I wrote the final exam in Jeff Hummel’s Masters course in Monetary Theory and Policy last month and got the results about 10 or 12 days ago. I got an A+. (Yay!) Now you might say that I should have gotten an A+, given that I have a Ph.D. in economics and given that one of the readings on the syllabus was by me. (By the way, embarrassingly, the only short-answer question out of 46 questions that I got wrong was on an article that Jeff and I had co-authored. Division of labor explains that. Jeff came up with the data, which was what the question was on, and wrote the first draft, and I rewrote.) But I had to do the work. Don Boudreaux asked me after the midterm, on which I got close to a perfect score, what percent I would have got if I hadn’t taken the course or done any of the readings. I estimated that it would have been between 50 and 60%, which, in a Masters class, is essentially a failing grade. I asked myself that question for the final. The answer is 40 to 50% because the material in the last half of the course was less familiar to me than the material in the first half. I learned a ton: the resource cost of a gold standard, the weird and implausible Diamond-Dybvig model, the Bailey curve on seigniorage, bond illusion, the fiscal theory of the price level, the Taylor rule (I knew that but I couldn’t have told you the actual numbers–now I can), Hayek’s prediction of the kind of money that would evolve if there were no government intervention (and why I think, with Larry White, that Hayek was wrong), the Currency School, the Free Banking School, the real bills doctrine, Murray Rothbard’s pretty weak case for 100% reserve requirements in banking, the exact definition of fiat money (HINT: it does not mean money that has no intrinsic value), the interesting history (in a reading by Hummel) showing that bank panics, widespread bank failures, and recessions must be distinguished between, the formula for the money multiplier, and how Jeff’s favorite President, Martin van Buren, avoided having the federal government have a bank account, to name a few. Along with that, he gave an outstanding lecture on the Great Depression. I already knew most of what he talked about here, but most means about 70%. I learned the other 30%, including the fact that the feds put a 2-cent tax on checks at exactly the wrong time because the tax encouraged people to convert checking accounts to currency, reducing the money multiplier and shrinking the money supply. Also his explanation of capital theory using Tom Hanks’s character in Castaway is really good. Just cuts to the chase and avoids a lot of extraneous stuff. If Jeff teaches the class again next January by Zoom, and I’m encouraging him to do so, I recommend that you get in touch with him if you have a fairly strong economics background and are willing to stay up until 9:15 p.m. Pacific time, on a  Tuesday evening. (0 COMMENTS)

As far as I know, neither political party has ever advocated “death panels”, that is, panels of experts that would deny Medicare coverage to FDA-approved treatments that don’t pass a cost/benefit test. But maybe they should. Biogen’s new drug to treat Alzheimer’s was recently evaluated by the FDA.  Here is Rachel Sachs in Health Affairs: In March 2019, both trials were stopped halfway through, when “a planned interim analysis met prespecified futility criteria.” But Biogen went further into the data, analyzing the results and arguing that the high-dose patient population in the second trial had in fact experienced a statistically significant clinical benefit when measured against the placebo (a 22 percent reduction of clinical decline as measured on a chosen clinical scale), albeit a benefit absent from the high-dose population in the other trial or the low-dose population in either trial. On this basis, Biogen submitted an application to the agency for approval in July 2020. In November 2020, the FDA convened a meeting of the pertinent advisory committee to review the evidence surrounding aducanumab. The advisory committee was highly skeptical of the post-hoc rationale used to provide evidence of the drug’s effectiveness, particularly when viewed against the backdrop of decades of failures of drugs which similarly targeted amyloid plaques. I am no expert here, but in general I am extremely suspicious of claims of “statistical significance” that rely on post-hoc rationalizations. The committee was also unimpressed: The FDA’s own advisory committee voted overwhelmingly that the drug’s clinical trials did not demonstrate evidence of effectiveness (with ten members opposed, none in favor, and one abstention). Nonetheless, the FDA recently approved the new drug, which will have a $56,000 list price.  Given that more than 6 million Americans suffer from Alzheimer’s (a number that is rising rapidly), this decision will have major consequences for health care costs: The FDA’s approval of Aduhelm is likely to have health policy ramifications far beyond the FDA itself, though. As noted above, the potential financial implications for our health care system are staggering. Medicare Part B spends approximately $37 billion annually on prescription drugs program-wide, and Part D spends approximately $90 billion annually. Given the large patient population and high price tag, it is not difficult to imagine aducanumab alone commanding somewhere between those totals every year—for a drug with extremely limited evidence of clinical efficacy. I believe that all American should be free to use Aduhelm (aka aducanumab) as long as taxpayers don’t have to pay for it.  The more difficult question is whether it makes sense for taxpayers to pay vast sums of money to subsidize drugs that government experts view as having little or no benefit (relative to cost.)  I’m skeptical of that idea, although I’m willing to listen to arguments for the other side. PS.  Three members of the FDA advisory panel have now resigned in protest: A third member of a key Food and Drug Administration advisory panel has resigned over the agency’s controversial decision to approve Biogen’s new Alzheimer’s drug, Aduhelm, CNBC has learned. Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School, said the agency’s decision on Biogen “was probably the worst drug approval decision in recent U.S. history,” according to his resignation letter obtained by CNBC. PPS.  I recently appeared on the Bob Murphy Show. (0 COMMENTS)

Libel law is back in the news what with some public rethinking (more like wailing and gnashing of teeth) about New York Times v. Sullivan. Should public figures be more or less protected from being libeled is one issue that has arisen. Another is exactly who is and who is not a public figure? Then there is the question of whether or not “actual malice” should be a requirement for libel. And where does the First Amendment fit in to all of this? Justice Clarence Thomas and Senior Judge Laurence Silberman are thinking out loud about restructuring Sullivan. These questions do not go deep enough. Instead of seeking “balance,” and fine-tuning this legal precedent, we should dig deeper. Of more basic moment is the question of whether libelous speech ought to be unlawful in the first place. At the outset, this seems like a silly question. Slander ruins people’s reputations. The victims of this practice can lose their jobs, friends, marriages, the respect of the general community. Surely, there should be at least some protection for them? Yes, but not a legal one. Why not a course of action in court? Is not libel akin to theft? Only in this case, what is being stolen is  more important than ordinary goods like shoes or coats, or even automobiles or boats in many cases. We are accustomed to referring to people’s reputations as if they were owned. My reputation, your reputation, Jim’s reputation. This is more than a little bit misleading in that people don’t actually possess the reputations that refer to themselves. Rather, Jim’s reputation consists of the thoughts (and predilections to act in certain ways) of other people, not of what he thinks about himself. His reputation, paradoxically, consists solely and of nothing but the thoughts about him on the part of his neighbors, family members, bosses, fellow workers, sports team members, bowling league colleagues, etc. Since he cannot own these possessions of other people, their thoughts about him, he cannot, somewhat surprisingly, own his own reputation. Thus, libel laws of whatever variety, type or degree, are unjust; they protect people from losing what isn’t really theirs in the first place. Here is a paradox. Reputations would actually be safer, in most cases, without laws against slander and libel. For nowadays if a reputation is besmirched, especially by the mainstream media which reaches millions, people are likely to believe the smear, at least partially. “Where there’s smoke there must be at least a little fire,” might be the common reaction. These attacks occur relatively infrequently, and thus also tend to stand out. But without such legislation, the slurs and insults would come thick and fast. There would be so many, they would lose their relative power to reduce people’s standing in the community. No longer would mere allegations suffice. Now some sort of proof or evidence would be required before one’s character would suffer. So let us not fine tune around the edges of libel law, making marginal changes and adjustments as to who is and is not a “public figure.” Don’t we all have the same identical rights, no matter how public our persona? Instead, let us repeal this spate of legislation root and branch, and overturn judicial findings supporting this mischievous unjustified legal tradition. Walter E. Block is Harold E. Wirth Eminent Scholar Endowed Chair and Professor of Economics at Loyola University New Orleans (0 COMMENTS)

Most government interventions consist in forbidding adult individuals (or their voluntary associations) to freely engage in acts of exchange: securities laws, antitrust laws, minimum-wage laws, maximum prices (like in “price gouging” laws, for example), laws and regulations mandating or banning discrimination, legal privileges for trade unions, tariffs and import controls, and so forth. Some believe that all these interventions are required, and required in growing number. Many people including some economists ignore or forget the benefits of voluntary exchange. In The Wealth of Nations (1786), Adam Smith illustrated the centrality of exchange in economic relations (and, in fact, in all social relations) when he wrote about a certain propensity in human nature … the propensity to truck, barter, and exchange one thing for another. … Whoever offers to another a bargain of any kind, proposes to do this: Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of. This is a positive statement, which describes a distinctive way in which human individuals often behave: they engage in acts of voluntary exchange when it is in their mutual interest to do so. Smith also showed that a society based on free exchange is the secret to general prosperity. All animals including humans, however, also use force (murder and theft) as an alternative to exchange. This suggests a normative (that is, moral) idea: free exchange should be the founding principle of social interaction. One common objection is that the individual does not really know what is good for himself and should, in his own interest, have his choices, or some of them, coercively limited or dictated by political rulers. The problems with this objection are many, as the public-choice school of economics has confirmed. There is nothing to prove that such an authoritarian ruler, whether representing a minority or a majority, can know better than each individual what is good for him given his own circumstances. Even if the ruler could know, his altruistic incentives would be generally lacking. And even an altruistic despot (or despotic assembly) would be unable to act for the good of each and every individual, for different individuals have different preferences and values. Another objection is that market exchange fails because of “externalities” and other market imperfections. The proponents of this approach don’t seem to realize that government intervention is generally subject to even more failures than exchange on free markets. (See a short review of the problem in my Econlog post “Externalities: Handle with Care.”) James Buchanan, one of the main founders of the public-choice school of economics, expresses the principle of free exchange in a way that puts in sharp focus the revolutionary character of the normative approach suggested by economics: If I observe someone with apples and somebody else with oranges, I don’t want to try to say a particular allocation of oranges and apples in a final position is better than in the other allocation. If I observe them trading without defrauding each other, whatever emerges, emerges, and that is the way I define what is efficient. That this quote comes from a conversation between Buchanan and Richard Musgrave, a major theorist of mainstream public finance, shows the extent of the mini-revolution that the former introduced into the already revolutionary science of economics (James M. Buchanan and Richard A. Musgrave, Public Finance and Public Choice: Two Contrasting Visions of the State [MIT Press, 1999]). In the same book, Buchanan argues: As for global or social utility or social welfare, I am not willing to impose any sort of maximand. … Whatever emerges from individual choices emerges, and it is not a question of imposing a kind of global maximization process. … My concern and my primary motivation here in a normative sense is preventing the exploitation of man by man, or woman by woman, through the political process. That is what is driving my whole approach. Buchanan dreamed of, and theorized about, a state that would be based on “politics as exchange,” trying to mimic in politics free exchange between free individuals on free markets. To which extent his ambitious and sophisticated demonstration was successful remains an open question. Speaking about the 20th century, which continues in the 21st with a vengeance, Buchanan added: This terrible century has done much more than bear witness to the tragic failures of collectivist controls over personal lives. (0 COMMENTS)

What is the outlook for black Americans today- is the black experience glass half full or half empty? Is racial discrimination the root of all problems in Black America? In this episode, EconTalk host Russ Roberts welcomes the Wall Street Journal‘s Jason Riley, who argues the current situation has been distorted by activists with conflicting interests. Says Riley, “I’m not someone who believes that racism has been vanquished from America. The question is: does racism explain the outcomes we see today…?” Now we’d like to turn the conversation over to you. After listening to the episode, consider the prompts below and share your replies. We’d love to see them here online, but we’re equally pleased if we can help you start a conversation with someone offline.     1- The conversation begins with a discussion of police violence. Riley argues that the media preoccupied with breaking down police encounters by race, but not criminality by race. Which is the bigger problem- policing or black criminality? To what extent do you agree this presents a distorted view to the public? What are some of the unintended consequences Riley says results from this media (and social media) attention?   2- Riley notes that during the period between the Civil War and the Civil Rights movement, black lives improved greatly and in a great many ways. What does he suggest we should learn from that? How does this relate to what Riley call the problem of black elites? How does Riley use the case of immigration as a comparison to black Americans today?   3. For what reasons does Riley argue that the Drug War has become a victim of revisionist history? To what extent do you agree with his statement that, “if your goal is to a). reduce mass incarceration, or b). reduce the racial disparities among our incarcerated population, among the prison population, going after the drug war is barking up the wrong tree.”   4- Riley sadly suggests he thinks racism is a part of human nature. Is that true? As he and Roberts speculate at the end of the conversation, would everything really be hunky-dory if  the US eliminated racism?   5- The episode ends with a brief discussion of Riley’s new biography of Thomas Sowell. What do Riley and Roberts see as Sowell’s legacy?   (0 COMMENTS)

In some recent posts, I threw out the idea of banning corporations from paying ransomware. I expected the idea to be shot down in the comment section, but I didn’t see any persuasive arguments against the proposal.  In fairness to my commenters, however, most of their arguments were far superior to those offered in a recent Bloomberg article: Consider a simple example. Suppose a state legislature, sick and tired of the number of people being robbed on the street, decides to make it a crime to give money to a mugger. The legislation might well reduce the supply of muggings, but only by imposing the cost of this public good — fewer robberies — on the victims. Yet handing my wallet to the mugger who is pointing a gun at my head is completely rational. Punishing me to lower the crime rate is a peculiar way for a free nation to behave. Freedom? By that argument the Foreign Corrupt Practices Act interferes with the “freedom” of corporations to pay bribes to foreign officials. The Bloomberg article does provide some useful information, however: [A]fter Colonial Pipeline forked over $4.4 million in Bitcoins to the hackers at DarkSide, the decryption tool the company received in return proved so ineffective that the company wound up rebuilding its network from scratch. So not only did Colonial Pipeline damage the US economy by encouraging other criminals to extort money from other American corporations, they didn’t even achieve their objective after they paid the ransom.  We would have done Colonial Pipeline a favor by banning the payment of ransom.  Nor is this an isolated case: Even for those who pay, the chances of full data recovery are slim.  An April 2021 report from Sophos places the likelihood of getting all the data back at 8%. As for the claim that my idea is obviously infeasible, tell that to the Biden administration: In response to the growing threat, more and more observers have become attracted to the theory that the best way to stop ransomware attacks is to make paying the ransom illegal. Biden administration officials have suggested that the notion has merit. We can end the problem of US corporations paying ransom.  So why not do it? (1 COMMENTS)

Over time, the labor force (employed plus unemployed) usually tends to grow at a pretty stable rate. In addition, hourly wage rates are sticky, or slow to adjust to shocks. As a result, a healthy economy requires a relatively slow but steady growth in nominal labor compensation. One way to do that is to have the central bank target NGDP growth at 4% or 5%/year. In a recent post, I suggested that the Covid recession was one case where NGDP targeting might not have worked very well. That’s because the labor force plunged much lower in March and April 2020. Given the slow adjustment in nominal wages, it was appropriate to have some slowdown in NGDP growth. For the same reason, it’s probably appropriate that French NGDP dips a bit each year in August.  Thus central banks probably shouldn’t try to target current NGDP, rather they should set policy at a position expected to produce on target future NGDP. How far in the future? I’m not sure, but a year or two seems reasonable. Here’s an example. Suppose the Fed is targeting NGDP growth at 4%/year. Also suppose that in the 4th quarter of 2024, the previous 12-month growth rate has been only 3%. In that case they might aim for a total growth of 9% by the 4th quarter of 2026. This would represent growth of 4%/year for 2 years, plus 1% more of catch up growth. I believe that sort of policy regime would have worked fine during the Covid recession, although I can imagine situations where even that approach might not be appropriate.  (Say an epidemic kills 50% of the labor force.) I’d also emphasize that the Covid recession was highly unusual.  Even the Spanish flu of 1918-19 did not cause a big recession or a major fall in the labor force. (The big recession in 1920-21 was unrelated to the Spanish flu—it was caused by tight money.)  So the Covid recession was very unusual, and monetary policy going forward would do better to focus on preventing ordinary recessions. PS.  Stable NGDP growth also helps with financial stability.  That slightly modifies the analysis provided here, but doesn’t overturn the result. (0 COMMENTS)

Reader Joe Munson sent me this thoughtful message.  Reprinted with his permission. Dear Bryan, It occurred to me the other day that many high schools and even colleges will basically waive certain subjects for you if you have even moderate learning disabilities (or can get a psychologist to say you do). Foreign languages, gym, even math can basically be waived (I know, because math and foreign languages were waived for me). This is strange, if these subjects were so crucial, you would think schools would want to force the people with learning disabilities to spend more class time on them, not less. Moreover, my university would actually let you test out of foreign language classes and get the credits for taking them– just as long as you paid them for the knowledge you already knew (tons of people did and do this, and thought it was super reasonable) I just thought I would email you because I think it may be particularly convincing to some people, because rhetorically, if you want to defend the status que, you either have to say disabled students won’t succeed anyway, or concede that the subjects are not important. It’s also so strange that the Ken Robinson talk is the most viewed TED talk and it argues that school creates a massive negative externality by killing creativity. If he is right then schools are really much worse than basically everyone realizes. I just thought it might add to the persuasiveness of your education as  80 percent signaling theory, which seems so profoundly correct to me. Best, Joe   P.S. Hope to see you at Capla-Con Austin! (1 COMMENTS)

When I called Don Boudreaux yesterday, he was awaiting a call from his insurance company after the condo above him had leaked water into his condo. We got talking about insurance and I remembered my first interaction with my auto insurer, State Farm. I was a fairly safe driver, so even though I had driven from age 16 on, I had my first fender bender when I was 31 or 32. I was crossing a bridge from Washington, D.C. to Arlington, VA and I crashed into a trailer being hauled by a truck. The other driver and I agreed that I had not damaged his trailer but I had damaged mine, and it was entirely my fault. My mind had wandered back to this or that work issue. With a lot of trepidation, I called up my insurer, State Farm. I talked to the person as if I were talking to my father and expecting to get yelled at. He or she didn’t. The claims person calmly took my information and told me how to go about getting a repair estimate. This response by the insurance company representative may not surprise you and it would no longer surprise me. That’s the point. Sometimes we bring into the bigger world our mindset from growing up in a family and expect the people in that bigger world to react the way family members might. But State Farm was providing a service that it was charging for. The company had a strong incentive to tell its employees to treat their customers professionally. What I remember still is how good I felt from that interaction compared to how I had expected to feel.   (0 COMMENTS)

The Book Club on Mike Huemer’s Knowledge, Reality, and Value continues.  Today, I cover Part 2 of the book.  To repeat, though I’m a huge fan of the book, I’m focusing almost entirely on disagreements. 1. One of Huemer’s preferred responses to the classic Brain-in-a-Vat (BIV) scenario is that – especially compared to the Real World story – its a weakly-supported theory. The Real World theory predicts (perhaps not with certainty, but with reasonably high probability) that you should be having a coherent sequence of experiences which admit of being interpreted as representing physical objects obeying consistent laws of nature. Roughly speaking, if you’re living in the real world, stuff should fit together and make sense. The BIV theory, on the other hand, makes essentially no predictions about your experiences. On the BIV theory, you might have a coherent sequence of experiences, if the scientists decide to give you that. But you could equally well have any logically possible sequence of experiences, depending on what the scientists decide to give you. Why, though, couldn’t we race the Real World theory against the Simulation-of-the-Real-World theory?  Instead of a generic story of BIVs, we could have a specific story saying the real world exists and provides the inspiration for the simulation we’re in.  I know it sounds ad hoc, but notice that modern technologists are already trying to simulate the real world with virtual reality and such. Huemer goes on to argue for “direct realism” as an even more straightforward response to BIV.  Question for him: To what extent is this approach compatible with just saying that the reasonable Bayesian prior probability assigns overwhelming to the Real World story?  (In Moorean terms, this closely resembles an appeal to “initial plausibility.”) 2. Huemer exhaustively covers the modern Gettier-inspired objections to the classic definition that knowledge is “justified, true belief.”  The objections to the definition are convincing.  Still, what’s wrong with the slightly modified view that when we call X “knowledge,” we almost always mean that X is a “justified, true belief”?  By analogy, we would probably call a floating antigravity platform a “table.”  Yet when we call something a table, we almost always mean a platform on top of one or more supports.  In other words, we can think of “justified, true belief” as a helpful description of knowledge rather than a strict definition.  What if anything is wrong with that? 3. Crazy as it seems, I have no other notable disagreements with Part 2.  So let me end with my favorite insight.  After showing the many desperate attempts to define “knowledge,” Huemer explains that mathematically precise definitions are grossly overrated: This is no counsel of despair. The same theory that explains why we haven’t produced any good definitions also explains why it was a mistake to want them. We thought, for instance, that we needed a definition of “know” in order to understand the concept and to apply it in particular circumstances. Luckily, that isn’t how one learns a concept, nor how one applies it once learned. We learn a concept through exposure to its usage in our speech community, and we apply it by imitating that usage. Indeed, even if philosophers were to one day finally articulate a correct definition of “knowledge”, free of counter-examples, this definition would doubtless be so complex and abstract that telling it to someone who didn’t already understand the word would do more to confuse them than to clarify the meaning of “knowledge”. So often I’ve heard people say, “Is X good?  It depends on how you define ‘good.'”  And what I want to reply is, “We both know what the word ‘good’ means.  The question is whether X possesses it.” As usual, please leave questions for Huemer and myself in the comments, and we’ll respond in the next week or so.       (0 COMMENTS)