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… is from page 13 of Menzie Chinn’s and Douglas Irwin’s superb 2025 textbook, International Economics:

There are tradeoffs. If the United States wants to produce more food, it can do so by devoting more of its labor force and land to agriculture. However, that means fewer workers are left to producing clothing and other goods. Similarly, the United States can produce more steel by devoting more of its labor and capital to steel production, but then fewer workers and less capital will be available for the production of other goods.

DBx: Sounds trite. And in a sense it is. Even a child, in familiar circumstances, understands the reality of trade-offs – for example, that her spending one more hour watching t.v. is one less hour that she can spend playing outside. But when politicians and pundits talk about international trade, they too often lose sight of the reality, and inescapability, of trade-offs. They presume that, say, if Americans are led by protectionist policies to produce more steel, that’s the end of the story. We Americans produce more steel, as if this steel is free. Little or no thought is given to what we Americans necessarily produce less of.

And also too often, when we economists point out this reality, in addition these days to being dismissed as “elites” or “cosmopolitans,” we are also accused of wishing ill for the American economy.

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Here’s a letter to the Wall Street Journal.

Editor:

Your headline that reads “Trump to Hit European Nations with 10% Tariffs in Bid for Greenland Deal” (January 17) would be more accurate if it instead read “Trump to Hit Americans with 10% Tariffs in Bid for Greenland Deal.”

Because foreigners pay at most 25 percent of the cost of U.S. tariffs, for every dollar of cost that the president inflicts on Europeans to pressure them into ‘selling’ Greenland, he inflicts at least three dollars of cost on us Americans. Perhaps he believes that this cost is one that we should be willing to pay. If so, though, why doesn’t Mr. Trump come clean with us about the cost that he’s inflicting on us? By asserting that certain European countries “will be charged a 10% Tariff on any and all goods and services sent to the United States of America,” without any mention of the much larger cost inflicted on Americans, he reveals either that he’s unaware that Americans will bear this cost or that he wishes to keep Americans in the dark about this reality. Neither possibility is encouraging about his leadership.

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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The Wall Street Journal‘s Editorial Board describes “the ObamaCare enrollment apocalypse that wasn’t.” A slice:

ObamaCare’s annual open enrollment ended Thursday, and what do you know? The media-fueled panic over the expiration of the pandemic-era enhanced subsidies turned out to be a false alarm.

The Centers for Medicare and Medicaid Services (CMS) reported this week that 22.8 million Americans have signed up for ObamaCare plans as of January 3. That’s down from 24.2 million last year. People could still sign up for plans on the federal exchange through Thursday, and some states have extended their open enrollment through the end of the month.

But even if there are few new sign-ups, enrollment is still running higher than it was in 2024—when the sweetened subsidies were available. The 1.4 million decline in sign-ups compared to 2025 enrollment is also less than was predicted. The left-leaning Urban Institute projected that ObamaCare’s subsidized enrollment would drop by 7.3 million.

The Congressional Budget Office’s ObamaCare baseline in 2024 assumed 18.9 million people would enroll in plans this year if the enhanced subsidies vanished. The budget gnomes have repeatedly underestimated ObamaCare enrollment and spending; they need to rework their models.

Tad DeHaven is no fan of the Pentagon taking equity stakes in defense contractors. A slice:

Regarding the equity stake, the DOD’s Under Secretary for Acquisition & Sustainment, Michael Duffy, stated that “We’ve had a pattern within the defense industry of writing checks from the Department on behalf of the taxpayer to expand the industrial base with no promise of return …. This is about to change.”

Yes, the military-industrial complex has a rich history of gouging taxpayers. Efforts by the Pentagon to spend taxpayers’ money more efficiently are thus welcome. But the “return” to taxpayers should be protection from foreign adversaries, not a dividend check they’ll never see that spendthrift politicians will fritter away anyhow. The federal budget isn’t a mutual fund, and it shouldn’t be.

The equity deal puts the Pentagon in the undesirable position of owning part of a contractor that will compete for—and seek to win—large federal procurement awards, raising obvious conflict-of-interest and neutrality concerns. L3Harris’s CEO says the deal is “purely an economic investment” and that the DOD “will not be on the board of directors or involved with managing this company.”

To which I would respond that the Pentagon reports to a president who called up Coca-Cola to badger the company into using cane sugar in its products.

David Henderson reminds us of F.Y. Edgeworth’s famous and still-relevant insight about the “optimum tariff.”

Phil Magness is correct that the Fed is flawed and that politicization will only makes it worse. A slice:

If a central bank must exist, its powers should be tightly constrained. A small toolbox limits the ways in which political actors can manipulate monetary policy. Unfortunately, the modern Fed has amassed an expansive arsenal: rate setting, quantitative easing, emergency lending facilities, market backstops, and regulatory authority over vast swaths of the financial system. In recent years, left-leaning figures in the Fed’s governance even tried to steer the central bank into climate change and Diversity, Equity, and Inclusion initiatives. Each additional tool creates another lever that politicians can pull—subtly or overtly—for their own ends.

Yet even with an overly powerful Fed, a degree of institutional independence remains preferable to direct political control. Elected officials face overwhelming incentives to maximize short-term economic performance, especially heading into elections. That typically means pressuring the central bank to juice growth through easy money, to monetize deficits, or both. The long-term costs—inflation, financial instability, and currency debasement—become someone else’s problem.

This is what makes Donald Trump’s use of lawfare against Powell (and previously against Governor Lisa Cook) so alarming. These actions can only be interpreted as attempts to bring the Fed to heel, clearing the way for more direct presidential control over monetary policy.

Given the Fed’s already-flawed incentive structure, this move risks making policy even more subservient to White House priorities rather than economic realities.

The Washington Post‘s Editorial Board explains that “inflation is not ‘defeated.'” A slice:

Two things can be true at once: the pressures that took the inflation rate to a staggering 8 percent in 2022 have largely subsided. This is presumably what the president is trying to tout. But prices are still rising, particularly in areas that consumers really feel, such as food and drink costs.

Consecutive administrations have adopted this bad habit of talking about “falling” prices, when they really mean increases are slowing.

Agriculture Secretary Brooke Rollins said Wednesday on News Nation that the administration’s new dietary guidelines don’t require spending more on food. Her team ran “1,000 simulations,” she explained, and they found “it can cost around $3 a meal for a piece of chicken, a piece of broccoli, corn tortilla and one other thing.” Not only does that sound unappetizing, it comes across as out of touch.

A report from Congress’s Joint Economic Committee this week found that the average American family paid an additional $310 for groceries last year.

Steven Greenhut sensibly calls for unleashing market forces to address the AI electricity ‘crisis.’

George Will has an idea “to make the midterms slightly less disgusting.” Three slices:

Party loyalty now eclipses legislators’ institutional pride. So, only divided government can make its Madisonian architecture — the separation of powers; what writer Yuval Levin calls “the deliberate recalcitrance of our system of government” — work.

…..

Today, Democrats have pronoun fixations, and Republicans believe whatever the president purports to believe at the moment, including that trade deficits (present for 50 years) suddenly threaten the nation’s existence. So the parties’ craziness quotients are comparable. This is one reason why this year’s elections probably will again reflect electoral parity — a national shrug. Although midterm elections are usually referendums on the incumbent president, and although his negatives exceed his positives generally, and on key issues (the economy, immigration), a “blue wave” is unlikely.

…..

Julia R. Cartwright of the American Institute for Economic Research notes that many self-designated conservatives — she calls them the New Right — have “mastered populism’s simple moral drama.” Progressives have long inflamed ordinary political tussles by characterizing them with Manichean rhetoric: the wicked “oppressors” and the virtuous “oppressed.” Now, faux conservatives are paying progressives the compliment of plagiarism, celebrating the virtuous “people” against the corrupt “elites.” Voters’ choice is between these binary moral dramas.

Jim Bianco tweets: (HT Scott Lincicome)

Downpayment assistance, of any kind, just gives home sellers room to raise prices and creates more housing inflation.

The fix is more supply: get rid of restrictions (zoning laws, building regulations, land-use rules) that hold back construction.

This month is the 250th anniversary of the publication of Thomas Paine’s Common Sense.

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… is from page 117 of Norbert Michel’s excellent, data-rich 2025 book, Crushing Capitalism: How Populist Policies are Threatening the American Dream [footnote deleted; link added]:

A careful review of the empirical evidence provides no basis for the idea that income inequality is at the root of America’s economic problems, or that reducing inequality would increase economic growth, improve mobility, stave off financial crises, or fix the myriad other problems that critics attribute to inequality. Most of the research fails to support any causal link between inequality and the various socio-economic ills that critics attribute to it.

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Here’s a letter sent last week to the New York Times, but not published there.

Editor:

You correctly report that “economists argue that bigger economic forces” – forces beyond trade policy – “typically determine the size of the trade deficit, like savings rates and government spending” (“U.S. Trade Deficit Fell to Lowest Level Since 2009 as Tariffs Reshape Trade,” January 8). While this standard economists’ argument rightly counsels against using trade restrictions to reduce trade deficits, it misses an important reality.

U.S. trade deficits overwhelmingly reflect America’s desirability as a destination for global capital. Wishing to invest in the U.S., foreigners cannot spend on American exports all dollars they earn from their own exports – thus America runs trade deficits. The standard economists’ argument that you mention presumes that the investments that foreigners make in the U.S. would instead be made by us Americans if only we saved a lot more. But this isn’t so. Investment opportunities aren’t fixed. Many of these are created by the combination of America’s attractive investment climate with global investors’ entrepreneurial ingenuity. Were Americans to save more, these additional savings very well could increase U.S. trade deficits by making the U.S. economy even stronger and, hence, more attractive to global investors.

Rather than celebrate the recent decline in the U.S. trade deficit, we should, if this decline is the start of a long-term trend, lament it as evidence that Mr. Trump’s policies are making the U.S. a less attractive investment destination.

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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Writing in the Wall Street Journal, Robert Rubin calls on business leaders to speak out against Trump’s imposition of ever-greater government controls on the economy. A slice:

Over the past year, President Trump has taken unprecedented actions to assert federal control over our economy and undermine the constitutional system on which that economy depends. In response, many leaders in the private sector—as well as in philanthropy, media, law and academia—have responded not with criticism, but with acquiescence and accommodation.

This is a serious loss for our economy and society.

I recognize that some in the business community believe Mr. Trump’s actions, on balance, promote free-market conservatism. To them, I pose this question. Imagine if, a decade ago, I told you a future president would do the following within the span of a year: create domestic instability with campaigns of political retribution; issue sweeping pardons for allies who break the law; adopt a foreign-policy doctrine favoring military action for the explicit purpose of seizing other nations’ resources, threatening not only adversaries but North Atlantic Treaty Organization allies; attack the legal immigration system and universities; and undermine the rule of law on which our rights and property depend.

Further, he would demand government ownership stakes in large American companies; take a share of export proceeds in exchange for lifting export controls; cancel public investment already approved by Congress; unilaterally raise tariffs, often for reasons that have nothing to do with the economy; demand private companies hire or fire executives for political reasons; sow distrust in government economic data; attempt to fire a member of the Federal Reserve Board without due process; and threaten his critics, including business leaders, with retribution, including financial penalties and criminal prosecution.

A large majority of business leaders, not long ago, would have agreed that this hypothetical future president would pose a grave threat to our country’s prosperity and our way of life.

Such a president is no longer hypothetical. In my experience, many leaders harbor deep concerns about Mr. Trump’s lawlessness, weaponization of the government, and interference in markets. They refrain from public criticism not because they find nothing to criticize but because they’re intimidated.

My intrepid Mercatus Center colleague, Veronique de Rugy, reports on Stephen Rose’s and Scott Winship’s findings that, between 1979 and 2024, America’s middle-class did indeed shrink – but mainly by entering the upper-income classes. A slice:

“The middle class is shrinking” might be the assertion of the decade. Progressives and populists alike use it to justify nearly all government interventions, from tariffs to minimum-wage hikes to massive spending to income redistribution. But before we accept its validity, we should ask a simple question: shrinking how?

Is the number of Americans considered part of the middle class diminishing? Or the amount of wealth they can realistically build? Or the value of what they can buy?

A new study by economists Stephen Rose and Scott Winship usefully reframes the debate. Most studies define the middle class relative to the national median, which makes the dividing line between haves and have-nots rise automatically as the country gets richer. Rose and Winship instead use a benchmark of fixed purchasing power, so that if real incomes (those adjusted for inflation) rise, more people are shown moving into—or beyond—the middle class in a meaningful sense.

Under this approach, the “core” of the middle class does indeed shrink modestly. But crucially, the middle class shrinks because people are moving up the income ladder, not because they’re falling down. Since 1979, the share of Americans in the upper-middle class has roughly tripled—from about 10 percent to 31 percent—while shares of those considered lower middle class or poor fell substantially.

Much of the political rhetoric, such as former President Joe Biden’s warning of a “hollowed-out” middle class, implicitly suggests downward mobility and national immiseration—a story difficult to square with data showing an overwhelmingly upward directional movement.

Jason Sorens shares new research that finds that the institutional investors – now under attack by Trump – who buy (and then rent out) single-family homes in the U.S. likely lower housing rents. A slice:

What commentators have so far left unsaid is just how beneficial the small amount of institutional investment is for the American housing market. It’s not just not a big problem; it’s not a problem at all, but rather something to be welcomed.

Institutional investors help make the housing market more liquid and less cyclical. They upgrade the quality of the housing stock, typically at lower cost than smaller renovation outfits. They make desirable neighborhoods accessible for households that could not afford to buy in those neighborhoods. Increasingly, they are directly increasing housing supply.

Institutional investors first started to take interest in single-family houses in 2012, at the bottom of the last housing cycle. They are less capital-constrained than smaller investors, let alone most owner-occupiers. As a result, they are better able to use cash reserves to identify good deals and the market and buy them at prices that make sense over the long run. The ability of institutional investors to support the housing market after a financial crisis will help prevent future liquidity problems in the mortgage finance sector from spiraling into a housing crash.

Michelle Tandler tweets: (HT Tyler Cowen)

The more I dig into this NYC rent control situation, the more alarmed I become.

This is what I’m seeing:

+ 2.4 million rent-controlled apartments in a city with a massive housing shortage and 1.4% vacancy rate.

+ A huge % of these tenants are wealthy, white boomers using the units as pieds-a-terres while they spend their weekends and summers elsewhere.

+ Meanwhile, the government is using rent control to purposely drive down the value of multifamily housing, so that it can be purchased in a fire sale by the government.

+ The small-time landlords with big rent rolls of “stabilized” units are going under. Their portfolios end up in the arms of PE and foreign money (how are Progressives okay with this?) The banks will get hit by this too.

+ Because there is such a reduction in supply (~40% of units are price-controlled), leftover supply is ~33% more expensive

+ Because NYC gov is not friendly towards landlords, there is a lack of development –> even less supply

+ Rich and homeowners overwhelmingly support these laws b/c it drives up the value of their condos & co-ops (less supply –> higher prices for condos)

+ Big PE companies like these policies b/c they can buy buildings in fire sales and wait for rent control reform (5-10 years out)

+ Meanwhile – ~2.4 million units are rotting and won’t be brought up to code as tenants leave b/c the numbers don’t pencil –> 50k “ghost apartments” padlocked off market now, maybe 100k soon

+ Gen Z and the working class continue to vote for these policies, hoping they will be among the lucky few to win the lottery ticket of a rent-controlled apartment

+ Meanwhile, boomers hang onto their units and pass them to their children, family members, etc.

–> NYC’s housing stock is rotting slowly, going offline, and becoming more expensive

Isn’t this what the Constitution is for? To protect property owners and citizens from the tyranny of the majority?

This is clearly a taking. It’s clearly buying votes.

I’m floored this is happening, and nobody is talking about it because it’s “politically incorrect” to critique rent control.

**Rent control is the reason housing in NYC is so expensive, and it’s the reason there is a shortage.**

Boomers really pulled a fast one on this. Well done, Boomers.

National Review‘s John Puri argues that even if the U.S. government weren’t already overloaded with debt, it would be imprudent for it to buy Greenland. A slice:

Charlie [Cooke] insists that if the United States purchased Greenland, “unlike its current owners, who seem to treat it like some sort of zoo, we would follow up our acquisition by doing what Americans have always done: building, drilling, extracting, expanding, and making ourselves rich, powerful, and generally more useful than everyone else in the world.”

Oh please. The U.S. government hardly allows any commercial development of the vast, resource-rich public lands we already possess! Only 3.5 percent of federal land is currently leased for oil and gas extraction. Companies have been trying to drill in Alaska’s Arctic National Wildlife Refuge (ANWR) for 45 years, a place that almost nobody has ever seen and that Alaskans themselves resoundingly wish to exploit. You can plausibly argue that President Trump would permit the carving up of Greenland’s untouched wilderness, the powerful conservation lobby be damned, but could you say the same of a President Gavin Newsom?

Dr. Jeffrey Singer applauds the Trump administration’s proposal to put more drugs over the counter.

Thomas Sowell decries the co-opting of his voice by AI and then using it to have Sowell ‘say’ things that he never said and would never dream of saying. Two slices:

Artificial intelligence may present many expanded opportunities for advancement in many fields. But it can also present expanded opportunities for deceptive and dangerous frauds. Here I can speak from personal experience, as a target of such frauds.

AI has created imitations of my voice, to accompany photographs of me, saying things in various parts of the internet. These include both things I have never said and things the direct opposite of what I have said.

Under current rules and practices, people can do such things anonymously. Even after the fraud has been discovered and shut down, the same anonymous people can do the same thing elsewhere on the internet.

…..

Tragically, the AI impersonation fraud is part of a much larger and much longer lasting undermining of the very concept of truth. At one extreme are those intellectuals who speak loftily of “my truth,” as if it were private property, exempt from challenge by facts or logic. But a privately owned truth is irrelevant to communication between people.

More important are whole institutions—including education and the news media—whose basic reason for existing is to convey truth, but who cannot resist the temptation to seek power instead.

If there are no serious consequences for either individuals or institutions that create frauds—whether by AI or by silencing other viewpoints—we will have no basis for settling our inevitable differences other than violence.

And once violence takes over, it may not matter what issues set it off, as violence and counter-violence take on a life of their own. At that point, the issue is no longer which vision will win, but whether we shall survive as a free society, or survive at all.

Levin Inches is correct that this ad reads as though it was issued by the Elizabeth Warren campaign: (HT Scott Lincicome)

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… is from page 118 of GMU Econ alum Howard Baetjer’s excellent 2017 book, Economics and Free Markets: An Introduction [footnote deleted; link added]:

Freely determined market prices are society’s essential means of communicating the vastly dispersed and ever-changing “knowledge of the particular circumstances of time and place.” We should free all our markets from price controls of any kind because we need market prices to give us this essential information in order to coordinate our various activities. Prices tell us what to do, or how to do it, by telling us indirectly what others know and what they are doing. Prices communicate to all, in a manner usable by all, the dispersed knowledge of all. Without market prices, we would face chaos and poverty. With market prices, we cooperate, coordinate our infinitely varied purposes, and prosper.

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Here’s a letter to The American Prospect.

Editor:

Robert Kuttner argues that U.S. tariffs on imports from China help Americans economically (“Tariffs: Maybe Not So Crazy,” January 14). But for many reasons, his argument cannot be taken seriously. Here are four of those reasons.

First, Kuttner mistakenly assigns economic meaning to China’s trade surplus with the U.S. In a world of more than two countries, one country’s trade ‘balance’ or ‘imbalance’ with another country is utterly meaningless. Even if every country’s trade were ‘balanced’ – that is, no trade deficit or surplus with the rest of the world – every country might nevertheless have so-called ‘trade deficits’ with each of dozens of other countries, and ‘trade surpluses’ with each of dozens of yet other countries.

Second, Kuttner wrongly presumes that China’s trade surplus with the rest of the world is unambiguously an advantage for China and a disadvantage for other countries. When a country runs a trade surplus it suffers a drain of capital. While this drain isn’t necessarily evidence of economic problems, it’s also not necessarily evidence of economic health: The more promising the economy, the greater the desire of both domestic and foreign citizens to invest in that economy rather than outside of it.

Third, Kuttner erroneously claims that countries that run trade surpluses “cost the U.S. and other nations jobs” – that is, reduce employment in countries that run trade deficits. Although protectionists parrot this claim ad nauseam, the evidence contradicts it. The U.S. has run annual trade deficits in each of the past fifty years. Over this half-century, the U.S. unemployment rate has trended downward. Today this rate is 4.4%; in 1973 – the last non-recessionary year during which America ran an annual trade surplus – it was 4.9%. And over these years the number of nonfarm jobs in the U.S. more than doubled, from 77,071,000 in 1975 to 159, 526,000 today – as real wages rose.

Why the U.S. and other market-oriented countries that run trade deficits should worry about net inflows of capital remains a mystery.

Fourth, Kuttner incorrectly writes about the tariffs that “the evidence suggests that most costs are being absorbed by foreign exporters or by domestic sellers accepting lower profit margins.” Benn Steil calculates that most of the costs of Trump’s tariffs are paid by American consumers. Foreign exporters pay at most 25% of the tariffs’ costs, with domestic U.S. sellers ‘eating’ around 10% of these costs. (It’s worth noting that, given the competitiveness of the global economy, foreign exporters and domestic sellers – to the extent that they remain unable to pass along to American consumers the full costs of the tariffs – will over time supply even fewer goods than otherwise to us Americans, thus raising consumer prices even higher in the future.)

It’s telling that attempted defenses of protective tariffs invariably rely on faulty reasoning and factual inaccuracies.

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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Because 30 days have passed since the Wall Street Journal published Phil Gramm’s and my December 9th, 2025, piece, “World Trade Grows Without the U.S.,” I share the full text of this piece here, without charge, beneath the fold.

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