Book Review: Open: The Story of Human Progress by Johan Norberg

On March 25, 2021 at noon ET, CEI is hosting a double book forum featuring Johan Norberg, the 2019 winner of CEI’s Julian L. Simon Memorial Award, and Patrick Moore, a Greenpeace cofounder and author of Fake Invisible Catastrophes and Threats of Doom. Register here, where video of the event will also be viewable afterwards.

Liberalism—in the correct sense of the word—needs fresh voices. The ideological conversation is different than it was a decade ago, and many market-liberal thinkers have not kept pace. Today’s debate is over whether society should be open or closed, not which side of the Iron Curtain was better.

This is where the Swedish economist Johan Norberg performs a valuable service. He is fighting the current battle, not the last one. His newest book, Open: The Story of Human Progress, is a superb defense of the pro-freedom side of the debate. And he defends it against the nationalists and populists who are attacking it right now.

People over a certain age on the political right tend to still use the word “socialism,” but often as a catch-all term for things they dislike. This is different from the word’s commonly understood meaning of state ownership of the means of production, belief in dialectical materialism, teleological stages of history, or any of the other things socialists actually believe in.

People under a certain age on the political left often say they favor socialism. But they, too, have given the word a new and different meaning. They typically define socialism as a more-or-less market economy with a large welfare state, as in the Nordic countries. They are also often careful to add the qualifier “democratic” as an implicit nod to what socialism’s original meaning entails.

When people give the same word different meanings, confusion reigns. When people today lob the s-bomb, they are often talking  at each other, not to each other. The real debate is elsewhere.

This tactic is great for getting people riled up, though. The heat-without-light approach has advanced the careers of people like Fox News host Tucker Carlson and former President Trump on the right, and Sen. Bernie Sanders and Rep. Alexandria Ocasio-Cortez on the left. But it makes substantive debate difficult.

Openness and liberal institutions have generated more wealth for more people than any other socioeconomic system in history. But they are also unpopular. Norberg has some ideas on why, drawing on a mix of history, economics, and psychology. He sums up his thesis on page 6:

As I will argue, the reason that the Enlightenment and the Industrial Revolution started in Western Europe was that this region of the world happened to be the most open, partly just out of luck. It has been repeated in every place that has gone through similar institutional changes. It is not the triumph of the West, it is the triumph of openness.

First, the history. The last two centuries have seen a mass enrichment unlike anything in human history. As economic historian Deirdre McCloskey has pointed out, people today are 30 times wealthier than our ancestors were in about 1800. Not 30 percent more, but 30-fold. As President Biden once said about a different issue, this is a big deal. Since the Great Enrichment began, life expectancies have doubled. Infant mortality is down by more than 90 percent. Famines today have political causes, not natural ones. Violence, both intentional and accidental, are sharply down across the board. A few years ago, the percentage of world population living in absolute poverty—$1.90 per day or less—fell below 10 percent for the first time ever. Almost every long-run trend is showing improvement.

This historical process is as important as the taming of fire or the invention of the wheel. This is what Norberg defends. And it needs defending, because the openness and liberal values that made it all possible are unpopular. Psychology helps to explain why.

People respond to threats more sharply than to good news. In lab experiments, people feel the sting of loss about twice as sharply as a gain of similar amount. Psychologists call this loss aversion. We evolved this trait because mother nature is a superb economist. People have only so much attention to give to things, so we have evolved ways to economize on it. When things are going well, we can leave them alone, and save our scarce attention for dealing with threats. We are hardwired to pay more attention to threats, because long ago there was a survival advantage in doing so.

This tendency is not unique to humans, and long predates us. In a way, the modern life we all enjoy runs counter to hundreds of millions of years of natural selection processes. No wonder liberals have an uphill battle!

In the last two centuries or so since the Great Enrichment began, threats have become progressively less menacing. People don’t have to worry nearly as much about famine, disease, or violence. But that same impulse still exists. Now it gets channeled differently. Socialists—actual ones—viewed capitalists as threats. Populists, from William Jennings Bryan to Josh Hawley, frame various elites as threats. Nationalists view immigrants and foreigners as threats.

Who and what people consider to be threats changes with the times. But that core psychological mechanism remains constant. Some kind of outside Other always poses a threat to the in-group, which must always be defended. This in-group can be a family, tribe, race, nation, political party, or just about anything else. People can also have multiple in-groups at the same time, and can shift seamlessly between them. A Republican and a Democrat who would be enemies in one setting might become fast friends at a baseball game if they like the same team, then go back to being enemies when the game is over.

The key point is that the in-group/out-group dynamic is in everybody’s DNA, and is where the urge to close society comes from. Norberg here draws on the political psychologist Karen Stenner’s 2005 book The Authoritarian Dynamic, which argues that about a third of people have an underlying authoritarian impulse in them—but it doesn’t express itself unless people feel threatened. During normal times, they are just as open and amiable as anyone else. But when they feel threatened, “they react explosively,” Norberg writes on p. 343. “They become intolerant of diversity and dissent and willing to restore unity by government control, even if it wrecks rule of law and free speech.”

Liberal institutions are powerful enough to double lifespans and increase prosperity 30-fold in a handful of generations. At the same time, they are vulnerable to attacks like this.

Prior liberal flowerings got started in societies as diverse as Ancient Greece and Song dynasty China. But none of them lasted. The general intellectual climate wasn’t open enough to openness. Plato was executed essentially for nonconformity. After Mongol invaders ended the Song dynasty, the succeeding Ming dynasty responded to the threat by destroying the world’s most advanced fleet of oceangoing ships and banning nearly all foreign contact.

That vulnerability is why the open society will always need defending, especially as its attackers change tactics every generation or two. Norberg’s defense is perfectly suited for this generation’s emerging threats. Populist and nationalist governments have come to power in recent years in countries such as Brazil, Mexico, Hungary, and elsewhere. President Trump’s trade war, immigration restrictions, race-baiting were slowing the longest economic expansion in U.S. history and causing cultural divisions even before COVID-19 hit.

Even after he cost his party the House, the Senate, and the presidency, the Republican party is continuing along a national populist trajectory. The progressive wing of the Democratic party is pushing similar policies in different packaging, on issues from international trade to technology policy. The United Kingdom’s Brexit debate, which should have been about escaping the European Union’s burdensome regulatory, agricultural, and tax policies, was instead hijacked by ugly nationalist impulses, and became divisive for all the wrong reasons. Strongman governments and nationalist political parties are springing up in places that should know better, such as Eastern Europe, which bore the brunt of both fascism and communism in the 20th century.

Norberg writes clearly and persuasively, with passion, and without anger. It is an impressive performance, and a joy to read. He has only one notable slip in 384 pages, and that is his support for a carbon tax on pages 330-331. Ironically, this comes in a section about the knowledge problem in economics. A centralized body such as Congress is unlikely to have the on-the-ground knowledge it needs to put an accurate price on carbon emissions.

Perhaps more significantly, the carbon tax suffers from public choice problems—which basically means that politicians tend to behave like politicians. A cardinal rule of politics is that policies are made and enforced by the government we have, not the government we want. Even if Congress did overcome the knowledge problem, it is unlikely that people like Nancy Pelosi and Mitch McConnell, or whoever succeeds them down the road, would craft a carbon tax on the merits. For Norberg, a carbon tax is “supposed to be an incentive, not a source of revenue.” This is surely not how a carbon tax would work under a real-world government.

That quibble aside, Open is one of the best books of its kind to come out in years. It is the right defense of the right values at the right time.

Norberg is not the only voice in favor of openness. Recent works by economists Virgil Storr and Ginni Choi, psychologist Joseph Henrich, and experimental economist Bart Wilson are other recent contributions. Matt RidleySteven Pinker, and Deirdre McCloskey have all been flying the flag for openness, tolerance, and dynamism for years. But just as Julian Simon was in his day, these voices of reason are too often drowned out by a chorus of doomsayers.

Markets are inherently dynamic and ever changing. No one is in charge of them, and no one directs the process. Markets work best when people are open, tolerant, and cooperative. People need to get along with people who look different, speak differently, and may live far away. It takes trusting strangers. That not natural to the human brain, which evolved to fit a hunter-gatherer world. But open markets have gotten us this far. If we let them, they can take us much farther. Whether we do or not will be this generation’s defining debate.

This Week in Ridiculous Regulations

CEI published its new Agenda for Congress last week. We also held a launch event featuring Sen. Rand Paul. Meanwhile, the 2021 Federal Register surpassed 15,000 pages. Agencies issued new rules ranging from sablefish season to airplane airbags.

On to the data:

  • Agencies issued 45 final regulations last week, after 83 the previous week.
  • That’s the equivalent of a new regulation every three hours and 44 minutes.
  • With 687 final regulations so far in 2021, agencies are on pace to issue 3,279 final regulations this year. 2020’s total was 3,327 final regulations.
  • Agencies issued 39 proposed regulations in the Federal Register last week, after 63 the previous week.
  • With 419 proposed regulations so far in 2021, agencies are on pace to issue 2,014 proposed regulations this year. 2020’s total was 2,021 proposed regulations.
  • Agencies published 436 notices last week, after 432 notices the previous week.
  • With 4,693 notices so far in 2021, agencies are on pace to issue 22,563 notices this year. 2020’s total was 22,480.
  • Last week, 844 new pages were added to the Federal Register in a three-day week, after 1,069 pages the previous week.
  • The average Federal Register issue this year contains 290 pages.
  • With 15,067 pages so far, the 2021 Federal Register is on pace for 72,438 pages in 2021. The 2020 total was 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are two such rules so far in 2021, none from the last week. Agencies published five economically significant rules in 2020, and four in 2019.
  • The running cost tally for 2021’s economically significant rules ranges from net savings of $100.7 million to net costs of $362.5 million. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • Agencies have published 12 final rules meeting the broader definition of “significant” in 2020, with two in the last week. This is on pace for 58 significant rules in 2021. 2020’s total was 79 significant final rules.
  • In 2021, 116 new rules affect small businesses. Two are classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

Hayek Was No Diplomat, but He Had a Point

Peter Boettke summarizes’ F.A. Hayek’s famous 1974 Nobel Prize lecture on p. 83 of his new book The Struggle for a Better World:

At the start of Hayek’s lecture, he implores his audience to fess up to the fact that those in the economics profession had nothing to be very proud of, as they had made a mess of things.

This is not how one wins hearts and minds. No wonder Hayek was unpopular in his own profession! But he makes an important point that better diplomats still need to make today, again and again:

Hayek goes on to argue that the cause of the mess was the misconstruing of what economics can, cannot achieve as a science. Economics is a science of complex phenomena, yet the modern administrative state demanded an economics of simple phenomena to accomplish the policy tasks conceived.

Economists and the policy makers they work with need to be more humble. But humility does not come easily to people in public policy. In fact, there is a selection bias against it. People tend not to enter the field unless they believe they can come with a plan that’s better than what everyone else has come up with. This audacity is desirable to some extent–things would rarely improve if nobody thought improvement was possible. Market entrepreneurs must have the same audacity to succeed in their world. But many policy makers do not check their ambitions with enough humility. And unlike private entrepreneurs, there is no profit-and-loss system to let them know when they’re wrong.

Who Bears the Burden of Proof in Justifying Regulations?

John Stuart Mill gave his answer on p. 938 of the Liberty Fund edition of his Principles of Political Economy, in volume 3 of his collected works:

“[T]he onus of making out a case always lies on the defenders of legal prohibitions.”

The modern legal scholar Randy Barnett calls this the presumption of liberty. People are presumed to be free to act. If a third party wants to intervene, the burden is on them to prove why they should be allowed to.

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.

CEI Event: Agenda for Congress

CEI hosted a launch event yesterday for our biennial Agenda for Congress. Sen. Rand Paul gave the keynote address. My colleagues Sean Higgins, Iain Murray, and I spoke about the Agenda‘s reforms for labor, trade, and regulatory policy, respectively.

The event is on YouTube here. The Agenda for Congress is here.

Agenda for Congress: Regulatory Reform

CEI’s new agenda for Congress is out now. If you’re interested only in certain issues, individual chapters are downloadable here. We also hosted a launch event yesterday featuring Sen. Rand Paul (R-KY).

The first chapter is on regulatory reform. The focus here is not so much on individual rules, but on the rulemaking process itself. If there is a key message, it is that institutions matter. If you want a better game, you need better rules for the game. Effective reforms don’t just treat symptoms; they treat root causes, too.

To that end, here are a few principles for sound reform:

  • If a rule was not needed during the COVID-19 crisis, it was probably never needed in the first place.
  • Getting rid of specific regulations is not enough. Congress must also reform the systems that create those regulations.
  • Congress—not just the executive—needs to be involved in reform.
  • Congress should require agencies to be more transparent about the regulations they issue and their cost.
  • Remember that regulations are made and enforced by the real-world government we have, not the ideal government we want.
  • Introduce reform bills, even if they won’t pass right now. They need to be ready when the moment is right. It is also important to keep reform ideas and conversations alive. Sometimes the most impactful legislation is introduced knowing full well it will not become law.

We also suggest specific reforms based on these principles:

  • Require transparency for “regulatory dark matter.” This includes guidance documents, announcements, and even press releases and blog posts, which agencies use to make policy changes without going through the proper rulemaking process. Rep. Bob Good’s (R-VA) recently introduced Guidance Out of Darkness (GOOD) Act would do this for guidance documents.
  • Require Congress to vote on all new major agency regulations. Agencies often issue regulations that are not in accordance with congressional legislation. This would provide a check against such abuses. The recently reintroduced Reforms from the Executive in Need of Scrutiny (REINS) Act, sponsored by Sens. Todd Young (R-IN) and Rand Paul, would do this. See also my paper on the REINS Act.
  • Annual regulatory report cards for agencies containing important information, such as their major current and planned rules, their cost, and more. Rep. Paul Gosar (R-AZ) introduced a bill last year to implement a version of this idea.
  • A Regulatory Reduction Commission to repeal outdated and harmful rules. I wrote about this idea here and here. The Pandemic Preparedness, Response, and Recovery Act would establish a COVID-focused version of this idea. It was sponsored last Congress by Rep. Virginia Foxx (R-NC) and Sens. James Lankford (R-OK), Ron Johnson (R-WI), and Rob Portman (R-OH).
  • Automatic sunsets for all new regulations. All regulations should automatically expire after 10 years unless Congress votes to reauthorize them. This will make it easier for obsolete rules to stop doing harm.
  • Publish a federal regulatory budget. Congress is required, at least in theory, to create an annual budget for government spending. It should be required to do the same for regulatory costs.

These reforms should apply to independent agencies as well as cabinet-level agencies. Independent agencies, which constitute roughly two thirds of all rulemaking agencies, are currently exempt from many transparency and rulemaking requirements that apply to other agencies. This is bad institutional design, and should be fixed.

For more ideas, see chapter one of Free to Prosper, CEI’s new agenda for Congress. The entire agenda is here.

This Week in Ridiculous Regulations

Congress passed a $1.9 trillion spending bill, some of which may actually be COVID-related. Agencies issued new rules ranging from eastern hellbenders to reentry licenses.

On to the data:

  • Agencies issued 83 final regulations last week, after 60 the previous week.
  • That’s the equivalent of a new regulation every two hours and one minute.
  • With 642 final regulations so far in 2021, agencies are on pace to issue 3,415 final regulations this year. 2020’s total was 3,327 final regulations.
  • Agencies issued 63 proposed regulations in the Federal Register last week, after 47 the previous week.
  • With 380 proposed regulations so far in 2021, agencies are on pace to issue 1,887 proposed regulations this year. 2020’s total was 2,021 proposed regulations.
  • Agencies published 432 notices last week, after 428 notices the previous week.
  • With 4,167 notices so far in 2021, agencies are on pace to issue 22,165 notices this year. 2020’s total was 22,480.
  • Last week, 1,069 new pages were added to the Federal Register in a three-day week, after 1,300 pages the previous week.
  • The average Federal Register issue this year contains 302 pages.
  • With 14,216 pages so far, the 2021 Federal Register is on pace for 75,638 pages in 2021. The 2020 total was 87,352 pages. The all-time record adjusted page count (subtracting skips, jumps, and blank pages) is 96,994, set in 2016.
  • Rules are called “economically significant” if they have costs of $100 million or more in a given year. There are two such rules so far in 2021, none from the last week. Agencies published five economically significant rules in 2020, and four in 2019.
  • The running cost tally for 2021’s economically significant rules ranges from net savings of $100.7 million to net costs of $362.5 million. The 2020 figure ranges from net savings of between $2.04 billion and $5.69 billion, mostly from estimated savings on federal spending. The exact numbers depend on discount rates and other assumptions.
  • Agencies have published 11 final rules meeting the broader definition of “significant” in 2020, with two in the last week. This is on pace for 59 significant rules in 2021. 2020’s total was 79 significant final rules.
  • In 2021, 111 new rules affect small businesses. Two are classified as significant. 2020’s totals were 668 rules affecting small businesses, 26 of them significant.

Highlights from last week’s new regulations:

For more data, see Ten Thousand Commandments and follow @10KC and @RegoftheDay on Twitter.

Why Facebook’s Antitrust Cases Should Be Dropped

Facebook filed today to dismiss antitrust lawsuits against it today by the Federal Trade Commission (FTC) and several state attorneys general. One of the reasons they should be dismissed is that both cases rely on a textbook example of defining a company’s relevant market artificially narrowly in order to make the company look more dominant than it is.

In its Facebook complaint, the FTC argues that Facebook dominates the market for “personal social networking services.” The states’ case uses the same term. They made it up just for this case. Its specialized definition omits competitors such as TikTok and Twitter. It also omits emerging competitors such as Discord and Clubhouse, and more like them that are sprouting up all over the Internet, a point that will only grow more important as the Facebook case proceeds.

Of course Facebook dominates a market definition that intentionally leaves out most of the competition! Arguments this weak have no place in a courtroom. Any of these competitors could take away Facebook’s market share the same way Facebook supplanted MySpace.

Even this is not the full extent of Facebook’s relevant market. Facebook competes for consumers’ attention against other uses of people’s leisure time, such as Netflix, podcasts, and even in-person socializing. As more people get vaccinated, restaurants, sporting events, movie theaters, and other activities will resume competing against Facebook for peoples’ attention.

Facebook also competes in the advertising market. A common test for market power is whether a company can jack up prices while restricting supply. Facebook does not have market power in the advertising market. Digital ad prices went down by half between 2009 and 2019. Over that same period, print ad prices doubled. In fact, the antitrust complaints argue that Facebook executives worried in internal correspondence that Instagram and WhatsApp would drive down ad prices even farther or faster. Due to the evidence they provide in their own complaints, the FTC and the states will have a difficult time arguing that Facebook had the market power to raise ad prices. In soccer, this is called an own-goal.

Apple and Google, for example, are Facebook’s largest competitors in the ad market. They are both in the process of changing their privacy policies to differentiate themselves from Facebook’s approach, in the hope of luring consumers and ad buyers away from Facebook. Meanwhile, other websites and apps, as well as real-life entertainment options, will never stop competing with Facebook for consumer attention.

In a competitive market like this, Facebook does not have the power to control its fate—consumers do. Facebook and its competitors are engaged in an ongoing discovery process to see what appeals to their customers.

The market process resembles a moving picture that is constantly changing and evolving. Antitrust cases are more like still images of a single frame. A decade ago, critics complained that MySpace was a natural monopoly that could drive out all competition. Now people are making similar arguments against one of those competitors, Facebook. A decade from now, Facebook might still be the largest social network company. Or it might not. Either way, it will not be the same product it is today. It must either continue to adapt its privacy, content moderation, and newsfeed algorithms in ways that people like, or it will lose its dominance. If it stays on top, it is because people like its product. Either way, consumers are in charge. To claim otherwise is unrealistic.

Whether it’s in “personal social networking services,” or an arbitrarily narrow definition of the advertising market, Facebook does not have monopoly power. Nor is there proof of consumer harm. One reason Facebook’s user services are free is because users would flee to other free sites if Facebook were to begin charging them.

Facebook is also unable to stop ad prices from declining. With the ad market essentially on a permanent 50 percent off sale compared to when Facebook became big, the company clearly does not have the ability to set a floor on ad prices. Even if it were to try, prices would continue to fall through their floor because of the competitiveness of the market.

The FTC and the states are unlikely to win on the merits, so they are instead turning to semantic arguments. The FTC and the states should drop their cases. If they don’t, courts should dismiss them.

For more, see a statement from CEI experts, my earlier blog post, Iain Murray’s Fortune article, Wayne Crews’s and my paper “The Case against Antitrust Law,” and CEI’s dedicated antitrust website, antitrust.cei.org.

CEI Experts: Courts Should Dismiss Antitrust Lawsuits against Facebook

This press release was originally posted at cei.org.

Facebook today asked courts to dismiss antitrust lawsuits brought by the Federal Trade Commission and state attorneys general, an outcome supported by the Competitive Enterprise Institute for legal and consumer freedom reasons.

Statement by Kent Lassman, CEI President:

“When neither the facts nor the law are on your side, the only thing left is political muscle. The lawsuits by the FTC and state attorneys general are dangerous political posturing, unrooted in economics or law. They fail on economics because there is no demonstrated consumer harm. They fail on the law because the acquisitions were previously approved and remedies are only available for ongoing, not previous, conduct. Crucially, they fail the test of common sense. Consumers continue to benefit from investment, innovation, and new entrants into the marketplace. Americans have had enough of power poses and posturing. Dismissal of these cases would help renew confidence in free enterprise and the rule of law.”

Statement by Jessica Melugin, Director of CEI’s Center for Technology & Innovation:

“The only question worth asking about Facebook’s acquisitions of Instagram and WhatsApp is: how did consumers fare? U.S antitrust law is based on consumer harm, and there’s none of that to be found in the lawsuits brought by Federal Trade Commission or state attorneys general against the social media giant. Facebook made WhatsApp free and improved the Instagram app to the tune of a billion satisfied users. No prices have been raised, no output has been restricted, and no consumer has been harmed by these acquisitions. Both lawsuits should be dismissed.”

Statement by Ryan Young, CEI Senior Fellow:

“The Facebook case is a classic example of the relevant market fallacy. The FTC made up its own boutique term for Facebook’s market, ‘personal social networking services,’ which excludes Twitter, TikTok, and other competitors, as well as emerging competitors like Discord and Clubhouse. Of course Facebook dominates a market definition that intentionally leaves out most of the competition! But any of them could take away Facebook’s market share, like Facebook did with MySpace.”

Related analysis:

Commentary: Antitrust Litigation Usually Causes More Harm Than Good. Big Tech Is No Different

Statements: State AG and FTC Antitrust Actions against Facebook Fail to Prove Consumer Harm or Anticompetitive Behavior

Report: U.S. Antitrust’s Greatest Misses

The Case For Repealing Antitrust Law by Fred L. Smith, Jr. (1999)