Finance: History and Policy

Some of the Economic Origins of the American Identity Reconsidered

2026-02-09T15:30:00.002+00:00

This is the text of the prepared remarks I made at Villanova's Ryan Center symposia over the weekend. I said many other words, alas unrecorded, during the extensive round table and Q&As.

Tax rebellion must loom large in any examination of the economic undergirding of the American identity. Without Shays, the U.S. Constitution and federal government would likely look very different. The two Pennsylvania tax rebellions of the 1790s, over whiskey and windows, helped to limit direct federal taxation in peacetime. Moreover, by encouraging federal government reliance on tariffs and discouraging the offsetting excise taxes promoted by Alexander Hamilton, those rebellions steered economic development towards manufacturing. The so-called Tariff of Abominations fomented the Nullification Crisis and tariffs constituted the second most important cause of the War Between the States, which is how many of us Texans refer to what you Yanks call the Civil War. Insert tongue into cheek.

Obviously, taxes have economic implications but they often code for ideological positions as well. Calls for lower taxes, for example, may stem from a desire to increase economic activity or they may be rooted in a desire for smaller government and its obverse, more freedom. Calls to replace tariffs or sales taxes with income taxes might be rooted in efficiency concerns but they can also indicate a desire to redistribute resources from rich to poor.

Parsing economic from ideological motivation remains fraught, especially because scholars have become so siloed that few seem capable of addressing both sides of the issue and interdisciplinary partnerships face high barriers. As a History Ph.D. who has spent decades teaching undergraduate and MBA courses in economics, and who has spent as long trying to cultivate working relationships with both historians and economists, I am one of the few scholars who might be able to make a credible argument for the primacy of economic or ideological motivations in particular historical instances.

Today, I will argue that the real-world economic effects of Britain’s Imperial fiscal, monetary, and trade policies fomented the Stamp Act rebellion and eventually the American Revolution, but that ideology played the biggest part in the Nullification Crisis, the rebellion that wasn’t. That reverses the consensus, which has long held that the colonists were lightly taxed and hence rebelled over ideas rather than reality, and that the tariffs dug so deeply into Southern pockets that South Carolinians had to saber rattle to obtain relief.

To quickly recap both events, in March 1765 Parliament imposed on the colonists of mainland British North America a tax on the sale of newspapers, legal documents, and sundry then luxury items, including playing cards and dice. American colonists resisted by physically intimidating stamp distributors and boycotting British goods. A so-called Stamp Act Congress composed of representatives from nine colonies met and formally requested repeal. Parliament granted their request in March 1766 but also passed a Declaratory Act that asserted Parliament’s right to tax the colonists as it saw fit. This tax rebellion kicked off a decade of crises that culminated in a long war and a declaration of independence, the 250th anniversary of which we this year celebrate.

Fewer, though, will celebrate the 200th anniversary of the Nullification Crisis a few years hence. In November 1832, a convention of South Carolinians called for the nullification of federal tariffs effective 1 February 1833. They protested the so-called Tariff of Abominations passed in 1828 and its 1832 revision, which kept tariff rates at unprecedentedly high levels. President Andrew Jackson responded to nullification by saying that he would die in the last ditch before allowing a state to nullify a federal tariff, a credible threat to use military force given the source, known to Americans as Old Hickory and the Hero of New Orleans. Kentucky Senator Henry Clay soon brokered a compromise that slowly reduced federal tariffs to 20 percent over a decade. South Carolina backed off Nullification and Congress passed the Force Bill, which empowered Jackson to use the military to enforce the tariff if need be.

The two crises certainly share some key characteristics: both reacted to the taxes of a central authority and led to a special convention. Both times, the central authority reversed policys but reasserted its authority with additional legislation.

Their differences, though, are telling. Resistance to the Stamp taxes was widespread and entailed a degree of physical violence and threats of more by spontaneous rabble action. Resistance to federal tariffs was largely limited to South Carolina and entailed political posturing by polities rather than physical protestation by the populace.

The main reason for those differences, I’ll argue, is that, as abominable as it was, the tariff had little negative effect on the overall U.S. economy while the stamp tax posed an existential threat to colonial economies given the dire macroeconomic situation when imposed.

I would not go so far, of course, as to deny that ideology played some role in the stamp tax rebellion or to argue that real economic factors played no role in the Nullification Crisis. I am simply saying that they were not central to what transpired.

This point is probably most easily understood by examining the economic effects of the tariffs of 1828 and 1832. Nullifiers correctly noted that by increasing the price of tariffed goods, tariffs helped domestic producers, mostly located in the North, while hurting consumers of tariffed goods throughout the country, especially in the South.

The size of the effect, though, was quite small. Economist Sonali Garg and I have spent the last year looking for major economic effects of the Tariff of Abominations and its 1832 revision and we have found none. Real per capita output continued to climb over the 1828 to 1833 period, long-term interest rates were almost unchanged, and only Clay’s compromise tariff sent bank and insurance stock prices uniformly and strongly upward as the threat of armed insurrection dissipated.

Moreover, after spiking to almost 62 percent in 1830, the average effective tariff, which is to say total duties paid divided by the total value of imports, dropped below its 1827 level in 1831 and fell further to 43 percent in 1832, the year that South Carolinians threatened nullification. In other words, the economy quickly adapted to the Tariff of Abominations through some combination of the increased smuggling, substitution, or domestic production of tariffed goods. The worst was over before Nullification, which was more rooted in fears that a national government powerful enough to aid one section of the country at the expense of another might meddle with a particular peculiar institution.

Garg and I also calculated the Harberger triangles or deadweight losses produced by the tariff on pig iron. With the tariff at 62 and a half cents per 112 pounds, they were hardly the stuff of rebellion, even when considered along with the litany of other tariffed goods. Many planters in South Carolina faced economic hardships in the late 1820s and early 1830s, to be sure, but their challenges were more due to declining yields and lower world prices for cotton and rice than to tariffs. The largely localized economic pain helps to explain why South Carolina acted alone and why nullification advocates were quick to compromise rather than itching for a fight, as they would be in 1861 when they faced an existential threat.

The macroeconomic situation in 1765, by contrast, was starkly darker and much more widespread than the deadweight loss from high tariffs. Economist Ron Michener and I worked on the post French and Indian war macroeconomic mess, him pretty much full time and me on and off, for almost a quarter of a century. Our argument is not easily understood in a short compass and appeared to some as figments of our theoretical imagination until I stumbled upon a miscatalogued primary source that encapsulated the same argument that we had been making on the basis of hundreds of primary sources that each told only a small part of the overall story.

Although I discovered it in 2008, I published this overlooked overview source only recently, as an appendix to a chapter in an edited collection about the Bubble Act, so you have not likely seen it. I want to explain here what key excerpts mean for our interpretation of the Stamp Act rebellion. Interleaved with another source about the monetary situation in New Jersey in 1786, it was unsigned and undated but I was able to date it to 1768 based on the exchange rates it quoted. Other internal evidence reveals the author to be a resident of the middle colonies, most likely New Jersey, and that the document was intended as a private letter to an unnamed correspondent, likely in Britain, who hoped “to restore that happy flourishing and tranquil State the Colonies formerly enjoyed, so beneficial and glorious to G. Britain.”

The colonist responded at some length, beginning his analysis with the key observation that it was not “the Stamp Act or New Duty Act alone that had put the Colonies so much out of humour tho the principal Clamour has been on that Head but their distressed Situation had prepared them so generally to lay hold of these Occasions, and how they came to be so I must trace back to commencement of the late War. There was then little paper Money in the Colonies, but all Ranks lived frugally within what they got and there transactions and Dealings did not exceed the Currency among them, there Trade to England was small and they made Remittances by their West India Trade for the Country People in general were contented with their own Produce and Manufactures, the Price of Land was so low that they could soon pay for it out of what they raised.”

Before the French and Indian War, in other words, the colonists used paper bills of credit to settle debts with each other and specie, full bodied gold or silver coins in other words, to settle debts with Great Britain. They exchanged their produce for the coins in the West Indies mostly, the author fails to mention, with French and Spanish counterparties. Sales to British planters in the West Indies were most often settled in bills of exchange, a type of international check, drawn on specie deposits in Britain.

The author also notes that land prices were low, which means that interest rates were high. It was well understood, even then, that asset prices moved inversely to interest rates.

The French and Indian War, the author continued, brought a “great Change [in] a short Time.” The war necessitated equipping and paying many troops, which the colonial governments financed by issuing paper bills of credit akin to today’s Federal Reserve Notes because “to raise the Sum wanted within the year, or by Loan as in England, was equally impossible, but being secured by the Legislature to be sunk by future Taxes they never depreciated but,” through what economists call the liquidity effect, the new money decreased interest rates and thus raised the price of real estate.

At the same time, privateering profits and wartime trade, much of it illicit, brought in large quantities of specie from the West Indies, which the colonists used to pay for British imports. “Thus not withstanding the vast Importation of British Manufactures,” the author explained, “our Trade supplied us with ample Remittances.” After 1760, however, “this advantageous Business received a violent check by a most injudicious and ill advised circular Letter to the Governours on the Continent, and by orders to the Kings Ships to seize all Vessels employed in” trading with the enemy. British naval ships “rigorously performed this Order, [while] carry[ing] on the Trade themselves. This was equally a Loss to G. Britain and her Colonies, reduced many Merchants to a low State and gave the first Cause of Discontent.”

The second cause of discontent arose from the fact that when the war, privateering, and trade were winding down, money remained “plenty, both in Specie and Bills of Credit.” As a result, the colonists “were not afraid of entering into deep Engagements equivalent to our Circulation.” In other words, colonists borrowed large sums at low interest rates to buy real estate in the hopes that its price would go higher still.

Due to unexpected changes in British policy, it was not to be. The supply of money shrank “being … called in by Taxes or remitted for Goods.” That “occasioned a sudden Stagnation,” a big jump in interest rates, and a big fall in real estate prices. Most land speculators had borrowed with the full principal due in a year or two, as was customary. Unable to sell due to the collapse in land prices, or to refinance due to the spike in interest rates, they defaulted. A rash of lawsuits, bankruptcies, and sheriff’s sales resulted. “By calling upon and suing one another brought many to ruin,” including incarceration in debtors’ prisons described by other contemporaries as “loathsome cages.”

The extent of the distress was no exaggeration. As with other parts of the letter, Michener and I had already found numerous corroborating sources including, in this instance, an index of sheriff sales that we created from notices in the Pennsylvania Gazette, which has been full-text searchable since the 1990s.

Britain, the author and many other sources indicate, then enacted several policies that prevented colonists from refreshing colonial money supplies. British naval ships “often cramp Trade by stoping and detaining Merchants ships and pressing their Men.” British customs officials became so strict that for a time they even stopped row boats crossing freshwater rivers, the traditional way of supplying Manhattan and Philadelphia with wood and victuals.

“Another capital Greivance and Inconvenience to these middle Colonies,” the author continued, “is being restrained from issuing Notes or Bills of Credit … to recount our Distress for want of this Medium were Endless or by what unaccountable Policy G. Britain acts in the Restriction.” He referred, of course, to the well-known 1764 Currency Act that effectively banned colonies from issuing new bills of credit or extending the time in circulation of existing ones. Too often pooh-poohed by scholars, the restriction stripped the ability of colonial legislatures to augment their colonial money supplies, all of which shrank dramatically.

The want of a final means to settle debts was so severe that epistolary squirrel scalp bounties circulated from hand-to-hand as money in Bucks County, north of Philadelphia, in 1765. At a pence apiece, however, there were not enough squirrels or shot to make up for the dearth of specie or bills of credit. The author claimed that as a result many colonists fearful of winding up in debtors’ prison retreated “to the Wilderness. They acquire Land but give up every other Convenience, contract savage and brutal Dispositions, are too far Distant to carry their Produce to market, in exchange for European manufactures.”

Other colonists turned their attention to “Manufactories,” including farm families “what make sufficient for their own Families both of Woollen and Linnen many of them keep Looms in their Houses, and make two or three Hundred Yards of different Cloths a year. I am well acquainted with one Family who makes 500 Yards at least yearly, and I am told that two others exceed 1000, all in Jersey. They likewise make great Progress in the Iron Manufactory, and tho their Edge Tools come higher, they are far superior to those imported. We have plenty of Hides for Shoe Upper Leather and Saddler Leather … Shoemakers we have in plenty, as well as Saddlers and chaisemakers. Many other Articles are made among us, but why should this give any Jealousy to Britain. … For it must not be forgot that our Trade to the Spanish and French West Indies was laid under the severest Restrictions, and the Spanish Ships were even prevented laying out their Money in our Ports. O wise Grenville!”

“To this miserable and discontented Situation,” the author continued, “were we reduced about the year 1765 and in November the ever odious and memorable Stamp Act was to take Place, which we look’d upon as equally inexpedient and illegal and which never could have been carried into Execution” for want of the money to pay for the stamps, especially given the number of lawsuits then in progress. Only near the end of his missive does the author mention “the Arguments in the Farmers Letters, which we deduced from sound Whig Principles,” before railing against British customs officers again, especially the way that they “riot in Pomp amidst our Distress.”

“Tho we object to unconstitutional Taxes,” the author continued, “we have always willingly submitted to those levied by our own Assemblies and it is well known how cheerfully in fact we mortgaged both our real and personal Estates during the late War, and to this Day a heavy annual Tax continues on our Lands, live Stocks, personal Estates, Servants, Negroes, Batchelors & Mills, Forges &c. ~~ All these Taxes are raised, managed and applied at a most triffling Expence. how different is the practice in Britain?” In other words, the colonists rebelled not at the level of Stamp tax but at the inefficient mode employed.

The author implies that all those difficulties – little money, low land prices, high interest rates, numerous sheriff sales, and little interest in trade but much in manufacturing or moving to the frontier -- remained at the time of writing, a fact that Michener and I can also document from numerous other primary sources. Conditions improved a little when southern Europe needed American grain but sank again due to improved harvests there and the 1773 credit crunch.

In short, the long-held belief that colonial resistance was more ideological than economic in nature must be reversed. The Stamp Act was the straw that broke the camel’s back, a bridge too far, a marginal shock that threatened the colonists’ existence.

Many other formative events of American Identity beg for reconsideration given the findings of economic historians over the last few decades. A very promising avenue is to examine the geographical and socioeconomic dispersion of federal bondholders. I found in my 2008 book One Nation Under Debt that Hamilton’s claim that the national debt would cement the Union was quite credible for the 1790s but the role of federal bond ownership, or rather the lack thereof, in the Hartford Convention, the Nullification Crisis, and Civil War remain unexamined, though the requisite primary sources exist.

I could go on, but am out of my allotted time. Thank you!

The Big, Bad Natural Catastrophe Wolf

2025-07-25T20:46:00.003+00:00

The fable of the three little pigs and the big, bad wolf can serve as a metaphor to help us to understand how better to mitigate climate risks.

In most of its many iterations, each of three little pigs make themselves homes, one of straw, one of sticks, and one of bricks. The big, bad wolf huffs, puffs, and blows the first two down but he cannot destroy the third.

Most Americans today follow the example of the second pig, building their homes with 2 by 4 “sticks.” They ain’t cheap but prove no match for the big, bad national disaster wolf, who sometimes blows the houses down (derechos, hurricanes, tornadoes), sometimes burns them down (wildfires), sometimes floods them out (avalanches, floods, mudslides), and sometimes swallows them whole (earthquakes, sinkholes).

Time was, many Americans who lived in areas frequented by natural disaster wolves followed the example of the first pig, living light and cheap in trailers or “shacks.” They often suffered complete losses but if the wolf didn’t kill them, they recovered because they hadn’t invested much.

The third pig seems like the smart one but not every little pig can afford to make its house impervious to the entire pack of natural disaster wolves. And if a wolf doesn’t appear, pig three looks foolish because it could have consumed more or invested in something else instead of those under used bricks.

In a perfect, fairytale world, the little pigs would be able to buy wolf insurance at a price representing the risk that a particular wolf would appear. They could still self-insure by building with straw or brick if they wanted, but they could also build with sticks and, most importantly, get price signals on what type of stick house to build.

If the flood wolf is the biggest threat, the insurance premium would be lowest for a stick house on stilts not too close to any body of water. If the fire wolf is likely to come around, the premium would be highest for a stick house built like a cub scout tinder bundle (as many in southern California are). In the territory of the huff and puff wolf, a house with a robust roof tied to structural footers would have a lower premium than a house with an asphalt shingle roof near the end of its service life.

To ensure that the little pigs paid sufficient attention to the state of their stick homes, insurance contracts in fairytale land would say they have to pay some of the costs of any damage the wolf might cause.

America never had a perfect fairytale insurance system, but it long had one where premiums pretty closely reflected risks, and insureds and insurers both suffered when the big, bad wolf came around. The availability of actuarially fair insurance explains why so many Americans built stick homes.

The problem is that America’s insurance system degraded into a nightmare for insurers and homeowners, especially those in low-risk areas. Due to regulations, premiums on houses in many risky areas are too low. Because regulated premiums often subsidize risk-taking, few build with straw or brick anymore. Worse, many build stick houses of the wrong type, in the wrong places, and do nothing to mitigate risks. They know that if the wolf does its worst, regulators will either force insurers to make them whole or public or private assistance will do so.

Meanwhile, the little pigs who built out of sticks correctly or who live where wolves seldom roam suffer. Their risks remain the same but their premiums increase faster than inflation, or their day-to-day claims face unexpected scrutiny, because their insurers have big bills due to California’s wildfires or Florida’s hurricanes.

Because of the problems in the insurance market, some Americans can no longer afford a mortgage and the mandatory insurance that goes along with it. Insurance costs are also reflected in rents so there can be no American Dream or affordable housing without property insurance reforms.

Beyond the Quotidian: The Real-World Impact of Economic Analysis

2025-07-01T13:35:00.000+00:00

Individuals or small teams can move markets or persuade policymakers with incisive economic analysis.

Economic analysis melds models, data, and experience to prognosticate broad market movements or to steer policy discussions. It is empirical but not exclusively quantitative, giving both numbers and words their due weight. It synthesizes large swathes of information while searching for big picture patterns that can help businesses, investors, or policymakers to foresee the next big crisis or innovation before it overwhelms positions outflanked by an inherently volatile world.

Economic analysis differs from financial price data dissemination and post-market narration, which date from the 16^th century. It offers less precise predictions than forecasting, which in modern form began in the 1920s, because it tries to capture sea changes, not middle run trends or short-term fluctuations. Its scope far exceeds that of securities or even industry analysis.

Warren Buffett and Alan Greenspan both exemplify the power of economic analysis. The former made billions for stockholders through extensive reading and contemplation rather than relying on technical signals or trading hunches. The latter’s understanding of macroeconomy conditions proved largely ineffable but almost infallible as he guided U.S. monetary policy for the almost two decades now called The Great Moderation.

This post surveys three older but no less important economic analyses, Economist editor Walter Bagehot’s (1826-1877) lender of last resort rule, Brian Anderson’s (1886-1949) case for free trade in the Chase Economic Bulletin at the apex of American protectionism, and Wilma Soss’s (1900-1986) empirically based campaign to put women on the board of directors of America’s largest corporations.

Bagehot (pronounced badge ut), longtime editor of The Economist, explicated the lender of last resort trigger rule employed by the Bank of England during the periodic financial crises that struck the City of London in the Victorian Age. Sometimes called Bagehot’s Dictum, the rule, laid bare by Bagehot in his 1873 book Lombard Street, stated that to stave off panic and contagion central banks should lend freely to all borrowers with sufficient collateral at a rate of interest high relative to pre-panic levels.

Implemented but left unarticulated by U.S. Treasury Secretary Alexander Hamilton (1757? - 1804) during financial panics in 1791 and 1792, Bagehot’s Rule ensured that solvent firms could borrow from the central bank when needed but had incentive to do so only when no private lender would provide better terms. The collateral requirements minimized moral hazard while also protecting the central bank from losses. In the aftermath of the 2008 global financial crisis, central bankers, including the Fed’s Brian F. Madigan, pointed to the continued overall usefulness of Bagehot’s Rule when “interpreted in the context of the modern structure of financial markets and institutions.”

A Ph.D. economist, Anderson wrote economic analyses for the Chase Economic Bulletin for much of the 1920s and 1930s. One of his themes was that America thrived due to trade, not tariffs. Policymakers ignored his analysis until America’s high tariff regime exacerbated the Great Depression and helped foment the Second World War. As nineteenth century French political economist Frederic Bastiat (1801-1850) put it, “Barriers result in isolation; isolation gives rise to hatred; hatred, to war; war, to invasion.”

Especially relevant for policy discussions today, Anderson warned against what he termed “the balance of trade bogey.” Americans fetishized a “favorable balance of trade,” but “the fear” of imports, he explained, “is an idle one” because “Europe will not merely send us goods, but will also provide us with funds with which to pay for them.” “A rich capitalist country,” he concluded, “can afford to import more than it exports.”

Financial journalist and notorious corporate gadfly Soss used her weekly NBC radio show, Pocketbook News, to push for corporate governance reforms like cumulative voting and independent audits.

Importantly, Soss leveraged her empirical studies of widespread female stockownership to induce many major U.S. corporations in the 1950s, 60s and 70s to put qualified women, like Alice E. Crawford of the Corn Exchange Bank, on their boards. Women remain underrepresented in C-suites but, thanks in large part to Soss’s trenchant analysis and promotional efforts, female directors are no longer anomalies.

Economic analyses require information acquisition but also the ability to process data and news as rationally as possible given the natural constraints of the human brain. Many of the best models are mental, incapable of being explicitly shared because they form from embodied human capital, or what was once known as wisdom.

To gain an edge over competitors, economic analysts think opportunistically and flexibly, like a fox, hunter, or natural intelligence, not in well-worn rows, like a hedgehog, farmer, or artificial intelligence. Like Anderson, Bagehot, Buffett, Greenspan, and Soss, the best economic analysts read widely and critically, selecting readings based on their perspicacity rather than reputation or popularity. Then, they write.

There’s a Long, Unsuccessful History of Presidential Trade Power

2025-06-18T22:26:00.003+00:00

NB: This should have gone up a week ago. Each part has subsequently been scooped. But I think it still offers a unique perspective overall.

There’s a Long, Unsuccessful History of Presidential Trade Power

by Robert E. Wright

Trump isn’t the first president to test the limits of the post-war free trade consensus.

Presidents Nixon, Carter, Reagan, and others also fiddled with U.S. trade policy even though Article I, Section 8 of the U.S. Constitution clearly vests Congress, not the president, with the power to “regulate commerce with foreign nations” and to “lay and collect taxes, duties, imposts and excises.”

We’re going to tell you when and why presidents received limited but unilateral authority to impose tariffs, quotas, and non-tariff barriers (NTBs) and show that their efforts have proven of limited duration and effect, at most slowing inevitable shifts in international commerce rooted in comparative advantage and relative factor prices, especially labor and other input costs.

In 1934, Congress temporarily delegated President Franklin Roosevelt limited authority to negotiate bilateral tariff reductions – which were sky high due to the Fordney-McCumber and Smoot-Hawley tariffs of 1922 and 1930 -- in the Reciprocal Trade Agreements Act (RTAA). From its passage until 1939, the RTAA led to trade agreements with 19 countries. Although World War II muted the effects of those agreements, the claim of some political scientists that presidents would prove more amenable to free trade than Congress seemed empirically vindicated.

It turns out, though, that presidents, like Congress, will respond to political pressures to try to save industries and jobs from international competition.

President Richard Nixon’s (R, 1969-1974) 1971 use of the Emergency Banking Act of 1933 to impose short-lived 10% tariffs as part of his New Economic Policy provides our first example of the limited and short-lived effects of presidential trade tinkering.

Fearful that his decision to end dollar convertibility -- the lynchpin of the Bretton Woods fixed exchange rate regime -- to protect the government’s dwindling gold reserves amid a growing trade deficit would spur yet higher levels of unemployment and inflation, Nixon tried to bolster the falling dollar, discourage imports, and encourage exports and domestic production by imposing tariffs and implementing domestic rent, wage, and product price controls.

The Nixon Shock triggered shortages and, as the accompanying chart shows, did not reverse the long-term decline in the country’s trade balance, a largely meaningless national accounting construct in any event.

Legislators and other policymakers, though, remained confident that presidents would use their power to reduce trade barriers rather than increase them, except in times of crisis or war. The 1962 Trade Expansion Act, the Trade Act of 1974, and the 1977 International Emergency Economic Powers Act (IEEPA, 91 Stat. 1625) resulted.

In 1977, President Jimmy Carter (D, 1977-81), pressured by labor unions, used the 1974 act to negotiate Orderly Marketing Arrangements designed to protect American shoe and color TV manufacturing jobs from lower wage east Asian competitors.

To cover himself politically with free traders, Carter labeled those de facto quotas “free but fair trade.” President Trump has used similar phrases. The measures failed to re-elect Carter or to protect those industries, domestic production in which has been nearly nil since the 1990s, from the long-term effects of foreign competition.

Due to a big drop in domestic steel production in 1977, Carter also imposed a reference price system or “trigger price mechanism” on Japanese steel producers, effectively putting a floor on the import price of many steel products from 1978 until 1982.

As the accompanying chart shows, U.S. raw steel production indeed rebounded under Carter’s order but never again reached its historical highs because American steel producers continued to face higher input costs than foreign competitors.

In his first term (2017-21), President Donald Trump (R) leveraged provisions of the 1962 and 1974 trade acts to impose tariffs on solar panels, washing machines, steel, and aluminum. Their prices increased but domestic production hardly soared. Steel production has been below its 2017 level since January 2022 and Nippon Steel just bought US Steel.

As the chart below shows, domestic aluminum production is also lower today than in 2017.

Trump’s tinkering may have slowed the decline of protected industries but it certainly did not transform the U.S. economy or overcome the logic of comparative advantage and mutually beneficial trade. Even his tariff on Chinese imports had less effect than reported as workarounds like the de minimis customs exception were exploited.

In his second term, therefore, Trump declared an emergency to invoke IEEPA, which grants considerably more policy power. Unless Congress intercedes, ongoing court battles will determine just how much trade power Trump and future presidents will possess.

Tariffs Are Bad, Mmmm Kay

2025-04-19T14:25:00.002+00:00

In the immortal words of South Park Elementary guidance counselor Mr. Mackey, “Drugs are bad, mmmm kay.” He might as well have said that tariffs are bad because tariffs and illicit drugs share several key elements. To ensure a healthy body politic, they should be used with caution and in moderation, if at all.

Both tax individuals. Yes, tariffs are taxes. They raise the price-tag of imported goods and their domestically-produced substitutes before you buy them, at which time you likely pay an additional sales tax. Drugs also tax you, though in the more colloquial sense of stressing your mind and body.

Both feed addiction. Tariffs are more addictive than crack cocaine all hopped up on methamphetamine. Or vice versa. Once implemented, high tariffs have proven extremely difficult to reduce because domestic producers get high on them, growing fat and complacent in Uncle Sam’s basement while doing the economic equivalent of wasting their time playing video games and munching on snacks.

Both make people sound dumb. Listening to pro-tariff politicians is like conversing with somebody with a blood alcohol content of about .06. They speak with great confidence but use the wrong words and reason in circles, if at all. Many also sound super paranoid, like they got some bad shrooms or LSD or took too much K.

Both induce smuggling. Illicit drugs essentially have an infinite tariff but tariffs don’t have to be anywhere near that high to give people incentives to smuggle stuff into the country, one way or another. Far from stopping fentanyl from coming into Murica, high tariffs will create new legions of smugglers and smuggling techniques. The so-called War on Drugs will go from unwillable to an outright rout.

Government officials use both to augment their power. But maybe that is what government officials really want, excuses to increase their power. The jackboots might soon kick down your door, not because you are selling or using illicit drugs but because you bought smuggled crap from Temu.

We can rest before tariffs and drug use reach zero. Trying to reach zero percent of anything bad that some people nevertheless want will likely turn into a fool’s errand. Getting back to pre-Trump levels, though, would help, as would improving economic education. “Tariffs are bad, mmmm kay” should be heard, and explained, as frequently as “Drugs are bad.”

Classical Liberal MAHA

2024-12-03T12:56:00.000+00:00

Jacob Hornberger recently rightly questioned the federal government’s role in MAHA, shorthand for the Make America Healthy Again movement led by Robert F. Kennedy, Jr. (RFKJ). An inveterate statist, RFKJ may very well employ state power to seek retribution against those responsible for Covid vaccination mandates and other causes of the excess deaths that have plagued the U.S. and other wealthy nations since 2021.

Unfortunately, if Americans are to live longer, healthier lives, the government will have to be involved, in a sense. It will have to reverse the many policies that it put into place that cause so many untimely deaths and so much disability, which has also increased markedly since 2021. To achieve MAHA, in other words, Americans need Elon Musk’s and Vivek Ramaswamy’s DOGE (Department of Government Efficiency) and private market innovation more than they need RFKJ.

For starters, the government should not be in the same business as nutritionists. It should stop telling Americans what is “healthy” and what is not because government bureaucrats do not know and have no incentive to provide good advice, which must be highly tailored due to innate human heterogeneity (“diversity” in Woke parlance). The Food Pyramid alone kills more Americans than the Civil War did.

The government should also get out of the life annuity business or the health insurance business (or better yet, both) because forcing older Americans into both Social Security and Medicare creates perverse incentives: one part of the government wants retirees dead, while another is in charge of keeping them alive. Nobody in their right mind would buy both an annuity and health insurance from the same company but yet Americans are forced into the unnatural arrangement with Uncle Sam.

Obamacare clearly failed. Instead of a new government-led “plan,” let’s let market forces work, as they do in the many areas of the economy that make our lives better. Sean Masaki Flynn makes a powerful argument for moving towards a market-based system like that of Singapore in his 2019 book, The Cure that Works. Singaporeans are much healthier than Americans, and indeed almost everyone else in the world, but spend only a quarter of what Americans do on healthcare. The most telling stat in the book is that in the US, each healthcare provider (HCP) needs on average four administrators to do paperwork. In Singapore, HCPs outnumber administrators four to one.

Americans do not even need a government-funded “public health” apparatus or research funding system like that long run by Anthony Fauci. Before the rise of the administrative state in the postwar period, life insurers did the sort of outreach and research that is the basis for MAHA – don’t smoke or use alcohol or drugs to excess, wash your hands after using the bathroom, and watch what you eat and drink is like 90 percent of it. They backed up their claims with higher premiums, incentivizing people to follow through or to pay for the greater risks they imposed on themselves and others.

Today, unfortunately, life insurers tend to shy away from such activities for fear of regulatory reprisals. That is unfortunate because life insurance regulations are unnecessary because the their reinsurers carefully monitor their financial health and the market is competitive. Moreover, life insurers, not the government, are the large institutions most interested in MAHA and the ones best equipped to induce Americans to make healthier choices at the table and in the gym.

In fact, life and health insurance arguably ought to be covered in the same policy, with insureds who use more health insurance getting a smaller payout when they die than those who remained healthier (all other factors constant, of course). Regulators, though, stymie experimentation with such innovative new approaches, the suppression of which allows other statists to push for Medicare-for-all and other forms of socialized medicine.

In short, to achieve MAHA, the MAGA movement should look more to DOGE and private market incentives than to RFKJ.

Why We Need More Electoral Colleges

2024-11-17T16:49:00.000+00:00

Many state division and secessionist movements are afoot, including one that I had previously not known about, "New Illinois," which would be Illinois minus Chicagoland. See the WSJ's coverage here: https://www.wsj.com/us-news/rural-counties-new-illinois-california-1e1badb5?mod=djem10point

If you look at a map of any recent presidential election, you will see a sea of Republican red with splotches of Democrat blue. The Red areas also mostly rural areas and the blue ones mostly big cities and their burbs, with some Indian Reservations tossed into the mix.

The Founders and Framers devised the Electoral College (EC) to ensure that presidents would be chosen with input from states and not just majority rule because the president is supposed to represent the nation and not just densely populated areas. Democrats hate it for that reason and are actively trying to undermine it at the national level.

What true small-d democrats should be doing though, is replicating the EC at the state level so that big cities do not dominate rural areas, as they do in California, Illinois, New York, Massachusetts, and other states where blue metro areas control state government. They need to find some way for rural residents to have more say in policy, at least enough to veto policies that actively hurt them for no good reason.

One problem with straight majority rule is that only one voting precinct needs to be corrupted to throw a close election to the wrong party. Another problem is that if even a real majority lives in a small space or is otherwise narrowly interested in a subject, it can impose its palpably poor policies at low or no cost to themselves on people living in places the majority knows nothing about.

Consider, for example, the silly prohibition on trapping beavers in Massachusetts. People in Boston passed that because they think beavers are cute. They are, I guess, but they build dams that can damage people's property, not in "the Blue Blood streets of Boston" but in the Berkshires, hours away. The dumbest thing of all about the law is that people can still call exterminators to take out the beavers and hence have an incentive to ERADICATE the busy furry fellows so they do not have pay the exterminator fee again. If they could trap the beavers, they actually have an incentive to cull them rationally because beaver furs have some value. For more backup on this, see https://www.scirp.org/journal/papercitationdetails?paperid=124716&JournalID=192 (no paywall).

As our governments grow ever bigger and more powerful, incentives to break away from ones that do not represent all people will grow. If urban centers do not relinquish their death grip on rural areas by building something like state-level ECs, we may end up with 100 states, or maybe with two national governments, a democratic one that respects minority rights, and a Democratic one that does not.

For more on that, see another open source article I recently published here: https://link.springer.com/article/10.1007/s44282-024-00065-5

Unconstrained democracy has been compared to two wolves and a sheep voting on what is for dinner. The sheep needs a veto and so do our rural residents.

Secondary Sanctions: Limited Effects and Potential Backfire

2024-06-28T01:15:00.000+00:00

No earthly power, short of nuclear annihilation, can stop Russia and China from trading. The countries share a 4.3 thousand kilometer long border over which bulk commodities like oil can be exchanged for precious commodities like gold. Physical currencies, including dollars, euro, renminbi (CN¥), and rubles (₽) can also flow across the border, by plane, train, automobile or, if necessary, camelback.

Physical means of payment need to be safeguarded from third-party bandits, which adds to expenses, but the counterparties need not fear expropriation so long as Putin and Xi remain allied, for each retains incentives to enforce the foreign contracts of the companies in their respective countries. Given the likely size and profitability of current and future trade, private contracts will largely be self-enforcing anyway because the costs of reneging on a deal, loss of future dealings, will exceed the expected benefits of future trade. That is why hundreds of billions of dollars can exchange hands in foreign exchange deals daily with nary a default.

For transactions requiring more speed, or some sort of collateral, Bitcoin or other cryptoassets could be used, and probably already are.

The cheapest and fastest method to make payments, though, is simply bank to bank, CN¥ for ₽ deposits and vice versa. To thwart such transactions, U.S. officials have imposed secondary sanctions, i.e., sanctions on foreign banks and other financial intermediaries engaged in sanctioned transactions.

The U.S. officials who imposed secondary sanctions are either daft or engaged in vote mongering. Hopefully, it is the latter because the former continues down a road more costly to the U.S. than to Russia.

Some segment of U.S. voters blames Russia for the invasion of Ukraine and wants the American government to do whatever it can to defeat Putin. Some would even support direct military intervention but most appear content with what is termed “virtue signaling.” In other words, they want to think that U.S. policymakers are actually inflicting harm on Russia’s military capabilities by thwarting its trade. Such voters do not understand even their own domestic finances much less international ones and are easily swayed by headlines and pundits telling them that sanctions have been “strengthened” or “tightened” or other impressive sounding words. Most such people will not vote for Trump but they might also abstain from voting at all unless they can be made more enthusiastic about Biden.

U.S. policymakers, though, might actually believe that their secondary sanctions will prove effective although they simply move the core issue to another level. Much like the internet itself, financial systems are networks and highly malleable ones at that. Information/cash flows that hit nodes (financial institutions) that are blocked due to sanctions or other causes simply reroute to active nodes. Moreover, new nodes can be created at any time to “launder” the money, or in other words to hide its “dirty” origins. Despite decades of effort, U.S. officials have been unable to stop the laundering of illicit drug money by domestic agents and hence stand no chance against foreign launderers, whose transaction data can be altered or hidden from prying eyes.

Policymakers could take more extreme measures but again they can only increase transaction costs, not interdict mutually beneficial trade. Moreover, at some point, they risk their actions hurting an already troubled domestic U.S. economy by making U.S. companies fearful of doing business abroad, which appears to be the main effect of the secondary sanctions so far. In the limit, their actions could be seen as an act of war, like a physical blockade of Russian ports certainly would be.

Extending sanctions to tertiary transactors and beyond threatens a return to a bipolar world, like that of the Cold War era, with two competing spheres or “worlds” that trade in limited quantities and only with government approval. Such an outcome would decrease world output by limiting the gains from trade to those available within the two blocs and also increase the probability of the outbreak of a major war by decreasing economic ties.

The “Free World,” led by the U.S., prevailed in the Cold War but the same outcome is not assured should global trade again be divided. America’s free enterprise system proved more productive relative to the command economies of the two major communist foes, the USSR and China. The economies of the EU and the U.S. today, however, are much more controlled than they were then and the economies of Russia and China are now more fascist, and hence flexible and productive, than the economies of their communist forebears.

Moreover, how the world would divide remains unclear. After decades of invasions and occupations of foreign countries, as well as numerous documented instances of interfering with foreign nations’ sovereignty, the U.S. has lost the moral high ground it possessed after World War II. The Anglosphere, the EU, and India would likely remain within the U.S. bloc but much of the rest of the world could fall into the Sinosphere, creating a rough economic parity that never really existed during the Cold War. Undoubtedly, some countries would play off the two blocs, much as India did for decades, for their own gains.

In sum, the latest round of U.S. sanctions against Russia and those doing open business with Russia might raise transaction costs but cannot stop trade between Russia and China. Hopefully, U.S. policymakers cynically attempt to increase votes to Biden knowing full well that their efforts are too miniscule to affect Russia’s war machine more than at the margin. If they actually believe that sanctions can work if only further tightened, their miscalculation may lead to much higher costs for Americans while actually bolstering China and Russia.

The Protectionism Gambit

2024-05-27T18:28:00.003+00:00

President Biden now tries to out-Trump former President Trump on protectionist trade policies. Not only did he leave most of Trump’s tariffs in place, he matched Trump’s call for 100 percent tariffs on Chinese EVs and supported a Section 301 petition that, when implemented, will impose still undetermined port duties on Chinese-built ships.

Bilateral trade restrictions like those reduce the economic output of both trading partners. Specifically, the tariffs and port duties hurt U.S. consumers by raising the price they pay for Chinese goods and hurt Chinese manufacturers by eliminating their cost advantages. U.S. manufacturers may benefit, but it is just as likely that untaxed foreign producers that are more efficient than U.S. ones, like Japanese shipbuilders or European EV makers, will gain instead.

By raising the price of all EVs sold in the U.S., tariffs on Chinese EVs will also discourage EV adoption, a purported goal of the Biden administration’s so-called Green New Deal.

Why, then, would Biden turn toward Trumpian protectionism? Because it will certainly generate votes in November.

U.S. politicians routinely lie to the media and the public, so the only way to know what policymakers are truly thinking is to access their correspondence via a FOIA request. If that is unavailable, as it usually is because they routinely illegally destroy official correspondence, use unofficial back channels to communicate, or redact key information from the documents they are forced to disclose, analysts must follow the money or votes by analyzing who wins or loses, or who thinks they will win or lose, due to specific policy changes.

One possibility is that the Biden administration believes that high tariffs will somehow reduce Chinese military capacity. That seems unlikely, however, as the tie is tenuous. Moreover, the last time that the U.S. imposed heavy economic sanctions and other economic costs on an ambitious East Asian empire, war resulted.

More likely, Biden’s handlers believe that he can take voters from Trump, specifically some untold number of millions who like Trump’s trade policies but who dislike Trump himself, by implementing Trumpian tariffs. Moreover, because independent presidential candidate Robert F. Kennedy, Jr. has also come out in favor of tariffs against China (and any other nation that allows the “exploitation of workers”), Biden does not have to worry about losing any votes due to his trade policies.

Some subset of the anti-Trump the man, pro-Trump trade policy bloc might overlook Biden’s other policies, like the open southern border, just to avoid voting for Trump while still getting Trump-like tariffs. As it becomes clear to Biden’s advisors, however, that most swing voters (not dedicated to either major party) do not believe Biden’s claim that Republicans are to blame for the border crisis by blocking border reform legislation, look for Biden to make some grand gesture towards border security in the months before the November general election, as he tries to win over more of the swing bloc.

That Biden would sacrifice consumer interests to gain votes is unsurprising. Like other U.S. presidents dating back at least to Franklin D. Roosevelt (1933-1945), Biden openly buys votes with taxpayer money. He continues to insist on student debt relief, for example, even though the courts have rebuffed his previous plans. Here, the strategy seems to be to appear to put up a good fight, but if U.S. courts stymie his efforts he can credibly pledge to get a student debt relief bill through Congress during his second term.

High tariffs on Chinese ships and EVs hurt most Americans in their role as consumers. The costs per American per year are too modest to force them to take action, but for decades they understood that free trade promotes their interests and voted accordingly. How, then, can all three leading candidates for president in 2024 support tariffs?

The events of 2020-22 proved that many, if not most, Americans have been poorly educated in biology, economics, and civics. Most willingly followed obviously flawed pandemic policies, many of which were concocted out of thin air (social distancing and masking), and took untested, experimental vaccines simply because authority figures told them to. Government censorship of dissenting voices pointing to the misaligned incentives of vaccine manufacturers and the self-serving regulations and lockdowns imposed by politicians made it difficult to direct people toward unbiased sources and more logical analyses of data about Covid IFR, vaccine danger signals, and the like. Trillions of dollars and millions of lives were lost as a result.

When it comes to economic policies, government censorship is largely unnecessary because aside from those interested in investment decisions, most Americans do not seek out alternative economic policy viewpoints, or fully grasp any randomly encountered. Were a claim about the destructive nature of trade restrictions against China to become popular, however, the U.S. government now has all the tools necessary to squelch it and to discredit the author(s), just as it discredited and disqualified doctors pointing to the true nature of Covid-19 and the effective clinical treatments they developed during the pandemic.

In short, so long as the U.S. government can force traditional mass and social media to censor contrary viewpoints, its policies, including its economic policies, voters will not constrain policymakers. Higher prices will be put down to “corporate greed” and restricted supplies to “global supply conditions.” Budget deficits will continue to grow and military aid to flow. In short, expect more economically irrational policies from Washington.

Economic and Political Analysis of the Recent Section 301 Petition Re: the Chinese Ship Industry

2024-04-29T19:09:00.000+00:00

In a 137-page and 150-exhibit petition filed with the U.S. Trade Representative (USTR) in March, attorneys and consultants for five large U.S. labor unions allege that the “Government of China” engages in “unfair trade practices” that precipitated the relative demise of America’s shipbuilding industry since 2000 and prevent its recovery. It was filed under Sections 301 and 302 of the Trade Act of 1974, which empowers U.S. economic entities to petition USTR to investigate and rectify non competitive foreign business practices and policies.

Although its economic claims are nonsensical, the petition does have a valid legal basis. Most importantly, it will have strong political support, so its nostrums, including a port levy on Chinese-built ships, may prevail in a US election year. The short- and long-run economic effects of the port levy on China, however, can only be stated in general terms until the details are determined.

The petition does not claim that China has broken any international laws or treaties. Rather, it rests on a part of U.S. trade law that considers “unreasonable” the policy of any foreign government that is “unfair and inequitable.” Such policies include “export targeting,” which U.S. law defines as “any government plan or scheme consisting of a combination of coordinated actions (whether carried out severally or jointly) that are bestowed on a specific enterprise, industry, or group thereof, the effect of which is to assist the enterprise, industry, or group to become more competitive in the export of a class or kind of merchandise.”

Like the legal concept of “export targeting,” the petition contains little economic merit. The complaints amount to no more than admissions of Sino superiority in shipbuilding. They focus on Chinese government investment in the sector rather than U.S. disinvestment in maritime industries, due, in large part, to the actions of the complainants themselves, which raise U.S. labor costs above competitive levels.

The petition complains of practices also employed by the US government. For example, it notes that “the China Export-Import Bank has provided tens of billions of dollars in loans to support the construction of thousands of vessels in China for export to foreign owners,” without also noting that the United States government has employed an Export-Import Bank since 1934. According to the U.S. House of Representatives, “The Export-Import Bank of the United States (Ex-Im) opens up international markets to U.S. businesses by financing and insuring the sale of U.S. exports when private sector financing is prohibitively expensive or simply not available.”

The petition also claims that “China has given its domestic shipbuilding unfair advantages by mandating the purchase and use of Chinese ships by Chinese state-owned shipping enterprises and state-owned oil companies.” Yet it calls for the strengthening of the Jones Act, also known as the Merchant Marine Act of 1920, which protects the domestic U.S. shipping industry from foreign competition. Almost 50 countries enforce similar “cabotage” laws.

The biggest flaw in the petition may be that it doesn’t recognize that the “Government of China” is merely the agent of the Chinese Communist Party (CCP), the largest and most powerful de facto corporate conglomerate the world has ever seen. The many Chinese state-owned enterprises (SEOs) are best understood not as corporations aided by the Chinese government but as de facto subsidiaries of the CCP’s conglomerate.

Unlike most conglomerates, the CCP is not publicly traded, but rather has taken the form of a private equity venture, with rents accruing to party members. It behaves, however, as many international corporate conglomerates, from the Dutch East Indies Company to 3M, have for centuries by strategically expanding the geographical and industrial scope of its business activities.

For example, the “CCP Inc.” shifts resources between its many units to leverage emerging international opportunities. Its Belt and Road and Maritime Silk Road initiatives differ from the activities of Western multinational corporations, many of which were government subsidized, only in scale. Like other conglomerates, the CCP favors trade between its subsidiaries, a conventional and rational business practice the petition derides as “discrimination against non-Chinese producers and operators.”

The petitioners also lament many discrete facts, like the production of 70 percent of the world’s cargo cranes by a Chinese SOE. Without evidence of coerced sales, all that means is that the Chinese must produce cargo cranes with the best combination of quality and price. It should be thanked for the same reasons that consumers thanked Standard Oil for supplying the world with inexpensive oil. The petition itself notes that China has decreased the global price of commercial vessels, which of course is a problem only for less efficient competitors, like U.S. shipbuilders. Its claim that “non-market acts and policies” allow China to underprice competitors remains completely unsupported.

British shipbuilders made similar complaints about the Japanese ship industry in the 1970s and 1980s. Then and now, such complaints display a profound ignorance of the workings of the free enterprise system, whereby any economic entity, including sovereign governments, remain free to invest in whatever industries they like, while also bearing the costs of overinvestment, as Japan did for several decades after its acclaimed “economic miracle” ended in the 1990s.

The petition also raises the specter of compromised U.S. national security. It remains unclear, however, why peacetime ownership of ports and ships matter in wartime. In both world wars, for example, the U.S. government nationalized the physical and financial assets of enemy combatants in areas within its control, turned their administration over to the Alien Property Custodian, and utilized them in the war effort. Similarly, U.S. corporations could buy relatively inexpensive Chinese cargo ships in peacetime but deploy them on behalf of the U.S. military if called upon to do so. Steel, after all, owes allegiance to no country. (Computer chips might, but the petition makes no such claim.)

U.S. corporations buy so few Chinese ships that the petition does not call for higher tariffs on Chinese-built ships. Tariff revenues would simply accrue to the U.S. Treasury anyway. Instead, the petitioners want much more direct aid, in the form of the USTR charging Chinese-built ships (regardless of flag) a port fee dedicated to a U.S. Commercial Shipbuilding Revitalization Fund “to help the domestic industry and its workers compete.” Such protectionist measures, however, cannot increase competitiveness because they allow uncompetitive businesses and their unionized workers to continue to conduct business as usual rather than make the difficult choices necessary to increase productivity.

The next step in the process is for the USTR to consult with the Chinese government and to hold a public hearing on the petition. Written comments must be submitted by 22 May, a week before the scheduled start of the public hearing in Washington DC. A week after the hearing ends, post hearing rebuttal comments fall due. After that, USTR will likely make policy recommendations to POTUS.

Section 301 has long been a matter of controversy between the US and the World Trade Organization (WTO). In 2020, the US formally questioned the legality of the WTO’s dispute settlement system, particularly its Appellate Body. To move the dispute to the WTO likely would delay any policy implementation for years, so POTUS might act unilaterally in this matter.

As this is an election year, POTUS may use the USTR’s recommendations to try to garner votes. As discussed elsewhere, US politicians have increasingly jettisoned free trade for protectionist policies in the hopes of alleviating the nation’s looming fiscal crisis by taxing foreign firms, especially Chinese ones, to the limited extent possible. A secondary goal is to appear “tough on China,” even if the main effect of a policy is to tax U.S. consumers to subsidize special interests, like unions, sympathetic to the political party currently in power.

Judging the precise effects of the proposed port fee is impossible before USTR and POTUS agree on the specifics. The petitioners want the port fee to be a tonnage duty so that bigger Chinese-built ships pay more, but they do not specify if they want the per-ton fee to increase with ship size. If the last ton costs as much as the first, the port fee will not distort the size of Chinese-built ships docking in the US. If the per ton fee increases steeply, however, smaller ships will be favored.

The petitioners also want the fee to decrease with the age of the ship, which will encourage keeping older, less energy-efficient, and more accident-prone ships to remain in service. Environmental groups will likely oppose that part of the proposal and prevail.

The precise definition of Chinese-built will also be important. If ships built in a foreign country by a Chinese SOE will not be subject to the fee, it will encourage the globalization of Chinese-owned shipbuilders.

The petitioners also want the fee to increase regularly until China’s shipbuilding dominance ends, but they do not specify rates or intervals. They suggest $1 million per ship per clearance as a hypothetical but it is unclear if they see that as a starting or ending figure.

To the extent that the fee becomes high and is binding, the Chinese will have an incentive to hide their ownership of shipbuilders in other countries through complex and opaque chains of shell corporations, secret ownership stakes, or convertible debt financing. Such tactics can be difficult to detect or police.

If the regulations and their enforcement are tight enough, the biggest winners from the proposed port duty in the long term may well be Japanese and South Korean shipbuilders, not the much less competitive American ones. The petition suggests that those countries too might be guilty of “export targeting” but slapping duties on America’s most important allies in any future war ith China will be a much harder sell politically.

Moreover, the more countries whose ships are subject to a port fee the more the fee will fall on U.S. consumers in the form of higher prices for imports. Ostensibly, the first reaction to a port fee on Chinese-built ships will be to not use those ships, however defined, in international trade to the U.S. That could reduce future demand for Chinese-built ships, lowering the quantity sold at any given price.

If ships built in Japan, South Korea, and elsewhere were subject to the port levy, however, shippers would have no choice but to pay the port fee and there would be no reason to prefer non-Chinese-built ships. The port fee would then be similar to a tariff, but one based on the tonnage (and potentially age) of the ship rather than the value of the goods aboard. The cost, in other words, would be largely or wholly passed on to American consumers and become just another example of special interest legislation that aids the few by placing a small and difficult to detect tax on the many. The petition recognizes this, but trivializes it by estimating the cost at half a cent per pair of blue jeans. A fee of $1 million per vessel, however, would generate billions of dollars in revenue, which is billions of dollars per year diverted from the pockets of the Americans wearing those blue jeans to uncompetitive U.S. shipbuilders, employees, and unions.

The College Curious Need New “ESG” Ratings

2023-11-12T13:55:00.001+00:00

The publication of this two-parter by the Martin Center reminded me that I had drafted something on the topic of college ratings but dropped it. Here it is for your edification and "enjoyment":

Those interested in attending, or sending their children, to university must decide if the time and monetary investment is worth it and, if it is, where to spend their precious dollars. Strident claims by presumably knowledgeable government officials that student loans should be wholly or partially forgiven suggest that many students made the wrong decision and shouldn’t have gone to school at all, or at least not majored in Oppression Studies at Woke U. Some of the “college curious” may have decided on emotional or other irrational grounds based on family history or an affinity for certain sports, while others were undoubtedly led astray by college rankings.

The notion that colleges and universities can be confidently ranked from top to bottom smacks of deep intellectual hubris. Even the bond rating agencies attempt only to lump securities into classes based on risk of default and often get even that wrong, as anyone who lived through 2008, 1997, 1982, and so forth may recall. To ascertain that institution X is a smidge “better” than Y, the rankers rely upon small changes in various quantitative metrics. Because administrators’ careers and tuition rates often depend upon rankings, those quantitative metrics have been manipulated or even concocted, most recently by Columbia University, the shenanigans of which were exposed by a whistleblower who believes that college rankings are essentially worthless. Before making any decisions, the college-bound at least need to realize that a more highly ranked school may simply be better at gaming the ranking system, at being dishonest in other words.

In addition, properly interpreting many metrics requires context that is not easily quantified. A school with a high 8-year graduation rate (as measured by the Washington Monthly), for example, may have an abysmal unreported 4-year rate, suggesting that it is adept at bilking students for more tuition than expected by making it difficult for them to graduate on time but easy for them to eventually get a degree, perhaps by making courses challenging but pressuring faculty to relax the requirements for students making up incompletes or retaking classes who appear ready to bail. A relatively low graduation rate, by contrast, might indicate that a school is trying to maintain standards and willing to fail out students to do it.

Most importantly, major rankings never include arguably the two most important metrics, learning (what students know/can do upon graduation minus what they knew/could do upon admission) and lifetime earnings. Some measure purported job placement rates and even initial salaries but those skew toward schools with sticky reputations, usually hoary institutions that continue to attract the attention of recruiters from high paying firms because they presumably produced quality graduates in the past. Most of the college curious, however, care more about lifetime earnings than initial salary. Moreover, the trajectory of earnings provides more information about the quality of a school’s ability to educate, rather than to merely train or signal the employability of, their students because it proxies the original stated goals of higher education, which is to cultivate lifelong learning and independent thought, both of which remain essential to a robust private economy and a vibrant civil society.

I first called for such metrics over a decade ago, in a book (Higher Education and the Common Weal: Protecting Economic Growth and Political Stability with Professional Partnerships, 2010) so controversial it could only be published in India and is already out of print. Universities do not want to track systematically the careers of graduates, at least those unlikely to make big donations, or to measure learning because such information might expose their individual and collective weaknesses. Once informed of the industry’s overall ineffectiveness, fewer people would opt for “higher” education in the first place and many others would attend less expensive, but pedagogically equivalent, institutions. That, of course, would tend to dampen tuition, or at least its rate of increase, forcing universities to invest more in pedagogy (and its crucial cognate, research) and less in sports complexes and complex administrative systems. Rest assured, then, that the college curious will never know with certainty which schools are most likely to increase both their ability to earn a living and their ability to positively impact the social sphere.

Rankings, however, do not have to be so rank. To better aid those interested in attending college, a disinterested third party could create a grading system focused on three major cognates of lifetime learning and social and economic achievement. I call it “ESG,” not for the thoroughly debunked environmental, social justice, and corporate governance investment grading system recently popular in Woke circles but for intellectual energy, social engagement, and university governance.

Intellectual energy refers to the atmosphere on campus, including the number of outside speakers and respectful attendees of their talks (not anti-intellectual protestors). Contrast Hillsdale College, where I recently spoke to over two score faculty and economics students on a balmy weeknight during Homecoming, with another midwestern college of similar size where during an otherwise uneventful week only a few students turned out on the same subject (the economics of slavery) and had to be bribed with “extra credit” to sit physically in the room while investigating their social options later that evening on their phones.

By social engagement, I mean old-fashioned civic engagement and well-informed, dare I say research-based, attempts to ameliorate social problems. In other words, schools should be judged not on the extent that they encourage mere virtue signaling, which signals only iniquity and an anti-intellectualism unbecoming any institution devoted to “higher” education. Universities should be judged on the extent that they encourage students to engage in rational action. Society needs the energy, verve, and long-term outlook of its youth but is not aided by inducing young people to slavishly follow fads ginned up by the Left, or the Right for that matter. Universities should inculcate responsible free speech by directing students to research, write, and orally defend their positions before protesting or engaging in other direct action.

The quality of a university’s governance should be assessed by the checks and balances that it incorporates to ensure that it keeps its promises and does not distort its record. As the Martin Center has shown, some schools have forced out tenured non-Woke professors by threatening the budgets of noncompliant departments and members of promotion and tenure committees and by employing non-disclosure agreements in unethical, if not illegal, ways. If accreditors will not discipline, an outside rater should expose such schools because they cannot be trusted to administer donations in line with donor intent, let alone to put the interest of students first during public health or other emergencies.

The college curious need quality university quality ratings like “ESG” because often they do not (yet) have the intellectual tools needed to properly assess the claims that college admissions officers and marketing materials make. Few, for example, understand the implications of public choice theory or its application to public and private university administrators. They do not realize that the beautiful school with the great reputation and super sports teams may be run to serve the interests of administrators, coaches, and, to a lesser extent, faculty, not students. Such institutions of course claim to be student-centered but do not credibly commit to putting students first in any but the most cursory fashion. They may be highly ranked but in the “ESG” system sketched above would be graded low.

In fact, most of America’s colleges and universities would receive a failing “ESG” grade, at least initially, because most have repressive intellectual atmospheres where mindless Woke virtue signaling prevails, implicitly supported by faculty cowed into submission by the ouster of outspoken opponents of the status quo enabled by poor governance practices. FIRE and College Pulse join forces to rank universities on 13 free speech metrics. The rankings are relative, though, not absolute. The fact that the University of Virginia ranks sixth best suggests that the rankings only gauge speech prohibitions and do not measure positive campus intellectual energy (the E in my “ESG” rating) because a recent Heritage report reveals that Virginia’s universities are “drowning in” DIE (diversity, inclusion, and equity) administrators and policies, and that UVA is the second worst offender.

Presumably, though, to attract more students from a shrinking pool some universities will reform to achieve a higher “ESG” grade. Indeed, some new institutions with stronger “ESG” bona fides have formed and a few incumbents have reformed their cultures rather than joining the race to the bottom taking place in standards. American higher education remains sick, perhaps chronically ill, but by exposing its rotten parts while highlighting those institutions that remain true to the industry’s original mission of helping students to become independent thinkers capable of adding value to both the economy and society, it could improve outcomes without further ballooning the national debt.

Let's Ban Professional Sports 2nd Amendment SATIRE

2023-11-10T14:36:00.000+00:00

NB: Tried this at several satirical websites but some of the humor was too high brow. I mean who jokes about the Ninth Amendment?

The government should ban sporting events forthwith because they encourage the consumption of alcohol and other inebriates, gambling, harming animals, idleness, and violence. It doesn’t matter that millions of Americans love to watch sporting events live or on television because sports are not explicitly protected by the Constitution, they divert resources away from BIPOCs, and they emit literally tons of carbon into the atmosphere.

Anti-sporters like myself have never played or watched any professional sport in our lives, but we know everything there is to know not to like them and that is sufficient to call for a ban. Millions of Americans just like me wonder how long policymakers are going to allow this, this, this genocide to continue. It has got to stop and here is why.

First, while like-minded allies long ago managed to curtail alcohol sales late in games, all that did was to induce people to start drinking earlier. Now, we’ve discovered via a thorough investigation conducted on Tik Tok, fans show up in the parking lots of sporting events hours early so they can get drunk, gorge themselves on animal products, and likely fornicate too.

Some might say that impaired driving, not alcohol or drug use per se, kills people and that responsible drug and alcohol use isn’t hurting anyone. Those people are idiots. We don’t have any reliable statistics, but we know that literally millions of babies have been killed by drunk or high sports fans. (Yes, some of those babies may have been squirrels but squirrels are people too!)

Namby-pamby types will also claim that gambling doesn’t hurt anyone, except the losers, but they knew what they were getting into. But gambling is an addiction, just like drinking and drugs. Again, we don’t have statistics, but we heard an anecdote about a baby run over by a guy checking his phone to see if “da Iggles” covered the spread. We don’t know what that means exactly but we know it is about sports gambling.

As for harming animals, footballs, we learned on Wikipedia, are made from pig skin. The thought of all those skinless hogs running around somewhere just makes our blood boil. There must be some pretty cold cows out there, too, because baseball gloves and balls are made from cowhide. We’re told that every time a baseball touches the ground, it gets replaced. That’s a lot of baseballs and although cows are pretty big that must be a lot of harmed cows.

The idleness and violence go hand-in-hand with drinking and gambling. How many trillions of dollars are wasted each year as people watch some guys pat each other’s butts and smash poor balls, or each other? Again, nobody is tracking these things but it is obvious that it is a giant waste.

It is equally obvious that professional sports are bad for the environment. We can’t find it right now, but we once saw a study that claimed that up to half of global warming is caused by lacrosse alone.

If people worked instead of wasting their precious time on professional sports, America could easily afford to pay reparations to BIPOCs and other oppressed groups du jour. The athletes themselves would have to get real jobs too, thus providing even more support for the economy. And taxpayers could stop subsidizing sports stadiums and increase subsidies for worthy things, like NPR and carbon pipelines.

Banning professional sports might sound unconstitutional. Didn’t the government have to pass an amendment before it banned alcohol? Yes! I’m an expert because I have read the Constitution all the way through, except for the boring and confusing parts, almost three times. One approach would be to convinces states to ban sports. Start easy, like the Dakotas, which don’t have any sports, except maybe for rodeos.

Then California because while policymakers there like drug use, they don’t like carbon emissions and need money to pay reparations. The leagues will then lose a lot of their teams and won’t be able to afford to defend themselves in other state legislatures. Then the federal government could step in under the interstate commerce clause. I couldn’t actually find an amendment saying this, but I have it on good authority that the greatest president of all time, Franklin D. Roosevelt, packed the Supreme Court full of the greatest justices of all time and they all agreed that the Constitution doesn’t mean what it says, it means what they say it means, and they said it means the federal government can do whatever the heck it wants if it affects the economy in any way. If you don’t believe me, ask Farmer Filburn.

There is an amendment that bothers us, though, the Ninth. It seems to say that people have a bunch of other rights not explicitly mentioned in the Constitution and, taken with the Preamble, suggests that the government ought to leave people to do what they want for the most part. Hardly anyone ever mentions that amendment, though, so we’re guessing it was really about slavery.

In sum, we don’t like sports though we know nothing about them but we feel that they are bad and are willing to concoct evidence and twist reality to convince a slim majority of our fellow Americans to join us in banning them.

Robert E. Wright is a Senior Research Fellow at the American Institute for Economic Research and a part time satirist who loves sports and also firearms, which are explicitly protected by the U.S. Constitution yet under assault in Massachusetts.

Worker Productivity Through the Ages

2023-08-15T23:46:00.006+00:00

NB: 100% sure I wrote this but I don't recall when or why! Found it on my Google Drive. Pretty sure it isn't published anywhere.

Worker Productivity Through the Ages

Productivity is generally defined as total output divided by total input, which can be stated in terms of time or some unit of currency. If output increases (decreases) while input stays constant, or if output increases faster (slower) than inputs, productivity rises (falls). Productivity is related to, but should not be confused with, efficiency, which is the expected input divided by actual input needed to achieve some level of output, often stated in percentage terms by multiplying by 100.

Despite its simple definition, productivity remains so difficult to meaningfully measure that economists generally treat it as a residual by lumping the productivity of different types of workers into total factor productivity (TFP), the portion of increases in output not explained by increases in inputs (more formally, Y = A*K*L, where Y is total output, A is TFP, K is capital’s share of input, and L is labor’s share of input) (Comin 2008). Increases in TFP can usually be linked to specific technological advances, as Shackleton does for the USA after 1870 (Shackleton 2013). Economists generally dislike measures of worker productivity, however, because most merely measure the efficiency of individual workers, while others compute averages instead of the productivity of the marginal worker, i.e., the last worker toiling to complete some task. For over a century, economists have argued that marginal analysis trumps the analysis of averages or other central tendencies. (Harry Jerome, “The Measurement of Productivity Changes and the Displacement of Labor,” American Economic Review 22, 1 (March 1932): 32-40; George Stigler, “Economic Problems in Measuring Changes in Productivity” in NBER, Output, Input, and Productivity Measurement [Princeton: Princeton University Press, 1961], 47-78.)

In short, productivity measurement remains inherently contextual, varying with the question the measurer seeks to address as well as the physical realities of different workplaces and spaces (Sena 2020). Measurements appropriate for one time and place may prove entirely inappropriate, or downright impossible, for another. Even simple measures of labor productivity, like output per unit of time, can depend crucially on raw material input availability, incentives to work, market demand, and seasonality. Output quality must also be considered, especially when concepts like minimal acceptability are unavailable or inappropriate.

This section, “Worker Productivity Through the Ages,” provides important examples of the changing contextuality of productivity from humanity’s origins through the Neolithic Revolution to ancient historical civilizations and the modern productivity revolutions in agriculture, communication, manufacturing, and transportation, to the recent domination of labor share by construction, government, and knowledge workers.

Prehistoric Productivity

Early humans (hominins) coevolved with their technologies to the point that modern humans themselves could be considered the first general purpose technology (GPT-HS). It appears likely that evolution by means of natural selection drove early humans to use productivity gains – perhaps from technologies like fire or other ways of denaturing/predigesting food (Sanfelice and Temussi 2016), stone tools (Semaw et al. 2009), and trade – to biologically purchase bigger, more complex brains capable of developing yet more sophisticated technologies or of producing existing technologies more efficiently (Ofek 2001)(Wilson 2020). The medium of purchase was calories and the other nutritional inputs needed to grow and fuel brains, which are biologically expensive (Kotrschal et al. 2013). While the precise timing and mechanisms remain unknown, hominin encephalization certainly occurred over several million years as average brain volume grew faster than body weight, from 440 cc to over 1,300 cc. From impressions left on fossil craniums, scientists know that hominin brains also grew more complex as human-technology coevolution occurred (Rightmire 2009; Gunz et al. 2020; Tarlach 2020; Price 2021).

Except for stone and bone tools and hearths (fire pits), most early human technologies left little or no direct evidence in the archeological record. Although measuring stone or bone tool production productivity in the modern sense will remain impossible, scientists have estimated manufacturing efficiency by modeling the ratio of waste rock to useful blades, or length of cutting edge to original stone mass, after reconstructing the knapping or fracturing process employed. Some conduct experiments by knapping rocks themselves using the same tools and techniques that early humans did, and comparing the results to archeological data taken from ancient lithic quarries and tool manufacturing sites (Schlanger 1996).

Scientists have generally found gradual increases in raw material efficiency over lithic technological evolution (Castañeda 2016; Muller and Clarkson 2016). Other specialists have performed similar experiments on bone tools (Karr 2015; Karr and Outram 2015). The complexity of stone and bone tools has also been quantified and shown to have increased over time (Perreault et al. 2013), as exemplified by lithic miniaturization, or the production of microliths – very small stone tools with high cutting efficiency by weight (Pargeter and Shea 2019).

Similarly, while scientists will never know with certainty how long it took early humans to start or maintain fires (Alperson-Afil 2017), they can discern which fuels were used. Iron Age farmers in northwestern continental Europe, for example, used all available fuel sources: dung, peat, and wood (Braadbaart et al. 2017). The efficiency of hearth construction (Black and Thorns 2014; Graesch et al. 2014) and hearth placement in caves and manmade structures (Kedar et al. 2020; Kedar et al. 2022) has also been measured by comparing experimental to archaeological data (Brodard et al. 2016).

Measuring the productivity of hunting and gathering remains fraught because the amount of time it took to acquire sufficient food, clothing, and tool materials was undoubtedly partly a complex function of the ratio of the human population to target species and the intensity of trade networks (Deino et al. 2018). Scientists presume, however, that more complex technologies increased productivity by making it easier/faster to harvest animals as well as sundry vegetable materials like fruits, nuts, seeds, and tubers. The ability to haft stone points, for example, allowed early human hunters to more effectively kill large game animals starting half a million years ago (Wilkins et al. 2012), while the ability to create cordage from animal sinews or vegetable matter allowed them to make better clothing, carry packs, mats, huts/homes, and even boats (Hardy et al. 2020). Indeed, new evidence suggests that over 40,000 years ago some human groups regularly caught pelagic fish (e.g., tuna), implying both deep sea boating and fishing technologies (O’Connor et al. 2011).

Such improved technologies rendered early humans more productive, freeing their time to develop yet more complex technologies, plus cultural goods that both displayed and aided their conceptual prowess in ways too complex and distant to be disentangled (Wadley 2013).

Productivity Gains During the Neolithic Transition to Agriculture

Early humans were productive enough to survive and spread across most of the Old World (Deino et al. 2018; Gunz et al. 2009). Although population estimates vary, genetic and ecological studies indicate that early humans clearly were less populous than humans today (Huff et al. 2010). Adoption of agriculture, the domestication and deliberate production of numerous plant and animal species, drove additional technological changes, like those associated with small-scale metallurgy and manufacturing (Moorey 1999), that eventually made higher human population levels possible.

Scientists still do not fully understand, however, why the Neolithic Revolution, the transition from hunting and gathering to agriculture, occurred when and why it did (Weisdorf 2005) because farming initially meant more work, higher incidences of disease, and increased mortality (de Becdelièvre et al. 2021). It increasingly appears that small groups grew into farming over time instead of transitioning in large numbers in a single generation as sometimes supposed. Herding and hunting were complimentary activities, as were fishing and farming, suggesting that mixed subsistence strategies could sustain growing populations until agricultural productivity in the richest agricultural areas improved due to learning-by-doing, increased climatic stability (Matranga and Pascali 2021), and perhaps improved property rights (Bowles and Choi 2019; Bowles and Choi 2013).

Measuring Productivity in the Ancient Historical Era

The ancient Chinese, Greeks, Indians, Mayans, Mesopotomians, Persians, and Romans invented several crucial new general purpose technologies, including writing (Bywater 2013) and mathematics (Boyer and Merzbach 1993; Cuomo 2005), that increased productivity directly and also led to new or greatly improved specific technologies (Krebs 2004). The Romans, for example, developed or improved boats, wheeled vehicles, water-lifting technologies, and watermills, among many other technologies (Greene 1990), while the Greeks invented coins, a mechanical astronomical computer, and napalm, among other things (Freeth et al. 2021).

Although all flourished during golden ages, typically periods characterized by high levels of economic freedom (Bergh and Lyttkens 2014), none of those civilizations experienced the sustained, across-the-board increases in TFP associated with modern economies. Indeed, many collapsed politically and economically for reasons not fully understood (Tainter 1988). Some may have succumbed to the sunk cost fallacy, clinging to old habits and habitations even after they became environmentally untenable (Janssen and Scheffer 2004). Others appear to have suffered from the increased power of rent seeking institutions that constrained property rights and thus limited incentives to innovate (Westermann 1915; Bó et al. 2015).

Productivity in the Age of Economic Revolution

After the demise of the ancient civilizations, the productivity of agricultural workers stagnated, though subject to intermittent reversals and shocks like the Black Death (Jonathan Jarrett, “Outgrowing the Dark Ages: Agrarian Productivity in Carolingian Europe Re-evaluated,” Agricultural History Review 67 (2019): 1-28.) Introduction of the heavy plow around 1000 AD, for example, allowed for more extensive cultivation in Northern Europe that aided nascent urbanization and hence economic specialization, long considered a driver of non-agricultural productivity increases (Andersen et al. 2016).

Starting in Holland in the seventeenth century, rapid increases in agricultural productivity freed up farmers, and especially their children, to work in emerging or rapidly growing industries, including those in the trade, transportation, industrial, and communication sectors. Eventually, those sectors also shed workers as technology-induced productivity increases rendered their labor unnecessary (Ville 1986).

Agricultural productivity increases stemmed only in part from mechanization (Collins and Thirsk 2000), productivity increases in which were often driven by competition between small farm implement manufacturers (Binswanger 1986). At first, productivity increases derived mainly from improved techniques and seeds (Olmstead and Rhode 2008), as well as productivity improvements in fencing, ditching, and draining (Baugher 2001). Although it proved difficult to compare agricultural productivity internationally, slower agricultural productivity growth clearly constrained economic, especially industrial, development in twentieth-century Europe (O'Brien et al. 1992; Cosgel 2006) and elsewhere (Baumol 1987). Countries with robust increases in agricultural productivity, like the USA, by contrast, also experienced rapid increases in industrial productivity (Broadberry 1994; Broadberry and Irwin 2004).

Following Marx and others (Shantz et al. 2014), many scholars have assumed that industrialization, especially under the so-called “scientific management” principles of Frederick Taylor and his disciples (Gilbreth 1914), alienated and de-skilled workers, turning them from GPTs into the appendages of machines. Evidence of large scale de-skilling over the nineteenth and twentieth centuries remains scant (Form 1987), though deskilling may cycle (Sabel and Zeitlin 1985), increasing when disruptive new technologies proliferate rapidly but declining over time as workers learn to troubleshoot and fix the machines they tend and feed with raw materials or data (Form and Hirschhorn 1985).

Just as productivity increases freed agricultural workers to move into industrial jobs, productivity increases freed industrial workers to move into government and service jobs and to morph into “knowledge workers” who rely on the power of their brain rather than their brawn.

Difficulties Measuring the Productivity of Knowledge and Government Workers

In the second half of the twentieth century, knowledge workers came to dominate labor share in leading economies like that of the USA (Drucker 2018; Cortada 2009). Government workers, including direct employees and contractors, also became an increasingly large percentage of the workforce in many countries after World War II (Light 2019).

To this day, it remains difficult to measure the productivity of knowledge workers (Ramírez and Nembhard 2004), in part because worker inputs cannot be easily discerned. Engineers, for example, may be physically present at work but mentally absent (Jones and Chung 2006). Ditto financial services providers (Zieschang 2018). Construction industry productivity also fluctuates due to mental inattentiveness to measurements and plan details (Motwani et al. 1995). Measuring the productivity of nurses also remains difficult because of the mixed physical-mental nature of their jobs and the necessity of maintaining quality of care standards above all (Nania 2006). Measuring the productivity of knowledge workers who work in, or for, government remains notoriously difficult, but almost everyone concedes it is relatively low (Bouckaert 1990) due to the nature of bureaucracies and compulsory monopolies (Haenisch 2012).

In some specific contexts, knowledge worker productivity can be estimated (Iazzolino and Laise 2018) or deduced from efficiency, utilization, or quality measures (Al‐Darrab 2000). Trends in management productivity can also be deduced from changes in the productivity of factory workers or other laborers whose productivity can be more directly assessed (Goldman 1959). Moreover, knowledge worker productivity usually varies strongly and positively with compensation and other incentives (Kaufman 1992). Their productivity is also positively associated with educational level (Rangazas 2002), age (Burtless 2013), and healthy sleep patterns (Nena et al. 2010).

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How the New Deal Subdued Private Charity

2023-08-15T16:14:00.009+00:00

N.B. Another belated entry from FreedomFest. Gave a PPT instead of this speech on this one. Would copy the slides but I always found that difficult. So here is some text on the matter, which melds ideas from my forthcoming Liberty Lost (on nonprofits) with my almost finished New Deal ms.

If you think you have it bad today, exactly 90 years ago the U.S. was in the depths of the Depression and there was a progressive Democrat in the Oval Office pushing through a set of radical policies that dramatically and permanently transformed America, largely for the worse. His name was Franklin Delano Roosevelt (FDR) and his policies were collectively called the New Deal.

One of the many awful things to come out of FDR’s New Deal, which was a sort of proto-Great Reset, was the crowding out of private charity. Although private charity in America remains robust compared to other countries, it’s a shell of its former glorious self because of policies implemented by FDR.

Alexis D’Tocqueville famously pointed out that Americans loved to associate together to overcome problems. Other foreign visitors and contemporary legal scholars tracking court cases and precedents were similarly amazed at Americans’ ability to self organize.

Many early voluntary associations were little more than informal clubs but the most significant ones formed corporations, what we today called nonprofits.

The split between for- and nonprofits corporations began in England back in the day but the distinction became clearer in the early national period of the U.S. due to a dispute over the Bank of North America or BNA.

Some people wanted the BNA to provide services to the community instead of just its stockholders and depositors. After an extensive public and legislative debate, it was decided that “moneyed” corporations had no such obligations unless explicitly stipulated in their charters. Nobody would invest in institutions that sought to achieve non-monetary goals or that could be influenced by outside parties, a point proven when a Massachusetts life insurer later found it difficult to secure equity financing when its charter stipulated large payments to a charitable hospital.

People who wanted to pursue broader goals were welcomed, however, to form non-pecuniary corporations to pursue those ends.

And they did.

My forthcoming book, Liberty Lost, puts some concrete numbers on the size of America’s Third Sector. By tracing charters in state statute books, I can say with certainty that the various U.S. states between 1800 and the Civil War allowed the formation of over 15,000 nonprofit corporations, or about 1 per year for every 100,000 Americans.

Additional nonprofits chartered by general acts of incorporation are not included in that figure because they are much more difficult to track but they also likely numbered in the thousands.

Nonprofits included everything from charities, religious and secular, to marching bands and armed militia units. Many nonprofit schools also formed, as did fraternal organizations, scientific institutes, agricultural and medical societies, and abolitionist groups.

Even within the charity category, the range of services voluntarily provided was enormous, and literally cradle to grave, with charities devoted to helping pregnant women, postpartum women, infants and young children, and older children who were orphaned or simply unwanted.

Various nonprofit clinics helped people throughout life deal with health problems, from rotten teeth to abscesses and cancer, and deficiencies of food and fuel. Nonprofit hospitals helped the very sick to die and various fraternals made sure that members received proper burials and that their surviving spouses and children received some monetary aid.

During and after the Civil War, the nonprofit sector grew ever larger and broader. Progressives worked to replace parts of the Third Sector with government institutions, like mental asylums, by arguing for economies of scale and more uniform treatment, at least at the state level. They made some progress nationalizing services traditionally provided by the Third Sector but not until the Great Depression and New Deal was private charity truly assailed.

The New Deal’s overall agenda was to replace individual autonomy and initiative with federal government programs so that FDR would have the patronage leverage necessary to win re-election in 1936, 1940, and 1944.

New Deal critics like Garet Garrett and E.C. Harwood saw the New Deal for what it was, a major step toward state socialism and collectivism but the New Dealers won the battle for hearts and minds, a major theme of my forthcoming book FDR’s Great Reset: The Collectivist Miseries of the New Deal so most Americans were inculcated with the notion that FDR saved America and its economy, especially those worst off, who nobody else could or did help.

In fact, while the recession that began in August 1929 was caused by the business cycle, the subsequent downturn was due to the Federal Reserve’s bungling, that damnable tariff, and high wage policies. The New Deal prolonged the downturn, especially in employment, and squelched the bounce off the March 1933 nadir with unconstitutional power grabs like the NRA and its wretched Blue Eagle.

Iconic pictures of long lines of unemployed men waiting for soup and stale bread were caused, in large part, by the New Deal’s destruction of America’s traditional social safety net, the ability to work for room and board, with minimum wage laws.

Part of the New Deal’s disinformation campaign included bashing America’s Third Sector, especially the charitable component, as ineffective in the face of the greatness of the Depression. In 1938, for example, WPA researchers dug up the fact that Mrs. James John Roosevelt, one of FDR’s ancestors, had asked the New York Common Council to aid unemployed seamstresses in 1851 because QUOTE all assistance from Charitable Societies is withdrawn UNQUOTE.

The withdrawal occurred but the New Deal friendly factoid excluded crucial context: charities stockpiled funds during relatively good years, like 1851, so they would have ample resources for relatively bad years, like 1857. That strategy also helped to mitigate free rider problems because if a worker was unemployed during a depression, it may not have been the worker’s fault but if a worker was unemployed for an extended period in good times, it probably was the worker’s fault for not taking the ubiquitous room and board option.

In part because they had stocked up on assets during the Roaring 20s, nonprofits did a tolerable job during the Depression. Most fraternals continued to pay promised benefits and charities continued to fulfill their missions. New England, which had long since developed the deepest charity network in the nation, held up particularly well.

If that seems incredible, keep in mind that the Depression was pretty sweet if you remained employed, as 3 out of 4 Americans did even at the worst point. Real wages, that is nominal wages adjusted for deflation, were high and assets were dirt cheap. Many could afford to increase their charitable contributions, and did.

The biggest threat to charities was not the Depression, but the New Deal’s large tax increases, which of course fell hardest on those most able to donate to charities. Later, charities were able to fight back by securing tax deductions for charitable contributions but they had already lost much ground to Uncle Sam.

The New Deal did not directly attack charities like it did for-profit corporations but it clearly favored some over others, like FDR’s charity, the Warm Springs Foundation for Infantile Paralysis, which raised much money starting in 1934 thanks to celebrity endorsements from Mickey Rooney, Lucille Ball, and others. Even staunch Republicans like Robert Taylor were forced, by the terms of their Hollywood contracts, to pitch in too.

The misinformation campaign surrounding Social Security was particularly intense. New Dealers noted that 50 percent of the elderly lived in poverty in 1935 without noting that most of those received additional assistance from families, charities, and/or local governments.

The percentage of Americans aged 65 or older who were institutionalized indeed doubled during the Depression, but only from 1.5 to 3 percent, a level lower than that recorded in 1910. The system of private security, which included saving for superannuation via a prudent mix of investment in real estate, insurance, and securities, bent but did not break. The New Deal simply assumed it away, as it did much else in the name of the national “emergency.”

The ramifications of this sea change are still being felt today. Many churches, for example, allowed the government to begin providing relief and in the process reduced demand for their services, pun very much intended. They still passed the hat to fund their own activities but no longer stood as bulwarks against community deterioration as Uncle Sam crowded out an estimated 30 percent of religious charity.

Instead of combatting incursions like Social Security and poor relief, leaders of secular charities also caved to the New Deal. Some even liked the idea of turning over the most costly problems to the federal government so they could concentrate on more niche issues. But of course that led to a decrease in contributions because many donors found their new missions less important.

What everyone seems to have forgotten is that nonprofits are the most democratic means of alleviating social problems. Instead of voting for politicians who then do what they want, which often means aiding their re-election campaigns, individuals vote with their time and dollars in a voluntary system.

The most important and effective charities thrive while the ineffective ones fail due to lack of funds. That induces them to compete with each other for donor dollars instead of currying favors from politicians and bureaucrats, as many do today to secure government grant money. That makes them mere appendages of government instead of independent expressions of the will of donors and the strength of volunteerism, which is exactly what New Dealers wanted.

To regain some liberty, the American people need to not just shrink federal spending, they also need to step into the resulting vacuum with privately funded charities and other nonprofits organizations. And as they did in the 1780s and periodically thereafter, they need to remind people that for-profit corporations thrive only when they are allowed to earn profits and not turned into the unwilling vehicles of government policymakers.

I argue that maintenance of a vigorous system of voluntary association is one of the many unenumerated rights that should be, but currently isn’t, protected by the Ninth Amendment.

But I’ll save that discussion for another time and place.

Thank you!

It's a Trick Question! Who Is More Important, Smith, Marx, or Keynes?

2023-08-15T16:07:00.003+00:00

N.B. I started this speech before realizing it was a panel session! Made many of the same arguments in the discussion at FreedomFest Memphis 2023.

Obviously, the question is a trick or trap because the clear winner is Alexander Hamilton.

I realize that might be a dangerous proposition to espouse at a libertarian convention but several other

classical liberal scholars, like Richard Salsman, also have lauded Hamilton’s grasp of economics.

In fact, I learned just yesterday that Salsman has an article on Hamilton as economist forthcoming in

The Independent Review. Interestingly, except on international trade, Salsman makes different points from what I will here today.

The difference between Hamilton’s advocates and critics is that his advocates have actually studied

what Hamilton said and did in its totality and do not simply follow old canards, most of which stem from attempts to leverage Hamilton’s genius for partisan gain.

So please keep an open mind. You can find minute documentation of all of this in several of my books

and articles as well as those of Salsman, financial historians Richard Sylla and David Cowen, and

international trade economist Doug Irwin.

One might protest that Hamilton was not an economist but in fact he was one heck of an economist

and was able, as Treasury Secretary, to test many of his ideas in the real world. He was, in that respect, more of an empirical or scientific economist than most, who were mere scribblers or, worse, professors.

The mature Hamilton, as Treasury Secretary, was not so much a critic of Adam Smith

as he extended some of Smith’s ideas to new realms. Aaron Burr assassinated him before he could

formalize his ideas but nevertheless he made numerous key contributions in the areas of asymmetric

information, particularly moral hazard in bailouts and corporations; international trade, specifically in

what would later be called Harberger Triangles; administrative efficiency; the economics of slavery;

and the limits of sovereign debt.

Hamilton was long gone before Marx or Keynes came along but he sure as heck was no communist

and he debunked the notion that deficit financing could smooth out the business cycle before Keynes

revivified it.

Smith infamously disdained corporations due to their high agency costs. Instead of trying to squelch

corporations in America, Hamilton sought ways to reduce principal-agent problems within corporations

by authoring at least four corporate charters, three for banks and one for a manufacturing company,

with built in checks and balances. They proved incomplete in the case of the manufacturing company

but the problem was corrected and the banks did extremely well.

Three of those charters moved the country towards general incorporation statutes by showing it was

possible to create a joint-stock company, with limited liability and entity shielding, without a formal state

charter. Although adopted slowly, general incorporation helped to ensure that America’s economy

remained open access and entrepreneurial.

Hamilton believed in economic freedom, including the right to form non-profit voluntary associations to

alleviate social issues and what we now call sound money. He was responsible for defining the US

dollar in terms of gold and silver and ensuring that bank notes and deposits were convertible on

demand into specific amounts of precious metals. He also helped to ensure that inconvertible bills of

credit or other forms of fiat money issued by state governments were made unconstitutional.

In terms of the moral hazard involved in bailouts, Hamilton in 1791 and 1792 developed what would

later be called Bagehot’s Rule, which states that the lender of last resort should lend freely at a penalty

rate to all who could post sufficient good collateral. That rule stops panics by protecting solvent

borrowers but denying subsidies to insolvent ones.

Hamilton was an abolitionist, pushing to rid New York of the peculiar institution, which he understood

was profitable for enslavers but ultimately bad for economic growth and development. Had he lived, he

almost surely would have written an analysis like that of Hinton Helper by the mid-1820s.

His views on the national debt and international trade are perhaps the most important to discuss

because they are so often misunderstood.

Unlike Smith, who deprecated all state debts, Hamilton was a debt realist. He held that governments

should borrow to fund wars and other major state functions, like the acquisition of territory. During

peacetime, it should repay its previous borrowings to the extent possible, borrowing on net if

necessary during downturns but simply to fund normal government operations, not to stimulate the

economy. Debt repayment could hurt the economy, so it should not be rapid but rather aided by growth in population and productivity. And any increase should be linked to new taxes to mute the “borrow and

spend” habit that politicians find so alluring.

In short, Hamilton did not believe in a large, permanent national debt as his critics claim by eliding his

correct assertion that the national debt is a blessing QUOTE if it is not excessive UNQUOTE. He even

detailed what he meant by an excessive national debt and I’m chagrined to report that the US national

debt has been excessive by Hamilton’s measure since the great bailouts following the Global Financial

Crisis of 2008.

The national debt helped the economy, he correctly noted, because it helped to create loyalty to the

new government, thus unifying the country and reducing policy uncertainty. It also helped by providing

businesses and banks with a liquid security in which they could safely stash cash. The market for

government bonds helped the development of markets for corporate bonds and equities, which

provided entrepreneurs with external funding options outside of the banking system.

Critics also like to claim that Hamilton implemented a protective tariff though the notion has been

exploded by numerous scholars, including Dartmouth’s Doug Irwin. Hamilton put in place a revenue

tariff carefully geared toward maximizing government revenue by charging a higher rate on luxury

items, like imported liquor. Hamilton infamously taxed domestic whiskey production in part to

discourage domestic liquor production.

Confusion arises because later protectionists used and abused Hamilton’s Report on Manufacturers to

claim that Hamilton was a protectionist. He was not. His Report was didactic, explaining the options

open to Congress. So he discussed rather than espoused so-called infant industries. In his discussion

of the relative costs and benefits of protective tariffs and bounties, he clearly noted that tariffs created

two deadweight loss triangles while bounties created only one, which is what international trade

textbooks still argue.

Hamilton understood that taxes of all types should be minimized because of the distortions and tax

wedges they cause. But the national debt had to be serviced and paid down. Hamilton preferred

revenue tariffs over other types of taxes because they were relatively easy to collect at ports of entry

and were embedded in prices.

As the federal government learned twice in the 1790s, internal taxes threatened liberty and

insurrection but they had to be established lest tariffs failed to produce the needful during war or

economic downturn. Tariffs indeed served as the government’s largest peacetime revenue stream, with

excise taxes like the whisky excise a close second, until implementation of the income tax in the 20th

century.

In sum, Hamilton extended Adam Smith to the real world of policy and passed with flying colors. The

other two guys aren’t even close as Marx wanted to enslave all to the state and Keynes wanted to

deficit finance to smooth business cycles and to a large extent has gotten us into the excessive debt

mess we are currently in.

US Debt Closer to Junk

2023-08-07T14:09:00.001+00:00

Sirs,

I channel through policy historian Robert E. Wright from the Great Beyond to warn that the recent debt downgrades by Mr. Fitch is much too sanguine. America’s debt today should be rated closer to junk than to top notch. The situation is not quite as dire as when I accepted General Washington’s request to serve as the nation’s first Treasury Secretary, but reforms akin to those that I implemented in the early 1790s must be made lest the nation’s public credit be impaired further.

A dozen years ago, Mr. Poor also downgraded the nation’s public securities a notch, leaving only Mr. Moody to assure the public that nothing is amiss. All of the Big Three credit rating agencies, it must be observed, inflate the scores of all but the most pathetic securities lest they face challenge. Given the power of the executive branch of the national government to tax, regulate, and otherwise control private entities and persons, rest assured that Messrs. Poor, Moody, and Fitch tremble at the notion of making public their true views of America’s current creditworthiness.

In my time, the prices of public debt obligations served as a reliable guide of creditworthiness. I watched proudly as my fiscal policies, though the subject of partisan controversy, steadily raised the price of public obligations from a few pennies on the dollar to above par. American economic independence from Britain was definitively achieved when the yields on its bonds dipped below those of the Mother Country, in Britain’s own markets no less.

Bond prices then were internationally comparable because stated essentially in gold or silver. Today, with the globe awash in bills of credit (“fiat money” as currently fashioned), they convey less information about creditworthiness and more about relative inflation expectations and the ability of some nations, like the United States, to force debt on their own citizens and on other governments. Creditworthiness is thus more subjective today, but still amenable to analysis.

I once stated that America’s national debt would be a blessing and a cement to the Union and it long proved a net benefit. The government’s ability to borrow large sums relatively quickly and cheaply saved the country from recolonization in the 1810s, being ripped into two by a massive insurrection in the 1860s, and being dominated by evil foreign powers in the 1940s. Yet despite those exertions it remained so easily manageable that it was completely paid off in the 1830s and could have been again in the 1910s if a great war had not interceded.

In the same breath that I extolled the virtues of public credit, however, I warned that the national debt could become excessive and hence a net burden. It became excessive following the government’s unwarranted bailout during the Global Panic of 2008, which triggered the downgrade by Mr. Poor. The Great Pandemic of 2020 occasioned another burst of unwarranted borrowing and the capitulation of Mr. Fitch.

I say unwarranted because both episodes broke rules that I laid down as Treasury Secretary and that were followed even by my Virginian political rivals. Firstly, during panics government money should be employed to make loans only to private parties willing to pay a penalty rate and able to post sufficient collateral. Due to my untimely death, this rule has come to be associated with one Mr. Bagehot. Whatever the attribution, adherence to the rule stymies panics by assuring solvent businesses that they can obtain gold if necessary while not subsidizing insolvent concerns. The technique of flooding the market with bills of credit and lending capital to commercial enterprises encourages nothing but profligacy in private business and extravagance with the public purse.

Secondly, the Treasury should never borrow money to stimulate the economy or to transfer resources from one citizen to another, or from the citizens of this nation to those of another. It should borrow only for emergencies, like just wars, and when tax receipts prove insufficient to service the debt during an unexpected downturn in trade.

Although I sought to establish a national government larger and more vigorous than the one sought by my political rivals, even I am appalled by its current size and scope and am amazed that the legislative and judicial branches have allowed the executive to gain control of the public purse. America must restore its balance through legislation and court decisions before the republic is lost to an oligopoly of placemen and sycophants.

Thirdly, governments should never borrow money without also raising a tax sufficient to service and retire the resulting debt. In addition to putting creditors at their ease, such a policy minimizes the incentive of politicians to borrow and spend, which creates the illusion that they have provided some benefit without a cost.

Until America follows its unwritten fiscal constitution and grows out of its current debt burden, Treasury’s debt will remain closer to the junk status of the 1780s than to the AAA status my policies elevated it to in the 1790s, regardless of the letters assigned to it by the likes of Messrs. Fitch, Poor, and Moody.

Mr. Hamilton chose to channel through Robert E. Wright, a senior faculty fellow at the American Institute for Economic Research, because of his authorship of One Nation Under Debt: Hamilton, Jefferson, and the History of What We Owe (2018).

Joe B

2023-03-31T19:45:00.000+00:00

[Sing to the tune of Dolly Parton's "Jolene")

Joe B, Joe B, Joe B, Joe B

I’m begging of you please don’t take our liberty

Joe B, Joe B, Joe B, Joe B

Please don’t take it just because you control our country

Your cunning is beyond compare

With nasty patches of snowy hair

With Tom Cruise sunglasses your eyes hidden

Your smile is like the breath of the Grinch

Your voice is hard like a thunderstorm

And we cannot compete with your F-16s

Joe B

At major public events you do sleep

And there is nothing I can do to keep

From crying when Twitter bots defend your name

Joe B

And I can easily foresee

How easily you can take our liberty

But you don’t know what it means to everybody

Joe B

Joe B, Joe B, Joe B, Joe B

I’m begging of you please don’t take our liberty

Joe B, Joe B, Joe B, Joe B

Please don’t take it just because you can

You could have your choice of trans-men

But we can never have liberty again

It’s the only thing for us

Joe B

I had to write this song for you

Our life, liberty, and happiness depends on you

And whatever you decide to do

Joe B

Joe B, Joe B, Joe B, Joe B

I’m begging of you please don’t take our liberty

Joe B, Joe B, Joe B, Joe B

Please don’t take it even though you can

Joe B, Joe B

California's Reparations Conundrum

2023-01-21T14:33:00.000+00:00

The state of California and some of its municipal subdivisions currently contemplate paying reparations to their Black residents. This reparations measure is not for chattel slavery per se, as slavery was historically illegal in California dating to its admission to the union in 1850. Rather, it is a supposed recompense for creating slavery-like conditions that activists ascribe to under-elaborated injustices of California’s past. It is reparations for repression, in other words.

The sums being discussed, $5 million per person in the case of San Fran and half a million per person by the state’s reparations task force, are as budget-busting as they are eye-popping. The state’s estimate alone comes out to $500 billion if only 1 million of California’s 2.25 million Black residents are found eligible.

For the sake of argument, let’s stipulate that the repression claims are true and the sums suggested are just. Let’s also stipulate that California can fairly discern eligibility reasonably well at reasonable cost. That still leaves the huge question of who should pay the big bill?

Certainly not current taxpayers, who had no control over the racial injustices of California’s past. Moreover, because cash is fungible, any federal grants to California and its guilty subdivisions would risk exposing the taxpayers of other states to a liability for any reparations program. As a practical matter, California’s proposed reparations scheme could not be implemented without unfairly confiscating tax dollars from potentially tens of millions of people who played no part in the state’s alleged wrongs.

But it is also not clear that current California taxpayers should have to pay for reparations either, through any combination of increased taxation or decreased government services. They did not create the repressive laws and policies and many opposed them, to no avail.

Besides, two wrongs do not make a right. Who’s to say that in a generation California taxpayers won’t legitimately claim to have suffered repression by being forced to pay for sins they did not commit? Moreover, given California’s admission of its own guilt in the enacting of a reparations program, who could trust it to administer such a large transfer of wealth?

That leaves three sources of funds: the guilty governments themselves, the political parties in power, and the politicians and bureaucrats who voted for and oversaw the harmful laws, and the judges who failed to overturn them.

Forget the third option as individual policymakers are well shielded legally. Individuals could also claim that they were just following orders from their parties or their bosses, which holds up better in civil than criminal cases.

If political parties were held solely accountable, they would have to claim bankruptcy and fold because donors would disappear and they would not have sufficient assets to cover the costs. So score one for making the political parties culpable.

If the state government itself is to pay, it does own assets like roads, parks, buildings, and the like, that could be sold to the highest bidders. Unfortunately, though, California’s most recent estimate of its capital assets (p. 44 of its 2020 Annual Comprehensive Financial Report) reports a mere $137 billion.

Perhaps if culpable cities pitched in all their assets, too, enough could be raised but California and its major municipalities all have other creditors whose interests would obviously be adversely impacted by such a drastic move. And, again, two wrongs don’t make a right.

The only real remedy, it seems, is to declare California a failed state, make it a territory, and allow it, or parts of it, back into the Union after it ratifies a constitution that ensures its people a republican form of government, incapable, by design, of ever inflicting such damage on anyone ever again.

SD Needs Real Reform, Not Con D Virtue Signaling

2022-12-31T00:24:00.001+00:00

A rational, Christian response to a mugging is to aid the victim while ensuring the perpetrator never repeats the crime. South Dakotans know this, which, along with Constitutional Carry, is why crime hasn’t spiked here as in so many other places across the nation. A small majority of South Dakotans, however, have voted to change the state constitution to join California and New York and allow medical mugging to continue.

I gather that supporters of Constitutional Amendment D (CAD) voted to help poor people with big medical bills, and use other Americans’ money to do it. What a deal! But Medicaid expansion really does not help the poor any more than reimbursing a mugging victim does, especially when the mugger goes unpunished, poised to strike again. It’s virtue signaling at best and at worst a capitulation to Big Sick Care.

Medicaid expansion under CAD will aid healthcare providers (HCPs), i.e., the perpetrators of the problem, the very institutions that pushed hard for expansion. Yes, HCPs should earn enough to induce them to provide healthcare services, which everyone needs to some extent or another. But do not forget that HCPs already get what a competitive market would pay them and a whole lot more besides. For a full explanation and proof, see Sean Masaki Flynn’s 2019 book, The Cure That Works.

Flynn points out that US healthcare, and unfortunately South Dakota’s too (after showing some promise before implementation of Obamacare), is much too expensive. There are no real prices, just negotiated settlements with insurers or governments. And the fee-for-service model creates a panoply of perverse incentives, including a predilection to treat symptoms but not to cure the underlying causes of illness. It’s more sick care than healthcare.

Early in 2022, my adult son was hospitalized in Sioux Falls for several days. The HCPs thankfully did not kill him, but they did not fix him either. He is still getting bills for services that may or may not have been rendered. (He is no doctor and barely remembers his emergency stay.) He was then earning a little too much to receive Medicaid yet his total cost was in the thousands. Under CAD, Medicaid would have chipped in for him but somebody else earning just over 138 percent of the federal poverty line would be in the same situation as my son, facing huge bills for “services” that may only serve the HCPs.

If South Dakotans really want to help the poor, and everyone else, with their medical bills they should compel HCPs to compete on the quality-adjusted price of their services. Then people can shop around for the best deal instead of committing themselves to pay big, convoluted, unknown bills, often for little or nothing in return.

Yes, such a radically commonsensical policy would run afoul of current federal regulations but some cities and states routinely declare themselves “sanctuaries” where federal laws do not apply. South Dakota has a long history of bucking widespread strictures on divorce, interest rate caps, residency rules, trust funds, and the like. Why not burnish that reputation for policy innovation by offering the country an example of a competitive healthcare system that, as Flynn shows, will be much cheaper and better than the one currently mandated from Washington, DC?

A Universal Basic Christmas?

2022-12-26T15:21:00.001+00:00

By age 4 or 5, I loathed Santa Claus because I noticed that he gave more and better toys to my poorly behaved rich playmates than to me or my little brother even though his production (slave labor?) and transportation costs (lichen for his reindeer) were de minimis and subsidized with literally tons of milk and cookies. Not long after, upon hearing Cheech and Chong’s already classic 1971 bit “Santa Claus and His Old Lady,” I unearthed the conspiracy behind the silly jolly old elf stories. Christmas gifts weren’t magical manna, they were part redistribution scheme, part potlatch, and part savings ploy. At least the consumerist vision of Christmas was, and remains, voluntary.

But now circulating is another implausible legend about economically free gifts, Universal Basic Income or UBI for short. This new legend means Christmas cash for everyone, in equal measure. (It is usually assumed to come once a month, but it could come just on Christmas, or be conceived of as a Christmas present paid in monthly installments.)

I fear that Americans are being subtly conditioned into accepting UBI through repetition of lies and half truths. As I have noted elsewhere, many in the media now label any old welfare program a “UBI pilot” and then tout how it helps its recipients, as if it were not already bloody obvious that extra cash always helps people. The stories, like this one from ABC News in San Francisco, also typically claim that recipients spend all their newfound wealth on “necessities,” as if cash isn’t fungible. The reporters are either morons, or think that their readers are.

While images of poor children having extra socks and other necessities under the Christmas tree may warm your heart as much as it does their feet, adults and even precocious children know that those resources came from somewhere. When the source is voluntary charitable donations, the real spirit of Christmas is fulfilled.

Under a real national UBI, however, the transfers become involuntary. As Aleksandra Przegalinska and I explain in Debating Universal Basic Income (Palgrave 2022), while everyone receives equal UBI payments, the money has to come from somewhere, and in most proposals that somewhere is the middle and upper classes, who end up paying more in taxes than they get from the UBI program.

Exceptions arise only when a government is blessed with something akin to magical manna, like the oil royalties that Alaska and Iran use to fund their respective UBI programs. Few governments have access to such cash cows but there is one great untapped source of revenue available to all governments – increased government efficiency.

If the U.S. government, for example, were to end its massive subsidies for the health and higher education sectors, return to systems of private instead of social security, and scale back its bloated administrative state, it could implement a UBI worth 15 percent of GDP without raising taxes any further.

Ironically, if Uncle Sam were to bestow such a Christmas present upon the American people, instead of presenting them with more inflation and debt like Congres just did, it would unleash so much economic growth that a UBI would no longer be seen as necessary. But this frigid Christmas, most Americans would settle instead for a giant lump of coal.

"UBI Pilot" Is Another False Frame

2022-12-24T18:31:00.002+00:00

America’s airwaves, blogs, and podcasts are awash with praise for, and criticism of, so-called “UBI pilots.” The problem is that none of the pilot programs, which multiplied like bunnies after the Covid scare began to subside a year ago, can rightly purport to inform the debate over the likely costs and benefits of the universal basic income policy (UBI) currently pushed by proponents in the US and around the globe. Journalistic misrepresentation, whether due to economic illiteracy or incentives to promote Woke causes, threaten to pollute the policy debate over real UBI proposals.

Journalistic misrepresentation of economic policies is not entirely new but has become more prevalent in the 21st century due to declining educational standards and perverse incentives. For example, Wilma Soss (1900-1986) in Columbia University’s journalism school in the early 1920s received a solid grounding in economic and political history and theory that allowed her to forecast changes in the macroeconomy and to provide solid investment advice to millions for a quarter century (1957-1980). Her educational preparation stands in strong contrast to the weak, ideological fare spoon fed to most journalist students in the early Third Millennium AD, especially in economic matters.

Soss faced a better set of incentives, too. Her employer, NBC, did not force her to accept corporate sponsorships, which allowed her to build audience loyalty through trust. Listeners did not always agree with what Soss said on her weekly “Pocketbook News” show, but they knew that she only said what she believed. Today, by contrast, most corporate journalists have incentives to write frothy clickbait or regurgitate partisan talking points.

Soss knew, and experts today agree, that most income transfer programs are not UBI because they are not universal in the sense of being paid to everyone. San Francisco, for example, rightly calls its $1,200 monthly stipend Guaranteed Income for Transgender People, or G.I.F.T. for short, because it’s just a welfare program for low income transgenders.

Conflating UBI with welfare causes two confusions that muddle policy discussions. On the one hand, the conflation increases opposition to actual UBI proposals on false grounds. A truly universal transfer program not limited by need (or subject to gender or other tests), for example, would not necessarily entail the creation and funding of yet another huge government bureaucracy.

On the other hand, UBI “pilots,” even the few that are not means tested, provide false support for a national UBI because they are miniscule in scale, of limited duration, and funded by manna from heavenly donors. Analyses of their outcomes invariably focus on that which is seen, which is people who are better off because they have higher incomes. But that misses that a permanent largescale UBI would have to be involuntarily funded by someone.

Pilots cannot tell us how net UBI payers, those whose taxes increase more than their respective monthly stipends, would react to UBI politically or economically. They are also too short to tell us what will happen to education, employment, or birth rates. Pilot participants tend to stay employed and in school because they know the extra cash flow will soon cease but they might drop out if they believed the money was permanent.

Some pilot principal investigators have analyzed results as rigorously as the current state of social scientific inquiry allows. Others, though, clearly seek to score ideological points by claiming that recipients spend every extra dime on education and clean water. Opponents claim that the extra money just fuels alcohol, drug, and gambling addictions. In fact, money is fungible so the focus should be on how consumption patterns change as incomes increase, but economists do not need transfer pilots to study that.

Ultimately, one’s stance on UBI should not come down to the purported results of pilots, most of which come nowhere close to testing the policy that UBI proponents push. Instead, it should come down to one’s values. Should public policies support individual liberty or government collectivism? If the former, urge the government to bolster voluntary transfer programs. If the latter, why not skip UBI and go right to socialism, the results of which are well documented from long experience at scale?

Positive Quarterly Real GDP During Recessions

2022-10-27T13:57:00.000+00:00

Three months ago, many scholars, including myself, argued that two consecutive quarters of shrinking inflation-adjusted GDP met the government’s technical definition of recession. A third negative number would have sealed the deal for sure but the estimate for the third quarter, which is weak but positive, muddies matters.

A recent study shows that the U.S., U.K., and Swedish governments produce overly optimistic GDP growth estimates in election years. Even if the numbers are not subsequently revised downwards, the slight growth should not be interpreted to mean that the American economy is in the clear. Housing prices are plummeting while core inflation remains high enough to make further interest rate hikes likely. Real wages continue to lag and most businesses warn of impending layoffs or hiring freezes.

So only something of an economic miracle will prevent the National Bureau of Economic Research (NBER) from declaring a recession during the Biden administration. A look at the history of its semi-official pronouncements suggests that a quarter of GDP growth will not prevent it from calling the start at the beginning of 2022. In fact, the longest NBER-defined recessions since World War II had one quarter of positive growth embedded in them.

See how the blue line (real GDP) goes above the black line (zero) in the grayed area (NBER recession) during the 1949 recession in the official St. Louis Federal Reserve chart of percent change in real GDP below?

That is not unusual. It happened again in the 1960 recession:

And again in 1970, 1974, 1982, 2001, and 2008, i.e., in all of the nation’s longest postwar recessions:

So don’t let a positive GDP number fool you into thinking the US economy isn’t in a recession. Some call a positive quarterly reading during a recession a dead cat bounce, others a double dip. What you call it doesn’t matter: the only economic thing “strong as hell” right now, besides double dip ice cream sales in the vicinity of POTUS, is fear itself.

Peace Through Money?

2022-09-13T14:52:00.006+00:00

The launch of Peace Coin cryptocurrency was not the first time somebody thought to equate peace with money. It might, though, be the last.

While the cost of everything seems to be going up these days and people purportedly are “watching their pennies,” Americans still hate loose change – which is one reason why so many prefer paying by card or crypto to avoid cash altogether.

In the 1950s, though, credit cards remained rare and many sellers refused personal checks. People tended to pay in cash, so lots of coins jingled in pockets and pocketbooks.

To legendary public relations pioneer Wilma Soss (1900-1986), who hosted the weekly nationally syndicated radio show “Pocketbook News,” coins meant something, practically and symbolically, and could mean more. Informed by her PR career, Soss tried to advance the cause of world peace through money.

We do not mean that Soss suggested that governments pay foreign soldiers to desert or defect, as the U.S. did during the Vietnam War with its Chieu Hoi Program, or as Ukraine did at the beginning of the Russian invasion in February of this year. Rather, Soss wanted to put the word “Peace” back on U.S. coins, many of which circulated abroad, hoping that the message would truly help in getting people around the world to realize that Americans cared deeply about peace too—albeit peace through strength. Convinced of the importance of the message, she ran a pro bono PR campaign to promote the idea.

Soss was old enough to remember (and fondly) how the U.S. Mint issued Silver Peace Coins after World War I, minting them from 1921 through 1928, and for a brief time in 1934 and 1935. The impetus was a genuine one: to commemorate the end of the Great War, the war to end all wars.

Fervent hopes for a lasting peace were dashed by the Second World War. As the Cold War intensified in the late 1950s, Soss thought it high time for the U.S. Mint to mint peace once again.

Accordingly, in February 1958, Soss urged her radio show listeners to send her postcards if they agreed with her that the word peace should be included on U.S. currency. “Everyone wants American dollars,” she explained, “let’s show everyone Americans want Peace.” The response from her audience, which then numbered in the hundreds of thousands, was large and heartfelt.

Margaret Chase Smith, U.S. Senator from Maine and the descendant of former treasury secretary Salmon P. Chase, took notice. In March, Smith introduced a bill to put peace back on pieces of America’s metallic money.

How did Soss pull off such a coup? She had learned from the best of the best, Harry Reichenbach, one of the fathers of modern PR. She also was a skilled communicator, with a degree from Columbia’s journalism school (Class of ’25) and several years of reporting experience before she entered the PR world. By the 1950s, she had embraced a new career in shareholder activism, in addition to financial journalism. As detailed in a biography I coauthored with Bucknell’s Jan Traflet, Fearless: Wilma Soss and America’s Forgotten Investor Movement (All Seasons Press, 2022), Soss was a passionate advocate for enhanced corporate governance practices, widespread financial literacy, and many other causes, like world peace.

Impressively, Soss managed to get a peace money bill (the Chase bill) introduced into Congress. Unsurprisingly, though, it never passed.

As he left the Oval Office in January 1961, President Dwight D. Eisenhower explained that the nation’s leaders had fallen under the sway of a military-industrial complex geared for war, not peace. Soss eventually realized that, calling on her listeners in 1968 to pray for “peace on earth” as war raged in southeast Asia despite implementation of the hush-hush Chieu Hoi Program of pacification.

Although she believed that “world trade is better than world war,” Soss, like many Americans, believed in peace through strength. So she could not countenance disarmament even in the late 1960s and early 1970s as the gold dollar gave way to its flimsy paper simulacrum, the only message of which, she believed, was weakness. Putting peace back on money no longer made sense to her.

With physical coins already relatively rare and possibly soon extinct, more likely due to the adoption of central bank digital currencies than the rise of cryptocurrencies like Peace Coin, Americans should look for other ways to express their desire for world peace. Mutually beneficial trade, in dollars but also financial investments, goods, and services, remains the best way to conjoin interests in favor of peace.

Plague of Plagues

2022-08-15T16:34:00.003+00:00

It’s a little known fact that bubonic plague killed over 100 San Franciscans between 1900 and 1902, in part because public health officials and the mayor botched the response, first by imposing a quarantine based on race, then by denying the extent of the epidemic to keep the city’s economic boom going. Several later waves took fewer lives but tarnished the Golden City’s image.

This bit of epidemiological history is of interest in its own right but also for its effect on the life of Wilma Soss, the subject of my new book Fearless (with Jan Traflet). Born in San Francisco in 1900, PR pioneer and media maven Soss later quipped that the earth shook when she was born. We found no evidence of an earthquake that day but the plague helps to explain why Soss was in Brooklyn with her maternal grandparents that fateful day in April 1906 when her birth city first shook and then burst into flame.

Harnessing Defection: The Untold History of Paying People to Stop Fighting

2022-06-27T18:44:00.001+00:00

Unfortunately, wars are again all the rage. It’s difficult to find good political economy commentary on Russia’s invasion of Ukraine, possible incursions into Taiwan by the CCP, and the like because military history, and its buddy economic history, were casualties of university culture wars decades ago. Few people study the “sinews of war,” the connection between economic and military outcomes, anymore because it just doesn’t fit easily into Woke U curricula. That’s a shame because perspectives from military economic history could help policymakers to make better policies, ones that lead to less blood and treasure being spilt.

Anybody conversant with the writings of Frederic Bastiat knows that wars, or in other words lots of broken windows and shattered lives, hurt the economy. But sometimes wars have to be fought nonetheless. The United States used to have substantial checks against entering into hostilities without due cause. Today, not so much, which makes winning the many armed conflicts it enters as cheaply as possible more important than ever.

Many of America’s recent military victories have been Pyrrhic in that it (arguably) successfully achieved objectives, but only at tremendous cost. One might object that the country’s “safety” or “freedom” are priceless, but if those same objectives had been achieved more cheaply by other means, resources would have been freed up to achieve additional national security objectives. Inefficiency always lurks, an unseen but substantial additional foe.

Consider, for example, the recent decision to send $40 billion in arms and ammunition to Ukraine. Maybe it will bring an end to the war by signaling to Putin that America means business. Maybe it will just prolong the conflict. Maybe prolonging the war is what some Americans want. If that is the case, $40 billion might just be the first of many installments totalling hundreds of billions and perhaps eventually trillions of dollars. If that sounds like an exaggeration, remember inflation runs rampant and that the U.S. spent over $2 trillion and over $2.3 trillion prosecuting wars in Iraq and Afghanistan, respectively.

How else might the United States have spent the $40 billion it sent to Ukraine? Well, $40 billion divided by the 280,000 Russian soldiers is over $140,000 each. Could America have ended the war by offering money directly to Russian soldiers to defect to the West?

Recent history suggests yes, though what one researcher recently called “an analytical blind spot” makes making the case more difficult than perhaps it ought to be.

In March, Ukraine offered Russian soldiers 5 million rubles to lay down their arms and additional funds, in the millions of dollars, for turning over military equipment when they surrender. The offer was not easily disseminated to Russian troops, however, and was not widely perceived as credible. Plus, it would mean living in Ukraine during and after the war. Nevertheless, the incentives worked in at least one case, when a Russian turned in his tank for $10,000.

According to one of the few studies focusing on past attempts to harness defection, promises must be communicated to enemy troops in credible ways and the total compensation, including amnesty and future region of residence, must be adequate, while remaining credible. The U.S. could make a more credible commitment than Ukraine to pay what is promised, plus provide a path to a more attractive U.S. or EU citizenship. With Ukrainian help, it might have a better chance of using fancy technology, like leaflets dropped from drones, to get the offer in front of Russian troops with the lowest morale.

History provides additional examples of harnessing the power of defection to weaken opposing armies.

During the U.S. Civil War, Union general Benjamin F. Butler offered slaves working on Confederate fortification projects military protection and paid work if they defected to the North. Hundreds of them soon fled to Fort Monroe, the strategic Union stronghold at the confluence of the James River and Chesapeake Bay in Virginia that Butler commanded. Although technically “contraband of war” owned by the Union military, the slaves knew they were better off working for the North than the South. The British had employed a similar strategy during the American Revolution.

The number of “contraband” runaways swelled during the Civil War to the point that although the vast majority of slave conscripts had been relegated to non-combat roles in the Confederate Army, their shift from working for the South to working and fighting for the North helped to speed the Union’s victory. Armies need cooks and ditch diggers as much as they need generals.

Victory might have come more quickly, and cheaply, if Lincoln had considered paying poor white Southerners not to fight rather than paying much richer plantation owners for their slaves. Many poor Confederate soldiers deserted or defected anyway. Some 6,000 of the so-called “Galvanized Yankees” joined the Union Army and were dispatched to the West to fight Indians and protect transportation routes to the Pacific states.

Defection (going over to the other side) and desertion (fleeing military service) have both influenced the course of many military conflicts, including the Russian Civil War (1918-22), the Spanish Civil War (1936-1939), the struggle for Slovenia and the Soviet Union during the Second World War, and the wars for the Korean peninsula, Southeast Asia, and hundreds of millions of hearts and minds worldwide during the Cold War. Various forms of military insubordination, including desertion and defection, also played major, if still somewhat murky, roles during the Arab Spring.

In many cases, no payment was needed to induce conscripts to flip, or at least stand down. In some instances, however, the United States employed seldom studied strategies designed to induce enemy defection and desertion during the American Revolution, the Philippine insurgency, and the Vietnam war, among other conflicts. The Chieu Hoi Program allegedly resulted in “the defection and neutralization of over 194,000 VC/NVA” in Vietnam between 1963 and 1971. In the Philippines, the Economic Development Program (EDCOR) promised rebels who surrendered themselves and their arms amnesty, land, and agricultural capital on the underpopulated island of Mindanao.

Other nations have also paid poor soldiers to sit out conflicts that did not directly affect their personal interests. Most famously, though vastly outnumbered, British Colonel Robert Clive won the Battle of Plassey in the Bengal section of India in 1757 in part because a rich Hindu known as the Jagat Seth (“banker to the world”), paid about a third of the enemy soldiers to not join the fight. It helped that the soldiers were headed by a traitor who had been promised a leadership spot if the British prevailed and that the loyal Indian troops did not manage to keep their powder dry during a timely downpour.

British attempts to pacify rebels in Malaya proved less successful than they might have, however, because their promises to help defectors “to regain their normal life” were too vague. That was a shame because, as one study of defection inducement strategy noted in 1971, “defection saves human lives on both sides.”

All is fair, they say, in love and war but what strategies will be most likely to work cannot be known in advance because many factors are at play, including an unknowable critical mass or tipping point at which military units dissolve via mutiny or surrender, as Iraqi units did during both Gulf wars. National histories, religious and ethnic divisions, and customs may play a role too. Some 500 U.S. soldiers of Irish birth, for example, defected to the side of their fellow Catholics during the Mexican-American War (1846-48) and took up arms against their former comrades. Apparently, switching sides is a well-accepted practice in Afghanistan but punishable by summary execution in other places, including the former Soviet Union, which employed “blocking units” to dissuade deserters.

In short, we cannot know if paying Russians not to fight in Ukraine would work without actually trying it. Perhaps Russian conscripts are not as demoralized as claimed, or, maybe, knowing what happened to the families of deserters and defectors in Chechnya (2000-2005), they fear too much for the fate of their families. Of course policy success or failure will occur at the margin but on its face a $140,000 average payment seems like it would be a sufficient trigger as, despite the recent inflation, it remains a good chunk of cash, even for most Americans.

The point here is that U.S. policymakers did not even have a discussion about defection because too many self-proclaimed experts, many beholden to interests within the military-industrial complex, pound on the save Ukraine at any expense mantra coming out of the Roosevelt Room. It’s like Covid policy censorship all over again. And that bodes ill for America’s national debt, national security, and national sanity.

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