Michael Boskin identifies “five tricks in policy debates.” A slice:
Fifth is what I will label the arrogance of government intervention success (AGIS). This stratagem, which focuses solely on the easing of a market failure by a theoretically appealing government “solution,” ignores not-infrequent government policy failures, often caused by poor incentives. As with market failures, policy failures come in several varieties, including waste and fraud, regulatory capture, misguided social engineering, excessive dependency, poor targeting, or simple incompetence to carry out the task at hand.
Consider the failed attempts to stimulate the economy with government spending, followed by other ineffective policies (remember “cash for clunkers”?) ladled on top of those allegedly “shovel ready” projects that even President Obama eventually admitted weren’t ready.
The proper comparison puts the imperfect market outcome up against the likely imperfect government intervention to assess the net benefit, positive or negative, from the policy.
The limited numerical, economic, and scientific literacy of much of the population offers many opportunities for politicians and policy analysts to take advantage. One example is California’s expensive climate policies. Our elected leaders claim they will help stop, or at least mitigate, climate change. What percentage of the population knows that the effect of greenhouse gas emissions on climate depends on their global level in the atmosphere, currently about 430 parts per million of atmospheric carbon dioxide? Or that adding up the emissions from each and every country adds about seven-tenths of 1 percent to this concentration annually? And that California’s activities emit about 1 percent of global emissions? So, if—and it’s a big if—California’s policies decreased the state’s emissions by an additional, say, 30 percent above and beyond what the policies already reduce, the result would be a net reduction in carbon dioxide concentrations in the atmosphere of less than one one-hundredth of a part per million?
Hence California’s policies, taken strictly by themselves, can have at best only a trivial effect on climate, even over decades, for the large cost Californians pay in higher and less reliable energy and reduced consumer choice. These costly measures might have some justification if they funded R&D that led to breakthroughs that scaled to true environmental significance at reasonable cost without permanent government subsidies, or if they induced large emissions reductions in other jurisdictions. While California does have such effects on a few other states, it has no influence on by far the largest emitter, China, or the third-largest, India (the United States is second).
The costs and risks from likely global warming certainly should be considered seriously in policymaking. But disingenuous pronouncements on what is achievable at what cost have caused a backlash that now inhibits serious consideration of how technology and adaptation, not just emissions mitigation, can lead to cost-effective solutions.
Steven Hayward ponders “equality and its discontents.”
The entire notion misunderstands how fortunes are made. In a market economy, people don’t build great wealth first and redeem it later through good works. They build it by making the world better first.
When I buy an $800 smartphone, it’s because I value the phone more than whatever else I would have bought with the money. The seller values my $800 more than they do the phone. We both walk away richer by our own measure. Neither owes the other anything more.
Repeat this exchange a few hundred million times, and vast fortunes take shape for the people who create amazing technology so abundantly and affordably that we take it for granted. More importantly, though, people hand over every cent of it voluntarily.
As my colleague Arnold Kling aptly explained over the weekend, “Profits are earned within a positive-sum game for society. Profits induce firms to serve consumers and to innovate.” The drive for wealth taxes relies on “the opposite point of view. It regards profits as something that businesses take from the rest of us, as if we can take innovation and efficiency for granted. (It) acts as if we are in a zero-sum environment in which one person’s gain is necessarily another person’s loss.”
And, yes, the gains are divided more fairly than people think. Nobel laureate and Yale University economist William Nordhaus estimated that innovators in the U.S. business sector personally captured, on average, a mere 2.2% of the social surplus they created between 1948 and 2001. The other 97.8% went to everyone else in the form of lower prices, higher wages, better products and goods, and services that didn’t previously exist.
In short, the world has already been compensated, many times over.
Jon Miltimore adds his wise voice to those who oppose Proposition 40. A slice:
Following the Prop 40 announcement, filmmaker Steven Spielberg established residency in New York, while Google co-founders Larry Page and Sergey Brin relocated out of California. Palantir co-founder Peter Thiel moved to Miami, and venture capitalist David Sacks announced a move to Texas. The list goes on.
Few of these people came out and said they were leaving to dodge taxes. But it’s a common response to wealth taxes. When Norway implemented a much smaller wealth tax — raising it to 1.1% — in 2021, more than 30 billionaires and multimillionaires left the country the following year, more than the 13 preceding years combined.
Chelsea Follett reveals the grim reality of marriage in pre-modern times.
GMU Econ alums Caleb Fuller and Scott Burns ask who put the tariffs in their pricy burritos.
Here’s the abstract of a new paper by Ruohan Wu: (HT Scott Lincicome)
The 2025 U.S. tariff policies provide a natural experiment to examine how import restrictions affect domestic prices. We construct a partial-equilibrium Armington model in which the pass-through of a tariff into retail prices decreases with a product’s domestic supply elasticity and increases with its import dependence. We test these predictions using 2024-2026 U.S. metropolitan-level price data and a difference-in-differences design that compares beef products against alternative protein products and other consumer items. We find that tariffs significantly increased beef prices by approximately 8~11% ($1.7~$2 per pound), with larger effects when domestic supply was more constrained and import dependence was higher, as the model predicts. These findings imply tariff assessments should weigh uneven consumer incidence, not aggregate price effects alone.
If, for example, a government raises tariffs because it wants to protect particular communities from foreign competition out of a sense of compassion, it often ends up inflicting harm on others, such as consumers who end up paying higher prices or the businesses that experience retaliatory tariffs from abroad.
[U.S.] exports are a cost because the United States uses its resources to produce goods and services for foreign countries; imports are a benefit because the United States uses the resources of foreign countries to obtain its own goods and services. So, contrary to what the mercantilists thought, the United States should import as much as it can and export as little as possible (assuming it were possible to maintain this regime for long). A reductio ad absurdum of the mercantilist argument is easy. Imagine that the United States ships its export by sea and that the returning ships bring back imported goods. If the returning ships sank, would the situation of exports without imports be a benefit for the United States. Obviously not.
The Great Society of which [Adam] Smith spoke, and that was extolled by Hayek, is a civilizational enterprise worth defending and pursuing, not least because it is a hopeful endeavor and ultimately puts its faith in ordinary people. It reflects a confidence that if the everyman and everywoman are given freedom in the context of the economic, cultural, legal, and political settings identified in books like The Wealth of Nations and The Constitution of Liberty, they will not only avoid servitude; they will also enjoy greater possibilities for living lives marked by prosperity and purpose than any set of comparable arrangements known to humanity.
This “slippery slope argument” is rooted not in paranoia, but history. The best predictor of future behavior is past behavior. In the past, when governments received the power to cheaply remedy glaring market failures at low cost, they could have done so and declared victory. They almost never did. Indeed, governments spurned streamlined textbook fixes – like taxing negative externalities and subsidizing positive externalities – from the get-go. Issuing edicts – “command and control” – has far more demagogic appeal. Once governments start issuing edicts, they keep issuing. Angry complaints and shocking incidents organically arise – and the crowd-pleasing response is not cost-benefit analysis, but “decisive action” against malefactors of great wealth and alien lands.
One feature of commercial society is that it provides many people with more space for acting and making choices freely about what ends they decide to pursue – at least compared to previous social arrangements. But this liberty goes along with greater interdependence on others; thus, far from encouraging radical individualism, commercial civilization demonstrates that we are intrinsically social beings.
