Books for the Future

EconJournalWatch and Dan Klein asked its contributors “What 21st-century works will merit a close reading in 2050?”. You can find the responses, including mine, here and here. I particularly enjoyed Evan W. Osborne’s, Slaviša Tasić’s, Kurt Schuler’s and Scott Sumner’s picks.

I have interpreted this “question from the future” as coming from somebody who “already came to an outlook like my own: “a 40 year old classical liberal in 2050. But I also assumed that she had a special interest in works that helped in shaping the nuances of classical liberal arguments in the 21st century.

Besides the books I mentioned, I pondered adding others but had to leave them out because the limit was ten. Here are those that missed the list, but that I nonetheless believe will be significant and still read in 2050.

 

Martin Amis, Koba the Dread: Laughter and the Twenty Million (Vintage, 2003)
A splendid meditation on the blindness towards communist terror shown by many Western intellectuals. Many similar works may fade in memory from now to 2050, when hopefully the dangers and horror of communism will be understood for what they were by most people, but Amis’s literary powers will allow this to survive and enlighten new generations.

 

Luigi Marco Bassani, Liberty, State, & Union: The Political Theory of Thomas Jefferson (Mercer University Press, 2010)
The years 2000-2020 will be remembered as years of “revisionist” history, particularly in the United States, that put the “cult” of the framers in perspective. Yet at a certain point, people will accept again that we cannot read with 20th century lenses the personal behaviour of 18th century gentlemen, and people will search again for works investigating their ideas and why they matter. Bassani’s book will then come in handy, as the best account of Jeffersonian liberalism.

 

Anthony de Jasay, Justice and Its Surroundings (LibertyFund, 2002)
This is a collection of some of Anthony de Jasay’s (1925-2019) philosophical papers. Its shorter chapter (“Empirical Evidence”) is a little classic in its own right. De Jasay was a brilliant mind and should be known more widely. Perhaps by 2050 he will be.

 

Antonio Escohotado, Los enemigos del comercio: una historia moral de la propiedad (Espasa, published in three volumes between 2008 and 2018)
This is a tremendous trilogy on the intellectual origins of the “enemies of commerce,” explaining the intellectual prevalence of the anti-market thinkers. These are long, exhausting books, but filled with insights and written by a non-academic philosopher who brings together an astonishing erudition with a splendid wit.

 

Biancamaria Fontana, Germaine de Staël: A Political Portrait (Princeton University Press, 2016)
Madame de Staël (1766-1817) is a powerful liberal thinker who has not been forgotten and whose main works are sadly not available in the English language. Fontana’s book is a splendid introduction and would also work liberals in making sense of the circumstances of the French Revolution, which we typically tend either to worship or caricature.

 

Chandran Kukathas, The Liberal Archipelago: A Theory of Diversity and Freedom (Oxford University Press, 2003)
Government and the “good life”: the second is not a responsibility of the first. This is a thoughtful manifesto for freedom of conscience and tolerance, which does not take shortcuts in answering the question “Should we tolerate the intolerant?” The problems it deals with are not going to disappear, its answers are and will be unpopular, but hopefully, with time, they may enlighten more people.

 

Jonathan Littell, The Kindly Ones (HarperCollins, 2006)
An American writer writes in French the definitive novel over the mad slaughters of the 20th century. This book will impact the way in which future generations understand Nazism and totalitarianism.

 

Joel Mokyr, The Enlightened Economy: An Economic History of Britain 1700-1850 (Yale University Press, 2012)
This is and will be considered for generations an essential work on the Industrial Revolution, and why it started in England.

 

Charles Moore, Margaret Thatcher: The Authorized Biography (Allen Lane, published in three volumes between 2015 and 2019)
Few politicians have been so associated with free market reforms as Margaret Thatcher. If The Anatomy of Thatcherism by Shirley Robin Letwin (1924-1993) is still unparalleled as an analysis of Thatcherism, Charles Moore’s wonderful biography acquaints us with the circumstances of Thatcher’s life and makes us understand better her motives as well as the challenges of governing and reforming. For those in the future who will try to make sense of the very few political experiences in which the state was actually rolled back, Moore’s book will be a must read.

 

Nicholas Phillipson, Adam Smith: An Enlightened Life (Penguin, 2010)
The early 21st century will certainly be remembered as a happy period, in terms of Smithian studies. This work will stand out, as a splendid intellectual biography written by a great scholar.

 

Amity Shlaes, The Forgotten Man: A New History of the Great Depression (Harper Collins, 2009)
The health of classical liberalism in 2050 will depend largely on the interpretation of the past which dominates academia and the public debate. The Great Depression is a pillar of the narrative that justifies more statism. In this book, Amity Shlaes explains why it shouldn’t be, providing us a detailed account of what happened and with a sound interpretation of it.

 

Vernon L. Smith, Rationality in Economics: Constructivist and Ecological Forms (Cambridge University Press, 2007)
Vernon Smith’s distinction between different forms of rationality is bound to be more fortunate, with the passing of time, as it is truly enlightening. This book is a methodological tour de force and an exploration of the fundamentals of our social and economic life. Smith is a giant on the shoulders of giants.

 

Tom Stoppard, Rock ‘n’ Roll (Faber, 2006)
Great insights on communism and how Western intellectuals saw it in this marvelous play by one of the greatest playwrights of his generation.

 

Mario Vargas Llosa, La llamada de la tribu (Alfaguara, 2018)
A gallery of portraits of classical liberal political thinkers written by a great novelist, who since the 1980s has been a leading voice for liberalism all over the world. Vargas Llosa not only presents lucidly and elegantly a brilliant selection of champions of this tradition of thought, he also provides the readers with some unique insights into how they became what they were.

 


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Adam Smith in the Workplace

Jonas Grafström and I chat about Adam Smith in the workplace. The chat is based on a paper “Adam Smith and Human Resources” by me, published by the American Enterprise Institute (and in Swedish in Ekonomisk Debatt).

 

How can the thinking of Adam Smith help with challenges in work and employment? What skills should employers look for?

Smith discussed what we may call sympathetic deftness, akin to social intelligence or soft skills. There are two sides to sympathetic deftness: The amiable side is deftness in entering into the situation of another. The respectable side is deftness in enabling others to enter into your situation.

But continuing upward in virtue calls for deftness in both the amiable and the respectable. Work, business, and trade are schools of virtue.

Smith is therapy, self-help. He affords a rich understanding of sentiments, sympathy, and virtues. Here the focus is on the workplace. The video gives some introduction, but the paper says more about using Adam Smith to improve your career, productivity, and sense of meaning –and your love of life, which David Hume mentioned as one of the calm passions.

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An 18th-Century Revolution, With Current Examples

One of the greatest discoveries of the 18th century did not come from physics or astronomy but from the nascent science of economics. It is the theory that if individuals independently and freely pursue their ordinary self-interest, the resulting social order will be efficient, that is, will allow virtually all these individuals—or at least their vast majority, given their starting points in life—to better satisfy their own preferences.

Adam Smith is, among the first modern economists, the one who, in his 1776 The Wealth of Nations, best formulated the idea:

The natural effort of every individual to better his own condition, when suffered to exert itself with freedom and security, is so powerful a principle, that it is alone, and without any assistance, not only capable of carrying on the society to wealth and prosperity, but of surmounting a hundred impertinent obstructions with which the folly of human laws too often incumbers its operations; though the effect of these obstructions is always more or less either to encroach upon its freedom, or to diminish its security.

Most schools of economics, with notable exceptions (orthodox Marxian and Keynesian beliefs, for instance), have carried this idea to our days.

The 18th-century idea of an autoregulating society was deeply revolutionary as it had been unknown all along the previous 500,000 years of mankind. It would make it possible to understand, during the following three centuries, the escape of ordinary people from hunger and poverty through the multiplication of real goods and services (GDP) in countries where political authorities stopped trying to control everything. Between 1775 and 2018, it is estimated that the British GDP per capita was multiplied by 13 (see the Maddison Project).

Among many illustrations of the power of the idea of autoregulation, consider a story in yesterday’s Wall Street Journal: Leslie Scism, “Car Insurance Prices Fell in 2020 as Pandemic Reduced Driving.” Why did car insurance prices decrease by an average of 4% last year? Is it because the shareholders of property-casualty insurance companies started being altruistic? It would be a complex and unrealistic hypothesis to entertain. Nor would it be a credible hypothesis that altruistic governments across all American states forced the insurance companies to cut their prices. It is true that car insurance rates are monitored or controlled by many state governments (not everybody understands Adam Smith!) but only a minority of them require prior approval—which could probably not have worked so rapidly after Covid-19 hit in 2020. (See Marianne Bonner, “How Insurance Rates are Regulated,” December 14, 2028.)

The explanation of the price reductions lies in the simple fact that that the several hundreds of car insurance companies in America are in competition and cannot avoid cutting their prices if only one of them does it to gain a competitive advantage. So if reduced driving pushes down automobile accidents and their cost during a pandemic, the price of insurance will automatically decrease.

This is a general feature of free markets. Suppliers try to get the highest prices while buyers try to pay as little as possible. It would be vain to blame individuals in either group. On the contrary, it is because they act this way that prices are autoregulated towards the lowest possible prices for consumers consistent with suppliers’ costs.

The drama is that many people still don’t understand the autoregulating character of free interindividual relations. A well-known story is that of the Russian official who, shortly after the collapse of the Soviet Union, asked British economist Paul Seabright, “Who is in charge of the supply of bread to the population of London?”

There are many examples of the persistent ignorance of the autoregulating character of free interindividual relations, and one does not need to look at poor countries laboring under tyranny to find them.

Consider the vice mayor of Long Beach in California who defended the imposition of a $15 per hour minimum wage for grocery workers. Two grocery stores just announced they were closing: see Havley Munguia, “Long Beach’s Grocery-Worker Wage Bump Spurs Closure of Ralphs, Food 4 Less Sites in City,” Press-Telegram, February 1, 2021 (H/T: Andrea Mays). “Our job is to keep providing for the residents,” he declared, not realizing that providing for the resident grocery workers means not providing for the residents who eat food, as food prices will rise if only through shopping travel. More fundamentally, the vice mayor does not understand that the most efficient way to determine wages is to let the market do it.

Another exquisite example is the postal inspector who opined on the conduct of a convenience store owner who sold Covid-19 supplies at a price the politicians and bureaucrats considered too high (see the Department of Justice’s press release):

Unfortunately, Mr. Singh allegedly chose to use this opportunity to make money by hoarding and price gouging PPE [personal protection equipment]. The conduct charged in the complaint is reprehensible and against our most fundamental American values.

Singh later entered into a deferred prosecution agreement and agreed to “donate” $450,000 of PPE, to be distributed by politicians and bureaucrats instead of being sold on the market to ordinary individuals who needed it urgently. If he thought he was in the “country of free enterprise,” he was obviously mistaken.

There are quite probably exceptions to, and within, the theory that individual liberty generates an autoregulating social order—a “spontaneous order” as contemporary economists like F.A. Hayek call it. Justifications exist for governments acting under a realistic presumption of unanimous consent—for example around the goal of not settling conflicts by open violence and organizing protection against that or, more controversially, around other preferences for public goods. But to be credible, these justifications must be built up from an understanding of the general efficiency of the spontaneous order, not handed down from the millennial ideal of a shepherd or some political authority protecting his flock to better exploit it.

A good question is why the 18th-century monumental discovery is still ignored by so many people. Public choice theory suggests many answers, which revolve around the idea that it is in some individuals’ interests to make sure it is ignored. Think of shareholders and executives of steel companies and the bosses of their trade unions. But there are also purely intellectual reasons: after all, many people—despite, or because of, public schools—still believe that the earth is flat.

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The Economics of the Hispanic Scholastics

Economics, as a branch of knowledge concerned with human wellbeing, is somewhat like Jenga. The structure cannot hold if certain pieces, such as Adam Smith’s classical school, are removed. 

In Economics: An Introductory Analysis, Paul Samuelson presents a “family tree of economics” noting the contribution of Aristotle, Aquinas, and medieval Schoolmen to the history of economic thought. This may have been a nod to his dissertation advisor, Joseph Schumpeter, who believed that the 16th century development of natural law theory created a framework for economics as an independent discipline. This natural law tradition was subsequently passed on to Adam Smith at the University of Glasgow. 

An intense modern-day look at the economic contributions of late Hispanic Scholastic thought began with Marjorie Grice-Hutchinson (The School of Salamanca, 1952). It continued with Alejandro Chafuen (Faith and Liberty, 2003 and Raices de la Economia de Mercado en la Escolastica Catolica, 2nd Ed., 2017). 

The Hispanic Scholastics were the first to formulate a quantity theory of money and purchasing power parity, foundational in the canon of economics. However, it is worthwhile to consider how their methodology employed natural law, civil law, and revelation to explore a subjective theory of value, the moral neutrality of market transactions, and personal consent. 

The Hispanic Scholastics’ subjective (not to be confused with relativistic) theory of value applies to all goods, including money. Viewing consumption as the end of all economic activity implies that value is subjective, based on people’s needs and wants, even when those needs and wants are foolish. These ideas persisted on the European Continent with the ordinary person seen as a consumer rather than a producer.

In the 18th century, classical economists stressed production, inputs, and cost, even to the extent of holding to a labor theory of value. Measuring hours of labor and other inputs is relatively straightforward; whereas subjective satisfaction or utility is incapable of measurement. A theory of behavior describing how consumers reveal preferences was needed. The time had not yet come to advance theories of value into a coherent synthesis, combining subjective and objective elements. 

In the 1870s, Carl Menger in Austria defined the value of an economic good in essentially Hispanic Scholastic terms, i.e. its ability to satisfy a human need. Leon Walras, a French land reformer, modeled money into ratios of exchange between goods. William Stanley Jevons, a British economist departing somewhat from Smith, derived the value of goods from revealed intensities of satisfaction. Within four years of each other Menger, Walras, and Jevons independently set the precedent for marginal supply and demand analysis for understanding market prices.

Economics, within the tradition of classical liberalism, is perceived by some to be excessively individualistic and dismissive of national sovereignty. Multigenerational poverty and the hollowing out of employment in certain sectors are serious economic issues. However, sound economic principles formulated over time by those seeking truths about the human condition and the wealth of nations are essential building blocks. There is no need for future generations to bear the economic consequences of ignoring these relatively absolute absolutes. 

My recent essay at AdamSmithWorks provides a fuller summary of some of the most important ideas of the Hispanic Scholastics.

 


Maryann Keating O. is a research fellow at the Indiana Policy Review Foundation. She edited Paul Samuelson’s essays on Economics from the Heart (Thomas Horton and Daughters) and had co-authored several articles and books, including Microeconomics for Public Managers (Wiley-Blackwell).

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Epistemology, Economics, and Conspiracies

Epistemology (the philosophy of knowledge) is important because it underlies the problem of truth in economics and in all other area of rational research and discourse. Epistemology is also relevant to conspiracies theories. As philosopher Robert Nozick pointed out, in the social sciences, invisible-hand explanations are always preferable because otherwise the conclusion is planted in the premises–a vindication of Adam Smith and classical-liberal economics!

The Ptolemaic system of astronomy also faced an epistemological trap in explaining the movement of planets and stars with the help of epicycles (cycles moving on other circles). When an empirical observation contradicted the system’s predictions, the astronomer only needed to add an epicycle to make the theory fit the fact. Similarly, adding one new conspirator or a new conspiratorial component can always explain away, ad infinitum, any objection to a given conspiracy. Only much later, with the work of mathematician Jean-Baptiste Joseph Fourier in the 18th century, did we start understanding that any smooth curve or movement in space can be approximated with a sufficient number of epicycles.

Ptolemy’s theory was more complicated than needed to understand, and to better understand, the movement of planets and stars. Just like Ptolemaic astronomy, conspiracy theories (at least complex ones) violate Occam’s razor, that is, the principle that “pluralitas non est ponenda sine necessitate,” or “plurality should not be posited without necessity.” In other words, of two explanatory theories, the simplest one should be preferred ceteris paribus. Granted that it is not always clear what “the simplest” means.

Conspiracies are not impossible, but the more complex and the less incentive-compatible they are, the lower their probability. (See my post “Why a Vast Election Fraud is Highly Implausible” and its complement, “Implausible Conspiracy and Unfair Election.)

The shaky epistemological status of conspiracy theories can be illustrated by a recent Facebook post of mine and the comment of Professor Sinclair Davidson, an economist at RMIT University in Australia. I posted:

Here is another [I should have written: “the correct”] conspiracy theory: The Deep State approached Trump around 2015 and asked him to run for president, assuring him of their support. “We know how to run elections,” they told him. The Deep State needed some puppet or clown who would make individual liberty (including the 1st and 2nd Amendments) look totally cranky, thereby preparing the terrain for a future dictator. They told Trump that only he, with his genius, his legendary honesty, and his golf game, could play this important role. Alas, Trump fell in love with the job (as he did with the North Korean dictator), the tweets, the honors, the constant attention, and broke with his Deep State handlers. We saw the consequence on November 3.

Sinclair Davidson brillantly commented:

I have a different theory: Deep state approached Trump exactly like you said but lost control of the 2016 election. He was the patsy meant to lose. Now we see 2020.

Conspiracies can explain any event (even in the physical world if the gods, like Greek gods, engage in conspiracies), and a large number of different conspiracies can explain the same event. Hence conspiracy theories are generally useless, at best.

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Our Great Purpose

The Theory of Moral Sentiments (1759) is the first book that Adam Smith wrote, and for decades it was contrasted to his most famous other book, The Wealth of Nations (1776). Most scholars today do not see the contrast anymore, but Ryan Patrick Hanley resumes this so-called Adam Smith Problem in his Our Great Purpose: Adam Smith on Living a Better Life. For Hanley, the Wealth of Nations is the book about self-interest (but not greed) and wealth accumulation, and Theory of Moral Sentiments is the book about “love” and living a good life. But there is no Problem because the two books complement each other. Wealth of Nations celebrates wealth accumulation and decreased poverty, and Theory of Moral Sentiments warns us against the moral costs of this wealth accumulation (181), helping us stay on the right path in a “capitalist” society.

Hanley achieves his goal of showing that Theory of Moral Sentiments is a normative book offering prescriptions regarding how to live the good life (86), rather than a description of moral development, as it is typically considered, thanks to his usual beautiful prose and narrative.

So the image of Adam Smith that we get from Hanley is the explicit opposite of “Greed is good” (13). Hanley’s Smith promotes a society in which “everyone loved each other and was loved by them in return” (90), a love of others that is so great and complete that our goal in life is “to feel much for others and little for ourselves” (132), a love that drives us to become a “wise and virtuous person, […] serving others and […] always striving for their well-being, [who] lives a life that is good for those who live with her. […] A person who ‘sacrifice[s]’ herself for others, […] for a life of active service, [who] sacrifice[s] promoting her own self-interest in order to promote the interest of others” (148).

But if there is truth in this quest of “always working for others, never promoting herself, all the while knowing that nobody is ever going to recognize her for all this” (151) that for Hanley Smith asks us to have to live a good life, then the implication, which Hanley does not consider, is that Smith would also aspire to see the end of markets, as in a world of “love lover[s]” (88) markets become useless. For his reading to hold, Hanley has to ignore, and indeed does ignore, that for Smith people face binding time constraints:

“In civilized society, [a person] stands at all times in need of the cooperation and assistance of great multitudes, while his whole live is scarce sufficient to gain the friendship of a few persons. […] But man has almost constant occasion for the help of his brether, and it is in vain for him to expect it from their benevolence only. He will be more likely to prevail if he can interest their self-love in his favor and shew them that it is for their own advantage to do for him what he requires if them.” WN I.ii.2

So the implication of Hanley’s reading of Theory of Moral Sentiments is that the achievement of a good life is actually not a complement, but a substitute for markets.

To achieve this unconventional reading of Smith, Hanley “arranged and ordered (each chapter) in such a way as to tell a story that starts with the first chapter and ends with the last” (10).

Hanley’s Smith thinks that we should not just live, we should “live a better life”, a good life, a meaningful life, a purposeful life: “living a life requires that we be actively engaged in pursuing a trajectory that we can recognize as ‘a life’—that is, a trajectory that not only has a beginning and a middle and end, but also has a unity to it that enables us to see all its different parts as fitting together in a meaningful way” (1). In this journey that is our life, we are torn “in two very different directions. On the one hand, we are naturally led to be concerned with ourselves and our own well-being. On the other hand, we are naturally led to be concerned with the well-being and happiness of others” (10). “These competing demands raise key challenges to the project of living a single and unified life” (11).

So we need to battle against natural tendencies that lure us to be blindly attracted to the “trinkets and baubles” of wealth, we need to fight against our ambition that deludes us into pursing wealth when we would be better off stopping and smelling the roses more often.

The story that Hanley tells us is of a Smith’s “cautionary tale” (43), where we should quest to become perfect “wise and virtuous” people. It is a story that becomes even more powerful when compared to Tyler Cowen’s TedTalk “Be suspicious of stories”. Cowen does not talk about Adam Smith at all, yet he may capture an aspect of Smith that is absent in Hanley’s story. Cowen simply warns us about stories, stories that describe our life as journeys, as battles, as quests. “A story is about intention. A story is not about spontaneous order or complex human institutions which are the product of human action, but not of human design.”

Hanley claims that for Smith “living a life requires more than just the activity of living. … [We are required] to see ourselves as a self, engaged in the project of living a life of virtue and flourishing, of unity and coherence, and thus, hopefully, of purpose and meaning” (12). For Cowen our life is a mess, and it is good that it is a mess: “If I actually had to live those journeys, and quests, and battles, that would be so oppressive to me! It’s like, my goodness, can’t I just have my life in its messy, ordinary – I hesitate to use the word – glory but that it’s fun for me? Do I really have to follow some kind of narrative? Can’t I just live?”

The book is not for specialists and has very limited scholarly references. But it is a challenge for the people who think in terms of spontaneous order and unintended consequences, not only at the macro level but also at the individual level. Hopefully it will induce more people to read The Theory of Moral Sentiments.

 


*Maria Pia Paganelli is a Professor of Economics at Trinity University. She works on Adam Smith, David Hume, 18th century theories of money, as well as the links between the Scottish Enlightenment and behavioral economics.

For more articles by Maria Pia Paganelli, see the Archive.


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Post-Pandemic Optimism from Joel Mokyr

These days optimism is rarer than before. So it is uplifting to read an historian such as Joel Mokyr writing that “at the end of the day, the post-pandemic economy may not be all that different from what we had in 2019, and insofar that it is different, not all changes will necessarily be bad”.

Mokyr’s reasons for optimism are rooted in the fact that modern economic growth is rooted more in advances in science and technology than on the engine of “Smithian growth”, which is, basically: commerce, though the two things are obviously connected (difficult to imagine technology advances to be independent from the knowledge and even the casual opportunities created by increased contact and thus specialization, as Matt Ridley explains in How Innovation Works).

The problem with Smithian growth is that the institutions that sustain it are very fragile. Markets depend on “peaceful politics, trust and cooperative institutions”.

A shock, whether war or a virus, can wipe those out in just days. We have experienced this in our lifetimes: A major terrorist attack or a pandemic can disrupt markets in a matter of weeks and bring the infinitely complicated machinery of international markets to a grinding halt. In August 1914, with the outbreak of hostilities in Europe, the entire system based on the gold standard and the institutions that supported international specialization and exchange collapsed. It took many years for the system to recover, and it could be argued that not until the 1950s did the world return to the kind of proto-globalization that had taken place in the decades before 1914.

For Mokyr, the fact that modern economic growth is  “based on more productive technology and the science that underlies it” makes it more resilient. Different than trust, “knowledge, once acquired, cannot be easily reverse”. And science and technology informs our societies so profoundly that, in the wake of the pandemic, they have been widely mobilised for the fight against COVID19.

Mokyr also points out that a more science-oriented mentality and, more generally, the experience of change should make us better understand flexibility. “Leaders of our business and technology community would be wise to keep sight of the flexibility and adaptability of our economy, as unemployment soars and businesses small and large in the service sector face bankruptcy.” Alas, this wise advice tends to collide with the urges of politics, as leaders in the political world are, particularly as anxiety mounts, in the need of providing impressions of safety, very often regardless of the costs.

This article by Mokyr, which I summarised without giving it justice, is well worth reading.

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Could the CDC’s order harm renters, too?

The Center for Disease Control issued an order on September 1 that tenants earning less than $99,000 a year who fail to pay their rent due to COVID-19-related financial hardships cannot be evicted for non-payment of rent until at least January 1. This raises a number of legal, ethical, and logistical questions, not least of which is whether a public health agency staffed by non-elected officials even has the authority to effectively command specific people to provide free housing for other specific people for any amount of time. Further, if enforceable, such an edict has the potential to cause some serious long term damage that could wind up hurting renters.

There’s a long history of antagonism towards landlords in the popular imagination. Like owners of other resources, landlords are sometimes considered to have not really earned their money. To be social parasites who don’t even deserve rights. Even Adam Smith seemed to express distaste for the occupation, writing that “As soon as the land of any country has all become private property, the landlords, like all other men, love to reap where they never sowed.” (Of course, I think the clause “like all other men” is important here as well—wanting to put your situation to its best advantage is hardly unique to owners of rental property.) And I’m not deaf to the sentiment myself, having met a number of wonderful landlords but also a couple real stinkers who wouldn’t give back a deposit if you spit shined the place.

However, love ‘em or hate ‘em, Smith also recognizes that landlords and other resource owners play an important part in the process of bringing much-needed resources to the market:

“If, on the contrary, the quantity brought to market should at any time fall short of the effectual demand, some of the component parts of its price must rise above their natural rate. If it is rent, the interest of all other landlords will naturally prompt them to prepare more land for the raising of this commodity; if it is wages or profit, the interest of all other labourers and dealers will soon prompt them to employ more labour and stock in preparing and bringing it to market.”

In other words, if for any reason there is a temporary shortfall of a product—whether because of increased demand or some kind of shock to the existing stock or productive capacity—the price is going to go up. This will in turn drive up the price of at least some of the inputs to production, including possibly the rental price of the land production takes place on. (Smith was focused here on commodity production, but the same principle applies in a modern housing rental market.)

When prices go up is when the landlord will tend to be most hated. But it’s also their time to shine. The increase in rental prices makes it worthwhile for financially capable individuals to seek out additional land that could be rentable, or to rent land that was previously held idle because the going rate couldn’t cover the bother of renting it out.

Having people in the economy with a strong incentive to provide additional housing is a very good thing. There is already a serious problem with the exorbitant price of housing in urban markets, and I can’t imagine that this action by the CDC is going to encourage anybody who is on the fence to start renting out additional property. Landlords are, after all, not really lords, but mere humans who have their own children to feed and bills to pay. What happens if non-payment of rent is going to prevent them from paying their own mortgage? Will rent default insurance become prohibitively expensive, forcing some who offer rental properties to pull out of the market? Such effects are particularly likely to impact the kind of landlords who rent out small numbers of properties, which could concentrate the market even further around less flexible corporate entities. The potential for long chains of unintended consequences abounds.

Hopefully the fact that housing prices are currently down in some of the country’s most expensive markets will help prevent this order from being too painfully binding. But at the end of the day, any political action that makes offering rentals more difficult could wind up creating a lot more harm than good for renters. I’m reminded of my colleague Chris Coyne’s argument for adopting a constrained vision when trying to help others, taking seriously the limits of what can be achieved given the inevitability of scarce resources and imperfect people:

“Adopting a constrained vision is not to accept the status quo regarding human suffering but rather is the recognition that an array of constraints limit what is possible and that any proposed or actual change in the status quo must be achieved relative to those constraints… while the claims stemming from this vision are not as extravagant as those coming from the man of the humanitarian system, they are more realistic and go further towards achieving our shared goal of relieving human suffering and improving the human condition” (Doing Bad by Doing Good, p. 27.)

 

 

Jayme Lemke is a Senior Research Fellow and Associate Director of Academic and Student Programs at the Mercatus Center at George Mason University and a Senior Fellow in the F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics.

 


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The Role of Sympathy in Policy

It is no great revelation to say that the policy responses to the COVID pandemic varies considerably between Republicans, liberals, and Democrats.  A charitable interpretation of the differences are that Republicans and (classical) liberals are concerned about government overreach, undermining the rule of law, and that the costs of policies far exceed the benefits.  Democrats may be seen as concerned with saving as many lives as possible even if the costs of the policies exceed the benefits.  A less charitable interpretation is that Republicans and Liberals are simply anti-science and that liberty is the only virtue that matters whereas Democrats are merely trying to sneak in socialism on a fearful public.

The split, however, can be understood much more cleanly without trying to speculate on people’s virtues and vices.  According to a recent study, vast differences exist between people’s perception of the COVID virus.  In general, people overestimate the risk of the virus on young people and underestimate the risk on older people (see the first chart in the link).  Democrats tend to overestimate its risk to a greater extent than Republicans do.

Perceptions of the virus filter into people’s evaluations of the costs and benefits of a given policy.  Since economic costs are ephemeral, forward-looking, and subjective, our personal perceptions will shape what we consider the costs to be.  Democrats support more stringent policies and slower re-openings because they perceive the costs to be considerably higher than Republicans.  They likewise overestimate the net benefits of the proposed policies.

 

This is where the role of sympathy comes into play.  Sympathy is a 4-step process.  For the sake of example, consider two people Jim and Mary.  Mary is an observer of Jim’s behavior, but she wants to try to sympathize with him:

  1. First, Mary imagines herself in Jim’s situation as best as she can
  2. She imaginatively experiences sentiments arising from the situation
  3. She then compares her sentiments (what she is feeling from the imagined situation) with the sentiment that Jim appears to be experiencing
  4. She comes to a new sentiment about the agreement or disagreement between the two sentiments (hers and Jim’s). If they coincide, there is agreeableness.  If they do not coincide, there is disagreeableness and disapproval of Jim’s sentiment.

 

Disagreeableness, however, is not a good feeling.  Mary, to improve herself, will examine more closely Jim’s situation.  She may endeavor to learn more about his frame of mind, his perceptions- in short, his local knowledge.  In this effort to sympathize more fully with Jim, Mary may learn new key facts, as well as Jim’s perceptions of those facts, which may bring their sentiments closer into alignment.  Mary may still disapprove of Jim’s sentiments, but she will have a clearer understanding of them and could engage with Jim more fruitfully to shift his perceptions, too.

To bring the story of Mary and Jim from the abstract to reality, Mary may observe Jim opposing COVID lockdowns.  In her initial sympathetic process, she may reject Jim’s opposition.  But, upon further reflection, she may see her own sentiments are based on an incorrect perception of the virus.  She, in turn, alters her sentiments, but can now also engage Jim with sympathy to his concerns about the policy.

The late, great James Buchanan described democracy as “government by discussion.”  Discussion, for it to be fruitful and not simply be a tyranny of majority, must involve sympathy.  A government without sympathy, even if it has the trappings of democracy like majority voting and dispersion of powers, cannot be a liberal democracy.  Legislation without sympathy deserves not the august description of “law.”  We must make efforts to understand the positions, the sentiments, and the perceptions of those whom we disagree with.  We just might find it is us who err.

 

 


Jon Murphy is a Ph.D. student at George Mason University, where he specializes in Law & Economics and Smithian Political Economy. He previously was an economic consultant in New Hampshire.

For more articles by Jon Murphy, see the Archive.

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Cities and economies: They’re made of people!

If you live in a city then there’s a good chance that on the first weekend of May every year you can find people who hold free walking tours highlighting local insights, history, or hidden nuggets in the neighbourhood you’re walking. The people leading these tours do so in honour of the work and life of Jane Jacobs

 

In lieu of a Jane’s Walk this year, I led a virtual reading group (VRG) for Econlib through a discussion of selections from Jane Jacobs’ masterpiece, The Death and Life of Great American Cities. 

 

It seems strange that a text destined to become a cornerstone of the study of urban planning begins by declaring itself against the enterprise of urban planning as it existed in 1961. But Jacobs opens her masterpiece,

“This book is an attack on current city planning and rebuilding.”

 

During our VRG discussions, contributor Jon Murphy made an interesting observation: Jacobs offers not only a condemnation of city planning in her day but a new model for understanding cities and practicing city planning. In this she parallels Adam Smith, who saw his An Inquiry into the Nature and Causes of the Wealth of Nations as “the very violent attack…made upon the whole commercial system of Great Britain.” In presenting his attack, Smith laid much of the groundwork for modern economics. 

 

Jacobs found plenty to criticize in Adam Smith’s thought. She devotes pages in The Economy of Cities and Cities and the Wealth of Nations to criticizing fundamental assumptions in Smith’s theories, including his failure to question and reject assumptions underlying his four-stage theory of civilization and the assumption that countries are meaningful economic units. Jacobs also criticizes Smith’s emphasis on the division of labour as the driving economic force. But Jacobs and Smith had more in common than she may have cared to admit.

 

In Smith’s case, the “whole commercial system of Great Britain” had been preoccupied with wealth as measured by its stores of bullion, either mined or purchased by maintaining a favourable balance of trade—more exports, fewer imports. Jacobs faced a city planning establishment that seemed obsessed with controlling and understanding cities and their inhabitants by controlling and analyzing their built environment. They both confronted orthodox thought preoccupied with gold and silver, streets and plazas. With stuff. 

 

Jacobs and Smith were pursuing the same goal, though they may not have put it in these terms: they sought to improve their field by re-centering analysis around people. Though Jacobs’ human-centric urban analysis is now much more mainstream among committed urbanists, it remains tempting to envision cities as plannable and perfectible independent of the lives of the people living in them. And the “doctrine of the balance of trade” that Smith decried as absurd in the late 18th century remains a contested issue in public policy. 

 

Jacobs says that cities have to make room for even the plans of eccentric weirdos, and the only way that happens is if everybody participates in the business of creating the city. And Smith’s political-economic system measures the wealth of a nation not by the gold in its treasury but by the production and consumption of its people. All of its people. Not only the producers, and not only the rich and great. 

 

If there’s one thing that should be clear after a close reading of Death and Life, it’s this: Cities are made of people. Reading more of Jacobs’ work reveals that she thought that cities are also natural units of economic analysis (hence her criticism of Smith’s use of countries). Like Smith, Jacobs believed that economies are made of people. Maybe we shouldn’t be surprised that both authors also devoted time to theories of morality: Smith in The Theory of Moral Sentiments and Jacobs in Systems of Survival. 

After many of our reading groups, we’ve had the chance to ask the author we’ve been reading a few questions sparked by reading group discussions in an Ask Me Anything video. Unfortunately, this time that option wasn’t available—Jane Jacobs passed away in 2006. Instead, I spoke with Sandy Ikeda, a Jacobs scholar and professor of economics at Purchase College, about Jacobs’ human-centric conception of cities and economies. We discussed Jacobs’ thought, its implications, and what she might have made of some of the challenges facing the world today.

 


Janet Bufton (Neilson) co-founded the Institute for Liberal Studies in 2006 and has worked as a program coordinator with the Institute for Liberal Studies since 2013. She manages the Liberal Studies Guides project.


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