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Asian nations sign infrastructure investment deals worth $4.2bn

Also in this newsletter: Trump troubles, HS2 hullabaloo, flying taxis

Also in this newsletter: why Bosnia should get rid of its Serb separatist leader before joining the EU

With 2bn litres in storage the industry hopes tariff resolution with China will boost trade

Valdis Dombrovskis claims ‘sufficient prima facie evidence’ to examine foreign electric-vehicle makers’ operations

Shipments via third countries obscure Europe’s true reliance on Russian commodities

Berlin and carmakers back UK call for three-year pause on requirement for batteries to be produced locally

In the original version of a now classic thought experiment, five people are about to be killed by a runaway trolley. Would you divert the trolley knowing that your choice will kill a single innocent bystander? That thought experiment is the seed for this conversation between EconTalk host Russ Roberts and fan fav Mike Munger. It gets even more interesting when Munger claims that Adam Smith had an elegant solution for this problem- a problem not articulated until the 20th century!

Part of the challenge of the trolley problem is the question of using cost-benefit analysis to make life or death decisions. As Roberts expresses the challenge of the trolley problem, it’s the difference between killing and allowing to die. Phillipa Foot, the mid 20th century philosopher who formally posed the trolley problem, it’s the doctrine of double effect- when you’re faced with a choice between two alternatives which you did not create. I’ll not ask how you would solve the trolley problem, but I will ask how you feel abut some of the permutations Roberts and Munger discuss. We hope you’ll share your responses to the prompts below in the comments; we love to hear from you.

 

 

1- Roberts suggests we’re so uncomfortable with thought experiments like the trolley problem is because they pose a moral dilemma. That is, if we operates by a strictly utilitarian calculus, the “answer” would be obvious (assuming the original trolley problem- not a baby on the tracks, etc.). Why do we feel there’s a difference between the two options in terms of moral agency?

 

2- The trolley problem is, of course, a hypothetical puzzle. Munger describes his class discussions on the movie Oppenheimer, emphasizing that the United States’ decision to drop the atomic bomb was NOT a hypothetical. After listening to the conversation, do you think the US was morally justified in using atomic weapons? Why or why not? How does your answer take into account the distinction between killing and “not allowing to die?” (And if you’ve still got some ethical muscle left, why do you think the firebombing of Tokyo was treated differently than the atomic bomb, as Roberts asks?)

 

3- Roberts and Munger discuss Adam Smith’s famous example of the Chinese earthquake, which Munger points to as Smith’s version of the trolley problem. How is the earthquake example analogous to the trolley problem? What is Smith’s “solution,” according to Munger? What’s the “second part of the story” that commentators often leave out, and why is this important to Smith’s solution? Does his solution depend  on this second part? Explain.

 

4- I pose this next question with great trepidation… And that’s because I think Russ is wrong on the point he makes about externalities (53:27). He says, in response to Munger’s reading from the Book of Smith:

If Smith were literally right in that passage–if that passage was accurate–we would not worry about externalities in economics. We would just say, ‘Well, they’re not important, because people internalize them because of the man in the breast.’ They would never pollute or litter, or do things that harmed other people, because they would be aware that they were putting themselves forward.

Why do you think that I think Russ is wrong? Would there really be no externalities if Smith’s impartial spectator always worked? Why or why not?

 

5- Roberts closes by asking Munger, “Do you think capitalism and the commercial society encourage us to put ourselves before others? Do you believe that we are coarsened by the competitive nature of capitalism and tend to frequently ask, ‘What’s in it for me’?” How does Munger respond? How would you respond? In what ways does your response differ from Munger’s, and why?

 

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When you think about it, the story is even more fantastic than Lewis Carroll’s Alice in Wonderland.

A government—politicians and bureaucrats—which, among other problems, is mired in deficit and debt is suing two companies, Google and Amazon, with which nobody is forced to do business, while the same government is, just to take an example, forcing future taxpayers to finance its vote purchases with trillions of dollars of expenditures, not to mention its continuous misleading advertising.

Each of these companies has to supply free and voluntary consumers with services, often free of charge, lest it be dethroned by competitors. Add that each (and perhaps especially Amazon) deserves a Medal of Freedom for arguably contributing to culture and knowledge more than any government has done.

There is another irony difficult to reproduce in any rabbit hole one can imagine. It is probably true that both companies are owned and managed if not manned by fans of state power who probably thought all along that “progressive” politicos were on their side. Any serious economist or student of Leviathan, I think, could have told them. Whether the lesson is learned or not is an interesting question.

Google has been sued by the Department of Justice’s Antitrust Division, supervised by Assistant Attorney General Jonathan Kanter, while Amazon is sued by the Federal Trade Commission, chaired by Lina Khan.

In my Regulation article on “Bidenomics,” I note:

Biden’s nomination of Lina Kahn, a 32‐year‐old Harvard Law School professor, as head of the Federal Trade Commission marked an attempt at expanding government antitrust action. Confirmed with the help of 21 Republican votes in the Senate, Khan has embarked on a crusade to extend the reach of existing law by developing new legal theories and filing more lawsuits. Mere “bigness” and high technology seem to be her chief concerns, rather than the longstanding consumer‐welfare standard. The antitrust division of the Department of Justice has moved in the same direction. Large corporations are seen as the problem simply because of their size, though there appears to be no parallel concerns about big trade unions and big government. …

The international news magazine The Economist, despite being generally favorable to antitrust laws, has argued that the new crusade against bigness and high tech is unproductive. It threatens American research and development, of which one‐fourth is done by the five largest high‐tech firms. With nearly Schumpeterian accents, the venerable magazine defended the idea that “dealmaking, even involving big firms, is a vital part of healthy capitalism,” which the new antitrust warriors in D.C. do not seem to understand.

Let’s hope that the courts will stop the comedy.

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James Broughel calls on libertarians to reevaluate the influence of James Buchanan, arguing several of his ideas have led them astray. An undercurrent of his argument is that libertarians have gravitated toward Buchanan because he confirms their generally negative views of government. But Broughel’s claims are based on mere assertions, deep misunderstandings of social choice theory, lack of familiarity with the public finance literature, and factual mistakes.

 

Confused about Cost

Broughel argues that Buchanan’s radical subjectivism about choice is fundamentally misguided:

Despite Buchanan’s somewhat nuanced stance in the book, his disciples have often interpreted his writings to mean that costs are a psychological phenomenon and “not measurable in monetary terms.” This leads to the ironic situation whereby libertarians misunderstand the idea of opportunity cost and overlook the substantial opportunity costs that governments inflict daily through their inefficient policies. Costs, by their nature, are objective and quantifiable magnitudes in the real world, even if psychological factors shape the market prices used to measure them.

The linked article that purports to show the dangers of thinking in terms of subjective costs is by Murray Rothbard. It does not cite or even mention Buchanan. Moreover, to call Rothbard a disciple of Buchanan is an simply incorrect. Rothbard is as much a disciple of Buchanan as Buchanan is a disciple of John C. Calhoun. The most charitable interpretation that can be given to citing Rothbard here is that Broughel picked an article that takes a radically subjectivist stance to try to illustrate his point. Admittedly, one has to get all the way to the very first volume of Buchanan’s collected works to find Buchanan’s actual critique of Ronald Coase (“Rights, Efficiency, and Exchange: The Irrelevance of Transaction Costs”).

Buchanan’s own use of radical subjectivism is very distinct from Rothbard’s. Rothbard wants to discredit a social cost approach to make way for his normative theory of property rights. Buchanan uses subjectivism to emphasize the importance of agreement in both markets and politics. He objects to Pigovian analysis because such analysis confuses preferences that are inferred by the analyst with the actual agreement of others. Standard welfare economics, for Buchanan, confuses the map for the terrain.

Moving on to the second claim above, it is hard to know which libertarians Broughel is referring to since he does not cite any. The idea that radical subjectivism commits one to a rosy view of government policies is silly. Yes, the radical subjectivist—if consistent—would take umbrage at using the term opportunity cost to refer to the consequences of policies. Opportunity costs are what individuals forego when they make a choice. No choice, no opportunity cost. But this does not stop a subjectivist from recognizing that policies can impose losses in terms of real income or wealth. Gains and losses are perfectly comprehensible without tying them to the act of choice. Hailstorms and taxes both impose losses on individuals.

Even if one dislikes radical subjectivism, Buchanan is the strangest target to go after in the subjectivist camp. Buchanan in Cost and Choice is careful to distinguish “cost in the predictive theory” vs. “cost in a theory of choice” (pp. 40-41). Cost in a theory of choice is radically subjective, which how Buchanan thinks the world really is. But at most, such a theory can only offer generalized explanations of social phenomena, or what I have called elsewhere “origin stories.” To do the predictive work of economic science, one must abstract from human subjectivity and creativity and treat humans as reacted to objectively measurable costs. 

Buchanan thinks it is vital that economists pursue both of these projects, a point he reemphasizes in “The Domain of Subjective Economics” (again, in Volume 1 of the collected works). Of all the major radical subjectivist authors, he is the friendliest to the sort of work that Broughel seems to think economists should do. Buchanan recognizes the distinct contribution of subjectivist economics but counsels against staring too long into the Shackelian abyss.

 

Zombie Welfare Functions

Broughel also wants to raise the zombie idea of social welfare functions, both in his critique of Buchanan and in an earlier Econlib piece. I’ll consider where these arguments go awry in a follow-up post.

 

Adam Martin is Political Economy Research Fellow at the Free Market Institute and an assistant professor of agricultural and applied economics in the College of Agricultural Sciences and Natural Resources at Texas Tech University.

For more articles by Adam Martin, see the Archive.

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In 1999, because of an op/ed opposing capital controls that I wrote in the Wall Street Journal in 1998, I was invited to give a paper on the subject to a small gathering in Tokyo. I don’t remember all the participants but two that I do remember were Jagdish Bhagwati and David Weinstein, both of Columbia University.

During one of the sessions, the Economic Freedom of the World index came up. Jagdish said that he didn’t think it was justified to list the inflation rate as a component of economic freedom because inflation had nothing to do with economic freedom. I had an answer to that but I wanted to follow the rules and so I never got to give my answer.

These are the four components of the sound money measure: (1) money growth, (2) standard deviation of inflation, (3) inflation in the most recent year, and (4) the ability to have foreign currency bank accounts. Notice that the first one is connected to inflation and the second and third are directly about inflation.

Here’s the answer that the authors of the report give in their latest report (p. 5):

Sound Money focuses on the importance of money and general price stability in the exchange process. Sound money—money with relatively stable pur- chasing power across time—reduces transaction costs and facilitates exchange, thereby promoting economic freedom. The four components of this area provide a measure of the extent to which people in different countries have access to sound money. In order to earn a high rating in Area 3, a country must follow policies and adopt institutions that lead to low (and stable) rates of inflation and avoid regulations that limit the ability to use alternative currencies.

That’s not a bad answer. The one I wanted to give Jagdish was a little different. It’s this. The point of the index, recall, is to measure economic freedom. But because we have a government-produced money, and virtually every other country does too, how do we measure economic freedom in the provision of money? The way to do so is to ask what we would have if the government stayed out of money and we had private provision of money. There are strong reasons to think that the inflation rate would be low and fairly steady. So that relates to (2) and (3). There are also strong reasons to think that money supply growth would be low, thus satisfying (1). Of course, the freedom to hold a bank account containing foreign currency is an obvious aspect of freedom, although that doesn’t directly relate to Jagdish’s objection.

Thus my justification for including money supply growth, variability of inflation, and the most recent inflation in the measure of economic freedom.

By the way, notice where the U.S. is on this measure: #31.

Note: The above pic is of Jagdish Bhagwati’s 1969 book, Trade, Tariffs and Growth. It was the main text of my Ph.D. course in international trade at UCLA in 1973-74. I learned more about international trade and tariffs from this book than from any other. It was taught by Robert E. B. Lucas, who is now a professor at Boston University. I thought Bhagwati should have co-won the Nobel Prize in economics with Paul Krugman in 2008. He didn’t. But come on guys, grow up and do the right thing. Jagdish is 89. It can’t be given posthumously. Give it to him this year.

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The problem of collective liberty as opposed to individual liberty can be illustrated with a parable from Robert Nozick, a Harvard philosopher whose 1974 book Anarchy, State and Utopia has had much influence on libertarian thought.

You are a slave at the mercy of a brutal master. At some point, the master becomes nicer toward you, stops beating you for no reason, and even gives you some free time. He also has 10,000 other slaves and nicely takes their needs, merit, and other such factors into account when assigning their tasks. He reduces their workweek to three days. He later allows them to go and work on the open market provided they give him three-sevenths of their wages. However, he keeps the power to call them back to the plantation in case of emergency and to restrict their rights to engage in certain personal activities (mountain climbing or cigarette smoking, for example) that could reduce their productive capacities.

The next step is that he allows his 10,000 other slaves to discuss among themselves and vote on all the decisions he previously made, including what proportion of all slaves’ earnings, including yours, will go in the common and how the money will be used. The 10,000 then benevolently decide that you can vote, but only in case their votes are tied 5,000 to 5,000 (which never happens). Finally, the 10,000 decide to let you throw your ballot with theirs before they count them (which will of course produces the same outcome as the previous procedure). Thus, all the 10,001 democratically make all the decisions they want regarding the lives of everybody including you. Nozick’s question: Where in that sequence did you stop being a slave? (See pp. 290-292 of Anarchy, State and Utopia for the more detailed story.)

For a libertarian or a classical liberal, the answer is “nowhere.” Your master has become kinder and more understanding; and, from being one person, became a group of 10,000 persons. You and your 10,000 colleagues have collective liberty, compared to when you all had one individual master, but none of you has individual liberty. If your collective master becomes nasty toward you, you may try to persuade him to be nicer just like you could do with your individual master before, but you have no more control on your life.

There are a few objections to this conclusion, but none is valid if the majority is omnipotent (“sovereign”). As long as that is the case, you are still a slave, albeit an equal slave. Numerical democracy is incompatible with the idea of individual liberty. (Some months ago, I had a “conversation” with ChatGPT, in which the poor thing tried to “argue” both for individual rights and for the obligation to submit to the majority!)

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