The Latest from Cafe Hayek

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Phil Magness explains how Milton Friedman fought segregation through the American Economic Association. A slice:

The AEA’s stance presented an opportunity for Friedman to act on a theory that his doctoral student, Gary Becker, proposed the same year in a dissertation written at the University of Chicago. Segregated businesses ultimately harmed themselves by denying their services to excluded racial groups, thereby losing them as customers. As Friedman later observed, economic decision-making could be used as a powerful weapon against discriminatory practices. In this case, if the Roosevelt Hotel would not allow black guests to stay on its premises, the economists would take their conference and its paying customers elsewhere.

Friedman would elaborate on this principle in his now-classic 1962 book, Capitalism and Freedom. As he wrote in that text, “It is often taken for granted that the person who discriminates against others because of their race, religion, color, or whatever, incurs no costs by doing so but simply imposes costs on others.” This view, Friedman continued, rested on an economic fallacy. “The man who objects to buying from or working alongside a Negro, for example, thereby limits his range of choice. He will generally have to pay a higher price for what he buys or receive a lower return for his work. Or, put the other way, those of us who regard color of skin or religion as irrelevant can buy some things more cheaply as a result.”

When Friedman advocated making the AEA’s hotel contract contingent upon their desegregating their facility, he aimed to drive home this point. If the Roosevelt Hotel [in New Orleans] would not integrate in time for the conference, it would not receive any business at all from the organization.

This report by Randy Holcombe of the research interests of economists today does little to promote my pride in my profession.

Reviewing Rainer Zitelmann’s Hitler’s National Socialism, Daniel Johnson reminds us that Hitler was a socialist. A slice:

Throughout his career, Zitelmann insists, Hitler was an anti-capitalist and he became more so during wartime, when he increasingly came to admire Stalin’s command economy as a far superior system than that of the West. The book is a tour de force of critical exegesis, ranging across the vast corpus of the dictator’s speeches, orders, correspondence, “table talk,” and other documents to grasp what he meant by National Socialism. What emerges is an ideology of remarkable consistency, more coherent and sophisticated than most historians have hitherto been willing to concede.

Eric Boehm reports that Joe Biden believes that Joe Biden’s tariffs on solar panels are a threat to U.S. national security. A slice:

Like most industries that involve building things, the solar industry in America needs two conditions to grow: reliable supply chains to provide access to goods produced anywhere in the world and greater private investment. Tariffs make the former more complicated and expensive while introducing uncertainty that scares away the latter.

Scott Lincicome writes that “globalization is alive, well, and changing.” A slice:

It’s undoubtedly true that international trade, like all forms of market competition, disrupts some American companies and workers that, through government protection, formerly had the U.S. market to themselves. However, the economic case for free trade remains rock solid. American consumers (who are also American workers, by the way) gain from new access to goods and services at lower prices and in greater varieties. These gains come not only from foreign-made items but also from similar domestic ones that are now forced to compete with imports on price and quality. Studies show that trade’s “consumer surplus” is far more significant than a few cents on the proverbial cheap T-shirt. Recently, for example, several economists have found that falling prices caused by Chinese imports into the United States during the 2000s generated hundreds of thousands of dollars in consumer benefits for each American job potentially displaced by the China Shock—the equivalent of giving every American “$260 in extra spending per year for the rest of their lives.” Similar gains occur outside the United States: European consumers, for example, save €60 billion per year (about $64 billion) from lower tariffs resulting from the European Union’s entry into the WTO. Studies also uniformly find that these benefits—again contrary to the conventional wisdom—tend to disproportionately aid the poor and the middle class, who have tighter budgets and concentrate their spending on tradable sectors like food, clothing, footwear, and consumer electronics.

Phil Magness reports that the straw man is not yet leaving Shanghai. (HT Tim Townsend)

The Wall Street Journal‘s Editorial Board decries the fraud fueled by the U.S. government’s fiscal incontinence – an incontinence worsened by covid hysteria. A slice:

The Small Business Administration (SBA) was in charge of the $814 billion Paycheck Protection Program, and a report last month from its inspector general is a bracing read. PPP provided forgivable loans to keep workers paid and businesses whole while the economy went into a government-ordered cryogenic freeze. To get the money into businesses quickly, local banks were authorized to approve PPP claims.

Yet the SBA “did not provide lenders sufficient specific guidance to effectively identify, track, address, and resolve potentially fraudulent PPP loans,” the IG says. The official fraud hotline has taken more than 54,000 complaints. Scams were “rapidly evolving” and included “false attestations on loan documents, inflation of payroll, falsified tax documentation, identity theft, and misuse of proceeds.”

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… is from pages 588-589 of my former GMU Econ colleague Tom DiLorenzo’s excellent Fall 1984 Cato Journal paper, “The Political Economy of National Industrial Policy“:

The market is a process in which individuals voluntarily interact with one another in pursuit of their own interests. With appropriately designed institutions – such as well-defined, enforced, and respected property rights and freedom of contract, freedom of exchange, and the enforcement of contracts – self-interested behavior generates a spontaneous order. This order is chosen by no one, yet it tends to maximize the subjective values of all the market participants. Only in this sense can the market process be termed “efficient.” The maximization of subjective values, as individuals perceive them, is the end result of the market process and cannot be defined or “maximized” by any outside observer. A market situation can be judged “efficient” to the extent that it allows individuals to exercise their preferences subject only to the principles of mutual agreement and noninterference with the equal rights of others. The determination of what is efficient by some third party, such as government, would require interpersonal utility comparisons that are arbitrary and meaningless. In the absence of an omniscient and benevolent despot, market efficiency can he defined only in terms of the extent to which existing institutions facilitate mutually advantageous trade, subjectively valued.

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My review of Thomas Piketty’s 2021 collection of his popular essays, Time For Socialism, has just been published at EconLib. (For inviting me to write this review I thank Amy Willis.) Here are two slices from my review:

In Piketty’s universe, the tools, enterprises, and economic processes that are necessary for modern prosperity just materialize, as if out of thin air. About the formation and operation of capital goods and services the reader gets no information beyond the alleged fact that, above a certain level, wealth—that is, the value of capital—”tends to grow mechanically.” An implication of this mysterious reality is that, because the value of capital depends upon the value of what it produces, the total output generated by capital also tends to grow mechanically. In Piketty’s universe, then, capital goods and services are neither caused by—nor affected by—entrepreneurship, risk-taking, and individuals’ private investment choices. Economic and social institutions thus have almost no impact on wealth creation. Ditto for economic and fiscal policies. Adam Smith’s 1776 inquiry into how institutions and norms cause the wealth of nations—Smith’s investigation into how different institutions and norms cause differences in the wealth of nations—must be for Piketty a project wholly sterile and inexplicable.

My best guess is that Piketty is enough of a Marxist to assume that that which “mechanically” generates businesses, factories, tools, and all other productive assets are the historical forces that form society. The toil of physically extracting from capital the outputs with which capital is pregnant is left to laborers, but Piketty’s belief that the value of capital “tends to grows mechanically” allows for only very minor variation over time in the total amount of final output that labor helps capital to birth.

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Given the bizarreness of Piketty’s economic vision, the reader is not surprised to find in his work fatal inconsistencies.

One such inconsistency arrives when Piketty asserts that “long-term economic performance is primarily determined by investment in training.” Well. Now that we’re told that improving the training of workers improves the performance of capital, it’s impossible to believe that the value of capital “tends to grow mechanically.” What’s left of the asserted non-role of capitalists in affecting the value of capital once we learn that economic growth is affected “primarily” by the choices humans make regarding how much, and presumably which sorts of, human training to demand and supply? After all, prominent among those who surely have incentives to provide at least some worker training are workers’ capitalist employers.

And so might the amount of worker training currently supplied by real-world employers be optimal? A strong case can be made that it is, especially given that when Piketty measures the growth over time of the value of non-human capital he finds that this growth appears to happen “mechanically.” But if, instead, privately provided worker training is suboptimal, what’s the best way to provide more and better training? Is the answer to entrust government, as Piketty predictably wishes, with more money to supply training? Or might a better way to improve training be through changes in labor law, or increases in the amount of training expenses that employers are allowed to deduct from their taxes? And how about, contrary to Piketty’s demand for a higher minimum wage, lowering or eliminating minimum wages, thus enabling more low-skilled workers to find employment—employment that gives workers valuable on-the-job experience and training?

Questions such as these are naturally asked by economists. Questions such as these are never asked by Piketty.

A second inconsistency is highlighted by Piketty’s insistence that worker training doesn’t merely positively affect economic performance, but that such training is the primary determinant of performance. This insistence, though, is at odds with Piketty’s exclusion of human capital from his measures of capital.

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Writing in the Wall Street Journal, Ilya Shapiro explains why he quit the Georgetown University Law Center. Two slices:

After a four-month investigation into a tweet, the Georgetown University Law Center reinstated me last Thursday. But after full consideration of the report I received later that afternoon from the Office of Institutional Diversity, Equity and Affirmative Action, or IDEAA, and on consultation with counsel and trusted advisers, I concluded that remaining in my job was untenable.
Dean William Treanor cleared me on the technicality that I wasn’t an employee when I tweeted, but the IDEAA implicitly repealed Georgetown’s Speech and Expression Policy and set me up for discipline the next time I transgress progressive orthodoxy. Instead of participating in that slow-motion firing, I’m resigning.

IDEAA speciously found that my tweet criticizing President Biden for limiting his Supreme Court pool by race and sex required “appropriate corrective measures” to address my “objectively offensive comments and to prevent the recurrence of offensive conduct based on race, gender, and sex.” Mr. Treanor reiterated these concerns in a June 2 statement, further noting the “harmful” nature of my tweets.

But IDEAA makes clear there is nothing objective about its standard: “The University’s anti-harassment policy does not require that a respondent intend to denigrate,” the report says. “Instead, the Policy requires consideration of the ‘purpose or effect’ of a respondent’s conduct.” That people were offended, or claim to have been, is enough for me to have broken the rules.

…..

Fundamentally, what Mr. Treanor has done—what he’s allowed IDEAA to do—is repeal the Speech and Expression Policy that he claims to hold dear. The freedom to speak is no freedom at all if it makes an exception for speech someone finds offensive or counter to some nebulous conception of equity.

Georgetown’s treatment of me shows how the university applies even these self-contradicting “principles” inconsistently depending on ideology. Contrast my case with these recent examples:

• In 2018, Prof. Carol Christine Fair of the School of Foreign Service tweeted during Justice Brett Kavanaugh’s confirmation process: “Look at this chorus of entitled white men justifying a serial rapist’s arrogated entitlement. All of them deserve miserable deaths while feminists laugh as they take their last gasps. Bonus: we castrate their corpses and feed them to swine? Yes.” Georgetown held this to be protected speech.

The Wall Street Journal‘s Editorial Board opines on Ilya Shapiro’s Orwellian treatment by Georgetown. A slice:

The episode underscores again that American academia is dominated by the censoring left. Mr. Treanor has shown himself to be a weak man who bends to the mob. When the left-wing mob won’t tolerate a thoughtful scholar like Mr. Shapiro, it shouldn’t be surprised if the response becomes a right-wing mob.

Excellent news! Chris Freiman will be a guest blogger at Bryan Caplan’s Bet On It.

David Henderson asks if Milton Friedman was a nobody.

Jeff Jacoby writes wisely. A slice:

Countless Americans have lost an essential component of citizenship: the ability to grant that their opponents are sincere and that at least some of their claims are not easily dismissed. Even if you are unwaveringly pro-life and regard abortion as a tragic act of violence, you should be able to recognize that to a woman who is in the first stages of pregnancy and desperate to avoid the turmoil, pain, expense, or trauma of bearing an unwanted child, the right to an abortion is a fundamental matter of liberty and bodily autonomy. Even if you are a fierce defender of Roe v. Wade and have always believed that abortion rights are indispensable, you should be able to concede the threshold scientific truth that a fetus at 12 weeks is unmistakably human, alive, and vulnerable.

“The truth is that the best argument on each side is a damn good one, and until you acknowledge that fact, you aren’t speaking or even thinking honestly about the issue,” wrote Caitlin Flanagan in a powerful essay in The Atlantic in 2019. “You certainly aren’t going to convince anybody.”

Doug Bandow explains how the brutal Chinese state used covid as an excuse to double-down on its tyrannical ways. A slice:

The real cost of Chinese policy, however, became evident with the PRC’s attempt to maintain a zero-COVID policy as the Omicron variant swept the globe. The plight of Shanghai, China’s economic engine and home to nearly 29 million people, has been in the news of late. The Chinese were long used to authoritarian social controls, but popular anger exploded at the imposition of brutal totalitarian restrictions. The authorities locked people in their apartments, broke down doors to remove residents, tossed Chinese into overcrowded quarantine facilities, denied people access to non-COVID medical care, left residents without food, and killed family pets. The city is finally emerging from a two-month lockdown, slowly. Reported Reuters: “the authorities have been allowing more people out of their homes and more businesses to reopen over the past week. But most residents remain confined to their compounds and most shops can only do deliveries.”

Tim Halliday and Ge Bai, writing in the Wall Street Journal, warn of “the high cost of constant covid testing.” A slice:

Testing labs in the U.S. have been earning windfall profits as a direct consequence of the Covid-19 pandemic. Using tax data from Hawaii, we found that statewide growth in private diagnostic labs’ monthly revenue tracked the volume of Covid-19 PCR tests in lockstep. Between May and December 2020, lab revenue grew at an average of 8% a month. Labs are making more than $10 a test in profit.

Why are these profits possible? The American healthcare system let labs set prices for Covid-19 tests well above their costs, costing taxpayers and private insurance companies dearly, for three reasons.

J.D. Tuccille is correct: “Lingering covid-19 restrictions are a costly hazard.” A slice:

Researchers find that children suffered “significant anxiety and depression during the coronavirus disease 2019 pandemic,” according to a May 2021 article in Pediatric Clinics of North America. “Social isolation, loneliness, lack of physical exercise, and family stress may contribute to these problems.”

Battles over closures, masks, and bungled remote learning poisoned families’ relations with school administrators. New York City schools still require masks on younger children despite protests. Other public schools used the pandemic to impose surveillance states.

Writing at The Hill, GMU Econ alum Ben Powell calls on Congress to “end the federal mask mandate once and for all.” A slice:

The U.S. Department of Justice’s appeal of a judge’s ruling against the federal mask mandate on public transportation illustrates why the House of Representatives needs to join the Senate and vote to permanently end the mandate. It made little sense before, and it makes even less sense now.

Jeanne Noble tweets…

From the epicenter of COVID theater, Berkeley reinstates mask mandate for schools only, while Alameda county reinstates mask mandate for everyplace “except schools” (but includes summer school/camps), despite falling case rates.

… and Margery Smelkinson chimes in: (HT Jay Bhattacharya)

This is what it looks like when public health wants to “just do something” to fight rising cases.

No science, no cohesion. Just strange rules which are transparently foolish and ineffective.

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… is from page 5 of Richard Vedder’s and Lowell Gallaway’s vital 1993 volume, Out of Work:

[T]he evidence generally points to the conclusion that the unemployment situation was better in the relatively laissez-faire era before the Great Depression than in periods since.

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In my latest column for AIER I express my dismay at the jejune ‘thinking’ and commentary that passes these days for serious policy ‘analysis.’ A slice:

Pay close attention to how the clerisy (who are mostly, although not exclusively, Progressives) propose to ‘solve’ almost any problem, real or imaginary. You’ll discover that the proposed ‘solution’ is superficial; it’s rooted in the naïve assumption that social reality beyond what is immediately observable either doesn’t exist or is unaffected by attempts to rearrange surface phenomena. In the clerisy’s view, the only reality that matters is the reality that is easily seen and seemingly easily manipulated with coercion. The clerisy’s proposed ‘solutions,’ therefore, involve simply rearranging, or attempting to rearrange, surface phenomena.

Do some people use guns to murder other people? Yes, sadly. The clerisy’s superficial ‘solution’ to this real problem is to outlaw guns. Do some people have substantially higher net financial worths than other people? Yes. The clerisy’s juvenile ‘solution’ to this fake problem is to heavily tax the rich and transfer the proceeds to the less rich. Are some workers paid wages that are too low to support a family in modern America? Yes. The clerisy’s simplistic ‘solution’ to this fake problem – “fake” because most workers earning such low wages are not heads of households – is to have government prohibit the payment of wages below some stipulated minimum.

Do some people suffer substantial property damage, or even loss of life, because of hurricanes, droughts, and other bouts of severe weather? Yes. The clerisy’s lazy ‘solution’ to this real problem focuses on changing the weather by reducing the emissions of an element, carbon, that is now (a bit too simplistically) believed to heavily determine the weather.

Do prices of many ‘essential’ goods and services rise significantly in the immediate aftermath of natural disasters? Yes. The clerisy’s counterproductive ‘solution’ to this fake problem – “counterproductive” and “fake” because these high prices accurately reflect and signal underlying economic realities – is to prohibit the charging and payment of these high prices. When inflationary pressures build up because of excessive monetary growth, are these pressures vented in the form of rising prices? Yes indeed. The clerisy’s infantile ‘solution’ to the very real problem of inflation is to blame it on greed while raising taxes on profits.

Is the SARS-CoV-2 virus contagious and potentially dangerous to humans? Yes. The clerisy’s simple-minded ‘solution’ to this real problem is to forcibly prevent people from mingling with each other.

Do many Americans still not receive K-12 schooling of minimum acceptable quality? Yes. The clerisy’s lazy ‘solution’ to this real problem is to give pay raises to teachers and spend more money on school administrators.

Do some American workers lose jobs when American consumers buy more imports? Yes. The clerisy’s ‘solution’ is to obstruct consumers’ ability to buy imports. Are some people bigoted and beset with irrational dislike or fear of blacks, gays, lesbians, and bisexuals? Yes. The clerisy’s ‘solution’ to this real problem is to outlaw “hate” and to compel bigoted persons to behave as if they aren’t bigoted.

Do many persons who are eligible to vote in political elections refrain from voting? Yes. The ‘solution’ favored by at least some of the clerisy to this fake problem – “fake” because in a free society each person has a right to refrain from participating in politics – is to make voting mandatory.

The above list of simplistic and superficial ‘solutions’ to problems real and imaginary can easily be expanded.

The clerisy, mistaking words for realities, assumes that success at verbally describing realities more to their liking proves that these imagined realities can be made real by merely rearranging the relevant surface phenomena. Members of the clerisy ignore unintended consequences. And they overlook the fact that many of the social and economic realities that they abhor are the result, not of villainy or of correctible imperfections, but of complex trade-offs made by countless individuals.

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I received a very nice note from someone suggesting an open letter in response to Nancy MacLean’s latest work of fiction. Here’s my reply:

Mr. L__:

Thanks for suggesting that I and other classical-liberal scholars write an open letter expressing our many sound reasons for regarding Nancy MacLean’s attacks on economists James Buchanan, Milton Friedman, and W.H. Hutt as nothing but a river of ridiculous nonsense. But I concur with the advice that you report receiving from Deirdre McCloskey: MacLean is best ignored.

MacLean reveals in her work that she’s either as stupid as a stump or driven delusional by her ideological priors. A third possibility is that she’s an outright liar. My suspicion, though, is that she doesn’t lie in the sense of being aware that what she writes and says is utterly detached from reality. But regardless of whether she’s stupid, delusional, or deceitful, neither she nor any of the pathetic souls who swallow her preposterous tales deserves attention from anyone whose time has any value at all.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Writing in today’s Wall Street Journal, Jay Bhattacharya decries the White House’s continuing stoking of the unjustified fear that covid poses a serious threat to children. Two slices:

In a May 30 tweet, Dr. [Ashish] Jha asserted that Covid is “a far greater threat to kids than the flu is.” He linked to an article by Harvard Medical School instructor Jeremy Faust, which claims that Covid killed more than 600 children in 2021, whereas the flu kills “an average” of only 120 children annually. But Dr. Faust’s data are severely skewed, for three reasons.

First, while flu is seldom tested, everyone admitted to a hospital for any reason gets a Covid test. Between October 2018 and September 2019, 1.4 million flu tests were reported to public-health and clinical labs. As of May 31, 2022, there had been 897 million PCR tests for Covid.

Second, evidence from audits of death certificates found that 35% of all pediatric deaths in 2020 “had co-occurring diagnosis codes that could not be plausibly categorized as either a chain-of-event or significant contributing condition,” according to a study published by the Centers for Disease Control and Prevention. Put another way, in at least 35% of pediatric “Covid deaths,” Covid couldn’t have been the cause.

Third, Dr. Faust relies on a figure for confirmed flu deaths that is well-known to underestimate actual flu deaths by an order of magnitude. Correcting for the lack of flu testing, the National Center for Immunization and Respiratory Diseases estimated 1,161 pediatric flu deaths in the 2012-13 season rather than the 142 that Dr. Faust reported.

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There are far greater risks to children than Covid. Since March 2020, more than 1,000 kids have died with Covid (an average of around 38 a month), according to the CDC. In the same period more than 1,400 children died from drug- and alcohol-related causes.

The Wall Street Journal‘s Editorial Board writes about the recent official finding that Florida governor Ron DeSantis did not falsify that state’s covid numbers. Two slices:

A frequent phenomenon of our times is the flurry over an alleged scandal that on examination turns out to be false. The latest case is the claim that Florida Gov. Ron DeSantis manipulated Covid data.

Mr. DeSantis became public-health enemy number one by defying the left’s lockdown consensus early in the pandemic. When former state health department employee Rebekah Jones claimed she was fired for refusing to fudge state Covid data to support the state’s reopening in spring 2020, national and local media outlets reported her allegations as fact.

“Florida Dismisses A Scientist For Her Refusal To Manipulate State’s Coronavirus Data,” NPR reported. After the Florida Department of Law Enforcement executed a search warrant of her home, Ms. Jones claimed Mr. DeSantis had “sent the gestapo” to silence her. “FDLE raid dramatizes Florida’s COVID-19 coverup” the South Florida Sun Sentinel editorialized.

But according to the Governor’s office, Ms. Jones was fired for repeated “insubordination” and making “unilateral decisions to modify the Department’s COVID-19 dashboard without input or approval from the epidemiological team or her supervisors.”

…..

“If the complainant or other DOH staff were to have falsified COVID-19 data on the dashboard, the dashboard would then not have matched the data in the corresponding final daily report,” the IG explained, adding that “such a discrepancy” would surely have been detected by Bureau of Epidemiology staff, researchers or the media. The IG found no truth to any of Ms. Jones’s accusations.

Covidocratic tyranny in China became so egregious that even a CNN reporter reported it.

The New York Post‘s Editorial Board calls on the Biden administration to end “the nonsensical requirement that all international travelers test negative for COVID to board flights here.” A slice:

Most important, the pandemic is over: COVID will keep on sickening and killing a few people, but only as a background threat, much like the flu. Pandering to the remaining hysteria only feeds fear, holding back the full return to normalcy.

el gato malo believes that humans’ natural discomfort with cognitive dissonance is an important part of why covidocrats acted as they did. A slice:

to be sure, there are serious, dangerous liars in the mix here as well (a fellah whose name rhymes with “phony slouchy” comes to mind) but i suspect it’s far fewer than many have come to presume.

consider:

• we have a large group of highly unqualified people with generally technocratic/authoritarian mindsets that have failed up into positions of power for which no one, much less they are really suited.
• in a crisis, the emotional drive to “do something” is overwhelming. everyone clamors for action.
• so they did things, visible things, bold things, wrong things.
• then it all blew up and went wrong and by then, they were too emotionally invested to own the mistakes so they doubled and tripled down and blamed everyone but themselves for “not pandemicing hard enough.”
• and they all got trapped.
• and their cognitive dissonance and selection bias took over to protect their mental states.

and so in their minds they did not lose the debate. “you were too too benighted and dim to see that they won” is just the low energy pathway to preserve sense of self and self-worth.

Jay Bhattacharya tweets:

PM Trudeau invoked the Emergencies Act against anti lockdown truckers to suppress a legitimate protest, seize bank accounts of regular people, and take political prisoners. Public health that needs this kind of authoritarian power to get its way has lost moral authority.

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… is from page 173 of economist Arthur Diamond, Jr.’s excellent 2019 book, Openness to Creative Destruction: Sustaining Innovative Dynamism (original emphases; footnote deleted):

Federal disclosure rules [imposed by the U.S. Securities and Exchange Commission] result in long, opaque documents that almost no one reads, resulting paradoxically in consumers who are less well-informed but who believe that the government is protecting them. Remember that a good part of the reason why financial information is so lengthy and opaque is that government regulations require it.

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I’m catching up on my correspondence.

Mr. K__:

Thanks for your follow-up e-mail.

About this Café Hayek post of May 21^st you write: “Greed is a necessary part of the explanation for inflation. Not greed alone. But greed in tandem with the Ukraine invasion and other supply constrictions. This cannot be denied. Greed is the motive for corporations to increase prices.”

I can and do deny that any part of an explanation of inflation is “greed.” And while the unusually tight supply constraints that we’ve endured lately account for some one-time jumps in prices, they can’t account for the on-going price hikes – the inflation – that we’re now suffering. Either way, no legitimate part of the explanation of inflation is provided by “greed.”

I ask my students to imagine New York City police officers arriving on 34^th Street to investigate the death of someone who fell from the Empire State Building. An officer approaches the crowd surrounding the mangled body and asks “Does anyone here know what caused this to person fall?” A young man proudly answers “I do! Gravity!”

My students rightly laugh at this explanation’s absurdity. And my students – no less rightly – remain unimpressed with the “gravity” explanation even after I note the indisputable fact that, absent gravity, the person now splattered dead on Manhattan’s pavement would still be alive. My students understand that the actual cause of this death is something that changed – say, a decision to commit suicide, or a snapped cable on window-washing scaffolding – to enable ever-present gravity to pull the person fatally to the ground.

The same logic applies to inflation. To truly explain inflation we must identify something that changed – something that changed both to incite sellers to charge higher prices and, more importantly, to enable buyers to pay these higher prices. That something clearly isn’t “greed.” Not only is greed (or, using a more measured term, self-interest) ever-present, it’s not something that consumers can spend. Therefore, the only plausible explanation of inflation is excessive growth in the money supply – which, as it happens, we’ve lately had a great deal of.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030