The Answer Is Transaction Costs

• Nnnnooooo one expects transaction costs!! The economics of Monty Python

  Send us a textMike Munger explores how Monty Python brilliantly illustrated transaction cost economics through their legendary comedy sketches. The British comedy troupe's most famous routines provide perfect, hilarious examples of the frictions that make economic interactions costly and complicated in the real world.• Three definitions of transaction costs from Ronald Coase, Douglas North, and Oliver Williamson• The Dead Parrot sketch as an illustration of ex-post recontracting problems and contract enforcement• Ministry of Silly Walks demonstrating how inefficient institutions persist due to high reform costs• The Argument Clinic depicting problems with contract scope and definition• Monty Python and the Holy Grail showing barriers to entry and communication costs• Spanish Inquisition sketch revealing coordination failuresThe five MP sketches mentioned here:Dead Parrot Sketch:  https://youtu.be/4vuW6tQ0218?si=hHfu07sgQeCgxUxx Ministry of Silly Walks:  https://youtu.be/iV2ViNJFZC8?si=U5QxzDeYXeT3UhIq Argument Clinic:  https://youtu.be/uLlv_aZjHXc?si=aU14dFjwnJeDvRf7 Holy Grail—Anarcho-Syndicalist Peasant:  https://youtu.be/_EMZ1u__LUc?si=C9z8e4NAQDRkU8q7 Spanish Inquisition:  https://www.youtube.com/watch?v=D5Df191WJ3o   Letter:  Swiss Air's efficient window-seat-first boarding policyBook'o'da'week: To Overthrow the World: The Rise and Fall and Rise of Communism, by Sean McMeekinNext episode releases July 22nd, beginning the co-produced series on Adam Smith's "Wealth of Nations" with an overview of the Scottish Enlightenment.If you have questions or comments, or want to suggest a future topic, email the show at [email protected] ! You can follow Mike Munger on Twitter at @mungowitz

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• The Engineers of Exchange: Middlemen, Part Deux

  Send us a textMiddlemen are not parasites but essential "engineers of exchange" who create value by connecting buyers and sellers who might never find each other otherwise.• The word "monger" (and Munger) comes from a Saxon root--Mancgere-- meaning trader or merchant• Middlemen historically seen as parasites for buying cheap and selling dear without improving products• 11th-century "mancgere" traders defended their value despite not changing the goods they sold• RA Radford's 1945 POW camp study shows how middlemen increase beneficial exchanges• The prison camp padre who traded his way to wealth, while making everyone else better off!!• Arbitrage improves market efficiency by exploiting price differences, and reducing differences in price so that people can rely on the price they are offered rather than having to bargain or comparison shop. • Middlemen only become problematic when they control exclusive information or "rents"The first "middleman" episode of TAITC:  May 2023....R.A. Radford, "The Economics of a POW Camp." M.C. Munger, "Market Makers or Parasites."Book'o'da'week: Country Music USA by Bill C. Malone, published by University of Texas Press.Bonus: a great example of a middleman, from a listener in Oz!If you have questions or comments, or want to suggest a future topic, email the show at [email protected] ! You can follow Mike Munger on Twitter at @mungowitz

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• FA Hayek: Price Whisperer

  Send us a textThe price system solves a profound coordination problem by communicating dispersed knowledge that no central planner could ever fully access or comprehend. We explore Hayek's insight about how prices serve as both information and incentives, allowing self-interested actions to inadvertently benefit society.• The "knowledge problem" – why information needed for economic decisions is dispersed among millions of individuals• Tale of two farmers – how profit-seeking Mo unknowingly serves society better than altruistic Al• Markets generate information through commercial processes that otherwise wouldn't exist• Goodhart's Law – when measures become targets, they cease to be good measures• Soviet planning failures – absurd outcomes like factories producing single giant nails to meet weight quotas• Recycling pennies – potential approaches as the US phases out penny productionMentioned in the podcast:FA Hayek, "Use of Knowledge in Society" (AER, 1945) Michael Munger, Socialist Generation Debate"Goodhart's Law""What Do Prices Know That You Don't?"Ross Kaminsky, of KOA:iHeart RadioSegments with RossRoss on X (@rossputin)My Duke colleague Bruce Caldwell, on the intellectual history of Hayek's 1945 AER paperBook'o'da'week! Three suggestions (but mostly Red Plenty!)Paul Craig Roberts' "Alienation and the Soviet Economy" Alec Nove's "The Economics of Feasible Socialism"Francis Spufford's "Red Plenty"If you have questions or comments, or want to suggest a future topic, email the show at [email protected] ! You can follow Mike Munger on Twitter at @mungowitz

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• The Price of Pennies: Make or Buy?

  Send us a textThe make-or-buy decision is a fundamental aspect of economics that applies to businesses, households, and nations, with the U.S. penny providing a fascinating case study in economic inefficiency.• It costs 2.72 cents to manufacture one penny, representing a loss of 1.7 cents per coin to taxpayers• The U.S. Treasury loses between $85-120 million annually due to penny production costs• There are approximately 130 billion pennies in existence, but only 5-10% actively circulate• Most pennies end up sitting idle in jars, drawers, and coin collections after minimal use• Arguments against pennies include production costs, inflation reducing value, transaction inefficiency, and environmental impact• Canada successfully eliminated the penny in 2012, rounding cash transactions to the nearest five cents• A potential alternative: buying back existing pennies at a price below manufacturing cost• The Federal Reserve could implement a system paying $1.50 for 100 pennies, still saving over the $2.72 production cost• This system would utilize the billions of idle pennies while maintaining the existing distribution infrastructureGrass seed:  Expensive!Book'o'da'week: Abortion, Baseball, and Weed Join us next week on Tuesday, July 1st for a new episode with a fresh topic, letters from listeners, and of course, a hilarious new TWEJ.If you have questions or comments, or want to suggest a future topic, email the show at [email protected] ! You can follow Mike Munger on Twitter at @mungowitz

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• Pretty Pigs and Talking Dogs

  Send us a textHow should we decide which political-economic systems are best for organizing society? Let's peer through the lens of the "Pretty Pig Problem," which highlights the flaws in comparing the actual implementation of systems we dislike with idealized versions of systems we prefer.  The PPP shows that we must compare real-world options rather than theoretical ideals.Some details:• Only three social systems are viable at scale: authoritarianism, capitalism, and democratic socialism• Every system has both an ideal form and a corrupted form that must be considered• The "Pretty Pig Problem" highlights our tendency to unfairly compare real systems to idealized alternatives• People on the left note market problems and conclude state intervention is necessary without examining real state actions• People on the right highlight state problems and assume markets are better without considering actual market performanceAnd....TWEJ!  And Book'o'da'week!Listen next Tuesday, June 24th, for a new episode of Tidy C with a new topic, letters, and another hilarious TWEJ.LINKS:Peter Boettke on EconTalk and a "Living Economics"Brooks' Law of Software EngineeringIf you have questions or comments, or want to suggest a future topic, email the show at [email protected] ! You can follow Mike Munger on Twitter at @mungowitz

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