Bastiat’s Buildings: "But will unplanned development be *beautiful*?"

Why are housing prices so high? 'Supply and demand' is true but misleading, because draconian regulation drastically constricts housing supply. In his exciting new nonfiction graphic novel, economist Bryan Caplan makes the economic and philosophical case for radical deregulation of the housing industry. Deregulation turns out to be a bona fide panacea: a large rise in housing supply would raise living standards, reduce inequality, increase social mobility, promote economic growth, reduce homelessness, increase birth rates, help the environment, and more. Combining stunning visuals and careful interdisciplinary research, 'Build, Baby, Build' takes readers to a world where people are free to build―and shows us how to get there.

But many NIMBys will still say 'there are beautiful old neighbourhoods we need to protect,' or 'valuable coastlines that we shouldn't pollute with any building.' In this excerpt, Caplan notes that today’s governments strictly regulate skyscrapers — but the beloved skyline of New York City was largely built under near-laissez-faire conditions. And that today’s planners strictly protect historic buildings, but deny us any chance at something new and unthought of (and instead mandate places like Albany and Manukau, while living in the leafy unplanned inner-city suburbs they now write rules to protect ... )

Bastiat’s Buildings: Why I Wrote a Graphic Novel about Housing Regulation

by Bryan Caplan

The Cato Institute has just published my Build, Baby, Build: The Science and Ethics of Housing Regulation. The book is a non‐​fiction graphic novel. Think of it as the comic book equivalent of a documentary. Together with illustrator Ady Branzei, I combine words and pictures to give readers a tour of housing regulation, with a focus on how government restricts the construction industry, and what would happen if the restrictions were lifted.

About fifteen years ago, Larry Gonick’s Cartoon History of the Universe opened my eyes to the high potential of graphic non‐​fiction. Gonick’s books capitalise on the adage that “a picture is worth a thousand words” to teach history quickly. They use beauty and humour to hold readers’ attention. And though they look like comic books, they’re carefully researched.

In Build, Baby, Build, I try to emulate Gonick’s virtues. The book distills a vast empirical literature into a few critical lessons. Lessons like:

• US housing regulation roughly doubles the cost of housing.
• Besides making housing much cheaper, deregulation would increase productivity, equality, social mobility, environmental quality, fertility, and safety.
• The standard arguments in favour of regulation are both overstated and one‐​sided.

But what finally convinced me to make this book a non‐​fiction graphic novel was my realisation that what drives much, perhaps most, support for housing regulation is aesthetics. Economists focus on cost‐​benefit analysis, but normal people are more likely to ask themselves, “Will development be beautiful?” — then confidently answer, “Absolutely not.”

Faced with such attitudes, economists tend to facepalm in frustration. My reaction, though, is remember 19th‐​century French economist Frédéric Bastiat’s classic essay, “What Is Seen and What Is Not Seen.” Writing in 1850, Bastiat explained that people focus on the obvious direct benefits of government, while ignoring the severe yet non‐​obvious harms. When government subsidises universities, for example, people rarely ponder, “What else could have been done with the money?” When government denies permission to build, similarly, we never actually see what would have been built if permission were granted. This makes it easy for critics to visualise the ugliest possible outcomes.

The epiphany that convinced me to write Build, Baby, Build: Instead of trying to argue people out of their aesthetic pessimism, I should use the graphic novel format to fight aesthetics with aesthetics — to show readers the beautiful unseen world that government forbids. And that’s why the fifth chapter of the book resurrects the great Bastiat as a co‐​narrator. After we explore his classic insight on “the seen versus the unseen,” Bastiat joins me on a guided tour through a deregulated world. Which lets me showcase a world that is not merely richer than the status quo, but more aesthetically pleasing as well.

For example, regulators often forbid construction in areas famous for their natural beauty. But why assume that construction would tarnish natural beauty rather than amplify it? Take a look and see for yourself:

To my eyes — and hopefully yours — the bottom panel is more, not less gorgeous than the top panel. And while you can fairly point out that these are fantasy drawings, they are inspired by real life. Who really aesthetically prefers the largely desolate California coastline to the awe‐​inspiring towns of Italy’s Amalfi Coast?

Or the decidedly pleasant but anadorned Bear Run River to the same river with a house by Frank Lloyd Wright showcasing its beauty, and now hosting hundreds of thousands of visitors every year.

The same lesson holds for so many of forms of housing regulation. Today’s governments strictly regulate skyscrapers. But the beloved skyline of New York City was largely built under near‐​laissez‐​faire conditions. Today’s governments strictly protect historic buildings. But construction of these historic buildings often began with the demolition of an earlier beloved building. The original Waldorf‐​Astoria Hotel really was destroyed to make room for the Empire State Building. That’s what I call building “the history of the future.”

Built in 1936

In a critique of my first book, philosophers Jon Elster and Hélène Landemore accuse me of being willing to use almost any rhetorical strategy to get my points across. While they overstate, they’re on to something. Once I’m convinced that my arguments are sound, I strive to sell them. Straightforward logic and evidence are fine, but so are thought experiments, appeals to common sense, humor, and beauty. 

False modesty aside, I think Build, Baby, Build is a beautiful book. If you like the visual samples I’ve shown you, I think you’ll agree.

* * * * 

Bryan Caplan is an American economist and author. Caplan is a professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and former contributor to the Freakonomics blog and EconLog. He has published in the American Economic Review, the Economic Journal, the Journal of Law and Economics, Social Science Quarterly, the Journal of Public Economics, the Southern Economic Journal, Public Choice, and numerous other outlets. His book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (2007), was published by Princeton University Press and named "the best political book this year" by the New York Times. Bryan posts frequently at his blog, Bet on It.

His post first appeared at the Cato at Liberty blog.

Buy his comic book at Amazon in both paperback and e-book.

Art and culture, even when the bombs are falling

Chauvel cave art (Getty Images)

"If we let ourselves, we shall always be waiting for some distraction or other to end before we can really get down to our work. The only people who achieve much are those who want knowledge so badly that they seek it while the conditions are still unfavourable. Favourable conditions never come....

    "If men had postponed the search for knowledge until they were secure, the search would never have begun. We are mistaken when we compare war with 'normal life.' Life has never been normal. Even those periods which we think most tranquil, like the nineteenth century, turn on on closer inspection to be full of crises, alarums, difficulties, emergencies. Plausible reasons have never been lacking for putting off all merely cultural activities until some imminent danger has been averted or some crying injustice put right. But humanity long ago chose to neglect those plausible reasons. They wanted knowledge and beauty now, and would not wait for the suitable moment that would never come. Periclean Athens leaves us not only the Parthenon but the 'Funeral Oration.' The insects have chosen a different line: they have sought first the material welfare and security of the hive, and presumably they have their reward. Men are different. They propound mathematical theorems in beleaguered cities, conduct metaphysical arguments in condemned cells, make jokes on scaffolds, discuss the last new poem while advancing to the walls of Quebec, and comb their hair at Thermopylae. This is not panache; it is our nature.

~ author CS Lewis, preaching at Oxford University in Autumn 1939, as WWII had just started, on the importance of 'Learning in Wartime'

"Trenches full of poets/A ragged army"

 

Why are housing prices still so unbelievably high, especially in the country's most desirable locations? The superficial answer is “supply and demand,” but the deep answer delivered by a new comic book―the reason supply is so low―is a regulatory system that treats developers like criminals. In this excerpt from his new comic book Build Baby Build,  economist Bryan Caplan argues in this guest post that "we" (by which I mean you lot and the governments you vote in) have been fighting poverty the wrong way. Want to help the poor? Then stop making housing harder ...

[Launched overnight in the U.S., Caplan hosted an 'Ask Me Anything' at his blog to help launch it, with plenty of challenging questions.]

Housing Deregulation as Poverty Policy

by Bryan Caplan

“How should government fight poverty?” It hardly seems like a loaded question, but it contains a strong sequential insinuation. Namely: Prior to government lifting a finger, a severe poverty problem exists. Then a helpful government arrives on the scene to fight this pre‐​existing problem. Which swiftly leads to a debate about the best way for government to play the hero. Should it provide education and job training? Tax the rich and take GST off food? Or just hand out cash?

To avoid this sequential insinuation, we have to rephrase the question. In lieu of “How should government fight poverty?” I propose: “How should government change policy to reduce poverty?”

This question remains open to standard redistributive responses. But changing the wording also allows for the possibility that existing government policy is a major cause of poverty. If so, the simplest way for government to reduce poverty is to stop making it worse. Talking about “fighting poverty” pre‐​anoints government as the hero of the story when the truth could be quite the reverse.

My new comic book Build, Baby, Build: The Science and Ethics of Housing Regulation highlights one of the main ways that modern governments do in fact sharply increase poverty. Namely: By slashing the supply — and thereby raising the price — of the basic necessity of shelter.

A wide range of regulations make it hard for developers to build tall buildings, multi-family housing, and even dense single‐​family housing. While this means more expensive housing for everyone, the poor suffer extra, for two reasons.

First, the poor spend a larger share on shelter. For the richest quintile of New Zealanders, it’s just 13 percent. For the poorest quintile, it’s a whopping 41 percent. (Compare this to the U.S, where the figures are respectively 18 percent and 25 percent.)

Second, renters are generally much poorer than owners. To be clear, lower housing prices aren’t always bad for owners; after all, they may hope to upgrade to nicer place, or want their kids to be able to afford to live in their vicinity. But cheaper housing is almost automatically good for renters.

The preceding two arguments boil down to simple arithmetic. If you dig deeper, you’ll find two more ways that housing deregulation helps the less fortunate.

First, as Nobel laureate Angus Deaton and Anne Case point out in their Deaths of Despair and the Future of Capitalism, non‐​university-trained males in the U.S. have been doing especially poorly in recent decades. One common remedy has been to use protectionism to revive U.S. manufacturing, but the numbers just don’t add up. But housing deregulation is a far more realistic remedy here because (a) a large majority of workers in construction are university-trained maless, (b) 11 million people already work in this industry, and (c) most people would gladly upgrade to a bigger home if the price were right. Even modest housing deregulation would therefore create millions of new well‐​paid jobs for non‐​college males. The argument differs here only in the numbers. 

Second, building off the work of Peter Ganong and Daniel Shoag, Build, Baby, Build shows that housing regulation also reduces the upward mobility of the poor. Decades ago, when housing prices were much lower — and more nationally uniform — poorer people had a clear path to a better life: move to a higher‐​wage part of the country. Steinbeck’s Grapes of Wrath notwithstanding, this strategy worked well. Now, however, poorer people who try this route typically find that the extra housing cost in high‐​wage regions eats up more than 100 percent of the wage gain. Lifting yourself up by your own bootstraps is still possible, but used to be quite a bit easier.

Five years ago, I had a debate on poverty policy with my friend, economist David Balan. He broadly agreed with me on the merits of housing deregulation and acknowledged that high housing prices were especially bad for the poor. Yet Balan insisted on purely semantic grounds that housing deregulation doesn’t count as “poverty policy.” Unless you favour government redistribution, your preferred poverty policy is, perforce, no policy at all.

My reply: Anything that reduces poverty counts as poverty policy! Indeed, if you want to help the poor, Effective Altruism 101 urges us to start by adopting all of the policies that cost less than nothing. Shackling construction is a prime example of such a policy. After all, housing regulation hurts the poor by burning taxpayer resources to impede wealth creation. Harm fuelled by waste and more waste.

Housing deregulation isn’t just one sort of poverty policy. It is the best sort of poverty policy. Instead of letting government tax the rest of society and hoping that the benefits exceed the costs, housing deregulation shows government a mirror. “You’re not the hero of this story," it says: "At best, you can become a repentant villain. Want to help the poor? Then stop hurting them.”

* * * * 

Bryan Caplan is an American economist and author. Caplan is a professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and former contributor to the Freakonomics blog and EconLog. He has published in the American Economic Review, the Economic Journal, the Journal of Law and Economics, Social Science Quarterly, the Journal of Public Economics, the Southern Economic Journal, Public Choice, and numerous other outlets. His book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (2007), was published by Princeton University Press and named "the best political book this year" by the New York Times. Bryan posts frequently at his blog, Bet on It.

His post first appeared at the Cato at Liberty blog.

Buy his comic book at Amazon in both paperback and e-book.

EDUCATION: "Shouldn’t more choice be the default?"

"These mixed results [on the outcomes of charters schools] might imply that advocates of school choice are overselling: charters (and private school vouchers) have positive effects in some cases, but they are far from a panacea.
    "That perspective, however, implicitly takes traditional public schools as the default and ignores a crucial consideration: many parents and students seem to value the choice that charters and vouchers provide, even when outcomes like test scores do not show obvious improvement.
    "So absent strong evidence that school choice has non‐​trivial negatives, shouldn’t more choice be the default?"

~ Jeffrey Miron + Jacob Winter, from their article 'Mixed Evidence on Charter Schools'

In intellectual property, words matter

Photo by Irina_drozd

"Words matter. ...  Intellectual Property (IP) policy can be ill-served by some habitually used but ... not descriptively accurate vocabulary. ...   

    "Here, in my view, are a few too frequently used and usually misleading words [that] misrepresent the IP system and are even less relevant to the economics of innovation and creativity. The use of these words has real-world consequences ...
    "Fortunately, there are better word choices available. Here are a few terms I propose should be permanently 'out' and potential replacements that I believe would help to counteract anti-IP narratives....

OUT: Reward (Synonyms: Bonus, Prize)
Even when promised in advance of the result, a reward is generally understood to be a discretionary bonus. This is distinctly different than a “right” that is consistently and reliably available whenever the necessary conditions are met.

IN: Right (Synonyms: Title, Claim)

Defined as, “Something that one may properly claim as due.” Also, “the property interest possessed under law or custom and agreement in an intangible thing….” ...

OUT: Incentive/Incentivise (Synonyms: Induce, Incite)

Provides “a stimulus, a motive, a goad, or a bonus.” Also, “To make someone want to do something… especially by offering prizes or rewards.”

IN: Enable (Synonyms: Facilitate, Empower, Equip)

“A person or thing that makes something possible.” IP rights enable allocation of resources to long-term, resource-intensive, high-risk investments. ...

OUT: Monopoly (Synonyms: Cartel, Syndicate, Oligopoly)

“A single seller in a market or sector with high barriers to entry, such as significant startup costs, whose product has no substitutes.” Does an exclusive ownership right represent a monopoly? More below.

IN: Ownership (Synonyms: Title, Proprietorship)

“The act, state, or right of possessing something.”

IN: Exclusive/Exclusivity (Synonyms: Incompatible, Undivided)

“Unable to exist or be true if something else exists or is true.” “Excluding or having power to exclude others, or something that is limited to possession, control, or use by a single individual or group.” ...

"The habitual – and I believe largely unthinking – use of the words 'reward,' 'incentive,' and 'monopoly' among IP professionals has contributed to fundamental misperceptions of IP rights and the IP system. These contribute to systemic misunderstandings of the economics of innovation and creativity. Dropping these words from our IP vocabulary will make policy discussions more accurate and understandable for policymakers, economists, and the public, and better policy decisions will result...."

~ Patrick Kilbride from his article 'Words Matter: A Proposal to Change the Vocabulary of IP'

"Subsidy is for art, for culture..."

"Subsidy is for art, for culture. It is not to given to what the people want. It is for what the people don't want, but ought to have!"

~ Sir Humphrey, from the episode 'Middle-Class Rip-Off' from Yes Minister

 

Few people truly understand the destructive present relationship between interest rates and central banks. Daniel Lacalle points out the toxicity in this guest post, and suggests a way out ...

Central Banks Are Wrong about Rate Cuts

by Daniel Lacalle

When we talk about monetary policy, people do not understand the importance of interest rates reflecting the reality of inflation and risk. Interest rates are the price of risk and manipulating them down leads to bubbles that end in financial crises, while imposing too high rates can penalize the economy. Ideally, interest rates would flow freely and there would be no central bank to fix them.

A price signal as important as interest rates reflecting the true amount of money would prevent the creation of bubbles and, above all, the disproportionate accumulation of risk. The risk of fixing rates too high does not exist when central banks impose "reference rates," as they will always make it easier for state borrowing—artificial currency creation—in the most convenient—what they call “no distortions”—and cheap way.

Many analysts say that central banks do not impose interest rates; they only reflect what the market demands. Surprisingly, if that were the case, we wouldn’t have financial traders stuck to screens [before every central bank announcement] waiting to decipher what the rate decision is going to be. Moreover, if the central bank only responds to market demand, it is a good reason to let interest rates float freely.

Citizens perceive that raising interest rates with high inflation is harmful; however, they do not seem to understand that what was really destructive was having negative real and nominal interest rates in the business cycle's earlier phase. That’s what encourages economic agents to take far more risks than we can take, and to disguise excess debt with a false sense of security. At the same time, it is surprising that citizens praise low rates but then complain that home prices and risky assets rise too fast!

Shifting the Blame

Inflation is a huge advantage for the currency issuer. It blames everyone and everybody for the rise in prices, except for the only thing that makes aggregate prices go up, consolidate that increase, and continue to rise, even at a more moderate rate: printing much more currency than the private economy demands and setting rates well below the real risk levels.

The benefit of statism is that it puts the blame for high interest rates on banks, just as it blames supermarkets for high and rising consumer prices.

Who prints currency and disguises risk? Of course, we look at the European Central Bank (ECB) and the Fed and the local Reserve Bank, who all dictate the increase in money supply through repurchases and fixed interest rates. However, central banks do not buy back state assets, print money, or impose negative real interest rates because they are evil alchemists. They do so because the state’s deficit—which is artificial monetary creation—remains unsustainable, public debt is atrophied, and state solvency is worsened by imbalanced public accounts. The central bank is not responsible for implementing fiscal policy. Thus, the state is the one that prints money out of nowhere and passes the imbalance to the citizens through inflation and taxes.

No wonder politicians are always so eager to shift the blame.

In a genuinely open unhampered economy, banks do not create money out of nowhere; they lend to real projects that are expected to be repaid with interest, and those loans have collateral. If commercial banks created money out of nowhere, none of them would go bankrupt. They only create money out of nowhere when regulation imposes risk-disconnected rates and eliminates the need for capital to sustain the government by accumulating its bonds and loans under the false construction that they are “no-risk assets.” Thus, the castle of cards built under the disguise of public-sector risk always creates inflation, financial crises, secular stagnation, and liquidity traps. The amount of money created goes to unproductive expenditure, destroys the purchasing power of the currency, impoverishes citizens, and at the same time decapitalises the most fragile companies, SMEs (small and medium enterprises). 

That’s what they call the social use of money. Seriously.

Hikes or cuts?

The ECB has announced a possible interest rate cut in June that is in danger of being premature and wrong. First, because money supply, credit demand, and supply are rebounding, and inflation remains persistent and above the 2% target. Furthermore, the underlying trend is a much higher inflation level than the ECB’s target, even after two changes in the CPI calculation. After a 20% accumulated consumer price level since 2019, calling victory on inflation after two changes in the calculation of CPI and still elevated core inflation is insane. If we see the rise in non-replaceable goods prices, we can understand why citizens are angry. Real non-replaceable goods’ CPI is probably closer to 4-5% per year.

The ECB rate hikes are signalled by many market participants as the cause of the euro zone’s stagnation, but curiously, no one mentions that the euro area was already experiencing massive stagnation due to negative interest rates earlier in the phase. Besides, if you need to have real negative rates to “grow,” you’re not growing but accumulating toxic risk. 

The ECB knows that the base effect, which played in favour of year-on-year inflation in 2023, will not be supportive in 2024. They also know that monetary aggregates were down a few months ago but are rebounding, and that the supply of credit has not collapsed. The ECB, like every other non-deluded central bank in the known world, knows that inflation is a monetary phenomenon and that there is no such thing as so-called cost-push inflation, “greedflation,” or similar statist excuses. None of those factors can cause aggregate prices to soar, consolidate, or continue to rise; it is only the destruction of the currency’s purchasing power that causes inflation.

Of course, no central bank will acknowledge that inflation is its fault, among other things, because no central bank increases the money supply at will but to finance an unsustainable public deficit. However, no central bank will challenge a financial structure that is based on the myth that public debt is risk-free. Central banks know that inflation is a monetary phenomenon, which is why they attack rising consumer prices with rate hikes and money supply reductions. They just do it mildly because governments benefit from inflation.

Eurozone cuts?

The problem of lowering interest rates now, when there is no evidence of having controlled inflation and achieved a target that already erodes the purchasing power of the currency by 2% annually, is to fall into the narrative that the eurozone is in a poor economic situation because of monetary policy when it is due to the wrong fiscal policy, the disaster of the Next Generation EU Funds, whose failure is already only comparable to the forgotten "think big" Juncker Plan, a shortsighted and destructive energy, agricultural, and industrial policy, and a taxation system that shifts innovation and technology to other countries.

The ECB is aware that interest rates are not high and that the system’s money supply has not decreased as expected. In fact, it continues to repurchase outstanding bonds and will not carry out a significant reduction in its balance sheet in real terms until the end of the year. Lowering interest rates now includes the risk of depreciating the euro against the dollar and thus increasing the euro area’s import bill in real terms, reducing the inflow of reserves into the eurozone, and further encouraging public spending and government debt that has not been contained in countries like Italy and Spain, which boast of “growing” by massively increasing debt and where inflation, moreover, is not under control. 

All this reminds us of the mistakes of the past when Greece boasted to be the EU’s growth engine, and many said that Germany was Europe’s “sick member.” The ECB cannot pretend to be the Bank of Japan for two reasons: the eurozone lacks the luxury of Japanese society’s dollar savings structure or its iron citizen discipline, and, above all, because the failure of Japan’s ultra-Keynesianism has brought the yen to a 35-year low against the dollar.

(To those who say that the euro and the ECB are Europe's main problem however, I recommend that you exercise your imagination of what Spain, Portugal, or Italy would be with their own currency and populist governments printing as if Argentina were Switzerland. You don’t have to imagine it; remember when these countries had an inflation rate of 14–15% and they destroyed savings and real wages with the falsehood of “competitive” devaluations? It wasn't that long ago.)

* * * * 

Daniel Lacalle, PhD, economist and fund manager, is the author of the bestselling books Freedom or Equality (2020), Escape from the Central Bank Trap (2017), The Energy World Is Flat​ (2015), and Life in the Financial Markets (2014). He is a professor of global economy at IE Business School in Madrid.
Ranked as one of the top twenty most influential economists in the world in 2016 and 2017 by Richtopia, he holds the CIIA financial analyst title, with a postgraduate degree in higher business studies and a master’s degree in economic investigation. He is a member of the advisory board of the Rafael del Pino Foundation and Commissioner of the Community of Madrid in London.
Lacalle is a regular collaborator with CNBC, Bloomberg TV, BBC, Hedgeye, Seeking Alpha, Business Insider, Mises Institute, and the Epoch Times as well as an occasional consultant for the World Economic Forum, Focus Economics, the Financial Times, the Wall Street Journal, and other major news publications around the world.

His article first appeared at the Mises Wire.

Non-inflation is not magic

"If the state does not spend more than it collects and does not issue [money], there is no inflation. This is not magic."

~ Argentine president Javier Milei announcing his country's first government budget surplus in 16 years [hat tip Simon Cooke)

 NB: As Milton Friedman explains  ...

Economic education today is, for the most part, worse than no economic education at all says economics lecturer Per Bylund. He explains himself in this guest post ...

Economic Education Has Become Economic Disinformation

by Per Bylund

Modern economics is in terrible shape. But economics education appears to be worse still. This becomes clear when discussing basic economics with those who have taken courses in the field. Rather than doing away with economic misunderstandings and outright nonsense, economics education apparently provides students with a pseudoscientific rationale for their illusions.

Two such ideas are annoyingly common. One is the view that markets can only work under perfect conditions. The other is that economic growth requires that profits tend toward zero. Yes, they are ridiculous, but they are so commonly held (and believed so strongly) that they suggest a fundamental failure of economics education. Whether or not they are explicitly taught, it is easy to see how an economics education that focuses on models rather than understanding can lead to—if not create—such misperceptions.

“Markets Only Work under Perfect Conditions”

Introductory economics courses often take the perfectly-competitive model as a starting point so as to introduce students to economic thinking. It makes sense to do it this way. By assuming away complexities, students can be introduced to the economic way of thinking, ceteris paribus reasoning, and supply-and-demand analysis.

The approach is innocent but can be counterproductive or even destructive unless students also learn that a model is merely a simplified version of (and thus different from) reality. The model is not reality, and its assumptions are not real, but because of its simplified assumptions it facilitates analysis of reality. A model is a tool.

This obvious fact seems to not be communicated to economics students, who instead adopt the model wholesale as not only a description of but a necessary condition for reality. In other words, because the supply-and-demand diagram used on the blackboard relies on “perfect information,” many students conclude that real markets only work under such conditions.

It is of course the other way around: markets work because they solve or alleviate the problems that are excluded from the model. As Friedrich Hayek pointed out, there is no competition in the perfectly competitive model. All such activities are assumed to have already taken place so that the allocation under end-state efficiency can be explained—and the economic trend in markets therefore uncovered. But students somehow learn the exact opposite.

“Economic Growth Requires That Profits Tend toward Zero”

This idea is similarly a misapplication and misunderstanding of a model presented to students. In the static model of the economy, under assumptions of perfect information and zero transaction costs, economic profits will be zero. This is mainstream economists’ rather quirky explanation of economic efficiency: because all opportunities have already been taken advantage of, value production is maximized.

As follows from this model logically, profits tend toward zero as market reality closes in on “perfect” competition assumptions (that is, the problems are solved or alleviated). There is empirical support for this too: profits tend to fall in commodity markets and mature industries that are no longer innovative (the low-hanging fruits have been picked). Producers compete on cost rather than value. But this does not mean the economy is in an end-state; it only means some industries (such as grain production) have come to the end of the road in terms of product development—entrepreneurs see little or no opportunities for new value creation.

In reality, economic growth — more accurately economic progress — is the process of closing in on this highly theoretical end-state (which we as economists of the Austrian school realise is only theoretical—it cannot and never will be achieved). Our higher standard of living (economic growth) is the result of innovations that create more value—it is not the result of an absence of innovations.

Education as Disinformation

That students struggle with understanding the use and value of models, and may draw the wrong conclusions when studying market forces in the abstract, is unfortunate but understandable. It is the duty of the economics instructor to make sure students do not get the wrong ideas—that they go home with a greater understanding of how economies and markets work. Education, after all, should be enlightening and provide the student with new knowledge.

But somehow economics education fails to communicate the obvious fact that markets solve problems, not that they require that all problems have already been solved. And that economic growth is the creation of new value, not the absence of creating such value.

The failure of economics education is not merely the unproductive use of instructors’ and students’ time. As the above examples show, it is in fact destructive—students of economics get the wrong ideas and therefore graduate with less (not more) understanding of how markets and economies work.

Economics education with this outcome is disinformation, and we are better off without it.

* * * * 

Per Bylund is Associate Professor of Entrepreneurship at Oklahoma State University, and an Associate Fellow of the Ratio Institute in Stockholm.
Dr. Bylund has published research in top journals in both entrepreneurship and management as well as in both the 'Quarterly Journal of Austrian Economics' and the 'Review of Austrian Economics,' and the author of How to Think about the Economy: A Primer — which you can get free here to kick off off your real economic (re)education. (His article first appeared at the Mises Wire.)

A fast track to cronyism [updated]

 

The media has been slow to pick up on this National-led government's new policy to help out struggling media organisations.

The policy is to announce, and string out, a steady stream of announcements of blatant knuckle-dragging cronyism, primary among them that Fast-Track Approvals Bill, whose invited-applicant list will be an ongoing gift to every media organisation looking for a colourful headline.

And no on top of that, just to drive home the message, is this weekend's gift to television personality and National Party fund-raiser Paula Bennett of the position of highly-paid chair of Pharmac — in the very week they announce a $1.8 billion increase in the unaccountable bureaucracy's budget to $6.3 billion. Her qualifications for the role? In the absence of a single one of any relevance, one would have to speculate it was her record fund-raising and chasing of donors to the National Party at the last election.

And speaking of donors ....  even the worst resourced newsroom should be able to turn out a veritable assembly line's worth of regular feature articles highlighting which party donors have been favoured with which fast-track approval by three ministers of questionable morals and fitness doling them out like largesse at a corrupt king's court.

As I said a few days ago, it's not a "fast track" for you or me or that small renovation you've been putting off for years as just too damned complicated to contemplate — it's a fast track for cronies and for government bulldozers.

How about we all get the benefit a fast track for our projects, little and large, instead of being tangled up in years of the red tape governments festoon around us while cronies enjoy all the fruits of political favouritism?

In the meantime at least, let's watch the media take advantage of the Government's gift. It should be one that promises to keep giving long after the Public Interest Journalism Fund gives out ...

UPDATE: Yes, of course, businesses need to be able to build. And so do you and I —and for too long we've been stymied in trying to build. But this isn't help for you and me — and when National and Shane Jones promise to "help business" that invariably ends up meaning "help particular businessmen." Just as it does here.

Environmentalism is (still) refuted

 

The Simon Abundance Index: 1980-2023 (1980=100)

Several decades ago, gloom-monger Paul Erlich and techno-optimist Julian Simon had a bet.

Erlich was certain resources were running out and humanity was doomed. Simon asserted they weren't and wouldn't be. (Simon, you see, was confident that the ultimate resource, from which all others derive, is the human mind — a machine for turning shit into useful stuff.) The best was that, by the end of that decade, a basket of resources chosen by Erlich would cost more to buy — more, because by then they would be running out.

Simon won. 

Resources weren't running out. 

They still aren't.

The "Simon Abundance Index" (SAI),which measures the relative abundance of resources since that bet, now stands at 609.4. Meaning that in 2023, the Earth was 509.4 percent more abundant in 2023 than it was in 1980!

How astonishing is that! World population since 1980 has almost doubled; while resources produced by human beings have multiplied by more than five times!! 

Turns out that as global population increases, that "virtually all resources became more abundant. How on earth (literally) is that possible?"

Unlike Erlich and the sundry other doom-sayers who litter the planet today, Simon recognised that without the knowledge of how to use them, raw materials have no economic value whatsoever. They are just so much stuff. What transforms a raw material into a resource is knowledge — knowledge of how that stuff might satisfy a human need, and how to place it in a causal connection to satisfy that need. (The great Carl Menger explained this process way back in 1870!) And since new knowledge is potentially limitless, so too are resources.

 Infinite, because the ultimate resource is the human mind.

In this sense, as George Reisman puts it, environmentalism is refuted.

"Horrendously, anti-Semitism comes to be seen as a morally virtuous position."

 

"First it was Columbia, now anti-Israel protests have spread across America. ... The ‘rage of the privileged against the world’s only Jewish nation’ ... now rings out on leafy campuses from California to Boston.
    "In these ostensibly ‘anti-war’ protests, students have demanded the total destruction of Israel, while waving placards in support of Hamas and singling out Jewish professors and students for abuse. The terrifying orgy of anti-Semitism that has been unleashed in America’s top universities should disturb everyone. ...
    "Since the start of their education, today’s students have imbibed a crude understanding that people can be sorted into different groups according to skin colour, gender and sexuality ... indoctrinated into a view that the world can be divided between oppressors and the oppressed. ... taught to loathe their own country and made defensive of their privilege ...
    " In this context, aligning with Palestinians and demonstrating hostility to Israel makes perfect sense. It allows students to identify with an oppressed group and distance themselves from their own nation and culture. That such sentiment can so easily tip over into anti-Semitism is unsurprising. Students have been deluded into thinking that the more extreme their demands for the abolition of Israel, and the more vile their targeting of Jews, the better they show their own virtue.
    "Horrendously, anti-Semitism comes to be seen as a morally virtuous position."

~ Joanna Williams, from her op-ed 'How anti-Semitism became a virtue on American campuses'

"Late-Stage Anti-Capitalism"

"Anti-capitalists used to have whole palaces of economic and social theory to explain the workings of capitalism and the ideal system that would replace it. Now what they have is largely a set of pet peeves with delusions of grandeur."

~ Robert Tracinski, from his newsletter 'Late-Stage Anti-Capitalism'

"Listen!"

                                               

"Listen now. When people talk listen completely. Donʼt be thinking what youʼre going to say. Most people never listen. Nor do they observe."

~ part of Ernest Hemingway's advice to a young writer — and good advice for anybody anytime

 

"Fascism and communism are not two opposites, but two rival gangs fighting over the same territory"

                                     

"It is obvious what the fraudulent issue of fascism versus communism accomplishes: it sets up, as opposites, two variants of the same political system; it eliminates the possibility of considering capitalism; it switches the choice of 'Freedom or dictatorship?' into 'Which kind of dictatorship?' — thus establishing dictatorship as an inevitable fact and offering only a choice of rulers. The choice — according to the proponents of that fraud — is: a dictatorship of the rich (fascism) or a dictatorship of the poor (communism).
       "That fraud collapsed in the 1940s, in the aftermath of World War II. It is too obvious, too easily demonstrable that fascism and communism are not two opposites, but two rival gangs fighting over the same territory — that both are variants of statism, based on the collectivist principle that man is the rightless slave of the state — that both are socialistic, in theory, in practice, and in the explicit statements of their leaders — that under both systems, the poor are enslaved and the rich are expropriated in favour of a ruling clique — that fascism is not the product of the political 'right,' but of the 'left' — that the basic issue is not 'rich versus poor,' but man versus the state, or: individual rights versus totalitarian government — which means: capitalism versus socialism."

~ Ayn Rand, from her article '“Extremism,” or The Art of Smearing' [hat tip Δημήτριος Τσίκας]

 

#ANZAC: "year after year, the numbers grow fewer, who remember what we're not forgetting"

 

'Sacrifice,' by sculptor Rayner Hoff, inside the Australian War Memorial in Sydney's Hyde Park

"It's gratifying, in a way, that we start Anzac Day every year with a commemoration of a shambolic dawn landing that kicked off a pointless and wholly tragic military campaign that snuffed out some of the best young men of two young nations. It's not a victory march, but a sobering commemoration of the destruction of war.
    "This is healthy. This much is good.
    "'Lest we Forget!' we say"
    "It's said every year. And yet year after year, the numbers grow fewer who remember what it was we're not forgetting....

"THE MYTHOLOGY OF ANZAC is that the battle at the Dardanelles gave birth to two nations. If that’s true, it is an odd birth, fathered out of failure by way of disaster.
    "[And] the reason they embarked [was] not to beat the Hun, but to save the Czar [and] gift Constantinople to Russia.... as an altruistic gift to an 'ally' who was the most autocratic in Europe ... the price for the sacrifice to be paid for in the blood of those Australian, New Zealand and British young men and their families....
    "In the end, the attempted occupation [of the Gallipoli peninsula] was decided upon partly because in any bureaucracy once plans are begun they are very hard to stop, and partly too as an altruistic gift to an “ally” who was the most autocratic in Europe, who had shown no sign of earning British trust -- the price for the sacrifice to be paid for in the blood of those Australian, New Zealand and British young men and their families. 
    "Such is the code of sacrifice under which the decision was made to go.... [in pursuit, said Churchill, of] 'a victory such as the war had not yet seen.'
    "It never would. It never could. 
    "Instead, it all turned to omnishambles. The only thing in the end about which anyone had anything about which to boast was a successful and well-executed withdrawal. 
    "It was a bloody mess that achieved nothing, that could achieve nothing, purchased at the price of a wholesale sacrifice of young lives that could have meant something. It was a total unmitigated disaster, but at least, now, dear reader, some reason for the whole, sordid shambles might be clearer. 
    "The reason however for commemorating the shambles as the botched 'birth' (in some way) of our nation is very much less so."

~ excerpted from NOT PC's posts 'Lest we forget what?' and 'But what were the ANZACs fighting for, Grandad?'

#CountdownToAnzacDay: On “the last afterglow of the most radiant cultural atmosphere in human history”

 

One-hundred and ten years ago this week, the world was still at peace.

By August of that year, 1914, the world was at war. And in less than a year, New Zealanders would be fighting, and dying, on  the hills above a beach in Turkey.

That world before the war, the one the war destroyed forever, is captured in palimpsest in the video above of Berlin and Munich in 1900, and in several memories from some who were alive at the time — who were there to witness and record, as one described it, "the last afterglow of the most radiant cultural atmosphere in human history…" — and then to record what came next. 

"I myself have lived at the time of the two greatest wars known to mankind," remembered Stefan Zweig, "Before those wars I saw individual freedom at its zenith, after them I saw liberty at its lowest point in hundreds of years." * 

"Until August 1914 a sensible, law-abiding Englishman could pass through life and hardly notice the existence of the state, beyond the post office and the policeman. He could live where he liked and as he liked. He had no official number or identity card. He could travel abroad or leave his country for ever without a passport or any sort of official permission. He could exchange his money for any other currency without restriction or limit. He could buy goods from any country in the world on the same terms as he bought goods at home. 

    "For that matter, a foreigner could spend his life in this country without permit and without informing the police. Unlike the countries of the European continent, the state did not require its citizens to perform military service. An Englishman could enlist, if he chose, in the regular army, the navy, or the territorials. He could also ignore, if he chose, the demands of national defence. Substantial householders were occasionally called on for jury service. Otherwise, only those helped the state, who wished to do so. 

    "The Englishman paid taxes on a modest scale: nearly £200 million in 1913-14, or rather less than 8 per cent. of the national income. The state intervened to prevent the citizen from eating adulterated food or contracting certain infectious diseases. It imposed safety rules in factories, and prevented women, and adult males in some industries, from working excessive hours. The state saw to it that children received education up to the age of 13. Since 1 January 1909, it provided a meagre pension for the needy over the age of 70. Since 1911, it helped to insure certain classes of workers against sickness and unemployment. This tendency towards more state action was increasing. Expenditure on the social services had roughly doubled since the Liberals took office in 1905. Still, broadly speaking, the state acted only to help those who could not help themselves. It left the adult citizen alone.
    "All this was changed by the impact of the Great War. The mass of the people became, for the first time, active citizens. Their lives were shaped by orders from above; they were required to serve the state instead of pursuing exclusively their own affairs. Five million men entered the armed forces, many of them (though a minority) under compulsion. The Englishman's food was limited, and its quality changed, by government order. His freedom of movement was restricted; his conditions of work prescribed. Some industries were reduced or closed, others artificially fostered. The publication of news was fettered. Street lights were dimmed. The sacred freedom of drinking was tampered with: licensed hours were cut down, and the beer watered by order. The very time on the clocks was changed. From 1916 onwards, every Englishman got up an hour earlier in summer than he would otherwise have done, thanks to an act of parliament. The state established a hold over it citizens which, though relaxed in peacetime, was never to be removed and which the second World war was again to increase. The history of the English state and of the English people merged for the first time.

~ A. J. P. Taylor, on 'The Effects and Origins of the Great War,' from his 1965 book English History, 1914-1945

"What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914!
    "The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages.
    "The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. 

    "He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighbouring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. 

    "But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalisation of which was nearly complete in practice."

~ J.M Keynes, from his 1919 book The Economic Consequences of the Peace

"As a child, I saw a glimpse of the pre-World War One world, the last afterglow of the most radiant cultural atmosphere in human history … If one has glimpsed that kind of art—& wider: the possibility of that kind of culture—one is unable to be satisfied with anything less. 

    "I must emphasise that I am not speaking of concretes, nor of politics, nor of journalistic trivia, but of that period's 'sense of life.' Its art projected an overwhelming sense of intellectual freedom, of depth, i.e., concern with fundamental problems, of demanding standards, of inexhaustible originality, of unlimited possibilities &, above all, of profound respect for man. The existential atmosphere (which was then being destroyed by Europe's philosophical trends & political systems) still held a benevolence that would be incredible to the men of today, i.e., a smiling, confident good will of man to man, & of man to life. … 

    "It has been said and written by many commentators that the atmosphere of the Western world before World War I is incommunicable to those who have not lived in that period…It is [certainly] impossible for the young people of today to grasp the reality of man's higher potential & what scale of achievement it had reached in a rational (or semi-rational) culture. But I have seen it. I know that it was real, that it existed, that it is possible. It is that knowledge that I want to hold up to the sight of men—over the brief span of less than a century—before the barbarian curtain descends altogether (if it does) & the last memory of man's greatness vanishes in another Dark Ages."

~ Ayn Rand, from her introduction to her 1969 essay collection The Romantic Manifesto: A Philosophy of Literature

* From Stefan Zweig’s 1942 autobiography, which is also a biography of the collapse of Europe into barbarism, The World of Yesterday