One Economy to Rule Them All

IT’S IMPOSSIBLE TO OVERSTATE DEFLATIONARY PRESSURES:

When the Robots Take Your Job: Some Intuitions From Recent Models of Automation (MATT CLANCY, JUN 04, 2024, What’s New Under the Sun)

Economists typically think about three major inputs to making all the stuff in the economy: ideas, labor (us) and capital (machines, buildings, tools – all the non-labor stuff that doesn’t get used up in production).

As the cost of labor and of a main component of capital (energy costs) trend towards zero we can not grasp how much cheaper wealth creation is going to get.

THINGS HAVE NEVER BEEN EASIER:

Here’s how long it takes workers to become 401(k) millionaires: The number of people who crossed the seven-figure mark hit an all-time high in the first quarter, though retirement savings surged across the board. (Michelle Singletary, May 31, 2024, Washington Post)

The millionaires have an average contribution rate of 17 percent.

Fidelity said record-high contribution levels and positive market conditions pushed average account balances to their highest levels since the fourth quarter of 2021.

In the most recent quarter, total average 401(k) savings rates reached a record high of 14.2 percent, driven by employee and employer 401(k) contributions.

This savings rate is a milestone. It’s the closest it has ever been to Fidelity’s recommendation that workers contribute at least 15 percent of their gross income to their workplace plan. This could include a combination of their savings and a matching contribution from their employer.

“LAW OF THE HOUSE”

The History of Economics Embedded in English (Michael Ferber May 28, 2024, In Depth NH)

Let’s start with “economics” itself. When I was in school the girls all took “Home Economics.” That phrase struck me as odd at the time, and I explained it to myself as a set of skills for managing a home “economically” or frugally. I only learned much later that the phrase hearkened to oldest use of “economics,” which comes from a Greek word, oikonomia, which meant “management of the household.” In Homer the oikos is the entire estate or establishment, not just the house: buildings, family, clients, servants, slaves, animals, croplands, and pastures. In 18th-century English the sense of domestic management remained in use: one could still speak of a “private economy” or “an economy too sumptuous for one’s means.” In the 19th century John Ruskin, evoking the etymology to show how “economics” had drifted from its real purpose, wrote, “All true economy is ‘Law of the house’.” The phrase “political economy” appeared in the 18th century and since then the default sense of “economy” has come to be the organization of national or international goods and services, and “domestic” in this context now means “national.” So the girls in their Home Ec classes were going back to the root of the matter.

Several common words began as names of physical objects and then grew more abstract, a frequent semantic path for words of many kinds.  A “bank” was originally a “bench” (from the same root) on which money and ledgers were laid during a transaction.  A “budget” was originally a “pouch or bag,” from French bougette, from Latin bulga, meaning “leather sack.”  The Oxford English Dictionary reports that “The Chancellor of the Exchequer, in presenting his annual statement, was formerly said to open the budget.”  “Fiscal” comes from Latin fiscus, originally “basket,” then “purse,” then “state treasury.”  “Salary” derives from Latin salarium, or “money paid to Roman soldiers for the purchase of salt”; “salt” is sal.  It’s fun to imagine the primitive economy as carried out by opening bags or baskets on a bench and exchanging what is in them for salt.

As for “exchequer,” though we seldom use the word in America, it is related to “checkers” and “chess.”  The Old French word eschequier (“chess board),” named for the table cloth divided into squares (like “checkerboard” cloths today) with counters used for calculating sums, was used in the treasury or revenue office of the Norman kings of England.  “Chess,” by the way, is really the plural of “check,” which is what you say when you threaten your opponent’s king, because “check” actually means “king.”  It comes from the Persian word shah.  (The chesspiece “rook” is also Persian.)  “Checkmate” is shah mat, “the king is dead.”  But I digress.

WHEN MEANS MEET ENDS:

On the Efficiency and Morality of Free Markets (Donald J. Boudreaux, May 29, 2024, AIER)

The implication seems to be that at least some defenders — mostly economists — of free markets are interested in “economic efficiency for its own sake,” while thoughtful conservatives understand that well-rounded individuals in healthy societies pursue goals beyond “just the efficient.” Yet in fact, all classical liberals who endorse free markets also endorse, no less than do conservatives, the seeking of the good, the beautiful, and the true. And no serious economist who champions free markets has ever advocated efficiency for its own sake or at the expense of the good, the beautiful, and the true. The reason is simple: “efficiency for its own sake” is meaningless.

Efficiency describes a relationship between means and ends. Efficiency says nothing whatsoever about the contents of the ends. If you want to drive this morning from Philadelphia to New York in the shortest period of time, a well-functioning GPS navigator will show you the appropriate route, one that would likely include a long stretch on I-95. If, in fact, there’s no alternative route that you could drive that would get you to New York more quickly, then the route displayed by your GPS device is efficient given your goal. But if your goal is instead to take in some beautiful scenery along the way, subject to getting to New York before nightfall, then the most-efficient route will be one that keeps you off of I-95 and in your automobile for several hours more than you’d spend if you took the fastest route.

To act efficiently is simply to act in that way that best enables you to achieve your goal, whatever that goal might be.

The end of an economy is to create wealth and the free market is the most effective means we’ve found to do so. Redistribution of that wealth is a mere political question.

RETURN TO NORMALCY:

We can, and should, return to our nation’s economic ideals (Samuel Gregg, May 24, 2024, Washington Examiner)

Put simply: Key Founders believed that America’s future was to be one in which dynamic trade, entrepreneurial spiritedness and, commercial audacity would define society — not aristocratic priorities. The “republic” side of the equation was that these market freedoms would be grounded upon institutions and virtues derived from those same classical, religious, and Enlightenment sources: virtues that don’t just grease the wheels of commerce, but which, as Adam Smith wrote, are nothing less than “excellence, something uncommonly great and beautiful.”

Put another way: America isn’t meant to be a facsimile of Western European social democracy. America isn’t meant to be an outpost of Central European traditionalism. America isn’t meant to regard the federal government as its economic savior. America is meant to be something unique, something exceptional.

Today’s America is far removed from the civilization of ideas upon which it is built. Its polar opposites — populism, demagoguery — stalk the land. Our fiscal house is a shambles. Our economy is riddled with regulation, welfarism, bureaucracy, and cronyism. And those who Adam Smith called “men of system” have emerged across the political spectrum to demand even more power to direct that economy from the top-down. From left to right, interventionist hubris is in, and economic humility is out.

But we should not despair. Bad ideas are powerful, but good ideas are difficult to keep down.

AND THE LIVIN’ IS EASY:

Household Debt in Perspective: Delinquency rates are rising, signaling some stress—but overall, they remain historically low. (Fisher Investments, 05/16/2024)

On Tuesday, the New York Fed dropped its Q1 Household Debt and Credit Report—a gauge garnering tons of attention with inflation running high in recent years. Many presume rising living costs are forcing ever-more households deeper into unserviceable hock—a narrative that reemerged this week. But the data don’t support the harangue.

Liberalism just keeps failing upwards.

BY THEIR HATRED OF NEOLIBERALISM SHALL YOU KNOW THEM:

A Nobel Polemicist: a review of The Road to Freedom by Joseph Stiglitz (Samuel Gregg, 5/09/24, Law & Liberty)

At this point, I wondered how much Stiglitz has actually read of Hayek and Friedman. I know of no text where they called for rule-free and regulation-free markets. Significantly, there is just one reference in Stiglitz’s footnotes to something authored by Hayek.

Yet one need only open books like The Constitution of Liberty to find Hayek, for example, pointing out that “a functioning market economy presupposes certain activities on the part of the state.” In The Road to Serfdom, Hayek even says that the “wooden insistence on … the principles of laissez-faire” did immense harm to the market liberal cause. So much, then, for unfettered markets.

More generally, anyone who has read the corpus of Hayek’s work knows that he wrote extensively about the laws and legislation best fitted for societies that take justice and rule of law seriously. That is the whole point of Hayek’s mammoth Law, Legislation, and Liberty. Stiglitz himself concedes that books like The Road to Serfdom show that Hayek was “aware of externalities” and “the need for government intervention when there are externalities.” But how can Stiglitz square this concession with his declarations that Hayek was committed to “unfettered markets”? The answer is: he can’t.

In fact, the debate between free marketers and interventionists is not about whether there should be regulation. The argument is really about what is the best way to regulate markets.

Is it through a combination of macroeconomic policies, specific interventions into particular economic sectors, the application of wide-ranging regulatory codes to economic transactions, and ongoing wealth redistributions through large welfare states and progressive taxation? Or: are markets better regulated through protections of property rights, adherence to rule of law, contract enforcement, commonsense health and safety regulations, a basic safety net, stable money, and the dynamic competition that promotes consumer sovereignty over and against vested interests like established businesses and their political allies? This is a key dispute between dirigistes like Stiglitz and those who believe in markets, and Stiglitz’s presentation of the latter’s position is a caricature.

This, however, is dwarfed by Stiglitz’s astonishing claim that the “free and unfettered markets advocated by Hayek and Friedman and so many on the Right have set us on the road of fascism.” I find it hard to believe that Stiglitz does not know that fascist regimes have historically been characterized by widespread regulation, endless interventionism, and corporatism: in short, the opposite of free market economies.

Republican liberty is the impediment to the Left/Right vision.

ALL JOE HAD TO DO WAS NOT BE DONALD:

When the Left thought free trade meant peace (Alex Middleton, 5/10/24, The Critic)

The received wisdom, Palen suggests, is that the late-twentieth-century triumph of free-market thinking was a right-wing achievement, with its origins in the interwar decades. This consensus has cracked in the face of challenges from other, newer, equally formidable strands of right-wing anti-globalism. Put simply, the dominant economic cosmologies of our time have been defined by battles within conservatism.

Palen proposes to explode these myths. He says that things look very different if we go back to the 1840s, to Manchester Liberalism and to the political ideologies associated with Richard Cobden. With its overlapping commitments to free trade, peace and anti-imperialism, Cobdenism heralded a century and more of free-trade globalism being led — intellectually — by left-of-centre thinkers.

Socialists, communists and liberals were united by a conviction that free trade could, and would, promote democracy and justice. They also believed that it might produce, on the one hand, the end of war and, on the other, the collapse of the more pernicious imperial projects.

What the book basically wants to communicate is that the international peace movements active between the mid-nineteenth and the mid-twentieth centuries were deeply invested in the policy and philosophy of free trade.

AND THE LIVIN’ IS EASY:

Wealth of Younger Americans Is Historically High (Brendan Duke & Christian E. Weller, 4/24/24, Cap20)

Recent homebuyers move into their new condo.Recent homebuyers move into their new condo in Oceanside, New York, on May 4, 2023. (Getty/Newsday RM/Thomas A. Ferrara)
The data increasingly show that younger Americans are the winners of the strong economic recovery coming out of the pandemic, experiencing low unemployment rates and rapid wage growth. These labor market gains have also helped drive historic wealth growth for younger Americans.

New Center for American Progress analysis confirms this is also true of wealth: Recent Federal Reserve data show that the average wealth of households under 40 was $259,000 in the fourth quarter (Q4) of 2023, marking a 49 percent increase since the fourth quarter of 2019, even after adjusting for inflation. Importantly, these data likely reflect broad-based wealth growth among young people, as opposed to a small group of wealthy young people driving these gains.

No one has it harder than their father did.