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

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

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


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


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


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

Visit the Library of Economics and Liberty

Recent Posts

Here are the 10 latest posts from EconLog.

EconLog September 24, 2017

Abraham Lincoln on the Theory of Public Choice, by David Henderson

We then, do not say, nor need we say, to maintain our proposition, that Bank officers are more honest than Government officers, selected by the same rule. What we do say is that the interest of the Sub-Treasurer is against his duty--while the interest of the Bank is on the side of its duty. Take instances--a Sub-Treasurer has in his hands one hundred thousand dollars of public money; his duty says--"You ought to pay this money over"--but his interest says, "You ought to run away with this sum, and be a nabob the balance of your life." And who that knows anything of human nature, doubts that, in many instances, interest will prevail over duty, and that the Sub-Treasurers will prefer opulent knavery in a foreign land, to honest poverty at home? But how different it is with a Bank. . . . Its interest therefore is on the side of its duty--is to be faithful to the Government, and consequently, even the dishonest amongst its managers, have no temptation to be faithless to it.This is from a speech given by Abraham Lincoln on December 26, 1839 in Springfield, IL.

I highlight it because it's on the back cover of the June 1993 issue of the Journal of Political Economy. From sometime in the 1970s to sometime in the 1990s, the JPE had a quote on the back cover of virtually every issue. I once suggested one that got used. This one was suggested by Milton Friedman.


EconLog September 24, 2017

America's middle class: 50 years of amazing progress, by Scott Sumner

You see a lot of hand wringing about the plight of America's middle class, so I thought I'd check the data. But which data? You might start with average incomes, but these are skewed by the rapid growth in income of the top 1%. So most experts believe that median income is a better metric. The next question is household income versus family income. I choose family for two reasons:

  1. The data series for family income goes way back, whereas household income starts being collected in the mid-1980s.

  2. Households include single individuals, whereas families are multi-person households. I was technically "poor" from age 18 to 26, but I don't think anyone was too concerned about my plight. Nor should they have been. I was a household, but not a family. I think when people talk about the plight of the middle class they tend to envision families.

The next question is whether to use real or nominal income? I think most people believe real income is a better measure of living standards. So here's real median family income from 1966 to 2016:

Screen Shot 2017-09-24 at 12.19.04 PM.png
Real median household family income has soared from $48,800 in 1966 to about $72,700 in 2016, an all-time high. And keep in mind that 1966 was a golden year for the US economy, a period where living standards had reached highs that were far above almost any other time or place in human history. And from that point we've gone still higher, much higher.

And it gets even better. Most economists think that the CPI (used to construct this data series) seriously overstates inflation. They tend to prefer the PCE price index. Using that index to deflate median family income, I came up with this graph:

Screen Shot 2017-09-24 at 12.23.35 PM.png
Now the real median family income has nearly doubled, soaring from $48,800 to $92,900. Live must be pretty sweet for the median American family.

Let me anticipate some objections:

  1. There are more two-income families today. But does anyone really think people are working harder than in 1966? Lots of grueling, boring factory jobs have been replaced by office work where people spend 1/2 the day surfing the web (which is consumption disguised as work.) Women do far less housework than before. Those affluent women with grueling jobs sometimes have maids to help out around the house. It doesn't seem to me that people work harder than in the 1960s. In addition, families tend to be much smaller, so that $92,900 is shared among a smaller number of family members.

  2. We are richer than ever, but the growth rate has recently slowed. Yes, but that's a pretty weak argument. There's no iron law of economic growth that says the world will continually experience the sorts of growth rates in family incomes than we saw in 1945-73. That was a very unusual period of time.

My point is that all the hand wringing about middle class families is off base. They are doing spectacularly well. Maybe their already extremely high living standards are improving at a slower rate than before, but that hardly counts as a crisis, (or "carnage" to use Trump's language.) And I'd add that the past 4 years have seen rapid growth in real median incomes.

I'm sure I missed something here, so I look forward to your comments below.

PS. If your eyes are telling you that living standards are declining, then I suggest you read this post, and get new glasses. There's a reason why new homes being built today are far nicer that the sort of "Levittown" homes built after WWII to house the middle class:

Screen Shot 2017-09-24 at 1.09.31 PM.png

PPS. In a recent MoneyIllusion post, I pointed out that birth rates in America continued to plunge in 2016, despite soaring median income in recent years. A commenter Alec Fahrin pointed out that the early data from 2017 point to a continued decline in birth rates. The widely held view that the Great Recession is responsible for lower birth rates seems to have surprisingly little empirical support. Whatever is causing the plunging birth rate in places like Germany and America; it's not "hard times". If you want high birth rates, go to central Africa.


EconLog September 23, 2017

Reply to Bryan on utilitarianism, by Scott Sumner

Bryan Caplan has responded to my recent post on liberalism and utilitarianism. I agree with his first criticism:

First, if "Liberalism is what happens when you are optimizing for a safe environment, and illiberalism is what happens when you optimize for thriving in an unsafe environment," are we talking about selfish optimization or social optimization? If the former, then how does being rich make caring about outsiders "selfishly optimal"? If the latter, then it sounds like utilitarianism requires illiberalism in unsafe environments.

Mea culpa. I unthinkingly adopted the term "optimizing", which was used by Scott Alexander. I should have used something like "operating". Thus militarism is what you get when you are a tribe operating in a world of lots of other aggressive militaristic tribes. Norway and Switzerland is what you get when you are operating in a region with lots of peaceful, free-trading EU nations. Non-utilitarian illiberalism occurs when countries keep acting like they are in the dangerous world of the Stone Age, (or Middle Ages), even though they live in the 21st century. (See North Korea.)

I don't agree with the other criticisms:

Second, classical liberalism, social democratic liberalism, and neoliberalism have all been widely accused of ignoring the interests of wide swaths of the population. Classical liberals and neoliberals allegedly ignore the interests of the poor; social democrats allegedly ignore the interests of taxpayers and entrepreneurs.There will always be differences in opinion as to how to best implement utilitarian values. Indeed that's why liberalism has evolved over time. In 1780, people really did think laissez-faire was in the interests of the poor. In the 1930s, people really did believe that socialism was in the interests of the poor. Even at a point in time, opinions can vary. But I believe that all of those forms of liberalism were basically aiming at maximizing aggregate utility, regardless of what the critics said.> Third, most - perhaps all - of what Scott calls "illiberal" views have been defended on utilitarian grounds. See e.g. James Fitzjames Stephen, noted 19th-century conservative utilitarian. You could say, "I'm classifying views based on whether they really maximize total happiness," but then why include three disparate flavors of "liberalism"? They can't all be right.It's certainly true that some past liberals held beliefs that are now viewed as illiberal. Readers of Richard Rorty know that there is no such thing as being "actually correct", as opposed to what is believed to be correct. All three types of liberals were perceived as holding correct (utilitarian) views at the time, by a consensus of fashionable intellectuals. Thus all three were forms of liberalism. As an analogy, the beliefs of 20th century Christians are radically different from the beliefs of 10th century Christians. But both groups are Christians.> Concern for the welfare of others is part of the utilitarian ethos. But so is sober cost-benefit analysis and, as a corollary, hostility to Social Desirability Bias. 1966 may have been a period of relatively high sympathy for blacks (though probably little for Indochinese), but it was also an era of rampant wishful thinking.American sympathy for the Indochinese was higher than normal for wartime. During WWII, Americans were not much troubled by atrocities committed against our foes. During the 1960s and 1970s, Americans were very concerned about atrocities committed against the Vietnamese. The bombing of Vietnam was far more controversial than the bombing of Japan, despite the fact that in the Vietnam War the military tried much harder to avoid civilian casualties--as compared to WWII. (That's not to say they tried as hard as they should have---they did not.)

As far as "wishful thinking", that's always a problem. Certainly the "Great Society" featured a great deal of wishful thinking, but that doesn't mean that it was not a fundamentally utilitarian program. The motives were pretty clearly utilitarian. Voters crossed party lines in 1964 and again in 1972, because they shared a pretty similar set of goals. Today voters are far more tribal. And in fairness to the 1960s, while there was wishful thinking, there was also far more rationality about the war on terror, or political correctness, than we see today. So we've become more rational in some areas and less so in others.

Unless I greatly misunderstand Scott, I think he agrees with me that the middle class is doing much better today than in the mid-60s. So how does this example illustrate the positive effect of prosperity on concern for others?In those days the economy grew rapidly, and income was more equal. It was expected that rapid growth would continue. Today people are more worried about the prospects for their children. I suppose this is partly because people look at how they are doing relative to those around them. So today there is more anxiety about getting kids into top universities, because it seems like more is at stake. Autoworkers no longer earn as much as college professors.

I do think that people are better off in the sense that millennials prefer our modern lifestyle to the lifestyle of the 1960s.

I don't think people are happier than in the 1960s, or perceive themselves as being better off.

In contrast, I think the people of the 1960s really did believe they were much better off than their grandparents, who may have lacked cars, indoor plumbing, antibiotics, and home appliances.

To summarize, I don't have a lot of confidence in my hypothesis, which is based on a few observations:

  1. The Great Depression led to some illiberal policies, especially in Germany.

  2. We do things in wartime (like putting Japanese Americans into camps) that we are unlikely to do in peacetime.

  3. 9/11 seems to have made people more nationalistic and militaristic. Indeed even I became too militaristic after 9/11.

On the other hand, I don't see a lot of evidence that the Great Recession pushed the world strongly away from utilitarianism. Yes, there is Brexit and Trump, but how much will actually change? Although Brexit will occur in 2019 (de jure), today there is a report that actual implementation of Brexit (de facto) is being pushed back into the 2020s, if it occurs at all (which I increasingly doubt.) I'd file this under "too soon to know", as it will in part depend on how situations like North Korea play out.

So I certainly agree with Bryan that there are good arguments against my position.

PS. In 1970, terrorists exploded a huge truck bomb just 2 miles from my house. This did not lead to a surge in the sort of silly "war on terror" security measures that we see today. Unlike today, people on the left and the right were not obsessed with "safe spaces".


EconLog September 22, 2017

Cold James Buchanan, by David Henderson

I'm about 60 percent of the way through Nancy MacLean's Democracy in Chains, a book that many critics have commented on.

On p. 32, Professor MacLean writes:

His bearing was "austere," a later colleague explained; while he was "a good person"--a man of integrity--he was also "one of the coldest people I have ever met."
Her footnote references this article in the New York Times.

My mileage varied a good bit. I've been cleaning my campus office at the Naval Postgraduate School in preparation for my retirement next Friday. I came across a James Buchanan file that I thought I had had in my downtown office that burned down in February 2007.

In it was a letter from Jim, which I received at age 20 in response to one I had written him. By the way, I had written him only about a week or so earlier.

Here's the letter:

Sept 1971 letter to DRH.pdf

And here's a highlight from the letter, some advice he gave a 20-year-old stranger that went well beyond what I asked for:

Incidentally, in a discussion last month, several of us agreed that now would be an excellent time for some student to take the procedure used in that appendix and apply it to the US national debt and see how the situation has changed since, say, 1960. This could be done easily, and it might well snake a publishable note for, say, the National Tax Journal.
Unfortunately, I didn't take it, which is true of lots of advice I was given at that age. (2 COMMENTS)

EconLog September 21, 2017

Feldstein's Insight on Standards of Living, by David Henderson

In a recent op/ed in the Wall Street Journal, my former boss at the Council of Economic Advisers and Harvard economist Martin Feldstein points out that the data on real incomes in the United States systematically understate its growth. The article is titled "We're Richer Than We Realize," WSJ, September 8 (September 9-10 in the print edition.)

An excerpt:

Consider how the government handles manufactured products when their quality improves. Statisticians track a large number of products. For each, they ask the manufacturer two questions: Has the product changed since last year? If so, how much more does it cost to make this year's model than it would now cost to make last year's model?

If there is no increase in the cost of production, the government concludes that there has been no increase in quality. And if the manufacturer reports an increase in the cost of production, the government assumes that the value of the product to consumers has increased in the same proportion.
That's amazing! I knew, and have written about, the fact that the government understates improvements in quality. I had not known how naively the government did that.

It reminds me of something I did know and reported on in "The Digital Economic Revolution," Red Herring, September 1, 1997. I wrote:

Which brings us back to the government data. To compute labor productivity in an industry, the federal government's Bureau of Economic Analysis divides the output of an industry by the number of people employed. Not bad for, say, copper mining, where tons of copper mined is a pretty decent measure of output. But how do you think the federal government, with all its high-powered analysts and its multimillion-dollar budgets for gathering data, measures productivity in the banking industry? The number of transactions per employee? Or maybe the per-employee value of deposits and loans, adjusted for inflation?

Neither. The Commerce Department's august Bureau of Economic Analysis measures output of banking by the number of people employed in banking. This means that if the number of banking employees rises by 10 percent, then the government's data crunchers simply assume that output rises by 10 percent. Therefore, the banking industry's productivity growth is zero, not by observation, but by definition.

Of course, productivity in banking is growing. According to surveys by the Bank Administration Institute, the number of checks processed per hour, a measure of bank workers' productivity, rose from 265 items in 1971 to 825 in 1986, a rate of increase of 7.6 percent annually. Presumably computers were a factor in this productivity growth. And as noted by Martin Baily, an economist at the Brookings Institution, and Robert J. Gordon, an economist at Northwestern University, the per-check processing costs for electronic funds transfers (EFTs), which were made possible by the information technology revolution, are a fraction of the cost of conventional check processing. EFTs still constitute only a small percentage of transactions, but as this segment grows, productivity will increase.
Marty points out another factor that understates growth:
There are other problems that cause the official statistics to underestimate the true growth of real income. A basic government rule of GDP measurement is to count only goods and services that are sold in the market. Services like Google and Facebook are therefore excluded from GDP even though they are of substantial value to households. The increasing importance of such free services implies a further understatement of real income growth.
Sadly, a number of commenters on the Journal's site failed to get his point. I'll quote three and, rather than tell you what's wrong with the commenters' statements, leave that as an exercise for the reader. Remember that these statements are made by people who, it is clear from tone, think they're challenging Marty's argument.

matthew kimball writes:

Another example is food has gone up and quality hasn't, gas has gone up, home price have gone up, clothing has gone up. All the essentials have gone up.
Gregory Weinman writes:
Telling me the LG G6 I bought to replace my LG G4 is far better is immaterial because both cost the same.
John Callahan writes:
Mr. Feldstein sounds much like New York Fed President William Dudley did half a decade ago--out of touch with the average American. Mr. Dudley was in Queens touting improvements in technology in regards to the cost of living- "Today you can buy an iPad 2 that costs the same as an iPad 1 that is twice as powerful.... You have to look at the prices of all things." The residents of Queens were far more concerned about rapidly rising grocery and gasoline prices and rightfully so. As one resident noted, "You can't eat an iPad."
HT@ Francois Melese. (4 COMMENTS)

EconLog September 21, 2017

Left and Right: A Socratic Dialogue, by Bryan Caplan

[Backstory: Greek luminaries Socrates, Pericles, and Leonidas have time-traveled from ancient times to the 21st century.  A few months after immersion in the modern world, Pericles is a convinced member of what modernity calls "the left," while Leonidas is an equally staunch member of "the right."  Socrates, in contrast, finds 21st-century political thought shallow and confused.  But perhaps it's his fault...]

Socrates: Quite an intellectual journey, my friends.

Indeed, I can't believe how much I've learned in so short a time.

Leonidas: Well, I've learned a lot.  Pericles seems dumber than ever.

Socrates: Gentlemen, please - let's be civil.  As you know, I'm baffled by your sympathy for either of these strange schools of thought.  In fact, I struggle to figure out what even defines them.

It's not so hard.  Leftists like me care about everyone.  Rightists like Leonidas only care about people like themselves. 

Leonidas: [harumphs] You don't "care about everyone."  You only care about people on your side - and you expect the rest of us to foot the bill.

Socrates: And who exactly is on your side?

I don't know what Leonidas is talking about.  Everyone counts in my book.

Leonidas: Really!  How about people who cherish the traditional family?  Traditional religious believers?  Rural whites?  Cops?  Front-line soldiers?

Pericles: This identity politics game you're playing is only an attempt to distract people from the real issues: inequality, corporate power, structural oppression.

Yeah, yeah.  Your virtual signaling is only an attempt to distract people from the real issue: liberals like you run government half the time and culture all the time.  No wonder the world gets more leftist with every generation.

[sigh] Since you two seem to have lost the ability to converse with each other, perhaps you'll let me direct the conversation?



Very well.  One common view is that leftists favor a larger role for government, while rightists favor a smaller role for government.

Sure, because only government - rightly guided - can address the real issues of inequality, corporate power, and structural oppression.

I guess some rightists favor smaller government, but most of us are just pragmatists.  The military is definitely "big government," and if the whole government worked as well as the military, I'd be thrilled.  When I actually looked over government budgets, I discovered lots of big programs that are well worth the cost: Social Security, Medicare, education, police, and much more.

Socrates: I see.  Another common view is that the left cares more about the poor, and the right cares more about the rich.

More or less.  I don't intrinsically care less about the rich; I just think they already get a lot more than they need or deserve.

I don't know any rightist who says, "We've got to stand up for the rich."  I care about middle and working class people who play by the rules.  If we can help them by taxing the rich more, great.  But I don't trust leftists to do that.  When they say, "Let's tax the rich to help the poor," they mean, "Let's tax everyone who plays by the rules to help everyone who doesn't."

How about the theory that the left is heavily guided by smart, well-educated, reality-based thinkers, while the right follows the lead of flamboyant demagogues?

There's little doubt that leftists dominate academia, the media, and science, especially the highest levels.  Leading leftists disproportionately come from these well-educated fields.  Are they especially "smart" and "reality-based"?  I don't know how to prove this to outsiders' satisfaction, but it seems a reasonable inference.   

Scientists are great within their specialties, but when they talk politics, I don't see that they know any more than anybody else.  The media and the rest of academia seems even worse.  They may have lots of book smarts, but they're lacking in common sense.

According to a very smart fellow named Scott Alexander, "Rightism is what happens when you're optimizing for surviving an unsafe environment, leftism is what happens when you're optimized for thriving in a safe environment."  Is he correct?

Pericles: I don't think we're in a "safe environment"!  The world is a lot richer than it was in ancient Greece, but there's still pervasive insecurity due to inequality, corporate power, and structural oppression.

And I think the modern environment is pretty safe - as long as you follow the rules.  Or at least that's how it used to be.  People like Pericles feel like they can make up the rules as they go along.

Socrates: So what's the gravest danger facing society?

Climate change.  Global capitalism is slowly cooking the planet.

I say: Islamofascism.  Though I'm tempted to respond "leftists," because they're the ones who won't let us decisively address this looming danger.

Another really smart guy named Robin Hanson argues that left/right strife reflects a primordial forager/farmer conflict.  A summary, if you'll bear with me:

And here is the key idea: individuals vary in the thresholds they use to switch between focusing on dealing with issues via an all-encompassing norm-enforcing talky collective, and or via general Machiavellian social skills, mediated by personal resources and allies. Everyone tends to switch together to a collective focus as the environment becomes richer and safer...

People who feel less safe are more afraid of changing whatever has worked in the past, and so hold on more tightly to typical past behaviors and practices. They are more worried about the group damaging the talky collective, via tolerating free riders, allowing more distinct subgroups, and by demanding too much from members who might just up and leave. Also, those who feel less able to influence communal discussions prefer groups norms to be enforced more simply and mechanically, without as many exceptions that will be more influenced by those who are good at talking.

I argue that this key "left vs. right" inclination to focus more vs less on a talky collective is the main parameter that consistently determines who people tend to ally with in large scale political coalitions.Pericles: I'm a big fan of dialogue, but not because I feel "safe."  As I said, I think the world faces serious - and maybe even existential - problems.  We need dialogue because it's the only viable way to wrest control of our society and our world back from moneyed interests.

Leftists' idea of a "dialogue" is them talking down to the rest of us, and shaming anyone who fails to loudly applaud.  I'd love to have a series of frank discussions - discussions where the answer is genuinely up for grabs, and pragmatism prevails.  And we really need such them, because Pericles is right about level of danger we're all in.  He just can't see that people like himself are a big part of the problem.

Hmm.  Before we move on, let me share one last theory by a noticeably less brilliant thinker named Bryan Caplan.  His story: the left is anti-market; the right is anti-left.  He elaborates:
1. Leftists are anti-market.  On an emotional level, they're critical of market outcomes.  No matter how good market outcomes are, they can't bear to say, "Markets have done a great job, who could ask for more?" 

  1. Rightists are anti-leftist.  On an emotional level, they're critical of leftists.  No matter how much they agree with leftists on an issue, they can't bear to say, "The left is totally right, it would be churlish to criticize them." Pericles: Rather simplistic.

Socrates: I know.  Caplan even calls it the "Simplistic Theory of Left and Right."  So is he correct?

Pericles: Of course not.  Leftists are rarely "anti-market."  We're just highly dissatisfied with the way unregulated markets work.

Socrates: Is the poor performance of unregulated markets an ephemeral coincidence?

Pericles: No, it's a timeless problem.  Heard of market failure?

Isn't that precisely what an anti-market person would say?

I don't want to abolish markets; I just want vigorous government corrections and vigilant government oversight.

Caplan never accuses the left of favoring the abolition of the market.  He merely claims you feel a lot of resentment toward it.

Well, there's lots to resent!

Yea - and I resent the implication that I'm an anti-intellectual rube.

Socrates: Does Caplan so accuse you?

Leonidas: Implicitly.  I hate the left, but only because they keep pushing society in the wrong direction.

Socrates: But you seem to embrace many ideas once seen as leftist, like Social Security and Medicare.  Why make the sweeping claim that the left "keeps pushing society in the wrong direction" when you embrace so many of their brainchildren?

We're pragmatists on the right. We're happy to adopt left-wing ideas that actually work.

What about those small-government rightists we mentioned earlier?

The right is a big tent.  I don't agree with them, but they've got some interesting ideas, too.

Socrates: So what unites you and the rightists you disagree with? 


Perhaps Caplan's half-right.  It is hard to name anything Leonidas and Milton Friedman share - except resentment of the left.

Right back at you, Pericles.  What do you and Hugo Chavez share - except resentment of the right?

Caplan would say they share a resentment of markets.  How is he wrong?

Chavez may be on the left, but he goes too far.

Socrates: Likely.  But Caplan's theory really doesn't speak to who's correct.  He's merely proposing a political taxonomy.

On the surface, perhaps.  But there's a hidden agenda.  Caplan's Simplistic Theory insinuates that both left and right are shallow and confused.  But only one of our sides has these defects.

For once, I agree.  The left is shallow and confused.

No, the right is shallow and confused.

Socrates: Friends, you're both tremendously convincing.  What you lack in logos, you make up in ethos.

[unamused] Very funny, Socrates.

In other words, you agree with Caplan.

Agree?  Not exactly.  As he openly admits, Caplan theory is simplistic.  That means "simple to a fault."  The Simplistic Theory leaves many big questions unanswered.  But... unlike the competition, at least it satisfactorily answers some of my main questions about modern political thought. [shudders]


EconLog September 20, 2017

Don't change the forecast; change the policy, by Scott Sumner

Today the Fed abandoned its previous forecast, which called for 2% inflation in 2018. Now they forecast that inflation will run below 2% in 2018, as it has for most of the past decade.

Screen Shot 2017-09-20 at 2.53.35 PM.png
I agree that it is likely that inflation will run below 2% in 2018. Nonetheless, I believe the Fed made a mistake by forecasting sub-2% inflation in 2018. Instead, the Fed should have changed its policy, so that it could continue to forecast inflation at 2% in 2018. This is what Lars Svensson means by "targeting the forecast."

The Fed is like a ship captain that intends the ship to arrive in New York, forecasts the ship will arrive in Boston, and then refuses to turn the steering wheel enough to equate the geographic goal with the geographic forecast.

EconLog September 20, 2017

My 1983 Response to Koch Lobbying on Oil, by David Henderson

In preparation for my imminent retirement, I've been going through files and files, throwing things out but keeping things too.

I came across a letter I wrote to George Pearson of Koch Industries, who took me to dinner in July 1983 to lobby me on something I didn't need lobbying on: oil import fees were and are a bad idea. (Was it legal for him to buy me a nice dinner? Yes. The law changed effective January 1, 1984.)

Here's my letter in response to a document that George gave me at dinner, followed by his response.

My letter:
DRH to George Pearson.pdf

Clarification: When I wrote, "Only if refiners price their products at average cost rather than marginal cost will the low price on domestic crude be translated into low product prices," I meant, and should have said "base their product prices on average cost rather than marginal cost." I didn't believe then, and don't believe now, that the retail gasoline industry is a perfectly competitive one. What I was getting at--and I fear I misled George--is that the refiners look at marginal cost rather than average cost in setting prices.

George's response:
Pearson response, phone # deleted.pdf


EconLog September 20, 2017

The Wonder of International Adoption: High School Grades in Sweden, by Bryan Caplan

Moving young children from the Third World to Sweden wipes out about half of their national IQ deficit.  What about performance in high school?  Vinnerljung et al.'s "School Performance at Age 16 Among International Adoptees" (International Social Work, 2010)  compiles the numbers, once again breaking them down by regular Swedes, Korean adoptees, and non-Korean adoptees.  Since these are high school students rather than conscripts, the data include women, yielding a much larger sample.  But otherwise, the national origin of the adoptees is basically the same as in Dalen et al. (2008) and Odenstad et al. (2008).  India, Thailand, Chile, Sri Lanka, Colombia, Ethiopia, and Ecuador top the list.

To start, imagine growing up in Sweden had zero effect on high school performance.  How would the non-Korean adoptees do?  As discussed earlier, if the non-Koreans had average IQ for their home countries, their mean IQ would be 84.  On the international PISA tests of science, reading, and math, countries with IQs around 84 score about one standard deviation below Sweden.*

EconLog September 19, 2017

Does Prosperity Make Us Utilitarian?, by Bryan Caplan

Scott Sumner has some thought-provoking reactions to my critique of Scott Alexander's Thrive/Survive Theory of left and right.  Here's my reaction, point-by-point.  Scott's in blockquotes; I'm not.

Liberalism is what happens when you are optimizing for a safe environment, and illiberalism is what happens when you optimize for thriving in an unsafe environment.

Now of course this raises a whole new set of issues. What do I mean by 'liberalism' and 'illiberalism'? When I say liberalism, I am including classical liberalism, social democratic liberalism and neoliberalism. I'm basically referring to utilitarianism. When I say illiberal, I am referring to a wide variety of non-utilitarian views, including class warfare (Mao), fascism (Hitler), white nationalism (Bannon), racism (KKK), reverse racism (SJWs), tribalism (Afghanistan), religious fanaticism, militarism, etc.

This is deeply puzzling. 

First, if "Liberalism is what happens when you are optimizing for a safe environment, and illiberalism is what happens when you optimize for thriving in an unsafe environment," are we talking about selfish optimization or social optimization?  If the former, then how does being rich make caring about outsiders "selfishly optimal"?  If the latter, then it sounds like utilitarianism requires illiberalism in unsafe environments.


Here are the 10 latest posts from EconTalk.

EconTalk September 20, 2017

The Rich Get Richer...

income inequality.jpg But is that a bad thing? That may be the central question explored in this week's EconTalk episode with UC Berkeley's Gabriel Zucman. Working with Thomas Piketty and Emmanuel Saez, Zucman explored national income accounts to look for trends in income inequality in the United States since 1980.Their results suggest that the bottom 50% of Americans have seen no growth in income, while a disproportionate share of growth has accrued to the top 1%. How robust are these results, and what policy implications might be suggested? And how does income inequality in America compare to that in other nations? Do you feel richer than you did in the 80s? Share your thoughts with us today... We always love to hear from you.

  1. In terms of income inequality, how are average growth rates misleading about the real state of the economy, according to Zucman?

  2. How does Zucman's analysis differ from previous attempts to measure income inequality? What are the weaknesses of using tax data for such purpose? How might a cross-sectional approach yield different results regarding income inequality?

EconTalk September 18, 2017

Gabriel Zucman on Inequality, Growth, and Distributional National Accounts

rich%20and%20poor.jpgGabriel Zucman of the University of California, Berkeley talks with EconTalk host Russ Roberts about his research on inequality and the distribution of income in the United States over the last 35 years. Zucman finds that there has been no change in income for the bottom half of the income distribution over this time period with large gains going to the top 1%. The conversation explores the robustness of this result to various assumptions and possible explanations for the findings.


Time: 1:12:35

EconTalk September 13, 2017

This is a Job for Super Regulator!

legal infrastructure.jpg What if librarians were charged with coming up with the next search engine? Would the legal infrastructure in place today support, complicate, or even hinder their efforts? Would the American Library Association be of help? Would they be able to do it fairly, allowing open access to others?

This compelling thought experiment closed this week's EconTalk episode with University of Southern California professor of law and economics Gillian Hadfield. Hadfield argues that the US legal structure, while well-suited to the 2oth century, is in need of an update. She has suggestions for this process, which host Russ Roberts says suffer a marketing problem. Can you help?

EconTalk September 11, 2017

Gillian Hadfield on Law and Rules For a Flat World

Rules%20for%20a%20Flat%20World.jpg Law professor Gillian Hadfield of the University of Southern California and author of Rules for a Flat World talks with EconTalk host Russ Roberts about the ideas in her book for regulating the digital future. Hadfield suggests the competitive provision of regulation with government oversight as a way to improve the flexibility and effectiveness of regulation in the dynamic digital world we are living in.


Time: 1:07:17

EconTalk September 4, 2017

Rob Reich on Foundations and Philanthropy

giving%20money.jpg Is private charity always a good thing? Do large foundations have too much power? Political Scientist Rob Reich of Stanford University talks with EconTalk host Russ Roberts about the power and effectiveness of foundations--large collections of wealth typically created and funded by a wealthy donor. Is such a plutocratic institution consistent with democracy? Reich discusses the history of foundations in the United States and the costs and benefits of foundation expenditures in the present.


Time: 1:03:34

EconTalk August 31, 2017

Where has all the Parking Gone?

garage.jpg What will the cars of the future look like? Will they resemble the teacups at Disneyland? How long will it take us to stop referring to "driving" when humans no longer do? (Think about how seldom you use your phone to "phone" someone...) And what will be the fate of all the parking lots and garages of today? Will they be used for other purposes or replaced entirely?

These are just some of the questions that come up in this week's EconTalk episode with Benedict Evans of Andreessen Horowitz. Evans suggests that we have a difficult time making predictions about the future when we extrapolate from that with which we're familiar today. But let's give it a shot...We always love to hear your thoughts.

  1. As we move from the cars of today to autonomous (Evans dislikes the term "driverless") vehicles, which elements will become more expensive and which less expensive? Which complementary industries will be most affected, and why?

EconTalk August 28, 2017

Benedict Evans on the Future of Cars

driverless%20cars.jpgBenedict Evans of Andreessen Horowitz talks with EconTalk host Russ Roberts about two important trends for the future of personal travel--the increasing number of electric cars and a world of autonomous vehicles. Evans talks about how these two trends are likely to continue and the implications for the economy, urban design, and how we live.


Time: 1:07:24

EconTalk August 24, 2017

paper TOWELS or PAPER towels

paper towels.jpg Emergent order has long been a common EconTalk theme, and this week's fascinating episode is no exception. This week, host Russ Roberts welcomed Columbia University linguist John McWhorter to the program to discuss the evolution of language and his new book, Words on the Move. Language as an emergent order has also long been a theme of political economy, but McWhorter's engaging examples and explanations breathe new life into the subject. It's a must listen (and I mean listen, as you'll miss a tremendous amount of auditory nuance.) For example, is it paper TOWELS, or PAPER towels? BLACKboard or blackBOARD? Let us know your thoughts today!

  1. Let's start with perhaps the most controversial question... Should we re-word Shakespeare for the modern audience? Why or why not?

EconTalk August 21, 2017

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

Words%20on%20the%20Move.jpg How did bad come to mean good? Why is Shakespeare so hard to understand? Is there anything good about "like" and "you know?" Author and professor John McWhorter of Columbia University talks with EconTalk host Russ Roberts about the unplanned ways that English speakers create English, an example of emergent order. Topics discussed include how words get short (but not too short), the demand for vividness in language, and why Shakespeare is so hard to understand.


Time: 1:04:43

EconTalk August 18, 2017

Soul in the Game

circuit breaker.jpg EconTalk host Russ Roberts welcomes back popular guest Nassim Nicholas Taleb in this week's episode to chat about the manuscript of his forthcoming book, Skin in the Game. In their wide-ranging conversation, the discuss the value of employees versus slaves, the intrinsic and extrinsic rewards to work, and the power of minorities. Even though Taleb counsels listeners to beware of "good advice," trust us...take ours and have a listen!

We'd love to get your reactions to this week's episode, so please share with us today. As always, we love to hear from you.

  1. Why does Taleb think we are more "slave-burdened" today than in the past? To what extent do you agree with him?