Paul Krugman has gone too far this time: let’s re-train him as a cosmonaut

I admit it: I have never been a big fan of Paul Krugman. I do not care for his vulgar Keynesianism or his vulgar rhetoric. His humourless sanctimoniousness, his angry ad hominem attacks, his lack of courtesy and his cavalier attitude to the facts are not to my taste. 

All this said, I cannot deny that he plays a useful role in the economists’ ecosystem: everyone needs a bogeyman. His proposal in 2011 that we should solve the economic crisis by faking an alien space invasion was a hoot. But whereas sensible people had a laugh and took his proposal as the logical outcome of Keynesianism pushed ad absurdum, he really meant it. If he didn’t exist, we would have to make him up. 

However, his recent slurs against the Cato Institute are a step too far even by his standards. [Disclosure: I am an adjunct scholar at Cato.]

Were there any justice in this world, he would be drummed out of town. A harsher man than me would have him tarred and feathered. 

The proximate starting point in the story is a posting by David Glasner on his blog Uneasy Money on Friday, May 13. In this posting Glasner took a petulant swipe at Cato in general and against an unnamed senior Cato official (who was in fact Cato Vice President James A. Dorn) in particular. Let me quote from Glasner’s posting:

I have just posted a paper (“How ‘Natural’ Is the Government Monopoly over Money”) on SSRN. It’s a paper I wrote about 28 years ago, shortly after arriving in Washington to start working at the FTC, for a Cato Monetary Conference on Alternatives to [Government] Fiat Money.

Personal aside: The conference took place in February 1989. I was there and it was a very good conference. I also remember it because I had gotten married in Delray Beach a couple of days earlier and the conference interrupted my honeymoon. My mother gave me merry hell when I got home because I had only told her about my plans the evening before. But to continue with Glasner:

I was told that the conference papers would be published in a future edition of the Cato Journal. …

Unfortunately, my happy feelings about the experience were short-lived, being informed, not long after the conference by one of the conference organizers, that the original plans had been changed, so that my paper would not be published in the Cato Journal. 

That surprise was a bit annoying, but hardly devastating, because I simply assumed that what I had been told meant that I would just have to go through the tedious process of sending the paper out to be published in some economics journal. … So when I replied … that I would work on it some more before submitting it elsewhere for publication, I was totally unprepared for the response that was forthcoming: by accepting that four-figure honorarium for writing the paper for the Cato conference, I had relinquished to the Cato Institute all rights to the paper and that I was [not, sic] free to submit it to any publication or journal, and that Cato would take legal action against me and any publication that published the paper. …

Shocked at what had just happened I felt helpless and violated ..... Nor did I seek legal advice about challenging Cato’s conduct. I could have at least tried writing an article exposing how Cato – an institution whose “mission is to originate, disseminate, and increase understanding of public policies based on the principles of individual liberty, limited government, free markets, and peace” — was engaged in suppressing the original research that it had sponsored with no obvious justification.

After about 10 years passed, it occurred to me that the paper … would be worth updating ... Then, hoping that Cato might no longer care about the paper, I contacted the conference organizer … to inquire whether, after a lapse of 10 years, Cato still had objections to my submitting the paper for publication. The response I got was that, at least for the time being, Cato would not allow me to publish the paper, but might reconsider at some unspecified future time. At that point, I put the paper away, and forgot about it again, until I came across it recently, and decided that it was finally time to at least post it on the internet. If Cato wants to come after me for doing so, I guess they know how to find me.

Damning stuff, you might think – except that none of his claims about Cato are true. 

It is important to set the record right. I quote the subsequent emails/postings at a little length below to make sure that the record is set straight once and for all. 

Glasner’s posting was then picked up by Paul Krugman on Sunday May 15 in a charmless posting entitled “Orwell does Cato” in his New York Times column, “Conscience of a Liberal.” Let me quote Krugman’s original posting in full:

David Glasner has an interesting post about how the Cato Institute suppressed an old paper of his, refusing either to publish it or release it for publication elsewhere, not for a few months, but for decades. What Glasner may not know or recall is that Cato has a long-standing habit of trying to send inconvenient history down the memory hole, in ways that — I’m sorry to say — are more consequential than the suppression of his thoughts on fiat money.

You see, back in the 1990s Cato had a long-standing project titled the Project on Social Security Privatization. Then they discovered that the term polled badly, and renamed it The Project on Social Security Choice. OK. But they also tried to pretend that they had never used the term privatization, which was clearly a liberal smear — and they went so far as to edit old web pages and records of old conferences to eliminate the term “privatization”, as if it had never been used. This was, by the way, in concert with the Bush administration, which was similarly trying to bully reporters into abandoning the term (with a fair bit of success).

I still sometimes run into people suggesting that Cato is a relatively honest if misguided operation, unlike the obvious hackery of [the] Heritage [Foundation]. But it ain’t so, and never was.

The afternoon of that same day, Jim Dorn emailed Glasner to clarify what had actually happened. The core of Dorn’s email goes as follows:

If you remember, the reason your article from the 1989 conference was not included in the Fall 1989 CJ (vol. 9, no. 2) was because I had deliberately omitted several conference papers from the CJ b/c Kluwer was going to co-publish a book with the title “Alternatives to Government Fiat Money” and wanted me to differentiate it from the CJ conference issue with the same title.  So the intention was to use your paper in the book (I sent you a letter to that effect of which I have a copy).  Unfortunately, my many other duties at Cato at that time, plus my full-time teaching schedule, put the book project on the back burner.  I accept full responsibility for that delay.

I wrote to you on December 1, 1999, apologizing for the delay in the book project and explicitly stated: “If you wish to withdraw your paper from consideration and use it elsewhere, go ahead.”  I also stated in a separate email on December 1, 1999, that “if you revise your paper, at your own pace, then as soon as I receive it, I will consider it for use in the Cato Journal.  Also, I will reserve the right to use it in the book, if the CJ comes out first.”  … And in a separate reply to my offer, you wrote (Dec. 1, 1999): “Sounds reasonable.  I’ll have to dredge up a copy of the paper and look it over again, before I give you a definite yes or no.  I’ll try to do that by Monday at the latest.”  As far as I can tell from my files, you never did get back to me.

David, I’m sorry that your paper did not see the light of day; I wish I had used it immediately in the conference issue of the CJ in 1989.

I did, however, give you permission to publish elsewhere, as noted above, albeit with a significant lag.  If you had sent me your revised paper when I requested it, I would have certainly used it in the CJ.  … Indeed, if you have revised your paper and would [still] like me to consider it for use in the CJ, I would be glad to do so.”

To settle any doubts, Dorn followed this up the next day by resending Glasner the letter he had sent him on 10 May 1990, some twenty six years earlier: in that earlier letter, Dorn had apologised for a delayed response and for not having included Glasner’s paper in the conference special issue of the Cato Journal. He had then added: “to rectify any misunderstanding, I am willing to consider using any of the omitted papers and comments in a future issue of the CJ, subject, of course, to the normal review process.”

So much for Cato’s ‘suppression’ of Glasner’s paper! 

To his credit, Glasner wrote back to Dorn on the evening of the Sunday, May 15 to concede that he (Glasner) had got his facts wrong. Glasner then updated his blog as follows: 

My account … of the events surrounding the writing of my paper elicited the following letter from James Dorn, the unnamed organizer of the conference on Alternatives to Government Fiat Money, to whom I refer in the post. His letter makes it clear that my recollection of the events I describe was inaccurate or incomplete in several respects and that, most important, Cato did not intend to suppress my paper. … Why I did not submit it to the Cato Journal or to another journal I am unable to say, but subsequently I somehow came under the impression that I had been discouraged from doing so by Cato. Evidently, my recollection was faulty. In any event, I should not have posted my recollections of how this paper came to languish unpublished for almost three decades without communicating with James Dorn. That, at least, is one lesson to be learned, I can also take some minimal comfort in learning that my own conduct was not quite as wimpy as I had thought. On the other hand, I must apologize to Brad DeLong and Paul Krugman, who linked to this post on their blogs, for having led them to into this discussion. All in all, not a great performance on my part.

Glasner’s humility is admirable, but I cannot help thinking that it would have been more appropriate to have offered his apology to Cato and Dorn, at whom he had directed his false accusations, rather than to DeLong [2] and Krugman, who had been only too happy to have gone along with them. 

In the meantime, on the Sunday, May 15, 3:15 pm to be precise, Dorn had emailed Krugman at his CUNY email address, pkrugman@gc.cuny.edu. Dorn’s email was polite, dignified and to the point:

Dear Prof. Krugman,

    I think you should take a look at the letter I just sent to David Glasner to address the statements he made about Cato in his recent blog, which you cited in your NYT's column, "Orwell Does Cato."  I know you were basing your remarks on David's blog so I think it's important to get the facts straight. 

Respectfully,

Jim Dorn

Editor

Cato Journal

Krugman did not reply. 

Krugman’s other allegation against Cato – that Cato had behaved dishonestly with its project on Social Privatization – was dismissed by Jonathan Adler from Case Western Reserve University. As Adler wrote on his blog on May 19, “False accusations can travel throughout the blogosphere before the truth has even logged in.” He then continued:

I have no doubt that the Cato Institute may have adjusted its rhetoric in response to polling or focus group data. … But did Cato really try to “eliminate the term . . . as if it had never been used”? To check this claim, I went to the Cato site and ran a search for “social security privatization.” Lo and behold, I came up with hundreds of results, including work both before and after the alleged white-washing of history. So much for Cato’s alleged effort to “eliminate the term” from its website. Had Krugman bothered to run a simple website search, he would have discovered the same thing. Instead he accused Cato of “hackery.”

Perhaps coincidentally, yesterday Krugman blogged about those who have “a problem both in facing reality and in admitting mistakes.” According to Krugman, this is a “question of character.” Yes, yes, it is. 

In short, Krugman’s criticism of Cato’s Social Security Privatization project had the same factual basis as his criticism of Cato’s ‘suppression’ of Glasner’s paper, i.e., none.  

In the meantime, Krugman updated his posting (on May 15) and the key sentence in his update is this: 

Glasner has retracted, saying he got his facts wrong. Unfortunate. It has no bearing on what I wrote, however.

There, my friends, you have it straight from the horse’s mouth: the facts have no bearing! 

I can’t even attempt to satirise that. 

So let me stick to the facts, unlike Mr. Krugman. 

Krugman makes a bunch of calumnies against Cato, and indirectly, against Jim Dorn. These take the form of allegations of misbehaviour that were based on a set of alleged ‘facts’ that all turned out to be false. When confronted with Glasner’s retraction, Krugman’s response was not to issue a retraction, let alone to offer an apology, as common courtesy would have called for. But Krugman has no truck with such decency. On the contrary, his response was – to paraphrase - that even though he had been informed that had got his facts wrong, he still didn’t see any reason to change his position one little jot. 

Try defending such a position in a seminar on logic or ethics or even in a court of law: I make a case based on a set of ‘facts’ that I claim support my case. It is then revealed that I got all my facts wrong. Never mind, I insist, I see no reason to change my position. The truth and the facts be damned. 

Such unedifying behaviour demonstrates that Krugman is as logically as he is ethically challenged. I am minded to write to the Trustees of CUNY to invite them to invite him to a discussion with his University’s Ethics Committee.

Whether one agrees or disagrees with Cato or with anything that its scholars have written is beside the point. It’s all about integrity, character, courteousness, truthfulness, conscience even, and a willingness to admit mistakes - all virtues that Dorn exemplifies and Krugman does not. 

We should also remember that Krugman has form, lots of it. In a series of Huffington Post articles – here, here, here and here – and in a separate series of Forbes articles, Niall Ferguson and Ralph Benko respectively deliver Krugman a series of exquisite Glasgow kisses [3]. (I spell out Benko’s articles’ titles in full as the Forbes links are not always reliable. They are Much Bigger Than The Shutdown: Niall Ferguson's Public Flogging Of Paul Krugman, If Paul Krugman Didn't Exist, Republicans Would Have To Invent Him, Is Paul Krugman Leaving Princeton In Quiet Disgrace?, and The Science Fiction Behind Paul Krugman's Economics, Parts One and Two.) These postings are well worth reading and much better than anything I could have written: they lay bare Krugman’s many errors and inconsistencies, his false prophecies and U-turns, his contempt for those he disagrees with, and how he led his deluded acolytes up and down the hill and back again like the Grand Old Duke of York. To quote Ferguson:

For too long, Paul Krugman has exploited his authority as an award-winning economist and his power as a New York Times columnist to heap opprobrium on anyone who ventures to disagree with him. Along the way, he has acquired a claque of like-minded bloggers who play a sinister game of tag with him, endorsing his attacks and adding vitriol of their own. … Krugman and his acolytes evidently relish the viciousness of their attacks, priding themselves on the crassness of their language.

[But] even if Krugman had been “right about everything,” there would still be no justification for the numerous crude and often personal attacks he has made on those who disagree with him. Words like “cockroach,” “delusional,” “derp,” “dope,” “fool,” “knave,” “mendacious idiot,” and “zombie” have no place in civilized debate. I consider myself lucky that he has called me only a “poseur,” a “whiner,” “inane” – and, last week, a “troll.”

Where I come from [Glasgow, in fact] … we do not fear bullies. We despise them. And we do so because we understand that what motivates their bullying is a deep sense of insecurity. Unfortunately for Krugtron the Invincible, his ultimate nightmare has just become a reality. By applying the methods of the historian – by quoting and contextualizing his own published words – I believe I have now made him what he richly deserves to be: a figure of fun, whose predictions (and proscriptions) no one should ever again take seriously.

And to quote Benko:

Krugman’s horns now forever will show under his dislodged faux halo. For this the world will prove a safer, and much more decent, place.

Maybe the Great Krugtron should be invited to go on a long space trip to check out how his alien friends’ invasion plans are progressing. It would be a costly undertaking, but I am sure it would be worth it.

End Notes

[1] Kevin Dowd is professor of finance and economics at Durham University. Email: kevin.dowd@outlook.com or kevin.dowd@durham.ac.uk.

[2] Brad DeLong had also picked up on Glasner’s posting to make false allegations of his own against Cato. Adler ably dismisses those allegations in his posting. Here, however, I prefer to fry the big fish. Or to mix with Niall Ferguson’s more colourful metaphor, I prefer to fry the Nile crocodile rather than its plover. 

[3] A Glasgow kiss is defined here. I reproduce the short version: ”A headbutt. Within Glasgow itself the term 'Gorbals kiss' is often used, referring to the most dangerous area of Glasgow. It is hypothesised that within Gorbals it is known as a Crown Street kiss; and on Crown Street it is called a Number 73 kiss; and at Number 73 it is known as Steve's kiss. Steve, however, calls it whatever the fuck he wants to.”

How Negative Income Tax could lead us towards material abundance

120 years ago American factories electrified their operations, triggering the Second Industrial Revolution in which steam engines were replaced with motors. This general purpose technology (GPT) – a technology that can affect an entire economy, usually at a national or global level – created new advantages for factories and prompted the invention of new work processes, allowing for increased growth and productivity. Innovation researcher Erik Brynjolfsson outlines three major GPT since the 18th century: the steam engine, electricity, and the internet, and along with Andrew McAfee, has coined this era The New Machine Age and produced a highly praised book of the same name. In this New Machine Era, they identify growing decoupling of productivity and employment: productivity is growing, but employment is decreasing. Correspondingly, wealth is increasing, but work is decreasing.

Ideas about brain emulations, or ems, set forth by economics professor Robin Hanson, provide one view of the future relationship between employment and increased technology, focusing on the role of robots. He suggests that in the future, truly smart robots will be created by emulating the brains of the ‘best humans.’ Those robots can then be multiplied to perform a certain job, which may lead to humans being displaced within a century. The professor further suggests that a new emulation economy will be very competitive, wages will fall to the cost of making new machines, and in doing so, fall to subsistence level.

As per usual, somewhat contradicting statistics have emerged as to the economic impact of increased use of robots. A paper from the Centre of Economic Performance at the LSE, ‘Robots at Work’, uses data from industries in 17 developed countries, concluding that ‘robot densification’ has a statistically negligible effect on total hours worked, while increasing both labour productivity and value added. This would suggest that robots are not, in fact, decreasing humans’ potential for employment. However, the paper also states that the use of robots reduced the hours of low-skilled workers, as well as (to a lesser extent) middle-skilled workers. This corresponds to the findings of Brynjolfsson and McAfee: of increased decoupling of productivity and employment, particularly for low/middle-skilled workers. This is also in line with professor Hanson’s predictions, depicting the future displacement of humans as not just a wild prediction but rather an actual possibility that we may be progressing towards.

In the past, the two industrial revolutions have given rise to structural unemployment – temporary unemployment caused by a mismatch between workers’ skills and the skills’ demanded by producers. However, with the arrival of robots, many fear that the unemployment will become permanent, technological unemployment. Despite debate regarding the imminence, gravity, or even existence, of the threat posed by this development, it does prompt us to rethink our current economic system (perhaps, at this point in time, only in theoretical terms). 

Authors Gary Marchant, Yvonne Stevens and James Hennessy in the Journal of Evolution and Technology propose multiple policy options to tackle this problem, one of which is particularly striking as falling into the trap we must all be careful of: employing “legal interventions to protect jobs that might otherwise be lost due to technology, innovation, and development.” Such measures would, without a doubt, do more harm than good as they would stifle innovation, keep prices up, and, as twisted as it sounds, make efficiency illegal. Marchant et al. do recognise this, stressing their “counter-productive” nature and the unsuccessful track record of “stopping progress” strategies.

Another approach would be to re-evaluate the welfare system by introducing the Negative Income Tax (or Basic Income), which could not only address key problems of today, but also those that are underway with the changing labour market and the prospect of technological unemployment.

The current system creates perverse social incentives and features a piecemeal provision of benefits, consisting of working tax credits, means-tested housing benefits, and a number of other smaller benefits including council tax relief and skills training. On the other side of this is the Department for Work and Pensions, employing 34,000 people and spending 5.3 billion pounds on administration (in 2011-12 – 6.1 billion in today’s money). The system also disincentivises work due to high marginal withdrawal rates. Despite attempts to relieve these problems through Universal Credit, its design as a single monthly payment to the highest earner of the household has negative implications for women and children, in addition to the fact that it has not come close to reaching its target of 1 million claimants and has cost £612 million in administration costs. Hence, we are in need of a cheaper, administratively simpler and less dis-incentivising system – namely, a Negative Income Tax.

The Negative Income Tax is a policy that replaces all major means-tested cash benefits and guarantees a universal basic income by paying individuals directly. As a person earns more, the benefit is steadily withdrawn, ideally at a rate that will always make increasing work and reducing leisure worthwhile. An example of a NIT would be a £5,000 basic payment at a 50% marginal withdrawal rate (for every additional pound earned, the worker will receive 50p less in NIT payments). Someone with an income of zero would receive an NIT payment of £5,000, or just under £100/week. If they took a job that paid £5,000/year, they would receive a top-up of £2,500/year; if they took a job that paid £7,500, they would receive a top-up of £1,250/year. Once they reached £10,000/year, they would receive nothing in NIT and the citizen would become a net tax contributor. This policy enjoys substantial support from free marketeers and has been advocated by Nobel prize winning economists Milton Friedman and Friedrich Hayek. 

The economic benefits of a NIT in this day and age are thus substantial, slashing bureaucratic costs, in addition to the political and social benefits of decreasing the size of government and promoting individual liberty. However, as unemployment rises, the political and social benefits brought about by a NIT will become even more important for society as a whole. The fact of the matter is: as more people become unemployed due to robot’s impact on the labour market, the strain on the welfare system will increase. That will, in effect, expose its inefficiencies and disenfranchising characteristics. Hence, a greater proportion of the population will be told how to live their lives through the government’s welfare schemes, which, as Sam Bowman puts it, “is a bad idea because the government is extremely ignorant, and that ignorance does not change just because the person being told what to do is on benefits.”

With a NIT, on the other hand, these problems can be counteracted. First of all, it would become the chief means by which consumption, the sole end and purpose of all production according to Adam Smith, can be kept alive, without the dictation of the government as a middleman. Similarly, those who fear that the ‘capitalist exploiters’ who own the robots will own all the wealth will be happy to realise that only 3% of the benefit of Schumpeterian profits (profits arising from innovative activity) goes to the entrepreneur: the other 97% goes to the consumer. An NIT would thus ensure that also the unemployed would benefit from these advancements by giving them the means to continue to be autonomous consumers. Ideally, the increased availability of robots, and increasingly perfect information due to other technologies, will make more and more markets perfectly competitive, again, much to the benefit of the consumer as opposed to the capitalist robot-owners. Furthermore, with the eventual material abundance that increased robot productivity will bring about, the basic income will be increasingly fundable, as prices will fall significantly and the ‘real’ basic income will increase. 

With the rise of technological unemployment, the transformation of society, and diminishing of the labour market, the changes to the welfare system in response to these changing circumstances will become decisive. Do we want to move towards an ever bigger government, as more people become dependent on the welfare system, losing their power as consumers as their needs are taken care of by a paternalistic state welfare scheme? Or, do we want an administratively simple system that gives the unemployed the freedom to enjoy the material abundance and fruits of centuries of intellectual labour, reflected in lower prices brought about by the robots’ increased productivity? I think the latter is infinitely more attractive.

However, accurately predicting the future is tricky, so the future effect of robots remains an intellectual game. As the study at LSE showed, ‘robot densification’ has had a statistically negligible effect on total hours worked in 17 developed countries. Furthermore, using the UK’s 30 million jobs as an example, 10% of jobs are destroyed every year, yet the economy also creates about 3 million. In fact, the majority of jobs are created by small, new companies – not the large ones that would employ robots. Hence, another solution would be to encourage small businesses, through deregulation, to enter markets and thus generate jobs for which they would employ humans (that is, assuming that robots have not become more accessible than human labour). Furthermore, as we have seen with the invention of past GPTs, the increased productivity has increased wealth, which has, in return, generated more jobs. Hence, we may simply be looking at prospective structural unemployment that will, with time, be solved with the creation of jobs unthinkable to us today, just as the idea of a computer scientist was in the 19th century.

As mentioned earlier, professor Hanson predicts that robots will displace humans in most jobs within a century. However, history suggests that new, some unimaginable, opportunities for employment will arise following such a development. Whichever prediction one chooses to believe, two things can be concluded. With the rise of robots, the lower input costs will make products cheaper and we will all become richer. It might even, as Keynes prophesised, solve the fundamental economic problem of scarcity that has characterised our endeavours as humans. Second, the effects of this technological progress on employment may be (and according to Brynjolfsson and McAfee already has been) negative, whether that be permanently or until new jobs emerge. Some version of a Negative Income Tax might be the ideal way to protect those affected by this transition, enjoy our progression towards material abundance and free ourselves to make our own decisions in such a world.

By Halla Mathiesen

Regulation kills people

Of course it's also true that an entire absence of regulation will kill people too. The trick thus is to get the level of regulation correct. This is something that does not, to put it mildly, always happen:

Tens of thousands of cancer patients are being denied life-extending drugs because of EU bureaucracy, experts have warned. 

Trial results presented at the world’s largest cancer conference, in Chicago, showed palbociclib almost doubled the amount of time that the disease was stalled.

On average, the terminally ill women were able to fend off the diseasefor an extra 10 months.

Almost 30,000 women in the United States have been able to access the drug since March, after the Food and Drug Administration (FDA) fast-tracked approval of the drug in just six months.

But the groundbreaking treatment is being denied to British patients because European regulators work far more slowly.  

They're taking an extra year or two to read the papers and have a few gabfests. However, much as we love an opportunity to bash the EU and all who sail in her this isn't something specific to that organisation. Rather, it's about scale, the level of regulation.

Yes, obviously, it's more efficient to have just the one body that approves drugs: we might suggest the FDA in fact. But if that won't hold then sure, better to have just the one for Europe rather than 28. However, as we all really should know there are diseconomies of scale as well as economies.

And the major contributor to diseconomies of scale is that the organisation itself simply becomes too remote from any form of incentivisation by or on behalf of consumers. Imagine we had a properly "independent" drug regulator for the UK. OK, it's independent: but it would still be amenable to generalised pressure. Why is it taking you two years longer than the US to approve a drug? 

You can actually visualise the sweating bureaucrat mumbling to one or another committee of the Commons on this. But once we push this up another level or two that accountability simply vanishes. Who either can or will scream at them on our behalf? 

And that's rather the problem with this style of regulation. We end up with no way of ensuring they pull their thumbs out: and people thus die as a result.

The year of the insurrectionists

This is very much the year of the outsider, and the year in which the establishment machine politicians are rejected by angry voters.  Donald Trump is a complete outsider, yet in a series of bruising battles that make up US primaries, he has seen off every single establishment party-machine politician ranged against him.  Now there is only one more left against him, and that is Hillary Clinton whom he now faces in November. 

She is almost the embodiment of machine politics, and has the misfortune to face a populist outsider in a year when conventional politicians are mistrusted.  Furthermore, she is tainted as well as mistrusted, with enough doubts about her probity to dampen her support.  The chances must be very high that come November, Donald Trump will be elected the 45th President of the United States.

His popularity extends across normal party lines, and while he is despised and derided by liberal elites, he touches raw nerves among working Americans who feel they've been left behind or left out, and that economic advance has passed them by.  It is a mark of his skill that a multi-billionaire is seen by low-paid Americans as someone likely to represent their interests.
 
Hillary Clinton's double-digit poll lead has faded into nothing, and Trump is showing well in the working-class swing states he must carry to take the presidency.  It looks increasing likely that blue-collar Democrats will plump for the rough and ready, hard-talking, hard-dealing businessman rather than for the smooth and manicured professional politician who opposes him.

It is on an international scale that the insurrectionists have made inroads.  Trump has astutely tapped into a mood that has swept across Europe.  As a reaction to the way conventional parties handled the Financial Crisis and the economic slowdown that followed, people have turned to outsiders.  In Greece and Spain these new parties have become a force to be reckoned with.  The populist Freedom Party candidate, Nobert Hofer, lost the Austrian presidential election by a whisker.  It is a sign of the times that people, discontented by establishments, are looking outside the box.  It could be argued that this mood was behind the upset that saw Jeremy Corbyn elected as Labour leader instead of more conventional mainstream candidates.  That same anti-establishment mood might well see UK referendum voters overturn conventional thinking with an insurrectionist Brexit vote.

Trump has tapped into similar discontents in America.  Against a polished Republican politician, Hillary linton could have positioned herself as champion of the underdog, but there is no way she can take that position against Donald Trump.  He is already there, voicing their concerns, speaking up for their values, promising to meet their aspirations.  Although people in Europe, as well as in the liberal media of America's East and West coasts, mock Trump for his lack of polish and preparation, the same is not true of heartland America, and commentators who assumed Clinton would coast home against an opponent they see only as a buffoon, might well wake up with a sinking feeling on Wednesday November 9th when it will all be over and Trump sets about preparing his transition team.

Although the prospect scares some people, they can take comfort from the fact that Trump has no party.  He will have no majority behind him in either the House of Representatives or the Senate. To get anything through he will need to bargain and strike deals, to compromise and to moderate. Clinton, by contrast, would probably have had a Democrat majority in the House to back her and strong support in the Senate.

Trump is nowhere nearly as bad as he has been painted, which is just as well because he is a fact of life that we are all going to have to grow used to and learn to live with.  He is probably going to win the presidency.

Why Britain’s company law is not fit for purpose

The closure of British Home Stores shows not only how badly managed the company has been. It shows how Britain’s company law is not fit for purpose.

Founded in 1928, the company was one of Britain’s longest-established high-street department-store brands. But it has ended up with a £571m pension deficit, all its 163 stores will close and 11,000 jobs will go. Sure, the high street is unforgiving? But how can such a giant be brought so low?

Step forward Sir Philip Green and Dominic Chappell, particularly Green, the high-profile businessman so regularly pictured with supermodel Kate Moss on his chubby arm aboard his superyacht. Green and other investors took more than £580m in dividends, rent and interest payments during his tenure at BHS; Chappell’s Retail Acquisitions consortium was paid millions in fees and salaries. Meanwhile, Green did not close BHS’s defined-benefit pension system (as most other large and small companies have done, following Gordon Brown’s disastrous change in the regulations while he was Chancellor). What on earth was he thinking? Was he thinking about the future at all?

It’s a bad advertisement for capitalism, right enough, when the reality is that most businesspeople scrimp, save, mortgage their homes and watch every penny to help their companies grow. 

But it’s an even worse advertisement for all the UK (and, dare I say it – EU) regulation around business governance. Designed to keep businesses transparent and well run, our company law now has the opposite effect. It has tried to substitute official rules for shareholders. And shareholders are the best regulators – after all, it is their business, and their money at risk. 

Sadly, UK and EU politicians did not appreciate this regulatory role of shareholders (though the rising volume of shares held by corporatist-minded pension funds did not help either). Shareholders were seen as merely money-takers; their power was curbed and the powers of boards and executives grew – with everyone being told that’s fine, because there were so many rules to control them.

It is not a new problem. Philosopher and corporate law expert Dr Elaine Sternberg pointed it out in the ASI report Competition in Corporate Control as long ago as 2003. Let shareholders run their businesses as they want, she argued. If some mess up – paying too high salaries, say, or giving executives too much control – nobody is likely to do that again. Competition in corporate control is self-regulating: good systems crowd out the bad. But our regulatory system, substituting top-down rules for market-driven competition, kills that self-regulating process.

It really is time for a bonfire of controls. At least then when we see CEOs sipping G&Ts on their £100m superyachts, we could be confident that deeply interested and farsighted share owners figured they are worth it.

If corporations have all this power then where the heck is it?

Peter Walker points out that there's a certain problem for those who would claim that corporations have some vast amount of market power which they use to lord it over the rest of us. If this were true then we wouldn't see corporate disasters:

Part of the idea here is that large corporations have power over markets and their consumers. When "corporate power" get mentioned I sure people think of companies like Microsoft, Google, Coca-Cola, Pepsi, and McDonald’s etc and the control these firms are said to have over their sectors of the economy. One aspect of this power is the control these corporations are claimed to have over their consumers, but if these "powerful" firms produce spectacular failures, then perhaps consumers are not as docile as some would suggest and we overestimate the extent of said corporate "power".

The latest example might be Microsoft's entirely dismal failure with Nokia. And it really has been an absurd failure as this rather hopeful email details:

Microsoft and Nokia created opportunity for companies in need of ICT professionals
1,000 ICT professionals available in Tampere, Finland, for any industry

Recent news about the Nokia and Microsoft layoffs are good news for those in need of experienced and international ICT professionals. The City of Tampere, Tampere Region Economic Development Agency Tredea and Invest in Finland (Finpro) address this unique opportunity with #Tampere4ICT campaign to attract foreign investments.

Microsoft Mobile and Nokia (Alcatel-Lucent) will release highly experienced technology professionals in the Tampere Region, Finland. There will soon be around 1,000 ICT professionals available, with experience of 10-20 years and with ability to build new, innovative solutions for any industry. Especially companies looking to set up product development, and willing to move fast, there is now a unique opportunity to acquire fully functioning product creation teams to develop advanced connected products.

They bought the company, played around with it for a couple of years and are now effectively closing the whole thing down. That simply wouldn't have happened to a corporation that was wielding great market power. And the explanation for why it did happen is simply that no more than some trivial fraction of us consumers were willing to use Windows for Phone. We beat one of the largest corporations on the planet and all their tens of billions of expenditure just by saying "Nah, think I'll have that one over there instead, ta very much." 

The notion of great corporate power over us consumers doesn't really stand up to close examination.

Write the law around what people already do not what some bureaucrat thinks they ought to be doing

We're very taken by this quote featured at Cafe Hayek:

How formal and informal rules interrelate substantially determines transaction costs in society.  I call this proposition the interaction thesis.  If formal rules are in harmony with informal rules, the incentives they create will tend to reinforce each other.  A harmonious interaction of formal and informal rules reduces the transaction costs of maintaining and protecting the rules of the social game and frees resources for the production of wealth.  When formal rules conflict with informal rules, however, their respective incentives will tend to raise the transaction costs of maintaining and enforcing the prevailing institutions and therefore to reduce the production of wealth in the community.

The specific point being made is about the transition away from Soviet stupidity in Eastern Europe. But we think it can be applied to that difference between the Common Law and the more centralised and bureaucratic Roman Law idea. Yes, sure, the difference has blurred over the centuries and the distinction is less important than it once was. And yet in these days of EU directives and regulations we think it still worth making the point.

The system as a whole will work very much better if the law is simply the codification of what people already largely do. Rather than the imposition of what some bureaucrat thinks people ought to do and against those already established patterns of behaviour.

And do note the importance of transactions costs here: they are purely deadweight costs, costs which diminish our collective wealth by their very existence. Reducing them is a prime aim of whatever legal and or institutional arrangements we make.

This is distinct from our general desire for there to be less law, less direction from the centre. Whatever direction there is needs to go with the grain of the extant society, not against it.

Why Keynesians are wrong

The most prominent theory in macroeconomics is New Keynesianism. One of the most striking and unique predictions that New Keynesianism makes is that when the economy is in a recession, everything gets flipped upside down. Specifically, when interest rates are at the zero lower bound and the economy is stuck in a liquidity trap, most of the things that would usually improve economic outcomes actually worsen them.

The NK model predicts that supply-side loosenings, like lifting employment regulations, cutting taxes or liberalising immigration laws, will actually make things worse in a recession, as will interventions that increase price flexibility. However, this prediction—familiar from Paul Krugman's NYT columns since 2007—seems to have been strongly challenged in a batch of recent papers.

The first is "Supply-Side Policies in the Depression: Evidence from France", by Jérémie Cohen-Setton, Joshua K. Hausman, and Johannes F. Wieland. It, as the title suggests, looks at data in from the great depression in France, one of the areas that suffered it from the longest, due to the obsessive desire of the Bank of France never to sever the currency's link with gold. The Keynesian model would predict that devaluation and leaving gold were the only game in town, but in fact the negative supply-side shocks that happened at the same time depressed activity, even in a deep slump.

The effects of supply-side policies in depressed economies are controversial. We shed light on this debate using evidence from France in the 1930s. In 1936, France departed from the gold standard and implemented mandatory wage increases and hours restrictions. Deflation ended but output stagnated. We present time-series and cross-sectional evidence that these supply-side policies, in particular the 40-hour law, contributed to French stagflation. These results are inconsistent both with the standard one-sector new Keynesian model and with a medium scale, multi-sector model calibrated to match our cross-sectional estimates. We conclude that the new Keynesian model is a poor guide to the effects of supply-side shocks in depressed economies.

The second is "Are Supply Shocks Contractionary at the ZLB? Evidence from Utilization-Adjusted TFP Data", by Julio Garín, Robert Lester, and Eric Sims. It looks at more extensive data on productivity. The Keynesian model predicts worse productivity improvements from supply shocks that occur in slumps but the data finds quite the opposite result.

The basic New Keynesian model predicts that positive supply shocks are less expansionary at the zero lower bound (ZLB) compared to periods of active monetary policy. We test this prediction empirically using Fernald's (2014) utilization-adjusted total factor productivity series, which we take as a measure of exogenous productivity. In contrast to the predictions of the model, positive productivity shocks are estimated to be more expansionary at the ZLB compared to normal times. However, in line with the predictions of the basic model, positive productivity shocks have a stronger negative effect on inflation at the ZLB.

The third, "What Was Bad for General Motors Was Bad for America: The Automobile Industry and the 1937/38 Recession" by Joshua K. Hausman, tackles the question less directly, finding that shocks that impacted the car industry, even if they weren't aggregate, demand-side shocks, nevertheless had large impacts on overall output and income.

I think the New Keynesian model is wrong about a lot of things. It seems that the impact of supply-side moves in a recession is yet another prediction it gets wrong.

This is a referendum on the EU, not the single market

Today three opinion polls - from YouGov, ICM and TNS - are all putting Leave in the lead. Those are on top of other very recent surveys suggesting a shift in Leave’s direction.

That has obvious significance and it is causing reverberations in the Remain camp.

Taking a step back for a moment to last week, on Tuesday we saw the Telegraph’s Ambrose Evans-Pritchard coming out in favour of the Flexcit plan by Dr Richard North, and my own ASI paper called “The Case for the EEA Option” that borrows from the North plan.

That article prompted leading Remain thinker Charles Grant of the Centre for European Reform to agree that using the EEA as a transition point was indeed a viable exit option - to my knowledge, the first Remainer to do so. Grant also agreed that parliamentary arithmetic very much favoured this option and, further, that top Vote Leave MPs would be able to support such a manoeuvre after a Leave vote.

Now this morning, the BBC’s James Landale has reported that Remain MPs are indeed saying that while they would have to deliver a Leave proposition after a Leave vote, they would not support leaving the single market (the European Economic Area), which is separate to the EU.

There are two ways to view this. Firstly that they are genuinely concerned about leaving the single market more than leaving the EU. That would make perfect sense as so many of their objections to leaving the EU are actually objections to leaving the single market. But secondly that they are making mischief for the Vote Leave campaign that has nailed its colours so firmly to the border control mast.

I suspect it is the first but with a helpful side-effect (to the Remain camp) of the second.

And of course the other paradoxical side-effect is that it derisks the economics of Leave and makes Leave more attractive to wavering voters.

Sure enough, Dominic Cummings for Vote Leave responded by suggesting that MPs were saying they would ignore a Leave result. Yet that is exactly what they are not saying. Rather that “Leave only means leaving EU membership”. The BBC report made it very clear:

One minister said: ‘This is not fantasy. This is a huge probability. The longer we move away from the referendum, the more the economic pressures will grow to keep some links with the single market.’

Another said: ‘We would accept the mandate of the people to leave the EU.’

Indeed they would. Because in the event of a Leave vote, the precise question on the referendum ballot will matter. A lot.

It's truly amazing what some people will complain about

We find ourselves rather gasping in amazement at this particular complaint:

The shale bonanza has also brought environmental headaches and raised concerns about whether the companies have disadvantaged poor people by drilling wells in low-income areas and exposing them to dust and traffic as well as air and water pollution.

In a letter last month, the Center for Coalfield Justice, the Pennsylvania chapter of the Sierra Club and the Clean Air Council asked the state’s Office of Environmental Justice to give the public more say in the permitting of wells. The groups believe the industry may be choosing drilling sites that disproportionately affect low-income and minority residents.

We positively want people to go and drill in low income areas.

Think it through for a moment. Fracking requires the use of land. Not so much the land that is actually being fracked, it's possible to drill for several miles underground. But there must be somewhere to put the rig itself, a pad for it. That is a cost to the process of course. We would thus expect people who are doing this efficiently to place such rigs and such pads where land is cheap in order to gain access to the desired underground reserves.

Low income people tend to live where land is cheap. Thus rigs will preferentially be where people are low, not high, income.

Imagine, for a moment, that we were to frack underneath London (no, we won't, the geology is entirely wrong). Would we place our rig in Mayfair in order to access that gas under central London? Or in Vauxhall? 

Quite. The complaint is that people are being sensible. Which really is a stunning thing to complain about, isn't it?