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… is from page 168 of Robert Higgs’s excellent 2012 book, Delusions of Power:

The planners more or less presumed the existence of private-sector problems and took for granted that they could successfully solve those problems through the use of government’s coercive power and the taxpayers’ money. They did not give much weight – indeed, they often gave no weight whatsoever – to the possibility of what later came to be known in public-choice theory as “government failure.” Thus, seeing apparent market failures that left the economy in an inefficient configuration, they supposed that they could identify exactly what to tax, subsidize, or regulate and exactly how much to do so in order to move the economy into an efficient configuration.

DBx: Although Bob is here writing specifically about LBJ’s Great Societyers, his description of their mistaken presumptions and outlandish hubris applies to any and all economic planners, including to those who today would use state coercive power to ‘deal with’ climate change or to impose industrial policies.

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For alerting me to the Sander Gerber and Stephen Miran piece in Barron’s I thank Phil Magness.

Editor, The Corner
National Review

Editor:

I almost never find myself disagreeing with Andrew Stuttaford, but I do so today as I read his applause of Trump’s choice of Stephen Miran to head the Council of Economic Advisors (“Stephen Miran Nominated to Chair the White House Council of Economic Advisers,” December 22). Although Miran is impressively credentialed as an economist, when writing about international trade he comes across as uninformed.

In a piece last month in Barron’s calling for a sextupling of the average U.S. tariff rate, Miran and his co-author Sander Gerber wrote about Trump’s first-term protectionist moves that “the tariffs caused the dollar to move higher by close to the exact amount the tariff rate went up, offsetting the tariffs. Overall after-tariff dollar import prices were unchanged, explaining the total lack of price pressures or drags on growth” (“Fears Over Trump Tariffs Are Overblown. What the Critics Overlook,” November 21).

Well. Forget that there’s evidence that the tariffs did drag down growth. Let’s instead examine the economic logic of Gerber’s and Miran’s argument.

Because the chief goal of Trump’s tariffs is to protect American firms and workers from import competition by raising the prices Americans pay for imports, Gerber and Miran inadvertently admit that these tariffs failed to achieve this goal. After all, if the tariffs really did cause the value of the dollar to rise by enough to completely offset the higher tariff rates – and, thus, resulted in the post-tariff prices Americans paid for imports being no higher than the pre-tariff prices – then no such protection can have occurred.

What instead happened (again, insofar as Gerber and Miran have their facts straight) is that Trump’s tariffs significantly devalued foreign currencies against the dollar. Americans got the same quantity of imports, but for fewer dollars. And when foreigners found themselves with fewer dollars, they bought fewer American exports than they would have bought absent the tariffs – a negative effect of the tariffs that Gerber and Miran ignore.

Trump & Co. often complain about foreign currencies being undervalued. These people are also forever asserting that Americans import too much and export too little. Yet here we have the new head of Trump’s CEA insisting that tariffs don’t raise Americans’ costs of acquiring imports as he also, in essence, endorses tariffs as a means of lowering the value of foreign currencies against the dollar without seeming to recognize that a higher-valued dollar means fewer American exports.

At least on matters of trade, this appointment is nothing to applaud.

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

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Rick Geddes and Josh Rauh make the case for “radical reform of the National Environmental Policy Act of 1970 (NEPA)” in order to encourage the faster and better building of more infrastructure in the U.S.

NEPA compliance is costly. If a project is likely to have significant environmental impacts, the relevant agency must produce a full environmental impact statement (EIS). An EIS is usually required for major infrastructure projects. Agencies must solicit public input, coordinate with other stakeholders, and often extensively revise documents based on feedback. Although modest in the 1970s, a typical NEPA review now takes over four-and-a-half years and is over 600 pages long. The overall process for an infrastructure project can now regularly take over a decade to complete.

NEPA-related litigation is costly for several reasons. First, litigation has high direct legal costs. Second, litigation leads to both delays and time uncertainty (and thus increased costs) for infrastructure projects. In a process called “judicial review,” citizens and stakeholder groups who believe the federal agency’s environmental study did not sufficiently meet NEPA’s procedural requirements can challenge the permit in federal court. Courts may prevent agencies from taking the action under study until all identified defects are addressed.

The Wall Street Journal‘s Editorial Board excoriates the Montana Supreme Court for a recent whackadoodle ruling. A slice:

There are many competitors for craziest court decision this year, but the Montana Supreme Court may take the prize. A 6-1 majority this week effectively declared—get this—a state constitutional right to protection from climate change. What’s next? A right to sunshine?

Chris Edwards calls for privatizing air-traffic control in the U.S.

Pierre Lemieux, expressing reasonable doubts that Donald Trump really knows a lot about automation, asks some relevant questions.

GMU Econ alum Dave Hebert has a great letter in today’s Wall Street Journal:

Much like the dinosaurs in the op-ed’s cover art, mercantilism is an idea best left in the past. Mercantilists would have us believe that what makes us wealthy is the amount of money we have. But this can’t be the case. Tom Hanks’s character in “Cast Away” would have fared worse, not better, if a crate of money had washed up on shore instead of a volleyball.

Mercantilists have the relationship between imports and wealth backward: Imports are the benefit of production, not a cost to it. Mr. Jensen understands this perfectly fine in other contexts. He exports investment advice to his clients each day. In return, he imports food from the grocery store, electricity from the power plant and internet from the cable company. It isn’t the exporting that makes him wealthy; it is the ability of his household to import goods and services that makes him so.

If we want to see Americans continue to flourish, we need to increase their access to goods and services, not hinder it. To do this, we must lower barriers to trade, not erect new ones.

David Hebert
American Inst. for Economic Research

Scott Winship explains the importance of getting the measure of inflation correct. A slice:

The second way that improvements in inflation measurement have been important for policy is more subtle. By altering our assessment of how the economy has served Americans, better measures have staved off calls for bigger government. Let’s assume the improvements to the CPI have reduced bias by 0.4 percent every year since 1998. Imagine that these improvements did not occur and that the Census Bureau continued using the CPI in its annual reports to adjust income trends for inflation. In that case, the Bureau’s estimates would have indicated that the typical family income in 2023 was barely higher than in 2000. (After adjusting for two breaks in the series between 2013 and 2014 and between 2017 and 2018, the 2023 median would have been $99,028, compared with $98,964 in 2000.) Instead, today’s Census Bureau figures, which use the research series and chained CPI, indicate the median is higher by almost $14,000.

Policymakers can imagine how different the new year would look if they were facing claims that the nation has endured “25 years of stagnation.” That those claims would be incorrect—the result of measurement problems—would hardly make a difference. The measures are, for all intents and purposes, reality. (Unfortunately, the Census Bureau publications featuring poverty trends continue to update poverty thresholds for inflation each year using the CPI. This has the effect of grossly understating our progress in reducing hardship over time.)

This alternate history, in which the national debt is much higher today even as Americans are convinced the country’s economic engine is broken—all because of overstated inflation measures—isn’t just of retrospective interest. It represents our potential future if policymakers do not act. The CPI remains a biased measure of inflation, and it continues to be the basis for annual spending increases in the federal budget. Even the much-improved chained CPI overstates inflation.

In a new working paper, I describe in detail the biases plaguing our inflation measures. I summarize the literature on these biases and use it to estimate their magnitude. I then introduce a new inflation measure I call the “More Accurate Consumer Price Index,” or MACPI, which considers these biases. My figures imply that the CPI still overstates inflation by 0.7 percentage points per year, and the chained CPI is upwardly biased by 0.4 points.

Art Carden reviews Randy Holcombe’s latest book, Following Their Leaders: Political Preferences and Public Policy.

“A decaying Joe Biden underlines the need for a less powerful presidency.”

David Friedman, reflecting on the global response to covid, concludes that “the uniform approach and the hostility to alternatives are evidence that science, at least medical science, has become a monoculture.” A slice:

The one serious attempt from within the medical profession to propose an alternative approach was the Great Barrington Declaration, authored by three prominent epidemiologists, one each from Harvard, Stanford, and Oxford; they proposed that, since mortality rates were serious only for the most vulnerable part of the population, principally the old, they should be isolated and the disease allowed to spread through the rest of the population until enough had been infected, making them resistant to reinfection, for herd immunity. The proposal was ferociously attacked by supporters of the policies being followed.

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… is this December 21st, 2024, Facebook post by my emeritus Nobel-laureate colleague, Vernon Smith:

I do not think that government expenditures to oppose cheap forms of energy will have its intended effect in improving the environment.

Energy from cheap sources will foster growth, prosperity, and innovation. Innovation includes technologies for sequestering carbon or otherwise reducing any negative impact on the environment.

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In response to my latest open letter to Oren Cass, my emeritus Nobel-laureate colleague, Vernon Smith, sent to me the following e-mail. I share it here in full with Vernon’s kind permission.

Don:

I think George Bailey is a model of a person following Adam Smith’s principle of freedom in modern parlance: Every person, so long as they do not violate the laws of justice, should be perfectly free to follow their own interest in their own way.

Smith never championed individualism as a pursuit of the selfish or self interest, knowing that moral sentiments allowed one’s “own interest” to include everything from selfish to other-regarding compassionist interest.

Those who have claimed otherwise, that Smith championed the pursuit of self interest, misread his text (as above) in Wealth [of Nations], and certainly did not read (or understand if they did) [The Theory of Moral] Sentiments.

For a correction see our book:

Regards,….Vernon

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Arnold Kling argues – consistently with Chapter 10 of Hayek’s Road to Serfdom – that communism attracts to its leadership positions bad, violent people. A slice:

So why do Communist regimes turn out to be so evil? My hypothesis is that the Manichean nature of the ideology selects for leaders who are psychopaths and for followers who are willing to rationalize the cruelty of the leaders.

Because you are fighting for utopia against enemies who are trying to maintain the illegitimate status quo, the ends justify violent, repressive means. But I speculate that it is the violent means that appeal to the men who rise to the top of the Communist pyramid. The psychopaths who attain leadership positions claim to be aiming for the ends, but in fact what appeals to them is the moral license to engage in cruelty. What their followers think of as temporary and unfortunate is what the leaders find intoxicating.

My Mercatus Center colleagues Liya Palagashvili and Susannah Petitt make the case for modernizing labor law to better support today’s economic opportunities. A slice:

Critics of portable benefits argue that workers would be better off in traditional employment arrangements. However, according to a 2023 Bureau of Labor Statistics survey, the vast majority of independent workers don’t want to be W-2 employees. That’s partly because independent work offers a type of autonomy that most can’t get in a traditional 9-to-5 job.

The Wall Street Journal‘s Editorial Board is not optimistic that enough adults will be on Pennsylvania Avenue during the next Congress to prevent the U.S. government from going further down the road of fiscal folly. A slice:

One of the weaknesses of President Trump’s first term was his preference for bullying over persuasion. He denounces dissenters in social-media posts rather than trying to bring them on board with arguments or an appeal to their political self-interest.

Another weakness is that the President-elect governs by impulse, and often by whoever talked to him last. Someone told him he should demand that Congress include a debt-limit increase this year, which isn’t a bad idea. But apparently no one noticed that Democrats still control the Senate and the White House. Democrats aren’t likely to raise the debt limit to make life easier for Mr. Trump, and if they do, they will want something for it. The increase was dropped from Mr. Johnson’s latest bill.

This is how Congress works, and for all Mr. Musk’s brilliance, he hasn’t figured that out. He’s also supposed to be a math whiz, so he can probably count to 218, the votes needed for a House majority when everyone is present. Memorize it.

Tad DeHaven wants more foreign investment and fewer tariffs and subsidies. A slice:

Greenfield investment occurs when a foreign company establishes (or expands) a business in the US. Most foreign direct investment (FDI) in the US are acquisitions. However, the “US affiliates of foreign multinationals spend hundreds of billions of dollars per year in the United States on research and development and capital expenditures, with the biggest shares going to manufacturing.” In short, we should welcome it.

According to a new report from Global Trade Alert, however, neither the Trump tariff-driven approach to attracting greenfield investment to the US nor the subsidy-driven approach preferred by the Biden administration bore results beyond an initial “sugar high.”

Joel Zinberg and Liam Sigaud argue that “Trump should let the costly Obamacare subsidies expire.”

Judge Glock offers thoughts on “why the working class rejected Bidenomics.” A slice:

The so-called Inflation Reduction Act was another bid to appeal to the well-educated. The law devoted hundreds of billions of dollars to support these voters’ climate obsessions and spending habits—for instance, by subsidizing electric vehicles. Far from being a populist giveaway, more than half the act’s estimated costs came from tax incentives to green corporations. This spending undermined workers in traditional hard-hat industries, such as automotives and fossil fuels.

Biden’s policies benefited industries with workers more likely to hold college degrees. The CHIPS and Science Act, for example, directed tens of billions of dollars in grants and subsidies to the semiconductor industry. With 25 percent of its members holding graduate degrees, the semiconductor workforce is much better educated than the general population. The industry estimated that the act will create jobs for tens of thousands of Ph.D., master’s, and bachelor’s degree holders.

Ryan Yonk explains that fossil fuels are here to stay for quite a while.

Bob Graboyes is right: “Practically every terrible idea eating away at America’s soul originated with some academician whose philosophy gelled while writing his PhD dissertation.”

Dan McLaughlin remembers the late Rickey Henderson, “Man of Steal.”

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… is from page 189 of Thomas Sowell’s 1993 collection, Is Reality Optional?:

There are people who seem to think that the world owes them an awful lot, but who feel no need to explain what they have contributed to the world that led to this great debt.

DBx: This group of people includes, of course, those who demand welfare payments from the state. But it also includes everyone who seeks special privileges doled out by the state. It includes shareholders and workers who demand tariffs to protect their profits and jobs. It includes shareholders and workers who demand subsidies to artificially increase the size of the markets for their outputs. It includes labor-union bosses and members who demand special privileges from the state. It includes individuals who demand special advantages when seeking admission to school, while in school, and in seeking and maintaining employment.

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Oren Cass, Chief Economist
American Compass

Oren:

Your criticism of Phil Gramm’s and Mike Solon’s 2019 Wall Street Journal piece on “It’s a Wonderful Life” misses the point (“The Movie’s Not Called ‘It’s A Wonderful Life Of Economic Freedom,’” December 20). A key part of Messrs. Gramm’s and Solon’s argument is that the standard of living of ordinary people rose spectacularly for the first time in history beginning only a few centuries ago, and did so only where, because, and insofar as people embraced free, open, and entrepreneurial markets – markets that work their wonders because participants in them are incented to produce for their fellow citizens as much value as possible out of any given stock of resources. Yet you insist that this point “is a different movie” – a theme that’s not, contra Messrs. Gramm and Solon, in “It’s a Wonderful Life.”

You reach this mistaken conclusion by insisting that Jimmy Stewart’s character, George Bailey, really doesn’t embody the spirit of free-market capitalism – of what you derisively label “market fundamentalism.” Because Bailey’s humanity at running his building-and-loan company enables people to escape the cruel policies of the bank owned by the grasping Henry Potter, you bizarrely conclude that the true embodiment of the free market is Potter.

The likes of Bernie Sanders, Alexandria Ocasio-Cortez, and Michael Moore applaud you, but – for at least three related reasons – serious people don’t.

First, no thoughtful person believes that entrepreneurial success within markets is achieved by narrow-minded, penny-pinching indifference to the welfare of customers and suppliers. Your suggestion that the cartoonishly evil Henry Potter is the epitome of a free-market business executive, and that George Bailey isn’t, is sophomoric.

Second, as implied by Messrs. Gramm and Solon, Bailey’s company would not have survived to be of any help to the citizens of Bedford Falls if he didn’t watch his nickels and dimes. Failure to run his business profitably would have reduced the value he created for his fellow citizens. An important lesson that economically informed people detect in the film is that profit is typically enhanced over the long run by not maximizing it in the short-run – a reality understood by George Bailey and his father, but not by Henry Potter and you. Only in the mind of a Marxist, or perhaps also a NatCon, is the best business model in a free market one of greed, grasping, heartlessness, and myopically maximizing-profits-at-every-moment.

Third, the free market is a forum of economic competition in which different business models compete against each other, with the different offerings tested and graded by people spending their own money. In Bedford Falls, Bailey Brothers Building and Loan competed successfully against Potter’s company. Market competition drains resources away from those businesses and practices that fail to satisfy consumers, as it directs resources toward those businesses and practices that best satisfy consumers.

Given your wish to use tariffs and other industrial-policy interventions to shield particular producers from competition – given your desire to indulge their greedy quest to be excused from the need to compete fairly for consumers’ dollars – this third lesson is one to which you should be especially more attentive.

Happy Holidays,
Don

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George Will applauds Colleen Shogan, the U.S.’s national archivist, for her refusal to play along with progressives’s effort to lawlessly ‘ratify’ the Equal Rights Amendment. Two slices:

The 46 have urged Biden to order Colleen Shogan, the national archivist, whose remit includes publishing and certifying constitutional amendments, to declare the Equal Rights Amendment ratified. If the president issues such an order, she will disregard it. Otherwise, Shogan would violate her written assurances to the Senate that confirmed her appointment: She said only a court order would cause her to certify the ERA’s ratification.

The ERA issue merits a final revisit because progressives’ latest maneuver illustrates their merely intermittent and selective devotion to constitutional and democratic proprieties, and their belief in limitless presidential power.

…..

The ERA (“Equality of rights under the law shall not be denied or abridged … on account of sex”) might have made sense when first proposed a century ago. Since then, however, statutes and constitutional case law have rendered it superfluous.

Today, its advocates’ aim is to get it into a sympathetic court that will construe its vague wording as a license to, among other things, reverse the 2022 decision in Dobbs v. Jackson Women’s Health Organization which reversed the 1973 decision in Roe v. Wade, which overturned 50 states’ abortion laws. Today’s ERA resuscitation project aims to again nationalize abortion policy, which did so much to embitter national politics.

Last Tuesday, Archivist Shogan and Deputy Archivist William J. Bosanko said: “The ratification deadline established by Congress for the ERA is valid and enforceable,” and the ERA “cannot be certified as part of the Constitution due to established legal, judicial, and procedural decisions.” Case closed.

Three lessons from progressives’ ERA cynicism and sophistry: There are more forms of norm-shredding shabbiness than appear in Trump’s repertoire. Progressives’ reliance on presidential ukases to achieve their objectives indicates the collapse of their confidence in their persuasive powers. And cluttering the Constitution with the ERA would be as unseemly as the method of doing so.

Mark Perry, at his Facebook page, shares this note and graph:

Narrative Destabilizing Accounting Fact (see chart):

By definition, the BEA’s “Balance” of Payments for international trade and investment flows always BALANCES, so there really is never any “trade deficit” or “trade imbalance” when we account for all international cash inflows/outflows.

For example, the $736B YTD Current Account “Trade Deficit” is exactly offset (like in every period in the chart) by a $736B job-generating foreign investment surplus on the Capital Account.

The net inflow of $736B foreign capital inflow YTD has allowed our domestic investment to exceed national savings, fueling economic productivity/prosperity & job/economic growth.

Note also this important, but overlooked fact: Since 1983 the US has experienced (a) a net inflow of goods and services of almost $16T and (b) a net inflow of almost $16T in foreign investment (see chart).

Bottom Line: Why would we ever complain about a net inflow of $16T in goods/services and a net inflow of $16T in foreign investment? And yet we end up every year with a net inflow of goods/services AND foreign investment and COMPLAIN about getting ripped off by foreigners? Based on who gets the most “stuff” on net and who gets the most investment capital on net, the US is the clear winner when it comes to international trade.

The Editorial Board of the Wall Street Journal decries a labor-union’s illegal effort to obstruct the operations of Amazon. Two slices:

The Teamsters on Thursday urged Amazon workers across the country to walk off the job to pressure the online retailer to recognize and collectively bargain with the union. Teamsters President Sean O’Brien said customers frustrated by delivery delays should “blame Amazon’s insatiable greed” and that “this strike is on them.”

No, the Teamsters are striking on Amazon customers. While the Teamsters claim to represent nearly 10,000 of Amazon’s some 1.5 million workers, Amazon doesn’t recognize the union as their representative. Nor do many of the workers who haven’t voted for the union.

…..

The Teamsters’ Christmas “strike” comes after Donald Trump rewarded Mr. O’Brien for his presidential non-endorsement this year by nominating the pro-union Oregon Rep. Lori Chavez-DeRemer as his Labor Secretary. Don’t expect unions to reciprocate with labor peace. By empowering unions, the Biden Administration encouraged more strikes. Mr. Trump can expect the same.

Steven Greenhut explains what shouldn’t – but, alas, what does – need explaining, namely, that celebrating the cold-blooded murder committed by Luigi Mangioni is ghoulish. A slice:

There are only two ways to parcel out goods and services that have a higher demand than supply: pricing or rationing. Government healthcare monopolies are notorious for rationing care and for leaving customers with far fewer alternatives or avenues to challenge those decisions.

“There is, in the U.K., a government agency that decides which treatments are worth covering, and for whom. It is an agency that has even decided, from the government’s perspective, how much a life is worth in hard currency,” Jonah Goldberg explained. He asked if we’d hear the same type of reactions “(i)f some punk kid stalked and shot the director of the VA, Medicare and Medicaid, or the U.K.’s National Health System.” He doubts it, as do I.

Andrew Stuttaford applauds the results (so far) Javier Milei’s efforts in Argentina. A slice:

It is obviously far too soon to claim that Javier Milei’s reforms have definitively turned Argentina around. Decades of economic mismanagement are not undone that quickly. Nevertheless, the release of numbers showing quarter-on-quarter GDP growth of 3.9 percent (against forecasts of 3.4 percent) was very encouraging. Expectations seem to be that the economy will grow by 5 percent in 2025, after falling around 3 percent in 2024. Inflation continues to ease, with November’s monthly number falling to 2.4 percent, as against a monthly 25.5 percent in December 2023. That December number was increased by an (overdue) 50 percent devaluation of the peso within a couple of days of Milei taking office, but it was very clear that the previous government had left the country within a month or so of hyperinflation (normally defined as 50 percent a month). The peso printing presses were running at an incredible pace.