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David Henderson

David Henderson

David Henderson is a British economist. He was the Head of the Economics and Statistics Department at the OECD in 1984–1992. Before that he worked as an academic economist in Britain, first at Oxford (Fellow of Lincoln College) and later at University College London (Professor of Economics, 1975–1983); as a British civil servant (first as an Economic Advisor in HM Treasury, and later as Chief Economist in the Ministry of Aviation); and as a staff member of the World Bank (1969–1975). In 1985 he gave the BBC Reith Lectures, which were published in the book Innocence and Design: The Influence of Economic Ideas on Policy (Blackwell, 1986).

Articles by David Henderson

War Fighting and the Loss of Liberty

7 days ago

But if we forswear military intervention in other countries, are there any tools left to affect the world in a positive way? Yes, and one of the main ones is free trade. In 1750, the Baron de Montesquieu, whose philosophy influenced the Founding Fathers, opined that "the natural effect of commerce is to bring peace." More recently, economists Solomon W. Polachek of SUNY Binghamton and Carlos Seiglie of Rutgers have shown that a doubling of trade between two nations leads to a 20 percent decline in belligerence between those two nations.

So we as Americans can help the world become a more peaceful place by supporting free trade and by engaging in trade ourselves.

Furthermore, as Professor Tucker points

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Chronology of Past Jobs I Have Had, Part 2

8 days ago

Occasionally our family didn’t spend the whole summer at our cottage and so I had to come up with ways of making money other than hunting golf balls.

One way was to pick crabapples at the local Aubin’s Nursery in Carman. We were paid by the bag. I was about 12 or 13 at the time. The person who oversaw the work said that we couldn’t put a lot of leaves and other filler in the bag; we needed to do a clean pick. I understood this: their time value at cleaning up our dirty picks was higher than the time value of the young guys who were picking.

I made one mistake, which I’m actually very proud of, and avoided one mistake, and I’m also very proud of that.

The "mistake" I made was to do "too clean" a pick.

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Chronology of Past Jobs I Have Had, Part 1

9 days ago

On Facebook in the last few months, various friends have listed jobs they had chronologically. I’ve gotten quite a lot of enjoyment from reading them, but in many cases I wanted to know more: (1) how old were you when you had it?(2) what did you do in that job?(3) what did you learn from that job?

So I’ve decided to do a series of posts, starting with my earliest work (at about age 8).

WARNING If you find this uninteresting, do yourself a favor: don’t read on.

Hunting for golf balls.

At the summer cottage that I started going to every summer from the time I was 7 months old, there was a 9-hole golf course nearby run by the Minaki Lodge. My late brother, Paul, who was 11 at the time, introduced me to

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How Republican John Cox Can Win California

10 days ago

One word: water.This bill [AB 1668] would require the State Water Resources Control Board, in coordination with the Department of Water Resources, to adopt long-term standards for the efficient use of water, as provided, and performance measures for commercial, industrial, and institutional water use on or before June 30, 2022. The bill would require the department, in coordination with the board, to conduct necessary studies and investigations and make recommendations, no later than October 1, 2021, for purposes of these standards and performance measures. The bill would require the department, in coordination with the board, to conduct necessary studies and investigations and would authorize the

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Trump’s Dangerous Game

11 days ago

The importance of two asymmetries.

Some of my pro-Trump friends argue that Trump is right in threatening tariffs on other countries as a way of getting governments of other countries to reduce their tariffs on imports from the United States. They point out, correctly, I think, that tariff rates that other countries’ governments impose on U.S. goods tend to exceed tariff rates that the U.S. government imposes on imports from those countries. Therefore, they argue, it’s justified to threaten higher tariffs on their exports to the United States until those countries’ governments reduce their tariff rates.

But even if it is justified–and I can understand their case–that leaves one huge question unanswered:

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Compassionate Diversified Capitalist

11 days ago

Early Tuesday morning, a car crashed into a local McDonald’s restaurant in Seaside, California, about 5 miles from where I live. The McDonald’s caught on fire and collapsed. Fortunately all the employees were able to get out safely.

The owner, Landon Hofman, owns 7 local McDonald’s franchises. Here’s a clip from a local news story about how he reacted:On Tuesday Hofman found jobs for all 42 of the employees from the Seaside store at his other locations.

"I have spent all morning long now taking all the employees from this store and redistributing them to the other stores because they’ve got bills to pay and mouths to feed," he said.This illustrates two things: (1) his compassion and (2) the value of

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Obama Trumped Trump

12 days ago

One of the great things about blogging is the frequent times one learns from commenters. The Trump tweet on the unemployment rate is a case in point.

When I posted about it, I thought, naively, as did co-blogger Scott Sumner, that Donald Trump had set a precedent by revealing something about the unemployment numbers before they were officially announced by the Bureau of Labor Statistics.

Wrong!

It turns out, according to commenter Viking, that President Obama did it also, and not on Twitter where everyone following him on Twitter had the same access, but to a select group of people of his own party. There are two other important differences. First, Obama did it many hours, not just 69 minutes, before

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A Cure for Our Health Care Ills

14 days ago

Some progressives claim that they have an easy solution, one that proceeds from their belief that more government it is often the answer: Medicaid or Medicare for all. What is the easy solution of classical liberals? There are two sets of reforms: one on the demand side and one on the supply side. On the demand side are a surprisingly simple combination of out-of-pocket payments, a new type of event-based health insurance, traditional care-based health insurance for some, and, perhaps, judicious subsidies. A later article will deal with reforms on the supply side.This is from Charles L. Hooper and David R. Henderson, "A Cure for Our Health Care Ills," Econlib Featured Article, June 4, 2018.

One of my

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Trump’s Unemployment Tweet

15 days ago

As most economists who follow the unemployment statistics released by the Bureau of Labor Statistics probably know, President Trump broke with a strong tradition by tweeting, over an hour before the official release date, a hint about what the statistics would be. He tweeted:Looking forward to seeing the employment numbers at 8:30 this morning.Many economists were fit to be tied. How dare he do that!

My initial reaction was highly negative also. When there’s a tradition of not beating the BLS to the punch, a gut conservatism takes hold: why break with tradition when there’s no good reason to do so? Trump introduced a wild card into the system. Now, if some month he doesn’t tweet about looking forward to

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Henderson on BBC on Trade War

15 days ago

I got a text from BBC late Saturday afternoon asking me if they could interview me for an early Sunday morning (London time) segment on Trump’s tariffs and the possibility of a trade war. They recorded it and, I believe, used about 75% of what I said.

Here it is.

My segment goes from about 2:00 to about 6:00.

Thanks to journalist Paul Schuster of "the Beeb."

Comments and Sharing

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Warriors Moneyball

16 days ago

The 15 minutes between the end of the second quarter and start of the third are a carefully choreographed production, featuring clips of game footage, wardrobe changes and managerial strategies straight out of business school. Coach Steve Kerr, based on interviews with players and coaches, has worked to create an environment of inclusion. This is not a place for Lombardi-esque rah-rah speeches. Rather, the Warriors’ halftime locker room is a high-speed 360-degree team review.
This is from Marc Stein and Scott Cacciola, "Why Do the Warriors Dominate the 3rd Quarter? Consider Their Halftime Drill," New York Times, May 31, 2018.

The whole thing is well worth reading. While reading it, I wondered how they

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Why is the CEA So Effective?

18 days ago

Over the 34 years since I was a senior economist with the Council of Economic Advisers (CEA), I’ve compared notes with other senior economists who worked there at different times–a few earlier than me, but most later (and often much later) than me.

Last week, I attended a seminar at the Naval Postgraduate School. The presenter was Abby Wozniak of the University of Notre Dame. I took her to coffee beforehand and it turns out that she was a labor economist at the CEA early in the Obama administration. We talked about our experiences and then Abby asked me why I thought the CEA was so effective. The background, which we both knew, is that the CEA professional staff and support staff number no more than

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Caplan on Education

19 days ago

As I noted earlier, I’ve prepared for a colloquium at Milton and Rose Friedman’s summer home, Capitaf, that happens next month.

I went through various chapters of both Capitalism and Freedom and Free to Choose thoroughly to see whether they held up. The majority do.

But on one issue that the Friedmans address in both books, I can no longer think the way I did even as little as a year ago: the issue of education and schooling. Reading the first third of Bryan Caplan’s The Case Against Education and listening to the various interviews–my favorite is the one by Robert Wiblin–has changed my thinking fundamentally.

I remember Bob Lucas at the University of Chicago writing:Is there some action a government

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The Scary Economics of Illegal Fentanyl

20 days ago

And the obvious missing solution.

The opioids as a class have what is known as a "narrow therapeutic window," where the "window" is the range between the median effective dose (ED50) – the dose that’s has the desired effect in half the population – and the median lethal dose (LD50). The larger the LD50/ED50 ratio (the wider the "window") the safer the drug will be in terms of overdose risk.

For the opioids, the ratio (also called the "therapeutic index") is typically about six, which sounds like a reasonable margin of safety until you remember that individuals differ, that individual vulnerabilities differ from occasion to occasion (especially with the presence of other drugs, notably alcohol), and

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Friedman on Ending Government Programs

21 days ago

I’m working my way through chapters of both Milton Friedman’s 1962 book, Capitalism and Freedom and Milton and Rose Friedman’s 1980 book, Free to Choose, to prepare for a colloquium next month at Capitaf (the Friedman’s summer home in Vermont that they bought with royalties from Capitalism and Freedom.) I’ll be a discussion leader with students from the University of Arkansas.

At the end of Capitalism and Freedom, Chapter II, "The Role of Government in a Free Society," Milton writes:Yet it is also true that such a government would have clearly limited functions and would refrain from a host of activities that are now undertaken by federal and state governments in the United States, and their

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Robert Poole on Airline Deregulation

23 days ago

Bob Poole of the Reason Foundation has written an outstanding article on airline deregulation. He gives a nice history of the issue, filled with lots of facts about the effects of deregulation and about where we need to go next: pricing landings better and following countries like Canada in getting rid of our antiquated socialist (pardon the redundancy) system of air traffic control.

Bob, by the way, wrote a piece in Reason in 1969, "Fly the Frenzied Skies," that was only the second thing I ever read on airline deregulation. The first was then-graduate student Sam Peltzman’s excellent piece in the New Individualist Review.

Some excerpts follow.

On the seeming impossibility of deregulation:My very first

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Remember Your Goal

25 days ago

A few months ago, various people, presumably in response to Jordan Peterson’s book, came up with their 12 rules for living. I could do the same, but instead my co-author Charley Hooper and I wrote a whole book on it: Making Great Decisions in Business and Life.

So rather than give some of the main points from that book, I’ll give a rule that I see frequently broken. It’s one that if people followed, they would often do better. In a way, it’s a version of one of the rules we talk about in the book. In the book we say that for any choice, you should ask yourself "What is your objective?"

Here’s the new version:In any conflict or controversy, always keep in mind what you are trying to achieve.In other

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Douglas Irwin on Trump’s Views on Trade

26 days ago

On Monday I attended an outstanding talk at the Hoover Institution given by Dartmouth University economics professor Doug Irwin. He hit some highlights of his recent book, Clashing Over Commerce: A History of U.S. Trade Policy, and also talked at some length about President Trump’s views on trade. Although Doug was, not surprisingly, critical of Trump, he didn’t take any cheap shots. Rather, he, using PowerPoint, showed statements that Trump had made about trade and showed why they didn’t make sense.

The main thing about Trump that I took away from the talk was Trump’s emphasis on the balance of payments deficit as a measure of how good or bad the international trade system is for the United States. I

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Jeff Hummel on David Andolfatto

27 days ago

David Andolfatto, an economist and Vice-President of the St. Louis Fed (and apparently, going by his CV, a fellow Canadian) wrote last year:The fact that bonds become close substitutes for money when their yields are similar explains how the supply and demand for bonds can influence the inflation rate. Normally, we think of an increase in the demand for bonds as lowering bond yields. This is correct. But what happens when those yields approach the corresponding yield on interest-bearing money? (In the old days, when interest on reserves was zero, this limit was called the zero-lower-bound). An increase in the demand for bonds in this case must manifest itself in other ways. One way is for the price-level

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CBS Sunday Morning Is Often Implicitly Libertarian

29 days ago

A few years ago, I loved watching CBS Sunday Morning for the beautiful 45-second nature scenes they show right at the end. I finally got smart a few months ago and started DVRing it. Then I can fast forward through everything else I love and get to the parts I want.

But gradually something different happened. I found that there were often very compelling stories about humans acting wonderfully toward other humans and often toward at-risk animals. So the April 29 version I watched this afternoon, for example, was so good that I watched almost all of it and fast-forwarded through a few short items.

Here are three things I saw in the April 22 and April 29 episodes that I watched this weekend.

1. In the

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One Possible Benefit of the Royal Wedding

May 19, 2018

I woke this morning at 4 a.m. PDT and, as is my wont, turned on ESPN. But the woman on ESPN was saying that many people were watching the royal wedding. Ooh, I thought, I forgot. So I turned to ABC and watched it for a while as I did my bicycle exercise. The worst part: a black U.S. minister, Michael Curry, who took full advantage of his 15 minutes of fame; he seemed to forget at times that the wedding wasn’t about his agenda and his views. (Although I loved Ben E. King’s "Stand by Me" that followed.)

As regular readers of this blog know, I tend to be a glass-half-full person. So here’s my optimistic take. When the new bride, Meghan Markle, finds out that she and her husband must file U.S. taxes every

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Workers Affect Worker Safety Too

May 18, 2018

When I taught a cost/benefit analysis course, one of the topics I covered was worker safety. Using W. Kip Viscusi’s excellent entry "Job Safety" in The Concise Encyclopedia of Economics, I showed that there is an implicit market for safety in the workplace and that workers do a pretty good job of judging relative risks.

My whole discussion, and Kip’s, treated the safety decision as if it were totally in the hands of the employers. I implicitly assumed that employers have complete control over employees’ actions. They don’t. To have such control, employers would have to engage in detailed monitoring or set up incentives for other employees to report on workers who are putting their employees at risk.

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Little Pink House Is a 9

May 17, 2018

I saw the movie Little Pink House in Monterey on Tuesday night. Here’s the trailer.

I rate movies on a scale of 1 to 10. Anything 7 or over is one I’m glad I saw and would recommend.

Little Pink House is a 9.

It’s the true story of Susette Kelo and her fight to keep her house from being seized by the local government in New London, Connecticut.

Spoiler ahead. The case goes all the way to the Supreme Court where she loses by a 5 to 4 vote. (That’s a spoiler only for people who know nothing about the Kelo case.)

There’s not a wasted scene or line of dialogue in the movie.

I was surprised by how much one of the villains, Charlotte Wells, played by Jeanne Tripplehorn, made her case for seizing

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Futures Trading Brought Down Bitcoin Price

May 15, 2018

File under: Why didn’t I think of that?From Bitcoin’s inception in 2009 through mid-2017, its price remained under $4,000. In the second half of 2017, it climbed dramatically to nearly $20,000, but descended rapidly starting in mid-December. The peak price coincided with the introduction of bitcoin futures trading on the Chicago Mercantile Exchange. The rapid run-up and subsequent fall in the price after the introduction of futures does not appear to be a coincidence. Rather, it is consistent with trading behavior that typically accompanies the introduction of futures markets for an asset.This is from Galina Hale, Arvind Krishnamurthy, Marianna Kudlyak, and Patrick Shultz, "How Futures Trading Changed

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Kennan on Card and Krueger and Obenauer and Nienburg

May 14, 2018

In a book of this size (over 400 pages) one would like to see a chapter tracing the history of economists’ attempts to measure the effects of minimum wages. Instead, the book contains only casual and sometimes misleading references. For example,

[Here he quotes Card and Krueger] The idea of using natural experiments is hardly new in economics. Indeed, the earliest research, by Richard Lester (1946) and others, used that approach. Nevertheless, it is controversial-perhaps because studies based on the natural experiment approach often seem to overturn the "conventional wisdom." (p. 21)

This begs [sic] the question of how the wisdom became conventional in the first place. Moreover, the contribution of

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Two Good Economists’ Letters

May 13, 2018

Greg Mankiw writes:Some sign a letter opposing tariffs. Others sign a letter supporting President Trump. You can guess which one I signed.Like Greg, I signed the first one and not the second one.

However, had I been asked to sign the second–I wasn’t–the only reason I would have refused is that it’s billed as "Economists for Trump." I almost never sign a letter where the signers are taking a position in favor of a politician rather than in favor of some of a politician’s policies and positions. But the author(s) of the Trump cleverly came out in favor of Trump’s good policies while expressing their hope that certain things would or wouldn’t happen.

Here’s the key section expressing hope:We believe that

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80 Years Before Card and Krueger

May 13, 2018

A labor economist friend who studies the minimum wage writes:I found a 103 year old BLS report on a minimum wage increase in Oregon that had a stronger grasp on credible research design than Card & Krueger. Also, one of the authors is named "Bertha von der Nienburg" and she was 24 when the report was written. If I was the sort of person who did that sort of thing, I’d blog about this.The study is "Effect of Minimum-wage Determinations in Oregon," Bureau of Labor Statistics, July 1915.

The authors are Marie L. Obenauer and Bertha von der Nienburg.

I got a little bogged down working my way through it and the authors don’t come to any strong conclusions. But the care they take and the granularity of their

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Was Segregation of Movie Theaters Due to Laws Requiring It?

May 11, 2018

An economic study that caused me to change my mind.

I have believed for a long time that racial segregation would have been a small problem if not for laws requiring it. One of the strong examples in favor of my belief was the street car story:In Augusta, Savannah, Atlanta, Mobile, and Jacksonville, streetcar companies responded by refusing to enforce segregation laws for as long as fifteen years after their passage. The Memphis Street Railway "contested bitterly," and the Houston Electric Railway petitioned the Houston City Council for repeal. A black attorney leading a court battle against the laws provided an ironic measure of the strength of the streetcar companies’ resistance by publicly denying that

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Another Thought About Why U.S. Wages Haven’t Risen Much

May 9, 2018

Regular reader Ryan P. Long, in response to my post a few days ago, "Krugman on a Wage Puzzle," writes:I’ve quite enjoyed your recent blog posts. The one on Paul Krugman’s idea about wage stagnation was particularly interesting to me. Both his post and yours had me thinking about a hypothesis I’ve had since the big recession hit, and I want to ask your thoughts.

The idea itself is pretty simple, although I haven’t read much discussion of it in economics blogs: Globalization and outsourcing are putting severe downward pressure on U.S. wages, even for skilled work, and the "worst of this" (from the American wage-earner’s perspective, notwithstanding their benefit as consumers) is yet to come.

One example

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The Posner and Weyl Historical Error

May 8, 2018

In a recent article in which they lament the timidity of modern economists, Eric Posner and Glen Weyl recently wrote:The upshot is that economics has played virtually no role in all the major political movements of the past half-century, including civil rights, feminism, anticolonialism, the rights of sexual minorities, gun rights, antiabortion politics, and "family values" debates. It has been completely unprepared for Trumpism and other varieties of populism, having failed to predict those developments just as it failed to predict the financial crisis of 2008. And, until very recently, it has shrugged at one of the most politically charged and morally troubling issues of our time — the rise in

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