Tweet

… is from page 22 of Pierre Lemieux’s excellent 2018 book, What’s Wrong With Protectionism? [footnote deleted]:

[U.S.] exports are a cost because the United States uses its resources to produce goods and services for foreign countries; imports are a benefit because the United States uses the resources of foreign countries to obtain its own goods and services. So, contrary to what the mercantilists thought, the United States should import as much as it can and export as little as possible (assuming it were possible to maintain this regime for long). A reductio ad absurdum of the mercantilist argument is easy. Imagine that the United States ships its export by sea and that the returning ships bring back imported goods. If the returning ships sank, would the situation of exports without imports be a benefit for the United States. Obviously not.

DBx: So true.

Of course (as Pierre recognizes), mercantilists will say that what Americans should receive from foreigners in exchange for American exports is money. In the minds of mercantilists, it’s better if the ship returning with imports sinks and foreigners compensate us Americans by instead depositing lots of money into our bank accounts – money that (the mercantilist ‘logic’ continues) we should never spend on imports. Trump would look at this money and declare it to be evidence that we’re “getting rich!”

This obsession with money is the chief source of Trump’s mistaken beliefs about trade. But the mercantilists never bother to ask: What’s the use of the money? If the money paid to Americans is foreign currency, then that currency has value only because it can ultimately be used by Americans to purchase imports. If instead the money is dollars, then foreigners got those dollars only by earlier selling their exports to Americans. Either way, imports are the benefit of trade while exports are the price paid for imports.

Tweet

Here’s the abstract of an August 2025 paper by my GMU Econ colleagues Vincent Geloso and Alex Tabarrok; it’s titled “Two Peas in a Pod: Democracy and Capitalism”:

Many people argue that democracy is incompatible with capitalism, but they differ on whether democracy will subvert capitalism or whether capitalism will subvert democracy. The first argues that the logic of democracy leads to socialism with James Madison and Joseph Schumpeter decrying the road to serfdom, with others like Karl Marx delighting in this historical inevitability. The second argues, based in part on fears of rising inequality, that capitalist oligarchs will come to control the democratic process, cementing their dominance. Democratic forms may remain, but true democracy will be ended. A third argument consistent with the views of Hayek, Mises, Friedman, and others is that capitalism and democracy are compatible and even mutually reinforcing. We provide evidence for the third view by showing that most democracies are capitalist, and most capitalist countries are democracies. Empirically there is no obvious and inevitable trend either toward or away from capitalism or democracy, although both rise and fall with events. We argue that there are significant complementarities in theory and practice between capitalism and democracy and, as a result, capitalist democracies are relatively stable.

Iain Murray explains that “liberty is the common good of a free people.”

Deirdre McCloskey ponders the categorical difference between persuasion and coercion.

Luke Sheahan explores the deep history of America’s founding creed. A slice:

Want to hear something wild? In 2026, the semiquincentennial of the Declaration of Independence, we now sit further in time from the Mayflower Compact (406 years) than the Mayflower Compact did from the Magna Carta of 1215 (405 years). Although the 1215 Magna Carta is arguably less important than the 1225 version, the former was valid for three months before war broke out again and the latter became enduring law. This puts the accomplishments of Magna Carta and the Mayflower Compact even closer in time to each other and proportionately further from us. Distance in time does not connote distance in primary philosophical commitments, of course, but it does invite contemplation of continuities and discontinuities in our constitutional tradition.

I thought of these dates the other day, and it gave me pause. For some reason the Puritans are, for all their religiosity, ineradicably modern, and the barons at Runnymede, for all their insistence on legal procedures and written limitations on centralized political power, ineradicably medieval. The former are our forefathers politically and constitutionally, and the latter aliens from a time and place far removed from our own. Yet the thing we celebrate this year owes everything to both of those documents and subsequent constitutional developments that came from them. We might even say that the genius of the Declaration of Independence and the whole American political project is a summary of these documents and their respective traditions of constitutionalism and self-government.

Magna Carta, the Mayflower Compact, and the Declaration of Independence arose as strictly political documents. Magna Carta of 1215 became a symbol for fundamental law, but was not itself quite fundamental law. It emerged from political squabbles between the barons and the monarch, and its changing contours reflected changes in the fortunes of those parties. While not originally the advance for individual liberty, rule of law, or restriction on royal power that its proponents throughout the centuries insisted, Magna Carta symbolized the ethos or aspirations of the English realm, one of liberty under law. The drafters of the Mayflower Compact found themselves thrown off course, landing to the north of Virginia. They fell back upon their covenant tradition to forge a “civil body politick.” In the following decades, other nascent “civil body politicks” at the local, colonial, and pan-colonial levels followed the same pattern to the extent that such compacts would dominate the American concept of self-government for the next four centuries and beyond. It captured and anticipated the primary symbol of the American political tradition, that of a virtuous self-governing people. Out of their peculiar political circumstances, each document developed constitutional concepts central to the American constitutional tradition.

Robby Soave explains what shouldn’t – but, alas, what today nevertheless does – need explaining: nationalizing successful companies will quash innovation.

Ramesh Ponnuru adds his voice to those who wisely warn against California’s Proposition 40 – the ballot initiative that would seize five percent of the wealth of billionaires. A slice:

A new study by Benjamin Jaros and Joshua Rauh, two economists affiliated with the Hoover Institution, challenges that projection. Their report points out that at least seven billionaires left California before Jan. 1. In fleeing, they took with them nearly 29 percent of the proposal’s tax base. (Obviously, other billionaires may have relocated with less publicity.) Jaros and Rauh also try to account for the uncertainty over whether taxes can be collected from other billionaires, such as the ones who have left since the beginning of the year and may thus have a legal case for escaping the tax. The economists estimate the proposal would bring in roughly $30 billion.

That’s still a lot of money, but the duo then estimates how much income-tax revenue California won’t receive from the billionaires it will have driven away. They project that such foregone payments will exceed wealth-tax revenue by $39 billion in current dollars. (That’s conservative, too, as it doesn’t count the lost income-tax revenue from the Californians those billionaires would have employed if they had stayed put.) Jaros and Rauh calculate that the state will lose money so long as 24 percent of the tax base flees, a condition that’s already been met.

Peter Minowitz sent this letter to the Washington Post, but it was not published there:

In attempting to guide “progressive” and “left-wing Democrats” to electoral victories, Paul Mason wisely warns them about the Leninist minorities within the Democratic Socialists of America who favor revolutionary violence. Mason fails, however, to convey the Leninist seeds planted by the current DSA program. Regarding economics, it maintains that capitalism “must” be replaced; it calls for collective ownership of “the key economic drivers that dominate our lives, such as energy production and transportation” and for placing the “largest” corporations and “essential” industries under “public ownership.” Regarding politics, furthermore, the program calls for eliminating the Senate while subordinating both the presidency and the Supreme Court to the newly unicameral Congress. By combining political centralization with economic collectivization, the DSA is drifting toward the Leninist “armed vanguard” that would overthrow capitalism.

In State and Revolution(1917), Lenin himself drew meticulously on Marx and Engels when promising that the state (along with “all bureaucracy”) would end up “withering away.” By extolling “multi-party democracy,” the DSA departs from both Bolshevism and Stalinism. But how well will freedom, prosperity, and democratic deliberation fare after a consolidated national government swallows a huge portion of the U.S. economy?

Peter Minowitz, Professor of Political Science, Santa Clara University

DOCUMENTATION: The “armed vanguard” and “all bureaucracy” phrases appear in Chapter III of State and Revolution (on page 43 of the standard International Publishers edition). “Withering away” appears there and in Chapter V (on page 79).

John Cochrane offers “some simple principles for taxation and spending.”

John Puri slays no straw man.

David Bahnsen is rightly critical of a business-school professor’s profession of hostility to the profit motive.

James Bacon recommends The Indispensable Robert Higgs: A Reader.

Where does your birthday date rank?

Tweet

… is from page 271 of Samuel Gregg’s superb new book, The Civilization of Commerce:

The Great Society of which [Adam] Smith spoke, and that was extolled by Hayek, is a civilizational enterprise worth defending and pursuing, not least because it is a hopeful endeavor and ultimately puts its faith in ordinary people. It reflects a confidence that if the everyman and everywoman are given freedom in the context of the economic, cultural, legal, and political settings identified in books like The Wealth of Nations and The Constitution of Liberty, they will not only avoid servitude; they will also enjoy greater possibilities for living lives marked by prosperity and purpose than any set of comparable arrangements known to humanity.

Tweet

Arnold Kling ponders envy and the “hatred of others’ profits.” Two slices:

Years ago, I came up with the acronym FOOL, for Fear Of Others’ Liberty. I use it to explain how the public comes to accept government policies that take away freedom. You believe that you are better off making your own decisions. But the other guy? Don’t trust him to save for his own retirement. And better keep him, or at least his children, away from social media.

More recently, we see support for wealth taxes and for socialism. We see animosity toward successful businesses and entrepreneurs. We can call this HOOP, or Hatred Of Others’ Profits. Like FOOL, HOOP invites political demagogues to achieve an expansion of government power at the expense of individual liberty.

…..

Profits often reflect a contribution to overall welfare. Profits are earned within a positive-sum game for society. Profits induce firms to serve consumers and to innovate. Losses force inefficient and outmoded businesses to adapt or shut down.

HOOP is the opposite point of view. It regards profits as something that businesses take from the rest of us, as if we can take innovation and efficiency for granted. HOOP acts as if we are in a zero-sum environment in which one person’s gain is necessarily another person’s loss.

Who’d a-thunk it? People dislike investing their money in countries run by socialists – the latest evidence of which is supplied by Brazil, as reported by the Wall Street Journal‘s Editorial Board. A slice:

Latin America’s political right has been cleaning up at the ballot box for three years, but on Sunday it suffered a setback in Brazil. Leftist President Luiz Inácio “Lula” da Silva of the Workers’ Party defeated Senator Flávio Bolsonaro of the conservative Liberal Party 51.8% to 48.2%.

Mr. Bolsonaro led in the first voting round, and the socialist’s comeback victory surprised markets—not least because Brazil’s $2.6 trillion economy is sputtering and wages aren’t keeping up with inflation. But Lula has won a fourth term, and maybe there’s justice in his victory. He now has to clean up the mess he inherits from himself when his new term begins in January.

Brazil’s main stock index fell 10% at the opening Monday and trading was halted. When it resumed the sell off continued. It closed down nearly 14%. State-owned oil company Petrobras ADRs lost 14% and Itaú Unibanco ADRs fell 20%. The iShares MSCI Brazil ETF (EWZ) dropped 19.4%. The real lost 8.7% against the dollar. Brazil’s treasury canceled government bond auctions scheduled for this week.

Brazilian GDP grew a mere 2.3% in 2025 and this year may not hit 2%. That’s not enough to reduce poverty while the rest of the world runs ahead. The Workers’ Party has held the presidency for nearly 18 of the last 24 years. In that time 14 countries have overtaken Brazil in per capita GDP, including the Dominican Republic, Guyana and Thailand.

A gusher of government spending after the first round of voting is a clue to how Lula hung on. Brazil will end the year with a fiscal deficit close to 10% of GDP, which means deficits will exceed 8% each of his last four years. Public debt is above 82% of GDP and rising.

The Editorial Board of the Washington Post tells just how clueless Trump and other protectionists are about the costliness of tariffs and the intricacies of the supply chains webs that tariffs disrupt. A slice:

New England’s only Republican senator persuaded the Trump administration last week to ease tariffs on nine categories of Canadian products vital to Maine’s economy. The preelection exemptions underscore both the power of Senate Appropriations Committee Chair Susan Collins (R-Maine) and the fundamental folly of protectionism.

Against the backdrop of President Donald Trump’s unpopular trade war with Maine’s northern neighbor, Collins announced on Friday that tariff exemptions will extend to products such as corrugated paper, plastic boxes and cases, plastic packing bags and sacks, agricultural cleaning and grading machinery, and edible seaweed products. The adjustments are meant to help Maine’s agriculture industry.

Wild blueberry growers, for example, rely on specialized Canadian harvesting boxes designed to work with their existing processing equipment. An American supplier of some cardboard agricultural totes recently stopped making them, leaving growers with no domestic alternative, according to Collins.

Protectionists see tariffs as a shield around American producers. Maine shows the silliness of that analogy. Producers are also importers. Farmers need machinery. Manufacturers need components. Builders need cement. Municipalities need road salt. Paper mills need pulp. Impose an import tax on those inputs, and everything they go into costs more.

There is no economic principle under which a Maine blueberry grower deserves help while a manufacturer in a state without a toss-up Senate race deserves to pay a punitive tax on an equally indispensable Canadian input. What distinguishes them is politics. This leads to arbitrary decisions. For example, in the same announcement that gave relief to Maine, Trump imposed new 50 percent tariffs on a hodgepodge of other Canadian products, including shampoos, carpets, cocoa powder, vinyl flooring, wall-installed air conditioners, yacht parts and canoes.

Eric Boehm makes clear that “Trump’s tariffs are politically toxic.” A slice:

[Sen. Susan] Collins issued a statement thanking the White House for the changes. This is what members of the U.S. Senate have been reduced to—begging the president to cast his capricious, tariff-happy eyes toward products that will hurt people in other states more than in your own. (In fairness to Collons, she has voted repeatedly to roll back Trump’s tariffs, but not enough of her fellow Republicans went along with it.)

Still, it’s worth asking: What exactly is the pitch to voters here? Here’s a tariff cut, now vote for Republicans so the president can continue to arbitrarily tax imports whenever the mood strikes?

It’s easy to see why Trump’s tariffs have become so unpopular. They are a huge and broad tax increase—the Tax Foundation estimates that 54 percent of imports are subject to Trump’s tariffs, which are costing the average household about $1,000 annually—that was imposed without congressional authorization or popular support. They create more losers than winners, as downstream businesses and consumers pay the price for the protectionism offered to American manufacturers. Even the supposed “winners” of the tariff policy tend also to be “losers,” since so much manufacturing depends on importing raw materials and intermediate goods.

Alan Dlugash asks an excellent question: “How does an economically illiterate man become CEO of United Airlines?”

Here’s yet more evidence that Julian Simon was correct. (HT Scott Lincicome)

Here’s the abstract of a new paper by Jeffrey Clemens, Olivia Edwards, Jonathan Meer, and Joshua Nguyen:

Synthetic control methods hold the promise of identifying a credible counterfactual by closely reproducing pretreatment outcome paths. Their reliability, however, depends in part on how effectively they constrain researchers’ less-visible degrees of freedom. We explore these methods’ sensitivity by constructing 1440 plausibly defensible specifications to estimate the employment effect of California’s $20 fast-food minimum wage. While over 96 percent of the estimated employment effects are negative, the range is vast, illustrating that synthetic control methods are sensitive to specification choice. Estimates from simpler and far more transparent difference-in-differences methods lie near the centers of the comparable distributions of synthetic control estimates.

“Grazie” to Alberto Mingardi for reviewing (in Italian) Phil Gramm’s and my book, The Triumph of Economic Freedom.

Tweet

… is from page 169 of my GMU Econ colleague Bryan Caplan’s excellent forthcoming – in April 2027, from the University of Chicago Press – book, Unbeatable: The Brutally Honest Case for Free Markets [footnote deleted]:

This “slippery slope argument” is rooted not in paranoia, but history. The best predictor of future behavior is past behavior. In the past, when governments received the power to cheaply remedy glaring market failures at low cost, they could have done so and declared victory. They almost never did. Indeed, governments spurned streamlined textbook fixes – like taxing negative externalities and subsidizing positive externalities – from the get-go. Issuing edicts – “command and control” – has far more demagogic appeal. Once governments start issuing edicts, they keep issuing. Angry complaints and shocking incidents organically arise – and the crowd-pleasing response is not cost-benefit analysis, but “decisive action” against malefactors of great wealth and alien lands.

Tweet

Megan McArdle writes insightfully about California’s pending proposal to soak the rich. Three slices:

These days, legislators generally don’t enact tax hikes so confiscatory that they trigger an immediate, obvious response. They adjust income tax rates by a few percentage points, fiddle with the deductions or impose new levies on some tiny portion of the economy, like using ride-hailing services. That can affect decisions about savings, work and investment, but probably not immediately. These gradual changes make it hard for economists to distinguish tax policy’s effects from everything else that’s happening in a $33 trillion economy. That leaves plenty of room to debate whether — and how much — taxpayers respond to incentives.

So economists can thank a California chapter of the Service Employees International Union for providing Americans a natural experiment: What happens when you slap a whopping wealth tax on some of the richest people in the world? The SEIU has sponsored Proposition 40, a ballot initiative to levy a one-time 5 percent wealth tax on California billionaires, with much of the money going to the health care system that (not coincidentally) employs many SEIU members. Depending on what California voters decide — a recent poll suggests the initiative is leading but still short of a majority — we may get a clear example of the limits of taxation.

…..

Several California billionaires have already announced their departures, including Peter Thiel and Google founders Larry Page and Sergey Brin. [Gabriel] Zucman’s paper notes that if some of the most prominent tech barons succeed in fleeing, revenue estimates fall to $89 billion, but then argues that there are many small-fry billionaires who escape Forbes’s wealth rankings but still have to pay the tax. Adding them back in raises revenue to $115 billion.

This assumes the undetected small fry haven’t done their best to exit, but why would we assume that? Why should we believe that those who loudly announced they were shifting their residency before the year began were the only people who fled ahead of the SEIU initiative?

…..

But billionaires, like economists, are capable of making assumptions. They probably assume that if the tax succeeds, progressives will come back for an encore. And if it fails, they’ll try, try again. Those seem like sound assumptions — sounder, in fact, than the assumption that Californians can grab 5 percent of everything the billionaires have, and the billionaires will just have to sit there and let them take it.

Also writing with insight about ‘progressives” thuggish itch to seize the wealth of productive people is Wall Street Journal columnist Allysia Finley. A slice:

Because targeting Main Street businesses isn’t popular, Democrats instead lambaste billionaires. See California’s Proposition 40, which seeks to impose a 5% tax on the fortunes of residents with more than $1 billion in net worth. French economist Emmanuel Saez, one of the initiative’s architects, recently explained to the New York Times that targeting only billionaires was a strategic choice, since they “are no longer very popular.”

In 2020, Mr. Saez helped 14 California Democratic lawmakers, including now-Attorney General Rob Bonta, craft a bill to impose a 0.4% wealth tax on taxpayers with more than $30 million in assets. It foundered amid opposition from Gov. Gavin Newsom, but if Proposition 40 passes, don’t be surprised if wealth tax proponents later seek to lower the threshold.

New York City Mayor Zohran Mamdani names and shames billionaires like Citadel CEO Ken Griffin. This is a head-fake. His proposed tax hikes would primarily whack owners of local bodegas, plumbing companies and other small businesses. So, too, “millionaire taxes” popping up in states across the country.

Abdul El-Sayed, Michigan’s Democratic nominee for U.S. Senate, advocates imposing an additional death tax by requiring heirs to pay income tax on inheritances worth more than $1 million. Some 24 million Americans could get soaked, most of whom are solidly middle-class. He also wants to remove the $184,500 earnings cap on the 12.4% Social Security payroll tax “to make sure the rich pay their fair share.”

If you earn more than $184,500, you are rich. Congratulations. Progressives don’t merely want to redistribute wealth. They want to raise taxes to aggrandize their own power and level opponents. Then they can decide what’s fair and who has enough.

A third insightful take on the French “economists'” case for seizing the wealth of productive people is offered by the Editorial Board of the Wall Street Journal. A slice:

The wealth-tax dollar threshold is also likely to be reduced to hit more wealthy people, especially to compensate for income-tax losses from billionaires leaving. M. Zucman has said as much himself. “This one-time tax is just the starting point of what could be,” he told the Capital & Main news site this year.

He has also suggested an annual 2% wealth tax: “Even if you factor in the fact that some billionaires will move, the state would still be vastly better off with a 2% annual wealth tax.” So even he admits some billionaires will move out of California.

M. [Gabriel] Zucman laments that many billionaires use their wealth to advocate for free markets and individual liberty. “Everything that is downstream of the political system—including the courts, regulatory power, economic policy, media independence and so on—is affected by the surge of billionaire influence,” he said in an interview this summer posted on the UC Berkeley website.

Left-wing French economists are the leading intellectual architects of France’s—and Europe’s—current fiscal and political uproar. You almost have to wonder if they are so determined for the U.S. to make the same mistakes because America’s relative success is an embarrassing rebuke to their ideas.

[DBx: I put “economists” in quotation marks because, although Gabriel Zucman, Thomas Piketty, and Emmanuel Saez are credentialed and employed as economists, none of them gives any evidence of possessing the remotest familiarity with the economic way of thinking. Each supposes that wealth is produced independently of human incentives, institutions, and effort. And each specializes, not in analyzing how economic order emerges from decentralized human action, but instead in processing data in ways seemingly designed to stir that most dangerous of human emotions, envy.]

David Simon explains why Comrade Mamdani and other of today’s socialists ignore socialism’s history. A slice:

Our aspiring socialist leaders expect, more importantly, to enjoy the power to dictate every aspect of our lives.

Consider some of the aspects of life that various highly socialist nations have chosen to regulate to varying degrees and which those who seek to be our socialist rulers could choose to determine for each of us.

Where each of us lives, both in which city or town and in which specific house or apartment. The specific job in which we may or will work and for which employer. How much we may earn.

Which foods and other goods we may purchase. How much of each we may purchase. And from which vendor(s) we may purchase.

David Bier exposes some economic fallacies about immigration spread by Trump’s White House.

Kimberlee Josephson ponders consumer behavior.

Wall Street Journal columnist Mary Anastasia O’Grady reports on the victory in Brazil of the socialist-populist Lulu. A slice:

Lula’s win for a fourth nonconsecutive term as president is hardly a mandate. His personal story of rising from a poor family, his charisma and his left-wing populism have made him a champion of organized labor and an icon of Latin socialism. He was a bosom buddy of Fidel Castro. Over the years he has carried many Workers’ Party candidates on his coattails. But this time he struggled.

Young Brazilians want affordability and opportunity, and Lula hasn’t delivered. In 2026 inflation is expected to come in close to 5.2%. Forecasts for next year put it above 4.3%. Wages haven’t kept up. With an inflation target of 3%, the central bank has set its overnight lending rate, known as the Selic, at a punishingly high 13.75%. The drag on the country’s many heavily indebted businesses and households is palpable. Growth for 2026 is expected to come in below 2%.

Richard Ebeling reflects on “John Stuart Mill on liberty, tyranny and restraints on government.”

Tweet

… is from page 246 of Samuel Gregg’s excellent hot-off-the-press book, The Civilization of Commerce:

One feature of commercial society is that it provides many people with more space for acting and making choices freely about what ends they decide to pursue – at least compared to previous social arrangements. But this liberty goes along with greater interdependence on others; thus, far from encouraging radical individualism, commercial civilization demonstrates that we are intrinsically social beings.

Tweet

… is this recent Facebook post by Sean Malone:

It’s truly insane how many people’s entire political viewpoint is centered around self-righteous nonsense built entirely around strawmen & caricatures of their — overwhelmingly imaginary — opponents.

Tweet

GMU Econ alum Julia Cartwright is no fan of Mariana Mazzucato’s latest book. Two slices:

Something strange has been happening on the American right. A movement that spent the Reagan years quoting Friedrich Hayek now quotes industrial-policy memos with the enthusiasm Bernie Sanders reserves for Scandinavian tax brackets. Tariffs are statesmanship again; the state’s picking industrial winners is “strategic.” Meanwhile the left has rediscovered “the common good” as a rebrand of the dirigisme it never abandoned. Both camps agree on a diagnosis: Capitalism, left to itself, produced shuttered factories, BlackRock landlords, and a financial sector that exists mainly for itself. Both are right that something has gone wrong, and both are wrong about what it is.

What they’re describing, almost without exception, isn’t the failure of the free market. The state’s fingerprints are all over the scene of the crime, which features all kinds of interventions, from bailouts and occupational licensing to a tax code written by lobbyists for the companies that are lobbying the state. The left’s and the right’s misdiagnosis has led each side to prescribe more cronyism dressed up as benevolent planning. That confusion is the terrain Mariana Mazzucato claims with her new book, The Common Good Economy.

…..

The book’s opening chapters survey roughly 25 centuries of thought on “the good.” There are Plato’s philosopher-kings, Thomas Aquinas’s natural law, John Rawls’s veil of ignorance, and the communitarian critiques of Michael Sandel and Alasdair MacIntyre. All of it serves a single argument. Mainstream economics, Mazzucato says, “treats humans as isolated agents and markets as neutral mechanisms,” reactively patching market failures rather than pursuing collective goals. This is the book’s load-bearing wall, and it’s paper-thin. Economics studies individual decision-making because that’s the level at which decisions are made. This is not because economists are hostile to community but because they recognize that aggregate outcomes are the sum of millions of individual actions in response to prices, incentives, and information that not one person possesses in full. It is the same insight behind Leonard Read’s famous example: No single person on earth knows how to make a pencil completely, and yet pencils are being made by the billions. Read thereby makes a methodological claim about how strangers coordinate without a planner, not a moral claim about what’s good.

Mazzucato’s framing therefore amounts to faulting nature. But economics is a positive science that describes how scarce resources are allocated, not a normative one that certifies outcomes as virtuous or vicious. Nor does Mazzucato pause on the literally impossible problem lurking beneath her talk of “co-creation” and collective goal-setting. Nobel laureate Kenneth Arrow proved mathematically that no voting system, committee process, or method of collective deliberation can consistently aggregate everyone’s preferences into a single decision. “The common good” isn’t a destination that Mazzucato’s compass can locate. That she relitigates the individual-versus-collective distinction for three chapters without once seriously engaging the socialist-calculation debate — the argument decisively won by Hayek and Ludwig von Mises a century ago, about why no central planner can replicate the information that a price system aggregates from millions of dispersed decisions — suggests that the author’s straw man isn’t an oversight but a central feature of her thought.

From this shoddy premise, the remainder of the argument follows naturally. Mazzucato assumes that economics has little to say about coordination, incentives, or the unintended consequences of well-meaning government intervention. Each of her prescriptions proceeds as if public-choice theory didn’t exist. But this branch of economics, which applies to public policy the same assumption of self-interest that economists use to study markets, predicts that voters, politicians, and bureaucrats respond to incentives just as everyone else does. Mazzucato cites public-choice scholars James Buchanan and Gordon Tullock and defines “government failure” reasonably well but then ignores the concept over the next 200 pages. She envisions government as “an active shaper of markets” and a “public investor of first resort” that sets “conditionalities” on the firms it funds. She never asks what happens when state agencies are staffed with politically accountable humans who respond to incentives, get lobbied, and eventually see those agencies captured by the industries they’re meant to direct. She diagnoses regulatory capture as a market problem. To address it, she prescribes the exact mechanism — discretionary state power over capital allocation — that produces it.

Mazzucato is at her least convincing on business and finance. She revives Milton Friedman’s shareholder-value essay from 1970 as the villain of her story but never grapples with the mechanism that Friedman described: Profit, under competition, is a signal that a firm has created more value than it has consumed, and loss disciplines the firms that don’t. Mazzucato writes as if every dollar of profit is extracted rather than earned. She considers none of the people whom a profitable company makes better off: employees with paychecks, shareholders (including pension funds that hold ordinary people’s retirement savings), and customers who voluntarily hand over money for something they value more than the cash.

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with Pete Earle and GMU Econ alums Julia Cartwright and Paul Mueller about wealth taxes.

“Trump wants to force data centers to ‘make their own electricity.’ Deregulation would work better” – so explains Reason‘s Josh Pauzé.

Arnold Kling explains why he thinks that “measures of GDP understate the difference between life with and without indoor plumbing.”

The Cato Institute has released its new report titled “Freedom in the 50 States.”

Phil Magness tweets:

Since the White House is now plagiarizing Oren Cass’s stupid chart, here is the corrected version.

And Scott Lincicome adds:

And just a reminder: the job/output gains are concentrated IN THE INDUSTRIES WITH THE LEAST TARIFF PROTECTION.