Economics Detective Radio

Hello and welcome to the fiftieth episode special of Economics Detective Radio! Today we have Ash Navabi back on the program, but we’re flipping the script: Ash will be interviewing me about the show and about all the things I’ve learned while making it.

In this episode, I alienate the political right by discussing the importance of labour mobility and the desirability of open borders. I also alienate the political left by expressing a lukewarm position on climate change. I also discuss my own research plans relating to law and economics.

Finally, we discuss literature! Really, if you like Economics Detective Radio, you have to hear this episode.

My guest today is Jared Rubin of Chapman University. He is the author of Rulers, Religion, and Riches: Why the West Got Rich and the Middle East Did Not, which is our topic for today.

The book deals with the question of why Western Europe became wealthier than the Middle East after centuries of being poorer. The book is part game theoretic model of society, part historical narrative through the lens of that model.

The model considers two main factors: the state's power to coerce and its need for political legitimacy granted by elites. Importantly, different groups have been the ones to grant legitimacy to the state in different times and places. In the Muslim world, religious leaders primarily played this role, as they did in Europe prior to the Reformation.

After the Reformation, however, the power of the Catholic Church was much diminished in many parts of Europe. Rulers in places like England and the Dutch Republic turned to economic elites to grant them legitimacy. This gave the merchant and capitalist classes a seat at the bargaining table, setting the stage for the Industrial Revolution.

What follows is an edited transcript of my conversation with Sam Hammond.

Petersen: My guest today is Sam Hammond. He's a policy analyst at the Niskanen Center. Sam, welcome to Economics Detective Radio.

Hammond: Hi!

Petersen: Our topic today is supersonic air travel.

Sam has written an article titled "Make America Boom Again" along with co-author Eli Dourado which revisits the U.S. Federal Aviation Administration's ban on supersonic flight over the United States. So Sam let's start at the very start. Let's start by talking about the history of flight. How do we get from the Wright brothers to supersonic flight?

Hammond: Well I think the most notable thing about the early history of aviation is how quickly and how rapidly we innovated. So the Wright brothers flew their initial voyage, their milestone flight in 1903 at seven miles per hour and within forty years we were already breaking the speed of sound. And actually very shortly after that not only were we breaking the speed of sound within military jets but we were on the cusp of commercializing it through the Concorde.

So, what characterizes the early history of aviation is really rapid innovation. Part of that was driven by obviously two world wars but also that trickled out and percolated into the commercial space. That brings us to today. So in the progress that we made in air speeds in the first say 40 to 50 years of manned flight, we've actually regressed since then.

Petersen: Okay, so the Concorde starts flying in I believe it's 1969 and the subject of your paper---the ban brought in by the F.A.A. on supersonic travel over the United States---comes in just four years later in 1973. So what happened in that four-year period? How did we go from rapidly advancing to banning what was at the time the latest technology?

Hammond: It really began in the 60's. Everyone was seeing the progress that was being made in supersonic aircraft. And it was widely appreciated that it was only a matter of time before it would be commercialized. And there was actually a bit of a race going on between European countries and America of who would develop the first and the best supersonic jet. Because at the time, you know, this is way before Reagan deregulated the airlines. So these were the national projects almost akin to the space race.

So in the 60's the F.A.A. and NASA began investigating whether supersonic airplanes could fly overland, because obviously they had them already in the form of military jets. And so they conducted a number of tests. One of the most important and famous tests was the test over Oklahoma City. So in 1964 the F.A.A. began a test over Oklahoma City where supersonic jets---military jets---would fly over the city eight times per day for six months continuously. And these were just regular old military jets, nothing about them was designed to mitigate the sonic boom. So eight times a day people in Oklahoma were hearing the sonic boom. It was rattling their windows. And at the end of it---at the end of the six-month period---even though about 75% of the people they asked said that they could tolerate the booms indefinitely, there were tens of thousands of complaints. And that's when the F.A.A. examined the complaints and rejected the vast majority of them as spurious. And that led to this huge public backlash.

And so that was picked up by a guy named Richard Wiggs who founded the Anti-Concorde project. So the Concorde was being developed in the 60's by a partnership between France and Britain and it sort of represented the frontier of technology---not just aviation technology but technology in total---and Richard Wiggs had this view of the environment and technology as being in conflict. So he believed that as technology advances, we lose touch with our natural environment. And he was actually one of the most innovative, maverick early environmental activists. They're commonplace today but he was actually a pioneer.

And so he took the complaints that occurred in Oklahoma City and his philosophy of environment and technology in conflict and began one of the most successful environmental NIMBY campaigns in history. He organized academics, he organized the residential associations near airports. He took out full-page ads in The New York Times. He got people to call their congress people. And so even though this was all becoming organized even before the Concorde was in use in 1973, it persuaded the...

Today's guest is Francisco Toro, he is the blog editor at The Caracas Chronicles, a group blog about Venezuela.

Venezuela has all the markings of a paradise. It has a lush, tropical climate and access to vast oil reserves. And yet, the Venezuelan government has run the country into the ground. As of now, all but the wealthiest Venezuelans struggle to eat. What went wrong?

It might surprise you, given Venezuela's current state, that the country was for many years a model Latin American country. Before 1989, Venezuela had a stable, two-party democracy. Its economy functioned when the price of oil was high, and it was free of much of the violence that plagued other Latin American nations. That changed in 1989 with an event known as El Caracazo.

El Caracazo refers to a series of riots that occurred in February and March of 1989, and their brutal repression by the Venezuelan army. The details surrounding El Caracazo remain deeply controversial among Venezuelans.

Before 1989, the Venezuelan economy was characterized by cronyism. Many industries were protected from competition both by tariffs on foreign goods and restrictions on entry by new firms. This arrangement could continue so long as oil prices stayed high, but with the fall of oil prices in the 1980s, the economy sunk into a malaise. The government was deeply indebted, and the incoming government tried to implement neoliberal reforms to save both the economy and the government's balance sheet.

Within weeks of the reforms, the riots that would become El Caracazo began. Here's where the controversy lies: Chavez and his supporters on the far left point to these riots as the people rising up against capitalism. But Venezuelans on the right point out that the reforms hadn't had time to take effect when the riots occurred, and therefore they were more likely a reaction against the ongoing economic malaise than the reforms.

In any case, Caracazo marked a turning point for Venezuela that would lead to the rise of socialist president Hugo Chavez, who would control the country until his death in 2013. Chavez' brand of Marxism was a throwback to the socialist regimes of the Cold War. His Venezuela was a mixed economy with very heavy restrictions on its capitalist elements. For instance, Chavez made it illegal to fire an employee for any reason. He imposed price controls throughout the economy. When oil prices were high, they propped up the rest of the economy. When they were low, the regime could borrow to paper over critical shortages. During this time, Chavez received praise from Western intellectuals on the left. Even as late as 2013, Salon was praising Chavez' "economic miracle."

In 2013, Chavez died and was succeeded by Nicolas Maduro. In 2014, the price of oil collapsed, causing Venezuela to default on its debts. The government has attempted to print its way to solvency, causing high inflation. The Chavez and Maduro regimes have kneecapped the capitalist system and replaced it with nothing. Toro argues that even Soviet-style central planning would be an improvement at this point.

There are clear pragmatic reforms Maduro could make to reduce the impact of the crisis. Yet he doesn't, and members of his government who speak out in favour of market-led reforms of any kind are summarily fired. Maduro listens to the advice of a Marxist economist named Alfredo Serrano, who is a mix between a hard-core Stalinist and a utopian campus liberal.

Yet despite the continually worsening economy, Maduro holds on to power. He also maintains the support of about a third of the population. Maduro's regime has managed to place the blame for the crisis on sabotage by a nefarious capitalist conspiracy.

Businesses that hold inventory for any length of time are at risk of having their warehouses raided and filmed as proof that the ongoing shortages are the work of capitalists hoarding goods. Maduro also scapegoats the many people who earn their livings re-selling price-controlled goods, a group that now encompasses one in six Venezuelans. As dubious as these claims are, the government controls the media and seems to have convinced a third of the population of this narrative.

Today's guest is Thomas Hazlett, former chief economist of the FCC and author of The Political Spectrum: The Tumultuous Liberation of Wireless Technology, from Herbert Hoover to the Smartphone. Perceptive listeners may recall that Ed Lopez mentioned Hazlett's work in our interview on political change.

Hazlett's work concerns the legal institutions surrounding the radio spectrum.