In her first economic policy speech as the 2024 Democratic presidential nominee, Kamala Harris rightly criticized Donald Trump for favoring steep tariffs, saying her Republican opponent "wants to impose what is, in effect, a national sales tax on everyday products and basic necessities that we import from other countries." But in the same speech, Harris pitched a half-baked idea that is just as economically dubious, promising to crack down on "price gouging" by the grocery industry.

That proposal is so misguided that it provoked undisguised skepticism from mainstream news outlets such as CNN, the Associated Press, The New York Times, and The Washington Post, along with criticism by Democratic economists. It showed that Harris joins Trump in pushing populist prescriptions that would hurt consumers in the name of sticking it to supposed economic villains.

"If your opponent claims you're a 'communist,'" Post columnist Catherine Rampell suggested, "maybe don't start with an economic agenda that can (accurately) be labeled as federal price controls." Harvard economist Jason Furman, who chaired President Barack Obama's Council of Economic Advisers, was equally scathing.

"This is not sensible policy, and I think the biggest hope is that it ends up being a lot of rhetoric and no reality," Furman told the Times. "There's no upside here, and there is some downside."

That downside stems from any attempt to override market signals by dictating prices. High prices allocate goods to consumers who derive the greatest value from them, encourage producers to expand supply, and spur competition that helps bring prices down.

Without those signals, you get hoarding and shortages. This is not some airy-fairy theory; it reflects bitter experience since ancient times with interventions like the one Harris proposes.

Consider what happened when President Richard Nixon imposed wage and price controls in the 1970s. "Ranchers stopped shipping their cattle to the market, farmers drowned their chickens, and consumers emptied the shelves of supermarkets," Daniel Yergin and Joseph Stanislaw note in their 1998 book on the rise of free markets.

Or consider what happened more recently with eggs. Thanks to avian flu, Furman noted, "egg prices went up last year" because "there weren't as many eggs," but the high prices encouraged "more egg production." If federal regulators had tried to suppress egg prices, they would have short-circuited that market response.

Harris, of course, says she would target only unjustified price increases, the kind that amount to "illegal price gouging" by "opportunistic companies." But as she emphasizes, there currently is no such thing under federal law, and any attempt to define it would be plagued by subjectivity and a lack of relevant knowledge.

The fact that Harris pins the sharp grocery price inflation of recent years on corporate greed suggests that her judgment about such matters cannot be trusted. Economists generally rate other factors—including the war in Ukraine as well as pandemic-related supply disruptions, shifts in consumer demand, and stimulus spending—as much more important.

High profits, in any event, are another important signal that encourages investment and competition. By forbidding "excessive profits," Harris' proposed price policing would undermine the motivation they provide.

According to the most recent numbers, the annual inflation rate dropped below 3 percent as of July. With inflation cooling, this might seem like a strange time for Harris to resuscitate an idea that was already proving disastrous thousands of years ago. But as the Times notes, her message "polls well with swing voters."

The broad tariffs that Trump favors, which Harris condemns as "a national sales tax" that would "devastate Americans," also poll well in the abstract. But they are popular only until voters consider the consequences.

In a recent Cato Institute survey, for example, 62 percent of respondents favored a tariff on "imported blue jeans," but that number plummeted when they were asked to imagine the resulting price increases. Harris likewise is counting on voters who like what she says but do not contemplate what it would mean in practice.

© Copyright 2024 by Creators Syndicate Inc.

The post Kamala Harris' 'Price Gouging' Ban: A New Idea That Has Failed for Thousands of Years appeared first on Reason.com.

Unsurprisingly, as the reigning World Cup champions, soccer is deeply embedded in Argentina's national identity. Players on the national team are praised as heroes by everyone, from die-hard fans to casual observers. Their trophies bring joy and a sense of triumph to a country that has seen much division and gloom in recent decades.

Sadly, recent victories could be the last blaze of a dying fire. Soccer (or as we call it, fútbol) in Argentina is in decline, exploited by nefarious interests—but President Javier Milei has a plan.

Until recently, domestic soccer clubs in Argentina had to be operated as nonprofits. An executive branch decree changed that, allowing clubs to become publicly traded companies. The change may spur lifesaving investment into Argentine soccer.

For fans of Argentina's national team and domestic league, this is good news.

Consider how many players are leaving Argentina to play elsewhere. In 2022, 5,000 Argentines were playing abroad, most of whom were promising players under the age of 20. Even among the 26 players on the World Cup-winning roster, only one came from a club in the Argentine league. The Argentine Football Association (AFA) is worried that players who start their careers overseas will choose not to represent their national team in international competitions. Even Lionel Messi, a dual national, was tempted to play for the Spanish national team before choosing to play for Argentina. AFA lives in constant fear of having a future world champion slip through their fingers.

What's causing this exodus of talent? While part of it is Argentina's general economic malaise, some, including Spanish La Liga President Javier Tebas, point a finger at AFA's narrow-minded refusal to allow private investment in the national soccer market. Tebas has said the Argentine team won the 2022 World Cup "despite AFA" because their players "were forged in European clubs."

Milei's reforms mean international companies could buy and sell teams, or invest in Argentina's striving clubs. An injection of foreign capital would be a boon not just to the clubs who'd be able to improve their capabilities and keep talented players at home, but also to the Argentine economy overall, as clubs expand and create more jobs with their newfound capital.

AFA leaders and some major teams denounced the reforms as a "privatization of football"—and if you know how the clubs currently work, it's easy to understand their resistance. 

In Argentina, soccer clubs are more than just sports teams. A club is like a church, a provider of all manner of cultural and educational services, a place for communities to share, for families to enroll their children and invest in their future—every young player's dream is to go pro and pay back his parents' sacrifice. While the clubs are already private nonprofits—an organizational model they're very defensive about—in reality, they are run by politicians, celebrities, and businessmen who use them to promote their public image. They keep governance opaque, convoluted, and unaccountable, cementing their power by making deals with barra bravas, powerful hooligan organizations that handle their illegal activities and intimidate opponents into silence—both within the clubs and in electoral politics.

Revenue from the domestic soccer league, such as TV rights money, is dispensed in a pyramid scheme with AFA President Claudio Tapia at the top, doling out favors to keep the clubs economically dependent. About 97 percent of clubs have, at some point, been on the brink of bankruptcy. This causes a vicious cycle: Teams in the league can't afford to keep promising players, who leave for foreign teams with deeper pockets, so the teams perform worse and earn less revenue.

In the late 1990s, Racing Club, one of the historic "Big Five" clubs, went bankrupt and was nearly liquidated. AFA authorized a special rescue plan that allowed insolvent clubs to contract private firms as management in exchange for financial salvage, copying previous experiences of successful entrepreneurial partnerships. Despite the plan's limited scope and the familiar cry of "veiled privatization," it performed so well that several clubs started contracting out their assets and are now faring consistently better than the rest. Meanwhile, fans remain involved by exercising oversight over contractors.

In a microcosm of national politics, mafiosos and oligarchs use populist rhetoric to entrench themselves in power, and then call the private sector to bail them out when reality catches up. In soccer, it's catching up again. Investment is still limited, the player pool is shrinking, clubs are chronically indebted and their services are becoming impoverished and exclusionary. Meanwhile, they're still run by a powerful few but lack transparency or efficiency. A country that's practically synonymous with fútbol should be attracting money and talent from all over the world, not scaring it away. A few conglomerates have expressed interest in Milei's reform, but he'll have to get past attempts at judicial obstruction and silencing of internal dissent by the AFA establishment.

Argentina is the birthplace of many stars in soccer history, but its clubs are suffering from economic stagnation. The private sector can help Argentines reclaim their clubs as social spaces and as points of national pride. Milei's reforms are an opportunity for soccer to become part of the nation's economic recovery. The profit motive, social ethics, and political will of those who love the sport can lead to even more glory.

The post In Argentina, the Private Sector May Save Soccer appeared first on Reason.com.

After all the talk of abortion rights, protecting democracy, and how "fun" Vice President Kamala Harris apparently is, the first night of the Democratic National Convention culminated with a celebration of President Joe Biden's four years in office.

Biden "recovered all those millions of jobs that [Donald] Trump watched slip away," Sen. Dick Durbin (D–Ill.) declared. Biden "rebuilt the economy" after the pandemic put it "flat on its back," intoned Sen. Chris Coons (D–Conn.), a longtime Biden stan. 

Biden himself put the cherry on top. "We've had one of the most extraordinary four years of progress ever," the president said. "We gone from economic crisis to the strongest economy in the entire world," he claimed, pointing to job creation figures, economic growth, higher wages, and "inflation down, way down, and continuing to go down."

If so, someone should probably tell Vice President Kamala Harris about all that.

Just four days ago, Harris outlined plans for gigantic government interventions in the economy, including price controls. In what was billed as the first major policy speech of her hastily assembled campaign, Harris promised to implement the "first-ever federal ban on price gouging on food and groceries" and to take other actions to empower the federal government to "bring down costs." (There's been some debate in the days since her speech about whether it is fair to say Harris has called for price controls, but economist Brian Albretch has laid out clearly why she in fact did, writing that "any policy that gives the government the power to decide what price increases are 'fair' or 'unfair' is effectively a price control system. It doesn't matter if you call it 'anti-gouging,' 'fair pricing,' or 'consumer protection'—the effect is the same. When bureaucrats, not markets, determine acceptable prices, we're dealing with price controls.")

There has been a lot written already about why price controls are a terrible idea, and more will be written in the days ahead. For now, let's take a moment to appreciate the head-spinning logic that Biden and Harris are asking voters to accept: that America's economy is stronger than ever—but is also in need of radical government action to substitute the wisdom of bureaucrats for the market's power to determine prices.

Price controls are not a policy people reach for when things are going great. Governors don't go around threatening businesses with prosecution for price gouging when there's not a hurricane or other natural disaster happening. The Soviet Union didn't implement price controls because everyone was wealthy and well-fed. Neither did Venezuela.

But that's what Harris doing. On Friday, she promised "harsh penalties" on businesses that engage in whatever she (or her administration) determines to be "price gouging" or the collection of "excessive" profits—even though her campaign has yet to explain how she would determine those things.

Harris' promise to combat high grocery prices was made just hours after the White House Chief Economic Advisor Jared Bernstein was standing in front of reporters and touting how low grocery price inflation has been: "This morning, it was about 1 percent year over year," he said at a press briefing on Wednesday. "And there are a number of items within there where we actually have deflation, falling prices of some groceries."

Did someone tell Harris?

In part, this confusion probably stems from the unusual situation that Harris' campaign finds itself. She is, for all intents and purposes, the incumbent candidate in the race, despite not being the sitting president. And she's running against another quasi-incumbent in former President Donald Trump. Typically, incumbents try to push the message that everything is going well, or at least getting better, while challengers say everything sucks and promise to make it better.

With voters discontented with the state of the economy, both Trump and Harris are trying to distance themselves from the mess they each had a hand in creating. But Democrats can't go all-in on "everything sucks" for the obvious reason that Biden, the actual incumbent, is a Democrat.

The actual economic signals are a mixed bag right now. Unemployment has ticked up, raising fears of a possible recession on the horizon. High interest rates have replaced high inflation, which means many Americans are still feeling a squeeze on their personal finances. Biden doesn't deserve the applause he's getting, but there's also not a crisis that would demand the sort of radical actions Harris is proposing, even if the actions she's proposing really worked.

And of course, those high prices are largely the fault of government overspending (backed by heavy borrowing) during and after the pandemic. If Harris wants to put controls on something that would actually provide relief to Americans, she should aim to restrict government borrowing rather than grocery store prices.

Instead, it looks like Democrats have settled on the idea that Biden saved the economy and now Harris is here to clean up the mess—and they're just hoping no one thinks too hard about it.

By the way, you don't have to break your brain trying to make sense of this. It's far easier simply to remember that presidents don't run the economy and shouldn't get credit and/or blame for every single economic indicator. (Though they can certainly influence events, as we'll see if Harris gets her way and implements some form of federal price controls.)

But if nothing else, this Democratic cognitive dissonance creates a fun game for the next three nights of the convention: Will the speakers keep telling us that America's economy is stronger than ever, or that the country is in a crisis and Harris needs to be our price-setter-in-chief?

The post If Joe Biden Saved the Economy, Why Do We Need Kamala Harris' Price Controls? appeared first on Reason.com.

In this week's The Reason Roundtable, editors Peter Suderman, Katherine Mangu-Ward, and Nick Gillespie welcome special guest Ben Dreyfuss onto the pod ahead of this week's Democratic National Convention in Chicago to talk about Kamala Harris' truly terrible economic policy proposals.

02:48—Dreyfuss' YIMBY conversion thanks to Reason

13:20—Harris drops some lousy economic policy ideas.

32:37—The DNC begins.

44:25—Weekly Listener Question

53:33—Tariffs are timeless.

1:03:32—This week's cultural recommendations

Mentioned in this podcast:

"Kamala Harris' Dishonest and Stupid Price Control Proposal," by J.D. Tuccille

"DNC Readies for Protesters," by Liz Wolfe

"Harris' Economic Illiteracy," by Liz Wolfe

"Harris Joins the FTC's Food Fight Against Kroger-Albertsons Merger," by C. Jarrett Dieterle

"The times demand serious economic ideas. Harris supplies gimmicks." by the Washington Post editorial board

The price tag of @KamalaHarris's big, bold economic plan? According to penny pinchers at @BudgetHawks, a mere $1.7 to $2 trillion over the next decade. Given that gross debt is $35 trillion, maybe it's time to tap the brakes a bit?https://t.co/qA5wFJleLw pic.twitter.com/q80MwxoRD9

— Nick Gillespie (@nickgillespie) August 16, 2024

"When your opponent calls you 'communist,' maybe don't propose price controls?" Catherine Rampell

"How did Doug Emhoff hear Biden was out? After taking a SoulCycle class in WeHo. Without his phone," by Kevin Rector

"Database Nation: The Upside of 'Zero Privacy,'" by Declan Mccullagh

"Alien: Romulus Is a Slick, Empty Franchise Pastiche," by Peter Suderman

The Calm Down Substack by Ben Dreyfuss

https://x.com/nickgillespie/status/1824430467191312525

"Sing for Change Obama"

Upcoming Events:

• "Is the American Dream Alive?" A Free Press debate with Katherine Mangu-Ward on Tuesday, September 10 in Washington, D.C.
• "Reason Speakeasy: Kat Timpf & Nick Gillespie" on Wednesday, September 11 in New York

Send your questions to [email protected]. Be sure to include your social media handle and the correct pronunciation of your name.

Today's sponsors:

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Audio production by Ian Keyser; assistant production by Hunt Beaty.

Music: "Angeline," by The Brothers Steve

• Video Editor: Ian Keyser
• Producer: Hunt Beaty

The post Why Libertarians Hate Kamala Harris' Economic Platform appeared first on Reason.com.

It's OK to calm down about the economy. Yes, Friday's unemployment news was bad. Yes, the NASDAQ and Dow Jones neared correction territory on Friday morning. And yes, the Sahm Rule Recession Indicator has now been triggered. Odds are, though, a recession is not imminent. 

Here are three reasons why, in descending order of optimism. One, recent growth has been strong. Two, the economy has been near full employment for a while, and some kind of job growth slowdown is almost inevitable. Three, we're past the window where Federal Reserve actions can influence the election, though its recent behavior is still worrying.

Last week, the media's manic mood swing was on the exuberant side from news of a strong 2.8 percent gross domestic product (GDP) growth in the second quarter of 2024, which ended on June 30. This was a surprise improvement on the previous quarter's 1.4 percent growth. A normal reading is around 2 percent. Better, most of that growth was in the private sector, especially in consumer spending and inventory investment.

The current quarter's GDP growth estimate will come out on October 30. It would take a drastic swing to move from 2.8 percent to negative in just one quarter, though it has happened before. It typically takes two consecutive quarters of negative growth for the National Bureau of Economic Research to declare a recession, though its official standard is to call it as they see it.

The unemployment rate went up from 4.1 percent in June to 4.3 percent in July. June's reading snapped a 30-month streak of unemployment at or under 4 percent. This was the longest such streak since the 1960s.

For context, anything under 5 percent is considered pretty good. The eurozone's unemployment rate is currently 6 percent and often tops 10 percent, even in good times.

When an economy is essentially at full employment, a slowdown in job growth isn't necessarily cause for worry. The economy still has 8 million job openings, and the labor force still grew by 114,000 jobs. That annualizes to more than a million more jobs per year. 

That is slower than population growth, which isn't ideal. The labor force participation rate is also still below prepandemic levels. But a sane immigration policy combined with labor reforms like loosening occupational licensing requirements would fill more of those job openings while creating more opportunities for workers who are still outside the labor force.

The Federal Reserve's recent actions spark some worry. The Fed has spent the last two-and-a-half years walking back its panicked overreaction to COVID-19, which caused high inflation in the first place, along with a bipartisan deficit spending explosion. Inflation is finally slowing and getting back close to its 2 percent target, down from its 9.2 percent peak.

The trouble is that Fed Chairman Jerome Powell indicated that the Fed will stop focusing solely on inflation and will now pay attention to the labor market as well. The Fed has a dual mandate that tasks it with both keeping inflation low and keeping employment high. These can contradict each other, as Powell might soon find out.

If unemployment continues to worsen, look for the Fed to counteract that with stimulus in the form of interest rate cuts and monetary expansion. The tradeoff to this stimulus is higher inflation—exactly what the Fed has been fighting.

While an expected interest rate cut in September isn't a big deal by itself, if it's the start of a larger stimulus campaign, any short-term economic boost will come at the cost of a slowdown later.

The Fed's actions have lag times ranging from about six months to 18 months, so anything it does now will not impact the election. This is good news for the Fed's independence, but it does not inspire faith in Powell's commitment to fighting inflation. It would be better for the Fed to stay focused on inflation. Monetary policy is a poor tool for job creation. Entrepreneurs have a much better track record.

As usual, the big picture is a mix of short-term pessimism and long-term optimism. Whether or not the current recession doommongering comes true, the long-term trend of increasing superabundance will hold. That's as good a reason for calm as any.

The post Recession Is Not Inevitable, Despite Stock Market Slump appeared first on Reason.com.

The first domino: A bad U.S. economic outlook, reflected in Friday's jobs report, helped prompt major stock sell-offs globally over the weekend.

"Japanese stocks collapsed on Monday in their biggest single day rout since the 1987 Black Monday sell-offs," reports Reuters, with the Nikkei 225 index falling 12.4 percent and the Topix index falling 12.2 percent. The Kospi index in South Korea fell more than 10 percent. Equity markets felt the pain in Taiwan, Australia, Singapore, Hong Kong, and China, though to a lesser degree. "At one point, the plunge in Japanese and Korean stocks tripped a 'circuit breaker' mechanism that halts trading to allow markets to digest large fluctuations," reports The New York Times. "But even after those mandatory breathers, the sell-off in stocks seemed to accelerate. Jitters spread to the debt market, prompting a halt in trading in Japanese government bonds as well."

Wall Street's "fear gauge"—the VIX—jumped to its highest level since 2020, when the pandemic prompted a wild market fluctuation. "The market response is a reflection of the deteriorating U.S. economic outlook," Jesper Koll, a director at financial services firm Monex Group, told the Times. "It was a New York sneeze that forced Japanese pneumonia."

The U.S. jobs report, released Friday, found that hiring slowed significantly in July. Unemployment continued its slow creep upward—4.3 percent, the highest since October 2021—and wage growth eased a bit. The jobs report also revised the May and June numbers downward, by a combined 29,000 jobs, indicating that the July downshift did not come out of nowhere. It also "stoked fear of a coming recession" due to something known as the "Sahm Rule," named for economic Claudia Sahm, who identified in 2019 a useful recession indicator that our July jobs report has unfortunately met (more on that from Reason's Eric Boehm).

Inflation has showed plenty of signs of cooling a bit, responding to Federal Reserve rate hikes, but the jobs report means a rate cut "could be on the table" as soon as September, according to Fed Chair Jerome Powell.

In other words, the aspirational "soft landing"—a cooling down of inflation without triggering a recession—may not in fact be materializing. And these American warning signs are leading to global ripple effects.

Bloomberg's Joe Weisenthal has, I think, the smartest and most concise take on what's going on, for those who indulge:

10 THOUGHTS ON TODAY'S BIG MARKET SELOFF

In today's 5 Things newsletter, I jotted down a bunch of random stuff about this moment in stocks, crypto, FX, and macro.

Here they are

1) It was clear instantly on Wednesday that Powell was going to be offsides this market: pic.twitter.com/iJ6ipo7Grc

— Joe Weisenthal (@TheStalwart) August 5, 2024

Scenes from New York: Will Rudy Giuliani's real estate save him?

QUICK HITS

• The U.S. government believes Iran and Hezbollah will retaliate against Israel for the recent assassinations of Hamas leader Ismail Haniyeh in Tehran and Hezbollah leader Fuad Shukr in Beirut.
• Per tabloid reporting, which was partially confirmed by the campaign, Kamala Harris' husband, Doug Emhoff, had an affair during his first marriage (not to Harris). The woman he had an affair with allegedly became pregnant and did not keep the baby, though the campaign has not acknowledged or confirmed that part.
• "Belgium's Olympic committee announced Sunday that it would withdraw its team from the mixed relay triathlon at the Paris Olympics after one of its competitors who swam in the Seine River fell ill," reports the Associated Press. "After a spring with an abnormal amount of rainfall, tests of the river's water found that the levels of E. coli bacteria were more than 20 times higher than what World Triathlon considers acceptable," wrote Reason's Natalie Dowzicky last week. "But the mayor of Paris, Anne Hidalgo, still jumped into the Seine earlier this month in an effort to instill confidence that the waterway was just fine. But a small dip is very different from submerging yourself for hours of racing."

This is the most French possible thing that could have happened when Paris hosted the Olympics:

Running with a really stupid idea because it sounds cool, then somehow ending up fucking over the Belgians. https://t.co/K6Id4CUVV5

— Tom (@Lawmadillo) August 5, 2024

• Fun fact:

Nirvana's Nevermind was released 12,000 days ago. Its release date is closer chronologically to Fidel Castro taking control of Cuba than to today.

— Dan Szymborski (@DSzymborski) August 1, 2024

The post Markets in Panic appeared first on Reason.com.

"All you need, besides the cocaine, is a lighter, water, baking soda, some Q-Tips, high-proof alcohol, a ceramic mug, and a piece of cheesecloth or an old T-shirt," writes Glenn Loury in his riveting Late Admissions: Confessions of a Black Conservative. The book is surely the only memoir by an Ivy League economist that includes a recipe for crack cocaine along with technical discussions of Karl Marx, Ludwig von Mises, Friedrich Hayek, and Albert O. Hirschman.

Born in 1948 and raised working class on Chicago's predominantly black South Side, Loury tells a story of self-invention, ambition, hard work, addiction, and redemption that channels Benjamin Franklin's Autobiography, Richard Wright's Native Son, Saul Bellow's The Adventures of Augie March, and Milton Friedman's Capitalism & Freedom. An alternative title might have been "Rise Above It!," the slogan of a pyramid-scheme cosmetics company on which he squandered his savings as a young man in Chicago.

Now a chaired professor at Brown University and the host of The Glenn Show, a wildly popular YouTube offering, Loury worked his way through community college, Northwestern, and a Massachusetts Institute of Technology Ph.D., became the first tenured black economist at Harvard, emerged as a ubiquitous commenter on race and class in the pages of The New Republic and The Atlantic, was offered a post in the Ronald Reagan administration, and was then publicly humiliated after affairs, arrests, and addiction all became public, threatening the end of his professional and personal life. With the support of his wife, Linda Datcher Loury (herself a highly regarded economist), Alcoholics Anonymous (A.A.), and colleagues, Loury managed to rise above it and not just rebuild his academic reputation and relationships with his children, but also gain a unique perspective on economics, individualism, and community.

Reason: When you say you are a black conservative, what does that mean?

Glenn Loury: Well, I think of a few things. One of them is thinking that markets get it right in terms of the resource allocation problem and that the planning instinct and centralized, politically controlled interference in theeconomy is suspect. Of course, there are exceptions. The general predisposition is that I like prices. I like laissez faire. AndI think the first and second fundamental theorems of welfare economics are true, that we get efficient resource allocation when we allow the interplay of self-interest. You know, classical liberal stuff.

That makes you a libertarian, not a conservative.

Well, I was going to go the Edmund Burke route. I was going to say not discarding everything that's been handed to me from the past generations. Respect for tradition, reverence for some of these things that we've been handed down. So when people can't define who's a man and who's a woman, I hold my wallet. I'm a little bit skeptical about this nouveau thing.

But the "black conservative" comes out of I think a reflex or reaction to the dilemma that we African Americans face as the descendants of slaves, a marginal population disadvantaged in various ways and struggling for equality, dignity, inclusion, freedom.

I think there's a trap in that situation: the trap of falling into a status of victim and of looking to the other, the white man, the system to raise our children and deliver us from the challenge which everybody faces of living life in good faith, of, as Jordan Peterson puts it, standing up straight with your shoulders back. Of confronting the reality that there's some stuff that nobody can do for you. This posture of dependence, these arguments for reparations, this invocation of structural and systemic [racism], when the real questions are of responsibility and role.

In your book you cover your education in economics, but it's also a memoir that traffics a lot with addiction, both with drugs and sex. Can economics explain addictive behavior and self-destructive behavior?

Well, I think of the late Gary Becker. He has a paper on addiction. And I think of George Stigler and Becker's classic paper "De Gustibus Non Est Disputandum"—about taste there can be no dispute. They do it all in terms of intertemporal preferences, where you build up a taste for certain kinds of pleasures, and you invest in them.

Did they get it right?

No, I don't think they got it right. I thought it was reductive, closed off. [It's an] "everything's going to be optimization; we just have to find the right objective function" way of looking at the world. I much prefer [game theorist and Nobel laureate] Tom Schelling's engagement with the problems of self-command, as he called it, and addiction, which was understanding the conflict within the single individual who at one point in time would want not to smoke or to use cocaine, but at another point in time would find themselves, notwithstanding their understanding that this is not good for them, being compelled to do it nonetheless, and the strategic interaction between those two types within the same person.

Some critics of capitalism say that drug addiction is the apotheosis of capitalism, that it creates a bunch of things that enslave people. But your story, in one way, is about learning self-command and control over self-destructive behaviors. Is there a larger lesson from your struggles with addiction and your ultimate triumph over it?

Yeah, A.A. saved my life. That therapeutic community, that halfway house I lived in for five months in 1988: They saved my life. I went to meetings faithfully for years. And I abstained. I was clean and sober for five years. But I eventually drifted away from the A.A. abstinence philosophy.

I did have a period where I was very religious. I was born again. This initiated during the period when I was struggling to recover from drug addiction but persisted long after I was out of the woods. It changed my perspective. The hope, the whole experience of going through rehab and what they did, it quieted me down. I started reading the Bible even before I was professing genuine religious conviction. I started memorizing passages after I began to confess some belief, going to meetings, living within myself, a kind of humility. I'm not in control. Let go and let God.

What is the work that you're most proud of as an economist?

I think my best technical paper was published in Econometrica in 1981. It's called "Intergenerational Transfers and the Distribution of Earnings." It applied what at the time were state-of-the-art technical methods in dynamic optimization and the behavior of dynamic stochastic systems to the problem of inequality. It formalized the idea that young people depend on the resources available to their parents, in part, to realize their productive potential as workers and economic agents. Investments made early in life by parents in children affect the productivity of children later in life. That productivity is also dependent on other factors beyond parental control that are random, but it depends on the resources that are available. There cannot be perfect markets to allow for borrowing forward against future earnings potential, so as to realize the investment possibilities. If a parent doesn't have the resources to fund the investment themselves, there's no place to go to borrow to get piano lessons for a kid who might develop into a virtuoso pianist.

As a consequence, inequality has resource allocation consequences. Some parents have a lot of resources; others have very little. But the kids all have comparable potential, and there's diminishing returns to investing in kids. The net result is that if you could move money from rich parents to poor parents and indirectly move investment in kids from rich families to poor families, the loss in the former would outweigh the gain in the latter.

Is that a rebuttal to the idea that you can rise above it on your own? Throughout your work you make a case that if we want a more equitable society, we have to do something to help kids whose parents don't have any resources.

I see them as two different realms of argument about human experience. On the one hand, I'm talking about how there can be market failures and incompleteness and informational impact. Illness and externalities and property rights are unclear, and things like that. And you can make arguments about a minimal role for government intervention to deal with public goods problems and environmental externality problems and perhaps market failures.

On the other hand, if I'm talking to an individual about how to live their life, about whether or not to delegate responsibility for their life to outside forces or to live in good faith, to take responsibility for what you do, that's existential, almost spiritual. It's how to be in the world as opposed to how the world works.

You're on college campuses now, and campuses are more fraught than they ever have been. Do you feel like that message has disappeared?

I think so, especially with the debate that's going on presently about the war in Gaza and the campus protests occupying spaces and setting up tents on the campus green and canceling graduations and seizing buildings and engaging in civil disobedience and whatnot.

But that all comes in the aftermath of the culture war that we've been fighting about critical race theory and diversity, equity, and inclusion. These arguments have been around for a while, and I've tended to be on the side of suspicion of the so-called progressive sentiment. There's too much focus on race and sex and sexuality as identities in the context of the university environment, where our main goal is to acquaint our students with the cultural inheritance of civilization. Their narrow focus on being this particular thing and chopping up the curriculum to make sure that it gets representative treatment feels stifling to me, especially if you let that spill over into what can be said.

The therapeutic sentiment. The kids have these sensibilities. We have to be mindful of them. We don't want to offend. We don't want anyone to be uncomfortable. No, the whole point is to make you uncomfortable. You came thinking something that was really a very superficial and undeveloped framework for thinking; I'm going to expose you to some ideas that run against that grain, and you're going to have to learn how to grapple with them. And in your maturity, you may well return to some of these, but you will do so with a much firmer sense of exactly what it is that you're affirming. I want to educate you. I don't want to placate you. I'm not here to make you feel better.

I do think there's too much reliance on system-based accounts and much less of an embrace of responsibilities that we as individuals have in our education, our politics, our social and economic lives.

What is the case against affirmative action?

The case against affirmative action: It's unfair to people who are disfavored. They didn't do anything to be in the group that you decided you wanted to put your thumb on the scale for. It has concerning incentive problems. If you belong to the favorite group, it's OK to have a B average and be in the 70th percentile of test takers. And you can get into UCLA or Stanford or Yale if you're black. But if you're white, you better have an A-minus average. And you'd better be at the 90th percentile of the test takers.

The systematic implementation of affirmative action amplifies the concerns that one might have about stigmatizing African Americans who would be presumed to be beneficiaries. This is the classic complaint of [Supreme Court Justice] Clarence Thomas, that his Yale law degree isn't worth anything because it's got an asterisk on it because of affirmative action.

There's something undignified about not being held to the same standard as other people and everybody assuming that because of the sufferings of your ancestors you're somehow in need of a special dispensation.I don't regard that as equality. You're not standing on equal ground when you're dependent upon such a dispensation. In the case of affirmative action, it's a Band-Aid. You're treating a symptom and not the underlying cause. The underlying reality is there are population differences in the express[ed] productivity of the agents in question. The African Americans, on average, are producing fewer people in relative numbers who are exhibiting these kinds of skills that your instruments of assessment are intended to measure. And if you don't remedy that problem, you're never going to get truly to equality.

Where are these population differences coming from? Is it primarily an effect of cultural change? Is it inherited differences in economic status and opportunity? Is it genetic?

I don't think it's genetic, though I can't rule out that genetics could have an effect. I'm just not persuaded by the evidence of the early childhood developmental stuff. I don't underestimate the differences in the effectiveness of primary and secondary education. This is not just race. This is race and class and geography and whatnot. I think we'd do ourselves as a society a lot of good if we were to follow the sort of wholesale reform movement in K-12, including charter schools and more competition to the union-dominated public provision sector of that part of our social economy.

But culture is a tough one. I give a lot of evidence indirectly in my memoir about the effects of culture on life experience. The culture that nurtured me coming up in Chicago had its positives. It also had its norms, values, ideals, what a community affirms as being a life well lived, how people spend their time, about parenting, things of this kind.

I read this book by two Asian sociologists, Min Zhou and Jennifer Lee, called The Asian American Achievement Paradox, and it attempts to explain, based on interview data from a couple hundred families in Southern California, how it is that these Asian communities are able to send their youngsters to places like Harvard and Stanford in such large numbers. And it basically makes a cultural argument. One of the chapters is entitled "The Asian F." It turns out that the Asian F is an A-minus, according to some of their respondents. I don't think you can discount the importance of that kind of cultural reinforcement, because at the end of the day what matters is how people spend their time.

You're a critic of race-based policies, but you also get kind of pissed when people dismiss the black experience. You say being a black American is a part of your identity. Is there a way for us to bring our individual cultural and ethnic heritage to the conversation that doesn't divide us or put us in one group or another?

We all have a story. We all have a narrative and a cultural inheritance. And yet underneath we are kind of all the same. Our struggles are comprehensible to each other, and our triumphs and our failures are things that we can relate to as human beings. And that's how we should be relating to each other.

I'm in my 70s now, and I've just written a book about my life. So who am I? What does it amount to? I'm the kid that really did grow up immersed in an almost exclusively black community on the South Side of Chicago. The music that I listened to, the food that I ate, the stories that I was told and that I told to my own children in turn. These things are related to the history, the struggles and triumphs, the dreams and hopes of African-American people. That's a part of who I am. And it annoys me when people attempt to say "get over it" to me. They're not respecting me when they tell me that race is not a deep thing about people.

It's a superficial thing, I grant you that. I grant you the melanin in the skin, the genetic markers that are manifest in my physical presentation, don't add up to very much. But the dreams of my fathers and others, the lore, the narrative about who "we" are, that's not arbitrary and it's not trivial. And it seems to me sociologically naive in the extreme to just want to move past that. That's a part of who people actually are.

But I struggle with this, because I also want to tell my students not to wear that too heavily, not to let it blinker them and prevent them from being able to engage with, for example, the inheritance of European civilization in which we are embedded. That's also your inheritance. Tolstoy is mine. Einstein is mine. And yours. I want to say to youngsters of whatever persuasion: Don't be blinkered. Don't be so parochial that you miss out on the best of what's been written and thought and said in human culture.

This interview has been condensed and edited for style and clarity.

The post Glenn Loury on Economics, Black Conservatism, and Crack Cocaine appeared first on Reason.com.

A bummer of a jobs report released Friday morning triggered a sharp drop in the stock market and stoked fear of a coming recession—thanks to something known as the "Sahm Rule."

So what is that?

It is named after economist Claudia Sahm, who served as a top economic advisor during the Obama administration and identified a historical indicator of coming recessions in 2019: every time since 1970 that the three-month moving average of the U.S. unemployment rate is more than half a percentage point above the lowest three-month moving average from the previous year, a recession has soon followed.

That's a bit complicated, admittedly. If you want to know what it looks like in practice, check out today's jobs report. Unemployment in July ticked upwards to 4.3 percent. Over the past three months, the average unemployment rate has been 4.13 percent. That's quite a bit higher than the lowest three-month average from the past year—which was 3.63 percent, between June and August 2023.

Thus, the Sahm Rule has been triggered.

But the "rule" is also a set of guidelines. In the 2019 paper where Sahm identified this historical early warning system for a coming recession, she called for governments to begin distributing stimulus payments as soon as this alert was triggered. Doing so, she argued, would allow for a speedier response to a recession by eliminating the lag that occurs while politicians and other observers debate whether a recession is coming and what to do about it. Essentially, it is meant to be a technocratic solution to a recurring problem.

The political system has not adopted that approach—and thank goodness, because the federal government is $35 trillion in debt and already on pace to run a $2 trillion deficit this year. There's literally no money for stimulus checks right now.

The markets, however, seem to be taking the Sahm Rule seriously. There was a huge sell-off on the stock market Friday morning and bond yields fell as well—an indication that investors are essentially "pricing in" the cost of a coming downturn.

But there's one more complicating factor. Sahm herself says this might be a false alarm.

The Wall Street Journal reports that "Sahm doesn't think the economy is on the immediate cusp of a recession. She reckons that changes in the supply of labor since the pandemic, including the recent jump in immigration, have led the Sahm rule to overstate how weak the job market is."

"We are still in a good place, but until we see signs of stabilizing, of leveling out, I'm worried," Sahm, who also worked at the Federal Reserve and is now the chief economist at New Century Advisors, an investment firm, told the Journal.

It's good to be cautious about the predictive power of historical trends. Indeed, in that 2019 paper, Sahm warned that "the Sahm rule is an empirical regularity. It's not a proposition; it's not a law of nature."

Federal Reserve Chairman Jerome Powell echoed that sentiment this week. He called the Sahm Rule "a statistical regularity" on Wednesday, adding that "it's not like an economic rule, where it's telling you something must happen." At a meeting earlier this week, the Federal Reserve decided to hold interest rates steady, though it indicated that a rate cut could be coming in September.

So are we heading for a recession or not? As always, it's impossible to know until we're already in one. The commonly used definition of a recession is back-to-back quarters of negative economic growth—but the economy grew by 2.8 percent during the second quarter of 2024. By that metric, it would take until the end of the year for the country to be in a recession.

The official arbiter of recessions is the National Bureau of Economic Research (NBER), a private entity whose definition of a recession takes into account monthly indicators like employment, personal income, and industrial production along with quarterly gross domestic product (GDP) growth (by their terms, two consecutive quarters of negative GDP growth often, but not always, correspond with an official recession).

Still, the outlook is certainly darker after Friday's jobs report. If a recession is coming, the federal government's and Federal Reserve's ability to respond will be severely limited by the poor fiscal and monetary decisions that have left the Treasury deeply in debt and the central bank's balance sheets overstretched.

The Sahm Rule has correctly predicted every recession in the past half-century. Let's hope it got this one wrong.

The post What's the Sahm Rule? Alarming Jobs Report Raises Recession Risk. appeared first on Reason.com.

Is the future of the GOP more libertarian, nationalist, or, somehow, both?

Joining us today is Vivek Ramaswamy, entrepreneur, author, and former presidential candidate. He's been making a hard pitch for what he's called a "libertarian-nationalist alliance" for the past several months. He was at the 2024 Libertarian National Convention where he tried to convince libertarians to vote Republican. Reason's Zach Weissmueller also saw Ramaswamy at the Republican National Convention, where he was trying to convince MAGA supporters to be more libertarian. Reason's Stephanie Slade saw him make his case for "national libertarianism" at the National Conservatism Conference. That event was also attended by vice presidential candidate J.D. Vance, who has a different vision for the conservative movement. Those dueling visions are the subject of today's episode.

Note: This episode is plagued by technical issues due to a software malfunction. With the exception of an approximately nine-minute section (which is marked in the episode), the full conversation is intact.

Watch the full conversation on Reason's YouTube channel or the Just Asking Questions podcast feed on Apple, Spotify, or your preferred podcatcher.

Sources referenced in this conversation:

1. Vivek Ramaswamy's full talk at the National Conservatism Conference
2. J.D. Vance's full talk at the National Conservatism Conference
3. "Vivek Ramaswamy Debuts 'National Libertarianism' at NatCon 4," by Stephanie Slade
4. Vivek Ramaswamy: Don't "replace the left-wing nanny state with a right-wing nanny state."
5. "What I Learned From Paleoism," by Llewellyn Rockwell

• Producer: John Osterhoudt

The post Vivek Ramaswamy: Is There a Libertarian-Nationalist Alliance? appeared first on Reason.com.

Nicolás Maduro is the authoritarian leader of Venezuela. Last weekend, he declared himself the winner of that country's presidential election—an outcome that is highly disputed; the Carter Center lambasted the Maduro regime's lack of transparency and said the process "cannot be considered democratic."

Thousands of Venezuelans have taken to the streets in protest. In response, the government has implemented a crackdown, killing at least 16 people and detaining a thousand more. Such behavior is entirely characteristic of Maduro, an outlaw who has faced credible accusations of drug trafficking, public corruption, and crimes against humanity. His unscrupulous leadership has plunged the country into depression and poverty. As Reason's Katarina Hall wrote, "Almost 8 million Venezuelans have fled the country amid hyperinflation, shortages of essential goods, and rampant corruption. Many more have expressed their desire to leave if Maduro remains in power."

Maduro's governing ideology is not a secret: He is a socialist. He is the successor to the leftist tyrant Hugo Chávez. He heads Venezuela's ruling Socialist Party. His policy prescriptions are in line with socialism: His government has instituted price controls, seized assets from private companies, and contributed to the country's hyperinflation problem. If it walks like a duck, quacks like a duck, and wrecks the economy with a mixture of centralized planning, repression, and pure theft—well, it's a socialist duck.

So it came as something of a shock when a recent New York Times article that correctly described Venezuela's overall problems—and Maduro's perfidy in particular—nevertheless identified the government's economic policy as "brutal capitalism" rather than socialism. Here was The Times:

If the election decision holds and Mr. Maduro remains in power, he will carry Chavismo, the country's socialist-inspired movement, into its third decade in Venezuela. Founded by former President Hugo Chávez, Mr. Maduro's mentor, the movement initially promised to lift millions out of poverty.

For a time it did. But in recent years, the socialist model has given way to brutal capitalism, economists say, with a small state-connected minority controlling much of the nation's wealth.

Economists say what now? These economists are not identified by The Times; the given hyperlink redirects to a Times article about improvements in the Venezuelan economy. These improvements were due to the introduction of some market reforms, according to economists with actual names.

"Lifting some controls does not make Venezuela a capitalist country," writes George Mason University economist Tyler Cowen. "Moreover, the lifting of controls led to improvements."

When a small state-connected minority controls much of the nation's wealth—and maintains its grip on power by outlawing dissent and cheating in elections—then the ruling ideology is socialism, almost by definition. Maduro, it bears repeating, makes no secret of this: He is the leader of the United Socialist Party of Venezuela.

Socialists will complain, as they often do, that various socialist governments are not practicing actual socialism. Under their idealized system, socialists claim, the government's centralized redistribution of resources will be fair, equal, and democratic. Yet it certainly says something about such a system that it collapses into outright tyranny every time it is attempted. Socialist governance seems to require concentrating an extraordinary amount of power in elite government decision makers; this tends to produce a new ruling class, the widespread deprivation of political rights for everyone else, and crippling poverty.

Socialism is brutal, as the people of Venezuela know perfectly well. They understand that better than The New York Times.

This Week on Free Media

Amber Duke and I discuss MSNBC's confusion over what Sen. J.D. Vance (R–Ohio) really wants, President Joe Biden's plan to pack the Supreme Court, and weird affinity groups supporting Vice President Kamala Harris. (Apologies for my hoarse voice; I had too much fun at a Green Day/The Smashing Pumpkins concert the night before we filmed.)

Worth Watching

Like most fans of the Marvel Cinematic Universe (MCU), I am of the opinion that things have mostly gone awry since Avengers: Endgame concluded "The Infinity Saga." (Though I enjoyed several of the post-Endgame television shows on Disney+: WandaVision, Loki, Hawkeye, and What If…?) I was thus incredibly pleased to learn that the Russo brothers—who were responsible for many of the MCU's best films, including Endgame and Infinity War—are returning to rescue the franchise. Most notably, they have enlisted a familiar face: Robert Downey Jr., who famously portrayed Tony Stark/Iron Man, the original MCU superhero who gave his life to save the universe.

Downey Jr. will not be playing Stark again, thank goodness. While there are all sorts of ways to revive the character—alternate universes, time travel, etc.—doing so would cheapen his sacrifice at the conclusion of Endgame. Instead, Downey Jr. will play Victor von Doom, a beloved villain from the Marvel comics. It seems likely that this version of Doctor Doom will have some connection to Stark; as previously mentioned, the MCU has made use (some would say overuse) of alternate realities.

In any case, the recent reveal of Downey Jr. at Comic-Con in San Diego, California, was something to behold.

The post <em>The New York Times</em> Thinks 'Brutal Capitalism,' Not Socialism, Ruined Venezuela appeared first on Reason.com.

You can add the Internal Revenue Service to the ranks of federal agencies conceding that raining taxpayer money on all and sundry to offset the negative effects of pandemic-era closures didn't go as well as intended. Not only was a program meant to offset the cost of paying workers during lockdowns and voluntary social-distancing prone to being gamed, but the "vast majority" of claims submitted to the program show evidence of being fraudulent.

The Tax Man Is Shocked To Discover Fraudsters

In the course of a detailed review of the Employee Retention Credit, "the IRS identified between 10% and 20% of claims fall into what the agency has determined to be the highest-risk group, which show clear signs of being erroneous claims for the pandemic-era credit," the IRS announced June 20. "In addition to this highest risk group, the IRS analysis also estimates between 60% and 70% of the claims show an unacceptable level of risk."

The Employee Retention Credit was offered to businesses that were shut down by government COVID-19 orders in 2020 or the first three quarters of 2021, experienced a required decline in gross receipts during that period, or qualified as a recovery startup business at the end of 2021. But it was clear early on that scammers were taking advantage of giveaways of taxpayer money, either to claim it for themselves or to pose as middlemen helping unwitting business owners file claims.

In March of 2023, the tax agency warned of "blatant attempts by promoters to con ineligible people to claim the credit." In September of that year, it stopped processing claims amidst growing evidence that vast numbers of applications were "improper," as the IRS delicately puts it. In March 2024, the agency announced that its Voluntary Disclosure Program had recovered $1 billion (since raised to over $2 billion) in improper payouts from participants who got to keep 20 percent of the take.

Ultimately, only "between 10% and 20% of the ERC claims show a low risk" for fraud, even by generous federal standards for throwing other people's money at problems largely of government creation.

"We will now use this information to deny billions of dollars in clearly improper claims and begin additional work to issue payments to help taxpayers without any red flags on their claims," commented IRS Commissioner Danny Werfel.

As of the end of May, the IRS "has initiated 450 criminal cases, with potentially fraudulent claims worth nearly $7 billion."

There's More Fraud Where That Came From

Of course, this is only the tip of the iceberg when it comes to pandemic stimulus fraud.

In April, Attorney General Merrick Garland boasted that the COVID-19 Fraud Enforcement Task Force (yes, it's widespread enough to rate its own task force) had "charged more than 3,500 defendants, seized or forfeited over $1.4 billion in stolen COVID-19 relief funds, and filed more than 400 civil lawsuits resulting in court judgements and settlements."

Strong work. But the various pandemic stimulus bills tallied up to trillions of dollars. And a lot more than a few billion ended up in the hands of grifters.

"The total amount of fraud across all UI [unemployment insurance] programs (including the new emergency programs) during the COVID-19 pandemic was likely between $100 billion and $135 billion—or 11% to 15% of the total UI benefits paid out during the pandemic," the Government Accountability Office warned last September.

Earlier, the Small Business Administration's Inspector General found more than $200 billion stolen from the Economic Injury Disaster Loan (EIDL) program and Paycheck Protection Program (PPP). "This means at least 17 percent of all COVID-19 EIDL and PPP funds were disbursed to potentially fraudulent actors," noted the report.

With between 70 percent and 90 percent of claims for the Employee Retention Credit identified as likely scams, either the IRS is a stand-out magnet for grifters or other agencies need to return to their own investigations with a somewhat more skeptical eye.

Stimulus Fueled Inflation as Well as Fraud

It's maddening enough that the federal government is handing out vast sums of money to con artists. But Americans are contending with a 2024 economy in which the U.S. Bureau of Labor Statistics' own inflation calculator finds that it takes $124.77 to purchase what $100 bought in 2019, before anybody heard of COVID-19. Federal stimulus programs are directly to blame for much of that inflationary slippage in the dollar's buying power.

"U.S. fiscal stimulus during the pandemic contributed to an increase in inflation of about 2.6 percentage points in the U.S.," three economists with the Federal Reserve Bank of St. Louis estimated last year. The reason, they said, was that governments "injected large amounts of money into the economy"—money created from thin air to artificially pump up the economy.

"Inflation comes when aggregate demand exceeds aggregate supply," agreed economist John Cochrane of the Hoover Institution and the Cato Institute in a March piece for the International Monetary Fund. "The source of demand is not hard to find: in response to the pandemic's dislocations, the US government sent about $5 trillion in checks to people and businesses, $3 trillion of it newly printed money, with no plans for repayment."

Officials justified the stimulus as a necessary evil to offset economic collapse from often-mandatory pandemic closures by keeping demand flowing with government checks. After conceding that stimulus fueled inflation, the St. Louis Federal Reserve economists argued that massive spending likely prevented "worse outcomes despite the price pressures that may have resulted from the spending."

But officials could have refrained from issuing closure orders so the economy could function without mandated disruptions. That would have made the creation of trillions of dollars from thin air and its distribution around the country entirely beside the point. Then, grifters wouldn't have opportunity to scam hundreds of billions of dollars out of federal agencies, including the IRS.

It's nice that the IRS, like other federal agencies, is catching up with the vast fraud it enabled. But it would be better if government officials weren't constantly addressing problems they created.

The post 'Vast Majority' of Pandemic Employee Retention Credit Claims Are Likely Scams, Says IRS appeared first on Reason.com.

The Road to Freedom: Economics and the Good Society, by Joseph E. Stiglitz, W.W. Norton & Company, 384 pages, $29.99

Joseph Stiglitz, a former chief economist of the World Bank, thinks that taxation is a precondition for freedom, not a threat to it. The current political problem, he argues in The Road to Freedom, is that the right (which for Stiglitz includes libertarians as well as conservatives) rejects the Founding Fathers' idea of no taxation without representation in favor of opposing any taxation at all. This is a problem, he continues, because market failures are more extensive and severe than the "neoliberals"—people like Stiglitz's fellow Nobel laureates Friedrich Hayek and Milton Friedman—would admit. For Stiglitz, redistribution and regulation are the real road to freedom.

Much of the book is devoted to criticizing neoliberals, who Stiglitz defines as proponents of "unregulated, unfettered markets." In Stiglitz's view, "a free-market, competitive, neoliberal economy combined with a liberal democracy" isn't enough—for "a stable equilibrium," we need "strong guardrails and a broad societal consensus on the need to curb wealth inequality and money's role in politics."

This book is written as though the regulatory state has not expanded since the end of World War II and as though the welfare state was dismantled in the 1980s. It is written as if liberal democracies' economic policies were all written by someone with the worldview of President Javier Milei of Argentina or the Brazilian MMA fighter Renato Moicano, who at UFC 300 proclaimed that everyone who cares about freedom should be reading the libertarian economist Ludwig von Mises. It is written as though we were still in the Lochner era, when the Supreme Court regularly struck down economic regulations.

But that is not the era we live in. Instead, the state has kept growing because neoliberalism has never reached the level of influence its adherents wanted. A more coherent argument—though still not a good one—would be that the modern state is big but should be bigger.

Nor is this book a good guide to the views of "neoliberals" like Friedman, Hayek, and Mises. No reasonable reading of these writers would suggest that they do not believe in market failures, yet Stiglitz claims that neoliberals think "markets on their own were efficient and stable."

Stiglitz also claims that "Unfettered markets designed along neoliberal principles have effectively robbed [the U.S. and U.K.] of their political freedom." One would expect an economist of Stiglitz's stature to make an effort to support this claim, yet his book offers no evidence for it. The available empirical evidence suggests that Stiglitz has it backward: It is state control of the economy that suppresses democratic freedom. There are other inconvenient empirical studies, including ones showing that the neoliberal "Washington Consensus" works fairly well and that there is no clear evidence that economic freedom leads to more inequality. (There is, however, abundant evidence that economic freedom makes us richer.)

The book does contain many reasonable ideas. Stiglitz is certainly right that the challenges associated with global fisheries, pandemics, and climate change are a fertile opportunity for more economic analysis. And the notion that market failures are both more complex and more common in an increasingly interconnected world should be a starting point for economists and policy makers.

Unfortunately, Stiglitz is too comfortable claiming that the solution to these problems is "regulation," without adding much explanation of how regulation should address such issues. Here he should have engaged more deeply with the insights of another Nobel laureate in economics, Elinor Ostrom. Stiglitz does mention Ostrom's research on the regulation of the commons—that is, of shared resources that anyone can use (and overuse, in the absence of rules governing how people can draw on them). But he sees her work as a defense of "regulation" and a critique of private property.

That wasn't what Ostrom was arguing. Rather than rail against private property, Ostrom argued that it is an empirical question as to whether private property, communal arrangements outside the state, or government control is the most appropriate way to manage the commons. And nothing in Ostrom's work implies a wide-ranging critique of private property. Her work is fully within the same classical liberal tradition that includes Hayek and Friedman.

Public goods, Ostrom argued, are not provided solely by the government. She also stressed the importance of polycentricity—of multiple levels of governance that offer opportunities for citizens and nonprofits to provide public goods, with each level able to cooperate with the others and also to act independently. This is especially useful for thinking about how to address the kinds of complex externalities Stiglitz sees as pervasive. Ostrom even developed a polycentric approach to climate change.

The call for regulation is less fundamental than asking what political arrangements give rise to the most appropriate rules, be they public, private, or communal. Elinor Ostrom and her husband, Vincent Ostrom, highlighted federalism's value as a laboratory of democracy because, like Hayek, they recognized that we do not know how to solve many pressing problems. This book would have been more convincing if instead of devoting so much time to criticizing the neoliberals (and overstating their influence), Stiglitz had spent more time exploring such insights.

Stiglitz's polemics are unlikely to change anyone's mind, but they will probably find an audience among people already predisposed to agree with them. His ideological fellow-travelers will probably like his full-throated defense of "progressive capitalism" (basically contemporary Sweden, with its combination of a generous welfare state, pro-labor policies, and a market economy). But Stiglitz does not explain why the U.S. is not like Sweden, nor how to get to Sweden from where we are now. Nor does Stiglitz note that Sweden, which ranks highly in the Heritage Foundation's Index of Economic Freedom, is rather open to policies promoted by neoliberals.

If you're interested in understanding market liberalism, there are better recent books to read, such as Peter Boettke's The Struggle for a Better World or Deirdre McCloskey and Art Carden's Leave Me Alone and I'll Make You Rich, each of which explains what classical liberals mean by freedom. If you are tempted to accept the notion that neoliberals lack a moral sense, you would especially benefit from Humanomics—by Bart Wilson and another Nobel laureate, Vernon Smith—which articulates the rich moral framework of Adam Smith's tradition. And if you want a more compelling empirical critique of capitalism, Daniel Bromley's Possessive Individualism explains how modern capitalism differs from the capitalism of even half a century ago, let alone Adam Smith's time.

But even our current, heavily regulated variety of capitalism is better than countless real-world alternatives. After all, if the situation in the U.S. were as bad as Stiglitz suggests, one would not expect so many people to want to move here. The border "crisis," which is really a problem with excessive regulation, suggests that the U.S. has pretty good institutions. Or at the very least, that people think those institutions are better than what they are leaving. And what they are leaving is less economic and political freedom.

The post Stiglitz's <i>The Road to Freedom</i> Under Scrutiny appeared first on Reason.com.

Congressional Budget Office (CBO) projections provide valuable insights into how a big chunk of your income is being spent and reveal the long-term consequences of our government's current fiscal policies—you may endure them, and your children most certainly will. Yet, like most other projections looking into our future, these numbers should be taken with a grain of salt. So should claims that CBO projections validate anyone's fiscal track record.

So much can and likely will happen to make projections moot and our fiscal outlook much grimmer. Unforeseen events, economic changes, and policy decisions render them less accurate over time. The CBO knows this and recently released alternative scenarios based on different sets of assumptions, and it doesn't look good. It remains a wonder that more politicians, now given a more realistic range of possibilities, aren't behaving like it.

First, let's recap what the situation looks like under the usual rosy growth, inflation, and interest rate assumptions. Due to continued overspending, this year's deficit will be at least $1.6 trillion, rising to $2.6 trillion by 2034. Debt held by the public equals roughly 99 percent of our economy—measured by gross domestic product (GDP)—annually, heading to 116 percent in 2034.

The only reason these numbers won't be as high as projected last year is that a few House Republicans fought hard to impose some spending caps during the debt ceiling debate. The long-term outlook is even scarier, with public debt reaching 166 percent of GDP in 30 years and all federal debt reaching 180 percent.

No one should be surprised. To be sure, the COVID-19 pandemic and the Great Recession made things worse, but we've been on this path for decades.

Unfortunately, if any of the assumptions underlying these projections change again, things will get a lot worse. That's where the CBO's alternative paths help. Policymakers and the public can better see the potential risks and opportunities associated with various fiscal policy choices, enabling them to make more informed decisions.

For instance, the CBO highlights that if the labor force grows annually by just 0.1 fewer percentage points than originally projected—even if the unemployment rate stays the same—slower economic growth will lead to a deficit $142 billion larger than baseline projections between 2025 and 2034. A similarly small slowdown in the productivity rate would lead to an added deficit of $304 billion over that period.

Back in 2020, the prevalent theory among those who claimed we shouldn't worry about debt was that interest rates were remarkably low and would stay low forever. As if. These guys have since learned what many of us have known for years: that interest rates can and will go up when the situation gets bad enough. So, what happens if rates continue to rise above and beyond those CBO used in its projections? Even a minuscule 0.1-point rise above the baseline would produce an additional $324 billion on the deficit over the 2025-2034 period.

The same is true with inflation, which, as every shopper can see, has yet to be defeated. If inflation, as I fear, doesn't go away as fast as predicted by CBO—largely because debt accumulation is continuing unabated—it will slow growth, increase interest rates, and massively expand the deficit. To be precise, an increase in overall prices of just 0.1 points over the CBO baseline would result in higher interest rates and a deficit of $263 billion more than projected.

Now, imagine all these variations from the current projections happening simultaneously. It's a real possibility. The deficit hike would be enormous, which could then trigger even more inflation and higher interest rates. The question that remains is: Why aren't politicians on both sides more worried than they seem to be?

What needs to happen before they finally decide to treat our fiscal situation as a real threat? President Joe Biden doesn't want to tackle the debt issue. In fact, he's actively adding to the debt with student loan forgiveness, subsidies to big businesses, and other nonsense. Meanwhile, some Republicans pay lip service to our financial crisis, but few are willing to tackle the real problem of entitlement spending.

The time for political posturing is over. The longer we wait to address these issues, the more severe the consequences will be for future generations. It's time for our leaders to prioritize the nation's long-term economic health over short-term political gains and take bold steps toward fiscal responsibility. Only then can we hope to secure a stable and prosperous future for all Americans.

COPYRIGHT 2024 CREATORS.COM.

The post The Congressional Budget Office's Alternative Scenarios Forecast a Dire Economic Picture appeared first on Reason.com.

At a Republican presidential primary debate in January 2016, Sen. Marco Rubio (R–Fla.) succinctly explained why using tariffs as a foreign policy tool would backfire against Americans.

"We are all frustrated with what China is doing, but I think we need to be very careful with tariffs and here's why," Rubio said, directly challenging Donald Trump over his call for placing tariffs on goods imported from China.

"China doesn't pay the tariff. The buyer pays the tariff," Rubio explained. "If you send a tie or a shirt made in China into the United States, and an American goes to buy it in the store, and there is a tariff on it, [the tariff] gets passed on in the price to the consumer."

In an essay published this week at The American Conservative, Rubio argued for exactly the opposite. Trump's plan to place even more tariffs on China if elected to another term in the White House would be "good for the economy insofar as they counteract market inefficiencies created by adversarial trade practices," Rubio writes, adding that it will "prevent or reverse offshoring, preserving America's economic might and promoting domestic investment."

The economics of tariffs have not changed in the past eight years. Rubio has.

The once-independent-minded senator from Florida has recently gone all-in on nationalist economics—presumably in an attempt to flatter Trump, a man Rubio once called a "dangerous con man." The senator has authored other essays recently advocating for industrial policy (he supports the "right" kind of industrial policy, which would of course be very different from the wrong kind of industrial policy President Joe Biden is pursuing, even though it's unclear how they would actually differ) and has publicly pushed back at critics who have called out his economic fallacies.

But the current version of Rubio is bound to lose this debate with his 2016 alter ego, who has the facts firmly on his side.

Indeed, just as Rubio predicted in 2016, the tariffs imposed by former President Donald Trump have been overwhelmingly paid by American businesses and consumers. Those groups "bore nearly the full cost of these tariffs because import prices increased at the same rate as the tariffs," the U.S. International Trade Commission (ITC) found in its five-year review of Trump's tariff policies. While Trump's tariffs on steel and aluminum spurred a small increase in domestic production of those metals, the ITC found, the downstream costs of the tariffs swamped the modest benefits.

Other studies found similar results. Here's one authored by economists at the Federal Reserve, Princeton University, and Columbia University that found Trump's tariffs cost U.S. consumers $3 billion per month. Here's a study by economists at the University of Chicago that found Trump's tariffs on washing machines hiked consumer costs by more than $1.5 billion. A study from Moody's Investor Service that found American consumers paid roughly 93 percent of the tariff costs. Other studies have come to similar conclusions.

In his American Conservative essay, Rubio tellingly doesn't attempt to offer evidence to contradict these well-established facts. Instead, he flippantly declares that the "'experts' got it wrong" and adds that "economists simplistically declare 'The policy is very bad. Tariffs make consumers poorer. They shrink the economy.'"

Perhaps the economists say those things because they are true and because the past six years have confirmed as much. It's fine to be skeptical of experts, but Rubio is the one making simplistic declarations here.

And if tariffs were the solution to anything, wouldn't there be evidence to support that claim by now? Rubio is engaging in a rhetorical trick more commonly used by progressives by suggesting that the lack of evidence in favor of a government policy isn't indicative of failure but only means that it hasn't been tried hard enough. Conservatives used to roll their eyes at that tactic.

Perhaps Rubio will parlay all these mental gymnastics and pro-Trump sycophancy into a vice presidential nomination or some other plum gig. For now, however, he's provided a perfectly pathetic illustration of the current state of the Republican Party, which has abandoned principle and reality to swoon for Trump's silly notions about what makes countries prosperous.

"The best thing we can do to protect ourselves against China economically is to make our economy stronger," Rubio said during that same GOP primary debate in 2016, adding that the best way to boost economic growth would be to cut taxes on American businesses and consumers.

Eight years later, Rubio is advocating for raising taxes on Americans in order to combat China. It makes no sense and we know that Rubio knows better, even if he no longer has the cojones to say so.

The post Marco Rubio Used To Know How Tariffs Work. What Happened? appeared first on Reason.com.

Rent control is having something of a moment: In Los Angeles, tenants are invoking a law that imposes limits on apartments built on sites where rent-controlled units previously stood. A new rent control ordinance went into effect last month in the Bay Area city of Concord, California. Phillipsburg, New Jersey is considering similar restrictions. And, importantly, the Biden administration recently moved to cap rent hikes in some federally subsidized housing across the entire country.

But reviving bad policy doesn't make it less dumb than it was in past incarnations.

Affordable Housing Comes at a High Price

"The Biden administration moved this week to limit how much rent can rise in certain affordable housing units across the country," CNBC's Annie Nova noted April 3. "The cap applies to units that receive funding from the Low-Income Housing Tax Credit, the nation's largest federal affordable housing program, according to experts. The National Low-Income Housing Coalition estimates that around 2.6 million rental homes across the U.S. have current LIHTC rent and income restrictions."

Tenant advocates applauded the move, but it drew criticism, too.

"While well‐​intentioned, rent control fails to achieve its primary goal of improving housing affordability for the poor and disadvantaged," economists Jeffrey Miron and Pedro Aldighieri respond in a piece published by the Cato Institute. "In fact, it often generates unintended consequences that exacerbate the very problems it seeks to solve."

They point out that restricting the price of housing discourages owners from maintaining and improving their property. It can also make it attractive for landlords to pull apartments from the rental market and put them up for sale as owner-occupied dwellings. Those enjoying deals on housing costs might also find themselves in the equivalent of golden handcuffs.

"Tenants in rent‐​controlled units become less mobile to avoid losing access to below‐​market rents," add Miron and Aldighieri.

The authors point to studies finding that rent control has reduced the supply of rental housing in communities as far apart as Cambridge, Massachusetts, and San Francisco. In fact, the use of the City by the Bay to illustrate the failures of rent control has a long history. It was the example offered by Milton Friedman and George Stigler in Roofs or Ceilings?, a 1946 essay on rent restrictions published by the Foundation for Economic Education and recently resurfaced on X by the author Amity Shlaes.

A Tale of Two Housing Crunches

Discussing the effects of the infamous April 18, 1906 earthquake, Friedman and Stigler pointed out that "a city of about 400,000 people lost more than half its housing facilities in three days." In the weeks that followed, people left the city, temporary shelters went up, and construction crews swiftly got to work.

"When one turns to the San Francisco Chronicle of May 24, 1906—the first available issue after the earthquake—there is not a single mention of a housing shortage!" they write. "The classified advertisements listed 64 offers (some for more than one dwelling) of flats and houses for rent, and 19 houses for sale, against 5 advertisements of flats or houses wanted. Then and thereafter a considerable number of all types of accommodation except hotel rooms were offered for rent."

Friedman and Stigler contrasted this to the post-war situation in 1946, when "the city was being asked to shelter 10 percent more people in each dwelling unit than before the war"—a less acute situation than the one faced in 1906. But the result in 1946 was very different from that faced 40 years earlier.

"During the first five days of the year [in 1946] there were altogether only 4 advertisements offering houses or apartments for rent, as compared with 64 in one day in May 1906."

That's because, faced with a sudden mismatch between supply and demand, people decades apart chose very different ways of "rationing" housing stock.

"In 1906, the rationing was done by higher rents," wrote Friedman and Stigler. "In 1946 the use of higher rents to ration housing has been made illegal by the imposition of rent ceilings, and the rationing is by chance and favoritism." Higher rents in 1906 spurred people to build quickly and to efficiently use available space. Restricted prices in 1946 offered no such incentives, so housing remained hard to find.

That would have been a hard-learned lesson—had it been learned at all. But it wasn't.

Lessons Unlearned

Decades later, the 2019 study cited last month by Miron and Aldighieri looked at a 1994 law change in San Francisco that suddenly extended rent control to housing constructed before 1980. Sure enough, tenants benefiting from controlled rents became less likely to move, while landlords subject to restrictions converted their properties to condos and co-ops or redeveloped them to escape regulation.

Rent controls "reduced the supply of available rental housing by 15 percent," the study concluded. "This reduction in rental supply likely increased rents in the long run." Contrary to housing activists' intentions, "the conversion of existing rental properties to higher-end, owner-occupied condominium housing ultimately led to a housing stock increasingly directed toward higher income individuals."

So much for the magical benefits to the poor of price controls on housing. But, despite bitter experience of the ill-effects of rent controls, restricting the price that landlords can charge tenants for use of their property remains popular. Whether it's the Biden administration or local politicians in California, New Jersey, and elsewhere, a policy that pretends to make homes affordable is a very visible way of demonstrating concern for low-income families—even if it's completely counterproductive.

By contrast, the productive approach—getting out of the way—isn't so headline-ready.

"The most sustainable and effective way to promote affordable rents is to enable new construction by deregulating zoning, land use, and building requirements," write Miron and Aldighieri. "Such policies make development cheaper and supply more responsive to prices, keeping rents in check."

Unfortunately, leaving the market free to match supply and demand for housing—or anything else—may meet human needs, but it doesn't make for feel-good press releases. So, government officials continue to offer rent control as a solution to housing woes. And economists have endless opportunities to explore why restricting prices still fails to make housing affordable.

The post Rent Control Remains the Wrong Solution to Housing Woes appeared first on Reason.com.

This week's featured article is "In the AI Economy, There Will Be Zero Percent Unemployment" by Andrew Mayne.

This audio was generated using AI trained on the voice of Katherine Mangu-Ward.

Music credits: "Deep in Thought" by CTRL and "Sunsettling" by Man with Roses

The post <I>The Best of Reason</I>: In the AI Economy, There Will Be Zero Percent Unemployment appeared first on Reason.com.

If you're looking for further evidence that the world is recovering from the disruptions of pandemic policy, the Simon Abundance Index provides just that. After a brief retreat, the index once again portrays a world of cheaper commodities that contribute to human prosperity. Born from a famous 1980 bet between economist Julian Simon and doomsayer Paul Ehrlich, the index stands as testimony for Simon's belief that the greatest resource is human ingenuity—although government intervention is perfectly capable of screwing up a good thing.

"After a sharp downturn between 2021 and 2022, which was caused by the COVID-19 pandemic, government lockdowns and accompanying monetary expansion, and the Russian invasion of Ukraine, the SAI is making a strong recovery," according to Marian L. Tupy of the Cato Institute. "Since 1980, resource abundance has been increasing at a much faster rate than population."

A Contrast to the Fears of Doomsayers

The index was born in the days of worries over population growth and the strain more people would place on the world's resources. The Limits to Growth, published by the Club of Rome in 1972, famously predicted that nonrenewable natural resources including copper and aluminum would start running out in a matter of years, hiking prices and curtailing availability. "Population growth and the law of increasing costs could rapidly drive the system to the point where all available resources were devoted to producing food," insisted the authors.

"In the 1970s hundreds of millions of people will starve to death in spite of any crash programs embarked upon now," warned Paul Ehrlich, author of The Population Bomb (1968).

Policymakers took the doomsayers' warnings seriously. China implemented a one-child policy that was coercively enforced and hobbles the country to this day, even after its repeal. Governments from India to Mexico imposed forced sterilization policies.

"'The Population Bomb' made dire predictions—and triggered a wave of repression around the world," Charles Mann noted in 2018 for Smithsonian magazine.

Innovation Is the Greatest Resource

Simon initially agreed with Ehrlich and friends that population was a problem. But he researched the issue and dramatically changed his mind on the relationship between people and prosperity.

"Humankind has evolved into creators and problem-solvers to an extent that people's constructive behavior has outweighed their destructive behavior, as evidenced by our increasing life expectancy and richness of consumption," Simon wrote in 1984 for Reason. "And in recent centuries and decades, this positive net balance has been increasing rather than decreasing."

That's because, he continued, "humankind has evolved culturally (and perhaps also genetically) in such a manner that our patterns of behavior—social rules and customs being a crucial part of these patterns—predispose us to deal successfully with resource scarcity. That is, over the centuries, these evolved patterns have given us greater rather than less command over resources."

Gambling on Abundance

The result of his changed views was a challenge issued to and accepted by Paul Ehrlich. In October 1980, they drew up a futures contract by which Simon agreed to sell Ehrlich, in 1990, the same quantities that could be purchased for $1,000 in 1980 of five metals: copper, chromium, nickel, tin, and tungsten. If the combined value was above $1,000 at the end of the bet, Simon would pay the difference. If it was below $1,000, Ehrlich would make up the difference to Simon. In October 1990, Ehrlich mailed Simon a check; the price of the metals, which were selected by Ehrlich, had fallen by more than a third after inflation.

Of course, resource prices and innovation evolve naturally, not in straight lines. Different time periods might have produced different results for that bet. But Simon's main contention—that humans tend to innovate their way around resource constraints—continues to hold, as documented by the Simon Abundance Index, which tracks the availability and cost of many more commodities than the five included in the original 1980 bet.

"The Simon Abundance Index (SAI) quantifies and measures the relationship between resources and population," notes the 2024 edition of the index. "The SAI converts the relative abundance of 50 basic commodities and the global population into a single value. The index started in 1980 with a base value of 100. In 2023, the SAI stood at 609.4, indicating that resources have become 509.4 percent more abundant over the past 43 years. All 50 commodities were more abundant in 2023 than in 1980."

Policy-Driven Backsliding

Growth in abundance is occasionally interrupted. There was major backsliding (increased commodity costs) during the Great Recession, which was largely caused by federal efforts to encourage mortgage issuance no matter what, and in response to the economic disruptions of pandemic lockdowns. Tracked commodities are 509.4 percent more abundant now than in 1980, but they were 518.98 percent more abundant in 2019, before any of us had heard of COVID-19 or suffered a stay-at-home order.

As it turns out, even the blessings of human innovation can be kneecapped by the mandates and intrusions of government officials. It should come as no surprise that the brief retreat in resource abundance coincides with an interruption of the decades-long global march away from crushing poverty and towards prosperity. More people lived below the poverty line in 2022 (712 million) than in 2019 (689 million), even as "resource abundance fell by 3.55 percent in 2022."

But we appear to have turned the corner, with abundance once again increasing. "For the time required to earn the money to buy one unit of this commodity basket in 1980, you would get 3.38 units in 2023," according to index authors Tupy and Gale Pooley of Brigham Young University-Hawaii. And contrary to the doomsayers, that happened as the human population increased from 4.4 billion to more than 8 billion. That represents improved access to everything from food to energy, with lamb increasing in abundance by a whopping 675.1 percent since 1980 (the most in the basket of commodities), while coal became 30.7 percent more abundant (the least improvement over that time).

A world of greater abundance in resources means a world in which people are better nourished, better clothed, warmer in the winter, cooler in the summer, and more prosperous. It's a world in which human ingenuity is set free to make the human race happier, healthier, and wealthier.

Well, it's a world of abundance and prosperity unless politicians screw it up. Again.

The post Julian Simon Was Right: Ingenuity Leads to Abundance appeared first on Reason.com.

President Joe Biden will reportedly use tonight's State of the Union address to once more rail against what the White House has taken to calling "shrinkflation"—the annoying corporate practice of shrinking the size of products rather than raising prices.

Politico reported this week that "recent drafts of Biden's State of the Union address have included a reference to shrinkflation as part of a broader segment on administration efforts to pressure companies to lower costs across the board." A White House spokesperson told the outlet that Biden "will continue to call out rip-offs such as shrinkflation, greedflation, and price gouging."

You'll note that, up there in the first sentence, I acknowledged that shrinkflation is annoying. It is, and polls show that consumers are indeed put off by the practice. Even Cookie Monster is upset about it. There are reasons to believe this is, on some level, a politically savvy move by the White House that reflects whatever data it's gleaned from polling.

But Biden's economically illiterate attempts to pin shrinkflation on greedy corporations aren't telling even half of the story. Here are three things to keep in mind when Biden starts spouting off tonight.

First, shrinkflation is just inflation.

It's not a side effect of inflation or a consequence of inflation. It is inflation. So when Biden, or anyone else, is complaining about this, what they are really saying is, "Wow, it sure sucks that your money doesn't buy as much stuff as it used to." Maybe that can score Biden some points for looking like he shares the concerns of regular Americans—even though he hasn't had to worry about a household grocery budget in decades—but this is nothing more than an attempt at rhetorical misdirection.

Second, shrinkflation is not a new phenomenon (because it is no different from inflation, which has also been around for as long as people have been using money).

Corporations didn't suddenly get more greedy and they didn't discover the tradeoff between sizes and prices in the wake of surging inflation during 2022. In fact, shrinkflation has been around since before there were corporations.

"Whenever grain was in short supply in feudal Europe, bakers had two choices: They could either raise prices or sell smaller loaves. They chose the latter," wrote Keith Plocek in Slate in 2022. "To do otherwise would violate the widely-held principle of a "just price"—formulated by Thomas Aquinas in the 13th century—and invite a bread riot."

That famous business school story about American Airlines saving a ton of money by removing a single olive from the salads it served to passengers in the 1980s? That's shrinkflation! What about Chock full o'Nuts deciding to sell 13-ounce packages of coffee instead of one-pound containers, thus ushering in an industrywide change? Shrinkflation! This is neither a novel idea nor a particularly sinister one, and it is certainly not something that needs to be regulated by the federal government.

Finally, Biden's proposed solution to shrinkflation would automatically cause prices to rise.

We don't yet know exactly what Biden is going to suggest at tonight's speech, but it seems likely that he'll tout a new task force launched this week meant to combat "unfair and illegal" pricing. On Tuesday, Biden announced the joint project of the Federal Trade Commission and Department of Justice with the goal of "making sure corporations are held accountable when they try to rip off Americans."

It's worth asking: What would happen if this task force succeeds? Assume every company in America decides to immediately undo any reductions in the size or quantity of products. What would happen to prices?

"In an inflationary environment, firms must decide whether to raise their headline prices or trim product sizes," wrote Ryan Bourne, an economist at the libertarian Cato Institute. "Banning 'shrinkflation' is effectively a mandate to raise package prices, rather than pursuing a size‐​price bundle that some (particularly low‐​income) consumers might prefer."

To put it in terms even Cookie Monster might understand: If the cost of making a single cookie has increased—because the flour and sugar are more expensive, and the workers making the cookies are making higher wages—then the cost of a package of 20 cookies will increase accordingly. If you want to avoid raising prices, you might only sell 15 cookies per package.

But if the government mandates 20 cookies per package—such an incredibly silly thing to have the federal government regulate, it's worth noting—then the price of that bag of cookies is certainly going up. The inflation that's occurred over the past few years can't be wiped away with a White House edict or canceled by a new task force.

As Dean Baker, a senior economist at the progressive Center for Economic and Policy Research, told Politico this week: "Costs have gone up—wages are 20 percent higher than they were in 2019….We're not going to have a world where people get to keep their 20 percent pay increases and pay what they did four years ago for food."

Bizarrely, Biden's attempt to change the conversation away from inflation involves a set of policies that would make Americans even more aware of how inflation is affecting them. The White House should be careful what it wishes for.

The post Not Again With the 'Shrinkflation,' Please appeared first on Reason.com.

California Gov. Gavin Newsom is pushing back against claims that he sought to include a special exemption in a new minimum wage law to help a longtime friend and donor—but the governor's objections only underline how the entire law was a giveaway to his political allies.

Starting next month, fast-food chains operating in California will have to pay workers at least $20 per hour, even though the minimum wage for other jobs in the state will remain at $16 per hour. Newsom signed the bill to create that higher wage mandate, but the law includes a special carve-out seemingly tailored to exempt Panera Bread (and other chains that sell bread as a standalone menu item). Newsom had pushed for that exemption, Bloomberg reported earlier this week, as a favor to Greg Flynn, owner and CEO of the Flynn Restaurant Group, which operates 24 Panera locations in the Golden State.

After the story took off in the media, a spokesman for the governor's office claimed the allegation of favoritism was false. Newsom "never met with Flynn about this bill and this story is absurd," wrote Alex Stack in a statement to Reason and other media outlets that covered the story. "Our legal team has reviewed and it appears Panera is not exempt from the law."

The first claim might be true in only the narrowest sense. The Associated Press has confirmed that Flynn met with the governor's staff regarding the minimum wage bill and that he suggested exempting "restaurants like bakeries, bagel shops and delis" from the higher minimum wage law. Flynn denied speaking to Newsom directly, but it certainly appears that he attempted to exercise some influence over the lawmaking process.

Meanwhile, the governor's office's claim that the exemption doesn't apply to Panera only raises other questions—like, why is that exemption there at all?

That's a question that reporters in Sacramento have seemingly been trying to answer for months. Asked directly about the bakery exemption at a press conference last year, Newsom said it was "part of the sausage making" of the legislative process. In the wake of the Bloomberg story, Newsom's office has not offered a better explanation for the carve-out. Until that changes, the questions will persist.

"If [Newsom] is unable to provide a better justification for this carve-out, it raises serious questions about the integrity of his administration," a group of Republican lawmakers wrote in a letter requesting that state Attorney General Rob Bonta investigate the matter.

Newsom's explanations about the carve-out seem to be "falling apart in real time, particularly because Californians are accustomed to watching this administration hand out favors to its friends," Will Swaim, president of the California Policy Center, tells Reason. 

Swaim drew a parallel to the aftermath of the passage of California's Assembly Bill (AB) 5 in 2019, which effectively banned freelancing in many industries. After newspapers complained that the law would make it more difficult for them to use freelance labor, Newsom backed a short-term and then a longer-term exemption for the industry.

Of course, the debate over the narrow bakery exemption to the minimum wage law seems to miss the larger point: the entire law is a bizarre exemption from the state's existing minimum wage statute. Maybe a special interest and personal friend influenced that one section of the new law, but there is no doubt that other special interests—labor unions that give huge campaign contributions—are the reason why the rest of the law singles out fast food restaurants while effectively exempting other employers.

In short: Newsom's claims that special interests didn't influence one part of the bill would be more believable if special interests hadn't obviously influenced the entire bill.

"This was a bad bill to begin with—imposing an unsupportable minimum wage on businesses that operate on razor-thin margins has already raised menu prices and accelerated layoffs in the industry," says Swaim. "Its victims will be small franchisees who don't have Panera's pull and workers who are now facing mass layoffs."

The post Of Course Special Interests Shaped California's New Minimum Wage Law appeared first on Reason.com.

America is celebrated for its economic dynamism and ample and generously paid employment opportunities. It's a nation that attracts immigrants from around the world. Yet Americans are bummed, and have been for a while. They believe that life was better 40 years ago. And maybe it was on some fronts, but not economically.

Surveys repeatedly demonstrate that Americans view today's economy in a negative light. Seventy-six percent believe the country is going in the wrong direction. Some polls even show that young people believe they'll be denied the American dream. Now, that might turn out to be true if Congress continues spending like drunken sailors. But it certainly isn't true based on a look back in time. By nearly all economic measures, we're doing much better today than we were in the 1970s and 1980s—a time most nostalgic people revere as a great era.

In a recent article, economist Jeremy Horpedahl looked at generational wealth (all assets minus all debt) and how today's young people are faring compared to previous generations. His findings are surprising. After all the talk about how Millennials are the poorest or unluckiest generation yet, Horpedahl's data show them with dramatically more wealth than Gen Xers had at the same age. And this wealth continues to grow.

What about income? A new paper by the American Enterprise Institute's Kevin Corinth and Federal Reserve Board's Jeff Larrimore looks at income levels by generation in a variety of ways. They find that each of the past four generations had higher inflation-adjusted incomes than did the previous generation. Further, they find that this trend doesn't seem to be driven by women entering the workforce.

That last part matters because if you listen to progressives and New Right conservatives, you might get a different story: that today's higher incomes are only due to the fact that both parents must now work in order for a family to afford a middle-class lifestyle. They claim that supporting a family of four on one income, like many people did back in the '70s and '80s, is now impossible. Believing this claim understandably bums people out.

But it's not true. One of its many problems, in addition to the data evidence provided by Corinth and Larrimore, is that it mistakenly implies that single-income households were the norm. In fact, as early as 1978, 50 percent of married couples were dual earners and just 25.6 percent relied only on a husband's income. I also assume that there are more dual-income earners now than there were in the '80s. While this may in fact be true for married couples (61 percent of married parents are now dual-earners), because marriage itself has declined, single-earner families have become relatively more common.

Maybe the overall morosity on the economy has to do with the perception that it's more expensive to raise a family these days than it used to be. Another report by Angela Rachidi looks at whether the decline in marriage, fertility, and the increase in out-of-wedlock childbirths are the result of economic hardship. She finds that contrary to the prevailing narrative, "household and family-level income show growth in recent decades after accounting for taxes and transfers." Not only that, but "the costs of raising a family—including housing, childcare, and higher education costs—have not grown so substantially over the past several decades that they indicate an affordability crisis."

So, what exactly is bumming people out? We may find an answer in the 1984 Ronald Reagan campaign ad commonly known as "Morning in America." It begins with serene images of an idyllic American landscape waking up to a new day. It features visuals of people going to work, flags waving in front of homes, and ordinary families in peaceful settings. The narrator speaks over these images, detailing improvements in the American condition over the past four years, including job creation, economic growth, and national pride.

I believe this feeling is what people are nostalgic about. It seems that they are nostalgic about a time when America was more united and it was clearer what being American meant. Never mind that this nostalgia is often based on an incomplete and idealized memory of an era that, like ours, was not perfect.

This is a serious challenge that we need to figure out how to address. One thing that won't help, though, is to erroneously claim that people were economically better off back then and call on government to fix an imaginary problem.

COPYRIGHT 2024 CREATORS.COM.

The post The Economy Is Doing Way Better Than Many Believe appeared first on Reason.com.

Jakarta, Indonesia—The central business district of Indonesia's 11 million-person capital has the social contrast found in many other developing world megacities. Modern skyscrapers accommodate Indonesia's elite, while shabby informal villages spread from the base of such buildings. I wanted to experience this latter, more common, style so one morning my translator Julya and I walked a few minutes from my upscale French hotel chain across a dirty canal and into a village.

The standardized First World planning aesthetic of square buildings and engineered roadways quickly yielded to clustered huts organized along a twisty network of alleys. This village style is common in the Third World, a bastion of organic, market-oriented development that often withstands the modernization plans of city officials, even in central areas. It bears a striking resemblance to a popular concept in the Western urban planning world: the "superblock."

In superblocks, wide roads and streets are spaced far apart rather than allocated frequently on a grid pattern. The area in between, too condensed to accommodate cars, is reserved for pedestrians, motorbikes, buildings, and courtyards, with alleyways connecting it all.

Such blocks were the historical default before cities were planned for automobiles and before machines made clearing rights of way much easier. Paths would extend along routes that were topographically easy and would be cleared just wide enough for needed pass-throughs.

European villages with their hilly outdoor staircases fit the superblock stereotype, but the style has even deeper roots in Asia, with the oldest known example in China. In their contribution to the book Governing Cities: Asia's Urban Transformation, scholars Daixin Dai and George R. Frantz describe the ones planned in 1036 B.C. for the ancient city of Chengzhou. The pattern persisted through the millennia; 1400s Beijing, according to urbanNext, consisted of "blocks of houses on 150-meter hutong nested in 1,000-meter superblocks," themselves found in larger structures called "megablocks."

Superblocks were common in the colonial and industrial-era U.S., with Philadelphia, for example, growing into a maze of tight alleyways for horse carriages. Savannah, Georgia, was planned for superblocks—still partially intact today—and there are still scattered examples throughout the Northeast and Midwest.

Modern planners increasingly recognize the benefits of superblocks and want to bring them back. Cutting off large residential segments of the city to cars reduces traffic deaths, air pollution, and other negative externalities. The idea has been proposed in Los Angeles, where the City Council hopes to implement a pilot superblock in the city center, and in Seattle, where one is proposed for the Capitol Hill neighborhood.

Urban planners tend to be progressives, and superblock promoters think their idea will be achieved through government planning. The most successful First World superblock retrofit was pushed through that way, in Barcelona. There, the government prohibited automobile traffic through several thoroughfares in the 2010s, allowing pedestrians to move through freely; the authorities hope to create 500 such blocks. Beyond just alleys, a number of blocks have shops, courtyards, and parks.

The effort caused car storage in one Barcelona neighborhood to fall 82 percent. The change has plenty of fans: The World Health Organization reports that in one converted district, residents experienced "a perceived gain in well-being, tranquility and quality of sleep." And it was clearly a government project. As David Roberts wrote in Vox almost five years ago, Barcelona "has always been an intentional city, closely conceived and constructed by central planners." Unsurprisingly, it was planners, in turn, who undid the city's grid and instilled superblocks.

But across the developing world, the opposite is true. In Africa, Asia, and Latin America, superblocks remain the de facto market-driven development pattern, for much the same reasons they were in the ancient world. Most of the population doesn't own cars and is not in an economic position to afford more space. So they maximize the space they have, causing superblock shantytowns to pop up on hillsides, farmland, or even infill urban areas that are being illegally "invaded." The poorer the area, the more devoid it will be of setback requirements, parking minimums, and similar regulations—and the likelier it will be to yield the superblock vernacular.

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We got a sense of the economic reasons why when walking through the Jakarta village, called Kebon Jahe. This is one of central Jakarta's many urban villages—a neighborhood format known to locals as perkampungan. Kebon Jahe literally is a superblock, in that the entire boundary is one big block of a dozen or so square acres, flanked by big arterial roads but with no significant through roads.

We entered the village wanting to learn how it got planned (or unplanned) to look this way. Julya, a native to the Jakarta area, knew we must first talk to the neighborhood chief.

After veering down one alley and asking around, we were taken down an even smaller alley and introduced to Budi Aprianto. A middle-aged man, he is one of 15 village chiefs, all democratically elected by the block's roughly 1,500 residents.

Kebon Jahe, he explained, was colonized in the 1700s by the Dutch, who built a cemetery there. When Indonesians got back control of the land during the 1940s revolution, the area was converted into farmland and a livestock market. The buildings that exist now began rising in the 1970s, to accompany population demands in central Jakarta. The village has not grown through the efforts of a master developer. A collection of families, many of them in the area for generations, had erected their own homes.

How, I asked, did a sophisticated alley network get built in such a decentralized growth system? After I paid a small bribe, he agreed to show me around.

The network, he explained, is as coordinated as it looks, forming a U shape that lets residents access the whole village. But there are three right-of-way categories.

The first consists of the relatively wide roads that form the entry of Kebon Jahe before hitting up against alleys. These were built by the government, allow cars to park (haphazardly), and have formal retail, such as the popular Alfamart chain.

The second, and primary, form of right of way is the alleys. They're 6 feet to 12 feet wide, meaning they can only handle pedestrians and motorbikes, and they accommodate most of the retail, with merchants setting up stores along or even into the alley. The government paves them and manages them for safety and clearance, but they follow a market logic. They began as private clearances for farmers who were seeking the easiest transport path. Development grew along them, and only later did the government take over. This is why they zigzag along land curves rather than fitting the straight lines common in a grid.

Third are the extremely narrow alleys that veer off these main ones. These are still private. Any given acre in Kebon Jahe has hundreds of small houses so scrunched together it's hard to tell them apart. Most homes don't front the street but, in a pattern atypical in even America's densest cities, go deep into the lot—meaning almost every last square foot of land is covered.

The only parts not covered are the alleys, which allow inside-outside access for these further-back houses. The alleys are also places for hanging birdcages, drying laundry, and running small commercial stands. They're created through negotiation between homeowners, all of whom benefit from the access. But they're extremely narrow—I had to turn sideways while walking through some—and that just boils down to economics.

"Jakarta is a very crowded city," Aprianto explained through my translator. "People use every bit of space they can for themselves."

Some of the extremely narrow alleys actually began as the wider formal public ones. But when adjacent homeowners want to expand their dwellings, they build additions into the alley, unintentionally similar to the invasive favela-style growth seen in Brazil. These households leave just enough alley space that they themselves can get out.

While building onto public alleys is illegal, enforcement is loose, given that Kebon Jahe is a mostly self-governing slum. (Aprianto is an elected leader, but he is not a government official.) In the rare cases when city inspectors appear, residents just pay them off.

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Before visiting Kebon Jahe, Julya and I explored some superblocks in Tangerang, the working-class Jakarta suburb where she grew up. Many more exist there—unsurprisingly, given that it's an industrial city where factory workers need places to live. Tangerang superblocks are often centered around small mosques (Indonesia is the country with the world's largest Islamic population) or around dirty canals that nonetheless meet certain economic needs.

The same order can be found across the Global South: Large factories are built on city outskirts and quickly get surrounded by informal slums, virtually all of which adopt some variation of the superblock layout. Again, this is not because people there share the ideals of Western planners. Nor do these superblocks have the bells and whistles of the Spanish ones. It's simply the most logical layout in societies defined by economic and spatial scarcity.

Superblocks are more vulnerable in central areas, thanks to pressure to wipe them out and build to higher-end uses. That is not usually a market process. As our Kebon Jahe tour was ending, we passed the more formal area at the village exit, which had a wider alley and larger buildings.

"By next year, all of Kebon Jahe might look like this," Aprianto said.

The city has already started harassing the village's street merchants, and it's planning a program to raze Kebon Jahe homes and replace them with towers. Residents will receive payments from the government that, while large to them, won't be enough to buy replacement units in central Jakarta. Instead, they must find comparably priced units further out, meaning they're effectively being displaced through eminent domain. Such slum clearance is common across the Global South, as it once was in the United States.

It might surprise America's professional planners to hear it, but governments don't usually create superblocks—they destroy them.

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