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Last Build Date: Fri, 24 Nov 2017 10:54:50 -0500

Copyright: Copyright 2017

Mass Killings and the Economic Approach to Human Behavior, by Contributing Guest

Fri, 24 Nov 2017 10:54:50 -0500

by Pierre Lemieux Whether or not mass killings without Islamist terrorism are on an upward trend is a debated question. In their article "Mass Shootings in America: Moving Beyond Newtown," criminologists James Alan Fox and Monica J. DeLateur argue that, as of 2012, the number of such mass shootings and their victims has been quite stable for 35 years in America. Recently, many terrorist mass killings have occurred in Europe, while non-political ones, like in Las Vegas and Sutherland Springs, have dominated the news in America. Why do individuals commit mass killings? Perhaps we can gain some understanding with what Gary Becker called the economic approach to human behavior. In Becker's view, which is standard economics, individuals make choices on the basis of both their preferences and the constraints they face. We take preferences as given, because a change in preferences can provide an ad hoc explanation for anything. (I will relax this assumption later.) Most people are not tempted to commit mass killings but, obviously, some are. Casual observation suggests that mass killers are nearly always, and perhaps always, losers - in the Merriam-Webster sense of "a person who is incompetent or unable to succeed." Of course, not all losers have the preferences of mass killers, but for some of them, mass killing is not out of the realm of utility. But when losers face the proper constraints, they don't commit mass killings. The crimes they are likely to commit are more standard crimes, petty or serious. Two sorts of constraints have long prevented losers from committing mass killings. The first kind of constraint is a straight budget constraint. For most of mankind's history and in most countries, losers were or are busy trying not to starve. They do not have the physical means - cars, guns, bombs, or other costly items - to commit mass killings. But in today's rich countries, a loser can rent a truck at Home Depot with a credit card. By enriching everybody and recognizing rights such as Second-Amendment rights, a free society empowers everybody, including losers. Some of the latter may yield to the mass-killing temptation. The second kinds of constraints are moral constraints, often inspired by religion (but perhaps also, or consequently, by a general sense of decency). Adam Smith wrote: Religion, even in its crudest form, gave a sanction to the rules of morality long before the age of artificial reasoning and philosophy. That the terrors of religion should thus enforce the natural sense of duty, was of too much importance to the happiness of mankind for nature to leave it dependent upon the slowness and uncertainty of philosophical researches. The Theory of Moral Sentiments, Friedrich Hayek, despite describing himself as a "professed agnostic," also recognized the importance of religion in a free society (see chapter 9 of The Fatal Conceit). We should not idealize the past, which was generally more violent than today. Yet, in times past, there were things that one simply must not do, and even losers knew that. Losers were humble. There is no doubt that today moral constraints have been weakened, if only through the decline of religion. There were exceptions to losers' restraint. In 356 BC, Herostratus burnt the temple of Artemis at Ephesus in Greece in order to immortalize his name. He succeeded, at the cost of torture and execution. The desire for immortality may still motivate losers to become mass killers. Islamist terrorists yearn for a specific form of eternal life. Today, any loser can achieve some posthumous fame if not the hope of eternal life with a gun or a rented truck (Saipov, the recent bicycle path terrorist, did not even have a gun). Other constraints would, to some extent, include the capacity of the victims to shoot in self-defense. In Paris, after the Charlie Hebdo killings, witnesses could only capture the killers on their phone cameras. Relaxing the earlier assumption of stable preferences compounds the consequences of the attenuation of moral constraints. Some individuals can acquire nihilis[...]

Giving Thanks, by David Henderson

Thu, 23 Nov 2017 21:44:38 -0500

I dedicate this post, as I did The Joy of Freedom: An Economist's Odyssey, "to the unknown civilization that is growing in the world."

On this Thanksgiving Day, I feel thankful for many things. First, my daughter came home today from San Francisco and I always love being with her. My lovely wife, daughter, and I had a nice quiet turkey dinner with apple and pumpkin pie.

I'm also thankful that I live in what is still a pretty good country. I have my criticisms--a lot of them, as regular readers of this blog know. But my criticisms are mainly of government and of those who want to maintain and/or increase government's power over us. My day-to-day dealings with people are almost always good. And even when I get in potential conflict situations with other people, which is rare, I'm thankful that I've developed the tools over about the last 55 years to deal with them.

I'm thankful that I decided to become an economist. It led me to move to the United States, go to UCLA, become a resident alien (antennae and all), and become a U.S. citizen. And for that decision to become an economist, I thank the person who told me, when I was 19, that I was smart enough to do it: Harold Demsetz.

Also, my becoming an economist and, being a Canadian, saving in a typical year 15% of my gross income, has made my family relatively wealthy. It has allowed me to retire while still in relatively good health so that I can do other things. And, as I've told many others, if my wife and I had one third of our wealth, we would still be wealthy: we would still have two pretty good cars, a nice house, if not in California, and the ability to buy good food.

I'm thankful that there's a Thanksgiving Day. It's a way of making oneself slow down, visit family, and take stock.

Finally, I'm thankful to our thoughtful readers who are engaging in the exciting project of thinking through the consequences of economic freedom and of government control.


Thanksgiving in Tesla Town, by Scott Sumner

Thu, 23 Nov 2017 12:57:46 -0500

After moving to Mission Viejo in late July, I frequently experienced brief moments of euphoria. Sometimes I would almost burst out laughing at how ridiculously convenient my life had become. Now that I've been here for 4 months, I've come to the view that southern Orange County has the highest living standards in the entire world, for any region of at least a million people. (Here I'm thinking of Orange County south of I-55.) As an aside, there are Tesla cars everywhere, at least 6 or 8 within a couple blocks of my house. I base this claim partly on the fact that the region is affluent and very conveniently laid out. Other places that might have a similar claim to high living standards (say the northern suburbs of Dallas) lack the delightful climate and beautiful scenery of this area. I'd guess that leaving Boston caused my living standards to improve as much as someone moving from middle class to upper middle class, or upper middle class to rich. It's amazing how much more convenient life has become. Lessons: 1. It's not clear what lessons we should draw. California is ruled by Democrats, so perhaps their governance model is best. But this part of California is Republican (even compared to north Orange County), and this area is much more convenient than Democratic strongholds like LA and San Francisco. 2. This area is not very dense. Do the high living standards confirm the wisdom of that policy? I'd say no, as allowing more density in certain areas wouldn't actually have all that much impact. Southern California is just too vast to ever look like the dystopias you see in films like Blade Runner. You could fit all of America into LA county at Manhattan level density, and all of China into San Bernardino County. No matter how much density is allowed, 95% of southern California will always be single family tract homes, even with Houston-style non-zoning. It's just too big to ever become dense in more than a few localized areas. (Orange County seems to allow some dense development in Irvine, a southern OC city of 250,000 people, half of who are Chinese-Americans.) 3. Has all this convenience made me happier? That's hard to say. How can I tell if I'm happy when any self-evaluation changes hour by hour, with my mood? It's not obvious to me that I'm happier in the top income quintile than when I was in the middle quintile, or the bottom quintile. My hour-by-hour happiness level is mostly related to things unrelated to convenience (chronic intestinal pain, job frustrations, insurance companies, etc.). I'm now used to the ridiculous convenience of life here, and no longer think about it very much. Sometimes I wonder if my brain isn't simply hardwired to achieve a certain level of happiness. 4. If all this affluence isn't making me happier, why don't I give the money to you? Perhaps because I'd prefer a more convenient life, even if not happier. Or maybe I am happier, and just don't realize it. Maybe I don't see affluence mattering because I'm currently affluent--like a fish doesn't notice water. I've always had a "revealed preference" view of utility. We can never fully understand something as amorphous as happiness, so let's just focus public policies on maximizing utility--defined as the things that people act like they prefer. That's why I prefer school vouchers, people act like they prefer choice in schools. Speaking of vouchers, I strongly recommend this excellent Scott Alexander post on choice: Because the whole "public food" argument hinges on a giant case of double standards. Presented with evidence that corporations do bad things, it concludes that the inherent logic of capitalism demands badness. Presented with evidence that governments do bad things, it concludes that if we just put some nice people in power, everything would go great. Why is that? Could someone with the opposite bias propose that Coca-Cola Inc would be fine if it just got a socially responsible CEO? . . . And "ability to go elsewhere" is probably the [...]

International Adoption: The Personal Side, by Bryan Caplan

Wed, 22 Nov 2017 10:56:49 -0500

Arthur Brooks' personal experience with international adoption beautifully complements the science:
When the moment of truth came, my name was called, I entered the room, and a Chinese official plopped a baby into my arms. I braced myself, and -- nothing happened. She didn't cry. She didn't scream. She just held onto my shirt with her tiny fists and stared up at my face. To me it was as if we had been together since the moment of her birth.


Today, my daughter is a freshman in high school. She spends too much time on Instagram but is killing it in her classes. And what about our giving experiment? In truth, I don't know or care what my daughter has done for my income or health. But my happiness? It spikes every time she looks at me and I remember the magic day we met.
Despite this, international adoption has become less common.  And governments around the world are to blame:

Back in the United States with our new daughter, Ester and I felt we were part of a foreign adoption movement. We were sure that enlightened public policy would continue to loosen regulations, which would make for more and more miracles like ours. Blended international families of choice were the wave of the future, we thought, and a reflection of an increasingly shared belief in a radical solidarity that transcended borders and biology.

We were wrong. The year we adopted turned out to be the high-water mark in foreign adoptions and the number has dropped ever since. By 2016 it had fallen 77 percent from its peak, to 5,372. This is the lowest total in three and half decades.

What happened? The answer is not a lack of need. Indeed, according to the Christian Alliance for Orphans, there are more than 15 million children around the world who have lost both of their parents.

Part of the reason is the policies of foreign governments, which have made foreign adoption harder, for both nationalistic reasons and because of worries about corruption and human trafficking. Our own government has contributed as well: Foreign adoption plunged all through the Obama administration as the State Department imposed new hurdles in the name of curbing abuses, which are a significant worry for parents adopting from some countries (although not China, where virtually all the children, like my daughter, were abandoned at birth).

Motivated by good intentions or not, these changes have left thousands of orphans unadopted. This is too high a price to pay for bureaucratic screw-tightening.

In my family, we have a catchphrase: "I don't think about what could go wrong.  I think about what could go right!"  It's poetry, of course; I'm full of precaution.  But I stand by the spirit of our poem.  To take the case of international adoption: We're paranoid about the microscopic risk of accidentally snatching a poor family's wanted baby - and barely cognizant of the fantastic opportunity regulation snatches from the hands of orphans around the world.  Social Desirability Bias - and the demagoguery it fosters - is not only mindless, but heartless.

P.S. Happy Thanksgiving to the Brooks family and to all of you!


Summers on Growth, Trade, Immigration, Marshall Plan, and Tax Cartels, by David Henderson

Tue, 21 Nov 2017 20:49:08 -0500

Larry Summers recently gave a speech at an event hosted by the Center for Global Development. It's quite good. His understanding of the big picture on economic growth is very impressive, as is his numeracy. What's a little surprising is his admission about some pretty awful bureaucratic incentives (although I'm glad he admitted it). And he gets the Marshall Plan wrong. First, the great news on standards of living in the world: Fifty percent is the growth that has been achieved in a variety of six-year periods in China over the last generation and in many other countries, as well. And so if you look at material standards of living, we have seen more progress for more people and more catching up than ever before. That is not simply about things that are material and things that are reflected in GDP. The primary message of the Global Health 2035 Report that I coauthored several years ago and that Amanda Glassman and others from CGD were involved in was that if current trends continue, with significant effort from the global community, it is reasonable to hope that in 2035 the global child mortality rate will be lower than the US child mortality rate was when my children were born in 1990. That is a staggering human achievement. It is already the case that in large parts of China, life expectancy is greater than it is in large parts of the United States. One can tell a similar story in terms of literacy and probably an even stronger story of the rights of women. Extreme poverty is now a phenomenon not of countries that just happen to be poor. It is a phenomenon that reflects pockets of poverty in countries that overall have reasonable incomes, like India or China, and it is a phenomenon of fragile and dysfunctional states that do not have effective governments. It is not a phenomenon of generalized poverty of countries that do not lack resources. Larry's perspective on trade: The reality is that the American market has been almost completely open for 40 years. And what has happened is that the developing countries have become much more productive and much more efficient and it has become much more possible to move goods at low cost and to export efficient production technologies to developing countries, and that would have happened with or without trade agreements, and the trade agreements have been good deals because they have opened the other countries' markets much more than they have opened ours, mostly because ours was already open. The huge increase in the Indian government's liquid wealth: In 1991, when I was new to all of this, I was working as the chief economist of the World Bank, and the first really important situation in which I had any visibility at all was the Indian financial crisis that took place in the summer of 1991. And at that point, India was near the brink. It was so near the brink that, at least as I recall the story, $1 billion of gold was with great secrecy put on a ship by the Indians to be transported to London, where it could be collateral for an emergency loan that would permit the Indian government to meet its payroll at the end of the month. And at that moment, the World Bank was in a position over the next year to lend India $3 billion in conjunction with its economic reform program. And the United States had an important role in shaping the World Bank's strategy. Well, that $3 billion was hugely important to the destiny of a sixth of humanity. Today, the World Bank would have the capacity to lend India in a year $6 billion or $7 billion. But India has $380 billion--$380 billion--in reserves dominantly invested in Treasury bills earning 1 percent. And India itself has a foreign aid budget of $5 billion or $6 billion. And so the relevance of the kind of flows that we are in a position to provide officially to major countries is simply not what it once was. Spending Other People's Money: Nothing to see here, folks; just move along: I remember as a young economist who was going to b[...]

Ryan Murphy on government effectiveness and growth, by Scott Sumner

Tue, 21 Nov 2017 18:31:38 -0500

A decade ago I wrote a paper that looked at several definitions of neoliberalism, and found that what I called "egalitarian neoliberalism" was especially closely correlated with civic virtue. This model was based on the various indices of economic freedom, with the sign on size of government inverted (so that bigger government was a plus, not a minus as in the typical economic freedom indices). For example, the (high trust) Nordic countries gravitate toward models that combine free markets and large government. Ryan Murphy has a very interesting new paper that explores these ideas in much more depth. He constructs an index of "State Economic Modernity" (SEM) by subtracting size of government in the Fraser Index of Economic Freedom of the World (EFW) from the component that measures rule of law and property rights. Again, the highest values of this SEM index tend to occur in the Nordic countries. He rightly points out that this measure makes more sense than "state capacity", which doesn't tell us what governments are actually doing: This paper constructs a measure, the SEM index, which can be thought of as a measure of state building or state economic power, and is related to the concept known as state capacity. In contrast to state capacity, rather than asking the hypothetical question of what is in a government's capacity to do, it measures the extent to which a government exerts itself within an economy, and how well it provides the most basic public goods. Murphy also points out that economic freedom may be easier to obtain that SEM: The countries of Georgia and Libya occupy approximately the same level of SEM, but they have very different levels of economic freedom. With political will, Georgia was essentially able to pull itself up from the current spot Libya finds itself in economic freedom to the very high level it is today (see Burakova and Lawson 2014). Compare this to countries with the same level of economic freedom, but very different scores in SEM. Guatemala has about the same level of economic freedom as the Nordic countries, but the opposite score in SEM. The idea that public officials could push Guatemala rightwards on the graph to meet the European social democracies in their degree of state building and state capacity is almost unimaginable. It would require high degrees of political will, skill, and luck for a matter of decades in investing in the country's social capital and human capital, if it is possible at all. In this sense, the SEM index may be more "deeply" institutional than measures of economic freedom, which may relate more to "policy." Murphy found that while economic freedom is correlated with growth, SEM is not: Table 12 provides regression results for economic growth. For these regressions, initial level of economic output is included as a control variable. All independent variables correspond to year t, while the independent variable corresponds to growth from year t to t+10. The most recent data points correspond to growth occurring from 2000 to 2010. A similar pattern to Table 11 emerges. The SEM index is significant in regressions that do not include country fixed effects, but loses significance when they are included. In fact, when they are included, its point estimate is negative. In the final specification, Regression (36), economic freedom retains statistical and economic significance; the coefficient actually implies that a one standard deviation increase in economic freedom corresponds to a 0.246 standard deviation increase in growth rate. Considering economists' collective inability to predict future growth rates very effectively, as noted by Easterly (2013: 215-238), the magnitude of the effect of economic freedom is quite large, while nothing is found for the SEM index. For anyone interested in comparative economic systems, I strongly recommend you take a look at Murphy's paper. Here's how I think about the growth findings. [...]

Answer These Questions About the Reformation, by Bryan Caplan

Tue, 21 Nov 2017 14:39:37 -0500

This semester, my homeschoolers are unofficially taking a GMU class on Religions of the West.  Here's a list of questions about the Protestant Reformation (and a few other topics) they composed to discuss with their professor during office hours.  Paternal bias aside, I say these are fine issues to ponder.

If you've got your own answers to some or all of the questions, please share in the comments.

The Protestant Reformation

1. Why did the Protestant Reformation happen? Standard story or more to it?

2. Largest positive effects of the Reformation?

3. Largest negative effects of the Reformation?

4. Does the corruption of the Catholic church justify the actions of Protestant militants?

5. Calvin (double predestination) vs Luther (single predestination), which has the superior interpretation of the Augustinian tradition? Is either right according to the Bible?

6. Although Martin Luther was early on against violence towards Catholics, he later reversed his position. Why?

7. Does the brutality of John Calvin's theocratic regime in Geneva render his teachings immoral? To what extent can the murders committed by the founder of a religion and his early followers be used to discredit the idea that said religion is one of peace?

8. Of the wars caused by the Protestant Reformation, to what extent can they be blamed on political motivations rather than religious ones?

9. When John Knox wrote his The First Blast of the Trumpet Against the Monstrous Regiment of Women, did he essentially argue that no form of government ruled by a woman is legitimate?


1. How powerful is hindsight bias (the tendency to believe that certain events which happened were inevitable) among historians? Should people stay away from calling historical events inevitable?

2. "Historical relativism." Do you agree with it?

3. Baron d'Holbach wrote: "All religions are ancient monuments to superstition, ignorance, and ferocity; and modern religions are only ancient follies rejuvenated." To what extent was he right?

4. On the (earthly) net, would it have been better (measured by the quality/quantity of human lives) if no organized religion had ever existed?


Himmelfarb on why intellectuals hate capitalism, by Alberto Mingardi

Tue, 21 Nov 2017 10:11:05 -0500

It is not the fault of capitalism that the common man does not appreciate uncommon books. ~Ludwig von Mises


There are many gems in Gertrude Himmelfarb's Past and Present. The Challenges of Modernity, from the Pre-Victorians to the Postmodernists.

One is a 1952 essay on "American Democracy and Its European Critics". In that essay, in comparing Tocqueville's reading of America with Harold Laski's (in The American Democracy), Himmelfarb notes perceptively that critics of American culture tend to see that "the incubus of Big Business lies heavily upon the whole country, stifling individual expression and corrupting individual tastes".

But we know well that successful enterprises, cultural enterprises included, basically provide people with something that they want. Himmelfarb knows this, too.

When Coca-Cola, comic books, and Raymond Chandler murder mysteries invaded Europe, penetrating even into the British stronghold, radicals set up a great cry against American capitalism. What they chose not to see is that the real offender is not capitalism so much as the European masses, who have given an enthusiastic reception to these supposedly degenerate products of American capitalism. Europe's real complaint against America is not that America is exporting capitalist culture, but that it is exporting popular culture.

In 1956, reflecting on the intellectuals' dislike of capitalism, Ludwig von Mises commented:
Many critics take pleasure in blaming capitalism for what they call the decay of literature ... Capitalism could render the masses so prosperous that they buy books and magazines. But it could not imbue them with the discernment of Maecenas or Can Grande della Scala. It is not the fault of capitalism that the common man does not appreciate uncommon books.

I think there is a point in all this. Intellectuals have uncommon tastes and with them comes an inclination to put down the ordinary person, who has ordinary tastes. But instead of feeling happy at being different, intellectuals feel unduly isolated, neglected, and unrecognised in their endeavours and their passions. They thus equate a better society with a society in which common people are somehow forced to acquire such "superior" tastes, too. But such a society is difficult to build, if decision making is not centralised. A decentralised system--in which consumers decide what books and movies they want to consume, and producers decide what books and movies they want to publish and broadcast--may allow small niches for the intellectuals' superior tastes, but would tend to spend many resources to give people action movies and comic books. So, it becomes almost inevitable to blame the system--which is more comforting than blaming the people.

Simplistic as an explanation of why capitalism is so unpopular among intellectuals? Perhaps. But I feel there's more than a grain of truth.


How Corporate Income Taxation is Misunderstood, by Contributing Guest

Mon, 20 Nov 2017 14:05:29 -0500

by Richard McKenzie "Don't tax me, don't tax thee, tax the man behind the tree!" ~ The late U.S. Senator Russell Long (D-LA) Republicans are being excoriated by pundits, journalists and Democrats for proposing to lower the corporate income tax rate from 35 percent to 20 percent. The critics claim the reduction is an unjust and extravagant tax break for President Donald Trump and his rich business compatriots. The reduction will transfer the country's tax burden onto the backs of the middle-class and lower-income groups, or so we are told. The critics, however, don't appreciate two major problems with corporate taxes: First, the critics fail to grasp the wisdom in a widely repeated tenet of public finance economics: Corporations don't pay taxes, people do. This is to say that while corporate taxes are directly drawn from corporate profits, those taxes must ultimately come out of the pockets of real people - and the real people affected are not just stockholders whose dividends are undercut by the tax. These taxes also come partially out of the hides of consumers as corporate managers seek to offset any reduction in after-tax profits (and dividends and share prices) by charging higher prices. More generally, to the extent that corporate taxes reduce companies' after-tax rates of return, investments in their production facilities will be impaired, curbing the supplies of products and further raising market prices. Hence, high corporate taxes can impair American firms' ability to sell abroad and to fend off foreign competition in their domestic markets. Workers do not get off scot free, either. With curbs in corporate production attributable to the corporate tax, the demand for labor can be tempered, undercutting worker wages and fringe benefits. How much are the stakeholders - investors, workers, and consumers - affected by corporate income taxation? It's hard to say, because the so-called "incidence" of the corporate tax depends on a multitude of factors, not the least of which are the elasticity (or responsiveness) of supply and demand in capital, labor, and product markets. The incidence of corporate taxation necessarily varies from market to market and even firm to firm. The corporate tax is, effectively, a means of taxing people hidden "behind trees," which is one of its chief attractions to politicians interested in garnering additional tax revenues for the government. They don't have to admit that the corporate tax is a disguised tax hit on median and low-wage workers and low-income consumers and not on just the rich Trumps, Bill Gates, and Warren Buffets of the world. The exact size of the various hits felt by all income classes are literally unknown and unknowable (although many econometricians feign that their statistical equations reveal truth). This means that the proposed corporate-tax-rate reduction will likely pad the pockets of the rich by some undiscernible amount, but it will also increase the disposable income of people all the way down at the bottom of the income ladder. Second, capital - financial and real - and goods and services are now more mobile across national boundaries than ever before. This is because many highly valued modern products - such as the iPhone - are relatively lightweight and can be shipped economically (and in volume and rapidly) by air. Other valuable modern products weigh nothing. Consider the digital nature and economic value of operating systems and the multitude of apps for smartphones and the growing value of "big data." Financial capital and services are also weightless. These products can be shipped globally with a few strokes on a computer and at the cost of a few electrons. A major and unheralded problem for modern governments is that they are landlocked, while firms and their plants and equipment and job bases can move with growing ease amon[...]

The Ideological Turing Test in 3 Minutes, by Bryan Caplan

Mon, 20 Nov 2017 10:25:46 -0500

Learn Liberty has just released a slick new video on my Ideological Turing Test.  Enjoy, share, and repent

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