Jane Shaw Stroup wrote a short and rather effective piece on Hayek’s “atavism thesis”. Hayek came to it, as she writes, after a life of struggling with socialism and economic interventionism. F.A. Hayek was born in 1899, he fought in WWI (contracting the Spanish flu and malaria on his way back from the trenches), and was exposed, as a young man, to the most unpropitious series of events – which did not make liberalism very popular among men and women of his generation. On the contrary, liberalism was on the wane. 19th century liberalism had many nuances but all shared the urge to move from discretionary rule to something which resembled automatic mechanisms, reducing politics at best to a very limited, technical endeavour. Of course some politicians tended to be larger than life, flamboyant personalities who could mastermind public opinion in the 19th century too. But liberals, of all sorts, were skeptical of their playing public opinion as a piano in order to be legitimised in taking decisions of their own liking. Public opinion ought to be a tribunal, severely scrutinising all collective action and possibly keeping precisely those types in check. The 20th century was the triumph of boldness: bold leaders, bold decisions, bold ambitions. Politics, quite far from being a limited endeavour, was to reshape the very nature of man. The few savvy people around asked themselves how it was possible that the most educated societies which ever existed could fall for that. Many thought it was a problem of education. The truths of political economy were, for example, by and large counterintuitive and hence difficult to digest. Hayek followed that path too, hence his insistence in better educating “second hand dealers in ideas” (journalists, high school teachers, etc) who tended to spread bad ideas in good faith. But at a certain point, after many a year of struggling within those ideas while treating in the kindest, more gentlemanly and scholarly manner those holding them, Hayek realised that perhaps the problem lies not in education but before education. Hayek concluded that humans have instincts that evolved genetically, starting with humans’ predecessors, animals in a pack, and continuing when humans lived together in small bands. This evolution ended only about 12,000 years ago. Those instincts weren’t inherently bad. In fact, they included essential emotions, such as solidarity and compassion, that kept the band alive. But they were beneficial only when people lived in small groups. The growth of what Hayek called the “extended order”—trade and communication outside the band, the modern economy—required people to act differently. “Mankind achieved civilization by developing and learning to follow rules (first in territorial tribes and then over broader reaches) that often forbade him to do what his instincts demanded, and no longer depended on a common perception of events.”[5] Humans have never entirely given up their early instincts, however, and that draws them to socialism and fascism, said Hayek. Socialism and fascism give them the “visible common purpose”[6] so essential in the distant past. But forcing people to share a visible common purpose is not compatible with freedom. Contemporary research on cognitive biases tends to reinforce Hayek’s point. I’d like to add, to Jane Shaw’s splendid little essay, only one caveat. These innate instincts are not something of concern only when we deal with the masses or with ordinary people – as many educated people tend to believe. They are deeply ingrained with all of us, and make even the most educated and sophisticated experience lust for super-imposed “order” or enjoying the vertigo of feeling part of the team of the good and right. (0 COMMENTS)

In 2019, Leigh Phillips and Michal Rozworski published an article in Jacobin arguing that, “Yes, a Planned Economy Can Actually Work.” Their article, based on their book, The People’s Republic of Walmart: How the World’s Biggest Corporations are Laying the Foundation for Socialism, argues that large companies like Walmart have solved the problem of central planning: In The People’s Republic of Walmart, we show how contrary to the historic argument of the likes of free market economists Ludwig Von Mises and Friedrich Hayek, economic planning of millions of products and services involving infinitudes of variables in supply chains and lots of non-price information is not just feasible, but works incredibly well… Walmart, the largest company in the world, employs more workers than any other private firm; it is the world’s third-largest employer after the US Department of Defense and China’s People’s Liberation Army. If it were a country, its economy would be roughly the size of Switzerland. Walmart, of course, sells goods on the market. Under capitalism prices are still inputs into the planning process for corporations and states alike. In addition to prices, however, firms today have at their disposal exponentially increasing amounts of information that is directly about people’s preferences or the use of resources… Walmart engages in large-scale planning without the direct intermediation of markets at scales to make Hayek bristle. Internally, like nearly all firms large and small, it is a dictatorial planned economy: managers tell workers what to do, departments realize goals from on high, and goods flow by fiat.   Sam Gindin, also writing in Jacobin, throws a wrench into their claims: Aside from the fact that the scale of organizing a total society in a nonmarket way is of a different order of magnitude than addressing a single, even vast, corporation, internal corporate calculations under capitalism have an advantage that centralized socialist planning would not have: they have external market prices and market-driven standards by which to measure themselves.   Moreover, though they admit that “under capitalism prices are still inputs into the planning process for corporations and states alike,” the authors never grapple with the problem of how to compare the relative values of disparate goods and services other than to wave it away: There is a hard question about how we relate things to one another — cotton to steel or mind-numbing drudgery to art — but it is a poverty of imagination to think only markets can determine these multidimensional comparison questions rather than we ourselves, democratically.   While someone unencumbered by an impoverished imagination could conceivably devise a way in which to democratically answer “these multidimensional comparison questions,” no one, including Karl Marx, has succeeded in over a century and a half. In addition, the question of how to compare different production processes and capital goods without market prices is not mentioned at all. The authors’ solution to the Mises-Hayek socialist calculation problem is to get a bigger calculator: Jack Ma, the founder of China’s Alibaba Group — one of the largest and most valuable companies in the world — argues that previous state planners in the Soviet Union and the early People’s Republic of China failed due to insufficient information. He has predicted that over the next three decades thanks to artificial intelligence and the sheer volume of data to which we now have access, we will finally be able to achieve a planned economy.   Before conceding that an Artificial Intelligence program running on a supercomputer can direct an economy, however, let’s consider solving something vastly simpler: the game of chess. Compared to an economy, chess is child’s play. First, there are only thirty-two “individuals” on a chessboard, and none of them has free will.  Their movements are severely constrained: only one piece may move at a time, each side moving a single piece in alternating turns; each piece’s position is restricted to no more than sixty-four squares arranged in two dimensions; and each piece has a set way in which it can be moved. But even in this simple world, there are over 318 billion ways of playing just the first four moves on each side.  It has been estimated that in a 40-move game there are more possible moves than there are atoms in the universe. As a result, no computer programs have yet been able to solve the game, even though they can now routinely beat even the best human players. Let’s make the game a bit more like real life. Suppose that each piece is magically given free will and the ability to move itself. Now the pieces may all choose to move at once or to never move at all. A pawn could decide to act like a Queen or a Knight. A Rook might turn traitor and attack pieces of its own color, or the Kings could negotiate a peace settlement and leave the board entirely. The number of possible board positions after only the first move just became infinite. Yet even this revised game of chess is immeasurably simpler than an economy consisting of millions of people – all acting and interacting at the same time – each with his or her own motivations, incentives, responsibilities, cares, and circumstances; and each thinking and acting in four-dimensional space and time. But it’s even worse than that. A supercomputer trying to solve the game of chess needs no data; it’s just a matter of pure number crunching and access to an impossibly large storage array. By contrast, “solving” an economy requires the ability to acquire vast amounts of knowledge, some of which can’t even be articulated, and some of which is generated by myriad market transactions that occur second-by-second. Worse still, this data must be collected, transmitted, formatted, and “crunched” in real time. In 2007, computer games expert Jonathan Schaeffer reportedly solved the  game of checkers by performing 100,000,000,000,000 (1014) calculations on an array of as many as 200 desktop computers over a period of 18 years. Checkers is much simpler than chess (with a mere 1020 possible board positions vs 10120) and is vastly simpler than a nation’s economy. So, assuming a lower bound of 18 years to determine the relative prices of billions of products and services, even if we could accomplish the impossible tasks of: identifying all the world’s products and services, creating a supercomputer, or computer array, big enough to handle the calculations, creating a storage array big enough to hand the data, and instantaneously acquiring and uploading all the needed data to our computer the uploaded information would be out of date and useless years before the computer finished its work. Like many a politician, Phillips and Rozworski claim that the country can be “run like a business.” Such a presumption is based in unfathomable ignorance and arrogance – a deadly combination.   Richard Fulmer worked as a mechanical engineer and a systems analyst in industry. He is now retired and does free-lance writing. He has published some fifty articles and book reviews in free market magazines and blogs. With Robert L. Bradley Jr., Richard wrote the book, Energy: The Master Resource. (0 COMMENTS)

  Under my contract with the Wall Street Journal, I am now free to post this article. ESG Feeds Inflation, Hurts Economic Growth When companies divert their attention to social goals, they produce less, driving prices higher. By David R. Henderson and Marc Joffe With inflation running at a four-decade high, it’s time to reconsider the idea that the economy will benefit if corporations sacrifice their bottom lines in favor of environmental, social and governance considerations. The truth is that diverting corporate attention away from long-term profitability depresses output and raises prices. In 2019 the Business Roundtable, an association of large companies’ CEOs, abandoned its longstanding dedication to the idea that the “purpose of a corporation” is to maximize shareholder value. Instead, the group argued, businesses should follow a “multistakeholder” model. If corporate management gave a shifting set of ESG concerns priority over long-term profit maximization, the roundtable believed, firms could create “an economy that serves all Americans.” It hasn’t panned out that way. When companies focus solely on maximizing profits, their principal aim is to produce more at lower cost. Admittedly, some profitability strategies—such as constraining supply—are at odds with maximizing output. But that’s impossible without an organized and powerful monopoly. Even companies with great monopoly power lose that power over time as competitors arise. In a competitive market, corporations serve themselves and consumers by making more for less. ESG investing and the management practices it promotes, however, usually increase production costs and constrain capacity. If a company diverts resources into a formal diversity, equity and inclusion program, with all its attending human-resource hires and bureaucracy, it will have less resources available to conduct product research and development. Similarly, if a company whose core competence is oil and gas production chooses to move into wind and solar despite having limited expertise in these modes, its output will suffer. In general, an investment framework that de-emphasizes production in favor of social objectives will divert money away from efficient producers—in the same way taxes will. Milton Friedman showed that raising the money supply’s growth rate increases the rate of inflation. But it’s also true that slowing the growth of overall output can increase inflation. If we think of the economy as one giant market in which we trade dollars for anything that dollars can buy, reducing the supply of available goods increases the price level, all else being equal. If enough companies focus on ESG priorities, then, they risk higher inflation and slower growth or stagflation. That isn’t to say that the general principles ESG emphasizes are undesirable, but that it’s more important to do good than to be labeled good. A company can be profitable with a diverse workforce without having a formal DEI policy. And such a company will ultimately serve a diverse group of Americans better by providing them more goods at lower cost. To get the U.S. economy back on a path to sustainable growth and low inflation, the Fed must rein in excess liquidity, as it is now doing. But that alone won’t be enough. Businesses, investors and those advising them must push back on ideas such as ESG that undermine corporate productivity. Mr. Henderson is a research fellow with Stanford University’s Hoover Institution and editor of the Concise Encyclopedia of Economics. Mr. Joffe is a senior policy analyst with the Reason Foundation. David R. Henderson and Marc A. Joffe, “ESG Feeds Inflation, Hurts Economic Growth,” Wall Street Journal, July 5, 2022 (July 6 print edition.) (0 COMMENTS)

If you want an executive assistant and can’t find one because of the labor “shortage,” a Wall Street Journal story of today gives the solution: pay her (or perhaps him) more than $200,000 a year and the shortage is over. If you still have problems finding the assistant you need, boost her title to “chief of staff” and bid up the prospects’ salary to $300,000 or $400,000. (“Paying $400,000 for an Executive Assistant? Do-It-All Aides Are Pricier Than Ever,” August 4, 2022). The subtitle gives the flavor of the story: Wealthy executives are shelling out six figures for sophisticated aides smart enough to handle complicated tasks yet humble enough to take on tedious ones One aspect of market complexity lies in the submarkets that characterize any good or (as in this case) service that is not perfectly homogeneous. There are different kinds of labor and different kinds of executive assistants. But in all cases, supply and demand determine wages if the market is free. An older WSJ story, on which I considered writing an EconLog post at the time, illustrated the same phenomenon on another market where the price is not capped: if you really want to hire somebody, just pay the market wage or bid it up. If you don’t, it’s just that you don’t really want it given what you are willing to pay and what the other bidders pay. And don’t complain there is a “shortage”! The title of the story was self-explanatory: “Teen Babysitters Are Charging $30 an Hour Now, Because They Can” (May 2022). The subtitle gave more flavor, although again the respectable newspaper did not use the term “shortage” correctly, the proof being that you do get a babysitter if you pay $30 an hour plus some perks: Sitter shortage has parents treating teenagers like VIPs; ‘order anything you want for dinner’ One question as an exercise: Are teen babysitters “wage gougers”? All this reminds me of an old economist joke. Walking on the sidewalk, an economist and his friend pass by a Ferrari dealership with a red 296 GTB in the window. (An economist, by definition should we say, thinks of individual choices in terms of individual preferences and outside constraints such as prices, income, etc., but the friend still doesn’t understand that.) “I want this,” the friend says as they continue walking. “No, you don’t,” replies the economist. (0 COMMENTS)

There were two sides to the late Geoffrey Brennan.  The first was the world class academic and intellectual who was multidisciplinary, curious, committed to the principles of liberty and freedom, and rigorous in his theory and method.  That’s how he collaborated so effectively with James Buchanan, Gordon Tullock, and other members of the first generation of public choice scholars first at Virginia Tech and later at George Mason University.  It was also how he and Loren Lomasky and Philip Petit wrote groundbreaking and important books on democracy and deliberation. But the other side to Brennan, the side those of us frequently saw who were fortunate enough to have known him, was the deeply kind, generous, outgoing, person who made time for students and colleagues, smiled easily, sang beautifully, and made numerous friends during an academic career that was cut short this week by leukemia at the age of 77. And that personality was important in succeeding at the Public Choice Center during his tenure there.  Not everyone could handle Buchanan’s formidable intellect and particular personality, but Brennan’s razor sharp mind, along with his patience, decency, and giving spirit were more than up to the task of bringing out the best in his co-authors, colleagues, and students over his time in Blacksburg and beyond. Brennan liked to describe himself as the young “blue eyed boy” who arrived in Blacksburg in the 1970’s and began a collaboration with Buchanan that spanned more than 20 years and included co-authoring such seminal works as The Power to Tax and The Reason of Rules.  After leaving Blacksburg, he returned to his native Australia only to be lured back to the US where he helped found one of the first of the new generation of PPE programs that are sprouting up all over the world.  Along with Mike Munger, Brennan started and oversaw the joint PPE at Duke and UNC-Chapel, splitting his years living in North Carolina and Canberra, teaching and writing. After his collaborations with Buchanan, Brennan become more interested in questions at the intersection of politics and philosophy and used his economics training with skill in co-authoring Democracy and Decision in which he and Loren Lomasky tried to tackle a long standing puzzle to economists – why do people bother to vote at all understanding that their individual vote plays no tangible role in the outcome of elections.  Their solution was to model voting as an emotive act rather than an instrumental one.  He then turned his attention to concepts of esteem and norms in his later work, again blurring the boundaries between disciplines. Brennan’s relationship with Liberty Fund spanned more than five decades.  He attended, directed, and discussion led more than 70 colloquia on various topics in economics, philosophy and politics.  Along with Hartmut Kliemt and Robert Tollison, he served as the co-editor for Liberty Fund’s 20 volume set of The Collected Works of James Buchanan.  I had the privilege of serving as the Fellow for his final Liberty Fund conference, appropriately in Blacksburg, in 2018 on Buchanan’s legacy.  As Geoff often, perhaps always, did, he made everyone feel welcome, challenged and pushed the conferees politely but firmly, and of course sang with that majestic baritone voice on the closing night.  He will be missed.   (0 COMMENTS)

It’s been over two years since the COVID pandemic began, and a great deal of progress has been made. But how much have we learned? We have a vaccine available, now for people of almost all ages. It’s an extraordinary achievement, but how effective is it in the end? And perhaps more importantly, what do we now know about how to handle future pandemics? These are the sort of questions that are heavy on Dr. Vinay Prasad‘s mind (and mine!). In this episode, EconTalk host Russ Roberts welcomes Prasad back to explore these questions and more. Now we’d like to hear what struck you in this conversation. Use the prompts below to spark comments here, or use them to start a new conversation offline. The conversation is what we’re here for,     1- Prasad is clear that he believes the COVID vaccine to be a remarkable achievement which clearly benefitted us in this pandemic. What does he mean, then, when he says we may now face diminishing returns from the vaccine, especially in younger people?   2- Prasad says we now have two buckets of risk with regard to vaccination. The first is the “original antigenic sin” bucket, the second is the risk involving myocarditis. How do these buckets differ, and how does Prasad believe we should approach each? And importantly, what role does he think randomized control trials should play?   3- Roberts asks Prasad what “things public health distorted that will plague us over time.” How does Prasad respond? How have these issues affected the way you think about the pandemic?   4- Next, Roberts asks Prasad whether the most aggressive lockdowns prevented the most deaths? (FWIW, Prasad dubs this “one of the greatest economics questions of the next quarter century.”) How can we know if a lockdown helped or hurt a country, according to Prasad? What might we do to learn more?   5- The conversation concludes with a discussion of the impact of COVID on children, particularly mask mandates. According to Prasad, what do we know and what do we not know about them? To put it mildly, Prasad is very unhappy with the lack of randomized trials, which he thinks would be easy to accomplish. Why does he think that, and what does he mean when he says, “I think a nation that is willing to, I mean, print $5 trillion in money and lose $20 trillion in GDP [Gross Domestic Product], but is not willing to spend, you know, $10 million, a hundred million, on running sort of just basic public health randomized trials? I think that, to me, is a problem.”   (0 COMMENTS)

Inflation is caused by too much money chasing too few goods. That means there are only two ways to reduce inflation: reduce the growth rate of the money supply or increase the growth rate of the economy. The act would do neither. In fact, by raising taxes and diverting resources from the productive private sector to the inefficient government sector, the act would reduce economic growth. This is from David R. Henderson, “Inflation Reduction Act Will Increase Taxes for Most People,” TaxBytes, August 3, 2022, published by the Institute for Policy Innovation. Another excerpt: Fortunately, the Joint Committee on Taxation (JCT) has done its job, estimating the increase in taxes for people in each income group. The $54.3 billion tax increase for 2023, the JCT estimates, won’t increase taxes for anyone with income between $0 and $30,000. But the JCT also points out that its measure of income includes not just adjusted gross income but also employer contributions to health insurance, the employer’s share of the Social Security tax (FICA), and the insurance value of Medicare benefits. So millions of people whose adjusted gross income is below $30,000 will pay somewhat higher taxes. People with income up to $75,000 won’t pay much more. But people with income between $75,000 to $100,000 will see their average tax rate rise from 15.8 percent to 16.0 percent. The average tax rate for people with income between $100,000 and $200,000 will rise from 19.1 percent to 19.4 percent, and between $200,000 and $500,000 will rise from 24.1 percent to 24.4 percent. Read the whole thing, which is quite terse. (0 COMMENTS)

I frequently argue that there’s no such thing as public opinion. There is such a thing as public opinion polls. And there is such a thing as election results. But “public opinion” is an ambiguous concept. What does it really mean?A few weeks ago, I did a post pointing out that when abortion bans were put on the ballot in North and South Dakota; they were defeated by a very substantial margin. And yet we are constantly being told that conservatives oppose abortion, despite those being two of America’s most conservative states.Another test of my theory occurred yesterday in Kansas. This is how the abortion referendum was expected to come out: The vote will be an early bellwether for how Americans are thinking about abortion in the lead-up to the midterms. According to the first publicly released poll of the campaign, conducted by co/efficient and shared exclusively with FiveThirtyEight, 47 percent of likely primary voters say they plan to vote for the amendment [allowing the legislature to regulate abortion], while 43 percent say they plan to vote against it. And here’s how the referendum actually turned out: Tuesday marked the first vote on abortion in a post-Roe landscape. Kansans decided by a double-digit margin that the state constitution does, in fact, protect the right to abortion. With 99 percent of the expected vote reporting, 59 percent of voters voted “no,” on the amendment, or to clarify that the constitution does protect the right to abortion, while 41 percent voted “yes,” or to clarify that the constitution doesn’t protect the right to abortion. It’s notable that the yeses won by 18 points in a state that former President Donald Trump won by roughly 15 points in 2020. And this despite the weird timing of the vote—during a primary.  The pro-life side hoped that would reduce the turnout (their only hope). One thing is now pretty clear.  If left to voters, abortion would be at least partially legal in almost every single state in America (except perhaps a handful in the Deep South).  I’m not predicting that this will happen, as I don’t expect the decision to be left to the voters.  For instance, in Wisconsin (a much more liberal state than Kansas) voters are not allowed to vote in referenda.  Hence abortion is illegal in Wisconsin.  (Texas is also more liberal than Kansas.) There are millions, perhaps tens of millions of Americans that seem to believe both of these statements are true: 1. Abortion is wrong 2. The abortion question should be left to the woman and her doctor After all, people like life.  But they also like choice.  You’d be surprised at how many Americans are both pro-life and pro-choice: Doesn’t make sense?  Welcome to the world of “there’s no such thing as public opinion”. The Kansas pro-choice side won the battle with TV ads that framed the debate as being about the freedom of women to make decisions with their doctor, not whether abortion is wrong.  With different framing, the pro-life side might do better.     (2 COMMENTS)

Is there an official definition? Journalist Clark Merrefield contacted me last week for a piece he was writing on the topic of recessions. His article appeared yesterday at The Journalist’s Resource. It’s titled “Are we in a recession? 4 things journalists should know when covering an economic downturn.” In follow-on emails, Clark and I shared our pet peeves about sloppy journalist reporting on numbers. One of his is in #1 of his 4 tips: “Clarify the difference between quarterly changes and annual rates, especially in headlines.” That’s certainly high on my list. While he and I agreed that the NBER’s Business Cycle Dating Committee is an important arbiter of whether a recession occurred, we disagreed, as you can see from his article, about whether its definition is the official one. In response to his original question to me about how economists came up with the “two quarters in a row of negative GDP growth” definition, I wrote: The answer is that I don’t know. When I taught macro, which I did as early as 1975 and as late as 2014, I would tell my students that the the “two consecutive quarters of negative growth” was economists’ “seat-of-the-pants” definition. But I don’t know where I got it. The “seat of the pants” is my term because I knew all along that it’s not the technical definition. Of course, there’s no official definition. The 8 economists with NBER are stating their opinions. They’re informed opinions but they’re opinions, nevertheless. They have no official status. In his article referenced above, Clark writes: It’s not a recession until the Business Cycle Dating Committee of the National Bureau of Economic Research says it is. The nonprofit economic research organization, based in Cambridge, Mass., determines when recessions start and end. Its purpose is to establish the historical record for recessions, not to rush to say whether or not the U.S. economy is currently in one. The White House calls the Business Cycle Dating Committee the “official recession scorekeeper.” That’s too strong. Yes, it’s true that the committee “determines when recessions start and end.” But that doesn’t mean that their determination is official. Thus my statement above. Moreover, there’s a tense problem in Clark’s statement of the issue. He writes: “It’s not a recession until the Business Cycle Dating Committee of the National Bureau of Economic Research says it is.” That cannot be true. As is well known, and as he points out, the NBER comes to its conclusion with a lag. Let’s say that it announces in December 2022 that a recession started in March 2022. To say that it’s not a recession until the NBER says it is is to say that it’s not a recession until December 2022. I think Clark meant to say “It’s not a recession unless the Business Cycle Dating Committee of the National Bureau of Economic Research says it is.” That’s a pretty different statement. I think also that we shouldn’t get stuck in the weeds and should remember why so many economists use the “seat of the pants” definition of “two consecutive quarters of negative growth.” It’s because the NBER committee takes so long that its dating of recessions has limited usefulness. Economists want to know more quickly. Various economists have noted that, as economist Matt Rousu put it, “In the past 75 years, when the nation’s GDP has dropped in two successive quarters, it has been classified as a recession.” Will this one be different? I don’t know. But I’ll probably know before the NBER makes its announcement. Note: Here’s an excellent article on the issue from Phil Magness. It’s titled “Biden Borrows the Nixon Playbook on Recessions,” AIER, August 1, 2022. And here’s Phil’s op/ed in the Wall Street Journal, “A Recession by Any Other Name,” WSJ, July 27, 2022 (July 28 print edition.) A key quote: Economists have long defined a recession as “a period in which real GDP declines for at least two consecutive quarters,” to quote the popular economics textbook by Nobel laureates Paul Samuelson and William Nordhaus.     (0 COMMENTS)

Imagine a US president facing the following decision:An Asian country has split into two parts. The southernmost part has a democratically elected president and a population of roughly 20 million. The northern region is controlled by the communist party and has a powerful military. Now the northern part of the country invades the south, attempting to unify the entire country under a communist run government.  How should the US government respond? President Truman faced this dilemma in 1950.  I am just barely old enough to recall when President Johnson faced a similar decision in 1965.  I hope I never see a future US president face a third such decision. When I read articles on foreign policy, I am struck by the difficulty of modeling the use of military force.  We’d like to compare two counterfactuals, but in fact we rarely know what the alternatives actually look like.  You might think you know whether various past foreign policy decisions worked out well or poorly, but how can we be sure?  Chaos theory suggests that even a tiny change in initial conditions could have vast consequences in future years.  I defy anyone to create a counterfactual for post-1917 European history if the US had not entered WWI.  One can certainly create a number of plausible counterfactuals, but how could we possibly have confidence that any one alternative history is correct? Historical events often catch even foreign policy experts by surprise.  Think of the Iranian Revolution or the collapse of the Soviet Union.  Now image trying to not just predict what is actually going to actually happen, but also what would have happened if history had been diverted onto an entirely different track.   It’s basically impossible. Economists also have difficulty predicting events such as the Global Financial Crisis of 2008.  But at least we often know whether past policy decisions were correct or not, at least in retrospect.  Economists now understand that monetary policy was too tight in 1930 and too easy in 1968.  In contrast, the field of foreign policy is almost entirely up for grabs.  What if we had not fought the Spanish American War?  What if we had not embargoed oil shipments to Japan in the late 1930s?  What if we had not fought the Gulf War in 1991?  There are dozens of similar questions, and few reliable answers, even if the immediate impact of the decision is relatively clear.  There is too much complexity, too many “butterfly effects”, to model anything more than the immediate impact of foreign policy counterfactuals.  In some cases (such as Ukraine) even the immediate outcome was not forecast accurately, as most experts predicted a quick Russian victory. So then what do we do? PS.  The picture on top shows Herodotus and Thucydides PPS.  Tom Friedman has an outstanding essay explaining: Why Pelosi’s Visit to Taiwan Is Utterly Reckless But while I find the essay to be highly persuasive, how can we be sure? (0 COMMENTS)