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

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

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

Editor:

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

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

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

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

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

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

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

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

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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

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

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

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

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

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

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

…..

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Don:

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

On tariffs, Tread With Caution.

Vernon

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My Mercatus Center colleague Jack Salmon surveys decades of empirical research on the effects of tariffs and report this:

Taken together, the empirical literature tells a consistent but nuanced story. Tariffs reliably raise prices and reduce targeted trade flows. Their employment effects are more ambiguous because they depend heavily on the level of analysis: protected industries may gain, but downstream firms, exporters, and consumers often lose. The productivity and output evidence, however, points strongly in one direction. Tariffs shelter some firms from competition and may preserve some jobs in the short run, but they do so at the cost of higher prices, reduced trade, weaker productivity growth, and lower overall economic welfare.

[DBx: Next time – and there will be many next times – you encounter a protectionist asserting that the case for free trade is “an article of faith,” remember this essay by Jack Salmon – an essay that is evidence as powerful as evidence gets that the economic case against tariffs is rooted in science, not faith.]

Jake Scott explains that “good trade deals make good neighbors.”

Colin Grabow makes clear that “the GOP’s protectionist detour has run its course.” A slice:

Riding a wave of voter anger over the Washington status quo — and, it must be said, weak Democratic opposition — Trump was elected in 2016 and 2024 on promises that included confronting China, revitalizing manufacturing, and correcting alleged abuses by U.S. trading partners. This, we were told, was how America would be made great again.

After more than five years in office, and with a trade policy largely left in place by former President Joe Biden (which should give Republicans pause), it’s worth taking stock. The results are not encouraging.

On the China front, no one can credibly argue that heavy and sustained tariffs have prompted the country to change its ways. Even the U.S. government has acknowledged as much. Instead of producing reform in Beijing, the administration has often focused on trade battles with longtime allies rather than building a coordinated response to China.

If the goal is to compete with China, the answer isn’t to wall off the United States but to link arms with its allies. Deeper trade ties in the Indo-Pacific would strengthen supply chains and ensure that global rules are shaped by the U.S. and its partners, not Beijing.

But the administration opted for conflict rather than cooperation, engaging in skirmishes with allies that became the preamble to numerous trade deals widely described as liberating the U.S. from years of abuse. The deals signed in the president’s second term, however, have proved ill-conceived. Concluded under the threat of tariffs, the agreements secured modest foreign tariff reductions while locking in significantly higher U.S. tariffs under the guise of reciprocity.

On net, these deals have made trade more difficult and more costly for Americans. Their result has been a sapping of American economic strength.

David Henderson loses a bet with Charley Hooper.

Michael McShane’s letter in today’s Wall Street Journal is excellent:

Mr. [Mark] Kelly argues that Arizona’s education savings accounts program forces trade-offs in state spending, even though he concedes that ESAs represent only 8% of the state’s education budget. He then criticizes the $50 billion price tag on the federal scholarship tax credit for education. The 2025 federal budget was $7 trillion, making the scholarship program less than 0.75% of federal spending. The idea that these scholarships will result in significant “lost revenue” is ridiculous.

Mr. Kelly laments that when students leave public schools in a choice system, public schools lose money. “Hold harmless” arrangements can blunt the blow of enrollment shifts, but even if such options didn’t exist, what would the senator propose we do? Shouldn’t funding vary with enrollment? Would he propose not increasing funding when enrollment rises? He can’t have it both ways.

Finally, Mr. Kelly links to a story in the Washington Post that associates vouchers with declining enrollments in Arizona. Recent projections from the National Center for Education Statistics predict declining student populations due to birth dearth, not school choice, as we see the largest losses projected in states like California that don’t have choice programs. Even if choice was driving declines in enrollment in public schools, that should be a wake-up call that public schools are only viable with a captive audience.

The Editorial Board of the Washington Post describes Trump’s newly devised “anti-weaponization fund” as creating “a template for all future American presidents to shower financial benefits on friends and allies without accountability.” A slice:

The fund will be under the control of five people appointed by the attorney general. They can be fired at will by Trump, meaning the money can go only to people the president sympathizes with. Don’t expect James B. Comey — who is fighting an utterly frivolous prosecution by the Trump Justice Department in North Carolina — to win any compensation.

Instead the money will presumably flow to conservative figures investigated or prosecuted during the Biden years. But people who are victims of malicious prosecution can seek recompense through the normal legal process. If that process is too onerous, Congress can change the law. The new model of “compensation” the Trump administration just invented lacks normal legislative and judicial checks.

Conservatives rightly blasted the use of sue-and-settle tactics employed by progressive groups during the Obama administration. Instead of fighting lawsuits brought by environmentalists, for example, the Environmental Protection Agency would enter settlements that gave them what they wanted. The goal was to use the illusion of an adversarial legal process to lock in progressive policy wins without formal rulemaking that couldn’t pass muster or legislation that couldn’t pass either chamber.

Also criticizing Trump’s “anti-weaponization fund” is National Review‘s Dan McLaughlin. A slice:

Is that bad? Absolutely. Trump critics on the left currently say so. But he’s really just taking another page from the left’s playbook.

The classic Trump modus operandi is to look at something crooked that is done smoothly and quietly by the left through sophisticated lawyering on the left — and then imitate it while saying all the quiet parts out loud. This is another instance. Of course, using legislative appropriations and programs to line the pockets of allied groups is an old standby of Democrats, but so is laundering aid to friends and allies through the judicial system — often, with the knowledge that a part of it gets kicked back.

Arnold Kling looks back on the era of “technocratic economics.”

Nick Gillespie, unfortunately, is correct: “the populist right no longer even pretends to care about spending or government overreach.”

Enjoy – truly enjoy – your cups of joe!

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… is from page 307 of William Bernstein’s splendid 2008 book, A Splendid Exchange: How Trade Shaped the World:

Protectionist legislation usually strikes hardest at the weak and powerless.

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Richard Ebeling rightly applauds F.A. Hayek’s brilliant and as-relevant-now-as-ever 80-year-old paper, “The Meaning of Competition.” Two slices:

The individual participant in the market process has a fuller and more detailed knowledge of his own circumstances and its profitable possibilities than anyone in government can possess or appreciate in the same way. It becomes a source of danger, in fact, for the well-being of the society as a whole when those in political authority presume to know best how any individual should apply himself and the resources at his disposal in the service of others in the social system of division of labor. Indeed, as Smith said, it is nowhere “so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”

…..

In the market process, competition is understood to mean the attempt by supply-side producers to discover, develop, produce, and offer new, better, and improved products so as to attract customers to their product or service; the goal is increased sales, greater market share, and larger net revenues to earn profits.

To do so, competition in the marketplace also entails devising ways to not only improve the quality of the product but also to creatively find ways to produce it for less costs to offer it to customers at a lower price than one’s competitors.

This requires entrepreneurs to decide on what to produce and where, how, in which quantities, and at what price to market it to potential buyers. In other words, to compete means not to take the market price or the existing ways of doing things as “given.” It means to go outside the current and existing knowledge about how to produce a product with various inputs (land, labor, resources, capital equipment) and to discover how all of this might be done less expensively and with the product having new and improved qualities that make it more attractive to the buying public.

Inescapably, this process means new knowledge and information, given that the discovery processes that bring about better products can only come through some people in the market learning and utilizing and applying that knowledge before others. After all, any new knowledge must come into someone’s head first, which means new knowledge and its use is invariably asymmetric. That is, some people know things that others do not, and they know it ahead of those others.

The Economist investigates America’s “productivity miracle.” Two slices:

[O]ver the past five years or so American productivity has been growing at the fastest rate in around two decades. Whether you look at output per worker or per hour, it has risen by a lively 2% a year, from a moribund 1% for most of the 2010s (see chart 3). This has led the Federal Reserve to raise its median forecast for America’s long-run GDP growth from 1.8% to 2%. Jerome Powell, the outgoing chair, bore witness at a recent press conference. “I never thought I’d see this many years of really high productivity,” he marvelled in response to a question from The Economist.

…..

Productivity growth also sped up in oil and gas. The shale-fracking revolution of the 2010s turned America from a net energy importer to an exporter. In 2023 it sold half as much energy abroad, net of imports, as Saudi Arabia. Since then, construction of new liquefaction plants for natural gas has allowed America to send the fuel to Europe and Asia, where it fetches higher prices than at home.

Tad DeHaven is always worth reading.

Billy Binion explores the expressed loathing by the likes of Bernie Sanders and Alexandria Ocasio-Cortez of billionaires. Two slices:

Our politics have been analogized to Veep. A more apt comparison some days is that we are living in a cartoon. Every good cartoon needs a supervillain or three. Our supervillains created millions of jobs, made goods cheaper and far easier to obtain, and revolutionized access to information, among other terrible, terrible things.

I am referring to billionaires. Reasonable people will debate, and disagree on, the best way to sketch out the tax code. Protestations to “tax the rich” have long been central to progressive politics. But last week’s Met Gala was a reminder that there is something else undergirding those calls: what seems like legitimate hatred or, at a minimum, disgust. Why?

…..

Sergey Brin and Larry Page gave the world near-unfettered access to information with Google. Maybe it’s even how you found this article. (Thanks.) Steve Jobs effectively put computers in our pockets, facilitating more intimate communication and connection with friends and loved ones near and far. Elon Musk, for all of his controversy, helped pioneer the modern electric vehicle and is investing in technology to help people with neural issues regain function. Why is this never a part of the story?

Wall Street Journal columnist Andy Kessler adds his insightful voice to those who criticize the economically ignorant soakers of the rich. Two slices:

America’s youth are infatuated—almost two-thirds of those under 30 have a “favorable view” of socialism. They are told artificial intelligence will destroy jobs; they worry about never-arriving climate disasters and are seduced by universal basic income (aka welfare for all). Oh, and they hate the filthy inequality schemes and unfathomable riches of billionaires—but they sure enjoy iPhones and Starbucks’s Iced Brown Sugar Oatmilk Shaken Espresso.

Young voters help elect oxymoronic democratic socialists. The effect has been swift. In April, Seattle’s socialist mayor, Katie Wilson, declared, “I think the claims that millionaires are going to leave our state are, like, super overblown. And if—the ones that leave, like, bye.” Starbucks announced a $100 million expansion in Nashville, Tenn., and former CEO Howard Schultz moved to Florida. As in, like, bye.

New York Mayor Zohran Mamdani seemingly ran out of money to fund collectivism shortly into his term, saying: “We are forced to raid the rainy-day fund, the retiree health benefits trust reserve, and to increase property taxes.” Well, half of personal income taxes are paid by 2% of city dwellers. Florida beckons. Finance firms Citadel and Apollo are expanding elsewhere. A New York Post headline nailed it: “We Are Zo Outta Here!”

…..

Socialism’s patron saint in a pantsuit, Rep. Alexandria Ocasio-Cortez, recently declared, “You can’t earn a billion dollars. You just can’t earn that. You can get market power, you can break rules, you can abuse labor laws, you can pay people less than what they’re worth, but you can’t earn that.” Thanks, comrade. If only she had said “surplus value,” we could Scooby-Doo-like rip off her mask to reveal Karl Marx.

Twenty years ago, comedian Ron White presciently observed, “You can’t fix stupid.” Socialism fails. Every time. If you’re offended, go read a history book. Or visit Havana. The leaders reap the spoils. Bernie Sanders has three homes and flies private. He told Bret Baier about his “Fighting the Oligarchy” tour: “Think I’m going to be sitting on a waiting line at United?” and added, “No apologies.” Joseph Stalin had 20 dachas while the proletariat went hungry.

Thanks to capitalism, we are living in unprecedented good times. Space launches. Weight-loss wonder pills. Happy-hour-friendly autonomous cars. AI bots that will meet our every imaginable need. A more peaceful Middle East on the horizon. A resurging middle class around the globe. But that’s nothing that a few commies—er, democratic socialists—couldn’t destroy in a generation.

Socialism adoration comes from brainwashing. A recent City Journal survey of 120 “prominent colleges and universities” showed that a grand total of zero schools required economics courses to graduate. Only 15% required some U.S. government or history classes, while half required diversity, equity and inclusion-like courses. Ugh. So bye to jobs, hello socialism.

We need to educate our youth with a full-throated defense of capitalism and free markets because for too many, the most intelligent thing they say coming out of college is, “It’s like, whatever.”

[DBx: We’re doing our best at GMU Econ to provide such education. Later this morning I will meet for the first time my Summer 2026 “Econ 101” students. Before class is dismissed two hours later, these students will know that they are among the richest human beings ever to live. They will understand that the difference between their wealth and that of the likes of billionaires Jeff Bezos and Paul McCartney is minuscule – a rounding error – compared to the difference between their wealth and that of any of their ancestors who lived three or more generations ago. Speaking of McCartney, when, on June 18th, 2006, he turned 64 I wrote this about him.]

Philosopher Christopher Freiman sensibly asks: “Can socialists support commerce but not capitalism?”

Steve Swedberg makes visible some of unintended ill-consequences of government’s attempt to limit credit-card interchange fees. A slice:

A report from the Progressive Policy Institute found no meaningful evidence that these changes translated into lower prices for consumers. The promised benefits at the checkout line by and large failed to appear.

Banks, however, had to make up the lost income. Research from Penn State demonstrated that in the aftermath of the Durbin Amendment, banks reduced access to free checking accounts by roughly 40 percentage points and nearly doubled monthly account maintenance fees.

A George Mason University study showed similar adjustments, including tripled minimum balance requirements for fee-free accounts and doubled fees on standard checking products in the years after the policy took effect. Debit card rewards programs simply disappeared.

The lesson is straightforward. Consumers lose out twice — they don’t get the promised savings, and their banking costs go up.

GMU Econ alum Jeremy Horpedahl tweets: (HT Scott Lincicome)

The Industrial Revolution would probably not have been approved by a public vote