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Here’s a letter to a new correspondent.

Mr. B__:

You label as “drivel and nonsense” my (satirical) proposal that the U.S. government protect domestic automakers by punitively taxing automobiles kept for longer than five years. “No one reasonable,” you write, “thinks keeping cars longer threatens our auto makers like imported cars do.”

I agree that almost no one recognizes that extending the life of existing automobiles reduces the demand for newly produced automobiles every bit as much as does the importation of automobiles. But my point is that people should recognize this reality, for it helps expose the case for protective tariffs on automobile imports as, well, drivel and nonsense.

In 2024, Americans bought 16.1 million new automobiles. Thirty-nine percent of these vehicles – or 6.3 million – were imported. (So in 2024, sales of new American-made cars were roughly 10 million.) In that same year (according to Claude), Americans relinquished between 10 to 12 million vehicles in order to purchase newly produced automobiles. If each of these relinquished vehicles were instead kept for one year longer, that number would swamp that of imported vehicles.

It follows that if the threat posed to America’s economy by imported automobiles is so great that the government is justified in punitively taxing Americans’ purchases of imported vehicles, then the threat posed by extended-life automobiles is even greater, thus requiring even stronger government efforts to discourage Americans from extending the lives of their existing automobiles.

If you extend the life of your car in order to save money, would you be cool with the government penalizing you for this effort? If not, why are you cool with the government penalizing you for buying an imported car in order to save money?

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 a letter to the Wall Street Journal.

Editor:

You report that because “Americans are keeping their cars longer than ever … the average vehicle on U.S. roads is about 13 years old, a historic high and a 10% jump from a decade ago” (“Americans Are Keeping Their Cars Longer Than Ever – and Remaking the Auto Industry,” June 6). One result, of course, is reduced demand for new American-made automobiles.

The Trump administration insists that its tariffs on imported automobiles are necessary to protect the U.S. auto industry and America’s industrial economy. Shouldn’t the administration, then, also impose tariffs (that is, taxes) on Americans who keep their cars too long – say, beyond five years? After all, the demand for newly produced American-made automobiles – for U.S. industrial output – is reduced no less by Americans who lengthen the time they keep their old wheels than it is by Americans who purchase imported cars.

If the endeavor to make America’s economy great again requires that government restrict Americans’ choices in order to raise the demand for newly produced American cars, that endeavor must include not only tariffs on auto imports but also punitive taxes on cars maintained and kept longer at home – and, by the way, also on the sale of used cars.

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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Sheldon Richman rightly cheers Jeff Bezos’s defense of large fortunes earned in market economies. Two slices:

When an American businessman defends the large fortunes made—that is, earned—in the marketplace, it’s something to celebrate. Jeff Bezos, the creator and head of Amazon.com, did just that in a recent wide-ranging interview on CNBC’s Squawk Pod with host Andrew Ross Sorkin on May 20, 2026.

While his remarks on political philosophy did not go far enough in defending the morality of money-making, they went farther than anything we have heard from a businessman in quite some time, if ever.

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Here is Bezos, one of the richest men in the world, claiming that being worth a billion dollars or more is not immoral when it comes from pleasing consumers.

He elaborated:

There was one outlet. Then there were two. Then there were three. The way to you made the billion dollars or hundred million dollars or 10 million dollars or anything is that you create a service that people love, and if millions of people choose your service, you’re gonna end up with a billion dollars.”

Mind-blowing, no? This wasn’t Ludwig von Mises or Ayn Rand or Milton Friedman defending the earning of great wealth through production. It was a guy who actually did it. He’s proud, as he should be. He innovated, executed his plan, benefitted hundreds of millions of people beyond calculation—and, as a result, did extraordinarily well for himself. (Like other wealthy people, Bezos consumes only a tiny percentage of the total value he creates.)

Why would anyone begrudge such a person the fruits of his labor? Many motives can explain the animosity, among them, envy and sheer hatred of achievement. To be more charitable, however, we can add “ignorance” to the list. Some clueless people may really believe that Bezos has more because others have less.

The Editorial Board of the Wall Street Journal is correct: Donald Trump’s enthusiasm for government taking partial ownership of – “stakes in” – private companies is a step down the same road on which Bernie Sanders now calls for government to seize 50 percent of the equity in AI companies. Three slices:

Many of America’s worst policy mistakes have been bipartisan mind melds. A new example comes this week from Bernie Sanders, who wants the feds to take ownership stakes in AI companies. Hmmm. Which Republican might have inspired this statist brainstorm?

Mr. Sanders teased his forthcoming legislation in a New York Times op-ed that pitched a U.S. AI sovereign wealth fund. “Even President Trump, in an executive order, has proposed establishing an American sovereign wealth fund,” Mr. Sanders writes.

Yes, and we blasted the President’s idea last year. Sovereign wealth funds typically enrich a country’s rulers and friends far more than its citizens. Democrats criticize the Trump family businesses for profiting from the Presidency with crypto deals. Imagine the temptation for corruption if government owns stakes in America’s wealthiest companies.

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The unhappy truth is that President Trump helped pave Mr. Sanders’s road to AI socialism with his industrial policy. In return for approving Nippon Steel’s acquisition of U.S. Steel, Mr. Trump demanded a “golden share” that gives the government veto power over major business decisions. He has already blocked the closure of an unproductive Illinois plant.

The U.S. took a 9.9% equity stake in Intel last summer as it floundered. Mr. Trump claims credit for the subsequent 300% surge in Intel’s share price. He should really thank the business decisions of CEO Lip-Bu Tan—whom he had earlier called to resign—and insatiable demand for chips by AI hyperscalers.

The Administration has also taken equity stakes in critical mineral developers MP Materials, Lithium Americas, Vulcan Elements, Trilogy Metals and USA Rare Earth. There may be some cases when the feds need to invest for security or defense needs, but Mr. Trump is doing it with little restraint. This week he invested in coal plants, of all things.

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The U.S. leads the world in AI because entrepreneurs and investors have combined to innovate and compete. Political control would stifle that growth and cede leadership to China. It would be a tragedy for the ages if AI became the road to American socialism.

Matt Yglesias tweets: (HT Scott Lincicome)

It’s so funny to me that the “take stakes” euphemism has talked Republicans into doing nationalization of industry.

Jeffrey Depp writes insightfully about AI, as well as about the arrogant – and in many cases, venal – itch to have government regulate it. (HT Alden Abbott) Two slices:

The more fundamental question is whether either level of government possesses the knowledge, incentives, or institutional capacity to regulate a technology evolving at extraordinary speed. Before deciding who should regulate AI, we should first ask whether government can regulate it effectively at all.

The answer is no.

Critics of AI regulation often focus on innovation, competitiveness, or economic growth. Those concerns matter. But they are secondary to a more fundamental insight developed by economists associated with the Austrian and Virginia schools of political economy. The problem is not simply that regulation may slow innovation. It is that neither federal nor state regulators possess the knowledge necessary to determine what AI should become. And even if they did, the political process would steadily transform limited oversight into expansive control.

The result is a regulatory project almost certain to fail on its own terms.

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Israel Kirzner extended Hayek’s insight by emphasizing entrepreneurial discovery. Markets are not static systems moving neatly toward equilibrium. They are dynamic processes through which entrepreneurs discover opportunities others have missed. Competition matters not because it produces a predetermined outcome, but because it reveals information nobody previously recognized.

AI development exemplifies this process. No regulator predicted the explosive growth of prompt engineering—the practice of shaping inputs to get better outputs from AI systems. Few anticipated the rapid rise of AI coding assistants. Fewer still foresaw how quickly businesses would integrate generative AI into legal services, drug discovery, customer support, software development, and scientific research. Those discoveries emerged through experimentation.

That poses a serious problem for regulators. Any reporting requirement, disclosure standard, certification process, or safety framework necessarily reflects current knowledge. It embodies policymakers’ best understanding of responsible AI development at a particular moment.

But what if that understanding is wrong? More realistically, what if it is incomplete? The danger is not merely that regulators may make mistakes. It is that regulation freezes today’s assumptions into tomorrow’s rules.

A reporting framework developed in 2026 reflects what policymakers believe AI risks and opportunities look like in 2026. Yet the market’s understanding of those risks and opportunities may look entirely different in 2028 or 2030.

The great Bruce Yandle counsels Trump to be more realistic and modest.

Ben Zycher bids “good riddance to the SEC’s climate disclosure requirement.” A slice:

Climate policy — the political control of energy supplies — is tailor-made for the achievement of leftist ideological goals unrelated to the environment. Accordingly, the environmental left will not and cannot abandon climate alarmism.

Sooner or later there will be a left-wing U.S. administration with control over the various regulatory agencies. Accordingly, such policies must be opposed vigorously, and pulled out by the roots in whatever form they are found.

Eric Boehm decries the Trump administration’s continuing efforts to escape its legal and ethical obligation to refund the tax – a.k.a. tariff – revenues that it unlawfully collected from Americans.

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… is from Alexander Hamilton’s Report on Manufacturers, which was submitted to the U.S. House of Representatives on December 5th, 1791:

The question must still be, whether the surplus, after defraying expences, of a given capital, employed in the purchase and improvement of a piece of land, is greater or less, than that of a like capital employed in the prosecution of a manufactory: or whether the whole value produced from a given capital and a given quantity of labour, employed in one way, be greater or less, than the whole value produced from an equal capital and an equal quantity of labour employed in the other way: or rather, perhaps whether the business of Agriculture or that of Manufactures will yield the greatest product, according to a compound ratio of the quantity of the Capital and the quantity of labour, which are employed in the one or in the other.

DBx: This quotation is drawn from that part of Hamilton’s Report on Manufacturers in which he debunks – brilliantly – physiocracy, which is a theory that all economic value ultimately is created by agriculture and not by manufacturing (or by any other economic pursuit). (Hamilton undoubtedly was taking aim at Thomas Jefferson’s romantic embrace of the agricultural economy.)

A greater deployment of resources to agriculture draws resources away from manufacturing – thus requiring, if we’re concerned about the economic consequences, a comparison of the value of the additional agricultural output to the value of the foregone manufacturing output. If the latter is greater than the former, the perceived positive value of the additional agricultural output does not economically justify the production of that output, for its production brings about the loss of greater economic value that could have been produced by more manufacturing activity.

Exactly so. But Hamilton’s point is more general. It applies to the increased outputs of any goods or services, regardless of how these outputs are classified (for example “manufacturing” or “services,” or “semiconductors” or “machine tools” or “children’s dolls”).

Industrial-policyists, although frequently citing Hamilton in support of their schemes, stubbornly ignore this important point: No domestic industry or firm can be expanded without causing some other domestic industry or industries, or firm or firms, to be smaller than they would otherwise be.

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Here’s a letter to the Wall Street Journal.

Editor:

You asked five prominent economists to offer ideas “for reducing income inequality” (“Five Ideas for Reducing Income Inequality,” June 5). Of the five, only John Cochrane dared come close to challenging your question’s faulty premise – namely, that large income differences in a market economy are a problem that demands government attention. In markets, incomes are produced and earned, and they rise with the size of the contributions income earners make to the material welfare of their fellow human beings. There is no ‘problem’ here over which to wring our hands.

What does warrant hand-wringing is the economic misunderstanding of too many prominent economists. Emmanuel Saez, for example, in unimaginatively proposing to soak the rich, is apparently unaware that such soaking will – in addition to discouraging entrepreneurial innovation – deplete the stock of capital, thus reducing worker productivity and, in turn, lower real wages. Glenn Hubbard, in pinning the blame for the growth in income difference on globalization and technology, too readily accepts the claim – first peddled by progressives and now also by MAGA conservatives – that many ordinary Americans haven’t prospered over the past few decades. This claim has been thoroughly refuted by careful researchers, including Jeremy Horpedahl, Michael Strain, and Phil Gramm, Bob Ekelund, and John Early.

Also baseless is Heather Boushey’s allegation that the decline of labor unions resulted in workers having too little bargaining power. Another careful researcher, Scott Winship, finds that, although the percentage of workers who are members of unions has been falling since 1955, inflation-adjusted worker pay since then has not only been rising, but has kept pace with rising worker productivity – proof as solid as proof gets that labor-market competition continues to ensure that workers aren’t underpaid.

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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My intrepid Mercatus Center colleague, Veronique de Rugy, explains that European-style “single-payer” health coverage will simply not work in the U.S. if Americans insist on having anything close to excellent modern health care. A slice:

OK, but what about Europe and Canada? Progressives inevitably say: They made it work! This is a rhetorical sleight of hand that collapses on contact with basic facts.

European countries built modest, government-controlled health infrastructures from the ground up over several decades. They contained costs—meaning, among other things, they rationed care—as they expanded access. America did the opposite.

We built the most expensive, technologically advanced, sprawling health system in human history, which consumes nearly 20 percent of gross domestic product (GDP), under mostly private incentives and market pricing. As [Jessica] Riedl puts it, “We cannot simply pay European prices for the more vast American health infrastructure that exists.”

The central theory of single-payer savings has always been this: Slash payments to providers to offset the surge in the use of universal, no-cost-at-point-of-service coverage. The Congressional Budget Office (CBO) took a serious look at this fantasy. Its conclusion was that national health expenditures might actually rise, and demand for care would outrun supply. The final result would be European-style rationing, delays, and forgone services, all leading to worsening health care.

Richard Burkhauser and Kevin Corinth report on their new research into poverty in the U.S. Two slices:

From 1939 to 1963, the overall poverty rate—using our post-tax, post-transfer income measure (excluding health insurance)—fell from 48.5 percent to 19.5 percent, a 29.0 percentage point reduction in just under a quarter century. This decline in poverty was accompanied by a 76 percent increase in real median income over the same period, reflecting the United States’ strong economic growth following the Great Depression in the 1940s and the post-war boom in the 1950s. Between 1963 and 2023, the poverty rate fell by another 15.7 percentage points to 3.7 percent. However, the pace of poverty reduction was no faster after the War on Poverty began than before, even when applying a consistent initial poverty rate (19.5 percent) to compare trends in each period. Under this approach, poverty fell to 5.8 percent between 1939 and 1963 but only fell to 7.8 percent between 1963 and 1987.

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Our findings show that poverty fell substantially prior to the War on Poverty, primarily due to increases in market income, without a substantial rise in the dependency of working-age adults and their children on government transfers for most of their income. Poverty continued to decline after the War on Poverty began, but this progress was sustained only by the increasing generosity of transfers, as market income poverty rose and dependency increased. It was not until the welfare reforms of the 1990s and the recovery from the Great Recession that poverty and dependency fell simultaneously. These trends were particularly stark for black people, who experienced a steep decline in poverty before the War on Poverty, primarily driven by an increase in their market income, and a large rise in dependency after it began.

Ryan Bourne and Nathan Miller make clear that “raising the federal minimum wage is a solution in search of a problem.”

Wall Street Journal columnist Joseph Sternberg reports on Beijing’s decision to liberalize the market for labor in China – happy news for the Chinese people as well as for people outside of China who trade with the Chinese people. Here’s his conclusion:

China’s economic slowdown risks significant political and social consequences the regime may struggle to manage and that could get ugly. Still, this is all the more reason to cheer one of the rare occasions when the government’s solution is an expansion of freedom for hardworking Chinese migrants.

GMU Econ alum David Hebert unpacks the import price index.

Brian Albrecht argues powerfully against proposals to tax computer-processing capabilities.

John Stossel wisely counsels that Benjamin Franklin’s counsel remains relevant.

David Bahnsen eloquently champions freedom.

Acyn shares this small yet telling example of the utter cluelessness and illogic (unless tendentiousness at all costs is logical) of Batya Ungar-Sargon and other supporters of Trump’s tariffs punitive taxes on Americans’ purchases of imports: (HT Scott Lincicome)

Ungar-Sargon: The American people who voted for Donald Trump are hurting. He has to somehow alleviate the pain. The best way to do that is a stimulus check. He needs to give them a tariff rebate.

Phillip: Weren’t you an advocate for the tariffs?

Ungar-Sargon: Yes

Phillip: Why are you asking for a rebate?

Ungar-Sargon: We brought in $200 billion in tariffs. And we should now take some of that money and give it to Americans who are struggling.

Phillip: That money already has to be refunded because most of it was illegal.

Ungar-Sargon: That’s actually not clear they have to be refunded.

Phillip: There refunds are happening right now. If tariffs are a good idea—

Ungar-Sargon: Yes, I’m so glad we have that money

Phillip: Why would we have to rebate that money in stimulus checks?

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… is from page 23 of the 1994 Liberty Fund edition of Adam Smith’s remarkable 1759 book, The Theory of Moral Sentiments:

Society and conversation, therefore, are the most powerful remedies for restoring the mind to its tranquillity, if, at any time, it has unfortunately lost it; as well as the best preservatives of that equal and happy temper, which is so necessary to self-satisfaction and enjoyment. Men of retirement and speculation, who are apt to sit brooding at home over either grief or resentment, though they may often have more humanity, more generosity, and a nicer sense of honour, yet seldom possess that equality of temper which is so common among men of the world.

DBx: Adam Smith – or so says his gravestone – was born on this date, June 5th, in 1723.

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Here’s a letter to the Washington Post.

Editor:

The Trump administration’s latest excuse – of which you’re wisely skeptical – for imposing, this time under Section 301, broad punitive taxes (a.k.a. tariffs) on Americans’ purchases of imports is that it wishes to combat forced labor (“Trump tries a new trick to raise tariffs,” June 4).

Every civilized person sympathizes with prohibitions on the sale and purchase of goods produced by slaves. Yet every such person also understands that protectionists have incentives to abuse this sympathy by exaggerating the extent to which the stream of commerce contains slave-produced goods. In this light, here are some relevant facts (gathered with the help of Claude).

In China, which is the trading partner accused as being most reliant on forced labor, the upper estimate of the number of forced laborers is 3.17 million. Now looking at other data from 2024 – and making assumptions as generous as possible to the administration’s case – we have these additional facts:

– Total number of manufacturing workers in China: 120 million

– Annual U.S. imports of manufactured goods from China (including estimates of transshipments): $542 billion

Even if (contrary to fact) all forced-labor workers in China work in manufacturing, that means that 2.6 percent of China’s manufacturing workers are forced laborers. Assuming (also almost certainly contrary to fact) that the productivity of these workers is as high as that of China’s non-forced-labor manufacturing workers ($39,000 per worker), the value of U.S. manufactured-goods imports from China that is produced by forced labor is likely around $14.1B. With total U.S. imports of manufactured goods being $2.71 trillion, the maximum share of U.S. manufactured-goods imports that is produced by Chinese forced labor is 0.5 percent.

As a portion of total annual U.S. production of manufacturing output – $7.1 trillion – U.S. imports of forced-labor manufactured goods from China are a paltry 0.2 percent.

These numbers strongly suggest that the effects on America’s economy of forced labor in China are too minuscule to meet Section 301’s requirement that the challenged actions be shown to burden or restrict U.S. commerce. You are indeed wise to doubt the sincerity of the administration’s latest excuse for obstructing Americans’ freedom to trade, as a far worse source of such burdens and restrictions is the administration itself.

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 Editorial Board of the Washington Post sees right through the Trump administration’s latest cynical effort to escape the legal limitations on its ability to punitively tariff – that is, to punitively tax – Americans’ purchases of imports. A slice:

The Trump administration keeps pursuing creative ways to impose tariffs after setbacks in the courts and amid a lack of support on Capitol Hill. The latest gambit came late Tuesday when the U.S. trade representative announced plans to raise tariffs between 10 percent to 12.5 percent on 60 countries for not being aggressive enough about combating the use of forced labor in their supply chains.

This is clearly a pretext for protectionism. If it weren’t, China wouldn’t be subject to the same new import taxes as Japan, South Korea and Switzerland.

Also quite skeptical of the Trump administration’s latest gambit to impose tariffs unlawfully is GMU Scalia Law’s Ilya Somin. Two slices:

I am extremely skeptical of the claim that all of these sixty countries – including numerous affluent liberal democracies – are actually more lax about importing goods produced by forced labor than the US is. And if forced labor were really the concern, there would be no reason to impose massive tariffs on virtually all imports from those nations, even though the vast majority of those goods have little or no connection to forced labor. It sure looks like the forced labor issue is just a pretext for large-scale protectionism of the same kind courts blocked earlier. This looks like yet another presidential power grab seeking to usurp Congress’ authority over tariffs, granted by Article I of the Constitution.

…..

Ultimately, the new Section 301 tariffs appear to be yet another attempt to give the president a blank check to impose tariffs at will. The same is true of the administration’s plans to use Section 301 to target “structural excess capacity,” which rely on the absurd premise that it is somehow an unfair trade practice for countries to be able to produce more goods than they can use themselves.

About the Trump administration’s foot-dragging on its obligation to refund the taxes that it illegally collected from Americans, Douglas Holtz-Eakin tweets:

This is just outrageous.

Gale Pooley tells of how the Gillette company “built an abundance revolution.” Three slices:

Simple ideas often appear obvious in retrospect, but simplicity is usually the far edge of genius.

Men’s facial fashions were shifting rapidly in the late 1800s: the beard was out, the clean-shaven chin was in, and the mustache had to be perfect. To maintain this look, men either visited the barber two or three times a week, or shaved themselves, a risky alternative. The “cutthroat” straight razors demanded constant sharpening, and punished even small mistakes — especially for beginners or anyone pressed for time.

[K.C.] Gillette’s insight was simple: don’t sharpen the blade — replace it with something safe, affordable, and convenient.

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Under Gillette, shaving ceased to be a tedious chore performed with a dangerous blade. It became part of the modern masculine ideal. The right razor promised confidence, precision, cleanliness, and success — the same virtues embodied by the athletes and heroes in his advertisements.

Later, using an elaborate formula, Gillette figured that the monetary value of the time men saved each year using his razor was equal to the entire capital of US Steel, valued at around $1.5 billion at the time.

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What began as a dull blade before a mirror in Boston became a revelation: knowledge can redeem time. Gillette became a global engine for transforming human ingenuity into billions of dollars of value and billions of liberated hours.

In 1903, Gillette sold 51 razors. A century later, Procter & Gamble purchased the company for $57 billion. Steel did not become more valuable. Steel is abundant and nearly worthless without the mind. The value resided in the invisible architecture of human creativity — metallurgy, machinery, chemistry, branding, logistics, engineering, and trust — accumulated across generations and poured into a single morning ritual. Accumulated manufacturing knowledge compressed time prices downward, making what was once a luxury nearly universal.

“Do you trust the government to control AI?”

Tosin Akintola is correct: “Bernie Sanders’ AI wealth fund bill shows that he doesn’t understand AI or wealth.” A slice:

And while Sanders frames “tech oligarchs” as modern-day robber barons, he proposes an idea commonly used by real oligarchs and authoritarians across the world to prop up illiberal regimes, illegally funnel money, and wield unchecked power over their citizens.

In Russia, President Vladimir Putin is draining the country’s National Wealth Fund for his war in Ukraine, against the advice of the nation’s financial monitors. Iran uses its National Development Fund to finance terrorist groups such as Hezbollah, Hamas, and its shadow police force, while Saudi Arabia’s wealth fund is regularly used to facilitate human rights abuses, according to a 2024 report from Human Rights Watch. While it’s unlikely that an American wealth fund would be used this nefariously, recent cases of fraud show it’s not unreasonable to assume that an unappropriated pot of hundreds of billions of dollars could tempt officials.

George Will applauds Lamar Alexander’s new memoir. A slice:

Edmund Burke, the fountainhead of modern conservatism, warned against purely performative politicians, of which America today has a surfeit. They “make themselves bidders at an auction of popularity,” and become “flatterers instead of legislators.” By them, “moderation will be stigmatized as the virtue of cowards, and compromise as the prudence of traitors.”

Arnold Kling writes of the books that he has re-read.

Ryan Streeter remembers the late Economic Nobel laureate Edmund Phelps. A slice:

His 2013 book, Mass Flourishing, makes the case that “relatively modern-capitalist economies are more rewarding in nonmaterial terms than the relatively corporatist or socialist economies.” Societies that encourage and reward indigenous innovation by freely allowing investment and competition to select the winners and losers, rather than state actors and rent-seekers, always come out ahead. But, again, this is not merely a statement about policies and institutional arrangements. “[A]s important as institutions and policies may be, we must recognize that every economy is a culture or mix of cultures, not just policies, laws, and institutions,” Phelps writes.

The economic culture of a nation consists of prevailing attitudes, norms, and assumptions about business, work, and other aspects of the economy. These cultural forces may affect the generation of nonmaterial rewards indirectly through their influence on the evolution of institutions and policies, but also very directly through their impact on participants motives and expectations.

Put another way, he writes that an “economy may owe its vibrancy – its readiness to apply newly discovered technologies and adopt newly proven products – to one or more components of its economic culture; an economy may owe its dynamism – its success at using the creativity of people to achieve indigenous innovation – to some other components in its cultural repertoire.”