… is this comment, on David Henderson’s Facebook page, by Phil Magness:
The stupidity of trade wars knows no limit.
… is from page 13 of the great Bruce Yandle’s seminal 1983 Regulation paper, “Bootleggers and Baptists – The Education of a Regulatory Economist“:
I asked myself, what do industry and labor want from the regulators? They want protection from competition, from technological change, and from losses that threaten profits and jobs. A carefully constructed regulation can accomplished all kinds of anticompetitive goals of this sort, while giving the citizenry the impression that the only goal is to serve the public interest.
Here’s a letter to a new correspondent.
Mr. S__:
You ask how I can “be so certain President Trump’s tariffs won’t spark an American economic renaissance. His 10% tariffs seem a good tool for that.”
Let’s assume, contrary to what I believe is fact, that you’re correct that the American economy is in dire need of a renaissance. What logic leads you to conclude that restricting Americans’ access to goods and services will result in Americans’ gaining greater access to goods and services?
Consider this: The value of U.S. imports today is about 14 percent of U.S. GDP. Suppose the government, rather than imposing a ten percent punitive tax on Americans’ purchases of imports, instead sent agents to all American households, businesses, farms, hospitals, schools, and churches with orders to destroy, every year, 1.4 percent of the properties in those establishments. Do you think that such a policy of intentional destruction would spark an American economic renaissance?
My guess is that you understand that such a policy would simply be destructive. You might even realize that it would result in the annual destruction of more than 1.4 percent of Americans’ property values as we would, in response to this organized vandalism, divert some our time and effort away from producing valuable goods and services and toward trying to hide as much as possible of our property from the uniformed hooligans.
Can you tell me how a government policy of effectively destroying at the border a significant chunk of what Americans are paying for differs from a government policy of destroying in our homes and workplaces a significant chunk of what Americans have already paid for?
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
… is this observation, posted on Facebook, by the great economic historian Bob Higgs:
A nation that contains firms that are operating (as a whole or to some extent) only because they are protected by tariffs from competing foreign sellers is a nation that is misallocating its productive resources and impoverishing itself. This is not really a debatable proposition; it’s as basic as basic economics can get. Using resources to produce outputs that have a lesser free-market value than the outputs that could have been produced by those same resources in an alternative use sacrifices wealth; the opportunity cost is greater than the value created. That’s waste.
Phil Magness warns of the tariff time-bomb ticking within the one big beautiful bill. Three slices:
President Donald Trump secured the first major legislative victory of his term with the adoption of the “One Big Beautiful Bill” Act, a multi-trillion-dollar spending package intended to codify his budgetary priorities. The measure contained a small victory for American taxpayers by forestalling the expiration of a 2018 income-tax cut this year. At the same time, fiscal hawks had much to criticise about the exorbitant new spending provisions, which are projected to accrue at least US$3 trillion in additional budget deficits over the next decade. The bill also contain a US$5 trillion increase in the national debt limit, removing a legislative constraint on government borrowing and setting the US national debt on track for an expansion to over US$41 trillion.
…..
The White House has been quick to tout tariff revenue as the centrepiece of its plan to pay for its spending priorities. Just last week, Treasury Secretary Scott Bessent announced in a cabinet meeting that he expects tariffs to generate US$300 billion in new tax revenue in 2025 alone. White House talking points have suggested that future tariffs will exceed even their already optimistic revenue projections in the years that follow, reversing Bessent’s widely- mocked claim from a month ago that “tariffs are not taxes:’ As it stands now, new tariff revenue comprises the single largest source of deficit offsets in the White House’s ten-year budget projections, far exceeding any discretionary spending reductions.
…..
If the IEEPA tariffs are voided by the courts, the One Big Beautiful Bill’s underlying fiscal assumptions effectively collapse. Trump would then face an accelerated budget deficit crisis with no good options to bring it under control. He could attempt to raise taxes, reneging on a campaign promise not to do so and pursuing a course that would almost certainly harm his party in the 2026 midterms. Alternatively, he could attempt to finance his spending by taking on more debt-a precarious move given that the Federal Reserve’s own toolbox to counter inflationary pressures from government spending is already stretched to its limits after the Biden era.
The appellate courts may defy expectations, though, which could mean that the Trump IEEPA tariffs somehow survive the current challenge. The administration would no doubt treat such an outcome as a victory, but such a scenario would only delay the tariff time bomb. By linking his spending agenda to tariff revenue, Trump has also limited his future options in both spending and tariff-setting.
Trump’s tariff agenda has been plagued by conflicting and contradictory messaging since he unveiled it in the spring. But one of the policy’s selling points was the promise of negotiating leverage with other countries. Trump continues to use the threat of tariffs as a tool to pull other countries into reciprocal trade “deals” with the United States, most of which amount to informal agreements with him personally. The results of this approach have been underwhelming so far, yielding just three agreements during the ninety-day pause on the “Liberation Day” tariffs from April. Yet Trump continues to hold out trade negotiations as a lure for his foreign-policy objectives.
But at least we Americans will depend less on foreigners for our tomatoes.
It would be tempting to ignore the “1619 Project” altogether, but over the past half-decade there has been a concerted effort to mainstream the paper’s false history. Ms. Hannah-Jones was awarded a Pulitzer Prize for the project, which was adapted for a television miniseries—produced by Oprah Winfrey. This propaganda has also infiltrated K-12 schools. The National Education Association, the nation’s largest teachers’ union, formed a partnership with the Times to distribute copies of the “1619 Project” to educators and activists to “help give us a deeper understanding of systemic racism and its impact.”
The good news is that serious scholars have been pushing back. In a new book, “The 1619 Project Myth,” economic historian Phillip Magness dissects the claim that slavery was an economic boon for the nation as a whole and not just for the small population of slaveowners. The idea that plantation slavery propelled the U.S. economically was first put forward by secessionists in the antebellum South.
“Confederate secessionists invented ‘King Cotton’ as part of a pro-slavery propaganda campaign around the eve of the Civil War as an attempt to lure foreign allies to their cause,” Mr. Magness writes. “The war itself disproved the ‘King Cotton’ premise, as foreign powers simply turned elsewhere for their cotton supply and the Confederacy collapsed in economic isolation from the world.”
Another economist Mr. Magness cites, Deirdre McCloskey, has written that “each step in the logic of the King Cotton historians is mistaken.” Slavery “made a few Southerners rich; a few Northerners, too. But it was ingenuity and innovation that enriched Americans generally.” Contrary to “1619 Project” claims, “Britain in 1790 and the U.S. in 1860 were not nationalized cotton mills.” Both countries “would have become just as rich without the 250 years of unrequited toil. They have remained rich . . . even after the peculiar institution was abolished, because their riches did not depend on its sinfulness.”
If you’re looking for a thoughtful response to the 1619 nonsense that is likely to be regurgitated in the runup to next year’s celebration, Mr. Magness’s collection of essays is a good place to start.
Ramesh Ponnuru warns Democrats and progressives of the dangers of attacking the courts. A slice:
Whatever merit progressive proposals to contract the power and prestige of the Supreme Court might have, they are not a plausible means of restoring it to its former role as the champion of liberal principles. A court with reduced jurisdiction, whose members fear removal by the political branches and whose decisions command little respect from the broader political culture: That’s not an institution that can perform what Jackson recently called “the singular function of ensuring compliance with the Constitution” and “protecting people’s rights.”
A high regard for the court is particularly important now that progressives have (rightly) made it a priority to make Trump follow court orders. They can argue that the court is illegitimate or that Trump has a high duty to obey it. They seem unlikely to persuade the public that Trump has a solemn obligation to comply with an illegitimate court.
Iain Murray exposes the economic ignorance that enables people to embrace socialism. Two slices:
“Socialism,” said the British free speech campaigner Lord Young, “Always begins with a universal vision for the brotherhood of man and ends with people having to eat their own pets.” While exaggerated, the point stands — socialism never delivers what it promises. Yet now, the world capital of capitalism is flirting with that catastrophe. The Democratic nomination for Mayor of New York has been won by an avowed socialist: Zohran Mamdani.
Mamdani doesn’t hide his socialism. It’s all over his campaign website, the socialist magazine Jacobin hails him as one of their own, and he is comfortable with socialist shibboleths like “seize the means of production.”
…..
In 2020, when it seemed plausible that Bernie Sanders might win the Democratic nomination for President on a socialist platform, I wrote a book called The Socialist Temptation that attempted to answer this question.
My answer was that political communication is at heart about values, not about policy analysis. If the politician can connect with a voter at the level of their motivating values, then they have won the battle, and the most vigorous political debates are between competing values.
One of the reasons why socialism never seems to die is that it plays a very good game at connecting with people at the values level. In America, research suggests that there are three main values groups active in politics. While political scientists have fancier names for these groups, I summarize those groups as egalitarians, whose motivating value is fairness, libertarians, whose motivating value is freedom, and traditionalists, whose motivating value is community, stability, and order. (There is a fourth value group, fatalists, whose value is essentially survival, but they tend not to vote.)
I want an end to all private-sector subsidies. If your business model depends on special treatment in the tax code, then, as economist Douglas Holtz-Eakin once put it, you don’t have a business. You have a tax shelter.
Yes, there are some lingering fossil fuel subsidies on the books. Cato’s Adam Michel helpfully identifies them: credits for enhanced oil recovery, for marginal wells and for carbon capture and sequestration. These are targeted giveaways, and they should also go.
However, what most people clamoring for the end of fossil fuel subsidies are pointing to aren’t subsidies at all but simply neutral tax treatments — like expensing and percentage depletion — that apply across many industries. They might distort investment decisions in general, but they are not special favors for oil and gas.
In addition, when you compare the size of green versus fossil fuel subsidies, the difference is staggering. Scaled by energy output, green energy receives subsidies at rates 19 to 30 times those of coal, oil and natural gas. According to Michel’s analysis, 94% of the fiscal cost of energy-related tax provisions over the next decade — $1.2 trillion — would have gone to renewables. Only 6% — about $70 billion — would benefit fossil fuels. And again, much of that 6% isn’t tailored to fossil fuel companies; it just happens to benefit them.
GMU Econ alum Dominic Pino talks about business with David Bahnsen.
… is from page 164 of Dennis Rasmussen’s marvelous 2017 book, The Infidel and the Professor: David Hume, Adam Smith, and the Friendship that Shaped Modern Thought [footnote deleted]:
In commercial societies governed by the rule of law, Smith holds, the rich may have a great deal of purchasing power, but their wealth does not lead to direct authority over others since everyone stands in a market relationship with everyone else and there are generally a multitude of potential buyers, sellers, and employers.
DBx: Adam Smith died on this date, July 17th, in 1790. He was 67 years old.
In sum, I completely agree with EB that it would be good if appellate courts struck down Trump’s IEEPA tariffs under the nondelegation doctrine. Indeed, I have said as much since my very first piece on the subject, back in February (the post that eventually led to the filing of our case).
But there are also multiple additional reasons to rule against the tariffs, including 1) IEEPA doesn’t authorize tariffs at all, 2) trade deficits are not an “emergency” or an “unusual and extraordinary threat” 3) deficit-related tariffs are now governed by the Trade Act of 1974 (a point noted by the CIT), not IEEPA, 4) the major questions doctrine, and 5) constitutional avoidance (relied on by both CIT and Judge Contreras). We cover all these in much more detail in our Federal Circuit brief.
These two letters in today’s Wall Street Journal are excellent:
Phil Gramm and Donald J. Boudreaux finely catalogue the effects of the first Trump administration’s experiment with protectionism (“These Are Trump’s Worst Tariffs,” op-ed, June 26). The first George W. Bush administration is instructive too. After the White House levied tariffs on steel imports, U.S. manufacturing lost more than 400,000 jobs between March 2002 and March 2003, according to the Bureau of Labor Statistics. Manufacturers were unable to pass along higher prices to their customers thanks to fixed price contracts.
The most overlooked consequence of the tariffs was their effect on the stock market. The Dow Jones Industrial Average reached a post-Sept. 11, 2001, peak on March 19, 2002, at 10,635.25. The steel tariffs took effect the next day. Lumber tariffs followed in May. The Dow didn’t recover until the steel tariffs were lifted on Dec. 4, 2003. From March 2002 to May 2003, the S&P 500 lost $2 trillion in market cap.
Higher input costs result in lower earnings. The market meltdown this spring was a warning. The president ignores the lesson at the nation’s peril.
David R. Breuhan
Bloomfield Hills, Mich.As you note in your editorial “‘Tariff Man’ Is Back for More ‘Liberation’” (July 8), President Trump is doubling down on a failed a idea. In doing so, he’s rejecting his first-term playbook.
That governing agenda was characterized by broad tax cuts and deregulation coupled with narrowly applied tariffs. The combination unshackled American workers and allowed them and the economy to flourish. This term, however, many of the tax-cut and deregulation efforts have been narrow, while tariffs have been broadly and inconsistently applied. The levies are being used for a myriad of reasons, from industrial policy and raising revenue to retaliating against Brazil for the government’s treatment of its former president. This saddles American producers with higher costs for critical materials, hurting manufacturers and consumers with higher prices.
American workers are strong enough to compete on the world stage. They need empowerment, not protection. What’s standing in their way isn’t foreign competition but government regulation.
David Hebert
American Inst. for Economic Research
The Editorial Board of the Wall Street Journal ponders the recent uptick in reported inflation. A slice:
Let’s stipulate that tariffs don’t cause inflation, which is an increase in the general price level. Inflation occurs when there is too much money chasing too few goods and is usually the result of monetary-policy mistakes.
But tariffs are taxes, and they do raise prices on the goods on which they’re applied. Those price increases may be a one-time event, depending on the tariff and how supply-chains are affected. But Americans who experience those rising prices will still notice the decline in their purchasing power.
And that’s what they’re seeing in the June inflation report. Price increases were broad-based, and especially in goods that the U.S. imports. Think toys (1.8%), paper products (1.4%) and appliances (1.9%). The latter was the biggest increase since August 2020.
On July 11th, Richard Baldwin asked: “Why did Trump backdown from his 2 April 2025 threats this week?” (HT David Levey)
If lawmakers care as much about housing costs, energy prices, climate change, domestic manufacturing and economic growth as they claim, Congress should take a cue from a big ruling in the Supreme Court’s latest term.
The way things were going, building a highway, or maybe even fixing a street, might have been stopped in court on the grounds that it could encourage the production of more cars running on internal combustion engines and hence contribute to climate change. To the chagrin of some environmental groups, the Supreme Court thankfully curbed the increasingly absurd abuse of the 1970 National Environmental Protection Act (NEPA) to block all sorts of building — including projects crucial to protecting the environment. From here, Congress should ease construction of critical infrastructure even further.
Jeffrey Miron and Jacob Winter explain that “immigrants benefits US-born entrepreneurs.”
… is from pages 286-287 of Johan Norberg’s marvelous 2023 book, The Capitalist Manifesto:
[C]ompetition for resources and positions does not disappear because they are distributed politically instead of according to supply and demand. On the contrary, in capitalism we search for opportunities for mutual gain, while in economies based on distribution from the top we begin to see other groups as threats because what they take is something we do not get.
Here’s another letter to a protectionist who, alas, is of a type that is all-too-common today.
Mr. Seligman:
With respect, your continuing efforts to defend protectionism get weaker and weaker. Now you accuse us economists of being in error when we point out that resources are scarce. Your evidence for the remarkable proposition that resources aren’t scarce is that fracking and other innovations have made petroleum and other resources more abundant than they were in the past.
You’re seemingly unaware that economists (who you admit to holding in disdain) have long recognized that innovation in market economies makes resources more abundant over time. Indeed, one of my great heroes is the late Julian Simon, who featured this reality front and center throughout his work. But greater abundance over time no more enables society to escape the bounds of scarcity than your rising income over time allows you to escape those bounds. A dollar that you spend on a loaf of bread is a dollar that you can no longer spend on anything else – a reality that is no less true today when your income is higher than it was yesterday when your income was lower.
Every barrel of petroleum, every roll of steel, every ton of copper, every square foot of every factory and every farm, every hour of every worker’s time, every exertion of ingenuity by every entrepreneur, and every quantum of every investor’s willingness to bear risks – every unit of every input that you can name other than air – is scarce. No particular unit of any resource can be in two places at one time. Using a unit of any resource to produce output X necessarily prevents that resource-unit from being used to produce countless other outputs – other outputs that, were that resource-input superabundant, would have been produced.
But suppose I’m wrong, and you’re correct that resources aren’t scarce. Your case for protectionism remains invalid.
If, as you say, resources aren’t scarce, then there’s no obstacle to increasing the domestic production of whatever outputs you fancy, by as much as you fancy. In your world of no resource scarcity, the outputs of the U.S. steel industry, of the U.S. automobile industry, of the U.S. chemical industry, of any U.S. industry you can imagine (and even of those that you can’t imagine) can be expanded as far as you please without the government having to impede Americans’ purchases of imports. It is precisely because you realize, if only in your gut, that resources are indeed scarce that you perceive a need for protectionism to draw resources into the industries that you believe should grow.
You, of course, will dismiss the above argument because it comes from – gasp! – a professor of economics. But as a fellow human being, not as a professor, I challenge you to identify the flaw in my argument above. Dismissing my argument solely because I’ve spent most of my career in a classroom puts your case for protectionism in a very poor light.
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
Discounting consumption and elevating production is superficially appealing. Cass, Lighthizer, and others who do such discounting achieve, in many eyes, an aura of mature sophistication and gravitas that seems unavailable to people who insist that, ultimately, economic activity’s only goal is consumption. Consumption is enjoyable and easy, and we willingly pay to do it. Working, in contrast, is often hard and is never so enjoyable that we willingly do it without being paid. Consumption is an activity that we naturally want to engage in. Unlike laboring, consumption is its own reward and, hence, its own motivation. Because consumption is naturally attractive to humans, we’ll do too much of it if we’re not properly incited to control our urge to consume. In contrast, working — the exertion of time and effort to produce — is not its own reward; we’ll do too little of it unless we’re properly incited to put forth productive effort.
Furthermore, consumption requires neither skill nor self-control. We consume from the moment we’re conceived and continue to be only consumers throughout childhood. But to produce, we must have at least minimal skill and self-control. While even the most aimless and immature individuals can and do consume, production requires maturity and competence. Not everyone does it. Unsurprisingly, prosperous societies develop norms and attitudes that laud and encourage dispositions toward productive activity as they also temper our natural eagerness to consume.
Protesting against Adam Smith’s insistence on the primacy of consumption thus seems to be merited, and perhaps even praiseworthy. Consumption, it appears, is valued above all and exclusively only by the frivolous, myopic, and childish. People who are serious, prudent, and mature understand that production is no less important — and perhaps even more important — than consumption.
A Category Error
Protestors against Adam Smith’s insistence on the primacy of consumption are mistaken. They commit a category error. They presume that production is in the same category of activities as consumption. Specifically, these anti-Smithians presume that production and consumption are alternative, competing human ends. It follows from this presumption that prudent societies aim to achieve an optimal mix of production and consumption, while imprudent ones aim for excessive consumption and too little production. But, as noted, this presumption is mistaken. As economic activities, production and consumption differ from each other categorically. Production is a means toward the fulfillment of human ends (whatever these might be); consumption is the satisfaction of these ends. Production (the means) and consumption (the ends) are not traded off against each other as a consumer trades off one good against another good.
…..
Any activity that will be performed only if the persons performing it are paid to do so is obviously not an end in itself; that activity is not its own reward or its own motivation. That activity is obviously a means. Activities that people pay to engage in are ends. These activities are what Adam Smith meant, and what all sensible economists today mean, by “consumption.” If work in a particular job were an end in itself, the individuals performing that job would not only not have to be paid to do it, they would pay to do it. The need to pay people to work — the need to pay even those persons who enjoy their jobs to work — proves that work is not an end in itself. Likewise, the need to pay firm owners to produce the outputs they produce and make available for sale proves that those production activities are not ends in themselves. As indispensable and praiseworthy as they unquestionably are, work and production are not ends. Work and production are means. Consumption is the end.
To Be Productive, Workers and Other Input Suppliers Must Heed the Demands of Consumers
The end is consumption: “To produce” is necessarily “to increase individuals’ ability to satisfy their consumption desires.” Those activities, and only those activities, that further people’s ability to consume are productive. To spend time, effort, and resources baking sawdust-and-maggot pies would be wasteful, not productive. To be productive, therefore, workers and resource owners must have some way to determine which of the gazillion possible different ways these inputs can be put to use has the greatest likelihood of satisfying as many actual consumption desires as possible. Without this knowledge, work effort and resource use will almost certainly be wasteful rather than productive.
Free to spend their own (and only their own) money expressing their demands for different goods and services, “sovereign” consumers interact with suppliers who are equally free to use their own (and only their own) resources to produce and offer outputs for sale. The resulting exchanges result in market prices that simultaneously inform and incite resource owners to use their resources in ways that generate outputs of the greatest value to consumers. F.A. Hayek’s 1945 paper “The Use of Knowledge In Society” is justly credited as showing that prices — including wages and interest rates — allow enormous amounts of knowledge, dispersed today across billions of minds and millions of square miles, to be used in ways that generate modern prosperity. The knowledge put to daily, productive use in markets could not possibly be gathered, sent to a central location, and processed usefully by government officials. Therefore, to override markets in an attempt to allocate resources by conscious design in units larger than small bands is little better than an attempt to usefully allocate resources by throwing dice or by using some other method of random chance.
One consequence of this reality is that if genuine production is to occur in a group of people larger than a few dozen, the only reliable means of getting sufficient information about which uses of resources are productive and which aren’t is the market price system. By responding to market prices, individuals in their capacity as producers combine different resources into outputs for sale to consumers. Outputs bought by consumers in sufficient quantities and at prices sufficiently high to keep the production operations going are more valuable than the outputs that would have been produced had inputs been used differently. Using inputs to produce outputs sold at prices that cover their costs of production is productive; using inputs to produce outputs sold at prices that do not cover their costs of production is wasteful. Although in both of these cases workers exert effort to transform physical matter from some forms into other forms, production occurs only when outputs exceed costs.
Oren Cass, Robert Lighthizer, and others who attempt to justify protective tariffs on the grounds that production be given its appropriate weight (relative to consumption) are thus mistaken. Protective tariffs do, of course, protect particular producers from competition and, therefore, enable these producers to continue to be paid to perform their long-standing jobs. These work activities appear to the uncritical eye to be productive. Also, the individuals who perform these protected activities no doubt feel as though they are being productive. But here, appearances and feelings deceive.
