Category Archives: Economics

Book Review: Marc Levinson – The Great A&P and the Struggle for Small Business in America

Marc Levinson – The Great A&P and the Struggle for Small Business in America

This is an excellent history that is playing out again in today’s antitrust revival. A&P was the first nationwide grocery store chain. Though it barely exists today, in its prime it was the nation’s largest retailer. A&P inspired fear among its competitors and outrage among populists.

People made many of the same arguments against A&P in the popular press and in antitrust cases that people make today against Walmart, Amazon, and other big companies. The word choices, hyperbole, and breathless tone are almost identical. And yet, A&P was no match for consumer preferences, which eventually shifted elsewhere. The company chose not to adapt, and today exists on roughly the same scale as Blockbuster Video, which is down to a single store in Oregon.

Some of the very same charges, such as A&P’s selling self-branded products at lower prices than outside brands, are being revived today against Amazon. A&P-era arguments are even being repurposed to argue against Apple and Google’s app stores and search results. Not only were their business practices never anti-competitive, they clearly weren’t enough to save A&P from the competitive process. Nor will it be enough to save today’s big tech companies. Consumers are harsh sovereigns, and as soon as someone does it better, they’ll move on.

History does not repeat itself, but it often rhymes. Levinson digs up some of the lost stanzas of a poem being rebooted all over Washington today. There are lots of lessons here for people on both sides of the antitrust revival.

Federal Minimum Wage Hike to $15 an Hour Will Hurt Small Businesses, Lead to Lost Jobs

This news release was originally posted at cei.org.

President-elect Joe Biden today announced a $1.9 trillion COVID-19 recovery plan that includes not only $1,400 stimulus checks to many Americans but a federal minimum wage hike to “at least $15 an hour.” CEI economic and labor policy experts warned against the real-world impact that new mandate would have on businesses and jobs.

Ryan Young, Competitive Enterprise Institute senior fellow:

“Adding a $15 per hour minimum wage to the next COVID-19 relief bill would be a mistake because the timing is terrible and the tradeoffs are not worth it. Small businesses often have a hard time making payroll as it is, with bills and rent still piling up amid COVID-related slowdowns. A higher minimum wage would do no good for the workers who would be let go because of it.

“A $15 minimum wage would also give big businesses an unfair advantage. Many big companies such as Amazon, Target, and Costco already have $15 minimum wages for their employees. Other big companies can afford to automate some jobs and have the cash reserves to absorb extra payroll for the rest. Smaller competitors might not be able to keep up, especially during hard times like right now.”

Sean Higgins, Competitive Enterprise Institute research fellow:

“Ironically, it was only a few years ago that Neera Tanden, President-elect Joe Biden’s pick to be the next director of the Office of Management and Budget, was warning Democrats against a $15 minimum wage. Tanden, speaking as president of the Center for American Progress, told Hillary Clinton’s campaign in an April 15, 2015 email, ‘Substantively, we have not supported $15—you will get a fair number of liberal economists who will say it will lose jobs.’

“Tanden was right back then: setting the federal wage that high will result in employers cutting back in hiring and limiting workers’ hours to adjust to the higher labor costs. Ultimately, the workers will see little benefit. Consumers, on the other hand, will see higher prices across the board as companies turn to higher prices for their goods and services.”

Book Review: Erik Brynjolfsson and Andrew McAfee – The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies

Erik Brynjolfsson and Andrew McAfee – The Second Machine Age: Work, Progress, and Prosperity in a Time of Brilliant Technologies (New York: W.W. Norton, 2014)

This book from two MIT professors is part big-picture history, and art techno-optimism. McAfee is also the author of the excellent 2020 book More from Less, which is better-argued from a public policy perspective.

The opening chapter sets the historical stage. Living standards were poor and stagnant for nearly all of human history, from our birth as a species until about 1750 or so. If you put human well-being on a graph, it runs almost perfectly flat for thousands and thousands of years. Then it spikes sharply upwards starting around 1750-1800, like a hockey stick on its side. This giant wealth explosion is still happening today, and the authors believe it will continue for some time to come. This is one of the biggest changes in human history.

What caused it? Brynjolfsson and McAfee think it was technology. More specifically, it was the steam engine. Even more specifically, it was James Watt’s iteration of the steam engine. Steam power existed as early as ancient Rome, but it was mostly used for amusement purposes, and not industry. That changed in Watt’s lifetime. This was the start of Bynjolfsson and McAfee’s First Machine Age.

The Second Machine Age is the computer revolution. The First Machine Age revolutionized physical power. The Second Machine Age is revolutionizing mental power. Just as Watt’s steam engine took time to influence manufacturing, technological development, government, and culture, so too is the Second Machine Age. It is far enough along where they argue its fundamental difference from the First Machine Age is clear. But it is also early enough where its impact is only beginning to be felt. The future has almost limitless potential—and some tradeoffs.

The larger arc they draw is the right shape, though I don’t know that their need for two separate Machine Ages is much more than a useful gimmick for talking about technology. I would also submit that the true cause of both revolutions goes a level deeper than just technology. Yes, steam engines and computers are necessary for the two machine ages. Necessary, but not sufficient.

They need another ingredient in the mix: culture. Larger cultural values are difficult to quantify, which is why economists and many other social scientists do not use them. They are still significant, even if they are immune to regression analysis and other quantification. Statistically significant? No. Real-world significant? Very.

Culture shifted in the centuries leading up to Watt’s generation. People were gradually becoming a little more open to change, progress, and improvement. It showed in literature, trade patterns, philosophy, and a new prestige for science and its discoverers. That is why a technology that was already around now began to be used more differently—people allowed it, approved of it, and were willing to countenance large fortunes being made from it.

After setting up their two-machine-ages framework, Brynjolfsson and McAfee go on a tour of new and emerging technologies to see where the Second Machine Age might take us. They take a ride in one of Google’s self-driving cars, among other highlights, and draw encouraging pictures of some of the things new technologies could do for people over the next few decades.

One area where they fall short is their discussion of inequality. They are so focused on the mathematical ratio of the differences between rich and poor peoples’ incomes, that they forget to ask how people at the bottom are actually doing. They also focus almost solely on wage income, which is a significant mistake. This leaves out non-wage income such as employer-sponsored insurance, tuition assistance, free meals, company cars, and other perks that do not show up in income data.

More to the point for a book about technology, Brynjolfsson and McAfee should have asked a question similar to one Don Boudreaux likes to ask: would you rather have 1970-quality medical care at 1970 prices, or today’s health care at today’s prices?

Very few people would rather have 1970’s health care, even at its lower price. That means people view themselves as better off with today’s options. Most people would similarly answer related questions about televisions, computers, cars, appliances, and many other products that both rich and poor people consume.

In fact, society today has substantial consumption equality. Most low-income households have cars that drive at the same speeds on the same roads as wealthy people. They watch the same television shows and have similar Internet connections. More tellingly, rich people are not substantially taller or longer-lived than poor people. In the olden days, one could tell nobles and peasants apart at a glance by their height. Children of nobility got enough to eat, while peasant children were often so malnourished that their growth stunted. There were also substantial differences in infant mortality and life expectancy.

While the very wealthy have orders of magnitude more wealth than ordinary people do, they don’t consume very much of it. Nor do they keep it in a Scrooge McDuck-like vault. They invest it, in an unexpected type of income redistribution. When it’s invested, borrowers use that money to buy homes, go to college, and start businesses. The wealth doesn’t just sit there, people make use of it. It is a subjective question how much of this type of wealth is the “right” amount. But this positive use of wealth is something inequality scholars need to account for, and rarely do. In fact, invested wealth is where most of the capital that funds the amazing technologies Brynjolfsson and McAfee discuss in this book comes from.

They make another lapse in quoting a professional trade association for civil engineers in calling for more infrastructure spending. Of course civil engineers want more infrastructure spending, they have a vested interest in it! This is basic public choice theory. While they briefly acknowledge this conflict of interest, they also do not acknowledge the seriousness of the point, or look at data from less self-interested sources.

Their promotion of a Universal Basic Income (UBI) is similarly idealistic. This model, essentially a straight cash grant, is an objectively better system of poverty relief than the current welfare state. A UBI is easier to administer and more flexible for the recipients. A UBI also makes it more difficult for nanny statists to tell the poor what they shall eat, what things they may and may not buy, what types of health care they may receive, or where they shall educate their kids.

The trouble is politics. Again, a little public choice theory would go a long way in this discussion. Replacing the current welfare state with a UBI would be a fantastic tradeoff, both for the poor and for taxpayers. But the way politics works in practice, this would not happen. A UBI would be negotiated in a Congress led by people like Nancy Pelosi and Mitch McConnell, or whoever succeeds them in a few years. Real-world politicians are unlikely to enact a well-functioning UBI, nor will their constituents let them. Public sector unions whose members administer the current system will block any reform they possibly can.

Tis means any politically-possible UBI would be added on top of the current system, preserving the current system’s flaws and minimizing a UBI’s advantages. Unless this problem is addressed, a UBI risks causing more harm than benefit.

Brynjolfsson and McAfee are consistently a little too idealistic. Some of the technologies they explore in this 2014 book turned out to be flops, and others are still materializing. Similarly, they assume that their political reforms will actually work as they intend them to.

They are certainly right about the larger arc of progress and prosperity. And though I take their technological hyper-optimism with a grain of salt, it is also inspiring. Books like this one and by other thinkers such as Kevin Kelly give me confidence that my daughter’s life will be richer, longer, healthier, and frankly, cooler than mine. This is a source of happiness for me, and gives me inspiration to continue my work on improving economic policy and defending liberalism against populists who would tear it down for no good reason.

Economics Can Help Explain Conspiracy Theorists

There is a lot of conspiracy theory garbage floating around. On January 6, it took a violent turn. Five people died in a coup attempt at the U.S. Capitol, over obviously false claims of a stolen election. It is important to understand what causes this behavior in order to prevent future violence, and to prevent a future breakdown of liberal institutions. Over at Fortune, I explain that a little bit of basic price theory can improve our understanding:

If you think of irrationality as a consumer good, much like a car or a television, you can better understand why people sometimes say and do crazy things. Think of it like this: People buy more cars and televisions when they are cheap, and fewer when they are expensive. 

This logic applies to conspiracy theories.

Read the whole thing here. For readers interested in further exploring the economics and evolutionary psychology of conspiracy theories, I recommend Bryan Caplan’s book Myth of the Rational Voter and Michael Shermer’s book The Believing Brain.

On the Radio: Antitrust, Jobs, and More

On Monday, I talked about antitrust policy on Paul Molloy’s Freedom Works show based in Tampa, FL.

I also taped a conversation on Rick Trader’s Conservative Commandos show today where we discussed today’s jobs report, the COVID-19 recovery, antitrust policy, and other topics. It should air sometime soon.

I’ll post links to audio (and video for the Conservative Commandos segment) if I find them online.

December Job Losses in Leisure & Hospitality Eclipse Gains in Other Sectors – What Can Policymakers Do?

This press release was originally posted at cei.org.

The Labor Department reported today the economy lost 140,000 jobs in December 2020. Gains in various sectors were eclipsed by 500,000 jobs lost in the leisure and hospitality sector.

CEI senior fellow Ryan Young says policymakers should continue to clear away never-needed regulations and build in flexibility to future reopening plans:

“There is a small ray of sunshine from today’s jobs report: leisure and hospitality jobs are pandemic-sensitive. They’ll likely come back quickly as more people get vaccinated. Since other jobs are up by about 360,000, that means the rest of the economy is likely growing, if slowly. Officials should continue to remove never-needed regulations that continue to block businesses from adapting to consumers’ and employees’ changing COVID-era needs. 

“As the pandemic subsides, officials should allow flexibility for companies to set their own reopening policies. Reopening safely will require trial and error, which means error-prone policymakers should reject a top-down approach that would make it difficult to adapt as needed.”

CEI research fellow Sean Higgins points to lockdowns and restrictions as a big impediment for leisure and hospitality jobs:

“After months of jobs gains indicating the businesses and workers were adapting to the Covid-19 crisis, Friday’s report that economy shed 140,000 jobs shows the drag created by continual lockdowns and restrictions is starting to roll back those gains. The losses were concentrated in the leisure and hospitality fields, indicating those sectors are running out of ways to cope and are scaling back instead.

“Just two months ago the leisure and hospitality sector was leading job growth, having added 318,000 jobs in September. In November, that dropped to a mere 31,000 jobs gained; and in December, that same sector lost 498,000 jobs. Since February, employment in leisure and hospitality is down by 3.9 million, or 23.2 percent, accounting for more than half of the 5.7 million jobs lost overall since the pandemic started.

“Seasonal shifts account for part of the loss, but the shuttering of the economy severely exacerbated the situation. As the BLS report notes, 15.8 million people reported in December that they had been unable to work because their employer closed or lost business for reasons related to the pandemic, up one million from the previous month.

“The silver lining is that the economy can recover if given the chance. There is no substitute for letting people get back to work. Hopefully, as vaccinations accelerate, public officials will relent and let this happen.”

2020 Was Difficult. It Was Not the Worst Year Ever

It’s been a hard year, and I am hardly alone in being glad it’s almost over. But was 2020 the worst year ever? Over at Inside Sources, I argue it was not.

COVID-19 is a novel disease. No human caught it before 2019. Scientists created effective vaccines in about a year. By comparison, smallpox has been around since at least Ancient Egypt in the third century B.C. The earliest evidence of inoculation dates to 10th century China. That’s more than a thousand years between smallpox’s first appearance and its first effective treatment—for a disease with a 30 percent fatality rate. But inoculation was rarely practiced until the 18th century, so it didn’t help very many people for its first 900 years or so.

When Abigail Adams had her children inoculated in 1776, it was still a scary, new technology for most people. It was an act of courage for her to set a positive example like that. And it took an additional two centuries for smallpox to be eradicated altogether, in 1977. Our generation’s COVID timetable is unimaginably better than with which our ancestors had to deal.

Read the whole thing here.

It is important for us to learn the right lessons from our COVID-19 experience. We need cultural and political institutions that are open and adaptable. These will make us more resilient against future crises, and make it easier to apply new things we learn as quickly as possible. CEI scholars spent the better part of 2020 compiling these sorts of ideas, which you can find at neverneeded.cei.org. Former CEI Julian Simon Award winner Johan Norberg offers further perspective in a recent piece in the UK’s Spectator.

Best Books of 2020: Joseph Henrich – The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous (New York: Farrar, Straus, and Giroux, 2020)

It’s early, but The WEIRDest People in the World: How the West Became Psychologically Peculiar and Particularly Prosperous by Joseph Henrich will likely be one of the new decade’s most influential books. Henrich complements work by Joshua GreeneRichard WranghamJonathan HaidtSteven PinkerMichael Shermer, and others on the psychological underpinnings of modern liberalism—liberalism in the more-or-less original sense of the word.

Henrich’s book has two main arguments. One is historical: The Catholic church, completely unintentionally, set off a social chain reaction that created modernity. The second is psychological: People in modern societies are psychologically distinct than people in traditional kin-based societies.

He uses the acronym WEIRD for Western, Educated, Industrialized, Rich, and Democratic, to describe the unusual people in modern market-liberal societies. If you are reading this book review, then you are probably WEIRD, and so is nearly everyone you know. But we WEIRD people are the outliers in human history. Outside of Europe, East Asia, and North America, there are very few of us.

Most human societies are built on kin-based structures. This was true during our hunter-gatherer past, which was about 190,000 years of our 200,000-year history—95 percent of our species’ time on Earth. Societies remained kin-based through the agricultural revolution, and through the birth of cities about 6,000 years ago. And it is still true today in most countries. Despite occasional flowerings, there were no enduring WEIRD societies in human history until about two centuries ago. This is maybe one tenth of one percent of human existence, and even then, most societies remain kin-based. Again, it is WEIRD people who are unusual.

What is a kin-based society? In these, business partnerships, social networks, and marriages are confined to networks that rarely stray outside the extended family or clan. People tend to be wary of non-kin, and have a strong in-group-vs.-out-group worldview. People tend to look out for their clan’s collective interest over their individual interest. In kin-based societies, nepotism isn’t frowned upon; it’s the norm. WEIRD Americans today look askance when a president appoints inexperienced family members to be senior advisers. But in most other societies, this would have been acceptable, even normal behavior.

By contrast, WEIRD people are more individualistic and more trusting of outsiders. Kin-based families often arrange marriages for their children. WEIRD people usually marry for love. Kin-based people are expected to enter the family business. This is why so many of us have occupation-based surnames, such as Smith, Baker, or Fisher. WEIRD people usually prefer to choose their own line of work, which is one reason why today’s Smiths, Bakers, and Fishers rarely practice those occupations.

Kin-based people are reluctant to do business with strangers and foreigners. WEIRD people are more open to trade and more trusting of potential business partners they have never met. Nobody is purely meritocratic, but WEIRD people are closer to that ideal than most people.

So now that we know the difference between most people and WEIRD people, what is Henrich’s historical argument about the Catholic church accidentally making today’s WEIRD-ness possible?

The Catholic church blew up traditional kin networks through what Henrich calls its unofficial “Marriage and Family Program (MFP).” In short, the Church prohibited cousin marriages. The incest taboo is a human universal. But its boundaries vary from place to place. The church decided to push them progressively further out over a period of centuries. In many places, it eventually prohibited marriages closer than second and third cousins. In a few places it briefly went as far as eighth cousins.

This was a bigger deal than it sounds. Back in, say, the 12th century, people lived isolated lives. Few people lived in cities. Many people lived their entire lives within a 30-mile radius. They met few, if any, people outside of their extended families. And the wanderers they did meet were often beggars, vagrants, or outlaws. The Church’s MFP forced these isolated people to look outside their villages and kin groups for marriage partners. This forced openness, in the long run, ended up wiring people’s brains differently.

Young people are impressionable. When they are of marriageable age and are forced to meet and interact with strangers, and travel among them, traditional closed-kin psychological barriers gradually break down. They are gradually replaced with growing degrees of WEIRDness. It is a long, gradual process with many degrees. But over centuries, the effects add up.

None of the changes Henrich describes are genetic. None of them are racial, and none of them are peculiar to Europe. The conditions that make individuals WEIRD are cultural, intellectual, and psychological.

Using cousin marriage rates as a stand-in for how strong the Church’s Marriage and Family Program operated in different regions, along with historical records, Henrich finds that the MFP was the single biggest cause of everything from per capita GDP to interest rates to murder rates. Interestingly, regional cousin marriage rates closely track religious divisions and regional church influences. Henrich himself was skeptical about the MFP’s cultural influence, so he checked his results every way he could.

So, while openness is the real engine of WEIRDness, in Europe’s case, Church doctrine was what drove the process of opening up.

The differences between kin-based and WEIRD people show up in psychological tests. The Church’s MFP turns out to have changed people’s personalities and psychological profiles. In my recent review of Virgil Storr and Ginny Choi’s excellent Do Markets Corrupt Our Morals?, I noted their finding that people from market societies play decision-making games differently than do people in non-market societies. Henrich argues that this is because they are psychologically different.

From birth, WEIRD people from market societies have been more exposed to outsiders and more likely to trust them. No wonder they tend to play lab games that way. They tend to be more trusting of other players and more willing to use long-term strategies. People from kin-based societies are more likely to do the equivalent of a dine-and-dash from a restaurant. If the other player is not from their in-group, they feel fewer compunctions about cheating that other player.

Kin-based and WEIRD people even assign blame differently. Most WEIRD people see classroom teachers’ disciplinary tactic of punishing an entire class for one student’s offense to be morally wrong. Kin-based people see this as normal, and are fine with it. They think more in terms of collective responsibility than individual responsibility. In fact, criminal justice systems in many kin-based societies punish whole families for one member’s crime.

There is a reason for this. In most human societies, life was precarious. One bad harvest could mean starvation. Very strong conformity norms were a survival advantage. Collective punishment helps to reinforce conformity norms. Maybe someone does have a new idea for planting a crop differently. But if it fails, the stakes are life and death. It’s probably not worth it. Better to make sure that everyone sticks with what he or she knows works.

When most people’s only experience with foreigners is with either castoffs or invading armies, they probably aren’t going to trust them. They’d probably return the favor when possible. Unlike trade, theft and war are zero-sum interactions. When these are someone’s sole experience with out-groups, they are less likely to trade with foreigners and realize the benefits of division of labor. Safer to do it all yourself.

Henrich has written a provocative book that builds on an already robust literature. Despite its deep historical and psychological content, The WEIRDest People in the World is also highly relevant to modern public policy. The regulations and legislation that groups like CEI deal with on a daily basis do not come from a vacuum. They come from longstanding political institutions. And these system-level institutions in turn come from culture. All three of those levels matter. A reformer who works on only one of them will fail. Henrich has come up with a plausible framework to explain how they interact over the long run, and how they can shift. Where people are relatively WEIRD, people will build relatively market-oriented political institutions—and eventually, policies. Where they are kin-based, they probably won’t.

Without the Church’s unofficial Marriage and Family Plan, European culture likely would have remained insular and kin-based. That tendency still exists, and is expressing itself in the European Union’s trending towards becoming a protectionist trading bloc. Reformers need to push back and remind people that WEIRD-style openness has massive benefits, especially for the poor.

What about the rest of the world? Fortunately, the Church’s MFP is not the one and only way for people to become psychologically WEIRD. Ideas can be imported and exported, same as goods and services. America was a relatively WEIRD society from the start, as was Australia. The Asian tigers such as Japan, Korea, Singapore, and Hong Kong, saw the economic success of WEIRD countries, and followed their example. China is at a weird midway point psychologically, and its institutions are still extractive and kin-based by WEIRD standards. This may limit China’s future growth as a global power.

The point is that setting a good example can do a lot more good than people think. This puts today’s nationalists and economic protectionists in an awkward position. They are not the future. They are throwbacks to an impoverished, unhappy past.

The post-1800 Great Enrichment that billions of people are enjoying today has deep and distant causes operating at multiple levels. Henrich’s thesis of WEIRD psychology, cultural openness, and economic prosperity will have a major impact on future work in geopolitics, economic development, political polling, immigration, and free trade for a long time to come.

Book Review: Walter Williams – Up from the Projects: An Autobiography

Walter Williams – Up from the Projects: An Autobiography (Stanford: Hoover Institution Press, 2010)

Williams, in typically blunt fashion, said that his purpose in writing this short (160 pages) autobiography wasn’t self-aggrandizement. It was to make it harder for people to misquote him. It also gave him something to refer journalists to, rather than waste time answering the same old questions over and over. It pairs well with Suffer No Fools, a documentary on Williams’ life released around the same time.

I wrote about the arc of Williams’ life in my recent tribute to him. The short version is that he was born poor in Philadelphia. He was smart but not necessarily obedient, though he wasn’t afraid of working hard when he wanted to. He worked as a cab driver for a while, spent some time in California with his father, and spent two years in the army in the Jim Crow south. He caused enough good trouble to be shipped off to Korea, and then honorably discharged. Outside of the military, he was also arrested three times for causing good trouble, and was once the victim of a racially motivated police beating in Philadelphia while driving his cab.

Williams eventually discovered economics, and earned his Ph.D at UCLA when its department was ranked 12th in the country. One of his teachers was Armen Alchian, justly considered one of the world’s top price theorists. Williams eventually wound his way to George Mason University in 1980, where he would teach until the day he died.

Williams’ rare gift for clearly communicating economic ideas gave him national prominence, and helped give Mason’s fledgling economics department a national reputation. He wrote a long-running column, frequently appeared on radio and television, and, oddly, was a frequent fill-in host for Rush Limbaugh. Williams also continued to teach George Mason’s first-year Ph.D-level microeconomics course, which became a rite of passage for grad students.

Best Books of 2020: Virgil Henry Storr and Ginny Seung Choi – Do Markets Corrupt Our Morals? (Palgrave MacMillan, 2019)

Most people see markets as dens of greed and moral corruption. In their new book, Do Markets Corrupt Our Morals?, Virgil Henry Storr and Ginny Seung Choi, of the Mercatus Center at George Mason University, argue the opposite. In fact, they go one step further: Markets make people more moral. Make that two steps further: Because markets have moral benefits, restrictions on markets have moral costs. They back up their argument with a healthy mix of theory and evidence. Along the way, they make a case for rethinking how people approach markets. Their arguments, rather than traditional “markets are efficient” arguments, are the liberal movement’s best hope for the future.

Storr and Choi describe their main thesis on p. 225:

But the evidence suggests that the consensus is wrong. Markets do not corrupt our morals. Not only are people wealthier, healthier, happier, and better connected in market societies, market activity makes us better people. Markets are spaces where we discover who is virtuous and can expect many of our vices to be revealed. Additionally, markets reward virtue and punish vice. As such, markets are moral training grounds.

In short: Less of Alfred Marshall’s supply and demand graphs, and more Adam Smith’s Theory of Moral Sentiments. Less Homo economicus, more Homo sapiens.

Their phrase “moral training grounds” is important. One of the most common mistakes in economics is the Nirvana fallacy. This says that because markets are not perfect, government can make things better. Storr and Choi know that perfection does not exist. Markets fail, but they also have a built-in improvement mechanism. Markets are an ongoing discovery process. People have to learn from experience what works and what doesn’t. They make mistakes, learn from them, and make changes. But because conditions are always changing, the adaptation process never ends.

People use markets to learn how to trust and to be trustworthy. This takes practice. It takes trial and error. The feedback people get from profit and loss help. So does learning what it takes to earn someone’s trust or their repeat business. Evidence from experimental economics shows that people who participate in markets learn these things more quickly than in other systems.

In one-shot games in lab experiments, people can cheat and get away with it, like doing a dine-and-dash at a restaurant in a town you’ll never visit again. Despite this, people in these studies who come from market-oriented societies cheat far less than one would expect from a traditional blackboard-economics model. They also cheat less than people from non-market societies who play the same games.  

Repeat-play games give the opportunity for cheaters to learn from their moral decision. Other players can punish cheaters in future rounds. They will often do so even when punishment also comes at a cost to the punishers. Upholding honesty is important enough that most people are willing to pay for it. In the long run, this reduces cheating. In fact, it happens almost automatically.

Without coaching, players often spontaneously settle on a tit-for-tat strategy. You start by assuming the other players are trustworthy, but if they cheat, return the favor. Depending on a game’s rules, this may mean punishing cheaters, or simply refusing to do business with them again. Regardless of whether the players come from countries with free markets or not, they tend to behave better in repeat-play games than in one-shot games. And again, players from market societies cheat less often than players from non-market societies.

Storr and Choi also take a tour of the different ways in which markets affect morals. The obvious one is that because people in market societies are richer, they can afford to be more moral. They can afford to give to charities. They can also afford a fuller life. Education, literature, the arts, and world travel all cost money. Dollars are nice, but they aren’t really wealth. Wealth is being able to treat others well, to have leisure to spend time with family, and to pursue friendships, hobbies, and to try new things. Market societies can afford far more of these life enrichments than non-market societies—and these experiences positively shape people’s characters.

Moreover, people in market societies have longer life expectancies, lower infant mortality, are more respectful of women’s rights, minority rights, and LGBT rights, are more religiously tolerant, go to war far less often, and have lower crime rates. All of these are moral outcomes. All of them are backed by abundant data. All of them are made possible by embracing markets. The moral conclusion is obvious.

Storr and Choi represent the future of the liberty movement. The Cold War is a generation in the past now. People still throw around the word “socialist,” but usually just to mean they don’t like something.

But markets are still very much under attack in the current political realignment. The in-groups and out-groups people are using are different now; capitalism-vs.-communism is out, and populist nationalism-vs.-liberal cosmopolitanism are in. Yet, most libertarians are still using the same materialist arguments.

Yes, markets are efficient and create more wealth than other systems. That’s important, but that also isn’t the main point. Markets have other positive effects that are ultimately more meaningful—and more persuasive in today’s society. Not only is Storr and Choi’s moral defense more versatile in today’s intellectual climate, it is more in tune with most people’s values. As CEI founder Fred Smith argues regarding values-based communication, it is important to speak to people in their language.

Most people don’t care about adding an extra decimal point to this quarter’s GDP growth, even though that is important in the long run. They do care about their kids growing up to be decent people. They don’t care that subsidies and taxes cause market distortions. They do care about having a well-rounded life.

Many market liberals only speak a niche language of efficiency. This is one reason why they remain a curiosity. Their disconnect is a major reason why so many people continue to oppose markets despite their moral benefits—hardly anyone makes the moral case.

Storr and Choi are not the only thinkers trying to correct this oversight. CEI Julian Simon Award winners Deirdre McCloskeyJohan Norberg, and Steve Horwitz are among them. But Storr and Choi just might be the ones to do it best. They deserve far more company.