No “Will of the People” in the Election

Writing about the final (with some luck) fireworks of the Trump presidency, Wall Street Journal columnist Holman Jenkins proposes many interesting or challenging insights, up to and including a final contradiction (“Don’t Expect Police to Shoot at Crowds,” January 8, 2021). The penultimate sentence states a deep and science-based idea that you don’t meet often in the press, even the serious press. Writes Jenkins:

Elections should strive to be above reproach in accuracy and lawfulness but they can’t manifest the “will of the people” when there is no unambiguous will to manifest.

I have tried to explain this idea in a few Econlog posts and, along the same lines, I have a forthcoming, more elaborate article in The Independent Review, titled “The Impossibility of Populism.” In short, there is no ambiguous “will of the people” to manifest because “the people” does not exist as a superindividual mind and because there is no way to aggregate individual wills into a social or political will that is not either dictatorial or logically incoherent.

However, he following sentence, which closes the Jenkins column, seems to contradict what the author has just  said:

This problem will only be solved by Americans reaching a greater consensus among themselves about what kind of society they want to be.

What can be the meaning of Americans deciding “what kind of society they want to be”? As Jenkins suggests, individuals have different preferences and values and each entertains a different—sometimes widely different—idea of the society they want (see “The Vacuity of the Political ‘We’,” Econlib, October 6, 2014).

The solution to this contradiction is to implicitly agree to live and let live. Perhaps one can formulate this solution in terms of a social contract à la Buchanan, but a presumed unanimous agreement can only be on very general and abstract rules close to the live-and-let-live principle.

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Lockdowns and Political Realignment

A few days ago the Wall Street Journal ran an op-ed of mine, on the new Christmas restrictions that the Italian government passed for coping with Covid19. Here’s a link (gated).

I am not a fan of the restrictions. Italians are no longer free to move through the country; they may travel only within their respective regions or between regions rated as having a similar risk status. Regions are classified according a “color code”, depending from their infection rate and an assessment for their healthcare capabilities and response. On the webpage of Istituto Bruno Leoni, you can see the “barometer of liberty”: how constitutional rights are curtailed in different areas, and how the situation has changed over time. No region is free of restrictions and we have a national curfew. Movie theaters, theaters, and gyms are closed everywhere; most schools and all universities have adopted a regime of remote teaching.

The government is forecasting that in a matter of days, since the contagion situation is improving, all regions will be “yellow” (the lower level or risk) but they’ll be all treated as red (the higher level of risk). Between December 20th and January 6th nobody will be able to leave their own regional territory. On top of that, on December 25th and 26th and on January 1st, regardless of the level of risk in their region, Italians will be confined to their respective municipalities.

I was impressed by the comments by WSJ readers, and found rather amusing the one that pointed out it was clear I wasn’t a good Catholic, since I did not figure out that Midnight Mess should end 3,5 hours ahead of the usual time and not 2 (indeed, I did not account for people going back to their places). More generally speaking, however, from comments and Twitter I got the impression that the people sympathizing with my irritation were more right-leaning.

For once, I do not think that this has to do with the WSJ readership. In the last few months, people critical of lockdowns and many other Covid19 restrictions tended to be mostly from the right. The left has been generally supporting restrictions. Perhaps some left-wingers (the cosmopolitan or “well-read” left?) are more confident in expert judgment than conservatives are, re perhaps because the discussion has been framed as a conflict between “health and the economy” and do-gooders of all persuasions couldn’t possibly side with the economy.

Before Covid19, I was beginning to believe those who were foretelling a political realignment (for example, the always insightful Steve Davies) were right. The old coalition between conservative leaning and  libertarian leaning people was about to collapse, after Trumpism and Brexit. Many distinguished between “anywheres” and “somewheres-” people with roots and people with cosmopolitan attitudes, country and city. Identity politics was also making things more complicated, but seemed a force to reckon with – and, for the few libertarians, to compromise with.

Has the pandemic changed that? Will Covid19 be a defining moment, politically speaking? If so, what about political realignment? Will lockdowns and restrictions become the defining issues, dividing us politically according to our degree of enthusiasm for them? It seems to me that people on the conservative side were both more skeptical of experts and more hostile to restrictions to their own personal liberty. Is this an attitude libertarians share? Will it affect the way in which any of us sees herself politically? Or we will all be so eager to forget about Covid19 that we will go back to the same old political agreements and disagreements we had before.

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Is Alex Eaton-Salners Ignorant or a Liar?

I hope it’s the former.

The Wall Street Journal has 6 crossword puzzles a week and I clip them and fill them out when I have spare time or at night when I’m trying to get to sleep.

The one I did last night was “Short Stories” by Alex Eaton-Salners.  It was very clever and enjoyable.

Which made the one discordant note all the more disturbing. The clue was “October Revolution target.” The answer: tsar. Do you see a problem? Alexander Kerensky would have. That’s his picture above.

In a section in Ayn Rand’s The Fountainhead Rand explains Ellsworth Toohey’s strategy. It’s to undercut people’s beliefs in freedom and individualism with the “softer” parts of a newspaper. When reading those parts, readers don’t engage their critical faculties as much, so someone trying to communicate a subversive message can get further. The crossword puzzle would be such an instrument.

It’s quite possible that Eaton-Salners is uninformed. I hope he is. I don’t like the alternative.

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Imports as a “Drag on the Economy”

A Wall Street Journal story of last week, “The Verdict on Trump’s Economic Stewardship, Before Covid and After,” makes many good points. It also falls into some popular economic errors. Here is an obvious one:

Trade itself turned out to be a drag on the economy. U.S. export growth slowed starting in 2018 as Mr. Trump’s tariff battles ramped up. The U.S. trade deficit, reflecting an excess of imports over exports, grew to $577 billion in 2019 from $481 billion in 2016.

We are told that imports or a trade deficit necessarily constitute “a drag on the economy.” This elementary error stems from the misunderstanding of a national-accounting identity: GDP = C + I + G + X – M. This identity is often misunderstood as meaning that M (imports) constitutes a “drag” on GDP because it subtracts from GDP measured as the sum of personal consumption expenditures (C), gross private investment (I), government expenditures for goods and services (G), and exports (E).

I have blamed the Wall Street Journal and other journalists before for repeating this myth: see my Regulation article, “Are Imports a Drag on the Economy,” Fall 2015. Perhaps one can find a serious economic argument to the effect that imports reduce GDP—although I and most economists since David Hume, Adam Smith, James Mill, or Jean-Baptiste Say don’t think so. But if such a serious argument exists, it is not that the trade deficit (X-M) subtract from GDP in an automatic, accounting, arithmetical manner as some people imagine is shown by the accounting identity above.

The demonstration is simple. National statisticians (the Bureau of Economic Analysis in the United States), in one of their ways of measuring GDP (from the expenditure side), subtract M because it is already included in their measures for C, I, and G. Consumption expenditures, as measured in the national accounts (in the United States as elsewhere) already incorporate imported consumption goods; investment expenditures already incorporate imported capital goods; and government expenditures already incorporate imported goods and services (foreign consultants, for example). Why do statisticians subtract M? Because imports, by definition, are not part of GDP (gross domestic product) and must not be included in any measure of the latter. M cannot reduce the measure of GDP because it is not part of it.

For another statement of my argument, see my “A Glaring Misuse of GDP,” Regulation, Winter 2016-2017. In still another Regulation article (“Peter Navarro’s Conversion,” Fall 2018), I summarize and illustrate the argument:

Imports have to be removed because they are not part of GDP, which is gross domestic production. … Think about the guy on the scales who subtracts 1 lb. to factor in the weight of his shoes; his weight doesn’t change if instead he subtracts 2 pounds because on that day he is wearing heavier shoes. Likewise, American output doesn’t change because more imports are both added and subtracted.

An economist with the Federal Reserve Bank of St. Louis, Scott Wolla also pointed out this misleading error: I reported on, and linked to, Wolla’s article in another Econlog post: “The St. Louis Fed on Imports and GDP,” September 6, 2018.

Many former college students who took a macroeconomic class and glanced at the accounting identity GDP = C + I + G + X – M in a (perhaps not so good) macroeconomic textbook make the same error. The Wall Street Journal should not.

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Economics: Prices, Pri-ces, P.R.I.C.E.S.

It is impossible to understand the economy—that is, the economic consequences of individual actions—without understanding the role that prices play or are prevented from playing. This was a crucial scientific discovery of modern times. For that very reason, microeconomic theory used to be called “price theory.” So it is troubling to observe that many of our contemporaries and even many financial journalists ignore that discovery. Even economists tend to forget it when their moral values or virtue signaling is at stake.

An illustration of the problem was given by a Wall Street Journal feature of August 21 titled “Why Are There Still Not Enough Paper Towels?” The role of prices and price controls is nowhere mentioned. The very word “price” only appears twice, mainly from a management perspective: the competition of “Japan’s low-price cars” in the 1970s and the fact that overcapacity “would not allow you to price in a way that meets customer needs.” This last phrase, from P&G’s chief executive, could be read as referring to prices established on free markets, but it is as close as the story comes to prices. Not surprisingly, the report cannot explain why a shortage of paper towels persists:

The United States of America, heralded as the land of plenty, still doesn’t have enough paper towels. … An average of 21% of household paper products were out of stock at U.S. stores as of Aug. 9

The story’s “economic” explanation is essentially that

[t]he scarcity is rooted in a decadeslong quest by businesses at all levels, handling many different products, to eke out more profit by operating with almost no slack.

In other words, the culprits are bad capitalists who are trying to maximize profits with tricks such as lean manufacturing and just-in-time delivery. The authors do not conclude, but they could as well have concluded, that this is why so few shortages exist under communism and socialism, in Cuba or Venezuela, not to mention the former Soviet Union.

The real reason for persistent shortages, as I explained in many recent Econlog posts (including “Why Shortages Are Not More Widespread,” August 17), is that prices are capped under the threat of government prosecution. It is that consumers are forbidden to bid up prices. It is that bad capitalists are forbidden to maximize profits to respond to consumer demand, except sometimes stealthily. Being an obedient government crony is becoming an easier path than serving consumers.

The featured image of the present post is a photograph I took last week of the gun counter at a major retailer in Maine. It illustrates what a “land of plenty” looks like when price adjustments along supply and demand curves are forbidden.

The Wall Street Journal story has some feebly redeeming value. It provides many examples of why marginal cost increases with production. It hints at the fact that reducing product diversity has been a stealth way of responding to consumer demand despite price controls. But as a purported explanation of why shortages persist, it is at best misleading.

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