Bruno Leoni

On a recent EconTalk, Michael Munger discussed the underrated economist, Bruno Leoni.  Leoni held that law should emerge in a manner similar to a market.  The current system of topdown legislation is just as backwards as central planning for an economy.  As an example, Munger suggested that rather than paving paths between buildings on a college campus, builders should wait a year and see where the muddy paths emerge.  That is where you pave.  Of course, we have all seen cases where the builders paved first only to find trails blazed through the grass thereafter.  By this system, law would emerge through judicial rulings: case law.  I have long disliked case law as creating bad precedents (e.g. Plessy v. Ferguson, Rowe v. Wade, etc.), but those eventually fell away by the same process that brought them into being.  Could this be a reasonable means of enacting law?

Bruno Leoni was an Italian economist who was unfortunately murdered at the age of 54.  However, such economists as James Buchanan and Friedrich Hayek - both Nobel Prize winners - credit Leoni for influencing their work.  Had Leoni lived longer, his works might be as well-known as theirs.

The idea of law emerging like a market seems backwards, but it does harken back to how it was done in earlier days.  There was a time when people would bring their disputes to the ruler and ask him to decide.  His decision became law.  As societies grew larger, this method became impractical.  Or did it?  Let the law emerge through judicial rulings.  Other judges may adopt the reasoning of a deciding judge or overrule it.  Over time, those muddy paths that persist will be paved while those that don't will see the grass return.

Seeing where legislatures have brought us, it looks like Leoni has a point.  A legislator is there to legislate.  That we already have far too many laws is beside the point.  If you are a hammer, all you see is nails.  If you are a legislator, you need to make laws.  It might be that the US had hit the perfect number and balance of laws in 1972 and everything since has just been busywork for bored lawmakers.  On the other hand, a judge exists to rule on the law.  The judge could give the same ruling scores of times, further paving that well-tread path.  The judge only needs to rule on those issues that are presented in court by plaintiffs, not write law suggested by lobbyists.  Leoni is onto something here.

Outstanding episode and highly recommended.

Russ Roberts on Education

"The ideal education is less of a focus on information, and more on open inquiry; less worry about the right answers, and more concern for asking the right questions."

Russ Roberts

Russ Roberts, President of Shalem College in Jerusalem, was interviewed by Alex Aragona of The Curious Task podcast on the topic of education.  It was made available on EconTalk as well.  Where most of EconTalk is a back and forth discussion, this was question and answer.  Russ provides thoughtful answers and in-depth analysis regarding his views on education.  Too often in the modern world, education is somewhat passive as the student sits through a lecture and then takes a test.  He notably asks, "...of all the things you know, how many of them came from school?"  He admits that all his knowledge of calculus came from school, but most of what he knows has come from other sources, notably conversations.  Another interesting point was that a liberal education provides self-examination.

"If you don't study history and you don't study culture and you don't study literature and you don't study ideas, you won't understand how you came to be who you are."

This is an important insight.  A person is more than their genes.  Parents, country, culture, religion, and so forth have a profound impact on what you can achieve.  Not surprisingly, he quotes Socrates famous line, "The unexamined life is not worth living."

Here is a deep dive into what it means to be educated and why it's important.  This covers some of the same ground as a recent discussion with Pano Kanelos, which makes a good companion for this episode.

A Primer on Inflation

John Taylor of Stanford was a guest on Econtalk.  Unique among most economists, Taylor has a widely-known rule named for him.  The Taylor rule provides guidelines on how to handle inflation.  He developed the rule in the midst of the Stagflation of the late 70s and early 80s.  Basically, Taylor proposes that the federal funds rate - which is set by the Federal Reserve - should rise with inflation (that is a gross simplification for which I apologize).  Oftentimes, there is guesswork to try to keep the rate low enough to encourage borrowing - which provides capital for investments - and high enough to tame inflation.  Taylor holds that the Fed has done an excellent job with the interest rate for most of the last 40 years.  However, the current rate of near 0% is entirely out of step with the inflation rate.

Much of the discussion is just a primer on what is inflation, how do you measure inflation (consumer price index), what are the causes of inflation, what are ways of countering inflation, and what are the consequences of not countering inflation.  Runaway inflation leads to barter economies.  Taylor was conservative on his estimates of the inflation rate and proposed that the Federal Reserve should be raising the nominal interest rate to fight inflation.  He proposed that they should have taken action in summer of 2020.  Russ asked about fiscal policy, but Taylor did not delve into that subject beyond saying that big deficits are not ideal.  It is better to have smaller deficits.  Way to take a stand.  He is a monetary economist and more interested in interest rates.

It reminds me of lectures from college. Recommended.

A Liberal Education

Russ interviewed Pano Kanelos, the President of St. John's College, notably about the future of education and why a liberal education is important.  Russ has recently moved to Israel to become President of Shalem College.  The two discuss why a liberal education has fallen in esteem in recent decades and why they think it is perhaps the most important aspect of education.  St. John's, which is one of the oldest colleges in the United States (established 1696), bases its curriculum on the Great Books.  Too much of modern education is providing technical skills of a particular field (engineering, computer science, etc.), which is more in line with practical trades rather than higher learning.  Both Roberts and Kanelos hold that education should produce thoughtful people rather than a barcoded product with specific knowledge on narrow subjects.  Kanelos says that "education is not the acquisition of knowledge.  It's the acquisition of wisdom."  Precisely.

An excellent discussion with thoughts on why the humanities have been in decline for decades and how that trend might be reversed.  As one who pursued a liberal education, I wish them luck.

Averting Climate Change

Robert Pindyck has a new book, Climate Future: Averting and Adapting to Climate Change, and he appeared on EconTalk to discuss his findings.  He admits out the gate that the situation is uncertain, and we cannot know what the future holds.  Perhaps carbon pollution will lead to catastrophe or maybe it will have little noticeable impact.  However, he likened the situation to having insurance.  You don't know if your house will burn down, so it is a good idea to have insurance just in case.  Good point, but that doesn't quite work.  If the worst does happen, what will my insurance money buy me?  Nothing.  The government will - in the best circumstance - spend it to mitigate climate change.  More likely, it will spend it on pet projects that have nothing to do with climate change.  Though I am highly skeptical of the climate change issue, it is certainly reasonable to take some actions.  It was proposed that the government stop subsidizing people to build houses on the beach or in flood plains.  Proposing a carbon tax to decrease the use of fossil fuels is a classic proposal, but it will have little impact unless China, India, and other parts of the developing world agree.  Not going to happen.  To show how urgent the situation is, Pindyck noted that it will be 30 to 40 years before the current CO2 emissions have their full impact on the global temperature.  Stop all CO2 tomorrow and the future is still bleak.  Great.  With that in mind, adaptations were suggested.  Russ was more willing to consider adapting to change, while Pindyck was eager to enact his carbon tax.  I did like the mention that an electric car is often a coal-powered car under our current method of power generation.  In the end, there are no easy answers, though we should take precautions.  I'll agree with that.

My big issue with the climate change debate is that the earth has been much warmer, so warm that the poles had no ice.  That was millions of years ago.  A thousand years ago, it was warmer than today, which is why the Vikings thought it would be a good idea to colonize Greenland.  This was the Medieval Warm Period.  I've never heard a climate scientist explain this based on the current modeling.  The earth today is in an interglacial period of an ongoing ice age.  Yes, this is an interglacial period of the current ice age, the Quaternary glaciation.

Master and Man

Today on Econtalk, a physician and an economist discuss Tolstoy.  That seems a strange topic for a podcast called Econtalk, but it proves entertaining.  In 1895, Tolstoy wrote the short story Master and Man.  It tells the tale of Vasili Brekhunov and his peasant, Nikita, who set out in a blizzard to purchase a forest.  Vasili is a well-to-do landowner, who has dramatically expanded the family holdings since his father's time.  He is a tough negotiator, who uses tricks and schemes to make sure he gains the best deal.  From his thoughts, he is a fair man and a benefactor to his peasants.  From Nikita's thoughts, Vasili uses his position to cheat peasants like him.  During the trip through the blizzard, the pair repeatedly get lost and find themselves in the wrong village.  Despite offers that they spend the night, Vasili is single-minded in his determination to beat any competitors to purchase a valuable forest.  It is not until they are hopelessly lost that he reconsiders his quest for profit.

Russ Roberts, host of Econtalk, and Richard Gunderman, MD, PhD, Professor at Indiana University, discuss the story from the perspective of both Adam Smith and Thomas Hobbes.  Yes, this is one of those academic discussions.  The pair dissect the story and consider the motives of the main characters, what Tolstoy is trying to say.  There is also the question of what Adam Smith would think, more from the perspective of his Theory of Moral Sentiments than his Wealth of Nations.  Roberts finds commonality between Hobbes and Smith's views in this situation while Gunderman looks to Hobbes as saying man must be protected from the brutality of man vs. Smith seeing men working in self-interest, but also working cooperatively.

Both held the story in high regard, though I found it less impressive.  As a parable, it is passable.  However, it was hard to overlook Vasili's blindness to the dangers he faced.  After twice getting lost in the blizzard, he set out again as it was growing dark.  The previous two efforts, he had lost his way on account of not being able to see the markers, buried by the snow.  How did such a fool survive this long?  However, Nikita is a wonderful character, the fatalistic but good-natured Russian.

Not the best EconTalk, but certainly worth a listen.  Of course, definitely read the short story first.  It is available for free here.

Solve Poverty by Giving Cash

EconTalk had Michael Faye and Paul Niehaus of GiveDirectly.  They have been giving cash - no strings attached - to people in poverty.  Their argument is that the recipient, not the donor, is better suited to determine where best to spend the money.  One example was that many recipients in Africa would buy a tin roof.  Though this seemed like an extravagance, it was a cost-saving and quality of life decision.  Tin rooves are more costly but last much longer than a thatch roof, don't get infested with mosquitos, and are less likely to leak.  The other benefit of cash is that it doesn't undercut local industry.  For example, sending excess food to be distributed has the effect of bankrupting native farmers whereas cash will allow recipients to purchase more from local farmers and create local prosperity.

Russ offered the argument that if you give a man a fish, you feed him for a day, but if you teach a man to fish, you feed him for a lifetime.   He modified it a bit for our modern age.  Of course, cash gifts will raise the recipients' standard of living while the money is flowing, but once it stops, they will revert to poverty.  The goal must be to improve productivity.  The counter was that programs that sought to 'teach a man to fish' or whatever other skill have not proven effective.  Faye observed that a cash transfer in the United States showed that the children of recipients lived longer, had higher incomes, and attained greater education than the children of those who had not received cash transfers.  This was tracked over a 50-year span.  The pair argued that extreme poverty could be resolved through such grants at a cost of 1% of US and European GDP.

Though obviously some people will spend wisely and improve themselves while receiving grants, it is questionable if most will.  Big lottery winners almost always descend back to their pre-lottery lifestyle when the money is all spent.  Interesting and worth a listen.

The Price of Everything

There has been an earthquake and power is spotty in the bay area of California.  Ramon and Amy head to Home Depot to buy a flashlight and perhaps other items.  Home Depot is sold out.  They decide to try Big Box, a Walmart-like store. but the prices have shot up.  The woman in line in front of them cannot afford baby formula.  Ramon helps her afford her purchase while grumbling that Big Box has raised its prices during this emergency.  And so begins Ramon's economic awakening.

Ramon Fernandez is a Cuban-American who happens to be a top tennis player in his senior year at Stanford.  On account of his tennis fame, he has considerable recognition and decides to speak out against Big Box for gouging in the wake of the earthquake.  However, Amy is taking an economics course with Professor Ruth Lieber, who evangelizes for the power of prices to organize the market.  Before long, Ramon finds himself talking to Ruth about capitalism, fairness, gouging, and other such topics.  Initially, he disagrees with her and speaks at a rally against Big Box.  He has hardly finished when the crowd breaks windows on the campus.  It was not what he had wanted but he was the face of it.  The organizers had used him.  Even so, he still opposes Big Box and doesn't like the idea of the company making a huge donation to the campus.  Ramon can't help but notice that Ruth had warned him that it wouldn't go as he hoped.  Now hooked, he spends a lot of time conversing the Ruth and she with him.  He is slated to give a speech at commencement and he thinks she is just trying to get him not to denounce Big Box, but he can't figure her angle.  She does make some provocative points on how prices guide resources to where they are most valuable, but it's still unfair.

This is a book about economics that is embedded in the tale of students in their final year at Stanford.  It is a long lecture that is broken into different scenes in the lives of the characters.  Much of what is here has been repeated multiple times in EconTalk.  It is a great economics book presented in an entertaining narrative form.  Lots to digest.

Recommended.