Tweet

… is from page 3 of Thomas Sowell’s 2012 monograph, “Trickle Down” Theory and “Tax Cuts for the Rich” (original emphasis):

What actually followed the cuts in tax rates in the 1920s were rising output, rising employment to produce that output, rising incomes as a result and rising tax revenues for the government because of the rising incomes, even though the tax rates had been lowered. Another consequence was that people in higher income brackets not only paid a larger total amount of taxes, but a higher percentage of all taxes, after what have been called “tax cuts for the rich.” There were somewhat similar results in later years after high tax rates were cut during the John F. Kennedy, Ronald Reagan and George W. Bush administrations. After the 1920s tax cuts, it was not simply that investors’ incomes rose but that this was now taxable income, since the lower tax rates made it profitable for investors to get higher returns by investing outside of tax shelters.

The facts are unmistakably plain, for those who bother to check the facts. The federal income tax rate on the highest incomes in 1920 was 73 percent. By 1928, the highest income tax rate had been reduced to 25 percent. Between those two years, the total amount of income tax revenue collected increased, and the proportion of all income taxes collected from people earning a million dollars or more per year also increased, from less than 5 percent in 1920 to 15.9 percent in 1928.

Tweet

Here’s a response to a different commenter at my Facebook page.

Mr. Martin:

In response to my Facebook post critical of Trump’s protectionism, you write that Trump’s policies create great harm for Canada but are a mere “inconvenience” for us Americans.

Why should we be pleased with, or even indifferent to, any hardships that our government inflicts on Canadians? Even from a selfish perspective, what do we gain from their suffering? Indeed, economics tells us that we lose from their economic suffering. (Would you prefer that your neighbors be productive and wealthy, or unproductive and poor?)

You’ll point out – as you do in your comment – that Trump’s policies have induced several companies to move their investments from Canada to the U.S. And you obviously presume that these investments are good for Americans. But you’re mistaken.

Investments made in the U.S. rather than abroad only because U.S. protectionism prompted these investments in the U.S. harms most Americans in at least two ways.

First, we Americans will pay for the outputs of these U.S.-based facilities prices that are higher than we would have paid for the same outputs had these investments remained in Canada, for Canada is where the market revealed these outputs can be produced at lowest cost.

Second, these tariff-induced investments in the U.S. aren’t free. They use land, resources, and workers in the U.S. that would otherwise be used to produce not only other outputs, but other outputs that these resources can produce at a comparative advantage. But because of Trump’s protectionism, these other investment and employment opportunities in the U.S. are squelched, and these other outputs aren’t produced in the U.S. Put differently, these tariff-induced investments pull resources and labor in the U.S. out of more-productive and into less-productive channels. The fact that a similar inefficiency of resource use is caused also in Canada does nothing to diminish the economic harm suffered by Americans.

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

Tweet

Here’s a note to a commenter at my Facebook page.

Ms. Rachel Mills

Ms. Mills:

To my Facebook post ridiculing Trump’s latest punitive taxes – a.k.a. tariffs – on Americans’ purchases of goods from Canada, you offer this comment: “Our starting point in this is not free trade to trade war and protectionism. The starting point was already tariffs and protectionism and shenanigans. The end point might be free-er trade though.” You close by writing that “Trump is playing a game,” by which I take you to mean that Trump is strategically using U.S. tariffs to lower tariffs globally.

For several reasons, I believe you to be mistaken.

First, from Adam Smith and Frédéric Bastiat centuries ago to Phil Gramm and Doug Irwin today, all informed advocates of free trade have repeatedly explained that the best trade policy for the home country is free trade regardless of the policies of other countries. While free traders recognize that the ideal world is one in which complete free trade is universal, they also recognize that, as a practical matter, such a world has never existed and will never exist, and so the best that each government can do is to leave its own citizens free to trade even when other governments abuse their citizens with protectionist restrictions.

The claim that free trade at home requires free trade abroad is made only by protectionists; it has never been made by informed free traders.

Second, while trade wasn’t completely free when Trump took office in 2017, it was darn close. I had ChatGPT construct the graph below, from data assembled by Julia Estefania-Flores, Davide Furceri, Swarnali Hannan, Jonathan Ostry, and Andrew Rose, showing changes over time in global trade restrictiveness.* As you can see, when Trump unilaterally began jacking up U.S. tariffs in 2018, world trade was largely free by historical standards and still becoming more free (if at a slower pace than before the early 1990s).

Third, Trump’s own decades-long pronouncements about trade make abundantly clear that he neither likes nor understands trade. After all, he scribbled in the notes of a speech “TRADE IS BAD,” and proudly calling himself “Tariff Man,” he has consistently asserted that so-called U.S. “trade deficits” with individual countries are evidence that these countries are ‘raiding’ the U.S. to steal our wealth. Despite the fact that bilateral trade deficits are utterly without economic significance, these phenomena nevertheless serve as the ridiculous justifications for Trump’s “Liberation Day” tariffs.

Trump’s comprehension of trade is akin to a flat-earther’s comprehension of astronomy. No one with such a preposterously poor understanding of trade should be presumed to be playing a long game aimed at making trade more free.

In short, there is no excusing Trump’s protectionist folly.

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 Measurement of Aggregate Trade Restrictions and Their Economic Effects (World Bank, 2022).

Tweet

Andrew Biggs explains that the U.S. Social Security program is welfare for the rich. A slice:

Federal spending on retirement benefits is running riot. Social Security swallows nearly a quarter of the federal budget and is less than a decade away from insolvency. The government loses hundreds of billions per year on tax breaks for retirement savings.

And who gets most of this money? It isn’t the most vulnerable seniors. It’s the richest.

The wealthiest fifth of households receives 38 percent of taxpayer dollars spent on Social Security and retirement tax preferences, more than the bottom 60 percent. But Congress can solve the problem by capping federal retirement benefits at middle-class levels. The change would eliminate most of Social Security’s funding gap, reduce federal deficits and improve economic growth — all without threatening low- and middle-income seniors.

Though it is intended to be a safety-net program, Social Security drives the bulk of this inequality. The highest-earning quintile of Americans born in the 1960s will receive $33,000 in annual Social Security benefits, compared with just $13,000 for the lowest. Affluent Americans also collect more checks in their lifetimes. On average, a wealthy 62-year-old can expect to live to be roughly 88, while the poorest Americans the same age live only to around 80. Since top earners collect more and live longer, they take 33 percent of total Social Security benefits, leaving a mere 8 percent for the lowest-earning quintile.

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with Roger Bate about his new book on sports betting, The House Always Wins.

GMU Econ alum Bryan Cutsinger reports that inflation remains troubling high.

My GMU Econ colleague Bryan Caplan ponders the ‘externalities’ of airports and of immigrants.

Christian Britschgi draws lessons from opposition to data centers, and opposition to Flock cameras. Two slices:

It might be tempting to lump these two backlashes into a generalized revolt against technology.

But polling on AI and tech companies generally shows only a modest cooling of the public’s attitude toward them. Nothing like the sharp collapse in public support we’ve seen for Flock and data centers specifically.

When people are asked why they oppose data centers, environmental concerns are top of the list, not an opposition to technology.

Instead, what we’re seeing appears to be popular revolts against two things Americans like to get panicked about: Big Brother and Big Development.

People naturally object to the government spying on them. They’re also primed to oppose new construction, regardless of what’s being built.

In a country witnessing a massive boom in data center construction and a comprehensive nationwide rollout of ALPRs, a bottom-up, popular revolt was perhaps inevitable.

And to be clear, these are popular, bottom-up revolts.

…..

If the revolt against Flock and data centers demonstrates the power of populism to move politicians on an issue, it also highlights the limits of populism for protecting liberty.

There’s a world of difference between the government tracking citizens in public and landowners developing their private property. An angry populace isn’t making those distinctions.

ALPR technology poses serious privacy concerns. Its many misuses and abuses are scandalous. The public’s turn against it is provoking a belated conversation about the benefits, costs, and constitutionality of the 120,000 Flock cameras already in the field.

It’s far harder to see anything positive in the sudden revolt against data centers.

These facilities’ critics are not stopping at demanding more mitigation of their relatively few externalities. Nor are they simply calling for an end to unfair subsidies or tax credits some data center projects receive.

Instead, people’s misplaced concerns about data centers’ overhyped environmental impacts are leading states and localities to impose some of the tightest land use restrictions on one of the more innocuous forms of development imaginable.

About the newly announced U.S. government stake in a Venezuelan oil company, Scott Lincicome tweets:

So, after taking 31 US government equity stakes in private companies over the last year, Trump just announced a MAJORITY-STATE-OWNED oil company?

This isn’t even “creeping” socialism anymore.

Tweet

… is about protectionism and is from chapter 1 of William Graham Sumner’s 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth [bracketed comment original to Sumner]:

Obviously the doctrine includes two assumptions. The first is, that if we are left to ourselves, each to choose, under liberty, his line of industrial effort, and to use his labor and capital, under the circumstances of the country, as best he can, we shall fail of our highest prosperity. Second, that, if Congress will only tax us [properly] we can be led up to higher prosperity.

DBx: Yes. Distrusting free markets, all protectionists – left, center, and right – put their faith in politicians and government officials who possess the authority to suppress and override the voluntary choices of individuals spending and investing their own money, time, and effort. The presumption – supported only by blind faith – is that politicians and government officials know enough to improve upon market outcomes, and can be trusted to use this power in the public interest.

Tweet

Here’s a letter to National Review.

Editor:

Jim Geraghty makes several excellent points in his critical assessment of Trump’s protectionist assault on Canada – which, of course, is also an assault on Americans’ economic freedom and standard of living (“The Canadian Menace,” August 28). But one further point, missed by Mr. Geraghty, warrants mention. It’s one that exposes a fundamental contradiction in Trump’s protectionism.

Mr. Geraghty quotes the White House’s complaint that “Canada also administers these [automobile-import] quotas in a way that compels U.S. auto companies to invest in production in Canada instead of the United States.”

Given Mr. Trump’s decades-long obsession with reducing U.S. trade deficits, the White House should regard this Canadian policy not, as it does, as a reason to punish Canadians with tariffs, but instead as a blessing – as Canadian cooperation with the president at reducing U.S. trade deficits.

When we Americans increase our investments abroad, our long-running capital-account surplus – which is the excess of foreign investment in the U.S. over U.S. investment abroad – shrinks. By the rules of international commercial accounting, a shrinking U.S. capital-account surplus is necessarily accompanied by a shrinking U.S. current-account deficit. Because trade deficits are by far the largest component of U.S. current-account deficits, a shrinkage of U.S. current-account deficits puts downward pressure on U.S. trade deficits.

More simply, when we Americans invest more of our savings abroad, we have fewer savings to spend on imports. Other things equal, the U.S. trade deficit shrinks.

The bottom line is that, according to the White House’s own professed objective, Canada is helping America: By encouraging us to invest more of our savings abroad, it puts downward pressure on the very trade deficit that Mr. Trump claims to be determined to reduce. Yet he responds by slapping Canada with higher tariffs. A clearer example of the internal contradiction in Trump’s protectionist policy is difficult to imagine.

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

Tweet

GMU Econ alum Dave Hebert documents Trump’s dishonest and erratic trade dealings with Canada.

J.D. Tuccille offers sound advice to Canadians – advice, alas, that they’re unlikely to heed: “Canada should ignore Trump’s protectionism and unilaterally enact free trade….”

…. because: (HT Richard Ebeling)

Also writing wisely about Trump’s trade war with Canada is Harold Black.

“How trade policy uncertainty weakens foreign direct investment.” (HT Scott Lincicome) [DBx: But hey, Trump – although not economically literate people – should applaud because reduced willingness of foreigners to invest in America will shrink the U.S. trade deficit!]

The Editorial Board of the Wall Street Journal reports that Trump’s tariffs punitive taxes on Americans’ purchases of imports are hurting the GOP’s electoral prospects in Texas. A slice:

The Texas economy is heavily exposed to tariffs because of its cross-border trade and integrated supply chains with Mexico. Texas traded $303 billion in goods with Mexico and overall exported $299 billion of manufactured products in 2025. The latter include electronics and computers ($71 billion), chemicals ($55 billion) and transportation equipment ($29 billion).

Because Texas is the largest state exporter of goods, it suffers a bigger brunt from retaliatory tariffs, such as those that Canada plans to levy on the U.S. in response to Mr. Trump’s tariff escalation. In case he hasn’t noticed, the tariffs have become an albatross for Republicans in close races across the country, including Texas.

Republicans hoped to pick up a couple of House seats in south Texas with large Hispanic populations after redrawing the state map, but those districts are drifting in Democrats’ direction this year. Most recent polls show Democrat James Talarico leading Republican Attorney General Ken Paxton in the state’s Senate contest. Every time he threatens more tariffs, Mr. Trump is making Democratic leader Chuck Schumer’s day.

Warren Coats reflects on the rise in the U.S. of the popularity of socialism.

Robert Bork, Jr., explains how the Meta settlement further expands government’s reach into our lives as this settlement also makes Big Tech bigger. Two slices:

Meta’s settlement with state attorneys general is being celebrated as a victory over Big Tech. It may turn out to be something closer to the opposite: a case study in how regulation ends up entrenching the companies it’s meant to restrain.

Meta will pay billions to settle claims involving Facebook and Instagram. More consequentially, it agreed to an elaborate regulatory regime for users under 18—daily use limits, nighttime restrictions, school-hour notification limits, enhanced age verification, restrictions on certain features, stronger parental controls, and scrutiny from an independent auditor and the attorneys general themselves.

Some of this may be sound policy. But stack the pieces together and paradoxes emerge, ones that ought to bother conservatives—and anyone wary of government’s expanding footprint in private markets.

Start with privacy. Part of the original complaint was that Meta collected too much information about children. The fix requires Meta to get considerably better at identifying them. A 15-year-old claiming to be 19 can’t be taken at his word, so Meta needs sharper age-assurance tools—and the harder government pushes to stop teenagers from slipping past the restrictions, the more sophisticated that identification machinery has to get. We are protecting children’s privacy by requiring a company to know more about them.

Parental authority runs into a similar knot. The settlement is billed as empowering parents, and in places it does. But plenty of these decisions used to belong to parents alone, and now they don’t. Nobody’s mother or father decided that two hours was the right amount of Instagram for a 15-year-old—the attorneys general did. Nobody’s parents set midnight as the cutoff either.

Giving Meta a mandate to let parents impose limits is one thing. Having government impose the limits itself, with parents free to loosen them if they notice and bother to act, is another. The first approach hands parents real authority. The second substitutes a state official’s judgment for theirs and calls it choice.

…..

The deepest paradox is economic. For years the government’s message has been that Meta is too powerful—its acquisitions attacked, its dominance targeted for reduction. Now government is loading it up with expensive new obligations: age assurance, content controls, compliance infrastructure, parental-control architecture, an outside auditor checking the work. Meta can absorb costs like that without much trouble. Whether the next Instagram could is a different question entirely. Regulatory compliance behaves like a fixed cost, and a company of Meta’s size bears it far more easily than two programmers building a social app in a garage without Meta’s legal team, engineering bench or compliance department. What antitrust law is supposed to prevent—a barrier that keeps new entrants out—is exactly what this settlement risks building.

GMU Econ alum Romina Boccia and co-author Ivane Nachkebia warn that “borrowing to avoid Social Security reform could add $46 trillion to the debt by 2056.”

Tweet

… is from page 318 of Thomas Sowell’s 2002 collection, Controversial Essays:

The next time some academics tell you how important “diversity” is, ask how many Republicans there are in their sociology department.

Tweet

David Henderson challenges Rob Schneider’s case for military conscription.

Mike Munger exposes the faulty reasoning of today’s critics of Milton Friedman. A slice:

Friedman’s economic model has worked everywhere it has been tried. The idea that this history of consistent success is now outdated is at odds with both history and logic.

If nothing else, he lives as a perfect bogeyman for the American left, which blames him for everything from neo-liberalism to designing authoritarian regimes all over the world.

Andrew Langer is none-too-impressed with J.D. Vance’s limp grasp of markets and American history. Two slices:

Vice President JD Vance recently told podcast host Michael Knowles that American conservatism has moved beyond Milton Friedman. Economic policy on the right, he said, is now “much more Alexander Hamilton,” a change he called “obviously a good thing.” Hamiltonianism, he predicted, “will dominate American conservative economic thinking for the future.” This was a deliberate endorsement of a post-laissez-faire economic philosophy built around government-directed development.

Mr. Vance’s justification is as consequential as his conclusion. Friedman’s ideas, he said, made more sense in the 1980s because America still possessed “a very rich and powerful institutional Christianity.” Laissez-faire economics operating with “Christian guardrails on everything,” he argued, is different from laissez-faire economics in today’s secular, globalized culture.

That claim confuses the moral freedom of individuals with a particular religious or institutional order. Markets don’t require comprehensive Christian guardrails. They require individual liberty, property rights, honest dealing, enforceable contracts and equal rules against force and fraud. These principles are compatible with Christianity, but they aren’t exclusively Christian. They allow people of different faiths—and no faith—to cooperate peacefully without agreeing on theology or a common conception of the good.

The market isn’t a moral authority standing above society. It is the accumulated result of human beings freely choosing to work, create, buy, sell, save and invest.

Mr. Vance also caricatures Friedman’s legacy by implying that laissez-faire elevates economic development above human dignity. Friedman’s case for markets was moral as well as material. Voluntary exchange allows people with different values and objectives to cooperate without forcing them into a single national plan. Dispersed economic power leaves people, families and communities free to pursue their own understandings of a good life. Concentrating economic and political power threatens prosperity and liberty.

The economy isn’t an independent machine that government must direct toward human flourishing. “The economy” is people—millions of them pursuing better lives through work, invention, exchange and cooperation. Human flourishing doesn’t result when officials subordinate this activity to their preferred social vision. It occurs when people possess the liberty to develop their talents, support their families, serve their neighbors and build institutions reflecting their commitments.

Mr. Vance’s invocation of Hamilton obscures a fundamental disagreement extending back to the founding. Hamilton was a great statesman, but his political economy wasn’t the uncontested expression of American republicanism. He favored energetic national power, executive authority, public debt, a national bank, protective tariffs, manufacturing subsidies and government-led development.

…..

People don’t flourish because government determines how the economy should serve them. When people are free to pursue better lives, flourishing follows. A free society benefits from strong moral institutions—but neither markets nor liberty depends on government to impose them.

My GMU Econ colleague Alex Tabarrok talks with Marc Sidwell about the economic madness of “equal-pay” mandates.

My intrepid Mercatus Center colleague, Veronique de Rugy, rightly blames the U.S. government’s fiscal mess on both major political parties. Two slices:

The U.S. national debt just crossed the $40 trillion threshold, doubling in less than a decade. Washington politicians have responded with their favorite fiscal game: blaming the other party. Democrats say Republican tax cuts are the culprit. Republicans say Democratic spending is the root cause. But both parties are responsible, with both hiding behind a lie of omission. And if we let them, they’ll keep driving us into the same wall together.

Sen. Patty Murray (D–Wash.) recently called Republican tax cuts “the single biggest driver” of the debt across the last 25 years. The number uses an unrealistic 2001 baseline that projected endless surpluses, as if the late-1990s revenue windfall would last forever. The Brookings Institution’s Jessica Riedl makes a more honest comparison by lining up the actual budget in 2000 against 2026. Tax cuts have reduced revenue by roughly 2 percent of gross domestic product. Spending rose by 5.7 percent, nearly three times as much.

…..

Tax cuts can be great, especially when structured to move us toward a better overall tax code. But they are not free and often do not pay for themselves, largely because they come with lots of nonproductive handouts to special interests.

Yet the fact of the matter is that despite every tax cut since 2001, revenue today sits near its long-run average as a share of the gross domestic product (GDP). With spending climbing nearly six points, we know exactly where the problem lies.

Peter Earle makes clear that the U.S. government’s debt is far too large to be ‘solved’ by American economic growth.

Here’s the abstract of a new paper at NBER by Jonathan Hall, Jason Hicks, Morris Kleiner, and Yun taek Oh:

We examine whether occupational licensing improves service quality and safety using trip-level Uber data that include driver ratings and telematics-based measures of driving behavior. Exploiting quasi-random assignment from proximity-based dispatch, we compare trips served by licensed and unlicensed drivers in two settings: a cross-border comparison between New York City and New Jersey, and a deregulation event in Houston. Across settings and specifications, including instrumental variable estimates, we find no consistent evidence that licensing improves consumer outcomes. In Houston, post-deregulation entrants are indistinguishable from previously licensed drivers on ratings and driving behavior, despite differing markedly in experience and age.

“Another potential headache for US data centers — Trump tariffs.” (HT Scott Lincicome)