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David Henderson

David Henderson

David R. Henderson (born November 21, 1950) is a Canadian-born American economist and author who moved to the United States in 1972 and became a U.S. citizen in 1986, serving on President Ronald Reagan's Council of Economic Advisers from 1982 to 1984.[1] A research fellow at Stanford University's Hoover Institution[2] since 1990, he took a teaching position with the Naval Postgraduate School in Monterey, California in 1984, and is now a full professor of economics.[3]

Articles by David Henderson

Essential UCLA School is Now Out

7 days ago

Last year, fellow UCLAer Steve Globerman and I wrote a short book for Canada’s Fraser Institute on the distinctive UCLA school. It’s now out. We’re pretty proud of it. It’s part of Fraser’s series on particular economists and on schools of thought. The schools of thought books are harder to do because you have to decide whom to exclude or say little about.
The book is here.
Here are two paragraphs from Chapter 1:

The most important member of the School was Armen Alchian, who died in 2013. Alchian taught at UCLA from 1946 until his retirement in 1984. As you will see throughout this volume, Alchian’s insights and writings underlie a distinctive theme of the School’s approach to economics: in most productive activity, the profit motive, combined with private

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EconVersation with Dan Sutter of Troy University

8 days ago

Dan Sutter, an economist who heads the Manuel Johnson Center for Political Economy at Troy University, interviewed me in June about my recent article in Reason titled “Economic Lessons from COVID-19,” Reason, June 2021.
The 30-minute interview is up.
Some highlights:
3:00: How incentives matter.
5:25: Extra federal unemployment benefits and a free summer vacation.
8:00: Opportunities for teenagers.
8:50: Mises, Hayek, and the socialist calculation debate.
9:50: Polanyi, The Tacit Dimension.
10:30: How the central planning insight applies to COVID.
12:00: How the private sector responded.
13:20: Value is subjective.
15:00: My value of going to my cottage.
16:00:  What my wife tells people that I do as an economist.
17:00: What’s wrong with one size fits all and why

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What’s Wrong with Registering Women for the Draft?

9 days ago

The National Commission on Military, National, and Public Service issued a report in March recommending that Congress “eliminate male-only registration and expand draft eligibility to all individuals of the appropriate age cohort,” because “expanding draft eligibility to women will enable the military to access the most qualified individuals, regardless of sex.” Women have been eligible to occupy all combat roles since 2015.
This is from Ella Lubell, “Senate Considers Requiring Women to Register for the Draft,” Reason Hit and Run, July 22, 2021.
Lubell also points out the ACLU’s disappointing stance:
“Like many laws that appear to benefit women, men-only registration actually impedes women’s full participation in civic life,” says the ACLU on its website.

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Freedom is Regulation, Florida Edition

13 days ago

A spokeswoman for the Florida governor’s office said Norwegian’s stance discriminated against children and individuals who can’t be vaccinated, and noted the state’s legal efforts against the Centers for Disease Control and Prevention’s sailing restrictions and protocols.
“Apparently Norwegian prefers the shackles of the CDC to the freedom offered by Florida,” the spokeswoman said in a statement. “This administration will not tolerate such widespread discrimination.”
This is from Dave Sebastian, “Cruise Line Sues on Vaccine Proof,” Wall Street Journal, July 14, 2021 (print edition).
You wouldn’t know it from the Florida governor’s spokeswoman’s quote, but Norwegian Cruise Lines is actually suing for freedom of association, and it is the governor and Florida’s

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Biden’s Executive Order on Competition

15 days ago

Recently the Wall Street Journal stated that President Biden’s July 9 executive order on competition is a “sweeping proposal to spur competition.” That raises an important question: how can a government spur competition? Economics has a lot to say about that question. The major way, which goes back to Adam Smith, is to get rid of barriers that government itself uses to block or limit competition. While the Biden executive order does mention one government barrier to competition, occupational licensing, it is vague about what should be done on that issue and passes on getting rid of most of the extensive government barriers to competition. Unfortunately, much of the order’s focus is on the danger of market concentration. It might surprise Biden and many in his

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Reminiscences of Thurgood Marshall

16 days ago

Sitting in those smoke-filled back rooms, he did business with lots of people whose identities would stun a modern audience. Decades later, he still remembered many of the infamous segregationists of the age with respect, and even a kind of distant affection. People, he would say, are complicated.
I once asked him what he thought of John W. Davis, the prominent lawyer who argued the other side in one of the consolidated cases known collectively as Brown v. Board of Education. Davis, the 1924 Democratic presidential candidate, is the Davis for whom the prestigious Wall Street law firm Davis Polk & Wardwell is named. He was also an old-school West Virginia gentleman — and a dyed-in-the-wool segregationist.
Naturally, I assumed that the Judge would heap hellfire and

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Two Facts about Mass Transit and Cars

18 days ago

Americans drove nearly 96 percent as many miles in May 2021 as in the same month in 2019, indicating a return to normalcy. Transit ridership, however, was only 42 percent of pre‐​pandemic levels, which is making transit agencies desperate to justify their future existence and the subsidies they depend on to keep running.
This is from Randal O’Toole, “Transit’s Dead End,”, July 13, 2021.
But does that mean that governments are reducing their subsidies to mass transit? Guess again.
O’Toole points out the basic problem with mass transit in the United States, almost all of which is run by, or heavily subsidized by, governments:
Transit’s real problem is that it is operating a nineteenth‐​century business model in twenty‐​first century cities. In 1890, when

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The New World of Radio

18 days ago

“Are you willing to do this on Zoom?” said the familiar voice on the other end of the line.
“Sure,” I said.
So he emailed me a Zoom link within a minute and, for the first time, we did the radio interview on Zoom. After the 20-minute interview, the interviewer, who asked me not to list his name or his radio network, panned his camera around his study in Connecticut to show me his $600 RODEcaster and explain some of its features. He used to interview me from his Manhattan office but now he doesn’t need to go there. His show runs on the radio network at night, and he interviews people in Europe in the early morning, people like me at midday, and people in Asia in the evening.
In his view, podcasts will be a huge part of radio broadcasting.
I want me one of those

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Trillions of Dollars of Retirement Wealth Have Been Mislaid

19 days ago

And once they are accounted for, measured wealth inequality plummets. 
One reason that the illiquid and non-market resources of DB [defined benefit] pensions and Social Security are typically excluded from studies of wealth concentration is that they are not directly available in household-level survey data. Our work addresses this issue by taking data from the Survey of Consumer Finances (SCF), estimating work histories to predict future Social Security income streams, and combining these results with estimated accrued DB assets and other market wealth holdings to form an expanded wealth measure. We look at households aged 40 to 59, who are building up to peak wealth accumulation before drawing down assets in retirement. Our estimates show that the value of DB

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Larry White on Brainerd on Stablecoins

22 days ago

Monetary economist Larry White had an excellent post recently on stablecoins. It’s titled “Should We Fear Stablecoins?” Alt-M, June 24, 2021.
A large part of his discussion is critical of comments made by Leal Brainerd, a Federal Reserve Board governor. I really do recommend that you read the whole White piece, but I’ll give a couple of excellent highlights plus one criticism.
He quotes this statement by Brainerd:
Given the network externalities associated with achieving scale in payments, there is a risk that the widespread use of private monies for consumer payments could fragment parts of the U.S. payment system in ways that impose burdens and raise costs for households and businesses.
In reply, Larry writes:
To clarify, network effects (more users of a common

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Congressman Rumsfeld on the Draft

25 days ago

I first heard of Donald Rumsfeld in 1969, when I became a strong opponent of the draft and wanted to get more information. I picked up a copy of Sol Tax, ed., The Draft: A Handbook of Facts and Alternatives, University of Chicago Press, 1967, and read it cover to cover. It’s a transcript of all the papers given and discussions after the papers from the famous 4-day conference on the draft at the University of Chicago. It took place from December 4 to 7, 1966. It was this conference that Milton Friedman stated, in his joint autobiography with Rose Friedman, Two Lucky People, was an important step toward ending the draft.
Four people from Congress attended: Democratic Senators Edward M. Kennedy from Massachusetts and Maurine Neuberger from Oregon, Democratic

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Benefits of the American Revolution: An Exploration of Positive Externalities

27 days ago

It has become de rigueur, even among libertarians and classical liberals, to denigrate the benefits of the American Revolution. Thus, libertarian Bryan Caplan writes:  “Can anyone tell me why American independence was worth fighting for?… [W]hen you ask about specific libertarian policy changes that came about because of the Revolution, it’s hard to get a decent answer. In fact, with 20/20 hindsight, independence had two massive anti-libertarian consequences: It removed the last real check on American aggression against the Indians, and allowed American slavery to avoid earlier—and peaceful—abolition.” One can also find such challenges reflected in recent mainstream writing, both popular and scholarly.
In fact, the American Revolution, despite all its obvious costs and excesses, brought

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Two Objections to Free Trade

27 days ago

In my recent Defining Ideas article titled “A Refresher Course on Free Trade,” I made the case for free trade. A large part of the economic case is that free trade makes people in the country that adopts it better off than if their government hadn’t adopted it. It makes imports cheaper, allows consumers to get a more varied range of goods, and causes labor and capital to be allocated to areas of the economy where they are most productive.
In the United States in recent years, there have been two main objections to free trade. The first is that when free or freer trade is introduced into a particular sector, producers in that sector, both owners of capital and laborers, will be worse off. Therefore, argue some of the people who make this point, either trade

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Mike Gravel on Sunk Costs in War

29 days ago

Former Democratic Senator from Alaska Mike Gravel died on Monday in Seaside, a city on the Monterey Peninsula. He was my favorite candidate for the Democratic president nomination in 2008. Here’s his best minute and a half in one of the debates. I like the whole thing, but the part that’s a really nice application of the sunk cost theorem is the last 10 seconds:
You know what’s worse than a soldier dying in vain is more soldiers dying in vain.
Personal note:
When I had my old office on Alvarado St. in Monterey in the early 2000s, I looked out my window and thought I saw Mike on the street. I rushed down the stairs and talked to him, finding out that he lived in my area. How did I recognize him? Back in late 1979, the Hoover Institution and the University of

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Royal Caribbean’s Response to DeSantis’s Restrictions on Freedom of Association

July 1, 2021

Unintended consequences strike again.
Earlier this month, the line [Royal Caribbean] said that certain venues on the ship would be off-limits to unvaccinated passengers, but it didn’t give specifics. This week’s listing of forbidden venues fleshes out the plan. The newly posted list includes:
The Chef’s TableIzumi Hibachi & SushiR BarSchooner BarThe PubViking Crown NightclubSolarium BarSolarium PoolCasino Royale (the ship’s casino)Casino BarVitality Spa (the ship’s spa)
This is from Gene Sloan, “Royal Caribbean to unvaccinated travelers: No sushi (and a lot of other things) for you,” The Points Guy.
Why is Royal Caribbean doing this? Sloan explains:
The new rules come in the wake of threats from Florida Gov. Ron DeSantis that any cruise line that requires

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The Wall Street Journal’s Defense of Aduhelm Deserves 1.5 Cheers

June 30, 2021

Last week, the Wall Street Journal editors wrote a stirring defense of the Food and Drug Administration’s decision to approve Biogen’s new drug Aduhelm. Aduhelm was approved to treat Alzheimer’s. Critics of the federal approval argue that there is no  direct evidence that Aduhelm will cure Alzheimer’s. Supporters agree.
So what’s the issue? The Journal‘s editors put it well:
Nobody has said Aduhelm is a cure, but it is the first treatment following hundreds of failures that has shown evidence in clinical trials of removing amyloid plaque—a hallmark of the disease—and slowing cognitive decline.
Critics are right that it’s not clear that amyloid causes Alzheimer’s. But the leading research hypothesis is that a buildup of harmful amyloid plaque in the brain triggers

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June 29, 2021

I rarely read a whole 300+ page novel in a day, but I did so on Saturday. It’s Campusland by Scott Johnston. Johnston, who worked at Salomon and opened some nightclubs in New York, also founded two tech start-ups. But those are not what the book’s about. It’s about Ephraim Russell, a young assistant professor of American literature who teaches at fictitious Devon University, a small elite private university with a multi-billion dollar endowment. Russell is up for tenure but, while trying to teach Adventures of Huckleberry Finn, gets caught in the buzzsaw of phony charges of racism. Later he gets charged with coming on sexually to a precocious 18-year old freshman (excuse me, I shouldn’t have said “man:” I mean “first-year.)
There are so many things to like about

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John Tamny’s Hayekian Take on Covid Policies

June 26, 2021

“John Tamny bravely describes the terrible and senseless economic pain caused by politicians panicking in the face of a health concern that—let’s be real—is no worse than a bad flu season.” So writes Forbes publisher Rich Karlgaard in his blurb for John Tamny’s latest book, When Politicians Panicked. Let’s see: The worst flu season in the last 100 years was in 1957–1958, when the Asian flu (technically H2N2) killed between 70,000 and 116,000 Americans. If a flu today killed the same percentage of the U.S. population, the U.S. death toll would be between 135,000 and 223,000. Given that the official U.S. death toll from COVID-19 is nearing 600,000 as this goes to print, and given that 600,000 is almost three times the upper limit of the worst flu in a century, it’s

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The Case for Boarding Houses

June 25, 2021

Washington’s new bill will “increase housing unit inventory by removing arbitrary limits on housing options.” In plain English, what that means is that groups of people who aren’t family will be allowed to live together. Washington is one of many states with old laws on the books prohibiting such living arrangements — a vestige of zoning regulations aimed at prioritizing the nuclear family and limiting the availability of affordable housing through boarding houses. In their zeal, however, such laws put an end to a useful urban housing model: affordable dwellings shared by strangers, a form that’s perfect for today’s housing-stressed cities.
This is from Diana Lind, “A Centuries Old Idea That’s Making Cities More Affordable Today,” June 11, 2021. HT2 Tyler Cowen.

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How Government and Politics Work

June 24, 2021

Years ago I was on a flight out of Monterey and, as is my wont, I struck up a conversation with the passenger beside me. She was a local and somehow we got talking about the local daily newspaper, the Monterey Herald. I told her that because of its price relative to value, I had dropped it a few years earlier but that I thought I was missing important local news and was thinking of resubscribing.
“Oh, you should,” she said.
“Why?” I asked.
“I admit I’m biased,” she said, “my husband is one of the reporters.”
I asked her his name and she told me. I recognized it. He had had a fairly snarky attitude in some of his reporting, especially on issues having to do with libertarian or conservative causes. Not always, by the way, and maybe not even often, but often enough

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You’re Not Advocating Anything Different from what you Previously Advocated

June 23, 2021

Opportunism versus Identifying Opportunities
In a recent email, a friend who basically shares my political views wrote:
If your solutions to the “problems of capitalism after COVID” are the same as those you were advancing to the “problems of capitalism” before COVID, I suspect COVID has had no bearing on your thinking other than to advance your opportunism.
I told him that I thought this was not the slam-dunk argument he thought, and he actually agreed with me and asked me not to quote him by name.
But I am quoting the thought because I’ve heard a similar thought expressed over the years by people of various political persuasions. During the financial crisis of 2008-2009, for instance, I advocated getting rid of deposit insurance or at least reducing the amount

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Whalen and Henderson on the Assault on Wealth

June 22, 2021

These two articles, “The Assault on Wealth” and “Capital Gains Tax Hike: No Gains, No Fairness,” led my Hoover colleague Bill Whalen to interview me last Friday. The result is this 47-minute audio. Normally Bill will ask questions and I’ll answer. He did that, but this was more of a two-way conversation because Bill has his own thoughts on the issue. It was fun. By the way, Hoover has made my Assault on Wealth article into a mini-book.
Some highlights follow. (Times are approximate.)
1:50: Bill Whalen quotes F. Scott Fitzgerald on the rich.
4:00: Me on how I think the focus on inequality started. Sylvia Nasar and Bill Clinton were key players.
4:30: Bill quotes Abigail Disney.
6:30: Me on Mr. Miser, Mr. Generosity, and Bob Solow‘s growth model.
11:40: Wealth

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Sunk Cost and Marginal Cost: Our Microwave

June 17, 2021

A few weeks ago our microwave went on the blink. It still worked but when we opened the microwave’s door, a fan immediately started up. The GE repairman showed up today.
After examining it quickly, he was pretty sure he could fix it. But, he warned us, it was about 8 or 9 years old and the typical life expectancy of that model was between 6 and 8 years. He seemed to be hinting that we should buy a new one. I asked him how much a new one would be. He replied that it would be about $300. That didn’t sound bad.
“Can we buy from you and does that include the installation?”
“No,” he answered. “You would go to a place like Home Depot but we don’t install.”
“How much would it cost to fix this one?” I asked.
“A little over $200,” he answered.
“But the service charge of

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The Everyday Miracles on the Web

June 15, 2021

Every once in a while I pinch myself at my good fortune in being alive at this time in history, with the web making things so much easier in so many ways.
Two things happened in the last hour that reminded me of how much value people, including me, get from the web.
The first was that on Nextdoor in my area, someone reported having found a dog:
Found a little pup wandering up xxx Street. Tired and thirsty. We took him to the SPCA on 68. Animal ID xxxxxx. There is a five day stray hold starting 6/15.
The same day (today), another neighbor answered:
Thanks xxxx. xxxx belongs to our neighbor on xxxxxx St. I’ll pass the info along.
And then that neighbor wrote:
xxxx’s dad is on his way to retrieve him.
This is amazing compared to what we could do just a few years

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Notes on Taking Hummel’s Monetary Theory and Policy Course

June 13, 2021

I wrote the final exam in Jeff Hummel’s Masters course in Monetary Theory and Policy last month and got the results about 10 or 12 days ago. I got an A+. (Yay!) Now you might say that I should have gotten an A+, given that I have a Ph.D. in economics and given that one of the readings on the syllabus was by me. (By the way, embarrassingly, the only short-answer question out of 46 questions that I got wrong was on an article that Jeff and I had co-authored. Division of labor explains that. Jeff came up with the data, which was what the question was on, and wrote the first draft, and I rewrote.)
But I had to do the work. Don Boudreaux asked me after the midterm, on which I got close to a perfect score, what percent I would have got if I hadn’t taken the course or

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A Warm Memory about State Farm’s Good Will

June 8, 2021

When I called Don Boudreaux yesterday, he was awaiting a call from his insurance company after the condo above him had leaked water into his condo. We got talking about insurance and I remembered my first interaction with my auto insurer, State Farm.
I was a fairly safe driver, so even though I had driven from age 16 on, I had my first fender bender when I was 31 or 32. I was crossing a bridge from Washington, D.C. to Arlington, VA and I crashed into a trailer being hauled by a truck. The other driver and I agreed that I had not damaged his trailer but I had damaged mine, and it was entirely my fault. My mind had wandered back to this or that work issue.
With a lot of trepidation, I called up my insurer, State Farm. I talked to the person as if I were talking to

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Strawmen, Steelmen, and Bad Faith

June 7, 2021

Bryan Caplan makes a number of good points about straw manning and steel manning in his critique of philosopher Mike Huemer and in his 2015 post on the same issue. One of the major, and obvious points he makes is that you’re not arguing against a straw man if an actual person you’re arguing with is making the argument you’re arguing against.
I would put his overall point even more strongly. I’ll do it with an example.
Imagine that I’m arguing with someone on the minimum wage. The person claims that increases in the minimum wage will benefit people who are working at below the proposed minimum and will have no downsides for them. I point out that some of the least skilled workers will lose their jobs and even some or many of those who keep their jobs will lose

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Texas Government Assaults Economic Freedom

June 4, 2021

Two pieces of bad news for economic freedom came out of Texas this week. Elizabeth Nolan Brown at Reason writes about the more recent one:
In a performative bid against “human trafficking,” Texas has raised the legal age for working at a strip club from 18 to 21 years old, putting many employees out of work and putting clubs that hire them—even inadvertently—in risk of serious legal penalties, including up to 20 years in prison and a $10,000 fine. The state also updated part of its penal code to define “child” as anyone under age 21.
This is from Elizabeth Nolan Brown, “Barely Legal Strippers Now Fully Illegal in Texas,” Reason, June 3, 2021.
Brown also notes:
Texas is also following a regrettable trend toward infantilizing young adults in America, carving out ages

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Youth Pay a High Price for Covid Protection

June 3, 2021

This is the full article that Charley Hooper and I had published in the Wall Street Journal 30 days ago.

Youth Pay a High Price for Covid Protection
Leaders’ greatest failure was not focusing on the elderly, who had lower costs and far greater benefits.
By Charles L. Hooper and David R. Henderson
Now that the Covid-19 pandemic seems to be abating, it’s a good time to look at lessons that observers have, or should have, learned. The list of mistakes is long, but the most glaring was the failure to understand and act on the virus’s propensity to attack the old and vulnerable. Policy makers failed, in other words, to understand the enemy.
Some clear thinking based on data that were available last spring would have led to two insights. First, the benefits of

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The Enemy Below

June 2, 2021

One of my pleasures each Memorial Day weekend is watching one or two war movies on the Turner Movie Channel. This last weekend was no exception.
I’m weird that way. I hate war and wrote regularly for from 2005 to about 2010 and sporadically after that. Yet I like war movies. It’s similar to my loving to analyze the economics of taxation while hating taxes.
The two war movies I watched this weekend were The Great Escape, which I had seen probably 8 times already, and one I hadn’t seen titled The Enemy Below.
The Great Escape is my favorite kind of war movie because it’s about escape. It also brings back fond memories. Our family drove an hour from Carman to Winnipeg in 1962 to see the movie and when we returned, my mother, without ever having heard the

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