Many thanks to Vance Ginn for having me as a guest on his “Let People Prosper” podcast.
The goal of tariffs, in part, was to raise manufacturing employment. Given that more than half of U.S. imports consist of intermediate goods — inputs used by American manufacturers — these tariffs inevitably raise production costs. That alone should make the trend of a weakening manufacturing sector unsurprising. New data show that 58,000 manufacturing jobs have been lost since “liberation day.” Other forces are at play, of course, but one thing is clear: Since 2016, the trend line has not moved in the direction populists promised it would. Manufacturing losses are accelerating, and the United States is losing blue-collar jobs, not adding them.
David Henderson explains with enviable clarity why “trade deficits aren’t a problem.” A slice:
Not only is there no reason to have a zero trade deficit with a particular country but also there’s no particular reason to have a zero trade deficit with the world. Herb Stein was chairman of the Council of Economic Advisers under President Nixon and, incidentally, one of the best bosses I ever had in my first stint with the Council, as a summer intern in the summer of 1973. Stein had a way with words and well understood the economics of balance-of-payments deficits. That’s why I commissioned him to write the entry titled “Balance of Payments” in my Fortune Encyclopedia of Economics, which later became The Concise Encyclopedia of Economics. His entry led off as follows:
Few subjects in economics have caused so much confusion—and so much groundless fear—in the past four hundred years as the thought that a country might have a deficit in its balance of payments. This fear is groundless for two reasons: (1) there never is a deficit, and (2) it would not necessarily hurt anything if there was one.
How could Herb Stein say that there never is a deficit? The reason is that he considered the overall balance of payments, which includes both the current account and the capital account. The current account is composed of three types of income: (1) the trade deficit or surplus; (2) the income on investments abroad minus foreigners’ income on US investments; and (3) transfers, such as aid and remittances, to the United States from other countries minus such transfers from the United States to other countries. In 2024, the current account deficit was $1.13 trillion. The obverse of a current account deficit is a capital account surplus. When we have a current account deficit, foreigners end up with dollars. What do they do with these dollars? They use them to buy bonds, typically US government bonds, to buy stock in US companies, to buy US land, and to engage in direct investment, that is, producing capital such as manufacturing facilities in the United States. As an accounting necessity, the balance of payments, which includes the current account and the capital account, is zero.
Also, because the US dollar is the closest thing there is to an international currency, some foreigners simply hold on to the dollars. Is that a problem? It’s the opposite of a problem. According to the Federal Reserve Board of Governors, the cost to the US government of printing a $100 bill is less than 12 cents. So for a cost of under 12 cents we get $100 in goods and services. It is true that then those dollars are no longer in the US economy. But there’s an easy fix. The US government can print more. It’s like the 1989 ad that Jay Leno made for Doritos: “Crunch all you want; we’ll make more.” And if the government does not print more, foreigners holding on to their dollars they got from selling us goods and services cause there to be fewer dollars than otherwise circulating in the US economy. That means that prices are somewhat lower than otherwise. So if prices would have risen by, say, 3 percent, approximately the current annual increase of the Consumer Price Index, they would rise by slightly less, say 2.9 percent. That means that our dollars go slightly further in purchasing power.
The problem isn’t that industrial policy has been done badly. It’s just bad economics.
Dreams of reviving manufacturing jobs face the reality that modern manufacturing is capital-intensive and largely automated. Even if subsidies or government loan guarantees spur a factory boom—and history suggests otherwise—it won’t bring back 1950s-style armies of industrial workers unless we somehow outlaw productivity. Today’s factories run on robots and engineers.
Nor will tariffs bring a manufacturing revival. Taxing inputs and components only raises costs, weakens U.S. competitiveness, and ultimately punishes the firms protectionists claim to support. True American industrial strength rests on productivity, innovation, competition, and access to global supply chains, not on coddling producers behind walls of higher prices.
[Mariana] Mazzucato and her ideological opposites commit the same error. They imagine a politics-free technocracy that can “direct” the economy. In the real world, politics always dominates economics. Subsidies and tariffs are never tools of neutral expertise; they are invitations to lobby. Every “strategic investment” quickly becomes a political IOU.
Richard Baldwin tweets: (HT Scott Lincicome)
My new Factful Friday is up on Substack (free); on LI tomorrow as usual.
👉 Did US tariffs on China end up protecting exporters from Mexico?
👉 Trumpian tariffs were supposed to
1) protect American firms by raising import prices inside the US;
2) lower import prices at the border by forcing foreigners to “eat” part of the tariff.
👉Part 1 happened. Part 2 didn’t; border prices actually rose.
Today’s Factful Friday explains why.
⭐ The 50%+ tariffs crushed Chinese competitiveness inside the US. This shielded US manufacturers.
GMU Econ alum Jon Murphy rightly insists that “strong claims need strong evidence.”
In recent pieces for Law & Liberty, legal scholar Robert Natelson and historian Paul Moreno have defended originalism against Lepore’s “constitutional despair.” It is safe to say that, unlike the more rigorous work of her colleagues, her jeremiad fails to meet standards of scholarship, as it distorts quotations out of context, misstates facts, and confuses concepts. And its central thesis—that originalism thwarts constitutional change and kills the amendment process—gets matters precisely backward.
Properly understood, originalism preserves the Constitution and its Article V amendment process, the lawful mechanism for change that a constitutional republic requires. By distinguishing between judicial and political processes, originalism provides a vital framework for protecting the democratic legitimacy, popular sovereignty, and the formal amendment machinery at the heart of the American Founding.
Thomas Howes decries “the mainstreaming of Carl Schmitt’s authoritarianism.”
Emmanuel Rincon is correct: “Sanctions didn’t destroy Venezuela’s economy — socialism did.”
… is from pages 297-298 of the late UCLA economist William Allen’s excellent 1989 collection of the transcripts of his radio addresses, The Midnight Economist; specifically, it’s from Allen’s August 1986 address “Surpluses and Trade”:
Exported goods embody valuable resources. There would be no point in producing these goods if there were no anticipated market for them, and they are to be produced and sold, not for the sheer love of the activity, but in order to buy foreign goods.
DBx: Yes. Exporting (or, more generally, producing) is a means; the end is importing (or, more generally, consumption).
This reality is one reason why I dislike the term “export-led growth.” A people who genuinely grow wealthier through exporting grow wealthier only insofar as their exports enable these people to import more in order, in turn, to increase their consumption beyond what that consumption would be absent the exporting. The economic growth is, at bottom, made possible by increased per-person production. The fact that in some countries an especially large proportion of that increased production is exported in exchange for imports in no way means that governments that artificially arrange to increase their citizens’ exports will thereby necessarily increase their citizens’ prosperity.
People sell in order buy; people export not for the sake of exporting but, rather, in order to import. People do not buy in order to sell; people do not import in order to export.
…..
Pictured here is Bill Allen (1924-2021).
Here’s a letter to the Wall Street Journal.
Editor:
Lois McLatchie Miller is able to conclude that surrogate motherhood is unethical because she looks at only one side of the moral ledger (“The Case for Banning Surrogate Motherhood,” November 20). Of course some abuses occur in surrogacy arrangements, just as some abuses occur in all human arrangements. Some people get ripped off buying cars; some employees steal from their employers; some wives are battered by their husbands; some children are abused by their parents. No human arrangement is free of instances of abuse. Ms. Miller tells us nothing about the frequency or severity of the abuses that she pins on surrogacy. The only factual detail she shares is of a projection that “the global surrogacy market will exceed $129 billion by 2034.” So what? By 2034 the amount of money Americans alone will spend on fertility treatments will be in that same ballpark. No relevant meaning is conveyed by such information about total spending on surrogacy.
Additionally, Ms. Miller is blind to surrogacy’s upsides. Why disregard the joy experienced by infertile couples who surrogacy enables to fulfill their dream of having children? Why ignore the happiness of many people who, through surrogacy, gain siblings they otherwise would never know? Why look past the ability of women for whom pregnancy is especially risky to protect their health by using surrogate mothers? Why discount the ability of other women to improve their lives by serving as surrogate mothers? And why overlook the very existence of those children who are given life only because of surrogacy?
Surrogacy arrangements are voluntary. As such, in a free society these should not be outlawed unless a compelling moral case is made against them or strong and unambiguous evidence shows them to unleash net harm. Ms. Miller’s case against surrogacy doesn’t begin to meet this standard.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
Here’s a note to a new correspondent.
Mr. Lee:
Thanks for alerting me, a Twitterless economist, to Larry Elder’s mention of my essay in which I discuss Adam Smith’s exceptions to the case for a policy of free trade. I’m afraid, however, that you misinterpret that essay.
Contrary to your impression, I most certainly do not believe that “Smith generally would approve of President Trump’s tariffs.” Indeed, I’m quite sure that Smith would strongly oppose these tariffs.
First, Smith insisted with crystal clarity that trade balances are no cause for government obstruction of trade. “Nothing, however,” Smith declared, “can be more absurd than this whole doctrine of the balance of trade.” Yet U.S. trade ‘imbalances’ have long been, and remain, the principal phenomena that Trump points to as justifying protective tariffs.
Second, if you read my essay you’ll discover that two of the four supposed ‘exceptions’ aren’t really exceptions. In one case, Smith argued simply for taxing imports at the same rate as domestically produced goods are taxed. In a second case, Smith suggested that, in order to give workers time to adjust, tariffs should sometimes be removed gradually rather than immediately – but nevertheless removed and, better yet according to Smith, never imposed in the first place.
A third exception is imposing tariffs to pressure foreign governments to lower their tariffs. Smith treated this possibility as largely theoretical – as maneuvers inevitably to be carried out in each case by what he described as an “insidious and crafty animal, vulgarly called a statesman or politician,” and highly unlikely in practice to promote domestic economic growth.
The fourth and strongest exception is the one for national security. But even here Smith was clear that, however appropriate protection might be in some cases to strengthen national security, such protection imposes a cost on the economy.
For more on Smith’s exceptions, I recommend this short essay by my former student Caleb Petitt.
There’s no doubt in my mind that Adam Smith would find Trump’s protectionism to be horrifying.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
A November 18 federal trial court decision favoring Facebook is the first decisive win for a big tech digital platform in a suit brought by the federal government. District of Columbia Judge Jed Boasberg’s opinion striking down the Federal Trade Commission’s monopolization suit against Facebook appears sound and well-reasoned and will be hard to overturn on appeal.
The decision also may have broader implications for U.S. antitrust suits brought against high tech firms. It stresses how tech markets have changed significantly in recent years, making restrictive market definitions, such as the one put forth by the FTC here, hard to defend. Antitrust cases that retard innovation by focusing on narrow conditions at one point in time may miss the bigger economic picture.
…..
While market definition was key to the court’s ultimate holding, additional discussion by Judge Boasberg shed light on the fact that Facebook’s activities had generated substantial economic benefits.
Judge Boasberg found it “impossible to believe that consumers would prefer the versions of Instagram and Facebook that existed a decade ago to the versions that exist today,” implying that product improvements driven by competition have benefited consumers.
Indeed, economic research indicates that “digital goods” associated with platforms have brought forth enormous levels of new consumer welfare (the key goal of antitrust according to leading scholars and the Supreme Court). One estimate by leading scholars found that digital goods bestowed trillions of dollars in annual benefits to consumers.
The scale of the economic benefits of platform innovation for the American economy merit being highlighted. U.S. courts overseeing digital markets cases may be finally awakening to the fact that antitrust ignores beneficial changes in market conditions at its peril. Bringing costly antitrust suits that retard innovation is not MAGA. Federal antitrust enforcers may want to take note of this.
Also writing wisely about antitrust is Mark Jamison. A slice:
Antitrust enforcement in the United States too often fails to deliver what it promises. The Justice Department and Federal Trade Commission have won historic cases—the breakups of Standard Oil and AT&T, and most recently the ruling against Google’s search practices—but such victories rarely enable commerce or bring benefits for consumers. The reason is simple: Antitrust enforcers are fighting the wrong battles. They focus on the moments they can easily see, such as present and past market shares, rather than on how industries evolve. By the time regulators finish their legal battles, the technologies and markets have already moved on.
Mani Basharzad asks: “What is wrong with economics education?” Two slices:
How many times does an undergraduate economics student hear the name “Hayek” in his or her courses? The answer, in most programs, is close to zero.
This is surprising. Friedrich Hayek remains one of the most cited Nobel laureates in economics—second only to Kenneth Arrow in mentions and citations in Nobel lectures, according to research from King’s College London. His ideas on the knowledge problem and the economic calculation debate are fundamental to understanding the limits of central planning and the role of markets.
And yet, in most classrooms, Hayek’s name never appears. Why? Because economics education today is not primarily designed to train economists but to produce social engineers.
This point was made forcefully by another Nobel laureate, James Buchanan. In his 1964 presidential address to the Southern Economic Journal, Buchanan asked the deceptively simple question: “What should economists do?” His answer was not about what theories to teach but about how to teach. He argued that the modern economics curriculum had been captured by a vision of training future policymakers to manage society rather than cultivating economists as scientists who study spontaneous order and social processes.
…..
Students learn to solve equilibrium equations, calculate shifts in demand and supply, and memorize models of optimization. Rarely are they asked to reflect critically on whether these frameworks capture the world they are meant to describe.
As Austrian economist and professor at New York University Mario J. Rizzo recently noted in the Financial Times, “The students were given, mainly or only, problem-sets of a completely mathematical nature. […] There were no questions involving critical reflection on the ideas or frameworks taught.”
This approach instills in students the illusion that social problems can be solved by finding “optimal solutions.” In that worldview, markets are seen only in terms of failures—problems that supposedly require government correction—while genuine market solutions are ignored.
But such a mindset directly contradicts the wisdom of classical liberal economics. Thomas Sowell once remarked that, in the real world, “there are no solutions, only trade-offs.” Social life is not about perfection; it is about making choices under scarcity, uncertainty, and ignorance. The central task of economics is not to identify perfect outcomes but to understand how institutions help us cope with imperfection.
[DBx: Buchanan’s address was in 1963, although it was published in a 1964 number of the Southern Economic Journal. Also, at George Mason University, economics continues largely to be taught as Buchanan urged.]
GMU Econ alum Jeremy Horpedahl reports that today “one-third of US families earn over $150,000” – a reality that is not mainly due to the rise in two-income households. (HT Arnold Kling)
Andrew Langer counsels that we should fund air-traffic control during a shutdown, not privatize it (Letters, Nov. 12). Fair enough, but there’s another sensible option. Keeping ATC in the federal budget makes it vulnerable to shutdowns and political micromanagement, which has prevented the FAA from retiring aging technology and sensibly consolidating and modernizing its facilities. The model now providing depoliticized ATC in nearly 100 countries is an aviation public utility, funded entirely by system fees and charges. Only four of these are “private” in some sense; the vast majority are government utilities like our Tennessee Valley Authority. Its revenues come from its customers paying TVA for what they use—exactly as airlines and business jets do worldwide with ATC utilities.
According to the Congressional Budget Office, maintaining all Social Security and Medicare benefits by borrowing would add roughly $115 trillion to the deficit over the next thirty years. That’s $70 trillion in shortfalls and the rest in interest payments. On a real basis, using a 2% real discount rate, the present value of that $70 trillion is on the order of $40 trillion—greater than the current $38 trillion national debt. That is also the same amount by which income taxes would have to rise in order to avoid borrowing, and the same present value of the later, larger income taxes that would be needed to eventually repay added debt.
The danger, of course, is that Congress will borrow and then be unable or unwilling to repay such a massive amount of debt. A debt crisis will eventually erupt, leading to default or inflation. History has no shortage of examples of other countries unsustainable social spending causing debt collapses. It can happen here. And when people see that event coming, we will see a flight from Treasury debt and inflation in its anticipation.
… is from page 192 of Thomas Sowell’s 1993 collection, Is Reality Optional?:
Back in my old neighborhood, there was a special contempt for the kind of guy who was always trying to get two other guys to fight each other. Today, it is considered a great contribution to society to incite consumers against producers, tenants against landlords, women against men, and the races against each other.
Here’s a letter to Foreign Affairs.
Editor:
Michael Pettis writes as if humanity’s chief economic problem is that we’re too rich – that we’re so abundantly awash in goods and services that the demand to purchase these outputs is inadequate (“How to Fix Free Trade,” November 17). As such, he insists that governments’ main economic duty is to protect its citizens from receiving from foreigners more goods, services, and capital than those citizens send to foreigners.
Pettis peddles hydraulic Keynesianism. He writes of some countries (including the U.S.) being “forced” to “absorb” capital and goods from other countries as if national economies are distinct entities connected to each other by a series of tubes through which flow savings and goods. In this bizarre mechanical view, when, say, the Chinese save ‘too much’ and produce more than they consume, the excess must “flow” somewhere. For a variety of reasons, most of this excess today “flows” into America. We Americans find ourselves with more capital and goods than we ourselves produce.
Poor us, having to “absorb,” year after year, lots of capital and goods from abroad.
Absent from Pettis’s analysis are microeconomic factors that better explain the persistence of U.S. trade deficits. Despite its imperfections, America remains an attractive place for foreigners to choose to invest. This attractiveness, in turn, prompts foreigners to choose to save more than they would otherwise. Similarly, the production of tradable goods outside of America is done largely because non-Americans – mostly led by price signals and the desire to earn profits – choose to produce the goods that they then choose to offer for sale to Americans.
Americans also choose. Every import bought by an American is one that an American chooses to buy, presumably because the price is right. Every asset sold by an American is one that an American chooses to sell, presumably because the price is right. To write, as Pettis does, of imports, exports, and savings flowing from country to country as if these are akin to hydraulic fluids mindlessly moving from higher-pressure to lower-pressure locations is not to do serious economics.
The global trading system has many problems, including mercantilist policies pursued by both Beijing and Washington. But these policies, contrary to Pettis’s assertions, are problems largely for the countries that practice them. If there is excess production in China, that’s a problem mostly for the Chinese. If there are excess savings in Germany, that’s a problem mostly for the Germans.
Pettis’s attachment to hydraulic Keynesianism prevents him from understanding the realities of global trade and investment.
Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030
The Trump NLRB in 2020 restored the longstanding “direct control” joint-employer standard. But then Biden appointees reinstated a version of the Obama rule, which was blocked by federal courts last year. This restored the Trump rule, which is now being challenged by the SEIU at the D.C. Circuit Court of Appeals.
This regulatory ping-pong creates uncertainty that is damaging to small businesses. That’s all the more reason for Congress to pass a bipartisan House bill that would codify the Trump NLRB rule for franchises.
Mr. Trump vowed on Monday night that “as long as I’m President, I’ll always defend your right to run your own small business, and do it well.” If he means it, he’d also reduce his tariffs and stop his Administration’s mass deportation raids at law-abiding workplaces. Deregulation and tax reform were the secret sauce to his first-term’s economic success that helped him win re-election.
Please, sir, can we have another order of that—and hold the rest?
The National Review Staff decries “Trump’s incoherent tariff message.” A slice:
President Trump recently announced that he was reducing tariffs on coffee and other food items, a reversal that Charlie Cooke, on today’s edition of The Editors, cites to blast the president’s tariff policy as a whole.
“This has been from the beginning just garbage. Garbage,” Charlie says. “They can’t decide what the tariffs are for. They change that every eight minutes. . . .
“I’ve seen presidents lie. . . . I’ve seen presidents fail to grasp the subject matter. I’ve seen presidents flail around and search for different arguments, test one by one the best messaging, and then eventually settle on whatever worked. I have never seen a policy that was over and over again in repeated cycles sold on completely self-contradictory grounds,” Charlie says.
Who’d a-thunk it?: “”World’s top aluminum producer adds markups as Trump tariffs drive up consumer costs.” (HT Scott Lincicome)
While [Neale] Mahoney and [Bharat] Ramamurti pay lip service to standard objections, they miss the glaring elephant-in-the-room Econ 101 issue: Budget constraints. Every dollar of “relief” for one party is a dollar of “burden” for another, plus the inefficiencies of redistribution.
Sure, “sharply rising rents and utility bills wreak havoc on family budgets,” if the families don’t follow the screaming market signal to move. (Which is not painless, for sure. Incentives never are.) But the money comes from somewhere. Rent controls and energy price caps wreak havoc on landlord end electric utility budgets. The money must come from somewhere.
…..
I hate the word “policymaker.” It’s every leftwing economists’ dream, I guess, to be installed as an aristocrat and “make policy.” This is politics, not policy, redistribution in the name of electoral gain, as Mahoney and Ramamurti make clear. There is no “policy.” There is politics. This is redistribution by force. For better or worse, but don’t sugar coat what you’re doing.
“Step in if there are signs of price controls becoming permanent or spreading to other parts of the market.” Hello? 80 years is not permanent enough? Are not “policymakers” like the new mayor of New York “stepping in” precisely to extend and expand controls? Sunset clauses are sunrise clauses. “Targeting controls to well-defined groups — such as existing tenants and low-income households.” After “budget constraint” lesson 2 of Econ 101 is “incentives.” When existing tenants get a big break, they have a big incentive to remain existing tenants, see above. When households experiencing low incomes (I refuse to use “low-income” as an immutable characteristic) receive benefits they have a big incentive to remain low income.
Well at least they are honest enough to say “accept some trade-off between immediate relief and weaker long-run investment.” Yes, existing renters got relief in 1942. We are stuck with the long run.
There are many other good reasons why only four countries in the Organization for Economic Cooperation and Development currently have wealth taxes, down from a dozen in the 1990s. A complex tax code means a corrupt one. Sweden’s wealth tax, which stood at 1.5 percent before its repeal in 2007, discriminated between different kinds of assets. Either California’s wealthy would lobby for their investments to get favorable treatment, or politicians would decide on a whim what they think should be left alone. Either approach would inevitably distort investment decisions and make the economy less productive.
Arnold Kling does some mortgage-payment arithmetic.
“Robert George resigns from the Heritage Foundation.” A slice from a Wall Street Journal editorial:
The Heritage Foundation debacle isn’t over. The decision of Kevin Roberts, the conservative think tank’s president, to embrace podcaster Tucker Carlson, criticize those who push back on Mr. Carlson’s Jew-baiting and friendly interview with Hitler fanboy Nick Fuentes, and even accuse critics of serving a “foreign government” continues to damage the institution’s reputation.
… is from page 125 of Charles King’s 2024 book, Every Valley: The Desperate Lives and Troubled Times That Made Handel’s Messiah:
Early-childhood mortality was so expected, in fact, that in official documents “infancy” was itself understood to be a cause of death distinct from infectious diseases such as consumption and smallpox. Four of Susannah Cibber’s five siblings, for example, had died while infants, as had at least two of her children.
