March 7, 2019

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See exactly how the statement from Fed policy makers changed.

Your daily economics newsletter from The Wall Street Journal.

This is the web version of the WSJ’s newsletter on the economy. You can sign up for daily delivery here. More Output, Fewer Workers U.S. factory output continued to grow in August, but the picture for employment was mixed, a possible sign of lingering uncertainty about the coronavirus pandemic among American manufacturers. A survey of […]

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Your daily economics newsletter from The Wall Street Journal.

Fast-fashion group to take steps to address treatment of garment workers

Emmanuel Macron pledged to make the country more attractive for business, but that goal still seems a long way off

Your daily briefing on the news

Europe minister Clément Beaune dismisses ‘tactical games’ in cross-Channel trade talks

As curbs on socialising return, we need to examine the link between isolation and the politics of intolerance

Fears of a credit crunch have already hit business confidence and worried banks

Alternative indicators give an early picture of whether the global economy is returning to pre-crisis levels

Commission’s ideas don’t sound like much against China’s formidable industrial policy machine

New director-general could also address colonial patterns that hold back the continent

Your daily briefing on the news

Disrupted distribution has amplified concerns about the ethics and ecology of what we eat

Suppression is better than mitigation — but at least commit fully to one or the other

Country’s haven currency under intense upward pressure due to Covid-19 crisis

‘Once a family falls into extreme poverty, it may never rise again’

State hospitals owe $2.3bn to global pharma and medical groups, American ambassador says

 

Me: I want to go to there.

INDIANAPOLIS (AP) — Most of Indiana’s coronavirus restrictions on businesses and crowd sizes will be lifted this weekend, but people will still be required to wear masks in public for another three weeks, Gov. Eric Holcomb said Wednesday.

Holcomb, a Republican running for reelection, has faced discontent from some conservatives over coronavirus restrictions. He said he would lift statewide capacity limits for restaurants and bars and crowd limits for social events beginning Saturday because he says the state has made progress in recent weeks in slowing the spread of COVID-19. The mask requirement will be extended until Oct. 17.

This is from Tom Davies, “Indiana governor keeps mask order, drops other virus limits,” Associated Press, September 23, 2020.

Why Holcomb’s sudden change of heart?

Davies writes:

The mask order first took effect July 27 and has drawn ire among conservatives who believe his executive orders in response to the pandemic have gone too far. That has complicated his reelection campaign against Democratic challenger Woody Myers, with some saying they would support Libertarian candidate Donald Rainwater.

So Holcomb appears to be losing support to the Libertarian Party candidate, who, I assume has criticized the lockdowns.

 

 

 

 

 

(1 COMMENTS)

The Joint Economic Committee in Congress put out its annual report on the economy, written by Alan Cole. My overall impression is that the JEC has a better grasp of real world macroeconomics than many people at top 10 econ departments.

Let’s start with their diagnosis of the Great Recession:

Unfortunately, Federal Reserve policy from 2007-2018 erred too far towards curbing the growth of nominal spending—a stance known colloquially as “too tight” monetary policy. The result was a long, persistent “output gap,” or shortfall in GDP relative to what the economy could have produced with more ample nominal spending. While not the only policy problem of the time period, the output gap was a clear consequence of the Federal Reserve’s choice of policy anchor and its level of commitment to the anchor.

The mass unemployment that followed the 2008 financial crisis was an economic disaster whose effects will be felt for years to come. Americans lost trillions of dollars of income and tens of millions of years of work. The job losses were also concentrated among disadvantaged groups, increasing inequality along the dimensions of both education and race.

This era is useful to study because it can inform policy in future recessions, including, to some extent, the current one. A well-chosen and consistent monetary policy anchor will not solve every problem—and certainly not ones directly related to public health—but it can facilitate the execution of financial and business contracts and shore up the social contract by lowering uncertainty about the future.

How many macroeconomists understand that the Great Recession was caused by a tight money policy by the Fed?  You could almost count them on one hand.

The report cites Kevin Erdmann’s excellent book on the housing crisis:

[I]n his book Shut Out, Kevin Erdmann notes that the Federal Reserve as a whole would issue statements describing the weakness in the housing market as a “correction,” suggesting a kind of normative view that housing prices should fall.31 The Federal Reserve kept this language even well into the decline of employment measures. The focus on moral hazard and housing prices largely detracted from attention to an ailing labor market.

Most economists believe the Fed was “doing all it could” in 2008.  The JEC reports understands that actual policy was quite schizophrenic, both expansionary and contractionary at the same time:

Taken separately, the bailout and interest rate decisions are coherent. But together, it is difficult to square them. As the Federal Reserve told it, spending enabled by emergency below-market-rate liquidity injections to Bear Stearns was good spending that helps Main Street, while spending enabled by a federal funds rate of (for example) 1.75 percent would have been bad spending that would spur inflation.

This pattern of easier credit for troubled financial institutions but tighter credit than necessary for the rest of us continued throughout 2008: as George Selgin documents, the Federal Reserve actually took care to offset its emergency operations’ effect on overall demand. Increases in credit to troubled banks were matched with corresponding decreases in credit elsewhere in the system.34 In Bernanke’s words, this was done to “keep a lid on inflation.”35

One tool in this offsetting process was interest on excess reserves (IOER). In October of 2008, the Federal Reserve began paying IOER.36 This policy induced banks to hold reserves and earn interest from the government rather than lending to private-sector individuals or institutions. This constrained credit for the private sector, outside of the banks that were rescued with below-market-rate lending.37

It’s as if the Fed simultaneously believed the economy faced a danger of too little spending and too much inflation—-which is literally impossible!!

The report also correctly describes how the Fed completely screwed up its forward guidance:

But there was a problem with forward guidance in the 2010s: Federal Reserve communications often described a hawkish reaction function—an inclination to run monetary policy relatively tightly.

Consider the Federal Reserve Board’s projections from January 201240, when interest rate predictions (often known as “dot plots,” for the way they were frequently charted) had just been issued for the first time. The projections told us that the median participant in the exercise believed that 2014 was the appropriate year for interest rates to rise. They also told us some other things about 2014: that participants believed Core PCE inflation would be below-target in the range of 1.6 to 2.0 percent, and that participants believed the unemployment rate would be in the range of 6.7 to 7.6 percent.

Put together, these predictions paint a clear picture of extraordinarily tight monetary policy. They told us that a Federal Reserve faced with an economy with elevated unemployment and below-target inflation would act to curb spending by tightening credit.

There’s also a recognition that the unemployment rate is often a useful warning sign of recessions—the Sahm Rule:

Recent work by the Federal Reserve has affirmed this view of employment measures. Economist Claudia Sahm devised an algorithm colloquially known as the “Sahm Rule,” which treats sudden rises in the unemployment rate as reliable early warning signs of a contraction.44 While the Sahm Rule is based on the official unemployment rate for simplicity’s sake and to facilitate comparability across time, it is likely that other employment measures, such as payroll surveys or unemployment claims, could be used as additional data points to scan for early signs of recession.

Most economists put too much weight on interest rates as an indicator of the stance of monetary policy, which led them to (wrongly) assume that policy was accommodative during 2008.  The JEC report understands that rates are not a good policy indicator:

FOMC statements have frequently identified low interest rates as a sign of accommodative policy.

This is not always and everywhere correct. Neither is the converse: that high interest rates are a sign of tight policy. As Milton Friedman observed in his famous American Economic Association presidential address:

As an empirical matter, low interest rates are a sign that monetary policy has been tight-in the sense that the quantity of money has grown slowly; high interest rates are a sign that monetary policy has been easy-in the sense that the quantity of money has grown rapidly.45

This observation—made in 1968—has largely held up, and in fact predicted to some degree both the late 1970s (when, despite high interest rates, inflation soared to record levels) and the early 2010s (when, despite low interest rates, inflation remained persistently below target and unemployment remained elevated.)

They suggest that NGDP growth is a superior policy indicator:

Scott Sumner phrases it in an improved and more modern formulation.46

Interest rates are not a reliable indicator of the stance of monetary policy. On any given day, an unexpected reduction in the fed funds target is usually an easing of policy. However, an extended period of time when interest rates are declining usually represents a tightening of monetary policy. That’s because during periods when interest rates are falling, the natural rate of interest is usually falling even faster (due to slowing NGDP growth), and vice versa.

The natural rate of interest is another economic abstraction that is hard to pin down precisely, but Sumner can be loosely translated as follows: during periods where the central bank is cutting interest rates, the risk-adjusted attractiveness of private-sector investments is falling even faster, so savers are still crowding into government bonds even at the lower rates.

Sumner considers the growth rate of NGDP a better guide to the stance of monetary policy. A policy that enables an acceleration in spending—however it is implemented—is loose, and one that forces a deceleration or contraction—however it is implemented—is tight. This formulation—based on effects—seems more appropriate than a measure based on interest rates alone.

The report then explains why measuring the policy stance correctly is so important:

Why are the semantics here important? First, because effects matter. Monetary policy stances are named after their intended effects; loose or accommodative or expansionary monetary policy should presumably be loosening, accommodating, or expanding something. Tight or contractionary policy should presumably be tightening or contracting something.

Second, semantics are important because names have an effect on the policy’s politics. The Federal Reserve in 2015 had essentially achieved some relatively-normal results for years: steady improvement in the employment rate, steady (though below-target) core inflation, and steady four percent growth in NGDP, which is also a normal result. However, it labeled these policies “accommodative.” This lent credibility to the plausible-sounding-but-wrong critique that the low interest rates at the time were “artificial” in a way that higher interest rates would not have been. It put the FOMC under pressure to “normalize” policy by tightening, which it did by the end of the year.

Third, a results-based measure of the stance of monetary policy, such as NGDP growth, appropriately captures the effects of policies that do not involve the setting of short-term interest rates: for example, quantitative easing or forward guidance.

The report also contains excellent policy suggestions:

A number of market indicators can help the Federal Reserve make good predictions about the future. Mechanically tying Federal Reserve actions to market data is largely not a reasonable policy option, but markets can help the Federal Reserve predict the consequences of policy.

And:

The dual mandate leaves much room for ambiguity in terms of how to weight unemployment and inflation concerns; however, it is possible to integrate inflation and unemployment data into a single mandate that implicitly contains both components. The most promising methods for this begin with the observation that inflation is a price, and employment is a quantity. Therefore, they look to measures of price multiplied by quantity.

Fortunately, many such metrics exist. One of the most obvious of these is nominal GDP. The idea of targeting nominal GDP originated with monetary economist Bennett McCallum,48 but also has been advocated by other economists such as Scott Sumner, Christina Romer,49 Jan Hatzius,50 and Joshua Hendrickson.51 While there are some technical issues implementing a nominal GDP target in real time, economist David Beckworth, another advocate, proposes methods to predict nominal GDP more quickly, including the use of new data sources or futures markets.52 At a minimum, stable nominal GDP growth is an excellent medium- and longer-run measure of central bank performance.

Level targeting is especially important:

Level targeting is perhaps the single most effective zero lower bound policy, and likely has benefits even outside of the zero lower bound. The idea of “level targeting” is to have a consistent long-run growth path in mind for the target variable, not just growth rate to target anew each period.

There are two strong reasons to believe a level target would be effective. The first is that level targets would do a better job of anchoring expectations for long-term contracts, such as mortgages. For example, it is considerably easier for a mortgage lender to operate if she has at least a general sense of what nominal incomes in America will look like in the 30th year of the loan. Will they double? Will they triple? A nominal income level targeting regime can actually provide an answer to that question, making long-term contracts considerably easier to write. Similarly, if a pension plan were interested in implementing a cost-of-living adjustment to benefits based on inflation, it would be easy to make long-run projections under an inflation level targeting regime.

The second reason for believing in the effectiveness of a level target is that a level target constitutes a kind of forward guidance, which—through its impact on expectations, can actually work backwards in time. In promising a steady long-run path, it encourages people to invest more steadily in the present, knowing that over the long run, rough patches will be smoothed out.

Nominal GDP level targeting, or NGDPLT, is one of the most popular uses of the level targeting idea. Level targeting dovetails particularly well with NGDP targeting because it turns the target into a long-run goal. In a level-targeting regime, short-run blips like revisions to GDP data are understood to be less consequential; instead the central bank maintains focus on keeping the long-run path steady.

Honestly, this report is far better than 90% of the articles one reads in top level economics journals.  Its fine to be able to write down highly mathematical models of the economy, but one also needs to have an intuitive grasp of which economic concepts are relevant to the sort of macroeconomic problems faced by real world economics.   Alan Cole definitely understands the role of monetary policy in business cycles.

(7 COMMENTS)

To understand my story, you first need to understand Friedman’s basic point. Here it is in a nutshell: Managers are employees of corporations. In the decisions they make with corporate resources, they should be responsible to the corporation. That means being responsible to the stockholders, who, after all, are the corporation’s owners. The vast majority of stockholders want the corporation to, in Friedman’s words, “make as much money as possible.” Thus Friedman’s claim that the social responsibility of a corporation is to make money. Friedman was clear that he wasn’t advocating breaking the rules. He stated that the managers should conform “to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”

I learned Friedman’s point in a personal way when I was eleven. My mother had raised us to help others. I liked doing that and didn’t see it as a heavy obligation. But when I was eleven, my brother, Paul, who was fourteen, bought a cheap set of golf clubs and hired me to caddy for him. When we were on the eighth hole of a nine-hole course near our summer cottage in Minaki, Ontario, we saw a golfer hunting in the rough for his lost golf ball. I thought I should stop and help, so I did.

Paul had a different view: he wanted to play through and I was working for him and so I should do what he asked. We had a big argument and I finally gave in. When we got home, my brother complained to my mother that I hadn’t kept my side of the bargain. I was sure my mother would support me. She didn’t. “When Paul hired you,” she said, “you were working for him. When you’re on your own you can stop and help someone find his ball, but when you’re working for someone, he has the right to decide whether to let you.”

The lesson stung, but I ended up agreeing. That’s why the most important part of Friedman’s essay spoke to me. It’s simply wrong, when you’re working for someone, to use his resources for your ends when they don’t promote his ends. In the case with my brother, I was using my time to help others but my time was really his time: he was paying for it. In the case of corporations, managers might be using both their time and the corporation’s resources to help others even though shareholders own those resources and own the manager’s time that they are paying for.

This is from David R. Henderson, “Friedman’s Critics Miss the Mark,” Defining Ideas, September 24, 2020.

I was one of the 20 people asked to comment on passages of Friedman’s famous 1970 NY Times essay, “The Social Responsibility of Business Is to Increase Its Profits. Hoover colleague and EconTalk host Russ Roberts was another.

One of the strangest comments was by Felicia Wong. I write:

Commenter Felicia Wong, president and CEO of the Roosevelt Institute, notes that Friedman wrote when America’s “overwhelmingly white” fears were about Watts, Detroit, Vietnam, Kent State, Jackson State, and the assassinations of Martin Luther King Jr. and Robert Kennedy. Hmm. I recall that when King and Kennedy were murdered a lot of black people were upset, too, particularly by King’s murder.

I did note an irony in Friedman’s original essay though:

I’ll end by noting an ironic argument in Friedman’s essay that I don’t agree with and I wonder if even he would agree with today. Fortunately, it doesn’t undercut his case against corporate social responsibility. In stating that managers shouldn’t use corporate resources at the expense of shareholders, even for purposes that a huge percentage of us would agree are good, Friedman argued that we should leave those functions to the government. He wrote:

On the level of political principle, the imposition of taxes and the expenditure of tax proceeds are governmental functions. We have established elaborate constitutional, parliamentary, and judicial provisions to assure that taxes are imposed so far as possible in accordance with the desires of the public—after all, “taxation without representation” was one of the battle cries of the American Revolution.

That ignores what we have learned, and Friedman learned, from the “Public Choice” school of economics, led by James Buchanan and Gordon Tullock. Government’s incentives are usually perverse and we see the bad results almost daily. There’s much more hope, and I think Friedman shared that hope, for private voluntary activity.

Read the whole thing.

 

(7 COMMENTS)

This caught my eye:

Taiwan kept borrowing costs unchanged and raised its growth forecast for the year in a rare display of optimism in a world grappling with the economic effects of the pandemic.

The central bank’s decision to hold the interest rate reflects confidence in an economy where the stock market is near a record high, exports are booming and the Covid-19 pandemic is being held at bay.

The economy is now expected to grow by 1.6% this year — up from June’s 1.5% forecast — driven by government spending and private investment as supply chains get relocated from China, central bank Governor Yang Chin-long told reporters Thursday.

You might argue that 1.6% RGDP growth is not a boom. But consider that Taiwan’s population growth rate is only 0.2%. A growth rate of 1.4% in per capita terms is fairly normal for a rich economy like Taiwan.  And notice that while the unemployment rate briefly spiked during the Covid crisis, it’s rapidly plunging back toward the 3.7% level of the 2018-19 boom.

Meanwhile, China’s export machine is reaching new all-time highs:

Note that while the graph title says “imports”, the graph actually shows China’s share of global exports.

The WSJ reports that China’s domestic economy is also doing well:

China’s economic recovery accelerated in August, with retail sales, the last holdout among the economy’s major components, returning to pre-coronavirus levels by showing their first month of growth this year.

Other major indicators, including factory production, investment and property activity, all gathered pace, China’s state-run statistics bureau said Tuesday, signaling a robust rebound for the world’s second-largest economy. The main official measure of joblessness, the urban surveyed unemployment rate, edged down to 5.6%, the lowest since it stood at 5.3% in January, when the coronavirus began to affect hiring. That is comfortably below the government’s targeted ceiling of around 6% for the year and down from the record high of 6.2% in February.

What lessons can we draw from this information?

Lesson #1:  Early in the crisis, we were told of a “trade off” between health and the economy.  Taiwan has done better than almost any other place on earth in terms of containing Covid-19, and its economy is outperforming almost all other developed economies.  It turns out that controlling the epidemic is a good way to avoid an economic disaster.

Lesson #2:  Early in the crisis, especially before Covid-19 spread to other countries, we were told that Covid was a huge blow to the Chinese economy and that the economic center of gravity would shift a bit toward other Asian economies like India and Vietnam.  Very few people, if any, predicted that China’s share of global exports would rise sharply in 2020.  One should always be suspicious of predictions of the end of the Chinese boom, which have been consistently wrong for nearly 40 years.

Of course it’s possible that these two countries are outliers.  But this graph in the FT suggests that if anything there’s a slight negative correlation between economic growth and fatality rates.  Growth is a bit higher, on average, in countries with fewer deaths:

Sweden gets a lot of attention, but it’s something of an outlier.

 

(9 COMMENTS)

Western civilization is being forced step by step into a state of civil war by the rising assaults of a revolutionary movement known as [redacted].

This movement centers in the universities and spreads outward into every institution of today’s society.  It spreads in two ways: by indoctrination of those who are open to indoctrination, and by terrorization of those who are not.

Many observers are bewildered by the fact that the violence and terror have appeared suddenly in the midst of a scenario – written by liberals – calling for a new society based on gentleness, tolerance and the humanitarian concern of everyone for everyone else’s needs.  The violence, the obscenity, the unabashed totalitarianism have burst like a storm upon the calm of an afternoon tea party.

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The year is… 1970, a full half century ago.  The redacted giveaway is: “the New Left.”  The author is George Walsh, the most intellectually impressive follower of Ayn Rand.  The article, “Herbert Marcuse, Philosopher of the New Left” (published in Rand’s official journal, The Objectivist) is sadly one of his very few publications.  And since it is packed with hyperbolic language uncharacteristic of Walsh’s wonderful lecture series, I have to think that Rand heavily rewrote it.

Even so, it’s a nice chance to reflect that left-wing fanaticism on college campuses, like religious revivals generally, has a strong cyclical component.  The idea that the world grows ever more leftist is wrong, and so is the idea that college students grow ever more leftist.  Hard as it is to believe, the current mania will not last.  As I’ve often said, ADHD shall save us.

That said, I am worried that the current mania will durably enshrine uniformity and exclusion into the fabric of higher education, so the anti-intellectuality and intolerance continue after the enthusiasm dissolves.

(10 COMMENTS)

Those of you who read Don Boudreaux over at CafeHayek know that he often gives evidence that the average American is way better off than his/her counterpart in the 1960s, 1970s, and 1980s.

This is my story comparing now to the 1960s.

I was talking to a California friend recently and we were both belly-aching about state and local governments’ assaults on Californians’ freedom. The biggest ones right now are the lockdowns. (Parenthetical note: Governor Newsom’s new purple standard is absurd. It treats the whole of a county the same even though there’s incredible heterogeneity within a county. Monterey County’s average number of cases over the last 7 days is 15.6 per 100,000 residents, putting us in the purple zone. But Monterey Peninsula’s 7-day average is 3.6, which would allow us to jump up 2 zones to orange.) But even when the lockdowns end, California is one of the least economically free states in the union.

Back to our conversation. My friend was saying that he wants to move to a freer state and is considering New Hampshire. New Hampshire has no income tax and no sales tax and much less regulation. My immediate reaction, though, was to remind him how cold it is and how long the winter lasts. I grew up in rural Manitoba, where, I pointed out, it sometimes hit 40 below and at that temperature it didn’t matter whether you were talking Fahrenheit or Centigrade. I told him that in 20+ years of living in Manitoba I never got used to the cold. I was ready for winter weather to end by mid-February but it usually went to late March and occasionally early April.

Then I caught myself. I pointed out that people in Canada have it so much better than their counterparts of 50+ years ago: they can fly to Florida or Mexico for a week or even 2 weeks in late January or early February and that gives them a much-needed break from the winter. And many of them do. By contrast, when I was growing up, if someone suggested flying down south for even a week, it seemed no more plausible than flying to the moon. Maybe our family could have afforded it, but then we would have had to give up Christmas and about 2 years of my father’s saving for his 3 kids to go to college. (2 of us did.) My Uncle Fred and Aunt Jamie, however, typically went to Nassau for a week or two in the winter. He was a doctor and could easily afford it.

The world has changed.

A big part of the reason is that real incomes have gone up a lot. Another reason is that real air fares have plummeted, due both to improved technology and to massive deregulation. I pointed out to my friend how lower air fares have affected stag parties for guys getting married. I remember going to one for a friend in 1982 or 1983. Everyone there lived within 20 miles of the groom. There were drinks and food and a stripper. (That was actually the only stag party I ever went to and even though I found the stripper attractive, that’s not my idea of a good time. When she was getting dressed I asked her about the economics of her business and how she dealt with personal security.)

Today, guys will have a stag party in Vegas and people will fly in from other states.

Maybe stag parties for you, as for me, aren’t your thing. Then consider this. I taught at the University of Rochester Graduate School of Management from 1975 to 1979. I became friends with one of my students, who started dating, after she graduated, one of my colleagues. In the fall of 1980, Jeff, my colleague, called me to tell me that Laurie had died of cancer. I called an airline to price going back fro the funeral. I still remember the stunning air fare: $800 round trip. I could do it, but I was spending more each month than I was earning at Santa Clara University. So I would need to take $800 out of my low and diminishing savings. I decided not to. Do I regret the decision? No. But I regret that air fares weren’t lower. To put that $800 in perspective, it would be $2,450 today. Now I realize that the CPI overstates inflation by about one percentage point a year. But that would still make it about $1,400 today.

The world has changed and, economically, much for the better.

Back to the weather. If my wife would go for it, I could live in many states in the union and do fine by flying out for a few weeks here and there during the bad-weather parts. I would even consider South Dakota.

 

(18 COMMENTS)

Last Friday, the CDC (U.S. Centers for Disease Control and Prevention) changed its guidelines concerning the ways the Covid-19 virus spreads; on Monday, one business day later, the government agency changed again and reverted to its previous guidelines (see “CDC Removes Guidelines Saying Coronavirus Can Spread from Tiny Air Particles,” Wall Street Journal, September 21, 2020). Who will believe these politically-tainted public health bureaucrats?

Mistrust is justified not only by the catastrophic performance of governments in the Covid-19 crisis, mirroring the general failure of central planners in economic history, and the constant turnarounds of public health agencies, but also by the fact that for several decades, public health experts and activists have been falling in line behind any measure that would increase state power as their philosophy drifted towards a concept of public health as total government care. A paper of mine developing this point should soon be published by the Reason Foundation.

(The featured image of this post is the only one representative of central planning—although not meant to be so—that I could find in the politically-correct stock images service I subscribe to!)

(8 COMMENTS)

A while back, I ran the following set of Twitter polls on collective guilt.  Here’s what people think at the most abstract level.

How often are people collectively guilty?

— Bryan Caplan (@bryan_caplan) August 24, 2020

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Overall, I was surprised by how few people said, “Never.”  I expected more like 70-80%, especially when phrased so baldly.  What really puzzled me, though, were people’s views about the sources of collective guilt.  People are about as willing to accept national collective guilt as they are to accept collective guilt itself.

How often are people collectively guilty for the actions of their nation?

— Bryan Caplan (@bryan_caplan) August 24, 2020

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They’re slightly more skeptical of familial guilt, even though people have astronomically more influence over their families than over their nations.

How often are people collectively guilty for the actions of their families?

— Bryan Caplan (@bryan_caplan) August 24, 2020

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They’re moderately more skeptical about religious guilt, even though people can exit their religion of birth far more easily than their countries of birth.

How often are people collectively guilty for the actions of their co-religionists?

— Bryan Caplan (@bryan_caplan) August 24, 2020

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Almost no one accepts ethnic guilt.  But people’s control over their co-ethnics, like their control over their co-nationals, is near-zero.

How often are people collectively guilty for the actions of their ethnicity?

— Bryan Caplan (@bryan_caplan) August 24, 2020

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Gender guilt is the least-accepted of all.

How often are people collectively guilty for the actions of their gender?

— Bryan Caplan (@bryan_caplan) August 24, 2020

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What’s so puzzling?  The two most-accepted forms of collective guilt – national and familial – bear almost no resemblance to each other.  Given immigration restrictions, most people are stuck with their nationality of birth.  Given the size of most countries, most people have negligible influence over what their country does.  Yet this is the form of collective guilt my respondents most endorse.  In contrast, you can deFOO your family; and even if you don’t, families are small enough for individual action to matter a lot.

At the other extreme, almost everyone rejects ethnic and gender guilt.  On the surface, this makes sense: Even today, almost everyone is cisgendered, and aren’t you stuck with your ethnicity?  Indeed, plenty of people do abandon their ethnicity; demographers call this “ethnic attrition.”

I’m tempted to say that people are doing reverse moral engineering.  Conventional foreign policy relies heavily on collective guilt; leaders do evil, so you bomb the civilians they tyrannize.  But that hardly explains why respondents are so soft on familial collective guilt.  So what’s really going on?

(14 COMMENTS)

“When markets fail, use markets.”

The above is a quote from Arnold Kling, the person who started this blog. I thought of that when reading Sally Satel, “Rethink Crisis Response,” Reason, October 2020. The whole October issue, by the way, is focused on fixing the police, and it’s excellent.

Here are the first 3 paragraphs from Satel’s article.

“Please just send one police car, please don’t have your weapons drawn, please take him to the hospital.” These are the words that many families with a mentally ill loved one have learned to say when crisis strikes. Sabah Muhammad and her siblings have spoken them several times since 2007, the year her brother was diagnosed with paranoid schizophrenia. He had been a standout student and star running back at his high school near Atlanta, but everything changed around his 18th birthday. “He would become catatonic, barely moving, just staring into space,” Sabah explains. “Sometimes he locked himself in his room for weeks, refusing food, except to come out of his room at 3 a.m. to make toast that he blackened to carbon ‘to get the poison out.'”

Mute and malnourished, he would not allow family to take him to a psychiatrist—but he desperately needed help. The only option in the Muhammads’ Atlanta jurisdiction was a 911 call to report a psychiatric emergency, which tended to bring the police, multiple squad cars with lights flashing, and the ominous specter of armed agents encountering a young black man in a delusional state. So Sabah and her family would call the police, and pray.

The data justify their dread. Between 25 and 50 percent of all people killed annually by police are in the midst of a mental health crisis when they’re slain, according to a report by the Treatment Advocacy Center (TAC), a Virginia-based nonprofit dedicated to improving treatment for people with serious mental illnesses.

Satel goes on to discuss why there should be other models: why it would make sense to call emergency responders who are skilled at dealing with people who have mental health problems.

I agree. Implicit, though, in her article seems to be the idea that the emergency responder should be a government official. But why? Even economists with more trust in government than I have tend to think that governments should provide public goods. But when someone has mental health problems, treating that person is a private good. The treatment is rival in consumption (the resources to treat one person can’t be used to treat another person at the exact same time) and excludable (it’s easy to withhold the service from someone who doesn’t pay.

It’s true that such private provision does not seem to exist now. My guess is that that’s due in large part to the fact that we are so used to calling 911 in an emergency and to the fact that the government doesn’t charge for the service. But if people, as Satel writes, “dread” having the government come with guns, people might not think that service that they pay zero on the margin for is so great.

That’s where Arnold Kling’s line comes in. Private provision doesn’t exist; start providing privately.

 

(10 COMMENTS)

Have you ever been on a roll- like a Steph Curry at Madison Square Garden roll? If so, you may have experienced the “hot hand.” Or maybe you played roulette at a casino, and you just knew which color would come up next. Are those “rolls” the same? Are they even real?

In this episode, host Russ Roberts welcomes Ben Cohen to talk about his new book titled, of course, The Hot Hand. When someone is “on fire,” what part of our nature does this phenomenon appeal to? Do we see “streaks” more because we are story-telling animals, or are we just “fooled by randomness?”

Let’s see what you think. Consider the prompts below and help us continue the conversation. As always, we love to hear from you.

 

 

1- Referencing another sports-focused episode, Roberts asks Cohen if the idea of the “hot hand” is really just the flip side of “Money Ball“. What does he mean by this? How is basketball any different than coin flipping or roulette in terms of “streaks”? Why do we come to different conclusions about Curry’s shots and the roulette wheel?

 

2- Why was Shakespeare on a roll in 1605? How is the story of his streak similar to that of Steph Curry? How is it different?

 

3- Is it better to think like a farmer or a basketball player? (Hint: think about “playing defense.”) Explain.

 

4- Why might “the fundamental question of investing and stock-picking” be whether the hot hand exists? How can someone like David Booth believe in the hot hand when it comes to basketball, but behave as if it doesn’t in his profession?

 

5- When have YOU found yourself “in the zone.” Cohen and Roberts talk a lot about their writing (and some personal sports examples). What were you doing? What do you think  enables you to get into “the zone”? Can you teach someone how to find “the zone?”

 

 

(0 COMMENTS)

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