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Here’s my latest response to my aggressive, regular protectionist correspondent, Nolan McKinney:

Mr. McKinney:

Calling me “biased” in my criticism of Oren Cass’s recent attempt, in the Atlantic, to justify protectionism, you express special admiration for Cass “warning about the stupidity of our ‘lopsided exchange of cheap goods for financial assets.’”

As is often the case, Cass’s meaning is vague. He apparently hopes that by peppering his text with emotion-ladened words – here, “lopsided” and “cheap” – he’ll dissuade readers from thinking too hard about the substance of what he writes. Or, perhaps, even he doesn’t think too hard about the substance of what he writes.

For starters, what’s “lopsided” about the exchanges that Cass criticizes? All of these transactions being voluntary, each party values what he or she gets more highly than what he or she gives. Who is Oren Cass to sit in judgment of how other people spend their money? Furthermore, he sneaks in a presumption that’s absurd – namely, that the typical American who trades with foreigners more often than not reduces his or her net worth by turning over to foreigners assets worth more than the goods gotten in return. If this presumption were true the data would show that Americans’ real net worth has been steadily falling. But the data show otherwise. In 2019 (the last year before the gusher of pandemic and Biden-Harris spending), the average real net worth of an American household was 46 percent higher than it was 20 years earlier when China got Most Favored Nation trading status, and 118 percent higher than in 1987 (the earliest year for which I can get consistent data).*

One more point: If Cass is correct that we Americans receive from foreigners mostly only “cheap goods,” then in calling for protectionism he obviously wants us Americans to produce those same cheap goods. Yet because our comparative advantages prevent us from producing those “cheap goods” as cheaply as do foreigners, protectionism would result in us Americans producing those cheap goods expensively. How this economic outcome will improve our lives is a mystery understood only by the likes of Oren Cass and Donald Trump.

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

* Data on total household net worth are here, and these nominal dollars were converted into real dollars using this deflator. The number of households is here.

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GMU Econ alum Dominic Pino exposes many of the grave errors that infect Oren Cass’s most-recent attempt to justify protective tariffs. Two slices:

The problem for Cass is not that economists do not consider the costs and benefits of tariffs. It is that they consistently find that the costs outweigh the benefits.

…..

You might think you’re just shopping for a good deal, but Oren Cass doesn’t approve of your decision because he thinks it harms someone else for you to pay a lower price. When tariffs force you to pay a higher price, you’ll be a little poorer, but according to Cass, it’s for the greater good. It’s the same style of argument that environmentalists make when they argue for higher energy prices and more government spending on green energy. You’ll be a little poorer, but it’s for the greater good.

In many cases, though, it’s not just a little poorer. Cass gives a hypothetical example of a $32 American toaster to replace a $30 import. But, based on prices of toasters made in other developed countries, a fully American toaster would probably cost somewhere closer to $300. Multiplying the cost of a toaster by ten is not good for workers who want to buy toasters, and there’s a whole lot more of them than there ever would be workers who would make toasters.

Cass also believes that your money doesn’t really belong to you, but rather belongs to the nation.

Kevin Corcoran explains some of the substitution effects of minimum wages. A slice:

[I]t’s important to keep in mind that it’s the relative rather than absolute cost that drives these adjustments. Even if the costs of the new machine are more expensive than human labor in absolute terms, the new minimum wage law has still made the use of machines relatively less expensive compared to human labor than before. And that’s all that needs to happen for the substitution effect to kick in.

[DBx: See also this great 1999 paper, on minimum wages, by Don Bellante and Gabriel Picone.]

Wall Street Journal columnist Joseph Sternberg explains that Kamala Harris, Keir Starmer, and other advocates of bad economics are now proposing taxes to make matters even worse. A slice:

Of course they’re coming for your investments.

Higher taxes on capital are becoming a centerpiece of liberal politics on both sides of the Atlantic. While Democrats flirt with substantially higher taxes on capital gains (realized or unrealized), Britain’s Labour Party contemplates steeper levies on capital gains and inheritances as Chancellor of the Exchequer Rachel Reeves prepares her first budget proposal for release next month.

The left’s ideological suspicion of capital is only part of the story. The more important phenomenon is a profound change in the tax base in modern economies after 30 years of failed economic policies and hyperactive monetary easing. Capital, rather than labor income, is where the money is now.

For at least 40 years, the value of American households’ assets has increased faster than their incomes. Throughout much of the 1980s, household wealth hovered at or below 500% of disposable income, according to Federal Reserve data. If labor incomes and wealth had increased at the same rate, this ratio would have remained stable. Instead, U.S. household net wealth now stands at 785% of disposable income—and that’s off a peak of 836% in the first quarter of 2022.

David Henderson understandably isn’t buying the attempt to sell the officious Tim Walz as a swell, neighborly guy.

Phil Magness reviews Boyce Thompson’s Lincoln’s Lost Colony.

Scott Lincicome reports on “the government’s war on starter homes.” A slice:

In Minnesota, for example, it’s effectively impossible for developers to build a home in the $150,000 to $250,000 price range because of not just land and construction costs but eye-popping regulatory fees: “One third of the total package price, with the land, is in the regulatory costs,” one builder noted, including “your wetland fees, your park dedication fees, your permit costs,” and more. Thus, a house in Corcoran, Minnesota, that costs $182,000 to build will have an all-in cost of $372,000, including $56,000 in administrative costs alone! Throw in a modest profit margin, and you’re well out of “starter” range in the area. The same goes for estimates from Michigan and New Jersey.

Arif Panju asks: “Will SCOTUS take on New York’s latest eminent domain scam?”

GMU Econ PhD candidate Susannah Barnes-Petitt looks at data on the child tax credit. Here’s her conclusion:

Indeed, some research does indicate that in countries where welfare programs for women and children are expansive (like Scandinavian countries), women work fewer hours and experience greater gender gaps in earnings. This result is especially pronounced for mothers, who experience “motherhood penalties” that reduce their participation in the labor force and their hours worked.

Jon Miltimore applauds Matt Walsh for ridiculing “an industry of absurdity in his new film,” Am I Racist? – that industry, of course, being the ‘anti-racism’ one.

Kevin Bass tweets: (HT Jay Bhattacharya)

Science is an amoral enterprise. Its power to do good depends entirely on the scientist’s amorality. When activism and morality are introduced into science, it may temporarily become more exciting, but eventually this process completely destroys science, as we are seeing today.

Jay Bhattacharya talks with Johns Hopkins’s Marty Makary.

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… is from page 78 of Arnold Kling’s excellent 2006 book, Crisis of Abundance:

Historical experience provides little support for the noneconomic paradigm. State-run industries tend to be inefficient. They allocate resources unwisely. They generate shortages in some areas while they waste resources in others.

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… is from pages 305-306 of Richard Dawkins’s remarkable 1987 book, The Blind Watchmaker (original emphasis):

The problem with mutation as the sole evolutionary force is simply stated: how on earth is mutation supposed to ‘know’ what will be good for the animal and what will not? Of all possible changes that might occur to an existing complex mechanism like an organ, the vast majority will make it worse. Only a tiny minority of changes will make it better. Anybody who wants to argue that mutation, without selection, is the driving force of evolution, must explain how it comes about that mutations tend to be for the better. By what mysterious, built-in wisdom does the body choose to mutate in the direction of getting better rather than worse?

DBx: Yes.

In one sense – in a direct sense – Dawkins’s book is about the evolutionary change through natural selection of biological creatures. But this book is also, and even more profoundly, a brilliant tract on the logic of the evolution of complex systems. It contains many deep lessons for students of the economy – not the least of which is this: In order to grow, a healthy economy requires both changes (“mutations”) and a reliable method of selecting which changes will be admitted and encouraged and which changes will be excluded or quickly eliminated.

Industrial policyists and other enthusiasts for government intervention into the economy are quite keen on dreaming up changes; however, they give far too little, or even no, thought to selection. Indeed, industrial policyists want their proposed changes imposed, not selected.

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If Trump’s bottomless ignorance of trade weren’t so economically harmful, it would be comical.

Editor, BusinessDay

Editor:

You report that “Donald Trump on Tuesday offered a series of incentives to encourage foreign companies to relocate to the US” (“Trump offers incentives to firms relocating to US,” Sept. 24).

Is this the same Donald Trump who bewails U.S. trade deficits? If so, someone should inform him that the more foreigners invest in the U.S. the stronger are the forces that cause U.S. trade deficits to increase. Foreigners need dollars to invest here, dollars that they earn when Americans import their goods. And every dollar that foreigners invest in America is a dollar that foreigners do not spend on American exports – that is, a dollar that foreigners use in a way that swells U.S. trade deficits.

Only Trump’s deep ignorance of the economics of international trade allows him to routinely broadcast his aversion to U.S. trade deficits while he also boasts of his schemes to encourage more foreign investment in the U.S.

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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Here’s GMU Econ alum Dave Hebert’s Wall Street Journal letter in response to John Paulson’s feeble attempt to defend Trump’s tariffs:

Mr. Paulson joins the chorus propagating the debunked belief that the “smart use of tariffs” will “restore American manufacturing.” Nothing could be further from the truth. But don’t take my word for it—ask Donald Trump’s own Council of Economic Advisers from when he was president.

In its 2019 report, signed by Mr. Trump, the council details that the tariffs he enacted failed to achieve any beneficial changes in other countries’ trade policies. Quite the opposite: “Canada, China, the EU, Mexico, Russia, and Turkey imposed retaliatory tariffs.” That same year, the Federal Reserve released its own report on Mr. Trump’s tariffs. The result: “U.S. manufacturing industries more exposed to tariff increases experience relative reductions in employment.” This comports with more recent research, which finds that “the costs of US tariffs continue to be almost entirely borne by US firms and consumers” and U.S. tariffs imposed on China are accompanied by “an overall welfare loss of 0.12 percent of GDP.”

Tariffs are a rotten deal for America and its people. We need fewer barriers to trade, not new ones.

David Hebert
American Inst. for Economic Research
Grand Rapids, Mich.

The Editorial Board of the Wall Street Journal rightly criticizes Trump for his economically ignorant belief that nearly every problem can be ‘solved’ with higher tariffs. A slice:

[John] Deere’s competitors are also expanding south of the border. Caterpillar has nearly doubled its workforce in Latin America since 2016. Farm equipment manufacturer CNH plans to shift work from Racine, Wis., to Mexico. Bobcat last year announced a $300 million investment in Mexico for compact construction equipment.

Mr. Trump thinks he can bully Deere as he did Carrier, which in 2016 wanted to move air-conditioning manufacturing from Indiana to Mexico. He threatened to impose tariffs on Carrier imports. Carrier scaled back U.S. job cuts after Indiana dangled subsidies.

But Washington and the states can’t afford to subsidize every U.S. manufacturing job, and slapping tariffs on imports from Mexico would violate the USMCA trade agreement. It would also raise U.S. prices. Meantime, his threats help Democrats argue that Ms. Harris would be friendlier to business.

My intrepid Mercatus Center colleague, Veronique de Rugy, counsels us that, if Trump wins in November, not to expect the same happy economic results in his second term that marked his first term. A slice:

The circumstances Trump would inherit are far more challenging than those he faced in 2017. Consider government debt. On the eve of the pandemic, outstanding public debt was too high — around $18 trillion — but paled in comparison to the current $28 trillion or so. There’s no reason to trust Trump to cut spending or pass the necessary reforms, in part because he explicitly says he won’t touch Social Security and Medicare, the two main drivers of our fiscal problems.

In addition, even with the economy booming during Trump’s first term, he and Congress nevertheless managed to grow the budget deficit to nearly $1 trillion. It stands at nearly $2 trillion today and is projected to reach $2.8 trillion in 10 years.

Trump may believe he’ll bring enough economic growth to wash away our financial troubles. But he’s mistaken. The scale of the current debt and future indebtedness is so large that economic growth alone won’t be enough. There is a lot of evidence that debt can act as a drag on the economy.

My Mercatus Center colleague Christine McDaniel describes “the collision course of green policies and international trade.”

George Will decries Putin’s “military barbarism.” A slice:

Zoltan Barany, a University of Texas political scientist, writes in the Journal of Democracy that Russia’s military “is a quintessential reflection of the state that created it”: corrupt (a Russian prosecutor “admitted that about a fifth of the Defense Ministry’s budget was stolen; other officials said that it could be as high as two-fifths”), brutal, hyper-centralized and institutionally stupid because it is hostile to debate. And until Feb. 24, 2022, inexperienced: Its engagements in Georgia (where Russian officers had to borrow war correspondents’ cellphones to reach troops), Crimea and Syria were “against feeble adversaries and said zero about how Russian forces would perform in a conventional land war against a resolute, well-armed enemy.” Furthermore, “The 2018 decision to revive the post of zampolit (political officer) in units as small as infantry companies harks back to the Soviet era and signals that the state doubts its soldiers’ loyalty.”

Ramesh Ponnuru shares this: “A recent paper showed ‘that top wealth shares have not changed much over the last three decades when Social Security is properly accounted for.’”

Jason Sorens explains an important connection between prosperity and wealth differences.

Nick Gillespie talks with GMU Econ alum Jeremy Horpedahl about myths about the economic condition of millennials and Gen Zers.

John Stossel is right that “Robert Reich is wrong about billionaires – and almost everything else.”

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… is from page 263 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

Too many teachers today see their role as propagandists for the fashionable notions of the times. Their own “role model” is not Mr. Chips but Joseph Goebbels.

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Oren Cass is a font of economic misunderstanding.

Editor, The Atlantic

Editor:

Oren Cass’s attempted defense of Trump’s proposed tariffs misfires on many counts (“Trump’s Most Misunderstood Policy Proposal,” Sept. 25). Perhaps most egregiously, he accuses economists who discuss trade of having “an obsessive and uncharacteristic focus on short-term consequences.” In fact, it’s protectionists who are guilty of analytical myopia. For example, let’s grant that Cass is correct that Trump’s tariffs on washers and dryers caused the domestic production of these appliances to increase by so much that in the long run the prices of washers and dryers were not raised. These tariffs still cannot be counted a success because any expansion in the production of these appliances necessarily draws resources away from other domestic industries, causing outputs in these industries to fall and prices of their outputs to rise. Although economists routinely pay attention to such economy-wide effects, Cass ignores them.

Another error – one that’s ironic – is his assertion that free trade creates a negative “externality” because corporations and consumers, when making production and consumption choices, “will probably not consider the broader importance of making things in America.” Not so. The value of producing particular outputs in the U.S. as opposed to abroad is captured in the prices, wages, and other market signals that guide corporations’, workers’, and consumers’ choices. Or at the very least, the information and incentives conveyed by the market signals that guide private-sector economic decisions are more accurate and reliable than are the information and incentives conveyed by the interest-group lobbying, electoral bargaining, and retail politicking that guide political decisions.

The irony, then, is that those who are guilty of creating negative externalities are Cass and other protectionists who, seeing only the industries and jobs promoted by tariffs, ignore both the industries and jobs that tariffs necessarily damage and destroy, as well as the very real externalities that distort political decision-making.

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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Now that 30 days have passed since its original publication, I can share here – below the fold and free of charge – the full text of my and Richard McKenzie’s August 23, 2024, Wall Street Journal essay, “Kamala Harris’s Price-Control Delusion.”

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