Frank Knight And John Stuart Mill On The Purpose Of Life And Liberty

Frank Knight was an economics professor at The University of Chicago in the first half of the 20th century. John Stuart Mill was a British philosopher and economist in the 19th century.

Here is an interesting quote from Knight followed by a similar one from John Stuart Mill.

"Life is at bottom an exploration in the field of values, an attempt to discover values, rather than on the basis of knowledge of them to produce and enjoy them to the greatest possible extent. We strive to 'know ourselves,' to find our real wants, more than to get what we want"

Source: Knight, Frank H. 1935. "The Limitations of Scientific Method in Economics," in The Ethics of Competition and other Essays. Harper and Row: New York.

See also Frank Knight’s “Risk, Uncertainty and Profit” 100 Years Later: Without Frank Knight, there would not have been a Chicago School of Economics by John Phelan. 

John Stuart Mill said: “The purpose of liberty is not to give us what we want but to help us grow so that we can best understand our wants.”

See The Forgotten Philosopher by Alan Wolfe in The Chronicle of Higher Education. 

Related posts:

James Buchanan, Frank Knight and John Stuart Mill on choice and utility functions (2022)

When Self-Interest Isn’t Everything (2008)

Trump’s Tariffs Are Unique in History

U.S. trade policy went through three eras, focused on ‘revenue, restriction and reciprocity,’ economist Douglas Irwin says. The 47th president likes all three Rs, and a fourth, ‘retribution.’

Douglas Irwin has written several books on international trade. See, for example, my post Before You Criticize Free Trade, You Should Read Douglas Irwin's Book Free Trade Under Fire (2012).

By Tunku Varadarajan. Excerpts:

"“To whipsaw the markets like this amounts to grossly irresponsible economic management.” On April 4 Mr. Trump asserted on social media that “MY POLICIES WILL NEVER CHANGE.” “And yet, after pausing the tariffs, he said, ‘You have to be flexible,’ ” Mr. Irwin notes." 

"He calls Mr. Trump’s actions “cavalier” and says there is “no strategy. And this uncertainty is a tax on the economy, undermining consumer confidence and freezing up investment spending.”"

"In the first era, up to the Civil War, there was no income tax and “revenue was the key objective of trade policy.” In the second, which spanned the Civil War to the Great Depression, the main goal was “the restriction of imports to protect domestic producers.” The third era has focused on reciprocal agreements to reduce trade barriers, such as the North American Free Trade Agreement and the World Trade Organization."

"the interesting thing about Trump is that he likes all three of the Rs.”"

"This helps make sense of the contradictions in Mr. Trump’s trade rhetoric. He embraces revenue, restriction and reciprocity, but “it’s not clear which one’s the priority, because there are conflicts across them. If you’re going to bargain the tariffs away in reciprocity, that’s not a stable source of revenue. If you’re using tariffs to restrict imports into the U.S. in order to reindustrialize, well, then you can’t bargain them away either, because if you put the tariffs up and then put them down, businesses aren’t going to make decisions based on these quick tariff changes.”"

"In July 2020 the U.S.-Mexico-Canada Agreement supplanted Nafta. “The USMCA is Trump’s agreement,” Mr. Irwin says. “He negotiated and signed that in his first term. What’s the value of that trade agreement if he can come up with some new rationale to impose tariffs that’s outside the bounds of what was negotiated?”"

" “we’re changing direction in a major, historically unprecedented way on the whims of one person. Because Congress has not signed off on this. There’s no political and societal consensus.”"

"As chairman of the House Ways and Means Committee, McKinley sponsored the Tariff Act of 1890, which raised import duties to nearly 50% to protect American industry. But as president, McKinley changed his mind on tariffs."

"there was another one [a period of industrial expansion] between 1830 and 1860, before the Civil War. And during that period tariffs were going down." 

"There were so many other factors going on that were making the U.S. economy wealthy”—among them technological change, mass immigration and capital inflows from Europe. “We were open to ideas, capital and people from the rest of the world.”"

"the reality that other countries are taking advantage of us is very elusive."

Related posts:

Can Trump’s Tariff Offensive Deliver New American Jobs? (2025)

Americans Are Stockpiling Ahead of Trump’s Tariffs (2025)

Powell Warns of ‘Challenging Scenario’ for Fed as Trade War Rages (2025) 

How Much Do Tariffs Raise Prices? (2025)

Politicians talk about creating manufacturing jobs but do people really want them? (2025)

How some of Trump's policies might affect the economy (2024)

Tariffs are regressive: they fall more heavily on lower-income families who tend to spend more of their income on cheap imported goods (2024)

Americans Are Stockpiling to Get Ahead of Tariffs: Some consumers are snapping up computer parts, vacuum cleaners, coffee and olive oil before levies take effect (2024)

Life is full of tradeoffs: If we support American workers with trade restrictions it might mean more inflation (2023) 

Will removing Chinese tariffs have a dramatic impact on inflation? (2022)

Life Is Full Of Tradeoffs: If We Want To Do More To Fight Climate Change We May Have To Lower Tariffs On Solar Panels Which Might Put U.S. Firms Out Of Business  (2021)

Mark Twain, Free Trade and Tariffs (2019)

What happened in some earlier U.S. trade Wars? (2019)

The importance of imports of capital and intermediate goods to the U.S. economy (2019)

Historical trends in manufacturing (2018)

Abandoning free trade might threaten peace and stability across the globe (2017)

Interesting New Book On Trade And Tariffs By Marc-William Palen (2017)

Before You Criticize Free Trade, You Should Read Douglas Irwin's Book Free Trade Under Fire (2012)

How Your Midlife Eating Habits Can Help You Live Longer and Healthier

A plant-rich diet with some fish and dairy might make the biggest difference, new research suggests

By Alex Janin of The WSJ. Excerpts:

"If you reach 70 years old healthy and disease-free, you might have your diet to thank, new research suggests."

"A diet emphasizing vegetables, fruits, healthy fats and some animal products such as fish and dairy over the long term was the most likely to make a difference in aging in good health."

"Sticking to a balanced diet with a moderate amount of healthy animal protein, in fact, outperformed following a more plant-based diet, in terms of healthy aging. The researchers also found that eating more ultraprocessed foods was linked to worse physical and cognitive health in older age."

"The study, published in Nature Medicine and led by researchers at Harvard University, the University of Copenhagen and the University of Montreal"

"The dietary habits most closely linked to healthy aging . . . likely work by reducing inflammation, improving metabolism and supporting gut health." 

"People who scored high in adhering to the so-called Alternative Healthy Eating Index, a plant-rich diet plus proteins such as dairy and fish, had an 86% higher chance of healthy aging than those whose diets scored lowest for that diet."

"Diets high in trans fats, salt, sugary drinks, and red or processed meats—such as steak, ham and sausages—were linked to worse healthy-aging results."

"sticking to similarly healthy diets was linked to a lower risk of premature death." 

Related posts:

Self-Control as a Performance-Enhancing Drug: Like cognitive ability, self-control predicts health, wealth, and all things good (2024)

Does Exercise Improve Survival After a Cancer Diagnosis? An Encouraging New Study (2024)

Life expectancy can increase by up to 10 years following sustained shifts towards healthier diets in the United Kingdom (2023)

Even Short Runs Have Major Health Benefits (2023)

What if the Most Powerful Way to Live Longer Is Just Exercise? (2023) 

Exercise Helps Blunt the Effects of Covid-19, Study Suggests (2023)

Carry Your Groceries, Take the Stairs: Short, Intense Movement Can Improve Your Health (plus non drug ways to fight diabetes and Covid) (2022)

Almost half of cancer deaths globally are attributable to preventable risk factors, new study suggests (2022)

New research leads to doubt over the extent or even existence of the ego‐depletion effect (the theory of the exhaustible willpower muscle) (2019)

How lifestyle changes can reduce the risk of dementia (2019)

Good health begins with individual decisions (2018)

Nearly half of U.S. cancer deaths blamed on unhealthy behavior (2017)

Regular Exercise: Antidote for Deadly Diseases? (2016)

Is Willpower An Untapped Resource? (2011)

Why It’s So Difficult for Robots to Make Your Nike Sneakers

Trump sees tariffs as a way to boost U.S. manufacturing, but Nike’s struggle to move production from Asia is a cautionary tale

By Jon Emont of The Wall Street Journal. 

I've done alot of posts on robots (links to them are below). They don't always replace workers. They might complement workers or allow workers to do other things. They don't necessarily cause the unemployment rate to go up.

Excerpts:

"Starting in 2015, Nike poured millions into an ambitious effort to partly automate what has always been a highly labor-intensive industry. At the time, rising labor costs in China and advances in manufacturing techniques such as 3-D printing opened the possibility of finding a new way to make shoes that would rely on fewer workers."

"The company aimed for large-scale automated production in under a decade, which it said would save on labor costs and allow it to deliver new models of shoes to Americans faster."

"Nike and Flex [Flex, an American manufacturer that had helped Apple set up a complex factory] established new production lines that used machines commonly seen in electronics manufacturing—but rarely shoemaking—such as a “pick and place” machine that is known for mounting components onto circuit boards. The machines were supposed to build the upper part of a shoe, knit fabric, add logos and glue the sole. 

The effort quickly ran into trouble.

The robots struggled to handle the soft, squishy and stretchy parts that are integral to shoemaking. Shoe fabrics also expand and contract depending on the temperature, while in shoemaking no two soles are exactly alike.

Human workers can adapt to such challenges, but it proved difficult for machines.'

"As a result, factory production never became as automated as envisioned. As shoe production increased, the factory personnel swelled to 5,000, about twice as many as originally planned and costing more than a similar workforce in Vietnam. Task after task proved challenging to automate, like the delicate work of gluing soles to the upper part of the shoe."

"A central problem was also the huge variety of shoes Nike produces. For decades, American consumer companies have given designers nearly unlimited freedom to dream up the coolest products and relied on Asian manufacturers to deliver them. And unlike cars or iPhones, shoe models are changing all the time."

"At one point, it took the Flex team eight months to figure out how to automate a way to put the Nike swish on a shoe, only for Nike to move onto a new shoe line for which the method Flex developed no longer worked." 

"Flex and Nike wound up the project by early 2019. By then, Under Armour had stopped mentioning to investors its “Project Glory” mission to make shoes in the U.S. That year Adidas, which had also faced challenges producing complex shoes with robots, said it would close down production in Atlanta and Germany."

Related posts:

 

Amazon’s New Robotic Warehouse Will Rely Heavily on Human Workers: The 3 million-square-foot distribution center in Shreveport, La., demonstrates the limits of automation in big logistics operations (2024)

 

Two recent articles on robots and human workers (2024) 

 

"The Battle Over Robots at U.S. Ports Is On: Striking dockworkers are back to work—but disagreement over automation​ stands in the way of lasting peace"

"At a Brooklyn Warehouse, Robots Are Reshaping the Grocery-Delivery Business: A discount grocer’s pilot program is using robots to help complete orders—and keep prices down"

 

Self-service kiosks at McDonald’s are not reducing employment (2024)

 

The AI-Generated Population Is Here, and They’re Ready to Work: AI that can predict how specific humans will look, act and feel could do the jobs of fashion models, focus group members and clinical trial participants (2024)

 

Meet the Robots Slicing Your Barbecue Ribs (2024)

 

Robots writing science fiction (2024)

 

Robots Are Looking Better to Detroit as Labor Costs Rise (2024)

 

Are robot vehicles replacing workers in freight yards, warehouses and seaports or are they being used because it is hard to find workers? (2023)

 

Sweetgreen Hires Kale-Shooting Robots to Speed Up Service  (2023)

 

“Why did the human stare at the glass of orange juice?” “They were trying to concentrate.” (2023) (this post it partly about jokes written by ChatGPT)

 

Will technology cost artists their job? (2023)

 

Rent a robot for Christmas? Makes sense if you are a logistics company (2022)

Walgreens Turns to Prescription-Filling Robots to Free Up Pharmacists (2022)

Answering the Call of Automation: How the Labor Market Adjusted to the Mechanization of Telephone Operation (2022)

Warehouses Look to Robots to Fill Labor Gaps, Speed Deliveries  (2021)

Is unemployment still high because of structural unemployment?    (2021)

The Pizza Delivery Guy Will Be a Robot at Many Campuses This Fall  (2021)

Many Jobs Lost During the Coronavirus Pandemic Just Aren’t Coming Back (2021)

Can computers write poetry?Could they replace poets? (2020)

Will computer programs replace newspaper columnists?  (2020)

Is Covid causing some structural unemployment? (2020)

Is Covid causing some structural unemployment? (Part 2) (2020)

McDonald’s Tests Robot Fryers and Voice-Activated Drive-Throughs: Burger giant wants to speed service as competition for fast-food diners mounts (2019)

Is Walmart adding robots to replace workers or because it is hard to find workers? (2019) 

The Robots Are Coming And It Might Not Be A Case of Structural Unemployment  (2018)

Broncos to debut beer-pouring robot at upcoming game (2018)

Robots Are Ready to Shake (and Stir) Up Bars (2018) 

Automation Can Actually Create More Jobs  (2016)

Are Computer Programs Replacing Journalists? (2015)

Robot jockeys in camel races (2014) 

Structural Unemployment In The News-Computers Can Now Tell Jokes  (2013)

WHAT do you get when you cross a fragrance with an actor?

Answer: a smell Gibson.

Robot Journalists-A Case Of Structural Unemployment? (2010)

Can Trump’s Tariff Offensive Deliver New American Jobs?

By Lauren Weber of The WSJ. Excerpts:

"Most economists and other experts are skeptical that job creation will happen on a large scale because planning and building new factories is an incredibly complex and lengthy process. Businesses will be reluctant to do that unless they’re sure the investment is worth it over the long term. 

A fairly simple, midsize factory would cost a minimum of $25 million and take around two years to build, said Andreas Haag, founder of Streamliners, a consulting firm that helps manufacturers design and improve their factories. Complex projects can cost hundreds of millions of dollars, and new tariffs are adding to the expense.

With the White House indicating it is going to negotiate with trade partners and possibly reduce some of the tariffs—indeed, Trump paused most of the tariffs on Wednesday afternoon—there’s no certainty that new factories would pay back their investment over time."

"Manufacturers have been struggling with labor shortages for years. Among the reasons: Factory jobs developed a reputation as dirty, dull or dangerous; more young people go to college today than in the heyday of American manufacturing; production jobs require more sophisticated skills; and baby boomers are retiring faster than they can be replaced. 

A 2024 report by Deloitte and the Manufacturing Institute estimated that the U.S. may have 1.9 million unfilled manufacturing jobs by 2033.

Employers have relied on immigrant workers to fill gaps, but they expect fewer immigrants to come to the U.S. as Trump tightens border policy."

Related posts:

Americans Are Stockpiling Ahead of Trump’s Tariffs (2025)

Powell Warns of ‘Challenging Scenario’ for Fed as Trade War Rages (2025) 

How Much Do Tariffs Raise Prices? (2025)

Politicians talk about creating manufacturing jobs but do people really want them? (2025)

How some of Trump's policies might affect the economy (2024)

Tariffs are regressive: they fall more heavily on lower-income families who tend to spend more of their income on cheap imported goods (2024)

Americans Are Stockpiling to Get Ahead of Tariffs: Some consumers are snapping up computer parts, vacuum cleaners, coffee and olive oil before levies take effect (2024)

Life is full of tradeoffs: If we support American workers with trade restrictions it might mean more inflation (2023) 

Will removing Chinese tariffs have a dramatic impact on inflation? (2022)

Life Is Full Of Tradeoffs: If We Want To Do More To Fight Climate Change We May Have To Lower Tariffs On Solar Panels Which Might Put U.S. Firms Out Of Business  (2021)

Mark Twain, Free Trade and Tariffs (2019)

What happened in some earlier U.S. trade Wars? (2019)

The importance of imports of capital and intermediate goods to the U.S. economy (2019)

Historical trends in manufacturing (2018)

Abandoning free trade might threaten peace and stability across the globe (2017)

Interesting New Book On Trade And Tariffs By Marc-William Palen (2017)

Before You Criticize Free Trade, You Should Read Douglas Irwin's Book Free Trade Under Fire (2012)

How a Secretive Gambler Called ‘The Joker’ Took Down the Texas Lottery

A global team of gambling whizzes hatched a scheme to snag the jackpot; millions of tickets in 72 hours

By Joe Wallace and Katherine Sayre of The WSJ. Excerpts:

"There were 25.8 million potential number combinations. The tickets were $1 apiece. The jackpot was heading to $95 million. If nobody else also picked the winning numbers, the profit would be nearly $60 million."

"The crew worked out a way to get official ticket-printing terminals. Trucks hauled in dozens of them and reams of paper." 

"the machines—manned by a disparate bunch of associates and some of their children—screeched away nearly around the clock, spitting out 100 or more tickets every second."

"Over the years, Ranogajec [Zeljko Ranogajec, the gambler who bankrolled the operation] and his partners have won hundreds of millions of dollars by applying Wall Street-style analytics to betting opportunities around the world. Like card counters at a blackjack table, they use data and math to hunt for situations ripe for flipping the house edge in their favor. Then they throw piles of money at it, betting an estimated $10 billion annually." 

"The Texas lottery play . . . paid off spectacularly with a $57.8 million jackpot win."

"lieutenant governor, Dan Patrick, called the crew’s win “the biggest theft from the people of Texas in the history of Texas.”"

[the group's lawyer] "said “all applicable laws, rules and regulations were followed.”"

"A group of Princeton University graduates, incorporated under the name Black Swan Capital, has won millions in recent years playing scratch-off tickets and other lottery games in various states. Lottery officials and others who have tracked their tactics say they appear to calculate when the math is most in their favor, using publicly available information such as how many prizes are in a game and how many remain unclaimed. When the odds are right, they swoop in, hoping to win back more money than they spend.

One Black Swan team member collected a $5 million win in Missouri in 2019; another won $10 million in North Carolina in 2022. In Maryland, a Black Swan team used lottery machines in four liquor stores for four days to win a $2.6 million prize."

"in 2023, Texas also allowed online lottery-ticket vendors to set up shops to print tickets for their customers." 

"Marantelli’s team recruited one such seller, struggling startup Lottery.com, to help with the logistics of buying and printing the millions of tickets. Like all lotto retailers, it would collect a 5% sales commission. The Texas Lottery Commission allowed dozens of the terminals that print tickets to be delivered to the four workshops set up by the team."

"The printing operation ran day and night. The team had converted each number combination into a QR code. Crew members scanned the codes into the terminals using their phones, then scrambled to organize all the tickets in boxes such that they could easily locate the winning numbers. 

The game called for picking six numbers from 1 to 54. For a pro gambler, some sets of numbers—such as 1,2,3,4,5,6—aren’t worth picking because so many other players choose them, which would split the pot. Marantelli’s operation bought 99.3% of the possibilities.

Money moved to Lottery.com from Ranogajec’s accounts"

"The crew hit the jackpot that Saturday. One of their tickets was the sole winner."

"About two months later, the lottery commission revealed that the prize had been claimed by a limited partnership called Rook TX. The winner had elected to remain anonymous, the commission said, as allowed under state law."

"Gov. Greg Abbott ordered the Texas Rangers to investigate"

"State lottery directors say they are seeing more organized efforts to buy lottery tickets in bulk, but that the groups are largely operating legally and transparently."

"Maryland lottery director John Martin" [said]  it’s not illegal"

"His state has imposed limitations on retailers intended to make bulk buying more difficult."

"That Saturday, the Commission announced the winning numbers: 3, 5, 18, 29, 30 and 52. Within hours, Marantelli’s crew had located the winning ticket in a file box in one of their four workspaces. An associate snapped a photo of a smiling Marantelli holding up the winner, flanked by team members and boxes.

Executives at Lottery.com swapped backslapping emails. “This is a huge win for the company,” wrote Potts, explaining that it would turn a nearly $264,000 profit on its sales commission."

"after a series of articles in the Houston Chronicle exposed the role of the overseas gamblers, Texas lawmakers began asking questions. Nettles, the watchdog, sued Lottery.com and the winners, alleging that the state’s regular players had been defrauded. The defendants haven’t yet responded to the allegations."

"Texas Lottery Commission Executive Director Ryan Mindell, a deputy at that time, said the mass buying had compromised public perception about fairness. He said the request for ticket terminals had been approved by a junior employee, and complied with policy. 

The lottery commission and the Texas Rangers continue to look into the episode. Lottery officials and state lawmakers have taken steps to prevent a repeat."

"The Texas Lottery Commission, however, got wind of [another] effort and thwarted it by pushing out a software update that limited the number of tickets a terminal could sell in a day."

Related posts:

Can you make money betting on horse racing? (2022) 

San Antonio College Math Professor Reforms Texas State Lottery (2007) 

Why AI Might Not Take All Our Jobs—if We Act Quickly

MIT economics professor Sendhil Mullainathan says it is in humans’ power to put AI on a path to help us rather than replace us

By Justin Lahart of The WSJ. Excerpts:

"Massachusetts Institute of Technology economist Sendhil Mullainathan, 53, makes the point that AI isn’t a thing that is happening to humans but a thing that humans are making."

Everything below are answers to Lahart's questions:

"People imagine that AI is going to automate things, but they don’t appreciate that automation is just one path. There’s nothing intrinsic about machine learning or AI that puts us on that path. The other path is really the path of augmentation."

"If we keep going down the automation path, it’s going to be very hard to walk back and start changing things."

"we’re building algorithms with a strong capability for automation. And when we say they’re getting better and better, we mean their capabilities for automation are getting better and better."

"An AI bot is introduced that gives suggestions to the workers [at call centers]. [The researchers] study the effect of the bot on performance, and they find that when workers get access to the bot they do better. And they find that the worst workers get helped the most." 

"But after a few months, remove the bot, and the worker is just as good as with the bot. So what was happening is this bot is actually not a helper bot, it is a teacher bot."

"One of the most useful things augmentation can do is it can help us with the things that we’re not as good at, to leave room for the things we are excellent at. Behavioral economics has helped identify those blind spots.

Take something like a résumé screening. We’re very bad at reading through things really fast. It’d be really interesting if, after I did the résumé screen, there was a product that said, “Hey, here’s 10 résumés that are the kind you usually don’t pick. But when you do pick them it looks like you actually hire the person, or they do well in the interview. Why don’t you give these more time?”"

Related posts:

Some economics of A.I. (2025)

Some good news on productivity (2025) (AI is mentioned)

The AI-Generated Population Is Here, and They’re Ready to Work (2024)

Robots writing science fiction (2024)

Will technology cost artists their job? (2023)

“Why did the human stare at the glass of orange juice?” “They were trying to concentrate.” (2023) (Partly about AI being used to tell jokes)

The $900,000 AI Job Is Here (2023) 

Prompt engineers chat with generative-AI chatbots (creative destruction and how the economy just keeps creating new types of occupations & professions) (2023)

Are robots writing fake product reviews? (2022)

What if companies can't afford real models for their ads? Use AI generated fake pictures (2020) 

An AI Breaks the Writing Barrier (2020) 

What Econ 101 Can Teach Us About Artificial Intelligence: Here's why advancing technology often leads to more jobs for humans, not fewer (2017)

They Are Hot, Upwardly Mobile Jobs. Here’s Why They Are So Hard to Fill.

Some of the fastest-growing careers lie in middle-skill roles like sterilizing surgical tools, yet too few people know about them

By Lauren Weber of The WSJ. Excerpts:

"a fundamental riddle of the U.S. labor market: how to match people eager for opportunity with the millions of good jobs that go unfilled because workers don’t know about them or whether investing in the training will pay off."

"many of the fastest-growing jobs with upward mobility stem from a class of careers that defy traditional blue- and white-collar labels. Somewhere in the middle, they require a modest level of tech-infused skills, not a college degree, and can pay in the high-five figures and eventually more, in areas such as healthcare, information technology and energy production."

"U.S. workers have long benefited from an “invisible hand”-style labor market based on supply-and-demand signals. Some are lucky enough to have some career counseling or training in high school or college. Most, though, learn what skills businesses need and how to acquire them by observing the people and economic activity around them, getting advice from family and friends, applying for open jobs and talking to employers."

"What’s needed is “a coordinated career-navigation system,” said Robert Espinoza, chief executive of the National Skills Coalition. Instead, “people may end up overpaying for low-quality training programs or credentials that don’t lead to good jobs, and then fall into low-paying jobs where they get stuck.”"

Brazil’s Stagnant Economy Is the Poster Child for High Tariffs

While high tariffs protect some jobs in the country, they have also driven up costs for consumers and helped make domestic industry inefficient

By Samantha Pearson of The WSJ. Excerpts:

"Brazil’s World War II-era policy of protectionism has kept some jobs home but has also driven up costs for consumers and, according to economists, stifled competition and innovation. That iPhone 16 made in Brazil costs almost twice as much as a Chinese-made model sold in the U.S. for $799.

The strategy has done little to boost Brazil’s industrial production. On the contrary, it has lowered productivity and led to some notorious price-fixing scandals, economists said. Manufacturing made up 36% of gross domestic product in 1985. Now it has fallen to about 14%, the worst example of “premature deindustrialization” in the world, according to the São Paulo-based Institute for the Study of Industrial Development."

"Brazil has relied on domestic consumption during external economic crises, from the oil shocks of the 1970s to the 2008-09 financial crisis. But it has also bred complacency and protectionism during more prosperous times, ultimately making goods more expensive for consumers.

“They never felt the competitive pressure to innovate and to reduce costs and to find a way to survive in a competitive market,” said Alberto Ramos, head of Latin America economics research at Goldman Sachs. 

Brazilians who can afford imported goods typically pay several times the price they would in the U.S. The price differences are so vast that rich Brazilians spend much of their vacations abroad shopping, stuffing their suitcases so full that returning flights are often delayed as airline staff scramble to find room in the cabin."

Pope Francis on economics and the environment

This was an article that was published in The San-Antonio Express News September 22, 2015. See Pundits drinking Pope Francis’ Kool-Aid.

I was surprised by how both an Express-News editorial and St. Mary's professor Vincent Johnson so uncritically praised the pope's views on economics and the environment ("Our hope: Give us hell, Pope Francis," and "Pope's brave embrace of environmentalism inspires," Sept. 20).
 
The editorial said the pope is worried about the poor and “idolatry of money” and that unfettered markets could lead to “a new tyranny.” It also mentioned that trickle-down theories have "never been confirmed by the facts."
 
Some facts run counter to the pope's narrative.
 
Capitalism may serve the poor well. The poorest 10% of the population in the most capitalist countries have incomes about nine times higher than in the least capitalist countries. Life expectancy is much higher while infant mortality is much lower. Child labor rates are much lower, too.
 
From 1949-1961, as Charles Murray has pointed out, the poverty rate in the U. S. was cut in half, a time when we had few government programs.
 
Robert Rector of the Heritage Foundation reported in 2011 that 75% of poor households had air conditioning while 92% had microwave ovens. Once even the rich could not buy them. Capitalism brought products like these, and many others, to the masses, with constantly increasing ownership rates.
 
Hundreds of millions of people have been lifted out of extreme poverty in the last few decades in China and India as they came to rely more on markets and less on government planning.
 
Economist Tyler Cowen observed in The New York Times that global inequality fell in the last 20 years, partly due to improvements in China and India. International trade played a big role, too.
 
The pope also "advocates a thoughtful and reasonably regulated capitalism." Our economy has hardly been unregulated.
 
In the U.S., for example, we have many environmental regulations and an Environmental Protection Agency. We have recycling programs.
 
There is also the Corporate Average Fuel Economy (CAFE) standards that mandate each car maker achieve so many miles per gallon.
 
Regulatory spending by federal agencies is about nine times higher today than it was in 1970, adjusted for inflation. We add thousands of pages of new regulations each year.
 
Yet many regulations are not thoughtful and reasonable.
 
Electric cars get subsidized. If you buy as a Chevy Volt, you can get about $7,500 in the form of tax credits. But, as Megan McCardle reported, even if we all drove the Volt, U. S. emissions would only go down 3.5%.
 
There may also be environmental consequences from mining lithium, which is a component of car batteries.
 
Environmentalist Bjørn Lomborg has pointed that "The toughest global warming policy today is the European Union's commitment to cutting 20% of greenhouse gas emissions by 2020. This will cost $235 billion and cut temperatures at the end of the century by a measly 0.1ºF."
 
Johnson mentions that the pope is worried about wasting resources. But in 2008 the National Academy of Sciences reported that "Americans use about half as much energy per dollar of Gross Domestic Product (GDP) as they did in 1970." We are less wasteful than we used to be.
 
Johnson stressed the importance of the environment more than the editorial. But the EPA has reported that between 1980-2013, emissions of six principal air pollutants dropped by 62%. So there has been some good environmental news.
 
The pope seems either unwilling to acknowledge the benefits of capitalism and some environmental improvements over the last few decades or he is unaware of them. Whatever the case, his views should be viewed more critically.

Adam Smith Meets Joseph Campbell (the force of history is hard for man to change)

Campbell wrote the book The Hero With a Thousand Faces, which was one of the inspirations for Star Wars. He was interviewed by Bill Moyers in a six hour series in the 1980s on PBS. That series was called The Power of Myth.

Here is one passage:

"“This is the threat to our lives that we all face today. Is the system going to flatten you out and deny you your humanity, or are you going to be able to make use of the system to the attainment of human purposes? How do you relate to the system so that you are not compulsively serving it? It doesn't help to try to change it to accord with your system of thought. The momentum of history behind it is too great for anything really significant to evolve from that kind of action. The thing to do is learn to live in your period of history as a human being. That's something else, and it can be done.”"

Here is another:

"The world is a wasteland. People have the notion of saving the world by shifting it around and changing the rules and so forth. No, any world is a living world if it’s alive, and the thing is to bring it to life. And the way to bring it to life is to find in your own case where your life is, and be alive yourself, it seems to me."

Adam Smith said something that seemed similar in his book The Theory of Moral Sentiments:

"The natural course of things cannot be entirely controlled by the impotent endeavours of man: the current is too rapid and too strong for him to stop it; and though the rules which direct it appear to have been established for the wisest and best purposes, they sometimes produce effects which shock all his natural sentiments."

Smith also seems to be hinting at the law of unintended consequences. Here is a longer excerpt to see the context:

"But though the general rules by which prosperity and adversity are commonly distributed, when considered in this cool and philosophical light, appear to be perfectly suited to the situation of mankind in this life, yet they are by no means suited to some of our natural sentiments. Our natural love and admiration for some virtues is such, that we should wish to bestow on them all sorts of honours and rewards, even those which we must acknowledge to be the proper recompenses of other qualities, with which those virtues are not always accompanied. Our detestation, on the contrary, for some vices is such, that we should desire to heap upon them every sort of disgrace and disaster, those not excepted which are the natural consequences of very different qualities. Magnanimity, generosity, and justice, command so high a degree of admiration, that we desire to see them crowned with wealth, and power, and honours of every kind, the natural consequences of prudence, industry, and application; qualities with which those virtues are not inseparably connected. Fraud, falsehood, brutality, and violence, on the other hand, excite in every human breast such scorn and abhorrence, that our indignation rouses to see them possess those advantages which they may in some sense be said to have merited, by the diligence and industry with which they are sometimes attended. The industrious knave cultivates the soil; the indolent good man leaves it uncultivated. Who ought to reap the harvest? who starve, and who live in plenty? The natural course of things decides it in favour of the knave: the natural sentiments of mankind in favour of the man of virtue. Man judges, that the good qualities of the one are greatly over-recompensed by those advantages which they tend to procure him, and that the omissions of the other are by far too severely punished by the distress which they naturally bring upon him; and human laws, the consequences of human sentiments, forfeit the life and the estate of the industrious and cautious traitor, and reward, by extraordinary recompenses, the fidelity and public spirit of the improvident and careless good citizen. Thus man is by Nature directed to correct, in some measure, that distribution of things which she herself would otherwise have made. The rules which for this purpose she prompts him to follow, are different from those which she herself observes. She bestows upon every virtue, and upon every vice, that precise reward or punishment which is best fitted to encourage the one, or to restrain the other. She is directed by this sole consideration, and pays little regard to the different degrees of merit and demerit, which they may seem to possess in the sentiments and passions of man. Man, on the contrary, pays regard to this only, and would endeavour to render the state of every virtue precisely proportioned to that degree of love and esteem, and of every vice to that degree of contempt and abhorrence, which he himself conceives for it. The rules which she follows are fit for her, those which he follows for him: but both are calculated to promote the same great end, the order of the world, and the perfection and happiness of human nature.

But though man is thus employed to alter that distribution of things which natural events would make, if left to themselves; though, like the gods of the poets, he is perpetually interposing, by extraordinary means, in favour of virtue, and in opposition to vice, and, like them, endeavours to turn away the arrow that is aimed at the head of the righteous, but to accelerate the sword of destruction that is lifted up against the wicked; yet he is by no means able to render the fortune of either quite suitable to his own sentiments and wishes. The natural course of things cannot be entirely controlled by the impotent endeavours of man: the current is too rapid and too strong for him to stop it; and though the rules which direct it appear to have been established for the wisest and best purposes, they sometimes produce effects which shock all his natural sentiments. That a great combination of men should prevail over a small one; that those who engage in an enterprise with forethought and all necessary preparation, should prevail over such as oppose them without any; and that every end should be acquired by those means only which Nature has established for acquiring it, seems to be a rule not only necessary and unavoidable in itself, but even useful and proper for rousing the industry and attention of mankind. Yet, when, in consequence of this rule, violence and artifice prevail over sincerity and justice, what indignation does it not excite in the breast of every human spectator? What sorrow and compassion for the sufferings of the innocent, and what furious resentment against the success of the oppressor? We are equally grieved and enraged at the wrong that is done, but often find it altogether out of our power to redress it. When we thus despair of finding any force upon earth which can check the triumph of injustice, we naturally appeal to heaven, and hope, that the great Author of our nature will himself execute hereafter, what all the principles which he has given us for the direction of our conduct, prompt us to attempt even here; that he will complete the plan which he himself has thus taught us to begin; and will, in a life to come, render to every one according to the works which he has performed in this world. And thus we are led to the belief of a future state, not only by the weaknesses, by the hopes and fears of human nature, but by the noblest and best principles which belong to it, by the love of virtue, and by the abhorrence of vice and injustice."

Related posts:

Science Proves That Adam Smith Was Right Over 200 Years Ago (sort of) (2009) 

Adam Smith vs. Ace Ventura (2010)

 

Adam Smith, Marriage Counselor (2011)

Adam Smith And Joseph Campbell On The Dangers Of "The Man Of System" (2017) 

Adam Smith Meets Jonathan Haidt (on political polarization and the animosity of hostile factions) (2021) 

Pride and Profit: The Intersection of Jane Austen and Adam Smith (2023)

Powell Warns of ‘Challenging Scenario’ for Fed as Trade War Rages

Sees strong likelihood that consumers face higher prices while unemployment rises because of tariff increases

By Nick Timiraos of The WSJ. Excerpts:

[Federal Reserve Chair Jerome] "Powell said he saw a “strong likelihood” that consumers would face higher prices and that the economy would see higher unemployment as a result of tariffs in the short run.

This would create a “challenging scenario” for the central bank because anything it does with interest rates to address inflationary pressures could worsen unemployment, and vice versa, he said. “It’s a difficult place for a central bank to be, in terms of what to do,” Powell said during a moderated discussion at the Economic Club of Chicago."

"When determining how to set interest rates in such a scenario, the Fed would weigh how far inflation is from its 2% target, how weak the labor market becomes and how long it could take for both of those variables to improve.

Powell also hinted that the central bank could give priority to its inflation goal over its labor-market mandate if the two were in conflict. The Fed would attempt to balance the two goals, “keeping in mind that, without price stability, we cannot achieve the long periods of strong labor market conditions that benefit all Americans,” he said.

The Fed’s focus, he said, will be to ensure that any one-time increases in prices from tariffs don’t fuel more persistent price increases."

"Powell suggested that the postpandemic experience was top of mind for policymakers who are now confronting new shocks to global supply chains from tariffs. Powell pointed to carmakers and their assembly chains as one example of economic activity that could be “disrupted significantly” by tariffs."

"the Fed is likely to hold back from lowering interest rates, which can stimulate demand by spurring purchases of interest-rate sensitive goods, until it sees an increase in joblessness." 

What this article hints at is a decrease or leftward shift in aggregate supply. Tariffs will raise the prices of resources and that is a shift factor for the supply curve or supply line. A fall in supply raises the price of goods while reducing overall output (which raises the unemployment rate). What should the Fed do in response?

It mentions lowering interest rates to increase demand. But if prices have just gone up throughout the economy, that could mean more inflation. The Fed could raise interest rates to reduce demand to lower the pressure on prices. But that might also reduce output and raise the unemployment rate.

This dilemma is illustrated in the graph below. AD stands for aggregate demand or demand for all goods and services. P is the price level like the CPI. Q is the output of all goods and services (or real GDP). Q_F is the full-employment GDP. That is the highest level of real GDP that also keeps prices stable (inflation no more than 2%). It is not possible to stay above this level for very long and it will probably mean creating alot more inflation.

The graph shows a decrease in supply (SRAS1 to SRAS2), raising prices and lowering output (with the unemployment rate increasing).

If the Fed raises interest rates, AD will shift to the left, lowering prices (but maybe not much since we are in the relatively flat part of SRAS). This reduces total output on top of the reduction caused by SRAS shifting. We probably don't want to do that.

But if the Fed cuts interest rates AD will shift to the right. That is okay as long as that happens in the relatively flat part of SRAS because prices won't go up that much. But it is hard to know ahead of time whether or not how far AD will move and if it will push us past Q_F. It does seem like the article hints that doing this might be okay. Near the end some other Fed officials offer a slightly different opinion than Powell's.