Quotulatiousness

January 5, 2026

Friedman on Orwell

Filed under: Books, Britain, Economics, Politics — Tags: , , , , , — Nicholas @ 04:00

On his Substack, David Friedman considers some of the things that George Orwell was mistaken about in his non-fiction writings:

    It cannot be said too often – at any rate, it is not being said nearly often enough – that collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamed of. (George Orwell, The Observer, April 9, 1944)

George Orwell got some things right; unlike most political partisans, he saw the problems with the position he supported. He also got quite a lot of things wrong. The quote is from Orwell’s review of two books, The Road to Serfdom by Friedrich Hayek and The Mirror of the Past by K. Zilliacus, a left-wing writer and politician. The conclusion of the review is that Hayek is right about what is wrong with socialism, Zilliacus is right about what is wrong with capitalism, hence that “the combined effect of their books is a depressing one”.

But Zilliacus was wrong about capitalism, as was Orwell, who wrote:

    But he [Hayek] does not see, or will not admit, that a return to “free” competition means for the great mass of people a tyranny probably worse, because more irresponsible, than that of the State. The trouble with competitions is that somebody wins them. Professor Hayek denies that free capitalism necessarily leads to monopoly, but in practice that is where it has led, and since the vast majority of people would far rather have State regimentation than slumps and unemployment, the drift towards collectivism is bound to continue if popular opinion has any say in the matter. (“As I Please”, pp.117-119)1

The problem is that Orwell, like many of his contemporaries (and ours), did not understand economics and thought he did. Since he wrote we have had extensive experience with free competition, if not as free as Hayek would have wanted, and the result has not been the nightmare that Orwell expected. “The trouble with competitions is that somebody wins them” sounds right only if you don’t actually understand the logic of a competitive market. In most industries organizational diseconomies of scale, the effect of more layers between the head office and the factory floor, limit the size of the firm to something considerably below the size of the market for what the firm produces. In some fields, such as restaurants or barber shops, the result is an industry with thousands of firms, in some five or ten, in only the rare case of a natural monopoly can one large firm outcompete all of its smaller competitors.

The effect of free competition is not the only thing that Orwell got wrong. Consider his essay on Kipling.2 He gets some things right, realizes that Kipling is not a fascist, indeed less of one than most moderns, and recognizes his talent:

    During five literary generations every enlightened person has despised him, and at the end of that time nine-tenths of those enlightened persons are forgotten and Kipling is in some sense still there.

But he gets quite a lot wrong. In arguing that Kipling misunderstood the economics of imperialism, Orwell writes:

    He could not understand what was happening, because he had never had any grasp of the economic forces underlying imperial expansion. It is notable that Kipling does not seem to realize, any more than the average soldier or colonial administrator, that an empire is primarily a money-making concern.

In explaining his own view of the logic of empire, what he thought Kipling was missing, Orwell writes:

    We all live by robbing Asiatic coolies, and those of us who are “enlightened” all maintain that those coolies ought to be set free; but our standard of living, and hence our “enlightenment”, demands that the robbery shall continue.3

Britain let go of its empire, starting with India. British standards of living did not collapse; by the time all of the colonies were independent, the average real wage in the UK was 50% higher than when Orwell wrote. He could not know the future but he could observe that Switzerland, before the war, was richer than England, Denmark, with no significant colonies, almost as rich, Portugal, with an enormous African empire, much poorer. Whether Britain ran its empire at a net profit or a net loss is, I think, still an open question, but Orwell’s view of colonialism is strikingly inconsistent with the observed effects of decolonization.

Economics is not all that Orwell got wrong about Kipling; he badly underestimated the quality of Kipling’s work, due to having read very little of it. The clearest evidence is Orwell’s description of The Light that Failed as Kipling’s “solitary novel”. Kipling wrote three novels, of which that is by a good margin the worst. Orwell not only had not read Kim, Kipling’s one world class novel, he did not know it existed. In a recent post I listed eighteen works by Kipling that I liked. Orwell mentions only one of them.

  1. That free capitalism would ultimately fail was still Orwell’s view in 1947:

    2. In North America the masses are contented with capitalism, and one cannot tell what turn they will take when capitalism begins to collapse (“Toward European Unity“)

  2. Discussed in more detail in an earlier post.
  3. As late as 1947, Orwell wrote:

    4. The European peoples, and especially the British, have long owed their high standard of life to direct or indirect exploitation of the coloured peoples. (“Toward European Unity“)

December 30, 2025

Tariffs are an economic burden, even when you claim they’re paid by foreigners

Filed under: Business, Economics, Government, USA — Tags: , , , , — Nicholas @ 04:00

At the Foundation for Economic Education, David Hebert responds to a recent pro-tariff puff piece from financial columnist, Matthew Lynn:

As Lynn acknowledges, “the tariffs are a tax”. Because they are a tax, they are going to be paid by someone in some form. You can’t have money flowing into the Treasury without someone paying that extra money in some way. Broadly speaking, we can divide the potential payors of American-imposed tariffs into three camps: American consumers, American importers, and foreigners.

One of the oft-cited effects of a tariff is to reduce the amount of imports coming into America. This makes sense and is in fact one of the numerous goals administration officials have pointed to. Insofar as American consumers and importers end up paying the tariff, they will buy less of the now-more-expensive foreign products. We’re already seeing this happen in the US, which Lynn alludes to throughout his article.

If foreigners pay the tariff, they’ll sell less of the now-tariffed goods to the US. This will, as President Trump and others have correctly identified, hurt their bottom line. To offset at least some of this, these countries will try to sell more of their products to their domestic consumers or consumers in countries other than the US. This is exactly what we have seen and what we are seeing, as other countries around the world are securing new trade deals with one another and deliberately excluding the United States from said deals.

So, Lynn is correct to point out that foreign corporations have incurred costs because of the Trump tariffs. However, despite his repeated implication to the contrary, this is not money that goes to the US Treasury. Volkswagen, for example, has raised the price of its 2026 models by up to 6.5 percent, largely due to tariffs, and has indicated that this is just the beginning. That’s more money coming out of American consumers’ pockets. At these higher prices, American consumers are purchasing fewer Volkswagens than last year. Volkswagen’s losses from the tariffs include an almost 30 percent decline in profits from auto sales. Importantly, sales that do not happen count toward the reduced profit that Volkswagen reported but generate no tariff revenue for the Treasury to collect. That Lynn, a financial commentator, does not understand this distinction is deeply troubling.

Who Really Pays the Tariff?

Lynn’s central argument rests on a fundamental confusion between what economists refer to as the “legal incidence” and the “economic incidence” of a tax. Legally, because tariffs are a tax on imports, it is the US importers who must write the check to Customs and Border Protection. But this says nothing about who actually pays the tariff.

For example, when landlords’ property taxes go up, who pays? The landlord will obviously write the check to the county assessor, but unless Lynn thinks that landlords are running charities, that cost gets passed on to tenants in the form of higher rent, less frequent maintenance, or fewer included benefits (utilities or access to designated parking, for example). The legal incidence falls on the landlord, but the economic incidence falls disproportionately on renters, i.e., young Americans already besieged by high housing costs.

Tariffs work the same way. US Customs and Border Protection bills the American importer directly, which is the legal incidence of the tariff. But the economic burden gets distributed among American consumers, American importers, and foreign exporters, depending on the particulars of the individual markets.

Lynn cites the Harvard Pricing Lab finding an approximately 20 percent “pass-through rate,” meaning that American consumers are only paying about one-fifth of the tariff costs. He treats this as a permanent feature of the tariff regime and as proof that foreigners are footing the bill. But the question isn’t who writes the check today, it’s who bears the cost over time. And here, the evidence directly contradicts Lynn’s fables.

As we have seen, pass-through rates are not static, but evolve over time as markets adjust. And every piece of evidence suggests that the pass-through rate has been and is continuing to rise rapidly. Goldman Sachs and the Council on Foreign Relations tracked the evolution over just this administration. Their findings are stunning: In June, US businesses absorbed about 64 percent of the tariff costs, American consumers about 22 percent, and foreign exporters about 14 percent in the form of reduced profits. Just four months later, American businesses absorbed just 27 percent, while American consumers absorbed 55 percent and exporters absorbed 18 percent. Projections for 2026 continue the trend with consumers absorbing 67 percent, exporters 25 percent, and importers just 8 percent.

The logic behind this is simple and has been echoed by President Trump and Scott Bessent themselves. In the initial months following Liberation Day, American importers could not quickly shift to alternative suppliers, giving them little leverage to demand price cuts from existing foreign vendors. Many American importers also believed (or hoped?) that the tariffs were simply a negotiating tool that would be bargained away. Having built up inventories before April, they were able to avoid raising consumer prices, with the belief that the “temporary pains would be worth the long term gains.”

That’s no longer the case. As the BLS notes in its latest import price index report, the price of imports has barely changed. This matters because US importers, not foreign sellers, are legally required to write the tariff check. American buyers pay the foreign company’s price, then pay the tariff on top of it. If foreigners were truly absorbing the tariffs, they’d have to lower their prices to compensate, and we would see a decrease in the import price index. We haven’t. The index is flat, which is evidence that the burden of the tariff is, as economists warned, being paid disproportionately by Americans in one form or another. As the Council on Foreign Relations analysis points out, by October, importers have “had time to seek alternative suppliers, giving them a bit more negotiating leverage.” More importantly, the “trade deals” that the administration has inked have made it clear that substantially higher tariffs are here to stay. All of this gives importers and retailers good reason to continue passing more of the costs along to consumers.

We are already seeing evidence of this happening. The Federal Reserve Bank of Boston’s survey of small and medium-sized businesses, for example, confirms this dynamic. Firms expecting tariffs to persist for a year or longer plan to pass through three times more of their cost increases to consumers than firms expecting short-lived tariffs. As of August, over 45 percent of affected businesses expected their costs to be impacted for longer than a year.

But how does all of this compare to the pass-through rate felt during the 2018–2019 tariffs? The Harvard Pricing Lab — the same data that Lynn cites — actually undermines his entire argument. After just six months, the 2025 tariff pass-through rate is indeed around 20 percent. But if we compare this to the 2018 tariffs, the difference is night and day. After Trump’s first-term tariffs, the pass-through rate stayed under 5 percent after a full year. This isn’t evidence that these tariffs are working. It’s evidence that these tariffs are hitting consumers harder and faster than the previous round.

December 13, 2025

Misunderstanding the causes of wealth

Filed under: Economics, History — Tags: , , , , — Nicholas @ 04:00

As most economists could point out, there’s no point asking what are the causes of poverty, because poverty is the default condition. Getting people out of poverty, that is a much more interesting discussion. Tim Worstall responds to a recent video from someone who clearly doesn’t understand where wealth comes from:

From this video here. Given that Grace [Blakeley] herself posts it she must approve the content.

    Because the way that capitalism generates prosperity for some is by generating misery for others. You cannot have universal prosperity in a capitalist system. Just think about, like, this phone. What has happened for me to be able to hold this phone in my hands right now? A bunch of kids in the Democratic Republic of the Congo, at gunpoint, have been sent to scratch coltan out of the ground …

So, first thought. If the world, the economy, is a zero sum game then yes, we can only have some prosperous if others are not — some can only have more pie if others have less. On the other hand if we know how to bake the pie bigger then all can have more at the same time.

So, do we know how to make the pie bigger?

That source of Brad DeLong means yes, this is correct. Where’s that inflexion point, that bend in the curve? About where we start doing capitalism with free markets. As Marx, K himself pointed out capitalism is really very productive.

OK, so we know how to increase the size of the pie, it is possible for all to gain. It is not necessary for some to get less in order for others to gain more. The central contention is wrong. Provably, obviously, wrong.

Oh, sure, sure, it could work out that we take stuff off others in order to feed some. You know, say taxing child carers in order to pay train drivers massive salaries, as we do. But it’s not in fact necessary.

We can also check this another way:

So, lots and lots have become better off in this period of capitalism. Sure, sure, we should do better as a civilisation, we want all to do so. But while so many have got better off no, it is not possible to say that this has been done at the expense of those in extreme poverty. Because extreme poverty itself is set at the subsistence level. If you take stuff off the extreme poor then they die — that’s what subsistence level means. So that majority of humanity has not got rich by nicking it off the extreme poor. Because if they had there would be no extreme poor as they’d all be dead.

So, the overall claim is simply wrong. But it’s also wrong in specifics.

September 25, 2025

David Friedman on markets, governments and whether we need either?

Filed under: Economics — Tags: , , , , — Nicholas @ 02:00

Adam Smith Institute
Published 16 May 2025

​When markets go awry, who is to blame? Some blame greedy profiteers, whilst others blame governments for tinkering with incentives and supply chains. Where does the truth lie? And what role should the government play when markets go wrong?

​​​Professor David Friedman is a physicist, leading free-market economist and Professor Emeritus of law at Santa Clara University. The son of Nobel Prize-winning economist Milton Friedman, David has authored many textbooks on free-market and libertarian theory. In 1973, he published The Machinery of Freedom, which has been ranked by Liberty magazine as one of the “Top Ten Best Libertarian Books” of all time.

TIMESTAMPS

0:00 – Intro
1:00 – What is a market failure?
2:44 – Restaurant analogy
4:15 – Negative externalities
5:00 – Positive externalities
5:50 – Malls
6:55 – Radio
7:40 – Price System
8:48 – Why most economists aren’t libertarians?
9:26 – Government action is a political market
12:30 – Secure property rights for future benefits
15:27 – Stalin
16:15 – Military examples
18:20 – Teaching
19:47 – Desert example
20:55 – Conclusion
22:19 – End

August 28, 2025

Prices are critical economic signals that we ignore at our peril

Filed under: Economics — Tags: , , — Nicholas @ 04:00

At the Foundation for Economic Education, Tim Worstall explains the importance of prices in a free market economy:

Prices matter. Now, I’m a free market, capitalistic type, so of course I’m going to insist that everyone be tied down to mere gilt and pelf in how they live their lives. Yet it is still true that prices really, really matter.

Let’s walk through why that’s true, regardless of your political tribe. Any one thing — any economic resource, fresh water, human labour, cash, capital itself and so on — can be used for a multitude of different things. At any one time, the market price for that thing is the balance between the supply of it and the value in using it to do — in aggregate — all those multitudinous things. Yes, we can even mutter that perhaps the information doesn’t flow here instantaneously and perfectly efficiently. Nevertheless, in its simplest terms, what something costs reflects the value of whatever uses we can put it to.

If we decide that we want to do something new, we need a measure of whether we should or not. In a world where resources are finite, the resources we’ll consume doing this new thing already have prices, thanks to their use in all the other things we’re already doing. So, this new thing we desire to do must add value. We must make a profit doing it. No, this doesn’t mean something that tophatted capitalists get to squirrel away in their subvolcanic secret lair. Rather, it means that the value of the output must be higher than the costs of the inputs. If that’s not true, then we are subtracting value from those resources. Other people could have used them to do their thing and generated value instead.

If something makes us all poorer, we shouldn’t do it. But that’s exactly what happens whenever we use valuable resources to do something which is of less value than the price we pay to do it. Say, for example, recycling disposable vapes:

“CBD Living Vape – Disposable” by weedporndaily is licensed under CC BY 2.0 .

    Vape sellers will have to pay for the disposal of the devices under plans announced by the government.

    Ministers said they would “end the UK’s throwaway culture” as they revealed measures to fund the recycling of electrical waste.

Recycling these vapes’ electronic waste uses more resources than not recycling it. This is why we’ve got to find someone to pay for it — because the value of the resources required to do the thing is greater than the value of having the thing done.

Now I am not against recycling per se — I cannot be, having dealt in scrap metal. I once shipped lorryloads of Soviet nuclear scrap off to be made into fancy car wheels for boy racers’ Escort XR3is. My only whine about that was not also gaining the furry dice concession. Even so, I made a house-sized chunk of money doing it. That’s because I’d added value by working out what the scrap could be used for and getting it to where it could be used to do just that.

But if we mandate a recycling system that makes no profit, adds no value and in fact requires an outside input of money into financing it, then we’re throwing away value and making ourselves poorer. The prices are telling us we should not be doing this thing. That’s why we ignore prices at our peril.

August 14, 2025

The “Big Mac Index” is bogus and Purchasing Power Parity (PPP) is wrong

Filed under: Business, Economics — Tags: , , , — Nicholas @ 05:00

I started reading The Economist when I was in college in the early 1980s. I subscribed after I left college, no longer having access to the school library’s copies, and I continued my subscription for about 20 years. Eventually, I gave up on The Economist as their editorial stance shifted further and further leftward. One of the things they ran regularly was their “Big Mac Index” which compared prices of McDonalds’ Big Mac hamburgers across a range of countries to show the Purchasing Power Parity of the respective countries’ currency against the US dollar. I thought it was a neat way to use readily available data in a form that most consumers would be familiar with to illustrate a wider economic fact. But, as Tim Worstall points out here, the index isn’t actually measuring what it claims to be measuring at all:

    Purchasing Power Parity (PPP) constitutes a foundational concept within mainstream international economics, asserting that, over the long term, real exchange rates will naturally adjust to equalize the purchasing power of currencies across nations. This suggests that the cost of an identical basket of goods should, in principle, be uniform globally once currency exchange rates are applied. This notion is frequently popularized through informal measures such as the Big Mac Index. PPP is conceptualized as a specific application of the Law of One Price (LOOP), which posits that, when abstracting from transactional frictions like transportation costs, tariffs, and taxes, any particular commodity traded or purchased should sell for a similar price regardless of its geographical location.

Aaaand, no. The Law of One Price says that a *traded* commodity should be at the same price everywhere, absent transport costs, tariffs and all the rest. Anything that’s not traded this will not be true of. For example, to use an example provided to us:

    For instance, if a Starbucks coffee is considerably more affordable in Tokyo than in Manhattan, Purchasing Power Parity (PPP) would indicate an undervalued Yen.

No, Starbucks coffee is not a tradeable item. Coffee beans are globally traded, yes, and coffee beans are the same price the world over — given transport costs, tariffs and so on. But the coffee bean is pennies on the dollar of a Starbucks coffee.

The use of the Big Mac in The Economist‘s popular version of PPP actually runs entirely the other way around. The note is that a Big Mac is made the same way around the world. But it’s always made of *local* ingredients, not internationally traded ones. Therefore we are not measuring whether tradeable goods are the same price in different places at all — we’re measuring what local goods cost in different places.

    Comparative advantage, whereby nations specialize in their most efficient productions for reciprocal benefit, is a myth. Absolute advantage reigns supreme.

Then there’s that as well. Which is to misunderstand comparative advantage as well. The insight is not about whether Britain makes cloth better than Portugal and then the same again with wine in reverse. Which is indeed absolute advantage. It’s about whether Britain makes cloth better than Britain makes wine, whether Portugal makes wine better than it does cloth. Each should do what they are *least bad at* and then share the increased production making both richer.

It’s also, once we move away from Ricardo, nothing to do with countries either. It’s something that applies to each and every individual. We should all do what we’re least bad at then swap the production. This does produce an interesting result for given how good, *ahem*, my economic writing is take a guess at how skilled I am at other ways of making a living? Quite.

So, you know, not getting PPP, LOOP nor comparative advantage — but still ending up calling for world government and that proper democratic control of the economy. Ah well, at least it’s fashionable even if incorrect.

July 9, 2025

Argentina after 18 months of Milei’s leadership

Filed under: Americas, Bureaucracy, Economics, Government, Liberty — Tags: , , , , , — Nicholas @ 05:00

All the mainstream media folks were predicting that Argentina would be an utter economic disaster after the election of Javier Milei. A few of them are starting to come around to admitting that Argentina seems to have made the right move:

What’s happening in Argentina is super impressive, but it’s not a miracle.

Yes, Milei’s reforms are generating great results, but that is exactly what libertarians and small-government conservatives said would happen.

Let’s start with this celebration of the amazing growth of private-sector wages since Milei took office in late 2023.

Or how about the astounding way that Milei has conquered inflation (I also like how this tweet mocks the statists like Piketty who frantically and erroneously warned that Milei’s election would produce an economic catastrophe).

[…]

Let’s close with another tweet.

Here’s Noah Smith, who is not a libertarian, shared two days ago.

Give him credit for acknowledging Milei’s success.

I’ll add two comments about this tweet, one about economic data and the other about predicting whether Milei would get great results.

Regarding data, I don’t think anyone should get overly excited by one month or one quarter of economic data. Even one year of data might create a misleading impression (which is why my Anti-Convergence Club is always based on decades of data). That being said, there is every reason to expect continuing strong results for Argentina.

Regarding predictions, Smith’s tweet asserts that libertarians didn’t expect Milei to be so wildly successful. At the risk of sounding like a politician, I agree and disagree.

  • The “agree” part is that many libertarians were worried at the beginning of Milei’s presidency that he might face immovable opposition from the Peronist-controlled legislature. We also worried that the special interest groups might launch massive – and successful – protests that would derail necessary reforms. So if you asked me in December 2023 for my prediction, I would not have been overflowing with optimism.
  • The “disagree” part is that I have always had total and absolute confidence that radical pro-market policies will produce great results, anywhere and everywhere. And I assume other libertarians (as well as Reagan-type conservatives) share my faith that good policies lead to good outcomes. So if I was told in December 2023 what Milei would have accomplished in his first 18 months, I would have fully expected the great news we now see.

In other words, what’s miraculous is that the reforms happened. The subsequent economic renaissance has been boringly inevitable (but totally wonderful).

P.S. I am cautiously optimistic that Milei will get more allies in the legislature after Argentina’s mid-term elections later this year.

QotD: “Look at those high cars roll”

Filed under: Business, History, Quotations, Railways, USA — Tags: , — Nicholas @ 01:00

Another New York Central president who rode The Century in preference to the fine business car No. 1 which was at his disposal was F.E. Williamson. […] he took pleasure in the same amenities of luxury travel as he shared with other Century regulars: cocktails in the club car, a breath of fresh air on the open observation platform that survived into his regime, The Century Dinner and a long night’s sleep as the train rolled tranquilly under the stars.

Once encountered on the observation platform by the author as The Century rocketed through the Indiana countryside to overtake and pass a long merchandise train doing a mere sixty on the adjacent track […]

“Look at those high cars roll”, he exclaimed, as we passed the head end of the swiftly moving freight. “There’s nothing so beautiful in the world as a money making train going places fast on a spring evening!”

Lucius Beebe, 20th Century, 1962.

July 7, 2025

QotD: The mythological “perfect market” and “perfect competition”

Filed under: Economics, Government, Quotations — Tags: , , , , , — Nicholas @ 01:00

In modern neoclassical economics, the benchmark of analysis from which real-world markets are judged is the model of perfect competition, in which a homogenous good is bought and sold by a large group of buyers and sellers, respectively, none of whom have an influence on the price. Moreover, under such conditions, there exists free entry and exit of sellers in the marketplace, defined by perfect information.

The narrative that is constructed and logically follows from this model is that observed deviations from perfect competition in the marketplace are indicative of imperfections, also known as “market failures”, associated with the existence of monopoly power, pervasive externalities, the provision of public goods, and macroeconomic instability. According to this narrative, government intervention is the deus ex machina that saves the market from its own “imperfections” through regulations, taxes, subsides, and other public policy measures. Why? To use a quote from Frank Knight often used by James Buchanan, “to call a situation hopeless is to call it ideal”. The narrative that is constructed is one in which, outside the conditions of the ideal of perfect competition, there is no hope but for government intervention to save the market from itself. Anyone who has taken an economics course is well aware of what I’ve stated thus far, and therefore this should not be surprising.

But what is the implicit meaning of the word “imperfect” that is baked into the narrative, which is constructed into the model of perfect competition? What is implied when we postulate that markets are “imperfect” in comparison to the benchmark of perfect competition is that markets are flawed, non-ideal, or otherwise sub-optimal, and therefore in need of correction through government intervention. Who could dispute the logic of this narrative?

However, if we simply reinterpret our understanding of the word “imperfect”, not only will it reframe the narrative being told about the marketplace, but also the public policy implications that flow from this narrative. If we analyze the etymology of the word imperfect, breaking it down from its Latin origins, you will learn that “im” expresses the negation, “per” comes from the Latin word meaning “thoroughly” and “fect” comes from the Latin verb “facere“, meaning “to do”. Thus, rather than saying that something, or some state of affairs, is flawed, suboptimal, or non-ideal, another way to interpret the meaning of “imperfect” is an act or process that is not thoroughly done, or incomplete. In fact, from a quick perusal of the Merriam Webster’s Dictionary, you will find a similar definition of the word imperfect: “constituting a verb tense used to designate a continuing state or an incomplete action” (emphasis added).

Rather than regarding the market as a flawed or sub-optimal state of affairs, a better understanding of an “imperfect market” reveals that the market is a process of continuous tendency towards perfection, or completion, where are all the gains from trade are exhausted and all plans between buyers and sellers are perfectly coordinated. As Ludwig von Mises states in his magnum opus, Human Action, the “market process is the adjustment of the individual actions of the various members of the market society to the requirements of mutual cooperation” (1949 [2007]: 258).

Thus, markets will always be imperfect, but that is precisely why markets exist in the first place! Markets never conform to the “ideal” of perfect competition, but this is completely irrelevant, since under such state of affairs, markets are unnecessary and redundant, since all resources are already perfectly allocated to their most valued uses. Market processes exist precisely because to generate the information necessary to better coordinate the plans and purposes of individuals in a peaceful and productive manner. The entrepreneurial lure for profit and the discipline of loss is what guides such imperfect processes in a tendency towards the creation of more complete information between buyers and sellers.

Rosolino Candela, “Are Markets Imperfect? Of Course, But That’s The Point!”, Econlib.org, 2020-05-18.

June 24, 2025

QotD: Trade-offs

Filed under: Economics, Quotations — Tags: — Nicholas @ 01:00

Among the oddments that sometimes appear in opinion polls are questions like, “Would you accept a lower standard of living in exchange for” … whatever policy is currently on offer. That policy might range from a climate-change shutdown of all carbon-based energy production, to reduced levels of immigration and foreign trade.

In principle, I approve this recognition of policy trade-offs, and every acknowledgement that, in the red-pilled world beyond political phantasy, “you can’t have your diamond-studded hand-sculptured fondant wedding cake, and eat it, too”. Or in the more modest, Yorkshire form of this important cliché: “You can’t have the penny and the bun”.

Any concession towards what I remember as reality is welcome at the present day, to me. As a non-economist, however, I regret that the trade-offs are only expressed in money. They apply also, and frequently instead, to things the modern world doesn’t count, because they are intangibles.

David Warren, “On juvenile delinquency”, Essays in Idleness, 2020-05-22.

May 22, 2025

QotD: Public goods

Filed under: Economics, Government, Quotations — Tags: , , , — Nicholas @ 01:00

The reason we institute government is to get public goods created. Public goods are those things that are non-rivalrous, non-excludable, therefore difficult to near impossible to make money from. Therefore we rather expect private capitalism to underproduce such public goods. Let’s all chip into a pot which produces them for us instead then. And a wide reading of public goods would include things like the rule of law, drains and keeping the French at bay (usefully, those last two can be combined, afraid of drains are Frenchies as they imply washing).

Or, the internet was originally set up to provide a secure comms network when the bombs all went off — that routing in packets was the whole point, being able to route around the polished glass that used to be Indianapolis. GPS was funded by the Navy to have precise coordinates to lob our own bombs at. Both difficult things to profit from so government did them.

Then along came some entrepreneurs and they saw that it was good. Some use could be made of the existence of those things. And this is — it’s essential to understand this — exactly what an entrepreneur is. Someone who takes extant assets and resources, possibly combining them in new ways, and sets out to end up with hot and cold running Ferraris from having done so. We consumers then end up vastly richer than our starting point. One, wholly serious, measurement of the value of search and free email (so, roughly, Google) is $18,000 per person per year. No, there are not too many zeroes there, eighteen thousand of those big fat United States dollars per person per year.

OK. So we institute government to gain public goods. We get public goods from government. Entrepreneurs then do their job, picking up extant assets to use in novel ways that enrich all of us out there. Excellent, the system is working. The system is making us out here the richest society living highest on the hog that has ever existed.

Tim Worstall, “Mazzucato: ‘BUT WHERE IS MY SECOND DOZEN PAIRS OF LOUBOUTINS?'”, It’s all obvious or trivial except …, 2025-02-12.

May 5, 2025

Make America Austere Again?

Filed under: Economics, Government, Media, Politics, USA — Tags: , , , , — Nicholas @ 03:00

The first 100 days of the BOM haven’t been quite what anyone expected. Close allies and trading partners were shocked at the new administration’s devotion to 1920s tariff “diplomacy”, supporters were dismayed to not get lots and lots of perceived wrongdoers of the Biden administration getting perp-walked for the cameras, and ordinary Americans were presented with a much worse domestic economy than they were promised:

Trump wasn’t totally fixated on economic matters … he still found time in his busy schedule to troll Catholics on his Truth Social platform.

On Wednesday, in the prelude to a cabinet meeting, U.S. President Donald Trump made yet another remark to chill the blood for those concerned about his country. Trump’s cat-and-mouse game of arbitrary changes to American import tariffs is starting to raise concerns about prices and supply chains for consumer goods. The American economy has unexpectedly shrunk in the first 100 days of Trump 2.0, even though workers and businesses are scrambling to make purchases before the effects of Trump tariffs set in. The underlying state of the economy is probably worse than the short-term numbers.

Trump says this is all a matter of “get(ting) rid of the Biden ‘Overhang'”, i.e., it’s his immediate predecessor’s fault. And let’s face it: no other politician on Earth would say anything else 100 days into an executive term. If that was as far as Trump went, it wouldn’t be of unusual concern. What struck me was his separate remark implying that, yeah, tariffs might foul up supply chains a little in the transition to the glorious economy of the future, but haven’t we Americans had it too soft for too long?

“Maybe the children will have two dolls instead of 30 dolls,” the president mused. “So maybe the two dolls will cost a couple bucks more than they would normally.” The message, which brazenly puts the contentment of children front and centre, is one you can’t imagine any other American leader delivering so directly in peacetime: have you all considered being happy with less?

The answer one would expect the median American voter to give is “Hell no”. It’s crazy that I should have to write this, but consumer abundance is a defining feature of the United States! During the Cold War, American supermarkets were the unanswerable argument for economic freedom: you could summarize the United States pretty reasonably as “It’s the country that coined the word ‘super-market'”. In our hyper-interconnected social-media world, I see a dozen conversations a week in which some European boasts of affordable healthcare, walkable neighbourhoods and having July and August and half of September off work every year: the inevitable answer from Americans is “OK, but have you been inside a Buc-ee’s, Gustav?”

Of course, it’s been a very long time since media-decried austerity in government has actually meant any kind of actual reduction in outlay … it’s usually just a (very) slight decrease in the rate of increase rather than actual dollar-value reduction. But, as Chris Bray points out, this time for sure:

I was planning to spend $100 on groceries this morning, but then I decided to slash my grocery budget, so the amount I actually spent on groceries plummeted to just $99.97, plus a small eight dollar supplemental on previously deferred grocery needs, bringing the total to a shockingly parsimonious $107.97. These major cuts caused serious alarm in my household.

Donald Trump, Politico warns, is scorching the earth:

This is the common theme everywhere, as the administration offers the first not-very-detailed hints about its plans for FY ‘26 discretionary federal outlays. The Huffington Post concludes that Trump is pulling out the BUZZSAW:

The Federal News Network sums up the size of the hit, and compare the topline number to the language about scorched earth and buzzsaws:

    Overall, the administration is looking to increase national security spending next year by 13% and decrease non-defense discretionary spending by 7.6%, meaning the White House is asking for $1.7 trillion for the discretionary budget down from $1.83 trillion this year.

While the White House plans don’t get into the subject of total federal spending, focusing narrowly on discretionary spending, the implication is that federal spending overall will go from about $7 trillion to about … $7 trillion. But TBD.

You can read the entire White House proposal for discretionary funding here. Trump is proposing deep cuts in some federal departments and programs, but is also proposing to offset those cuts with sharp increases in military spending and “homeland security”, meaning border security and sending poor gentle immigrants to places where Chris Van Hollen will fly to stare into their beautiful eyes.

May 1, 2025

The economics of migration

Filed under: Economics, Education, Europe, Government, Media, Politics — Tags: , , , , , — Nicholas @ 03:00

Lorenzo Warby wonders if an entire discipline can commit suicide:

Can an academic discipline seriously decline? Yes. Disciplines which were once mainstays of universities have either vanished or shrunk to pale shadows of their former selves.

What about a social science? One can envisage a social science disappearing. The most obvious way is it gets utterly discredited and replaced. A less obvious way is its institutional bases could disappear. A final way is its entire social basis disappears.

The West is currently marked by two entirely different discourses on migration that seem unable to interact. One is migration-as-economic-boon. This is the outlook of mainstream Economics. Migrants add to the economic activity of societies and potentially retard the effect of an ageing population by replacing absent local children with foreign migrants. This discourse invokes the authority of Economic Theory and its statistical methods.

This outlook typically treats criticism of migration as economically illiterate, socially retrograde, or morally bankrupt; or some combination of thereof. It is protected by the Self-Righteous, Knowing scoff which is such a feature of the modern professional-managerial class. They are the Masters of Knowledge, and of Moral Concern, who the plebs should defer to.

The other discourse talks in terms of social and democratic decay, increased crime, threats of violence, increased fiscal stress, even the possibility of civil war.

This is the world where, in Sweden — due to the stress on social and fiscal order from migration — it has become policy to pay migrants to go away. This is the world where highly intelligent and informed folk quietly discuss how the performance of economists on migration has been so catastrophically bad, it may bring down the entire discipline.

The adherents of the second, problems-with-migration, discourse are well aware of what mainstream Economics has to say on migration, and judge it to be obviously and demonstrably — even catastrophically — false. That it is much harder for migrants to contribute positively to a society than mainstream Economics admits, and this gets worse the higher the rate of migration. A recent Dutch study (Jan van de Beek, Joop Hartog, Gerrit Kreffer, Hans Roodenburg, The Long-Term Fiscal Impact of Immigrants in the Netherlands, Differentiated by Motive, Source Region and Generation, IZA DP No. 17569, December 2024. https://docs.iza.org/dp17569) found that:

    Only 20% of all immigrants [to the Netherlands] make a positive lifetime net contribution to the public budget. Groups with large contributions come from Scandinavia, the Anglo-Saxon world and a few other countries like France and Japan.

The adherents of the first discourse seem either utterly unaware of the second discourse, or protected from even considering it by the Self-Righteous Knowing scoff. Their mastery of Theory is such, they cannot possibly be so catastrophically wrong.

The notion that migration could break a society along its existing fracture lines to the point of civil war would absolutely be treated with the Self-Righteous Knowing scoff, despite there being — as is discussed below — at least three historical examples of precisely that happening.

January 5, 2025

“Everything humans build starts with human and social capital. This includes everything economic.”

Filed under: Economics, Education, History, Technology — Tags: , , , , , — Nicholas @ 05:00

Lorenzo Warby explains why he has always disagreed with the “standard model” of economic growth, as it fails to include the biggest cultural variables that matter enormously for economic development:

“Hyderabad bazaar” by ruffin_ready is licensed under CC BY 2.0 .

The seminal theory of economic growth is the Solow Growth Model (technically, the Solow-Swan model). The model can be easily expressed mathematically.

I have never liked the model, nor its later variations.1 The intuition behind my dislike was that societies — and indeed different ethnic groups within societies — obviously varied enormously in their capacity to use, to “put together”, the factors of production. They also vary enormously in their capacity to generate factors of production: specifically capital, the produced means of production. The model implies that there will be a general convergence between economies that has not happened.

Updating the model by including human capital was a gesture in that direction but did not fix the problem with the model, which is much more basic. The update attempted to grapple with the failure of investment to flow to poorer countries and, by implication, the long-term, systematic failures of foreign aid. The failures of foreign [aid] also supported my intuition.

The most recent (2024) Nobel memorial was for work that also directly supports my intuition — how much institutions matter for economic growth. The long-term economic growth literature — identifying culture as very much mattering for economic growth — also supports my intuition.

Skills and knowledge (human capital) are basic

To explain why the entire approach — basically, fiddling with some version of the Cobb-Douglas production function — is fundamentally mistaken, we need to go back to the origins of human economic growth. I mean, right back — all the way to foragers.

What are the original forms of capital? Well, there are tools, which are the original form of physical capital. But without the skills to make and use the tools, they either do not exist, or they are useless.

So, we start with skills and knowledge, with human capital. It takes almost 20 years to train a young human forager to be a subsistence adult — that is, to forage as much nutrition as they consume. The need to stuff the human brain with skills and knowledge — and the need to grow a brain that can be so stuffed — is why we have the most biologically expensive children in the biosphere. The need to impart skills to biologically expensive children is fundamental to the dynamics of all human societies.

Human capital — skills and knowledge — is not an “add on”. It is basic.

So are social connections (social capital)

Foragers do not live as atomistic individuals. They live in families and (fluid) foraging bands. Families and foraging bands are vehicles for our highly cooperative subsistence and reproduction strategies.

That we are the tool-making and tool-using species lacking tearing teeth and claws with the most biologically expensive offspring is why we have highly cooperative subsistence and reproduction strategies. It is also why we are so much the normative species — enabling robust cooperation based on convergent expectations — and why we have prestige and propriety as forms of status.

Both these forms of status represent currencies of cooperation. Prestige grants people status for doing things which are risky, clever, hard, entertaining. It is status by conspicuous competence. It provides a way to reward people for engaging in activities which generate wider social benefits — what economists call positive externalities. It also encourages people to want to associate with you.2

The other form of status — propriety — grants status to those who uphold the norms of the group. In particular, it wields stigma against those deemed to have violated those norms. It provides a way to punish people for engaging in activities which generate wider social costs — what economists call negative externalities. It helps solve the free-rider problem regarding the effort to enforce norms.

Reversing (i.e. perverting) status patterns so that people get prestige from victimhood — extending to various forms of failures of competence or even wildly anti-social behaviour — while stigmatising people who conspicuously successful (as oppressors or exploiters) is deeply destructive of human flourishing.3 We can see this pattern currently operating in “progressive” US states, and especially cities, but murderous versions of it operated in various Communist states. These things affect economic activity, but cannot be discerned by a Cobb-Douglas production function.

It is not true that scientists have never discovered Homo economicus. Unfortunately, Homo economicus is not a member of genus Homo. It is Pan troglodytes (chimpanzees) playing strategy games in a lab. It is precisely because we Homo sapiens are more normative, allowing us to encapsulate the social conquest of the Earth, that there are billions of us and only a few thousand of them.

We — as a highly social, indeed ultra-social, species — engage in both individual and social calculations. Different cultures notoriously generate different patterns for, and balances between, such calculations.

    1. The model has some utility for short-term calculations of growth.

    2. As with any social benefit, the knock-on dynamics of prestige can be complex, but status from conspicuous competence is at the heart of it.

    3. The November 2014 Shirtgate controversy — where a rocket scientist who had led the technically incredibly difficult task of landing a probe on a comet was publicly humiliated over the shirt he wore (a gift from a female friend it turned out) — represented conspicuous achievement (prestige) being trumped by feminist stigmatisation (propriety).

December 30, 2024

RIP Jimmy Carter, “The Great Deregulator”, 1924-2024

Filed under: Economics, Government, History, Liberty, Politics, Railways, USA — Tags: , , , , , , — Nicholas @ 04:00

ReasonTV
Published 29 Dec 2024

Nobel-Winning Economist Vernon Smith says the 39th president radically improved air travel, freight rail, and trucking in ways that still benefit us immensely.
______

Jimmy Carter was perhaps the most successful ex-president in American history, winning the Nobel Peace Prize in 2002 for his work promoting human rights and economic and social development.

But his single term as president (1977–1981) is largely remembered as a series of failures and missteps, sometimes literally. Gas lines, a record-high combination of unemployment and inflation on the “misery index”, and Americans being held hostage by Iranian revolutionaries for over a year all fueled the perception that Carter was a weak and ineffective leader. When he collapsed during a six-mile run, it personified for many the exhaustion of the country under his leadership.

But there was at least one way in which Carter excelled as president. He was, in the words of 2002 Nobel–winning economist Vernon Smith, the great deregulator. Carter forced the airline industry, along with interstate trucking and freight rail, to compete for business, with powerful and positive effects that continue to this day.

I talked to Smith about Carter, whom he met at a White House event for American Nobel Prize winners, and what it was like to fly in the days when the government controlled air travel.

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