Ridley: Why our public sector is so unproductive

The enduring lessons of Jevons and Baumol

By Matt Ridley. 

"Agatha Christie once remarked that she had never expected to grow rich enough to own a car or poor enough not to have servants. The reason this strikes us as bizarre today boils down to two names that you hear invoked a lot in the tech industry: Jevons and Baumol. One is shorthand for the expansion of products or professions with rising efficiency, the other for the shrinkage of products or professions with stagnant efficiency.

There’s a pleasing chronological symmetry between these twin ideas: William Stanley Jevons coined the Jevons paradox in 1865; William Jack Baumol described Baumol’s cost disease exactly a century later in 1965.

In his pessimistic book The Coal Question, Jevons forecast peak coal and consequent economic catastrophe for Britain. Energy efficiency would not come to our rescue, he argued. “It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth.” If you double the efficiency of steam engines, you do not burn less coal, you install more engines and soon burn more coal. He was wrong about peak coal, as later pessimists were wrong about peak oil and peak gas, but right about increased consumption.

A modern example: light-emitting diodes (LEDs) use about 15 per cent as much electricity as incandescent bulbs. Do we save that difference? Only at first, then we install more lights, leave them on longer and build things like the Las Vegas Sphere, which uses as much electricity as 50,000 homes.

The tech guru Erik Brynjolfsson points out that: “Pilots became dramatically more productive and effective once jets were invented. Did that mean that we didn’t need as many pilots because now pilots could do more work? No. We consumers decided that we’re going to fly more than ever. So now a lot more people fly. And there’s more demand for pilots.” If supersonic commercial flight eventually takes off, the falling cost of pilots and flight attendants (in the air for less time) will only increase demand for air travel.

The price of a single transistor has fallen over half a century from about $1 to less than a millionth of a cent. So we not only buy more of them but spend more on them. As Alex Danco puts it: “At $1 per transistor, computers made sense for military calculations and corporate payroll. At a thousandth of a cent, they made sense for word processing and databases. At a millionth of a cent, they made sense in thermostats and greeting cards. At a billionth of a cent, we embed them in disposable shipping tags that transmit their location once and are thrown away.”

Drones, space launches and genome sequencing are being Jevonised right now. As for artificial intelligence, “Jevons paradox strikes again,” says Satya Nadella of Microsoft. “As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can’t get enough of.” Aaron Levie of Box says: “Jevons paradox is coming to knowledge work. By making it far cheaper to take on any type of task that we can possibly imagine, we’re ultimately going to be doing far more.” AI will mean more jobs for lawyers, not fewer.

Marc Andreessen muses that it is “like the Daniel Day Lewis character in There Will Be Blood worrying ‘but what will happen, once we’ve satiated their demand for whale blubber?!’ Well, it turns out that there were a lot more useful ways to consume energy than burning the midnight oil.” As the cost of AI tokens collapses, we will use vastly more of them for vastly more uses.

But here’s where the Baumol twin comes in. For every industry that experiences efficiency gains, there’s another that does not. And this latter industry inevitably becomes less affordable. Baumol’s first example was string quartets: violinists are no more productive but you have to pay them more to prevent them running off to become software engineers. The productive industries drive up the labour costs in the rest of the economy. Andreessen jokes that if a hole appears in the wall of your house in California these days it is probably cheaper to glue a flat-screen television over it than hire a builder to repair it: a Jevons-deflated cost beats a Baumol-inflated one.

The big question of our age is can AI drag Baumol-shaded industries back into the sunlight of Jevons? Can it make things like healthcare, education, or government switch from rising costs to falling costs?

I fear not in the case of government because of a bureaucratic version of the Jevons and Baumol effects. As Cyril Northcote Parkinson put it in an article in the Economist in 1955: “Politicians and taxpayers have assumed (with occasional phases of doubt) that a rising total in the number of civil servants must reflect a growing volume of work to be done. Cynics, in questioning this belief, have imagined that the multiplication of officials must have left some of them idle or all of them able to work for shorter hours. But this is a matter in which faith and doubt seem equally misplaced.”

Since 1997, the British public sector has seen zero increase in productivity. That is to say, the average civil servant generates about the same output today as he did three decades ago. Think about this for a second. Thirty years ago fax machines were high-tech, the internet was in its infancy, emails were new, Wi-Fi was scarce, mobile phones were voice-only. How is it remotely possible to be no more productive today than then?

We know the answer. Each email is now copied to a dozen people, each report is pasted and copied till it is twice as long, each Zoom call has five times as many attendees, each mobile call is followed up by three times as many WhatsApp messages – and each day at the desk is interrupted by a training session on transgender anticolonial sustainability. That’s a sort of Jevons-Baumol effect: a Jevol?

Have market forces eroded Apple's monopsony power for chips?

To see how monopsony works graphically, see the Wikipedia article. Monopsony means one buyer (whereas monopoly means one seller). Similar to what happens in monopoly where the price is higher than in competition and the quantity produced is lower, in monopsony less is produced and sellers get a lower price because the one buyer has market power.

And that is something that Apple has been accused of. See Apple Is America’s Semiconductor Problem. Excerpt:

"Apple’s sheer size as a buyer puts this into perspective. In 2022, Apple bought $67 billion of semiconductor chips, a full 11% of the global market for chips across all industries. Apple buys a far larger share of smartphone and computer semiconductors, given that it accounts for half of global smartphones sales and earns 85% of all smartphones profits. Apple’s supply agreements with U.S. mobile operators demand that Apple products get the deepest subsidies and the largest share of sales."

But the recent increase in demand for chips for AI purposes means that there are many more buyers and it looks like Apple's influence is decreasing. See Apple to Raise Prices Due to Memory Chip Crunch, Tim Cook Says: The CEO tells the Journal in an exclusive interview that soaring costs make price increases ‘unavoidable’ by Rolfe Winkler of The WSJ. Excerpts:

"Apple plans to raise prices on its products to offset the surging costs of memory and storage chips, Chief Executive Tim Cook said"

"“There’s less supply at a time when consumers want devices and the memory guys are passing along huge price increases,” said Cook. “We definitely need memory pricing and supply to return to reasonable levels for consumer products. That’s the bottom line.”" (there is less supply for Apple)

"Memory companies are building more factories: Morgan Stanley forecasts that production capacity for DRAM wafers, the silicon discs on which chips are patterned, will grow 30% by 2027. Yet as suppliers prioritize the specialized AI memory, wafers for consumer tech will fall up to 15% short of demand, Morgan Stanley estimates." (so if there is more demand now with more buyers more will be produced meaning the monopsony power is being reduced)

"Companies that make PCs, game consoles, smartphones and more have raised prices"

"Morgan Stanley estimates a 15% bump for prices of smartphones and PCs in the U.S. this year."

"It is unclear how Apple could match, let alone beat, the deal terms that AI hyperscalers are offering to lock up supply. Those companies are signing three-to-five year agreements with huge cash prepayments that Apple is unlikely willing to match"

"Historically it has used its heft to wring the lowest prices out of suppliers, playing them off each other and leaving them little profit. As AI companies have stormed into the market, suddenly Apple has to wait in line." 

This last passage shows that Apple had some monopsony power that is decreasing since they used to be able to play suppliers off each other with little profit (meaning a low price as monopsony predicts) but now they have to wait in line because there are more buyers they have to compete with. 

Personalized Pricing Isn’t All Bad for Consumers

By Christopher Gardner and Juan Londoño of Cato. Excerpts:

"The novelty of IDP (individualized dynamic pricing) lies in the ability to autonomously set prices by using an individual’s data to infer how much they are willing to pay for a product. Many industries, from car sales to higher education, practice some sort of individualized pricing. The primary distinction for IDP is that it can adjust prices cheaply, autonomously, and without bias. This arrangement allows companies to increase profits while offering lower prices to consumers."

"Dynamic pricing can best be understood as the adjustment of prices in response to changing market conditions."

"Algorithmic pricing’s recent turn in the spotlight is not a function of its increased use. Rather, technological advancement, which has enabled greater speed and individualization, has made the reality of those price changes more apparent to the average consumer."

"individualized pricing. This practice has been around since the dawn of commerce, when merchants and customers haggled over the price of a given product."

"A common example of individualized pricing is buying a car."

"IDP can be less subjective than a human salesperson."

"the practice has been in use for years across an array of industries, from insurance to retail. Each instance represents an effort to increase company profits, but it also helps allocate goods and services more effectively to those who need them."

"Most of the time, businesses use these tools as an extra nudge to lure in potential customers who are on the fence over a product. 

An example of how businesses commonly use IDP, particularly in online retail, is to combat “cart abandonment,” a term for when a user adds a product to their virtual shopping cart but ultimately decides not to buy it. When the website realizes that the customer is wavering in their resolve to buy a product or is browsing a competitor’s website to compare prices, it might “sweeten” the deal by offering a personalized discount hoping that the deal might convince the customer to complete the purchase."

"the best protection for consumers is a competitive market. In competitive markets with no supply constraints, IDP has proven to largely benefit consumers. Any time a firm uses IDP to raise prices for a given consumer, that automatically allows a competing firm to undercut those prices and take that consumer away. The nature of these structural protections is borne out as new technologies are implemented, such as electronic shelf labels. In spite of regulatory concern, there is virtually no evidence that electronic shelf labels are intended or used for surprise price increases."

"certain definitions of dynamic or personalized pricing would lump in popular pro-consumer discounts such as happy hours."

"Existing regulations often provide consumers with ample protection, given that the conduct underlying IDP is not novel despite technological advances. Aside from antitrust law covering concentrated markets, existing regulations on deceptive pricing directly address concerns about fictitious high baseline prices."

The Warmth of Cooperation

By Chris Freiman.

"New York City Mayor Zohran Mamdani recently caused something of an uproar when he contrasted the “the frigidity of rugged individualism” with the “warmth of collectivism.” This framing echoes the familiar criticism that capitalism forces people to go it alone as “atomistic individuals.” The thought goes like this: markets do real damage to the social fabric and our relationships because they organize our economic lives around competition and self-interest. Organizing our lives around competition encourages people to see each other as rivals rather than partners. In brief, capitalism pits us against each other, while socialism brings us together. Setting aside the fact that collectivist regimes haven’t exactly been warm to those living under them, this view gets capitalism backward.

Start with a simple observation about your own economic life under capitalism. Think about this week: how many cooperative interactions have you had, and how many competitive ones?

You probably didn’t compete with anyone when you bought coffee at Starbucks this morning. You didn’t enter a zero-sum struggle when you paid your phone bill, purchased groceries and gas, or caught a movie. Instead, you took part in a series of mutually beneficial, voluntary transactions. You gave someone money and they gave you something you wanted more than the money. Everyone walked away better off. In the words of Adam Smith, “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest.”

Competition, by contrast, rarely pops up in your day-to-day economic life. A business competes with other businesses for customers and you’ve probably competed with others for a job at some point. But you cooperate far more often than you compete. And notice what market competitions really are—they’re competitions to see who’s best at serving others. You might say that they’re competitions to discover the best ways to cooperate and who the best cooperators are (more on this below).

Unsurprisingly, Smith understood the cooperative nature of markets well. He writes that a wool coat

is the produce of the joint labour of a great multitude of workmen. The shepherd, the sorter of the wool, the wool-comber or carder, the dyer, the scribbler, the spinner, the weaver, the fuller, the dresser, with many others, must all join their different arts in order to complete even this homely production. How many merchants and carriers, besides, must have been employed in transporting the materials from some of those workmen to others who often live in a very distant part of the country! How much commerce and navigation in particular, how many ship-builders, sailors, sail-makers, rope-makers, must have been employed in order to bring together the different drugs made use of by the dyer, which often come from the remotest corners of the world!

Smith goes on, but I’ve got a word limit here—the point is that markets don’t atomize us. On the contrary, they lead strangers all over the world to cooperate.

Think back to the last time you bought a coffee. Starbucks has to coordinate with bean farmers, shipping companies, truck drivers, warehouse workers, roasters, equipment manufacturers, electricians, plumbers, accountants, and baristas. None of these people know you, and yet they manage, every day, to cooperate in ways that reliably get caffeine in your hand at 7:43 a.m. And this isn’t accidental—the prices provided by markets give people the information they need to figure out what others want, and they provide the incentive to give it to them.

There’s no denying that markets involve competition. You can go to the business section of a bookstore and find titles like Business Warfare and The Warfare of Business. But businesses are competing with each other to see who can best serve consumers. Netflix beat Blockbuster by figuring out a better way to give viewers what they wanted: convenience, selection, no late fees, and eventually streaming. In brief, Netflix won because consumers preferred cooperating with Netflix over Blockbuster.

A similar point applies to competition in the job market. Maybe you don’t merely want to buy coffee from Starbucks, you want to work there, too. But this means you’ll have to compete with other applicants who also want the job. Here again, let’s look at what it takes for an applicant to win this competition. They need to demonstrate that they’ll do the best job of making customers better off—say, by being more punctual, more efficient at making mochas, or more likely to serve drinks with a smile. Market competition is competition to see who can cooperate most effectively with others.

In any case, democratic socialists can’t be opposed to all competition. After all, democracy requires competition, and democratic socialists want democracy in the workplace as well as in politics. If competing for dollars is frigid, it’s hard to see why competing for votes would be any warmer. Market competition enables millions of people with different values, plans, and priorities to work together without agreeing on much of anything by helping them to coordinate many different choices. You and your barista don’t need to agree on the principles of justice to cooperate and make each other better off. Far from being atomizing or frigid, the free market is a system of interdependence that brings strangers together to cooperate for their mutual benefit."

The Economics of Oil Prices

David R Henderson. Excerpt:

"The World Market

While I was waiting to play pickleball a couple of weeks ago, a friend who knows I’m an economist asked me a question: “Given that we in America produce almost all the oil we use, why does a reduction in supply of other countries’ oil lead to a price increase here?”

I loved the question because I occasionally raised exactly this question when I taught at the Naval Postgraduate School.

Here’s how I answered.

Because of low transportation costs per barrel of oil, which are a small fraction of the price of a barrel of oil, the market for oil is global. A reduction in the supply of oil anywhere in the world reduces world supply. For a given world demand, therefore, the price oil will increase everywhere.

My friend thought for a minute. He seemed to get it.

Then the next question occurred to him. “What,” he asked, “if a domestic refiner is sitting on a large inventory of oil that it had bought weeks earlier for over $20 less than the current price? How can it justify pricing its refined products as if it had paid the current higher price of oil?”

I sensed a certain upset at gasoline companies and so I decided to take an indirect route to answer. I was pretty sure this guy, who is close to my age, had lived in the area a long time. I asked him if he owned a house. He said he did. I asked him if his house is worth a lot more than what he paid for it. He said it is. Then I asked, “If you decided to sell your house, would you price it at what you paid for it or would you price it according to current market conditions, which would imply a much higher price?” He answered that he would price to the market.

He got it.

By the way, when I wrote my Wall Street Journal piece in August 1990 arguing that you couldn’t justify war in the Middle East based on Saddam Hussein’s probable impact on the price of crude oil, I of course put no consideration on how much oil we got from Iraq or Kuwait—it was a small amount but the amount was irrelevant. Remember that it’s a world market."

Opinion: No matter how good AI gets, it won’t beat markets

The economy isn't a vast set of equations. It's a complex discovery process done in real time. Even the best computers aren't up to that

By Peter Boettke. 

"Whenever we see big leaps in computation, would-be central planners come out of the woodwork, claiming this finally makes it possible to organize the economy better than markets do — optimizing tax rates, producing enough to meet our needs, and allocating resources in a way that maximizes well-being for all.

Such arguments gained theoretical prominence in the early 20th century, saw a resurgence with the mid-century advent of modern computing and operations research, and have emerged again with the impressive advance of artificial intelligence (AI).

But this line of thinking rests on a false premise: that an economy is nothing more than a computational problem to be solved with accurate equations and enough data and processing power.

As I argue in a recent paper for the Montreal Economic Institute, this error was understood as far back as the 18th century by Adam Smith (1723-90). In his Wealth of Nations, which just had its 250th birthday, Smith observed that producing even simple goods requires the co-operation of so many different hands that the full network of exchanges would “exceed all computation.” Even the making of a woollen coat, for instance, required farmers, spinners, dyers, merchants, shippers, and so on just to get from raw materials to market.

Such complexity doesn’t stop the coat from being produced. But Smith’s point is that there is no single mind directing every step of production, from raising the sheep to selling you a brand-new peacoat. Instead, it is through the spontaneous co-operation of the many hands and minds that make up the “invisible hand” of the market that such production is possible.

In the late 19th century, Italian economist Vilfredo Pareto (1848-1923) expanded on this point, observing that co-ordinating even a modest economy and matching resources to uses and preferences would soon cause an explosion in the number of equations to be solved. But today’s computers can handle quintillions of computations per second, more than Pareto could possibly have imagined. Doesn’t that make a difference?

This is where Nobel laureate economist Friedrich Hayek (1899-1992) comes in. Hayek explained that the problem is not merely that the relevant knowledge is decentralized — spread out across millions of individuals — but that it is often tacit. Local shopkeepers’ understanding of their customers’ buying habits cannot be translated into one data point to feed into an AI or any other kind of model. Nor can we predict the emergence of an entrepreneur dreaming up a product that did not exist before.

Most important of all is the phenomenon of prices — indispensable signals that guide our decision making. Prices are neither set in stone nor arbitrarily fixed. Instead, they emerge from real exchanges. When the price of wheat rises, it is because buyers and sellers are competing for a limited supply. This price increase signals something about relative scarcity. It also provides an incentive to adjust consumption and conserve the resource, to look for a substitute, to increase production and to innovate.

In short, prices are not lying around in the wild, waiting to be harvested and fed into an algorithm. Rather, they are the result of constantly evolving discovery. Without this process of discovery, the knowledge embedded in a price simply doesn’t come into existence.

Hayek called the price system, with its ability to generate knowledge in the market, a “marvel.” He described competition as a “discovery procedure” that does much more than allocate resources. When entrepreneurs bring new products to market, for instance, they are making informed bets. If they’re wrong, they bear the cost. If they’re right, they reap the rewards. Through this process, we all learn a little more about what is possible, what is valued and what works.

As for AI, it can process truly vast quantities of historical data to detect patterns, forecast trends and optimize within given parameters. But it can only look backward to find data, whereas economic life is forward-looking and creative. The growth of the social-media influencer market, to choose but one example, could hardly have been predicted by an algorithm 20 years ago. In the same way, today’s algorithms can’t accurately predict what or how much we’ll consume tomorrow, since much of what will matter tomorrow hasn’t been imagined yet.

As powerful and helpful a tool as AI can be to improve logistics, better manage inventories and analyze markets, it remains just that, a tool. It can help us gain a better understanding of markets but only markets themselves can predict and co-ordinate the results of the billions and billions of voluntary exchanges that take place every day."

You Can’t Break the Laws of Economics

Supply and demand invariably overcome any effort to defy or outsmart them

By Brian Albrecht. Excerpts:

"When Mr. Trump imposed steel and aluminum tariffs in 2018, the University of Chicago surveyed dozens of top economists."

"Not one of them thought that Americans would be better off because of the tariffs."

"Study after study—using customs data, retail prices and scanner data from stores—has found that American businesses and consumers bore virtually 100% of the tariff burden."

"about half of U.S. imports are used as inputs in the production of other goods."

"because of the 2018 tariffs, downstream American industries . . . lost jobs, swamping any gains to aluminum producers."

"After egg prices roughly doubled at the start of this year, Sen. Elizabeth Warren (D., Mass.) urged the Justice Department to investigate price gouging."

"The supply side collapsed when avian flu killed more than 100 million birds. When supply shrinks and consumers aren’t very price-sensitive . . . the price will rise significantly." 

"a high price for eggs is an incentive to do two things: import eggs and rebuild the supply of chickens. The latter can’t happen immediately."

"Economists’ prediction of recovery through imports and restocking has come true, with egg prices"

The AI Market Debate Is Old

Oskar Lange’s utopian—or dystopian—idea 80 years ago was to have a computer power the economy.

Letter to The WSJ. 

"Regarding Marian L. Tupy and Peter Boettke’s op-ed “Algorithms Can’t Replace Free Markets” (July 22): Economists have already debated whether AI could replace the market some 80 years ago when they argued over the Lange model.

Polish-American economist Oskar Lange’s utopian—or dystopian—idea was to have a big, futuristic computer replace market dynamics so that an economy could be centrally planned.

The idea of using AI to run the economy instead of an organic web of individual choices is inextricably connected to a socialist model of central planning and control. As Hungarian economist János Kornai contended, such centrally-planned systems inevitably result in a “shortage economy.” And we’ve seen that, time and again.

Vladimir Zwass

Editor in Chief, Journal of Management Information Systems" 

Related post:

AI Can’t Replace Free Markets: Algorithms process data from the past while economic decisions are dynamic and forward-looking 

JD Vance Is Wrong: The Market Isn’t a ‘Tool’

As economically illiterate as any leftist Democrat, he even imagines the word is spelled with a capital M

By Matthew Hennessey. Excerpts:

"Nobody, not even these editorial pages—whose longstanding motto is “free people, free markets”—capitalizes the “M” in markets. The market isn’t a proper noun, and it also isn’t a tool. The market simply is. Nobody controls it. Nobody worships it, but only a fool ignores it.

Long before recorded history, long before people settled in cities and started building fruit stands, before Adam Smith, before Wall Street, before dating apps, before crypto—before all that there was trade: I give you this, you give me that. Simple exchange is what makes a market. Not faith, not mantras, not brick and mortar. Wherever people come together to trade is a market."

"Markets harness supply and demand to coordinate economic transactions between people and firms. They facilitate the free exchange of goods and services. They are mechanisms for shared prosperity based on freedom from coercion. They don’t enslave us, they liberate us."

"Markets, whether for cheap consumer goods or government bonds, can’t be bullied into compliance with a political agenda. They aren’t governed by the philosophies and desires of men like Mr. Vance. They are governed by the laws of economics the way the physical world is governed by the laws of gravity. You can moan about them all you want, you can lament the trade-offs they demand and the constraints they impose, but you can’t ignore or wish them away. No amount of political will or spilled ink can overrule them. Supply and demand are undefeated." 

(Vernon) Smith Reviews Stiglitz

From Alex Tabarrok.

"Vernon Smith reviews Joe Stiglitz’s book The Road to Freedom:

Stiglitz did work in the abstract intellectual theoretical tradition of neoclassical economics showing how the standard results were changed by asymmetric or imperfect information. He is oblivious, however, to the experimental lab and field empirical research showing that agent knowledge of all such information is neither necessary nor sufficient for a market to converge to competitive supply-and-demand equilibrium outcomes.

Consequently, both the standard and the modified theories are irrelevant because buyers and sellers in possession only of dispersed, private, decentralized, value information easily converge to competitive price-quantity allocations in experimental markets over time via learning in repeat transactions.

…The first experiments, showing that complete WTP/WTA [willingness to pay/willingness to accept] information was not necessary, were reported in Smith (1962), and none of us could any longer accept the standard and Stiglitz-modified theories. Further experiments, showing that such information was not sufficient, and that equilibrium prices need not require that markets clear, were reported in Smith (1965). (For propositions summarizing and evaluating observed empirical regularities in these experimental markets, see Vernon L. Smith, Arlington Williams, W. K. Bratt, and M. G. Vannoni, 1982, “Competitive Market Institutions: Double Auctions vs. Sealed Bid-Offer Auctions,” American Economic Review 72, no. 1, 58–77; and Vernon L. Smith, 1991, Papers in Experimental Economics, Cambridge: Cambridge University Press.) It was natural, in the first market experiments, to investigate those questions, such as the information state of traders, that were central to the abstract economic theory of the time.

So, the Akerlof-Stiglitz modifications of theory were founded on a false conditional and thus were not germane to practical market performance. They were born falsified.

…The needed policy implications are quite clear, and they have nothing to do with Stiglitz’s market failure and everything to do with how markets function. Indeed, the appropriate policy recommendation is to fully support the market-system maximization of prosperity, as did Friedman and Hayek, then use incentive mechanisms to improve the relative positions of those who are disadvantaged in that system. Never kill the goose that lays eggs of gold."

Earth was 518.4 percent more abundant in 2024 than it was in 1980

See The Simon Abundance Index 2025 by Gale L. Pooley & Marian L. Tupy. Excerpts:

"The Simon Abundance Index (SAI) measures the relationship between resource abundance and population. It converts the per capita abundance of 50 basic commodities and the size of the global population into a single value. The index began in 1980 with a base value of 100. In 2024, the SAI stood at 618.4, indicating that resources have become 518.4 percent more abundant over the past 44 years. All 50 commodities in the dataset were more abundant in 2024 than they were in 1980. The global abundance of resources increased at a compound annual growth rate of 4.22 percent, thus doubling every 17 years."

"The SAI is based on the ideas of Julian Simon, a University of Maryland economist and Cato Institute senior fellow who pioneered research and analysis of the relationship between population growth and resource abundance. If resources were truly finite, as many people believe, an increase in population would be expected to lead to scarcity and higher prices. However, as Simon discovered through exhaustive research spanning decades, the opposite was true. As the global population increased, resources tended to become more abundant."

"How is that possible? Simon recognized that atoms, without knowledge, have no economic value. Knowledge transforms atoms into resources—and the supply of undiscovered knowledge is limitless. He also understood that only humans can discover and create new knowledge. Therefore, resources can be effectively infinite, and humans are the ultimate resource.

Consider this example. Before the 19th century, agriculture relied heavily on manure for fertilization, limiting crop yields due to its low nitrogen content. As populations grew, farmers sought more potent alternatives. In the early 1800s, guano—bird droppings rich in nitrogen, phosphorus, and potassium—was discovered on islands off the coast of Peru. Its extraordinary effectiveness led to a global guano trade boom, fueling industrial agriculture in Europe and America. By the late 19th century, however, supplies started to dwindle.

The breakthrough came in the early 20th century with the Haber–Bosch process, developed by the German chemists Fritz Haber and Carl Bosch. This method allowed for the synthetic fixation of atmospheric nitrogen into ammonia, producing fertilizer on an industrial scale. It decoupled food production from natural nitrogen sources, revolutionizing agriculture and enabling the rapid expansion of global populations. It is estimated that without synthetic fertilizer, the planet’s food production would be able to support only four billion rather than eight billion people.

Individual Commodity Changes Between 1980 and 2024

The SAI uses “time prices” to measure changes in relative abundance. Time prices tell you how long you must work to earn enough money to buy something. As long as you work less time this year than last year to afford something, your standard of living is rising. Time prices are a simple and intuitive way to compare the true cost of things.

Time prices for individual commodities decreased, on average, by 70.4 percent between 1980 and 2024, ranging from −2.9 percent for oranges to −85.2 percent for lamb. That means that the average inhabitant of the planet saw their personal resource abundance increase by 238.1 percent, ranging from 2.9 percent for oranges to 573.6 percent for lamb. Put differently, the same length of work that allowed the average inhabitant of the planet to purchase 1 unit in our basket of 50 commodities in 1980 allowed him or her to buy 3.381 units in 2024.

To continue with our fertilizer example: Since 1980, the time price of fertilizer has fallen by 56.4 percent. The same length of work that allowed the average inhabitant of the planet to purchase 1 unit of fertilizer in 1980 allowed him or her to buy 2.2 units in 2024, an increase of 120 percent.

Finally, the SAI is calculated by multiplying personal resource abundance by population size. As noted, between 1980 and 2024, personal resource abundance increased by 238.1 percent. Over this same period, the global population increased by 82.9 percent, rising from 4.444 billion to 8.126 billion. The relevant equation is:

SAI = (1 + percentage change in population) x (1 + percentage change in personal resource abundance) x 100
SAI = 1.829 x 3.381 x 100
SAI = 618.4"

How Markets Solved the GLP-1 Shortage

As demand soared for weight-loss drugs, price signals worked.

By Tony LoSasso. He is professor and chair of the economics department at DePaul University. Excerpts:

"Demand has exploded for these breakthrough therapies—originally approved by the Food and Drug Administration for diabetes—that deliver dramatic weight loss. The companies that pioneered them, Novo Nordisk and Eli Lilly, couldn’t keep up.

This demand surge itself is a remarkable show of market forces. Many insurance plans don’t cover GLP-1 for weight loss. The product was good enough that consumers were willing to pay out of pocket. Then beginning in March 2022 the FDA opened the door to more competitive economic dynamics by declaring a shortage. Such a declaration temporarily allows compounding pharmacies—which usually create medicine for individual patients rather than commercial sale—to sidestep patent holders and produce and market a scarce drug. Patent rights come back in effect once a shortage ends. Thanks to the power of the free market, it didn’t take long.

Competing telehealth companies, such as Hims & Hers, Ro and WeightWatchers, rushed to make a profit. Businesses worked to offer lower-priced formulations and manufacturers scrambled to scale production—all textbook capitalism. As supply expanded, prices for patients paying out of pocket plunged from $1,000 or more a month to less than $200. By October 2024 the FDA declared there was no longer a shortage of Eli Lilly’s GLP-1 and said the same of Novo Nordisk’s version in February this year."

"The lesson is clear: Opening healthcare to free-market forces leaves consumers better off."

"With even a narrow opportunity to compete, new suppliers flooded in, forcing an otherwise constrained market to expand rapidly. Conventional wisdom says patients don’t care about price because insurers foot the bill. But in the GLP-1 case, many people were happy to reach into their wallets once they saw real value in the therapy. The market responded by expanding supply and lowering costs." 

Russ and Pete's Excellent Adventure into the Socialist Calculation Debate

By David Henderson.

"For the last 20 years that I taught at the Naval Postgraduate School, I always covered, in every course I taught, Friedrich Hayek’s famous 1945 article “The Use of Knowledge and Society,” American Economic Review, September 1945. It’s well worth reading.

Russ Roberts’s recent EconTalk interview of Peter Boettke, “Who Won the Socialist Calculation Debate?,” February 17, 2025, is well worth listening to or reading the transcript of. For in it, Pete, with input from Russ, tracks the history of the debate. Pete notes that Hayek moved one step beyond his mentor Ludwig von Mises. As well as talking about information that central planners didn’t have, Mises had focused on the lack of incentives within socialism. Hayek’s next step was to emphasize that even if lack of incentives were not a problem, central planners could not have the information they needed to plan an economy efficiently. That information was revealed only by market prices, and market prices came about because of hundreds of millions (now billions) of people acting on their own information. Although Hayek never used the term “local knowledge,” that is the term we Hayekians now use to refer to this decentralized information.

In the interview, they briefly discuss the issue of tin prices. Here’s the tin discussion, from Hayek’s 1945 article:

Assume that somewhere in the world a new opportunity for the use of some raw material, say, tin, has arisen, or that one of the sources of supply of tin has been eliminated. It does not matter for our purpose—and it is very significant that it does not matter—which of these two causes has made tin more scarce. All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need for the great majority of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. If only some of them know directly of the new demand, and switch resources over to it, and if the people who are aware of the new gap thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all his without the great majority of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. The whole acts as one market, not because any of its members survey the whole field, but because their limited individual fields of vision sufficiently overlap so that through many intermediaries the relevant information is communicated to all. The mere fact that there is one price for any commodity—or rather that local prices are connected in a manner determined by the cost of transport, etc.—brings about the solution which (it is just conceptually possible) might have been arrived at by one single mind possessing all the information which is in fact dispersed among all the people involved in the process.

Hayek then writes:

The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or “normal” level.

Why a marvel? Hayek answers:

I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do. But those who clamor for “conscious direction”—and who cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously—should remember this: The problem is precisely how to extend the span of out utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.

When I taught this, I paused at the sentence, “I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.” I then said to my students that if the mechanism had been the result of deliberate human design, the human would almost have certainly have won the Nobel Prize in economics.

Along the way, Russ and Pete give a very nice treatment of various economic thinkers. On the site are mentioned the bios of over 20 economists. All of the bios are from David R. Henderson, ed., The Concise Encyclopedia of Economics. I wrote all of them, except the one on Karl Marx, which Janet Beales Kaidantzis wrote."

See also Socialism by Robert Heilbroner. Excerpt:

"The effects of the “bureaucratization of economic life” are dramatically related in The Turning Point, a scathing attack on the realities of socialist economic planning by two Soviet economists, Nikolai Smelev and Vladimir Popov, that gives examples of the planning process in actual operation. In 1982, to stimulate the production of gloves from moleskins, the Soviet government raised the price it was willing to pay for moleskins from twenty to fifty kopecks per pelt. Smelev and Popov noted:

State purchases increased, and now all the distribution centers are filled with these pelts. Industry is unable to use them all, and they often rot in warehouses before they can be processed. The Ministry of Light Industry has already requested Goskomtsen [the State Committee on Prices] twice to lower prices, but “the question has not been decided” yet. This is not surprising. Its members are too busy to decide. They have no time: besides setting prices on these pelts, they have to keep track of another 24 million prices. And how can they possibly know how much to lower the price today, so they won’t have to raise it tomorrow?

This story speaks volumes about the problem of a centrally planned system. The crucial missing element is not so much “information,” as Mises and Hayek argued, as it is the motivation to act on information. After all, the inventories of moleskins did tell the planners that their production was at first too low and then too high. What was missing was the willingness—better yet, the necessity—to respond to the signals of changing inventories. A capitalist firm responds to changing prices because failure to do so will cause it to lose money. A socialist ministry ignores changing inventories because bureaucrats learn that doing something is more likely to get them in trouble than doing nothing, unless doing nothing results in absolute disaster."

The free market is not the cause of supply chain problems

See ‘How the World Ran Out of Everything’ Review: Supply Chain Scramble: With the onset of Covid, transport of goods ground to a halt and retail shelves went bare. The problems were accelerated as governments worked to spur demand. by Marc Levinson. Excerpts:

"But there’s a lot missing from this story. Mr. Goodman focuses entirely on how long-distance supply chains affected the U.S.; you wouldn’t know that those supply chains were tangled in other places, notably in Europe, or that they also helped bring billions of people out of poverty in countries like China, Vietnam and Bangladesh. His claim that supply chains were designed to help the big at the expense of the small doesn’t stand up. Amazon was an unpromising startup in the 1990s before it figured out how to outdistance established retailers, in part by mastering supply-chain management. Apple was no corporate giant at the start of this century; it became one precisely because it outsourced much of its manufacturing to a Taiwanese company that operates in China. Glo has been able to build a business making light-up cubes only because an international supply chain delivered its goods.

The book’s most serious omission, though, is one that doesn’t lend itself to on-the-scene reporting: macroeconomic policy. The world didn’t run out of everything because of tangled supply chains. The cause was the coordinated effort of governments and central banks around the globe to stimulate consumer spending in the summer of 2020 in order to steady a world economy in freefall. Many types of services were unavailable, so consumers everywhere spent their windfalls on physical products. Even if U.S. supply chains had been entirely domestic, they would have been hard-pressed to handle the massive increase in purchases of goods between spring 2020 and spring 2021. That ships, trains and trucks could not meet the spike in demand is no surprise.

In the end, Mr. Goodman is less concerned with supply chains than with the inordinate influence of large corporations and wealthy individuals over public policy. “When parents cannot locate crucially needed infant formula, we justifiably surrender faith in the workings of the modern marketplace,” he writes eloquently [but import restrictions made the problem worse]. He calls for stricter antitrust enforcement and “a return to the mode of governance that prevailed in the United States from the end of World War II through the late 1970s.” There’s something to be said for that. But those postwar years were also a time when import protection kept hopelessly inefficient industries afloat and a driver could not start his own delivery company without proving that public convenience and necessity required its services. We need to be careful what we wish for."

Substitutes are everywhere

By Tyler Cowen.

• The typical plasma donor was younger than 35, did not hold a bachelor’s degree, earned a lower income and had a lower credit score than most Americans. Donors sold plasma primarily to earn income to cover day-to-day expenses or emergencies.
• When a plasma center opened in a community, there were fewer inquiries to installment or payday lenders. Inquires fell most among young (age 35 or younger) would-be borrowers.
• Four years after a plasma center opened, young people in the area were 13.1% and 15.7% less likely to apply for a payday and installment loan, respectively.
• Similarly, the probability of having a payday loan declined by 18% among young would-be borrowers in the community. That’s an effect on payday loan borrowing roughly equivalent to a $1 increase in the state minimum hourly wage.

Here is the St. Louis Fed study, via the excellent Kevin Lewis.

Why Swifties, holidaymakers and the hygienic should cheer for surge pricing

By Tim Harford. Excerpt:

"The basic case for dynamic pricing is simple: it’s the same as the case for the price mechanism in general. In most markets, people are keen to sell when the price is high and buy when the price is low. And at the right price, supply and demand match perfectly.

If the price is either too high or too low, then there are missed opportunities to trade. We might see a queue of eager buyers but shortages of products to buy. 

The most obvious cost of such mismatches is the queue. If I credibly promised to give away £20 to everyone who formed an orderly line in Piccadilly Circus, people would keep joining that line until it was so long that people were being paid £20 to queue for £20 worth of time. I would have achieved the self-defeating miracle of giving away a small fortune without managing to help anybody except the lucky few who joined the queue early.

The same logic applies if I was offering any product or service at £20 below the market price. The time wasted by the queue incinerates the potential value of the bargain, and what the seller loses, the buyer fails to gain.

Of course, not every underpriced product is rationed by queue. Some are rationed by political or social connections. Some are rationed by chance. That is also inefficient. Maybe it’s a rainy night, and everyone would like to get an underpriced taxi home, but only some people also have the option of catching a bus? Those on the bus route are just as likely to get lucky with a passing cab as those who face a five-mile walk in a downpour. If the taxis were more expensive and hence less scarce, those with the choice of catching the bus would be more likely to take it. 

That is the case for the price mechanism in general. But what’s true for prices in general is also true for the price of hotels on the weekend that Taylor Swift is playing a concert in town, of flights on the first day of the school holidays and of toilet paper in the first week of a pandemic. If the price doesn’t adjust, then the result isn’t efficient. Nobody likes to feel that they are being ripped off (so the haters gonna hate) but a sharp increase in the prices of these products would immediately produce the kind of adjustments that any reasonable person would want. If Taylor Swift is playing in Seattle one weekend, it would be a good idea for people who aren’t Swifties to holiday either on a different weekend or in a different city. 

You can tell a similar story about childless holidaymakers, and for people who already have spare toilet paper but might as well pick up more just in case. We are outraged that the price increase squeezes more money out of people who are keen on Taylor Swift, a late July getaway or a clean bottom. We tend not to realise that the price surge gently encourages those who can make alternative arrangements to do just that.

Little rides on the nothingburger question of whether Wendy’s might vary the price of junk food. But if more supermarkets used digital labels to vary the price of food, shifting food near its sell-by-date and warding off shortages of hotly demanded produce, the world would be a less wasteful place.

And there is a market in which the fate of the planet turns on dynamic pricing, namely electricity.  Electricity demand varies a great deal depending on the weather and the time of day, and increasingly electricity supply also fluctuates depending on the sun and the wind. The cost of offering customers a static price for electricity is enormous: it requires huge overcapacity in general, and overcapacity of fossil fuel plants in particular, because gas turbines are well suited to coping with brief spikes in demand.

Part of the solution is obvious: encouraging electricity users or their smart devices to draw less power at peak times, and batteries or other forms of energy storage. The basic way to fund storage? Allow the battery to buy electricity when it’s cheap and sell it back to the grid when it’s expensive. All this is much easier with dynamic pricing. We have a planet to save, after all."

DOS Kapital: Has antitrust action against Microsoft created value in the computer industry?

By George Bittlingmayer & Thomas W Hazlett. They were both at UC Davis in 2000 when the article was published.

"Abstract

Antitrust enforcement that efficiently constrains Microsoft's behavior benefits firms supplying complements to and/or substitutes for Microsoft's operating system and applications software. However, from 1991 through 1997, 29 reports of federal antitrust enforcement action against Microsoft were accompanied by declines in the value of an index of 159 computer industry firms (excluding Microsoft). The mean loss to those firms exceeded $1 billion per event. Eight retreats or setbacks in enforcement were associated with increased computer sector value. Thus, financial markets reveal compelling evidence against the joint hypothesis that (a) Microsoft conduct is anticompetitive and (b) antitrust policy enforcement produces net efficiency gains."

Government Intervention and Relative Prices

By Dan Mitchell.

"I periodically share Mark Perry’s famous “Chart of the Century” to show that government intervention is a recipe for rising relative prices.*

Since economic principles don’t change when you cross national borders, one might expect to see similar patterns in other countries.

And we do. Here’s a chart from Matthew Lesh of the Institute for Economic Affairs in London. As you can see, overall inflation in the United Kingdom since 2000 has been 80 percent.

But prices have risen much faster in the sectors with lots of government intervention.

And prices have fallen, or risen at a slower-than-average pace, in the sectors where market forces dominate.

Here’s some of what he wrote to accompany the chart.

Prices have risen significantly faster than wages in the United Kingdom over recent years. The result has been a falling quality of life and significant hardship for tens of millions of households. Real household disposable incomes are now expected to be 3.5% lower in 2024-25 than their pre-pandemic levels… A useful starting point is considering which products have, and which have not, risen in price over recent years. …There have also been significant price increases in services and costs the government more directly controls, such as rail transport (+143%) – where the government sets around half the fares and heavily controls the sector – and council rates (+139%). …The products that have gone up most rapidly in cost include electricity (+425%), housing (+254%), and childcare (193%). Notably, these are sectors that have extensive state intervention through regulation and subsidies. …governments can and should change their approach to regulation. Cutting red tape in areas such as housing, energy, and financial services could reduce business costs and increase supply, resulting in lower costs for consumers.

This is spot on. As Ronald Reagan said more than 43 years ago, government is the problem.

And more government simply makes a bad situation even worse.

* Bad monetary policy is the recipe for overall increases in prices."

Ticketmaster and Taylor Swift

By Amy Crockett at EconLib. Amy Crockett is a PhD Candidate in the Department of Economics and a Graduate Fellow in the F.A. Hayek Program at the Mercatus Center, both at George Mason University.

"What’s the deal with Ticketmaster and concert fans? Taylor Swift fans were upset at Ticketmaster when the company canceled the general sale of tickets for the first leg of her U.S. tour. And then they were equally frustrated with the inability to get tickets. Fans seemed to have two major complaints. One, people are upset they could not get tickets to the event. Two, people feel service fees charged are too high. The assigned culprit? The greed of Ticketmaster and parent company Live Nation. Does this culprit make sense?

At least for Taylor Swift, the demand far outstripped the supply of tickets. Far more individuals signed up for pre-sale than tickets available. For the first U.S. leg of Taylor Swift’s tour 3.5 million individuals registered for the pre-sale while 2.4 million tickets were sold.  And in many locations hundreds of fans gathered in the parking lot to simply hear the concert. But this explanation doesn’t seem to satisfy hungry fans upset that they didn’t get tickets to the show. It is the greed and monopoly of Live Nation that seems to be the issue. 

Fans argue Live nation owns the venues and the ticketing system, thus creating a monopoly. Who then has the power in this market? Live Nation argues they own only 5% of venues, but others estimate they control up to 70% of ticketing. I believe the bigger issue is one that is unavoidable due to the nature of the market. 

Let’s consider for a moment the fast food market. If I really want a McDonald’s hamburger, but they are sold out or unavailable for some reason, I can simply have a Wendy’s or Burger King sandwich. Are they completely interchangeable? No, but they are close enough substitutes that it is reasonable to interchange them. 

Now back to Taylor Swift. If I live in Denver and all the tickets are sold out for the night she comes to Denver, what are my options for that night? There is no comparable substitute for Taylor Swift. There is no ‘Wendy’s’ equivalent to Taylor Swift. By the nature of the market, Taylor Swift has created a monopoly for her concert that night. Even if the best singer in the area came to a competing venue saying she was going to sing all the Taylor Swift songs in a concert for everyone that didn’t get tickets, this is not a comparable substitute. So who really has the power? Is it Live Nation or Taylor Swift? I would argue it is Taylor Swift. And also her fans. 

So what is the solution? Suing Ticketmaster? Getting the government to come in and break up Ticketmaster? 26 fans are suing Ticketmaster and Live Nation for anti-competitive practices, saying the companies use their power to charge above market prices. Yet, they must not be charging above market prices because people are reselling their tickets for well above the sticker price. This indicates to me that the initial price of the ticket was ‘too low’ according to supply and demand. 

In fact, artists including Taylor Swift, price “below market” to try to make their concerts accessible to all fans. Pre-sales and verified fans are systems put in place to try to get tickets into the hands of actual fans planning to attend the concert and not scalpers. But selling concert tickets at below the market value creates other problems. We have established that demand far exceeds supply. There has to be some way to allocate this scarce resource. One way is allowing prices to dictate who values them the most monetarily, one is to have a verified fan process and lottery system. But whatever the system, some set of fans will be disappointed in not being able to buy tickets. 

Perhaps we can have the government come in and allow other sellers to sell tickets. The government can create competition in the selling of tickets. But what makes us think multiple sellers would make the market any different? If I know I am selling a ticket to a unique event with excess demand, I would have no incentive to try and undercut my competitor because I know the tickets will sell regardless. 

What about service fees? What is the purpose of fees? I previously would have had to stand in line to get tickets. For a massive concert, I might have had to sleep overnight or stand in line all day for a ticket at the actual box office. Online services allow me to save that time in line. I may have to ‘wait in the queue’, but it is virtual. I could continue working, watch a show, or tweet my favorite Taylor Swift lyrics while waiting. I no longer have to brave the elements to get my tickets. The service fee is me paying for the convenience to purchase my tickets at home.

Service fees are relatively unavoidable. Typically, box office fees are less than online but not always. So, what is the solution to this? Well, I have the power in this case. I can simply stop giving the online providers my business. I can buy my tickets at the box office. Occasionally, I will have to forgo a show if I feel the service fees are too much. Taylor Swift still has all the power as the monopoly artist. She could negotiate different fees with Ticketmaster. 

And if I genuinely feel prices and fees are too much, there is an alternative. It doesn’t feature the live Taylor Swift, but it does feature other dedicated fans. Some companies are hosting Taylor Swift themed parties, dances, and sing-alongs. Even in a market with a monopolist artist, individuals have found ways to create alternative experiences for fans to connect with one another and the artists music. 

This situation is representative of broader implications of how markets work. People are quick to assign greed as the reason for various issues, but greed is ever-present. Issues with access to products in the market always come back to scarcity, which is also ever-present. There are various ways to deal with scarcity. Individuals can demonstrate their willingness to pay through money, time, or other means. The government coming in to dictate the way to run a particular market ignores the underlying issues with that particular market and the desires of the individuals involved."

Testing Neoclassical Competitive Theory in Multilateral Decentralized Markets

By John A. List.

"Abstract

Walrasian tatonnement has been a fundamental assumption in economics ever since Walras' general equilibrium theory was introduced in 1874. Nearly a century after its introduction, Vernon Smith relaxed the Walrasian tatonnement assumption by showing that neoclassical competitive market theory explains the equilibrating forces in "double-auction" markets. I make a next step in this evolution by exploring the predictive power of neoclassical theory in decentralized naturally occurring markets. Using data gathered from two distinct markets- the sports card and collector pin markets-I find a tendency for exchange prices to approach the neoclassical competitive model prediction after a few market periods."

Also see Walrasian tâtonnement. This is the process where shortages cause prices to rise and surpluses cause prices to fall.