Former New Mexico governor Gary Johnson, running for the Presidential nomination of the Libertarian Party, wrote on Facebook:

In a nationally-televised debate among three of the Libertarian candidates for President (A debate that should, by the way, have been more inclusive of all the candidates.), a highly unlikely hypothetical question was raised about whether a Jewish baker has the right to refuse to serve a Nazi sympathizer asking for a "Nazi cake". I responded to that question in the legal context of whether a public business has the right to refuse to serve a member of the public, as distasteful as it might be.

The simple answer to that question is, whether all like it or not, U.S. law has recognized the principle of public accommodation for more than 100 years: The principle that, when a business opens its doors to the public, that business enters into an implied contract to serve ALL of the public. Further, when that business voluntarily opens its doors, the owners voluntarily agree to adhere to applicable laws and regulations -- whether they like those laws or not.

I have dealt with this issue on this blog before, but perhaps it's worth restating.

First, where does Johnson come up with the implied contract? I don't see it. Couldn't it just as easily be that there's no implied contract.

Second, and more important, let's say there is an implied contract. It is implied only if the business does not address the issue. That is, the only way to conclude that there is an implied contract is if the business does not specifically say that it will refuse to serve certain people. If the business makes that statement, one can hardly imply a contract that contradicts that statement.

As I wrote when I challenged economist Michael Munger's similar claim about public accommodation:

On the other hand, there is a way out of the apparent "implied contract." That way is to make the implied contract the default. That is, unless the business states differently, there is an implied contract. I don't think that's as good as my solution of complete freedom of association, but it's not terrible. Then a business can say, "We reserve the right not to deal with heterosexuals" or "we reserve the right not to deal with homosexuals" or "we reserve the right not to deal with black people" or "we reserve the right not to deal with people who hate black people." That business would then take the risk of losing customers who disagree. And so be it.

By the way, a lively debate, and one of the better ones on this blog, ensued.

So my question to Gary Johnson is this:
My solution seems to accommodate your idea of an implied contract while still protecting the rights of people who feel strongly about whom they want to do business with. What do you think of it?

Johnson also raises a new issue at the end of the quoted comment, one that is much broader than the issue of freedom of association. Recall that he writes:

Further, when that business voluntarily opens its doors, the owners voluntarily agree to adhere to applicable laws and regulations -- whether they like those laws or not.

I don't get the "voluntarily agree" part. When a business opens its doors, it has to adhere to applicable laws and regulations. I get that. But "voluntarily agree?" Where does that come from?

Notice also what his reasoning would imply about a different era. In many parts of the South, before the Civil Rights Act, businesses were forced to discriminate on racial grounds. Streetcar companies were a famous example. In South Africa during Apartheid, the government made it difficult for mining companies to hire black people. Were Johnson to follow his own reasoning, he would need to claim that businesses in the South and mining companies in South Africa "voluntarily agreed" to discriminate. Would Johnson follow his own reasoning?

This summer, I'll be in Europe for a month, from June 16-July 16.  My activities:

1. Teaching Advanced Public Choice at the University of Münster. Classes are on Monday afternoons and Tuesday mornings.  If you wish to audit, please email me.  The class will be taught in English, with my minimal German mixed in for comic relief.

2. Speaking at the IEA's THINK conference in London on July 2.

3. Speaking in Heidelberg on the evening of July 12.

If you want to meet up in Münster or London, email me and perhaps we can work something out.  In Heidelberg, I'll only be available to hang out for an our or two after the talk.

The other story was about a policy change achieved through executive action: The Obama administration issued new guidelines on overtime pay, which will benefit an estimated 12.5 million workers.

What both stories tell us is that the Obama administration has done much more than most people realize to fight extreme economic inequality. That fight will continue if Hillary Clinton wins the election; it will go into sharp reverse if Mr. Trump wins.

Step back for a minute and ask, what can policy do to limit inequality? The answer is, it can operate on two fronts. It can engage in redistribution, taxing high incomes and aiding families with lower incomes. It can also engage in what is sometimes called "predistribution," strengthening the bargaining power of lower-paid workers and limiting the opportunities for a handful of people to make giant sums. In practice, governments that succeed in limiting inequality generally do both.

This is from Paul Krugman, "Obama's War on Inequality," New York Times, May 20.

It is clear from the context that Krugman is claiming that the new Obama regulation on overtime pay is an example of "strengthening the bargaining power of lower-paid workers."

He's wrong. It does just the opposite.

Probably the best way to help him see the point, if, as I doubt, he wants to see the point, is to consider his situation with his employer, the City University of New York. Krugman is a salaried rather than an hourly worker. So he doesn't have to punch a clock and no one is keeping track of his hours. He can work on his lunch break if he wants, he can work on an airplane, he can work any time and anywhere.

I don't know the specifics of his deal with his employer, but of my above claims I am virtually certain.

Imagine that you are making between $40K and $45K, much less than Krugman's $225K. You are salaried. You don't want or need as much flexibility as Paul Krugman has, but you do want some flex. You want to be able to have an occasional long lunch hour some days and a short lunch hour other days. But this won't always works out to 40 hours a week. Some weeks you will work 38 hours, some 42 hours, some 45 hours, some 34 hours. You ask your employer for that flexibility and your employer answers, "Fine, as long as the work gets done. And, in return, there might be times, not often, but some times, when you need to come in on a Saturday morning."

You think about that. You respond, "OK, as long as I can take a few hours off in a day, when there's a lull, but I guarantee that the work will get done." Your employer and you agree.

Is there anything in this story that sounds implausible?

What just happened?

You exercised your bargaining power.

Now someone who doesn't know you from Adam comes along and says, "Your agreement with your employer means that some weeks you will work 45 hours. In the weeks that you earn 45 hours, the employer must pay you for 47.5 hours. (Overtime rules require that the employee be paid time and a half for any hours over 40 in a week.) You may think that those cancel out so that your average is 40 hours a week. Tough. We don't think the same way. Your deal is illegal. The employer must pay you overtime any week that you work more than 40 hours no matter what happens in the other weeks."

Now the employer has to rethink his earlier agreement. Paying overtime wasn't part of the plan. He can adjust by lowering your base pay so that some weeks you earn less than before and some weeks (the weeks with overtime) you earn more than before. And he must keep track of all these hours, whereas he didn't before. He reluctantly goes along and cuts your base pay.

The arrangement has been altered. You might not like that. You have rent to pay in the 4-bedroom house you share with 3 other single people and you like the certainty of that weekly income. But now the employer, in response to that regulation, has removed that certainty.

Your bargaining power is now less. QED.

Update: Question for extra credit.
Why do you think the Obama administration chose December 1 as the date for implementation?

Razib Khan recently linked to a map of Europe, showing average incomes by region. The richest areas were colored dark green, and the poorest are colored dark red/brown:

Notice that major capital cities such as London, Paris, Madrid, Stockholm, etc., are much richer than the surrounding regions. There's also a rich area centered on Europe's two biggest ports (Antwerp and Rotterdam). Again, no big surprise. Nor is the wealth of coastal Norway, which is rich in oil. But I am sort of surprised by the richest area of all, right in the center of Western Europe.

This area includes Switzerland, western Austria, northern Italy and southern Germany. What's going on there? It doesn't seem to be cultural in any obvious way, as it includes both Nordic and Mediterranean elements. It also includes both Catholic and Protestant cultures. It includes successful countries and dysfunctional countries. So the quality of governance doesn't seem like a complete explanation either. Indeed northern Italy is rich despite bad governance.

I recall that economic geographers used to argue that places like Bolivia and Afghanistan were poor because they were landlocked and mountainous. Well the rich heart of Europe is landlocked and mountainous. Yes, it has rivers, but that doesn't explain why it's richer than those regions that are closer to the coast, or which have lots of flat, fertile farmland. Nor has this region always been rich. Southern Germany only became unusually rich after WWII. I seem to recall reading that when British tourists took a Grand Tour through the Alps 200 years ago, the region was relatively backwards.

There's only one thing that I can see that these regions have in common, they are all close to the Alps. Before seeing this map, if you had asked me which part of Austria I thought was richest, I would have guessed the eastern part, which is less mountainous. I knew that Lombardy was rich, due to companies that cluster around Milan, but didn't know about the three other smaller Italian Alpine provinces.

So I offer this as a mystery to be explained. Why are areas close to the Alps richer than elsewhere? In earlier centuries, did the rugged mountains somehow prevent the development of the sort of feudal systems seen in farming regions, and instead instill rugged independence in their populations?

In the next map, the regions are broken down with finer detail. It seems to me that lots of the richer regions are right up against various mountain ranges. The far west of Italy, right up against the Alps, and also the northern Apennines in Italy. The Pyrenees region of northern Spain.

My daughter, Karen Henderson, a resident of San Francisco, recently served on a California jury for almost two weeks for $15 a day. She is self-employed and her opportunity cost, therefore, was quite high.

But as she said in a text to my wife and me, when the jury pool was being narrowed down, "Part of me wanted to lie to get out of it but I'm just such an honest person I can't lie." Sure enough, the pool fell from about 100 to 24, and then down to 12, and she was juror #6.

I'm not going to write about the economics of involuntary servitude and the associated huge waste of people's time compared to paying closer to market wages and getting people to volunteer. That's an interesting topic, but I'll leave that for another day.

Instead, this is proud papa complimenting my daughter's insights about the housing market in San Francisco and about revealed preference.

First, the housing market in San Fran. Karen pointed out that in the pool of 24 people, 23 had a Bachelor's degree, and the 24th had an Associate's degree. One third of the people had at least a Master's degree or a professional degree (doctor or lawyer.) What does this tell you about incomes in San Francisco, she asked me, and then answered: there are few low-income people in San Francisco because they are priced out by the high rents and high housing prices.

Second, revealed preference. The case was about a young man who was clocked speeding at 77 mph in a 35 mph zone. The SFPD chased him and he led them on a wild chase indeed. The serious charge against him was evading the police officer in his vehicle.

Most of the case involved the prosecutor trying to prove that he was willfully evading and the defending lawyer arguing that the driver's car went out of control. Given the way the chase occurred, e.g., the car suddenly turning from the furthest left lane of three to make a right turn, the defendant had a tough road ahead (pun intended.) Also, it came out that the defendant was a race car driver, making his argument that the car got out of control suspect.

As the evidence mounted, my daughter found the defendant's case less and less credible. Jurors were allowed to write out questions. The bailiff would then come and pick up the question and take it to the judge. The judge, consulting with the attorneys on both sides, would then decide whether the question was legitimate. All of Karen's questions, she said proudly, passed muster.

And here's the question that pushed her beyond reasonable doubt. It had come out in the testimony that the defendant's friend had picked up his car for him the next day after it had been impounded. Karen's question: "If the car had gone out of control, weren't you worried that your friend would be at risk if he drove it?" The defendant answered that he wasn't.

The initial vote among the jurors was 12-0 in favor of Guilty. And here's where the stereotype I held about jurors, based on stories I've heard from others who have served, broke down in a positive way. Even though that was their initial vote, they knew that the charge was serious but, of course, they weren't allowed to know or research the range of penalties. They knew that he was a race car driver, which means that maybe at 3 a.m. he wasn't putting people at much risk with his evasive maneuvers. So they spent a whole extra day sifting the evidence. They asked to see the transcripts or view videos of the trial (I wasn't clear which) before voting 12-0 in favor of Guilty.

President Obama and Governor Brown believe the science is settled and carbon emissions lead to droughts. Before we test the veracity of their beliefs, consider that many of the warmest places on Earth, such as rainforests, are both warm and wet. Further, some of the driest places on Earth, such as Antarctica and Siberia, are also the coldest. The coldest city in the world, Oymyakon, Russia, has a mean annual temperature of -15.5 °C and gets only 8.3 inches of precipitation per year. Antarctica's McMurdo Dry Valleys, obviously cold, are the world's driest locations. So we can't just assume that warmer equals drier.

Droughts are defined by reduced precipitation and increased evaporation, and California's 2011-2015 drought had both. What happened over the last three winters was a major reduction in precipitation (a reduction of 0.9 mm per day) with only a minor increase in evaporation (less than 0.1 mm per day). In short, the reduction in precipitation was an order of magnitude more than the increase in evaporation. "California lost essentially one full year of precipitation," according to Richard Seager, a climate model specialist at Columbia University's Lamont-Doherty Earth Observatory. "The [reduced] precipitation was the essence of this drought," added Marty Hoerling, a meteorologist at the NOAA Earth System Research Lab: "Farmers were praying for rain, not cooler temperatures."

This is from David R. Henderson and Charles L. Hooper, "Did Global Warming Cause California's Drought?" Defining Ideas, May 19, 2016.

Charley deserves more of the credit for this piece than I do. He tracked down virtually all the evidence. My main role was rewriting.

Imagine an article on the "carried interest" tax loophole, entitled as follows:

"Carried Interest tax treatment should not be changed, experts agree"

And suppose that all of the experts were hedge fund billionaires.

CNBC has a new article discussing "expert" opinion on Chinese steel exports. Here's the headline:

China has conducted a 'war' - not trade - with steel, experts say.

The article cites two experts:

China's low-cost metal producers have been widely cited as the main culprit for the glut. In particular, the world's second largest economy has been accused of "dumping" cheap steel on to global markets, due to a slowdown in domestic demand, in a bid to gain market share. However Beijing has denied any wrongdoing and has said that its costs are lower than other producers.

Lourenço Gonçalves, chairman, president and chief executive of mining and natural resources company Cliffs Natural Resources, told CNBC on Thursday that China had been acting unfairly. . . .

"Just based on the numbers, China is by far the largest problem," Gonçalves said, accusing China of not abiding by the rules of international trade. "You can't call yourself competitive if your competitiveness is based on cheating the international rules of trade. Trade without fairness is not trade, it's war."

And here's the other expert:

James Bouchard, founder, chairman and chief executive of steel services group Esmark, agreed that there was "no doubt about it" that China was dumping steel and said that the impact had been "devastating" for businesses.

We now live in a world where actual experts are ignored, and the press merely repeats the claims of special interest groups on one side of the issue. Trump would be proud.

One picture is worth a thousand words, courtesy of Bloom and Van Reenen's "Why Do Management Practices Differ Across Firms and Countries?" (Journal of Economic Perspectives, 2010)



My earlier comments on this still-underrated piece here.

CBS Sixty Minutes reporter Morley Safer died today. He was one of my favorites. He had that smile of doubt when he was hearing someone he interviewed tell him what he thought was a spin. He was also a fellow Canadian who became an American, while retaining Canadian citizenship.

Indeed the Canadian part relates to one of my favorite stories about him, assuming, as I think is justified in this case, that Wikipedia tells it right.

Safer had reported on, and shown, U.S. soldiers in Vietnam lighting people's huts on fire during the Vietnam war. He was justifiably shocked by this. President Lyndon Johnson was shocked too, apparently not because the soldiers were lighting the huts on fire but because Safer reported it.

Here's the relevant segment from Wikipedia:

Safer's report on this event was broadcast on CBS News on August 5, 1965, and was among the first reports to paint a bleak picture of the Vietnam War. President Lyndon Baines Johnson reacted to this report angrily, calling CBS's president and accusing Safer and his colleagues of having "shat [DRH comment: LBJ was good on the past tense] on the American flag." Certain that Safer was a communist, Johnson also ordered a security check; upon being told that Safer "wasn't a communist, just a Canadian", he responded: "Well, I knew he wasn't an American."

My wife and I had just watched, and enjoyed, the special one-hour Sixty Minutes segment on him last Sunday.

Here's an excerpt from the CNN obit:

"He was an extraordinary writer and reporter, and a true gentleman," said CNN anchor and "60 Minutes" contributor Anderson Cooper. "From his work during the War in Vietnam to his completely unique and evocative pieces for 60 Minutes, he set the standard for what we all want to be as journalists. His kind shall not pass this way again."

I think Cooper's last statement is probably right. It's worth thinking about why. Is it the incentives? If so, what incentives have changed. I'm not sure about the answer.

Jesse Walker, over at Reason's Hit and Run, just posted an excellent piece making an obvious point. I'm not undercutting him here: part of why it's obvious is that he says it so well.

Here's the key part:

Sometimes they get more explicit, as when Sen. Dianne Feinstein said last week that Sanders' presence in the race has become "actually harmful," since it means Clinton "can't make that general-election pivot the way she should."

The "pivot," of course, is the moment a candidate stops pursuing her party's base and starts chasing the mushy moderates. The pivot is precisely what Sanders wants to block.

Summary of Feinstein's message to Bernie: You want outcome A. I don't. What you're doing will maximize your chance of achieving outcome A. So just stop it.

If Sanders quits, Clinton will be able to move closer to the median voter in the general election. That's Public Choice 101.

By the way, I have my own reason for wanting Bernie to quit. It's also Public Choice 101. If Sanders quits, Clinton pivots toward the median voter and then the Republican nominee, presumably Trump, doesn't have the incentive he otherwise has to go further left. Remember that in 1972, Nixon went left to compete with McGovern and Nixon proceed to "McGovern" from the left.

You might wonder why I wouldn't want Bernie in so that he can push his much-better, less-interventionist views on foreign policy. Simple. Because he doesn't. He mainly talks about the domestic economy and he's almost completely awful. The only candidate who's saying much non-interventionist in foreign policy is Trump.

A site called "Intelligent Economist" has posted its ranking of the "Top 100 Economics Blogs of 2016." And guess what? We're number 10.

Here's the post.

The site does not make clear how it came to that ranking. We're number 10 and Marginal Revolution is number 18? Hmmm. But I'll take it.

I've recently read a few articles that suggest the Russian economy is doing better than expected. The Economist attributes this success (or perhaps less failure than expected) to the adroit management of the head of Russia's central bank:

Russia's economy has been held back for years by corruption and rent-seeking, and more recently by Western sanctions and the low price of oil and gas, the country's main exports. Yet the Central Bank of Russia (CBR) is a model of competent, technocratic policymaking. Since Ms Nabiullina became governor in 2013, the CBR has kept Russia's economy, awful though it is, out of worse trouble.

Russia experienced a very severe real shock when the price of oil and other commodities plunged in 2014-15:

The recession might not appear to be all that severe, but note that these are quarterly growth rates; the annualized growth fell by 4 times as much, say from a trend of about 2% to negative 4%.

I was not able to find any data on NGDP growth, and would appreciate any help in that area. However it's clear that a central bank that was targeting NGDP should have allowed inflation to increase sharply during the recession. That is, they should have done the exact opposite of what the Fed did, when it allowed inflation to fall during the severe 2008-09 recession. And it seems like the Russian central bank did exactly that:

A couple points need to be emphasized. The inflation data does not seem to exactly offset the change in RGDP growth. On the other hand, this is not the theoretically appropriate GDP deflator. I could not find quarterly data for the GDP deflator, but I suspect that this data would show the exact opposite problem from the CPI. Rather than overcompensating, the rise in the GDP deflator may well have under-compensated for the fall in RGDP. That's because Russia devalued sharply during the recession---so the price of imported goods (in the CPI but not the deflator) would have soared, and the price of commodity exports (in the deflator but not the CPI) would have plunged.

In any case, elsewhere I've argued that total labor compensation is a better target than NGDP, for a country that is highly dependent on the export of commodities with volatile prices.

We do have one piece of evidence that monetary policy was effective, the unemployment rate:

It's possible that this data is inaccurate, but note that unemployment did rise sharply during the 2009 recession. So Russia's unemployment data is not like the Chinese data, which almost never changes. It's interesting that unemployment only rose from about 5% to 6% during a very severe real shock to the Russian economy, whereas in 2009 it soared to over 9%

So how did Ms Nabiullina achieve this good labor market outcome?

The crisis of 2008-09, when oil prices fell and the world economy stagnated, revealed that the Russian economy was dependent on flighty foreign hedge funds and retail investors. As they pulled money out, the CBR tried to prop up the value of the rouble, losing over $200 billion of foreign-exchange reserves in a matter of months (see chart). Lending shrivelled across the economy. In 2009 GDP shrank by 8%.

. . .

To maintain reserves when the oil price began to fall, Ms Nabiullina accelerated a plan to allow the rouble to float. It fell by 40% against the dollar in 2015 alone. Propping up the rouble would have been popular, since it would have preserved ordinary Russians' purchasing power, but it would have meant burning through the country's reserves again. Instead the CBR channelled dollars to sanction-hit banks and energy companies, to help them repay external debt. Reserves have also been used to finance the budget deficit. As oil prices recover, so the CBR is again accumulating reserves, with a view to hitting the $500 billion mark once again.

So why is a sharp depreciation in the ruble to be preferred over the 2008-09 approach, which kept the ruble stable for a time? Didn't the high inflation of 2015 reduce living standards? Ultimately living standards depend on production, which depends on employment. It does no good to preserve real hourly wages, if there are no jobs:

The rouble's fall has stoked inflation, as imports have become more expensive. As a result, real (ie, adjusted for inflation) wages have fallen by more than 10% since 2014. (They are still triple what they were when Mr Putin took office in 2000.) Interest rates, which in 2014 were jacked up to 17%, have been the only tool the CBR has used to stem the rouble's fall. High rates also help to bring down inflation, currently 7%, towards the CBR's target of 4%. These decisions have "reflected the capacity of the institution to do what is right for the country regardless of the political situation", says Birgit Hansl of the World Bank.

Such steps have been "painful, but necessary", in Ms Nabiullina's words.

This is what the Fed should have done in 2008-09. If the Fed had allowed inflation to rise slightly as RGDP slowed during the housing bust, then NGDP growth would have been more stable. Workers would have seen a reduction in real wages, but total employment would have been higher. With more people working, RGDP would have been higher, and since RGDP equals real income, Americans would have (paradoxically) had higher total real incomes, despite having lower hourly real wages.

Just to be clear, I don't have good enough data to make any firm claims about the Russian economy. I doubt whether NGDP growth was completely stabilized (it probably fell somewhat) and in any case, I do not believe that that stable NGDP growth is the exact optimal solution for a commodity exporter like Russia. NGDP growth should slow somewhat when prices plunge in a big commodity exporting sector. But whatever they did, they ended up with the sort of countercyclical inflation you'd like to see, and the unemployment problem seemed to be much less than you'd expect after such a big real shock.

If Trump wins, maybe he should ask his good buddy Putin for some advice on monetary policy.

PS. Also recall that monetary policy is just one factor influencing an economy, and not the most important. Russia's supply-side environment is still lousy:

Nonetheless, the long-term economic outlook is poor. Ms Nabiullina's critics say the CBR's tight monetary policy is the culprit, since it cripples investment. But corporate profits rose by 50% last year as the rouble value of foreign earnings jumped; companies have plenty of cash to invest. In regular surveys, manufacturers cite policy uncertainty, not high interest rates, as a big constraint. Ms Nabiullina agrees. "Our economic downturn is mostly the result of structural factors," she says. What worries her most is not protracted low oil prices, but "how quickly and dynamically" Russia can improve its business environment. Until then, the CBR will have an outsize role in keeping the Russian economy going.

Update: I found some NGDP data at the IMF, but unfortunately only annual data. In the 2008-10 period NGDP growth fluctuated wildly, from 24.1% in 2008 to minus 6.0% in 2009 to 19.3% in 2010.

This time around things were more stable. NGDP growth slowed from 9.6% in 2014 to 3.2% in 2015, to a predicted 5.8% in 2016. Whereas RGDP plunged by 7.8% in 2009, it only fell by 3.7% in 2015. As I indicated, it is appropriate for there to be some NGDP slowdown in a commodity exporting country, when global commodity prices plunge. Thus the NGDP numbers for 2014-16 don't look all that bad to me. I wonder how total labor compensation did over this period? I suspect that variable was even more stable.

Interesting email from journalist Henri Astier, reprinted with his permission.

---

Hello,

I am a French journalist living in London and - more relevant for the purpose of this email - an avid listener of Econtalk.

I enormously enjoyed all your appearance on that show and was recently reminded of the last one while re-reading a passage from the autobiography of the French philosopher Jean-François Revel.

This anecdote, I feel, vividly illustrates your ideas on education as signalling.

A few words of context first: in 1943 Revel, aged 19, was admitted to France's elite Ecole normale supérieure.  He also joined a resistance network as a part-time courier.  The next spring the commander of his partisan group urged him to take his end-of-year exams ("I don't want to be responsible for ruining your studies.")  But by June, the world was collapsing around Revel.  The Nazis had arrested most of the network, and he had to flee to the relative safety of Lyon.

But he had one last oral exam to take at the Sorbonne before leaving.  To expedite his exit, he left his suitcase a nearby restaurant (called Capoulade) so that he could head straight to the Gare de Lyon afterwards.

So on 6 June 1944, he sits down for his philosophy oral; his examiner, a then-prominent professor named Étienne Souriau, asks him: "Is matter capable of thinking?"

 "I found it difficult not to giggle (...)  As we were talking, Allied and German forces were slaughtering each other on Normandy beaches and our future depended on that battle; Grappin [his partisan commander] and other friends were being interrogated by the Gestapo; I could hear the distant sound of bombs falling, probably on Villeneuve-Saint-Georges, a railway hub the Royal Air Force was destroying every few days (ending all chances of a swift departure for Lyon).  And in those times of tribulation and fear, I was being asked whether matter was capable of thinking!  I succeeded in silencing my own amusement, summoned all the resources of my verbal and intellectual virtuosity, and improvised a frenetic monologue in which philosophers were slugging it out, from Hegel to Democritus, Helvetius, Spinoza, Engels, Empedocles and... Souriau.  For historical objectivity demanded, in an exam, to always remember to mention the contribution to universal thought made by the maestro quizzing you (...)  In the hours following my summing-up, I successively picked up a good mark, an honorable mention, and my suitcase at Capoulade."

 (Jean-François Revel, Le Voleur dans la maison vide, Plon, 1997, pp. 117-118)

The signalling nature of Revel's education is put into stark relief here.  The skills he was able to demonstrate were not just useless in the short term: the act of demonstrating them increased the risk of catastrophic capture.  Yet in the long run the signalling effect proved effective.  Being an alumnus of the ENS meant being recognised as part of France's intellectual elite; ultimately his formidable rhetorical talents and encyclopaedic knowledge would earn him fame.

Incidentally Revel - who died 10 years ago - was France's most pro-American thinker since Tocqueville.  He is the author of Without Marx or Jesus (1970) and Anti-Americanism (2002).

Regards,

Henri Astier

London

As you may know, the American Revolution swiftly led to hyperinflation and price controls.  From Rothbard's Conceived in Liberty, vol. 4:

By the end of 1775, Congress had already increased the nation's money supply by 50 percent in less than a year, and state paper issues had already begun in New England. The Congressional Continental bills followed what was to become a sequence all too familiar in the western world: runaway inflation. As paper money issues flooded the market, the dilution of the value of each dollar caused prices in terms of paper money to increase; since this included the prices of gold, silver, and foreign currencies, the value of the paper money declined in comparison to them. As usual, rather than acknowledge the inevitability of this sequence, the partisans of inflationary policies urged further accelerated paper issues to overcome the higher prices and searched for scapegoats to blame for the price rise and depreciation. The favorite scapegoats were merchants and speculators who persisted in doing the only thing they ever do on the market: they followed the push and pull of supply and demand. In another familiar attempt to deal with the problems of inflationary intervention, they outlawed the depreciation of paper, or the rise of prices.

The consequences:

State and local governments presumed to know what market prices of the various commodities should be, and laid down price regulations for them. Wage rates, transportation rates, and prices of domestic and imported goods were fixed by local authorities. Refusing to accept paper, accepting them for less than par, charging higher prices than allowed, were made criminal acts, and high penalties were set: they included fines, public exposure, confiscation of goods, tarring and feathering, and banishment from the locality. Merchants were prohibited from speculating, and thereby from bringing the needed scarce goods to the public. Enforcement was imposed by zealots in local and nearby committees, in a despotic version of the revolutionary tradition of government by local committees.

Price controls made matters far worse for everyone, especially the hapless Continental Army, since farmers were thereby doubly penalized: they were forced to sell supplies to the army at prices far below the market and they had to accept increasingly worthless Continentals in payment. Hence, they understandably sold their wares elsewhere; in many cases, they went "on strike" against the whole crazy-quilt system by retiring from the market altogether and raising only enough food to feed themselves and their own families. Others reverted to simple barter.

What fascinates me, though, is the contemporary intellectual reaction.  You'd expect Rothbard, cheerleader for the radical Jeffersonian wing of the American Revolution, to exonerate his team.  But he totally doesn't:

Contrary to a general impression, opinion for or against price controls was determined far more by the state of the person's economic understanding than by his social class, or, for that matter, by his generally conservative or radical views. It is simply not true that radicals favored price controls and conservatives opposed them; the pros and cons cut across both ideological as well as occupational lines. Thus, while the conservative James Wilson denounced price controls in Congress-- "There are certain things, Sir, which absolute power cannot do"--the reactionary Samuel Chase defended controls on the ground of necessity.

Pennsylvania provided the sharpest model of conservative-radical cleavage on this issue. Robert Morris joined Wilson in opposing controls, and the Pennsylvania radicals, in their hatred for these two, were driven to supporting controls. It must be noted, however, that the radical price control leaders included such wealthy and eminent merchants and lawyers as Gen. Daniel Roberdeau, William Bradford, and Owen Biddle. Furthermore, among the radical leaders, Tom Paine, seeing the ill effects of price controls, shifted sharply and permanently in late 1779 from supporting price controls to a strong opposition to them.

Those radicals who favored price controls also justified this sharp deviation from their commitment to liberty and property rights by alleged wartime necessity, much as the Jacobins would do in France over a decade later. Thus, Gen. John Armstrong, a highly respected jurist and engineer and a leading Pennsylvania radical (though an early patron of James Wilson), was the most inveterate and zealous advocate of price controls in Congress. He pleaded that necessity required this exception to the laissez faire rule.

In a sense, the proponents of price controls had no economic arguments. Their views were purely superficial and ad hoc: "Prices are going up, they shouldn't, ergo outlaw price rises," was the argument form. In contrast was the sophisticated economic understanding of the opposition. Leading the opponents of controls was the New Jersey libertarian theorist, the Reverend John Witherspoon. He accurately and prophetically warned Washington that the army's severe price and wage controls on the commodities and services it purchased would only aggravate the shortages and lead to starvation for the army. No man, declared Witherspoon, can be forced to supply goods in the market at prices he considered unreasonable; and his concept of what is reasonable is the price "proportioned to demand on the one side, and the plenty or scarcity of goods on the other." And this price that clears supply and demand can only be set on the market by the voluntary interactions of buyers and sellers, not by any outside politician or government official, it being impossible for any authority to know all the nuances and variations that enter into supply and demand and hence into price. Price control, in fact, could only hobble commerce and thereby make commodities scarce and more costly than ever. The prices of regulated goods, Witherspoon pointed out, had already risen faster than those of the nonregulated.

The moderate Dr. Benjamin Rush was an able student of political economy, and he pointed both to economic theory and to the lessons of economic history. Previous price control efforts had always failed because the true cause of the price rise was not, as the unthinking believed, the wickedness or Tory proclivities of the merchants, monopolizers, or
speculators. The cause, he declared, "was the excessive quantity of our money." Only a decrease in the quantity of money, he pointed out, and a rise in the rate of interest, would end the disastrous price increases, and bring value back to the country's money. John Adams was also highly knowlegeable and forthright in monetary matters, and he too pointed to the historic failures of price controls. As early as 1777, he urged a radical and libertarian cure for the inflation: redeeming notes in gold and silver and ending paper money issue.

All of this makes Rothbard's enduring enthusiasm for the American Revolution even more puzzling.  Yes, there's all the high-level libertarian rhetoric.  But if the American revolutionaries took their rhetoric literally, price controls would have blown their minds.  The violation of libertarian principle would have been not only self-evident, but traumatic.  The only debate would have been on "wartime necessity" - and that debate would have taken the collateral damage of price ceilings for granted. 

The lesson to draw: In the 1700s as today, popular opposition to big government was skin deep at best.  Like almost all wars of independence, the American Revolution was fundamentally tribal: "We'll be free when our tribe is ruled by members of our tribe, because that's what freedom is."  Even if you embrace the "Liberty or Death" slogan (which you shouldn't), literal liberty was never on the American Revolutionaries' agenda.  But as always in war, literal death was.

Andrew C. McCarthy, a former federal prosecutor whose writing I have sometimes agreed with and found well-reasoned (see this, for example), writes the following:

The bill that GOP leadership is currently joining with Democrats to try to ram through Congress is being masqueraded as sentencing "reform." In fact, it should be called the "Early Release for Sociopaths Certain to Recidivate Act." And there is no rational reason for the support it has gotten from top Republicans ... except its appeal to libertarian donors, who believe we should not have laws against narcotics trafficking. Hence, one of the two major falsehoods behind the anti-incarceration push: The nation's jails overflow with "non-violent drug offenders."

This claim, which leading Republicans now join President Obama in peddling, is preposterous. As Heather Mac Donald has shown, drug offenders make up well under a fifth of the state prison population (which would be unaffected by the federal legislation, notwithstanding Washington's reliance on a fairy-tale depiction of it). The lion's share of state convicts are violent felons (54 percent) and property offenders (19 percent). In recent congressional testimony in opposition to the "reform" bill, Mac Donald observed (citing a 2011 study by researchers of the Harvard School of Public Health and UCLA School of Public Health): "The size of America's prison population is a function of our violent crime rate. The U.S. homicide rate is seven times higher than the combined rate of 21 Western nations plus Japan."

This is from Andrew C. McCarthy, "On Crime, Will the Party of Reagan Become the Party of Bill Ayers?" PJ Media, May 12, 2016.

There are two things to note.

First, McCarthy is right that sentencing for state prisons would be unaffected by the federal legislation. This is a separate point, though, from whether the nation's jails overflow with non-violent drug offenders, which is the point he's trying to refute.

Second, by his own admission, "drug offenders make up well under a fifth of the state prison population." OK. So how much "well under?" Is it, say, 15%? If so, and if all these drug offenders are non-violent (they aren't--a point I will address anon), then it doesn't seem like much of an exaggeration to say that the nation's jails are overflowing with them. Certainly, letting 15% of state prisoners out would substantially affect the capacity problem.

As I stated above, though, and as McCarthy argues, not all of these drug offenders are non-violent. But what percent of them are violent? This would seem to be the crucial issue for McCarthy to address. He doesn't give evidence on that.

Instead, he goes back to considering only federal prison inmates. This would make sense if he wants solely to address the sentencing legislation he criticizes. But it doesn't make sense if he wants to challenge the idea of many non-violent drug offenders in the "nation's jails," which include, not only the relatively small number of federal prisoners but also the much larger number of prisoners in state and county jails.

But let's consider his case on its own terms. Are people in federal prison for drug offenses non-violent? McCarthy doesn't answer this either, but he appears to think he does. He writes:

As former federal drug czars Bill Bennett and John Walters explain, a whopping "99.5 percent of those incarcerated for [federal] drug convictions are guilty of serious drug trafficking offenses." These are real felons - drug importers and distributors, not mere users. Drug trafficking, moreover, is an inherently violent crime. Indeed, it is well-settled federal law that firearms and other weapons so commonly seized in drug investigations are admissible evidence in court because "guns are tools of the trade" of narcotics trafficking.

So his first point is that virtually all of the people in federal prisons for drug crimes are there for importing and distributing. But this falls short of the point he was trying to make. One can import and distribute illegal drugs without being violent. One probably needs to be willing to be violent, but that's different from being violent. In fact, I would bet that the vast majority of drug transactions, even at a high level, are not violent. Drug trafficking, in short, is not inherently violent.

How does McCarthy handle this problem? He really doesn't. He points out that firearms are commonly seized in drug investigations. That doesn't make drug trafficking violent. It is violent only if the guns are used against people. And McCarthy doesn't make that claim. Moreover, if they were used against people, the odds are that they were used illegally, even if the users were simply trying to protect their property. But if that's so, then why put drug traffickers in prison for drug trafficking rather than for shooting people? It would appear that the prosecutors don't have enough evidence that the traffickers really were violent.

McCarthy could be right that the vast majority of drug offenders in prison (federal or otherwise) are there for violent offenses. But he needs to make the case. He hasn't. I would bet that it's because he can't.

There is a growing strand of conservative thought that worries about demographic change, especially changes triggered by immigration. The percentage of Americans who are non-Hispanic white is projected to fall from 62.2% in 2014 to only 43.6% in 2060. Some conservatives seem to have two worries:

1. A growing minority population, especially Hispanics, will lead to American becoming poorer, more like a third world country.

2. Non-whites are more likely to support socialist-type spending programs, partly because they are poorer, and partly because they lack the Anglo-Saxon cultural tradition of loving liberty.

I don't wish to discuss the validity of those worries, other than to say that I don't share this anxiety over demographic change. Instead I'd like to explore what America will look like in 2060. Below I provide the projections from the Census Bureau. Unfortunately there was some double counting, as Hispanic non-whites were counted twice in the data, leading to the percentages adding up to a bit more than 100%. Thus only the total Hispanic and the non-Hispanic white figures are accurate. I adjusted the other figures based on what we know today about the share of non-whites who are also Hispanic. In parentheses I've added the unadjusted figures, which as I said add up to more than 100%. Fortunately, none of my later claims will hinge on the accuracy of these adjustments:

Non-Hispanic whites 43.6%
Hispanics ----------- 28.6%
Blacks -------------- 13.3% (14.3%)
Asians -------------- 9.0% (9.3%)
Multirace ----------- 4.6% (6.2%)
Other -------------- 0.9% (1.5%)

So that's the horror story that we are all supposed to fear. Then I looked for a state that had some similar demographics right now, to get a sense of what it would be like to live in this sort of dystopian nightmare. And I found one---Texas! Indeed the Lone Star state is even "worse" from a neo-reactionary perspective:

Non Hispanic whites 43.5%
Hispanics ----------- 38.6%
Blacks -------------- 11.7%
Asians -------------- 4.4%
Multirace ----------- 1.3%
Other -------------- 0.4%

The non-Hispanic white share is almost identical to America in 2060. But the Hispanic share is actually much higher today in Texas than it will be in America in 2060. In contrast, the Asian share in Texas today is only half as large as expected in America in 2060. Why do I say this is "worse"? Because many of the people who complain about demographic change seem particularly worried about the growing Hispanic population. I even recall one "alt-right" type who referred to them as "rapists and drug dealers". In contrast, they often single out Asians as a "model minority" that has been quite successful in America.

Whatever you think of these demographic characterizations, one thing is clear; from a neo-reactionary perspective, the Texas of 2014 is even worse than the America of 2060.

I hope that by now you see the problem, or indeed the two problems:

1. Neoreactionaries seem to think the America of 2060 will be a particularly inhospitable place for white people. And yet white folks are moving to Texas in droves. Indeed the only other state that comes close (in terms of absolute population growth) is Florida, which also has lots of blacks and Hispanics (but not very many Asians). The Texas economy is also highly successful. Even during the oil bust, people continue to move to Texas and its population continues to grow rapidly, up by nearly a half million (almost 2%) in the most recent year (mid-2014 to mid-2015). The unemployment rate is only 4.2%, close to the 4.0% considered optimal by Bernie Sanders. And this was accomplished despite the hemorrhaging of oil jobs.

2. In electoral terms, Texas is a fairly conservative, small government state.

So there you have it. The alt-right's looming demographic nightmare is best represented by Texas, a state that is economically quite successful, draws in lots of white migrants from other states, and votes conservative. I wonder what their ideal state looks like? Maybe West Virginia, which is America's least Hispanic state:

What about going further out than 2060? My response would be that no one knows what the distant future will look like. The Anglo-Saxon worries about Irish immigrants in the 1800s look ridiculous today. I'm not denying that demographics matter to some extent; I do believe that cultural differences can be important. I just think the worries about America are absurdly overdone. We'll be fine. And if we aren't, it won't be due to demographics.

Traditional theories of political business cycles - Nordhaus (1975), MacRae (1977), Persson and Tabellini (1990) - predict monetary expansions in the run up to an election. Stimulating the economy, they argue, can help the incumbent politicians win elections. These theories suggest that the growth in M1 is a result of deliberate manipulation of the money supply leading up to the election as a means of gaining support.

But what if that isn't the story in countries with weak institutions? What if the increase in the monetary aggregate occurs actually as a by-product of outright vote buying, which happens concurrent with the election because of increased cash demand? This is the hypothesis for democracies outside the OECD put forward by Toke Aidt, Zareh Asatryan, Lusine Badalyan, and Friedrich Heinemann in a recent working paper.

The paper looks at month-to-month fluctuations in the growth rate of M1 in 85 low and middle-income democracies. The evidence shows a sizeable increase in the growth rate of M1 in election months. Their mechanism to explain this is vote buying in machine politics, where vote buying means outright payments or gifts in exchange for voting in a particular way or for showing up to vote.

The idea is that vote buying requires significant amounts of cash to be disbursed right before the election is held. This increases the demand for liquidity and affects M1 in several ways. First, resources to buy votes could come from converting illiquid assets into cash. This substitution from broad money into cash or deposits directly increases M1. Second, vote-buying funds may come from the shadow economy. Once this is used to buy votes, a fraction of it ends up in bank deposits. Third, incumbent governments may simply run the printing press. Each of these would result in a spike in M1 very close to the election date.

What they find is that systematic, large-scale vote buying has short-run effects on aggregate measures of the money supply. But to be an effective electoral strategy, vote buying requires weak democratic institutions, poorly monitored elections, and an electorate willing to "sell" their votes. Their pattern of evidence supports this, finding no effect of this mechanism in established OECD democracies.

Aidt et al triangulate their results with survey and case study analysis. Here is an example of how their findings map with Armenia's 2012 elections:

Armenia - a small landlocked country in the South-Caucasus - has held its last two national elections in a relatively peaceful and non-violent environment. The 2012 Human Rights report of the United States Department of State citing the election observation report of the Organization for Security and Cooperation in Europe, describes the 2012 parliamentary election held on the 6th of May as "competitive',' but with significant violations, such as "credible allegations of vote buying" among others. International media does not report much on the small country, but local media are full of allegations of vote buying, typically amounting to 5,000 or 10,000 AMD per vote (about 10-20 USD) and said to reach several hundred thousand voters in a country with a population of less than 3 million. Unlike most other central banks, the Central Bank of Armenia reports monetary statistics on a daily basis and the pattern observed in [below] is striking.

The cash in the Armenian economy increased by 20 billion AMD (or by over 5%) in less than 10 days preceding the elections. This spike is concentrated very close to the election day, reaching its peak on the first working day after the election weekend and gradually declining during the following weeks.

And Nigeria in 2007:

The 2007 presidential election marked the first transition from one elected leader to another in the largest country in Africa. Many observers have noted that vote buying, along with electoral violence and fixes to falsify vote tallies, were common currency in this and other Nigerian elections (Lucky 2013; Collier and Vicente 2014). In an Afro-barometer survey undertaken half-way through the election campaign, 12% of the interviewed acknowledged that they had been offered something in return for their vote (Bratton 2008, p. 623). As one might expect in an economy awash with oil money, voters are usually offered money in exchange for their vote but gifts such as food or clothing are also common. The going price for a vote in 2003 and 2007 was around 500 naira or about 4 USD.10 Figure [below] shows how M1 evolved before and after the elections held in April 2007. We observe a clear increase in March with a peak in April. After the election, M1 falls back to its normal level.

I find the paper a compelling way of opening up the discussion of electoral corruption, vote-buying, and political business cycles more generally. It raises questions regarding the general operation of political vote buying rings, their variation across time and space, and the challenges this particular kind of corruption poses for the rule of law.

Both Prime Minister Justin Trudeau and Alberta Premier Rachel Notley have announced that they will match Red Cross donations for Fort McMurray dollar-for-dollar. So people who consider giving money to the Red Cross for Fort McMurray know that their dollar will leverage two more dollars. On the surface, this may appear to many as a charitable action--cleverly leveraging private charity.

But let's look below the surface.

When government steps in and uses taxpayer money to help victims, that's not real charity. Those are government subsidies and those who pay the subsidy have no choice. The people choosing are Trudeau and Notley. They are not being charitable. The only way these two officials could be charitable in this circumstance is by spending their own money.

This is from my most-recent blog post with the Fraser Institute, "Fort McMurray--don't confuse support from Trudeau and Notley with charity," Fraser Forum, May 11.

Since my post came out, I learned about this heartening story about oil-sands oil producers stepping in to help out with the horrible fires.

HT2 Steve Horwitz and Janet Neilson.

Given that I share the same utilitarian value system of many progressives, you might expect me to also be a progressive. If I had to provide a one sentence explanation of why I am not, I might use the title of this post.

When there is a crisis, progressives have a knee-jerk reaction to look for government solutions instead of:

1. Looking for ways the government caused the crisis
2. Considering whether the cure is worse than the disease

The latter might apply to the example of 9/11, which led to the TSA. I've read that air travel this summer will be a nightmare due to TSA incompetence. But we had to "do something" after 9/11, and hence chose to ignore overwhelming international evidence that private airport security is superior to government security.

Another example might be the Enron bankruptcy, which led to a Sarbanes-Oxley monstrosity that causes far more damage than a dozen Enron scandals.

Today, I'd like to focus on the first case, how government creates problems and then progressives enact legislation that makes the problem even worse.

Between the two World Wars, the US experienced three major bouts of falling NGDP (1920-21, 1929-33) and 1937-38). The most severe case (by far) led to a major banking crisis in 1931-33, mostly involving small rural banks. (A similar 50% drop in NGDP today would completely destroy our banking system.) Since World War II, we've had two much less severe cases of plunging NGDP growth. Both were associated with severe banking problems and both led to expensive taxpayer bailouts.

There are lots of aspects of this picture that need to be examined, and we should always be skeptical of monocausal explanations. One important aspect is the history of American banking regulation. Restrictions on bank branching led to the creation of thousand of small independent banks in the US, as compared to about a dozen nationwide banks in Canada. The lack of diversification in the US banking system helps to explain why we've had many banking crisis in the past 100 years, while Canada has not had any.

But that's only part of the story. After the 1933 banking crisis, FDR and Congress proposed two very different solutions. FDR wanted reflation, and Congress wanted deposit insurance. In respect, reflation was the right solution and FDIC merely made the US banking system even more unstable. In my view, FDIC largely caused the banking crises of the 1980s, and 2008.

To understand the problem with FDIC, consider the incentives facing the Atlanta branch of a giant nationwide bank, such as Bank of America. They could roll the dice with some high risk, high reward loans to real estate developers, but if things went bad they would end up hurting Bank of America, including all the various branches around the country that were not involved in lending to Atlanta developers. In contrast, a small Atlanta bank that ran the same risks would off-load much of the downside risk onto FDIC (and hence ultimately onto the taxpayers). The moral hazard problem is much worse for small banks than big banks.

Now we can see the Canadian system actually had two distinct advantages. The big banks were more diversified, and they also had less incentive to take socially unproductive risks in lending to developers.

Many people think that the 2008 banking crisis was all about subprime mortgages. This is not true; the 2008 crisis was very similar to the 1980s crisis, most bank failures were caused by reckless lending to real estate developers in Sunbelt states, as well as a few northern states such as Illinois.

Very few people realize how profoundly FDIC has distorted the political incentives in the US. Because the risk of lending to real estate developers has been partially offloaded to the federal taxpayers, states like Georgia have a powerful incentive to create a very pro-moral hazard financial system. Real estate development benefits almost everyone---construction companies and workers, realtors, appraisers, homebuyers, local banks, local governments, etc.

Think of the Sunbelt as like the PIIGS in the eurozone. And think of my state of Massachusetts as being like Germany. We have lots of high saving affluent households, but not much population growth. FDIC allows reckless Georgia banks to attract these savings, at very low cost (which does not reflect that actual risk to society). Neil Wallace once said something to the effect that, due to moral hazard, any bank CEO who is not taking socially excessive risks is not acting in the interest of his shareholders.

I've been telling this story since the 1980s S&L crisis, but I haven't had much success convincing anyone. Even I would admit that the 2008 crisis didn't really look like a FDIC story, at least at first glance. It looked like a real estate "bubble" and lots of stupid borrowers and lenders, including the big banks. But as more time went by, things came into clearer focus. Ultimately the big banks paid off the TARP loans. Their losses were not offloaded to the taxpayers. In contrast, taxpayers had to spend over $100 billion bailing out the depositors of those high-risk smaller banks that had lent money to real state developers, just as they did in the 1980s. BTW, FDIC fees are a tax on depositors of all banks, even banks in safe areas like Massachusetts. Some commenters wrongly think FDIC is some sort of private company, and the fees are not a tax. They are a tax on bank consumers.

Tyler Cowen recently linked to a study by Charles Calomiris and Matthew Jaremski, which reaches similar conclusions:

Economic theories posit that bank liability insurance is designed as serving the public interest by mitigating systemic risk in the banking system through liquidity risk reduction. Political theories see liability insurance as serving the private interests of banks, bank borrowers, and depositors, potentially at the expense of the public interest. Empirical evidence - both historical and contemporary - supports the private-interest approach as liability insurance generally has been associated with increases, rather than decreases, in systemic risk. Exceptions to this rule are rare, and reflect design features that prevent moral hazard and adverse selection. Prudential regulation of insured banks has generally not been a very effective tool in limiting the systemic risk increases associated with liability insurance. This likely reflects purposeful failures in regulation; if liability insurance is motivated by private interests, then there would be little point to removing the subsidies it creates through strict regulation. That same logic explains why more effective policies for addressing systemic risk are not employed in place of liability insurance. The politics of liability insurance also should not be construed narrowly to encompass only the vested interests of bankers. Indeed, in many countries, it has been installed as a pass-through subsidy targeted to particular classes of bank borrowers.

Here's how government should react to disasters:

1. First, do no harm.
2. Look for regulations that contributed to the disaster and gradually dismantle them.
3. Only add regulation when there is a strong theoretical presumption of market failure, due to problems such as monopoly or externalities.

The government did not follow any of those three rules in setting up FDIC, the TSA, Sarbanes-Oxley, Dodd-Frank, or numerous other responses to crises.

And now the government is responding to the inequality "crisis" with minimum wage laws and taxes on capital, instead of the more theoretically justified low wage subsidies and progressive consumption taxes. But even before doing those things, we should first eliminate government policies that create inequality, such as use of hedge funds by government pensions, or excessively generous intellectual property rights, or restrictions on entry into law and medicine, or 1000 other regulations that increase inequality.

That's why I'm not a progressive.

PS. FDIC is only one of the ways that we encourage excessive debt. Our tax system also encourages debt financing and discourages equity financing.

PPS. Is our massively distorted economic system that favors reckless lending to real estate developers likely to be remedied by a real estate developer turned politician who drove four real estate development firms into bankruptcy, and has this to say about debt:

Don't forget, I'm the king of debt. I love debt.

Just asking.

PPPS. Why are so many southern politicians much more outraged by welfare going to poor minorities, than subsidies to real estate developers? Tribalism.

When it comes to the "informatization" of society, I suspect Italy followed a path that is shared by some other countries. 63% of families own a personal computer, whereas 93% own a cellphone. Most of these cellphones are smartphones: and if Internet consumption by Italians is growing, it is in large part to the use of mobile devices.

And yet getting digital ain't necessarily easy. A blog post by Massimo Mantellini, alas in Italian, points out an interesting trend. Mantellini has noticed that a growing number of shops are charging customers for a number of very simple services: like setting up your account in your new iPhone, downloading a certain App, basically anything that helps in customising your experience as a smartphone owner.

Now, I can see this practice attracting some kind of stigma, or at least very negative reviews, by experienced, smart customers. It doesn't take a "digital native", but just somebody who has used a computer long enough, to find most of these small things ludicrously easy. Smartphones have an intuitive interface and they are conceived precisely to save time and concentration. When you had your MS DOS computer, setting it up certainly required more time, more skill, and more reading of the instruction manual. Now you plug in the charger and the magic of icons and the touchscreen makes it all flawless.

And yet, there are customers who never really got into computers or tablets until today. Grandmas who want to see their grandchildren's pictures on Facebook. People who have little interest in technology, but have been informed that WhatsApp doesn't charge you anything to send pictures and messages. For most of us, the tricky thing in buying a smartphone is figuring out the best contract, including reading the very small print at the bottom of the page. But for some of us, a cellphone by itself is no less mysterious. It may become a much appreciated companion in a couple of days, but buying into a new technology has a cost.

When you get into an AppleStore, all the assistance you receive by Apple staffers to set your iPhone up is free of charge. But Apples are pricey products, their customers are self selected, and I bet the staffers get better questions than in most of other shops.

By observation, Mantellini points out that the grandmas' and grandpas' questions and requests may take a great deal of time to answer. In a telecom company shop, or in a consumer electronics store, this may lead to queues. This is why there is nothing strange in charging for these services.

Sure, refined customers may actually disapprove: they may think that the shop is taking undue advantage of the old lady. But this may be one of those cases in which your gut feeling is not necessarily right. Charging for little services like setting up your Facebook account is no different than charging for anything else. It is, at the end of the day, better than the alternative.