Econlib

The Library of Economics and Liberty is dedicated to advancing the study of economics, markets, and liberty. Econlib offers a unique combination of resources for students, teachers, researchers, and aficionados of economic thought.

Econlib publishes three to four new economics articles and columns each month. The latest articles and columns are made available to the public on the first Monday of each month.

All Econlib articles and columns are written exclusively for us at the Library of Economics and Liberty, on various economics topics by renowned professors, researchers, and journalists worldwide. All articles and columns are retained online free of charge for public readership. Many articles and columns are discussed in concurrent comments and debate in our blog, EconLog.

EconLog

The Library of Economics and Liberty features the popular daily blog, EconLog. Bloggers Bryan Caplan, David Henderson, Alberto Mingardi, Scott Sumner, and guest bloggers write on topical economics of interest to them, illuminating subjects from politics and finance, to recent films and cultural observations, to history and literature.

EconTalk

The Library of Economics and Liberty carries the podcast, EconTalk, hosted by Russ Roberts. The weekly talk show features one-on-one discussions with an eclectic mix of authors, professors, Nobel Laureates, entrepreneurs, leaders of charities and businesses, and people on the street. The emphases are on using topical books and the news to illustrate economic principles. Exploring how economics emerges in practice is a primary theme.

CEE

The Concise Encyclopedia of Economics features authoritative editions of classics in economics, and related works in history, political theory, and philosophy, complete with definitions and explanations of economics terms and ideas.

Visit the Library of Economics and Liberty

Recent Posts

Here are the 10 latest posts from EconLog.

EconLog August 18, 2017

Henderson on Robots, Jobs, and Productivity, by David Henderson

If you're still worried that robots will be too human-like, consider what happened to men's jobs when women, who not only are human-like but also are actual humans, increasingly entered the labor force. Men's jobs didn't decline; they increased. In 1950, before the large entry of women into the U.S. labor force, 43.8 million men and 18.4 million women were employed. By 2015, women's employment had skyrocketed to 78.0 million, while men's employment, far from shrinking, almost doubled to 84.4 million.

The simple fact is that the amount of work to be done in the economy is unlimited. What's limited is the number of humans, which is why the late population economist Julian Simons called humans, in a book by the same name, the "the ultimate resource." There's a story--perhaps apocryphal but no less insightful for that--about an American engineer visiting China in the 1960s, when the Chinese government was building a dam. The American, noting the large number of workers digging with shovels, told his Chinese host that the digging could be done more quickly if the Chinese used steam shovels. "Oh," answered the host, "but then there would be fewer jobs." "I didn't realize that was the goal," answered the American, "but if your goal is jobs, you might consider replacing the shovels with spoons."

What this story illustrates is that although jobs are important for creating value, if we can create the same amount of value with less input, it's wise to do so. Who, for example, wouldn't want an innovation that allowed them to do their current job and be paid just as much, while working half the time? This is not a fantasy. Pay is closely tied to productivity. The hypothetical innovation would destroy "half a job." And we would love it. We would use that freed-up time for leisure, or, more likely given our unlimited wants, for doing other work that gives us pecuniary rewards. That is the story of economic growth.
This is from David R. Henderson, "Will Robots Steal Human Jobs?" Defining Ideas, August 17, 2017. (2 COMMENTS)

EconLog August 17, 2017

Fifty years ago, by Scott Sumner

Fifty years ago, the Red Guards were rampaging through the streets of Beijing. Chairman Mao issued weird, over-the-top statements about the evils of American capitalism. Free markets were seen as exploitation, as a sort of winner-take-all. Meanwhile, the US was trying to promote the ideology of open markets, emphasizing that trade is mutually beneficial.

So how about today? The FT quotes one of Trump's top advisors:

Steve Bannon, the brains behind Donald Trump's nationalist economic agenda, added to tensions roiling the White House by pouring scorn on his colleagues, rubbishing US policy on North Korea and pressing for the administration to be "maniacally focused" on "economic war with China". . . .

EconLog August 16, 2017

Hummel on the Curse of Cash, by David Henderson

In "Anti-Paper Prophet: Comments on The Curse of Cash." Jeff Hummel has written an excellent response to Ken Rogoff's response to Hummel's review of his book The Curse of Cash. The whole thing is well worth reading. Here are the parts I found most striking.

When Rogoff gets to bona fide predatory acts within the underground economy, such as extortion, human trafficking, and violence associated with the drug trade, he descends primarily into lurid anecdotes. He fails to give even crude quantitative estimates to buttress his claim that eliminating cash would curtail these activities. As for corruption and bribery, Rogoff admits that they are really serious only in poorer countries--precisely where he also concedes that a premature elimination of cash would have dire economic consequences. In his discussion of terrorism, he admits that eliminating cash would have at best trivial impacts.

EconLog August 16, 2017

Can the left and the right agree on a monetary reform plan?, by Scott Sumner

In recent years, the political situation in the US has become highly polarized. But I'm not convinced that this necessarily prevents the two sides from coming together on monetary policy. Consider:

  1. The idea of NGDP targeting has considerable (and growing) support on both the left and the right.

  2. David Beckworth recently interviewed Matt Yglesias (who might be described as center-left), and at one point David read from a piece Yglesias wrote in 2011:

Most important, for all the flaws in the right's current critique of the Fed, they're correct to point to the need for accountability. The idea of a central bank that's "independent" of day-to-day politics is a good one, but too often that's come to mean a central bank that's immune from criticism or meaningful supervision. The Federal Reserve System's current vague mandate needs to be replaced with a specific target, defined in law.

...

EconLog August 15, 2017

War Crimes and the Long Run, by Bryan Caplan

Economists often sing the praises of credibility, also known as "time consistency."  When Kydland and Prescott won their Nobel Prizes in 2004, their citation gives this work pride of place:

Finn Kydland and Edward Prescott have been awarded the 2004 Bank of Sweden Prize
in Economic Sciences in Memory of Alfred Nobel for their fundamental contributions to
two closely related areas of macroeconomic research. The first concerns the design of
macroeconomic policy. Kydland and Prescott uncovered inherent imperfections-credibility
problems-in the ability of governments to implement desirable economic policies.But what does credibility mean in practice?  One common objection to the Nuremberg trials was that they gave bad incentives to future war criminals.  If war criminals know they'll be tried and executed if they lose, self-interest urges them to fight to the bitter end.  From this perspective, the trials were short-sighted.  They satisfied the impulse for revenge, but extended the duration of future wars.

EconLog August 15, 2017

The Ethics of Charles Koch, by David Henderson

Charles [Koch] is a true believer, whose free-market beliefs are unquestionably self-interested--but also undeniably sincere. His value system is apparent in all aspects of his company, including Koch's lobbying operation. Until the early 1990s, the company didn't have a Washington presence; this, one former Koch lobbyist said, reflected Charles's inherent distrust of politicians and his anti-government bent. Once it did open a Washington office, prompted by the wave of government investigations and the bad PR stirred up by Bill Koch, the company's lobbyists operated differently than the K street-hired guns that stalk the halls of Congress for their corporate clients.

Koch lobbyists don't shift their positions based on the political headwinds. According to one Senate Republican leadership aide, they won't be found pressing for subsidies in one bill and opposing them in another. "They're not rent seekers," he said. The overriding factor guiding the company's lobbying agenda is not whether a legislative proposal will be good or bad for Koch Industries, but whether it is consistent with Charles's libertarian beliefs.

Richard Fink, Charles's top advisor, enforces ideological consistency across the spectrum of Koch business units, and he frequently intercedes to prevent them from inadvertently transgressing Charles's free-market creed. Such was the case when one Koch business unit, which had developed an environmentally sensitive incinerator, sought permission to work with regulators to strengthen environmental rules. This might have improved the company's competitive position, but it went against Charles's overarching philosophy. Fink spiked the idea.
This is from Daniel Schulman, Sons of Wichita. I posted about it yesterday.

It speaks for itself.

I'm a footnote and endnote reader. When I read something interesting, I want to see the source. Unfortunately, in this heavily endnoted book, there are huge holes. There are lots of interesting stories and stated facts without any endnote telling the source.

(1 COMMENTS)

EconLog August 14, 2017

Sons of Wichita, by David Henderson

On my vacation, which is coming to an end, the first book I read was Daniel Schulman's Sons of Wichita. It's subtitled "How the Koch Brothers Became America's Most Powerful and Private Dynasty." Written by an editor of Mother Jones, Sons of Wichita is, in my semi-informed opinion, largely fair.

I found this passage interesting:

"Koch has a pattern of delaying needed repairs and maintenance, often neglecting them entirely," Linda Eads, the former Texas deputy attorney general, noted in a 2001 affidavit. "One reason for this failure to operate safe pipelines comes from Koch's so-called Market-Based Management approach. For example, under this management philosophy, each section of the Koch pipeline must show a profit, and this profit must increase every quarter. Environmental and safety compliance does not pay off quarter by fiscal quarter, and thus employees are not rewarded or encouraged to strive for safety or compliance. Indeed, safety improvements are regularly delayed or ignored even when recommended by employees. Employees at Koch are told that every decision has to be judged by its economic effect and how the decision will affect the company's profitability."
I have 4 comments.

  1. Eads showed herself to be a strong, to put it mildly, critic of Koch Industries. So we can't assume that hers is an unbiased and accurate commentary on the issue of applying Market-Based Management.

  2. I read Charles Koch's book on market-based management several years ago and I didn't bring it with me on my vacation. But my recall is that it was too loose a guide to making actual decisions. So I could imagine someone interpreting it her way and I could imagine someone interpreting it some other way.

  3. I'm not saying I'm sure she's wrong but it's hard for me to believe that, as she says, "this profit must increase every quarter." If you're striving to maximize the value of a company, you will have quarters in which profit decreases. I agree with her that if you strive to increase profit quarter by quarter, you will make some very bad decisions. If drug companies did that, for example, they would, quarter by quarter, reduce research and development. But would Charles understand economics so badly that he would have, as a goal, profit increasing every quarter.

  4. Notice the last sentence in the quoted passage. She seems to treat "its economic effect" as if an action has one effect. But, as noted in #3 above, an action can reduce quarterly profits but increase long-term profitability. Certainly, the Danielle Smalley case that Schulman discusses, in which a jury awarded $296 million in a wrongful death suit against Koch Industries, suggests that their failure to maintain a pipeline was not profit-maximizing. Of course, no one could have known up front that Koch Industries would face such a large award. Even the plaintiff had asked for "only" $100 million. But the point is that Koch's management would know that it would face some probability of a wrongful death suit with a big payoff.

(0 COMMENTS)

EconLog August 13, 2017

Some thoughts on stock prices and risk of nuclear war, by Scott Sumner

Lars Christensen and Alex Tabarrok have some interesting posts on the question of how the risk of nuclear war might impact the stock market. A few comments:

  1. I basically agree with Alex's post, but would frame it slightly differently. I think what he's basically saying is that stock prices are relative prices. If there is an apocalypse that destroys everything, then it's not obvious why the price of one asset would change relative to another asset. Alex discusses the issue in terms of whether people would want to sell stocks. I don't like that framing because stocks don't move because they are sold, rather because people begin to value them differently relative to the way they value other assets such as cash. But again, this is merely aesthetic preference, i agree with the substance of Alex's post.

  2. An action that creates a 0.1% risk of nuclear war (with 10 million deaths) within the next 12 months is an absolutely horrible event. Worse than 9/11 in terms of expected loss of life. Far worse if it's an all out nuclear war with hundreds of millions killed. But of course it is still very unlikely to happen, and thus stocks would probably move by less than 0.1%, which is just statistical noise in a market where daily moves are usually much bigger. You wouldn't even notice.

  3. However, US stocks did seem to fall noticeably on the recent escalation of tensions with North Korea. East Asian stocks fell even more sharply. That may be because the risk is much higher than 0.1%, or perhaps more likely that the markets fear something else, a political crisis (just short of nuclear war) that severely damages the relationship between the US, Japan and China, hurting the global economy. One reason that uncertainty hurts equity markets is that dramatic events are more likely to be bad than good. If a crystal ball told you that something dramatic was likely to happen to your house in the next 12 hours, you'd expect something like a fire, not a random arrangement of atoms that miraculously came together to produce a new patio.

Screen Shot 2017-08-13 at 9.14.13 AM.png

EconLog August 12, 2017

Neoliberalism is making the world much more equal, by Scott Sumner

It's puzzling to me that so many progressives view the term 'neoliberalism' with disdain. A new article by Cardiff Garcia shows that the world is becoming much more equal. And that trend is being spurred by less between country inequality---within country inequality has actually risen slightly:

Screen Shot 2017-08-12 at 7.57.20 AM.png
It seems likely that much of the reduction in between country inequality is caused by market reforms in places like China, India, and the ASEAN group.

Neoliberalism might just be the best thing that ever happened.

PS. Commenter PaulS raised an interesting point after my previous post:

And yet I think the [free market] approach would fail in the USA. A privatized NYC subway would act like the cable companies, which are monopolies and awful. US airlines are semi-competitive and manage to be awful too.

I think there is a tendency for people to look at an actual market outcome in the US and assume the results reflect market forces. Airlines are not a free market, indeed the US government bans foreign airlines from serving America routes, even though they often provide much better service. When US car companies started facing serious competition from foreign automakers, they dramatically improved the quality of US cars. Privatizing airports, air traffic control and airport security would also improve the flying experience.

I would add that my cable TV company in Boston (which faced competition from other cable companies), provided about 10 times better service than the NYC subway.

EconLog August 11, 2017

More markets please, by Scott Sumner

I've devoted much of the past ten years to advocating the creation of a highly liquid nominal GDP prediction market. I believe this sort of market would eventually revolutionize macroeconomics. Over time, people would stop thinking of the stance of monetary policy in terms of interest rates and begin focusing on what really matters, expected future NGDP. We could begin monitoring the efficacy of monetary policy in real time.

But NGDP is not the only area where we need more markets---there are hundreds of other areas crying out for reform. Legalizing markets in drugs, prostitution and gambling could radically reduce our prison population, save enormous sums of money, reduce violence in Latin America and reduce authoritarian tendencies in our own government. Markets for organ transplants could save tens of thousands of lives. (Why do progressives seem so upset by the health cost of repealing Obamacare, but not the ban on organ markets?)

In Europe, they are far ahead of America in many areas, with much more widespread privatization of airports, air traffic control, airport security, passenger rail service, postal delivery, toll roads and many other activities. Hong Kong has one of the world's best subway systems, and its privately run. Imagine what private enterprise could do with NYC's abysmal system.

...

Screen Shot 2017-08-11 at 5.23.26 PM.png
Why can't we have nice things?

Here are the 10 latest posts from EconTalk.

EconTalk August 14, 2017

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

NassimNicholasTaleb.pngNassim Nicholas Taleb talks with EconTalk host Russ Roberts about the manuscript version of his forthcoming book, Skin in the Game. Topics discussed include the role of skin in the game in labor markets, the power of minorities, the Lindy effect, Taleb's blind spots and regrets, and the politics of globalization.

Play

Time: 1:24:40

EconTalk August 10, 2017

Movin' on up?

moving.jpg What's the key to maintaining civilization and promoting human well-being? Tyler Cowen thinks he knows the answer, and that we've had it all along. Host Russ Roberts welcomes Cowen back this week for his tenth appearance to discuss his recently released "Stubborn Attachments" on Medium.

As usual, now we'd like to hear what you thought about this week's conversation. So please take a few moments and share your thoughts below...We love to hear from you!

  1. Do people today have less willingness to sacrifice for future generations than their predecessors? That is, are we more complacent? If yes, why do you believe that be to the case? If not, what evidence can you cite that suggests this to be untrue?

EconTalk August 7, 2017

Tyler Cowen on Stubborn Attachments, Prosperity, and the Good Society

Stubborn%20Attachments.pngTyler Cowen of George Mason University and the co-host of the blog Marginal Revolution talks with EconTalk host Russ Roberts about Stubborn Attachments, his book-length treatment of how to think about public policy. Cowen argues that economic growth--properly defined--is the moral key to maintaining civilization and promoting human well-being. Along the way, the conversation also deals with inequality, environmental issues, and education.

Play

Time: 1:00:45

EconTalk July 31, 2017

Alex Guarnaschelli on Food

chef%20kitchen.jpgAlex Guarnaschelli, Food Channel star and chef at Butter in midtown Manhattan, talks with EconTalk host Russ Roberts about what it's like to run a restaurant, the challenges of a career in cooking, her favorite dishes, her least favorite dishes, and what she cooked to beat Bobby Flay.

Play

Time: 1:03:55

EconTalk July 27, 2017

Kidney Donations

kidney%20transplant2.jpgDo you or have you known someone who has donated, is in need of, or has received a transplanted organ? If so, how has that association shaped your thinking about organ donations and the illegality of organ markets?

Whether you have or have not been exposed to the current arguments for and against potential donor compensation, we hope this conversation with Sally Satel will encourage you to share your thoughts about this.

  1. Sally Satel presents the multiple costs (and benefits) donors face, from the pre-surgery preparation work, the recovery, the psychological effect of donating and family influences. Are there other costs that might influence potential donors?

  2. With a waiting list of 80,000 and 12 people dying daily as they wait for a kidney, directed donations from living donors are a patient's best hope. Satel indicates that a thriving black market exists globally. Who is helped or harmed by this?

A special thank you to Alice Temnick for creating this week's Extra.

EconTalk July 24, 2017

Sally Satel on Organ Donation

kidney.jpgSally Satel, psychiatrist and resident scholar at the American Enterprise Institute, talks with EconTalk host Russ Roberts about the challenges of increasing the supply of donated organs for transplantation and ways that public policy might increase the supply. Patel, who has received two kidney donations, suggests a federal tax credit as a way to increase the supply of organs while saving the federal government money. She also discusses the ethical issues surrounding various forms of compensation for organ donors.

Play

Time: 1:00:12

EconTalk July 19, 2017

You Are What You Eat

chicken farm.jpg How much do you think about where your food comes from? What concerns drive the choices you make? In this week's episode, host Russ Roberts welcomes Washington Post food columnist Tamar Haspel for a fascinating conversation about the food we eat, the trade-offs we make, and the judgments about others that seem to follow.

Now it's your turn. As you know, we're all about conversation here, and there's a lot to talk about this week! So share your thoughts with us in the comments below, and/or start your own conversation offline. (Though of course we'd love to hear about that, too!)

  1. What does Roberts mean when he says we don't want to think much about our food? To what extent do you think that's true, and why? What implications does this have for our diets? Our culture? The environment?

EconTalk July 17, 2017

Tamar Haspel on Food Costs, Animal Welfare, and the Honey Bee

honey%20bees.jpgTamar Haspel, who writes "Unearthed," a column on food and agriculture at the Washington Post, talks with EconTalk host Russ Roberts about a wide variety of issues related to the cost of food and how it's produced. Topics discussed include why technology helps make some foods inexpensive, how animals are treated, the health of the honey bee, and whether eggs from your backyard taste any better than eggs at the grocery.

Play

Time: 1:01:52

EconTalk July 12, 2017

Hercules's (and Hamilton's) Choice

Hamilton.jpg Fans of the hit musical Hamilton must have been most excited to find this week's EconTalk episode. Host Russ Roberts welcomed University of Chicago philosopher Martha Nussbaum to talk about Hamilton and an essay she wrote for the Boston Review in January, "Hamilton's Choice."

According to Nussbaum, Hamilton presents us with a retelling of the Choice of Hercules, the choice to live a virtuous life filled with hard work and risk, or a life of happiness and worldly renown. In the musical, Nussbaum argues Lin-Manuel Miranda portrays a more subtle version of this choice for his protagonist's life in politics, a life of service versus a life of preeminence. What can this smash musical teach us about politics, philosophy, and how to live a good life? We'd love to hear what you have to say. Let's continue the conversation.

  1. Roberts, quoting Adam Smith, argues that "Hercules Choice" may be a choice we all face, though Nussbaum counters that the choice is starker in some careers than others, and especially in politics. What makes this choice so difficult in politics, and why might it be even more difficult in democratic versus autocratic regimes?

EconTalk July 10, 2017

Martha Nussbaum on Alexander Hamilton

Hercules.jpgMartha Nussbaum, Professor of philosophy at the University of Chicago talks with EconTalk host Russ Roberts about Alexander Hamilton. Nussbaum talks about the tension between acquiring power and living a life of virtue. Topics discussed include Hamilton's relationship with Aaron Burr, Burr's complicated historical legacy, and the role of the humanities in our lives.

Play

Time: 1:01:59