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… is from chapter 1 of William Graham Sumner’s 1885 volume, Protectionism: the -ism Which Teaches that Waste Makes Wealth:

Any one who says that it [a tariff] is not a tax must suppose that it costs nothing, that it produces an effect without an expenditure of energy. They do seem to think that if Congress will say: “Let a tax of—per cent. be laid on article A,” and if none is imported, and therefore no tax is paid at the custom house, national industry will be benefited and wealth secured, and that there will be no cost or outgo. If that is so, then the tariff is magic. We have found the philosopher’s stone. Our congressmen wave a magic wand over the country and say: “Not otherwise provided for, 150 per cent.,” and, presto! there we have wealth. Again they say: “Fifty cents a yard and fifty per cent. ad valorem;” and there we have prosperity! If we should build a wall along the coast to keep foreigners and their goods out, it would cost something. If we maintained a navy to blockade our own coast for the same purpose, it would cost something. Yet it is imagined that if we do the same by a tax it costs nothing.

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… is from page 57 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

One of the grandiloquent phrases used to silence those who complain about the economic costs of government policies to reduce some remote danger is this: “It’s worth it, no matter what it costs, if it saves just one life!”

This kind of talk might allow the anointed to feel nobler than thou, but stifling the economy with safety regulations – killing the goose that lays the golden egg – will itself cost human lives. A faster growing economy can easily save more lives than trying to stamp out some danger that affects very few people, if it affects anybody.

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This letter of mine will appear in the print edition of tomorrow’s Washington Post:

The July 19 news article “The U.S. saw the first ‘China Shock.’ Now the world gets the sequel.” reported that David Autor and his co-authors found that increased U.S. trade with China from 1999 through 2011 “displaced 2.4 million U.S. manufacturing jobs.” However, 2.4 million jobs is an upper-bound estimate of all jobs — manufacturing and nonmanufacturing — lost to trade with China. The estimate of manufacturing jobs lost is 985,000.

Perspective is also needed. A loss of 2.4 million jobs over a 13-year span is an average monthly job loss of 15,385. Yet from December 2000 (the earliest date for which good data is available) through December 2011 — thus, for the vast bulk of the “China Shock” years — each month, on average, saw about 2 million jobs destroyed. Even the maximum-estimated number of “China Shock” job losses is less than 1 percent of total job losses during those years.

The relatively minuscule number of jobs lost to increased trade with China combines with the far larger role that technology plays in destroying manufacturing jobs to suggest that the rise of Trumpian protectionism owes less to actual economic occurrences than to poorly informed tales about trade.

Donald J. Boudreaux, Fairfax

The writer is an economics professor at George Mason University.

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Eric Boehm is correct: “The trade war caused exports to Canada to fall. Now, Trump is pointing to that fact to justify more tariffs.” Two slices:

Even by the standards of Trump’s second term—which once included the attempt to place tariffs on an island inhabited only by penguins—this latest move against Canada seems economically illiterate and legally dubious. Like with all his tariffs, it will primarily be Americans who pay the cost.

…..

The Trump administration promised that its more bellicose approach to trade would pay dividends for American businesses, but now it is pointing to declining overseas sales as justification for an even more bellicose approach to trade. It turns out that pissing off the people who live in a neighboring country—a country that’s full of customers for American businesses—is a shortsighted strategy for economic growth. Who could have guessed? But no matter what happens, the White House’s answer is always the same: more tariffs. This is no way to run an economy or engage in international relations.

And here’s the Wall Street Journal‘s Editorial Board on Trump’s latest round of tariffs punitive taxes on Americans’ purchases of goods from Canada. Two slices:

What do you know? President Trump is conceding that his blunderbuss border taxes are harming U.S. business as other countries retaliate. So now he’s whacking Canada harder for punching back. The trade brawl could leave both countries with more bruises than a hockey fight.

The White House on Monday exhumed Section 338 of the 1930 Tariff Act to impose 50% tariffs on hundreds of Canadian goods, including hockey sticks, honey, beer, down feathers, fishing rods and golf clubs. The tariffs are set to take effect in 30 days, which means he’s using tariffs as leverage to win concessions from Canada.

He may also enjoy showing off his new tariff bazooka. Section 338 lets the President impose tariffs up to 50% on countries that discriminate against “commerce of the United States, directly or indirectly” in relation to foreign countries. No previous President has used this power, which hails from the disastrous Smoot-Hawley Act.

The provision was intended to let the President retaliate against countries that impose tariffs on the U.S. Mr. Trump is using the law to punish Canada for retaliating against his tariffs. His tariff order cites Canada’s 25% tariffs on U.S. cars that exceed certain quotas, which were a response to Mr. Trump’s 25% duties on motor vehicles and parts. According to the order, U.S. motor vehicle exports to Canada subsequently fell 22%, while Canadian imports from other countries increased.

…..

That may be why Mr. Trump is justifying his tariffs as retribution for Canada’s treatment of U.S. autos and dairy, which are key industries in the Midwest. But Canada is the second largest U.S. trade partner after Mexico, and Mr. Trump’s tariffs are complicating cross-border supply chains, raising costs and creating uncertainty for business.

The more Mr. Trump keeps swinging recklessly, the more Americans are likely to think there’s only madness in his tariff methods.

Phil Gramm and Jeb Hensarling bust myths about the 2008-2009 financial crisis. A slice:

Gramm-Leach-Bliley, of which one of us was the principal Senate sponsor, amended the Depression-era Glass-Steagall Act to allow banks, securities companies and insurance companies to affiliate under well-capitalized financial-services holding companies. But it didn’t deregulate anything. It established the Federal Reserve as a new superregulator overseeing all financial services holding companies. All activities of banks, security companies and insurance companies continued to be regulated under the same laws and by the same regulators as before, and by any measure Gramm-Leach-Bliley holding companies held up better during the financial crisis.

Contrary to the popular narrative, for at least three decades preceding the housing crisis, financial regulators gained more power and larger budgets and hired more personnel than ever. The Mercatus Center has found that from 1970 until the housing bubble burst, regulatory restrictions increased 250% and the number of regulatory personnel grew about 77%. There is no evidence that things would have been different if financial regulators had more authority or resources.

Ilya Somin exposes a contradiction at the heart of today’s so-called “Democratic Socialism.” A slice:

There is a blatant but generally ignored contradiction between socialism and prison abolitionism. Socialism requires making a wide range of economic transactions illegal, and those laws have to be enforced by some system of punishment. If, like the DSA, you want to ensure that “[f]ood, education, energy, medicine, and transportation aren’t for-profit businesses,” but instead make them “common goods,” you will have to make it illegal to provide those goods and services for profit and punish people who violate the relevant laws.

Historically, attempts to do this created vast black markets, especially since government control of these and other industries routinely resulted in shortages and low quality, caused by knowledge problems and poor incentives. I was born in the Soviet Union. Almost all my adult relatives and their friends and acquaintances were involved in illegal black market transactions of various kinds. Often, it was the only way to get even minimally decent-quality goods and services, including food, medicine, and transportation. For example, my mother’s two cousins operated a black-market auto repair business, which prospered because the official state-owned auto repair shops were predictably terrible and unreliable.

Socialist governments sought to suppress these activities through massive coercion. If they did not, the extent of black market activity would have been even greater, and socialism would have been even further undermined.

Similar logic applies to sweeping economic regulations that fall short of complete socialization. If, like many socialists, you want to impose severe rent control or very high minimum wages, you will have to punish people who dare rent out housing at higher rates or hire workers at lower wages. And such black market activities are predictable, because high minimum wages price numerous lower-skilled workers out of the market (thereby increasing unemployment) and rent control predictably creates housing shortages.

Brad Birzer reviews Aeon Skoble’s remarkable book, Deleting the State. A slice:

The Founders were skeptical of political community and coercive power more generally. In every way, they sought to limit political activity. The Founders—all citizen-philosophers and reliant upon history rather than abstract theory—gave us an escape clause in the Declaration of Independence: “But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.” Note, it is not just a right, but a duty to throw off such government. Further, of course, the Declaration offered a beautiful but minimalist image of the human person—made in the image of the Creator, endowed with certain unalienable rights, among these are life, liberty, and the pursuit of happiness.

The Northwest Ordinance of 1787, the blueprint for the republic’s western expansion, represents the most radical limitation on the political sphere during the Revolutionary period. Its Article II notes first that the common law is to reign supreme (thus, a truly conservative aspect of the Founding), but, second, that no association—family, school, business, or church—freely entered into and devoid of fraud may ever, in any circumstances, be limited by the political body or the political will. The Congress, upon being created (or recreated) under the Constitution, immediately reaffirmed the Northwest Ordinance, giving it a status no other law in history has had.

The Constitution, of course, properly understood, is nothing if not a restraining document. In case anyone wondered exactly what the Constitution could do, Amendments 9 and 10 restrict it to just its most minimal functions, demanding, for all intents and purposes, a literal reading of the document. If one has to engage in speculative interpretation of the Constitution, he or she has already failed. Either the meaning is plain, or it cannot be implemented.

Thus, the Founders did everything possible to help civil society flourish by limiting the political sphere as much as possible. Thomas Jefferson, of course, stated what should have been so obvious in his first inaugural address: “A wise and frugal Government, which shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government, and this is necessary to close the circle of our felicities.”

And yet despite all of these limitations, the federal government metastasized, especially in the century and a half since the Progressive period (1890–1920) began. Under Woodrow Wilson, under Franklin Roosevelt, under Lyndon Johnson, under both Bushes, under Barack Obama, under Joe Biden, and under Donald Trump, the government has become a cancer, uncontrollable and swallowing everything in its path. As the republic became a democracy, arrogance, violence, and imperialism became the norm, with the political sphere a body of locusts devouring all before it. Today, our constitution is entirely distorted (with, arguably, only the Supreme Court serving its original purpose), with government claiming authority over practically every aspect of social life.

My Mercatus Center colleague Jack Salmon predicts that the cost of living in Great Britain will soon rise even higher.

Kamden Mulder reports on a case – to be heard next term by the U.S. Supreme Court – on the banana-republic practice of civil asset forfeiture.

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… is from chapter 1 of William Graham Sumner’s great 1885 book, Protectionism: the -ism Which Teaches that Waste Makes Wealth;

Protectionism bars the science of political economy with a dogma, and the only process of the art of statesmanship to which it leads is eternal trial and failure—the process of the alchemist and of the inventor of perpetual motion.

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Here’s a letter to the Wall Street Journal.

Editor:

Among the reasons President Trump is imposing the newly announced 50% tariffs on Canadian goods is, as you report, White House opposition to “Canadian policies that require companies to invest in auto production in Canada, rather than the U.S.” (“Trump Imposes Additional 50% Tariffs on Certain Canadian Goods,” July 21).

The president apparently is unaware that these Canadian policies – by increasing U.S. investment abroad and decreasing foreign investment in the U.S. – ensure that U.S. trade deficits are lower than they would be absent these policies. Therefore, if the new tariffs decrease U.S. investment in Canada and increase Canadian investment in the U.S., U.S. trade deficits will be larger than they would otherwise be. Because U.S. trade deficits are Mr. Trump’s bête noire – the supposed beast that he has long wished to slay – this latest tariff announcement only further exposes the president’s ignorance of the economics of 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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Ilya Somin, a colleague over in GMU’s Scalia School of Law, criticizes Trump’s newly announced tariffs on Canada punitive taxes on Americans’ purchases of goods from Canada. A slice:

Georgetown University trade policy scholar Peter Harrell summarizes additional useful points about the new tariffs on Twitter, including some additional legal objections to them. Should the new tariffs come into effect, there will likely be legal challenges, and those challenges will richly deserve to prevail.

I would add that this is just the latest of a series of efforts by Trump to usurp congressional tariff authority and impose harmful and dangerous trade restrictions that damage the US economy and poison relations with our allies and trading partners, of which Canada is one of the most important. That includes the International Emergency Economic Powers Act (IEEPA) tariffs struck down by the Supreme Court in February, in a case I helped bring, the  Section 122 tariffs invalidated by the US Court of International Trade, his massive planned Section 301 tariffs, and – most recently – his threat to impose tariffs in Canada in response to wildfires there. Courts should continue to reject these dangerous power grabs and affronts to the rule of law.

Doug Bandow decries Trump’s use of the NATO summit to reinforce mercantilist policies.

Thomas Massie tweets: (HT Scott Lincicome)

The House will pass a $12 billion bailout for farmers suffering from high fuel & fertilizer prices caused by the Iran War, expensive equipment & parts caused by tariffs, and lower sales prices for commodities due to trade disputes with China.

But the GOP is fighting communism!

The Washington Post‘s Editorial Board makes clear that “the usually stodgy military industrial complex is benefiting from competition.” Here’s the conclusion:

The lesson for the Pentagon is simple: Keep the competitions coming, keep the start-ups funded and keep the primes hungry for contracts. Monopsonies tolerate and even encourage inefficiencies like hand-assembled missiles. Market discipline is less forgiving.

Here’s the abstract of a new paper by GMU Econ alum Ben Powell and his co-author Leonel Regalado Cardoso:

This paper empirically examines the impact of emigration to OECD countries on 132 origin countries’ economic institutions, as measured by the economic freedom index. We utilize public choice theory to explore how emigration can affect origin country economic freedom through voice and exit via absence, diaspora, prospect, and return channels. We then estimate the association between accumulated emigrant stocks and the subsequent changes in economic freedom and the association between contemporaneous emigrant flows and changes in economic freedom and investigate how these associations vary by emigrant skill. We find that for all skill levels, larger emigrant stocks are consistently positively associated with larger subsequent improvements in economic freedom but that at high levels of emigrant stocks these improvements diminish.

Writing in the Wall Street Journal, Marian Tupy explains what shouldn’t – but, alas, what always does – need explaining: “Big government inevitably invites corruption.” A slice:

The problem arose long before 2025. When government can make or break a business, businesses will invest in making friends with government, and the return on a lobbyist will exceed the return on an engineer. Corruption and discretionary power go hand in hand.

There is a remedy, though it comes from an unfashionable quarter. Libertarians have long argued for a wall between the economy and the state: a government confined to courts, defense and a handful of public goods—too small to be worth bribing. Nobody buys favors from an office that has no favors to sell. A president who can’t reward a donor with a tariff can’t be paid for one.

The Democratic Party rejects that remedy. Its answer to the corruption it decries is personnel: Elect us, and we will staff the agencies with people of integrity. The claim deserves scrutiny rather than applause.

James Buchanan, who received the 1986 Nobel Memorial Prize in Economic Sciences, and Gordon Tullock argued in their 1962 book, “The Calculus of Consent,” that politicians and bureaucrats respond to incentives just as merchants and consumers do. Buchanan called for “politics without romance.” Voters may imagine that office transforms self-interest into public spirit, but no mechanism exists to perform that transformation. The behavior of officials is governed by what the office rewards, not by what the campaign promised.

Friedrich Hayek, another Nobel laureate, carried the argument further in “The Road to Serfdom” (1944). A state that dispenses fortunes will attract the people most eager to dispense them; positions of discretionary power select for those who relish wielding it. Screening for virtue can’t prevent that, because the applicant pool is already sorted by appetite, and the appetite grows with the budget.

The Democrats’ proposed programs would let officials choose which factories rise. Subsidies for favored technologies would let officials choose which investors prosper. Price regulation would let officials decide which companies earn a profit—and which don’t. Every one of these tools gives officials more decisions to sell, and every decision worth money to a business is a decision some business will pay to shape. A party proposing to multiply the levers of economic power is proposing to multiply the buyers lining up to pull them.

Jonah Goldberg talks with Ron Bailey.

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… is from page 12 of Milton Friedman’s May 1972 Washington Monthly essay, “The Poor Man’s Welfare Payment to the Middle Class”:

The impression is given that a worker’s “benefits” are financed by his “contributions.” The fact is that taxes currently being collected from current workers are being used to pay benefits to persons who have retired or to their dependents and survivors. No trust fund in any meaningful sense is being accumulated. (“I am You.”)

A worker paying taxes today can derive no assurance from trust funds that he will receive benefits when he retires. Any assurance derives solely from the willingness of future taxpayers to impose taxes on themselves to finance benefits being promised by present taxpayers to ourselves. This one-sided “compact between the generations,” foisted on generations that literally cannot give their consent, may be sufficient assurance, but it certainly is a very different thing from a “trust fund.” A chain letter would be a more accurate designation.

DBx: Yes. And Social Security remains today very-much a chain-letter-like scheme.

….

Pictured here is Charles Ponzi.

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Here’s a letter to the Financial Times.

Editor:

Oren Cass’s attempt to discredit economists’ support for a policy of liberal immigration is flawed (“Mass immigration is not the silver bullet economists think it is,” July 10). For example, consider this question that he poses rhetorically: “If employers believe they will always have access to a large pool of readily exploitable labour, why would they shift their business models and operations towards better jobs or invest in higher productivity?” Mr Cass thinks it obvious that the answer is that ‘they never would.’

But he’s mistaken. A larger labor force creates a larger market which, as Adam Smith taught, encourages greater specialization. Greater specialization, in turn, increases worker productivity and wages. Further, low-skilled workers aren’t only substitutes for machines, they can also complement machines and, thus, encourage mechanization. Northwestern economist Joseph Ferrie documented that “the transformation of manufacturing from manual to mechanical methods occurred most rapidly in [geographic] areas where a large unskilled labor force suddenly became available in the 1840s and early 1850s.”*

Consider also that immigration in the US throughout the 19^th century was largely unrestricted, and rates of immigration were often very high. Nevertheless, real wages rose. Data on wages for the first half of that century are sketchy, but better for the second half – over which time (1850-1900) real hourly wages roughly doubled,** as the per-capita size of the US capital stock also at least doubled.***

Mr Cass’s understanding of economics is too simplistic.

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

* “A Historical Perspective on High-Skilled Immigrants to the United States, 1820-1920,” in Barry R. Chiswick, ed., High-Skilled Immigration in a Global Labor Market (Washington: AEI Press, 2011), page 37.

** I’m on vacation, and hence away from my books, so for estimates of wages I relied on Claude.

*** Calculated from Table 4.3 in Robert E. Gallman, “The United States Capital Stock in the Nineteenth Century,” in Stanley L. Engerman and Robert E. Gallman, eds, Long-Term Factors in American Economic Growth (University of Chicago Press, 1986), along with U.S. Census Bureau numbers on population: 23.2 million in 1850 and 76.2 million in 1900.