Daniel Sutter: Slavery, Justice, and Reparations
Slavery was a moral abomination now thankfully consigned to the dustbin of history. But should Americans who were never slaves receive compensation for their ancestors’ victimization? Reparations are widely viewed as left-wing policy. Many conceive reparations as racial justice: a past offense by Whites against Blacks demands compensation today. Viewing people exclusively as members of races is collectivist and incorrect; individuals act and should be judged based on their actions. Racial justice reflects collectivist thinking. But libertarian economist Walter Block observes how past injustice can require restitution today. Defenders of property rights would demand that a watch stolen last week be returned to its owner. The passage of 150 years does not change the demands of justice if we can verify the facts. Professor Block shows us that an individualist argument for reparations exists. But we do not have a watch to return. Let’s consider the two major things stolen from slaves: their dignity and autonomy and the value of their labor. Dignity and autonomy comprise our humanity. The slave family torn apart at the auction block signifies life without autonomy. Unfortunately, absent a time machine, the victims of American slavery cannot be compensated. Their descendants never experienced slavery. We cannot do justice here. Theft of the value of their labor left slaves in 1865 were poorer than if they had been free. Nor did freed slaves receive any compensation, such as “forty acres and a mule.” Accumulated savings could have been bequeathed to descendants. The value in today’s dollars represents potential compensation. How much might this be? Only earnings above subsistence can be saved. America was poorer in the early 1800s than today, so average earnings minus the cost of living would have been modest. Furthermore, these savings might have been lost in the market or spent during the intervening 150 years. Not every descendant of America’s free citizens of 1865 receives an inheritance. Libertarians believe criminals should pay restitution to their victims. Yet reparations proposals involve payment by the government. This, I think, seems proper. Making only descendants of slave owners pay would impose heavy burdens on persons who never owned slaves. The U.S. government permitted slavery and can pay any reparations. Some proponents, including the 1619 Project, justify reparations because slavery created America’s prosperity. This claim draws on the deeply flawed “new history of capitalism” literature. For details on these flaws, see economic historian Phil Magness’s The 1619 Project: A Critique. Indeed, far from creating prosperity, slavery held back humanity economically. Powerful people believed that commanding others yielded comfort and prosperity, but slaves will only repeat actions taught them. Trading with others as equals empowers them to use their intelligence and creativity to work faster and more efficiently. If slavery produced prosperity, humanity would have been wealthy long ago. Duke University’s William Darity is a prominent economist promoting reparations. Professor Darity considers discrimination and violence following Emancipation as helping justify reparations. Prosperous Blacks were often targets of violence, like in the Tulsa Massacre, while Jim Crow and housing redlining prevented the accumulation of assets. The economic impact today of these recent offenses may exceed the more distant crime of slavery. Professor Darity points to the Black-White wealth disparity, around $800,000, as a scale for reparations. But factors other than discrimination and slavery have contributed to this. As Shelby Steele observes in White Guilt, “The goal of the civil rights movement had escalated from a simple demand for equal rights to a demand for the redistribution of responsibility for black achievement from black to white America, from the ‘victims’ to the ‘guilty.’ This marked a profound – and I believe tragic – turning point in the long struggle of black Americans for a better life.” A panel recommended that California, a free state, pay reparations. This makes a mockery of the case for reparations. This recommendation suggests that slavery serves as cover for government handouts. The costs and challenges of doing justice for slavery 150 years later are enormous. We cannot compensate American slavery’s victims. And using righting past wrong as pretense for government redistribution is not justice. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Are junk fees junk?
The Biden Administration is battling what it terms “junk fees.” Is this consumer protection, or will it simply create additional costly regulation? The answer depends largely on how one views competition in markets. The term junk fees include bank overdraft fees, credit card late fees, airline baggage and seat selection fees, hotel resort and destination fees, and entertainment ticket fees. In addition to capping or eliminating such fees, the Administration also wants transparency in pricing. Before discussing any fees in detail, let’s consider the pricing process in markets. As economist Thomas Sowell observes, most intellectuals believe businesses exercise considerable discretion over prices. Only public pressure or potential government action checks corporate greed. Junk fees emerge from this rapaciousness to increase revenue extraction from hapless consumers. An alternative view recognizes that every purchase in the market is voluntary and that businesses face competition. The competition can be direct – from a rival airline – or indirect – travelers driving instead of flying. Businesses can set whatever price they want but are not guaranteed sales. Consumers are not hapless and, as a group, determine which businesses profit and which fail. Businesses seek profits but face real constraints if they wish to sell what they produce. The power of the market is real but intangible. A primary lesson of economics involves recognizing these invisible market forces at work. Once we reject the exploitative view of markets, we can explore the functions different fees serve. Let’s start with checked bag fees. Airlines will be happy to provide baggage service, but travelers will have to pay for this. The question is how airlines charge for baggage service. One possibility is through higher ticket prices and no baggage charges. In this case, passengers traveling light pay for others’ bags. Alternatively, airlines could offer lower ticket prices and bag charges, with the travelers checking bags paying for this service. Fees provide an additional benefit. Each bag shipped involves costs; the marginal cost of extra baggage is not zero. With no bag charge, travelers act as if shipping a bag is costless. Imagine a traveler who could pack light with one bag or heavy with two bags. If the traveler is unwilling to pay for the second bag, packing heavy is inefficient: the costs of shipping the bag exceed the value to the traveler. How about bank overdraft fees? Banks charge these fees when a customer writes a check or uses a debit card without money to cover the transaction. The bank honors the transaction and charges the customer, including sometimes a fee for each day the account is overdrawn. Covering the check is effectively a short-term loan and costly. The fee also prods the customer to keep a higher account balance. If banks cannot charge overdraft fees, all customers would share the cost of these loans, raising fairness concerns for customers never bouncing checks. Banks would likely end overdraft protection and possibly drop customers without sufficient account balances. All-inclusive pricing raises different issues. It is frustrating when added charges yield a much higher price than promised. Yet this undermines the value of comparison shopping using an online booking site. Sites already have an incentive to address the resulting problem and will make better decisions here than Federal bureaucrats who face no consequences for the destruction their regulations create. One practice included with junk fees are free trials converting to paid subscriptions you can “cancel anytime.” Except that canceling is infinitely harder than signing up. This scheme is only profitable because the business makes canceling more costly than continuing to pay. The customer does not value the service enough to willingly pay for it, so value is not being created. This is more like extortion than honest business, and I will not defend this. The “junk fees” characterization draws on a worldview where businesses abuse customers for sport and profit. Protecting consumers from junk fees promises to inject government into every detail of commerce. Americans should remember Ronald Reagan’s line about the nine most frightening words in the English language: “I’m from the government, and I’m here to help.” Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Daniel Sutter: Stakeholders and cooperation
From the Business Roundtable to the World Economic Forum to leading business schools, many voices promote replacing corporations governed by stockholders with “stakeholder” capitalism. Laws empowering stakeholders might disrupt the social cooperation of corporations. The cutthroat world of business seems decidedly uncooperative. But businesses enable voluntary cooperation between people trying to improve their lives. Never forget the voluntary part. Throughout history, force has been the preferred way to secure assistance from others, producing slavery and oppressive taxation. The lure of commanding others endures today. Both the Trump and Biden Administrations commanded businesses using the Defense Production Act during the COVID-19 pandemic. A business involves many persons as employees, suppliers, and customers. Financial capital is also needed because production must occur before goods can be sold. Terms and conditions for all parties involved must be worked out, and a business must a way to decide what to produce and how. Numerous options for terms exist. Persons providing labor can work as independent contractors or as employees, and if employees, paid every two weeks or receive profit sharing. Financial capital can be provided through a loan with fixed repayment dates and specified interest or in exchange for a share of ownership (equity). Sales are never guaranteed in a market economy because potential customers are free to not buy any product. And because costs must be incurred before sales, revenue may fall short of costs, resulting in losses. Guaranteed profit exists only in rare circumstances called arbitrage; otherwise, profits are always uncertain. Every business must have someone who will bear a loss and someone who gets any profit. Profit and loss are residuals, and the person(s) who receive the profit or loss is the residual claimant. Having different persons bear losses and keep profits generally results in bad decisions, either a reckless pursuit of profit or an obsessive avoidance of loss. Many forms of business organization exist, from sole proprietorships to employee-owned enterprises to corporations. Each form has different residual claimants and different decision-making structures. The various forms of business cooperation have enabled the prosperity of modern America. The corporation has played an outsized role though, assembling previously unimaginable amounts of financing to build global enterprises. This proves that the structure of the corporation, with decision-making and residual claims vested in the stockholders, works. This is a delicate balance. Large investors generally do not manage the companies they own in part. Poor management decisions imperil investors’ capital. The efficiency with which stockholders control the corporations they own is hotly debated, but the persistence of corporations means that stockholders are sufficiently satisfied to continue investing their money. Stakeholderism prioritizes other groups – including customers, employees, and suppliers – over stockholders. Such proposals should face a high bar, given that corporations work. And stakeholders already receive enormous consideration. All market transactions are voluntary, so companies MUST provide value for customers, employees, and suppliers to continue doing business. Of course, the freedom of free enterprise allows companies to fancy that treating stakeholders shabbily will prove profitable. Many commentators characterize CEO embrace of stakeholderism as pure opportunism. Currently, activist stockholders can challenge CEOs over their decisions. Business Roundtable CEOs seek legal authority to ignore stockholders by claiming to serve communities, employees, or the environment. Yet truly empowering stakeholders through legal mandates for employee, customer, or environmental group representation on boards of directors also creates problems. Customers and employees, for instance, have opposing interests: customers want lower prices, while higher prices can fund higher wages. And neither might mind wasting investors’ money. Legally transferring stockholders’ decision rights is a type of theft and may make investors no longer willing to contribute their capital. The freedom of a market economy is also a challenge to its critics. The proponents of stakeholderism can start businesses organized in this manner. If their criticisms are valid, their stakeholder-driven firms should crush traditional corporations. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Accountability for a lab leak
Back in 2020, I wrote about legal efforts to sue China over the COVID-19 pandemic. A recent report from the U.S. Senate Committee on Health Education, Labor and Pensions and an expose from Pro Publica, and Vanity Fair provide more evidence for a lab leak origin of COVID. How does a lab lead potentially affect accountability? I remain agnostic on the virus’ origins. The Pro Publica expose documents a serious safety emergency at the Wuhan Institute of Virology (WIV) in November 2019 based on interpretation by multiple experts of communications posted on WIV’s website. The experts agreed that the exchanges were urgent, highly unusual, and involved top CCP officials. The expose also argues that the patent submission for a Chinese vaccine suggests work began in November 2019 or earlier, or before the virus allegedly emerged in December. Other prominent voices also promote the lab leak hypothesis. Two points seem particularly relevant. A virus usually requires some time to “learn” to spread efficiently in humans, yet SARS-CoV-2 spread remarkably efficiently by January 2020. And evidence of the virus in animals in the wild has yet to be documented. Economics uses methodological individualism to examine human interaction. We start with individuals’ goals, incentives, and actions. Methodological individualism precludes viewing any organization, firm, or government as a “unitary actor.” Governments employ thousands (or millions) of persons with divergent goals, while groups face significant challenges getting members to do what is in the common interest. This matters or evaluating the actions of top Chinese officials. WIV directors likely concealed details if a leak did occur. Decisions by top Chinese officials might seem malicious if we do not recognize they may not have had full information. The WIV’s culpability for a lab leak is clear. But what if the U.S. funded gain-of-function (GoF) research at WIV? Senator Rand Paul has interrogated Dr. Anthony Fauci over the possibility of such funding. Some commentators suggest banning GoF research. Although beyond my expertise, GoF research seemingly can provide valuable knowledge. Furthermore, I doubt research can be banned without draconian controls over research labs worldwide. We could halt NIH funding but cannot control what researchers do with private funding. A better approach might limit GoF research to the very most secure Biolabs. What about the Chinese government’s liability? I am not a lawyer and will not examine legal considerations. Most significantly, China almost certainly could not afford full compensation. The value of a “statistical” life, economists’ preferred way to evaluate deadly tradeoffs, is approximately $10 million. Two adjustments must be made for COVID. First, a downward adjustment based on the average age of victims. Second, an upward adjustment since values of statistical lives is based on voluntarily assumed risks, and “involuntary” risks are viewed differently. Suppose we decide on $5 million. The global COVID death toll currently exceeds 5.6 million. Some deaths have likely been “with” as opposed to “from” COVID, so let’s say 5 million deaths deserve compensation. This is $25 trillion. Only a fraction of China’s $18 trillion GDP could be taken annually for compensation. And then add in medical expenditures, school disruptions, and economic losses. What about partial compensation? Suppose a friend borrows and wrecks your car, and insurance will not pay. Your friend may be unable to fully cover your loss, but an offer to pay what he can afford would still be appreciated. The offer signals a lack of malevolent intent. Markets acknowledge the moral value of all participants, who must voluntarily consent to exchange and employment. Authoritarian nations do not respect the moral value of all. Market exchange is part of civilized behavior, and authoritarian nations are not entirely civilized. Does their government’s recent authoritarian turn and allegations of forced labor disqualify China from the global economy? Opinions will differ. Cooperation on the origins of COVID-19 and an offer of compensation if the lab leak hypothesis validates would signal a desire to remain in civilized company. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Digital dollars
The U.S. Treasury and the Federal Reserve are both investigating the potential for issuing a digital currency in the future in place of the dollar. A digital currency would create new policy tools for stabilizing the economy but also poses great threats to privacy and personal freedom. One natural question arising here may be what is truly new here. Banking already occurs mostly electronically, and cryptocurrencies like Bitcoin exist. Indeed, today we have stablecoins, cryptocurrencies linked to reserve assets like the dollar or gold. Is this just another example of Uncle Sam getting to a party late due to the inexorably slow pace of political decision-making? The U.S. government is not alone in exploring a digital currency. Over sixty countries are experimenting with what are being called central bank digital currencies, or CBDC. China has already introduced a digital yuan. Proponents of CBDCs suggest they could lower transaction costs, the costs of carrying out market exchanges. Electronic banking lowers transaction costs, which is valuable. Transaction costs are like friction in physics, and economists often ignore them, just like physics assumes frictionless tables and pullies. Yet over time, the reduction of transaction costs represents an important driver of increasing prosperity. Global supply chains, for example, are possible now due to lower transaction costs. Yet we do not need a digitized dollar to accomplish this. We already have electronic banking and electronic payments. Life is already much better than when you had to go to the bank while it was open to withdraw cash to make purchases. Money is crucially important in an economy; it is half of every exchange. It is in our interest to have “efficient” money. At one time, many transactions had to be done using cash, and there were no ATMs. If you had no cash on you, you might have to wait until your bank opened to make a purchase. Businesses had to send an employee (or armored car) to take cash to the bank. Money and our current dollar allow decentralized exchanges, which has benefits, but also has costs. Cash creates risks of theft. But if you found someone willing to sell you something for $100 cash, you do not need a bank or a government bureaucrat’s permission to make the exchange. Digital dollars create two new ways for the government to potentially control our actions. First, exchanges using digital dollars could be blocked by the authorities. The government already has considerable potential control; for example, payments between banks or through PayPal can be blocked. The Canadian government restricted the sending of money to the Freedom Convoy truckers earlier this year. Without cash, though, the potential exists to control all transactions. Second, digital dollars could have expiration dates or be reduced in value by the Federal Reserve. Money with an expiration date could vanish from your account if not spent. People could be forced to use their money or lose it. An expiration date would create a new tool for monetary policy, namely negative nominal interest rates. A nominal interest rate is the official rate paid on savings or for a loan, not adjusted for inflation; the interest rate, when adjusted for inflation, is the real interest rate. The real rate is the nominal rate minus the inflation rate and can easily be negative. Today nominal rates cannot go below zero because people have the option of holding cash, say by putting dollars in a mattress (or safe deposit box). This provides a zero nominal rate of return. A bank offering a negative 2 percent interest rate will see depositors withdraw their money; nominal rates cannot fall below zero. Some macroeconomists see value in negative nominal interest rates under certain circumstances. Monetary policy stimulates the economy primarily through lower interest rates, which lead to more borrowing and, according to the argument, more spending, perhaps lifting the economy out of recession. After the Great Recession, nominal interest rates were close to zero, with very low inflation as well. The Fed could not use monetary policy to boost the economy, which arguably contributed to the very slow recovery. Business cycles and macroeconomics are not my areas of research, so I will not debate the potential for easy money to stimulate the economy. Certainly, other macroeconomists argue that the Fed’s ability to manage business cycles is quite limited and that monetary policy sometimes makes cycles worse. The benefit to Americans of negative nominal interest rates as a policy tool is likely very small. From a big-picture perspective, we Americans and not the policy-making elite should decide if we will have a digital dollar. Governments control money today, but they did not invent money. Money is one of the economic institutions that evolved spontaneously in the market. People started using rocks or precious metals, or other commodities to buy and sell because it made their lives easier and better – it reduced transaction costs. Money evolved in many different forms in societies across the globe. Governments took over money, which is now viewed as a component of national sovereignty. According to reports, over 60 countries are exploring some form of Central Bank Digital Currency (CBDC). This is an important consideration for policymakers in Washington, who fear that another nation establishing a digital currency first could supplant the dollar as the world’s reserve currency. The U.S., and particularly our government, benefits from the dollar being used for almost 90 percent of international settlements. Use as the international reserve currency boosts the dollar’s value and keeps interest rates low, which is particularly valuable with the national debt now exceeding $31 trillion. Many people might think that a digital dollar is similar to cryptocurrencies. Yet the first cryptocurrency, Bitcoin, was explicitly designed to provide an alternative to government monies due to potential devaluation. The number of Bitcoin is set according to the blockchain and will eventually reach 21 million but no more. The Federal Reserve and U.S. Treasury can increase the supply of dollars at will and without limit, which would reduce
Dan Sutter: In defense of fossil fuels
Governments are promising to end fossil fuel use by 2050 or sooner. Fossil Future by Alex Epstein, founder of the Center for Industrial Progress, argues that this would be tragic. Contrary to conventional wisdom, he believes that expanding the use of fossil fuels is humanity’s only moral course. I will detail the steps of Mr. Epstein’s argument shortly. Perhaps more is his analysis of standards of value. His standard, human flourishing, contrasts with the standard of minimizing human impact on the environment driving the campaign against fossil fuels. The argument for fossil fuels has three parts. First, fossil fuels provide inexpensive energy, enabling us to perform inconceivably more work than with just human or animal power. Fossil fuels provide concentrated, on-demand, portable, and scalable energy, or energy we can build lives and an economy around. By contrast, wind and solar provide intermittent energy. And fossil fuels, which provide 80 percent of energy, have no substitutes in heavy transportation and heat generation. Second, fossil fuels power climate mastery, making the Earth more livable for humans. We alter the environment in many ways to improve life, like draining swamps to control malaria. Climate mastery, epitomized by the Netherlands’ flood protection system, has reduced extreme weather fatalities per capita by 98 percent over the past century. Finally, global warming will not overwhelm our fossil fuel-enabled climate mastery. Melting glaciers after the last Ice Age increased sea level by over 300 feet. Our ancestors, living at a subsistence level, survived. Irrigation, flood control, fertilizer, and pesticides will control any impacts of warming. Climate change does not threaten human existence. This is great news! Still, Fossil Future’s biggest contribution is discussing standards of value for energy. Mr. Epstein employs human flourishing, defined as “increasing the ability of human beings to live long, healthy, fulfilling lives.” Human flourishing has experienced a true “hockey stick” takeoff over the past 250 years, powered by fossil fuels. Yet the framework also recognizes fossil fuels’ side effects, including air pollution and warming. Human flourishing requires a hospitable environment. Leading environmentalists, Mr. Epstein argues, value minimizing the impact of humans on the natural environment. Mr. Epstein interprets environmentalist writings within this anti-impact framework. Bill McKibben observes how altering the flow of water in a creek is wrong: “Instead of a world where rain had an independent and mysterious existence, the rain had become a subset of human activity.” Yet undisturbed nature includes disease, droughts, and extreme weather. The anti-impact framework is ultimately anti-life. Extreme charges should not be made casually, and Mr. Epstein proceeds carefully here. Consider this review of Mr. McKibben’s The End of Nature: “Until such time as Homo sapiens should decide to rejoin nature, some of us can only hope for the right virus to come along.” If you think Mr. Epstein exaggerates, how would you greet a source of cheap energy without pollution or warming side effects? In the late 1980s, a reported breakthrough on nuclear fusion offered just this. And leading environmentalists’ reactions: “disastrous,” “the worst thing that could happen to our planet,” and “like giving a machine gun to an idiot child.” Vague slogans like “going green,” “protecting the environment,” or “saving the planet” gloss over the anti-life aspect of anti-impact. Most people like polar bears and consequently support action against climate change. Standards of value matter immensely. Under human flourishing, humanity-enhancing impact is moral. Under the anti-impact standard, any impact of energy use is immoral. And this ultimately drives climate change’s “existential threat” label. Human-caused warming is immoral and unacceptable regardless of whether it hurts us. Recognizing the anti-impact framework rationalizes some otherwise contradictory policies. Hydro and nuclear power offer electricity without carbon emissions. But they impact the environment and therefore are not green. Reducing human impact, not saving humanity, is the goal. We cannot hope to feed eight billion people without fossil fuels. Ending fossil fuel use by mid-century will impoverish America and condemn millions to energy poverty and ultimately likely starvation. If people read and engage Alex Epstein’s arguments, perhaps we can ensure an empowered life for every human. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Making sense of woke business
Major League Baseball’s moving the 2021 All-Star Game from Atlanta over Georgia’s new voting law symbolizes businesses’ new willingness to take sides on political issues, typically the progressive side. Businesses previously avoided offending potential customers or employees. Selling to both Republicans and Democrats maximizes profit! Vivek Ramaswamy explores the causes and consequences of “woke” business in Woke Inc: Inside Corporate America’s Social Justice Scam. The book offers numerous valuable insights and creative analyses. Mr. Ramaswamy is the child of immigrants from India who grew up in Ohio. He attended Harvard for undergrad and Yale Law School and worked in pharmaceuticals including as CEO of Roivant Sciences, before stepping down in 2021. Progressive business leaders emphasize “stakeholders” (workers, suppliers, communities, etc.) over stockholders, the owners. Mr. Ramaswamy sees stakeholderism as a ploy. A CEO serving many masters need not follow orders from any: “By becoming accountable to literally everyone, they become accountable to no one.” Managers with a fiduciary duty to the stockholders can be held accountable. Many companies cultivate glowing reputations to cover their misdemeanors. Mr. Ramaswamy highlights Volkswagen, hailed as the world’s most sustainable automaker. “Clean diesel” cars briefly made VW the world’s top automaker. Except the company was using “defeat devices” to cheat on emissions tests. The author views finance’s wokeness as an arranged marriage. The financial crisis bailouts sparked Occupy Wall Street and big fines from the Federal government. Goldman Sachs and others led on wokeness to deflect attention from their misdeeds. Employees often push wokeness. Mr. Ramaswamy notes that Roivant’s Ivy League grads arrived woke. The New York Times’ newsroom staff have similarly staged numerous woke revolts. Leftists view everything as political, so making all institutions advance progressive social goals fits the game plan. Mr. Ramaswamy believes that corporate politics seriously threatens our democracy. Politics – based on one person, one vote – should decide questions like inequality or climate change. CEOs have excessive influence when corporations do politics. Making businesses maximize profit was “about protecting the rest of society from a Frankensteinian corporate monster.” Woke business involves firings for politically incorrect views. Google fired engineer James Damore in 2017 for questioning its’ gender equity hiring policy. Just this month, software company Outreach fired Griffin Green for his Tik Tok videos. Sexist and racist behaviors can disrupt workplaces; as a free market economist, I grant managers significant discretion on company business. But managers seem to be placating the social media mob while performing scant due diligence. What to do about this? Mr. Ramawarmy suggests using existing laws against religious discrimination: “[S]ince wokeness is a religion, employers can’t impose it upon their employees.” Does “wokeness” qualify as religion? Columbia University’s John McWhorter provides a strong affirmative argument in Woke Racism. Social media censorship is another element of woke business. Let’s grant social media bias against conservatives. Again, the question is what to do. I believe that only governments can censor. A media company only denies a speaker the use of its platform and cannot prevent the speaker from using other platforms. Mr. Ramaswamy offers another intriguing suggestion. Criminal law holds that the police cannot have someone conduct an otherwise illegal search. Twitter and Facebook act as government agents in censoring political speech. Again, existing law can address a problem. The problem of woke business, I think, goes beyond an opportunistic scam. Corporate America’s use of wokeness as a cover for making profit likely stems from an unwillingness or inability to defend the morality of business. Notre Dame’s James Otteson observes how many people believe that business should “give back.” But only those who have done wrong must give back. Professor Otteson argues that “Honorable business is neither morally suspicious nor even morally neutral: it is a positive creator of both material and moral value.” Wokeness will not protect business for long because progressives, as Mr. Ramawarmy notes, are hostile to business. This arranged marriage will not produce lasting bliss for corporate America. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Demanding more from the police
The killing of 19 students and two teachers at Robb Elementary School in Uvalde, Texas, has outraged Americans. The malfeasance of law enforcement during the tragedy is highly disturbing and demands reforms. Police officers reportedly waited outside the classroom for over an hour. The commanding officer evaluated the situation as a “barricaded shooter,” not an “active shooter,” calling for immediate entry. A Border Patrol SWAT team finally entered and killed the assailant. Quicker action might have saved some victims. Economics counsels that there are no solutions in this world, only tradeoffs. Ideally, no one would ever try to kill children at a school. Unfortunately, evil exists. We can only manage, not eliminate, school shooting risk. Let’s start with the frequency of school shootings. One frequently cited database tracks all school gun violence, like students getting in an argument and shots being fired. Such events differ enormously from Columbine, Newton, or Uvalde. Bradley Thompson of Clemson University has compiled a list I will use. While school shootings seemingly happen all the time, Professor Thompson counts 14 events and 109 deaths since 1997. Can we reduce this further, perhaps with better anger management? Over the past twenty-five years, over 100 million people have gone through high school over the past 25 years (not all graduated). Sixteen individuals perpetrated the 14 shootings, or one out of 6 million students. The overwhelming majority of young people learn to control their anger. Hardening schools is another possibility. America has 100,000 public and 30,000 private schools, so only one in 10,000 schools has experienced a mass shooting in 25 years. Many hardened schools will never face an armed intrusion. A teacher reportedly propped open the door the Robb Elementary shooter entered. Locked doors will inconvenience teachers and students thousands of times for every intruder stopped. The infrequency of shootings challenges the human capacity for diligence. The Uvalde assailant, like many school shooters, had no criminal record and no reported mental health incidents. Most shooters are not juvenile delinquents. I doubt psychologists can identify the one in six million in advance. America has over 400 million guns, far more per capita than any other nation. Given all these guns, other countries’ gun control laws will work differently here. Even if we repeal the Second Amendment, Americans wishing to do evil will likely obtain guns. We likely must react to these rare events. Experts stress the need for an immediate response by the first officers on the scene. Unfortunately, the dawdling at Uvalde was not unprecedented. The delay was 47 minutes at Columbine in 1997 and 58 minutes at Marjory Stoneman Douglas High School in Florida in 2018. After earlier shootings, experts recommended putting police officers in schools. An officer offers a chance to stop an incident before it starts. Not perfect protection: an officer will not always prevail against a well-armed assailant. Yet delaying a perpetrator might enable locking school doors and arrival of other officers. Taxpayers paid for officers for schools. But at Douglas High, the officer stayed safely in the school parking lot, and Robb Elementary’s officer failed to engage the assailant. Taxpayers, I think, expected police officers to try to stop school shooters. Can we expect better? Writing at Reason.com, J.D. Tuccile thinks not because “officers are regular people working a unionized public-sector job” and have “no stake in the situation and families waiting at home.” I think most police officers take their responsibility to “protect and serve” very seriously. Ours is a government of the people. Police officers ultimately work for us. Detailed rules of engagement should be crafted by experts and not voters, but we set the broad parameters. If we want school shooters engaged immediately, we can and should insist on this. We need a timely armed response to school shooters. Security guards at banks routinely engage bank robbers. If America’s police forces will not step up, we could cut police budgets and hire private security for our schools. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: War, policy, and high gas prices
Russia’s invasion of Ukraine sent already rising oil prices even higher. Record gas prices are fueling the highest inflation rate in forty years. President Joe Biden blames high gas prices on Mr. Vladimir Putin, but administration policies are hampering U.S. oil production. Markets are forward-looking and incorporate new information almost instantaneously. Anticipated events will affect commodity and stock prices before they occur. Experts’ surprise at the full-scale invasion suggests that this likely explains the price rise from $90 to $120 per barrel over the next two weeks. But the increase from $40 in October 2020 to $90 in February seems hard to blame on Mr. Putin. The Institute for Energy Research (IER) maintains a scorecard on Biden energy policies. Mr. Biden canceled the Keystone XL pipeline on Inauguration Day. The XL segment was not going to be completed until 2023, so White House Press Secretary Jen Psaki is correct that this is not reducing oil supplies today. But by foreshadowing administration policies, it could easily have driven up prices. The Biden administration has stopped development in the Arctic National Wildlife Refuge and the Alaska National Petroleum Reserve and halted new leases on Federal lands and waters. A court ruling blocking a large Gulf of Mexico lease has not been appealed. Ms. Psaki repeatedly cites 9,000 unused Federal leases as demonstrating industry culpability for high prices. As IER explains, oil production involves two steps: leases and drilling permits. Companies first sign leases for exploration and then apply for drilling permits where oil is found. A near doubling of the permit approval time under President Biden has produced a backlog of 4,000 applications. President Biden has reversed President Donald Trump’s reforms of the National Environmental Protection Act and the Clean Water Act. The policy process previously allowed environmental groups to endlessly litigate required environmental reviews, tying up production and pipelines for years. Wise policy should balance environmental costs and economic benefits and proceed when we decide that the benefits outweigh the costs. Prior to the Trump reforms, environmental groups nearly possessed veto power. Mr. Biden is simply, in IER’s view, delivering on his 2020 election pledge: “No ability for the oil industry to continue to drill period. It ends.” And now the President is asking Iran, Venezuela, and Saudi Arabia to pump more oil. Everyone, it seems, except America. Anyone believing that climate change poses an existential threat to humanity must advocate such policies. Meeting the new goal of limiting temperature rise to 1.5 degrees Celsius will require an end to the use of fossil fuels within ten or twenty years, not the distant future. Prices and quantities are related. At a sufficiently high price, the quantity consumers are willing and able to purchase (the textbook definition of demand) will be zero. Banning gasoline pushes the quantity to zero but can also be interpreted as driving the price to infinity. High and rising gas prices are not a flaw of fighting global warming, they are the plan. The only glitch is perhaps that the Ukraine invasion gave us 2023’s price of gas in March 2022, resulting in more pain sooner than intended. California Governor Gavin Newsome, who wants to ban the sale of gas-powered cars by 2030, now generously proposes rebates to Californians as relief from $6 a gallon gas. We may be approaching a point of no return for domestic oil and natural gas production. Developing oil and gas involves enormous capital investment in wells, storage, transportation (pipelines or railroads), and refining or processing. These investments require years of use to recoup. I do not support ending fossil fuel use to fight global warming, and you may wish to discount my investment insight. But how can drilling oil or natural gas wells to be used for only twenty (or perhaps now fifteen or ten) years be profitable? A four-year reprieve from a Republican president may soon be irrelevant. A credible commitment not to ban fossil fuels may soon be necessary to significantly increase production. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: The cheating industry
I support free markets and economic freedom. But do all markets make society better off? The college cheating industry offers a challenge. An internet search quickly reveals the abundant assistance available. Companies and freelancers will write papers, even giving money-back guarantees. Uploading pictures of exam questions on a phone can get answers delivered. Entire classes and degree programs can be taken. As a professor, I could easily moralize about cheating. But let’s consider the economics. A market for cheating exists because some college students are willing to pay for help. Specifically, they will pay enough to induce individuals capable of, for example, writing good term papers to do so. The compensation must also offset any guilt about participating in misconduct. Cheating clearly predates the internet but now greatly enables this market. Students can easily connect with providers. Services can pay for ads to appear on internet searches. And paper writers use the internet to research topics quickly. Students demand custom-written papers because of plagiarism detection software. Software can now easily identify content lifted from the internet. Paper writing services routinely include plagiarism reports to assure customers of original content. Further exploration of the supply and demand sides of the market raise concerns about higher education. On the supply side, many writers (seemingly) are graduates from colleges in the U.S., Canada, or Britain. (Poorly written papers are apparently common with the cheapest services.) Unemployed honors English grads offer many of the testimonials from cheating industry workers. Some higher education critics argue that we have too many college graduates. Their evidence is often ambiguous. That the cheating industry can hire persons capable of researching and writing good papers on tight deadlines for about $10 per page speaks volumes about the job opportunities of at least some college grads. On the demand side, the major question is why cheating works. Teachers warn cheaters that they only cheat themselves. This statement contains some truth. Cheating lets students complete an assignment or class without learning the material. Does this truly help? Suppose someone cheats their way through truck driving school. How will they get and hold a job if they cannot put a truck into gear and drive it? Given this, why pay truck driving school tuition and then pay to cheat? The demands of jobs should limit the demand for cheating. Cheating is more likely on classes unrelated to the jobs students will seek. College curricula feature required courses of little direct relevance to a major, like chemistry for future bankers. Shortening the bachelor’s degree by eliminating unrelated required courses should mitigate cheating. College and graduate degree requirements are imposed by occupational licensing to reduce the number of practitioners. Occupational licensing is government permission to legally work in a field and has grown enormously in the United States. Such degree requirements will be particularly susceptible to cheating; employers will not care if applicants lack irrelevant knowledge. What are the cheating industry’s consequences? The willingness of some to cheat requires professors and universities to incur costs to control and deter cheating. The costs parallel the costs to businesses of shoplifting and employee theft. We could enjoy a higher standard of living if no one was willing to cheat (or steal). Cheating also diminishes the value of grades and degrees. This is often described as unfair to students who study and earn their grades. But for the economy, cheating makes grades and degrees less effective in identifying strong students for employers. This is particularly costly when employers cannot quickly identify unqualified applicants, unlike in the truck driving case. Cheating seemingly resembles other “victimless” crimes like illegal drug use. But this is not correct. The contract students have with colleges prohibits academic misconduct. Cheating involves contract violation, not merely consuming an unpopular product. People will supply what others are willing to buy. But contracts are a foundation of economic freedom, and enforcing contracts is a fundamental task of government. Protecting economic freedom does not require tolerating the cheating industry. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Do sanctions work?
The United States and Europe imposed economic sanctions on Russia for its unprovoked invasion of Ukraine. I will let others debate the sufficiency of this response and consider the economics and effectiveness of sanctions. Economists have analyzed sanctions both theoretically and empirically. Theory helps us identify differences between observed outcomes and the unobserved alternative without sanctions. One immediate implication: a proper evaluation must include cases where the threat changed policy. In any model of negotiations and conflict – including wars, labor strikes, and sanctions – the costs of conflict push the parties to negotiate. Indeed, wars and strikes should not occur with perfect information. If Ukraine and Russia both knew the outcome of the invasion, they could negotiate a settlement based on the outcome and avoid death and destruction. Sanctions tend to be imposed when things break down. Sanctions temporarily block trade between parties. If we currently trade very little with a nation, a halt is not very impactful. And the potential for political or military conflict makes businesses less likely to establish trading relations. Choosing a supplier in a country likely to be sanctioned will only produce supply chain disruption. This produces a paradox. Sanctions would be most effective against allies yet are imposed against enemies. Although this is sensible, sanctions get employed when least likely to be effective. Sanctions can take a long time to work. South Africa’s racist Apartheid regime faced sanctions for 30 years before collapsing. If sanctions take years or decades to work, is this success? South Africa faced diplomatic, travel, and cultural sanctions in addition to economic sanctions. Separating the impact of economic and other sanctions is extremely difficult. Yet we need to assess the benefits of economic measures. Gary Hufbauer, Jeffrey Schott, and Kimberley Elliott have compiled the most extensive sanctions database through three editions of Economic Sanctions Revisited. For each case, they estimate effectiveness in achieving political goals (on a 16-point scale), the cost imposed on the target country’s economy, and cost to the initiating country. “Success” to varying degrees occurs in about one-third of cases. Sometimes sanctions have been notoriously ineffective, like the League of Nations sanctioning Italy for invading Ethiopia in 1935. The researchers define success relative to political goals. Alternatively, we might ask whether sanctions imposed significant costs on the offending nation. Will sanctions make Putin pay for invading Ukraine? Perhaps. Sanctions reduced the GDP of white-ruled Rhodesia (now Zimbabwe) by over 10 percent in the 1970s and Iraq’s GDP by nearly 50 percent after its 1990 invasion of Kuwait. International cooperation is crucial for effectiveness because most trade must be shut off for the greatest possible impact. Sanctions have been called the economic equivalent of carpet-bombing cities. They inflict pain on “noncombatants.” The Apartheid sanctions hurt oppressed black South Africans; incidental harm must factor into our evaluation. Many people see nations through a collectivist lens, justifying harm to any Russians since Russia invaded Ukraine. As a proponent of personal freedom, I reject all forms of collectivism. Thousands of Russians have reportedly been arrested for protesting the invasion. Again, incidental harm must be taken very seriously. Fortunately, sanctions are increasingly targeted. The Obama administration began targeting banks doing business with rogue regimes, and selected Russian banks have been banned from the SWIFT international payments system. Improved surveillance reduces the ability of banks to violate sanctions without penalty. I have focused on economics, but sanctions also have a moral dimension. Halting trade offers a way to denounce the invasion: we will not trade with barbarians. And Russian oil seems irredeemably stained with Ukraine’s blood. Sanctions and halting energy imports could impose nontrivial costs on Russia. Unfortunately, invasions are rarely launched on strict cost-benefit grounds, limiting their impact. Yet this should not diminish the economic and moral significance of sanctions. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Dan Sutter: Greed and inflation
Inflation topped 7 percent in December, the highest level in forty years. The Biden administration has tried blaming rising prices on corporate greed with antitrust enforcement as a remedy. Does this make economic sense? We must first consider what inflation is. Measured by the rate of change in the Consumer Price Index (CPI), economists define inflation as increasing the general price level. Increases in the prices of some goods with others remaining unchanged raises the CPI but are changes in relative prices. Relative price changes result from changed economic conditions like with lumber in 2020. A “pure” inflation is an equal percentage increase in all prices, including wages and salaries. Inflation also involves an expectation of continued price increases. Pandemic-related production disruptions might cause price increases but not continued increases; prices should stabilize once production resumes and backorders are filled. Is the last year’s CPI increase due to relative price changes or true inflation? We clearly have had some relative price increases for things like lumber and new and used cars (37 percent price increase over the past 12 months). But many CPI components have increased by five or six percent. Most prices are rising. Interest rates provide the best gauge of future inflation. They are based on the decisions of thousands of persons, each investing their own money and superior to any expert’s forecast. Florida Atlantic University economist Will Luther calculates that the bond market currently forecasts 2.6 (2.2) percent annual inflation over the next five (ten) years. Markets expect inflation to moderate but not disappear. Now we can turn to greed and antitrust. I will not distinguish between greed and self-interest here. Economists assume everyone acts in their self-interest. For businesses, this means selling for the highest prices possible, but consumers must voluntarily purchase what businesses want to sell, and competition between sellers limits prices. Greed only explains rising prices if competition has been reduced. State business closure orders during COVID helped bankrupt thousands of small businesses. Yet the impact of these failures on the overall level of competition is likely modest. Furthermore, reduced competition would likely generate a one-time price increase; with less competitive pressure, a business might raise prices by five percent. Since greed is not causing inflation, more aggressive antitrust enforcement will not stop inflation. Economists across the political spectrum recognize this. Larry Summers, former Secretary of the Treasury under President Bill Clinton, said on Twitter: “The emerging claim that antitrust can combat inflation represents ‘science denial.’” Precedent exists for using inflation fears to justify unrelated policies. Until the 1970s, Washington regulated railroads, trucking, and airlines. This was not just safety regulation but control of the number of firms, routes of operation, and prices. Economic research documented the harms of this regulation: higher prices, reduced productivity, and poorer transportation options. The principle of concentrated benefits and dispersed costs from public choice economics explained the persistence of such regulations. The companies and their unions, including the powerful Teamsters, benefited from regulation. Consumers faced an enormous total cost but small individual costs. Regulation was crucial to the industry but a minor issue for consumers. Then something amazing happened. America faced high inflation, and Senator Edward Kennedy sought an issue to boost his presidential hopes. Future Supreme Court Justice Stephen Breyer was on the Senator’s staff and knew about the economic research. Senator Kennedy held widely publicized hearings touting deregulation to offset the pain of inflation. President Jimmy Carter got on board, and by 1980, all these industries were deregulated. Attributing causality is virtually impossible in public policy. But most histories of deregulation cite Senator Kennedy’s hearings as highly important in the process. Deregulation as a cure for inflation is economic silliness. Yet confusion over-inflation may have enabled beneficial policy change. Policymakers, I suspect, remember this lesson. Expect politicians to try selling their pet projects as fighting inflation. But as economist Milton Friedman famously said, “Inflation is everywhere and always a monetary phenomenon.” Alleged inflation remedies should be evaluated on their own merits. Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
