Tweet

Christian Britschgi is correct: “Anti-market progressives dominate the Biden administration. Their policies also help discredit it.” A slice:

Inflation didn’t just happen on Biden’s watch. His budget-busting American Rescue Plan—which dumped a bunch of monopoly money on an already recovering post-pandemic economy—predictably sent prices through the roof.

At the time, “neoliberal” economists who’d held prominent positions in previous Democratic administrations, but had been largely replaced by the New Progressive types Prokop profiles, publicly warned that the ARP was too big and would generate lots of inflation.

The New Progressives shrugged off these criticisms as reactionary snipping from careerists steaming over their loss of power and influence.

But neoliberals turned out to be right. Progressive dismissals of their warnings ended up endangering their entire political project.

The silver lining to Biden-era inflation, for all the hurt it caused, is that it might end up discrediting the New Progressive’s economic policies within the Democratic Party.

Scott Lincicome ponders the power of the U.S. president to impose tariffs by executive diktat. A slice:

For more than 80 years, presidents largely avoided abusing the enormous unilateral tariff powers that Congress had delegated to the executive branch under several different laws and under the assumption that such abuse was highly unlikely. This all changed in the last decade, as both presidents Trump and Biden implemented broad tariffs on dubious grounds, and as Congress and the courts proved unable or unwilling to limit such actions.

In this regard, the problem of presidential tariff power is really a small part of the even bigger problem of executive power run amok: Once Congress cedes important constitutional authorities to the president, it’s darn near impossible to get them back—especially today, when partisanship is high, vanishingly few members of Congress appear interested in a pesky, time-consuming, and responsibility-creating thing called legislation, and White House inhabitants of both parties are eager to not merely protect the power their predecessors have left them but expand it even further while in office.

Allison Morrow explains that by pitching high tariffs in America Trump is pitching high taxes on Americans. A slice:

Harris, for her part, has derided tariffs as a “sales tax on the American people” but hasn’t detailed whether she would extend the trade restrictions put in place by her predecessors.

Bottom line: Tariffs might be a beautiful word to Trump’s ear, but he’s telling a fictional story about what they do in practice. Prices go up and America’s trading partners retaliate.

My intrepid Mercatus Center colleague, Veronique de Rugy, writes realistically about Social Security’s inescapable realities. A slice:

The United States is at a crossroads. You may have heard that Social Security is politically impossible to reform. But that belief will be hard to sustain. In a few years, the Social Security Trust Fund will be exhausted. When that happens, Social Security benefits will be cut across the board by 21% — that is, unless Congress changes the law. Either way, changes are coming.

Joel Kotkin and Michael Toth reveal how, as California’s AG, Kamala Harris obstructed the building of housing. A slice:

Yet like Ms. Harris’s scripted reversals on fracking, immigration and Medicare, her push to build more single-family homes contradicts her past positions. As California’s attorney general, she wielded the state’s environmental laws against new residential developments, exacerbating the affordability crisis that her campaign plan aims to address.

Years of excessive housing regulations and legal attacks on developers have left much of California unaffordable today. Median house prices in the Los Angeles, San Diego and San Jose metropolitan areas are more than 300% above the national average. In 2021 California had the nation’s second-lowest homeownership rate at 55.9%, slightly above New York.

Ramesh Ponnuru warns of the itch on the political left to “reform” American courts – that is, to make courts more political.

Here’s GMU Econ alum Ryan Young on the newest economics Nobelists. A slice:

While AJR are right that institutions matter, they do not explore institutions’ deeper roots. They have also fallen for recent political trends, especially Acemoglu. These trends include populist anti-tech animus, cozying up to illiberal governments, and asking the fashionable questions about inequality instead of the right ones.

Iain Murray decries the bipartisan attack on credit markets.

Jim Geraghty observes that governments can’t even do well their recklessness at spending money. A slice:

In my neck of the woods, Fairfax County, Va., the Board of Supervisors carried over into the new fiscal year “$59.22 million in federal coronavirus state and local recovery funds.” Wait, you guys have nearly $60 million in coronavirus funding left over, years after the pandemic ended? Then why are my property taxes rising so quickly?

Tweet

… is from page 170 of Gordon Wood’s superb 2009 book, Empire of Liberty: A History of the Early Republic, 1789-1815:

Congress’s first tariff act of 1789 listed a number of goods for protection, including beer, carriages, cordage, shoes, sugars, snuff, and tobacco products. Yet most of the manufacturers soon became dissatisfied with the government’s measures, believing that the duties levied on foreign imports were too low and not sufficiently protective of their businesses. Secretary of the Treasury Hamilton seemed more interested in producing revenue to finance the federal debt than in offering protection to mechanics and manufacturers.

DBx: Keep this passage from Wood in mind whenever you hear from protectionists – as you will, if you pay attention to debates in the U.S. over trade – that the tariff of 1789 was the first major statute enacted by Congress and signed by the president (by George Washington!) under the new Constitution. Protectionists want you to believe that no sooner did the new U.S. government get going that it got going right to protectionism. Except that it didn’t. It got going into raising revenue, and it chose tariffs as a chief source of that revenue.

Again, while all revenue tariffs have some incidental protective effect, this protective effect is a bug rather than a feature or the purpose of such tariffs. Because no revenue is raised on imports that do not enter the country, revenue tariffs work better the fewer are the imports they keep out of the country – that is, the less are these tariffs’ protective effect. Likewise, all protective tariffs that aren’t utterly prohibitive raise some revenue. But this revenue is incidental. While not exactly a bug of protective tariffs, this revenue is certainly not the chief feature or purpose of such tariffs.

Today’s debate over trade and trade policy would be more productive if participants in this debate were more aware of the distinction between revenue tariffs and protective tariffs.

Tweet

Here’s a letter to a new correspondent:

Mr. G__:

Thanks for your e-mail asking my opinion of Trump’s threat, issued yesterday, to impose 100 percent tariffs on goods that Americans import from countries that abandon the dollar as a global reserve currency.

Forget that these tariffs would inflict huge costs on all American households by raising the prices of consumer goods, and on many American businesses by raising the prices of imported raw materials, tools, and intermediate goods used as inputs in production here in the United States.

Forget that other governments would retaliate, further harming the U.S. economy and throwing the global economy into turmoil.

Forget that the very threat to take such a reckless action itself makes the dollar less attractive for foreigners to hold and use to conduct international trade – that is, makes the dollar less attractive to use as a global reserve currency.

Focus instead on the fact that Trump’s clueless outburst confirms his ignorance of trade. Here’s a man who incessantly complains about the alleged harm that Americans suffer from U.S. trade deficits, yet he’s unaware that a major reason why America regularly runs trade deficits is that the dollar is a global reserve currency. Insofar as foreigners hold dollars or use them to conduct business with each other, foreigners do not spend these dollars on American exports. In short, foreigners’ use of the dollar as a reserve currency is a major cause of U.S. trade deficits.

Informed people know what Trump doesn’t, namely, that these trade deficits are both a sign and a source of the U.S. economy’s relative strength. The fact that Trump simultaneously demands an end to U.S. trade deficits and that foreigners continue to use the dollar as a reserve currency only testifies to his deep economic ignorance.

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

Tweet

Jacob Sullum remembers IJ co-founder Chip Mellor. A slice:

Chip Mellor’s legacy, in short, is an organization that challenges people to rethink what it means to defend civil liberties, promote freedom, and help the disadvantaged. It shows that economic liberty and private property, often portrayed as code words for shoring up the privileges of the wealthy, are especially important for people of modest means, who otherwise are at the mercy of a government that can stop them from improving their lives and keeping what is theirs.

Scott Lincicome talks trade.

“Biden’s top Trade official just admitted tariffs haven’t changed China’s behavior.”

Timothy Taylor wishes that he had the opportunity to choose among better candidates for the U.S. presidency. Two slices:

It would be nice to vote for someone who acknowledges that the US budgets and the accumulating US debt are a problem, and has a serious proposal to address it. Proposals for additional tax cuts and spending are not an arithmetically likely solutions.

It would be nice to vote for someone who recognizes that Social Security and Medicare are facing real and severe solvency problems in the not-too-distant future, and offers some proposals to address them. Reducing taxes on Social Security benefits or increasing benefits for those with low incomes, whatever the justifications for such policies, will not help the solvency problem.

…..

It would be nice to vote for someone who doesn’t think that government controls over prices–whether for rent or credit card interest rates or prescription drugs or groceries–are more than a temporary and dysfunctional band-aid. Also, it would be nice to vote for someone who has a plan for slowing the rise in US health care costs, without pretending that price controls are the answer.

Deirdre McCloskey isn’t impressed with the most recent Nobel-in-economics award. A slice:

His [Daron Acemoglu’s] theory, which is both, fits smoothly with what people nowadays love to hear, on their road to serfdom—that good policy is super easy and that our masters are super skilled at doing it. The theory makes us feel safe, like children waiting to be fed. We don’t individually need good ethics, professionalism, or high political ideals. Mama and Papa State take care of all that.

And here’s Jason Sorens on the 2024 economics Nobelists.

The Editorial Board of the Wall Street Journal reports on just how very – and potentially destructively – suspicious today’s U.S. Department of Justice is of successful large businesses. A slice:

If you didn’t know anything about modern government, you might conclude corporate America is a giant crime syndicate. Instead Mr. [Dan] Clifton’s list shows the degree to which the Biden Administration has unleashed the state against successful companies. Democrats need villains to run against, and the public mood these days is anti-business. Make money, or build a better mousetrap, and sooner or later Uncle Sam is coming after you.

John Stossel is correct: “Donald Trump and Kamala Harris keep making economically illiterate promises.” A slice:

Trump fans applauded when he said he’ll eliminate taxes on tips. Then Harris proposed that, too. Her audience applauded. Trump then proposed not taxing overtime. More applause.

But narrow tax exemptions are bad policy.

In my new video, economist Allison Schrager explains how they create nasty, unintended consequences.

“No one likes tipping,” says Schrager, “but all of a sudden, you’ll have to pay tips for everything.…More people will be paid in tips.”

Dan McLaughlin writes that “we have never yet seen a national candidate so vacuous and incapable of basic communication as Harris.” A slice:

Even the national political press seems to be getting a bit exasperated at this, if only out of a creeping sense that she might blow the election to Trump, combined with a bit of frustration that she’s making their jobs harder in having to not only carry her water but fill the buckets themselves. Maybe Trump’s well-known flaws will rescue her anyway by Election Day, but if not, it’s going to be a long four years with a president whose only real interests are in culture-war hot buttons.

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with AIER president Will Ruger about Grover Cleveland.

David Henderson decries U.S. politicians pushing the Ukrainian government to further reduce its citizens’ freedom.

Tweet

… is from pages 53-54 of the 2005 reprint of Harvard economist Frank Taussig’s classic 1888 work, The Tariff History of the United States:

The real motive for maintaining the heavy tax [on imported iron] through these years [roughly 1816-1846] undoubtedly was the unwillingness of the domestic producers to face the competition of the cheaper article. The tax is a clear illustration of that tendency to fetter and impede the progress of improvement which is inherent in protective legislation. It laid a considerable burden on the community, and … it was of no service in encouraging the early growth of the iron industry.

DBx: America’s industrialization during the 19th century was not helped along by protectionism.

Tweet

The Editorial Board of the Wall Street Journal remembers the late Chip Mellor, co-founder (along with Clint Bolick) of the Institute for Justice. Two slices:

Many young lawyers hope for careers in which they can use the law to promote justice and change lives, but few succeed. One who did was William “Chip” Mellor, who died Friday at 73 years old.

Mellor co-founded and for many years was president of the Institute for Justice, whose causes have often been taken up in these columns. IJ’s mission is to help Americans whose rights are being violated by government. This is the opposite of most public-interest legal shops whose goal is to expand government power over individuals and business.

…..

The firm has brought or intervened in 30 lawsuits to give parents more educational options. Its 2002 Supreme Court victory in Zelman v. Simmons-Harris confirmed that school choice programs that include religious options are constitutional, and the group’s work has helped make possible programs that have awarded more than 4.8 million scholarships.

IJ has won 10 Supreme Court cases, including both it brought in the 2023 term, DeVillier v. Texas on the Fifth Amendment’s takings clause and Gonzalez v. Trevino on the First Amendment protection against government punishment for unpopular speech.

David Henderson, writing in the Wall Street Journal, describes the work of the newly minted Nobel-laureates in economics. Three slices:

The Royal Swedish Academy of Sciences awarded the Nobel Memorial Prize in Economic Sciences to three economists. The recipients are Turkish-born Daron Acemoglu and British-born Simon Johnson, both of the Massachusetts Institute of Technology, and British-born James A. Robinson, an economist and political scientist at the University of Chicago. They received the award “for studies of how institutions are formed and affect prosperity.”

…..

In their 2012 book, “Why Nations Fail,” Messrs. Acemoglu and Robinson divide countries into two types: extractive and inclusive. In extractive countries, a small elite extracts wealth from the masses, whereas in inclusive countries, political power is shared. When governments are extractive, people have little incentive to produce. But the opposite is true when governments are inclusive, as people have property rights and can accumulate wealth.

…..

It’s good to see a Nobel Prize awarded to economists who understand the importance of private property and the rule of law. Unfortunately, Mr. Acemoglu’s understanding is incomplete. He recently signed a statement supporting the Brazilian government’s move to rein in freedom of speech for Brazilians who want to communicate using X. Only time will tell whether Mr. Acemoglu will favor further undercutting of the rule of law. Let’s hope he doesn’t.

Pierre Lemieux worries about Acemoglu’s naïveté about the state. A slice:

I reviewed the two latest books of Acemoglu: The Narrow Corridor with James Robinson, and Power and Progress with Simon Johnson. Acemoglu’s naïve and pre-public-choice conception of the state has become more obvious: if this was not apparent in his earlier work, it certainly is in these two books and especially in the last one.  The words and expressions used sometimes betray Acemoglu’s progressive agenda.

Arnold Kling is spot-on:

I think of the election as a necessary evil. Elections are necessary because you want people to give up power. But they are evil because politics is like the worst of Twitter. You get followers by stirring up fear and anger.

We can have an argument over which candidate’s economic proposals are worse than the other’s. We can have an argument over which candidate’s rhetoric is more demagogic and out of touch with reality. Only a partisan hack could claim that either candidate is good on the economy. I wish we could elect Javier Milei.

Eric Boehm reports on some of the higher prices awaiting Americans if Trump’s proposed tariffs are imposed. A slice:

The Republican presidential nominee’s threat to impose new tariffs on nearly all imports into the United States would make video game consoles 40 percent more expensive, according to an analysis published this month by the Consumer Technology Association (CTA), an industry group best known for its annual Las Vegas conference showcasing the latest tech for home and personal use.

The report assumes that Trump can carry out his threat to hit all imports from China with a 60 percent tariff, along with a baseline tariff of 10 percent or 20 percent on all other imports. (Trump has been unclear about which level he’d prefer, and recently suggested a “thousand percent tariff.”)

Scott Lincicome is always worth reading. Two slices:

This is indeed what’s happened historically in the United States, as work hours have declined and wages (and leisure time!) have increased dramatically. Contrary to what you might read on the internet, moreover, the connection between productivity and pay remains tight today. As the American Enterprise Institute’s Scott Winship thoroughly documented in May, for example, the supposed gap between the average American workers’ compensation and aggregate U.S. productivity is a statistical myth. Instead, he shows in several different ways that the linkage has fluctuated a bit in recent decades but still lines up quite well overall (and is light years away from the stark divergence we see in the online doomer memes).

…..

Most of the online discussion of these poor results has focused on the ports’ lack of automation, which ILA chief (and very fancy lad) Harold Daggett is indeed fighting tooth and nail, going so far as to recently demand “absolute airtight language that there will be no automation or semiautomation” in the union’s next six-year contract with the United States Maritime Alliance (USMX), which represents shippers and port operators. And he’s doing that even as “U.S. ports already lag those in Europe and Asia in their use of technology,” thus helping to “explain why U.S. ports score so poorly on the World Bank’s annual ranking of trade gateways.”

As we’ve discussed, however, the productivity issue at American ports runs a lot deeper (pun!) than just their relative lack of automation, and much of it stems from other union demands that further sap productivity. Their contracts, for example, “dramatically increase labor costs at port terminals …, expressly limit the number of hours that workers can work (total and per shift) and require overtime pay for unscheduled work, as well as any work on weekends and holidays.” (Here’s one particularly crazy cost.) Unions also fight “efforts by other port operators, especially in the South, to supplement their unionized labor force with non-union workers—a ‘hybrid system’ that ‘has underpinned robust container volume growth across the region.’” As a result, American ports don’t operate 24/7, unlike many other, more productive ports around the world.

Peter Earle and GMU alum Thomas Savidge explain how government borrowing helps to fuel special-interest politics.

Fiona Harrigan busts the myth of the voting noncitizen.

Noah Rothman decries Ta-Nehisi Coates’s “moral blindness.”

Jack Butler’s counsel is sound.

Tweet

… is from page 357-358 of the original edition of Walter Lippmann’s sometimes deeply flawed but profoundly insightful and important 1937 book, The Good Society:

The man who has built himself a castle above the highway in order that he may exact a toll from the merchants on their way to market acquires wealth not by producing it but by seizing it. His predatory incursions arbitrarily yield the returns which would otherwise go to invention, industry, and thrift. But for his castle and his armed hands he would be poorer than the passing merchant whom he despoils: because he is more powerful but is unrestrained, he reaps a greater reward from highway robbery than other men can make by producing wealth. Thus the ideal of equal rights for all and special privileges for none is inseparable from the pursuit of liberty.

DBx: Yes.

Lippmann’s account, while correct, is incomplete. It’s not only the merchants waylaid by the highway robber who are harmed by the robber’s extractions. Two other groups of people are harmed by the robber’s greedy actions. Consumers whose access to goods is reduced by the highway robber are harmed; also harmed are those merchants and their employees who produce and sell less because consumers are obliged by the highway robber to spend more on the goods sold by the robber’s direct victims.

Protectionism is nothing but this sort of highway robbery camouflaged by uniforms, flags, and marble columns, and justified by pseudo-scientific ‘analyses.’ Any clever sophomore can whip up coherent theories of how allowing robbery (or arson, or rape, or even murder) under just the right conditions will improve humanity’s welfare. All efforts, past and present, to justify protectionism as a tool for economic improvement are no better than what would be offered by such a clever sophomore. (Indeed, many of these efforts aren’t even coherent.)

Tweet

Fact-free sermonizing must be fun.

Editor, New York Review of Books

Editor:

Zephyr Teachout’s defense of protectionism is a mayhem of mistakes (“Harris’s Chance on Trade,” Oct. 13).

It’s untrue, for example, that “three decades of agreements branded as free trade … have decimated American manufacturing.” Manufacturing output today is 57 percent higher than it was when NAFTA first took effect 30 years ago.

Nor, contrary to Prof. Teachout’s assertion, is there any evidence that good jobs have been shipped to Mexico. While the percentage of America’s nonfarm workforce employed in manufacturing has indeed fallen since 1994, that trend started in 1944, a half-century earlier. Over the course of the 369 months that have elapsed since NAFTA was instituted (January 1994 through September 2024), the percentage of American workers in manufacturing fell from 15.0 percent to 8.1 percent. Yet in the 369 months leading up to NAFTA’s implementation (April 1963 through December 1993), the percentage of American workers in manufacturing also fell, from 27.6% to 15.0%. The pace of the decline in the percentage of workers employed in manufacturing was the same before NAFTA’s implementation as it has been since.* Further, the inflation-adjusted hourly wage of nonsupervisory manufacturing workers in the U.S., even ignoring the increase in the value of fringe benefits, is today 27 percent higher than it was in January 1994.**

These realities are among the many that are practically impossible to square with Prof. Teachout’s suggestion that trade agreements such as NAFTA have inflicted net harm on American workers.

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

* Calculated by dividing – from FRED – “All Employees, Manufacturing” (MANEMP) by “All Employees, Nonfarm” (PAYEMS).

** Calculated from the data on nominal manufacturing wages available here, adjusted for inflation using this Personal-Consumption-Expenditure-deflator calculator.

Tweet

In my latest column for AIER I offer a sincere plea to all who disagree with me and the many other economists who oppose government prohibitions on so-called “price gouging” at least to listen to our arguments before accusing us of being evil. (My promised response to Oren Cass on trade and externalities was rescheduled; it will now appear next week.) Here are two slices from my new piece on “price gouging” and price controls:

On a recent morning my email brought three different messages from strangers each expressing, in family-unfriendly language, a wish that I meet a hideous, horrible end. One of these correspondents also asked what price I charge billionaires for my soul. This correspondent helpfully included a link to an October 2017 piece of mine in the Wall Street Journal, which made clear just why these strangers were motivated to offer me their not-so-well wishes.

Google then informed me that this Wall Street Journal essay was also mentioned in some overnight tweets, all critical. The essay’s title – which I didn’t choose, but of which I approve – is “‘Price Gouging’ After a Disaster Is Good for the Public.”

So I write here a heartfelt plea, addressed to everyone who truly cares about the well-being of ordinary people, to listen – to truly listen – to the economic case against government prohibitions on price increases, especially those price increases that occur in the wake of hurricanes and other natural disasters.

…..

The natural disaster simultaneously decreases the supplies of goods and services and increases the demand. This reality is as indisputable as it is unfortunate. But given this unfortunate reality, describing the outcomes that everyone of goodwill wishes is easy. We want individuals with the most dire needs – people who need water lest they suffer intense thirst, homeowners who need plywood to patch the roofs over their children’s bedrooms, families who need blankets to stay warm – to have prospects as great as possible to satisfy these needs. The relevant question is: How best to ensure these outcomes that we all want?

Most economists say that allowing monetary prices to rise is key to making these desirable outcomes as likely as possible. We don’t say this because we’re obsessed with money, because we believe that prices are all that matter, or because we’re pawns of corporate interests. We say this because we understand (or, at any rate, we sincerely believe that we understand) that money prices set on markets reflect as accurately as possible existing economic realities. And in economic matters no less than in noneconomic matters, acting with accurate knowledge of reality is far more likely to prompt people to act wisely and to everyone’s mutual advantage than is acting without knowledge or with ‘knowledge’ that’s highly inaccurate.

Natural disasters worsen underlying economic realities. The higher prices of goods and services reflect this reality. These higher prices reflect the sad reality that natural disasters, while causing families to be in more desperate need for the likes of plywood, propane, and generators, at the same time diminish readily available supplies of these goods. Put differently, these higher prices reflect the unarguable fact that in regions devastated by natural disasters goods have become more scarce and, thus, their market values higher. It follows that government-imposed ceilings on the prices of these goods prevent information about these increased scarcities and higher market values from being reflected and communicated as accurately as possible.

Importantly, prohibiting monetary prices from rising to reflect goods’ decreased abundance does not make the goods more abundant. Nor does prohibiting prices from rising to reflect goods’ true market values bring goods’ true market values down to the government-stipulated maximum prices. This crucial point seems to be missed by proponents of price controls. Governments can control the monetary prices at which goods are exchanged, but they cannot control the values that market participants place on those goods. If, say, lots of people are willing to pay up to $200 each for the same tanks of propane that before the natural disaster sold for $40, the market value of each tank of propane is $200 even if merchants are prohibited from charging a price this high.

Relatedly, the amount of money that merchants paid yesterday to acquire each of these tanks no more determines the value of each tank today than does the amount of money paid in 1997 for a house determine the value of that house in 2024. That value is determined by the amount that buyers are willing to pay now – an amount that itself reflects the urgency of acquiring the good now. With fewer supplies of the good now available, and with the need for the good made more urgent by the natural disaster, the amount that people now are willing to pay rises.

By censoring this important information, price ceilings spread information that’s false.

The false information spread by price ceilings alone goes far to explain economists’ objection to price ceilings. Because more information is better than less, there ought to be at least a rebuttable presumption that the wisest policy is to permit prices to rise in order that they truthfully inform sellers and buyers of the prevailing, dire economic situation. As in all other aspects of life, people are more likely to act in ways that minimize harms or maximize benefits – and that reduce personal conflicts – the more accurate is the information that motivates their actions.