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All articles with the "Economics" tag.

Published: Mon, 23 Apr 2018 00:00:00 -0400

Last Build Date: Mon, 23 Apr 2018 22:59:18 -0400


Americans Have a Dangerous Deficit in Trade Understanding

Sun, 15 Apr 2018 08:00:00 -0400

I was chatting with my tobacconist the other day—I have no rabbi, no priest, no minister, no imam, no chiropractor, and no lawyer, but I do have a tobacconist—when it struck me that my trade deficit with him is astronomical. How could I have let this happen? For the nearly 20 years I have been patronizing his venerable establishment—nay, institution— it is I who has pushed money (make that plastic) across the counter. But not once has he pushed even a red cent to me. Come to think of it, this is also the case with Kroger, Walmart, McDonald's, and a variety of gas stations. See the pattern? The money moves in one direction only. What the hell is going on?! I realize that each time I gave those merchants my hard-earned dollars, I received things—but they were mere goods. Money is where the action is, right? Everybody knows that in any trade, it's the money side that wins. I think Donald Trump said something along those lines, and he wouldn't lie. He has a very fine brain—just ask him—so he couldn't be mistaken. Yet I have this nagging feeling my torment is misplaced. After all, no one forced me into those stores. Each time, I had an internal reason; in the case of the tobacco shop, it was my habit hobby. I wanted the pipe tobacco, groceries, double-cheeseburgers (keto style: no bun, no fries), and gasoline. Still, while I buy from those merchants week after week, none of them has ever bought a damn thing from me. Not once have they paid me to write or an edit an article for them. Not one time! But this thought keeps nagging at me: does it matter? Let's approach this from another direction. Whenever I buy from them, I transfer money to which I hold proper title. It wasn't a gift, so that means I'd previously provided services to somebody. The tobacconist doesn't buy my services, but someone else does. Meanwhile, the tobacconist spends the money I give him to buy other people's products and services. This suggests that when we abandon barter, what looks like two-sided exchange is really triangular, even though one of the parties is absent. In fact, the emergence of triangular exchange marks the move from barter to money. ("Hey, I know what I'll do. Even though I don't want this rice being offered for my products, I'll accept it in exchange because I know I can trade it to someone else for what I do want.") Maybe it doesn't matter, then, that those to whom I sell are not the same as those from whom I buy. I shouldn't care about any bilateral "deficit." What matters is just that I don't chronically spend more money than I bring in by borrowing excessively. But as is now evident, my "trade deficit" has essentially nothing to do with any budget deficit I might run up. I also don't see the point in "adding up" different people's trade situations in an attempt to a get "better" view of things. Let's say my next-door neighbor, Jones, happens to be a wholesaler who deals in pipes and tobacco, and during the year he happens to sell as much in dollar terms to my tobacconist as I buy from him. Do we learn anything important when we see that Richman-Jones has a perfect balance of trade with the shop? I think not. What if that's the case with my whole block, neighborhood, town, county, or state? Same answer. Who cares? Okay, then maybe this would be a problem: rather than buying things from anybody, the tobacconist invests the money he receives from me. If he invests well, that money will make him money because those who borrow it will be able to produce more, better, or cheaper goods for the (world) community. Nope, I see no problem there. If I'm right about all this, then Adam Smith was being anything but hyperbolic when he wrote in The Wealth of Nations that "nothing can be more absurd than the whole doctrine of the balance of trade." "Yes, yes," a Trumpster will say. "That's all well and good. But what if the person on the money side of my transaction is—gasp!—not an American?" There's a definitive two-word answer to that question: so what? This piece was originally published by The Libertarian Institute.[...]

Live Debate in NYC 4/16: Does Fractional-Reserve Banking Undermine Free Markets?

Thu, 12 Apr 2018 12:00:00 -0400

"Fractional reserve banking poses a threat to the stability of market economies." That's the resolution that will be debated at the next Reason-Soho Forum debate, which takes place on Monday, April 16 at New York's Subculture Theater. Co-founded and moderated by Gene Epstein, The Soho Forum is "a monthly debate series that features topics of special interest to libertarians, and the series aims to enhance social and professional ties within the NYC libertarian community." Before the debate, libertarian comic Dave Smith will perform a set specially tailored to the evening's topic (good luck with this one, Dave!). Reason is proud to partner with the Soho Forum, to livestream each debate as it happens, and to publish the debates both as videos and as episodes of the Reason Podcast; go here for our archive. The Soho Forum is an Oxford-style debate, which means that the audience votes before and after the proceedings. The participant who moves the most people to his or her side is declared the winner. The event will be livestreamed at and at Reason's Facebook page and online viewers will be able to vote. For the affirmative: Robert P. Murphy is Research Assistant Professor with the Free Market Institute at Texas Tech University. He has a PhD in economics from NYU. Murphy is also Senior Economist with the Institute for Energy Research (IER), Senior Fellow with the Mises Institute, Senior Fellow with the Fraser Institute, and Research Fellow with the Independent Institute. He has authored hundreds of articles and several books explaining economics to the layperson, including Choice: Cooperation, Enterprise, and Human Action. For the negative: George Selgin is a senior fellow and director of the Center for Monetary and Financial Alternatives at the Cato Institute and Professor Emeritus of Economics at the University of Georgia. His research covers a broad range of topics within the field of monetary economics, including monetary history, macroeconomic theory, and the history of monetary thought. He is the author of The Theory of Free Banking; Bank Deregulation and Monetary Order; Less Than Zero: The Case for a Falling Price Level in a Growing Economy; and, most recently, Good Money: Birmingham Button Makers, the Royal Mint, and the Beginnings of Modern Coinage. Monday, April 16, 2018 Cash bar opens at 5:45pm Event starts at 6:30pm Subculture Theater 45 Bleecker St NY, 10012 Tickets cost between $10 and $18 and must be purchased in advance. Seating is limited, so buy tickets now. To set a reminder at Facebook and watch a livestream of the debate on Monday, go here now. The previous Reason/Soho Forum debate was about sexual assaults on college campuses and featured SUNY professor Michael S. Kimmel and Reason Contributing Editor Cathy Young. Go here for more details and click below to watch. src="" allowfullscreen="allowfullscreen" width="560" height="340" frameborder="0"> Before you go: Subscribe to Reason's YouTube channel. Like Reason on Facebook. Follow Reason on Twitter. Subscribe to the Reason Podcast at iTunes.[...]

A True but Nonobvious Proposition?

Tue, 03 Apr 2018 08:15:00 -0400

The great mathematician Stanislaw Ulam challenged the great economist Paul Samuelson to name a principle in the social sciences that was both true and nonobvious. Samuelson thought for a bit, then replied, "Ricardo's theory of comparative advantage." "That this idea is logically true," he said, "need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them." You can make the argument for comparative advantage seem highly nontrivial and devilishly hard to believe after it is explained to you by following the great English economist David Ricardo into arithmetic and clotted prose. Ricardo wrote in 1817 that "England exported cloth [to Portugal] in exchange for wine because, by so doing, her industry was rendered more productive to her; she had more cloth and wine than if she had manufactured both for herself; and…the industry of Portugal could be more beneficially employed for both countries in producing wine." If you can instantly grasp that logic (and go on believing it for practical purposes such as opposing Donald Trump's view of foreign trade) you are either already an economist or have an astonishing natural ability for the subject. The economist Paul Krugman wrote a column a long time ago claiming that comparative advantage is in fact difficult to comprehend, requiring various tricky assumptions only an economist could love. But it is "difficult" only in the world of Princeton University economists in which market "imperfections" abound and mathematical proof reigns. Actually, it's dead easy. No math, no arithmetic. It is, in fact, the soul of common sense. Comparative advantage is merely the principle of cooperation. The word advantage gets us thinking of competition, perfectly reasonable in our own individual lives—we do compete with other businesses or other writers or whomever. But we also massively cooperate with family and colleagues. The world as a whole, furthermore, does well by cooperating, in business or science or cultural life. It's not all we do, admittedly. I said: We also compete. But within a household or a company or a world economy, the job is to produce a result in the best way, cooperatively. If you were running a sports team, say, you would want to assign roles to the various contributors to the common purpose sensibly. It turns out to be precisely on grounds of comparative advantage. Consider 12-year-old Oliver and his mother, who are to spend Saturday morning tidying up the garage. Oliver is incompetent in everything compared with mom. He cannot sweep the floor as quickly as she can, and he is truly hopeless in sorting through the masses of rubbish that garages grow spontaneously. Mom, that is, has an absolute advantage in every sub-task in tidying up the garage. Oliver is like Bangladesh, which is poor because it requires more labor and capital to make everything—from knit goods to medical reactors for shooting cancers—than more developed countries do. Its output per person is 8.4 percent of what it is in Britain. So too Oliver. What to do? Let mom do everything? Of course not. That would not produce the most tidied garage in a morning's work. Oliver should obviously be assigned to the broom, in which his disadvantage compared with mom is least—hence "comparative advantage." An omniscient central planner of the garage-tidying would assign mom and Oliver just that way. So would an omniscient central planner of world production and trade. In reality, there's no need for an international planner. The market, if Trump does not wreck it, does the correct assignment of tasks worldwide. Bangladesh does not sit down and let the British make everything merely because they are "competitive" absolutely in everything. Bangladesh's real income has been rising smartly in recent years precisely because it has specialized in knit goods. It has closed its ears to the sire[...]

Mostly Weekly Series Finale: Creative Destruction

Wed, 14 Mar 2018 13:15:00 -0400

Reason's webseries "Mostly Weekly" is wrapping up–for entirely legal reasons that absolutely do not involve tax evasion. No reason to be suspicious.

The final episode of the series tackles creative destruction. In free and open markets people are able to make new technologies and business models, which displace older, established ones. That process of starting new companies and jobs destroys some professions while creating others.

It's entirely understandable that people who lose their jobs want to keep them. But industries like manufacturing, coal mining, and mall retailers aren't dying out because of competition from China, they're being outmoded by automation, cheaper fuel sources, and online sales.

Despite the uncertainty that markets bring, they also create new jobs and entirely new professions. There aren't gangs of unemployed lamplighters roaming the land; their descendants became Uber drivers, social media coordinators, and webseries producers.

In the end, it's better for everyone to look at the world as it is and to move forward than to try and halt progress through the force of law.

Mostly Weekly is hosted by Andrew Heaton with headwriter Sarah Rose Siskind. Watch past episodes here.

Script by Andrew Heaton and Sarah Rose Siskind with writing assistance from Brian Sack.
Edited by Austin Bragg and Sarah Rose Siskind.
Produced by Meredith and Austin Bragg.
Theme Song: Frozen by Surfer Blood.

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Shocker! Rent Control Makes Housing Scarcer and More Expensive

Thu, 01 Mar 2018 16:10:00 -0500

(image) A new study by some Stanford economists finds that rental housing availability has gone down and rents have gone up since San Francisco adopted rent control in 1994.

Tenants in rent-controlled apartments benefited by $2.9 billion by paying lower-than-market rents. But the owners of housing subject to rent control responded, the economists write, "by substituting to other types of real estate, in particular by converting to condos and redeveloping buildings so as to exempt them from rent control." Rent control ended up reducing the rental housing supply by 15 percent, causing a 5 percent citywide rent increase. Ultimately, rent control led to a 25 percent reduction in the number of renters living in rent-controlled units, relative to 1994 levels.

The researchers further observe that this "substitution toward owner occupied and high-end new construction rental housing likely fueled the gentrification of San Francisco, as these types of properties cater to higher income individuals. Indeed, the combination of more gentrification and helping rent controlled tenants remain in San Francisco has led to a higher level of income inequality in the city overall."

This new finding accords with a 2009 review of scores of studies of rent control, which concluded that the "literature on the whole may be fairly said to show that rent control is bad."

San Francisco's ridiculous housing policies have a significant effect on the larger economy too. As I reported in January,

By keeping workers out of high-productivity regions, local restrictions on housing have lowered U.S. GDP by 13.5 percent of what it would otherwise be, according to a 2015 study by the Berkeley economist Enrico Moretti and the University of Chicago economist Chang-Tai Hseih. In fact, they find that "most of the loss was likely caused by increased constraints to housing supply in high productivity cities like New York, San Francisco and San Jose. Lowering regulatory constraints in these cities to the level of the median city would expand their work force and increase U.S. GDP by 9.5%."

When will people learn that trying to repeal the law of supply and demand never works?

Poker Champion Annie Duke on Making Smart Bets in Life, Politics, and Football

Tue, 20 Feb 2018 14:20:00 -0500

"Life is poker, not chess," says Annie Duke, a former professional poker player and the author of a new book, Thinking in Bets: Making Smarter Decisions When You Don't Have All the Facts. Chess is a game of skill with "very little luck involved," while in poker good decisions and good outcomes often don't go together.

Duke cites Seattle Seahawks Coach Pete Carroll's decision in the 2015 Super Bowl to call for a pass play that was intercepted. Since the interception rate in situation like this is about one or two percent, it was a good decision that didn't work out. In football, like life, humans are prone to draw the wrong conclusions from situations involving bad luck.

"We go around and we change our decision making because we've evaluated the quality of a decision based on one outcome," says Duke. "Try and cordon yourself off from the outcome [and] recognize the uncertainty of the future."

Reason's Nick Gillespie sat down with Duke to discuss life, chess, poker, football, and why we can all benefit from exposure to dissenting opinions.

Cameras by Jim Epstein and Andrew Heaton. Edited by Austin Bragg.

Photo Credits: Jon Soohoo/UPI/Newscom, Rich Graessle/Icon Sportswire/Newscom, Kevin Dietsch/UPI/Newscom, John Angelillo/UPI/Newscom, Chris Coduto/Icon Sportswire/Newscom, Shane Roper/Cal Sport Media/Newscom, Chris Wattie/REUTERS/Newscom, Charles Baus/Cal Sport Media/Newscom

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Economic Impacts of Climate Change Likely Limited in This Century, Says New Study

Fri, 09 Feb 2018 09:50:00 -0500

When climatologists like James Hansen look at their models, they warn that higher temperatures and rising sea levels could make the planet "practically ungovernable." The Pennsylvania State University climatologist Michael Mann claims that unabated man-made global warming will "impose enormous costs on future generations." When economists, by contrast, peer into the entrails of their integrated assessment models, they don't forsee a climate-induced economic catastrophe—at least not in this century. Last August, for example, the Yale economist William Nordhaus and his China-based colleague Andrew Moffatt surveyed 36 different estimates (derived from 27 studies) of climate change's impact on gross world product by the year 2100. Taking their results into account, I roughly calculated that a 3°C increase in average temperature would reduce global GDP in that year from $872 trillion to $854 trillion, and income from $97,000 to $95,000 per capita. Now a new study by the University of Sussex economist Richard Tol has come up with similar results. "Current estimates indicate that climate change will likely have a limited impact on the economy and human welfare in the twenty-first century," Tol reports. To reach this conclusion, Tol took into account 27 published estimates of the total economic impact of climate change, taken from 22 studies. They suggest, he finds, that initial warming is positive on net, while further warming would lead to net damages. By 2100, the negative effects of warming predominate, with the consequence that "a global warming of 2.5ºC would make the average person feel as if she had lost 1.3 percent of her income." While most income estimates stemming from an average temperature increase of 2.5ºC by 2100 are negative, some are actually positive. Considering this range of estimates, Tol offers another way to think about how climate change by 2100 will affect incomes: "The welfare change caused by climate change is equivalent to the welfare change caused by an income change of a few percent. That is, a century of climate change is about as good/bad for welfare as a year of economic growth." Tol acknowledges that the impact of climate change on water resources, transport, migration, violent conflict, energy supply, space cooling, and tourism and recreation have not received sufficient attention. As a consequence, he rather laconically observes, "Estimates of the impact of climate change are thus incomplete." And then there is the question of risk. Perhaps the integrated assessment models that try to combine climate change and economic change over the next 80 years are sufficiently accurate to rule out unpleasant surprises, such as much faster warming or greater shifts in weather patterns. Joseph Majkut, the director of climate policy over at the Niskanen Center, once asked how high the risk of climate change has to be to prompt action. Majkut cites Bob Litterman, a hedge fund manager who argues that climate change is an undiversifiable risk that would command a higher risk premium. Litterman likens climate change risk to the systemic risk that investors face in the stock market. It is hard to hedge when unknown unknowns can cause the prices of all assets to decline at once. On the other hand, the Nordhaus and Moffatt survey of studies also found "no indication from the damage estimates of a sharp discontinuity or high convexity." In other words, the studies do not identify any systemic risk, such as threshold effects in which damages from climate change will accelerate. So the question is: How lucky do you feel?[...]

U.S. Oil Production Will Exceed Its 1971 Peak This Year

Wed, 07 Feb 2018 14:15:00 -0500

U.S. oil production will surge above its 1970 "peak" of 9.6 million barrels per day this year, according to the latest projections from the Energy Information Administration (EIA). The agency estimates that American oil production will average 10.6 million barrels per day this year and will rise to a daily average of 11.2 million barrels in 2019. Only a decade ago, the world was in the grip of one of its periodic "peak oil" panics. Dire predictions everywhere announced that humanity was on the cusp of a disastrous and accelerating decline in oil production. 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. Reaching peak oil would result in a "meltdown of society" and a "dying civilization" with a "landscape littered with the rusting hulks of SUVs." What happened? Russia and the Organization of Petroleum Exporting Countries have been trying to boost prices by cutting back on production. Political chaos has engulfed several big oil producers—Iraq, Iran, Libya, South Sudan, Venezuela. The International Energy Agency (IEA) notes with understated charm that "declines are accelerating in Venezuela, which posted the world's biggest unplanned output fall in 2017." Yet the IEA expects global production to average about 98 million barrels per day this year. Even in 2018, you can find die-hard peak oilers projecting doom. Just this week, J. David Hughes of the Post Carbon Institute questioned the EIA's projections. "There is no doubt that the U.S. can produce substantial amounts of shale gas and tight oil over the short- and medium-term," Hughes declared. "Unrealistic long-term forecasts, however, are a disservice to planning a viable long-term energy strategy. The very high to extremely optimistic EIA projections impart an unjustified level of comfort for long-term energy sustainability." Keep in mind that Hughes flirted with peak oil predictions back in 2010, forecasting that global crude production would peak in 2012. He based this conclusion on a consensus estimate (excluding the "optimistic" views of EIA and Cambridge Energy Research Associates) of more than 20 predictions. After my 2016 column "Where Have All the Peak Oilers Gone?" appeared, I received an anonymous email chastising me for daring to report on this subject. My interloctor wrote: How can you say that peak oil is dead, when oil's sell price is one third of the price needed to sustain current production level? That's silly. Many oil companies are going broke, oil exporting countries will be broke soon. You just don't understand the subject. But when you don't understand it, you shouldn't write articles about it. Peak oil happened in 2015, instead of 2005-2007 probably only because of coal boom in China. But that coal boom has now ended. Before making a fool of yourself again, please get to know the subject first. I replied: Well, I guess you told me! As the mirage of peak oil continues to recede, I await future emails from you confidently asserting that peak oil occurred in 2020, in 2025, in 2030, etc. I just can't seem to help making a fool of myself on this subject.[...]

Trump's 'America First' Plan Is Naked Special-Interest Policymaking

Sun, 28 Jan 2018 08:30:00 -0500

Donald Trump, the self-proclaimed voice of American working people, has decreed that the prices of washing machines and solar panels shall rise. So it is written. So it is done. Trump's decree, placing tariffs (taxes) on imported versions of those goods, will impose higher costs on consumers to help (in the short run) the minority of Americans who work in those industries. That's how protectionism works—a favored group of firms and workers benefits at the expense of everyone else. Trump calls this "America First" and looking out for average Americans, making him either a demagogue or an ignoramus. In fact, it's naked special-interest policymaking. Trump acted on recommendations from his U.S. trade representative (USTR), Robert Lighthizer, who invoked the law that gives the government the power to impose tariffs when, in Lighthizer's words, "increased foreign imports … are a substantial cause of serious injury to domestic manufacturers." This particular law does not require the U.S. International Trade Commission (ITC) to identify any "unfair trade practice," such as dumping or subsidies. All that is necessary is that a domestic firm (for example, in the washing-machine case, Whirlpool) or industry convinces the ITC and USTR that foreign competition has harmed it—that is, that American consumers prefer the imports to domestic alternatives. Thus the American Firster Trump is coddling wimpy, whining firms that are better at lobbying than competing in the marketplace. This he calls "draining the swamp." Not that so-called dumping and subsidies would justify tariffs. They do not. Dumping, which is roughly defined as selling below cost, amounts to nonsense when you remember that costs are subjective. And while a foreign government subsidy constitutes an offense against the taxpayers of the foreign country, it cannot be construed as an offense against American firms (which, like solar-panel firms, often have their own subsidies) or American consumers. Moreover, subsidized firms are hardly efficient firms. It's competition that keeps firms on their toes. "The President's action," Lighthizer said, "makes clear again that the Trump Administration will always defend American workers, farmers, ranchers, and businesses in this regard." Balderdash. First, note for the record that the word consumers appears nowhere in that sentence. Next, you'll see that while the word certain or favored belongs in the sentence to modify workers and businesses, it too is nowhere to be found. Trump and his protectionist team know they can get away with this bunk because most people are strangers to the economic way of thinking. Obviously, protecting people who make their living in the washing-machine and solar-panel industries from competition cannot help all workers and businesses since protectionism by design raises prices. Because consumers will now have to pay more, they'll have less money than they would have had with which to buy other products and services or to save and invest for the future. Their welfare, that is, will drop. Why don't consumers and those other workers and businesses count? Because they are invisible. Moreover, if Americans buy fewer exports, foreign citizens will have fewer dollars with which to buy American-made goods or to invest in American enterprises. And if foreign governments retaliate against American products with their own protectionist measures, Americans who work in exporting industries will suffer. This will include farmers and ranchers. Thus Lighthizer's statement, like pretty much everything about the Trump administration, is sheer flapdoodle. Trump can't open his mouth about trade without sticking his foot in it. He loves to say he favors free trade—but then adds that it must be fair and reciprocal. Is he so stupid that he doesn't know that trade is reciprocal by definition? Trade is exch[...]

Trump Launches Solar Panel Trade War with China

Tue, 23 Jan 2018 17:25:00 -0500

The Trump administration is imposing a 30 percent tariff on solar panels and modules imported from China. The first 2.5 gigawatts of imported solar cells will be exempted from the tariff. The tariff will drop 5 percent per year falling to 25, 20, and 15 percent in the second, third, and fourth years respectively. Largely due to the import surge of lower-priced solar panels, 25 U.S. solar panel manufacturers have gone out of business since 2012. Last year, solar panel manufacturers Suniva and SolarWorld filed Section 201 the Trade Act of 1974 petitions at the International Trade Commission (ITC) arguing that Chinese imports constituted a "substantial cause of serious injury" to their businesses. Interestingly, a Section 201 finding does not require a finding of an unfair trade practice, as do the antidumping and countervailing duty laws; merely losing to competition is enough. The ITC subsequently determined that the increased imports of Chinese solar panels were indeed a substantial cause of serious injury to domestic producers. Under Section 201, factors supporting a finding of serious injury include idle or shuttered production facilities, layoffs and other termination of employment, and a decrease in the financial performance of domestic producers. The Trade Act also requires that any action taken by the U.S. government must facilitate a positive adjustment to import competition and provide greater economic and social benefits than costs. It is worth noting that the ITC issued a report last year that found that removing current significant import restraints, e.g., tariffs and quotas, would increase annual U.S. welfare by $3.3 billion per year by 2020. Will solar tariffs save or create American jobs? The Utility Dive industry newsletter reports: [The Solar Energy Industries Association] estimates the job losses will number 23,000 for this year, and result in "billions lost in investment." SEIA President Abigail Hopper condemned Trump's decision in a statement. "While tariffs in this case will not create adequate cell or module manufacturing to meet U.S. demand, or keep foreign-owned Suniva and SolarWorld afloat, they will create a crisis in a part of our economy that has been thriving, which will ultimately cost tens of thousands of hard-working, blue-collar Americans their jobs," she said. The majority of the current 260,000 solar jobs are in installation, with only 38,000 (or 14%) in manufacturing. Moreover, the case threatened two-thirds of future utility-scale solar installations set to come online in the next five years, which is the biggest and most vulnerable solar market. It is true that the Chinese solar panel manufacturers have received lots of subsidies, so too has the U.S. industry. Overall the U.S. solar power industry has benefited from tens of billions of dollars in subsidies, loan guarantees, tax credits, and state renewable portfolio standards that require utilities to sell a specified percentage or amount of renewable electricity to its customers. Note again that the ITC did not find that the Chinese solar panel companies are "dumping," that is, selling their products below their manufacturing costs. Analysts like Information Technology and Innovation Foundation's Stephen Ezell warn that the Chinese government is pursuing a policy of "innovation mercantilism" that aims to make China "competitive across virtually all advanced-technology industries and that the techniques it is using to become so pose a direct, even existential threat to America's high-tech industries along with foreign counterparts." Ezell further asserts that "China fundamentally rejects the notion of comparative advantage and instead seeks absolute advantage." If that's true, should we be worried? Not really. Basically, the idea of comparative advantage is that each country should speciali[...]

The Case Against Education: Economist Bryan Caplan Says Government Spending of $1 Trillion a Year on Schooling Is a Waste

Mon, 22 Jan 2018 15:45:00 -0500

"It's absolutely true that school makes people show up, sit down, shut up and that these are useful skills for people to have in adulthood, " says Bryan Caplan, a professor of economics at George Mason University, who blogs at EconLog, and is the author of the new book The Case Against Education: Why the Education System Is a Waste of Time and Money. "So the real question is if all we're trying to do is prepare people for a job, why not prepare them with a job?" Caplan argues that schools are not only overpriced, but that traditional education fails to prepare students with job skills that reflect the needs of the labor market. Reason's Nick Gillespie sat down with Caplan to make the case that the government needs to spend so much on education if it isn't relevant to our success in getting a job and earning higher wages. Reason is a proud media partner of National School Choice Week, an annual event promoting the ability of parents and students to have greater options in K-12 education. Go here [] to get more information about events and data about how increasing school choice--charters, vouchers, educational savings accounts, and more—is one of the best ways to improve education for all Americans. For a constantly updated list of stories on education, go to Reason's archive page on "school choice". Interview by Nick Gillespie. Edited by Alexis Garcia. Camera by Meredith Bragg and Mark McDaniel. AM Trans by Podington Bear is licensed under a Creative Commons Attribution license ( Source: Artist: Mimas by Sounds Like An Earful is licensed under a Creative Commons Attribution license ( Source: Artist: 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: I'm Nick Gillespie for Reason and today we are talking with the author of what is almost certainly going to be the most controversial book of the year. Bryan Caplan is an economics professor at George Mason University, and his new book is The Case Against Education. Bryan, thanks for talking with Reason. Bryan Caplan: Thanks for such an exciting introduction. Gillespie: Well, let's get right to it. Early on you say flatly, you write flatly, 'This book argues that our education system is a big waste of time and money.' And now you're not simply saying that our schools are overpriced and uneven in quality, you are actually making the case that much of our traditional education system, especially higher ed, is literally a waste of time, right? Caplan: Absolutely. Gillespie: What do you mean by that? Caplan: What I mean is that people are going there to get a higher income, but they're actually not getting much in the way of job skills, which raises a big puzzle for an economist. How can they be getting a higher income if they're not getting much in the way of job skills? And my answer comes down to something called the signaling model of education that says that a lot of the reason why education pays isn't that you learn useful skills, but that you distinguish yourself. That you're getting stamped or labeled. You're getting a sticker on your forehead, Grade A worker. Gillespie: So it's kind of like you come out as a piece of steak. You're USDA prime, but you haven't been cooked yet. Well, you haven't ... Caplan: Precisely. And the the key thing about this is, selfishly speaking, it doesn't really matter why you're[...]

Sexual Politics Needs More Economics: Podcast

Mon, 22 Jan 2018 15:40:00 -0500

Does the fraught conversation around #MeToo and sexual mores need more Peter Suderman explaining that, well actually, we really should be viewing things more through the lens of long-tail economics? The question answers itself. Today's Reason Podcast, which also features Katherine Mangu-Ward, Robby Soave, and yours truly, veers headlong into such touchy subjects, including the generational divide over consent and agency, the gap between federal directives and on-the-ground adjudications of campus sexual assault, the efficacy (or lack thereof) of the Children's Health Insurance Program (CHIP), and what Education Secretary Betsy DeVos has to do with National School Choice Week. Kick the whole shebang is a round of derision and glee about the abortive government shutdown. Audio production by Ian Keyser. Relevant links from the show: "Reminder: The Parts of the Federal Government Authorized to Shoot You Are Still Functioning," by Scott Shackford "The Government Shutdown Is an Artifact of a Broken Budget Process," by Peter Suderman "Vanessa Grigoriadis on the 'Blurred Lines' of Consensual Sex and Assault on Campus," by Nick Gillespie and Justin Monticello "The Fragile Generation," by Lenore Skenazy and Jonathan Haidt "Betsy DeVos Withdraws 'Dear Colleague' Letter That Weaponized Title IX Against Due Process," by Robby Soave "The Case for School Choice Is Overwhelming From Every POV Except One," by Nick Gillespie "To Reduce Campus Rape, Legalize Pot and Alcohol," by Robby Soave "Crowding Out Private Coverage: The Cost of Expanding Children's Health Insurance," by Peter Suderman Subscribe, rate, and review the Reason Podcast at iTunes. Listen at SoundCloud below: src="" width="100%" height="300" frameborder="0"> Don't miss a single Reason podcast! (Archive here.) Subscribe at iTunes. Follow us at SoundCloud. Subscribe at YouTube. Like us on Facebook. Follow us on Twitter.[...]

Minimum Wage Hikes Inflict Maximum Pain

Tue, 16 Jan 2018 00:15:00 -0500

There's probably no more popular way of patting yourself on the back for doing good while actually harming people than advocating for hiked minimum wage laws that forbid people to accept work that pays below a legally mandated floor. When you raise the price of something above what people are willing to pay, people buy less of it, or else they pass the costs down the line, when possible. This isn't exactly a revelation; it's one of the older known economic realities. Unfortunately, there's always been a certain portion of the population that insists that labor is different and that you really can make people more prosperous by decree. But yet more recent evidence suggests that hiking the price of hiring people works just like raising the cost of everything else. This means that the recent craze for minimum wage laws has not turned out, after all, to be a genius plan for filling bank accounts. At the beginning of this year, the Subway sandwich chain announced a $5.00 foot-long promotion at its stores—well, at a lot of its stores. Not participating is David Jones, a Seattle franchisee, who posted a sign saying that he couldn't offer the much-advertised deal because "The cost of doing business in the City of Seattle is very high. We are balancing the Highest Minimum Wage in the Nation, Paid Sick Leave, ACA, Secure Scheduling, Soda Tax and much more." Instead, he offered coupons that lowered the price of sandwiches—but not to the extent of the $5.00 deal. The Secure Scheduling and Paid Sick Leave referenced in that sign are also expensive labor mandates in Seattle, in addition to the city's graduated hike to a $15.00 per hour minimum wage. In addition, the city whacks its residents with a 1.75 cent per ounce tax on sugary drinks that further raises the price of a quick meal. So a Seattle Subway franchise necessarily charges customers more for their food and drink than they'd pay elsewhere. That is, it charges more from customers willing to make the purchase. More expensive sandwiches may mean fewer buyers. That could result in fewer jobs at Subway franchises—and at other businesses affected by the same laws. In fact, employers in Seattle seem to be employing fewer people as a result of the minimum wage hike, and paying the people they hire for fewer hours worked. As a result, despite stepped increases in mandated hourly wages, "total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees' earnings by an average of $125 per month in 2016," according to University of Washington researchers. (Flustered Seattle officials responded to the study by commissioning another paper from a socialist economics professor at UC-Berkeley who always finds that minimum wage hikes are beneficial.) So the sharply increased minimum wage has resulted in slimmer paychecks for many of the people it was supposed to benefit. But slimmer paychecks can turn into no paychecks if employers decide that it's not worth hiring people at artificially inflated prices when there are other ways to get tasks done. With 18 states and 20 cities hiking minimum wages at the beginning of this year, casual-dining hamburger chain Red Robin announced last week that it's eliminating busboys at all of its 570 locations, after having already dumped its expediters. "We need to do that to address the labor increases we've seen," chief financial officer Guy Constant told attendees at a retail conference. That doesn't leave many people still employed by the chain to take orders, prepare food, plate it, serve it, and clear tables—a point some industry critics are pointing to as a potential pitfall. But if you're familiar with the mostly western chain, you know that it's one of the many casual dining restaurant[...]

'Economists Say' a Lot of Things. Many of Them Are Wrong

Fri, 05 Jan 2018 00:30:00 -0500

"A wave of optimism has swept over American business leaders, and it is beginning to translate into the sort of investment in new plants, equipment and factory upgrades that bolsters economic growth, spurs job creation—and may finally raise wages significantly," opens a recent New York Times article surveying the state of the American economy. One imagines that readers of the esteemed paper were surprised to run across such a rosy assessment after having been bombarded with news of a homicidal Republican tax plan for so many weeks. But not to worry! Over the next few thousand words, the authors do their best to assure readers that neither deregulation nor tax cuts are really behind this new economic activity—even if business leaders keep telling them otherwise. For example, they claim that "There is little historical evidence tying regulation levels to growth." A few paragraphs later, we again learn that "The evidence is weak that regulation actually reduces economic activity or that deregulation stimulates it." A reporter without an agenda might have written that evidence was "arguable," because I bet I could corral a bunch of economists to tell you that lowering the cost of doing business spurs economic activity quite often. And though the Trump administration somewhat overstates its regulatory cutbacks, it has stopped hundreds of Obama-era regulations from being enacted. Even better, it has stopped thousands of yet-to-be-invented regulations from ever being considered. There's plenty of evidence, in the article and elsewhere, that this kind of deregulation has plenty to do with investment and job growth. There is also plenty of evidence that econ reporters at major publications have spent the past decade propping up economists who tell them what they want to hear. That is to say, they prop up economists who obsess over "inequality" rather than economic growth, who worry about the future of labor unions or climate change or whatever policy liberals happen to be plying at the moment. There are plenty of economists out there making good arguments for the free market who will never be member of the "economists say" clique. For eight years, we consistently heard about how "economists say" everything Democrats were doing was great (even when hundreds disagreed). Unsurprisingly, "economists" were wrong about a lot. The rosy predictions set by President Obama's Council of Economic Advisers regarding the "stimulus," the administration's prediction of 4.6 percent growth by 2012 and the Congressional Budget Office predictions about Obamacare were all way off base. There are thousands of unknowns that can't be quantified or computed, including human nature. But after decades of using data to help us think about goods, services, jobs, consumption and our choices, "economists say" is now used to coat liberal policy positions with a veneer of scientific certitude. And since Democrats began successfully aligning economics with social engineering, we've stopped seriously talking about the tradeoffs of regulations. A good example of this trend is the push for a $15 minimum wage—an emotionally satisfying, popular and destructive policy idea. Most cities that have passed the hike have experienced job losses. When researchers at the University of Washington studied Seattle's $15 minimum-wage hike, one of the largest in the nation, they found that thousands of fewer jobs were created and thousands of people lost hours of work, making them poorer. No doubt a lot of people were surprised. Vox, a leading light in the liberalism-masquerading-as-science genre, ran an article headlined "The Controversial Study Showing High Minimum Wages Kill Jobs, Explained." You might wonder why incessantly[...]

Bitcoin Confuses Alan Greenspan

Fri, 08 Dec 2017 12:00:00 -0500

Bitcoin is valuable—its price has roughly doubled in the last month—because it's a technically superior form of money that governments and other institutions can't control. Mainstream economists, however, were trained to believe that currencies need to be managed by government-controlled central banks. So this new form of free-market money is proving...hard to grasp. Alan Greenspan hasn't bothered to learn even the basic facts about bitcoin. On Wednesday, the former Federal Reserve chairman compared it to the "Continental" currency issued at the outset of the Revolutionary War, which ultimately lost all of its value because the government kept printing more of it. "The amount of fiat currency kept rising," Greenspan said on CNBC, "and it's very difficult to tell to what extent bitcoin is fundamentally different from that, but I will say there are very considerable similarities." When asked if bitcoin will eventually be worthless, Greenspan responded, "It depends on how they handle the issue of the quantity that's being put into the market." (psst...Chairman Greenspan...the supply of bitcoins is capped at 21 million.) — Jim Epstein (@jimepstein) December 7, 2017 Wasn't there a CNBC producer on hand who could shout something into the economist's earpiece about how the supply of bitcoin is capped at 21 million, and that about 80 percent of all bitcoins that will ever exist are already in circulation? The Yale economist Stephen Roach appeared on CNBC on Tuesday to alert us to his view that bitcoin is a "toxic concept" and a "dangerous, speculative bubble." Roach asked rhetorically, "Have you yet to see anybody with a bitcoin in their pocket?" It's true that bitcoin isn't widely used as a currency (except as a way to circumvent capital controls and high import taxes). But Roach seems unaware of the reasons for that. For one thing, bitcoin is still in an early stage of development. Sending or receiving bitcoin today involves publishing the transaction to a shared public database called a blockchain, which is an extremely limited resource. (There are just 1mb of data available to record bitcoin transcactions roughly every 10 minutes.) Using this data to post a transaction means paying a significant fee, which makes it prohibitive presently to use bitcoins as pocket money. But there's a new technology in development, called the lightning network, that promises to solve this problem by letting users trade bitcoins in a peer-to-peer fashion without publishing to the blockchain. On Wednesday, lightning's developers released the first version of the protocol and did the first test transaction on the bitcoin network. Roach is right that buying bitcon is "speculation" that the technology will function as promised and gain widescale adoption. But that doesn't make it "toxic." A partial exception to the mainstream confusion over bitcoin is the Hoover Institution economist John Cochrane, who argues in a recent blog post that it has value because of its "convenience yield"—i.e., it has unique features as money. Like cash, it's hard to detect, so it provides users with a way around "aspirational laws that if enforced would bring the economy to a halt." It also "facilitates ransomware," "laundering money," and "getting money out of China." Overall, bitcoin is a tool to "avoid both the beneficial and destructive attempts of governments to control economic activity and to grab wealth." That's all true, but Cochrane doesn't mention that bitcoin also provides a way to escape hyperinflation, which is how it's currently being used in Venezuela. Even the U.S. government prints money to finance debt and pay for the welfare-warfare state [...]