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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

Richard Posner is Wrong on Billy Budd

11 hours ago

I just finished watching Django Unchained this weekend and I highly recommend it. One of the things that helped me enjoy it fully is the idea that anything a slave does to those who enslave him, even up to killing  the enslavers and the enablers of the enslavers, is justified. That’s a view I’m quite comfortable with. If you’re not comfortable with it, you probably will not get the pleasure out of Django Unchained that I did.
Thinking about the movie got me thinking about former federal judge and law/econ scholar Richard Posner’s views on Herman Melville’s novel Billy Budd. If you don’t want spoilers, don’t read on. Here’s the short version of the novel. Billy Budd is impressed, that is, conscripted, into the British Navy. He is very popular with the crew but the

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The Chemistry of Ethanol

1 day ago

As you know if you’ve followed ethanol in the last decade, the federal government requires a certain amount of ethanol in gasoline.Glen Whitman, a friend on Facebook, posted the following and gave me permission to post on EconLog.
· It takes more energy to make ethanol from corn than you get from the ethanol.
· Corn requires a whole lot of fertilizer, and the runoff goes into the Mississippi River and runs down to the Gulf of Mexico, where it creates a dead zone the size of New Jersey.
· A gallon of ethanol has only about 2/3 the energy of a gallon of gasoline; hence, your miles per gallon will decrease if you use gasoline containing ethanol.
· Making corn into ethanol for our cars is tantamount to burning our food, and it is driving up the cost of the food left to eat. Corn is a staple

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Dinesh D’Souza and Critical Students Have Civilized Dialogue

2 days ago

I’ve seen multiple YouTube videos of Q&A sessions when Dinesh D-Souza gives talks at universities. He often gets his share of hostile comments and I wondered how he would be treated at Stanford when he spoke there last month. So I watched the first few minutes of his speech and then jumped to Q&A. The talk is titled “The moral case for Trump’s wall.” It probably goes without saying, but I’ll say it anyway: I’m not a fan of the wall.
The bottom line: The questions and comments from even the students who clearly disagree with D’Souza were uniformly civil and D’Souza responded in kind. Beyond the tone, there was a lot of good discussion. I haven’t checked all of D’Souza’s facts but if they are correct (and I already know that some of them are correct), then he

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Oregon Government Rips Off Workers

4 days ago

One myth – perpetuated by the National Employment Law Project – is that state mandates expand opportunity to retirement savings, especially for low-income workers. They don’t. OregonSaves initially defaults worker contributions into a conservative capital preservation fund before redirecting contributions to a life-cycle fund once balances exceed $1,000. Since inception in 2004, the capital preservation fund has offered a paltry nominal return of 1.52% (essentially an inflation-adjusted return of 0%). OregonSaves also assesses an administrative fee of 100 basis points (that is, 1%) regardless of investment choices, further diminishing this return. This set-up isn’t really an opportunity for Oregon workers, because they already have access to Roth IRAs and

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Henderson on Unintended Consequences of Grounding the Boeing 737 Max

6 days ago

The two recent crashes of Boeing 737 Max airplanes with the deaths of all aboard were tragic. It’s understandable that government agencies around the world, with the U.S. Federal Aviation Agency being the last, have grounded all 737 Max airplanes until they know more.
Those government actions could actually cause more fatalities than they prevent.
The reason is the law of unintended consequences. Any action you take may, in the best circumstances, achieve what you intend. But people’s actions often cause unintended consequences that offset the good effects of the actions. Examples of unintended consequences, especially consequences of partially thought out government policies, are many. In this article, though, I’ll note two, on airline safety and car safety.

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Alan Krueger RIP

8 days ago

Shocking news today: Noted Princeton University economist Alan Krueger died this weekend. He was only 58 years old. Alan was the chairman of President Obama’s Council of Economic Advisers from 2011 to 2013. He was also co-author, with David Card, of the famous book that challenged the conventional wisdom on the effects of moderate increases in the minimum wage. Here’s an excerpt from my pretty critical review of their book. Note that he was no fan of the current Democratic proposal to raise the minimum wage to $15 an hour, as he made clear in a 2015 op/ed in the New York Times.
I never met Alan in person, but we did debate income inequality on NPR in 2014. He was a very civilized debater and I still appreciate that. (Interestingly, he and I weren’t as far apart on

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Peter Berger’s Historical Perspective

9 days ago

I’m going through various books in my library, trying to decide which ones to give to friends, which to donate, and which to discard. I almost offered to give sociologist Peter L. Berger’s 1986 book, The Capitalist Revolution, to a friend but, before doing so, reread sections I had marked up. I’m keeping it.
The book has zinger after zinger.
Here are two that give historical perspective that might make you appreciate modern dentistry and modern bathrooms, respectively.
However, it is important to keep in mind the long-lasting realities of material life so as to avoid the recurring romanticisms about premodern times. As a mental exercise, for example, one might focus on the fact that almost all of human history took place without the benefits of modern dentistry.

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Chicago’s Lesser-Known Free Marketeer

11 days ago

I’m now free to post my tribute to Harold Demsetz, which appeared in the Wall Street Journal on January 13 (January 14 print edition.) It was titled “Chicago’s Lesser-Known Free Marketeer.” Here it is:

Harold Demsetz, who died Jan. 4 at 88, was one of the greatest economists of the 20th century not to win a Nobel Prize. He made major contributions to the economics of property rights and industrial organization. He was also one of the few top economists of his era to communicate almost entirely in words and not math.

In 1967 he argued that property rights develop where the gains from enforcing them exceed the costs. In the 1970s he destroyed the then-dominant view that industrial monopolies or oligopolies are inherently inefficient. Companies that achieve large

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A Missed Opportunity for Dianne Feinstein

27 days ago

Presumably some of you have seen the video of the group of children, and an adult or two, having a conversation with Dianne Feinstein. I never thought I would say anything nice about her but I do appreciate two things.
First, Senator Feinstein argued back when challenged. A lot of Democratic politicians don’t seem to have the guts to do even that.
Second, I like the part (at about the 1:00 point in the short video) where the girl says “We’re the people who voted [for] you.” Feinstein asks “How old are you?” The girl answers “I’m 16, I can’t vote.” Feinstein replies “Well you didn’t vote for me.”
In the rest of it, though, Feinstein pulls rank, reminding them that she is much more experienced (true) and knows more (almost certainly true.)
But she could have done

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Green Airbnb

28 days ago

I’m not giving anything away in saying that the winner of best picture in last night’s Oscars, Green Book, was about a white driver driving a black musician around the southern United States and that there really was a Green Book, published annually, that told black people where they go in various states (not just in the South) to eat a meal or stay overnight. It sold millions of copies. Here’s a link to the actual Green Book.
Of course the movie was less about the Green Book and more about the development of the relationship between the musician and the driver. I won’t give any spoilers here.
The book was published annually from 1936 to 1966. It’s worth going to the link and looking inside. One of my disappointments is that, at least in the two editions I looked

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A Modest Proposal for Prosecutors Who Lie

February 22, 2019

The title is a little simplified because this post is not just about prosecutors who lie. It’s also about those who hide exculpatory evidence and get witnesses to lie.
The proposal is this: Any prosecutor who does this should be charged with a crime and the penalty should be equal to the penalty that the judge has imposed on the defendant. The one exception is when the judge has imposed capital punishment. In that case, the penalty for the prosecutor should be life in prison without the possibility of parole.
This should be so even if it can be shown that the defendant was guilty.
Prosecutors today have little fear of going to prison for a long time for lying, withholding exculpatory evidence, or getting witnesses to lie. If they knew that they had some reasonable

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Who’s Afraid of Budget Deficits?

February 21, 2019

In a provocative article in Foreign Affairs titled “Who’s Afraid of Budget Deficits?” Jason Furman and Lawrence H. Summers argue that we should not worry much about the federal government’s large and growing budget deficits.  While they admit that politicians and policymakers “shouldn’t ignore fiscal constraints entirely,” they say that they “should focus on urgent social problems, not deficits.” And throughout the piece, they assume, for every single problem they address, that the solution is more spending. It’s not surprising that they don’t worry much about deficits.
Furman and Summers aren’t just rank and file economists. Furman, an economics professor at Harvard University’s Kennedy School, was the chairman of former President Barack Obama’s Council of

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Wilbur Hamilton Ross

February 20, 2019

Payday for Public Choice.
Because it’s [the tariffs on Chinese goods] spread over thousands and thousands of products, nobody’s going to actually notice it at the end of the day.
This quote is from an interview of Commerce Secretary Wilbur Ross on CNBC’s Squawk Box last September.
And now here’s Alexander Hamilton in April 1782:
No mode [other than tariffs] can be so convenient as a source of revenue to the United States. It is agreed that imposts on trade, when not immoderate, or improperly laid, is one of the most eligible species of taxation. They fall in a great measure upon articles not of absolute necessity, and being partly transferred to the price of the commodity, are so far imperceptibly paid by the consumer.
What’s interesting, beyond their assertion

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Van Doren on Payday Loans

February 19, 2019

The Consumer Financial Protection Bureau (CFPB) recently proposed the elimination of new payday lending rules created under the Obama Administration and imposed in 2017. Payday lenders are frequently vilified—a recent New York Times editorial declared that the CFPB “betrayed financially vulnerable Americans last week by proposing to gut rules…that shield borrowers from predatory loans”—but recent evidence indicates that the predatory costs of payday loans may be nonexistent and the benefits are real and measurable. Thus, the original regulatory restrictions were unnecessary.
Most Americans take access to credit for granted, but many lower-income Americans have difficulty meeting the requirements to get a credit card or take out collateralized loans. With minimal

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Cowen Interview with Jordan Peterson

February 17, 2019

Economist Tyler Cowen recently interviewed Canadian psychologist Jordan Peterson. The audio and transcript are here.
My three favorite highlights follow. After that, I’ll say what I wish Tyler had asked about.
On modern universities:

They [universities] do absolutely everything wrong from a psychological perspective because the fundamental rule — if you’re a psychologist who’s interested in increasing resilience — is that you help people identify what they’re afraid of and what they would like to avoid that’s standing in the way of their movement forward. Then you design techniques to help them voluntarily confront that and learn how to withstand it or to cope with it.
That’s standard exposure therapy. It’s the bedrock of virtually every therapeutic system — that

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Wisdom from Tony Lip

February 16, 2019

My wife and I went to see the movie Green Book and thoroughly enjoyed it. I highly recommend it.
I won’t bother recounting the story; that’s easy to find on line.
Instead I want to remark on a line in the movie. The white driver, Tony Lip, says to Dr. Don Shirley:
I like what you did back there, Doc. You stood up for yourself. It’s like your friend the President says, “Ask not your country what you could do for it, ask what you do for yourself.” You know?
Presumably we are supposed to laugh at that line. Many people at the movie, including my wife and me, did laugh.
But, whatever the screen writer’s intent with that line, it’s actually a very wise comment. Indeed, it is much better, content-wise, than the original JFK line. That line “Ask not what your country can

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McCloskey on Liberalism

February 15, 2019

Concretely I mean that the bizarre 18th-century idea of liberalism—which is the theory of a society composed entirely of free people, liberi, and no slaves—gave ordinary people the notion that they could have a go.  And go they did. In the earliest if hesitatingly liberal societies such as Britain and France, and among the liberi in societies still fully dominated by traditional hierarchies such as Russia and much of Italy, or the slave states of the United States, the turn of the 19th century saw a sharp rise of innovation.  “Innovation” means new ideas in technology and organization and location, ranging from the electric motor to shipping containers to opening a new hairdressing salon in town, or to moving to Chicago away from Jim Crow and sharecropping.  Since

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Should Blackmail be Legal?

February 14, 2019

In his latest column for Bloomberg, “Seven Lessons About Blackmail,” economist Tyler Cowen takes up the issue of blackmail. What motivated it, of course, as he makes clear, is the recent controversy involving Amazon’s Jeff Bezos’s allegation that the National Enquirer has blackmailed him.
Although Tyler recognizes that a case needs to be made that blackmail should be illegal, he doesn’t do justice to the issue. His only statement on the issue in his piece, other than a brief mention that Jeff Bezos is one of the good guys, is this:
Finally, most people now have a new and better sense of why blackmail should be illegal. Economists have long faced an embarrassing question: If it helps deter undesirable actions, what exactly is wrong with blackmail? The traditional

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Cowen on the Egalitarianism of the Economics Profession

February 11, 2019

Economic analysis is itself value-free, but in practice it encourages a cosmopolitan interest in natural equality. Many economic models, of course, assume that all individuals are motivated by rational self-interest or some variant thereof; even the so-called behavioral theories tweak only the fringes of a basically common, rational understanding of people. The crucial implication is this: If you treat all individuals as fundamentally the same in your theoretical constructs, it would be odd to insist that the law should suddenly start treating them differently.
At least since the 19th century, the interest of economists in personal liberty can be easily documented. In 1829, all 15 economists who held seats in the British Parliament voted to allow Roman Catholics

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Adam Smith’s Beautiful Reductio ad Absurdum

February 10, 2019

I’m about to leave for home from an excellent Liberty Fund colloquium on “Free Trade and Liberty” in La Jolla. Thanks to Liberty Fund, discussion leader Sandra Peart, organizers Pierre Lemieux and Liberty Fund’s Hans Eicholz, and the other participants.
One of the readings is from Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations. Here’s a great passage where he does a really nice reductio ad absurdum to make the point that, for a given quality, it makes sense to buy where it’s cheapest:
The natural advantages which one country has over another in producing particular commodities are sometimes so great that it is acknowledged by all the world to be in vain to struggle with them. By means of glasses, hotbeds, and hot walls, very good

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Ernie Fitzgerald RIP

February 8, 2019

David Boaz, over at the Cato Institute, has an obituary today of A. Ernest Fitzgerald, the legendary cost analyst at the Pentagon. Here’s the Washington Post‘s obituary. The Post does an excellent job and so I won’t try to replicate it here. I do recommend reading it so that you can get a feel for how heroic he was, risking his job and President Nixon’s personal wrath to blow the whistle on the cost overruns on the Pentagon’s C-5A program.
When I was a summer intern at President Nixon’s Council of Economic Advisers in the summer of 1973 (I call it Watergate summer because that’s when the Watergate hearings were happening), I resolved to use some lunches and occasionally, parts of my weekends and evenings to meet with every critic of government that I had admired

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Cuomo Admits Tax Burden on “the Rich”

February 7, 2019

Finally, a major Democratic politician admits it.
[Governor Andrew] Cuomo said the super-wealthy in New York – accounting for 1 percent of tax filers – end up paying 46 percent of the personal income taxes the state collects each year.
“Tax the rich. Tax the rich. Tax the rich. We did that. God forbid the rich leave,” Cuomo said of a mobile group of people who can more easily switch residences to states with lower state and local tax levels.
This is from Tom Precious, “‘Serious as a Heart Attack’: Cuomo Warns of Falling State Revenue,” The Buffalo News, February 4, 2019.

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Henderson on AOC and Allowing Billionaires

February 6, 2019

In a recent interview, author Ta-Nehisi Coates asked newly elected Democratic Congresswoman Alexandria Ocasio-Cortez whether we “live in a moral world that allows for billionaires.” He clarified, “Is that a moral outcome, in and of itself?” Representative Ocasio-Cortez (henceforth AOC) answered that it is not moral and went on to say, “I do think a system that allows billionaires to exist when there are parts of Alabama where people are still getting ringworm because they don’t have access to public health is wrong.”
Her statement made it sound as if she thinks there’s a strong connection between the two. The uncharitable interpretation of her statement is that she thinks the people making billions are preventing poor people from getting good health care, as if

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Greg Mankiw Responds

February 5, 2019

Last week, I challenged Harvard economics professor Greg Mankiw’s interpretation of Mr. Potter in the classic movie It’s a Wonderful Life. Greg has responded by email and given me permission to quote it. (By the way, he was a junior economist when I was a senior economist with President Reagan’s Council of Economic Advisers and, although we see each other rarely, get along well. He’s a genuinely good guy and so none of my criticism reflects any animus towards him.)
Recall that I had admitted one of Greg’s points but disputed others. In his original post, Greg had written:
Mr Potter makes his money dishonestly and uses it to control the instruments of the government to further enrich himself and impoverish the lives of those around him.
Here’s the key part of my

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Ask What Changed

February 4, 2019

When you try to understand change, whether in economics or in the rest of life, one good rule is to ask what other factor or factors changed. To explain a change in one variable, we have to point to another variable that changed, not to one that stayed the same.

Asking what changed can lead us to reject some explanations and embrace others. Consider three examples: the recent California fires; cable television’s sudden decision to drop C-SPAN in the early 1990s; and the dramatic increase in heroin-related deaths.
These are the opening two paragraphs of Charles L. Hooper and David R. Henderson, “Economists Know: Ask What Changed,” the Econlib Feature Article for February.
Another excerpt:
The aforementioned Hill and Kakenmaster do point to one factor that has

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Jake Tapper Doesn’t Understand Freedom

February 4, 2019

We shouldn’t get to a place where there are people yelling from the rafters that because you have been successful, you are a bad person and we’re going to be punitive to you. That’s, to me, the antithesis of the spirit of the country.”
So said Starbucks chairman emeritus Howard Schultz.
Sounds right to me.
And what is CNN anchor Jake Tapper’s reaction?

The free speech part or the freedom of assembly part?

Neither, Jake.
To argue against people yelling attacks from the rafters is not to attack their freedom of speech or assembly.

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Customs Officer Discovers Effects of International Trade

February 3, 2019

About a week after I was made a Commissioner of the Customs, upon looking over the list of prohibited goods, (which is hung up in every Customhouse and which is well worth your considering) and upon examining my own wearing apparel, I found, to my great astonishment, that I had scarce a stock, a cravat, a pair of ruffles, or a pocket handkerchief  which was not prohibited to be worn or used in G. Britain. I wished to set an example and burnt them all. I will not advise you to examine either your own or Mrs Eden’s apparal [sic] or household furniture, least you be brought into a scrape of the same kind.
This quote is from a letter written by Adam Smith to William Eden. It is quoted in a footnote in Chapter II of The Wealth of Nations. The chapter is titled “Of

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Good News on Employment

February 1, 2019

The latest data (for January) on employment and unemployment came out this morning and the news is good.
The biggest news:
The labor force participation rate, which has been the sick puppy this century, rose by 0.1 percentage point, from 63.1 percent to 63.2 percent.
The employment to population ratio rose by 0.1 percentage point, from 60.6 percent to 60.7 percent.

The overall unemployment rate rose, however, from 3.9 percent to 4.0 percent. In most subcategories, by age, race, gender, etc., the unemployment rate rose slightly or stayed the same.
So with a higher unemployment rate, why do I say that the news is good? It’s because of the first two pieces of news above, on labor force participation rate and on the employment to population ratio.
The above data are

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Greg Mankiw Gets It Partly Right

January 30, 2019

In a blog post titled “Who is the prototypical rich person?” Greg Mankiw responds to a pretty bad New York Times op/ed by Emmanual Saez and Gabriel Zucman. I was waiting for someone to spot a pretty big error in Greg’s piece, but no one has. So I’ll point it out.
Greg wants to argue that it matters how one becomes rich. He and I agree that that really matters. But check out how he illustrates the point.
Greg writes:

Saez and Zucman seem to think that rich people are like Henry Potter, the conniving banker in It’s a Wonderful Life. Mr Potter makes his money dishonestly and uses it to control the instruments of the government to further enrich himself and impoverish the lives of those around him.

Another kind of rich person is someone like Taylor Swift. She is

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