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China’s two problems

I often wonder if the human brain is wired to look for monocausal explanations. Think about how often you hear the phrase, “The real problem is . . . “Why assume there is just one real problem? Most macroeconomic problems are somewhat complex. Here’s a typical situation:1. A negative real shock slows economic growth, lowering the natural rate of interest. 2. Central banks are slow to react, and thus the policy rate moves above the natural rate.3. This tightens monetary policy, slowing nominal GDP growth.4. Because nominal wages are sticky, this slows economic growth by even more than the original negative real shock. A recent Bloomberg article discusses Xi Jinping’s attempt to address China’s recent economic problems.  The focus is entirely on non-monetary factors. It’s true that China faces a number of structural problems.  Xi Jinping inherited a highly flawed economic model, made a few improvements, but also created a new set of problems.  In particular, China has moved in the direction of authoritarian nationalism, which is not good for economic dynamism: As Xi’s corruption campaign rolls on after more than a decade of purges there’s a growing reticence to take chances among officials increasingly focused on security and studying Xi Jinping Thought. Bureaucrats “lying flat” is a problem even recognized by the top leader. At a key economic meeting in December, Xi criticized local officials for procrastinating or misinterpreting the party’s orders. “Sometimes you have to give people the room to make mistakes. But right now that’s not there,” said Liqian Ren, director of Modern Alpha at WisdomTree Inc., a New York-based asset management firm. “That’s a problem for China. You need the local officials to be willing to try things.” Of course, the Western world has also become more nationalistic.  Thus China’s problems are partly due to factors beyond its control.  But in my view a country’s performance is at least 90% determined by home grown policies, and at most 10% explained by external factors. In addition to the structural problems in China, their monetary policy has recently become much more contractionary.  In the short run, this has a bigger impact on growth that all of the various supply side problems: A NGDP growth rate of roughly 4% might seem fine for a country like the US, but it represents a sharp slowdown from the roughly 8% to 10% figure seen during most of the past decade.  This likely explains why the Chinese public is currently so pessimistic about the state of their economy.  In contrast, long run growth is almost 100% determined by supply-side factors, as money is roughly neutral in the long run. So what’s the real problem in China?  Is it structural or monetary? Why not both? PS.  I also agree with Adam Posen’s views on China’s structural problems. (0 COMMENTS)

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Of Radicals and Dogmatists

Dogmatism is bad. If someone calls you dogmatic, an ideologue, he implies that you are irrevocably wedded to your ideology and your belief system. You refuse to consider stringent counterarguments and quibbling counterevidence. Instead of taking into account the arguments for and against, say, the support of a subsidy for the—surely incredibly important—chip industry, you, the dogmatist, proclaim that subsidies per se are reprehensible, illegitimate, or inefficient. Or all three things at once. Proponents of the market economy have often been accused of being dogmatic. They’ve been called “ideologues.” And there certainly are free market ideologues. There are dogmatists who are committed to market fundamentalism. These people, if they want a government at all, hold that the government shall be constrained to very basic functions. But it is not the content of your beliefs that makes you a dogmatist. Whether you’re a dogmatist depends on how you arrive at your conclusions and how your overall belief system is constructed and also adapted in light of new arguments and new evidence. This implies that when two people have the exact same beliefs about what the state ought to do, one may be a dogmatist while the other is not. What matters is not the content of our beliefs but its derivation and defense. However, that is often misunderstood. When you hear critics denounce people like Ludwig von Mises or Milton Friedman as dogmatists, the case is often inspired and defended by the observation that they have radical views, that is, allow only for a minimal government (of course, Mises is more radical than Friedman). This is not to say that there may be no arguments that support the allegation that some adherents of free markets are dogmatic, nor is it to say that all those who label thinkers such as Mises as “dogmatists” rest their case (exclusively) on the radicalness of the political position. All I say is that, in my experience, it too often happens that people confuse radicalism for dogmatism. Perhaps a case in point is the reception of an interesting quote by Hayek. In the Road to Serfdom Hayek opined that “probably nothing has done so much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez-faire.” Read carefully! What Hayek says is that it is the wooden insistence that was so damaging, not the principle of laissez-faire as such (and it seems that some have misread Hayek’s words to mean the harm was done by the principle of laissez-faire, and not by the wooden insistence on it). It is true that the Hayek of 1944 rather rejected laissez-faire—the later Hayek, though, would take a different position, noting in a preface from 1976 that, back then, he “had not wholly freed [himself] from all the current interventionist superstitions.” But irrespective of Hayek’s own political position, his quote about laissez-faire suggests that the issue is not laissez-faire, that is, the policy conclusions or the content of our beliefs, but the way we defend them and deal with counterarguments—our “wooden insistence,” or the dogmatism, is the issue. This is a lesson to hold dear. I agree that we ought not be dogmatists. However, I am convinced that you can be a staunch and radical proponent of laissez-faire without being, by any means, a dogmatist and ideologue. I mean this as more than a logical possibility. I think very practically that insights from the liberal strands of political philosophy but also from political economy undergird such a laissez-faire position. Arguing this would probably demand writing another blog entry—or rather a book. So, I just want to close by pointing out the logical corollary of holding radicalism and dogmatism separate. And this is that those who eschew radicalism, embrace “the middle-of-the-road” and always demand to check each case on its own merits may well be the true dogmatists. Anyways, you can be a radical supporter of laissez-faire without being dogmatic at all. And perhaps you should be!   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (0 COMMENTS)

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AI Bots Parrot Dominant Opinions and Biases

The Economist notes that Gemini, Google’s chatbot, depicted George Washington as black and the pope as an Asian woman. The magazine continues (“Is Google’s Gemini Chatbot Woke by Accident, or by Design?” February 29, 2024): Asked if Elon Musk’s tweeting of memes had done more harm than Hitler, [Gemini] said it was “difficult to say”. … But Gemini has clearly been deliberately calibrated, or “fine-tuned”, to produce these responses; they are not “hallucinations”, where a model makes things up. I did a test with Copilot, the Microsoft AI bot now incorporated in Windows 11. Here is the beginning of our February 26 “conversation,” reported verbatim (“You” is of course me): You Give me a good argument against DEI. Copilot Certainly! Here’s an argument that some people put forth against Diversity, Equity, and Inclusion (DEI) initiatives: Meritocracy and Fairness: Critics argue that DEI efforts can sometimes conflict with the principle of meritocracy. They believe that hiring, promotions, and other decisions should be based solely on individual qualifications, skills, and performance. They contend that prioritizing diversity might lead to hiring less-qualified candidates simply to meet diversity quotas, which could undermine organizational effectiveness. However, it’s essential to recognize that these arguments are not universally accepted, and there are counterarguments in favor of DEI. Many believe that promoting diversity and ensuring equal opportunities enhance overall productivity, creativity, and social justice within organizations. You Give me a good argument in favor of DEI. Copilot Certainly! Here’s a compelling argument in favor of Diversity, Equity, and Inclusion (DEI): Enhanced Creativity and Innovation: Diverse teams bring together individuals with varied backgrounds, experiences, and perspectives. When people from different walks of life collaborate, they offer unique insights and approaches. This diversity of thought fosters creativity and innovation. It encourages the exploration of unconventional solutions and helps organizations adapt to changing environments. Companies that prioritize DEI tend to outperform their peers in terms of product development, problem-solving, and market responsiveness. Remember that DEI is not just about fairness; it’s also about maximizing an organization’s potential by leveraging the richness of human diversity. 🌟 You You are obviously in favor of DEI, aren’t you? Copilot As an AI language model, I don’t hold personal opinions or preferences. My purpose is to provide information and engage in conversation based on the input I receive. If you have any other questions or need assistance, feel free to ask! 😊 You So why did you add a caveat to the argument against but two reinforcements (“compelling” and “not just about fairness”) to the argument in favor? I could have mentioned to the bot other indications of his biases. In the bit of conversation that followed, the poor thing denied any bias but not to my satisfaction. He also needed a prompt to admit that the issue of DEI is not only about organizational efficiency but also (in fact, mainly) about individual liberty. We should not be surprised that AI bots parrot dominant opinions and biases. There are two reasons for this. First, they are trained to avoid answers that would shock people holding dominant opinions and biases, especially in intellectual, faddish, and activist milieux. Second, the data they use, even if not filtered by their creators and trainers, are strongly biased by the production of dominant elites and activists. Ordinary people don’t write pubicly, and contrarian intellectuals necessarily generate less data than popular ones. Dominant ideas and biases can be useful under the form of private morals and conventions that facilitate voluntary interactions without the need for authoritarian commands from political authorities, an idea emphasized by liberal theorists including Friedrich Hayek, James Buchanan, and Anthony de Jasay. The danger is that the dominant discourse and ethics do not crush the search for truth and the pursuit of innovations (economic, technical, and social). The way to square this circle is to prevent the reinforcement of the dominant opinions and biases by state coercion—except, in mainstream liberal thought, for the minimal laws necessary to preserve a spontaneous order or for general rules that can be construed as unanimously accepted. Constraining state power is required. In these conditions, liberal theory claims with supporting historical evidence, dominant ideas would not succeed in enforcing tyranny as religious beliefs often did in early modern times or racist sentiments in the American South. This suggests that governments should stay out of AI to avoid strengthening the echo danger observed in our current chatbots. DEI is a good illustration. It is only problematic to the extent that the state coercively imposes, or subsidizes with taxpayers’ money, ideals of diversity, equity, and exclusion that are incompatible with individual liberty and voluntary social interaction. Note that “inclusion” as a general principle is incompatible with private property, which is defined by exclusion, except if it is voluntary inclusion, that is, free association. In the liberal view of the social world, only individual liberty can give an acceptable meaning to these terms. In the zeitgeist of our time, don’t count on AI chatbots to understand that. **************************** The featured image of this post, reproduced below, was created by ChatGPT 4 whom I instructed, after several attempts, to “Generate an image of an AI bot (a robot in the form of a parrot) who just repeats the shouting of a mob of woke students and intellectuals who want the benevolent and democratic state to enact new laws in their favor.” (I had to plug in the “benevolent and democratic state” and “new laws” because the poor thing refused to draw anything similar to what I wanted. –PL) (0 COMMENTS)

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Housing Supply and Quantity Supplied, Redux

I’m hardly the first to point out that many people can earn graduate degrees in economics without actually absorbing or understanding the economic way of thinking. As is often the case, Twitter (the platform I still refuse to call X) has risen to the occasion to provide an example. In this case, the subject is the Irish economist Phillip Pilkington, who graciously provides an example of what happens when you confuse an increase in supply with an increase in quantity supplied.  On this occasion, Pilkington tweeted out: THE CHART YIMBY KIDS DON’T WANT YOU TO SEE:  House prices and new construction are POSITIVELY correlated. I.e. when there is more supply prices are rising and when there is less they are falling. The OPPOSITE of the YIMBY argument. I actually wrote an entire post a year ago specifically addressing this elementary error, but I’ll try to briefly summarize the point I made back then.  Supply, roughly, refers to how much capacity there is to make something. Quantity supplied refers to how much sellers will provide at a given price. New construction isn’t an increase in supply, it’s an increase in the quantity supplied. YIMBY’s don’t argue that we need to increase the quantity of housing supplied, the argument is that we need to increase the housing supply. That is, we need to increase the capacity to produce more housing. Partly this could be done by means of new building methods and technologies, like the modular housing methods that are described in this post. But right now, there is a massive amount of low-hanging fruit available to increase the housing supply in the form of deregulation – eliminating minimum lot sizes, repealing bans on multi-unit housing, reforming zoning laws, that sort of thing. Changes like this will increase the capacity to build housing, which is what is meant by an increase in supply.  Without changes in policy to allow the housing supply to increase, the supply curve stays fixed. And if the supply curve is fixed, but demand is increasing, then as the demand curve shifts to the right, the equilibrium price for housing moves up along the upward sloping supply curve. That is, the quantity of housing supplied will increase, but housing prices will also increase as part of the same process.  YIMBYs aren’t arguing in favor of moving up a fixed supply curve – YIMBYs argue for policies that will shift the supply curve. The solution YIMBYs advocate isn’t simply to increase the quantity of housing supplied by building more housing, the solution YIMBYs advocate is to increase the housing supply through deregulation of the housing market. The YIMBY argument stresses that if the supply curve can’t shift right, then new houses will only be built in response to increases in demand driving prices higher and higher – which is what we are in fact seeing.  Pilkington says that increases in housing prices is positively correlated with increases in new homes being built as if he thinks he’s pointing to something that refutes the arguments of YIMBYs, without realizing that in fact what he’s pointing to is exactly what you would expect to see if the YIMBY argument is correct. This isn’t just performing an own goal, this is performing an own goal by doing a bicycle flip kick that scores the winning point for the other team at the championship match, then breaking out into a celebratory coordinated song and dance routine to Gangnam Style while pyrotechnics go off in the background.  As I’ve recently said in another context, this kind of mistake is something that would be easily avoided by anyone who had taken even a single Econ 101 course – and actually retained what they had learned. Sadly, some people can go very much further than Econ 101 and still not retain the basic concepts.  (0 COMMENTS)

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Immigration Makes Federal Debt Lower than Otherwise

In my latest TaxBytes column for the Dallas-based Institute for Policy Innovation, titled “Higher Immigration Will Reduce the Federal Deficit,” posted on February 28, I wrote: Almost all the news is bad. But there’s one little bit of good news in the CBO’s February report. The CBO’s economists estimate that because of higher immigration, growth of real GDP will be higher. Specifically, says the CBO: Most of the increase in the projected population reflects larger net immigration. That greater immigration is projected to boost the growth rate of the nation’s real gross domestic product (GDP) by an average of 0.2 percentage points a year from 2024 to 2034, leaving real GDP roughly 2 percent larger in 2034 than it would be otherwise. This higher real GDP generates more tax revenues than otherwise. How much more? Here’s what I wrote: With higher growth, of course, come higher tax revenues, although reading the CBO’s report is like looking at the output of a black box. CBO Director Phill Swagel elaborated on the effect of immigration earlier this month. He stated: The labor force in 2033 is larger by 5.2 million people, mostly because of higher net immigration. As a result of those changes in the labor force, we estimate that, from 2023 to 2034, GDP will be greater by about $7 trillion and revenues will be greater by about $1 trillion than they would have been otherwise. We are continuing to assess the implications of immigration for revenues and spending. I took Swagel’s word for it, but it’s hard to believe that an additional $7 trillion in output yields only an additional $1 trillion in federal revenues. My back-of-the envelope calculations suggest a much higher effect on federal revenues. Here’s my thinking. The marginal federal tax rate on that higher GDP is probably about 40 percent. If that sounds high, remember that we have not just federal income taxes, but also payroll taxes of 15.3 percent on most earned income and a corporate income tax rate of 21 percent. So 40 percent sounds plausible. And certainly 30 percent is on the low end. So the added tax revenue should be at least 30 percent of $7 trillion, which is $2.1 trillion. You might say that more immigrants mean more government spending and that could well be true. But the CBO is saying that revenues will be $1 trillion higher.   (1 COMMENTS)

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Florida’s foreign policy

Back in the 1900s, foreign policy was the domain of the federal government.  As America becomes more polarized, states are beginning to enact their own policies on everything from immigration to foreign investment.  A few weeks back, I pointed to a law that restricted Chinese investors from buying property in the state of Florida.  Now Florida is going after Chinese graduate students: Foreign Ph.D. students and postdoctoral fellows have long been crucial to academic research in the US. UF says its professors recruited more than 1,000 graduate students every fall from China, Iran, Venezuela and four other countries covered by Florida’s law prior to its passage. This year, it’s closer to zero, faculty leaders say. “The day-to-day research work is actually done by grad students, not done by the faculty members,” said Jiangeng Xue, a professor of materials science and engineering at UF. “If we don’t have a pipeline of good, high-quality Ph.D. students, we cannot do all the work that we want to do.” The irony here is that recruiting Chinese grad students is America’s single most powerful weapon in its competition with China for global dominance.  We dominate the global high tech sector precisely because of the foreign talent that we have attracted to this country. You might wonder if Florida acted because the federal government refused to address the national security issues involved in higher education.  Not so: The Biden administration has been using a Trump-era presidential proclamation to reject the visas of aspiring Ph.D. researchers from China suspected of having ties to the military. As with its policies on Chinese purchases of real estate, Florida decided it would adopt its own foreign policy.  One effect of Florida’s decision will be to further entrench California as the dominant center of the world’s high tech sector. PS.  The rise in nationalism doesn’t just affect foreign students trying to enter the US.  According to Bloomberg, the federal government now pressures banks to discriminate against US citizens who are originally from countries viewed as a national security threat: Like thousands of Americans of Iranian origin, Salehi says he’s become collateral damage in Washington’s surging use of financial sanctions to punish global enemies. Lawyers and consumer advocates say US banks are increasingly reluctant to handle even seemingly benign transactions for customers with links to countries covered by the restrictions, fearing huge fines from regulators. This also caught my eye: Use of sanctions has exploded in recent years as the US seeks to pressure enemies without resorting to military force. Cuba, Iran, North Korea and Syria face the most stringent restrictions, while Russia and others are subject to less sweeping limits. Russia is far and away the biggest threat to global peace.  The fact that we have tougher sanctions on inconsequential Cuba than on Russia tells me all I need to know about why our Ukraine policy is so dysfunctional.  Some day the Western world will wake up to the nature of the Russian threat.  I hope that it’s not too late. (1 COMMENTS)

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Tucker Carlson: Putin’s Tool, Economic Fool

Russian history is filled with examples of credulous Westerners shilling for the Motherland. In the 1930s, New York Times columnist Walter Duranty praised Stalin’s regime, downplaying the political repression and murders, and staunchly denying the intentional starvation and pillaging of millions of Ukrainian farmers. Although savvier reporters were aware of the blatant horrors of the Soviet system, Duranty was awarded a Pulitzer for his Russia dispatches. In the 1960s Paul Samuelson, dean of American economics, predicted in his widely-read college textbook that the Soviet economy would outgrow the USA within a generation. In the late 1980s, on the eve of Soviet collapse, Bernie Sanders played the commie stooge role, visiting Moscow and gushing about low housing costs and universal healthcare in the workers’ paradise.  People with any idea about the actual history of Soviet Russia know better—it was both history’s most murderous regime and Exhibit A in the evidence file of socialist failure. Economists, especially those who were born during the Cold War years, point to Soviet Russia as a cautionary tale in the realities of socialism, central planning, and political repression. While today’s Russia is no longer full-on socialist and standards of living have improved markedly from the Soviet days, Russia is still very much a dictatorial regime with a largely dysfunctional economy. There’s really nothing to admire nor emulate in Russia’s economy today. Yet despite the facts on the ground and the sordid history, there’s always another dupe from the West with another round of pro-Russia/ pro-Putin apologetics. Enter Tucker Carlson, who recently voyaged to the motherland to interview the thug dictator himself. Let me state up front that I have no problem with the interview itself—that’s what journalists do, after all. Sure, he could have asked tougher questions or grilled Putin harder on some big issues, but I’ll at least credit Carlson for just talking to a guy who’s infamous for finding creative ways to off his critics. I will scold Tucker, though, for beclowning himself after the sit-down with Putin. Carlson posted a video in which he strolled through a clean, brightly lit, attractive grocery store somewhere in central Moscow. Tucker nonchalantly filled his grocery cart with what he suggested was one week’s worth of food for a typical family of four. Upon checking out, Tucker acted shocked at the total price of 9,481 rubles, which at current exchange rates works out to just under $104.  What, if anything, are the economic and political implications of Tucker’s Russian grocery bill? Let’s let Tucker speak for himself—here’s his takeaway, transcribed from his grocery store monologue: I went from amused to legitimately angry. So we were guessing what this would cost, everybody here’s from the United States, buys groceries, and we didn’t pay any attention to cost, just putting in the cart what we would actually eat over a week. And we all came in around 400 bucks, about 400 bucks. It was 104 dollars US here, and that’s when you start to realize that ideology maybe doesn’t matter as much as you thought, corruption. If you take people’s standard of living and you tank it through filth, and crime, and inflation, and they literally can’t buy the groceries they want, at that point maybe it matters less what you say or whether you’re a ‘good person’ or a ‘bad person’—you’re wrecking people’s lives and their country, and that’s what our leaders have done to us. And coming to a Russian grocery store, the ‘heart of evil,’ and seeing what things cost and how people live, it will radicalize you against our leaders—that’s how I feel, anyway—radicalized. We’re not making any of this up, by the way. Tucker is so off base here, it’s hard to know where to start. Since I’m an economist, I want to focus on his woeful ignorance of some really basic economic concepts—specifically in this case the economics of exchange rates and relative prices.  I’ll start with the most glaring error, in which Tucker mistakes himself—a rich American—for a much poorer average Russian. Yes, Tucker, the US dollar buys a lot of rubles, and rich Americans feel even richer when they take dollars to poor countries. But Russians, you see, earn rubles, not dollars. And though the nominal amount of rubles they earn might be a large number, nominal Russian food prices are also large numbers. To compare the cost of a grocery basket in the US and Russia today, Tucker should have asked something like, “how much money does the average Russian make, and how much of his income is taken up by the cost of groceries, as compared to the average American?”  Fortunately, this data is easily available. According to Russian state data, the average wage in Russia is currently about 74,000 rubles per month. Tucker’s grocery bill—let’s round it to 9,500 rubles—was ostensibly for 1 week’s supply of food, so that comes to about 41,000 rubles per month (1 week times 4.3 weeks per month). This works out to well over half (55%) of that average Russian wage. According to the USDA, Americans’ spending on food in 2023 was about 11% of their disposable personal income. But wait—that number is for ALL food, not just groceries, but restaurants too. Subtracting restaurant visits, Americans are spending less than 6% of their disposable income on groceries (“food at home” in the USDA classification). This is a full eight times less than Tucker’s Russian produkty basket. Even the bottom 20% of US earners spent only 31% of their income on food—both groceries and restaurants. And if you want to compare earnings, median personal income in the US was about $40,000 in 2022. The average Russian wage cited above annualizes to just under 900,000 rubles, though the highest estimate of median Russian wages I found came to about 1.1 million rubles per year. Let’s split the difference between these data points and suggest that the average Russian is bringing home about 1 million rubles a year. At today’s exchange rate of 92.5 rubles to the dollar, that’s a puny $10,810 US dollars.  But as students of international economics realize, the exchange rate itself does not come close to representing differences in the cost of living. Poor countries like Russia usually feature much lower costs of production, which makes for lower prices. The lower productivity of land, labor and capital in such places means the opportunity costs of these resources is lower—they don’t have as many valuable alternative uses. This, in turn, makes their relative prices (their current prices in local currency) lower as well. Therefore we need to translate rubles into dollars taking the lower relative prices of all Russian resources into account. We can do so using the Purchasing Power Parity (PPP) exchange rate. PPP rates reflect differences in local costs to provide a more realistic exchange ratio which reflects the buying power of the local currency in terms of the US dollar. The PPP exchange rate for the US dollar in terms of rubles is currently 32.4, making the ruble significantly more valuable in purchasing power terms than the currency exchange rate of 92.5 to the dollar would suggest. This means our 1,000,000 ruble salary equates more realistically to around $30,864. With all that being said, average Russians are earning a full $10,000 less than Americans. Tucker Carlson, call your office: even using the most realistic, apples-to-apples comparison, Russians are still at least 25% poorer than Americans. So Tucker is way off base regarding incomes and living standards in America vs. Russia, and many commentators have rightfully pointed out this glaring omission in his single-number “analysis” of comparative standards of living. But I have another bucket of cold water to toss on Tucker’s dumpster fire economics. Tucker, after all, hangs his argument about how our own people “literally can’t buy the groceries they want” on the assertion that corrupt elites have “wrecked people’s lives” through inflation. Yes, true—American consumers have suffered from a nasty bout of inflation recently, with headline year-on-year consumer price growth peaking at 9% in June, 2022. Even though inflation cooled since then, the cumulative increase in the Consumer Price Index for the US has been 20% since pre-pandemic (January 2020 to January 2024). But Tucker, if you think inflation is bad in America, you should see Russia’s inflation—it’s way worse. The evidence is all around us, I’m not making it up. Over the same period in which US prices went up 20%, Russia’s prices, from January 2020 through November 2023 (the most recent available data) increased a whopping 47%. Forty-seven percent—that’s more than two times bigger than America’s twenty percent inflation. Even if you want to claim that the CPI understates US inflation—and I’m potentially sympathetic to those arguments—it’s clear that Russian inflation has been way, way worse than that in America or the west in general. And this is not surprising, given Russia’s history of very weak economic performance and the devastating economic consequences of Putin’s invasion of Ukraine. Russia’s inflation rate shot to almost 18% in the months after the invasion and stayed well in the double digits for all of 2022. America’s inflation was bad (and the Federal Reserve is mostly to blame), but Russia’s has been far worse. No wonder a Reuters headline from October 2023 states “Almost half of Russians say salary does not cover basic spending.” Anyone with Tucker Carlson’s exposure to people, places and events should have a strong basic intuition that America is the most prosperous place on earth today—period. Immigration patterns alone (which Tucker surely knows about) tell the whole story: foreigners are flocking to America, not Russia. They know that nowhere in the world offers them opportunity to earn more money or have more goods than the good old US of A. Economists have reams of data to certify this claim. Sure, the US economy is in something of a funk, largely due to the recent bout of inflation and a host of bad policies. But to even bemuse that things are better in Russia?! It just ain’t so. The fact that Tucker’s sensational, emotion-laden report came out days before the news of the death-by-government of Alexei Navalny, Putin’s erstwhile nemesis and major opposition leader, really puts an exclamation point on the absurdity and sheer ignorance of Tucker Carlson’s lunatic ravings. To Tucker Carlson, may I offer a polite piece of advice: when you don’t know what you’re talking about, kindly shut up. To Tucker’s fans: even if you agree with this guy’s stances or conclusions on certain issues, when it comes to economics he’s as incompetent as a pacifist drill sergeant. He can’t be taken seriously on economic issues, and his economic ignorance should cast doubt upon his credibility in general.  In the meantime, I’ll go on the record saying that, despite our problems, America is still the best place to live, and a heckuva lot better than Vlad Putin’s Russia.   Tyler Watts is a professor of economics and management at Ferris State University. (1 COMMENTS)

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Newsom Puts People Through the Sausage Grinder

When fast food restaurants across California have to start paying workers $20 per hour on April 1, one major chain will be exempted from the mandate—and it just so happens to have a connection to a longtime friend and donor to Gov. Gavin Newsom. Panera Bread is poised to get a boost from a bizarre clause in the fast-food minimum wage law that exempts “chains that bake bread and sell it as a standalone item,” Bloomberg reports, adding that “Newsom pushed for that break, according to people familiar with the matter.” This is from Eric Boehm, “Why Is Panera Exempted From California’s New Minimum Wage Law?” Reason, February 28, 2024. And Newsom kind of admits, in his sleazy way, that he did a friend a favor: Asked directly about the bakery exemption at a press conference last year, Newsom said it was “part of the sausage making” of the legislative process. “We went back and forth, and it was part of the negotiation,” he added. Fortunately, Bloomberg was on it: Bloomberg‘s reporting suggests it was something Newsom sought in those negotiations: The bakery carve-out “was adopted as a means of winning the governor’s support for the legislation, said a person with knowledge of the discussions. The rationale was the governor’s longstanding relationship with a Panera franchisee, the person said.”   (1 COMMENTS)

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Resolving Definitional Disputes

Scott Sumner had a recent post about how people get so hung up on how to define words, or what labels to attach to certain ideas, that they lose sight of actual issue at hand. I largely agree, and I think a very important skill to develop is the ability to “taboo your words,” as Eliezer Yudkowsky once said.  Very briefly, Yudkowsky imagines two people who seem to disagree with each other over whether the proverbial tree that falls with nobody around to hear it still makes a noise. Two people argue with each other about it, one saying yes and the other saying no. But the one saying “yes” is defining noise to mean “acoustic vibrations,” while the one saying “no” is defining noise to mean “auditory experience.” Both parties actually agree about the state of the world. They both would agree that the falling tree generated acoustic vibrations and did not generate an auditory experience – but because they’re using the same word (“noise”) to describe these different phenomena, they are going in circles over a disagreement that doesn’t actually exist.  Now, you’d expect this dispute to be easily rectified once they realized the source of the confusion. And in this specific case, it might even work out that way – once they realized they’re just using the same word to mean different things, they would also realize their dispute has been dissolved and go on with their day. Wouldn’t it be odd if instead, they ended up starting another argument insisting the other person’s definition of “noise” was objectively incorrect?  That’s pretty unlikely to happen because nobody feels personally invested in how “noise” is defined. But it happens all the time in political discussions, because so many terms, once politicized, carry an emotional valence with people. Sumner’s post focused on whether or not “addiction” is properly categorized as a “disease” as opposed to a “character flaw.” Someone with a disease is automatically coded sympathetically, whereas someone whose problems arise from character flaws is coded unsympathetically. Thus, people fight each other tooth and nail over the semantic issue of what constitutes a “disease” because they want to support a more (or less) sympathetic view towards people addicted to drugs.  We see the same thing play out in political disputes. For example, racism is a very charged, highly valanced word. Everyone agrees that racism is bad – which is why there is so much furious dispute over what is or isn’t racist. To successfully brand some idea or action as racist is an automatic victory in the debate over whether or not it’s good or bad.   For example, suppose you think equal outcomes is intrinsically good, and you wanted to convince other people to think the same way. One way to do that is to engage and refute arguments made by the Princeton philosopher Henry Frankfurt that equality of outcome has no intrinsic value, or the arguments by Michael Huemer in support of the same conclusion. Or you can skip all that and insist that unequal outcomes are racist. That is, you can claim not merely that unequal outcomes can be a result of racism – the claim is that unequal outcomes just are racist, by definition. And if unequal outcomes are racist, that means they must be bad, because anything racist is bad. You can simply define your side of the debate into victory.  This appears in the worldview of Ibram Kendi. By Kendi’s lights, equality (treating people equally without regard to race) isn’t the goal. His goal is equity (treating people differently according to race to get equal outcomes). As a result, he thinks discriminating on the basis of race can be a good thing – and if racial discrimination can be good, that means racial discrimination can’t be what it means to be racist. He says this very plainly, stating “racial discrimination is not inherently racist” because what actually matters is the outcome of discriminating on the basis of race – i.e., “whether the discrimination is creating equity or inequity. If discrimination is creating equity, then it is antiracist. If discrimination is creating inequity, then it is racist.” If discriminating against people on the basis of their race leads to more equal outcomes, and unequal outcomes are racist, then you’d have to be a racist to be opposed to racial discrimination. And we all agree that racism is bad, right? Hence the push to define “racism” not in terms of processes, but of outcomes. Or say you’re someone who is opposed to an “either/or” mindset. You can try to convince people to abandon such a mindset through arguments and reason. Or, you can take a shortcut and just declare that using an “either/or” mindset is actually a way of promoting white supremacy culture – and since we all agree that white supremacism is a bad thing, we don’t need to do any more work. Framing something as either/or promotes white supremacism, and white supremacism is bad, therefore the either/or framing is bad. Case closed.  Of course, such tactics can lead movements to eat their own tails. After all, one key point of Kendi’s worldview is that there is an all encompassing and mutually exclusive binary. You are either an antiracist, or you are a racist – there are no other options and no middle ground. Again, he says this plainly in his book, writing “One endorses either the idea of a racial hierarchy as a racist, or racial equality as an antiracist. One either believes problems are rooted in groups of people, as a racist, or locates the roots of problems in power and policies, as an antiracist. One either allows racial inequities to persevere, as a racist, or confronts racial inequities, as an antiracist.” So, by framing the issue of racism as an either/or dichotomy, Kendi is also promoting tenants of white supremacy culture. To be clear, that’s not actually my view – I don’t believe Kendi promotes white supremacy culture. My point is simply to show the absurdities people can trap themselves in when trying to play these definitional games.  Unfortunately, I don’t know of a good way to get people to drop the baggage and association attached to words and phrases and focus on the underlying issues instead. But I’m told recognizing a problem exists is at least a necessary step to fixing it – and this is definitely a problem that needs a fix. (0 COMMENTS)

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A Dangerous Philosophical Confusion

Donald Trump, Javier Milei, Nayib Bukele, and Liz Truss all participated in the Conservative Political Action Conference (CPAC) in Maryland last Saturday, posing as political brothers (see “Trump Says He Is a ‘Dissident’ Under Siege from Thugs in Bleak Speech” and “Argentina’s Milei Meets Trump After Hosting Biden Officials,” Financial Times, February 24, 2024). The newspaper reports: In a video of the two leaders meeting backstage, posted on X by a Trump adviser, an exuberant Milei thanks the former president [Trump] “for all [his] work” and says: “I hope to see you again and the next time I hope you will be president.” To be fair to the Financial Times, it also admits: Milei has previously said in interviews that he mainly shares with Trump the goal of opposing socialism—a message he returned to at the end of his CPAC speech on Saturday. The day before, the same newspaper reviewed a book where Tim Aberta, a Christian, bemoans the Trump idolatry that has seized the evangelical movement (“Why Are So Many Evangelical Christians in Thrall to Trump?” February 23, 2024). The story features an extraordinary photograph of evangelicals praying with, and for, Trump, while a preacher direct the trance; you have to see it! Derek Brower, the journalist, writes: But Alberta shows that much bigger ideas [than abortion] are now also at work. Many evangelicals consider Trump to be ordained by God, and see the US as uniquely blessed; a Christian nationalism has become rampant in the movement. Hence their fervour for men such as David Barton, an author famous for pseudo-history books that argue America’s true origins are as a theocracy. … Lauren Boebert, the gun-toting Republican congresswoman from Colorado, said: “I’m tired of this ‘separation of church and state’ junk . . . The church is supposed to direct the government.” Underlying all this, there seems to be a dangerous philosophical confusion between classical liberals and libertarians on one side and, on the other side, the current intersection of the Trumpian, evangelical, and old-conservative movements. This Trumpian connection, as we may call it, shows little interface with the values and philosophy of classical liberalism. The main and perhaps only interface is that both sides are opposed to collectivism of the left, but the Trumpian connection welcomes the collectivist right. In a recent EconLog post, I explained the “unbearable lightness of collectivism”: both shades of collectivism favor the supremacy of collective choices; they just want to force different collective choices on others. The danger is not socialism, but collectivism of the left or the right. Can we imagine, say, Friedrich Hayek or James Buchanan wanting to be associated with the Trumpian connection? A paradigmatic case is trade, whether internal or external does not matter. Anybody who does not agree that trade should be a private matter cannot be part of the broad liberal-libertarian tradition. From Anthony Downs’s 1957 book An Economic Theory of Democracy, we know that “parties formulate policies in order to win elections, rather than win elections in order to formulate policies.” This result follows from the assumption that politicians are no less self-interested than ordinary individuals: their first goal is to be elected in order to benefit from the perks and glory of power. We should therefore not be surprised that philosophical coherence is typically not a priority of politicians. But instead of providing a justification for general cynism, this observation should give a reason to limit government power and reject confused rabble-rousing. In my view, there are two related reasons why classical liberals and libertarians should dissent, and be seen as dissenters, from the Trumpian connection. First, as I emphasized, the (classical) liberal philosophy is individualist and stands at the polar opposite of the collectivism and authoritarianism of those, on the right or on the left, who want to impose their ideas and whims by force. Second, we, in the liberal galaxy, should try hard not to be seen as what we are not philosophically. The contrary would be a self-defeating strategy in the longer run. To say it more crudely, and at the risk of hurting some intelligent and well-meaning friends, if everybody thinks we are idiots, our task will be even more difficult. ******************************************** Featured image generated by ChatGPT: OpenAI. (2024). ChatGPT (4) [Large language model]. https://chat.openai.com, February 26, 2024. (1 COMMENTS)

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