March 7, 2019


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Your daily briefing on the news

Liz Truss holds out in attempt to promote Stilton abroad

Your daily briefing on the news

There is little evidence that recent monetary and fiscal interventions will stoke price rises

China learnt from overseas innovations, now the US can do the same

Chinese blockchain; Strange dreams; The value of good songs.

Beijing is neither about to collapse nor take over the world

Chinese company poised to reap benefits as Apple localises its supply chain

Brands from Gap to Topshop have halted orders or withheld payments, leading suppliers to cut or stop pay

Start every week on the front foot with a preview of what’s on the global agenda

Uncertain Covid outlook and scale of the downturn preclude swift return of the rules

Commerce patterns have not shifted much recently. That is about to change dramatically

Fall in commodity prices benefits advanced economies

The historic plan is a turning point for the bloc but policymakers need new tools to direct it

Market Questions is the FT’s guide to the week ahead

I gave two quotes last week and asked who said them. There were a number of answers and two people got both right.

Those who got it right were:

Steve Fritzinger

Steve Horwitz

The first quote was from Mussolini, the second from Franklin D. Roosevelt.

Now here’s why I asked. I hear people say often that the more complex a society, the more we need government to plan. As I wrote in the original post, Hayek argued that the opposite is true. I agree with Hayek.

I had seen the Mussolini quote many times. Indeed, the first place I saw it was at the start of a chapter of The Road to Serfdom. The chapter is titled “The ‘Inevitability’ of Planning.” Even if you don’t read or reread the whole book, I recommend reading that chapter to see Hayek’s argument.

Here’s part of Hayek’s argument:

Far from being appropriate only to comparatively simple conditions, it is the very complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about.

I hadn’t known of the FDR quote until someone suggested on Facebook that I read FDR’s 2nd inaugural address. That’s where I found the quote.


In researching this, I found someone on the Daily Kos admitting, and being troubled by, FDR’s admiration for Mussolini.



Second in a #ReadWithMe series.


Matt Ridley’s How Innovation Works is a treasure trove of examples which suggest that innovation is often serendipitous. Indeed, sometimes “use precedes understanding”. Writes Ridley that “throughout history, technologies and inventions have been deployed successfully without scientific understanding of why they work”. Later science catches up.

This is something to keep in mind, when confronted with the so called “linear model”, by which government funds pure science which leads to applied research which (purportedly) leads to economic progress.


One interesting case in point is variolation. Lady Mary Wortley witness to inoculation against smallpox in Constantinople, where her husband was an ambassador. She did “engraft” “her son Edward, anxiously watching his skin erupt in self-inflicted pustules before subsiding into immunized health. It was a brave moment. On her return to London she inoculated her daughter as well, and became infamous for her championing of the somewhat reckless procedure”.

Ridley remarks that “To a rational person in the eighteenth century, Lady Mary’s idea that exposure to one strain of a fatal disease could protect against that disease must have seemed crazy. There was no rational basis to it. It was not until the late nineteenth century that Louis Pasteur began to explain how and why vaccination worked”.


So, sometimes successful innovation arrives before science and actually defies the then consensus. This contributes to explain why it is so hard to plan it. How can you plan the unexpected?


Blogger Jubal Harshaw sent me this response to last week’s installment of the Escaping Paternalism Book Club last week.  Reprinted with his permission.

Hey Bryan,

Today you wrote:

“4. Once again, I wish the book contained a detailed section on opioids.  The usual view, of course, is that Big Pharma’s lobbying prevented wise regulation from paternalistically saving hundreds of thousands of American lives.  This is clearly a public choice story, but not one in the spirit of Escaping Paternalism.  So is the conventional story flat wrong – or what?”

Yes, the conventional story is flat wrong. It contains some elements of truth, but is pretty implausible for several reasons. I don’t know how this threads into your posts on paternalism, but there are some important fact that get omitted from the standard narrative on the opioid epidemic. Rates of opioid abuse and addiction were flat over the relevant period (early 00s to present) when opioid prescriptions did something like quadruple. Purdue Pharma was a small share of the market, so somehow the benefits of their marketing accrued mostly to other manufacturers. Most drug poisoning deaths involve multiple substances (they aren’t simply “opioid overdoses” but drug interactions, suggesting a more complex causal story), and a substantial fraction of drug poisoning deaths have various ailments and chronic illnesses listed on the death certificate (suggesting that many of these deaths might have had multiple causes, or might not have been opioid poisonings at all).

I have written quite a lot about this on my (pseudonymous) blog. I hope you find some of it interesting.

This one is a pretty comprehensive takedown of the standard story:

This one has some data on historic rates of abuse/addiction:

This one is an attempted take-down of a study that tells the standard narrative, blaming Purdue:

And this one is aimed at the book Dreamland:

There’s a lot there, but you asked a big question.


The-Hot-Hand-199x300.jpg Journalist and author Ben Cohen talks about his book, The Hot Hand, with EconTalk host Russ Roberts. At times in sports and elsewhere in life, a person seems to be “on fire,” playing at an unusually high level. Is this real or an illusion? Cohen takes the listener through the scientific literature on this question and spreads a very wide net to look at the phenomenon of being in the zone outside of sports. Topics include Shakespeare, investing, Stephen Curry, and asylum judges.


Trump’s early 2018 tariffs on washing machines are costing American consumers $1.5 billion a year in higher prices, even after deducting the meager $82 million in customs revenues. The whole tariff was paid by American consumers in higher prices—in fact, even more than the whole tariff if we consider that dryers, a complement good, also increased in price. The total cost to American consumers amounts to more than $800,000 a year for each of the 1,800 jobs created in America by the tariff.

These are the main results of an econometric study by three economists, Aaron Flaaen (Federal Reserve), Ali Hortaçsu (University of Chicago and NBER), and Felix Tintelnot (same affiliations as the latter). Their article was published in the latest issue of the American Economic Review under the title “The Production Relocation and Price Effects of US Trade Policy: The Case of Washing Machines” (the article is not gated). I previously mentioned on Econlog the authors’ preliminary research on the same topic as published in March and April 2019.

Another lesson from the washing machine tariffs, which is not surprising either, is that the tariffs have had the same impact on the price of domestically produced washing machines as on imported ones. I explained in a few previous Econlog posts why a tariff always increases the price of the domestic substitute as much as the price of the targeted imported good (see, for example, “Post Scriptum on Steel Tariffs,” December 5, 2018). A simple way to see this is to realize that the very reason domestic producers ask for a tariff on the competing foreign goods is to be able to increase their prices at the level from which they had to cut them because of this competition.

Flaaen et al.’s estimates are not too far from the results of my back-of-the-envelope calculations the Spring issue of Regulation (“Putting 97 Million Households through the Wringer”). More than a praise for your humble blogger, this is a vindication of the usefulness of economic reasoning. On the legal and institutional background of the “Safeguard clause” invoked by Trump, see Lauren Landsburg, “Taken to the Cleaners,” Econlib, March 5, 2018.


One of my biggest regrets is that I never met Stephen F. Williams, a judge in the D.C. Circuit Court of Appeals. He and I carried on a number of lively discussions on email starting in 2007. (It might have started a few years earlier.) I had planned to see him on a May trip to D.C. this year, but of course that trip was cancelled. And now he is gone. He died of COVID-19.

This evening I reread all of my emails with him and it made me realize how many things we discussed. The discussions were always good, even when we disagreed, and we often agreed. Also they often went more than one round each.

In recent years, we discussed income inequality, the pros and cons of impeaching Trump, Trump’s overall record, whether there was effectively a quid pro quo in Trump’s dealings with Ukraine, net neutrality, and whether he should self-publish his latest book. He sometimes commented on various pieces he had seen by me and my reply led to further discussion.

There were also lighter topics: my telling him that at age 69, I planned to work another 10 years, his telling me that I should make it 20 more, and me saying it’s a deal.

We also talked on the phone a few times.

The way we got to know each other about 15 years ago is a little hazy. It was one of two ways, but either way it involved a draft of his 2006 book on the Russian economy pre-Communism. My wife, Rena Henderson, who edits economists, edited the book for Hoover Press. Either she asked his permission to share sections with me to help her understand some of the economics (she makes sure she doesn’t share her work with me because of potential conflicts of interest), or someone at Hoover Press asked me to look at it. Either way, I was impressed with his work.

Months after that I read a decision he had written for the D.C. Circuit and liked not only his decision and the reasoning that got him there, but also the clarity of his writing. So I wrote him a fan letter, and he responded positively. I don’t have the letter because my computer and back-up hard drive burned in my February 2007 fire. But I have all our correspondence since that time.

I’m still impressed that a man who was on arguably the second most important federal court in America put on no airs and let his intellectual curiosity be his dominant characteristic.




Tyler Cowen argues that there is too much moralizing over the Swedish policy on Covid-19. I agree. I’d add that there’s way too much focus on Sweden’s decision not to lockdown, and way too little focus on other aspects of Swedish policy.

But I don’t entirely agree with this:

In the meantime, the Swedish economy has been among the least badly hit in Europe.

That claim is defensible, but perhaps a bit misleading. Right now we simply don’t have enough data to know how Sweden is doing relative to the most comparable countries. The Q2 GDP data is likely to be heavily revised.  So here’s my prediction:  When all the GDP data is in for 2020 (say in February 2021), it will seem like Sweden’s economic performance is fairly typical. A bit better than the Eurozone and a bit worse than the other Nordic countries (Denmark, Norway and Finland.)

Here’s one small piece of evidence in support of my claim:

[Sweden’s] economy has suffered less than the European average in recent months, but at least as much and possibly more than its Nordic neighbours.

PS.  I do believe that Sweden’s decision to avoid a lockdown slightly boosted its GDP, ceteris paribus, but not by a large amount.  And also keep this in mind:

According to the University of Oxford’s government response tracker, countries from France, Austria and Croatia to Norway and Finland now all have fewer restrictions than Sweden.


Patrick Deneen, a professor of political philosophy at Notre Dame and critic of liberalism, began a tweet thread on May 17 by asserting, “Liberalism holds that there can be no common good, only individual interests.”  Deneen’s assertion is incorrect, but classical liberals can make it too easy for critics.  Talk of the common good is not a collectivist plot, and classical liberals should be more comfortable affirming it in political discussions.


“Liberalism,” perhaps more than most words, has varied in meaning over time.  When I write of “classical liberalism” or “liberalism,” I am looking to Adam Smith as my guide.  Smith propounds a “liberal plan of equality, liberty, and justice” in the Wealth of Nations, and he propounds a quite robust conception of the common good in The Theory of Moral Sentiments.


First published in 1759, The Theory of Moral Sentiments (TMS) investigates how human judgment works.  One edition of the book was titled, “The Theory of Moral Sentiments, or An Essay towards an Analysis of the Principles by which Men naturally judge concerning the Conduct and Character, first of their Neighbours, and afterwards of themselves.”  Although verbose, that title does better to set out what we might anachronistically call Smith’s “research question” for TMS: How do humans judge the conduct of other humans and themselves?


Smith eschews extreme individualism in the first sentence of TMS: “How selfish soever man may be supposed, there are evidently some principles in his nature, which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it except the pleasure of seeing it.”  Taking that as obviously true, Smith then explains how that works.  After all, we can’t enter into the feelings of other people directly, and we aren’t ever completely sure how someone else actually feels.


Given that impenetrable barrier between ourselves and others, Smith surmises that the best we can do is imagine how we would feel if we were in another person’s situation.  He calls that “sympathy,” and defines it as “our fellow-feeling with any passion whatever.”  Sympathy is inherently social.


When discussing virtue, Smith first uses an expression that he uses throughout TMS: “impartial spectator.”  By that phrase, Smith means many different things, and a fuller understanding of it can lead to a liberal definition of the common good.  Daniel B. Klein, Erik Matson, and Colin Doran, all of George Mason University, provide a good exposition on the levels of the impartial spectator in TMS in their paper in History of European Ideas.


One can think of the impartial spectator existing on different levels.  The lowest level is the most obvious: some person judging an event who isn’t on either side.  We most commonly use the word “spectator” in an athletic context, so let’s consider a football game between the Packers and the Bears at Soldier Field in Chicago.  Packers and Bears fans at the game would be spectators, but they are not impartial.  But if a couple from Los Angeles who normally cheer for the Rams (who are in a different division and aren’t rivals with either the Packers or the Bears) were visiting Chicago and decided to attend the game just for something fun to do, they would be impartial spectators.


That’s the most obvious sense of the phrase, and it’s easy to see how the perspective of an impartial spectator would be important for judgment.  Let’s say there’s 50 seconds left in the fourth quarter, and the Packers are down by four points.  They’re on the Bears’ 15 yard line, and it’s fourth down.  Aaron Rodgers tosses a pass into the endzone to a waiting Packers wide receiver, and a Bears defensive back makes a physical play to break up the pass.  All the Bears fans are cheering, and all the Packers fans are crying for a defensive pass interference call from the referees.


Our couple from Los Angeles is going to provide better judgment on what the proper call was than the Bears fan sitting to their left or the Packers fan sitting to their right.  As a Packers fan, I can hardly write this example without saying it was obviously pass interference!


The value of an impartial spectator now established, let’s consider a higher level of impartial spectator (I promise we will arrive at the common good eventually).  There’s value in a random bystander’s opinion, but each of us have people we trust more than others.  Those people can also be impartial spectators.  Unlike our couple from Los Angeles at the football game, these impartial spectators often don’t really watch the event they are supposed to be judging.  We think of them, however, to judge our actions.  Examples might include parents, grandparents, clergy, teachers, professors, or coaches.


We have all had situations where a friend does something, and we shudder and think, “My mom would kill me if I did that.”  Or we do something good, and we think, “Coach So-And-So would be so proud of me right now.”  When we have those thoughts, we are using that higher level of the impartial spectator, and it’s more versatile than the real-life impartial spectator.  The couple from Los Angeles at the football game would only be helpful in a few specific situations, but considering what our moral exemplars would think about actions is helpful in many various situations.


Now imagine an impartial spectator who is above all, overflowing with benevolence, and supremely knowledgeable.  Smith writes that this impartial spectator

does not feel himself worn out by the present labour of those whose conduct he surveys; nor does he feel himself solicited by the importunate calls of their present appetites.  To him their present, and what is likely to be their future situation, are very nearly the same: he sees them nearly at the same distance, and is affected by them very nearly in the same manner.


An impartial spectator who doesn’t grow weary, never tires of our petitions, and stands outside of time so that the past, present, and future look the same to him—if he’s not God, he’s at least godlike.  Continuing the progression, this impartial spectator is universal and concerned with what we can safely call the common good (see, there it is).


Smith’s moral system is based on considering what other people think, i.e. it is inherently social.  So social that Smith even sees the self as social.  He describes our conscience as “the man within the breast” who is a representative of the universal impartial spectator from the previous block quote.  Even when we make decisions by ourselves, we are still consulting the man within the breast, and by extension the impartial spectator, and wondering what he would think of our actions.


By making a moral system where sociality is essential, Smith also makes consideration of the common good essential.  The highest-level impartial spectator is common to all of us, and when we consider what that impartial spectator would consider good, we are considering the common good.


Too many liberals seem to have taken a mischaracterization of Margaret Thatcher’s quote, “There is no such thing as society,” as a mantra.  When you read that quote in context, it’s clear Thatcher was not saying that we should all just look out for ourselves.  Immediately after saying there’s no such thing as society, she continued to say, “There are individual men and women and there are families and no government can do anything except through people and people look to themselves first.  It is our duty to look after ourselves and then also to help look after our neighbour….”


When we look after ourselves, our families, our neighbors, our communities, our countries, and our species, we are pleasing an impartial spectator who would look on our conduct.  We are serving the common good.  It is not illiberal to say so.  Adam Smith said so in a very robust way in TMS.  Anyone claiming to be his intellectual descendent should have no problem saying so too.


Liberals would do well to be more open about the common good.  Sociality is not socialism, and we can affirm one without affirming the other.  Adam Smith shows us the way to affirm the first and condemn the second, and we should follow his lead.


Dominic Pino is a graduate student in economics at George Mason University and a 2020 Political Studies Fellow at the Hertog Foundation.


I’ve been obsessed with monetary policy for most of my life and at age 64 I rarely change my mind on this issue. But today I’ve changed my mind on the Fed’s so-called dual mandate, which is actually a triple mandate:

In 1977, Congress amended the Federal Reserve Act, directing the Board of Governors of the Federal Reserve System and the Federal Open Market Committee to “maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices and moderate long-term interest rates.”

Economists have tended to ignore the “moderate long-term interest rates” part of the mandate, for two reasons.  First, it’s widely believed that the Fed does not have much impact on long-term interest rates, except by controlling the trend rate of inflation.  Second, the Fed’s 2% inflation target already insures relatively moderate long-term interest rates, which suggests that the third mandate is redundant.  Recall that the high interest rates of the late 1970s reflected high inflation expectations.

I used to buy into this view, but now I believe we should take the third mandate seriously.  But what does “moderate” interest rates actually mean?  And what do we mean by “mean”.  As an analogy, did the legislators who banned discrimination based on gender back in the 1960s intend that this law would also apply to discrimination based on sexual orientation?  And is that what matters, or should we think in terms of how they would view their intentions from the perspective of 2020—if they could be transported here in a time machine?  The Supreme Court recently struggled with that issue.

I suspect that in 1977, legislators meant by “moderate” something like “not too high”.  But the actual term “moderate” does not literally mean “not too high”, it means not at either extreme.  We also know that once long-term interest rates hit unimaginably low levels of zero of even negative in places like Germany and Japan, many public officials became concerned that low rates were hurting savers.  Thus it is not unreasonable to assume that “moderate” means avoiding both really low interest rates that would hurt savers and really high rates that would hurt borrowers.  This interpretation meets the letter of the law as well as the likely intent of legislators once they understand that zero or negative rates on long-term bonds are possible, something they may not have even imagined in 1977.

In the recent case where the Supreme Court applied the 1964 Civil Rights Act to discrimination based on sexual orientation, I believe they were at least partly motivated by the fact that society increasingly opposes this sort of discrimination.  That may not be legally sound reasoning, but I especially doubt whether the four “liberal” justices would have used this sort of creative interpretation if it had led to what they saw as a highly objectionable public policy outcome.  Thus liberal justices use the vague “right to privacy” concept in abortion cases but not heroin possession cases.

If we return to monetary policy, then there are two very pragmatic reasons why we might choose to take the third mandate seriously.  If one interprets “moderate long-term interest rates” as long-term T-bond yields in the historically normal range of 3% to 6%, then it can be seen as requiring that the Fed insure a NGDP growth rate that it high enough to keep long-term rates in that normal range, at least most of the time.  And I don’t believe the Fed is currently doing that.  Ten-year T-bonds yield barely 1/2%.

I see two advantages to maintaining a trend rate of NGDP growth that is fast enough to keep long-term rates moderate:

1. Less of a zero lower bound problem for monetary policy.  While it is possible to do effective monetary stimulus at the zero lower bound, in practice monetary policy usually becomes too contractionary at the zero bound.

2.  A smaller Fed balance sheet.  At the zero bound the demand for base money rises rapidly.  This leads to the Fed buying lots of assets to meet this demand, and this might have a distortionary effect on the economy.  This is especially true if they continue their recent policy of going beyond the Treasury market in their asset purchases.

Thus in order to keep away from the zero lower bound and to maintain a small Fed balance sheet, it makes sense to take the third mandate seriously.

You might think that “low interest rate guys” like President Trump would oppose this policy change.  But that’s reasoning from a price change.  In this case, the higher nominal interest rates would be achieved through an expansionary monetary policy (a NeoFisherian approach) and hence would have more support from politicians than you might normally assume from the phrase “higher interest rate policy”.  My proposal would not raise real long-term interest rates and would boost growth in the short run.



This episode of The Jolly Swagman Podcast, hosted by Joseph Noel Walker took place on April 3, 2020, with EconTalk host Russ Roberts as guest.  Though recorded early into the pandemic, their conversation remains relevant today. Walker and Roberts converse freely, often about what constitutes meaningful conversation and their shared craft of podcasting. Enjoy this meandering dialogue and the nuggets shared about influential books, facing death, probability, economics, meditation, Adam Smith, and more. 


1- What does Roberts reveal about the art of podcasting, the success of EconTalk and about “scratching his own itches” regarding topics covered?


2- Why does Russ feel strongly that understanding randomness and numbers is worth the difficult effort?  Do you believe we can learn epistemological humility (being aware of our limitations and the uncertainties about what we know)?      


3- If “we are patent-seeking story telling animals – spinning narratives to each other that fit our world view”, is learning best stimulated by multiple stories or when presented in multiple ways from different people? What has worked best for you?


4- The Precautionary Principle (better safe than sorry!) suggests avoiding a risk of widespread and irreversible harm. How do you square this with the lockdown versus virus impact dilemma? How would you answer  Roberts’ question, ‘could the Precautionary Principle cease to apply’? (The most recent EconTalk with Taleb may also be useful here.)


5- “To philosophize is to learn how to die.” “Why do we care about what will happen after we die”? Roberts and Walker both jest that the death part of this conversation and consideration of Montaigne’s essay likely turned a lot of listeners off. How did you react and what are your thoughts about discomfort in facing mortality?


6- What characteristics differentiate favorite or memorable podcast episodes to you as a listener? Is there anything additional you would share with Walker or Roberts from the listener perspective?


7- Roberts admits to resisting the urge to be loud and angry. How might Adam Smith’s wisdom, great storytelling and reminder of “man’s desire to be loved and lovely” help us all resist this urge?


Me & My Money: Paul Jacob, managing director and chief executive, Smart Storage

No product sells itself. Just ask sales people who helped dig us out of the last recession

Proliferation of data centres will make carbon-reduction targets harder to meet

Repercussions of order against Chinese firm may be felt both in the US and further afield

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