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James M. Buchanan was awarded the 1986 Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, aka the economics Nobel prize “for his development of the contractual and constitutional bases for the theory of economic and political decision-making.”

The primary reason for the award was his foundational role in pioneering public choice theory—applying the tools and behavioral assumptions of economics to politics and the public sector.

James Buchanan held that the solution to better governance did not consist in somehow electing better people. The better path is to find better “rules of the game.”

(It’s getting better all the time. Better, better, better.) Continue reading “Public Choice Theory – again”

Trump recently signed the Lindsey Graham Sanctioning Russia and Iran Act of 2026, which grants the US statutory authority to levy tariffs of up to 100% on goods imported from the top international buyers of Russian oil and gas. In the 2022-2026 period, China imported around 50% of Russia’s crude exports, and India imported around 37%. China and India are Moscow’s energy lifelines and therefore they are the main targets.

Certainly, Trump’s move is bad news for India. The US is India’s single largest merchandise export market of over $90 billion annually. A punitive tariff would devastate the export sectors and skew the bilateral trade balance.

What should be India’s response? Should India respond by raising tariffs on US imports? That would be a stupid response. Regardless of what the trading partner does, allowing free import of goods and services is the best policy. Continue reading “Trump’s Trade Wars”

Instances of mass hysteria, herd behavior, and financial bubbles may seem to be modern afflictions though actually they have been around for hundreds of years. In 1841, Scottish journalist Charles Mackay investigated them and published his findings in his 1841 book “Memoirs of Extraordinary Popular Delusions and the Madness of Crowds.”

His conclusion: “Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.”

MacKay wrote about sociological and psychological panics such as witch hunts across Europe that led to the horrifying deaths of thousands. His book has important lessons for economists and psychologists. It provided the early framework for understanding irrational exuberance, cognitive bias, and speculative contagion. Continue reading “Mass Hysteria and Popular Delusions”

We can date the beginning of the death of Islam at a specific date. This is unusual. The end of no other ideology can be so precisely dated. September 11th, 2001 is that date. That’s the date that Islam took on the Western world. And it is guaranteed to lose.  It signed it’s death certificate.

Western world did encounter Islam centuries before September 2001, and resisted it. September 11th attack should have woken the West to the danger. But it did not.

But now the West is ready. Islam will die. Islam will die in the next decade or so.

Islam will die soon. It’s true that there are two billion Muslims. But the moment they realize that it’s Islam that is imprisoning them into poverty, they too will reject Islam.

For now, I pay homage to those who lost their lives on September 11th, 2001. I was in Berkeley, San Francisco Bay area that morning, on the other side of the continent from NY city. I realized the implications of Islamic terrorism. Terrorism is almost entirely Islamic. Therefore the adjective Islamic is superfluous: no other ideology promotes terrorism; only Islam does. If you see terrorism, you can safely assume that it is Islamic. It’s not likely that Buddhists or Hindus or Jains have anything do do with the death and destruction. Only Islam motivates people to kill. Continue reading “Sept 11, 2001: the Death of Islam”

Economists use production functions to express the mathematical relationship between physical inputs and the total quantity of output produced. A commonly used one is the Cobb-Douglas production function which has the form Y = AK ^αL^β, where Y is total output, A is total factor productivity (TFP), K is capital, and L is labor. Output elasticities with respect to capital and labor are constant and given by α and β, respectively.(See Note 1 for a bit of history.)

I learned a lot of stuff in grad school that I never got around to using but I still recall after all these years. I have been pondering production from another angle, another type of production function. I don’t have a functional form for it but it doesn’t really matter for my purposes here. The factors of production are technology, energy and material: Y = f(T, E, M).

In functional notation, it says that production is a function (unspecified) of technology, energy and matter. Each of those three factors are essential and to some extent they are substitutable. Technology can make energy and matter more productive, meaning you can produce more output with less energy and less matter. Continue reading “Energy and Production”

The word guru in the dharmic traditions—namely Sanatana, Buddha and Jaina—refers to someone who dispels the darkness of ignorance. Because ignorance is the primary barrier to enlightenment or moksha, the guru is supremely important.

Today is Guru Purnima. Hindus believe that on this day Bhagwan Shiva became the first guru (adi guru) when he transmitted the knowledge of yoga to the world. Also that sage Vyasa, the author of the Mahabharata, was born on this day.

For Buddhists, Guru Purnima commemorates the day when Gautama Buddha delivered his first sermon at the Deer Park in Sarnath, setting in motion the Wheel of Dharma. For Jains, it is the day when Mahavira, the 24th tirthankara accepted his first disciple. These two events are dated to around 2,500 years ago. Continue reading “Guru Purnima Greetings”

Any sufficiently deep ignorance is indistinguishable from stupidity. You’d recognize that to be a riff on Arthur C. Clarke’s Third Law (1968) which states that “Any sufficiently advanced technology is indistinguishable from magic.”

While Clark’s 3rd law is about perception (how we perceive technology that we don’t understand), my variation is about outcomes: how severe ignorance results in outcomes that could have been motivated by malice or just plain stupidity. The intent may be to improve things but the impact is to make matters worse.

We all are abysmally ignorant about nearly everything. The saving grace is that our ignorance does not result in widespread socially destructive outcomes. But public policy is sadly replete with examples of gross stupidity arising out of ignorance. That’s so because bureaucrats and politicians are generally ignorant and therefore cannot formulate reasonable solutions to actual or perceived problems. Continue reading “Hydrogen is Not Green”

4th of July 2026 marks the 250 anniversary of the day Congress approved the text of the Declaration of Independence, and therefore the birth of the United States of America.

The Declaration was signed by 56 patriots. By putting their names on that parchment, they were committing what King George III and British law defined as high treason—a crime traditionally punished by being hanged, drawn, and quartered. In effect they were signing their own death warrants.

They risked their wealth, their families, and their lives on a military gamble. If George Washington’s army had failed, those 56 names would have served as an official British execution list.

The handwritten parchment wasn’t actually signed until August 2, 1776. Even then, not everyone was present; delegates continued to add their names over the coming months. The final signer, Thomas McKean, didn’t sign his name until 1777. Continue reading “Happy 250th”

The word trillionaire has been in the news since SpaceX’s IPO a few weeks ago. I have no idea what it feels like being a trillionaire (and I bet neither do you.) A net worth of a trillion dollars is several orders of magnitude above mine and yours.

Besides, I have a hard time dealing with large numbers.

Large numbers are unnatural. Understanding them is not part of our cognitive endowment. We don’t have an instinctive feel for them. We have to develop the skill needed to do arithmetic using them. The legendary Stanford computer and cognitive scientist John McCarthy (1927 -2011), the man who coined the term artificial intelligence, had in his email signature the line, “He who refuses to do arithmetic is doomed to talk nonsense.”

Economists, my tribe, have to do arithmetic and algebra if we are committed to not talking nonsense. Arithmetic and algebra are unnatural. Without instructions, we are totally incapable of learning them.

Speaking and comprehending language comes naturally to us. As does bipedal locomotion. Nor do we need to learn the physics of ballistics to be able to throw and catch a ball. But we have to be taught to learn reading and writing because those two are as unnatural as arithmetic and algebra. Continue reading “Large Numbers”

In this piece, I would like to talk about a favorite movie: Witness starring Harrison Ford. The setting of the 1985 movie is Lancaster County, Pennsylvania, among the Amish. I like and admire the Amish. Let me start with a little bit about them.

The Amish are one of the most interesting religious communities in the United States. Their story began in Europe during the Protestant Reformation of the 16th century. They were originally part of the Anabaptist tradition. Anabaptists believed in baptizing adults rather than infants. In 1693, a Swiss Anabaptist named Jakob Ammann left the church, and his followers became known as the “Amish.”

Facing ongoing religious persecution (not uncommon among various Christian sects), the Amish began migrating to North America in the early 1700s, settling in Pennsylvania. There are no Amish left in Europe now. Their current population of over 360,000 are mainly concentrated in the US states of Pennsylvania (Lancaster County), Ohio and Indiana. Because they have large families (5 or more children), their population is doubling roughly every 20 years. Continue reading “Witness 1985”