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… is from page 43 of my GMU Econ colleague David Levy’s splendid 2001 book, How the Dismal Science Got Its Name:

One attraction so many “cultural critics of capitalism” feel for [Thomas] Carlyle’s criticism of market exchange may be precisely that he recognized that when market exchange enters hierarchy exits. Consumer sovereignty is thus a dire threat to the notion of a political sovereignty in which orders are given from up the hierarchy to be obeyed by those below. We have command without hierarchy, command without foundation. And, for anyone who thinks that the state or society is simply a person writ large, a state or society without a hierarchy of desires is nonsensical.

DBx: Brilliantly put.

Among the signal achievements of modern economics – including the economics of Adam Smith – is to show that an orderly, peaceful society of individuals with different preferences and plans is possible under a rule of law, with private property rights and market exchange. In such a commercial society, the abstract rules that govern it encourage each individual to act in ways that benefit not only him or her, but countless other denizens of this commercial society.

Such a society is an order but not an organization.

This society is constituted not by all persons being regimented into ranks designed to achieve one society-wide set of particular goals but, instead, by each person following abstract rules (“Thou shalt not steal.” “Fulfill your promises.” Etc.) and thus, within markets, becoming dependent on each other in ways that increase as much as possible the chances for each adult to satisfy as many as possible of his or her peaceful and individually chosen goals.

No kings. No dictators. No pooh-bahs. No nannies. No hierarchies defined by ability to command and duty to obey commands. No “industrial policies” aimed at satisfying the preferences of professors, pundits, preachers, or politicians – or even of some electoral majority.

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National Review‘s John Puri continues to ably expose the flaws in Michael Brendan Dougherty’s protectionist reasoning. A slice:

Tariffs impose a disadvantage on importers, raising a product’s domestic price above what is offered internationally. The added cost to businesses and consumers functions, effectively, as a subsidy for less efficient economic arrangements. Michael argues that foreign companies may not truly be more efficient producers, as they are often subsidized or protected by their own governments. But given the unknowable multitude of factors that go into prices, which Michael notes in his references to Hayek, it is impossible to disentangle the effects of foreign economic policies from real comparative advantages, and therefore impossible to correctly offset distortionary policies with tariffs.

(Regardless, the opportunity cost of preventing lower international prices for Americans is the same no matter the cause. Imagine if China did not subsidize manufacturing whatsoever, but was still able to make phones and footwear at a lower cost thanks to its staggering economies of scale. It would undercut U.S. manufacturers all the same, allowing us to shift labor and capital to more valuable uses. Protectionism draws those resources back into lower-value industries.)

By stifling access to foreign markets, tariffs reduce the competitive pressure that Michael says is essential to developing cheaper production methods. I agree that tariffs do not “abolish competition,” as domestic producers still must deal with one another. But just as dissolving the National League would not abolish competition in baseball, it would surely diminish it!

Markets do not become more competitive with less competition. Once insulated from global price pressures — which factor in all the efficiency discoveries that happen abroad — domestic companies have far less incentive to innovate or invest in cost-saving measures themselves. Consequently, their prices remain higher than what businesses and consumers would otherwise be free to pay.

This is not mere theory. Many industries in the United States today meet Michael’s qualifications for stable, predictable trade protection that long predates the current Trump administration: shipping and shipbuilding, steel and aluminum, sugar and lumber, food and apparel, light trucks and solar panels. In none of these industries have production costs fallen below what they are abroad. Hence, in none of these industries have domestic prices fallen below international levels. Americans pay significantly more in all cases, decades and even centuries into these protectionist experiments. Steadily coddled, our “infant industries” never grew up to fare for themselves.

The one example Michael cites of protectionism ultimately reducing prices is South Korea’s burgeoning manufacturing sector in the 1960s and 70s. Certain firms were undoubtedly boosted by industrial policy, but not through tariffs. That period of development was marked by export promotion after South Korea turned awayfrom its previous strategy of import substitution, which had failed to spark industrialization. The country succeeded by thrusting its manufacturers into global competition, not by shielding them from it. It was that competitive pressure that yielded greater productivity, innovation, and efficiency — the same competitive pressure that tariffs suppress.

Here’s the abstract of a new paper by Benjamin Jaros and Joshua Rauh:

This paper examines the revenue and migration impact of the 2026 California Billionaire Tax Act, a one-time 5 percent tax on the worldwide net worth of individuals exceeding $1 billion. Using data from the Forbes Billionaire List, news reports detailing the residential real estate holdings of California billionaires, and public announcements of billionaire departures from the state, we estimate the behavioral response and associated revenue loss to this new tax using several different methodologies. Even before accounting for reductions in other tax bases such as the income tax, we estimate that the Act will collect approximately $30 billion (range $28 to 36 billion), less than a third of the $100 billion projected by Galle et al. (2025). This range accounts for the publicly confirmed taxpayer migration that has already eliminated nearly 30 percent of the Act’s wealth tax base, applies a litigation-survival discount to the remaining base, and is validated by the wealth tax base elasticity literature. We estimate that California’s billionaires contribute $3.3–5.8 billion annually in state income taxes. The present value of permanently lost income tax collections from departures more than offsets the one-time wealth tax revenue, yielding a net present value of negative $38.9 billion. Across 100,000 simulated revenue and discount rate combinations, 85 percent of plausible outcomes produce a negative net present value of state revenues.

Cato Institute economist Ryan Bourne is not favorably impressed by what Isabella Weber calls and endorses as “anti-fascist economics.” A slice:

Isabella Weber of the University of Massachusetts at Amherst saw earlier than many economists how politically toxic unexpected inflation could be. Her new book, “Anti-Fascist Economics,” even argues that this political combustion helped Trump specifically and boosted “the extreme right around the world.”

The fact that Trump himself is now underwater on the cost of living suggests it is incumbents presiding over inflation who face the backlash. But let’s grant Weber’s premise. If high inflation breeds authoritarianism, understanding what causes it becomes a democratic imperative. This is where her book is unconvincing.

She starts with a half-truth. Pandemic shutdowns snarled supply chains, Russia’s invasion of Ukraine drove up food and energy costs, and the Iran conflict delivered another oil price spike recently. Negative supply shocks in these “systemically significant sectors,” she writes, raise prices of basics, hitting the poor hard and making production more difficult, thereby raising aggregate inflation.

The difficulty begins when Weber turns this partial mechanism into a general theory. These transitory cost shocks, she argues, gave firms the “perfect opportunity” to raise prices beyond their now-higher costs. Executives’ boasts about “pricing power” prove it — in Weber’s telling, profit-seeking sellers exploited the very real shocks to raise inflation yet higher.

Most economists doubt this theory. If firms could profitably raise prices at will, why await a cost shock? Why would competitors and entrants not undercut firms raising prices above the fundamentals? And where did customers find the money to pay all these higher prices? If gas stations gouge consumers while household spending power is fixed, families have less money left to spend at restaurants or furniture stores. One price — gas — rises, but it is offset by demand and price pressure falling elsewhere. Broad inflation can persist without collapsing sales only when aggregate spending rises, too.

That theory alludes to a simpler explanation for inflation. Between February 2020 and March 2022, the money supply grew by $6.2 trillion. Washington ran huge budget deficits while the Federal Reserve held rates near zero and bought trillions in assets. By mid-2022, all this stimulus meant nominal gross domestic product — total dollar spending — was growing at 10 percent a year, instead of its pre-pandemic trend of 4 percent per year. This excess demand, not greed, was the underlying cause of price increases.

Explaining high prices and profits doesn’t require tacit collusion by firms. Overseas shocks shifted demand toward American substitutes, raising their prices; the broader spending boom allowed other prices to rise across industries, given that more money was chasing goods and services. Because retail prices adjust faster than costs fixed by contract, such as wages or existing inventory, profit margins widened temporarily in many sectors.

Yet Weber credits all the stimulus for the rapid recovery while largely absolving it of the ensuing inflation. The same dollars, apparently, could stimulate production but not prices — a convenient distinction for which the book supplies no explanation.

This diagnosis affects Weber’s analysis of the options the United States had in dealing with inflation. In her telling, economists on “Team Wait-and-See” correctly anticipated that supply chains would heal without monetary tightening but were too indifferent to near-term suffering. “Team Austerity” would raise interest rates, causing unemployment to bring inflation down. Her alternative — price caps, commodity reserves, antitrust and public provision — would “target the specific prices that drive inflation,” until supply recovered. One camp is callous, another cruel and hers, conveniently, humane and “anti-fascist.”

Nick Gillespie reminds us that today’s ‘progressives’ are just as economically ignorant as are today’s NatCons and MAGAistas.

Alex Tabarrok busts the myth – a myth embraced by, among others, Paul Krugman – that data centers are crowding out other, better investments. Here’s his conclusion:

Bottom line is that I think a more plausible story is that two things are happening at once: tariffs, uncertainty, and other forces including the fading of Biden-era CHIPS and IRA subsidies have weakened investment outside AI-tech. The AI boom in contrast has supported overall investment. In other words, rather than datacenters and AI investment “crowding out” other investment, my interpretation is that AI investment is a bright spot in what would otherwise be a more negative economy.

Daniel Hannan decries the intense risk-aversion today of so many of his fellow Brits.

GMU Econ alum Stephen C. Miller ponders AI and higher education.

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… is from GMU Econ alum Nathanael Snow’s July 2026 EconLog post titled “America the Market” [references removed; bracketed remark original to Snow]:

Impartial institutions facilitate exchange. The broader open market and society are held together through exchange that coordinates our activities. [Adam] Smith points to market interactions as the prime example of how impersonal relations are often self-governed: “It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner.” We have to imagine what the other person wants and seek their sympathy. Instead of affection, we learn sympathy with others, starting as young people. “When [a child] is old enough to go to school, or to mix with its equals, it soon finds that they have no such indulgent partiality.” We internalize the morality of actions that earn us the approbation of our peers and develop a way of imaginatively judging our own actions that Smith considers similar to an impartial spectator. Good governance limits itself to maintaining justice among people impersonally relating to one another.

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Here’s another letter to my long-time protectionist ‘friend.’

Mr. McKinney:

Calling my latest reply to Michael Brendan Dougherty “an example of knee jerk globalism,” you advise me to think more “creatively.” Specifically, you believe that Mr. Dougherty correctly invokes Hayek to support the protectionist argument that tariffs, if kept in place long enough, would, in your words, “give our firms enough breathing room, resources and motivation to grow their efficiencies.”

With respect, your claim defies credibility. When you encounter bad service from a restaurant, from an auto-repair shop, from a dry cleaner, or from some other merchant, do you continue to patronize that merchant? Are you unhappy that you have alternatives to this merchant? Do you think to yourself, ‘If only this merchant had fewer competitors, his service would improve’? Do you volunteer to pay higher prices to this merchant in exchange for his bad service in the belief that doing so will give him “breathing room, resources, and motivation” to improve his service? Or do you take your business elsewhere?

Tariffs reduce the competitive pressure on firms, which is to say that tariffs weaken firms’ incentives to please their customers. In short, tariffs create monopoly power.

The title of the Hayek article that Mr. Dougherty bizarrely cites in support of tariffs is “Competition as a Discovery Procedure,” not – as Mr. Dougherty and you seem to think – “Monopoly as a Discovery Procedure.”

Sincerely,
Don

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Zachary Karabell warns of the dangers of AI fear-mongering. A slice:

The point isn’t that AI is without its existential risks. It is that the future here is, as futures are, unknown, and the decisions made today will shape what happens next. If false certainty of impending doom determines those actions, the ability of this new technology to help solve core human challenges — such as disease, climate change, population decline and the nature of work — will be constrained.

There is a past lesson in how nuclear power was managed in most countries. Because nuclear weapons threaten human existence and nuclear power plant accidents can be catastrophic, the nuclear regulatory framework was constructed primarily to mitigate harm. That may have helped prevent nuclear war, but it also constrained the deployment of and innovation in nuclear energy, which is both cleaner and cheaper than oil and gas. Cultural fear created a deep animus that never dissipated.

John Puri ponders the Declaration of Independence. A slice:

In John Locke’s Second Treatise of Government, from which Thomas Jefferson took obvious inspiration, a natural law of justice exists before any government is instituted. In a precursor to the Declaration’s retelling, men exist in a state of nature with equal rights to life, liberty (or self-direction), and property acquired through exertion. Each person may exercise these rights freely, but only within the bounds of others’ rights. When one man violates the rights of another — by harming him, enslaving him, or stealing from him — he enters an unjust state of war, and his victim has the right to uphold the natural law by punishing his aggression.

John Ellis argues that “socialists have started winning because young voters were indoctrinated rather than educated.” A slice:

But as we contemplate academia’s degradation of the electorate, we must not forget the rest of the far-reaching damage it does. Education departments that instill poisonous ideologies in schoolteachers have depressed children’s test scores in reading and math to historic lows. Journalism, law and medical schools put woke indoctrination ahead of competent professional training.

The Washington Post‘s Editorial Board explains that “privatized air traffic control would mean safer skies.” A slice:

The FAA should be the regulator of air safety, just as the Federal Railroad Administration is the regulator of rail safety and the Federal Highway Administration and National Highway Traffic Safety Administration regulate road safety. The FAA should not own or operate the systems it regulates. Imagine if the FHA, which sets standards for traffic lights, also operated all of them nationwide, and that replacing any of the lights required asking Congress for money. Nobody would think that was an arrangement for safer streets.

So long as air traffic control remains within the FAA, the agency will be unaccountable and subject to the whims of politicians. Spinning off ATC, as 98 countries have done successfully for decades, would be good for taxpayers and, most importantly, for passenger safety.

Ramesh Ponnuru offers the following from the Department of Things Not to Worry About:

The Atlantic has an article by Jean Chatzky arguing that senior citizens are too cautious about spending money, which is bad both for themselves and for the economy. The concern about the negative effect of oversaving on an economy goes back to Keynes — but even Keynes was concerned about it only in the context of a zero-interest-rate economy. He was wrong, but we’re obviously not in that situation today.

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… is from page 198 of Samuel Gregg’s hot-off-the-press book, The Civilization of Commerce [original emphasis]:

Part of the stadial theory of development advanced by Scottish Enlighteners involved stressing that key institutions of commercial society had developed largely without conscious planning by governments. But the Scots were equally insistent that it is through our free choices to defer to the wisdom contained in particular institutions that we become free and can participate as citizens in commercial civilization.

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Here’s a letter to National Review.

Editor:

Michael Brendan Dougherty accuses me of dancing around his core defense of tariffs (“On the Origin of Straw Men,” October 18). He protests that all he meant to say about tariffs is that they can – through a Hayekian discovery process – cause protected domestic industries to lower their costs below pre-tariff levels. I concede that this outcome is imaginable. But it’s imaginable only in the way that one can imagine a person surviving a free fall off of the top of a skyscraper by landing just right in a gigantic drift of downy snow.

First, Mr. Dougherty denies that he had in mind the most obvious mechanism by which tariffs might enable protected firms to lower their costs – namely, allowing these firms to take advantage of greater economies of scale. He will, I hope, forgive me for assuming that he had this mechanism in mind.

Second, Mr. Dougherty mysteriously supposes that firms will work harder to discover lower-cost means of production when government weakens the competitive pressures that spur them to do so. In his imaginary world, firms obliged by global competition to sell at low prices will exert little effort to discover how to lower their production costs, but firms will intensify their efforts to discover lower-cost means of production when protected from foreign competition – and, hence, able to sell at higher prices. As I say, one can imagine this outcome. But it’s as plausible as a student’s plea to me that he would study harder only if I were to guarantee that I’ll not assign to him a grade lower than A-minus.

Hayek’s insight is that competition is a discovery procedure precisely because no one can know in advance which methods of production, which industries, or which patterns of specialization will prove most economical. Tariffs obstruct this discovery process by artificially favoring some producers at the expense of others.

Third, judging from the tenor and context of his remarks, Mr. Dougherty’s case for tariffs – like Trump’s – is that these levies enrich Americans generally. Therefore, it was perfectly justifiable for John Puri, and me, to challenge Mr. Dougherty’s implication that tariffs are a sound means of improving the overall performance of the American economy. For Mr. Dougherty to retreat to the position that all that he was arguing is that it’s possible for tariffs to cause protected industries to lower their costs and prices, without any implication for the broader economy, is illegitimate.

Finally, like most protectionists, Mr. Dougherty flavors his protectionism with claims about national security. National security is a legitimate concern. But in this context it’s a red herring. If national security is the justification for tariffs, then the case for these tariffs must rest on their contribution to national security, not on speculation that they will lower production costs and prices.

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 another letter to my long-time protectionist foe.

Mr. McKinney:

You’re unhappy with my Facebook criticism of Trump’s ridiculous assertion that the so-called ‘U.S. trade deficit’ with Canada means that Americans are financing Canadians’ consumption. Specifically, you reject my point that, if Canadians were to create a U.S. trade deficit with Canada by giving us, as gifts, billions of dollars of automobiles, aluminum, whiskey, and other goods, that the result would be Canadians paying for our consumption rather than, as Trump believes, Americans paying for Canadians’ consumption.

You conclude that I “neglect the businesses and jobs like the ones in car production destroyed by such ‘gifts’…. Such ‘gifts’ are a trojan horse to weaken our economy while Canada’s is bolstered.”

I can’t fathom how Canadians would enrich themselves and weaken us by spending their own labor and other resources to produce things, not for their consumption, but for our consumption. If your protectionist logic is correct, antebellum slavery enriched the slaves as it weakened plantation owners (with, amazingly, the plantation owners never realizing the terrible economic trickery inflicted on them by their slaves).

But if your (il)logic is correct, your embrace of protectionism is far too lame. You should, in addition to supporting tariffs on cars imported from abroad, also support tariffs on cars imported from the past. After all, Americans’ ready access to cars imported from the past reduces Americans’ demand for new cars no less than does Americans’ ready access to cars imported from abroad

So how about an escalating tax on cars as they age? For example, owners of one-year-old cars are taxed $1,000; owners of two-year-old cars are taxed $2,000; owners of three-year-old cars are taxed $4,000; and so on. These taxes would be tariffs on cars imported from the past. They would penalize those Americans who unpatriotically refuse to support the U.S. auto industry. Or as Oren Cass might put it, these tariffs on cars imported from the past would internalize on Americans who drive older vehicles the costs they thoughtlessly impose on the U.S. auto industry and its workers.

Would you approve of taxing cars imported from the past? If not, why do you approve of taxing cars and other goods imported from abroad? You’ll insist that there’s an economic difference between importing goods from abroad and importing goods from the past, but I challenge you to identify any such difference that is economically relevant. I’m all ears.’

Sincerely,
Don

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Johan Norberg, using the example of his native Sweden, warns Americans of the dangers of MAGA-DSA socialism. A slice:

Sweden established the Swedish Investment Bank in 1967 to channel long-term finance to industry and in 1970 it founded the state holding company Statsföretag (Swedish State Company), which brought 22 companies under a single umbrella to coordinate and expand government ownership.

Soon, what first seemed like a strength—that state ownership could achieve many goals simultaneously—became a corporate governance nightmare. Boards and management fought over whether profitability or industrial policy should take precedence, making both strategic decisions and accountability difficult.

State ownership also turned government into both umpire and player: the same politicians who regulated industries and distributed subsidies now had a financial interest in the success of particular companies.

Some companies used government resources and guarantees for activities that seem distant from core state responsibilities. A state-owned restaurant group sent two employees to work for McDonald’s in the United States on a fact-finding mission. Armed with this know-how, they later started Clock, a rare example of a government-run hamburger chain, including the distinctly Swedish “Hawaii burger,” topped with pineapple.

At one point, the Swedish Investment Bank led a consortium trying to salvage the Spanish galleon San José, which had sunk off the Colombian coast in 1708 with a treasure of gold believed to be worth billions. The consortium fell apart, and the San José remains on the ocean floor.

Industrial policy gradually became an ad hoc system for rescuing failing companies. Instead of creating new industries, the government increasingly bailed out shipyards, steel companies and textile firms under pressure from trade unions and local politicians. The rescue operation became known as the “Industrial Emergency Room.”

Between 1976 and 1982, the Statsföretag group accumulated total losses of around $2 billion in today’s money, a huge sum for a small economy. Shipyard bailouts had cost the equivalent of $17 billion.

Kjell-Olof Feldt, minister of finance in the Social Democratic government that took over in 1982, described state-owned companies as “a black hole” in the public finances. A spokesman for the biggest center-right party observed: “State ownership of business has, with few exceptions, been a gigantic failure.”

Assar Lindbeck, the Social Democratic economist who first proposed creating the investment bank, came to regret his advice, noting, “I have never heard any informed observer argue that the Investment Bank served any useful purpose during its existence.”

Remarkably, less than 15 years after the new policy had been launched, a consensus had emerged that it had been a costly failure. In the 1980s and 1990s, loss-making companies were closed down and many state-owned companies were sold. One study showed that productivity in companies increased after privatization by between 12 and 36 percent.

GMU Econ alum Dave Hebert reflects on the 2026 Nobel laureates in economics. A slice:

The last implication of this year’s prize that I’ll go over is that credibility matters. A government that announces that they’re going to do something in the future affects people’s behavior today. The government then faces a choice: they can do that thing, in which case it will show that they are credible but it will have very little macroeconomic effect, or they can do something different, which will produce a short-run jolt but will strain their credibility going forward.

Few areas of policy illustrate this better than trade over the last two years. Since January of 2025, tariffs have been announced, threatened, paused, raised, delayed, and cut at a pace that can only be described as “frantic.” As a result, America’s credibility has been strained on the world stage, making it harder to secure any form of trade deal. When people do not believe what the government is saying, that uncertainty itself has a deterrent effect on economic activity. If there is one thing that we have learned, it’s that long-term growth requires long-term plans and long-term plans require credibility.

Mani Basharzad and Bryan Cheang tell “what this year’s Nobel Prize in Economics should teach policymakers about the limits of their power.”

Alan Charles Raul ponders the fraying of the rule of law in the United States. A slice:

The rule of law has mostly held. In Marbury v. Madison, the Supreme Court declared that in “a government of laws, and not of men,” it is “emphatically the province and duty of the judicial department to say what the law is.” In Youngstown, the Court stopped President Harry Truman from seizing the steel mills, even in wartime and notwithstanding the national security context. Justice Robert Jackson’s concurrence anticipated precisely the present weakness in our constitutional governance where a president would dispense with the constraints of law and separated powers: “Congressional inertia, indifference or quiescence,” Jackson wrote, would “enable, if not invite, measures on independent presidential responsibility.” Jackson’s essential lesson was that history has discovered “no technique for long preserving free government except that the Executive be under the law.”

America now confronts a challenge to that technique. In Donald Trump, we have a president who will not agree to be governed by quaint theories of checks and balances, at least so long as Congress can fairly be described as inert, indifferent, and quiescent. Madison believed that an ongoing contest of wills between ambitious legislators and chief executives would keep arbitrary power in check: “Ambition must be made to counteract ambition.” He would be astonished by today’s legislative capitulation.

But the Convention also framed the presidency with George Washington before its eyes — a president who pledged to a foundation for government predicated on “the pure and immutable principles of private morality,” by which he meant virtue, honesty, and respect for what the Declaration invoked as the “Laws of Nature and Nature’s God.” Our Framers never could have expected a president to profess to be restrained “only by my own morality,” rather than by law and fiduciary duty to the public. That is not the hallmark of a constitutional presidency; it is instead a Prince’s creed.

On the legal front, the current-day news is mixed. On emergency tariff powers, the Supreme Court deferred to Congress and reined in the president. On birthright citizenship, the justices sided with the plain words of the Fourteenth Amendment over the president’s intransigent ones. And in the Census and Federal Reserve cases, the chief justice called out presidential “pretexts,” reminding judges that they are “not required to exhibit a naivete from which ordinary citizens are free.” Put less euphemistically, this means that many judges, and some justices, believe the present government is routinely lying to them.

Overall, though, the Court has catered to untrammeled presidential power by summarily reversing scores of lower-court rulings on its “shadow” docket, often without explanation. But the unmitigated apogee of undue deference to the presidency came in Trump v. United States. There, the Court’s majority invented a nearly absolute presidential immunity from federal criminal law and did so in a case concerning the efforts of a president qua candidate to overturn an election by hook or by crook. Unless we can find a way to fix this, America can no longer claim that no man is above the law.

Citing a Financial Times report, Doug Irwin tweets: (HT Scott Lincicome)

Some people thought protectionism would be a political winner. 🤔

Republicans turn on Donald Trump’s tariffs in battle for ‘political survival’