The Answer Is Transaction Costs

We embark on a journey through the lenses of Hume, Smith, and Coase, piecing together the roles of observation and empirical study in shaping our understanding of societal conventions and moral philosophy. David Schmidtz recounts a defining moment from his academic path, sparking a robust discussion on the fusion of economics with moral considerations in the realm of ownership and resource distribution. The discussion with David delves into the essence of property ownership, dissecting what it means to hold rights over something as abstract as an idea or as concrete as land. We grapple with the notion that property is not just a "bundle of sticks" but a set of societal constructs, born from necessity and shaped by our collective desire for harmony. Through examples of conflict resolution and the negotiation of public and private interests, such as eminent domain and navigation easements, we confront the delicate dance between individual autonomy and the greater good. The philosophical undercurrents of property law are laid bare, revealing the presumption in favor of liberty in those deep waters. The "Desert Town" source: https://www.cambridge.org/core/books/abs/elements-of-justice/desert/268B6C7A9B17949572933A4DAA0CAB09 Wall Street Journal article on Costco gold purchases: https://www.wsj.com/finance/investing/selling-costco-gold-bars-f14e966f Biden DOT rule on airline refunds: https://www.transportation.gov/briefing-room/biden-harris-administration-announces-final-rule-requiring-automatic-refunds-airlinehttps://abcnews.go.com/Politics/airlines-give-automatic-refunds-canceled-flights-delayed-3/story?id=109573733 Lynne Kiesling on The Essential Ronald Coase, Fraser Institute. Books: C. Johnson, R. Lusch, Schmidtz, Commercial Society: A Primer on Ethics & Economics (Rowman & Littlefield). Bryan Caplan and Ady Branzei. Build, Baby, Build. Graphic novel just published by the Cato Institute If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Come along on a journey through the corridors of economic history and methodology with our esteemed guest, Bruce Caldwell from the Center for History of Political Economy at Duke University. Caldwell's personal voyage, from the nuances of economic methodology to his deep dive into Austrian economics, sets the stage for an enthralling discussion on the workings of institutions, transaction costs, and the profound impact of Friedrich Hayek's theories on modern economics. Get ready to unlock the secret meaning behind the unique TIPS acronym within Austrian economics. We follow Hayek's intellectual transition from his focus on business cycles to the intricate challenges of economic calculation and knowledge distribution. The conversation illuminates the value of information in economic decision-making and highlights the importance of markets in reconciling diverse plans and purposes. Discover how Hayek's 1945 paper reshaped economic thinking, extending its influence beyond the Austrian school and into the realms of neoclassical economics. Our exploration culminates with an examination of the very fabric holding our economic systems together – institutions. Delve into the evolution of economic institutions with insights from Doug North's intellectual quest and the relevance of Austrian capital theories in understanding economic flexibility. Links: Bruce Caldwell, Beyond Positivism https://www.amazon.com/Beyond-Positivism-Bruce-Caldwell/dp/1138834238 Bruce Caldwell and Hansjoerg Klausinger, Hayek: A Life, 1899-1950 https://www.amazon.com/Hayek-Life-1899-1950-Bruce-Caldwell/dp/0226816826/ F.A. Hayek, 1945: The Use of Knowledge in Society, American Economic Review. https://www.econlib.org/library/Essays/hykKnw.html Michael Munger, "The Socialist Generation Debate" https://www.aier.org/article/the-socialist-generation-debate/ Surge Pricing, NPR. https://www.vox.com/money/24105250/fast-food-restaurants-dynamic-pricing-algorithm-wendys Hope Center at Duke. https://today.duke.edu/2018/08/duke-center-expands-commitment-history-economics If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

The digital realm is rife with invisible threats, and this episode doesn't shy away from the gritty realities of ransomware and the burgeoning industry of cyber insurance. We tackle the conundrum: How do these defensive expenditures impact our economy when they don't actually produce anything tangible? From the early days of cyber insurance to the ongoing battle against hackers, learn how organizations across the board—from the halls of government to the frontlines of business—are fortifying their defenses against a barrage of cyber threats, each with their own unique strategies and vulnerabilities. Wrapping up with a human touch, our conversation turns to the pivotal role individuals play in the security of networks and the negotiation tactics employed once defenses have been breached. And because all work and no play makes for a dull podcast, we round off the session with a sprinkling of economic humor, answering listener queries with a blend of wit and wisdom. Don't forget, for those hungry for more knowledge, I've got some book recommendations to deepen your understanding of the legendary thinker Adam Smith. Links: Anja Shortland Website: https://www.kcl.ac.uk/people/anja-shortland-1 Duke CHOPE Hayek Lecture with Dr. Shortland: https://www.youtube.com/watch?v=Czs2EYDo2sI Books: Arthur Herman: How the Scots Invented the Modern World https://www.amazon.com/How-Scots-Invented-Modern-World/dp/0609809997 James Otteson: Adam Smith's Marketplace of Life https://www.amazon.com/Adam-Smiths-Marketplace-James-Otteson/dp/0521016568/ref=monarch_sidesheet Adam Smith: The Theory of Moral Sentiments https://www.libertyfund.org/books/the-theory-of-moral-sentiments/ EconTalk Book Club (six episodes): https://www.econtalk.org/klein-on-the-theory-of-moral-sentiments-episode-1-an-overview/ If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Unlock the secrets of the energy market evolution with economist Professor Lynn Kiesling, who brings her expertise on transaction costs and the digital transformation of the electricity industry to our table. Our energized discussion orbits around the innovative world of Distributed Energy Resources (DERs), where we explore the shift from consumers to proactive producers, thanks to technologies like rooftop solar panels and home energy storage. Professor Kiesling, drawing from her academic journey and reverence for Ronald Coase's work, delves into the institutional structure of production within firms and imparts her wisdom on navigating the complex regulatory frameworks that shape our smart grid technologies. Also, 4 new TWEJ's, and a letter. It's the January TAITC! https://lynnekiesling.com/Airbnb to solar: electricity market platforms as local sharing economiesPublic Choice: Are We Talking Ourselves Out of Progress?"Pareto-relevant Externalities Links: "Externality." Economica.https://www.econtalk.org/david-mcraney-on-how-minds-change/https://en.wikipedia.org/wiki/Amory_Lovinshttps://reason.com/2023/12/15/baseball-star-shohei-ohtanis-new-contract-is-a-massive-tax-avoidance-scheme-nice/ If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

TAITC tries to navigate the complex world of 5G, Huawei, and the telecom revolution with special guest John Pelson, author of the thought-provoking book, Wireless Wars. With Pelson's unique insights from his time as a corporate executive in the wireless tech industry, we explore the pivotal role of rapid, reliable communication in promoting cooperation and exchange. We'll take up some of the intricacies of switching technology, capacity increases, and how institutions and transaction costs influence the wireless business competition. Our journey won't stop at revealing the inner workings of the telecom industry. We'll also shed light on the transformative impact of 5G technology on society. Beyond simply being a faster version of 4G, we'll discuss how 5G acts as a conduit connecting things to things, with the potential to bring radical changes to multiple industries. Discover why it's not too late to jump on the 5G bandwagon and how its full potential is yet to be realized. Some background info and links: Underappreciated Economists: Karl MittermaeirSQL queries: Joins Books'o'da'Month! •Wireless Wars, Jon Pelson •The Capitalist Manifesto, Johan Norberg (I said Jonah, but of course it's Johan!!!) •The Hand Behind the Invisible Hand, Karl Mittermaier If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

What limits innovation? Is that good? I talk to Adam Thierer, senior fellow at the R Street Institute, exploring the concept of permissionless innovation and its far-reaching implications. From ancient Mesopotamia to the digital revolution, we unpack how policy context shape the trajectory of innovation and, consequently, our society. With Aaron Wildavsky saying "Go!" and my son Kevin Munger saying "Not so fast, there Scooter!", we venture into the contentious territory of innovation intellectual property rights in an era of digital sharing. FOUR TWEJs (trying to keep THAT weekly, at least), and some great letters. LINKS: PAPERS and BOOKS by ADAM THIERER: https://rtp.fedsoc.org/paper/the-coming-onslaught-of-algorithmic-fairness-regulations/https://fedsoc.org/commentary/fedsoc-blog/the-problem-with-ai-licensing-an-fda-for-algorithmshttps://news.bloomberglaw.com/us-law-week/overregulating-ai-will-disrupt-markets-and-discourage-competitionhttps://www.rstreet.org/people/adam-thierer/https://www.amazon.com/Books-Adam-Thierer/s?rh=n%3A283155%2Cp_27%3AAdam+ThiererMoney Pump: https://www.oxfordreference.com/display/10.1093/oi/authority.20110803100205601#:~:text=The%20concept%20was%20introduced%20by,willing%20to%20pay%20for%20ithttps://johanegustafsson.net/books/money-pump-arguments.pdf Aaron Wildavsky, SEARCHING FOR SAFETY, https://www.routledge.com/Searching-for-Safety/Wildavsky/p/book/9780912051185 Calestous Juma, INNOVATION AND ITS ENEMIES https://academic.oup.com/book/25649 William Baumol, ENTREPRENEURSHIP (article) https://www.sciencedirect.com/science/article/abs/pii/088390269400014X Epstein and Munger on Capitalism and Stagnation https://www.youtube.com/watch?v=4o-s541UKgI Munger on “Permissionless Innovation” on Econtalk https://www.econtalk.org/michael-munger-on-permissionless-innovation/ If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Are you intrigued by the transformative potential of blockchain and Ethereum? This conversation with Ryan Berckmans, an Ethereum enthusiast and savvy investor, will unravel world that remains mysterious to most. We also reflect on Ethereum's potential as a geopolitical tool and the enticing prospect of stablecoins. As we venture into the world of privacy technologies like zero-knowledge proofs of identity or performance, we walk a knife-edge separating privacy and security. Wrapping up, we discuss the economic benefits of pseudonymity and the potential regulatory response(s). Plus, just to keep TWEJ meaningful (otherwise, it would be "TMEJ", which is too hard to say), FOUR new economics jokes, one for each week of the month! And several letters, to give a taste of what I'll talk about in November. Some Links: Ryan Berckmans on LinkedIn Ryan Berckmans on TwitterEthereumLearn about EthereumA Dashboard of Dashboards of Tokenized Assets If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

A thought-provoking conversation about Effective Altruism (EA) with technologist Ben Goldhaber, as we explore its intersections with utilitarianism and transaction costs. We'll try to navigate the tricky terrains of libertarianism and the more "directed" world of EA, balancing directional and destinationist solutions, and the role of strong leadership and community dynamics in maintaining this equilibrium. We'll question the limits of utility maximization as a framework and ponder over the potential dangers it could pose if unchecked. Our discussion investigates how EA, rational thinking, and global development has influenced the field of AI alignment. And my favorite new TWEJ, from @dtarias. In the first monthly edition of TAITC. Some resources: The Reddit source for the TWEJSunday Brunch, for $195, at the BreakersEconTalk: Peter SingerEconTalk: Will McCaskill and LongtermismEconTalk: Eric Hoel and the Repugnant ConclusionKevin Munger--Everything Was Rational and Nothing VibedConsequentialism: IEPEffective Altruism ForumSB-F on SB-F (New York Times) If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

There are three reasons to impose taxes, it seems: 1. To discourage behavior "we" don't like 2. To raise revenue for things "we" want 3. To achieve a pattern of social justice in the distribution of resources What does transaction cost analysis have to tell us about all this? And Bob Barker, and the 99 cent price point. Have you even read Marx? And a new letter. NOTE: This is the last of the regular episodes of Season 1. With the start of the new academic year, TAITC will move to once per month, with longer episodes coming out the last Tuesday of each month. APOLOGY: I said "Meltzer and Richards" with an "S", twice. That's wrong. It's just "Richard," no "S." Links to Resources: Quote Investigator on the ditty about "Tax that man"Meltzer, A. H., & Richard, S. F. (1981). A Rational Theory of the Size of Government.Journal of Political EconomyCosts of tax complianceChilean tax systemLaffer CurveCharlie Gibson/Barack Obama exchangeWho Pays Federal Income TaxHarvard Business Review article on $X.99 pricingOn the Problem of "Fictitious Reference Pricing"Bob Barker ObitIf you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

There are many different pricing and packaging schemes for serving food in restaurants, and they all seem to coexist. But there are some significant differences, and thinking in terms of transaction costs and adverse selection can help us understand why. Plus, a TWEJ on the eternal optimism of Keynesians: THIS time it might work! Some links: https://www.jstor.org/stable/725223https://www.today.com/food/restaurants/all-you-can-eat-buffets-comeback-rcna99462Buffets, pricing, and management, seller's perspective https://www.cheftalk.com/threads/pricing-salad-bars-by-weight.70748/https://pdfcoffee.com/buffet-cost-control-pdf-free.htmlJournal of College & University FoodserviceFundamental Principles of Restaurant Cost Control,Consumer's perspective https://www.budgetbytes.com/hit-salad-bar-like-boss/https://www.refinery29.com/en-us/whole-food-cheap-salad-bar-hacks If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Are HOAs an argument for anarchy, or an example of it? Ex post recontracting as a form a of aggression, when the enforcer of contracts is also a party to the contract. And of course the TWEJ Some Links: How to pronounce “Tiebout” Why you should care about TieboutMunger on Wealth Taxes, and "Tuh" the DogMakovi on "Cookie Cutter Covenants"NH property owners say HOA elections are undemocraticPublic Goods and "Club" Goods If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

The listener letter last week asked about the the three "red dots" that are used to identify liquor stores in South Carolina. Turns out that this kind of "shibboleth" is a way of identifying and discriminating, in ways that can be useful, or harmful. Red Dots in South Carolina: The Robert Moss (SOUTHERN SPIRITS) versionSouth Carolina EncyclopediaShibboleth Gileadites and EphraimitesBackground on the conflictNaked mole rats use shibbolethsThe Stone Signposts of Pompeii World Series as Shibboleth (Robert T. Gravlin, 23rd Armored Engineer Battalion) Appropriate Measures of Inflation ERRATUM: MJ writes to point out that if the economist could really count, he would have miscounted the number of sheep, adding one, because he counted the dog. That's fine. But then why did the shepherd agree that the number of sheep was correct? It should have been one over. It's okay that TWEJ's are not funny, that comes with the territory. But in this case there is a logical problem. My mistake, and thanks, MJ! If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

How do you trade off your own interests against the interests of others? And what role do transaction costs play? A discussion of our "interest" in the welfare of others, and the complexity that adds to economic indifference curves. Things take an interesting turn, going toward how transaction costs can shape our institutions and preferences, ranging from a marine fishery to a bowl of M&M's. And TWEJ. Always, TWEJ. Some Resources: Gary Lynne, on Dual Interest Theory: https://journals.sagepub.com/doi/abs/10.1177/02601079231172366?journalCode=jiea Neo(Classical) and Rama-Kandra, on caring about others: https://www.imdb.com/title/tt0242653/characters/nm0924502 On Coase, Olson, and the Problem of Encompassing Institutions: : https://www.justice.gov/archives/atr/merger-guidelines-and-integration-efficiencies-antitrust-review-horizontal-mergershttps://onlinelibrary.wiley.com/doi/full/10.1111/j.1468-0335.1937.tb00002.xhttps://www.jstor.org/stable/2111117https://www.jstor.org/stable/2600589the Rise and Decline of Nationshttps://www.jstor.org/stable/j.ctt1nprddhttps://papers.ssrn.com/sol3/papers.cfm?abstract_id=3405632On Brown M&Ms: https://www.youtube.com/watch?v=_IxqdAgNJckhttps://www.npr.org/sections/therecord/2012/02/14/146880432/the-truth-about-van-halen-and-those-brown-m-mshttps://www.insider.com/van-halen-brown-m-ms-contract-2016-9 If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

What do Monty Python, George Akerlof, and the academic publishing industry have in common? They're all part of the explanation for the way academic publishing works. High transaction costs and the race for tenure often push scholars to prioritize quantity over quality. So, if you've ever wondered why professors seem to produce endless streams of research, this episode is for you. Plus the TWEJ, a triple-header! Some links: 1. Some images sent by EA, about "Desert Town", by Claude Gillot Two carriages at an intersection, arguing about who gets to go first A drawing of same, with a judge to determine the merits of the claims 2. The Insectivore's Dilemma: An actual instant of the "eat a bug!" coupon. 3. George Akerlof and the "Loyalty Filters" article in the American Economic Review, 73(1), 54–63. 4. Kevin Munger and the Journal of Quantitative Description If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Transaction costs can help institutions build loyalty and commitment among their members. Starting with the biblical story of Abraham, we delve into the delicate balance of setting transaction costs to neither alienate nor diminish values. Then: loyalty filters. The civil service of imperial China. Email spam. "The Word of Wisdom", a LDS dietary and lifestyle principle. But....there are cola vending machines at Brigham Young University, a seeming detour from the teachings of the Word of Wisdom. Links: Genesis 22 TextWord of Wisdom TextCaffeinated drinks at "The YWhy is SPAM so badly writtenCalligraphy in the Chinese Civil ServiceLoyalty Filters. The American Economic ReviewCorporate Culture and Economic TheoryLagniappe: A note from listener J: I was particularly interested in today's topic as I am a member of the "Mormon" faith. I remember growing up when caffeinated sodas were seen as a huge deal, you would never bring one to a church BBQ and I remember being kicked out of a friend's house for drinking a diet mountain dew. I thought you may find it funny that after almost 100 years of confusion around caffeinated sodas, the church finally clarified in 2012 that in fact, caffeinated sodas are okay and not against the word of wisdom. Many speculate that this was due to MItt Romney being thrust into the spotlight as a presidential candidate, and he often drinks diet coke, and the church didn't want to turn off potential converts who might think, "I would never join a church that would ask me to g If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

How is buying lettuce like buying lumber? Each is idiosyncratic, and has to be sorted. Imposing the sorting costs on the buyer is actually a way of price discriminating. Clement Atlee and Winston Churchill, for the best TWEJ ever. And a cool new letter, about using transaction costs to separate by type, when type is "private information." Links: "Measurement Costs and Pricing in Retail Produce" https://blog.oup.com/2017/06/clement-attlee-timeline/https://www.amazon.com/Attlee-Churchill-Allies-Adversaries-Peace/dp/1848876602https://www.youtube.com/watch?v=XLuIlkT4gV4https://quoteinvestigator.com/2015/08/13/working-well/ If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

(NOTE: SORRY for audio glitch earlier. Fixed now!) BR asks about the economic content of "old sayings." We talk about habits, character, and "thinking fast and slow." Plus, TWEJ takes on cultural norms. Some links and background: F.A. Hayek on habit and informationB. Hooker on Rule ConsequentialismMunger on Pave the Muddy PathsMunger on Rule UtilitarianismRuss Roberts on Wild ProblemsRoberts and Munger on Norms and SportsRoberts and Munger on Cultural NormsDavid Schmidtz on "Desert Town"Adam Smith on being committed to your principlesAlfred North Whitehead on habitLagniappe: I think we all see different headlines. This one (to me) says, "Sheetz raises gas prices using long lines and frayed tempers on one of the hottest days of the year!" If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Last week's letter asked about the role of transaction costs in rationing discounted products, or "sales," like "Dollar Hotdog Night!" at the ballpark. As the listener correctly pointed out, this relates to price discrimination, which is a great topic. And....coupons! Some additional links and info: $21 "Dodger Dog" Monkey App" kerfufflehotdog night at Philadelphia got out of handRobert Murphy and the Argument FOR Couponsdiscussion of "found wallets" no such thing as a free coupon If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Last week's letter asked if charging prices below the "market" price might be rational, but might be an antitrust violation. The TWEJ is a joke about women in prison for having violated rules against "moral" pricing. The actual cartoon is here, preserved for posterity by the good Timothy Taylor. Some links, for more information: Russ Roberts and Michael Munger on John Locke, Prices, and Hurricane Sandy John Locke, "Venditio" Guzman and Munger, "Moral Dilemmas from Locke's Venditio," Public Choice. A "Loudwire" article that fails to understand even basic economics of scarcity. Mark Perry drops the truth about "Ticket Scalping" and why it happens... Adam Smith: "The real price of everything is the toil and trouble of acquiring it." (WoN, Bk I, Chapter 5) Michael Munger, "To the Consumer, All Costs are Transaction Costs." AIER. If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz

Episode 6 takes up the question of "matching," and the transaction costs of dating and marriage. Some resources: Ashley Madison: "Is It Real?" Garrison Keillor, "We are Still Married" Michael Munger, on "Calculation" and socialist economics, at AIER Michael Munger and Russ Roberts, on "Econtalk: WIld Problems" Tyler Cowen and Russ Roberts, on "Making Your Own Economy" Intellectual Property and the Problem of the Anti-Commons Background on search cost and optimal stopping: Secretary Problem ISecretary Problem II If you have questions or comments, or want to suggest a future topic, email the show at taitc.email@gmail.com ! You can follow Mike Munger on Twitter at @mungowitz