Regulators Are Not Heroes

Amazon is suing thousands of “fake” reviewers, who, for a fee, have posted positive reviews for various products. These pseudo reviews violate the spirit — and possibly the functionality — of Amazon’s largely self-governed rating system. Customers rely on reviews to guide their own choices, and a wave of sponsored reviews can mislead them into choosing inferior products.

A similar theme plays out in George Akerlof and Robert Shiller’s newest behavioral economics-cum-self-help book, Phishing for Phools. The authors, both Nobel laureates, claim that an unregulated market leads to massive amounts of manipulation and deception. Just how much remains unspecified, but the general thrust of the argument is that regulatory heroes are needed to rein in villainous dealers.

Heroic Regulators?

It is no surprise then that the authors favor heroic efforts of an older progressive sort, such as the works of Alice Lakey or her modern-day counterpart Elizabeth Warren. Their work, respectively, led to the establishment of the Food and Drug Administration and the Consumer Financial Protection Bureau. These progressives are seen as heroic for taking “action not selfishly but for the public good.” The trouble with such heroes, however, is that they invariably focus not on educating consumers so that they may make better choices but on corralling the cat herd of bureaucrats and politicians into ever-expanding spheres of regulation.

While it is true that consumer regulation can provide focal points that help buyers and sellers interact — in fact, Amazon appealed to just that in its lawsuit — this truth nevertheless misses the pivotal point (and a…

Consensual Violence

I was violently attacked by a muscle-bound youth. But he committed no aggression against me.

With a big grin, the young man shoved me hard through the crowd. I staggered, wheeling backward on my heels for a few futile steps before falling flat on my back on the concrete floor. My glasses bounced off my head and skittered into the forest of stomping feet behind me. I flailed over my head for them with my arm, but then the guy who’d pushed me jumped right on top of me.

I was not angry at my assailant. I had asked for his attack just by being there, in the mosh pit.

This was my first mosh pit, and my first heavy-metal concert. (The band was Iced Earth, by the way, and its main songwriter has a G. Edward Griffin–inspired quasi-libertarian side project called Sons of Liberty.)

Much of what I saw at the concert wasn’t surprising: the huge urban barbarian in a chain-mail shirt; the skinny teen boy with hair that hadn’t been cut since he was in diapers; and the four-and-a-half-foot-tall, 80-pound girl in a torn Slayer shirt. I knew those characters would be there.

I also knew there’d be a mosh pit, with great big guys and skinny little guys and 80-pound girls shoving and smashing into each other right up close to the stage.

As I got closer to the mosh pit — song after song, I’d edge my way toward it, seeing if maybe I could get a taste of what it was like before joining in wholesale — I realized that it worked as a spontaneous space that allowed for some low-level violence (shoving and elbowing and so on) without aggression. That’s when I jumped in.

Context Is Everything

Aggression, as I understand the term, involves an uninvited invasion or use of force against person or property. To be aggression, it has to be nonconsensual.

For instance, if I use a coat hanger to bypass t…

Safe Spaces Can’t Be Diverse

I’m a fan of the LGBT center on the campus where I teach. It offers a space where gay, lesbian, bisexual, and transgender students can be among students, faculty, and staff without fear of harassment, bullying, or negative judgment. There, they do not have to worry about passing (pretending to be straight) or covering (having to signal to others that they are still “normal” despite who they are).

But do you know what spaces like this are not? Diverse.

Or rather, they are not diverse in the types of attitudes permitted to exist there. One cannot, say, believe that homosexuality is a sin and feel welcome at an LGBT center. One cannot believe that transgender people are mentally ill and find LGBT centers to be congenial.

This lack of diversity is not wrong; it is by design and has a good purpose. A safe space is one where people with certain identities that don’t fit in elsewhere can find safety through homogeneity and solidarity.

We don’t need to dismiss either ideal to recognize that a space’s safety and its diversity will be inversely related. The more you have of one, the less you must have of the other.

But you can have spaces and contexts that allow for either ideal, or varying degrees of compromise between them — unless activists succeed in their current quest to convert entire universities into safe spaces.

The Yale case is well known by now. Erika Christakis, a lecturer in early child development, voiced concern in an email to Yale students and residence-life folks urging them to rethink the university’s heavy-handed approach to advising students on which Halloween costumes to avoid. Her note ignited controversy and protest on campus — with some e…

The Good that Bombs Can Do

Each week, Mr. Reed will relate the stories of people whose choices and actions make them heroes. See the table of contents for previous installments.

In his 1986 best-selling book, All I Really Need to Know I Learned in Kindergarten: Uncommon Thoughts on Common Things, Robert Fulghum mused,

Maybe we should develop a Crayola bomb as our next secret weapon. A happiness weapon. A beauty bomb. And every time a crisis developed, we would launch one. It would explode high in the air — explode softly — and send thousands, millions, of little parachutes into the air. Floating down to earth — boxes of Crayolas.

And we wouldn’t go cheap either — not little boxes of eight. Boxes of sixty-four, with the sharpener built right in. With silver and gold and copper, magenta and peach and lime, amber and umber and all the rest. And people would smile and get a little funny look on their faces and cover the world with imagination instead of death. A child who touched one wouldn’t have his hand blown off.

Something akin to what Fulghum imagined actually happened almost 40 years earlier. The man responsible for it is, at this publication in January 2016, a vigorous 95 years old. His name is Gail Halvorsen, and he’s known in history as “the Candy Bomber.”

I first learned of Mr. Halvorsen in late 2013. I was watching a DVD of the Mormon Tabernacle Choir’s annual Christmas concert from the year before. NBC’s Tom Brokaw narrated a spectacular segment about a US Air Force officer who dropped candy from C-47s and C-54s during the 1948-49 Soviet blockade of Berlin. Then across the stage strolled a smiling Captain Halvorsen himself, more than six…


This is the longest winter, the lengthiest my own memory can recall, the coldest, snowiest, loneliest
I’ve had more time to marvel how the three years stretch since we’ve shared conversation
     (or you’ve smiled at me without malice,
     asked about my life)
     or that we could exist in the same room, at the same table,
without what smolders between us relighting, drawing perilously close to the fuse that waits
     for the bomb
     (tick tick)
     (will it live always between us? tick tick);
three years—a thousand days—since I’ve heard your kind voice,
     pondered why you hum
     slightly out of key
     though I know you sing so well—
I’ve been wondering about you. Are you troubled
     by the ice storm that came last night?
     Did you feed the birds as I did,
     watch them from the bedroom window?
Three years later, my dread of cardinals has lessened though they will always remind me of you.
It was only rain here (so much farther South), a few pellets of sleet, not enough accumulation
     to amount to anything,
     not worth mentioning
     if we were speaking, but we don’t,
so I return to my reading, which is all about water: poems, stories, essays, even my emails are about
     streams and rivers
     lakes and oceans
     liquid bodies unending,
sometimes swelling, sometimes deceiving. I read about this water all day
though the water at my house has frozen down in the ground, where the plumbing lies buried between
the deep well and my faucets. I shower at friends’, carry bottles home to drink until my pipes thaw.
     Is this irony enough for you?
These are the thoughts that occupy my mind today—not the dream of you that jolted me
     awake in the middle of the cold night,
     not the prayers for you I whispered in half sleep
     again and always

Why Is the Middle Class Shrinking?

Economic inequality continues to be a major political issue even as the headlines scream about terrorism and climate change. Bernie Sanders has made it a centerpiece of his presidential campaign, and other candidates have addressed it along the way. And a recent study by the Pew Research Center has added new, though misplaced, fuel to the fire of those concerned about inequality.

The Pew study has been discussed in the media, and one key point has been grossly misunderstood. Among other things, the study found that the American middle class is shrinking and is now just under half of the population. Commentators quickly began to refer to the “hollowing out” of the middle class and to tie this study to the concerns about growing inequality.

However, a close look at the data shows that the middle class has shrunk since 1971 because more members of the middle class have moved up the income ladder than down it.

Don’t believe me? Look for yourself at the terrific graphic that the Financial Times created to illustrate the data:

You can watch as the folks on the left slowly slide to the right over 44 years. When you compare the 1971 distribution with the 2015 one, what do you see? A growth in households earning around $80,000 or above, adjusted for inflation, since 1971 and a significant decline in those making less than that amount (with the exception of the folks right around $0). It’s true that there’s not a fat middle class anymore,…

Student Loans: The Taxpayers Lose Again

Politicians typically try to win votes by giving away money. Being a political Santa Claus is usually seen as more rewarding than being a federal Ebenezer Scrooge. Which is why there’s now a $1.2 trillion federal student loan program that, the New York Times politely observed, “has been removed from the norms and values of prudent lending.”

Federally subsidized student loans have become a political favorite, as Uncle Sam added $82 billion to his loan portfolio in 2015. An incredible 42 million Americans have outstanding debt; 6,100 schools have collected subsidized loans. Most of the money obviously has nothing to do with helping those in genuine financial need. Instead, Congress has created an educational “entitlement” akin to Medicare and Social Security, only for the young.

A lot of that cash will never be repaid. Borrowers whose loans came due from 2010 through 2012 collectively owed more two years after they started repaying their loans. The New York Times profiled the incredible story of a teacher who graduated in 1994 with a student loan debt of $26,278 that has ballooned to more than $410,000, mostly due to interest when she took out additional loans for graduate school and her kids and thrice took advantage of temporary federal loan forbearance, which allows borrowers to stop making payments for up to 12 months while interest continues to accrue.

As of 2014, 28 percent of those whose loans began requiring repayment in 2009 were in default. Almost half, 47 percent, of those who attended private schools were in default. Default rates were 51 percent at ITT and 53 percent at Kaplan. Anticipated lifetime default rates for cohorts 2007 through 2011 steadily increased from 15.9 percent to 18.4 p…

Comparative Advantage: An Idea Whose Time Has Passed

Many economists will tell you that the most important principle in economics is comparative advantage — the idea that it is expensive to grow oranges in Alaska or to flood rice paddies in Saudi Arabia, so Alaska and Saudi Arabia should import oranges and rice, respectively, and base local production on the advantages of local conditions. We got this idea from classical economist David Ricardo, who famously observed in 1821 that England and Portugal would both be wealthier if Portugal exported its wine and imported England’s textiles, and vice versa.

Comparative advantage is not a separate concept at all. It is simply an explanation of the implications of the division of labor and opportunity cost. 

Ricardo’s principle even demonstrated the advantages of trading with those who are less productive at everything. For example, my wife is an attorney. She is also a fast and accurate typist. Yet she hires a secretary who is considerably slower at typing. Secretaries get paid less than attorneys, so if my wife specializes in law and the secretary specializes in typing, my wife can earn more for her firm and a secretary gets a job. Both end up better off. That’s true even though my wife is better at both jobs: comparative advantage means trade helps everyone.

Division of Labor Trumps Comparative Advantage

The problem is that fixed comparative advantage — derived from weather, culture, and location — is vanishing in the modern world. Ricardo’s classical formulation leaves no space for human creativity, no role for division of labor, and no room for innovation to affect the dynamics of cost.

So economists have it wrong, as my friend Russ Roberts argued in 2010. The most important principle in…

From the Santa Claus Principle to Krampus Economics

The “Santa Claus principle” is what Ludwig von Mises sometimes called the use of coercion to redistribute wealth according to someone’s political preferences. But if people don’t create taxable wealth at least as fast as the government redistributes it, sooner or later “Santa” will run out of goodies.

Mises writes,

An essential point in the social philosophy of interventionism is the existence of an inexhaustible fund which can be squeezed forever. The whole doctrine of interventionism collapses when this fountain is drained off. The Santa Claus principle liquidates itself.

Another way to think about the Santa Claus principle, however, is as a particular combination of two other problems.

The first problem is how to align the incentives of demanders and suppliers. Call this the incentive problem. The second problem is how to enable demanders and suppliers to become aware of what each side has to offer and its value. Call this the knowledge problem.

(I believe Milton Friedman gets the credit for the following formulation.) 

Santa Clause: Spending Your Own Money on Someone Else

During the holidays, we typically buy gifts for other people. On the one hand, we’re very careful how much we spend on others because we know how much we value our own money. We have an incentive to limit our spending.

On the other hand, we often don’t care all that much whether the person we’re buying for even likes the gift (incentive problem). But assuming we do, we still have a much fuzzier idea about that than if we were buying the gift for ourselves (knowledge problem). The better we know the person — ourselves, a family member, a close friend — the more successful we can be.

On the recipient’s side of t…

Poinsetts and Poinsettias

Each week, Mr. Reed will relate the stories of people whose choices and actions make them heroes. See the table of contents for previous installments.

As the year 2010 began, I was biting my nails. Sixteen months before, I had assumed the presidency of the Foundation for Economic Education at a most inauspicious moment, September 2008. That was the month the bottom dropped out of the stock market. Both revenues and spirits were down as the recession deepened. We were forced to put our hopes for growth on hold, while we focused on maintaining our programs at a sustainable level.

Then came word that a Mr. Benjamin Franklin Poinsett of Bethesda, Maryland, had passed away in November 2009 and left FEE in his will. I never had the pleasure of meeting him but quickly found him in our database. For at least a dozen years, he had faithfully given us $100 per year. I assumed that the estate gift might total a few thousand dollars.

A bequest says even more about a person’s heart and values than the checks he or she writes while alive.     

When someone bequeaths a gift to FEE, whatever the magnitude, I am as greatly touched by the gesture as I know our founder, Leonard Read, always was. A bequest says even more about a person’s heart and values than the checks he or she writes while alive. People tend to put a great deal of thought into where they want their wealth to reside when they’re gone. It’s a big part of their legacy and speaks volumes about them. In making such decisions, they ask themselves consciously or subconsciously, “What was my life all about, and how can I put the best of it to work for the…