Archive for the Economics Category

Notes on Money in Politics

This evening I’m scheduled to talk about money in politics with a local college class. As I’m looking up some articles for this purpose, I thought I might as well provide some links and discussion here.

The main point of this evening’s discussion is to debate Amendment 65, about which I have written and spoken at length. Please see my collected commentary and links. However, my hope is to take the conversation in a broader direction tonight. The main question I want to examine here is how much “big money” actually influences politics. Of course, this issue represents only a small slice of the discussion, but a relevant one.

The main thesis in this regard is a simple one: People have brains. We are not mindless automatons, zombies passively influenced by whatever advertisements impinge on our senses. Rather, we have the capacity for reason, for thinking critically about the messages we see. When we’re talking about money in politics, we’re talking about people spending resources in an effort to persuade others (voters) to behave in a certain way. Because people have reasoning minds, the impact of money in politics is necessarily limited.

Let’s begin with some comments from Steve Simpson (shown in the photo), whom I interviewed this summer:

There are too many examples of expensive advertising flops or rich candidates who lost elections to take seriously the claim that money buys elections. Ross Perot, Michael Huffington, Meg Whitman, Jon Corzine—the list of candidates who have spent huge amounts of money and lost goes on and on. A certain amount of money is necessary to be a contender in an election. Beyond that, candidates win or lose because they have messages and support policies that the voters like.

To take a Colorado example, last year, Colorado voters rejected Prop. 103, a school tax measure, by a margin of 63 to 37 percent—an overwhelming defeat by any measure. And yet, as the Denver Post reported, “Supporters raised more than $600,000 in the effort to pass 103, while opponents raised less than a tenth of that.”

In 2003, Colorado voters rejected Referendum A, concerning water bonds, by even bigger margins: 67 to 33 percent.

A Denver Post article from November 5, 2003 (“Colorado In ‘No’ Mood,” by Joey Bunch) reviews:

Referendum A appeared headed for easy passage. Owens put his campaign aces on Referendum A and helped raise more than $750,000 to promote its passage.

He collected huge donations from corporations and residential developers.

The opposition group Vote No on A raised less than half that. High-profile opponents included Attorney General Ken Salazar and former governors Dick Lamm, Roy Romer and John Vanderhoof.

Moving to broader studies, Stephen Dubner summarizes a paper by his Freakonomics coauthor Steve Livitt finding that a candidate can double or halve campaign spending and impact the outcome only by a point in either direction.

Dubner continues:

What Levitt’s study suggests is that money doesn’t necessarily cause a candidate to win—but, rather, that the kind of candidate who’s attractive to voters also ends up attracting a lot of money. So winning an election and raising money do go together, just as rain and umbrellas go together. But umbrellas don’t cause the rain. And it doesn’t seem as if money really causes electoral victories either, at least not nearly to the extent that the conventional wisdom says. For every well-funded candidate who seems to confirm that money buys elections (paging Michael Bloomberg), you can find counterexamples like Meg Whitman, Linda McMahon, Steve Forbes, and Tom Golisano.

Dubner also rounds up the views of other economists, including Jeff Milyo, who writes:

[L]arge shocks to campaign spending from changes in campaign finance regulations do not produce concomitant impacts on electoral success, nor do candidates with vast personal wealth to spend on their campaigns fare better than other candidates.

These findings may be surprising at first blush, but the intuition isn’t that hard to grasp. After all, how many people do you know who ever change their minds on something important like their political beliefs (well, other than liberal Republicans who find themselves running for national office)? People just aren’t that malleable; and for that reason, campaign spending is far less important in determining election outcomes than many people believe (or fear).

But what of the left’s endless incantation, “Corporations aren’t people!” Besides the obvious fact that corporations are composed of individual people, each of whom with rights, it just ain’t true that corporate spending dominates politics.

Steve Chapman writes for Reason: “Of the $96 million donated to these political operations [Super PACs], 86 percent has come from individuals and less than 1 percent from publicly traded corporations. Major companies almost unanimously have concluded that they have more to lose than gain by wading into polarizing political campaigns.”

“But what about the rich people?!” The advocates of Amendment 65 explicitly call for the censorship of “the rich”—so apparently the wealthy aren’t people, either.

The problem of money in politics is not much of problem. But the “solution” of censoring political speech is extraordinarily dangerous. Liberty can survive stupid campaign ads. It cannot survive censorship.

Related:

Image of Steve Simpson: Institute for Justice

The Debate Over Public Choice Misdefines “Self Interest” and “Public Interest”

Gordon TullockAre political actors (politicians, voters, and bureaucrats) motivated by “self interest” or “public interest?” That is the central question as it is posed in the academic debate over the Public Choice school of economics. However, it is the wrong question.

Public Choice economists and their critics agree that, at least sometimes, political actors pursue financial gain and power at the expense of others, and obviously that is true. To take a few examples, recall the Youtube video in which a woman recites her reasons for supporting Barack Obama: “I won’t have to work [to] put gas in my car, I won’t have to work [to] pay my mortgage.” Does anyone doubt that political actions over the last few years to expand food stamps, expand unemployment benefits, increase subsidies for students loans, bail out auto unions, subsidize solar and wind companies, and expand Medicare coverage were calculated to gain political support? The typical member of congress today sees it as his primary responsibility to bring home the pork to (select voters within) his district.

The problem lies in describing the issue as “self interest” versus “public interest.” Before addressing that issue, though, let us first look in more detail at the debate surrounding Public Choice.

In his book Government Failure, Gordon Tullock (one of the founders of Public Choice) describes what he sees as the problem with the traditional view of politics, as well as his alternative:

Throughout the 19th and well into the 20th century, economists assumed that individuals are primarily concerned with their own interest and worked out the consequences of that assumption. In contrast, during this same period political science largely assumed that political actors are mainly concerned with the public interest. . . .

Economists changed this bifurcated view of human behavior by developing the theory of public choice, which amounts, in essence, to transplanting the general analytical framework of economics into political science. The statement that the voter in the voting booth is the same person as the customer in the supermarket does not seem radical, but it is nevertheless a very dramatic change from the political science literature. (pp. 4–5)

While Tullock grants that political actors do not necessarily act in a “self interested” way (as he uses the term), he thinks they ordinarily do:

Of course, empirical confirmation of any theoretical proposition is more important than analytical elegance. When considering the behavior of any individual politician, most people realize that the politician behaves in a self-interested way; similarly, when considering the factors that affect votes, most people assume that personal gain is certainly an aspect. (p. 6)

The critics of Public Choice, on the other hand, argue that political actors tend to act in the “public interest.” Jeffrey Friedman, editor of Critical Review, describes the debate in the Winter-Spring 1995 issue (Vol. 9, Nos. 1–2) of his journal:

[A] distinction should be drawn between two terms that are often used imprecisely or synonymously: rational choice and public choice. One understanding of the difference holds that public choice theory applies economic analysis to political (i.e., “public”) decision making, while rational choice theory goes even farther, applying economics to other nonmarket realms, such as family life. This distinction, to adopt John Ferejohn’s [citation omitted] terminology, attributes to both public and rational choice theory a “thin” understanding of the economists’ rationality postulate: individuals are assumed to have only the inclination to satisfy their stable and ordered preferences, whether these are selfish or not. But outside the academy, public choice theory has a decidedly “thick” connotation, referring to the alleged propensity of political actors to pursue their material self-interest. . . .

Like most important ideas . . . public choice theory is liable to polemical oversimplification. The main danger is that the possibility that people are as self-interested in their political as their economic behavior may be treated as the assumption that self-interest is always and everywhere the real fountainhead of politics. . . .

[T]he effort of comparing public choice hypotheses against alternatives frequently falls to non-public choice scholars. One such effort is Leif Lewin’s Self-Interest and Public Interest in Western Democracies, published by Oxford University Press in 1991. Reviewing in detail the empirical literature on a variety of public choice claims—almost all of which was written by non-public choice researchers—Lewin found that in no case does public choice theory withstand scrutiny as a general hypothesis about the ubiquity of self-interest in politics. (pp. 1–3)

Friedman goes on to explain that, according to Lewin’s findings, voters tend to select politicians they deem “likeliest to benefit the economy of their society as a whole,” and bureaucrats too frequently act outside the boundaries of what the Public Choicers predict for them (pp. 3–4).

Notably, a recent issue of Critical Review (Vol. 23, No. 3 from 2011) explores Lewin’s work in more detail, featuring an essay by Lewin himself.

Lewin writes that, today, even many Public Choicers agree “that voters, politicians, and bureaucrats are much more public spirited than public-choice theorists originally maintained” (p. 361). However, Lewin acknowledges the problem of interest groups in politics. He writes, “[I]t is hardly unexpected that people pursue their self-interest when they enroll in interest groups. That is the whole rationale for membership.”

Public Choice economists and their critics, then, agree that sometimes political actors act in their “self interest” and sometimes in the “public interest.” They disagree over how prevalent one is over the other.

The huge problem with this debate is that neither of the sides presented offers a coherent definition of “self interest” or “public interest.”

As the scholars quoted above use the term, “self interest” applies to political practices of taking others’ wealth by force, forcibly blocking or harming competitors, gaining special political favors, and the like. The opposite of “self interest,” goes this line of thinking, is “public interest,” which means acting for the general well-being of society as a whole. Neither of those definitions withstands scrutiny.

Begin with “self interest.” One’s actual, long-term, selfish interests consist substantially in achieving and supporting a government that protects individual rights, not one that forcibly transfers wealth and doles out favors. It is only within a rights-respecting society that an individual is free to act consistently for his own purposes and in accordance with his own, unhindered judgment. If one holds that the “public interest” consists in establishing a rights-protecting government—the only sensible use of the term—then there is no clash between pursuing the “public interest” and pursuing one’s “self interest,” properly conceived.

With the sloppy treatment of “public interest” within the debate over Public Choice theory, however, the “public interest” can be conceived in any number of contradictory ways, ranging from the American Founders’ support for a rights-respecting government to the communists’ support for collectivism and mass slavery. What matters is the content of one’s ideology, and referring to some undefined “public interest” only obfuscates that issue.

History shows that what we have to fear are not primarily the petty politicians who act to advance their narrow interests of wealth and power by abusing their positions, as annoying and destructive as they are. What we should fear are those politicians who sincerely act in the “public interest” conceived apart from individual rights—and who stop at nothing to achieve it.

Image of Gordon Tulluck: Mercatus Center

Mises’ Lessons for Gentlemanly Disputes

Many years after Nobel economist Friedrich Hayek visited Professor John Van Sickle in Boulder, I sat in the same living room where the two men had conversed.

Both Hayek and Van Sickle were friends and students of the great Austrian economist Ludwig von Mises. Van Sickle had saved many letters to and from Hayek, Mises, and other free-market economists of their day. I got the chance to look through these letters and reproduce them. They now reside in the archives of the Foundation for Economic Education. (I’ve told this story before; I’ve received permission from Jerry Van Sickle and FEE to reproduce those letters at my discretion.)

I was glancing through those letters for possible use in an upcoming presentation, and I happened upon a letter for Mises that I think admirably illustrates the gentleman’s way of handling a dispute. (I read the letter during a time when a friend of mine was coming under some mean-spirited and frankly ridiculous attacks.) The letter is dated March 2, 1955.

Mises stuck to his principles and did not shy away from criticizing perceived errors and slights sharply and directly:

[M]y formulations are to be taken on the one side and should be opposed to the middle-of-the-road formulations of [Milton] Friedman… and others on the other side. To proceed in a different way is tantamount to the adoption of the official position of the New Deal philosophy. Then one does not discuss the economic meaning and function of inequality, but takes it for granted that inequality is bad and discusses whether it should be abolished altogether or whether some “loopholes” should be left. There is nothing that I could contribute to such a debate. … If you assign my formulations a lower rank than to those of other participants, then please forget about them, set aside the letters I wrote you and do not expect me to attend the meeting.

Several things here are noteworthy. Mises did not refrain from blasting Friedman over fundamental disagreements. Yet he did not refrain from debating the matter with Friedman, so long as he could debate on equal footing.

Mises closed with an equally interesting paragraph:

I want to emphasize that my attitude on this question in no way reflects upon our long established friendly relations and does not at all affect the high esteem in which I hold you personally.

In other words, even though Mises thought Van Sickle was setting up a conference in such a way that slighted Mises in favor of the “middle-of-the-roaders,” Mises maintained a remarkably cordial tone, even as he pointedly explained the reasons for his irritation. (Of course, that doesn’t imply one must always deliver roses to one’s ideological opponents.)

I think Mises’s approach goes a long way in explaining why he was so widely loved, and why he remains so influential.

From Van Sickle Documents

Thank the Industrial Revolution for Longer Life

The following article by Linn and Ari Armstrong originally was published October 28 by Grand Junction Free Press.

Growing older comes with its problems, but, as we’ve all heard, it surely beats the alternative. Earlier this month Ari turned 40. (We don’t need to go into details of Linn’s age.) An interesting fact about the age of 40 is that it’s older than the average lifespan of almost all of human history. So if you’re older than 40, or hope to be, thank the industrial revolution, which radically extended human life.

The industrial revolution, fueled by the philosophical Scottish Enlightenment, gained steam in England in the late 1700s. This was right around the time of the founding of the United States, which, as the freest country in the history of the earth, soon adopted the industrial revolution as its own and created unparalleled prosperity.

Modern humans have walked the earth for roughly a quarter of a million years. So you are extremely lucky to have been born during the tiny fraction of human history in which you have a good chance to live to see old age as we now understand it.

According to the CIA’s World Factbook, one nation still has a life expectancy less than 40: Angola. Several African nations still have life expectancies less than 50. Why the difference? Much of Africa remains ravaged by tribal warfare, political corruption, and an almost total lack of industrial progress, exacerbating such problems as famine and the AIDS epidemic.

Throughout almost all of human history, most people faced conditions roughly comparable to those of the poorest regions of modern Africa. Violence, starvation, and disease were the normal conditions of life.

The Wikipedia entry on “life expectancy” offers some good leads; for example, it cites a recent text on American history that discusses England in the early 1600s. That book summarizes, “Life expectancy was only about thirty-five years, and two-thirds of all children died before the age of four.” Today children rarely die. Throughout much of human history, many or most children died, and that was considered normal.

In the industrial world, life expectancy has risen into the upper 70s and 80s. The United States comes in only 50th on the CIA’s list with a life expectancy of 78.37. (Monaco tops the list at 89.73.) But the U.S. suffers relatively high rates of auto fatalities and homicides; adjusted for those factors, our country approaches or hits the top of the list.

But how could early industry, with its dirty coal and poor working conditions, so dramatically extend human life? Prior to industry, most people lived in abject poverty, and even the few wealthy of the time had relatively few of the amenities even America’s poor now take for granted. (Andrew Bernstein does a good job of reviewing early industrial advances in Capitalism Unbound.)

Prior to industry, people had to walk wherever they went; the lucky few had horses and carriages (which left stinking, pestilent messes in city streets). Steam-powered boats and trains, then petrol-powered automobiles, gave mobility to the masses. Today we can ride by helicopter to a far-away hospital if we need urgent medical care. We can jet around the world in the time it used to take to traverse a state. A relative recently flew to Europe for discretionary health care.

In the good old days, often you were luckier if you did not have access to a doctor with his leeches and concoctions. If you got an infection, often you would die. Today advanced machinery can scan your bones or peer into your heart. We have access to mass-produced drugs effective at alleviating a wide range of ailments. We have access to heart surgery and advanced cancer treatments.

At America’s founding, roughly 90 percent of all working people farmed. Eking a living from the dirt without the aid of tractors and trucks, irrigation pipes, and modern fertilizers imposed severe hardships. Today less than three percent of the workforce raises all our food—freeing up the labor of others to provide our other wants and needs.

Prior to industry, people made their few items of clothing by hand. With industrial production of cotton clothing, the masses could afford to buy clothes and subject them to the rigors of routine cleaning. Today, we can clothe ourselves modestly for perhaps a couple hour’s worth of labor.

True, industrial progress requires legal stability and relative freedom. Capital formation—the development of the tools and machines that expand our productivity—drives our improving standard of living. People don’t invest in capital when others loot or destroy the products of their effort. The prosperity of capitalism derives from the political protection of people’s rights. To the degree we stray from that standard, we undermine our prosperity and threaten our futures.

If you value your high standard of living and your potential to live into your 70s and beyond, live in gratitude for the industrial revolution—and help protect its future.

Fun with the Dismal Science

I presented this talk September 10 for a Liberty Toastmasters meeting oriented toward humor. Funny isn’t usually my thing, but I had a go with the “dismal science.” So, yes, I’m exaggerating certain points; however, most of the underlying ideas are based in real economics.

I’ve written about the potty-training story from Freakonomics before, as well as the discussions about alien invasions from economists and environmentalists. Bastiat’s essay about the candlemakers is reproduced inThe Economics of Freedom.

Alien Invasions: Where Economic and Environmental Insanity Meet

“You’re traveling to another dimension. A dimension not only of sight and sound, but of mind. … Your next stop: the Twilight Zone.”

If the Onion covered the Twilight Zone, you’d end up with the sort of actual headlines we’re seeing today.

Consider the first headline, from Time“Paul Krugman: An Alien Invasion Could Fix the Economy.” What Krugman said was this: “If we discovered that space aliens were planning to attack, and we needed a massive build-up to counter the space alien threat, and inflation and budget deficits took secondary place to that, this slump would be over in 18 months.” He actually referenced the Twilight Zone.

And thus Krugman, a Nobel-winning economist, commits the simplest of economic fallacies, what Bastiat in 1850 called the broken-window fallacy, a type of the error of accounting for the seen but not the unseen.

The next headline comes from the land of environmental nuttiness, from the Guardian“Aliens may destroy humanity to protect other civilisations, say scientists: Rising greenhouse emissions could tip off aliens that we are a rapidly expanding threat, warns a report.” (For context, read the report from NetworkWorld.)

For any consistent leftist, this creates a paradox of unprecedented proportions. For clearly the solution is to expand CO2 production as rapidly as possible, so as to exacerbate global warming and incite an alien invasion, so that we can “stimulate” the economy and reelect Barack “The Chosen One” Obama in 2012.

(Hat tip to Aaron Bilger for blending the two stories.)

The Folly of ‘Buy Local’ Campaigns

Grand Junction’s Business Times quotes my dad Linn in an article today exploring a “buy local” campaign.

The article by Mike Moran cites the May 27 Free Press column by my dad and me on the topic and also summarizes our review of Bastiat.

My dad told the paper, “When you start ‘buying locally’ and not buying the best for the lowest cost, the allocation of resources gets distorted.” Specifically, the article goes on to review, spending more for the same product made locally makes the purchaser poorer and deprives other local businesses of the residual.

Moroever, Moran reviews, different “buy local” campaigns begin to compete for business. Certain Grand Junction businesses may benefit from a “buy local” campaign within the city, for example, but other businesses may lose if customers elsewhere also “buy local.” The result is that people in various communities spend a lot of time and energy depriving their neighbors of business. Meanwhile, consumers foolish enough to play along get hammered with higher prices.

Now, sometimes buying locally makes sense. For example, due to the soil, climate, and large river, the Grand Valley grows excellent peaches, grapes, and other fruit. Thus, it can indeed make sense to buy those products locally, especially considering the reduced transportation costs. It also makes sense for Grand Valley producers to export their products elsewhere, such as Denver markets. Yet, somehow, the “buy local” crowd in Junction doesn’t complain when Denver residents purchase those items from across the pass.

Many types of services cannot be provided at a distance. For example, my dad used to manage properties for a living, a job that requires extensive on-site labor. That’s simply not the sort of job a person can hire done by somebody living at a distance. But other sorts of services can be purchased at a distance; for example, one of my friends once worked at a national hotel calling center out of Grand Junction.

An interesting exercise would be to figure out how many businesses in Grand Junction export goods or services to other cities, states, and countries, and how many Grand Junction businesses depend on spending by travelers. Yet the hypocrites preaching “buy local” hardly complain about locals selling their goods or services elsewhere or doing businesses with people from out of town.

The basis of trade is comparative advantage. Different people and different regions should make what they’re good at, and exchange their produce for the goods and services others are relatively good at providing. The only thing the consumer should worry about is finding the best products at the best prices.

What’s the Real Price Inflation?

Recently economist Bruce Yandle wrote, “Inflation doubled from 1.1% in the fourth quarter to 2.2% in the first quarter, but that’s when they take out food and energy prices. For real people, inflation is 3.8% (including food and energy prices).” (We can appease the Austrians by distinguishing price inflation from monetary inflation.)

But I wonder if even that figure is wildly understated for at least some consumers. Consider some examples from my local grocery store:

* I noticed that the same package of sausage dropped in size from 16 to 14 ounces, a 14 percent price increase.

* Milk has gone from $1.99 per gallon to $2.69, a 35 percent increase. June 1 Update: I notice that milk is now on sale for $2.29, so a 15 percent increase.

* Whereas a package of cream cheese used to go on sale for $1 per package, the new sale price is $1.25, a 25 percent increase.

* I’ve been able to find fewer good markdown deals lately, which I take to be a combination of more people looking for them and grocers fighting tighter margins. A non-markdown item easily can cost double.

The wealthy, who already spend a ton of money on food, easily can reduce their spending with marginal shopping changes. But I suspect that, for lower-income shoppers, the real pain of inflation is considerably higher than the official figures indicate. These are also the people probably last in line for wage hikes or even getting hired.

And, according to one source, the April rate is 3.16 percent.

Why Spending More for Local Goods Harms the Economy

The following article by Linn and Ari Armstrong originally was published May 27 by Grand Junction Free Press under the title, “Channel 11 piece peddles economic nonsense.” Stay tuned for a related update about the views of Denver mayoral hopeful Michael Hancock.

If Bernie Lange had taken to the airwaves to promote therapeutic magnetic underwear or report alien anal probes, he rightly would have been laughed off the station. But apparently peddling economic nonsense fits perfectly well with the editorial policies over at Channel 11 News, the local NBC affiliate.

Last week the station broadcast the segment “Made In America,” a silly editorial masquerading as news that falsely argues buying overpriced American products creates jobs. Spending less for the same products made overseas, Lange intones sinisterly, costs Americans not only jobs but “billions in lost dollars.” That’s due to “the multipliers,” you see.

Thankfully, French economist Frédéric Bastiat* exposed Lange’s brand of foolishness way back in 1845 in his “Candlemakers’ petition.” To update the example, consider an obvious way to create jobs galore for manufacturers of light bulbs and the electricity required to run them. Simply block out all sunlight from your home. Board up all the windows. Think of all the American jobs we’d create if we all followed that one simple step. Say no to extraterrestrial sunlight!

Or consider the blight of foreign-made bananas and coffee. Scandalously, Americans tend to buy both those products from Central and South America. Think of all the American jobs we could create if we bought those goods only from U.S. suppliers, or better yet Colorado suppliers.

Impossible, you say? If you check out the web page of Denver Botanic Gardens, you will discover the center currently grows bananas, coffee, and chocolate right here in Colorado (as one of our friends pointed out). No doubt we could grow all those things locally if farmers spent enough on greenhouses and heaters.

Sure, the products would cost more, but just think of “the multipliers!” We could add billions upon billions of dollars to our economy just by spending more on the goods we consume every day. Indeed, by Lange’s logic, the more we spend, the more we prosper!

Clearly there’s something wrong with Lange’s reasoning. To get a better idea of the problem, consider Bastiat’s wisdom about the seen and the unseen. Bastiat writes, “The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

What Lange sees are the manufacturing jobs lost. What Lange ignores are the exporting jobs created and the additional wealth made possible by trade.

Lange sees that spending more money on American-made products would contribute to the paychecks of American workers. Lange ignores the fact that spending more money on the same goods would deprive other businesses of those dollars. If you spend more money on toys and household items, you have less to spend with the local fruit grower or massage therapist.

Let’s get back to basics. Why should we trade at all? Why shouldn’t each individual produce everything he needs, all by himself? The answer should be obvious: everyone would become horrifically poor, and only a tiny fraction of today’s population would manage to survive at all. Just imagine making all your own clothes, growing all your own food, building your own shelter, and acting as your own dentist.

By trading, we benefit from other people’s skills, expertise, accumulated machinery, and natural advantages. Why does Lange think it’s any different when we trade with people in other towns, other states, or other nations?

China features lots of cheap labor. We would be fools not to take advantage of that. America, on the other hand, features lots of complex machinery and other capital goods made possible by industrialization and relative economic liberty. That’s why (as the CIA reports) per capita product in China is around $7,400 annually, whereas in the United Statesit’s $47,400.

If we stop buying stuff that China’s relatively good at making, that means we have to make stuff that we’re relatively bad at making. Such a policy is self-destructive. Buying cheap goods from China and elsewhere allows American workers to specialize on the things they make best.

Of course, it is worth looking into artificial reasons why some American companies move overseas, including high tax rates and business-crushing union policies. We should also explore the reasons for continued high domestic unemployment, particularly the Obama administration’s policies of blowing out the deficit and meddling in the economy. But let’s fix the underlying problems, not succumb to economic fantasies.

We doubt very seriously that Bernie Lange or anyone else at Channel 11 makes much of an effort to buy only American-made goods. And they’d be foolish to do so. Trade is all about specialization according to one’s strengths. We hope, therefore, that Channel 11 sticks to reporting the news and leaves the economic commentary to people like Bastiat.

* Note: I was paid a modest sum to help run Liberty In the Books, which has reviewed select works of Bastiat.

***

Elisheva Hannah Levin commented June 2, 2011 at 8:35 AM
I agree, should the local goods be identical to those from elsewhere. After all, I enjoy coffee as much as most Americans do. My caveat, is that often locally produced food is fresher and/or is produced in ways that make it tastier than mass produced food that is shipped in. And in many cases, such as the one of corn-fed beef in CAFO’s, the real cost is obscured because the federal government subsidizes the production of the corn heavily, and the cost to defend oil sources (need for transportation of feed and of product) is never factored in. Since this makes the American food supply chain an artificial economy, most people do not really know what the true cost of “cheap” food is, and how they are paying for it.
Sadly, although the term “free market” should be a redundancy, the understanding of the term “market” is so poor for most consumers, that we have to say it. Free markets, for all goods, across all boundaries produces a vital economy.

Freaky Unintended Consequences

I’m a fan of the Freakonomics books, though I don’t always agree with them. (I’ve written about them a couple times before.) The documentaryof the same name includes some material not found in the books.

I enjoyed this line: “You can teach a kid just as much at a grocery store as you can at a museum, maybe more.”

But perhaps the most poignant new story from the film is of Steven Levitt’s experiences potty-training his daughter. As he relates the story, his wife for months had trouble getting their daughter to use the toilet. So he figured that, as an economist, surely he could come up with an incentive structure to encourage potty training.

So Levitt decided to offer his daughter a bag of M&Ms if she’d use the potty. Immediately she did so. And for a couple of days, she consistently used the potty in exchange for M&Ms.

But on about the third day, Levitt’s daughter said she had to use the potty, and she went a very small amount in exchange for the M&Ms. She immediately said she needed to go again, so she went a small amount for another bag of M&Ms. Levitt points out that his incentive structure had encouraged his daughter, in three short days, to develop excellent bladder control. What it had not done is accomplish his purpose of getting her to use the potty normally.

The moral of the story? If a genius-level economist can screw up the incentives to potty train his daughter, why do so many people think that politicians and unelected bureaucrats can centrally control vast swaths of our economy?

Review Questions for Andrew Bernstein’s Capitalism Unbound

This set of review questions is part of the Liberty In the Books program, a monthly discussion group. These questions cover Andrew Bernstein’sCapitalism Unbound.

Reading I: Through Page 60

1. How does Bernstein distinguish today’s American economy from laissez-faire capitalism? (Page x)

2. How did American colonists oppose British economic controls prior to the revolution? (Pages 2-5)

3. In what ways did the U.S. Constitution protect individual rights? (Pages 6-8)

4. In what ways does capitalism protect economic liberty? (Pages 9-10)

5. What is statism, and what are some key historical examples? (Pages 10-14)

6. What is the relationship of “human rights” and “civil rights” to individual rights? (Pages 14-15)

7. What fantasy have enemies of capitalism promoted regarding living conditions before the Industrial Revolution? (Pages 19-20)

8. What were the actual economic conditions of pre-industrial Europe? (Pages 20-22)

9. What were the special problems regarding sanitation and house fires in pre-industrial Europe? (Pages 22-24)

10. What was Thomas Malthus’s theory of population? Under what conditions is he right, and when is he wrong? (Pages 24-26)

11. What is the relationship between intellectual freedom and material prosperity? (Pages 26-28)

12. Who are some of the heroes of the Scottish Enlightenment, and what were their accomplishments? (Pages 29-34)

13. What was the impact of the work of James Watt and Matthew Boulton in the clothing industry? (Pages 34-35)

14. What were the major industrial advances in the fields of metals, agriculture, and transportation during the early industrial era? (Pages 35-37)

15. How do people improve their material conditions, and how did the industrial revolution illustrate this? (Pages 38-41)

16. What is the connection between free minds and free markets? (Pages 41-42)

17. What were the economic impacts of the Northern Securities Company, what was the response by the federal government, and how did this response mark a turning point in American history? (Page 41)

18. What were the advances in communications, construction, technology, and transportation in 19th Century America? (Pages 44-49)

19. What were Andrew Carnegie’s achievements in transportation and steel production? (Pages 49-51)

20. What were John Rockefeller’s achievements in oil production? (Pages 51-52)

21. Were American industrialists “Robber Barons?” Why have they been described as such? (Pages 53-57)

22. Why does Bernstein write, “freedom is fundamentally freedom of the mind?” (Pages 57-59)

23. Why, in Bernstein’s view, has capitalism so often been denounced despite its profound benefits? (Pages 59-60)

Reading II: Pages 63 to 131

1. Why do so many intellectuals denounce capitalism? (Pages 63-66)

2. What is the connection between altruism and collectivism? (Pages 64-68)

3. Why does a welfare-state mixed economy dominate Europe and America? (Pages 68-70)

4. What does selfishness mean? (Pages 71-72)

5. What is a value? What is a sacrifice? (Pages 72-74)

6. How can values be objective? (Pages 74-77)

7. What is the relationship between reason and survival? (Pages 78-80)

8. Why is productiveness a virtue? (Pages 80-82)

9. Why is “cynical exploitativeness” not in one’s rational self-interests? (Pages 82-84)

10. How is rational self-interest necessary for benevolent goodwill? How does self-sacrifice undercut goodwill? (Pages 85-90)

11. How does capitalism protect one’s right to life? (Pages 91-93)

12. What is socialism? (Pages 97-98)

13. How did the West prop up socialist systems in the 20th Century? (Pages 99-100)

14. What were the results of 20th Century socialism? (Pages 98-102)

15. Does socialism allow a rationally planned economy? (Pages 103-106)

16. What is a coercive monopoly, and how do such monopolies violate individual rights? (Pages 107-110)

17. Can unions exist under capitalism? On a free market, what are unions prohibited from doing? (Pages 110-115)

18. What is the relationship between unions and employment? (Pages 110-115)

19. What are the harms of inflation? (Pages 115-116)

20. What caused and prolonged the Great Depression? (Pages 117-123)

21. What caused the modern housing bust? (Pages 123-130)

Liberty In the Books Web Page

I’ve finished the Liberty In the Books web page (for now). Seehttp://tinyurl.com/libertybooks

The readings cover basic economics, health policy, the Great Depression, the housing bust, and antitrust. I’ll continue to add new review questions as the Denver group progresses.

I hope that the web page encourages others around the country to start similar reading groups. I also hope the review questions are useful for independent study. So tell your friends!

Review Questions for D. T. Armentano’s Antitrust: The Case for Repeal

This set of review questions is part of the Liberty In the Books program, a monthly discussion group. These questions cover Dominick T. Armentano’sAntitrust: The Case for Repeal (Revised Second Edition).

Reading I: Through Page 50

1. What have been the basic results of antitrust enforcement, in Armentano’s view? (Page xi)

2. What does “rent-seeking” mean, and how does it apply to antitrust? (Page xi)

3. What is the correct understanding of “competition,” what is “pure competition,” and how does this apply to antirust? (Page xii)

4. What is the meaning of “economies of scale,” and what is the relevance to antitrust? (Page xiii)

5. What are the basic aims of antitrust? (Page xiii)

6. What were the general trends in antitrust enforcement in the 1950s and ’60s, the 1970s and ’80s, and the 1990s? (Pages xiii-xvi)

7. What were the antitrust-related complaints against Microsoft? (Pages 1-2)

8. What does the term “creative destruction” mean? (Page 4)

9. What are “network effects,” and do they justify antitrust action? (Pages 4-5)

10. What is “path dependence,” does it “lock in… inferior technology,” and does it justify antitrust action? (Pages 5-6)

11. Did Microsoft unfairly bundle its web browser with its operating system? How does this complaint look in 2010? (Pages 6-8)

12. What role do exclusive contracts play on an open market, and do they ever justify antitrust action? (Pages 8-9)

13. What was the Lorain Journal case, did it justify antitrust action, and was the Microsoft case comparable to it? (Pages 9-10)

14. What does the Microsoft case illustrate about the nature of antitrust enforcement? (Pages 10-12)

15. What is the “barriers-to-entry doctrine,” and what has been the actual behavior of firms punished under antitrust? (Pages 13-14)

16. What antitrust enforcement actions did IBM face? (Pages 14-15)

17. What was the trend of the data-processing industry in the mid-20th Century? (Page 15)

18. Are profits higher in concentrated industries in the short and long term? Why? (Page 16)

19. What is the actual cause of “monopoly power?” (Page 18)

20. What has antitrust done to business consolidations, and what has been the economic effect? (Page 18)

21. What is the problem with regulators and courts attempting to discover social benefits? (Page 19)

22. Are antitrust laws consistent with rights of property, association, and due process? (Page 19)

23. What lesson does Armentano find in the case of airline deregulation? (Pages 20-21)

24. Contrast the “public interest” with the “special-interest” theories of antitrust policy. (Pages 21-25)

25. What is the theory of “concentrated benefits, dispersed costs,” and how does this apply to antitrust? (Page 24)

26. How does antitrust constitute an attempt to centrally plan the economy? (Pages 25-26)

27. What does the AT&T case reveal about antitrust policy? (Pages 26-29)

28. What is “allocative inefficiency” and “technical inefficiency” in standard antitrust doctrine? (Pages 31-33)

29. What real-world economic activity does the theory of “pure and perfect competition” exclude? (Pages 33-35)

30. Are “free-market monopolies” able to restrict production and raise prices? (Pages 35-39)

31. Contrast the popular account of Standard Oil with the factual history of the company’s performance. (Pages 40-43)

32. Can studies of profitability justify antitrust enforcement? (Pages 43-44)

33. In Armentano’s view, should antitrust be used even against legally enforced monopolies? (Pages 45-46)

34. Why does Armentano push for the complete repeal of antitrust, rather than only administrative reforms?

35. What is Murray Rothbard’s critique of standard monopoly theory? (Pages 47-50)

Reading II: Page 51 to 106

1. What is the meaning of a “non-legal barrier to entry?” (Page 51)

2. What is “product differentiation,” and what are some examples of it? (Page 51-52)

3. What are the “revealed preferences of consumers,” and what do they have to do with antitrust? (Page 52, 54)

4. What is the difference between “pure competition” and the “actual competitive process,” according to Armentano? (Page 53)

5. What is wrong with the assumption of “perfect information?” (Page 55)

6. Was there a monopoly in ready-to-eat cereals in the 1970s? (Page 55, 57)

7. Does risk of failure by potential new competitors, economies of scale for existing competitors, or efficiency of existing competitors justify antitrust action? (Page 56)

8. Can advertising constitute an unfair barrier to entry? (Pages 57-60)

9. Is it true that “more competitors are always better than less?” (Page 60)

10. Did the Aluminum Company of America constitute an unfair or inefficient monopoly? (Pages 60-63)

11. Is the ability of an established, successful firm to raise capital, offer innovative products, or lower prices unfair or harmful to consumers? (Pages 63-67)

12. What is “price discrimination,” what are some examples from every-day life, and does it justify antitrust action? (Pages 69-73)

13. What are “tying agreements,” and do they justify antitrust action? (Pages 73-76)

14. What are “resale price-maintenance agreements,” are they fair, and do they justify antitrust action? How did the U.S. government once forcibly limit price competition? (Pages 76-77) (Note: The Supreme Court seems to have subsequently limited restrictions on pricing agreements; see http://en.wikipedia.org/wiki/ Leegin_Creative_Leather_Products,_Inc._v._PSKS,_Inc.)

15. What are “vertical mergers,” and should they ever be legally restricted? What the government justified in intervening in Brown Shoe’s acquisition of Kinney retailers? (Pages 77-79)

16. What are the different sorts of “horizontal agreements,” and how are they treated under antitrust? (Page 81)

17. Is the “rule of reason” approach in antitrust in fact reasonable? (Page 82)

18. Are government regulators able to accurately define the “relevant market” for alleged monopolistic practices? (Pages 83-85)

19. Is there any clear relationship between market concentration and “economic power to reduce market output and raise market prices?” (Pages 85-86)

20. What is the problem with attempting to tie alleged monopolistic practices to output restriction? (Pages 86-87)

21. Can government regulators accurately determine “social benefits” of mergers? How does the Staples case illustrate the problems with intervention? (Pages 87-90)

22. Can “horizontal price coordination” create market efficiencies? Should it be outlawed? (Pages 90-94)

23. How did the federal government forcibly restrict competition in the trucking industry through the Interstate Commerce Commission? (Page 93)

24. Are attempts by firms to reduce output and raise prices generally effective? What is the appropriate remedy for such attempts, according to Armentano? (Pages 94-95)

25. Did the Addyston Pipe Case of the 1890s demonstrate the need for antitrust laws? (Pages 95-97)

26. How do “antitrust laws stand in direct violation of civil liberties, individual rights, and due process of law?” (Pages 99-106)

Review Questions for Henry Hazlitt’s Economics In One Lesson

This set of review questions is part of the Liberty In the Books program, a monthly discussion group. The questions cover Henry Hazlitt’s classicEconomics In One Lesson, 1979 edition.

Reading I: Through Page 70, Chapter IX: Disbanding Troops
and Bureaucrats

** Preface **

1. What is Hazlitt’s purpose in writing this book?

2. What is Hazlitt’s view of novelty in economic theory?

3. Hazlitt addresses fallacies in their popular form, not their academic form. Can Hazlitt do this and be fair to the theories in
their more sophisticated forms? What does Hazlitt’s view say about the relationship between academics and popular culture?

4. In his preface, Hazlitt discusses his use of statistics. Likewise, in Chapter VII, he writes [page 54], “Statistics and history are
useless in economics unless accompanied by a basic deductive understanding of the facts.” What is Hazlitt’s basic view of the use and status of statistics?

** Chapter I: The Lesson **

5. Why is economics especially beset by fallacies?

6. What does Hazlitt mean by the “special pleading of selfish interests,” and what is the result of such pleading?

7. Is it true that “certain public policies would in the long run benefit everybody?”

8. What is Hazlitt’s “One Lesson?”

9. Is Hazlitt’s “One Lesson” really adequate for understanding the essence of economics?

10. What are modern examples of “brilliant economists, who deprecate saving and recommend squandering on an national scale as the way of economic salvation?”

11. Hazlitt warns against the error “of looking at the consequences only for a particular group to the neglect of other groups.” Is it possible to justly “balance” the interests of groups? Does Hazlitt’s view depend on a utilitarian framework?

12. Hazlitt also warns against “a certain callousness toward the fate of groups that were immediately hurt by policies.” What does this suggest in terms of transitioning from political controls to free markets?

13. While demagogues get by with snappy “half-truths,” good economics “often requires a long, complicated, and dull chain of reasoning.” Does this ultimately imply a pessimistic view? Is there a solution to the problem?

** Chapter II: The Broken Window **

14. What are some modern examples of the “broken window” fallacy at work?

15. What is the problem of the seen and the unseen? (See also Chapter V.)

** Chapter III: The Blessings of Destruction **

16. Is there such a thing as “accumulated” or “pent-up” demand?

17. What is the difference, in economic terms, between need and demand?

18. What is the “money illusion” or the “monetary veil,” and how does this relate to wage levels?

19. What does Hazlitt mean when he says that supply equals demand?

20. What is the “optimal rate of replacement” of capital goods mean?

** Chapter IV: Public Works Mean Taxes **

21. Where does political spending come from?

22. What public works projects does Hazlitt consider “essential?” (See also Chapter IX.) Without entering a long debate over the matter, what are the other basic schools of thought on this issue?

** Chapter V: Taxes Discourage Production **

23. What is the effect of taxes on incentives?

** Credit Diverts Production **

24. What is credit?

25. What is the result of politically favoring one party with credit?

26. Hazlitt criticizes the view that some credit risks are “too great for private industry.” Is his criticism always warranted?

27. Hazlitt uses the example of “government-guaranteed home mortgages.” How do his comments line up with recent events?

28. Hazlitt leaves open the possibility of government loans “under certain emergency circumstances.” Is he right about this, and, if so, what are those circumstances?

** Chapter VII: The Curse of Machinery **

29. What are some of the major examples Hazlitt uses of machinery displacing certain workers?

30. Is “industrial overproduction” a real problem?

31. Is there an upper limit to the number of jobs available?

32. What is the long-term impact of technological advances on employment? On standard of living?

** Chapter VIII: Spread-The-Work Schemes **

33. What are some examples of make-work schemes from Hazlitt and modern policy?

34. Is there any context in which make-work is appropriate?

** Chapter IX: Disbanding Troops and Bureaucrats **

35. What is the cost of providing employment to soldiers and bureaucrats?

Reading II: Page 71 (Chapter X: The Fetish of Full Employment) to Page 139 (Chapter XIX: Minimum Wage Laws)

** Chapter X: The Fetish of Full Employment **

1. Hazlitt writes (page 71), “The whole economic progress of mankind has consisted of getting more production with the same labor.” Name some more recent examples.

2. What is the proper relationship between employment and production (page 71)?

3. Hazlitt discusses the erroneous “assumption that there is only a fixed amount of work to be done” (page 72). What are some modern examples of this fallacy?

4. In what context is reducing employment a good thing (page 73)?

** Chapter XI: Who’s “Protected” By Tariffs? **

5. What are some modern examples of tariffs? Hint:
http://en.wikipedia.org/wiki/2002_United_States_steel_tariff
http://www.msnbc.msn.com/id/32808731/

6. What is comparative advantage?

7. What are the effects of eliminating a protective tariff (pages 76-82)?

** Chapter XII: The Drive for Exports **

8. What does Hazlitt mean when he writes, “In the long run imports and exports must equal each other” (page 85)?

9. Advanced bonus question: How would Hazlitt’s analysis apply in the context of an international gold standard rather than national fiat currencies?

10. Should politicians “stimulate” foreign exports via subsidies?

** Chapter XIII: “Parity” Prices **

11. What are “parity prices?”

12. Why is it economically nonsensical and harmful to forcibly set prices at “parity?”

** Chapter XIV: Saving the X Industry **

13. What are the ways that politicians attempt to save Industry X (pages 98-100)?

** Chapter XV: How the Price System Works **

14. What does “production for use” mean (page 103)?

15. Describe “the problem of alternative applications of labor and capital” (pages 104-105)?

16. What is supply?

17. What id demand?

18. How does the price system address the problem of alternative uses of time and labor (pages 105-107)?

19. What is the relationship between price and the cost of production (page 106)?

20. What is the consequence of forcibly reducing the scarcity of some good (pages 107-109)?

** Chapter XVI: “Stabilizing” Commodities **

21. Aside from direct price controls, how have politicians tried to “stabilize” prices (pages 111-113)?

22. Are speculators economically damaging or productive (pages 111-112)?

23. What are the effects of forcibly “stabilizing” prices on speculators? On short and long term prices? On production? (Pages
112-115.)

** Chapter XVII: Government Price-Fixing **

24. What are the economic consequences of forcing prices below market levels (pages 119-120)?

25. What are the social consequences of price controls and rationing (pages 123-124)?

26. What are the real causes of price increases? What are the appropriate responses? (Pages 124-126.)

** Chapter XVIII: What Rent Control Does **

27. What are the effects of rent control?

** Chapter XIX: Minimum Wage Laws **

Background reading: Surprise! Youth employment rate hits record low

28. What determines the maximum wage an employer will pay to an employee (page 135)?

29. What are the consequences of subsidizing unemployment (page 137)?

30. What are the real causes of rising real wages (page 139)?

Reading III: Page 140 to the end

** Chapter XX: Do Unions Really Raise Wages? **

1. What is the source of the delusion that “labor unions can substantially raise real wages over the long run for the whole working population?” (Page 140)

2. Why do employers choose to pay workers more? (Pages 140-141)

3. What legitimate function does Hazlitt see unions serving? (Pages 140-141, 149)

4. What is the mark of a legitimate versus an illegitimate strike? (Pages 142-143)

5. How does forcibly increasing union wages hurt other workers and consumers? (Page 143-146)

6. What is the impact of unemployment welfare? (Pages 145-146)

7. What are the long-range impacts on investment of forced wage hikes? (Pages 147-148)

8. Besides forcing up wages, what other harmful controls have unions advocated? (Page 150)

** Chapter XXI: “Enough to Buy Back the Product” **

9. What is the “buy back the product” doctrine? (Page 153)

10. What is wrong with that doctrine? (Pages 154-155, 158)

11. What are equilibrium wages and prices? What are the consequences of forcing wages or prices up or down? (Page 158)

** Chapter XXII: The Function of Profits **

12. A business can make profits or losses. What is the consequence of forcibly limiting profits? (Pages 160-161)

13. What are the long-term effects of high profits in a particular industry? How do profit and loss function in a free economy? (Page 161)

14. How are profits typically achieved? (Pages 162-163)

** Chapter XXIII: The Mirage of Inflation **

15. What is the difference between wealth and money? (Pages 164-165)

16. What are the various justifications people give for inflationary policy? (Page 165-166, 171)

17. What is the basic process by which the money supply is inflated? (Pages 167-169)

18. What does inflation do to the “structure of production?” (Page 170)

19. In what sense can inflation counteract problems of above-market wage rates? (Page 172)

20. Why is inflation so popular among many government officials? (Pages 172-174)

21. What is the worst-case outcome of inflation? (Page 176)

** Chapter XXIV: The Assault on Saving **

22. What is the difference between consumer goods and capital goods, and how is savings related? (Pages 177-179)

23. What is the difference between saving and withholding spending? What causes each? (Pages 180-181)

24. What harmonizes savings and investment on a free market? (Pages 184-185)

25. What is the result of keeping interest rates artificially low? (Pages 185-187)

** Chapter XXV: The Lesson Restated **

26. Who is the Forgotten Man? (Pages 194-195)

27. How is the division of labor related to “the insane doctrine of wealth through scarcity?” (Pages 195-199)

** Chapter XXVI: The Lesson After Thirty Years? **

28. Has the lesson been learned? Will it be learned? (See especially pages 204, 208-209.)

Review Questions for Thomas Sowell’s Housing Boom and Bust

Liberty In the Books reviewed Thomas Sowell’s The Housing Boom and Bust. These are the review questions (for the original edition; there has since been a revised edition).

Reading Section I: Through Chapter 3

1. What were the general real-estate trends from 2000 to 2005?

2. How does the Federal Reserve influence mortgage trends?

3. What were the land use restrictions of the 1970s, and what were their effects?

4. In Sowell’s view, what was the actual nature of the “affordable housing crisis,” and what was the political response?

5. What were the “creative” ways to finance mortgages, and how were they influenced by federal policy?

6. What is the history and impact of the Community Reinvestment Act?

7. What were the impacts on the housing market of Freddie and Fannie, HUD, and the FHA?

8. Who issued warnings about a housing bubble? Who ignored those warnings?

9. What was the political response to the housing bust? “How’s that working for you?”

Reading Section II: Chapters 4-5

1. What does Sowell mean by a “vision?” (Page 90)

2. What are the various aspects of the housing “vision” that created the housing boom and bust? (Pages 90, 95)

3. How does the “vision” of some relate to the narrow interest of others? (Page 91)

4. What was the Millennial Housing Commission and what where its findings and errors? (Page 92)

5. What was the brief history of political interference in housing in the 19th and 20th Centuries? (Pages 92-94)

6. What were the various motivations behind the crusade against alleged lending discrimination? (Pages 95-97)

7. Besides income, what are the other relevant factors related to mortgage lending? (Pages 98-100, 104)

8. How did government agencies and media outlets sensationalize lending statistics? (Pages 103)

9. In what ways did the federal government “encourage” banks to make risky loans? (Pages 105-107)

10. What impact did political interference in housing have on minorities? (Page 108)

11. In a political context, what is the meaning of terms like “community,” the market,” and “social?” (Pages 110, 113-114)

12. How are costs weighed in the market and in the political sphere? (Pages 114-116, 119-121)

13. Describe the background and implementation of Section 8 Housing. (Pages 123)

14. Compare the comments of George W. Bush and Hillary Clinton before and after the housing bust. (Pages 95, 123)

15. What problem did the FDIC seek to address, and how was that problem caused? (Pages 124-125)

16. Compare the administrations of Hoover, FDR, and Obama. (Pages 131-132, 141-145)

17. What is the effect on the economy and on politics of politically-funded jobs? (Pages 133-134)

18. What were the major interventions of the Great Depression that Sowell reviews? (Pages 135-136)

19. In Sowell’s view, why did the Great Depression come to an end? (Pages 137-139)

20. What is the significance of the comment, “You never want a serious crisis to go to waste”? (Page 143)

21. BONUS QUESTION involving optional reading: Compare and contrast the views of Sowell and Robert Higgs (http://bit.ly/oQe23 ) regarding the relationship of WWII and economic recovery.

Review Questions for Amity Shlaes’s The Forgotten Man

Amity Shlaes’s book The Forgotten Man is an excellent book for a reading club. This was the first book we covered in Liberty In the Books (back when my questions weren’t very detailed). We split the reading into four monthly meetings, skipping some of the material. See also my detailedreview of the book.

Shlaes Reading I: Introduction, Chapter 1, Chapter 3

1. Who is the “forgotten man?”

2. Why is Hoover upheld by some as a an alleged champion of “laissez faire?”

3. What are some of the differences between Hoover versus Coolidge and Mellon?

4. What were the major federal policies of 1929, and what were their effects?

Shlaes Reading II: Chapters 4-6

1. What were the general Federal Reserve policies of the early 1930s, and what were their effects?

2. What was the intellectual climate during the Hoover/FDR era?

3. What was tax policy — and unemployment — by the end of Hoover’s term?

4. What were the themes of FDR’s campaign rhetoric?

5. What were the powers and consequences of the NRA and AAA?

6. What were the general trends in FDR’s monetary policy?

7. What was the basic nature of the struggle between Willkie and the TVA?

Shlaes Reading III: Chapters 7-9

[Sorry; no questions available.]

Shlaes Reading IV: Chapters 11, 13, 15, and Afterword

1. In what ways did the Federal government go after businesses and wealthy citizens?

2. What the were labor controls of the later 1930s, and what were their effects?

3. What was FDR’s response to the Supreme Court’s antipathy to some of his programs, and what was the result?

4. How did the fight between the TVA and private utilities play out?

5. What were the major themes of the 1940 election?

6. What is Shlaes’s take on the “recovery” of FDR and the results of his federal spending programs?