MarketsWork – Thoughts on Markets and Society

Remembering Bob Ekelund

Robert B. “Bob” Ekelund passed away on August 17, 2023, after a long battle with Parkinson’s disease and other illnesses. A professor of economics at Auburn University for three decades, he was a prolific scholar and an admired professor. His energy, curiosity, and intellect could not be satiated by the mere challenges of a career as an academic economist, and his appetite for learning extended into music and the arts as well.

Robert B. Ekelund (1940-2023)

As a scholar, Prof. Ekelund’s interests were wide-ranging. In a time of hyper-specialized quantitative economics, he was a generalist capable of writing with lucidity and force on many different topics. He was extraordinarily productive, writing over 200 academic papers and more than two dozen books. Among his books are The Economics of American Art: Issues, Artists, and Market Institutions, coauthored with John D. Jackson and Robert Tollison; The Marketplace of Christianity, coauthored with Robert Hébert and Robert Tollison; Tariffs, Blockades, and Inflation: The Economics of the Civil War, coauthored with Mark Thornton; Sacred Trust: The Medieval Church as an Economic Firm, coauthored with Gary Anderson, Audrey Davidson, Robert Hébert, and Robert Tollison; and several economics textbooks. Notable among Prof. Ekelund’s textbooks is the number one history of economic thought textbook available today, A History of Economic Theory and Method, coauthored with Bob Hébert. Most recently, his 2022 book with Phil Gramm and John Early, The Myth of American Inequality, revealed the misuse of economic statistics in policy. The diversity of his interests is plain to see.

As a professor, Ekelund managed to confer not only his knowledge, but his inquisitiveness as well, on countless students. He directed over 50 doctoral dissertations and many master’s theses. While I was a graduate student at Auburn, I wrote my dissertation under Andy Barnett’s supervision, but I have good memories of Prof. Ekelund’s teaching. I still remember the mischievous twinkle in his eye as he asked me a simple, incisive question that undermined an argument I had been making involving inheritance laws. I was forced to shore up my reasoning–which was of course his purpose. Prof. Ekelund had good advice on how to navigate the academic world as well. When I stopped by his office to tell him I had taken on a contract writing project to ease the financial strain of graduate school, he listened patiently, but I could tell he was disappointed. “That’s not economics,” he said. Graduate school was not the time to stray from the main objectives: learn economics and finish the degree. I continued with the writing project, but kept the lesson in mind when I reached the dissertation stage. By minimizing distractions and other work, I was able to finish on schedule and avoid the dreaded long-term ABD (all but dissertation).

In the decades since, I saw him from time to time when I would return to Auburn for Mises Institute events. He was always gracious in his conversations with me, and I appreciated his wit and sincerity. He seemed genuinely interested in my career, and indeed he kept up with many of his former students (here is another remembrance from a friend who was also in my cohort at Auburn University).

I remember Prof. Ekelund best as a scholar and professor, but he was also an accomplished classical pianist, artist, gardener, and gourmet. He recorded several CDs, and was a talented painter. Earlier this year, my wife and I were in Taos, New Mexico, the source of inspiration for many of Ekelund’s paintings, and I thought of him as we wandered through several of the art galleries there. We selected a plein air landscape of distant mountains from a local artist, and I wondered if my former professor would approve of the choice. I suppose that is the mark of a good teacher–the student continues to evaluate his own decisions in light of his teacher’s example.

Bob Ekelund’s passing is a loss to us all. But his work, and remembrances of his zest for life, remain behind so that we can all continue to learn from him.

Harnessing the Common Law for Environmental Justice

Urban air pollution contributes to health risks, especially in low-income neighborhoods. In response, some churches in St. Louis are installing air quality sensors on their property. The churches, working with groups like AirWatch St. Louis and St. Louis’s Washington University, are sharing data in an effort to produce a better-informed advocacy and ultimately motivate legislative change.

Why is air pollution often worse in poorer neighborhoods? There are various reasons. It is tempting to attribute the problem to moral failures like dehumanization and discrimination. But ordinary economic incentives also play a role, and we ignore them at our peril.

Subjective Value and Externalities

One of my lectures at Mises University each summer concerns environmental issues. I make changes every year, but I always mention Murray Rothbard’s essay “Law, Property Rights, and Air Pollution.” In it, Rothbard lays out a libertarian method for handling what mainstream economists usually call externalities—the side effects of production or consumption activity on bystanders. The contrast between Rothbard’s welfare economics and the mainstream is plainly visible. Whereas many mainstream economists try to measure costs and benefits of pollution in order to come up with the most efficient level of pollution, or the appropriate tax to impose on the polluter (a la A.C. Pigou), Rothbard strictly eschews any such effort to measure the immeasurable.

Emissions Taxes and Tradable Permits

The typical presentation of negative externalities involves something like the diagram below, where the costs on bystanders are added to the marginal private costs (MPC) faced by the polluting firm, to come up with a marginal social cost (MSC) that, along with the marginal private benefit (MPB) to the firm from producing its output reveals the ideal level of output. In the presence of these negative externalities, and absent positive externalities that would offset these, the market level of production Q^M is too high, compared to the welfare-maximizing level of production Q*.

Negative externalities and overproduction

As court-made law to settle conflicts over nuisances like pollution has been increasingly regarded as inadequate to deal with externalities, government interventions have typically taken three forms: 1) command-and-control regulation, 2) emissions taxes, or 3) cap-and-trade systems.

Opposition to the “Inflation Reduction Act” from 369 Economists

Last week, 231 economists signed a letter opposing the Inflation Reduction Act of 2022. On August 4, it was sent to Senate Majority Leader Schumer, Senate Minority Leader McConnell, Speaker Pelosi, and House Minority Leader McCarthy.

Since that time, another 138 economists signed the letter, for a total of 369.

Notable signatories include James Bennett, Edgar Browning, Gerald Dwyer, David Henderson, Anne Krueger, Larry Kudlow, Arthur Laffer, Michael Munger, Mario Rizzo, Joseph Salerno, Vernon Smith, and Richard Vedder.

[W]e agree with the urgent need to reduce inflation, but the “Inflation Reduction Act of 2022” is a misleading label applied to a bill that would likely achieve the exact opposite effect.
369 signatories of the “Concerned Economists” letter

Fox Business ran a story on the letter August 4, and another on August 5 after Senator Schumer responded critically.

The Inflation Reduction Act passed the Senate 51-50 on Sunday, August 7, and expected to pass a House vote August 12 and be signed by President Biden.

[Edited 8/11/22 from original 8/9/22 post.]

Gary North’s Christian Economics

On February 24, 2022, Gary North died at age 80 after a long battle with cancer. A prolific author, with more than 50 books on economics, history, and Reformed Protestant theology to his credit, as well as thousands of articles (e.g., garynorth.com), North was influential in conservative Christian thinking about politics and the economy for over 50 years. His work will doubtless remain so for many more years.

North was a leader in the “Christian Reconstruction” movement that was attractive to some conservative (in the theological and political senses of the word) Reformed (Calvinist) Protestants. Coming out of the philosophical and theological work of Westminster Theological Seminary professor Cornelius Van Til (1895–1987), the movement was given its distinctive character by Van Til’s student Rousas J. Rushdoony (1916–2001), North’s father-in-law. The Reconstructionist view is that the foundations of modern secular society have crumbled, and Christians have a responsibility to “reconstruct” all of society on biblical principles. This put them at odds not only with secularists, but many within Protestantism who were pluralist in their political views. Reconstructionists gained a reputation as abrasive and divisive in church settings, willing and able to write trenchant responses to all critics. North’s style was forceful and direct: this is how it is; take it or leave it. His rejection of the “if-that’s-OK-with-you” tone of many evangelicals became infamous. It was easy to voice complaints about North’s style; it was not so easy for churchmen to refute his work.

“Carbon Imperialism” and LPG

Responding to shareholder demands and broad public pressure, international development banks backed by western economies are throwing their weight behind renewable energy projects in the developing world. Projects that would facilitate better distribution of gas, or accelerate electrification with readily available coal or gas are denied funding. But while policymakers in Europe, the United States, and other wealthy economies gain domestic political traction from opposing fossil fuels, their efforts to select growth paths for the developing world seem out of touch and condescending. Former Indian chief economic adviser Arvind Subramanian has called this anti-fossil fuel push “carbon imperialism,” and Indian Prime Minister Narendra Modi has complained of a new colonialism, in which the developed countries of the world, having used fossil fuels to achieve prosperity, now promote energy policies that would deny growth to countries like his own.

Photo courtesy of World LPG Association, from *LP Gas Magazine*

Without access to reliable electric power or liquid fuels, around three billion people worldwide use biomass (e.g., wood, charcoal, or crop waste) to cook and heat their homes. These highly polluting fuels—which, it should be noted, are renewable—remain in use partly because of the objections of foreigners to alternatives like LPG (liquefied petroleum gas) and coal- or gas-fired electric power grids, a deplorably out of touch way of thinking. The WHO estimated in 2018 that 3.8 million people—mostly women, children, and the elderly who spend disproportionate time indoors—die each year from respiratory illnesses and other diseases caused by indoor air pollution. Many of these “traditional fuels” require time-consuming collection, taking away from other uses of time such as education or wage-earning activities.

Carbon Sequestration and N-and M-Shaped Environmental Kuznets Curves: Evidence from International Land Use Change

In the Journal of Environmental Economics and Policy, Aug. 2020: “Carbon Flux and N- and M-Shaped Environmental Kuznets Curves: Evidence from International Land Use Change.” https://doi.org/10.1080/21606544.2020.1809527

M-shaped EKC for net carbon fluxes from land use and land cover change, US 1850-2015

From the abstract:

Economic growth can affect land use change to release or sequester carbon, intensifying or mitigating the impact of other carbon emissions, and the functional form of that relationship is important to crafting policy responses. Data on land use and land cover change (LULCC) for 14 countries reveal an N – or M-shaped environmental Kuznets curve (EKC) for LULCC carbon flux to/from the atmosphere in some nations, while others display very different relationships. Most nations studied show some variation of the inverted-U EKC. All but one nation display initial turning points ranging from $2,000 to $9,000 per capita GDP (2011 dollars), and half are now net negative carbon emitters with respect to LULCC. For the US, regression analysis of the LULCC EKC indicates a roughly M-shaped quartic EKC function, with local maxima at about $3,700 and $45,700 and a local minimum at about $29,400. Where N-shaped EKCs are observed, the carbon sequestration from increasing forest regrowth is transient, and may be followed by a phase in which rising aggregate emissions dominate slowing sequestration in maturing forests. An M-shaped EKC indicates a third turning point, representing a return to increased net carbon absorption.

Marshall, Menger, and Method

Alfred Marshall (1842-1924) produced an economics textbook, Principles of Economics, that in many ways would be recognizable to students of mainstream microeconomics today. He was immensely influential, partly because of his prolific writing, but also because of his creation of a strong legacy. In 1888, Herbert Foxwell wrote, “Half the economic chairs in the United Kingdom are occupied by [Marshall’s] pupils, and the share taken by them in general economic instruction in England is even larger than this.” (Ekelund and Hebert, A History of Economic Theory and Method, 5th ed., p. 345).

Though Marshall was a mathematician before he became an economist, and used mathematics in economics (early in life he translated Ricardo and Mill into mathematics), he recognized that mathematics had its limits. In 1906, he wrote to a friend, Arthur Bowley:

I had a growing feeling in the later years of my work at the subject that a good mathematical theorem dealing with economic hypotheses was very unlikely to be good economics: and I went more and more on the rules–(1) Use mathematics as a shorthand language, rather than as an engine of inquiry. (2) Keep to them till you have done. (3) Translate into English. (4) Then illustrate by examples that are important in real life. (5) Burn the mathematics. (6) If you can’t succeed in 4, burn 3. This last I did often.
Alfred Marshall, quoted in Ekelund and Hebert, 5th ed., p. 346.

Are Market Processes Moral?

Years ago, a religion professor at my college gave a talk to economics seniors on the limitations of economics and the necessity of considering religious principles in determining what we should do. Free-market economics, he said, has difficulty reconciling with the harsh criticism of market activity found in the Bible. There were, of course, other religions he could have considered, but Christianity was most familiar to these students.

One of his key points—that the economic way of thinking is not sufficient to understand the world around us—is valuable. An interdisciplinary approach to learning is indeed vital. However, I believe there are some problems with assertions that free markets and Christianity are incompatible.

The idea of free markets is about minimal intervention of the civil government into the marketplace. It is not about creating morality through markets. Neither is it an argument that people operating in a free market environment do not do bad things. It is true that markets sometimes produce things that should not be produced. For example, pornography, prostitution, and contract murder are provided in markets (and not all of these are universally illegal). And people who produce good things sometimes do so while cheating, lying, and stealing. But no market-oriented economists I know would argue that markets are expected to stamp out all unsavory and destructive behavior. A market structure allows people to accomplish their goals, but is neutral about what those goals should be.

Menger, Walras, Jevons, and the Marginal Revolution in Economics

The “marginal revolution” in economics is usually linked to three men: Carl Menger, Léon Walras, and William Stanley Jevons, who wrote on the concept of marginal utility nearly simultaneously in the early 1870s. In 1871, the Austrian economist Carl Menger published his Principles of Economics [Grundsätze der Volkswirtschaftslehre]), While the term “marginal utility” came from Friedrich von Wieser (another “first-generation” Austrian), marginality had been anticipated by some earlier thinkers, notably Jules Dupuit (1804-1866).