The True CPI Just Jumped

I recently voiced fear of coming inflation.  Yet on reflection, high inflation is already here.  While measured inflation remains low, I’ve been arguing for years that CPI bias heavily distorts official measures.  My point has always been that official measures of inflation are too high, because official measures fail to properly account for rising quality and variety of goods.  In the last month, however, all this has suddenly reversed.  Due to the coronavirus, official measures of inflation are now much too low.

How so?  Most obviously, the variety of available goods has sharply fallen.  Roughly half the products I normally buy are no longer on the shelves.  I’m hardly starving, but I’ve had to fill my shopping basket with a lot of goods I would not buy under ordinary conditions.  After many years of claiming that product variety is a great unmeasured gift, consistently compels me to admit that the loss of product variety is a great unmeasured shock in the other direction.

Variety aside, the quality of goods has also plummeted.  Most notably, shopping convenience is way down.  Back in February, I could pop into any store, swiftly pinpoint what I wanted, and buy as much as I liked without worrying about infection.  No longer.  Today’s best-case scenario is that I pay the same amount as last month for a greatly degraded shopping experience.  The actual physical quality of the goods has fallen too; I now have to settle for half-crushed bread, worse cuts of salmon, and so on.

Can’t I solve some of these problems by switching to delivery?  Yes, but that highlights yet another source of hidden inflation: outlet bias.  During the last few decades, consumers have heavily switched to innovative stores like CostCo that provide high-quality products for low prices.  Official CPI measures have failed to properly account for this transformation.  In the last few weeks, however, we’ve had outlet bias in reverse.  Stores like CostCo have been so congested (and rationed!) that many people have switched over to higher-cost, lower-quality stores they would normally avoid.

This includes delivery services like Instacart.  While I’m grateful they’re in business, Wegmans food delivered via Instacart easily costs 30% more than I’d normally pay.  The list prices are higher, there’s a delivery fee, and don’t forget the tip.  True, I don’t have to go to the store, but back in the good old days of February, I liked going to the store.  (I enjoy getting out on weekend mornings, and waiting around the house for deliveries is a drag).  Upshot: I really am paying 30% more to shop at an outlet that is inferior to what used to be available.  And I’m hardly alone.

The optimist in me says that this drastic sign-flip for CPI bias is temporary.  Yet since supply chains – especially international chains – have been seriously disrupted, much of the degradation in the quality and variety of goods that I’ve described will soon be replaced with other degradations.  You can hardly wax rhapsodic about the cheap and handy products China sells us without lamenting the many months we will have to go without.

I am well-aware that gasoline and a few other goods have suddenly gotten cheaper.  Yet overall, we have endured a rude shock.  In normal times, CPI bias means that we fail to appreciate our high and rising prosperity.  During this crisis, CPI bias means that we fail to appreciate how much we’ve lost.

Here’s to better times!

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If It’s Wrong to Steal Your Wallet…

I’ve been thinking more about Brian Leiter’s ethical trap.  (Caveat: I’m quoting Leiter’s questions from memory, so his exact wording will slightly vary).

During our debate, he repeatedly asked the audience:

“Suppose I threaten to shoot you unless you do what I want.  Are you free?”

At least one person in the audience dodged the question, but everyone knew “No” was the correct answer.

This then led straight to Leiter’s next question:

“Suppose I threaten to starve you unless you do what I want.  Are you free?”

Leiter’s point: Threatening workers with starvation is precisely what employers do to make employees do what they want!  How then is this any worse than threatening them with a gun?

In my original critique I replied:

[T]here is a vast moral difference between getting you to do what I want by threatening to take away something to which you are morally entitled (e.g., your life) and getting you to do what I want by threatening to take away something to which you are not morally entitled (e.g. my assistance).

On reflection, though, I could have explained this answer much more effectively.  Consider this line of questioning:

“Is it wrong to steal someone’s wallet?”

Yes, duh.

“So is it wrong to steal someone’s boyfriend?”

Normally not, right?  So what’s the difference?  Simple: You are morally entitled to your wallet, but you are not morally entitled to your boyfriend!  The rightful owner of your boyfriend, after all, is himself.  This is true even though many people suffer far more over a lost boyfriend than a lost wallet.

Deeper point: The language of “stealing a boyfriend,” though metaphorically compelling, is ethically confusing.  Why?  Because it makes it sound like you are the boyfriend’s legitimate owner.

Similarly, the language of “threatening to starve a person” is metaphorically compelling but ethically confusing.  Why?  Because it makes it sound like the person is the legitimate owner of someone else’s food.  Taking the food you grew and refusing to share the food I grew have radically different moral status even when they have the same physical effect.

To be fair, you could say, “The employer who fires a lazy worker has a right to do so, but he still deprives the worker of his freedom.”  My reply: “freedom” is a highly moralized concept.  Meaning: When moralists invoke the concept of freedom, they’re implicit making claims about rights.  Logically speaking, “The First Amendment protects the religious freedom of Muslims” and “The First Amendment deprives Americans of the freedom to ban Islam” are equivalent.  But when you say the former, you implicitly affirm the individual’s right to worship as they please; and when you say the former, you implicitly deny this right.

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Open Borders: Now Do You See What We’re Missing?

In Open Borders, I never claim that immigration restrictions make life in the First World bad.  I don’t try to scare people into supporting more immigration, a la, “Without more immigrants, we’re doomed.”  What I claim, rather, is that immigration is a massive missed opportunity.  While life is fine the way it is (or was, until a month ago), there is no reason to settle for “fine.”  If there is a dependable way to dramatically improve our lives, we should seize it.

What then are we missing?  The standard and correct answer is: tens of trillions of dollars every year; see Clemens’ classic “trillion-dollar bills on the sidewalk” article.  Allowing human talent to move from low-productivity countries to high-productivity countries greatly enriches mankind.  A mind really is a terrible thing to waste.  Until recently, though, these tens of trillions of dollars of unrealized gains have been awfully hard to visualize.

Now, human tragedy provides crystal clarity.  If you examine almost any American population center today, it doesn’t look bad – just empty.  Enormous economic sectors – restaurants, entertainment, retail, and much more – have suddenly shut down to fight coronavirus.  As a result, tens of millions of folks are stuck in their homes, wasting their talents, and contributing little to the world.  An optimist would correctly remind us that we’re hardly starving, and we have Netflix.  Yet an optimist should also gladly acknowledge that it would be awesome to suddenly recover all that we’ve lost.  If the virus vanished overnight, a Niagara Falls of missing productivity would be unleashed.

Imagine, though, if we’d never known anything better than what we have today.  If you claimed that we were missing trillions of dollars of gains, most people would be deeply pessimistic.  Some would bemoan the fate of grocery stores if restaurants were legalized, or warn that releasing tens of millions of homebodies into the workforce would lead to catastrophic unemployment.  The main mental block, though, is that people would have trouble visualizing a straightforward way to make us trillions of dollars richer.

If you can get over this mental block, if you can see what we’ve lost, then it’s only a small step further to see what we’re missing.  If people were free to take a job anywhere on Earth, humanity would have more agriculture, more manufacturing, more services.  We would have more restaurants, more homes, more elder care.  We would have more doctors and more janitors, more meal delivery and more cars to deliver the meals.  If coronavirus can eliminate 90% of the restaurant business, open borders can add 90% to the restaurant business.  You’ve seen the former with your own eyes, so you should have no trouble seeing the latter with the eye of the mind.

To be fair, you could demur, “We’ve shut down most of the domestic labor market to prevent the spread of a horrible disease.  Similarly, we shut down most of the international labor market to prevent something similarly horrible.”  The difference, of course, is that the coronavirus is all too real, while the horrors of immigration are speculative at best.  Indeed, on inspection they’re largely imaginary.  And while many will now be add infectious disease to the list of social ills to blame on immigrants, that argument too makes little sense.

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Pandemics and Open Borders

Does the current pandemic seal the case against open borders?  Though I foresee many readers’ incredulity, the correct answer is: no way.  Why not?  Key point: Borders are already about 98% closed to immigration.  As I’ve explained before:

Let C=total number of immigrants – legal and illegal – who annually enter the U.S. under existing laws.

Let F=the total number of immigrants who would annually enter the U.S. under open borders.

Under perfectly open borders, C=F.  Under perfectly closed borders, C=0.  Where does the status quo fall on this continuum?  The obvious metric:

Open Borders Index=C/F

With closed borders, the Open Borders Index=0.  With open borders, the Open Borders Index=1.

Regardless of your views on immigration, it’s hard to see how your estimate of the actually existing Open Borders Index could exceed .05.  After all, there are hundreds of millions of people who would love to move to the U.S. just to shine our shoes…

Which brings us to the crucial question: How much protection have 98% closed borders given us against the pandemic?  The answer: Virtually none.

To successfully prevent the spread of infection, you would have to do vastly more than permanently stop immigration.  You would also have to permanently stop both trade and tourism.  As long as foreigners can fly over for a visit, or unload their goods on our docks, foreigners can and will infect us with their diseases.  Indeed, as long as natives can fly away for a visit, or unload our goods on other country’s docks, natives can and will infect us with their diseases.  The sad fact is that even very low absolute levels of international contact have been more than sufficient to spread infection almost everywhere on Earth.  The marginal cost of higher levels of contact is therefore minimal.  Do you really think any countries in Europe would be much safer for long if they had merely “stayed out of the EU”?

In fact, if you’re focused solely on preventing the spread of infectious disease, immigrants are plainly better than tourists and sailors.  Few would-be immigrants would be deterred by a mandatory health inspection prior to entry, because they expect large long-run gains.  For tourists and sailors, in contrast, a mandatory health inspection would often be a deal-breaker.  Remember: Even a simple visa requirement reduces tourism by an estimated 70%.  Just imagine the effects of a serious medical exam for every entering or returning international traveler.

Admittedly, you could bite the bullet of full isolation, but that’s crazy.  Hoxha’s Albania and Kim Il-Sung and Kim Jong-Il’s North Korea were awful for many reasons, but autarchy was plainly high up the list.  And to repeat, to make this work you can’t simply keep foreigners out.  You must also keep natives in – or at least tell them, “Once you leave, you can never come back.”

What about temporary travel restrictions to quarantine a severe international disease?  As I’ve explained many times, I am not an absolutist.  Given strong evidence that modest restrictions on mobility have dramatic benefits, such restrictions are justifiable – intranationally as well as internationally.  But that is – and should be – a high bar indeed.  The freedom of movement that we have lost is the freedom of movement that we have denied to non-citizens for a century.

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Reflections on the Leiter-Caplan Debate

It was a pleasure debating Brian Leiter last week.  The resolution, to repeat:

“Social democracy is preferable to market capitalism, but ultimately America will need to move towards a socialist system.”

Here are some thoughts I failed to fully articulate at the live event.  As always, I’m happy to publish any reply my opponent wishes to compose.

1. To his credit, Leiter expressed zero sympathy for any actual socialist regime.  He even condemned Cuba; good for him.  But Leiter still insisted that the totality of these awful experiences show next to nothing about the desirability of socialism, which frankly seems crazy.  As far as I could tell, Leiter hews to the classic Marxist position that we should transition to socialism only after capitalism creates incredible abundance.  Unlike most historical Marxists, however, he doesn’t think that even the richest countries are ready yet.  My question: If we finally got rich enough for socialism, why think that a socialist regime would be able to maintain the prior level of prosperity, much less provide continued progress?

2. When I discussed the actual performance of social democracy, Leiter was surprisingly apologetic.  He conceded that we have wasteful universal redistribution, instead of well-targeted means-tested redistribution.  His only defense was to repeat the flimsy argument that it’s too hard to sustain popular support for means-tested programs.

3. On regulation, Leiter appeared to endorse open borders; good for him.  He also professed agnosticism on housing regulation.  Since these are by far the two biggest forms of regulation in modern social democracies (measured by how much regulation changes the likely market outcome), it’s hard to see why he would believe that increased regulation has, on balance, been good for humanity or the poor.

4. According to Leiter, “ultimately America will need to move towards a socialist system” because automation will one day cause mass unemployment.  This position baffled me on multiple levels.  Most obviously, why not respond to automation with redistribution rather than nationalization, and thereby avoid killing the capitalist goose that has hitherto laid a mountain of golden eggs?

My fundamental objection, however, is that history teaches us that technological unemployment is only a morbid fantasy.  When firms figure out ways to get more output out of fewer workers, this may cause unemployment in the short-run.  Soon enough, however, business has repeatedly figured out new jobs for workers to perform.  Business has already accomplished the miraculous task of creating new roles for the enormous number of workers disemployed by the mechanization of agriculture.  Every future economic transformation pales by comparison.  Remember: Almost everyone was a farmer for almost all of recorded human history.  Then industrialization eliminated almost all farm jobs.  Yet today, we don’t miss these jobs.  Instead, we get fat on all the cheap food, and do jobs our agrarian ancestors would have struggled to understand.

Leiter had two responses to my reaction.  One was “maybe this time it will be different”; Leiter even appealed to David Hume’s problem of induction to downplay all prior economic history!  If you take this line, however, it would only entitle you to say “it is logically possible that America will need to move towards a socialist system” – a vacuous claim indeed.  Frankly, if you take Hume seriously, even the best empirical evidence shows nothing about the future, so why bother debating at all?

Leiter’s better argument was that capitalists are perennially trying to cut costs – and that in the long-run capitalism works.  So eventually capitalists will figure out a way to run the economy without workers – an outcome that is individually rational for a capitalist, but socially disastrous for capitalism.  My response: Yes, capitalists want to figure out how to produce a given level of output with fewer workers.  Their deeper goal, however, is to figure out the most profitable way to employ all available inputs.  As long as there are able-bodied people who want to work, there will be a capitalist brainstorming how to make money off the situation.  And to echo Leiter, in the long-run this works.

5. Leiter bizarrely insisted that “the” goal of socialism was to allow human freedom – legions of vocally authoritarian self-identified socialists notwithstanding.  He followed up with the classic socialist argument that saying “If you don’t do what I say, I won’t give you the job you need to avoid starvation” is just as much an abridgment of freedom as “If you don’t do what I say, I will shoot you.”

The standard reply, of course, is that there is a vast moral difference between getting you to do what I want by threatening to take away something to which you are morally entitled (e.g., your life) and getting you to do what I want by threatening to take away something to which you are not morally entitled (e.g. my assistance).  Thus, imagine you will be suicidally depressed unless I marry you.  Is my refusal to marry you morally equivalent to making you suicidally depressed by threatening to shoot you unless you break off your engagement to your willing fiance?  Of course not.  You aren’t entitled to marry me if I don’t approve, but you and your fiance are entitled to marry each other even if I don’t approve.

6. Moral entitlement aside, “If you don’t do what I say, I won’t give you the job you need to avoid starvation” is rarely relevant in modern labor markets.  Why not?  First, there are competing employers, so if you don’t like an offer, you can shop around for another.  (Smarter yet, take what you can get, but keep searching for a better offer).  Second, if you live frugally, even a relatively low-wage worker can save up a nest egg, making it easy to turn down unappealing offers in the future.  Naturally, you can object, “I still face the choice to either live frugally, work for some employer, or starve.”  If so, we’re back to my original reply: Complaining about being “free to starve” is the flip side of demanding that strangers support you whether they like it or not.

7. Leither took umbrage at my authoritarian interpretation of Marx.  I freely grant that Leiter’s invested more time reading Marx than I have.  However, I too have devoted long hours to Marx’s oeuvre (though I’ve spent far more reading about the actual history of socialist regimes), and I stand by my bleak assessment.

Did Marx explicitly say, “We should round up priests and execute them”?  To the best of my knowledge, no.  Yet that is the most reasonable interpretation of what Marx had planned.  What are we supposed to think when Marx makes Orwellian statements like,  “[B]ourgeois ‘freedom of conscience’ is nothing but the toleration of all possible kinds of religious freedom of conscience, and that for its part [socialism] endeavors rather to liberate the conscience from the witchery of religion” (Critique of the Gotha Program)?  It doesn’t sound like Marx plans to respect the rights of people who don’t wish to be so “liberated.”  If Leiter is right, why did so few Marxists protest Lenin’s religious persecution?  I say it’s because Marx provided the Orwellian language they needed to insist that Freedom is Slavery.  As I wrote two decades ago:

Innumerable social thinkers disagree with much of Marx’s thought, but praise his reflections upon human freedom, the depth of his insight in contrast to the shallowness of liberalism. Yet it is difficult to understand how Marx’s concept of freedom is anything more than a defense of tyranny and oppression. No dissident or non-conformist can see society as the “realization of his own liberty.” And what can the attack on “the right to do everything which does not harm others” amount to in practice, except a justification for coercing people who are not harming others? The problem with “broad” notions of freedom is that they necessarily wind up condoning the violation of “narrow” notions of freedom. Under “bourgeois” notions of religious liberty, people may practice any religion they wish (“a private whim or caprice” as Marx calls it); how could this liberty be broadened, without sanctioning the persecution of some religious views?

Listening to Leiter, a law professor at the University of Chicago, I couldn’t help but think, “Leiter is talking like Marx’s lawyer.”  When a Mafia enforcer says, “Sweet kids you got there; be a shame if anything happened to them,” a Mafia lawyer will vigorously deny that his client threatened to murder children.  Any neutral adult, however, knows that the Mafioso did exactly that.  I say the same about Marx’s writings.  “I’m going to bring you real freedom” is a classic Offer You Can’t Refuse – as Marxist revolutionaries have shown us time and again.  A skilled lawyer can obfuscate this scary truth, but a learned philosopher should not.

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The Leiter-Caplan Socialism Debate

Last night, I debated the University of Chicago’s Brian Leiter on “Capitalism, Social Democracy, and Socialism” at the University of Wisconsin. Leiter wrote the precise resolution:

“Social democracy is preferable to market capitalism, but ultimately America will need to move towards a socialist system.”

Here’s my opening statement; I’ve debated Elizabeth Bruenig and John Marsh this general topic before.

All First World countries are already social democracies.  Their governments continue to allow markets to provide most goods and services, but they heavily regulate these markets, heavily subsidize favored sectors like education and health, and heavily redistribute income.  The U.S. is moderately less social democratic than France or Sweden, but the idea that we have “market capitalism” while they have “social democracy” is hyperbole.  If you favor social democracy, you should be happy because your side won long ago: free-market rhetoric notwithstanding, the U.S. has Social Security, Medicare, Medicare, and public education, and strict regulation of labor markets, construction, and other major industry.  My view, however, is that social democracy is a awful mistake.  Despite its bad press, market capitalism would be much better than what we have now.

Advocates of social democracy typically claim credit for three major improvements over market capitalism.  First, they’ve used redistribution to greatly reduce poverty.  Second, they’ve used regulation to make markets work better.  Third, they’ve used government funding to provide wonderful services that markets neglect.  I say they’ve greatly overstated their success on all three counts – while conveniently neglecting heavy collateral damage.

Let’s start with redistribution.  The rhetoric of redistribution revolves around “helping the poor.”  When you look at redistribution in the real world, however, this is grossly misleading.  The U.S. government spends far more on the elderly – most of whom aren’t poor – than it spends on actual poverty programs.  Programs like Social Security and Medicare are popular because they “help everyone.”  But “helping everyone” is extremely wasteful because most of the people government helps would have been quite able to take care of themselves.  Instead, we absurdly tax everyone to help everyone.

This humanitarian rhetoric rings even more hollow when you examine the most important forms of government regulation.  Domestically, nothing does more harm than our draconian regulation of the construction industry.  This regulation, primarily state and local, makes it very hard to build new housing, especially in high-wage places like New York City and the Bay Area.  It’s hard to build tall buildings.  It’s hard to build multi-family housing.  You have to waste a lot of valuable land; builders put houses on an acre of land because zoning laws force them to do so.  The connection between this regulation and exorbitant housing prices is almost undeniable.  In lightly-regulated areas of the country like Texas, business supplies ample cheap housing.  Anytime someone tells you regulation makes markets work better, just look at San Francisco’s housing market for a reality check.  And this hardly one tiny failure of regulation; housing absorbs about 40% of the average Americans’ budget.

Immigration regulation is an even more egregious failure.  The single best way for people around the world to escape poverty is to move to high-productivity countries like the U.S. and get a job.  This benefits not only immigrants, but us, because we’re their customers; the more they sell us, the better-off we are.  A hundred years ago, immigration to the U.S. was almost unregulated, giving people all over the world a viable way to work their way out of poverty.  Now, in contrast, immigration is very tightly regulated – especially for those most in need.  Economists’ estimates of the global harm of these regulations sum to tens of trillions of dollars a year, because each immigrant worker vastly enriches the world, and hundreds of millions of workers wish to come.  Again, this is the opposite of one tiny failure of regulation.

Finally, what about education, health care, and other sectors that government subsidizes?  I say these policies are crowd-pleasing but terribly wasteful.  Yes, more educated workers make more money, but the main reason is not that you’re learning useful skills.  Most of what you study in school is irrelevant in the real world.  Degrees mostly pay by convincing employers that you’re smarter, harder-working, and more conformist than the competition.  That’s why there’s been severe credential inflation since World War II: the more degrees workers have, the more degrees you need to convince employers not to throw your application in the trash.  Pouring money on education is an exercise in futility.

The same goes for health care.  Almost every researcher who measures the effect of health care on health agrees that this effect is much smaller than the public imagines.  Diet, exercise, substance abuse, and other lifestyle choices are much more important for health than access to medicine.  But these facts notwithstanding, the government lavishes funding on health care that barely improves our health.  If this seems implausible, just compare American life expectancy to Mexico’s.  Medicare plus Medicaid cost well over a trillion dollars a year, let we only live a year-and-a-half longer.

A reasonable social democrat could object: Fine, actual social democracies cause great harm and waste insane amounts of money.  But we can imagine a social democracy that limits itself to helping hungry kids and refugees, fighting infectious disease, and other well-targeted programs for the betterment of humanity.  Frankly, abolishing everything except these few programs sounds really close to market capitalism to me… and it also sounds like wishful thinking.  In the real world, governments with lots of power and a vague mandate to “help people” reliably do great harm.  This is true in the U.S., and it’s true in Sweden.  Yes, the Swedes strangle their housing industry too.

Given all this, I predictably deny that “ultimately America will need to move towards a socialist system.”  Full-blown socialist systems make social democracy look great by comparison.  Indeed, once you draw the distinction between social democracy and socialism, it’s very hard to find to find any socialist regime that isn’t a tragic, despotic disaster.  If Sweden is the jewel of social democracy, what’s the jewel of socialism?  Cuba?  Nor is there any sign that socialism somehow becomes “more necessary” as countries progress.  The main reason governments have gotten bigger over the last thirty years is just the aging of the population.

Finally, let me underscore what I’m not saying.  I’m not saying that life in the U.S. or Sweden is terrible.  In fact, human beings in both countries enjoy close to the highest quality of life than human beings have ever achieved.  My claim, rather, is that even the most successful countries in history could do far better.  I know that social democratic policies are emotionally appealing.  That’s why they’ve won.  Yet objectively speaking, market capitalism should have won because market capitalism offers much better results.

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