Category Archives: Economics

Roger Koppl – Expert Failure

Posted on April 4, 2019 | Comments Off on Roger Koppl – Expert Failure

Roger Koppl – Expert Failure

Koppl uses the role of experts to explain the difference between approaching social problems from the top down, versus from the bottom up. Koppl defines an expert as anyone who is paid for their opinion. This is not tied to any credential, degree, affiliation, or any objective measure of knowledge. If someone sees fit to pay you for your opinion on something, you’re an expert on that something. For Koppl, experts play a crucial role in the economy and in the political process. But they should not be given too much power.

One way to do this is through competition. Experts should not be given a monopoly or any guild-like structure that limits competition. Certifications and credentials are useful, and they rightfully impact an expert’s perceived credibility. But they should not be mandatory; schooling and education are often very different things. Allowing an open competitive process in markets for experts will help the fields evolve the best way to signal credibility, and as knowledge and professional consensus evolve, send out the old in favor of the new. This brings to mind the stuffy old adage about science advancing one funeral at a time.

Koppl also offers a quality intellectual history not just of expertise from a bottom-up perspective, but the entire spontaneous order tradition from Bernard “Fable of the Bees” Mandeville’s cynicism to Adam Smith’s idealism, to Hayek’s wide-ranging advancements in emergent order theory. Not the easiest read, but sticking with it pays large dividends.

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Posted in Books, Economics, Philosophy

Frank Knight on Behavioral Economics

Posted on March 29, 2019 | Comments Off on Frank Knight on Behavioral Economics

Or at least it nudgier side. This is from nearly a century ago, long before the current behavioral economics field began. Knight, like any good economist, agrees with behavorialists in rejecting perfect rationality as a reliable guide to human behavior. But behavioralists go too far when they move from is to should.

From p. 182 of 1921’s Risk, Uncertainty, and Profit:

A large part of the critics’ strictures on the existing system come down to protests against the individual wanting what he wants instead of what is good for him, of which the critic is to be the judge; and the critic does not feel himself called upon to outline any standards other than his own preferences upon a basis of which judgment is to be passed.

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Posted in Books, Economics, Uncategorized

McDonald’s and the Minimum Wage

Posted on March 29, 2019 | Comments Off on McDonald’s and the Minimum Wage

McDonald’s recently announced it will decline to oppose minimum wage increases. The Washington Examiner‘s Sean Higgins has a good writeup about the decision, in which I am briefly quoted.

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Posted in Economics, Media Appearances, Minimum Wage, Uncategorized

Robert H. Bork – The Antitrust Paradox: A Policy at War with Itself

Posted on March 29, 2019 | Comments Off on Robert H. Bork – The Antitrust Paradox: A Policy at War with Itself

Robert H. Bork – The Antitrust Paradox: A Policy at War with Itself

Probably the most influential book ever written on antitrust policy, though it has its flaws. I analyze several of its arguments in an upcoming paper; I’ll try to remember to update this post with a link when the paper is out.

From its Progressive Era beginnings, antitrust law was dominated by lawyers who disdained economics, and it showed in the quality of their policies and court decisions. During the Depression and the New Deal, President Roosevelt mostly abandoned antitrust law in favor of government-approved, or even government-managed cartels, in a similar disregard of economics. This model was mostly abandoned after World War II, when regulators resumed antitrust enforcement. Prosecutions reached record levels by the late 1950s and early 1960s.

Around that time, a new law and economics movement was underway, especially at the University of Chicago. Bork was one of many scholars who were part of it, along with Aaron Director, George Stigler, Ronald Coase, Richard Posner, and many others. They proposed, instead of attacking the Brandeisian “Curse of Bigness,” moving to a consumer welfare standard. Under this thinking, big isn’t automatically bad. Antitrust measures should only be taken if it can be proven that a company is causing consumer harm. Bork wasn’t the first to make this argument, but he was the most influential, and The Antitrust Paradox remains the most widely cited book on the subject, by friend and foe alike (this writer is somewhere in between).

Bork and other consumer welfare standard advocates, while an improvement over Brandeisian populism, don’t get everything right, at least in my view. Better to get rid of bad policies altogether than simply use them less frequently, as Bork favors. But his compendium of case law, economic reasoning, and legal history is immensely useful regardless of one’s priors. While not the breeziest of reads, Bork does occasionally show some flashes of wit, such as when he compares the Robinson-Patman Act’s attempt to control prices to a baseball player who might be a lousy hitter, but balances it out by also being a poor defender.

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Posted in Antitrust, Books, Economics, Law, Uncategorized

Sarah E. Bond – Trade and Taboo: Disreputable Professions in the Roman Mediterranean

Posted on March 28, 2019 | Comments Off on Sarah E. Bond – Trade and Taboo: Disreputable Professions in the Roman Mediterranean

Sarah E. Bond – Trade and Taboo: Disreputable Professions in the Roman Mediterranean

It reads like a dry Ph.D thesis, but interesting nonetheless. Roman commercial taboos mostly centered around the body. Actors and singers had low social status not for being lowbrow, but because they were selling their bodily abilities for money. Even town criers were held in social contempt for selling their voices. Funeral workers were disdained for handling dead bodies—though this pre-germ theory taboo probably made sense for public health. Tanners’ dirty work—leathermaking process involved urine—kept them in low esteem. Moneymakers, in particular the workers who physically smelted and minted the coins were in a weird place, simultaneously shunned and held close to the emperor, and were forbidden to marry women from higher social classes. Cooks and other food workers were also held at arm’s length. They were still necessary, especially the ones who worked for the upper classes Bakers had especially low status, for the more pleasure their food gave, the more disdain they were given.

This ancient, nearly universal disdain for commerce ties into Deirdre McCloskey’s thesis about what caused modern prosperity. Cultures that disdain commerce and wealth remain poor. Those that value it prosper. The particular values and taboos vary from place to place, and there is a large subjective element—some of Rome’s seem strange to us, just as ours would seem strange to them.

But negative views of such earthly things as money and bodies had predictable results. While rich for its time due to its large trading network, Roman per capita GDP was roughly one thirtieth of today’s, and the pace of technological improvement was slow. Roman body taboos likely played into its disregard for individual human beings, from the Roman legions’ harsh discipline to gladiatorial combat to astonishingly high levels of everyday violence.

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Posted in Books, Economics, History, Uncategorized

Dominick Armentano – Antitrust: The Case for Repeal

Posted on March 26, 2019 | Comments Off on Dominick Armentano – Antitrust: The Case for Repeal

Dominick Armentano – Antitrust: The Case for Repeal

A slim volume that is neither broad nor deep, but has its uses. It is a more strident, though more accessible younger sibling to Armentano’s more thorough Antitrust and Monopoly. It has some good arguments for abolishing antitrust regulation outright, but the shrill delivery makes the content less palatable. That is its own lesson.

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Posted in Antitrust, Books, Competition, Economics, Uncategorized

Dominick T. Armentano – Antitrust and Monopoly: Anatomy of a Policy Failure

Posted on March 25, 2019 | Comments Off on Dominick T. Armentano – Antitrust and Monopoly: Anatomy of a Policy Failure

Dominick T. Armentano – Antitrust and Monopoly: Anatomy of a Policy Failure

There are two main schools of thought on antitrust regulation. The traditional populist school prefers an active antitrust policy. Justice Brandeis famously advocated a “big is bad” rule, where big companies should be broken up due to their size, regardless of how consumers are affected. Other populists reach similar policy conclusions for different reasons, such as a larger vision of the good society.

This is usually contrasted with the Chicago approach, most famously exemplified by Richard Posner and Robert Bork. They advocate the consumer welfare standard, where big is ok unless it harms consumers. This is the general rule of thumb today, when antitrust enforcement is more restrained than in its smokestack-era heyday.

Armentano favors just getting rid of the whole antitrust mess altogether. He bases his approach mostly in economic reasoning, but also uses some logical and legal arguments and empirical evidence. He comes across as shrill and ideological at times, but his arguments are mostly sound.

The first two chapters give an overview of the economic and logical objections to antitrust regulation, and most of the rest of the book applies that theory to nearly a century of case law in various areas, from price fixing and price discrimination to tying and mergers.

Armentano’s book is surprisingly current for a book published in 1982. The post-Chicago antitrust slowdown means that only two major cases are missing—the 1980s AT&T breakup and the 1990s Microsoft case. With a populist president and progressive activists pushing for an antitrust revival against a mostly passionless opposition, this issue could get hot. What was old is new again, and could cause enormous consumer harm.

This book has its shortcomings. It relies too much on blackboard thinking for my taste, and Armentano understates the importance of regulatory capture and rent-seeking throughout, which both would have strengthened his position.

But his general approach needs to be a part of the debate. One side wants a lot of a bad thing. The other side also wants the bad thing, just less of it. Armentano argues that both sides have it wrong. Don’t have less of it, get rid of it.

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Posted in Antitrust, Books, Economics, Law

Video Introduction to Hayek

Posted on March 24, 2019 | Comments Off on Video Introduction to Hayek

Peter Boettke links to a useful video series introducing F.A. Hayek’s major themes and works, put together by Don Boudreaux and the Fraser Institute.

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Posted in Economics, Great Thinkers, Uncategorized

Elizabeth C. Economy – The Third Revolution: Xi Jinping and the New Chinese State

Posted on March 21, 2019 | Comments Off on Elizabeth C. Economy – The Third Revolution: Xi Jinping and the New Chinese State

Elizabeth C. Economy – The Third Revolution: Xi Jinping and the New Chinese State

A very useful guide to China’s economy and political culture. It is especially credible because it lacks the exaggerated, hyper-emotional tone that many China analysts have taken in the Trump era. Economy’s general take is that China’s reach exceeds its grasp. After five years in office, President Xi Jinping has established that he is no liberalizer. He is re-centralizing economic and political power and undoing some, though not all, of the limited 1990s and 2000s-era reforms.

This is bad for China’s future. But it is no reason for other countries to be scared. Centrally run economies tend not to perform well, to put it mildly. Economy gives example after example of grand central plans for Chinese education, manufacturing, technology, and urban planning that sounded scary, but turned to be pretty crappy in practice. Such plans also consume billions of dollars of resources that could have been better used elsewhere, doubly foiling China’s geopolitical ambitions.

in short, as long as China remains illiberal, it will have limited growth prospects. It will fall further behind its more liberal neighbors and potential adversaries.

This is a shame because China’s 1.3 billion people have both human rights and enormous potential. Their government’s policies have left the country without a vibrant economic or political culture—there is a reason China has few homegrown international brands besides Alibaba and Lenovo. The Great Firewall around China’s internet and its political repression might make the current regime feel more secure, but they prevent the Chinese people from engaging with and profiting from the rest of the world.

The rest of the world needs to continue to put pressure on China’s government to reform its human rights abuses and act in economic good faith. The Trans-Pacific Partnership that Trump pulled out of is a natural venue. Eleven other countries are still party to it, and U.S. participation could only make it stronger. The WTO’s dispute resolution process, which Trump wants to pull out of is another option.

Some of Economy’s other policy recommendations, such as expanded use of the Export-Import Bank, are prone to the same problems as their Chinese analogues, and should be avoided. But overall, this is a smart and sober take in a political climate that badly needs it.

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Posted in Books, Economics, International, Trade, Uncategorized

Leland Yeager – Free Trade: America’s Opportunity

Posted on March 18, 2019 | Comments Off on Leland Yeager – Free Trade: America’s Opportunity

Leland Yeager – Free Trade: America’s Opportunity

Short, but packed with useful and principled arguments in favor of free trade, along with plenty of laugh-out-loud examples of actual tariffs. Much of what Yeager wrote in 1954 still applies to today’s trade battles. Yeager passed away in 2018, and the spontaneous outpouring of admiration from his former students and colleagues was truly impressive. Yeager was not as famous as Hayek or Friedman, but he certainly left his mark on the profession both in trade and monetary theory.

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Posted in Books, Economics, Trade, Uncategorized