Tweet

Phil Magness and GMU Econ alum Alexander William Salter, writing at The Hill, rightly criticize the influence on the Biden administration of the nonsense that is “modern monetary theory.” A slice:

For the unfamiliar, modern monetary theory is a fringe school of economic thought arguing that the federal government, as the sole issuer of legal tender, can issue virtually limitless amounts of new money to fund itself. Bucking thousands of years of evidence that such reckless policies lead to currency devaluation, advocates shirk all blame when inflation occurs, insisting instead that prices increased due to “corporate greed” and “price gouging.”

Perhaps some of that sounds familiar.

Over the last four years, the federal government essentially stumbled into a modern monetary theory-style monetary crisis. The Biden-Harris administration began its term assuming it could “run the economy hot” while also avoiding inflation. They added another multi-trillion-dollar stimulus to Trump-era COVID relief spending, believing they could escape the repercussions of its price tag. Then inflation spiraled out of control.

Speaking of monetary policy, Randy Holcombe foresees disagreement between Trump and Fed Chairman Jerome Powell.

Jim Bovard is correct: “Protectionism is more idiotic than it looks.” Three slices:

Washington hustlers are loudly promising to enrich the nation by selectively blockading American ports. Unfortunately, the Trump team and the growing horde of protectionist pundits sound clueless about America’s long record of trade follies.

Instead, we are encouraged to presume that politicians merely need to issue a few commands and federal bureaucrats will instantly apply their wisdom to remedy our economic problems. But unless politicians intend to ban all imports or inflict the same tax on all imports, then government officials will need to make distinctions between products.

In the past, Customs Service employees wrestled heroically with great questions such as “Is a popcorn popper an electrothermic appliance or an electrical article?” and “Is a jeep a truck or a car?” The United States has thousands of different tariff classifications, with tariffs ranging from zero to more than 100 percent. Naturally, tariff-classification rulings are often disputed with a passion that would have made St. Thomas Aquinas proud.

…..

Customs agents took to the ramparts to protect Americans from TV Ducks — cotton products made to sit on the arm of a couch and hold a TV remote control. Robert Capps, who owned a small company in Skyland, North Carolina, ordered a large shipment of the products from China — but the Customs Service prohibited their entry in 1995. Customs claimed that the little novelty items belonged in the same tariff category as bedspreads — and thus that Capps needed a textile import quota before he could import them. No U.S. company was making TV Ducks, but Customs officials were hellbent on protecting American consumers from the product. Capps hired a lawyer, who quickly convinced a federal judge to overturn the edict. However, the Justice Department appealed the decision and dragged the case out for a year and half, costing Capps millions of dollars in lost sales before a higher panel of federal judges again trounced the agency.

…..

The feds continue to persecute common sense on this score. In March 2024, Ford paid $365 million to settle U.S. Customs claims that, 15 years earlier, it had “imported Transit Connect vans with “sham rear seats and other temporary features” from Turkey that made them appear to be passenger vehicles, for which an import tax of 2.5 percent must be paid rather than the 25 percent duty applicable to cargo vehicles.”

Megan McArdle explains that “media bias is hurting Democrats. Really.” Three slices:

As the news media moved left, we lost that trust. By 2024, less than one-third of the country had a “great deal” or a “fair amount” of trust; another third said they had “not very much” trust, and the remainder said they had “none at all.” The fact that there’s a clear partisan skew suggests this is connected to our politics. In the latest Gallup survey, 54 percent of Democrats said they had high trust in the media, while only 27 percent of independents and 12 percent of Republicans did.

…..

In fact, the stories that mattered the most during this year’s campaign were the ones where we had given Democrats the most “help.” In the 2020 election cycle, Democratic primary contenders counted on us to give them room to move well to the left, especially on social issues, which is how Harris created the fodder for this year’s negative ads against her. This cycle, Democrats counted on us to downplay Biden’s shocking and obvious decline. The issue was handled with kid gloves, under threat of blowback from campaign operatives, readers and even fellow journalists.

…..

I can’t guarantee that Democrats would have won this year if they’d gotten the message sooner and cut Biden loose in time to find a better candidate than Harris, or at least let her stand up a full campaign. But they certainly would have had a better shot than they gave themselves by trying to use the media as campaign surrogates. Until both Democrats and the media realize their mistake, this will keep happening.

John Tierney reports on “the new election gurus.”

Saul Zimet is understandably no fan of philosopher Kohei Saito’s Slow Down: The Degrowth Manifesto. [DBx: Zimet is correct that real-world capitalism must be compared with real-world, not idealized, governments – and that the comparison favors capitalism. But Zimet concedes too readily that capitalism is often “shortsighted.” The exchangeability of private property rights causes prices today to reflect expectations of future values. This process of capitalization incites even people who are most impatient for current satisfaction to take a long-run view.]

Emma Camp decries the Biden administration’s insistence on lawlessly “forgiving” student loans.

I’m very happy to learn that my and Randy Holcombe’s The Essential James Buchanan has been translated into Farsi.

Tweet

… is from page 148 of the late Nobel-laureate economist W. Arthur Lewis’s 1955 book, The Theory of Economic Growth:

These innovators are always a minority. New ideas are first put into practice by one or two or very few persons, whether they be new ideas in technology, or new forms of organization, new commodities, or other novelties. These ideas may be accepted rapidly by the rest of the population. More probably they are received with scepticism and unbelief, and make their way only very slowly at first if at all. After a while the new ideas are seen as successful, and are then accepted by increasing numbers. Thus it is often said that change is the work of an elite, or that the amount of change depends on the quality of leadership in a community. This is true enough if it implies no more than that the majority of people are not innovators, but merely imitate what other do. It is, however, somewhat misleading if it is taken to imply that some specific class or group of people get all the new ideas.

DBx: Yes. And this reality is one that is denied, implicitly if not explicitly, by advocates of government planning of the economy – including advocates of industrial policy. Advocates of displacing market-directed allocations of resources with allocations imposed by government command never say where or how the planning officials will get the detailed knowledge these officials must have if their plans are to work as promised. But industrial policyists and other proponents of government ‘planning’ of the economy also never face up squarely to the fact that, insofar as their schemes are to be put into operation, they must prevent innovation. Creative new ideas for outputs, as well as for how to produce and distribute existing outputs, must be stopped if these ideas are not comprehended by the industrial policy – as they will certainly not be comprehended by the industrial policy because these ideas are creative.

Oren Cass and other industrial policyists might not realize it, but they are enemies of entrepreneurship and innovation. Because being accused of opposing innovation is so damning, few today will admit to it. But the conclusion is inescapable that, insofar as coercion is used to direct more resources to industries A, B, and C, and away from industries X, Y, and Z, innovative ideas that are inconsistent with this effort cannot be permitted if the effort isn’t to be abandoned. And given the very nature of innovation, it is impossible for industrial policyists to know that the value of whatever output is lost because of the squelching of innovation is less than is the value generated by the resource-allocation patterns that industrial policy brings about.

Tweet

George Will urges the U.S. Senate to perform its Constitutional – and ethical – duty. A slice:

Matt Gaetz, an arrested-development adolescent with the swagger of a sequined guitarist in a low-rent casino, will not be confirmed. His grotesqueness, however, makes three other nominees seem what they are not: acceptable. Considering only competence — leaving aside character blemishes — nothing in their resumes qualifies Pete Hegseth, Tulsi Gabbard or Robert F. Kennedy Jr. for the policy and administrative challenges of running the Defense Department, the intelligence community and the Department of Health and Human Services, respectively.

The Senate’s power to reject presidential nominees is as plenary as is the president’s power to nominate. “Ambition,” said Madison, “must be made to counteract ambition. The interest of the man must be connected with the constitutional rights of the place.” A senator’s interest is braided with the Senate’s powers. The Framers did not merely anticipate presidential-congressional conflict, they encouraged it with the Constitution’s structure. Senators can fulfill Madison’s expectations and hopes by counteracting presidential ambitions.

Although some Republican senators’ canine devotion to the president-elect is sincere, many have little respect and less affection for him, and some reciprocate his disdain. Rejecting Gaetz would exercise almost-atrophied institutional muscles and might be habit-forming: Individual senators’ enhanced self-esteem can be a precursor to institutional pride, which is a prerequisite for recovering Madisonian balance between the two political branches.

Also warning of Trump’s reckless nominees is National Review‘s Philip Klein.

Yale Law professor Jed Rubenfeld explains that Trump’s attempt to twist the Constitution in order to appoint nominees would likely be rejected even by the justices appointed to the Court by Trump. Two slices:

Mr. Trump has suggested he could unilaterally put Congress into recess. In April 2020, he warned that he might “exercise my constitutional authority to adjourn both chambers of Congress,” if the Senate continued to obstruct his appointments. But the president’s power to adjourn Congress, which has never been exercised, exists only “in case of Disagreement” between the House and Senate “as to the Time of Adjournment”—language that would seem to apply only when the House and Senate agree to adjourn but disagree about when. If Mr. Trump used that clause to try to suspend Congress without its consent, he’d be risking a constitutional crisis.

…..

The silver lining for Mr. Trump is that only the Supreme Court can overturn its precedents. If he can get the Senate into recess, the lower courts would be obligated to follow the Noel Canning majority and uphold the president’s recess appointments. That would buy him some time. But once the case reaches the high court, which could happen quickly, Mr. Trump should be prepared to see his recess appointments declared null and void.

GMU Econ alum Dominic Pino compares Trump’s first Secretary of Health and Human Services to the man Trump will nominate to hold this post during Trump’s second term.

Jacob Sullum warns that Trump’s nominee to head the FCC is no fan of free speech. A slice:

Announcing his choice of Brendan Carr as chairman of the Federal Communications Commission (FCC) on Sunday, President-elect Donald Trump described him as “a warrior for Free Speech,” which sounds good until you ask what Trump means by that. Carr, who has served as a Republican FCC commissioner since Trump appointed him during his first term in August 2017, believes that promoting freedom of speech requires curtailing liability protections for social media platforms and restricting their editorial discretion.

The Wall Street Journal‘s Editorial Board rightly criticizes the Biden administration’s economically illiterate antitrust actions. Two slices:

Meet the latest victim of Biden Administration antitrust policy: Spirit Airlines. Spirit declared bankruptcy Monday after the Justice Department cut off a lifeline by blocking its merger with JetBlue Airways. Too bad the government won’t compensate the workers, flyers and creditors harmed by its blunder.

Spirit has run up $3.3 billion in debt as it slashed prices to attract customers. The scrappy discount airline last decade spurred more industry competition by unbundling fares, charging more for carry-on baggage, and scrapping amenities. But legacy airlines followed, and Spirit had too few airport gates, pilots and planes to compete effectively.

…..

DOJ’s other lawsuit blocking JetBlue’s Northeast Alliance with American has benefited no one other than United and Delta. Call it the Biden antitrust paradox. In the name of protecting competition, regulators are helping big companies get bigger. As usual, consumers and workers will pay.

Fortunately, the Pennsylvania Supreme Court is preventing Democrat Bob Casey from lawlessly stealing an election.

David Henderson notes the importance of having good economists teaching in colleges and universities. A slice:

One of my benefits from being on Facebook is that a lot of young graduate economics students and assistant professors of economics have heard of me and try to friend me. Unless I see some big negative–and I rarely do–I accept. As a result, I follow what they’re doing in their careers: what they teach, how they teach, and how students respond to their teaching. I read a lot of positive stories. I think of Art Carden at Samford University (who is now, actually, a full professor–how time flies), Jonathan Murphy at Nicholls State University, and Michael Makovi at Northwood University, to name three off the top of my head. I could easily name five or six others.

Tweet

… is from page 33 of Randy Holcombe’s 2023 paper “Untangling Political Economy,” which is chapter 2 of The Legacy of Richard E. Wagner (Peter J. Boettke and Christopher J. Coyne, eds., 2023):

The big difference, however, is that market entities deal with each other only through voluntary transactions, so both sides must agree that they are better off for the transaction to occur. The threat of force stands behind transactions with government entities.

DBx: Yes. And this difference between non-governmental action – “private” action – and governmental action is both categorical and important. Further, this difference doesn’t disappear just because the government is elected democratically.

Tweet

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with Samuel Gregg about “the evolving landscape of conservative thought.”

What if the DOGE were run by Arnold Kling?

Scott Lincicome explains “what Biden and Harris got wrong on inflation.” Two slices:

Plenty of other data points and anecdotes all come to the same conclusion: Even though inflation has moderated a lot in recent months, and even though the U.S. economy was (is) generally humming along, the dramatic, generational price increases we all experienced in 2021-23 left a deep scar on most voters’ minds.

…..

Probably the biggest mistake was the Biden administration’s and congressional Democrats’ repeated decision to “go big” on government spending, starting with the $1.9 trillion American Rescue Plan and then continuing with several massive “industrial policy” laws—the Infrastructure Investment and Jobs Act, CHIPS Act, and Inflation Reduction Act—potentially spending trillions more.

Specifics of the ARP aside, it was broadly ill-conceived in two big ways. First, its timing was off. As we discussed way back in February 2021, the ARP’s general outline was first crafted when the U.S. economy was in a much more perilous position—before vaccines began to proliferate widely and economies began to reopen—than it was when the bill finally became law in March of that same year. By that time, it was abundantly clear that the ARP would be adding rocket fuel to an economy that had already started taking off—thanks in part to previous rounds of government stimulus.

Second, the ARP erroneously assumed that the pandemic recession was much like the Great Recession, which supposedly taught us that fiscal stimulus should always “Go Big” to avoid a prolonged labor market funk.

The Editorial Board of the Wall Street Journal decries Mexico’s leftward movement – including its president’s contempt for the rule of law. A slice:

The world is watching to see how new Mexican President Claudia Sheinbaum will govern—as a pragmatist who wants investment, or a leftist who tries to solidify one-party rule. Two early moves suggest the latter, which may be why the peso keeps falling against the dollar.

First she suggested she would defy the Supreme Court if it declared parts of a constitutional amendment on judicial reform to violate the basic tenets of the constitution. The amendment was passed by her predecessor and her Morena party, and it makes all judges run for election. The high court backed down after her threat, failing to garner the eight votes necessary to roll back the reform. The court was the last barrier to Morena’s rewrite of the constitution to solidify its power.

Innovation and automation continue both to substitute for and complement human labor in welfare-enhancing ways, as documented in a new paper by Yong Suk Lee, Toshiaki Iizukak, and Karen Eggleston. Here’s the abstract:

How do employment, tasks, and productivity change with robot adoption? Unlike manufacturing, little is known about these issues in the service sector, where robot adoption is expanding. As a first step towards filling this gap, we study Japanese nursing homes using original facility-level panel data that includes the different robots used and the tasks performed. We find that robot adoption is accompanied by an increase in employment and retention and the relationship is strongest for non-regular care workers and monitoring robots. The share of specific tasks performed by robots increases with the adoption of the respective type of robot, leading to reallocation of care worker effort to “human touch” tasks that support quality care. Robots are associated with improved quality (reduction in restraint use and pressure ulcers) and productivity.

Martin Kulldorff tweets:

Covid masks, vaccine mandates, lockdowns and school closures were pseudo-science, just like leeches, lobotomy and eugenics.

Tweet

… is from page 81 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

Once we face up to the plain fact that Social Security is welfare for the elderly, then we need to ask ourselves why affluent people of any age should be a burden on others. They should not be.

Tweet

Here’s my just-published remembrance, in Public Choice, of my late teacher, dissertation advisor, co-author, and friend, Bob Ekelund. Three slices:

The only textbook assigned for the course was Milton Friedman’s Price Theory. From some younger members of Auburn’s economics faculty, I heard a few cocktail-lubricated complaints that core theory courses in a modern economics Ph.D. program shouldn’t feature such low-brow fare as Friedman. Not enough math. I disagreed, sensing that my classmates and I were destined to learn from the combo of Ekelund and Friedman far more useful microeconomic theory than we’d have learned had the assigned text been any that were then used in the elite programs (or, indeed, had the professor been any randomly chosen one from the likes of Yale or M.I.T.).

Looking back, I was only half right. My classmates and I did indeed learn from a master price theorist how to deploy microeconomic theory creatively, rigorously, and usefully. But during the course, Friedman hardly appeared. We were given reading assignments from the text, but almost no class time was devoted to reviewing or applying anything that Friedman wrote in that textbook – a textbook that, despite its light reliance on mathematics, is surprisingly abstract. Ekelund instead taught Armen Alchian. A few of Alchian’s papers were assigned, but Alchian’s appearance came mostly through Bob’s teaching style. The world offers endless fascinating questions that can be productively explored with price theory. Bob put countless of these questions to his students in ways expertly crafted to elicit enlightening discussion.

…..

About a month or so into the course a major national news story broke: Several people had died after swallowing some tablets of Tylenol. It quickly became clear that someone had intentionally laced the pills with poison. Bob instructed his students each to write a paper describing how economics might advise government to respond to this tragedy. I wish that I remembered the details of what I wrote as well as I remember, first, my elation upon learning that my paper earned an A+ from Bob, and second, the thrill of the classroom discussion of our papers. Every proposal for government action – or, in my case and that of a few other students, government inaction – was met by Bob with, “Well, what about …?” which invariably was a preface to him masterfully noting downsides to the proposal. In the classroom discussion, even my A+ paper was subjected to tough scrutiny. It was during that discussion when I fully realized the meaning and importance of Thomas Sowell’s observa-tion that “there are no solutions, only tradeoffs.” And it was in that class that I cemented my conviction that price theory done in the style of Armen Alchian – which was the style of Bob Ekelund – is an exquisite tool far more powerful and useful than what the great majority of economists, then as now, consider to be microeconomic theory.

I’m genuinely ashamed to report that my experience in the next course that I took from Bob wasn’t as rewarding as was my experience in the micro-theory course. The fault was mine. This next course was a seminar on regulation, and my classmates and I were graded exclusively on a research paper that each of us submitted at the quarter’s end. I was cocky, confident that my instincts about theory – which showed well in the earlier course – were sufficient to carry me through to an A+ in this course. I don’t now recall the details of the regulatory topic on which I wrote my paper; I recall only that it had something to do with antitrust. I do, though, remember the humiliation I felt upon learning that my grade on that paper – and, hence, my grade for the course – was B-minus. The humiliation was made real because I knew that Bob graded me unfairly; he should have assigned me a course grade of C-minus (or even lower). Bob wanted a research paper showing evidence of its author having grappled with the messy details and institutional context of some real-world regulatory issue. Instead, I breezily bypassed the details and waxed philosophically about regulation. Scrawled across the paper in Bob’s handwriting was “This isn’t even the beginning of publishable research” – or words to that effect. He was right. I learned a difficult but necessary lesson.

…..

[T]he bulk of my and Bob’s criticisms of [some work of William] Comanor came from a distinctly “market process” understanding of the economy. Entrepreneurs are active and creative, always on the lookout for the profit opportunities lurking in markets that have yet to achieve perfect efficiency (which is to say, in all real-world markets). If it’s really the case that the use of some vertical restraint reduces the welfare of infra-marginal consumers by enough to matter – or, what is perhaps the same thing, by enough to be detected by antitrust authorities and courts – there exists a profit opportunity for entrepreneurs. The firms contracting with each other to create the vertical restraint themselves have incentives to devise ways to better serve infra-marginal consumers without abandoning their efforts to satisfy the demands of marginal consumers. And if these firms lack the entrepreneurial alertness or creativity to better serve both groups of consumers, then other entrepreneurs will find profit opportunities in this failure to better serve infra-marginal consumers. Either way, market competition is far more likely than are government officials to strike the ‘optimal’ trade-off between service to marginal and service to infra-marginal consumers.

Tweet

My colleague Bryan Caplan is always insightful. Two slices:

In my eyes, every election is a trainwreck. Two proudly irrational tribes rally behind two self-congratulatory demagogic mediocrities as if they were the Second Coming. Listening to any “serious” candidate speak is torture. It’s like sitting in on the class presentations of C students, knowing that one of these C students will, on the basis of their half-baked words, become the most powerful person on Earth. What a disgraceful system.

You can tell me “One of these candidates must be the lesser evil” from dawn to dusk. But I just can’t stop thinking, “They all make my flesh crawl — and if you don’t feel the same way, there is something very wrong with you.”

…..

I, in contrast, hold politicians and voters to an eminently reasonable standard: Don’t advocate government action until you credibly show that, despite all the free market’s merits, you know how to do better.

Brian Albrecht makes clear that “economics still matters for policy.”

Yuval Levin, writing at National Review, wisely counsels the U.S. Senate to act responsibly and reject the nominations of Matt Gaetz and RFK Jr. A slice:

Robert F. Kennedy Jr. is a raving conspiracist with a dangerously loose grip on reality. Maybe that makes him an ideal match for Donald Trump, but that is not the question before the Senate. The question before the Senate is whether he should run the Department of Health and Human Services, and the answer — even after accounting for some due deference to the president’s preferences — is that he very obviously should not.

Amity Shlaes explains “the economic consequences of populism.” A slice:

Historian Robert Higgs has developed a useful thesis to explain this lost decade [of the 1930s]: “regime uncertainty,” the notion that an erratic, aggressive government can terrify businesses into slowdown. The same theme was taken up by the chief economist of Chase Bank, Benjamin Anderson in a 1945 book, Economics and the Public Welfare. Though individual policies promulgated during the Depression may have differed, Anderson noted, there was one commonality: authorities’ arrogance. “Preceding chapters,” concluded Anderson at the end of his section on the Great Depression, “have explained the Great Depression of 1930–1939 as due to the efforts of governments, and very especially of the Government of the United States, to play God.” When playing God failed, Anderson noted, our government had determined that “far from retiring from the role of God,” it “must play God yet more vigorously.”

The Editorial Board of the Wall Street Journal rightly is highly critical of the (thankfully stupid) authoritarian who is the current mayor of Chicago. A slice:

Mayor Brandon Johnson is taking his city on a progressive kamikaze course, and Chicago’s Democratic political establishment may be tiring of the spectacle.

On Thursday the City Council met in special session to block the mayor’s plan to use a $300 million property tax increase to balance the city’s budget. The vote was unanimous, 50-0, so is Mr. Johnson getting the message yet?

Also rightly critical of Chicago’s current mayor is C. Jarrett Dieterle.

Juliette Sellgren talks with Sarah Skwire about grief and Adam Smith.

Harold Black ponders the draining of the swamp.

Bill Shughart investigates “why pollsters misjudged the 2024 election.”

Tom Clougherty decries the current condition of Britain’s economy – and of the mindset and policies that cause that sorry condition. A slice:

Nonetheless, what I was really struck by was the contrast between the chancellor’s insistence that “the key test for regulation is whether it will make our economy more dynamic and more competitive” and something else I saw the same day – Paul Goodman’s quietly-damning Twitter thread about the Football Governance Bill working its way through Parliament.

Here you have an undeniably dynamic and competitive industry – perhaps the one remaining area in which England really leads the world. And what does government do? It sets up a wholly unnecessary, utterly ill-conceived regulator to issue operating licenses, determine revenue distribution, require consultation on ticket prices, and mandate diversity, equality, and inclusion plans. (Let’s not forget that the Conservatives started it.)

Jay Bhattacharya would be a great choice to head the N.I.H.

Tweet

… is from page 17 of Milton Friedman‘s 1976 paper “Adam Smith’s Relevance for 1976,” which is Chapter 1 of Adam Smith and the Wealth of Nations: Bicentennial Essays 1776-1976, edited by Fred R. Glahe (link added):

The market, with each individual going his own way, with no central authority setting social priorities, avoiding duplication, and coordinating activities, looks like chaos to untutored eyes. But through Smith’s eyes we see that it is a finely ordered and effectively tuned system, one which arises out of men’s individually motivated actions, yet is not deliberately created by men. It is a system which enables the dispersed knowledge and skill of millions of people to be coordinated for a common purpose. Men in Malaya who produce rubber, in Mexico who produce graphite, in the state of Washington who produce timber, and countless others, cooperate in the production of an ordinary rubber-tipped lead pencil – to use Leonard Read’s vivid image – though there is no world government to which they all submit, no common language in which they could converse, and no knowledge of or interest in the purpose for which they cooperate.