Can a Nation Plunder Its Way to Wealth?

 

A topical podcast here for you on this pre-Waitangi weekend, on the topic: 'Can a Nation Plunder Its Way to Wealth.'

Did nations get rich on the backs of other nations? Did the West get rich from imperialism? Noah Smith says no. But why not? If you can steal stuff, isn't that better than having to make it yourself? Listen as Noah Smith and EconTalk's Russ Roberts discuss the impact of imperialism and industrialisation on growth and wealth. Smith argues that understanding plunder and where wealth comes from is more than an exercise in economic history--it matters for today's world, too.

You can listen here, on on your favourite podcast platform. (Look for Econ Talk for Jan 15, 2024.)

If you must, you can watch it on You Tube.

And a transcript of the conversation here, along with more information on the topics and ideas discussed, and suggestions for further reading and listening. 

It all starts with this question: 

Our topic for today is the wealth of nations—not the book, but the concept. Although we may talk about the book a little bit. We're going to be referring to a recent essay at your Noahpinion blog that you wrote with the title "Nations Don't Get Rich by Plundering Other Nations." So, a lot of people would disagree with that, I think. So let's start with the idea of plunder. What do you think people have in mind when they explain the wealth of nations via plunder? And, what's wrong with it? ...

 

"Please tell me why a ceasefire is being demanded instead of that Hamas release the hostages and surrender their leaders." [updated]

 

"There are many horrific things happening in Gaza. It's called war. And it's especially awful when the combatants are not easily identified. Like any decent human being and like most if not all of my neighbours here in Israel, I want to minimise the deaths of innocents in Gaza. I want to minimise the deaths of our soldiers. At the same time, the depth of the depravity of October 7, the unhesitating publicly stated willingness of Hamas to do it again, the continued rocket attacks coming out of Gaza, the fact that they still hold over 100 of our people hostage, our willingness to accept the deaths of our soldiers rather than burn the whole thing to the ground because that would be vile and disgusting, the complicity of the UN and other international organisations in the theft and corruptions surrounding humanitarian aid ... why are we, Israel, the bad guys? Please tell me what Israel should be doing differently. And please tell me why a ceasefire is being demanded instead of demanding that Hamas release the hostages and surrender their leaders? Please explain what I'm missing."

~ Russ Roberts, from Econ Talk, from his Twitter post

UPDATE: 

 

How does an open society cope with the reality that some of its members do not believe in an open society?

Russ Roberts has posted a great Twitter/X thread on the aftermath of October 7, which he sees as "a test for the West and for all open societies—societies that purport to tolerate and even embrace diversity of opinion, culture, and political opinion. Societies that nominally believe in freedom of speech and the press." Such societies, he suggests, "are now at a crossroads ..."

For context, Russ is -- and has been for some while --- the host of the thoughtful and wide-ranging podcast EconTalk (one of the few to which I listen), and a long-time advocate of free speech, reflected on the many folk invited on to his show, including intellectual opponents. He recently moved from the US to Israel to take up the role of President of Shalem College, Jerusalem.

It's worth reading some of the replies too ...

The aftermath of October 7 is a test for the West and for all open societies—societies that purport to tolerate and even embrace diversity of opinion, culture, and political opinion. Societies that nominally believe in freedom of speech and the press. Such societies are now at a crossroads and must think about the direction they wish to head. Reasonable people can disagree about who is responsible and in what amounts for the quality of civilian life in Gaza before October 7. Reasonable people can disagree about whether pressure should be put on Israel to temper its military response to the pogrom of October 7.

Debates over these questions happen here in Israel and they happen in other open societies around the world.

But what do you do about Jew-hatred? What do you do when anti-Zionism is clearly not merely a disagreement with Israeli policy but comes in a flavor that is about Jews and not just Israelis? An open society believes in freedom of assembly and freedom of speech. But how does an open society like Australia’s deal with a crowd of hundreds if not thousands who chant not just “F**k the Jews” but “Gas the Jews” on the steps of the Sydney Opera House? The police discouraged Jews from coming to that rally. Is that the right response? Is there an alternative? How does an open society like England’s deal with 100,000 people marching in the streets chanting “Free Palestine” and “From the river to the sea” in the aftermath of the October 7th pogrom? Those two slogans are a demand for ethnic cleansing—an Israel without Jews. People at that rally waved flags of Jihad—religious war. The police struggled to respond and ultimately did nothing in the moment to the flag waver. Should they have?

A friend of mine told me last night that an identifiably Jewish man—he was dressed in traditional Hasidic clothing—was assaulted in Heathrow Airport. He didn’t die. I don’t know how badly he was hurt. Open societies typically call this a “hate crime.” Is that enough? The man who was hurt went to the police but there is little they offered to be able to do. One answer is to stop being identifiably Jewish, and many Jews, fearful of violence, have lowered their profile.

On the Global Day of Rage that Hamas proclaimed in the aftermath of the October 7 pogrom, Jewish children attending Jewish schools were told not to wear their school uniforms. Some schools cancelled classes on that Friday. Is that the right way for an open society to respond--fo Jews to avoid being publicly Jewish—an inversion of sorts of requiring Jews to wear a yellow star in Nazi Germany?

Last night, at George Washington University, someone projected giant signs on the sides of buildings saying “Glory to the Martyrs” and “From the river to the sea.” Should celebrating the murder of Jews be protected speech in an open society?
And then there are the people tearing down the posters about the kidnapped adults and children in Gaza. Such actions are at least a tacit endorsement of child abduction. Is that free speech? Hate speech? Or a legitimate political protest?
Political disagreement is at the heart of an open society. Celebrating the deaths of your political opponents seems like something different. I don’t think an open society can survive if some of its members use violence or the threat of violence to silence their opponents.
How does an open society cope with the reality that some of its members do not believe in an open society?  

I recently read Stefan Zweig’s memoir, 'The World of Yesterday.' It’s a masterpiece [agree - Ed.] describing Zweig’s intellectual and cultural world in Vienna and the rest of Europe before and after World War I. He struggles to explain the rise of Hitler but ex post, he understands that part of Hitler’s success was due to how his supporters used violence and intimidation to silence his opponents and to raise the cost of their meeting and gathering publicly. We’re getting a small taste of that now in America and elsewhere. Two nights ago in Skokie Illinois there was a pro-Israel rally and some Jews gathered for an impromptu evening prayer service. Nearby, maybe twenty yards away, a crowd of dozens, held back by barriers, screamed “Allahu Akbar” at them. Police were there, too, restraining them. But what if such disrupters come into the synagogues and elsewhere, with disruptive tactics and implicit threat of violence? Who will stop them? Will the Jews fight back or lower their profile? 

There are lots of videos online of people gleefully pulling down those posters of kidnapped children and adults. Sometimes people watching nearby ask them not to do it. They beg those tearing down the posters for an explanation. No one steps in their way, though. No one fights them or tries to keep the despoilers from hiding the victims. I get it. We’re all afraid of people who seem willing to do violence to us. But how can an open society tolerate this? What does an open society do when some of its members are happy to use violence or the threat of violence to curtail the freedom of other members of that society? Tom Palmer of the Cato Institute once told me that there should be free speech for everyone except those who hold ideologies that do not believe in free speech. I was offended. Free speech should have no exceptions based on political grounds, I argued. I’ve since changed my mind. Tom was right.  Someone who hates Jews or any other group and supports their murder or abuse and who uses violence or the threat of violence to silence those who disagree cannot be tolerated in an open society. But how to implement that intolerance of intolerance? 

We now have the unbearable audio of one of the murderers on October 7th calling his parents and proudly declaring that he killed 10 Jews. Not ten Israelis. Not ten Zionists. Not ten white colonialists. Not 10 settlers. Ten Jews. Here in Israel, we have no illusions about what we’re up against. We know there are people who don’t just want our land. They want to kill us along the way. And they seem to enjoy it.  

There’s a genuine debate here in Israel about whether a ground offensive in Gaza will be worth the lives of the soldiers and the Gazan civilians who will die. But no one is debating whether it’s a good idea to kidnap children or kill their parents in front of them before abducting them. We know what we’re up against. Old-fashioned Jew-hatred. And we’re not going to hope it goes away. We’re going to fight. 

The open societies in the West elsewhere are going to have to come to terms with the reality that some of its citizens want to live in a very different kind of kind of society and are willing to use violence and the threat of violence to intimidate and harm people they disagree with. There is no simple answer to coping with this reality. It is easy to say that you’re against it—all the right people have said all the right things. But soon the West and the open societies may have to do the right thing. Deciding what that is and how to implement that decision is the terrible dilemma facing the West right now.

Not everything that's measured is important. And not everything's that's important can be measured.

"What gets measured gets managed. But I’m saying something stronger here. If we are not careful, what gets measured is all we manage. We don’t just pay more attention to what is in the light. We forget what is in the shadows. We forget about the rest of the things that do not get captured in measures we become accustomed to studying and using.
    "Our desire to quantify complexity seduces us into ignoring [valuable] things that are less easily measured.... Other factors get forgotten [whose] effects, if real, are virtually impossible to quantify.... These intangibles are hard to keep in mind....

This is one of the first mistakes we can make with [a raw number] — we forget that it only captures part of what we care about. The other mistake we make is that a measure isn’t the thing itself...."

~ Russ Roberts, from his post 'Apples and Oranges: A Critique of Utilitarianism'

"When Lying Becomes a Virtue, Civilisation Declines"

"When we are forced to deceive in order to meet the demands of the 'man of the system,' we all suffer. Truth and honesty build trust. Trustworthiness is a building block of civil society. Russell Roberts in his book 'How Adam Smith Can Change Your Life' puts it this way: 'When you can trust the people you deal with—when you don’t have to fear that your trust will be exploited for someone else’s gain—life is lovelier and economic life is much easier.'
    "Imagine a world where you can’t trust the honesty of those you encounter. Commercial life would falter, and social life would be strained. Civil society wastes away when trustworthiness erodes.
    "The decisions we make as we go about our daily lives are the building blocks of society. Getting with the programme and lying can have terrible consequences. There may seem to be personal benefits to following the herd, but when the herd normalises lying, the commercial and social ties we depend on become frayed."
          ~ Barry Brownstein, from his article 'When Lying Becomes a Virtue, Civilisation Declines'

"There’s two kinds of ignorance...."

"There are two kinds of mistakes. There’s two kinds of ignorance. There’s the things we don’t know, and then there are the things we think we know, that aren’t true. The things we know that we don’t know -- that we wish we understood, we wish we had access to the truth. There are things we think we’ve discovered as true that, in fact, are not. And that was the focus of that piece."

~ Russ Roberts summarising Hayek's Nobel-Prize acceptance speech 'Pretence of Knowledge,' i.e., "that piece"

 

“What was once destiny is now a decision.”

“What was once destiny is now a decision.”

~ Russ Roberts, on how human progress expands the choices available to us. From his interview with Tim Ferris about his new book, Wild Problems in Life and the Decisions That Define Us: Listen here, transcript here. And more here.

 

"Is it an oxymoron to say that suffering can make us… happy?"

"Are you a fan of spicy food? Horror movies? Super hot baths? If so, why? Is it an oxymoron to say that suffering can make us… happy? In these trite instances, it might not seem so radical, but psychologist Paul Bloom argues an even grander point ... [that] suffering might do us good.
    "So why do we do things that are unpleasant and/or hard? 'We’re motivational pluralists,' argues Bloom".... Whether in the short or long-term, (i.e., hot sauce versus parenting), Bloom suggests suffering is a necessary part of living a meaningful life, as opposed to a merely pleasure-filled life....
    "Apropos of the title of Bloom’s book, where’s the sweet spot? Bloom suggests it’s a curse to have too much or too little anxiety."

~ Amy Willis, summarising Russ Roberts' podcast interview with author Paul Bloom exploring just how much - and how often - 'suffering' might do us good

25+ of the Greatest Quotes on Economics and Capitalism (That You've Probably Never Heard)

There are a handful of economics books everyone should read, explains John Miltimore in this guest post. I have a different list myself, but he delivers 25+ quotes here that will get anyone started -- even you! -- timeless insights from some of the greatest thinkers in economic history.

25+ of the Greatest Quotes on Economics and Capitalism (That You've Probably Never Heard)

by John Miltimore

There are a handful of economics books everyone should read.

Economics in One Lesson and Free to Choose, the classic works written by Henry Hazlitt and Milton Friedman, respectively, are on that list. A personal favourite is Thomas Sowell’s Basic Economics, a book that kindled my own interest in economics many years ago.

From The Wealth of Nations (1776) to Freakonomics (2005), there are many and more works in between that people would argue are must-read economics texts, including Ludwig von Mises’ Human Action.

Though I’d encourage people to read in full all the best economics books, it’s unlikely most will find the time. Fortunately, with David L. Bahnsen’s forthcoming book There's No Free Lunch: 250 Economic Truths, they don’t necessarily have to.

In his latest work, Bahnsen has collected centuries worth of economic wisdom into a single text to show precisely what the title implies: there are no free lunches.

The notion that free lunches don’t exist—TNSTAAFL, an idea popularised by the Nobel Prize-winner Friedman* who used it as the title of a 1975 book—is both obvious and self-evident. Yet following a year that saw the Federal Reserve “flood the system with money” to fund an unprecedented government expansion—which included simply sending $1,400 checks to individuals—it’s a lesson that has never been more important.

Bahnsen’s book, scheduled for release on November 9, helps readers understand why there is no such thing as a “free lunch”—and much more. Exploring topics ranging from self-interest, free trade, incentives, credit and sound money, private property, and socialism (and many more), Bahnsen curates some of the most profound economic insights in history, adding his own reflections along the way.

While some of the reflections will be familiar to readers, many of them will not be—even for seasoned readers of economics. Here is just a small sampling of the insights you’ll find...

“The farmer and manufacturer can no more live without profit than the labourer without wages.” - David Ricardo

“The most basic question is not what is best, but who shall decide what is best.” - Thomas Sowell

“Nothing is more deadly to achievement than the belief that effort will not be rewarded, that the world is a bleak and discriminatory place in which only the predatory and the specially preferred can get ahead.” - George Gilder

“I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.” - F.A. Hayek

“Prices are important not because money is considered paramount but because prices are a fast and effective conveyor of information through a vast society in which fragmented knowledge must be coordinated.” - Thomas Sowell

“What one person disdains or values lightly is appreciated by another, and what one person abandons is often picked up by another.” - Carl Menger

“Demand and supply are the opposite extremes of the beam, whence depend the scales of dearness and cheapness; the price is the point of equilibrium, where the momentum of the one ceases, and that of the other begins.” - Jean-Baptiste Say

"Consumption is the final, not the efficient, cause of production. The efficient cause is savings, which can be said to represent the opposite of consumption: they represent unconsumed goods. Consumption is the end of production, and a dead end, as far as the productive process is concerned." - Ayn Rand

“The disdain of profit is due to ignorance, and to an attitude that we may if we wish admire in the ascetic who has chosen to be content with a small share of the riches of this world, but which, when actualised in the form of restrictions on profits of others, is selfish to the extent that it imposes asceticism, and indeed deprivations of all sorts, on others.” - F.A. Hayek

“All people, however fanatical they may be in their zeal to disparage and to fight capitalism, implicitly pay homage to it by passionately clamouring for the products it turns out.” - Ludwig Von Mises

“Everyone wants to live at the expense of the state. They forget that the state lives at the expense of everyone.” - Frédéric Bastiat

“Everything we get, outside of the free gifts of nature, must in some way be paid for. The world is full of so-called economists who in turn are full of schemes for getting something for nothing.” - Henry Hazlitt

"Whoever claims that economic competition represents "survival of the fittest" in the sense of the law of the jungle, provides the clearest possible evidence of his lack of knowledge of economics. The truth is that economic competition is the very opposite of competition in the animal kingdom. It is not a competition in the grabbing off of scarce nature-given supplies, as it is in the animal kingdom. Rather, it is a competition in the positive creation of new and additional wealth." - George Reisman

“The principle that the end justifies the means is in individualist ethics regarded as the denial of all morals. In collectivist ethics it becomes necessarily the supreme rule.” - F.A. Hayek

“Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilised, you have to do it through the means of private property.” - Milton Friedman

“All trades, arts, and handiworks have gained by division of labour, namely, when, instead of one man doing everything, each confines himself to a certain kind of work distinct from others in the treatment it requires, so as to be able to perform it with greater facility and in the greatest perfection. Where the different kinds of work are not distinguished and divided, where everyone is a jack-of-all-trades, there manufactures remain still in the greatest barbarism.” - Immanuel Kant

“It is not true that Congress spends money like a drunken sailor. Drunken sailors spend their own money. Congress spends our money.” - Art Laffer

“The message from history is so blatantly obvious—that free trade causes mutual prosperity while protectionism causes poverty—that it seems incredible that anybody ever thinks otherwise. There is not a single example of a country opening its borders to trade and ending up poorer.” - Matt Ridley

“Love locally, trade globally.” - Russ Roberts

"Industry is limited by capital... Capital ... is the result of saving ... Capital ... although saved, and the result of saving, is nevertheless consumed. What supports and employs productive labour, is the capital expended in setting it to work, and not the demand of purchasers for the produce of the labour when completed. Demand for commodities is not demand for labour.” - John Stuart Mill

"The production of commodities creates, and is the one and universal cause which creates a market for the commodities produced.
   "When goods are carried to market what is wanted is somebody to buy. But to buy, one must have wherewithal to pay. It is obviously therefore the collective means of payment which exist in the whole nation that constitute the entire market of the nation. But wherein consist the collective means of payment of the whole nation? Do they not consist in its annual produce, in the annual revenue of the general mass of its inhabitants? ...
    "Whatever be the additional quantity of goods therefore which is at any time created in any country, an additional power of purchasing, exactly equivalent, is at the same instant created..." - James Mill

“The great danger to the consumer is the monopoly— whether private or governmental. His most effective protection is free competition at home and free trade throughout the world. The consumer is protected from being exploited by one seller by the existence of another seller from whom he can buy and who is eager to sell to him.” - Milton Friedman

"Every individual... neither intends to promote the public interest, nor knows how much he is promoting it... he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention....
    "It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our necessities but of their advantages." - Adam Smith

“People who lack the capacity to earn a decent living need to be helped, but they will not be helped by minimum-wage laws, trade-union wage pressures or other devices which seek to compel employers to pay them more than their [labour] is worth. The more likely outcome of such regulations is that the intended beneficiaries are not employed at all.” - James Tobin

“Nothing should be more obvious than that the business organism cannot function according to design when its most important ‘parameters of action’—wages, prices, interest—are transferred to the political sphere and there dealt with according to the requirements of the political game or, which sometimes is more serious still, according to the ideas of some planners.” - Joseph A. Schumpeter

"To widen the market and to narrow the competition, is always the interest of the dealers…The proposal of any new law or regulation of commerce which comes from this order, ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it." - Adam Smith

“Failure is part of the natural cycle of business. Companies are born, companies die, capitalism moves forward.” - Thomas Sowell

“The way to maximise production is to maximise the incentives to production. And the way to do that, as the modern world has discovered, is through the system known as capitalism—the system of private property, free markets, and free enterprise.” - Henry Hazlitt

“A people averse to the institution of private property is without the first elements of freedom.” - Lord Acton

“Once the principle is admitted that it is the duty of the government to protect the individual against his own foolishness, no serious objections can be advanced against further encroachments.” - Ludwig Von Mises

"Today, in the Twenty-First Century, an age of jet aircraft, personal computers, wireless telecommunications, laser surgery, and incipient space travel, the mentality with which many presumably educated, intelligent people approach matters of economics and business is, however astonishing it may seem, still that of the Dark Ages" - George Reisman

“It is no crime to be ignorant of economics, which is, after all, a specialised discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.” - Murray Rothbard

"The moral code which is implicit in capitalism had never been formulated explicitly. The basic premise of that code is that man—every man—is an end in himself, not the means to the end of others, that man must exist for his own sake, neither sacrificing himself to others nor sacrificing others to himself, and that men must deal with one another as traders, by voluntary choice to mutual benefit. This, in essence, is the moral premise on which the United States of America was based: the principle of man’s right to his own life, to his own liberty, to the pursuit of his own happiness." - Ayn Rand

____________________________________________

++ Jonathan Miltimore is the Managing Editor of FEE.org. His writing/reporting has been the subject of articles in TIME magazine, The Wall Street Journal, CNN, Forbes, Fox News, and the Star Tribune.
Bylines: Newsweek, The Washington Times, MSN.com, The Washington Examiner, The Daily Caller, The Federalist, the Epoch Times. A version of this post first appeared at FEE.Org.

* To be fair, it was Robert Heinlein who popularised the expression in his 1966 novel The Moon is a Harsh Mistress. Friedman took the popularity and ran with it.

How COVID gives us insight into one of Shakespeare's greatest plays

The great plot twist in Shakespeare's Romeo and Juliet is all but buried to a modern audience. Only now, says author Ben Cohen, only now in our own time of pandemic can we understand that Shakespeare was writing -- and his audience were watching -- in a time bathed in plague. And as Ben Cohen explains to Russ Roberts on his EconLog podcast, that made all the difference:

Russ Roberts: Well, let's turn to Shakespeare.... So, Shakespeare has a really good year in, I think, 1605, right? He publishes--he writes King Lear, MacBeth, and Antony and Cleopatra. ...

Ben Cohen: ... [W]hat changed in 1605 and 1606 that allowed Shakespeare to get hot, it was not just Shakespeare: it was the world around him.  

What changed is that it was a plague year. The plague was sort of Shakespeare's secret weapon, in many ways. The plague was this constant force in Shakespeare's life, which I didn't realise until writing this book. I mean, he probably should have died from plague when he was an infant. His parents had already lost children to the plague when the plagues swept through Stratford-upon-Avon when he was very, very young, and it killed sort of indiscriminately.

So, the fact that he lived was a matter of chance. He baked the plague into Romeo and Juliet. I mean, the plague is really what turns the most famous love story ever into a tragedy, which, I'm sort of embarrassed to admit that I did not realize when I read the play in eighth grade and I did not realize when I majored in English in college--one of those faults is probably much worse than the other.

And, then, the plague is what allows him to get hot in 1605 and 1606--for many reasons. It puts theater-goers into a state of mind where they want to see his plays again. It closes certain playhouses. In a very macabre way, it sort of kills off his competition a little bit.

But, he is able to take advantage of these very unlikely circumstances....

Russ Roberts: So, let's digress for a minute, just because it's too much fun to talk about Romeo and Juliet ... And, we forget that when it was performed the first time, nobody knew how it ended. So, when Juliet takes a potion that's going to put her to sleep, and make her look like she's dead, Romeo finds her, thinks she is dead, kills himself. She wakes up, sees that he's dead and kills herself instead of them being reunited. And that's the spoiler alert.

And when the crowd sees this on stage first time, the gasp of shock and horror and realisation of how this is going to turn after they're all wanting it to go a different directions, it's so--it's so powerful.

Ben Cohen: It's so interesting, though, because when she does take the potion, you could easily see it becoming a comedy, right? Where they have this crazy twist that leads to them running away--

Russ Roberts: Yeah, run off to Rio, start a new life. Yeah, it's going to be great.

But, what I didn't realise, which I learned from your book ... is that that plot twist that he doesn't know that she's faking the potion and that it's a coma, not death, and she's going to wake up, he was supposed to get a message about that. And the reason he doesn't get the message is? 

Ben Cohen: Because the messenger who is sent gets stuck in quarantine... 

And so, the reason why Romeo doesn't know that Juliet has taken this potion and that she is simply sleeping and not actually dead is because this whole harebrained scheme had not been explained to him because he never gets the letter.

So, if you think about it, it's really a bonkers plot line. The flyer says, 'I will--Juliet, take this sleeping potion, it will knock you out. Your family will think you're dead. When they think you're dead, Romeo is going to come back and he's going to sweep you away and take you and live happily ever after.'

Now, this is the stuff that like you wouldn't even see on a reality show or some terrible soap opera now. And yet, it's our most famous love story.

And so, why does it fall apart? She takes the sleeping potion, right? She gets knocked out. Her family thinks she's dead. Romeo comes back and sees her in the open crypt. All of the crazy stuff actually turns out--where the whole scheme falls apart--is simply on getting a letter to Romeo. And it falls apart because the plague is sweeping through and the messenger gets stuck in quarantine.

So, all of this is the plague.

Russ Roberts: And, as you point out, which I thought was a brilliant insight--it's four lines where the guy says to the other guy, 'Oh, did you get that message to Romeo?' 'Oh, no I couldn't get it to him. Sorry.'

Ben Cohen: But, the subtext was so clear back then. You don't hit the audience over the head.

Now, 400 years later, you kind of do, right? I think I write in the book that it's the same as if someone now were to tweet something and end it with "Sad!" We all know what that's a reference to.

But, if someone is reading that tweet 400 years from now, God forbid, they might not understand that we are making an allusion to the way that the President of the United States tweets--

And so nobody in the theater would have wanted to hear about the plague. It's like being on a cruise ship and watching Titanic. I mean, you understand the risk and you don't want to think about that. But they all understood what was happening. We just don't understand what was happening, now....

Russ Roberts: But, I think that point, which is so fabulous that you don't need a two-page, 10-minute dialogue about the letter not getting there, because everybody in the crowd has experienced horrible things because of the quarantine--they all are very aware of it. And so, this is just a standard real life plausible thing.

Looking back on it before this COVID tragedy, we would have said, 'Oh, that's weird. Why didn't he make it clearer?' Because: they didn't need to then.

Ben Cohen: Or, why didn't the messengers just leave the quarantine house? Right? Could it really have been that bad?

And yet, that scene now feels oddly resonant in the same way that people in 1606 would have understood: of course he's not leaving the quarantined house. I mean, we all understand that now. Like, yeah: you're not going out to deliver a letter to somebody ... that was a plague, and it was a lot worse.

"'An oppression of the weak by the incompetent and an exploitation of the poor by the lazy' - this is exactly what is happening in cities now to the people who have a relatively low income and a regular job." #QotD

"Albert Hirschmann used to [talk about] 'an oppression of the weak by the incompetent and an exploitation of the poor by the lazy,' and this is exactly what is happening now in [the world's most unaffordable cities] to the people who have a relatively low income and a regular job...
    "The test is: if a schoolteacher [say] who  has a job indispensable to the working of the city cannot afford to live within half an hour commuting time from his or her school, there is something wrong with our system: and this 'something wrong is entry due to to [planning and zoning] regulation. There is absolutely no reason for it."
          ~ Alain Bertaud, in conversation with Russ Roberts
             'On Cities, Planning, and Order Without Design'
.

Morality + NeverTrump [Some Links]

** Back in 2016, when world politics and debate began a swallow dive straight into the toilet bowl, Republican Party reptile PJ O'Rourke openly declared himself a Never Trumper -- even with all "her lies and empty promises," a Hillary Clinton presidency he famously declared could only be "the second-worst thing" that could happen to the US: "I mean, she’s wrong about absolutely everything, but she’s wrong within normal parameters.”

Twenty-eight months later, The Atlantic demonstrates his case with 50 moments that define an improbable presidency, starting with his clutching a glowing orb.

In an October 2016 editorial, The Atlantic wrote of Donald Trump: “He is a demagogue, a xenophobe, a sexist, a know-nothing, and a liar.” We argued that Trump “expresses admiration for authoritarian rulers, and evinces authoritarian tendencies himself.” Trump, we also noted, “is easily goaded, a poor quality for someone seeking control of America’s nuclear arsenal. He is an enemy of fact-based discourse; he is ignorant of, and indifferent to, the Constitution; he appears not to read.”
In retrospect, we may be guilty of understatement.
There was a hope, in the bewildering days following the 2016 election, that the office would temper the man—that Trump, in short, would change.
He has not changed.
This week marks the midway point of Trump’s term. Like many Americans, we sometimes find the velocity of chaos unmanageable. We find it hard to believe, for example, that we are engaged in a serious debate about whether the president of the United States is a Russian-intelligence asset. So we decided to pause for a moment and analyse 50 of the most improbable, norm-bending, and destructive incidents of this presidency to date.

They remain guilty of understatement.

Test your own resilience if you still find yourself in thrall to the orange fool.

** A nice complement  to that record of life outside the norm is Rob Tracinski's interview with Tom Nichols, professor at the Harvard Extension School and author of "The Death of Expertise," about the future of NeverTrump.

The conversation covers the probable truth about Trump's Russian connections, the one good thing about the Trump presidency, the difference between nationalism and patriotism, why principled opponents of big government might so often be heard shouting "not this way," and what the fuck "the right" could do as long as the circus remains in town.

** What they should not do, most importantly, is ignore morality. And not just the amorality of their president, but the moral arguments of their opponents. Because as Yaron Brook demonstrates,  the fact that the likes of Alexandria Ocasio-Cortez are clueless about numbers is entirely irrelevant when she simply plays the moral card. Because most people at bottom do want to do what's right, it's the numbers and the suit of that card that have real political power, and so desperately need to be challenged. The fact is:

Until capitalists are able and willing to go toe to toe with the Ocasio-Cortezes of the world on morality, she and her kind, whether from the collectivist left or collectivist right, will keep winning, no matter how deadly & disastrous the results.

** A good bookend to all this is Russ Roberts's discussion of the growing loss of civility -- not unrelated to the phenomenon discussed above. [Listen here.]

The current state of political and intellectual conversation is increasingly like the world William Butler Yeats described in his masterpiece, “The Second Coming”: 

      Things fall apart; the centre cannot hold
    Mere anarchy is loosed upon the world,
    The blood-dimmed tide is loosed, and everywhere
    The ceremony of innocence is drowned;
    The best lack all conviction, while the worst
    Are full of passionate intensity 

Maybe it’s paranoia but it’s been a long time since I’ve felt the thinness of the veneer of civilisation and our vulnerability to a sequence of events that might threaten not just the policy positions I prefer but the very existence of the American experiment.
What disturbs me is how we talk to each other and our unwillingness to give even a modest hearing to the other side. The Trump phenomenon is just one example...

He's right to raise the point.

He's right to worry about it.

And he may just have a few solutions.
.

"A tax cut without a spending cut isn't a tax cut."

"A tax cut without a spending cut isn't a tax cut. A tax cut when spending goes up is an increase in taxes."
~ Russ Roberts

.

Q: When did you last read a book? [updated]

"Why read books and know a lot about one thing, when you can be on social media and know extremely little about everything?"~ Lalo Dagach

REF:

• '28% of American adults say they haven’t read a book in whole or in part in the past year' 

• 'Survey finds 400,000 New Zealand adults didn't read a book in 2016'

UPDATE: From Russ Roberts's '12 Rules for Life':

5. Read Read Read
Videos and television are great fun. But don't spend too much time on them. Leave lots of time for getting smarter by reading. Read widely. Read some books more than once. Write in your books. Don't finish every book you start. You might be able to read 2500 books in your lifetime. Maybe a few more than that. It's still a very small number. Choose wisely.

Choose wisely. But read, read, read!

xxx

.

A noble Nobel for the man who told us poverty is finally being conquered [updated]

And the Nobel Prize in Economics* this year goes to Angus Deaton, the author of The Great Escape, “which focuses on how modernity revolutionised standards for consumption.”

Peter Klein “can’t help poking a little fun at the economics profession” for its recent prizes:

You may have heard the joke that economists used to win the Nobel prize for explaining to the general public something that previously only economists understood, but now they win it for explaining to their fellow economists something that the general public has always known, e.g.:Politicians care about themselves (Buchanan).

• Don’t put all your eggs in one basket (Markowitz, Miller,and Sharpe).
• You can’t fool all of the people all of the time (Lucas).
• Some people know more than others (Akerlof, Spence, Stiglitz).

Deaton’s major insight: aggregate measures of consumption and inequality conceal important differences among individuals.

It doesn’t sound earth-shaking, does it? His greatest contribution, says Tyler Cowen, is “understanding what economic progress really means.” Deaton work, imbued with a “deep underlying optimism about the situation of the poor in the global economy,” has revolutionised economics’ approach to poverty,

When you read that world poverty has fallen below 10% for the first time ever and you want to know how we know — the answer is Deaton’s work on household surveys, data collection and welfare measurement.

Without Deaton, we wouldn’t know that we’re living in a time in history when poverty is finally being conquered.

Deaton’s work on world poverty [is] a tour de force: he made advances in theory, he joined with others to take the theory to the field to make measurements, and he used the measurements to draw attention to important issues in the world.

Deaton’s work is both technical and normative. He is not an economist afraid to form a conclusion, arguing for example that that foreign aid has probably done more harm than good—largely because most of the aid ends up rewarding corrupt governments.

Unfortunately, the world’s rich countries currently are making things worse. Foreign aid — transfers from rich countries to poor countries — has much to its credit, particularly in terms of health care, with many people alive today who would otherwise be dead.
    But foreign aid also undermines the development of local state capacity.
    This is most obvious in countries — mostly in Africa — where the government receives aid directly and aid flows are large relative to fiscal expenditure (often more than half the total). Such governments need no contract with their citizens, no parliament, and no tax-collection system.
    If they are accountable to anyone, it is to the donors; but even this fails in practice, because the donors, under pressure from their own citizens (who rightly want to help the poor), need to disburse money just as much as poor-country governments need to receive it, if not more so.
    What about bypassing governments and giving aid directly to the poor? Certainly, the immediate effects are likely to be better, especially in countries where little government-to-government aid actually reaches the poor. And it would take an astonishingly small sum of money — about 15 US cents a day from each adult in the rich world — to bring everyone up to at least the destitution line of a dollar a day.
    Yet this is no solution. Poor people need government to lead better lives; taking government out of the loop might improve things in the short run, but it would leave unsolved the underlying problem. Poor countries cannot forever have their health services run from abroad. Aid undermines what poor people need most: an effective government that works with them for today and tomorrow.
    One thing that we can do is to agitate for our own governments to stop doing those things that make it harder for poor countries to stop being poor. Reducing aid is one, but so is limiting the arms trade, improving rich-country trade and subsidy policies, providing technical advice that is not tied to aid, and developing better drugs for diseases that do not affect rich people.
    We cannot help the poor by making their already-weak governments even weaker.

---

* Oh, alright, for you pedants: the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel.

UPDATE:  Lynne Keisling has praise, and links:

Angus Deaton is the worthy and deserving winner of this year’s economics Nobel. The arc of his work, from theory to data to empirical application, has been consumption, measuring consumption, and consumption as an indicator of well-being, poverty, and inequality. His analyses also incorporate political economy as a factor influencing those relationships and incentives.
    If you haven’t read his book The Great Escape, do so. It’s an accessible and optimistic account of the relationship between poverty and economic growth. Here’s an interview with Deaton from Caleb Brown at the Cato Daily Podcast in 2013 on the themes of the book. For a longer discussion based on the book, Russ Roberts’ EconTalk podcast with Deaton from November 2013 is well worth the time…
    In my mind, Deaton’s work sits with the demographic analyses and data visualization of Hans Rosling (if you haven’t seen his 200 countries in 200 years video, put down everything right now and watch it; his TED talk about the impact of the washing machine is guaranteed to bring tears to the eyes of at least this unsentimental economist). It also complements Joel Mokyr’s economic history of innovation and technological change as factors enabling economic growth.

How do you create lasting prosperity? [updated]

How do you bring real prosperity to somewhere like Africa?

Development Economist Jeffrey Sachs has just spent six years there, testing the hypothesis that charity is the answer.  The result, as author Nina Munk tells Russ Roberts, was failure.

Sachs’s story, told in Munk’s book The Idealist: Jeffrey Sachs and the Quest to End Poverty, “is one of the great lessons in unintended consequences and the complexity of the development process,” say Roberts.

Sachs’s idea was to spend a large amount of money to jumpstart the economies of a bunch of African villages and put them on a trajectory of growth … he thought that a full-scale attack on every front would do the job–improve health and agricultural productivity and education and eventually growth would begin.

But how do you sustain that trajectory? He couldn’t says Munk.

I think what we can all agree … that what’s essential is that there is some possibility of employment, of livelihood, sustained livelihood for the people who are living there. How can they earn a living? How can they keep themselves alive? Beyond the basic charity that was given to them right from the beginning. And in both of the villages that I spent the time in, there was really nothing at all, by the time I finished my reporting in 2012, to demonstrate that there was anything sustained here…

That certainly looks like failure. Roberts makes the reason clear in a great post at the Cafe Hayek blog:

What she is saying is that before Jeff Sachs arrived, the African villages had a primitive economy. Nothing changed after the money was spent and all the effort was made to help the people that lived there. But why not?
    And I think the right way to say it is that prosperity requires that people are able to specialise in something that helps their neighbours. Prosperity is about finding ways to help people other than yourself through exchange, what economists call a market. If you don’t have that, you have nothing. Or close to nothing–-you have a subsistence standard of living.
    But as I like to say, self-sufficiency is the road to poverty. Bettering yourself by bettering others is the road to prosperity. Without opportunities to help others and thereby help yourself, you’re stuck with subsistence.

The mistake Sachs was making, suggests Roberts, was confusing cause and effect.

Economies with markets have thriving health and education and are productive. But creating those effects with money doesn’t create anything real if there aren’t markets where people can exchange and better themselves by bettering others. Whatever you do will be ephemeral. You can help people for a while. But you can’t help them help themselves.

What is missing in the parts of Africa that Sachs was trying to help, says Roberts, is “exchange and specialization and the division of labour [that enables people to] get wealthy by figuring out ways to create products and services that have value to other people.  That is what is missing,” he concludes.

He’s certainly right that you can’t start from the top down, or by reversing cause and effect. And any prosperity at all is difficult when you have governments continually plundering both their people and each other, which describes so much of the African continent.

But it’s not true to say that people getting wealthy by creating products and services that have value to other people are totally absent. One inspiring story is Africa’s Export Trading Group, the winner of the 2013 African Agribusiness of the Year, and a company strongly focussed on growth from the bottom up. Tagline: “Linking Africa’s smallholder farmers to global consumers”:

UPDATE: A great short on-topic read here is Ludwig Von Mises’s essay ‘'Capital Supply and American Prosperity' from his seminal book Planning for Freedom (head here for a summary and free PDF download of the book). Don’t be put off by the essay’s title: it’s import is to explain as imply as one human being can how capital accumulation is the key to raising prosperity… and why what happens in places like Africa and 1950s India (on which Mises spends some time) have important lessons for us too.

One of the amazing phenomena of the present election campaign is the way in which speakers and writers refer to the state of business and to the economic condition of the nation. They praise the administration for the prosperity and for the high standard of living of the average citizen. “You never had it so good,” they say, and, “Don’t let them take it away.” It is implied that the increase in the quantity and the improvement in the quality of products available for consumption are achievements of a paternal government. The incomes of the individual citizens are viewed as handouts graciously bestowed upon them by a benevolent bureaucracy. The American government is considered as better than that of Italy or of India because it passes into the hands of the citizens more and better products than they do.
    Capital Investment Increases Production
    It is hardly possible to misrepresent in a more thorough way the fundamental facts of economics. The average standard of living is in this country higher than in any other country of the world, not because the American statesmen and politicians are superior to the foreign statesmen and politicians, but because the per-head quota of capital invested is in America higher than in other countries. Average output per man-hour is in this country higher than in other countries, whether England or India, because the American plants are equipped with more efficient tools and machines. Capital is more plentiful in America than it is in other countries because up to now the institutions and laws of the United States put fewer obstacles in the way of big-scale capital accumulation than did those foreign countries.
    It is not true that the economic backwardness of foreign countries is to be imputed to technological ignorance on the part of their peoples. Modern technology is by and large no esoteric doctrine. It is taught at many technological universities in this country as well as abroad. It is described in many excellent textbooks and articles of scientific magazines. Hundreds of aliens are every year graduated from American technological institutes. There are in every part of the earth many experts perfectly conversant with the most recent developments of industrial technique. It is not a lack of the “know-how” that prevents foreign countries from fully adopting American methods of manufacturing, but the insufficiency of capital available…

But this process doesn’t happen on its own:

What begot modern industrialization and the unprecedented improvement in material conditions that it brought about was neither capital previously accumulated nor previously assembled technological knowledge. In England, as well as in the other Western countries that followed it on the path of capitalism, the early pioneers of capitalism started with scanty capital and scanty technological experience. At the outset of industrialization was the philosophy of private enterprise and initiative, and the practical application of this ideology made the capital swell and the technological know-how advance and ripen.
    One must stress this point because its neglect misleads the statesmen of all backward nations in their plans for economic improvement. They think that industrialization means machines and textbooks of technology. In fact, it means economic freedom that creates both capital and technological knowledge.

The simple lesson for us, in this election year?

To Raise Wages, Increase Capital Investment
    But it is exactly the perplexity of this situation that offers a favourable opportunity for the substitution of sound economic principles for the pernicious errors that prevailed in the last decades. Now is the time to explain to the voters the causes of American prosperity on the one hand, and of the plight of the backward nations on the other hand. They must learn that what makes American wage rates much higher than those in other countries is the size of capital invested and that any further improvement of their standard of living depends on a sufficient accumulation of additional capital. Today only the businessmen worry about the provision of new capital for the expansion and improvement of their plants. The rest of the people are indifferent with regard to this issue, not knowing that their well-being and that of their children is at stake. What is needed is to make the importance of these problems understood by everybody. No party platform is to be considered as satisfactory that does not contain the following point: As the prosperity of the nation and the height of wage rates depend on a continual increase in the capital invested in its plants, mines and farms, it is one of the foremost tasks of good government to remove all obstacles that hinder the accumulation and investment of new capital.

Ronald Coase, 1910-2013

"In my youth it was said that what was too silly to be said may be
sung.  In modern economics it may be put into mathematics."
- Ronald Coase, 1988

The oldest living Nobel Prize winner died last night at 102.

Ronald Coase won his Nobel Prize for ideas in economics he developed when he was an undergraduate in the 1930s at the London School of Economics, studying under Arnold Plant and a young Friedrich Hayek.  And he got it for essays that were short, concise, and eminently readable—ideas that hit the calcifying economics profession with all the intellectual power of a hand grenade.

In the 28 pages The Problem of Social Cost, Coase linked property rights and value theory. He identified that when transaction costs remain low, private agreements can resolve many otherwise gnarly issues of trespass and nuisance, and rights in property generally end up in the hands of those who value them the most. (Read here a bar owner’s neat use of the Coase Theorem by to flout anti-smoking laws.)

The 13 pages of The Nature of the Firm became the most cited economics article ever.  In it, Coase identified the limits to the firm and to the previous thinking about the firm by economists—who, he said, had built up a theory while omitting to examine the foundations. Unlike those economists, Coase looked at real firms not economic models of “representative firms,” identifying why there was an optimum size for any firm. Transactions within firms exist outside the coordinating mechanism of the price system. Why? Because transactions between firms attract costs which transactions inside the firm don’t.  But why don’t firms keep growing until there are not external transactions at all? Because the bigger they get, the bigger the “calculation problem” and agency difficulties become.

Never, perhaps, has an economics Nobel Prize been given for so few pages of such clear prose.  And as Peter Klein notes,

Coase did all these things despite — or because of? — not holding a PhD in economics, not doing any math or statistics, and not, for much of his career, working in an economics department.

Coase remained sharp to the end, and still in some ways considered himself an outsider in the profession. Here he is last year, at 101, still trenchant.

And here’s an entertaining podcast interview (complete with transcript) with Russ Roberts from 2012, when he was still a young man of 100.

PS: Paul Walker at the University of Canterbury, who I think would call himself a Coaseian, has a good bio of the great man. Says Paul, “the world of economics has lost the greatest economist of the 20th century.”  And if you head over there now, Paul’s sidebar is fully loaded with Coase obituaries and tributes, the best of which is Peter Boettke’s (from which I pinched the Coase quotes).

PPS: This was Coase’s latest book, out last year:

How China Became Capitalist details the extraordinary, and often accidental, journey that China has taken over the past thirty years in transforming itself from a closed agrarian socialist economy to an indomitable force in the international arena.
How China Became Capitalist – Ronald Coase, AMAZON

“Economics, over the years, has become more and more abstract and divorced
from events in the real world. Economists, by and large, do not study the
workings of the actual economic system. They theorise about it. As Ely
Devons, an English economist, once said at a meeting, "If economists
wished to study the horse, they wouldn’t go and look at horses. They’d sit
in their studies and say to themselves, ‘What would I do if I were a horse?’
And they would soon discover that they would maximize their utilities."”
- Ronald Coase, 1999

QUOTE OF THE DAY: Hayek on Cyprus

With European ATMs shut down, accounts being frozen, stock markets tanking, and the Cypriot parliament (and people) almost in open revolt, the EU’s move to begin stripping Cypriots’ savings accounts in order to order to maintain “stability” has lead to anything but.

Russ Roberts at Cafe Hayek beautifully paraphrases Hayek’s view on the matter:

“The curious task of economics is to demonstrate to Cyprus and the EU how little they really know about what they imagine they can design.”

GUEST POST: Are These the End Times?

Guest post by Jeffrey Tucker of Laissez Faire Books 

WHY ALL THE LONG faces?
    The U.S. election results seem to have sent many people into fits of depression, hysteria, and rage. Commentators on the right are proclaiming that the last days are here. The hordes of welfare dependents are taking over. The wealthy will be looted. Business will be destroyed. Demographics and demagoguery have at last come together to create the perfect storm for America. Socialism has at last arrived.
    Well, let's all just settle down a bit.
    What was the alternative to Obama? [A symbol?] The truth is that Romney inspired a very low level of passion among voters. No one knew for sure what he stood for. Not even his tax message was clear. He seemed to call for lower rates, but also promised to "broaden the base," which sounds like raising taxes through the back door. His foreign policy program of protectionism against China and war with Iran actually made Obama's stealthy warmongering seem less dangerous by comparison. All the rest was a muddle.
    So in retrospect, there should be no great surprise at the outcome. The betting market called Intrade.com featured election markets that had been correct for the entire political season...
    There is no more reason to be morose and maudlin about the next four years than the last four years. The last four years featured some of the worst government policy since the 1930s, most of it coming from the Federal Reserve and the Treasury Department. These policies have broken the banking system, entrenched unemployment, and stagnated middle-class incomes. That would have stayed the same regardless of who was elected.
    Yet despite these policies, the market forged ahead. These last four years have seen some of the biggest advances in technology in history, including the app economy, the radical democratization of all media, and 3-D printing.
    The world is connected by market networks as never before. Food is more prevalent. Housing is cheaper [at least in the U.S.]. The much-feared hyperinflation never arrived.   Having long experience with dealing with stupid government policies, entrepreneurs and capitalists still somehow managed to keep the engines of progress rolling forward. The markets have shown themselves to be resilient beyond what most people imagined.
    People in democracies tend to exaggerate the influence and effect of particular presidents. They have some power to steer policy, but nowhere near what people imagine. Most of their talk about their "visions" for bringing a new future is puffery and nonsense. The bureaucracies that make and implement the rules by which we are forced to live pay very little attention to the comings and goings of the political class. Most of what they do was not discussed in the election at all. And presidents have very little practical, day-to-day influence over their behavior.
    The state that is the menace to society is not somehow recreated every four years. It is 100 years old and lives off its own momentum. It is intrusive, debilitating, invasive, and evil, but it is not sent into upheaval upon elections. Its grip grows tighter, but not mainly because of electoral politics. It runs off its own energy and tends to be impervious to political attempts to shift its direction.
    That said, sometimes U.S. presidents end up making some degree of difference. But it is by no means a foregone conclusion that a second Obama term is going to be worse than a Romney term might have been. Again, Romney made some very scary noises about shutting down trade with China [and the rest of the world], raising taxes through deduction repeals, and starting [poorly planned] wars with Iran and who knows what other countries. Based on his rhetoric alone, it's hard to say that Obama is going to be worse.
    More significantly, the biggest, for better and worse, political moves of the last half-century were made by presidents who were expected to do something completely different. No one expected, for example, that Nixon would be the man who would go off the gold standard, put in wage and price controls, and establish the EPA.
    At the same time, the best thing he did in office, namely make peace with China and open trade, was the last thing anyone expected from this old-line anti-communist. And that is precisely why he was able to get away with it. It is through confounding expectations that political change happens.
    We saw this with Jimmy Carter too. Here was a man everyone thought was dedicated to government control of everything. Yet he worked with Ted Kennedy in the Senate to accomplish the great deregulations of the late 1970s that changed life completely and continue to benefit everyone. He deregulated trucking, airlines, and energy. Those were surprising and amazing moves -- accomplished entirely by what we now call the political left. These three moves astonished the world.
    Moving forward, Reagan ran as the most libertarian-sounding president in a century, but he proceeded to balloon the budget as never before and even raise the payroll tax in a way that broke all records. On the other hand, the best thing he did in his two terms shocked the world. He sat down with the Soviet leader and agreed to the hope of eliminating all nuclear weapons. It didn't happen, but the friendship between Reagan and Gorbachev led to an astonishing thaw that encouraged dissidents all over the communist bloc. The world that the Cold War kept alive melted with the advent of the most peculiar and implausible friendship in the history of politics. [Ed: Speaking softly while carrying a big stick also helped. A lot.]
    No one thought Clinton would reform welfare, but he did it. And no one thought he would work to repeal one of the crippling legacies of the 1970s: the 55 mph speed limit as set by the federal government. Clinton did this with very little attention given to the event. But it was a huge boon to the private sector.
    The same was true of George W. Bush. He ran as a peace candidate and gave us war.
    The message here is that you rarely get what you expect from politicians. Sometimes -- very rarely, but sometimes -- they do the right thing despite every expectation to the contrary. So yes, Obama might be a socialist, but he is also a politician, and surprises can happen. And regardless of what happens, protecting your rights and liberties is ultimately up to you.
    There are huge looming issues in the second term of Obama.
    The Keynesian path has not fixed the economy, exactly as Hayek predicted in A Tiger by the Tail.
    The spending boom has not stimulated anything, exactly as Henry Hazlitt said it would not, confirming the whole theory behind Economics in One Lesson.
    The monetary stimulus has been an incredible flop, precisely as Ron Paul said it would be in The Case for Gold.
    The whole claim that the government would save us has turned out to be an aspect of what Hans-Hermann Hoppe calls The Great Fiction.
      This is the end of the road for the planners. The American people are extremely resistant to tax increases. Even on health care, some pullback would not be unexpected: the Obama administration does not want to be the trigger that causes more unemployment stemming from higher costs on small and medium-sized businesses.
    The other legislative monster of the president's first term was the Dodd-Frank financial overhaul, which inspired a constant battle cry for repeal from Republicans during the primary season. But while this regulatory dog may end up biting, for now only a third of the act's required 398 rules have been finalized. The courts have struck down a few of legislation's new provisions, and more legal challenges will follow.
    The Fed is mostly out of options. The central bank can only keep doing the same old QE thing over and over. But while the Fed makes itself bigger, as Steve Hanke pointed out in an LFB interview, the biggest engine of money creation is the commercial banking system, and the banks are not creating money by lending. Dodd-Frank uncertainty and tough bank examiners are making bankers shy to lend. This has grounded, for the moment anyway, Ben Bernanke's inflation helicopter.
    The fiscal crisis cannot be solved through mere reform, but reform would help. War with anyone would break the bank completely, and the military knows this. No one is even talking about gun control anymore, thank goodness. And there is extreme grass-roots pressure for letting up on the war on drugs.
    This isn't the end of the road for the state, but it is getting close. Politicians are usually liars and thieves, but they are not entirely impractical men and women. They will try the wrong thing a thousand times before they finally relent to the obvious. But eventually, they can relent. If the economy double dips in a serious way, that could prompt a complete rethinking of the path of the last for four years of folly.
The bigger point is that the really big changes happening to the world today are taking place outside politics. Russ Roberts puts it best:

Remember that politics is not where life happens. Policies affect our lives, but we have much to do outside that world. Yesterday, I helped my youngest son learn Python, learned some Talmud, played with my photographs on Lightroom, had dinner with my wife, and went shopping with my oldest son for his first nice blazer. Lots of satisfactions there. Nothing to do with politics.
Put Tuesday night behind you for a while. Remember what matters. Take a walk. Read to your kids. Go out for dinner with your spouse. Read more Adam Smith and less of the Drudge Report. And smile at your neighbor. That's always a good idea. But there's a bonus -- it might help your neighbor imagine that someone who believes in leaving things alone when it comes to the coercive power of government might actually be a decent person after all. And then maybe he'll be a little more open to those crazy ideas you talked about at that dinner party.

Especially considering the holidays coming up, a time when the beautiful aspects of private life are on display as never before, he is precisely right.

Sincerely,
Jeffrey Tucker

Now, how about that debt?

In case you hadn’t noticed, the world’s largest economy is having its lifeblood sucked out of it. Between now and 2014 the US Federal government will have taken $20 trillion out of the US economy and poured it down a black hole—transferring real resources that could have grown real businesses to the sort of bottomless pit favoured by John Maynard Keynes: you know, “wars, earthquakes, pyramid building…,” and the modern equivalent of these: “green jobs.”

Austerity? There’s no frickin’ austerity out there. All the world’s “statesmen” look more like this bozo:

And don’t think anything will change once the political season finishes in November.

A second-term Obama would roar full throttle to the cliff edge [notes Mark Steyn], while a President Romney would be unlikely to do much more than ease off to third gear. At this point, it's traditional for pundits to warn that if we don't change course we're going to wind up like Greece. Presumably they mean that, right now, our national debt, which crossed the Rubicon of 100 percent of GDP just before Christmas, is not as bad as that of Athens, although it's worse than Britain, Canada, Australia, Sweden, Denmark, and every other European nation except Portugal, Ireland, and Italy. Or perhaps they mean that America's current deficit-to-GDP ratio is not quite as bad as Greece's, although it's worse than that of Britain, Canada, France, Germany, Italy, Spain, Belgium, and every other European nation except Ireland.

But these comparisons tend to understate the insolvency of America, failing as they do to take into account state and municipal debts and public pension liabilities. When Morgan Stanley ran those numbers in 2009, the debt-to-revenue ratio in Greece was 312 percent; in the United States it was 358 percent [and climbing!].

If Greece has been knocking back the ouzo, we're face down in the vat. Michael Tanner of the Cato Institute calculates that, if you take into account unfunded liabilities of Social Security and Medicare versus their European equivalents, Greece owes 875 percent of GDP; the United States owes 911 percent - or getting on for twice as much as the second-most-insolvent Continental: France at 549 percent.

And if you're thinking, Wow, all these percentages are making my head hurt, forget 'em: When you're spending on the scale Washington does, what matters is the hard dollar numbers. Greece's total debt is a few rinky-dink billions, a rounding error in the average Obama budget. Only America is spending trillions.

The 2011 budget deficit, for example, is about the size of the entire Russian economy. By 2010, the Obama administration was issuing about a hundred billion dollars of treasury bonds every month - or, to put it another way, Washington is dependent on the bond markets being willing to absorb an increase of U.S. debt equivalent to the GDP of Canada or India - every year. And those numbers don't take into account the huge levels of personal debt run up by Americans. College-debt alone is over a trillion dollars, or the equivalent of the entire South Korean economy - tied up just in one small boutique niche market of debt which barely exists in most other developed nations.

You think think things are bad now, just wait until the monetisation of debt gets into fourth gear! Central bank paper is already being taken like crack cocaine by the markets, causing morons to talk about “recovery” when it’s more like the last rally of a dying tubercular patient.

Data has been improving lately in the United States, if at a snail’s pace [observes a jaded Detlev Schlicter]. The ‘interventionists’ assign a lot of importance to these developments. Being interventionists, they pay little attention to the reasons for why we were in a recession in the first place. There is never much focus on the root causes of the crisis or any debate about if those have been removed. Recessions just seem to happen, so do asset bubbles and excessive leverage. All that matters is that the government creates some growth, then, with a bit of luck, this growth may just lead to more growth, and sooner or later we may just grow ourselves out of this mess. Simples.

I think the chances of that happening are pretty close to zero. And I do not care much about what present data is supposed to tell us. It does not make much of a difference.

Take the drop in official US unemployment. Could it be attributed to a decline in labour market participation as many long-term unemployed – their numbers have been growing markedly in this recession – drop out of the official labour market altogether? Or, could it be the result of the mild weather recently? Or, as the optimists will say, is it the result of additional hiring? Frankly, I don’t know and I don’t think it matters much.

We know what the problems have been and still are: misallocated capital and misdirected economic activity on a gigantic scale as a result decades of artificially cheap money. The policies of the interventionists – first and foremost zero interest rates and quantitative easing – were aimed at sustaining these imbalances, sabotaging their liquidation, discouraging deleveraging and postponing the – admittedly painful – cleansing of the economy of the accumulated dislocations. This policy has to a large degree succeeded, maybe with the exception of parts of the US housing market, which has indeed been correcting from bubble-levels. Other than that, I believe policy has so far managed to sustain the unsustainable a bit longer and thus project a false image of stability. Congratulations.

Of course, we can never exclude that this policy may also generate some additional activity here and there. Super-cheap money may not only stop the much needed deleveraging and cleansing but it may even encourage additional borrowing and additional investment. Who is to say that the trillions of new currency units will not cause some more balance sheets to get extended a bit further?

Fact is that none of what we see right now can be taken at face value. Not the equity rally, not yield levels, not headline economic data. Everything has to be taken with a sizable pinch of salt given the distortions from an outright surreal monetary policy stance.

But we can be sure about one thing: None of this should be taken as an indication of improving health. The patient is still sick but made to run laps around the track with the help of steroids, amphetamines and massive amounts of caffeine. The economy will not get fundamentally better until the underlying imbalances have been addressed and that is only possible if money printing stops and the market is again allowed to set interest rates and other prices.

I am not sure if the mainstream economists do really take a lot of encouragement from the manufactured asset price rally and the occasional green shoots in an economy that remains freakishly unbalanced and fundamentally sick. I don’t know what the economic data will tell us over coming months or quarters. I am confident that we are far from closing the book on the present depression.

In the meantime, the debasement of paper money continues.

Listen here to Don Boudreaux talking to Russ Roberts about the debt problem, answering the question: “is it so bad if we owe the debt to ourselves?”