Streetwise Professor

I can always use a good laugh, and noted nitwit Nikole Hannah-Jones has provided one:

Other than being Black, what exactly is Sowell's expertise in slavery or history?

— Ida Bae Wells (@nhannahjones) February 10, 2023

Oh Nikki, where to possibly begin? I suggest you start with Race and Culture: one whole column of the index lists the mentions of the subject of slavery in the book. Then maybe Black Rednecks, White Liberals. (Though that may result in a messy explosion of your magenta-maned head.) And for a bit of self-knowledge, Intellectuals and Race. But in point of fact, analyses of slavery are found throughout Sowell’s massive literary output. (When thinking of him, I am reminded about a quip someone made about Paul Johnson: it’s not the amount he’s written that astonishes, it’s the amount he’s read.)

And not just North American slavery, but slavery around the world. And that’s precisely why he can speak with far more authority and insight on whether slavery in British North American colonies, and later the United States, was somehow unique and makes the U.S. the most fallen of nations, than can Hannah-Jones and her ilk.

And history generally. Again. Look at at his incredible record of scholarship, which includes detailed expositions and analyses of a wide variety of historical issues, such as immigration.

Moreover, Sowell’s approach to history stands in stark contrast to 1619 Project-style leftist “history”: In Sowell, history is a reservoir of facts and data against which theories are tested, whereas in Hannah-Jones’ “work” it is something to be twisted and distorted in order to make political and ideological points.

Thomas Sowell has had a major impact on my life and thinking since I was in college: his Knowledge and Decisions profoundly affected, and continues to affect, how I think about economics, law, and policy. Although somewhat dated because many of its examples were current at the time it was published 43 years ago, the underlying conceptual framework and analyses are timeless: it is astounding at how the intellectual errors that Sowell analyzed back then curse us today–most notably, his theme that there are no solutions, only trade-offs, something that politicians ignore daily, with COVID policy being one of the most egregious examples.

To my mind, Thomas Sowell is the most impressive public intellectual (and intellectual, period) of the past 50 years. The breadth and depth of his scholarship is unsurpassed, and his steadfastness and courage in the face of vicious criticism from lilliputians like Hannah-Jones is truly remarkable. He is a true intellectual: Hannah-Jones and her ilk are intellectualoids, at best. People with intellectual pretensions that far outstrip their abilities, and who pass off agitprop as scholarship. Only idiots think them geniuses.

One of the highlights of my academic career occurred when Sowell wrote an oped defending me against the New York Times’ slanders. No doubt his unfortunately extensive experience with slanders directed at him motivated and informed what he wrote. And the slanders continue, as Hannah-Jones’ ignorant tweet reveals. But sometimes, as in this instance, the slanders are so ridiculous that they elicit only laughter.

Today is the first day of the second year of the Russo-Ukraine War, and there is every indication that 25 February 2024 will mark the first day of the third.

Putin gave one of his increasingly demented speeches on what used to be called Red Army Day. In a nutshell (emphasis on nut) he claimed that this is an existential . . . something . . . against the “collective west,” land of godless pedos. Apparently this is a preemptive war intended to defend Russia against an impending onslaught from Nato.

Which Putin’s own actions give the lie to: according to UK military intelligence, Putin has committed 95 percent of his combat power (such as it is) to fighting Ukraine. Which would leave the rest of Russia’s long borders with godless western pedos completely open to their attack. Not something someone fearing such an attack would do.

Speaking of borders, Putin’s wannabe mini-me, your favorite narcoleptic and mine, Dmitri Medvedev, ranted that it was necessary to push back Russia’s border with Poland by a significant distance. Er, I though math was a big deal in Russia. I guess not. A simple inductive proof demonstrates that this implies that Russia would have to absorb the entire European continent in order to achieve security. Which demonstrates the futility of any attempt to find a end to hostilities based on “addressing Russia’s security concerns.” Their security concerns are unaddressable, except by dissolution of the west.

The rationalizations and projections and aspersions in these speeches don’t really matter. What matters is that they show that Putin will continue to grind on, fighting to the last Russian, to . . . . Who knows? I am reminded of Santayana: “Fanaticism consists of redoubling your efforts when you have forgotten your aim.” The war has become an end in itself, not as Clausewitz famously said, politics carried out by other means.

Fanaticism or no, the prospect is for war without an end in sight. So just how is that going?

Late last year and early this there were repeated warnings of an impending Russian offensive. Some people are still talking about an “impending” offensive.

Wrong. Nothing is impending: the offensive has started. And it is going about as well as previous offensives. Arguably worse, actually. One way to summarize would be Wellington’s remark regarding Waterloo: “They came on in the same old way, and we sent them back in the same old way.“ Though Napoleon made it “the nearest run thing you ever saw” (again in the words of Wellington), on most of the front in Ukraine it is not a near run thing at all.

Why do I say the offensive has started? Several reasons. First, Putin is in a hurry. He has demonstrated his impatience time and again. Second, the evidence on the ground: the frequency and intensity of Russian attacks has increased (even if the results have not). Third, the time of year: in not too long the raputitsa will make maneuver and advance very difficult. Fourth, the Russians have every incentive to try to get ahead of the next wave of equipment (notably tanks and air defenses) that the west is (slowly) supplying to Ukraine.

The main fighting has centered on the town of Bakhmut. The Russians have “succeeded,” at the cost of immense casualties, shoving back Ukrainian positions a few kilometers here, a few hundred meters there.

If Russia takes Bakhmut, so what? Itself it has no real strategic importance. The battle reminds me of say Pork Chop Hill in Korea in 1953. The hill had very little intrinsic military importance. But the Chinese and the Americans invested it with a symbolic importance–we can’t let those other bastards have it!–and hence spent many lives and countless artillery fires to take it. Or fights over useless bits of blasted terrain in Verdun, 1916, Fort Douaumont, for example.

Bakhmut is like that. It has become important because both sides have made it a test of wills and capability.

Even if Russia takes the town, it has no ability to break out and exploit into the Ukrainian rear. Bakhmut is an infantry and artillery battle, and shoving back the Ukrainian front a bit here or there will just shift the location of the next infantry and artillery battle. This is like WWI, where even local gains could not be exploited because of the inherent limitations on movement of the attacking forces.

In WWI the Allies achieved something resembling breakout and exploitation in late-October, early-November 1918 only because the German army had been bled white in its spring offensives and the allies had amassed overwhelming superiority in infantry, artillery, armor and airpower, not least because of the arrival of hundreds of thousands of Americans.

The Germans made gains in their 1918 offensives, but those eventually also culminated far short of objectives due to the inherent limitations of trying to take large areas at speeds dictated by logistics and the pace of horses and men on foot. Nearly the same limitations the ground pounding Russian army faces today.

The Germans were in much better shape in March-May 1918, moreover, than the Russians are now. They could bring hundreds of thousands of relatively fresh, and experienced, troops from the East to spearhead the offensive. The Russians are scraping the bottom of the barrel, throwing the unfit and untrained into futile assaults in which their lifespans are measured in hours, at most.

As I noted near the beginning of the war, one reason for Russian failure then was they attempted to use armor without infantry. Now they are attempting to use infantry without armor–and when they do attempt to use armor, as they did recently at Vuhledar, the result is a bloody shambles. But without armor any possibility of exploitation is nil.

Meaning that stalemate is in prospect indefinitely.

The stalemate has brought about one change in Russian politics: the dogs are no longer fighting under the carpet, but in plain sight. In particular, the ghoulish-looking (and face it, just plain ghoulish) Yevgeny Prigozhin has been attacking publicly the Russian defense establishment. Festernik has taken credit for the gains at Bakhmut and Soledar (such as they are), and claims that the defense ministry and army have caused the slaughter of many Wagner troops by withholding artillery ammunition. Further, the nationalist right has been attacking the military for its incompetence–with good reason.

All is not well in Muscovy, in other words, and in contrast to history, some of the unhappiness is being played out in public.

Objective conditions imply that the internecine struggle will get only worse. It is the product of failure on the battlefield, and no end of such failure is in sight. A new year of war has begun, but it will not be different than the old year. A dreary verdict, but the only one the facts support.

Nina Khan’s FTC has indicated that it will outlaw non-compete clauses in labor contracts. Be skeptical. Be very skeptical.

My priors are that such restrictions are unwarranted, especially when originating in the Khan FTC.

For one thing, this brings to mind Coase’s dictum that the knee jerk response to any non-standard contracting practice is that it is the result of monopoly (or in this instance monopsony) power. Coase argued that instead most such practices economize on transactions costs. Research dating back more than a half century reveals that many practices frequently branded as monopolistic, such as resale price maintenance, exclusive dealing, and exclusive territories, reduce transaction costs associated with free riding on information. Non-compete clauses can obviously serve this function by preventing an employee who obtains proprietary information at company X from supplying that information to company Y. Eliminating this protection on property rights to information will result in less investment in this information.

Furthermore, although the monopoly/monopsony explanations that Coase belittled at least involve the application of economics, the Khan FTC has basically thrown economics out the window. (It has definitely thrown Chicago School economics–which provided efficiency rationales for RPM, etc.–out the window.) Instead, her FTC has embraced Brandeisian big-is-bad, unconventional-is-bad antitrust. The Khan Theory of Antitrust Enforcement is akin to Potter Stewart’s theory of pornography: she knows an antitrust violation when she sees it. It is a very subjective approach completely contingent on her non-economics-based subjectivity.

Moreover, the process at the Khan FTC is highly dubious. The Chairwoman is alleged to run roughshod over staff and other commissioners–as epitomized by the resignation of the FTC’s Republican Custer, Christine Wilson. This furthers suspicions that this proposed rule is purely the product of Khan’s uneconomic, idiosyncratic mind and prejudices, rather than on sober analysis.

So my priors are that anything that comes out of the Khan FTC is likely bilge.

But priors can be modified by evidence! So let’s look at the economics of a ban.

So as not to keep you in suspense: this analysis provides no reason for me to change my priors. To the contrary.

Evidently the rationale for this ban is that non-competes are a means of exercising monopsony power. Where to begin?

First, given the plethora of participants on both sides of labor markets–including markets for fairly specialized labor–there is considerable room to be skeptical that monopsony power is severe. This is particularly true for information workers for whom non-competes are most likely used.

This is especially the case today, when the reduced cost of remote work sharply mitigates one of the factors that could conceivably create a quasi rent that an employer could extract, the cost of moving.

Not that this would be a major issue for a lot of information workers anyways. Due to well-understood agglomeration effects (that have been operating since, say, the heyday of New England cotton milling in the antebellum US!) firms of a particular type, and hence employees of this type of firm, tend to be geographically concentrated. So an employee with valuable information can find work at another firm that can use that information without having to move, or move far.

Indeed, this can explain why non-competes exist in the first place. Employers in industries with a high degree of spatial agglomeration cannot rely on the costs of relocation to prevent competitors from poaching employees. Thus, I would predict that non-competes are more likely in industries where agglomeration effects operate, whereas the monopsony power theory would predict the opposite.

To make it more specific: I predict non-competes would be more prevalent in places like Silicon Valley, whereas the monopsony theory would predict that they would be less prevalent there (because employers would have less market power when relocation costs and hence quasi rents are low).

Second, although non-competes can potentially create quasi rents ex post, ex ante potential employees can negotiate contract terms (or at least reject terms offered by a potential employer). Employers can attract employees only if the other terms of the contract (including pay, but also other terms) compensate for the restriction on the employees ex post options. As long as the ex ante employment market is largely competitive, contractual terms will compensate (or more than compensate) for the employee’s ex post loss of freedom. If (due, for instance, to information disclosure problem) non-competes are wealth enhancing, the Coase Theorem comes into play. Employers and employees will negotiate other terms that make both better off.

Third, even granting arguendo that non-competes are a way of exercising market power ex ante (a dubious proposition), eliminating non-competes does not eliminate the market power, so it is by no means clear that eliminating non-competes will make employees better off. Rapacious, monopsonistic employers will just find some other way to exploit their market power. And that could make employees worse off. Eliminating an efficient way of exercising market power makes the pie smaller, and it is likely that both employers and employees would both suffer as a result.

This raises the issue of why monopsonists would prefer to use non-competes to exercise (ex ante) market power, rather than just paying lower wages/salaries, or offering fewer benefits. Perhaps you could view it as a form of price discrimination where employers exploit differences among employees by offering a menu of contracts with different pay and non-pay terms (including non-competes, or not) to extract rents. Even if that’s what’s going on, it is well known that the welfare effects of price discrimination–and hence of its restriction–are highly ambiguous.

That is, even if non-competes are a way of exercising market power, eliminating this particular way of doing so does not necessarily mean that market power will decrease: firms may instead utilize less efficient ways of exercising it.

One Chicago School staple is that a monopolist has no incentive to engage in things like exclusive dealing in order to extend market power: it can extract the maximum profit by just charging the monopoly price. Hence, there is likely some non-monopoly leveraging explanation for such contracting practices. Similar logic applies to exercise of monopsony power.

The pushback against Chicago resulted in the creation of a lot of highly stylized, not to say contrived, models in which such monopoly leveraging can occur. Nice models! Never seen one that applies to a real world situation.

I therefore surmise that even if employers have ex ante market power, it is unlikely that non-competes enhance that market power, and that eliminating them will make employees better off–because the elimination does not reduce the ex ante market power.

The empirical evidence that supposedly supports the ban is that elimination of non-competes is associated with higher wages. Even putting aside my skepticism that wages are a sufficient statistic for employee welfare (since so many other terms of employment can be varied), it must be recognized that there are reasons why elimination of non-competes in competitive labor markets could boost wages for some.

Elimination of non-competes essentially gives employees property rights in valuable information. Absent non-competes they can effectively sell this information, whereas they cannot do so (or are limited in their ability to do so) when non-competes are in place. Since the information cannot be sold separately, it is bundled with the other services supplied by the employee. All else equal, employers (including an individuals current employer and potential employers) are willing to pay more for the information-service bundle than the service alone. That means higher compensation.

As Coase and subsequent scholars (including prominently my thesis advisor Lester Telser) noted, contractual restrictions can be ways of creating or protecting property rights in information. It is highly likely that’s the role that non-competes play, especially given their widespread use in tech and other information industries. Therefore, be skeptical indeed about the FTC proposal. Indeed, even if you believe that instead non-competes are in part a means of exercising market power, you should not conclude that their elimination will make employees better off because the market power remains even after one means of exercising it is constrained.

We should all fear the Wrath of Khan generally, given her economic ignorance, and indeed her hostility to economic reasoning. We should especially fear it in her latest attempt to reshape private contracting in what is arguably the largest market in the United States–the market for labor, and for information intensive labor in particular.

The embarrassment of this administration is ballooning, as if one could have thought that possible as bloated as it was already. Apparently in a belief that “Trump did it!” is kryptonite to any criticism, some anonymous DoD person told reporters that Chinese balloons had transited continental United States airspace on at least three occasions when the Donald the Dreaded was POTUS.

Virtually everyone in Trump’s national security upper echelons–including people who hate him, like Bolton and Esper–immediately called BS. They all said they were never informed of this. So what are the possibilities?

First, it never happened and this is just somebody making shit up to clean up after Joe. Always a real possibility.

Second, it did happen, and the balloons were detected in real time, but the DoD decided to withhold this information from the commander in chief. That would be a scandal of major proportions. And sad to say, it is believable.

Third, the administration’s elaboration: the previous balloons weren’t detected in real time, but they were uncovered after the fact by the intelligence agencies through some undisclosed means. Although all of these explanations are disturbing in their own way, this would be the worst. It would imply a gaping hole existed in US detection technology. Although the administration claims that THIS TIME they detected the balloon as soon as it passed over the Aleutians, and this suggests that the vulnerability has been addressed, we can’t be sure whether it’s just that NORAD got lucky this time.

There must be a public investigation, by Congress, to determine which of these explanations is the correct one.

With regards to the first explanation. Why did the WaPo rely on a single source for a story like this? Why won’t the Pentagon reveal who made the statement to the reporter? Note that the story–if it was true–would have involved the leak of highly classified information: a crime. If it wasn’t true, a “senior” official is spreading–wait for it–disinformation, supposedly the greatest threat to “our democracy.” Either alternative is unacceptable, and should result in the investigation, termination, and perhaps prosecution of the perpetrator. And he should be identified immediately while these steps are proceeding.

Letting the balloon traipse from Alaska to South Carolina (apparently on a tour of US nuclear facilities) is bad enough for the reasons discussed in my earlier post. But this clumsy attempt to exonerate Biden through whataboutism (“whatabout Trump!!!”) makes things even worse. It reveals the US military and Department of Defense to be incompetent, mendacious, or both.

Biden didn’t say anything either at a shout or a whisper about the balloon in his State of the Union address. He obviously wants this to go away. It can not be allowed to go away. It is a national security embarrassment of the first order, and Austin, Milley, the head of NORAD, and the head(s) of the intelligence agency or agencies that allegedly discovered previous violations of US airspace ex post facto must be hauled in front of Congress for a public grilling.

And then, perhaps, keel hauled.

The carnival of the Chinese balloon transcontinental transit is bringing musical flashbacks, such as this from 1983:

Or going even further back–deep into my childhood:

Groovy, baby.

Seriously though, I am of mixed minds regarding the decision–the Pentagon’s according to Biden–to defer destroying it until it had traversed the US from sea to shining sea. On the one hand, I can perhaps see that there is intelligence value in observing it. On the other, it makes the United States look pathetic before a strutting China.

On balance, I believe the latter consideration substantially outweighs the former. The lame excuse given for not puncturing it with extreme prejudice earlier–that its fall would endanger people on the ground–belies an intelligence collection motive: if that was the reason, just say so! At least that sounds more boss:

And what are the odds of someone on the ground being hurt in Alaska, the Yukon, or even eastern Montana FFS?

And was the benefit to us of the intelligence we collected on the balloon greater than the value of the intelligence the balloon collected on us?

And perceptions are reality. It’s not like this is a new super weapon. Pretty sure we had figured out everything it was doing and capable of doing during the time it was flying over thousands of miles of trackless waste–if we didn’t already know before it breached US airspace over the Aleutians. But the image of a spy balloon flying with impunity over the fruited plain does convey the image of a “pitiful, helpless giant” (to quote Nixon, reading what the just-retired Patrick Buchanan wrote). This is especially true given that there is a pitiful, helpless mental midget holding the position of Commander in Chief.

This reinforces the image of fecklessness that hangs around this administration like a bad smell. And fecklessness encourages recklessness. That is, we have to think about how Xi interprets this, and believe me, he’s not going to believe “we were protecting people on the ground” line for one second.

He may laugh, though.

But after he’s done laughing, he’ll incorporate what he surely perceives as an image of weakness and indecision into his calculus regarding Taiwan and other points of potential conflict.

This raises the question of motive. After all, China has supposedly reined in its “wolf warriors” and was trying to present a more conciliatory face to the US, and the world. Blinken was supposed to meet with the Chinese to help reset relations. (Nod was to remain in the White House.)

One possibility is that this was a test–would the US still proceed with a rapprochement despite a provocation (humiliation, in fact)?

Another possibility–never to be dismissed in one party (but many faction) states–is that elements in the CCP (including, perhaps, aforesaid wolf warriors) wanted to derail any rapprochement, and figured that creating an incident like this was the way to achieve that objective.

Given the opacity of the CCP/Chinese government, it’s hard to say. But under either scenario, the return message should have been: don’t fuck with us. Instead, we sent the message that we are eminently fuckable.

For their part, the Chinese lost their shit when an F-22 FINALLY took down Chairman Xi’s Amazing Flying Machine.* To which we should have replied: fuck you and the balloon you rode in on, commies. Instead, we gave a mealy mouthed, diplomatic reply.

We are in a very fraught period with China. We are trying to recover from “locust years” (as Churchill called them) of military distraction and decay and recover at least a semblance of our former naval and air dominance over China. China is ruled by a megalomaniac with ambitions to crown his achievements by retaking Taiwan. The last thing do do under those circumstances is to convey weakness. And regardless of the true justification for allowing the balloon to traipse over American unhindered, that’s exactly what happened.

The phrase “the balloon went up” means that the situation is very serious. It dates from WWI, when the appearance of a reconnaissance balloon was a harbinger of an artillery barrage incoming. Well, the balloon went up, and to my mind, was brought down far too late.

*The F-22 took down the balloon with an AIM-9X Sidewinder. A testament to how sensitive the heat seeking infrared sensor on that weapon has become. In early versions of Sidewinder it was necessary to get right on the tail of an adversary for the guidance system to be able to pick up the heat signature of the engine. To be able to take down a balloon, which has far less of a heat signature than a MiG’s exhaust, is pretty impressive.

The F-22 pilots used the call signs Frank1 and Frank2, apparently an homage to WWI “Balloon Buster” ace Frank Luke (whom Eddie Rickenbacker called the best pilot in WWI). There is some irony here, though, because it is clear that the current Pentagon leadership is shall we say slightly less aggressive than Lt. Luke.