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Arnold Kling – with an assist from Jim Gaffigan – writes insightfully about an inherent tension that has long run through modern higher education.

My intrepid Mercatus Center colleague, Veronique de Rugy, sees several red flags stuck to the Ex-Im-Bank-backed “Project Vault.” Two slices:

Project Vault is a government-backed commodity stockpile covering all 60 minerals on the U.S. Geological Survey’s critical-minerals list for private manufacturers. The federal government, through a $10 billion Ex-Im loan and roughly $2 billion in private capital, will purchase and store critical minerals in facilities across the United States. The $10 billion is a direct loan, not a guarantee, not insurance. Further, the loan is for 15 years, more than double the length of the bank’s previous largest deal.

Three commodity trading firms (Hartree Partners, Mercuria, and Traxys) will procure the minerals. Large manufacturers (Boeing, GM, GE Vernova, Google, and others) pay commitment fees and lock in a fixed purchase price, giving them the right to draw from the stockpile during supply disruptions. If they draw down materials during normal times, they must replenish them. If a major disruption hits, they can withdraw their full allotment at once.

I would like to flag several issues with this project.

New project, Old Patterns and Same Cronyism:

The architecture of Project Vault will be familiar to anyone who has studied agricultural price supports: the government finances and stores a commodity, private participants get guaranteed access at stable prices, and the taxpayer absorbs the losses when markets move the wrong way. Expect the same here.

Farm programs that began as emergency measures in the 1930s are still with us nearly a century later and form the backbone of one of Washington’s most entrenched lobbying complexes. Project Vault is being sold as a temporary response to a supply-chain crisis. So too were farm subsidies.

Those who follow Ex-Im closely will also recognize several of these names as perennial beneficiaries of the Bank’s financing, including Boeing (it’s as if the Bank doesn’t do anything if it doesn’t benefit Boeing). The cast of characters at the trough has barely changed. The only thing that’s changed is the justification on the placard.

Worth noting: Ex-Im Chairman John Jovanovic was previously an Investment Director at Mercuria Energy Group, where he managed investment and business building across North and South America. His former employer is now one of the direct beneficiaries of the largest loan his agency has ever issued. This doesn’t have to be an issue, but we may never know if it is as the person whose job it was to flag exactly this kind of concern if it arises is gone. In October 2025, Trump removed Ex-Im’s Senate-confirmed Inspector General, Parisa Salehi, who at the time was overseeing 15 open investigations into possible violations of federal law. Project Vault was announced weeks later. The Bank is now operating without independent oversight at the precise moment when it is taking on the largest and most complex commitment in its history.

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Reasonable people can disagree about the severity of China’s rare-earth dominance and the speed at which markets will correct it. But you don’t need to resolve that debate to see that Project Vault is the wrong answer. Even if the threat is exactly as dire as the hawks claim, the response should look nothing like what is being proposed. It should fix the permitting system that makes the United States the second-slowest country on earth to open a mine. It should rationalize the radioactivity rules that lock away the most accessible rare-earth feedstocks behind irrational regulatory barriers. It should establish a dedicated federal mining office, as Canada and Australia have done, so that companies face a coordinated approval process rather than a decade-long obstacle course. It should feature narrowly targeted defense procurement under the Defense Production Act for the handful of materials where military readiness genuinely cannot wait.

The Hoover Institution’s Philip Zelikow explains that Trump’s new tariffs – those imposed under section 122 of the Trade Act of 1974 – are also illegal. A slice:

Under fixed exchange rates, a “balance of payments deficit” or a “dollar drain” meant that the United States would have to devalue the dollar (against gold, and in foreign exchange) or hike interest rates. Otherwise, US gold reserves, backing the dollar, could not be sustained. This was the character of the culminating crisis in 1971.

Back then, the “balance of trade” was a different concept, measured differently. A main concern throughout the Bretton Woods era was that the United States was suffering a “balance of payments” deficit even if it was running a trade surplus. By the early 1970s, the balance of trade had moved into deficit too, so that our trade situation was not even coming close to offsetting the “balance of payments” problem. All this is quite clear in the Senate report on the bill that would become the Trade Act of 1974 (S.Rep. 93-1298, 26 November 1974).

When the Bretton Woods system was suspended and then plainly ended, replaced by the new system of floating exchange rates, delinked to gold, and with relatively free movement of capital, it became apparent that there was no longer such a thing as a “balance of payments” issue for the United States. The term was no longer meaningful. Milton Friedman had indeed argued, as far back as 1953, that if the price-fixing of Bretton Woods disappeared, worries about a “balance of payments” would automatically vanish as well.

Eric Boehm is highly critical – rightly so – of the Trump administration’s resistance to return the customs duties that it illegally seized through its unlawful IEEPA tariffs. A slice:

Discard the rule of law, and all the scaffolding that’s meant to make taxation look legitimate comes tumbling down. Taxation once again becomes indistinguishable from theft.

The Trump administration is now veering dangerously close to that edge as it plots various strategies to keep as much as $175 billion in illegally collected tariff revenue in the wake of last week’s high-profile Supreme Court ruling.

The White House is “scrambling” to find ways to keep that money, even as hundreds of American businesses are lining up for refunds, Politico reports. “Early ideas include policies to discourage companies from claiming their refunds, prevent the government from paying the money back or otherwise preserve at least some of the tariff revenue.”

Of the various schemes reportedly being batted around, I think my favorite is the idea of allowing “companies to jump to the front of what is expected to be a lengthy queue for refunds if they agree to forfeit some of the money to the government.”

Nothing says “this is a totally legitimate operation that deserves the public’s trust” like turning refunds into a backhanded shakedown scheme. Imagine how many complaints would flood the Federal Trade Commission’s website if a private company used that approach when issuing refunds for defective products or fraudulent transactions.

Scott Lincicome tweets:

The Trump administration collected billions in IEEPA tariff money from US companies. They LOST in 3 different courts, including SCOTUS. And now they’re trying to stall refunds.

I wish I could say I was surprised. 🙄

The Editorial Board of the Washington Post praises – rightly so – this:

The Labor Department published a rule Friday that would undo egregious attempts during the last administration to classify more workers as employees rather than independent contractors.

At the behest of union bosses seeking to expand their rolls of dues-paying members, President Joe Biden restricted who could be an independent contractor, even though he lacked the votes in the Democratic-controlled Congress to change the law.

The Trump administration announced last year that it would no longer enforce that rule while it drafted a replacement. The new version largely restores the status quo ante for independent contractors while giving employers greater certainty when classifying workers.

Speaking of the Washington Post, Nick Gillespie’s interview, conducted this past November, with that newspaper’s new opinion editor, Adam O’Neal, is well worth a listen.

Vance Ginn is correct: “Capitalism’s coalition is cracking — and that should worry us.” A slice:

True capitalism is grounded in private property, competitive markets, voluntary exchange, and the rule of law. It treats individuals as decision-makers in their own lives — not subjects of top-down control. It decentralizes power, rewards value creation, and invites experimentation, allowing people to say “yes” to opportunity without asking permission from bureaucrats or politicians.

Jacob Sullum decries Trump’s “habit of deploying wildly inaccurate ideological labels against people who disagree with him.”

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… is from page 37 of Benjamin Rogge’s October 4th, 1968, address “Speech in Honor of Leonard Read’s Seventieth Birthday” as this address is reprinted in A Maverick’s Defense of Freedom, the 2010 collection of Rogge’s essays edited by Dwight Lee:

For most of us, it is only with age, if ever, that we acquire the wisdom to be content to live under always imperfect rules that still permit us imperfect men to make our own imperfect decisions, with consequences for each man and for all men that no one can fully predict and that will always be something less than the New Jerusalem.

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This correspondent calls me “a closed minded globalist.”

Mr. F__:

Thanks for your reply to my earlier note. You write that you “don’t believe the revisionist history of tariffs not being responsible for the US industrialization in the 1800s.”

You must believe whatever your mind leads you to believe, but rest assured that there’s nothing revisionist about research that rejects the claim that 19^th-century U.S. industrialization was fueled by tariffs. That research is long-standing and well-supported by both fact and theory. The Harvard economist Frank Taussig, in his classic 1888 book, The Tariff History of the United States, rejected this claim about the alleged pro-growth effects of tariffs, as did the eminent British economist Alfred Marshall after his 1875 visit to the United States.

For a recent survey of research on tariffs and the American economy over first century and a half of the existence of the U.S., see this thorough paper by Phil Magness.

But let’s assume that you remain unpersuaded by the above-mentioned research. You’ll then be left with a puzzle. You write that “Hamilton was on to something with protecting US industry from the developed competitors in England” – thus implying that healthy, long-established industries, such as existed in Britain in the 19^th century, are destined to outcompete upstart rivals in less-developed countries unless those upstarts are protected by tariffs.

Yet you also believe that as foreign industries were rebuilt after the devastation they suffered during WWII, American industry was thereby put at an increasing disadvantage because these foreign industries were rebuilt, while at the same time, under American leadership, starting in 1947, global trade barriers began to be lowered.

Why, if under free trade the ‘dominance’ of British industry in the 19^th century would have suppressed the rise of American industry, did the ‘dominance’ of American industry after WWII, under increasingly freer trade, not suppress the rise of Asian and European industries – a rise that you and Glenn Beck believe now works to the disadvantage of American industry?

These historical facts are puzzling only to individuals who believe that trade is a zero-sum game and who don’t understand comparative advantage. I urge you to recognize that trade is positive-sum, as well as to learn about comparative advantage.

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 fallacies of protectionism know no bounds.

Mr. F__:

Thanks for sending along Glenn Beck’s recent remarks on trade and tariffs. I’m afraid I don’t share your admiration of what you describe as “his unanswerable defense of tariffs.” Here are answers to three of the most confused parts of Beck’s peroration on trade and tariffs.

First, he’s mistaken about trade allegedly “hollowing out” America’s industrial economy and middle class. It’s done no such thing.

Second, he’s mistaken that America’s industrialization in the 19^th century was fueled by protective tariffs. The great trade economist Doug Irwin debunked this myth in a famous paper in which he reports that those sectors of the 19^th-century American economy that grew fastest were sectors unprotected by tariffs. Irwin further discovered that, in his words, “tariffs may have discouraged capital accumulation by raising the price of imported capital goods.”

Along these same lines, Phil Gramm and I found that 19^th-century U.S. economic growth, as we put it in our book, “was strongest in periods when average tariffs were falling, not rising.”*

Third, and perhaps most egregiously, Beck is mistaken that free trade was good for the U.S. in the few decades after WWII because, while America’s industrial base was unscathed by the war, that of most of the rest of the world lay in ruins. By extension, he also believes that free trade today works much less well for us because we no longer, in his words, “own the market.”

While perhaps superficially plausible, the substance of this argument is deeply flawed.

It’s true that American industry, unlike foreign industry, was unscathed by the war, but it’s untrue that this situation was advantageous for us Americans. We produce only to receive real goods and services in exchange. When our trading partners are unproductive, they have relatively little to exchange. In that situation we might well, as we did just after the war, produce a larger share of global exports, but the absolute amounts that we sold in foreign markets were less than these amounts would have been were foreigners more productive – that is, our exports were fewer than these would have been had foreigners been able to offer us more and better outputs in exchange.

If you doubt this reality, suppose that the war had so devastated foreign economies that to this day the only things of value they can produce are kitchen matches and cheap socks. We Americans would indeed still “own the market,” but would we be richer than we actually are today? Would our economic prospects rise if foreigners suddenly lost their ability to efficiently produce and sell the likes of high-quality wine, aluminum, clothing, consumer electronics, and machine tools, and were reduced to producing only matches and socks? Clearly not – yet Beck’s argument leads to the opposite conclusion.

Taken to its logical conclusion, Beck’s argument implies that he’d be far richer than he is if every other person on earth were completely unskilled and denied access to all but the most rudimentary hand tools. He would own the market! Surely, though, you see that in such a poor world he’d be destitute even if he himself possessed the skill and genius of Leonardo along with a large workshop full of the most advanced capital goods.

Beck has matters backwards. Free trade is more advantageous to us the more productive are foreign economies.

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

* Phil Gramm and Donald J. Boudreaux, The Triumph of Economic Freedom (Lanham, MD: Rowman & Littlefield, 2025), page 110.

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GMU Econ alum David Hebert, writing in today’s Wall Street Journal, decries the distrust and uncertainty that Trump’s wild tariffing has done to Americans’ ability to trade profitably with non-Americans. Two slices:

While trade policy debates fixate on tariff rates and who pays, companies around the world are rerouting capital and effort to bypass the most unpredictable major economy on earth. Are tariffs here for the long haul or a fleeting fancy? Will exemptions be honored going forward? Business and political leaders around the world have to ponder these questions because a factory that takes years to build and pay for can’t be packed up and moved every time the White House discovers a new grievance.

Coercive diplomacy might produce the occasional headline-grabbing concession. But leverage decreases when partners have alternatives. India’s deal with Europe was a direct response to U.S. tariffs on India whipsawing from 26% to 50% and finally back to 18% in less than a year. Europe’s regulatory machine is slow and bureaucratic, but for long-term decisions, slow and predictable is preferable to fast and erratic. When Canadian Prime Minister Mark Carney refers to China as “more predictable” than the U.S., it’s a sign that something has gone deeply wrong with U.S. trade policy.

…..

The world isn’t deglobalizing. It’s reglobalizing around partners who commit to rules rather than those who wield tariffs like a club. The long-term cost of these tariffs isn’t measured in revenue collected. It’s measured in partnerships formed without us and the rise of a trading system that no longer needs U.S. participation to function.

My intrepid Mercatus Center colleague, Veronique de Rugy, identifies four key myths that fuel Trump’s latest push for tariffs. A slice:

Tariffs don’t conjure consumer demand out of thin air. Americans were buying plenty of washing machines, clothing, and steel before the tariffs. What changes is where some things are made. Production shifts from foreign manufacturers with efficiency or cost advantages to more expensive domestic manufacturers. American producers stand to gain, except when they must pay tariffs to import the materials they need (as is often the case).

But everyone who buys the product pays more. The extra $100 a family spends on a washing machine won’t instead be spent at the restaurant next door, the repair shop, or the shoe store. Real wages—what your paycheck actually buys—fall when the prices of most things rise.

Second is the zero-sum argument: Making China worse off automatically makes Americans better off. This is not how economics works outside of campaign rallies.

Trade is not a game in which one side’s loss is the other’s gain. When Americans buy less from China, it’s true, some of our overseas business competitors lose revenue. But what about the American households losing access to cheaper goods? Or the American producers losing access to cheaper materials and ingredients that make them more competitive?

Here’s Hannes Gissurarson on why nationalists should support globalization.

Eric Boehm asks if the Trump administration will refund the tariff revenues that it illegally seized.

Also critical of the Trump administration’s resistance to repaying the government’s ill-gotten tariff gains are Scott Lincicome, Nathan Miller, and Alfredo Carrillo Obregon.

The Editorial Board of the Washington Post explains what shouldn’t – but, alas, what nevertheless today does – need explaining: Government-run grocery stores will fail to improve the lives of their customers. Two slices:

The economics of public stores are fraught. By lowering prices below the market rate, stores struggle to fulfill surging demand and shortages become inevitable. That was the case at Kansas City’s Sun Fresh Market, which closed last year after wasting $18 million of taxpayer money.

Sourcing and stocking perishable food products is a complex business with notoriously thin profit margins. Despite claims by progressives that grocery stores price-gouge, profit margins usually fall between 1 to 3 percent. Partly that is due to shoplifting. Finding good real estate will also be costly in a city with scarce availability. (Whole Foods is owned by Amazon, which was founded by Post owner Jeff Bezos.)

Promising free stuff sounded nice on the campaign trail, but someone needs to pay for it. When his predecessor tried to trim spending on libraries, Mamdani called it “cruel.” Now that he’s in charge, his preliminary budget plan calls for nearly $30 million in library cuts. Those and many other cuts are probably necessary to get the bloated city budget on a more sustainable footing.

…..

The mayor has said before that his grocery idea would be “political experimentation.” But as the Big Apple faces a $5.4 billion budget shortfall and Mamdani threatens a 9.5 percent hike in property taxes, it’s foolish to spend money studying a foregone conclusion.

Iain Murray warns against the attempt by Western European governments to export their dirigiste economic interventions.

Jeffrey Miron debunks the economic fallacy – one peddled by progressives and MAGA-types alike – that the American economy will be strengthened by government prohibitions of stock buybacks.

Robby Soave is correct: “Libertarians should be wary about releasing the Epstein files.”

Bob Graboyes responds to some of his readers.

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… is from page 161 of David Schmidtz’s wisdom-packed 2023 book, Living Together [original emphasis]:

Many critics of CBA [cost-benefit analysis] seem driven by a gut feeling that CBA is heartless. They think that by denouncing CBA, they take a stand against heartlessness. In truth, weighing a proposal’s costs and benefits does not make you a bad person. What makes you a bad person is ignoring costs – costs you impose on others. Problems arise not when regulators take costs and benefits into account, but when they neglect to do so.

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Rep. Riley Moore (R-WV)
Washington, DC

Mr. Moore:

In a letter to the Wall Street Journal, you assert that, because of free trade, the people of your district spent the past 40 years “watching factories close, jobs disappear and communities hollow out.” And you find in Pres. Trump’s protectionism a means of “bringing honest, blue-collar jobs back to the heartland.”

The economist Jeremy Horpedahl looked at the ten metropolitan statistical areas (MSAs) in the U.S. that suffered the largest negative hits during the “China Shock” of a quarter-century ago. No region in your district is among these ten. But each of these ten MSAs is today significantly better off economically than it was before the “China Shock.” It’s a good bet that the same is true for your Congressional district.

While I have no data on your district alone, data for West Virginia at large show that inflation-adjusted average weekly earnings for West Virginians are today (2024) about 14% higher than in 2001. You might protest that this gain is too small, but a gain it nevertheless is and, thus, is inconsistent with your tale of terrible woe.*

A final point: the jobs and wages protected by tariffs aren’t “honest”; they’re dishonest. Those jobs and wages exist only because government denies to other Americans the opportunity to spend their incomes as they judge best. Every job protected by tariffs is matched by a job destroyed by tariffs. Every American business that exists or expands as a consequence of tariffs does so only because other American businesses disappear or shrink as a consequence of those same tariffs. And every cent of higher wages and profits made possible by tariffs is more than offset by reduced wages and profits elsewhere in our economy.

The gains of those who benefit from protectionism are no more “honest” than are the gains of those who benefit from robbery.

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

* I made this calculation using these three sources: here, here, and here.

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GMU Econ alum Caleb Petitt ponders the ruling in Learning Resources v. Trump. A slice:

The IEEPA tariffs were bad because they were unconstitutional, but they were also bad politically and economically. They were incapable of achieving their stated ends, they fostered graft and corruption, created uncertainty, were based on the faulty notion that trade deficits are bad, put a regressive tax on ordinary Americans, drove a wedge between our America and her allies, and slowed economic growth. Removing these tariffs will bring more life, order, and growth to the American economy.

Also exploring the implications of the Learning Resources ruling is John O. McGinnis.

Gary Clyde Hufbauer asks: “How will Trump’s new 15 percent tariff fare in court?” Here’s his conclusion:

Finally, Section 122 reads in part that limited, temporary import restrictions can be employed “to cooperate with other countries in correcting an international balance-of-payments disequilibrium.” There is no such ongoing international cooperation.

My PIIE colleague Alan Wm. Wolff wrote recently about the major limitations of Section 122 and other statutes (Sections 338, 122, 232, and 301) that Trump will likely use as authority for new tariffs. The Supreme Court’s ruling implies that Trump will face serious legal challenges as he invokes these  statutes as instruments to raise substantial revenue through tariffs, rather than as instruments to address specific foreign practices.

Phil Magness shares evidence from the U.S. Senate report on the Trade Act of 1974 that Congress then understood that a trade deficit is not the same thing as a balance-of-payments deficit.

Tarnell Brown reflects on “executive overreach, trade law, and the challenge of accountability over time.”

David Hebert argues that, despite the applause-worthy ruling in Learning Resources, “the damage of tariffs has already been done, and it is continuing to be done.” A slice:

Trade is not just about transactions. It’s about relationships and trust built and earned over time. This establishes that trading partners will play by agreed-upon rules and that market access is not a bargaining chip to be leveraged whenever one side, in this case Washington, needs a political victory.

Adam Smith understood this. He knew that the wealth of nations wasn’t built on clever tariff schedules or trying to hold the rest of the world hostage. It’s built on expanding the division of labor, broadening the extent of the market, and enabling man’s propensity to “truck, barter, and exchange.” All these things are made possible by stable rules and predictable networks of exchange. Smith understood that tariffs altered these incentives, but even he may have underappreciated the role of trust in international trade, how quickly it can be eroded, and what happens when it is.

Rather than breathing a sigh of relief after the Court’s ruling, the rest of the world is getting further confirmation that this administration, and by extension the United States of America, is no longer trustworthy. The first trade deals of 2026 have included deals meant to limit the damage that can be done by the turn away from trade by the United States. Canada and China announced a “trade reset,” with the Canadian prime minister, Mark Carney, referring to China as “more predictable” than the United States. When China, of all places, is viewed as more predictable than the US, something has gone very, very wrong.

“Trump’s tariffs have not shifted the trade deficit” – so reports Timothy Taylor.

GMU Econ alum Romina Boccia makes clear that “America can’t tariff its way out of this debt crisis.”

And – as explained by Dominik Lett – nor will the U.S. government’s obscenely large budget deficits be eliminated by the ‘war on fraud.’

Jeremy Horpedahl again busts the zombie myth that the real incomes of American families haven’t increased substantially over the past few decades. Here’s his conclusion:

The gains in real median household or family income since the 1970s are not being distorted in any major way. Total hours of work didn’t double in the household — they increased modestly, by about 12 percent at the mean and 39 percent at the median. And this increase stopped after the Boomer generation (roughly in the mid-1990s). Furthermore, we can adjust household income for these increases, whereby we see a rise of 26-38 percent, not a fall of 40-50 percent as Mr. Tucker claims.

Writing in the Wall Street Journal, Roland Fryer makes a powerful case that, as he puts it, “the social harms of drug use are dwarfed by the social harms of prohibition.” A slice:

In a 2013 study with Paul Heaton, Steven Levitt and Kevin Murphy, I measured what crack cocaine did to black communities in the 1980s and ’90s. With the rise of crack, homicide rates doubled among black males 14 to 17 while fetal deaths among blacks sharply increased. Yet even as crack use persisted at 60% to 75% of its peak level through 2000, the violence almost disappeared. The initial violence was driven not by drug use but by the struggle to establish property rights in illegal markets. Once those rights were established and crack prices fell, the violence subsided. The carnage of the crack epidemic wasn’t an argument for prohibition. It was an indictment of it.

“Do immigrant cultures threaten liberty?”

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… is from pages 101-102 of Thomas Sowell’s Compassion Versus Guilt, a 1987 collection of some of his popular essays; specifically, it’s from Sowell’s July 22nd, 1985, column titled “Lessons from Coca-Cola”:

The greatness of a competitive economy is that it forces constant revision of our estimates and changes in our behavior when we are mistaken. If we were omniscient, there would be no point in free enterprise or a competitive economy. Appointed officials could issue orders from on high to do the right thing, and that would be the end of it.

DBx: Yes.

Note that proponents of industrial policy implicitly believe that human beings who exercise government power are, if not omniscient, at least in possession of super-human intelligence and foresight.