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Recent Posts

Here are the 10 latest posts from EconLog.

EconLog April 24, 2018

So you want my opinion?, by Scott Sumner

When people find out that I'm an economist, they often ask me for my opinion on some issue. Unfortunately, they almost always ask the wrong sorts of questions:

  1. What do you think will happen to interest rates?
  2. Do you think stocks are likely to fall?
  3. When will the next recession occur?

Economic theory suggests that economists are unable to answer these questions. Asking me to answer these questions is like asking an astronomer whether June is a good month for a Libra to start a new endeavor. I'm often tempted to respond by saying:

I can't answer that question, but I can tell you that:

  1. We should legalize a market for kidney transplants.
  2. We should move toward a policy of free trade.
  3. We should stop putting people in prison for drug violations.
  4. We should eliminate all rent controls.
  5. We should legalize, indeed encourage, price gouging.

And I have hundreds of other suggestions that I'm extremely confident are useful. But I usually hold back, because I've learned that people simply don't care what economists think about these issues. They regard our opinions as being essentially worthless. They have their own opinions on these sorts of questions, and see no reason why our opinions are more valuable than their own policy views.

EconLog April 23, 2018

Unemployment, by David Henderson

fredgraph.png

As a former senior economist at the Council of Economic Advisers, I get in the mail near the start of every month the Council's report "Economic Indicators," prepared for the Joint Economic Committee. I like old-fashioned hard copy, but it's available to the public on line as a pdf.

It's worth perusing once in a while, if only to check the data against your impressions. In my perusal of the latest report, published on April 6, what I found most interesting were the data on unemployment.

Some highlights for the March data:

Unemployment rate for blacks or African Americans: 6.9 percent.
Unemployment rate for whites: 3.6 percent.
Unemployment rate for Asians: 3.1 percent.
Unemployment rate for Hispanics or Latino ethnicity: 5.1 percent.
Unemployment rate for men 20 years and over: 3.7 percent.
Unemployment rate for women 20 years and over: 3.7 percent.
Unemployment rate for both sexes, 16-19 years: 13.5 percent.
Unemployment rate for married men, spouse present: 2.1 percent.
Unemployment rate for women who maintain families: 5.6 percent.

These are all strikingly low for the 21st century, even the teenage unemployment rate that, while high, is way lower than it has been in almost all months in the last 10 years. I put in italics the one I found most striking.

Also interesting was the duration of unemployment spells.

EconLog April 22, 2018

Quickly Admitting You're Wrong, by David Henderson

I wrote last weekend about why I find it relatively easy to admit mistakes.

In the week since I've remembered one early instance where I admitted a point quickly and surprised the other person and one instance where a famous economist admitted my point quickly and surprised me.

1970 Science Fiction Conference in Santa Barbara

In July 1970, I was on a "libertarian pilgrimage," as a Canadian friend called it, after graduating from the University of Winnipeg in May. I hitchhiked from Winnipeg out to Vancouver, stopping at various places in between, and then down the coast to San Francisco. In San Francisco, a fellow libertarian I became friends with invited me to drive with her down the coast to a science fiction conference in Santa Barbara. Sci-fi wasn't my thing, but she told me there would be many libertarians there.

One of the libertarians I found most interesting was Erwin Strauss, aka Filthy Pierre. He was making his case for why anarchism would work and I wasn't persuaded. I said that a recent piece of evidence was the 1969 Montreal police strike, during which there was a substantial uptick in bank robberies and violence. Filthy, yes, that's what people called him, said that that wasn't good evidence because the strike was sudden and the private institutions to replace them couldn't realistically be expected to develop quickly. I thought about it a second, realized that that made total sense, and said, "Oh, yeah, that's right." I remember Filthy's mouth almost hanging open in shock. I don't think he was used to people admitting they're wrong.

EconLog April 22, 2018

Building more highways will reduce traffic congestion, by Scott Sumner

Here is Kevin Drum:

This is not Econ 101, not by a mile. Just as building more highways attracts more cars and ultimately does nothing for traffic, building more housing attracts more people. We could make housing less expensive in Los Angeles--just as we could reduce traffic by building highways 40 lanes across--but the amount of new housing it would take to make a sizeable dent in prices is truly vast.

Don't believe it? Consider New York City. Sure, building stuff there is hard, but it's a city that's basically friendly to high rises--and it has been since the invention of the safety elevator. By American standards, it also has a uniquely effective mass transit system. And yet, New York City is an expensive place to live. It's been an expensive place to live for the past century. [See update below.] If you want cheap housing, this means you have to think beyond New York City. Whatever your plans are, they probably won't work unless you have denser development and better mass transit than New York. There is not a city in America that's within light years of this.

Actually, it is Econ 101, and unless I'm missing something Drum is wrong on this issue. It's true that there are examples of cities that both built more highways and suffered increased traffic congestion. But even in those cases, the highway construction reduced congestion, ceteris paribus.

EconLog April 21, 2018

I Found It at the Movies, by David Henderson

With apologies to Pauline Kael.

April has been a great month for anti-government movies. I'll highlight three that I saw this month, WITH MULTIPLE SPOILERS : "The Death of Stalin," "Chappaquiddick," and "The Post."

The Death of Stalin

A must see. People often write LOL and they didn't really laugh out loud. I LedOL literally. Steve Buscemi plays a way-too-slender Khrushchev who is tasked with organizing Stalin's funeral. He is a riot. My favorite line from him comes when he is trying to talk Stalin's self-destructive son, Vasily, out of giving a speech at his father's funeral. My rough recollection of the dialogue:
Vasily: But I want to speak at my father's funeral.
Khrushchev: I want to f**k Grace Kelly. What's your point.

A few scenes that show the incredible fear that people had of being murdered by Stalin:

a. The soldiers guarding his bedroom hear something going on inside and think that maybe he might have collapsed and might need medical attention. But they have been told not ever to disturb Stalin, on penalty of death. So they don't. Thank goodness.

b. The people broadcasting the symphony are told that Stalin wants a recording of it. One little problem: they didn't record it. So they persuade some of the audience to stay while they do a do-over. They also have to find a conductor who will conduct the symphony and they need to haul people in off the street to be in the audience. Everyone who is organizing this is scared, quite properly, for his life.

c. The high-level Communists debate about how and whether to get a doctor for Stalin, losing valuable time, because they have good reason to fear that if they cross him, they will be murdered.

Also, the scene in which the top Communists are meeting around a table and voting on various issues, with Molotov, played by Michael Pallin, vacillating and the others responding to that vacillation, is a hoot. I can't even try to spoil this because it is so funny and yet so real.

Chappaquiddick

I don't know how true the movie is to reality. Do we really know, for example, that Kennedy did not dive down and try to save Mary Jo Kopechne? But what we do know is that he left her there and didn't seek help, even though there's a substantial probability that she lived another hour or more while he took off. And we do know that there were high-level meetings of Kennedy's strategists to figure out how to play the issue and keep his Senatorial and Presidential hopes alive.

It's fascinating, in a sickening way, to see one of the architects of the Vietnam war, Bob McNamara, give orders about how about how to deal with the situation in which telling the truth was optional. And the local sheriff, whose instincts seemed to be right at the start, quickly went along with Ted Kennedy's machinations.

The Post

This one gave me goose bumps. It's mainly about Kay Graham, the Post's owner and publisher, and Ben Bradlee, the Post's editor, and that was inspiring. Especially Graham put it all on the line. And, contrary to what I had feared going in, the script writer didn't try to whitewash Graham's too-close relationship with one of the villains, Bob McNamara, or Bradlee's too-close relationship with one of the other villains, President John F. Kennedy.

It was also neat to see Daniel Ellsberg putting it all on the line, knowing that there was a high probability that he could go to prison for life. (Incidentally, one of my favorite professors at UCLA, Jack Hirshleifer, emailed me in 2002 when he saw that I was going to speaking on the Iraq war on a stage at U.C. Berkeley at an event where the main speaker was Ellsberg. He did not admire him, to put it mildly, as I did.)

Sadly, my impression is that the Washington Post doesn't have nearly the guts it had when Graham and Bradlee put it on the line. During their discussions, it came out that they could be charged under the Espionage Act of 1917.

The movie ends with a sense a year later when Nixon's guys break and enter into the Democratic National Committee headquarters at Watergate. It would have been even better to have an additional scene, or even a written commentary at the end, in which they point out that the U.S. President most hostile person to the press in modern times, in actions if not in words, was not Richard Nixon but Barack Obama.

(4 COMMENTS)

EconLog April 20, 2018

Friday Night Video: EconVersation on How Economists Helped End the Draft, by David Henderson

Daniel Sutter, of the Manuel Johnson Center for Political Economy at Troy University in Troy, Alabama, interviewed me last month of how economists helped end the draft.

Here it is. It's about 30 minutes long.

(0 COMMENTS)

EconLog April 20, 2018

The US is unlikely to default, by Scott Sumner

David Henderson has a recent post discussing the likelihood of the US government defaulting on its debt, at some point in the future:

That motivated me to go back to an article that San Jose State University economist Jeff Hummel and I had published in Independent Review back in 2014 that, for some reason, I don't seem to have posted about here. It's titled "The Inevitability of a U.S. Government Default." In it, we argue that the feds are likely to default, that money creation as an alternative is not likely to get them out of their fiscal fix, and that default is actually better economically than massively high inflation.There is much that I agree with in their paper, but in the end I am somewhat skeptical of the claim that the US government will default. In the paper cited above, David and Jeff make this comment:> Nevertheless, the spending increases in the three federal programs highlighted-- Medicare, Medicaid, and Social Security--cannot go on forever. As one of author Henderson's previous bosses, Herb Stein, put it, "If something cannot go on forever, it will stop."

Because these spending increases won't go on forever, they will stop. How will they stop? Of the answer to that, we are less sure. A reasonable guess is that eligibility for Medicaid will be tightened, and Medicare and Social Security will be means tested, all well before 2050.

But if these reforms are not made well before 2050, then a very likely outcome is a government default on the federal debt. The default could range from outright repudiation to partial repudiation.
This is precisely why I think default is unlikely. The fiscal trends in the US are unsustainable. They are unsustainable even if the US government defaults. Thus I see two options:

  1. Stop running excessive budget deficits, and do not default.
  2. Wait until immediately after defaulting to stop running excessive budget deficits.

Obviously the first option is much better, as default solves no problems, and causes much future distress. So why not avoid default?

A cynic might point to Greece as a cautionary tale. Perhaps the government will not cut back on deficit spending until it is forced to. A cynic might also point to the current trajectory of fiscal policy, which has become extremely irresponsible over the past 12 months---indeed worse than anything previously seen in America (when taking account of where we are in the business cycle.) So why am I less cynical?

The Greek government hid its fiscal problems through dodgy accounting tricks. The US fiscal problem is too big to hide. Thus the bond market would begin to show signs of worry long before a default was imminent. And this would put pressure on the federal government to slow the increase in spending.

Note that it does no good to say that both tax increases and spending cuts are politically impossible. Not only are they possible, they are certain to occur for precisely the reason provided in the Herb Stein quotation. Some combination of tax increases and entitlement reform will occur during the 21st century. The only question is when. Because doing this reform before a default is a far more sensible and far less painful option, I continue to see that outcome as the most likely, while acknowledging that default remains a possibility if the political system remains highly dysfunctional.

(15 COMMENTS)

EconLog April 19, 2018

A Collectivist Case for Trade, but not FREE Trade, by Contributing Guest

by Pierre Lemieux

Don't Trump and Xi have a different vision of international trade? Not really.

china trade.jpegNobody knows how the protectionist tug-of-war between Chinese president Xi Jinping and U.S. President Donald Trump--each one deciding for his flock--will end. Perhaps we'll have a disastrous trade war and recession. Perhaps Chinese consumers and businesses will persuade Xi to back off, as the latter's April 10 speech was first interpreted (Lingling Wei, "Xi Vows Greater Access to China, Warns Against 'Cold War Mentality'," Wall Street Journal, April 10)? Or perhaps American consumers and businesses will oblige Trump to back off, as corporateand stock-market resistance in America hopefully suggests? Chinese resistance may save the Americans from their ruler, and American resistance may save the Chinese from theirs. Either would be welcome.

Don't Trump and Xi have a different vision of international trade? Not really.

Xi's recent declarations suggest that he does not want a trade war. He said:

In a world aspiring for peace and development, the Cold War and zero-sum mentality look even more out of place.
This reference to trade as a positive-sum game looks strangely free-trade. But it only looks so. Yet, a collectivist has some reasons to favor international trade.

EconLog April 18, 2018

Beware of macro survey questions, by Scott Sumner

I've often expressed skepticism about survey questions regarding macroeconomics. Thus why ask the public whether they like inflation, if less than 5% of the public even knows what inflation is? (I ask my class if the cost of living has risen when both wages and prices rise by 10%, and 95% say no.)

I recently came across a graph in a Financial Times article that almost perfectly encapsulates my problem with macro surveys:

Screen Shot 2018-04-07 at 5.04.19 PM.png
I see three major problems with the FT interpretation of this survey of Chinese opinion:

  1. The FT headline suggests that the appetite to consume has fallen sharply, but the downward blip in March looks like random noise. Overall, all three categories look pretty stable in recent years.

  2. The three categories are also quite peculiar. In any principles of economics textbook, you'll see the following identities:

GDP = C + I = C + S = GDI

This implies that S = I.

EconLog April 18, 2018

How People Get Good at Their Jobs: IDF Edition, by Bryan Caplan

Case Against Ed.jpg Email from EconLog reader Joshua Fox, reprinted with his permission.  There's no reason, of course, that you couldn't have a similar job training model without the injustice of conscription.


Bryan, I loved The Case Against Education.

Further support for your thesis comes from the Israel Defense Forces, where twenty-year-olds control air traffic, direct large organizations, and develop software.

In civilian life, such levels of responsibility would require  an advanced  education. 

The IDF sorts  candidates partially by their formal schooling. But since the process starts in the beginning of the  senior year, and certainly before matriculation tests are finished, academic progress is not the most important criterion.

Here are the 10 latest posts from EconTalk.

EconTalk April 23, 2018

Jonah Goldberg on The Suicide of the West

Suicide%20of%20the%20West.jpgJonah Goldberg of National Review talks about his latest book, Suicide of the West, with EconTalk host Russ Roberts. Goldberg argues that both capitalism and democracy are at risk in the current contentious political environment. He argues that we take for granted what he calls "the miracle"--the transformation of the standard of living in the democracies with market economies. Goldberg argues that unless we actively work to preserve our political and economic systems, the forces of populism, nationalism, and tribalism will work steadily to destroy them.

Play

Time: 1:27:24

EconTalk April 20, 2018

Measuring Ourselves to Death

ed metrics.jpg What is the appropriate relationship between judgments and measurement? Is it not the case that "if it matters, you can measure it?" In this week's episode, EconTalk host Russ Roberts welcomed historian Jerry Mullerto talk about his new book, The Tyranny of Metrics.

Now we'd like to hear what you think. Is your work evaluated based on metrics? If so, do you find such evaluation reliable? Are you worried about the reliance on standardized tests at your kids' schools? Is crime over- or under-reported in your area, and how would you know? These are just a few of the issues Roberts and Muller discuss.

  1. What is the "tyranny of metrics," according to Muller? Under what circumstances are metrics useful?

EconTalk April 19, 2018

Your Favorite Episodes of 2017

Here are the results of the survey of your favorite episodes of 2017. I want to thank everybody who responded--over 2400 people filled out the survey. You live in 68 different countries, which is an EconTalk survey record. And I also want to tell you how much I enjoyed your feedback and comments, that were at the end of the survey. They inspire me; they make me want to make EconTalk better; and they touch me.

Here are your favorite episodes from 2017. These are the episodes that were mentioned in people's top 5 most frequently.

  1. Sam Quinones on Heroin, the Opioid Epidemic, and Dreamland (22% put it in their top 5)

  2. Michael Munger on Permissionless Innovation

  3. Nassim Nicholas Taleb on Work, Slavery, the Minority Rule and Skin in the Game

  4. Benedict Evans on the Future of Cars

  5. John McWhorter on the Evolution of Language and Words on the Move

  6. Michael Munger on the Basic Income Guarantee

  7. Megan McArdle on Internet Shaming and Online Mobs

  8. Gary Taubes on the Case Against Sugar

  9. Tim Harford on 50 Inventions that Shaped the Modern Economy

  10. Don Boudreaux, Michael Munger, and Russ Roberts on Emergent Order

Three episodes that did not quite make this list but that I particularly enjoyed because of what I learned would include:

Robin Feldman on Drug Patents, Generics, and Drug Wars

Elizabeth Pape on Manufacturing and Selling Women's Clothing, and Elizabeth Suzann

Paul Bloom on Empathy

Favorites from past years are here.

EconTalk April 16, 2018

Jerry Muller on the Tyranny of Metrics

Tyranny%20of%20Metrics.png Historian and author Jerry Muller of Catholic University talks about his latest book, The Tyranny of Metrics, with EconTalk host Russ Roberts. Muller argues that public policy and management are overly focused on measurable outcomes as a measure of success. This leads to organizations and agencies over-focusing on metrics rather than their broader mission. The conversation includes applications to education, crime, and health care.

Play

Time: 1:04:45

EconTalk April 12, 2018

The High Cost of Cancer

drug scales.jpg If you or someone you love is stricken with cancer, you'd do anything to prolong their life, wouldn't you? To what extent will your response depend on the cost of the treatment available? In this week's episode, EconTalk host Russ Roberts welcomes Mayo Clinic oncologist Vincent Rajkumar to talk about the seemingly exorbitant cost of cancer-fighting drugs.

  1. What's the "philosophical challenge" Roberts raises at about the ten minute mark (but which persists throughout the episode) regarding the effective use of money to make life better? Where do you stand with regard to this question, and why?

EconTalk April 9, 2018

Vincent Rajkumar on the High Price of Cancer Drugs

cancer%20treatment.jpg Can a life-saving drug be too expensive? What explains the high price of cancer drugs? Dr. Vincent Rajkumar of the Mayo Clinic talks with EconTalk host Russ Roberts about the high price of cancer drugs--drugs that can cost an American with cancer $300,000 per year and require multiple years of treatment. Rajkumar explains how little a role market forces play in setting prices and what might be done to improve the situation.

Play

Time: 1:12:38

EconTalk April 4, 2018

Traffic Jams: Inducing Rage or Zen?

by Alice Temnick

Could a congestion tax be a "best solution" among "poor alternatives?" In this week's episode, host Russ Roberts and recurring guest economist Michael Munger delve deeply into variations of taxation and the consequences of taxation in an attempt to reduce this ubiquitous urban problem.

Does your daily commute make you angry? Share your thoughts with us about addressing (or accepting) high traffic commutes, incentives that work and how you think about this collective action problem. We want to hear from you!

  1. Munger points out that people are becoming more productive while stuck in traffic, that as disutility decreases, there is an increase in willingness to be on the road during high traffic times. How do smart-phones affect one's opportunity cost of commute time? What else might contribute to this effect? Is this increased productivity a net positive effect?

EconTalk April 2, 2018

Michael Munger on Traffic

congestion%20pricing.jpg Does rush-hour traffic drive you crazy? Is a congestion tax on car travel a good idea? Michael Munger of Duke University talks with EconTalk host Russ Roberts about the economics of traffic and congestion taxes. It takes a while to get there (how appropriate!) but they eventually agree that a tax on congestion while reducing travel time is harmful to many drivers and may be best thought of as any tax placed on a particular good--a way to raise government revenue from the pockets of the consumers of that good.

Play

Time: 1:14:08

EconTalk March 30, 2018

Heartbreak in the Heartland

blacksmith.jpg Despite low official unemployment rates, this week's EconTalk guest, economist Edward Glaeser, argues that joblessness is "the great American domestic crisis of the 21st century." What accounts for this seemingly unprecedented economic and social crisis? And what's different about changing patterns of employment today? We don't bemoan the loss of blacksmiths, but the loss of manufacturing and mining jobs in America's heartland seems much more tragic. Host Russ Roberts and Glaeser explore the possible causes and discuss potential responses in this fascinating episode.

As usual, now we'd like to get your reaction. Consider responding to one of our prompts in the comments, or pose a question of your own. We love to hear from you!

  1. What's the distinction between unemployment and joblessness, and why does Glaeser put so much emphasis on it?

EconTalk March 26, 2018

Edward Glaeser on Joblessness and the War on Work

war%20on%20work.jpg Why are fewer men working over the last few decades? Is a universal basic income a good policy for coping with the loss of employment? Economist Edward Glaeser of Harvard University talks with EconTalk host Russ Roberts about what Glaeser calls the war on work--the policy changes that have reduced employment among prime-aged men. Glaeser does not see the universal basic income as a viable solution to the decrease in work especially if technology ends up reducing employment opportunities more dramatically in the future. The conversation also includes a discussion of the role of cities and the reduction in geographic mobility in the United States.

Play

Time: 1:06:05