live in peaceful and prosperous social interaction. A major contribution of economics has been to show how private property rights, by creating a private domain around each individual, minimizes clashes. You burn you own copy of the Koran, the Bible, or Lady Chatterley’s Lover as you want, or you consider them sacred for you if you wish. You may also buy and keep it, or just be indifferent. As often noted, individual liberty is coextensive with private property rights and voluntary cooperation and trade.

This way, “respect” is not unilateral. Everybody has to respect what other individuals do in, and with, their private domain—and on the public square, equally accessible for everybody to express his opinions. Respect is due not only to individuals who consider the Koran sacred; it is also due to those who want to burn their own copies.

Consider the table below, which shows the four possible combinations of the freedom of individuals to consider the Koran sacred for them and their freedom to burn their copies of that book (or any other such book). Quadrant II and Quadrants III represent the tyranny of the majority or of some other ruling group, whether they stand for a sort of “civic religion” against religious freedom (Quadrant II), or for a partial theocracy where some aspects of religion are forced onto non-believers (Quadrant III). Quadrant IV represents full-fledged theocracy.

Turkey—that is, what the government of Turkey imposes to Turkish residents—exemplifies Quadrant III. Let’s note in passing that this country has never been known as a paradigm of individual liberty. In the incipit of his 1903 book Le Libéralisme (Liberalism), Émile Faguet suggests that Jean-Jacques Rousseau’s sort of civic religion (religion civile) portends a society where “man would be more oppressed than in Turkey” (organiser une société où il serait plus opprimé qu’en Turquie). An article in the current issue of the Economist is titled “Turkey Could Be on the Brink of Dictatorship.”

Only Quadrant I represents individual liberty, which is the only known way to avoid either the domination of some rulers or some kind of civil war.

Both James Buchanan and Friedrich Hayek, two Nobel economists, suggest that the jury is still out on whether Quadrant I is an achievable ideal, whether individuals can live as equals in a free and prosperous society; or whether mankind will go back to its millennial condition of poverty and servitude for most individuals. (On Buchanan’s perspective, see “An Enlightenment Thinker”; on Hayek’s, “Against Tribal Instincts.”)

The Costs and Benefits of Peer Review

Biologist Paul Ehrlich’s recent appearance on 60 Minutes drew an immediate response, with a deluge of denunciations of his decades spent peddling baseless scare stories. Ehrlich responded, Tweeting:

If I’m always wrong so is science, since my work is always peer-reviewed, including the POPULATION BOMB and I’ve gotten virtually every scientific honor.

Ehrlich’s invocation of “peer review” is notable. Notice how he conflates this process with the practice of science itself.

But Ehrlich is wrong. As Adam Mastroianni, a postdoctoral researcher at Columbia Business School, noted in a recent article, peer review—where “we have someone check every paper and reject the ones that don’t pass muster”—is only about 60 years old:

From antiquity to modernity, scientists wrote letters and circulated monographs, and the main barriers stopping them from communicating their findings were the cost of paper, postage, or a printing press, or on rare occasions, the cost of a visit from the Catholic Church. Scientific journals appeared in the 1600s, but they operated more like magazines or newsletters, and their processes of picking articles ranged from “we print whatever we get” to “the editor asks his friend what he thinks” to “the whole society votes.” Sometimes journals couldn’t get enough papers to publish, so editors had to go around begging their friends to submit manuscripts, or fill the space themselves. Scientific publishing remained a hodgepodge for centuries.

(Only one of Einstein’s papers was ever peer-reviewed, by the way, and he was so surprised and upset that he published his paper in a different journal instead.)

Peer review’s supposed benefit is “catch[ing] bad research and prevent[ing] it from being published.” But, Mastroianni notes:

It doesn’t. Scientists have run studies where they deliberately add errors to papers, send them out to reviewers, and simply count how many errors the reviewers catch. Reviewers are pretty awful at this. In this study reviewers caught 30% of the major flaws, in this study they caught 25%, and in this study they caught 29%. These were critical issues, like “the paper claims to be a randomized controlled trial but it isn’t” and “when you look at the graphs, it’s pretty clear there’s no effect” and “the authors draw conclusions that are totally unsupported by the data.” Reviewers mostly didn’t notice.

The Population Bomb belongs on the list of peer reviewed junk science.

And there are costs to the process:

By one estimate, scientists collectively spend 15,000 years reviewing papers every year. It can take months or years for a paper to wind its way through the review system…And universities fork over millions for access to peer-reviewed journals, even though much of the research is taxpayer-funded, and none of that money goes to the authors or the reviewers.

Huge interventions should have huge effects…if peer review improved science, that should be pretty obvious, and we should be pretty upset and embarrassed if it didn’t.

It didn’t. In all sorts of different fields, research productivity has been flat or declining for decades, and peer review doesn’t seem to have changed that trend. New ideas are failing to displace older ones. Many peer-reviewed findings don’t replicate, and most of them may be straight-up false. When you ask scientists to rate 20th century discoveries in physics, medicine, and chemistry that won Nobel Prizes, they say the ones that came out before peer review are just as good or even better than the ones that came out afterward. In fact, you can’t even ask them to rate the Nobel Prize-winning discoveries from the 1990s and 2000s because there aren’t enough of them.

A recent article in Nature is titled ‘‘Disruptive’ science has declined — and no one knows why,’ but Mastroianni may be giving us at least some of the answer:

The invention of peer review may have even encouraged bad research. If you try to publish a paper showing that, say, watching puppy videos makes people donate more to charity, and Reviewer 2 says “I will only be impressed if this works for cat videos as well,” you are under extreme pressure to make a cat video study work. Maybe you fudge the numbers a bit, or toss out a few outliers, or test a bunch of cat videos until you find one that works and then you never mention the ones that didn’t. 🎶 Do a little fraud // get a paper published // get down tonight 🎶

Researchers are as responsive to incentives as anyone. The peer review process incentivizes “gaming,” with people looking to satisfy reviewers and run up their publications rather than break new ground. The costs of peer review, it seems, do not outweigh the benefits. It ought not be a straightjacket for new research nor a shield for charlatans like Ehrlich.


There are an increasing number of pundits suggesting that we may be on track for a soft landing. I don’t have strong views either way, but let’s assume that is the case; the US is increasingly likely to achieve a soft landing. What then? What should the Fed do next?One answer is, “Keep doing what it’s doing, as that seems to be working.” But it’s not clear what it means to maintain a steady monetary policy, as the economics profession has never provided a satisfactory definition of “monetary policy.” Indeed, I wrote an entire book on this subject, which (I hope) will come out soon. Karl Smith likes what he sees, and suggests that the economy is doing so well (in terms of achieving a soft landing) that the Fed should hold off on further rate increases. This view makes sense if we assume that stable interest rates represent a stable monetary policy. (Note: Smith also looks at indicators such as money supply growth, so his views are more nuanced than I’ve indicated here.  Read his Bloomberg piece.)

Someone else might look at the same evidence and agree that policy should stay the course. But for them, staying the course might be implementing the interest rate increases that the Fed has been predicting in recent meetings. After all, those predicted rate increases influence long-term interest rates, and the economy seems to be doing well at the current level of long-term rates. So should we stay the course by carrying out the Fed’s predicted rate increases?A third pundit might argue that the Fed “dot plot” is not fully credible. The market expects a slightly lower path for interest rates than the path predicted by the Fed. And it’s the market expectation of the future path of rates that the economy is reacting to. So perhaps the Fed should not keep rates where they are, nor should they raise them at the pace they have predicted. Instead, if the economy is doing well then perhaps the Fed should raise rates at the pace that the market is predicting.I don’t much like any of these views, as they all rely on interest rate targeting. And I don’t believe the Fed should be targeting interest rates—let the financial markets set rates. But if the Fed insists on setting rates, and if the economy is indeed on track for a soft landing, then the least bad policy would be to have rates follow a path equivalent to the current market prediction.

Once again, I am not advocating that policy; I’m saying that policy would be appropriate if we are now on track for a soft landing. My own view is that the risks are still slightly to the upside, toward overheating.

P.S.  In a new article I wrote for the National Review, I point out that low and stable NGDP growth is a necessary and sufficient condition for the Fed to achieve its policy goals:

The Fed does not currently target nominal spending. But as a practical matter, the Fed cannot achieve its goal of low inflation and high employment without stable nominal-spending growth. Whenever spending growth is far below 4 percent, unemployment will rise sharply. Whenever it is far above 4 percent, inflation will rise. Because spending growth is the sum of inflation and real GDP growth, it is the best single indicator of the Fed’s performance. A policy target of 4 percent spending growth is much more credible and transparent than a vague policy aimed at 2 percent inflation and high employment. How should high employment be defined? The Fed doesn’t tell us. How does it balance the goals of avoiding high inflation and encouraging high employment? The Fed doesn’t tell us. What does it do if it misses a policy goal? Again, the Fed doesn’t tell us.

Read the whole thing.


Suppose all of humanity was infected by a virus that left us all infertile–no one will come along after us. How would you react to such a world? How would you feel if you learned that the last humans had just been born? On this cheerful note, EconTalk host Russ Roberts launches another thoughtful (and thought-provoking) conversation with philosopher Agnes Callard. But really, what would you do? Would you try to make the world more attractive just in case someone came after you? Would you attempt to preserve cultural artifacts? Would it still feel meaningful to read a novel???

Callard seems unsure. She says, “…certain recreational intellectual pursuits might make sense to us within the context of a life that is anchored in a bigger story. It might make less sense once we sort of decouple it from that.” Let’s hear what you think. Use the prompts below to start a conversation either here with us or offline. We’re here for the conversation, wherever it might happen.



1- Callard argues that our own deaths don’t have the same sort of effect on us as we might expect in the apocalyptic scenario described above. They don’t induce in us this sense of despair over the meaninglessness of everything that we’re doing. It’s not the deaths of people that cause us the despair Callard says, but all the non-births. To what extent must we count on future humans to give meaning to our lives today?


2- Callard and Roberts ask us to think about what we would do if we had a free hour to do whatever. What would you choose? What does Callard suggest that such a thought experiment-regardless of your answer- might reveal? What does it suggest about the influence of conformity on our life choices?


3- Callard proposes the “number one big human advance” is human rights. To what extent do you agree with her? Roberts suggests some other candidates; can you add even more? And of course, there is his corollary question- is the inner human life really making progress?


4- Roberts and Callard discuss a famous question once posed by philosopher John Gray: if religion disappears, will our cultural legacy go with it? How would you answer that question? Perhaps another way to say this is to ask, what is the role of myth in human experience, and how necessary does this role remain today?


5- Returning to a part of this episode’s title,  what should be the aims of education? What does education have to do with the quest that you feel we’re on to make the world a better place? To what extent should education aspire to make human beings of the future better?

#ReadWithMe: Power Without Knowledge 6: Problems with Epistocracy

In this series of posts so far, we’ve looked at Jeffrey Friedman’s definition of technocracy, the existence of naive realism and its consequences, problems of knowledge and interpretation among citizen-technocrats, and the problem of ideational heterogeneity. Can these issues be overcome by epistocrats?

To recap, Friedman defines citizen-technocrats as those who believe identifying the existence and causes of social problems, along with cost-effective solutions, can be handled with common sense or by intuiting self-evident truths. By contrast, epistocrats believe that the requisite knowledge is counterintuitive or otherwise not self-evident but believe they, through their training and study, have gained the requisite knowledge and skill to successfully solve technocratic problems.

Here, too, Friedman is skeptical. He raises many issues with epistocrats, but here I focus on just two. One is Friedman’s idea of the spiral-of-conviction, and the other is the technocratic selection effect.

To start, Friedman thinks it’s far from clear that the greater and specialized knowledge held by epistocrats would make them effective in their role as technocrats, stating that “Mere epistemic specialization does not necessarily ensure enlightenment; it may simply ensure narrowness of focus or pedantry.” Additionally, Friedman disputes what he calls the “additive” view of knowledge – the idea that as one gains more information or more facts, one necessarily gains a more accurate understanding of the world. “In the additive view, the problem is a deficit of information that needs to be supplemented, not a surfeit of information that needs to be selectively attended to if it is to be understood.” Even epistocrats are unable to escape the problems of interpretation in the face of overwhelming social complexity:

Information that is accurate and therefore “factual,” strictly speaking, can be useless if it fails to point toward an approximately accurate interpretation of the relevant realities, and worse than useless if it misleadingly points toward an inaccurate interpretation. Information can be accurate but misleading if it is correct in itself but contributes to a skewed picture of the totality. Contrary to the additive view, then, more knowledge is not necessarily better than less, and there may in fact be no scalar relationship between knowledge and truth.

Without the assumption that more information necessarily grants one the ability to more accurately interpret that information in a way that accurately reflects reality, “we should not assume that those who are more knowledgeable than their peers are likely to make better technocratic decisions.”

All this aside, epistocrats face a difficulty over and above the difficulties faced by citizen-technocrats – the spiral of conviction. “The spiral of conviction is the hypothesis that as people become better informed – that is, roughly speaking, as they move from being citizen-technocrats towards being epistocrats – they inadvertently become dogmatic.”

How does one become dogmatic “inadvertently”? It’s an unavoidable side effect of the need to create a coherent interpretation of the miniscule amount of information they can gather, because “one can begin to understand a topic (as opposed to memorizing facts about it) only after hearing or generating an interpretation of it that makes certain information about it legible or coherent. In this way an interpretation clarifies part of the otherwise-mysterious world, but as Lippmann understood, this clarity comes at the price of screening out interpretation-incongruent information, which tends remain illegible or to be dismissed as implausible.”

Friedman views this as different from simple confirmation bias, because that term “is often taken to mean a deliberate attempt to seek out confirmatory information. My suggestion, on the contrary, is that spirals of conviction are inadvertent and involuntary, just as are the perceptions, beliefs, interpretations, and biases that may be reinforced by a given spiral.”

Those among us who dedicate the most time to studying social issues still must make decisions about which data are worth studying. Time is the ultimate constraint, and there seems to be no sense in “wasting time and effort on unintelligible, ‘obviously’ wrong, or annoying obtuse arguments for truth-claims that are inconsistent with [the epistocrat’s] growing and increasingly persuasive web of beliefs.” Friedman emphasizes that this is a rational process, which indicates “the spiral-of-conviction model is interpretively charitable.” He notes:

As one gains confidence in one’s beliefs from the accumulating mass of evidence in favor of them, one should tend to become doctrinaire about one’s conclusions, not because one is deliberately closing one’s mind, but because one’s conclusions are based on a growing sample of information that seems reliable – but that one may fail to recognize, is biased. It is rational to trust one’s sense of reliability because there is an overabundance of information out there and one needs a way to focus one’s attention only on the most telling bits, disregarding the rest. There is no other way to do this than to judge as “telling” the information that seems plausible because it is congruent with one’s standing web of beliefs.

However, while certain elements of the spiral of conviction are unavoidable, not everyone gets trapped to the same degree. Some people might be impacted to a lesser extent:

Someone exposed early on to one or several less-comprehensive interpretations of a given subject should be relatively well placed to recognize her own radical ignorance, for she may notice potential conflicts among different interpretations of the same evidence, ambiguity in the evidence when it is viewed from various theoretical perspectives, or heterogeneity in the evidence picked out as significant by various interpretive frameworks.

Unfortunately, this creates another problem – the more sophisticated a thinker is in this regard, and the less trapped they are in the interpretive bubble created by the spiral of conviction, the more likely they are to be filtered out of the pool of potential epistocrats. An epistocratic technocracy, by definition, needs epistocrats who make policy prescriptions, creating a selection pressure in favor of technocrats most willing to do so. This creates a self-selection effect among epistocrats:

Candidate epistocrats may (figuratively) respond to the first pressure in at least two ways: by self-selecting either for naive realism or for positivism, both of which will tend to downplay, elide, or ignore the causal role of fallible ideas, and thus of heterogeneous interpretations, in the determination of human behavior. In epistemologically individualistic terms, this is to say that, truistically, social scientists whose beliefs or assumptions happen to be naively realistic or positivistic will tend to think themselves capable of making behavioral predictions, thereby selecting themselves into the pool of candidate epistocrats, while those who do not hold such ideas (or similar ones) will tend to select themselves out, perhaps becoming intellectual historians, critics of epistocracy, or other harmless scholars.

This selection effect is also present in the policymakers who seek out the advice of epistocrats:

Second, political decision-makers, in attempting to identify which epistocrats can be trusted, can be expected to select those who are more dogmatic than most, even from among a group that is dogmatic on the whole—because those who are less dogmatic than most will tend to be less persuasive in advocating their points of view, even as those who are the least dogmatic of all, and thus the most likely to be judicious, will not even participate in the competition.

Thus, epistocracy is likely to end up in an odd variation of the Peter Principle. Lawrence Peter predicted that “In time, every post tends to be occupied by an employee who is incompetent to carry out its duties.” The Friedman Principle, by contrast, predicts that in an epistocracy, every technocratic decision will be made by the technocrat least capable of recognizing the gap between their abilities and the requirements of the task.

In the next post we turn to Friedman’s analysis of economists and the economic profession. Early in the book, he identifies economists as perhaps “our premier epistocrats” – but as you might have guessed, he doesn’t mean that as a compliment.


Kevin Corcoran is a Marine Corps veteran and a consultant in healthcare economics and analytics and holds a Bachelor of Science in Economics from George Mason University. 


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