Category Archives: Political Animals

Retro Book Reviews: A Capitalism for the People: Recapturing the Lost Genius of American Prosperity by Luigi Zingales (Basic Books, 2012)

University of Chicago economist Luigi Zingales’s book A Capitalism for the People: Recapturing the Lost Genius of American Prosperity, which celebrates its 10th anniversary this year, attempts to frame free-market policies in terms that appeal to populists, who generally oppose free markets.

I first read A Capitalism for the People not long after it came out. At the time I wrote:

I am wary of populism in all its forms, from Ancient Roman populares to William Jennings Bryan, right on up through John Edwards and John McCain. But if Zingales’s approach succeeds at making thorough illiberals a little more liberal at the margin, he will have done a valuable public service.

Zingales’s timing was prescient. As the historian Stephen Davies and my colleague Iain Murray have argued, much of the world has gone through a fundamental political realignment over the past decade. Since Zingales’s book was published, a worldwide populist wave put in office politicians such as Brazil’s Jair Bolsonaro, Hungary’s Viktor Orban, and America’s Donald Trump.

Did Zingales come up with a viable strategy for making such illiberal populists more liberal at the margin? That is a difficult question, but the answer is probably no. That isn’t Zingales’s fault—it’s because liberalism and populism are fundamentally incompatible. Populism is about conflict, while market liberalism is about cooperation. It is impossible to meaningfully combine them.

Populism is tricky to define because it lacks a common set of policies or principles, the way conservatives, progressives, and liberals do. Conservatives will reliably support policies that increase social order, such as law enforcement, national defense, and faith-based initiatives. Progressives will reliably support policies intended to reduce inequality, such as social spending programs, minimum wages, and progressive taxation. Liberals will reliably support policies that increase openness, tolerance, and dynamism, such as free markets, free trade, and deregulation.

Populists have been known to support almost any combination of any of these issues, even when they contradict one another. Populists can come from the right, the left, or nearly any combination of the two.

So what do populists rally around, if they lack defining principles or policies? Populism is about the conflict between us and them. It pits regular people against elites, whether in media, academia, or business. It pits one’s fellow countrymen against foreigners, or one’s coreligionists against outside faiths, or one race against another. It pits Republicans against Democrats.

Populism is more of a mindset, or more accurately, an emotionset. Populism comes more from the amygdala rather than the cerebral cortex, which is why it will always be with us to some degree.

A strong sense of in-groups and out-groups gave a survival advantage in hunter-gatherer times, as members of small nomadic bands helped each other out. Their hostility to outsiders improved their defenses. Thinking of people as “Other” also reduced moral qualms about taking food and mates from outsiders, giving another survival advantage in harsh conditions.

We moderns live in different circumstances, but genetically we are still the same people. Populism—and its cousins such as nationalism, socialism, racism, and identity politics—are all different applications of our hunter-gatherer instincts to modern conditions.

Who the outsiders are differs by circumstance; that there are outsiders is the common populist theme. That is why populists can have no coherent policies or philosophies, yet still have something important in common—us against them. The liberal project of preventing the Hobbesian war of each against all is about keeping that universal tendency in check.

So that is what liberals are up against—roughly 95 percent of human history, and millions of years of evolution before that.

Zingales’s contribution is a bit of judo—using the populists’ own tactics against them. If you can frame a policy in an us-against-them way, some populists might warm up to it.

Many populists favor trade protectionism as a way to shelter domestic industries from what they perceive as “unfair” foreign competition. But there are other ways to frame the same issue. If the “them,” rather than foreigners, turns out to be politically connected industries that profit by hurting “us,” the consumers, by lobbying for price-raising tariffs, then some populists could be convinced to oppose trade protectionism and other forms of cronyism. The political strategy is neutral on the policy; it’s about the framing.

But this lack of philosophical mooring leaves Zingales’s argument vulnerable. For example, he argues that globalization increases inequality, which is a classic populist grievance—thinking in terms of ratios, rather than how people are actually doing. As to that more important question, people around the world are doing better than in any other era of history—poverty rates, life expectancy, disease, violence, air and water pollution, and other measures of well-being are nearly all getting better, in both rich and poor countries. Zingales seems to think in terms of conflict, as a populist would, instead of in terms of cooperation. Yet, the beneficial results of the latter are what show up in the data.

Zingales argues on page 38 that “the most powerful argument in favor of antitrust law is one that is rarely made: antitrust law reduces the political power of firms.” That is not the case; regulatory capture is rampant in antitrust. Large companies often welcome antitrust enforcement and other regulation if it puts up barriers to entry against smaller competitors. For instance, Facebook can afford to spend millions of dollars complying with new content moderation regulations as part of an antitrust settlement; the small startup that could someday overtake Facebook cannot. Antitrust doesn’t fight cronyism, it provides more opportunities for it.

For Zingales, the problem is that while his populist framing of antitrust law is spot-on, it is just as easy to give identical framing to the opposite side of the issue. How do you decide which side is better on the merits?

Zingales makes a similar slip on page 51 when he argues that “One beneficial side effect of the Glass-Steagall Act, as with most of the other banking regulations, was to fragment the banking sector and reduce the financial industry’s political power.” In reality, Glass-Steagall made the banking sector more vulnerable by forcing banks to put their eggs in fewer baskets. It also reduced competition among banks, which could compete in either commercial banking or investment banking, but not both.

When various companies in an industry create non-compete agreements like Glass-Steagall did, it often results in an antitrust case. Yet in the case of Glass-Steagall, Congress passed a law forbidding competition.

While that ban went away in 1999, benefiting consumers, banking regulations as a whole have continued to grow. Rules aimed at boosting home ownership for political reasons required banks to take on more risks. When the resulting bubble blew up, unleashing the 2008 financial crisis, Congress passed the Dodd-Frank financial law in response, which exacerbated the “too big to fail” problem it was intended to solve. Yet, it was the repeal of Glass-Steagall that got much of the blame, including from Zingales.

Again, it is easy to make populist arguments both for and against bank bailouts. Bailout supporters can say that bailouts are necessary to protect households’ savings against big banks’ irresponsible behavior. Bailout opponents can argue that bailouts are another example of cronyism. They create moral hazard and make banks even more dependent on their political connections.

In the end, it still comes down to merits and principles. With a little creativity, almost any issue can be framed in populist terms. That means liberals still need to be careful about choosing which issues to frame in an us-vs.-them way for populist audiences.

Zingales is more careful about this in his concluding chapter, which draws out the distinction between being pro-business and pro-market, and comes out strong against cronyism. He writes on page 255:

What would also help minimize cronyism is not a plethora of new government regulations (they are the first to be captured) but a village of potential whistleblowers.

His book would have been better had he applied his advice consistently.

In the decade since A Capitalism for the People was published, Zingales has drawn some company in framing market-liberal policies in populist terms. Last month, George Mason University economist Bryan Caplan, who is openly pro-liberal and anti-populist, compiled two lists of populist deregulation proposals, ranging from ending airport security theater to deregulating shower heads. Arnold Kling, another market-liberal economist, writes regularly about populism and its framing in his Substack blog. CEI founder Fred Smith has a longstanding interest in what he calls value-based communication, of which appealing to populists is a part.

Will Zingales’s framing strategy help to improve policy in the current populist moment? Maybe a little bit at the margin, but it won’t help with substantive change, because the root problem is populism itself. It is at the cultural level, and can’t be fixed by liberalizing a regulation here and there. It takes active engagement, using insights from Zingales, and from Fred Smith, Caplan, Kling, Aaraon Wildavsky, and other thinkers. It takes civility and listening.

Fittingly, it takes cooperation, rather than conflict, to convince people that cooperation is better than conflict for achieving prosperity and security. It is possible to somewhat defuse today’s polarized politics, but it is a long-run process that takes ongoing effort and keeping calm.

By listening, engaging, and appealing to populists on their own terms, liberals can help convince people that an open society is a better place to live than a closed one, that principles are more important than parties or political personalities, and that long-term governing institutions are more important than winning this year’s election. The values of July 4 must prevail over those of January 6.

Best Books of 2021: Keith E. Stanovich, The Bias that Divides Us: The Science and Politics of Myside Thinking (MIT Press, 2021)

Today’s political polarization isn’t just annoying, it’s damaging important cultural and family institutions. And tensions won’t de-escalate until people figure out the root of the problem. University of Toronto psychologist Keith Stanovich has a compelling theory about those roots in his book The Bias that Divides Us: The Science and Politics of Myside Thinking. Surprisingly, it is only partially related to the myside thinking in his subtitle. 

First, a bit of advice for readers: skip the first three chapters and go right to chapter four, which begins on page 75. The first three chapters are dense mash of definitions of terms and hair-splitting distinctions that are unimportant to Stanovich’s main argument. They also contain something of a literature review on biases, to which Stanovich and his colleagues are important and prolific contributors. This is useful to undergraduate and graduate students, but mostly useless to the lay reader. In these early chapters, Stanovich also spends more time explaining what myside bias isn’t than what it is. It would have been better to organize it the other way around.

So Stanovich is no prose stylist, and his book is poorly organized. Yet it is on my best books of the year list. Why? Because chapter four gave me the type of eureka moment I have experienced only a handful of times in my career. Stanovich’s thesis is essential for understanding the current political moment, and will also likely help shed light on future political changes. This is a book that should have a long shelf life.

Instead of asking why people hold certain beliefs, Stanovich flips the question around. What if people don’t acquire beliefs, but beliefs acquire people? Stanovich argues that beliefs are subject to the same evolutionary forces as living organisms. The idea is similar to Richard Dawkins’ selfish gene hypothesis. 

Genes are what get replicated, not individuals. So genes care more about traits that help them replicate more than about traits that benefit individual gene carriers. This is one reason why parents will sacrifice themselves to save their children, and why people care more about close relatives than strangers. Protecting the people close to you protects your genes.

As with genes, so with beliefs. Beliefs that stick around and become popular get that way because they tend to be very good at replicating themselves—whether or not the beliefs have any basis in reality, or are useful to the people that adopt them. Beliefs that exploit human psychological quirks, such as myside bias, are more likely to “succeed” in this sense, even if they are false or harmful. Those with less meme-like qualities die out or remain rare. 

Myside bias is just such a replicating tool that successful beliefs use. It is both an attack and a defense. It is form of motivated reasoning related to confirmation bias, though not quite the same thing. Where confirmation bias is just a neutral tendency that humans evolved to save cognitive effort, myside bias is purpose-driven. It is rooted in defending one set of beliefs, and attacking competing beliefs. In a way, political partisans are unknowing participants in the natural selection of ideas, and not in a good way.

Republicans and Democrats both tend to highlight evidence supporting their position on an issue, and downplay or ignore contrary evidence—and both parties do this to the same degree. One is not better than the other. Much of the literature Stanovich reviews shows little to no difference between progressives and conservatives in their susceptibility to myside bias, and little difference in other personality traits like openness, agreeableness, and so on. Classical liberals show some psychological distinctiveness from conservatives and progressives, but not very much, and consistent liberals are also relatively rare.

Stanovich mostly sticks to how his “selfish beliefs” thesis affects politics. But it has wider applications. For example, it can help explain why some religions spread, why others endure despite having few adherents, and why others never get off the ground. Religions that have an ethos of proselytizing tend to spread more widely than those that don’t—which is an obvious point, if one thinks about it. But there is a reason why most people belong in the first place to religions interested in converting people. It’s a belief-replicating strategy that works.

Other religions are less interested in spreading, yet they can still endure for millennia. This is because they have strategies of their own. One of them is to have a high cost of joining—people who work hard to gain entry tend to prize it highly, and are unlikely to give up membership (this is also why college fraternities have hazing rituals). Though this doesn’t gain many new convert, it is a potent defense for existing members against competing religions. This is also why proselytizing religions typically have low barriers to entry, and non-proselytizing religions have higher barriers.

Another strategy is to set the group apart from the rest of society through distinctive dietary requirements, appearances, language, and other cultural markers. Life in such an out-group can be tough for individuals. But leaving is also extremely costly, because society at large will likely never fully accept the defector, so relatively few people do. Bad for the person, but good for the belief.

The selfish belief thesis, and its expression through myside bias, has lots of fertile ground for researchers to explore, both in and out of politics.

Stanovich’s concluding chapter, which is also his longest, focuses on what to do about myside bias. The obvious solution to today’s political polarization is to not have a rooting interest. Praise where due, criticism where due. Do support principles; don’t support parties or politicians. The problem is that the this won’t work. Most people’s brains don’t work that way, thanks to our hunter-gatherer legacy of instinctive ingroup-outgroup thinking. Partisanship, and partisan media, are here to stay. Reformers have to fight their battle in the real world if they want to make any improvements.

One such defense mechanism Stanovich suggests is simple awareness. Just being aware that you, as a human being, suffer from myside bias, can help you look for it and do a little something to fight against it. It isn’t a perfect solution—and, spoiler alert, there isn’t one—but it’s a start.

Another defense comes from Stanovich’s insight on page 85 that “There is no general tendency for a person to have high or low myside bias.” It instead comes with certain ideas, because myside bias allows those ideas to successfully persist and spread. This is why seemingly unrelated political stances tend to cluster together. 

For example, to take two hot-button issues on which CEI takes no position, odds are that if you know a person’s position on abortion, you probably also know their position on the Kyle Rittenhouse verdict. Those issues have nothing to do with each other, yet people’s stances on them cluster far more tightly than chance would predict. When you see unrelated issue stances cluster together like that, those issues are likely prone to strong myside-style thinking. Treat those issues with caution. 

It also helps to realize that merits often do not matter to people when they take sides on an issue. This is a difficult lesson for think tankers like myself to learn, since we make our living arguing on the merits. But as Stanovich writes on page 142, “Based on the findings of a wide range of studies, most American voters can’t articulate a principle behind their stance on a particular issue and often don’t know their stance on many issues until they hear the stance supported by their own partisan group.” Regarding a study on attitudes toward welfare policy, “It was as if the subjects did not know their position on the issue until they were told which party was supporting it.”

Another rule of thumb is that the most myside-prone issues tend to be lack a clear right or wrong. People tend not to argue about the law of gravity; they do tend to argue about outrage-of-the-moment culture war news stories, where both sides usually have something resembling a good point. The outrage comes not from the merits of the issue, which are often ambiguous, but from people using them (or are being used by their beliefs) to express their identity. Defend the in-group, attack the out-group. Again, bad for the person, but good for the belief’s replicability.

Which leads to Stanovich’s most heartfelt recommendation: the need to reject identity politics. Here he argues with a passion not seen in the earlier chapters. Most of his focus is on the insular academic world he inhabits. But it is no secret that myside beliefs have harmed the quality of research in psychology, Stanovich’s field. Various grievance studies departments survive not on the quality of their research, which tends to be poor, but by preying on peoples’ ingroup-outgroup thinking, where myside bias thrives. Rather than foster cooperation, they try to get people to compete in a zero-sum game of social status by dividing people in groups and encouraging them them to duke it out based on those group identities. This strategy does little to fight racism or pursue other worthy social goals. But as a replication strategy for myside-prone beliefs, it is brilliant. 

I’ve long thought, based on personal experience, that most people are twits when they are college age and then slowly grow out of it as they get older. So I tend to roll my eyes, rather than get outraged, when campus political correctness veers into cartoon territory. It’s mostly social signaling, not serious policy proposals. I also believe that well-intentioned efforts to be inclusive should be applauded, even if they are sometimes clumsy. They are a conscious effort to broaden people’s circle of concern beyond their in-groups, which is something everyone from Adam Smith to Stanovich himself favors.

But Stanovich has a point when he argues that campuses saturated with myside thinking can have a long-run effect on students as they move into the real world. This may be one reason why politics has become so polarized in the last decade or so—the first generation of students who grew up in stifling myside-biased campus environments is now old enough to play leading roles in business, politics, and media. 

The best solution is also long-run—reshape universities to reject identity politics and to instead encourage open, civil discussion of ideas. Discovery and growth are rarely comfortable, but they’re worth it. Getting there will be difficult and will require structural changes. These include requiring grievance studies departments to meet the same academic standards as real departments in the humanities and social sciences; depoliticizing mission statements and administrative jobs; changes to funding, hiring, and admissions practices; and, most importantly, shifting social norms in favor of civil engagement, rather than righteous shouting down. These are unlikely to come to pass anytime soon. But even small changes at the margin can have significant long-term effects. 

Readers interested in further exploring similar themes would also like two other books also published in 2021. Julia Galef’s highly readable The Scout Mindset: Why Some People See Things Clearly and Others Don’t draws a contrast between the scout mindset and the soldier mindset. Scouts search for correct information, as though they are trying to draw an accurate map. A soldier’s job is to defend something, right or wrong. Everyone is part soldier in this sense. And strong partisans are mostly soldier. Galef offers advice on how to keep the soldier mindset in its place and embrace our inner scout. 

Galef’s best recommendation is regular practice. Take the time to engage opposing ideas without anger or passion. You can dance with an idea without marrying it. Try asking tough questions about your own beliefs. If a news story plays into your ideological priors, assume it’s too good to be true unless you investigate more closely. These are learned skills that take effort, which is why most people won’t bother. But they pay off.

University College London professor Brian Klaas’ similarly readable Corruptible: Who Gets Power and How it Changes Us is also a good complement to Stanovich. Where Stanovich uses an evolutionary approach to understand ordinary people, Klaas uses an evolutionary approach to understand the powerful. He is interested in the types of people who seek power, and are successful in obtaining it. As it turns out, there is a natural selection process that favors people with undesirable personality traits in the pursuit of power. Hayek was right; the worst really do get on top

Klaas also offers suggestions for how to contain ambition. He correctly focuses mostly on the institutional level; for different results, we need different rules. The rules of the political game need to weed out people right at the start who want power for the wrong reasons. They need to keep a close eye on even good people in power, because power tends to corrupt. And they need to limit the damage that any one individual can do.

If time and space allow, I’ll give those books their due. They certainly belong with Stanovich’s The Bias that Divides Us on the list of best books of the year.

I, Pencil Meets Today’s Political Realignment

Conservatives are different than they were just a few years ago, and it isn’t just because of Trump, who is more a symptom than a root cause. There is a larger political realignment underway, as happens every couple of generations. Previously, conservatives saw communism as the enemy, and favored free markets as a bulwark against it. But the Cold War ended a generation ago. Today, the debate isn’t over communism vs. capitalism, it’s over open vs. closed.

The latest data point in the current political realignment comes from The American Conservative’s Declan Leary, in a piece taking on Leonard Read’s classic free-market pamphlet I, Pencil (see also CEI’s video adaptation). Leary’s article is titled “We Are Not Pencils,” though the article’s URL contains the phrase “pencils are from the devil.”

This is quite a change from the days when President Ronald Reagan was photographed reading The Freeman, the magazine published by I, Pencil author Leonard Read’s Foundation for Economic Education.

At the same time, the old and new conservatives aren’t as different as they seem, despite their differences on trade, free markets, antitrust, industrial policy, and Eastern European dictators. Their different views come from the same inborn human tendency to see the world in terms of in-groups and out-groups.

Those groups can be defined by almost anything, whether serious or silly—language, race, religion, nationality, political party, sports fandom, views on whether pineapple belongs on pizza, and more. People can simultaneously belong to several of these groups, and flit between them seamlessly as social situations dictate. A Democrat and a Republican can be friends at a baseball game where they cheer for the same team, for example, then go back to bickering after the game.

I, Pencil celebrates openness, giving that 1958 pamphlet a clear position in today’s realignment. Read’s point is that cooperation is so fundamental to the human condition that no one, by themselves, can make something as simple as an ordinary pencil. Interconnectedness makes modernity possible.

Making a pencil requires millions of people working in concert. These include loggers, miners, tool makers, paint producers, truck drivers, box makers, machinery designers, farmers and restaurant workers to feed them all, retail clerks, and more. Not only that, but nobody is in charge. Nobody is following any plan. This complicated order emerges spontaneously, guided by little more than the price system and social norms.

But where Read sees a source of wonder, Leary sees a source of fragility. “The Invisible Hand wrenched away not just American jobs but America’s very capacity to produce things,” he writes. What if a link in the supply chain breaks? What if China decides to cut off America’s supply of rare earth elements? What if some politically woke truck drivers go on strike?

It would be better, Leary argues, to turn inwards a little bit. Going full Juche, as North Korea calls its philosophy of self-reliance, is obviously harmful. But on the spectrum from open to closed, Leary argues that we have gone a bit too far toward the open side, and become too vulnerable because of that. Out-groups aren’t as trustworthy as the in-group, in that view.

But has the invisible hand really “wrenched away American jobs?” Look at the data for the size of the U.S. labor force, going back to 1948:

Labor force size is tied most closely to population size, not how open the American economy is to foreign trade. In 2000, the labor force was 143 million people. As of September 2021, it was 161 million. That’s a net gain of 18 million jobs, even accounting for the 3 million jobs lost during the pandemic that have not yet come back.

Leary is asking the wrong question. What is important is not how many jobs, but what types of jobs there are, and how much value those workers create. A subsistence farming economy has full employment, but low living standards. A globalized, high-tech economy also often has full employment, but its similarly sized labor force has much higher living standards and longer life expectancies.

So Leary’s argument about jobs doesn’t hold. What about “America’s very capacity to produce things?” Let’s look at the St. Louis Fed’s total index for industrial production from 1920 to the present. Notice that it is near an all-time record high right now, despite a COVID-related dip:

So Leary’s argument doesn’t hold there, either. To be fair, this record was set by fewer manufacturing workers. There were 12.8 million manufacturing workers when COVID hit, compared to a peak of 19.5 million workers in May 1979. That is concerning. But why is manufacturing output still higher? Because today’s workers are more productive than they were a generation ago.

This productivity surge—driven by technology, openness, and specialization—has freed up millions of people’s time and talent for other pursuits. Not only do Americans manufacture more stuff than ever before, we are also creating more service-related value, with less effort. It’s not manufacturing or services when productivity increases; it’s manufacturing and services. The pie gets bigger.

The key to mass prosperity is doing more with less. Politically directed industrial policy attempts to treat a healthy patient, while harming the rest of the economy by taking away its resources.

Moreover, the service jobs to which workers are migrating tend to pay better and have better working conditions. There is something to be said about working in an air-conditioned office or from home, rather than a noisy factory floor with potentially dangerous machinery.

Average hourly pay, as of September 2021, is $24.18 in manufacturing, versus $30.85 for the economy at large. Since wages are tied to productivity in the long run, a major reason for workers’ migration away from manufacturing is that the new types of jobs tend to create more value than the old ones.

Using government policy to migrate workers back to manufacturing jobs would mean paying many of them less. It would also mean that their hard work would create less value for people. That would be a double blow to worker’s egos, which is almost certainly not Leary’s intention. But as the economist Thomas Sowell likes to say, intentions are not results.

What about the theoretical case for more economic self-sufficiency? The first response is a simple one: Don’t put all your eggs in one basket.

Leary argues that elaborate supply chains are vulnerable. If one link breaks, the whole chain becomes useless. Fortunately, supply chains are nothing like chains. A link in a chain is connected only to the link directly ahead of it, and the one directly behind it. Real-world supply chains are more like webs or networks, where each piece is connected to nearly every other piece. That is a source of strength.

Breakages happen all the time in the real world. It’s important to have as many ways as possible to adapt and reroute. As the economist Israel Kirzner pointed out, entrepreneurship is all about alertness. Markets and supply networks are never perfect, and are always changing. Every flaw, and every vulnerability, is an opportunity for improvement. The economy is an ongoing process of experiment, trial, error, and adaptation.

But people will have fewer ways to make improvements and shore up against vulnerabilities if policies limit who they can cooperate with or confine their talents to certain industries. Industrial policy and self-sufficiency make people more vulnerable against threats because they lock people into old patterns, distort prices that convey important information, and make it more difficult to adapt. This is true whether the threat is a global pandemic, a foreign adversary, or a local labor dispute.

The economic case for why openness is more resilient than self-reliance is not new. It is not even controversial, at least among economists. But in politics, issues are often not about the merits. If Leary really is arguing against the economics, he has not succeeded. But if he’s staking out a cultural or political identity and attacking out-groups, then mission accomplished.

Leary also deserves credit for using the word “liberal” closer to its original and correct meaning—valuing freedom and openness—than do most commentators.

The insight that national conservatives and populists often care more about cultural identity than policy is key to understanding today’s political realignment. That is not to pick on conservatives; many progressives are no different. For them, too, signaling is often more important than real-world policy effects.

Affirming the in-group and vilifying the out-group is harmless at a ballgame, or in an argument about whether Star Wars or Star Trek is better. But in public policy, the stakes are higher. An old impulse that had survival benefits in hunter-gatherer times can have the opposite effect in the modern world—especially when COVID-19 is still a going concern.

It isn’t often that a pamphlet about basic economics offers insights about a political realignment that happens 60 years after its publication. But that is the case with I, Pencil. Leary would not have bothered writing about Leonard Read’s defense of openness if it didn’t strike a nerve. Fortunately for the economy and for our ability to respond to the COVID crisis, Leary’s criticisms do not hold up against real-world data or economic theory. If he instead wants to engage in culture war identity signaling, perhaps he should find ways to channel that impulse in ways that would not make America more vulnerable to threats both domestic and foreign.

For more on “I, Pencil,” see CEI’s video adaptation. See also my review of CEI Julian Simon Award winner Johan Norberg’s book Open.

Senate Judiciary Antitrust Hearing on Big Data Based on Flawed Premises

This press release was originally posted at cei.org.

WASHINGTON – The Senate Judiciary Committee’s Subcommittee on Antitrust will hold a hearing today on the implications of data on competition. Subcommittee Chair Senator Amy Klobuchar (D-MN) told POLITICO, “Big data is at the core of our modern economy, powering targeted advertising, driving artificial intelligence. It’s a really intense competition issue at its core.”

Competitive Enterprise Institute Senior Fellow Ryan Young said:

“Sen. Klobuchar and her colleagues are arguing that the sheer scale of Big Data makes it difficult for smaller companies to compete in areas such as targeted advertising and algorithm development. There are several problems with this argument.

“One is that new companies are still entering the market and succeeding. TikTok is now garnering more viewing time than Google’s YouTube, and was the most-downloaded app of 2020, surpassing established giants such as Facebook. Zoom, which nobody had heard of two years ago, almost instantly overtook established competitors from Microsoft and other tech giants, and its brand has even become a verb.

“Two, simply having data and established networks of users did not stop Amazon from failing with its Fire phone, Google failing with its social Network Google+, or the anemic performance of Facebook’s Portal devices.

“Three, if the ad market was anti-competitive, the big companies would be able to get away with raising their prices. Instead, ad prices fell by half over the period 2009-2019, even as print ad prices doubled in some cases. Google, Facebook, Apple, and other incumbents spend billions of dollars on research and development. Companies that feel safe from competition do not do this.

“Sens. Klobuchar, Hawley, and others want to write new, expanded antitrust laws. All this would accomplish is give incumbent companies another set of regulations they can game in their own favor; regulatory capture is real. A greater threat of being sued would also have a chilling effect on innovations that regulators might not understand or approve of. The economy needs room to recover, not more central direction from Washington.”

Read more:

The Progressive Playbook? Thoughts on a Slippery Slope

Is there a master plan behind the blunders of governments? Or are politicians just making it up as they go along? The cabal model is tempting. A lot of people tend to believe that it is not enough for their opponents to wrong; they must also have bad intentions. But usually, less sinister explanations, such as fallible politicians responding to incentives, are a better guide to fixing today’s political mess.

For example, President Biden recently announced that he is asking the Federal Trade Commission to consider using antitrust enforcement to fight rising gas prices. The economist Jeff Eisenach tweeted in response:

The Progressive Play Book: Step 1: Use regulations to restrict supply. Step 2: Blame the oil companies for rising prices. Step 3: Invoke antitrust. Step 4: See e.g., CITCO, Pemex. We are at Step 3.

One should not read too deeply into tweets. They lack enough space either to explain nuances or to define terms clearly enough to prevent misunderstandings. Sometimes, people are just making a snarky point, and they don’t have room for a disclaimer in a 280-character tweet.

Any or all of these situations could be the case here, but Eisenach’s playbook theory tweet has a clear—and common—slippery-slope logic that is worth a closer look. This is not to single out Eisenach, but to highlight a tendency among people of all political persuasions: to assume bad motives and master plans where there probably aren’t any.

Progressives often favor adding new economic regulation, and rarely favor rolling them back. So, it makes sense that progressives would respond to rising gas prices—largely caused by regulations—with more regulations. In Eisenach’s playbook model, this story presumably repeats until the energy sector is nationalized, as with Pemex, which is owned by the Mexican government, and Citgo, in which the Venezuelan government has a stake (though it cannot benefit from Citgo’s U.S. holdings because of sanctions).

This isn’t entirely drawn from thin air. Sen. Bernie Sanders (D-VT) really has proposed nationalizing the energy industry. The Green New Deal may not be a serious proposal, but it really was introduced as legislation.

But is the slippery slope really so deliberate? Just like the GOP’s own populist extremists, the Democratic party’s progressive wing has a high decibel level, but lower numbers and influence. Yes, progressivism touts lofty ideals, such as economic equality, democracy, and environmental protection, but in practice, progressive policies tend to be less lofty and more concrete.

If some people are having trouble making ends meet, pass a law raising the minimum wage. If other people have too much money, raise their taxes. If rents are too high, use price controls or impose a moratorium on evictions. President Biden’s antitrust threat against oil producers is similarly direct. Gas prices are going up, so do something about it. Such moves don’t involve much abstract thought about long-term competitive processes, tradeoffs, unintended consequences, or rent-seeking—what economist Thomas Sowell calls thinking beyond stage one.

If anything, President Biden’s proposal mixes a layman’s misunderstanding of the 1970s oil shock from early in his career with today’s hottest political trends, such as inflation and antitrust. Availability bias is a far likelier driver for his proposal than a playbook to eventually nationalize the energy industry.

Inflation and high gas prices were important issues in the 1970s. The two are linked together in a lot of peoples’ minds to this day. Today, inflation is back over 5 percent and gas prices going up again. In his speech, President Biden even singled out OPEC, which is long past its prime as a global economic villain.

Another factor that makes the current gas price increase appear even starker is that prices are rising from a low starting point. On April 23, 2020,  gas prices averaged $1.77 per gallon, the lowest since the 2008 financial crisis. Since then, gas prices haves been on an upward trajectory, rising to $3.17 per gallon by August 16, 2021. While that is a sharp increase, thanks in large part to that low starting point, gas is still cheaper than it was for almost all of the period between 2011 and 2014.

Inflation is also not the main driver of rising gas prices. Inflation is what happens when the supply of money gets out of whack with the supply of goods and services. If it isn’t monetary, it isn’t inflation. Today’s inflation is likely responsible for about 10 cents per gallon of the price increase, out of roughly $1.40. Most of the rest comes from a mix of supply, demand, and bad regulations.

The Jones Act of 1920, which is essentially a Buy American bill for the maritime shipping industry, makes shipping domestic gas artificially expensive and increases reliance on imported oil. Both of these make gas prices higher and more volatile. The Biden administration’s decisions to deny drilling and pipeline permits and to raise some regulatory burdens are also raising prices and squeezing supply. These are not inflation, but they are raising prices.

Coincidentally, higher prices and restricted supply are the same indicators used in finding consumer harm in antitrust cases, adding potential confusion to any antitrust cases stemming from Biden’s proposal. His recently proposed carbon tariffs on imported oil would further worsen the problem.

Repealing existing regulations and walking back proposed burdens would do more to lower gas prices than adding new restrictions—but that would require admitting mistakes. Politicians generally prefer to shift the blame and then publicly punish some supposed bad guys. That is not a conspiracy; it is rational political behavior.

The state of politics is unhealthy. There are lot of changes needed at the cultural, institutional, and policy levels. While conspiratorial allegations of political playbooks and slippery slopes are tempting as explanations, a lot of bad policy simply involves politicians responding to the incentives they face with the limited knowledge they have—the same as everyone else does.

The economic recovery and the continuing long-run rise in living standards would be better served if reformers would focus their scarce resources on these, rather than on exposing sinister narratives that aren’t really there.

Partisan Reasoning and Evolution

From p. 32 of Jonathan Rauch’s forthcoming book The Constitution of Knowledge:

Think of it this way: humans are equipped with some of evolution’s finest mental circuitry to protect us from changing our minds when doing so might alienate us from our group. We have hundreds of thousands of years of practice at believeing whatever will keep us in good standing with our tribe, even if that requires denying, discounting, rationalizing, misperceiving, and ignoring the evidence in front of our nose.

This explains much of modern politics, and is one reason I highly recommend avoiding cable news. Some of the talking heads’ performance routines are impressive. But they are seeking peer approval, not truth or understanding.

CEI is hosting Rauch for a book forum on June 9. You can register here.

Seat-Jockeying and the Separation of Powers

An item from today’s Politico Playbook newsletter highlights an important aspect of Washington culture: the importance of proximity to power.

PELOSI’S LATEST HEADACHE — “Lawmakers scramble for ‘musical chairs’ to view Biden’s first Capitol speech,” by Mel Zanona and Sarah Ferris: “Which is a hotter ticket: Beyonce’s first post-pandemic concert or President Joe Biden’s first address to Congress? Washington is about to find out. Even as life slowly returns to normal on Capitol Hill amid the shrinking threat of Covid, strict safety protocols will remain in place for Biden’s April 28 joint address inside the House chamber. That means only 200 lawmakers, administration officials and staff will likely be allowed to attend the distanced and heavily sanitized event, a far cry from the typical crowds for a prime-time presidential speech.

“Such tight limits mean Democrats are already jockeying to score one of the precious few seats. And a handful of lawmakers have already logged a request with party leaders, who have the unenviable task of divvying up the small passel of tickets for the president’s debut speech.”

“Jockeying” is one word for it. We’re told the situation surrounding Biden’s speech is already downright contentious. One Democratic source told us that some in leadership didn’t even want to have this address because they knew it would cause this very problem with their members. People will feel jilted if they don’t get an invite. And Speaker NANCY PELOSI can’t afford that now because her majority is so narrow. But Biden wanted it, and the president gets what he wants.

This is not to pick on Democrats. Republicans are even worse.

Their power-worship problem got so bad, they opted against having a specific party platform for the first time since the GOP’s founding before the Civil War. Instead they pledged to support any policies then-President Trump put forward. They also went along with Trump’s attempt to change the 2020 election results, culminating in the violence at the Capitol on January 6. Even now, officials view trips to Mar-a-Lago as almost pilgrimages and are afraid to upset him.

I’ve been arguing since the Bush 43 years that the executive branch has grown too powerful. The previous administration’s excesses should have been enough to teach a lesson to both parties a lesson about the separation of powers. While the Democratic seat-jockeying episode is minor compared to the past year’s other debasements, it does not inspire hope.

Putting a Price on Conspiracy Theories, Revisited

Conspiracy theories are back in the news, so it’s a good time to revisit my recent Fortune article about putting prices on conspiracy theories. My argument is that irrationality is the same as any consumer good, such as cars or televisions. When the price of something is low, people consume a lot of it. If the price goes up, they consume less. If you want fewer conspiracy theories, then put a price on them in line with the harm they cause. So far, this theory is holding up well.

Two recent news items show why. First is a development regarding “Release the Kraken” lawyer Sidney Powell. She claimed that the 2020 election was stolen, and that Dominion voting machines used in the 2020 election had design input from former Venezuelan dictator Hugo Chavez, who died in 2013. Her claims were dismissed from several election-related court cases for lack of evidence.

In December, Dominion Voting Systems put a price on Powell’s irrationality when it filed a $1.3 billion defamation lawsuit against her. Powell’s behavior immediately changed. This week, her attorneys said in a court filing in the case that “No reasonable person would conclude that the statements were truly statements of fact.”

That is remarkable, and likely means the end of Powell’s legal career, even if the case is dismissed.

Second, Fox News is now seeing a price increase for its conspiracy-spreading. This week, Dominion sued Fox News for $1.6 billion for defamation. Smartmatic, another voting machine maker, in February sued Fox News, three of its anchors, Powell, and Rudy Giuliani for $2.7 billion. Lou Dobbs, one of the Fox anchors named in that suit, had his show canceled in February, and is no longer making false election claims on air.

These are all normal responses to an increase in price. While media coverage will likely always remain sensationalistic and threat-based for reasons I’ll explore another time, this is one case where a little bit of ECON 101-style price theory can make the news more trustworthy. Or more to the point, make it less harmful.

My original Fortune article is here.

Restoring Separation of Powers and Improving Resilience with the USA Act

Separation of powers is a core principle of American government. But things haven’t gone quite as planned. Congress, the first branch, has increasingly taken a back seat to the second branch, headed by the president. This is not a partisan problem, but a systemic one.

The Framers designed a system of checks and balances in the belief that the different branches of government would compete against each other. They were mistaken. It turned out that it is parties, not branches, that compete against each other. This institution-level problem requires an institution-level fix.

To that end, Rep. Cathy McMorris Rodgers (R-WA) recently reintroduced the Unauthorized Spending Accountability (USA) Act, which seeks to rebalance a tilted scale by reasserting Congress’ power of the purse. It would reengage Congress in policy making, regardless of who runs which branch at any given time.

Only Congress has the power of the purse, yet a long list of unauthorized executive branch programs continue to operate—971 in all as of 2019, at a cost of more than $306 billion. That is roughly a quarter of discretionary federal spending.

The USA Act would automatically cut an unauthorized program’s budget to 90 percent of its previously authorized level in its first unauthorized year, and to 85 percent in the second unauthorized year. Programs would sunset altogether after a third unauthorized year.

The Trump administration displayed less respect for the limits on its power than any previous administration, including the “pen-and-phone” Obama administration. President Biden is unlikely to suddenly show a restraint that no one in his office has in decades. That bodes poorly for the COVID-19 recovery effort, which cannot be planned from Washington, let alone from one individual’s office. Congress needs to reassert itself as a check and a balance on the executive.

The USA Act would require Congress to own up to its budgeting responsibilities, while simultaneously making the executive branch more accountable. The reform is much needed.

As it stands now, there are programs currently operating that Congress has not authorized since the 95th Congress, which was in session from 1977 to 1979. In fact, when Rep. McMorris Rodgers introduced the first version of the USA Act in 2016, entire cabinet-level departments, such as the State Department, had not been congressionally authorized since 2003. The Justice Department was last authorized by Congress in 2009. Other agencies, such as the Bureau of Land Management, have operated for roughly 25 years without congressional authorization.

There is more. The USA Act’s automatic budget cuts and sunsets apply only to programs classified as discretionary spending. Roughly three quarters of federal spending is classified as mandatory, including major programs such as Social Security and Medicare. While Congress has the power to change these programs at any time, they do not require congressional reauthorization, and can continue indefinitely on autopilot.

To address mandatory spending, the USA Act would create a Spending Accountability Commission to examine mandatory spending programs and make them more accountable to Congress. It is especially crucial to make those programs more efficient and fairer, given the coming entitlement crunch. The Commission would also assist Congress in creating a schedule for sunsetting unauthorized programs.

Restoring a proper separation of powers is a tall order. The USA Act is no panacea, but it would mark an important step in crucial area of reform. With a difficult recovery from both COVID-19 and a recession ahead, the time to act is now.

Abraham Lincoln on the Separation of Campaigning and Legislating

Abraham Lincoln, when he was a member of the House of Representatives from the Whig party, supported Zachary Taylor’s 1848 presidential candidacy. This was in part because he thought Taylor would be a weak executive. As David Herbert Donald writes on p. 127 of his 1994 biography Lincoln:

The proper Whig policy ought to be one of “making Presidential elections, and the legislation of the country, distinct matters; so that the people can elect whom they please, and afterwards, legislate just as they please, without any hindrance [from the Chief Executive], save only so much as may guard against infractions of the Constitution, undue haste, and want of consideration.”

Lincoln would change his tune when he became president himself. There is also more to successful executive restraint than this. And there is need for stricter legislative restraints, too. But on the whole, this is a healthier vision of executive power and the president’s proper role than what we have endured over the last few decades.