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… is from page 290 the 2026 revised edition of Charles Koch’s 2020 book (written with Brian Hooks), Believe in People: Bottom-Up Solutions for a Top-Down World:

From Hayek, I learned that human well-being and progress come through a spontaneous order of cooperation and competition, guided “only by abstract rules of conduct,” and that the attempt to succeed by controlling and dominating people is a “fatal conceit” that will end in failure.

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I’m aware that I’m a broken record. But I’m a broken record only in response to the greater brokenness of a record that protectionists never tire of playing.

Mr. McKinney:

Thanks for sending along JB Macro’s essay “We Can’t Keep Living Like This” (May 20) – an essay that you insist “discredits” my “refusal to sound the alarm on US trade deficits.”

I disagree. Mr. Macro repeats a fallacy that’s been repeated umpteen times. Incessant repetition never renders a fallacy factual.

Focusing on China (although the point is more general than China), he writes that

the problem with this arrangement [i.e., net inflows of global capital to the U.S. economy] is that those savings are not freebies, they must be paid back in the future. Whenever Chinese savings are transferred to the US, China gains a financial claim on the US. This needs to be paid back at some point, and it would not make sense for China to keep stacking these claims up should it reach the point where the US might become a bad debtor.

First of all, the only savings that “must be paid back in the future” are savings that foreigners lend to Americans. And even then, if Americans use these borrowed funds productively, there is no time limit to American borrowing of such funds. Contrary to Mr. Macro’s argument, we Americans could indeed “keep living like this.”

Second and more fundamentally, when foreigners – including, of course, the Chinese – invest their savings in America in ways other than lending those savings to Americans, no Americans are obliged to ‘pay back’ those savings.

For example, the Korean owners of the Kia plant in West Point, Georgia, obviously expect a positive return on their investment. But they’ll earn such a return only if they operate that plant profitably. Such profits, it’s important to note, are created. These profits are wealth that would not exist were it not for the skilled foreign ownership and operation of that plant on U.S. soil. These profits aren’t extracted or withdrawn from Americans. And because payment of these profits to the plant’s foreign owners are not made by Americans – because these payments are made by the foreign owners of that plant – payment of these profits to foreigners does not reduce Americans’ net worth .

This economic reality is masked by the accounting convention that requires that those returns be recorded, in balance-of-payments accounts, as payments from America to Korea. Yet as I wrote yesterday, accounting ain’t economics. And nor is simple geography. Again, while the economic value out of which these payments are made is – because of America’s high-quality economy – generated on American soil, these payments are not made by Americans or by America.

Economically, it’s simply untrue that the U.S. cannot for the rest of time generate, year after year after year, the accounting artifact called “U.S. trade – or current-account – deficits.” Not only can we do so, we can do so in ways that enrich us as foreign capital, seeking opportunity and security, is drawn to our shores. And we should welcome such foreign capital rather than mistreat it – as it’s commonly mistreated – as both an effect of current economic extravagance and a cause of future economic burdens.

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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GMU Econ alum Julia Cartwright adds her clear voice to those who warn of the dangers of the U.S. government’s fiscal incontinence. Two slices:

As of March 31, 2026, government debt held by the public stood at $31.27 trillion, while nominal GDP over the prior 12-month period was $31.22 trillion, pushing the debt-to-GDP ratio to 100.2%. The federal government is currently spending $1.33 for every dollar it collects, running annual shortfalls near $1.9 trillion. If current policies remain unchanged, the ratio could climb toward 120% within a decade.

…..

The most direct consequence of the US debt burden is one already unfolding in the federal budget every day. The government now spends more on interest payments than on Medicare, national defense, Medicaid, veterans’ benefits, food assistance, transportation, and science. Interest costs reached $476 billion in 2022 and nearly doubled by 2025, hitting $970 billion. As a share of federal revenues, interest has risen to 18.5%, eclipsing the previous record set in 1991, and will likely reach 25.8% by 2036. Nearly a third of every income tax dollar collected goes to purely servicing existing debt, leaving less room for everything else the government is supposed to do.

That crowding effect spills directly into the lives of ordinary Americans. A typical 30-year mortgage costs over $500 more per month than it did in 2019. When the Federal Reserve cut rates by a full percentage point in late 2024, mortgage rates barely moved. This was because Treasury yields, pushed up by the government’s relentless borrowing, overwhelmed the Fed’s easing entirely. The same dynamic drives up auto loans, credit card rates, and small business borrowing costs. Washington’s appetite for credit is competing against every American who needs a loan, and Washington always wins that competition.

Wall Street Journal columnist Barton Swaim decries this reality: “A generation coached to fear climate change is now fretting over AI and data centers.” Two slices:

When Eric Schmidt, speaking last week to the University of Arizona’s graduates, rhapsodized about the coming artificial-intelligence revolution, some in the crowed jeered. “I know what many of you are feeling about that,” the former Google CEO said. “I can hear you.” Mr. Schmidt then continued with his prepared remarks: “There is a fear in your generation that the future has already been written, that the machines are coming, that the jobs are evaporating, that the climate is breaking, that politics is fractured, and that you are inheriting a mess that you did not create.” He went on to urge graduates not to let fear rob them of personal agency—a fine, saccharine message.

Where does Mr. Schmidt think young people got the idea that “the climate is breaking”? Where did the “fear” he laments come from? In part from the scores of climate-panic groups to which the Schmidt Family Foundation’s 11th Hour Project has granted hundreds of millions of dollars over the last 20 years. One detail particularly amuses: When 11th Hour first appeared, in 2006, it funded screenings of Al Gore’s “An Inconvenient Truth,” a documentary designed to terrorize viewers with 90 minutes of bleak prophecies, now happily exploded. The outfit, like scores of others founded and funded by other progressive billionaires, spends its resources opposing fossil-based energy and trumpeting the dangers of a warming world.

Mr. Schmidt exemplifies the propensity among a few tech titans to pretend they’d never urged anyone to panic about a coming climate apocalypse.

…..

But the people showing up at county council meetings to protest the construction of a data center didn’t for the most part come by their convictions the old-fashioned way, by reading and thought. These activists, many of them attached to 501(c)(3) organizations, got their talking points from national nonprofits supported by some of the same moneyed outfits the Schmidt and Gates foundations spent the last two decades bankrolling.

Call it the Busybody Economy. Organizations designed to worry about future calamities can be counted on to find new calamities to worry about. Data centers serve that purpose nicely: Like all large-scale building projects, they ruffle local feathers; and their purpose, unlike an airport or a shopping center, requires explanation and so lends itself to conspiratorial Facebook posting. That several big-name progressive nonprofits now call for a moratorium on data center construction—Bernie Sanders’s group Our Revolution, Greenpeace USA, Friends of the Earth, among others—does not surprise.

Tech billionaires—Laurene Powell Jobs, Jeff Bezos and Steve and Connie Ballmer come to mind—never guessed that the network of climate groups on which they lavished their millions would eventually turn on their industry. A truth too inconvenient to foresee.

Bryan Riley points out that “the last time we ‘fixed’ the trade deficit was not the 1980s Plaza Accord but the Great Recession, which reduced the trade deficit by 43% in a single year.”

Raymond Niles offers a First-amendment-like cure for cronyism. A slice:

The American solution [to the struggle and strife of organized religions] was to remove the prize. The government was not allowed to establish a church. It could not tax Baptists to build Catholic churches, or tax Catholics to support Presbyterian ministers, or favor one denomination over another through special legislation. Once the government had nothing to give, there was little reason to lobby it for religious spoils.

That is why there is no meaningful religious cronyism in America. Religious groups may argue about moral questions in public life, but they are not lined up in Washington demanding federal grants to build competing cathedrals. Congress has no religious cookie jar, so no one tries to reach into it.

Now compare that with the ongoing and intensifying scramble for economic favors.

Businesses, trade associations, unions, nonprofits, and industry groups spend enormous sums trying to influence Washington. Direct lobbying and campaign contributions hit $20 billion in 2024 and 2025. While this spending may not technically be considered bribery under the law, its mission is the same. Whether the money is given to finance campaigns, ballrooms, libraries, or more nefarious ends, its purpose is to influence government officials to regulate and legislate in their favor.

Reason‘s Peter Suderman explains that “Trump’s signature policies are pushing prices higher.” Two slices:

MAGA 2.0 would be predicated on a rejection, or at least a skepticism, of the free market, libertarian economics that Trumpian intellectuals insisted were hobbling the GOP. These ideas filtered up to the presidential ticket itself. In 2024, then-Sen. J.D. Vance (R–Ohio) told The New York Times that mainstream economists were simply wrong about the effects of clamping down on immigration and the deployment of tariffs, and that free market libertarians were out of touch.

In many ways, the administration has governed accordingly. No, Trump hasn’t abandoned capitalism entirely. But his second term has been a populist-statist-protectionist mishmash, with a heavy dollop of crony self-dealing.

…..

Voters see a direct connection between Trump’s policies and the worsening economic situation, and it’s not hard to understand why. There’s plenty of evidence linking Trump’s policies to higher prices and economic sclerosis, and the combination of tariffs and immigration restrictionism hasn’t led to the boom in domestic manufacturing jobs Trump used to predict. On the contrary, recent research by economists at the University of Colorado Boulder looked at labor market changes in areas highly affected by immigration raids and found that employment for low-skilled, native-born men dropped by 1.3 percent.

Notably, all three of Trump’s signature initiatives—the war, the tariffs, and the immigration crackdowns—have been implemented through the executive branch. They are all a direct result of Trump’s personal whims and preferences. Trump can’t blame Congress or a political rival for policies that come directly from him.

Domenico Ferraro writes knowledgeably about industrial policy. Two slices:

When considering industrial policy, one is reminded of the old saying “been there, done that.” It almost always begins with declarations of good intentions — strategic industries, jobs, national champions. If only these firms received sufficient support, the argument goes, they (and the nation) would flourish. Politicians and bureaucrats have repeated this claim for decades. And whenever someone points to the lessons of history, the response is the same: “This time it’s different.”

…..

It begins with subsidies — phase one. These initial measures often come with few conditions, meant to signal restraint: The government is simply providing support while strategic decisions remain with management. The state is not intruding; it is helping.

Disappointment inevitably follows. When results diverge from the plan, phase two begins: Politics enters the firm. Management is deemed incapable of delivering the desired outcomes. A question no one asks — at least not publicly — is why competent management would have required public support in the first place. The strategic plan, after all, is declared sound; only its execution is lacking.

Then comes phase three. Public money now justifies oversight. Officials visit plants, tour facilities, and interview managers and workers. Oversight rarely stops at observation. It soon leads to phase four: equity stakes. If the state is providing the capital, why should it not share in ownership?

If we put to one side the opportunity costs already incurred by such policies, phase five is where things begin to go badly. Boards and managers are no longer chosen for competence alone. They must serve the “state interest.” Political appointments replace managerial talent. The state, it is assumed, knows better.

Clark Neily applauds the Securities and Exchange Commission’s repeal of its “so-called ‘no-deny’ rule, which required settling defendants in civil enforcement actions to promise—as a non-negotiable condition of settlement—that they would never publicly dispute any of the SEC’s sometimes spurious allegations against them.”

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… is from page 128 of Deirdre McCloskey’s forthcoming book, Equality of Permission [original emphasis]:

The evidence is by now overwhelming, compiled for example in works on economic history, among which my own, that liberty in equal permission has led over the past two centuries and especially over the past seventy years – speaking empirically, quantitatively, comparatively, scientifically – to equality, fairness, justice, better culture, and better ethics. Abridgments of liberty have worked the other way.

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Here’s a letter to the editor of American Affairs.

Editor:

Michael Starr’s fear of U.S. current-account deficits springs from bad economics and bad history (“The Last Time We Fixed the Trade Deficit: Lessons from the Plaza Accord,” Summer 2026).

Mr. Starr’s foundational economic error is this claim: “A current account deficit means a country pays foreigners more than it earns from them, making it a net debtor.” Although more plentiful than pigeons in Central Park, the claim that the people of a country that runs a current-account deficit necessarily go further into debt to foreigners is correct only in the narrow sense of conforming to accounting definitions. It is incorrect as a matter of economics.

While a current-account deficit could signal rising indebtedness of the people of a country that runs one, it needn’t do so. Consider this simple example. The U.S. in 2026 imports $1B worth of goods and services. Foreigners purchase $750M of U.S. exports. Consequently, because we Americans imported $250M more than we exported – and assuming for simplicity no other transactions on the current account – the U.S. current-account deficit rises by $250M.

Although accountants classify this $250M as U.S. debt, accounting ain’t economics. If foreigners lend this $250M to Americans (say, by buying $250M of U.S. Treasuries), then this $250M U.S. current-account deficit does indeed represent additional American indebtedness. But foreigners can invest in the U.S. in ways other than lending money to Americans. If foreigners instead use this $250M, say, to build a factory in Florida, there is no additional American debt despite the U.S. current-account deficit rising by $250M.

If the factory fails, the losses fall on its foreign owners. If the factory succeeds, it creates economic value that would otherwise not exist, and the resulting profits belong to its foreign owners. Because the factory is located in the U.S., accountants record its owners’ claims on those profits as money owed by America to foreigners. But these profits are no such thing. These profits are ‘owed’ to foreigners by foreigners, not by Americans, despite the fact that the factory is situated in the U.S.

The U.S. last had an annual current-account surplus in 1991. The impressive performance of America’s economy over the last 35 years along with the rising real net worth of American households – including households in the bottom 50 percent of the household-wealth distribution – testify that U.S. current-account deficits have not, contrary to Mr. Starr’s implication, drained Americans of wealth.

As for Mr. Starr’s history, the Reagan administration negotiated the 1985 Plaza Accord to ward off rising protectionist sentiment in Congress.* A negotiated lowering of the value of the dollar was seen by the economically informed (and politically savvy) Reagan administration as a reasonable price to pay to quell the quest for more-destructive protectionism. And, by the way, it’s not true that U.S. manufacturing was on the ropes in 1985. When the Plaza Accord was reached in September of that year – three years after the end of the 1981-82 recession – U.S. manufacturing output over those three years was up by 19 percent. This increase was an impressive achievement compared to the previous three-year period (November 1979 through October 1982), which witnessed manufacturing output falling by 10 percent.

Bad economics and bad history do not make for sound analysis.

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

* Douglas A. Irwin, Clashing Over Commerce (Chicago: University of Chicago Press, 2017), pages 605-619.

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This letter in today’s Wall Street Journal by AIER’s Ryan Yonk is excellent:

Thomas Duesterberg writes powerfully about tariff negotiations (“Trump Heads to Beijing With a Strong Hand,” op-ed, May 12). But he overlooks a key reality: Countries around the world are turning to Beijing as a primary trading partner not because China earned that position but because U.S. trade policy last year signaled that America is retreating from longstanding alliances.

American tariffs and the unpredictability they signal have pushed traditional allies to seek deals elsewhere, and China has been eager to oblige. We did not weaken Beijing’s negotiating position. We helped create it.

China depends on economic performance to sustain legitimacy and maintain power, but it is likely to negotiate patiently while building alternative partnerships. The U.S. should do the same. As Mr. Duesterberg notes, America still holds most of the economic cards. We don’t need protection from Chinese competition as much as we need domestic policies that unleash the potential of the American worker—and foreign policies that remind our allies the U.S. is a better partner than China.

Policy Tensor debunks the “Pettis-Miran hypothesis.” (HT Scott Lincicome) Two slices:

The thesis, most cogently argued by Michael Pettis, is that countries with high savings and attendant trade surpluses hog manufacturing—they are able to secure a larger share of the world’s manufacturing output, value-added and employment. Conversely, countries that have low savings and attendant trade deficits pay the price for the perfidy of the high savings nations in terms of a lower share of global manufacturing. What is truly mind-boggling about this thesis is that it is so easily debunked. No serious economist buys it. The only people peddling it are fake economists who have not published a single paper in an economics journal, ever.

…..

It is simply not the case that higher current account surpluses imply higher shares of manufacturing value added. Ask any serious economist or statistician: this is dispositive refutation of the Pettis hypothesis. The relationship that the Pettis hypothesis implies simply does not exist in the data.

My intrepid Mercatus Center colleague, Veronique de Rugy, explains that the chief problem with government officials investing taxpayer dollars isn’t the inevitable economic inefficiency of such ‘investments’; it’s the moral corruption of these ‘investments.’ A slice:

The problem is not merely that the government makes for a lousy investor. Government investing changes the moral relationship between risk, reward, and accountability.

In markets, investment is disciplined by consequences. Private investors deploy capital that belongs to them or that’s voluntarily entrusted to them. If they make bad bets, they lose money, reputation, clients, and sometimes even their careers. Prices communicate information. Profits reward value creation. Losses punish mistakes.

This discipline is central to what makes markets work. Government, however, investing operates under entirely different rules – rules that virtually eliminate discipline.

Government officials allocate resources extracted through taxation or borrowing backed by taxpayers. If projects fail, these officials rarely bear meaningful personal consequences. The losses are socialized. The incentives instead are political. Success is often measured not by financial returns but by press releases, ribbon cuttings, strategic narratives, or vague, untestable claims about resilience, competitiveness, and national greatness.

GMU Econ alum Dominic Pino talks with Adam O’Neal and Damir Marusic about “why Bernie Sanders is wrong about Sweden.”

Liberty Fund’s Pat Lynch talks with Virginia Postrel about her brilliant 1998 book, The Future and Its Enemies.

Alex Pollock and Edward Pinto point out that Fannie Mae and Freddie Mac should be, but aren’t, “part of the government’s consolidated financial statements.”

Wall Street Journal columnist Jason Riley writes here with his usual deep wisdom. A slice:

Theories about the need for a “philosopher king” or “great man” to advance society date back centuries. Intellectual figures from Plato to Machiavelli and Thomas Carlyle emphasized personal traits such as superior wisdom and exceptional moral character in choosing leaders. The idea was to find these extraordinary men, put them in charge, and align policies with their understanding of the common good. Adam Smith, by contrast, argued that free enterprise and the uncoordinated pursuit of individual self-interest would lead to better outcomes for more people. Societies should rely on market forces and voluntary exchange rather than on do-gooders.

March marked the 250th anniversary of Smith’s seminal text, “The Wealth of Nations,” published the same year as the Declaration of Independence. As we reflect on America’s milestone, it’s worth noting that the Founders shared Smith’s skepticism of philosopher-kings and the approach to choosing leaders that today’s AI poohbahs seem to have embraced.

“What the American Constitution established was not simply a particular system but a process for changing systems, practices, and leaders, together with a method of constraining whoever or whatever was ascendent at any give time,” Thomas Sowell wrote in his book on social theory, “The Quest for Cosmic Justice.” “Viewed positively, what the American revolution did was to give the common man a voice, a veto, elbow room and a refuge from the rampaging presumptions of his ‘betters.’ ”

Perhaps there’s a lesson here for our high-tech “betters” who are leading the revolution in artificial intelligence. Disruptive AI is coming sooner or later, in one form or another. The transition may be unpleasant for some, but the U.S. would be wise to embrace the technology and stay ahead of global rivals. And the private sector ought to lead the effort. Still, Elon Musk, Sam Altman and other entrepreneurs shouldn’t presume that people of superior virtue will always be in charge and can be counted on to do the right thing. Thankfully, our Founders had a deeper understanding of human nature.

Andrew Biggs makes clear that “the GOP’s entitlement math doesn’t add up.”

The Editorial Board of the Washington Post rightly criticizes the Federal Aviation Administration’s dangerous regulatory arrangement. A slice:

In most other rich countries, the provider of air traffic control is a separate organization from the regulator of air traffic control. That’s in accordance with guidance from the International Civil Aviation Organization, which says that separating those functions “has encouraged a business approach to service delivery and an improved quality of service.”

The most common model is a government corporation, funded by user fees rather than general taxes. A few countries, including Canada, have a nongovernment and nonprofit ATC provider. Either way, the provider is financially self-sufficient and institutionally separate from the bureaucratic agency that regulates it.

The proper role for the FAA in air traffic control should be setting safety standards and ensuring they are upheld. The provision of services should be spun off into a separate organization that only does air traffic control. It would be freed from the constraints of the federal budget and procurement rules to improve according to the best practices of business, not the demands of politicians

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… is from page 345 of the original edition of Walter Lippmann’s sometimes deeply flawed but profoundly insightful and still-important 1937 book, The Good Society:

The rediscovery and reconstruction of general political standards can be carried forward only, I believe, by developing the abiding truth of the older liberalism after purging it of the defects which destroyed it. The pioneer liberals vindicated the supremacy of law over the arbitrary power of men. That is the abiding truth which we inherit from them.

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The Independent Institute’s Graham Walker talks with Independent Review editor (and famed economic historian) Robert Whaples, my GMU Econ colleague Chris Coyne, and GMU Econ alum Diana Thomas about a new book that brings to our better attention the importance of 24 relatively unsung economist heroes of free markets.

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Earlier this morning, my Nobel-laureate emeritus colleague, Vernon Smith, sent this email to me, which I share in full with his kind permission.

Don:

My first foreign speaking invitation after the Nobel was from Mexico at the international meetings of the Mexican Bus and Truck manufacturers Association. It was a lesson in free trade. Highway truck tractors were assembled in Mexico. The engines came from Detroit, the tires came from Japan, the axels came from Brazil, and so on. Imagine a well-intentioned Mexican tariff on engines; it could wipe out that truck industry in Mexico.

On tariffs, Tread With Caution.

Vernon