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Economics



All Reason.com articles with the "Economics" tag.



Published: Fri, 18 Aug 2017 00:00:00 -0400

Last Build Date: Fri, 18 Aug 2017 20:19:36 -0400

 



Steve Forbes on Trump, Taxes, and 100 Years of Forbes Magazine

Wed, 16 Aug 2017 09:42:00 -0400

"We don't see business as evil," says Steve Forbes, marking the 100th anniversary of Forbes magazine, the iconic business publication started by his grandfather. "We see it as a noble undertaking." And thanks to capitalism, progress in the 20th century will pale in comparison to what's coming in the 21st. "In 2117," he says, "we'll be infinitely better off." Forbes sat down with Reason's Nick Gillespie at Freedom Fest in Las Vegas to discuss the legacy and future of the magazine, his assessment of President Trump, and where the legislative agenda for Republicans is falling short. Edited by Austin Bragg. Cameras by Meredith Bragg and Justin Monticello. Subscribe to our YouTube channel. Like us on Facebook. Follow us on Twitter. Subscribe to our podcast at iTunes. This is a rush transcript. Check all quotes against the audio for accuracy Nick Gillespie: Let's talk about turning 70. How does that feel, and looking back, what are the highlights of your public career? Steve Forbes: Well, 70, glad to have made it, and at this stage of life it's nice to have a guilt-free excuse for plenty of cake, cookies, and ice cream, so not going to complain. Gillespie: In terms of your achievements over the years, talk about your forays into the Republican nomination process for the presidency, and your advocacy of the flat tax. Do you feel like that accomplished what you hoped it would accomplish? Forbes: Well, I would have liked to have won. It's more fun to get more votes than the less votes. But I do think we got some good ideas out there, even though the US has not made much progress on the tax front. Forty countries and jurisdictions around the world, like Hong Kong, have had the flat tax, and it's worked fairly well. So this is no longer laboratory stuff, this is real world stuff. The disappointment is that in the last 20 years, we haven't had a presidential candidate make that a forefront issue. A couple of them in the last election had some variations of the flat tax, but they didn't put it out there, so nobody knew. It's like, the tree falls in the forest, but if you don't hear it, did it really fall? I'm just waiting for a political entrepreneur to do it. I would have thought in 2016, when Trump rose up, that the other 16 opponents would have said, "I got to do something a little differently, or I'm going to get steamrollered." Instead, they had all the same kinds of consultants. They made all the same calculations, and they all went down for the count. Shakespeare talked about killing all the lawyers, I think they should kill all the political consultants. But that's another subject. But in terms of the flat tax, tax simplification's out there. Republicans at least have to pay lip service to it. Another thing I think we got out there, the idea of medical savings accounts. Now they call them health savings accounts. The idea of being patients should be in control, and not government, not third parties, not bureaucrats, not big companies, but we the people, individually. So we got that idea out there. I think, too, we gave some credence to the idea of a new Social Security system for younger people. When I ran in '96 in Arizona, I shocked one of my campaign colleagues when I said, "We're going to Sun City, and I'm going to talk about Social Security." "Oh, we can't do that!" But once you make it clear you're not going to take anything away from them, this is about their kids and their grandkids, they'll listen. Gillespie: Explain a little bit of what your alternative Social Security plan was, because that's also something that has not advanced, even as the economics or the finances of both Medicare and Social Security have just gotten even more in the tank. Forbes: Well, in Social Security for younger people, they'll own their own accounts. Personal accounts. That way, if anything happens to you, you own it. I think just change the whole mindset. That money that goes into your account, you get your first part-time job, you say, "Capital, what's that all about?" You learn: Because of the result of your labor. Not a gift from poli[...]



How Freedom Made Us Rich

Wed, 09 Aug 2017 13:00:00 -0400

"In [1492], if you were going to bet on who was going to have a 'Great Enrichment,'" says University of Illinois at Chicago economist Deirdre McCloskey, "you would have been crazy not to bet on China because China had the most advanced commercial institutions, the most advanced ship building technology, [and] the most advanced machinery all together." But it didn't work out that way. "My claim," McCloskey says, "is that liberty was the key to modern economic growth." In her new book, Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World, the third volume in a trilogy, McCloskey argues that our vast accumulation of wealth over the past two hundred years— which she's dubbed "The Great Enrichment"—was the result of "massively better ideas in technology and institutions." Where did they arise from? &tag=reasonmagazineA"A new liberty and dignity for commoners," she argues, "expressed as the ideology of European liberalism." McCloskey sat down with Nick Gillespie at Freedom Fest, the annual convention for libertarians in Las Vegas, for a wide-ranging conversation on topics including the roots of "The Great Enrichment," why her gender reassignment surgery was an "expression of [her] libertarianism", and the importance of advocating policies that "actually help the poor" instead of just "making people feel good about helping the poor. McCloskey is also a Reason columnist. Her archive is here. Edited by Todd Krainin. Cameras by Meredith Bragg and Justin Monticello. Subscribe to our YouTube channel. Like us on Facebook. Follow us on Twitter. Subscribe to our podcast at iTunes. This is a rush transcript—check all quotes against the audio for accuracy. Nick Gillespie: Hi, I'm Nick Gillespie with Reason and today we are sitting down with Deirdre McCloskey. She's an Emeritus Professor of Economics, History, English, and Communication at the University of Illinois at Chicago and the author most recently of Bourgeois Equality: How Ideas, Not Capital or Institutions, Enriched the World. She's also a columnist for Reason Magazine. Deirdre, thanks so much for talking with us. Long time contributing editor to Reason as well. McCloskey: I'm extremely pleased to be here and ... Gillespie: Well, your latest column, because I think this puts us right into a lot of current discussions, is titled The Myth of Technological Unemployment. McCloskey: Yeah. Gillespie: The subhead is, if the nightmare of technological unemployment were true, it would have already happened repeatedly and massively. In it, you take issue with a lot of libertarian or free-market economists who are talking about how we've reached the end of technological innovation or productivity growth and yeah, we're going to have to find something to do for people who are replaced by robots. McCloskey: Yeah. Gillespie: What's wrong with that? McCloskey: I think it's just completely wrong. My friend, Tyler Cowen, my friends at George Mason think maybe it's time for an intervention and Tyler, we think maybe we should send him to dry out somewhere because he seems to have gone crazy on this and he's not alone. I mean, there are people like Bob Gordon wrote a book last year, which was very successful. Gillespie: Which argued that basically say goodbye to 2%, ... McCloskey: Exactly. Gillespie: ... even 2% economic growth. McCloskey: Exactly. Innovation in the United States is finished and we've invented all the window screens and drop ceilings we're ever going to invent. There are a whole bunch of things wrong with it. One is that it doesn't make a lot of quantitative sense. In Tyler's book, which is called Average is Over, he's got a chart, which he says, "Summarizes my point." It's terrible. See the falling share of labor in national income. You look closely at the chart, which is one of these Time Magazine charts, it goes down like that. It turns out it's gone from 63% to 61%, talking about 2%. Now, come on Tyler. Please. Then, Bob likewise, and lots of others. I mean, in fact, it's a very old theme. People have been saying since[...]



Peak Oil: What Ever Happened to Hubbert's Peak?

Thu, 27 Jul 2017 10:55:00 -0400

Crude oil production in the U.S. will reach an average of 9.9 million barrels a day in 2018, the Energy Information Administration projects in its latest Short-Term Energy Outlook report. This would surpass the previous record of 9.6 million barrels per day, set in 1970. So much for Hubbert's Peak. In 1956, geologist M. King Hubbert famously predicted, in a presentation to the American Petroleum Institute, that oil production in the U.S. would peak no later than 1970. To make his estimates, Hubbert added up all the plausible extrapolations of domestic crude oil reserves. His more conservative calculation assumed the ultimate production of 150 billion barrels, in which case production would peak in 1965. But if ultimate production could rise to 200 billion barrels, the peak would be delayed until 1970. Many people thought Hubbert's predictions were vindicated when U.S. production began dropping from its 1970 peak. In fact, domestic production of crude reached a nadir of 5 million barrels per day in 2008. (Had Hubbert's calculations been right, the U.S. would have been producing only about 2.5 million barrels a day that year.) As global oil prices began rising toward their highest levels ever, peak oil doomsaying had its heyday. My 2006 article "Peak Oil Panic" detailed many of those predictions of an impending petroleum catastrophe. The Princeton geologist Ken Deffeyes suggested in 2001 that global oil production would peak on Thanksgiving Day, 2006. Petroleum geologist Colin Campbell warned in 2002 that dwindling oil supplies would soon lead to "war, starvation, economic recession, possibly even the extinction of homo sapiens." In his 2004 book Out of Gas: The End of the Age of Oil, the Caltech physicist David Goodstein asserted not just that peak production was imminent but that "we can, all too easily, envision a dying civilization, the landscape littered with the rusting hulks of SUVs." In 2007, the German Energy Watch Group declared that the world had reached peak oil, and that this could soon trigger the "meltdown of society." At the peak oil alarmist website The Oil Drum, one prominent analyst declared in 2009 that global oil production had peaked at 82 million barrels per day in 2008 and would thereafter begin declining at a rate of 2.2 million barrels per day. Had that estimate been correct, world oil production would have fallen by now to about 62 million barrels per day. Instead, the International Energy Agency reported this month that global production now averages around 97 million barrels per day. Keep in mind that this level of production is taking place despite the political and economic chaos afflicting such major oil-producing countries as Venezuela, Libya, and Iraq. Peak oilers greatly underestimated the power of markets and human ingenuity to solve problems. (Think fracking.) The Energy Information Administration reports that the U.S. has cumulatively produced more than 200 billion barrels of oil. (So much for Hubbert's "ultimate production" calculations.) During that time, proven domestic oil reserves have never fallen below 20 billion barrels; they are now estimated at 32 billion barrels. A decade ago, at the peak of peak oil hysteria, I wrote that "the peak oil doomsters are probably wrong that world oil production is about to decline forever. Most analysts believe that world petroleum supplies will meet projected demand at reasonable prices for at least another generation." That's still true.[...]



Humans of FreedomFest, Part 4: "My father used...'libertarian' as a swear word."

Sat, 22 Jul 2017 11:30:00 -0400

Editor's note: FreedomFest, held every July in Las Vegas, is the largest annual gathering of libertarians in the country. Today is the first day of the four-day long conference, which is being headlined in its 10th year by William Shatner, John Stossel, Greg Gutfeld, and others. Taking inspiration from the site Humans of New York, Reason is happy to offer Humans of FreedomFest, a series of portraits and brief interviews with various attendees. To read previous installments, go here.

Deirdre McCloskey

(image)

"My father used the word 'libertarian' as a swear word. 'Oh that's libertarian'... But I was a marxist at the time so I thought, well that's not something I should be. It took me a long time to get over that. I was an anarchist to begin with when I was 15. Then I was a socialist, kind of a Joan Baez socialist. I played the guitar... I know more socialist songs than my socialist colleagues. I wasn't a scholarly Marxist. I read half the Communist Manifesto and I figured that was enough. But the songs were terrific."

Stephen L Mandaro

(image)

"Because I'm pro-choice, among the Republicans sometimes I get into trouble. But I'm a physician. So I leave it to the patient to decide what they want. My feeling, being pro-choice, is that it's a woman's individual decision. Not mine."

Anonymous

(image)

"Back in England, at the London School of Economics, he was a socialist when I met him. When we first met."

So did you turn him into a libertarian?

"No. Buying private property, having rent control slammed on us, is what radicalized us."

...Who are you people?

"We can't decide."

Are those your real names?

"We're coming to a conference on privacy. It would be crazy to register in your own name!"

...Can I take your picture?

Both: "No."

This is part of a series. Read previous installments here.




We Are The Economy They Want to Regulate

Sun, 16 Jul 2017 00:30:00 -0400

Critics of the libertarian philosophy think they can score points by calling libertarians "market fundamentalists." It's supposed to conjure images of dogmatic religious fundamentalists, just like the term global warming denier is supposed to conjure images of Holocaust deniers. It's a smear, of course, and if you think the tactic discredits those who employ it, I agree. The fact is that libertarians cannot be market fundamentalists. Why not? Because in the libertarian worldview, the market is not fundamental. What's fundamental is every person's right to be free from aggressive force. So fine, I'm a freedom fundamentalist. Guilty. Strictly speaking, it's not markets that can and should be free—it's people. The term free market merely describes one political-legal context in which people conduct themselves. It's shorthand for a subset of human action—the exchange of goods and services, usually for money. (The logic of human action, the study of which Ludwig von Mises called praxeology, applies to all purposeful conduct, not just market exchange.) It follows, then, that when politicians and activists call on the government to regulate the economy, they mean to regulate us. There's no economy to regulate. It's not a machine or a vehicle. It's an unending series of purposeful activities the logic of which gives rise to a process characterized by regularities. Hence, for example, the law of supply and demand. We can talk about this orderly process—the market—as though it were a thing, but we have to keep its metaphorical nature in mind. It's still only people cooperating with each other. When market critics demand government regulation, they imply that markets are by nature unregulated. But we've just seen that this is nonsense. An unregulated market is a logical contradiction. That we call it a market indicates the regularities, or laws, just mentioned. No regularity—no market. There could no more be an unregulated market than there could be a grammarless language or a perpetually disorderly society. We would not call a population a society if it did not display a general order expressed by rules (written and unwritten), customs, and mores. Without such things, a population would be not a society but a Hobbesian state of nature. So the question is not whether the market should be regulated, but who should regulate it. And the only two choices are: 1) market participants through the exercise of their free and peaceful choices or 2) politicians and bureaucrats relying on the threat of violence to impose their will. Easy choice, I'd say. Those who doubt the market is intrinsically regulated when people are completely free need only ask themselves what would happen if someone charged $100 for an apple or offered to pay workers $1 an hour (assuming no legislation forbidding this). The answer is simple: others would offer lower prices for apples and higher wages to workers. No need for government regulation. In other words, competition would discipline the would-be gouger and miser. Competition simply means the freedom to offer better terms to consumers and workers. As I say, free markets are nothing but free persons. Those who think cooperation is preferable to competition should realize they are two sides of the same coin. Competition is what happens when we're free to choose with whom we wish to cooperate. Two shoe stores compete, each hoping to be the one that cooperates with me in my quest for new shoes. Critics really must stop reifying the market because markets don't do things or have purposes. Only people do things and have purposes. You often hear it said (unfortunately, by some economists) that markets ration goods and services. This is often the retort when critics of national health insurance warn that rationing would eventually be necessary to sustain the system. When a government bureaucracy allocates medical services, that is indeed rationing. Think of food rationing during World War II, when you[...]



Is It Time to Start Dismissing 'Economics Deniers'?

Wed, 12 Jul 2017 12:05:00 -0400

We're all the same person, a wise fellow once said—just on different days. He didn't know the half of it. For years, environmentalists have blasted "climate science deniers" for refusing to accept the evidence for human-caused global warming. Is it time we started talking about economic-science deniers, too? The case for anthropogenic (i.e, human-induced) global warming, or AGW, is very strong. Decades of peer-reviewed research on the question has been done, and it all seems to point in one direction. Even former doubters have been convinced on the point: See for instance physicist Richard Muller's 2012 essay, "The Conversion of a Climate Change Skeptic." He and a team of scientists tried vigorously to find credible alternative explanations for the observed increase in global temperatures, and couldn't. "I still find that much, if not most, of what is attributed to climate change is speculative, exaggerated or just plain wrong," he concluded—but on the fundamental point, he agrees: "Humans are almost entirely the cause." Muller is not unique; other skeptics gradually have come around, too. On the other hand, the reverse has not happened. Firm believers in AGW are not deciding, after careful study, that it's really just a hoax after all. And that should tell you something—because climate-change skeptics have challenged the consensus view loudly and aggressively. If they had been able to falsify the AGW hypothesis, as scientists have proven false various claims about cold fusion experiments, then at least some climate scientists would have admitted as much. Note that climate-change skeptics blithely accept bizarre but apparently true scientific claims regarding quantum indeterminacy and the curvature of space. Yet they truculently refuse to concede a point about the Earth's climate that is, intuitively, far less difficult to swallow. They will not believe the peer-reviewed research of hundreds of scientists on climate—but they will gladly believe something they read on a blog somewhere insisting the research is all wrong. Because they don't like the political implications, climate-change doubters become hyper-skeptical victims of confirmation bias: No amount of evidence is ever enough to mollify their doubts. There is always something wrong with the data sets, or the climate models, or—hey, look at this ridiculous quote from Al Gore 20 years ago! He was wrong then, ergo everyone else must be wrong now, right? Q.E.D. So what does all this have to with economics? In late June, researchers published a careful and data-rich study on Seattle's minimum-wage law. It found that the city's graduated hike in the minimum wage is costing thousands of jobs and cutting the number of hours worked by people in low-pay jobs. In the aggregate, Seattle workers are losing millions of dollars in wages thanks to the law. The study has drawn praise for its analytical rigor; one economist at MIT called it "sufficiently compelling in its design and statistical power that it can change minds." Or not. Since its publication, liberals have given the study hyper-skeptical treatment, claiming to find all sorts of shortcomings with its methodology, data set, and so on. They point to a different study, from the University of California at Berkeley, which examined the law's effects on the restaurant industry and found no statistically measurable effect. Even Seattle's political leaders are piling on, although they commissioned the research in the first place. The idea that the price of something has no effect on demand for it sounds pretty funny, coming from liberals. After all, progressives generally support raising taxes on cigarettes to discourage people from smoking. Last November several cities joined the growing list of liberal demesnes that have imposed soda taxes—Berkeley, Philadelphia, San Francisco, etc.—to discourage consumption of sugary drinks. Heck, some localities even have firearms and ammun[...]



241 Years of Independence in America, 20 Years of Chinese Rule in Hong Kong

Tue, 04 Jul 2017 12:32:00 -0400

Today marks 241 years since the Declaration of Independence was signed and many writers will, I am sure, take stock of the improvements that have taken place since 1776. It may, for example, be of interest that in 1776, nine out of ten Americans were involved in agriculture and the real average income per person was 23 times lower than what it is today. At $1,235 (in 1990 dollars), Americans were merely six percent richer than the global average. By 2010, Americans earned $30,491 or 390 percent of the global average.

One of the root causes of the great income gap that has emerged between the United States on the one hand and much of the rest of the world on the other, was economic freedom. Prior to the dawn of the Progressive Era, Americans went about their business largely unmolested by the government. In the early decades of the 20th century, however, taxes rose and regulations expanded.

The Fraser Institute's Economic Freedom of the World report has been measuring economic freedom since 1970, which is apposite, since the 1970s marked the culmination of the progressive meddling in the economy. Stagflation, which characterized that decade, led to some deregulation under Jimmy Carter, but the real return to economic freedom happened under Ronald Reagan in the 1980s and culminated in the year 2000 under the stewardship of Bill Clinton. The George W. Bush and Barack Obama duumvirate reversed that trend.

Economic literature strongly suggests that economic freedom and growth go hand in hand. Could it be, I wonder, that our declining freedom is, at least in part, responsible for the slow growth rates that we have seen since the start of the new millennium?

(image) And that brings me to the other anniversary that happened last week. On July 1, Hong Kong marked 20 years since it passed from British to Chinese hands. It has not been smooth sailing, with political freedoms in the territory taking a predictable knock under the tutelage of a communist dictatorship. Mercifully, Hong Kong remains, as it has over the last four decades, the freest economy in the world.

The rise of the territory from poverty and relative obscurity to one of the most dynamic and richest places on Earth is nothing short of miraculous. Within one lifespan, Hong Kong moved from Third World status to First. Its economic performance vis-a-vis the United States is a testament to the power of economic freedom to generate impressive growth rates.

Consider that in 1950, average income per person in Hong Kong amounted to a mere 25 percent of that in the United States. In 2016, by contrast, the average resident of Hong Kong was 3 percent richer than the average American. In the intervening 66 years, the economy of the territory grew by 1,306 percent. In America, it grew by 247 percent.

(image) As we reflect on America's accomplishments since the Declaration of Independence, let us remember that political freedom, such as the one that Americans have and the people of Hong Kong lack, is not a guarantor of rapid economic growth. Economic dynamism and concomitant abundance are best served by a good dollop of freedom, which, alas, we are in the process of slowly losing.




You Don’t Need a Bread Czar to Know that the Bakery Will Be Stocked Every Morning

Wed, 28 Jun 2017 12:15:00 -0400

Russ Roberts, no stranger to these pages, has long been one of the great explainers of markets and economics. So it comes as no surprise that an animated poem about the wonders of bottom-up bread markets—in contrast to the errors of top-down wheat planning—has Roberts' fingerprints (and voice) all over it. Without further ado, enjoy "It's a Wonderful Loaf":

src="https://www.youtube.com/embed/ljULutAUL7o" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0">

You can consume more manna from Roberts at his great podcast EconTalk, his personal website, on Twitter, and at Medium, where this week he's been taking the latest book-length attack on libertarianism to the woodshed.

In 2014, Nick Gillespie sat down withi Roberts to talk about his just-released book, How Adam Smith Can Change Your Life: An Unexpected Guide to Human Nature and Happiness. You can watch that interview below:

src="https://www.youtube.com/embed/e3w98cTDwWQ" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0">




Seattle Surprise: When You Raise Prices by Gov't Diktat, People Usually Buy Less

Tue, 27 Jun 2017 07:30:00 -0400

(image) Three years ago, the city of Seattle voted to raise its minimum wage to $15 per hour, in the name of human decency and basic fairness. The minimum wage went from $9.47 to $11 per hour in 2015, and then to $13 per hour in 2016. Similar policies have been enacted or considered in countless other cities.

Critics argued that boosting wages by bureaucratic diktat rather than increases in worker productivity or market demand would lead to fewer hours and fewer jobs for low-income and low-skill workers.

Now what The Washington Post calls a "very credible" study from researchers at the University of Washington's School of Public Policy and Governance finds that the critics were right.

Specifically, the study, published as a working paper by the National Bureau of Economic Research, concludes

the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent…. The minimum wage ordinance lowered low-wage employees' earnings by an average of $125 per month in 2016.

All told, that's the equivalent of 6,317 full-time jobs eliminated because of the latest hike.

Over the past few years, a lot of people—including Sen. Bernie Sanders (I-Vt.)—have argued that labor costs are different than other costs and that elasticity of demand isn't that great when it comes to low-wage workers. But many of the studies that downplay the effect of minimum-wage hikes focus only on teenagers or fast-food workers. The University of Washington study looks at low-skilled, low-wage workers "spanning all industries and worker demographics."

The findings may surprise progressives who believe that the only limit to increasing pay for workers is the greed and selfishness of business owners, but they don't come as a surprise to people who recognize that the law of supply and demand can't be abolished by city councils. Labor is simply another cost for any business and if the price goes up suddenly and for no market-based reason, you'll tend to buy less of it. That said, the Washington researchers didn't find much of an effect when the wage went from $9.47 to $11.

The study implies something else that progressives downplay. If you want to raise the income of low-income workers, taxpayers should be willing to shoulder that burden themselves through cash transfers and other forms of welfare, rather than by trying to off-load the cost onto employers, many of whom are barely covering their costs.

It's a lot easier to demonize business owners for being cheapskates than to build a consensus around raising taxes. But the experience of Seattle—even before the final hikes to $15 an hour kick in—shows that simply trying to force businesses to pay more only hurts the very people minimum wage hikes are supposed to help.

Related: From 2016, "The Cruelty of the $15 Minimum Wage"

src="https://www.youtube.com/embed/kBjsQL7ZFvc" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0">




Overpopulation Scaremongering Never Gets Old

Mon, 19 Jun 2017 10:30:00 -0400

The tiny land-locked African country of Lesotho is the poster child for the impending population explosion in the mind of journalist Eugene Linden. In "Remember the Population Bomb? It's Still Ticking," an op-ed in the Sunday New York Times, Linden repeats a 40-year-old refrain: "Lesotho's biggest problem probably was, and is, the obvious: too many people." That's far too simple a story. Malthusian conditions continue to exist only where people are not free. Overpopulation is not the main problem. Lack of liberty is. Linden harkens back to his 1976 book, The Alms Race: The Impact of American Voluntary Aid Abroad, in which he presciently focused on how foreign aid often failed to actually lift poor people in developing countries out of poverty. In addition to reporting on how economic development aid bureaucracies screw up, Linden's op-ed blames Lesotho's impoverishment on fast population growth. How does Linden know that Lesotho is inhabited by "too many people"? The country's population density is 176 people per square mile. But compare that to Malthusian hellholes like the United Kingdom (694 people per square mile); Germany (601 people); or the deities forfend, the Netherlands (2,852 people). In fact, the population density of the entire European Union is more than 300 people per square mile. Linden observes with alarm that since 1974, when the average woman in Lesotho gave birth to six children, Lesotho's population rose from 1.2 million to 2.14 million today. It would have risen faster but for the massive HIV/AIDS epidemic that has kept average life expectancy hovering at around 45 years. Given that most demographers expect high fertility rates to persist when life expectancy is low, it is nigh unto amazing that the average number of children a woman in Lesotho has over the course of her lifetime (total fertility rate) has fallen from six to just above three kids now. Linden recites the standard Malthusian zero-sum creed. "Even in 1974, many development experts knew their programs might worsen Lesotho's population pressures, but hoped in vain that economic growth would outweigh the burden," he writes. Let's compare Lesotho to the trends during a period in which the population of the United Kingdom doubled. The U.K.'s population in 1861 was just over 20 million nearly doubling to 38 million by 1901. During that 40-year period, per capita GDP in the U.K. increased in real terms by nearly 70 percent. By the way, the U.K.'s total fertility rate in the mid-1800s averaged about five children per woman. Even as Lesotho's population climbed, per capita GDP more than tripled from $399 in 1975 to $1,370 in 2015. Obviously people in Lesotho remain desperately poor, but their situation has improved considerably. Linden also identifies 20 other countries where the "Malthusian concerns come back with a vengeance." It is true that their populations have substantially increased over the past 40 years, but they also have something far more deleterious in common: very low levels of intangible capital. Intangible capital is the level of education of a population combined with the social, political, and economic institutions through which people work and live. These include the rule of law, democratic accountability, honest bureaucracies, a free press, strong property rights, and so forth. With the exception of a couple of petroleum potentates, if a country lacks intangible capital its people will be poor. Each citizen of overcrowded Britain has access to about $350,000 of intangible capital, according to the World Bank, which has measured the intangible capital of most of the world's nations. Germans enjoy $425,000; institutions in the Netherlands afford its citizens an average of $350,000 in intangible capital. U.S. citizens, by the way, average $418,000. In contrast, the citizens of the 20 c[...]



Are Robots Going to Steal Our Jobs?

Tue, 06 Jun 2017 06:00:00 -0400

"The reality is that we are facing a jobless future: one in which most of the work done by humans will be done by machines. Robots will drive our cars, manufacture our goods, and do our chores, but there won't be much work for human beings." That's the dire warning of software entrepreneur and Carnegie Mellon engineer Vivek Wadhwa. Former Microsoft CEO Bill Gates agrees: Technology "will reduce demand for jobs, particularly at the lower end of skill set," he has predicted. Gates has also proposed taxing robots to support the victims of technological unemployment. "In the past," software entrepreneur Martin Ford declared last year, "machines have always been tools that have been used by people." But now, he fears, they're "becoming a replacement or a substitute for more and more workers." A much-cited 2013 study from the Oxford Martin Programme on Technology and Employment struck an even more dire note, estimating that 47 percent of today's American jobs are at risk of being automated within the next two decades. The conventional wisdom among technologists is well-established: Robots are going to eat our jobs. But economists tend to have a different perspective. Over the past two centuries, they point out, automation has brought us lots more jobs—and higher living standards too. "Is this time different?" the Massachusetts Institute of Technology economist David Autor said in a lecture last year. "Of course this time is different; every time is different. On numerous occasions in the last 200 years scholars and activists have raised the alarm that we are running out of work and making ourselves obsolete.…These predictions strike me as arrogant." "We are neither headed toward a rise of the machine world nor a utopia where no one works anymore," said Michael Jones, an economist at the University of Cincinnati, last year. "Humans will still be necessary in the economy of the future, even if we can't predict what we will be doing." When the Boston University economist James Bessen analyzed computerization and employment trends in the U.S. since 1980, his study concluded that "computer use is associated with a small increase in employment on average, not major job losses." Who is right, the terrified technologists or the totally chill economists? This Time Is Always Different In 1589, Queen Elizabeth I refused to grant a patent to William Lee for his invention of the stocking frame knitting machine, which sped up the production of wool hosiery. "Thou aimest high, Master Lee," she declared. "Consider thou what the invention could do to my poor subjects. It would assuredly bring to them ruin by depriving them of employment, thus making them beggars." In the early 19th century, English textile workers calling themselves Luddites famously sought to protect their livelihoods by smashing industrial weaving machines. The economist John Maynard Keynes warned in 1930 that the "means of economising the use of labour [is] outrunning the pace at which we can find new uses for labour," resulting in the "new disease" of "technological unemployment." In 1961, Time warned: "Today's new industries have comparatively few jobs for the unskilled or semiskilled, just the class of workers whose jobs are being eliminated by automation." A 1989 study by the International Metalworkers Federation forecasted that within 30 years, as little as 2 percent of the world's current labor force "will be needed to produce all the goods necessary for total demand." That prediction has just two years left to come true. This year the business consultancy McKinsey Global Institute issued a report that analyzed the potential impact of automation on individual work activities rather than entire occupations. The McKinsey researchers concluded that only 5 percent of occupations are fully automatabl[...]



A Spectacularly Stupid Idea: Governing Land as a Global Commons

Fri, 02 Jun 2017 14:31:00 -0400

"Land must be considered as a global commons—conceptually by researchers and legally by the international community," argues Felix Creutzig, a climate change economist at the Technical University of Berlin. He makes this perplexing claim in "Govern land as a global commons," an article in the current issue of Nature. Creutzig cites the arguments of the philosopher Mathias Risse, who Creutzig believes has "made a powerful case for humanity's collective ownership of the Earth." Let's briefly consider Risse's position. In his 2008 working paper "Original Ownership of the Earth," Risse begins with two intuitions: "First, the resources of the earth are valuable and necessary for all human activities to unfold, most importantly to secure survival; second, those resources have come into existence without human interference." There is a prior question that Risse (and Creutzig) must answer: What is a resource? Surely edible plants and meat animals count. And just as surely, our forager ancestors claimed and defended territories containing wild edibles against encroachment by other groups. They had no notion that land was collectively owned by all human beings. In any case, Risse's second claim is basically wrong. The vast majority of resources come into existence as a result of what he is pleased to call "human interference." As Creutzig and Risse both note, the 17th century British philosopher John Locke argued that before the rise of civilization, land and natural resources were notionally held in common by mankind. They do not consider deeply another of Locke's arguments: that without the application of human ingenuity, "nature and the earth furnished only the almost worthless materials." Only with the development of private property rights and the rule of law to defend them did nature's worthless materials become useful and valuable. As Locke explained, a landowner has a strong incentive to increase the productivity of his land. By intensively cultivating it, he produces "a greater plenty of the conveniencies of life from ten acres, than he could have from an hundred left to nature, [and] may truly be said to give ninety acres to mankind." Locke also wrote that a privately owned cultivated acre in Britain produces 1,000 times more value than an uncultivated acre left in the commons in America. The same is true for other natural resources. For example, as I have pointed out elsewhere, a deposit of copper is just a bunch of rocks without the know-how to mine, mill, refine, shape, ship, and market it. Petroleum was a nuisance until Edwin Drake figured out in 1859 how to drill for it and refine it into lamp oil. In any case, Creutzig's model for global land governance is to adopt international agreements like the Antarctic Treaty, the Law of the Sea, and, yes, the Paris Agreement on climate change. This is exactly backwards: To the extent that those pacts are needed, it's because they deal with unowned, open-access commons—Antarctica, the oceans, the atmosphere. No treaties are needed when formerly open-access commons have been enclosed and protected by secure property rights. Creutzig does reassure us that "private property will remain protected with the common ownership of global land." But he doesn't appear to really mean that. "Land-use rights can be assigned for a limited period," he suggests. He then notes, with apparent approval, that "Chinese property law limits them to 40, 50 or 70 years." Creutzig doesn't just favor global common ownership; he wants what amounts to global zoning. Who would be the zoning board? The United Nations, of course. "The United Nations' Sustainable Development Goals...don't call explicitly for global coordination of land uses," Cruetzig concedes. But he notes hopefully that the first steps toward[...]



The New York Times' Tax Coverage Goes Off the Rails

Mon, 15 May 2017 16:00:00 -0400

Binyamin Appelbaum is one of the more fair-minded and accurate reporters at The New York Times. For an example of his best work, one might look back to his reporting from Hazleton, Pa., in October of 2016. So it was particularly dismaying to read Appelbaum's dispatch over the weekend in the Times, under the headline "Trump Tax Plan Will Not Bolster Growth, Economists Say." The Times news columns have been openly campaigning against Trump's tax cuts, from the moment they were rolled out. The paper's day one front page headline was "Tax Overhaul Would Aid Wealthiest." Its day two headline was "Trump's Plan Shifts Trillions To Wealthiest." Even by that low standard, though, the Appelbaum story was something to behold. It's worth taking a careful look at as an example of the techniques that the press uses with the effect of distorting the debate about the tax cut. The first ingredient is a headline that goes beyond what the story itself says. Buried in the penultimate paragraph of Appelbaum's article are two estimates of how tax cuts might bolster growth. "The Tax Foundation thinks 0.4 percent is a reasonable estimate of the best case. Mr. Holtz-Eakin said that he regarded 0.5 percent as an upper bound on the potential benefits," the story says. It's not clear whether these estimates are of any tax cuts or of Trump's tax cuts in particular. But the Tax Foundation blog carries an article that says just a cut in the corporate tax rate to 15 percent—without the individual rate cuts Trump is also proposing—would generate "something more like 0.4 percent over the budget window: a sustained period of 2.3 percent growth instead of 1.9 percent growth, until the economy is eventually about 4 percent larger." So the headline about "will not bolster growth" is inaccurate. The cuts would bolster growth, at least by some estimates, just not by the amount that Appelbaum has arbitrarily set up as a goalpost. The way the Times describes these growth numbers—as decimal percentages—is itself a kind of spin. Using language like "0.4 percent" makes the growth sound small. But higher annualized growth rates compound over time. When, in other articles, the Times talks about other percent-based fees—say, those charged by money managers to public pension funds—it uses real dollar figures to make the numbers sound larger: "almost $750 million in direct investment expenses," "an additional $1.8 billion over five years and almost $8 billion after 15 years." The U.S. annual gross domestic product is about $18 trillion, so a "4 percent larger" economy means $720 billion—or $720,000,000,000—more goods and services produced each year. That is nothing to sneeze at. At that is just the effect of a corporate tax reduction, not other growth-inducing steps such as personal income tax reductions, deregulation, increased energy exploration and production, a stable dollar, or (if you buy the idea that this is stimulative) a military buildup. Nor are the growth numbers the only way that this Times article uses numerals in a misleading way. The newspaper is also spinning when it comes to tax rates. The article says: "there is little evidence that current rates are high enough to discourage people from earning as much money as they can. When Mr. Reagan took office, the top tax rate was 70 percent; now, it is 39.6 percent." The Times-chosen comparison of "70 percent" and "39.6 percent" makes the current rate appear low. It would have been accurate, however, to write, "When Mr. Reagan left office, the top individual income tax rate was 28 percent; now, as the Times reported on its front page back in 2013, in California the combined top state and federal income tax rate is 51.9 percent, while in New York City it is 51.7 percent. Ev[...]



You Are Ignorant, But Not Necessarily Dumb.

Fri, 05 May 2017 13:30:00 -0400

You probably suffer from the "illusion of explanatory depth." Moreover, you often succumb to the "illusion of understanding." So say two cognitive scientists, Philip Fernbach of Colorado University and Steven Sloman of Brown, in The Knowledge Illusion: Why We Never Think Alone. Disagree? OK, then write down how a zipper works. Or draw all the parts of a simple bicycle in their proper places. If that's too complicated, tell me: How does a flush toilet operate? The illusion of explanatory depth was exposed in experiments by Frank Keil, a cognitive scientist at Cornell. Keil asked subjects to rate on a scale of 1 to 7 how confident they were about their understanding of how such mechanisms as zippers, flush toilets, helicopters, quartz watches, and piano keys worked. Then Keil asked them to write down a detailed explanation. Most could not. Afterwards, Keil reported, "many participants reported genuine surprise and new humility at how much less they knew than they originally thought." Fernbach and Sloman then report cognitive scientist Thomas Landauer's estimate that the average adult's brain has the capacity to store about a gigabyte of information. The computer on which I am typing this review has about 1,000 times more memory than that. "Human beings are not warehouses of knowledge," the authors observe. Instead, we maneuver through the complexities that surround us by abstracting the relevant information that enables us to achieve our goals. The purpose of thinking, Fernbach and Sloman argue, is to choose the most effective action given the current situation. Our minds think causally, not logically. To illustrate that, the authors offer a logical puzzle: If my underwear is blue, then my socks must be green. My socks are green. Therefore my underwear is blue. When asked, many people agree with the conclusion. But what about: If I fall into a sewer, then I need a shower. I took a shower. Therefore, I fell into a sewer. It's the same logical mistake, but this time our knack for causal thinking prevents most people from making it. The authors also note that we are much better at thinking about how a cause produces an effect than we are at reasoning backward from an effect to find its cause. It is easier for a doctor predict that an ulcer will cause stomach pain than that stomach pain is the result of an ulcer. We are better at prediction than diagnosis. The authors also cite Daniel Kahneman, the economics Nobelist who elucidated the difference between intuitive and deliberative thinking. Think of an animal whose name starts with E. For most Americans, elephant comes to mind quickly and intuitively. (For the record, I thought of echidnas. I don't know why.) Now unravel the anagram: vaeertidebli. The answer is "deliberative" and, for most of us, it takes deliberative thinking to figure it out. The authors argue that we depend upon intuitive thinking to navigate most of our daily lives. We tend to turn to deliberative thinking when we encounter novel situations or engage in cooperative activities with others. Sloman and Fernbach note that more deliberative folks are somewhat less subject to the illusion of explanatory depth, and that they score better on the standard 3-item test measuring cognitive reflection. (Less than 20 percent of the U.S. population gets all three answers right.) If we are all so deeply ignorant, how is the modern world possible? The book's answer is that we live in hive mind where knowledge is distributed throughout the human community. We are, in the authors' words, "built to collaborate." When we don't know something, we tap into the knowledge and expertise of our fellow human beings." Ignorance has to do with how much you, whereas being dumb is relative[...]



Physical Scientists Are So Darned Cute When They Finally Understand Economics

Mon, 01 May 2017 16:00:00 -0400

Remember Peak Oil? What about Peak Everything? The Limits to Growth myth of impending mineral resource exhaustion was running once again rampant just a decade ago. The world didn't run out of any critical minerals or metals. Why not? Because as rising demand boosted the prices for minerals like tin, copper, zinc, and iron ore, geologists and entrepreneurs went in search of new sources while manufacturers and consumers economized on the amounts required to make their products. The current issue of Geochemical Perspectives is devoted to considering "Future Global Mineral Resources." The good news is that the group of geologists who put together the study have stumbled upon economics and now understand a bit about how demand and supply works. From the abstract: Some scientists and journalists, and many members of the general public, have been led to believe that the world is rapidly running out of the metals on which our modern society is based. Advocates of the peak metal concept have predicted for many decades that increasing consumption will soon lead to exhaustion of mineral resources. Yet, despite ever-increasing production and consumption, supplies of minerals have continued to meet the needs of industry and society, and lifetimes of reserves remain similar to what they were 30-40 years ago. ... Over the last 150 years, improved technologies, economies of scale and increased efficiency have combined to reduce costs hence allowing lower-grade ore to be mined economically. The net result is that the long-term inflation-adjusted price of most metals has decreased more or less in parallel with increasing production, a second apparent paradox that frequently is not well understood. The press material released by the University of Geneva to accompany the study notes: To define reserves is a costly exercise that requires investment in exploration, drilling, analyses and numerical and economic evaluations. Mining companies explore and delineate reserves sufficient for a few decades of profitable operation. Delineation of larger reserves would be a costly and unproductive investment, and does not fit the economic logic of the modern market. The result is that the estimated life of most mineral commodities is between 20 to 40 years, and has remained relatively constant over decades. Use of these values to predict the amount available leads to the frequently announced risks of impending shortages. But this type of calculation is obviously wrong, because it does not take into account the amount of metal in lower quality deposits that are not included in reserves and the huge amount of metal in deposits that have not yet been discovered. Hmmm. Who else has made that point? In my chapter "The Depletion Myth" in my 1993 book Eco-Scam: The False Prophets of Ecological Apocalyse I wrote: Impending scarcity provokes people to search for substitutes and to improve technologies used to exploit natural resources. For example, copper reserves are not only expanded through new ore discoveries, but also through technology. Improvements in refining allow humanity to exploit copper ores now that are eight times less rich than those mined in 1900. ... A deposit of copper is just a bunch of rocks without the know-how to mine, mill, refine, shape, ship, and market it. Similarly in my 2015 book, The End of Doom I report: Why does the horizon of mineral reserves never seem to go out further than a few decades? Basically because miners and technologists do not find it worthwhile to find new sources and develop new production techniques until markets signal that they are needed. How this process evolves is encapsulated by the USGS report which notes that in 1970 known[...]