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Here’s the next part of my exchange with a new correspondent.

Mr. D__:

Thanks for your reply to my email of yesterday. In your reply you write that “it is majorly unfair that foreign countries subsize exports sold here at below cost prices.”

I agree. But the unfairness isn’t to Americans; it’s to those foreigners who are taxed in order to increase the purchasing power of Americans. Just yesterday at my blog I featured a quotation from Milton Friedman who makes the case more eloquently than I can.

With respect, you seem to hold the implicit protectionist presumption that American producers are ethically entitled to a portion of the incomes earned by their fellow Americans. Putting aside concerns about national security (which you don’t raise), please explain why, say, an automobile producer in Michigan is so entitled to that portion of your income that you spend buying a car that, should you choose to buy a car from a producer in Japan or Germany, the government acts ethically if it punitively taxes your exercise of your freedom to choose. How is it morally acceptable for the government to improve the economic well-being of some Americans (those producing automobiles) by worsening the economic well-being of other Americans (car buyers, as well as those Americans not involved in producing automobiles)? As I see it, such government action is morally outrageous.

You’ll answer that it’s wrong to allow Americans to lose jobs to subsidized foreign goods – to which I respond: Why, exactly? Where is the ethical offense to Americans? I submit that there is none.

Suppose a wealthy foreign philanthropist donates two billion of his own euros to a German university, and, as a result, researchers at that university develop a technique for lowering the production cost of automobiles by 25 percent by dramatically reducing the number of workers required in automobile factories. Would it be wrong to allow Americans to buy foreign cars made with this new technique? Would it be wrong to allow U.S. auto factories to adopt this production technique? In both cases, note, many American autoworkers would lose jobs in exactly the same way they do when automobile production is subsidized by foreign governments. If you answer ‘no’ to these questions, I challenge you to explain why foreigners act unethically toward Americans by offering to sell us subsidized exports.

Why should we refuse to accept what Milton Friedman accurately describes as “reverse foreign aid” – aid that goes directly into the pockets of American producers that import some inputs, and American households who purchase imported consumer goods? How is it ethical for the U.S. government to prevent you from accepting such gifts?

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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Some Links

Wall Street Journal columnist Matthew Hennessey summons more people to the cause of basic economic enlightenment. A slice:

Yet each generation somehow produces naïfs who are certain that collectivism is the true longing of the human heart. They know they can make it work this time. The young voters who supported Mr. Mamdani were primed by their expensive educations to buy his line that capitalism is rigged in favor of the rich. All they’ve ever been told—by teachers, professors, TV and TikTok—is that markets are inhumane. Capitalism is rapacious and bad for the climate. They may never have heard a single word to the contrary.

This is a failure of education, yes. Basic economics is rarely taught in high school or required in college. But it’s equally a failure of public relations. Who is making a sustained and coherent public case for American-style capitalism? The field is wide open. We need new Milton Friedmans and Thomas Sowells.

The product itself isn’t the problem. Free markets have made life better, healthier and more prosperous in demonstrable ways for billions of people. Anticapitalists on both left and right struggle to make a serious case that things are worse now than they were 100 or 150 years ago. Take a moment to imagine life without washing machines or chemotherapy.

Competitive markets foster innovation and allocate resources with remarkable efficiency. They work. Even when markets come up short or create externalities like pollution, the incredible wealth they generate can be used to fill the gaps. When socialism fails, as it inevitably does, the only option is brutality. This always gets glossed over on MSNBC and CNN. I’d like to hear Mr. Mamdani explain how he plans to keep New Yorkers captive when his experiment goes south.

Markets are more than efficient, which would be argument enough in a head-to-head competition with socialism. They’re also moral. Markets enable willing and mutually beneficial exchange among free people. They abominate coercion. They encourage a belief that tomorrow will be better than today. No one would bother investing absent an expectation that it will pay off. Capitalism is synonymous with confidence in the future.

Arnold Kling shares insights about AI and productivity.

James Pethokoukis explains that “markets are good for a country’s pocketbook and its soul.”

Who’d a-thunk it?: “US manufacturing mired in weakness as tariffs bite.” (HT Scott Lincicome)

My intrepid Mercatus Center colleague, Veronique de Rugy, is understandably dismayed at the calamity that is the so-called “One Big, Beautiful Bill.” A slice:

Meanwhile, the bad amendments were made worse. For all the complaints and the “green new scam” label, the Senate utterly failed to terminate the Biden administration’s green subsidies. Read Alex Epstein’s summary and weep. And Senator Susan Collins (R., Maine) got all the subsidies she wanted and will pay for them by taxing the rich.

With Republicans like this, who needs Democrats?

For those of you who believe that the One Big Beautiful Bill Act will produce enormous growth, as projected by the Council of Economic Advisers, I have a bridge to sell you. There is only so much that the few good tax provisions in the bill can do.

GMU Econ alum Dominic Pino reports that the Trump administration is working to reduce the transparency of labor unions. A slice:

When President Trump appointed the Teamsters’ preferred nominee for secretary of labor, that meant unions were going to have access in a Republican administration like they haven’t had in decades.

One of the first pieces of evidence for that has surfaced in a proposed rule published Tuesday that would reduce union transparency. The administration wants to reduce the number of unions that have to file the most detailed public disclosure reports by raising the threshold for which such reports are required by law.

Bradley Smith is correct: “Campaign regulations are unconstitutional.” A slice:

But the problem goes deeper than the need to define “corruption” and balance it against the “urgency” of political speech. There is no constitutional basis for government to regulate political speech through campaign-finance laws.

When Congress passed the Federal Election Campaign Act in 1971, it claimed authority under its constitutional power to regulate the “time, place and manner” of elections. The Supreme Court accepted this premise without analysis in Buckley v. Valeo (1976). But political campaigns aren’t “elections,” and campaign-finance laws obviously don’t regulate the time and place of an election. But neither do they regulate the manner of holding an election. Dating may precede marriage, but it isn’t marriage. Similarly, campaigns precede elections, but those campaigns aren’t elections. They are speech: Americans are debating and talking about the candidates.

Elections are the casting and counting of votes. To run an election, the government must choose the date and polling places, manage voter registration, tally ballots and so on. Administering an election is far different from regulating a political campaign—a candidate or party’s conversations with voters. Campaigns consist of speech, publishing and assembly, three fundamental rights enshrined in the First Amendment.

When government regulates campaigns, it is directly and explicitly regulating protected First Amendment activity. Debate about issues and candidates happens every day in America, with or without an election pending. It isn’t possible to cabin off “election” speech from general political discourse, and there is nothing about regulating the manner of an upcoming election that allows the government to interfere in that public discussion. Congress not only lacks the enumerated power to do so but is specifically prohibited from doing so by the First Amendment.

Washington Post columnist Megan McArdle joins with the critics of Zohran Mamdani’s foolish proposal for government-run grocery stores. Two slices:

Even saving New Yorkers that percentage would be a challenge, because it’s really hard just to break even in the grocery business. It takes extensive experience and a relentless focus on implementation to keep the right stock on the shelves, to prevent theft while providing attractive and easily accessible displays, to cultivate workers who provide excellent customer service, and to keep spoilage down to acceptable levels. Order too few perishables, such as meat and produce, and your disgruntled customers will leave empty-handed; order too much and you’ll have to throw it away after it passes its expiration date, eating those narrow margins and plunging the business into the red.

…..

What’s that I hear from the back? They can save on rent by parking stores on city-owned land? My friend, let me introduce you to the economic concept of opportunity costs: A “free” location isn’t actually free if it means forgoing money you could have collected by leasing it, not to mention the tax revenue you’ll lose by substituting a city operation for a successful business.

GMU Econ alum Benjamin Powell makes the case that “Trump’s travel ban will not make Americans safer.”

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Fair Trade Is Unfree – and Unfair

Here’s a letter to a new correspondent.

Mr. D__:

Thanks for sending along Rep. Beth Van Duyne (R-TX)’s tweet that “Free trade must ALWAYS mean fair trade.” Endorsing this tweet, you say that “fairness in trade should always be our guide.”

I respectfully disagree.

My disagreement comes from no opposition to fairness; be assured that I endorse fairness just as fervently as do you and Ms. Van Duyne. Instead, my opposition comes from the fact that “fairness” is too inexact and open-ended a concept to serve as a practical guide to the making of public policy – evidence of which is that I can very easily make a credible case that the tariffs that you and Ms. Van Duyne think to be fair are quite unfair.

Is it fair that the U.S. government imposes protective tariffs (that is, punitive taxes) on key inputs used by American manufacturers of machine tools and farm equipment in order to increase the sales of American manufacturers of steel and aluminum? Is it fair for Trump to use part of your income as a bargaining chip to raise the incomes of American farmers? Is it fair for Trump – president of a country in which services are nearly 80 percent of its output – to ignore U.S. exports of services when complaining that we Americans import more goods than we export? Is it fair for Trump and other protectionists, in order to increase public tolerance for higher tariffs, to repeatedly falsely assert that America’s industrial economy has been “hollowed out”?

Is it fair for the government to decrease the purchasing power of your income in order to increase the purchasing power of some other American’s income for no reason other than that other American happens to produce outputs that compete with outputs offered for sale in America by non-Americans?

If you answer ‘no’ to the above questions, then you should intensify your skepticism of Trump’s tariffs.

One enormous advantage of free trade over fair trade is that the concept of free trade, compared to that of fair trade, is far more objective. Either the U.S. government does or doesn’t impose artificial obstructions on your ability to purchase from foreigners goods and services that are perfectly lawful for you to purchase from Americans. If the standard is free trade, public debate and litigation over how well this standard is being met will be much less frequent, intense, and inconclusive than if the standard is fair trade.

Moreover, because we Americans boast that ours is the land of the free, it’s only fair that our government should leave us free to trade.

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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Some Links

Jim Dorn exposes the immorality of protectionism. A slice:

But beyond making everyone worse off in material terms, tariffs and protectionism also violate the principles of freedom and justice that are the hallmark of a free society, or what Adam Smith called a “great society.” Limiting the range of choices open to people via protectionist measures clashes with the fundamental, natural right to be free to choose, bounded by a just rule of law. When the law is used to coerce people and prevent mutually beneficial exchanges rather than safeguard persons and property, the moral fabric of society is eroded.

The utilitarian argument for free trade is essential, but the moral and strategic case for free trade must be vigorously emphasized and defended. The best way to make America great again is to safeguard free trade and show the world that voluntary market exchange under a liberal constitutional order is a surer path to human dignity and progress than protectionism.

While reporting that “foreign investment in U.S. plummets amid trade uncertainty,” Bryan Riley also reveals the foundational inconsistencies in Trump’s ‘policies.’ A slice:

According to Commerce Secretary Howard Lutnick, “President Donald Trump is committed to bringing in trillions of dollars in new investment into the United States.”

Unfortunately, Trump’s advisors do not seem to share that goal. Peter Navarro, Trump’s senior counselor for trade and manufacturing, says foreign investment in factories like BMW’s in South Carolina is a “scam” that “doesn’t work for America.” Such factories are responsible for more than half of all vehicles assembled in the United States.

If they remain in place, Trump’s tariff hikes will continue to be a big roadblock to foreign investment. Tariffs on raw materials and imported components drive up the cost of producing goods in the United States, discouraging new international investment here.

More fundamentally, U.S. tariffs and quotas that restrict imports leave our trading partners with fewer dollars to invest in our economy and to purchase U.S.-made exports. The more we import, the more dollars our trading partners have available to invest in the United States. The less we import, the less international investment we receive.

The Wall Street Journal wisely includes George Selgin’s False Dawn among the ten best books that were reviewed in the WSJ in June.

Gary Saul Morson and Julio Ottino make clear that AI does nothing to reduce the truth or relevance of Hayek’s warning that social conflicts and economic problems have no scientific solution. Two slices:

It keeps happening—some shiny new idea or technology promises to solve all our problems. Give power to experts to arrange affairs “scientifically,” and poverty, oppression, disease, war and all human ills will disappear. Today, we are asked to trust artificial intelligence.

…..

Hayek called this “the fatal conceit”—the assumption that central authority can gather and use all relevant knowledge. Just as Soviet planners couldn’t capture the distributed knowledge embedded in economic decisions, today’s AI systems can’t aggregate and optimize all relevant social knowledge. Human behavior is too complex. Cultural context is too important and can’t be formalized.

This isn’t an argument against AI, but rather for humility about its limits. AI works best as a tool that enhances rather than replaces human judgment. It can help us process information, identify patterns and generate options. But it can’t substitute for the irreducibly human work of navigating competing values, managing trade-offs and living with uncertainty.

History suggests that attempts to engineer human complexity away don’t eliminate it. They merely drive it underground, where it erupts in unpredictable and often destructive ways.

Ramesh Ponnuru, unfortunately, is correct: “Republicans continue to profess deep concern about the federal debt even as their top priority is to pass a bill that will increase it by trillions of dollars.” Two slices:

But that’s not what the Republicans are doing. They’re not cutting projected spending by nearly enough to bring it in line with revenue — and they’re cutting that revenue further. The main driver of increased federal spending is not benefits for illegal immigration or “woke” programs, as Republicans sometimes suggest. It’s Medicare and Social Security. They get costlier every year without any active decision by Congress and the president. Existing law puts their growth on autopilot. Republicans have ruled out most ways of changing it.

They don’t want to pay the political price that would come from trying to rein in the growth of those programs. But they are making a choice to keep spending at a level they are not willing to fund.

…..

It would have been better if the tax cuts of the last several decades had accompanied spending restraint that kept the debt in check. But deficits were tolerable a generation ago. As the debt and the population of retirees rise, cutting taxes while increasing spending has become more and more reckless. The cynical take is that Republicans keep coming up with one phony argument after another to evade the fiscal truth. The more alarming truth is that they have done a good job of fooling themselves.

GMU Econ alum Adam Michel explains that “fossil fuel subsidies are mostly fiction, but the real energy subsidies should go.” A slice:

You’ve probably heard the claim that fossil fuels are heavily subsidized by the federal government. The Biden administration estimated there were at least $35 billion of fossil fuel subsidies in the tax code alone. Elon Musk recently expressed a similar sentiment, insinuating that oil and gas receive subsidies comparable to those received by electric vehicles and solar.

This common refrain simply doesn’t hold up. Official government data show that renewables are subsidized 30 times more than fossil fuels. Most of the subsidies are in the tax code, where 94 percent of the fiscal cost goes to green energy technologies. And even this breakdown is overstated. Most of what critics label as fossil fuel subsidies are standard tax treatments available to many industries.

In reality, the claim that fossil fuels are heavily subsidized simply doesn’t withstand scrutiny. While a few narrow subsidies exist and should be eliminated, the real outlier in the tax code isn’t fossil fuel subsidies but the scale of preferential treatment granted to renewable energy technologies.

Jay Schalin decries “the antisocial mind of the “Land Acknowledger.” (HT George Leef)

Yep – Zohran Mamdani does indeed talk like an unreconstructed communist.

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Quotation of the Day…

… is from page 45 of Milton & Rose Friedman’s great 1980 book, Free To Choose:

Another source of “unfair competition” is said to be subsidies by foreign governments to their producers that enable them to sell in the United States below cost. Suppose a foreign government gives such subsidies, as no doubt some do. Who is hurt and who benefits? To pay for the subsidies the foreign government must tax its citizens. They are the ones who pay for the subsidies. U.S. consumers benefit. They get cheap TV sets or automobiles or whatever it is that is subsidized. Should we complain about such a program of reverse foreign aid? Was it noble of the United States to send goods and services as gifts to other countries in the form of Marshal Plan aid or, later, foreign aid, but ignoble for foreign countries to send us gifts in the indirect form of goods and services sold to us below cost? The citizens of the foreign government might well complain. They must suffer a lower standard of living for the benefit of American consumers and of some of their fellow citizens who who own or work in the industries that are subsidized.

DBx: Yes.

It cannot be said too often that if you are truly a believer in “America First!,” you should – in addition to applauding rising U.S. trade deficits, which represent foreigners investing disproportionately in America rather than elsewhere – welcome foreigners’ selling to us Americans goods at prices below cost.

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Some Links

GMU Econ alum Matt Mitchell, writing at The Hill, explains that “America’s leaders confuse economic coercion for good exchange.” A slice:

The power to tax is widely accepted but fundamentally coercive. And the higher the taxes, the greater the coercion.

Outlawing mutually agreed upon prices between sellers and buyers — as both President Trump and former Vice President Harris proposed at some point — is also coercive, as are Trump’s tariffs, the first iteration of which were largely accepted by Biden.

In the pages of the Wall Street Journal, Phil Gramm (who was instrumental in crafting the 1996 welfare-reform legislation) and Mike Solon criticize today’s Republicans for “going wobbly on work.” Two slices:

In 1996 a Republican Congress passed, and President Clinton signed, a bipartisan bill imposing a work requirement of 30 hours a week for households with at least one working-age parent and 35 hours a week for households with two parents as a condition for receiving benefits under the Temporary Assistance for Needy Families program. Today, inflation-adjusted federal welfare spending is 2.7 times its 1996 level, the budget deficit is nine times as high, and the federal debt is four times as large. Polling data show unprecedented support for work requirements. Yet the welfare reform in the House reconciliation bill, which is now pending in the Senate, merely requires 20 hours a week as a condition for able-bodied working-age adults with no dependents to receive Medicaid and expands the current 30-hour requirement of the Supplemental Nutrition Assistance Program, to more beneficiaries. Why are these GOP work requirements weaker than those a Democratic president backed?

Though almost 80% of 2024 Trump voters support more work requirements for childless, able-bodied adult Medicaid recipients, GOP representatives from competitive districts seem to believe that since more low- and moderate-income Americans are voting for their party, Republicans should be generous with benefits. But it seems unlikely that welfare recipients opposed to work requirements would have voted for the GOP in the first place. And there’s no way Republicans can hold on to voters seeking handouts in the long term. Democrats always win a spending race.

…..

What is fair about taxing working Americans to give money to able-bodied people who refuse to work? Such a policy hurts both groups, trapping the latter in welfare dependency. Work is the ticket to opportunity and advancement.

A vote against controlling welfare spending today is a vote for raising taxes tomorrow. Social Security and Medicare face insolvency within eight years, the public debt is exploding, and the federal government spends roughly 70% of unobligated general revenues—total revenue not counting taxes and fees dedicated for specific purposes and interest payments on the federal debt—on social-welfare programs.

Art Diamond applauds T.J. Rodgers’s case against computer-chip industrial policy.

Pierre Lemieux is correct:

Both the left and the right are collectivist and opposed to the individualism of classical liberalism and libertarianism. This distinction between collective and individual choices seems to be the main line of fracture in modern ideologies.

Back in 2016, Julian Adorney unpacked one of the many reasons why smaller government is better than bigger government. Two slices:

It’s a lot easier to trust and champion big government if you assume that government is something that we all have a say in. But the fact is that, as an individual, your say is so miniscule that it doesn’t matter. The federal government will pass new laws and regulations regardless of what you want.

Many people accept this but argue that votes still matter in the aggregate. It’s true that, if 100,000 more people had voted for Clinton in a swing state like Pennsylvania, that could have had a big impact. But most of us don’t control 100,000 votes. Government is actually responsive to the kinds of people who can deliver thousands of votes (union bosses, heads of SuperPACs), but this is very different from being responsible to the average voter. We trust an institution that’s not accountable to us.

…..

The market puts each of us in the driver’s seat: every day we can vote with our dollars, and each vote matters a lot. By contrast, politics pushes us into the passenger seat and most often the driver doesn’t care what we want.

If we really want a society responsive to the people, we need smaller government and free markets.

Wall Street Journal columnist Andy Kessler reflects on the Fourth of July in the United States. A slice:

But beyond parades and fireworks and funnel cakes, defining the American identity is lost in the woods. It’s more than football or Beyoncé or Marvel movies or Caitlin Clark—let alone B-2 bombers and bunker busters.

For me, it starts with freedom. Individualism. A nation of builders (American for entrepreneur). A certain ruggedness and resilience with an extra-large dollop of dignity, caring and giving. Martin Luther King Jr. thought the American dream required “a tough mind and a tender heart.” I like that.

About the ‘democratic socialist’ who stands a good chance of becoming the next mayor of Metropolis, Mike Munger tweets:

One has to be careful.

The promise was not that the juice was free.

Rather, the promise was that the juice would be given away and someone ELSE would pay for it.

The problem with socialism is always that at some point you run out of “other peoples’ money”

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Quotation of the Day…

… is from page 126 of Thomas Sowell’s 2023 book, Social Justice Fallacies:

Many social policies help some groups while harming other groups. Affirmative action in academia manages to inflict harm on both the students who were not granted admissions, despite their qualifications, and also many of those students who were admitted to institutions where they were more likely to fail, even when they were fully qualified to succeed in other institutions.

DBx: Please join me in wishing Thomas Sowell a happy 95th birthday. May he have many more!

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Bonus Quotation of the Day…

is from Michael Strain’s June 10th, 2024, essay, “The Economic World We’ve Lost”:

It is no surprise that the rise of populism and economic nationalism has coincided with growing skepticism toward liberal democracy and growing comfort with political violence. The erosion of economic liberalism – free people, free markets, limited government, openness, global commerce – reflects a loss of respect for the choices people make in the marketplace. If we devalue choices made in markets, why wouldn’t we devalue choices made at the ballot box?

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