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A Mysterious Arithmetic

Here’s a letter to the Wall Street Journal.

Editor:

You rightly criticize Pres. Trump’s enthusiasm for a weak dollar (“The Perils of a Falling Trump Dollar,” January 29).

Any American determined to defend Mr. Trump should answer this question: Do you think that a weaker dollar is good for you – you, a typical American, who in exchange for your weaker dollars would receive fewer goods, services, and investment options? If you answer “Yes,” please explain how your life is improved by a reduction in your purchasing power.

If you answer “No,” please explain how that which isn’t good for you individually – and, by implication, that which isn’t good for each of countless other typical individual Americans – nevertheless somehow becomes good for Americans collectively. By what mysterious arithmetic can a series of negative numbers be added together into a positive sum?

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

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The Editorial Board of the Wall Street Journal calls out Trump for his economically clueless endorsement of a weaker U.S. dollar. Two slices:

President Trump this week said he thinks a weaker dollar is “great,” but he should be careful what he wishes for. Many politicians over the years have contemplated a weaker greenback as an economic miracle cure. They often discover that a weak dollar is a liability.

Mr. Trump made his remark Tuesday amid dollar weakness that is contributing to instability in global foreign-exchange markets. The WSJ Dollar Index, which compares the greenback to a basket of currencies, has fallen about 8% over the past year, and gold’s steady ascent, to above $5,300 per ounce this week, sends its own signal about dollar weakness. The dollar-euro exchange rate is among the most important in the global economy, and the greenback has lost about 14% of its value relative to the euro over the past year.

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Some economists in Mr. Trump’s orbit have updated old exchange-rate theories to comport with their protectionist instincts on trade. The idea is that “too much” foreign financial investment into the U.S. overvalues the dollar, which kills exporting industries and creates America’s large trade deficit.

Here, too, evidence of actual harm is hard to spot. This so-called problem exists only because so many foreigners are investing in American economic growth. Worse, the so-called solution is to deter that investment, such as with a withholding tax on interest paid to foreign holders of Treasurys.

Arnold Kling, as usual, is insightful and wise:

I fear that humans desire the moral license to hate other groups of humans. Society works better when we overcome that desire. For much of our history, Americans have succeeded in suppressing large-scale hatred of other Americans. That is no longer the case, and the polarization regarding mass deportation reflects that.

Also wise is Scott Winship, who tweets: (HT Scott Lincicome)

If there were a finite amount of work to be done, I’d be more worried about LLMs and labor demand (though not that worried). LLMs ultimately lack inspiration or motivation to create without someone prompting them.

If you want to know why the price of beef has risen – hint: the reason isn’t “corporate greed” – consult Jack Nicastro.

My intrepid Mercatus Center colleague, Veronique de Rugy, argues that economic growth “is not a luxury or an abstraction. It is a moral obligation to those with the least power, the fewest assets, and the longest futures.” A slice:

This is where the decline in total factor productivity (TFP) becomes illuminating. TFP is often treated as a mysterious residual, a black box labeled “technology.” But it is better understood as a measure of institutional performance: how efficiently a society converts labor, capital, and knowledge into real output. When institutions work — when rules are clear, timelines are predictable, and compliance costs are reasonable — new ideas emerge. When institutions degrade, TFP falls not because people are “so rich they no longer benefit from innovation,” but because society has become worse at enabling innovation.

The work of Eli Dourado, now at the Astera Institute, is particularly clarifying because it is grounded in experience rather than abstraction. His account of technology policy, from aviation to energy, shows how productivity losses accumulate through procedural drag rather than explicit bans. The binding constraint is often not engineering or science, but layers of veto points, open-ended reviews, and regulatory uncertainty that stretch deployment timelines beyond any plausible investment horizon.

The consequence is an economy that looks technologically sophisticated yet struggles to scale. The innovators exist. The capital exists. Even the prototypes exist. What fails is diffusion. Fewer factories are built. Fewer homes are permitted. Fewer energy projects come online. Fewer breakthroughs are commercialized. The result is a steady erosion of TFP and a growing gap between what is technically possible and what actually gets done.

If the growth problem is institutional, then a serious agenda for 2026 must focus less on outcomes and more on process. The question is not what Republicans or Democrats want the economy to look like, but what needs to be done to allow productive activity to scale.

Adam Michel makes clear that the evidence against taxes on wealth “is stronger than ever.”

GMU Econ doctoral candidate Josh Rowley is closely reading Adam Smith’s Inquiry Into the Nature and Causes of the Wealth of Nations.

Speaking of Adam Smith, GMU Econ alum Harrison Searles joins with my GMU Econ colleague Dan Klein to explore the likelihood that Smith and David Hume were proto-Darwinists. [DBx: See also here.]

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Quotation of the Day…

is from pages 433-434 of Johan Norberg’s splendid 2025 book, Peak Human: What We Can Learn from the Rise and Fall of Golden Ages [footnote deleted; link added]:

The other requisites for inclusivity are free markets and free minds. To bring something new into the world, people must be allowed to experiment with and exchange new theories, arguments, goods and services. Every major technological innovation is an ‘act of rebellion against conventional wisdom and vested interests’, explains the economic historian Joel Mokyr, and if conventional wisdom and vested interest are in positions to command what can and can’t be pursued, the result is stagnation.

DBx: Pictured above is one of the many wonderful fruits of human creativity unleashed in an open, free economy. This particular fruit of human creativity isn’t a marvel of technological brilliance; it’s a box. Yet this box – and the logistical innovations that complement it – make it one of the most momentous inventions in human history. These productive innovations are forever under threat from rent-seekers, the economically ignorant, and the arrogant who (whatever their particular reason) oppose change.

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Some Links

Tom Palmer explains that “zero-sum thinking creates a negative-sum world.” A slice:

We trade with our neighbors. We trade with people on the other side of town. We trade with people we will never meet from hundreds of miles away in our own countries. We trade with people we will never meet in countries on the other side of the planet. We trade with people whose languages we do not understand. We trade with people of different religions, customs, and sports passions. The fundamental economic and moral principles of trade are not affected by distance, language, religion, customs, or sports. They rest on mutual advantage. When a Vermonter exports maple syrup to a Floridian and imports oranges from the Floridian, there is no essential difference between that exchange and one between a Canadian and a Floridian.

Trade creates intertwined interests. Complex and prosperous societies are those in which people depend on each other in myriad ways—for food, clothing, entertainment, transportation, medical care, teaching, and more. That mutual dependence is a source of harmony, not a loss of autonomy. As Frédéric Bastiat, one of the greatest champions of freedom who ever lived, noted, “The one thing that people overlook is that the sort of dependence that results from exchange, i.e., from commercial transactions, is a reciprocal dependence. We cannot be dependent upon a foreigner without his being dependent upon us.”

A Tax on Imports Is a Tax on Exports

A sales tax imposed on Floridians who purchase Canadian maple syrup may please the Vermont producers (unless they are serious about principles), but it is still a tax imposed on Floridians. It will likely raise the price the Vermont maple syrup producers can charge. In the end, the Floridians will pay more. What’s more, however, it will restrict the Canadian market for Florida oranges, even if the Canadians are rational and refrain from “retaliating” by imposing such a tax on themselves. Why? Because a tax on imports has in the aggregate the same impact as a tax on exports. Exports are what you have to send to get imports. After all, what you want are the imports, not the exports, which you have to send away in order to get the imports.

It’s possible — at great cost — to produce oranges up north and maple syrup in Florida, but it’s a lot better for people to exchange Florida oranges for maple syrup from Canada or Vermont. When the Canadians find that Floridians are not buying their now more expensive (price paid to Canadian producers + the tax taken by Uncle Sam) maple syrup, they will not have the U.S. dollars to buy those oranges, meaning that the Floridians are less able to sell to the Canadian market. The market for oranges has just shrunk, which means lower income for Florida orange producers. The country as a whole is not better off. Taxing imports is, in effect, quite like directly taxing exports. (In economics, that’s called the “Lerner Symmetry Thesis.”)

George Will sensibly argues that Trump’s “loutocracy” has abandoned any claims that it might otherwise have had to the benefit of the doubt. Two slices:

Minneapolis is today’s Birmingham. Citizens with smartphones are supplementing journalists in gathering facts. It is infuriating, yet grimly sublime, that the current national administration, which will not stop banging on about how it is restoring America’s greatness, is incessantly embarrassing (about Greenland, vaccines, and much else). The administration requires an addition to the typologies of government: loutocracy.

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Trust, including trust in government, is the glue that gives successful societies the cohesion requisite for collaborative dynamism. It is calamitous when government forfeits the public’s trust. But when, as today, such forfeiture occurs, assume the worst.

Today, it is more than prudent, it is good citizenship to assume that everything ICE says, and everything the administration says in support of its deportation mania, is untrue until proved to be otherwise. Or, as Noem might say, until it has been “adjusted.”

Some administration louts have said that the most recent (as of this writing) person killed in Minneapolis by a federal officer was a “would-be assassin” and, of course, a “domestic terrorist.” Because Republicans control congressional committee gavels, and because today’s president controls congressional Republicans, there will be no oversight of ICE’s rampages. The Senate, which disgraced itself by confirming Noem and others unqualified for cabinet positions, is especially unlikely to suddenly acquire the inconvenience of a conscience.

So, expect more killings, and more political smearing of the victims. That ICE’s disgraces will continue is, in its revolting way, a promise kept: loutocracy.

Yuval Levin makes a powerful case that the Trump administration continues to recklessly destroy its legitimacy with the public. Two slices:

The Trump administration is facing a serious and justified political backlash to the brutal excesses evident in its immigration enforcement operations in Minnesota. But even more than that, President Trump and his team are beginning to pay a price for their willful blindness to both the dynamics of American public opinion and the logic of the American constitutional system.

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Americans do not generally share the dark, bitter, vindictive hostility toward immigrants and immigration that characterizes the views of some of Trump’s senior aides. And so most voters are not encouraged but alarmed by the thuggish and fascistic tone of much of the administration’s rhetoric on the subject. The militant ICE recruitment ads, the nativist DHS tweets, the mendacious White House press statements, and the callous reactions of senior officials to the killings of protesters in the course of immigration enforcement operations all convey a hunger for confrontation (if not a lust for blood) that is not only grossly unbecoming of the government of a free society but also extremely unappealing as a way of talking to the country.

The result has been evident in measures of public opinion. About 20 percent of the voters who approved of Trump’s immigration policy a year ago now disapprove of it. Immigration remains among Trump’s strongest issues, because the public trusts him even less to manage the economy, but he is at roughly 40 percent approval now, and falling, regarding immigration. That fall did not begin with the killings in Minneapolis, but it has been exacerbated by them and is probably not over.

The Editorial Board of the Wall Street Journal warns of the damage that Trump’s hostility to immigrants is doing to America’s economy. A slice:

The Census Bureau also projected that net international migration will fall to 321,000 this year. That’s about three-quarters lower than during the first Trump term. If current “trends continue, it would be the first time the United States has seen net negative migration in more than 50 years,” the bureau says.

Restrictionists in the White House will rate this as a success—a sign of progress on the way to Stephen Miller’s goal of zero immigration for many years. But declining immigration—legal and illegal—is notably occurring against a backdrop of falling fertility rates and an aging population. Natural population growth last year was a paltry 519,000, down from 1.1 million in 2017 and between 1.6 million and 1.9 million during the 2000s.

Conservatives say Americans should churn out more babies, but regardless of the virtues of child-rearing, government can’t force people to procreate. Slowing immigration and an aging population present serious workforce challenges, as any employer will tell you. Artificial intelligence and robots can increase productivity. But America will still need workers for all kinds of vital jobs—from health services, to plumbing and electrical repair, to building homes or working in biotech labs.

The Cato Institute’s Marian Tupy, writing in the Washington Post, makes clear that the ultimate source of prosperity is creative ideas rather than atoms and molecules mashed together into different physical forms by nature. Two slices:

In the long run, nations do not become rich and safe by hoarding rocks. They become rich and safe by building the rules and habits that turn knowledge into production, and production into strength. They become rich and safe through ideas.

That is how the United States rose. America had plenty of natural endowments. So did Russia, Venezuela and Congo. What made the U.S. exceptional was a system that rewarded discovery, experimentation, entrepreneurship and scale. When that system works, resources stop being fixed constraints and become problems to be solved. When Santa Barbara, California, suffered from prolonged drought, for example, it built a desalination plant to increase its fresh water supply.

American economist Julian Simon said it plainly: The ultimate resource is people. Scarcity is not mainly a story about nature’s endowments. It is a story about human ingenuity unleashed under good institutions. If markets are allowed to work and innovators are allowed to profit, scarcity gives rise to substitution, efficiency and new supply.

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Trump is right to care about the supply side. He is wrong to think the path to greater productivity runs mainly through controlling more stuff. America’s durable advantage is its capacity to generate and apply ideas under a relatively free and flexible business environment.
That is the strategic resource that compounds.

Robby Soave is correct: Katie Miller – wife of White House’s ardent nativist Stephen Miller – is wildly mistaken to think that classical liberalism is woke leftism. A slice:

Classical liberalism is the forerunner of modern libertarianism: It is a philosophy that emphasizes individual rights, including civil rights and property rights. Classically liberal thinkers such as John Locke helped establish the notion that government should be accountable to the people. Economists such as Adam Smith and David Ricardo used classical liberalism as a guiding principle when arguing in favor of free markets and free trade. In the realm of government, the political leaders associated with classical liberalism and laissez faire economic policies are people such as former President Calvin Coolidge, former U.K. Prime Minister Margaret Thatcher, and Argentinian President Javier Milei. Note that these figures are not exactly defined by their love of wokeness. To the extent that “wokeness” is even a coherent set of views, it emphasizes collective rights for various identity groups instead of the individual-rights framework of classical liberalism.

Leftists tend to agree with classical liberals and even most conservatives on some broad principles, like the notion that people should elect their leaders. But modern liberals, progressives, and leftists tend to disagree sharply with classical liberals and libertarians on economics: They want much more government regulation, taxation, and centralized government control of the economy. On these issues, leftism bears a closer resemblance to the version of conservatism advocated by Stephen Miller—who supports tariffs and extreme restrictions on immigrant labor—than it does to classical liberalism.

Christian Britschgi examines Trump’s executive order that foolishly restricts corporate ownership of homes.

Marcus Witcher reviews historian David Beito’s new book on Franklin Roosevelt. A slice:

Further, FDR rejected calls from Secretary of Labor Frances Perkins “to admit the maximum combined quota for the next three years (82,000 in all).” Most tragically, when the German liner, the SS St. Louis, arrived off the coast of Florida carrying over 900 Jewish refugees, the administration not only did not admit them, the Coast Guard ensured that none of the refugees would be able to swim to freedom. Even after evidence of mass genocide in Europe reached Roosevelt, “the administration’s stance toward refugees showed no sign of shifting.” Beito concludes that “while FDR and his advisors certainly viewed the Nazis as international gangsters, the plight of the Jews was never a priority.”

The Washington Post‘s Editorial Page reports on France’s self-inflicted fiscal woes. Two slices:

France has budget problems, so politicians reached for a politically popular solution: Tax the rich.

Never mind that France already had the second-highest tax rate in Europe for its top bracket at 55.4 percent. Or that it already had surtaxes on income over 250,000 euros and income over 500,000 euros.

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The unsustainable welfare state also means France cannot afford its ambitions to build a self-sufficient military or fully support Ukraine as it fends off Russia.
The bleak conclusion: Politicians in Paris have made promises they can’t keep to a people who are now dependent on government for their livelihoods.

Charismatic socialists keep trying to sell Americans on the European model. Look under the hood, and it’s clearly a lemon.

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Quotation of the Day…

… is from page 332 of Columbia University law professor Philip Hamburger’s brilliant 2014 book – whose title poses a question to which the book’s lengthy text gives the answer “yes” – Is Administrative Law Unlawful?:

A fundamental advantage of the separation of powers is that it institutionalizes specialized decisionmaking and thereby allows Americans to enjoy all of the advantages of distinct exercises of judgment, will, and force. A breakdown in the distinctions among the three powers was a fundamental part of what traditionally was understood as arbitrary or irrational decisionmaking. From this point of view, specialized decisionmaking is valuable for avoiding a type of arbitrary governance – a type encouraged by the administrative consolidation of powers.

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There are nits that I’d pick with this new column by the Wall Street Journal‘s Gerard Baker, but he here hits an important nail squarely on its head:

The far left and its mainstream Democratic enablers want us to abandon all efforts at immigration enforcement. But their efforts to undermine the process are nothing compared with the public unease that is being generated by the methods ICE is using. The images of platoons of armed, masked men, seemingly equipped for street warfare, descending on parking lots and shopping malls; the spectacle of grandmothers and children being seized by agents; the reports of U.S. citizens being detained — all repel most decent Americans.

Now that these activities and the protests they have engendered have resulted in multiple deaths, the administration and its allies are further undermining trust by their public response to the incidents.

Calling the two protesters killed in Minneapolis “domestic terrorists” is an insult to the intelligence. Whether or not they were responsible for their own deaths, as in law they might have been, the implication that their killing should be treated as some sort of condign execution is simply loathsome. Lying about what we all can actually see on our screens adds injury to the insult. While no one can say with confidence exactly what unfolded in Minneapolis on the basis of cellphone video, we can be confident that the description offered by Homeland Security Secretary Kristi Noem was mostly fiction. If the words of our top government officials can be so easily disproved by the evidence of our own eyes, faith in the policy is destroyed.

Worst of all, by instantly defending and even praising every act by an immigration officer, however dubious, the administration is actively enabling escalation. Such instant exoneration increases the likelihood that worse will happen next time. The message from the administration that every one of these officers hears after these episodes: Whatever you do, whatever the circumstances, we will support you and denounce anyone you harmed as an enemy of the state. Officers may not have “absolute immunity” in law, but the government is encouraging them to act with absolute impunity.

The Editors of The Free Press decry what they describe as “Kristi Noem’s reckless lies.” A slice:

It’s true that [Alex] Pretti had a 9mm handgun on his person. But he did not brandish his weapon. Less than a second after a federal officer discovered the gun, another officer fired the first of at least 10 shots into Pretti, according to a detailed analysis of the incident from The Wall Street Journal. What’s more, Pretti was already on the ground and surrounded by agents when he was shot.

The Journal’s reporting was based on videos posted to social media. Anyone with an internet connection and a few minutes could see that the federal agents in Minneapolis had fired at a man already prone and on the ground. Indeed, the aggression against Pretti began as he placed himself between them and a fellow protester who had been violently pushed to the ground by another agent.

All of this demands—at the very least—an investigation. The facts may, in the end, prove to be more complicated. But the facts as they are known now are at odds with the Trump administration’s version of events. “This looks like a situation where an individual wanted to do maximum damage and massacre law enforcement,” read a post from the Department for Homeland Security’s official account on X. Deputy White House Chief of Staff Stephen Miller actually claimed on X that “an assassin tried to murder federal agents.” Assassin? Pretti was a nurse with a concealed carry permit. He was exercising his Second Amendment rights. There is no evidence he was trying to kill federal officers; he was pinned down at the time of his killing.

This has been a pattern for the Trump administration. After the fatal shooting of Renee Good by an ICE agent in Minneapolis on January 7, Noem gave an account of the incident soon contradicted by video footage and called Good a “domestic terrorist,” despite zero evidence that she fit that description. And surprise, surprise, Noem is now saying that Pretti is also a “domestic terrorist,” because he brought a gun and ammunition to a protest.

This is a bizarre argument for anyone in a Republican administration to make. The GOP is supposed to be the party that defends the Second Amendment, which enshrines the rights of Americans to bear arms.

Eric Boehm is correct: “Democrats plan to block DHS funding after Minnesota killing. Republicans should join them.”

The Editorial Board of the Wall Street Journal reports relevant numbers regard the ICE crackdowns. A slice:

Syracuse professor Austin Kocher, who tracks official ICE data, finds that between Sept. 21, 2025, and Jan. 7, 2026, single-day ICE detentions increased 11,296. But only 902 of those were convicted criminals, 2,273 had pending criminal charges and 8,121 were other immigrant violators. ICE arrests have been trending upward since January 2025, but criminal arrests have plateaued.

All of which means that the Trump Administration’s rhetoric about deporting criminals doesn’t match its current much broader policy of mass deportation. As ICE agents target businesses, schools and homes, scenes of arrest involving mothers, children and long-time U.S. residents become more common. This explains why immigration enforcement is becoming a political liability for Republicans.

Ending migrant chaos at the border was necessary after the Biden Administration. But White House aide Stephen Miller’s undisciplined mass deportation and zero-immigration policy is building distrust, and the White House pitch that public safety justifies its enforcement is losing credibility.

Alvaro Vargas Llosa sings the praises of María Corina Machado. Two slices:

As is well known, the 2025 Nobel Peace Prize was awarded to María Corina Machado, the leader of Venezuela’s freedom movement. Her merits? She has fought the Chavista dictatorship ever since Hugo Chávez came to power in 1999 and started dismantling the country’s institutions. At first, she did so through an NGO focused on monitoring electoral processes, then through political participation. Rather than go into exile, this woman, who comes from a well-known family and was trained as an industrial engineer, chose to risk everything for the pursuit of liberty.

She was beaten up, harassed, kidnapped, prosecuted in Chavez’s and Nicolás Maduro’s (his equally despicable successor) kangaroo courts, barred from leaving the country, and prevented from seeing her children—who had to settle abroad, graduate, launch their own careers, get married and have children—and was disqualified from holding public office—first by being expelled from the National Assembly and subsequently by being prevented from participating in any election. Because she was a woman, because she was uncompromising, and because she had classical liberal convictions, she was poo-pooed even by the opposition, who did not take her seriously. Gradually, at an ant-like pace, she earned the respect of the voters. A quarter of a century later, she became a widely admired national figure and her country’s only hope.

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This is the heroic woman who was awarded the Nobel Peace Prize in 2025—a symbol of her people’s endurance in the face of one of the most tragic stories of the 21st century. She said it belonged to the Venezuelan people and promised to bring the medal to them.

Until Trump stepped in—and practically forced her to “share” it with him, as she did recently during her visit to the White House. Forget that the Nobel Prize cannot be transferred or shared, as the Norwegian Nobel Committee recently said. What kind of leader would take away from a woman like Machado and the Venezuelan people the Nobel Prize? The Donald Trump kind.

The U.S. president has held a gun to Machado’s head since the day she got it by using all sorts of tactics—diminishing her role, ignoring her, then insulting her, and finally leaving her out of the transition process underway in Venezuela under the leadership of the entire Chavista apparatus except Maduro, who was captured and transferred to a U.S. prison. A man who presides over a $1 trillion military budget, controls more than three thousand nuclear warheads, has declared himself the ruler of Venezuela and the owner of its oil, and has twelve warships and the USS Gerald R. Ford carrier group in the Caribbean, put Machado in an impossible position. Either she “shared” the prize with him, or she and the overwhelming majority of Venezuelans who see her as the country’s true leader would be indefinitely bypassed until such time as Trump decides that elections should be held with other “more palatable” candidates.

Meanwhile, she swallowed her pride, kept her eyes on the endgame, cajoled him, and played into his ego by “sharing” the Nobel Prize with him despite criticism from many Venezuelans and others, in the hope that by massaging the U.S. president’s vanity, she would achieve her lifelong pursuit—the liberation of the Venezuelan people. Because, in the end, these small humiliations are nothing compared to the ones she has suffered in Venezuela for the cause of freedom.

Suzanne Clark counsels us Americans to regain our confidence in free markets. Here’s her conclusion:

It’s easy to underestimate what small increases in annual growth rates can accomplish. According to an analysis by the organization I lead, the U.S. Chamber of Commerce, if sustained over the next 50 years, 3 percent annual growth would triple living standards, increase per capita GDP from $69,000 today to nearly $250,000 and boost average household income from $150,000 to more than $528,000 annually.

America faces many challenges, from the cost of living to the rapidly changing nature of work, but the greatest risk is this: in trying to fix what is broken, breaking what already works.

And there is much that works in the U.S. economy. The nation’s capital markets are the strongest in the world. Global talent continues to choose America. It leads the world in cutting-edge innovation, and many of the most complicated products are domestically made. Household net worth is at a record high. Consumers have more choices, more conveniences and more leisure than ever before. Diseases have life-changing treatments and lifesaving cures, thanks in large part to American innovation.

Free enterprise is not flawless, but it remains the most effective system for generating opportunity, innovation and prosperity — and for improving itself over time. If America in 1976 had chosen state control over free markets, the decline of the preceding years would have accelerated. There’s no telling what the country, and the world, would look like today, but it would almost certainly be poorer, less dynamic and less free.

Richard Ebeling reveals “the delusions and dangers of the new mercantilism.” Three slices:

With autocratic caprice, arrogance, crudeness, and rudeness, Trump has assumed the powers of a near absolute monarch to decide when, why, and against whom he will arbitrarily raise and lower and raise again tariffs on the importation of goods into the United States from all the other countries on the planet. Like the French king Louis XIV (1638–1715), who is reputed to have said, “I am the State,” Trump acts as if his mere word, changeable on a nearly daily basis, is the law of the land under the rationale of “national security.” He uses this term with such elastic generality and ambiguity that the importation of the most trivial, everyday consumer item can be declared a threat to the political and economic wellbeing and “greatness” of America, resulting in prohibitive import taxes being imposed on it.

But it is not only Donald Trump who sees America’s future dependent upon government management and direction of the economic affairs of the United States vis-a-vie the rest of the world. Many of those who, no doubt, find the president repugnant for a variety of reasons, also desire and rationalize the essentiality of government oversight and direction of America’s trade relations with other countries.

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[Left-leaning Harvard economist Dani] Rodrik seems to believe that because government policies can influence the direction and form of investments and production activities, this somehow disproves the logic and essential nature and workings of the free market. It would be difficult to find any free-market economist over the last 250 years who denied the impact of government policy in bringing about economic outcomes different than if the market had been left unrestrained to determine the best use of resources, given consumer demands and the market-based opportunity costs of applying the scarce means of production in one direction rather than another.

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We are confronted with the necessity to compare, weigh, and choose between the advantages of different jobs and places to work and the relative incomes we might earn from accepting one instead of some other. In other words, we each engage in trade-offs between our dual roles as consumers and producers. The crucial question is, should each of us make these decisions for ourselves and our families, or should such neomercantilists as Dani Rodrik take this out of our hands and decide these things for us, when the values and trade-offs they wish to impose on everyone may be very different from how each individual sees such things?

Both the national and global marketplace bring changes that modify the locations where things might be most cost-efficiently produced. The economic world of today is noticeably different than that of, say, 200 years ago. Our world is different than in the past precisely because over the last two centuries, many countries, including the United States, moved away from the heavily intervening hand of the government that prevailed under the older mercantilism.

If those mercantilist controls, regulations, restrictions, and prohibitions had remained more or less in place for the last 200 years, many if not most of the comforts, conveniences, and “necessities” of modern everyday life might never have come into existence. It would have been stifled and repressed due to central planners and social engineers asserting that they know best how we should live and where we should work and with what methods of production. Economic progress would have been restrained to what the mercantilist planners considered good and desirable.

Samuel Gregg reviews Philip Pilkington’s The Collapse of Global Liberalism. Three slices:

Like most postliberal commentators, Pilkington identifies some real problems in Western societies. He notes, for example, the degree to which doomsday environmentalism has, until recently, successfully stigmatized even the mildest criticism of draconian climate change policies. Likewise, the dysfunctional effects of easy money policies upon the economy underscored by Pilkington are real. However, blaming these and other evils on a hegemonic liberalism is a stretch, not least because such a liberalism does not exist.

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It is true that the number of manufacturing jobs has declined in countries like America since the 1970s. Manufacturing as a proportion of developed economies’ output has also fallen. Yet, as has been pointed out ad nauseam to proponents of the deindustrialization thesis, neither of those things means that an economy has deindustrialized or that manufacturing output has fallen. It simply means that the service sector and service sector jobs have grown, and that technology (as Pilkington concedes) has replaced many manufacturing jobs. That adds up to a different economy from that of, say, 1950s America or 1890s Britain, but hardly one that has deindustrialized.

Social and cultural problems likewise loom large throughout Pilkington’s description of the wreckage purportedly left by liberalism. He highlights pervasive drug use, for example, as symptomatic of liberalism’s capacity to drain people’s lives of meaning. But individuals have been destroying their lives by foolishly ingesting vast quantities of stimulants of one form or another for centuries, and long before anyone used words like “liberal” or “liberalism.” I doubt, for instance, that the rampant alcoholism that marked Czarist Russia for centuries had much to do with liberalism.

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These observations underscore the deeper problem with postliberalism. It is riddled with unconvincing accounts of the history of ideas, dubious economic arguments, suspect cause-and-effect claims, and tendencies to ignore or demagogue anyone who questions the postliberal agenda’s underlying coherence. These features also cripple postliberals’ capacity to accurately diagnose—let alone resolve—the very real social, cultural, and economic challenges we face. Indeed, they further accelerate the decline that postliberals lament. Postliberalism, it turns out, is not a solution. It is, in fact, part of our problem.

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Quotation of the Day…

… is from page 207 of the original edition of volume III (“The Political Order of a Free People,” 1979) of F.A. Hayek’s Law, Legislation, and Liberty:

Law is, of course, neither an unalterable fact of nature, nor a product of intellectual design, but the result of a process of evolution in which a system of rules developed in constant interaction with a changing order of human actions which is distinct from it.

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A Comparison of Trump 45 to Trump 47

Here’s a letter to the Wall Street Journal.

Editor:

Steve Moore’s case that the U.S. economy today is “Trumping expectations” consists chiefly of claims that today’s economy is better than the economy under Biden (Letters, January 27). Given Biden’s colossally bad economic policies, however, this comparison tells us little about the merits of Mr. Trump’s second-term policies.

Here’s a better comparison. As I write this letter mid-day on January 26th, 2026, the Dow Jones Industrial Average is 17 percent above its close on election day 2024. But on January 26th, 2018 – the same distance into Trump’s first term as we are now into his second term – the DJIA closed 45 percent above its close on election day 2016.

While the stock market isn’t the whole of the economy, it’s no minor barometer of the economy’s performance and, importantly, of expectations of future performance. The far more market-friendly policies of Mr. Trump’s first term seem to have been vastly better for America’s economy than are his dirigiste, hyperactive, they-have-Elizabeth-Warren-secretly-smiling interventions of his second term.

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

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Some Links

The Editorial Board of the Washington Post – with an assist from scholars at the Cato Institute – have the numbers: Trump’s tariff promises don’t add up. Two slices:

Every time a big expense comes up, President Donald Trump assures Americans that all the money raised from tariffs will take care of it. The Cato Institute, a libertarian think tank, has been tracking Trump’s promises on how he would spend the revenue going back to the campaign. Added together, Trump has said the windfall from his tariffs will help cover nearly $6 trillion in costs. That’s over 22 times more than the administration’s own estimates for how much revenue his taxes on imports will generate this year.

We ran the numbers, and they just don’t pencil.

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All told, for Trump to keep his promises on what tariff revenue would be used for, he’d need them to raise almost $6 trillion this year. The U.S. imported $3.61 trillion in goods last year, so such a number isn’t even possible.

Scott Lincicome is correct: Among the biggest genuine emergencies we Americans now face is the cascade of declarations of “emergency.” A slice:

My latest column at The Dispatch examines what President Trump’s now-canceled Greenland tariff threat says about not only US trade policy but alsothe increasing use and abuse of “emergency” powers by the executive branch (and not just Trump).

Summarizing previous Cato research, I note that the 1976 Senate special committee charged with emergency powers reform was appalled that four national emergencies were in effect at that time, yet “today we live under 50 active national emergencies, several of which date back decades and all of which unlock broad executive powers—under IEEPA mainly but also several other US laws—that are typically reserved to Congress or delegated to the president in a much narrower fashion.” Here’s the full list.

Speaking of the U.S. government abusing its powers to ‘protect’ Americans from Trumped-up threats, here’s Joe Lancaster.

Jon Hartley and Art Laffer explain that proponents of a wealth tax in California ignore lessons from that state’s Proposition 13. Two slices:

California is flirting with a new and destructive tax. A proposed ballot initiative, the 2026 Billionaire Tax Act, would impose a one-time 5% levy on the net worth of California residents with more than $1 billion, calculated as of Jan. 1, 2026, with payment due in 2027 and an option to spread payments over five years at an added charge.

While the tax would be a “one-time event,” nothing would prohibit similar initiatives in the future. Supporters call it a tax on billionaires, but in practice it would be a giant, government-mandated liquidation event for people whose wealth is often tied up in illiquid business equity. It also contains a feature that should make any taxpayer uneasy: It would be retroactive to the start of 2026.

California has seen this movie before, and the voters wrote the ending in 1978 with Proposition 13, a constitutional amendment that limited property-tax increases.

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Europe’s experience should further sober California voters. Over the past few decades, most countries that experimented with broad net-wealth taxes abandoned them after discovering that they raised modest net revenue relative to their administrative burden while encouraging avoidance and relocation. Of the 12 Organization for Economic Cooperation and Development countries that had broad wealth taxes in the 1990s, only Norway, Spain and Switzerland still do. Most recently, Norway’s tighter wealth-tax regime coincided with an exodus: Nearly 500 high-net-worth individuals left the country in 2022 and 2023, illustrating how sensitive location decisions become when governments tax worldwide wealth and toughen exit rules.

California doesn’t suffer from too little taxation. Its top marginal state income-tax rate is 13.3%, the highest in the U.S. Capital-gains taxes, corporate taxes and sales taxes are all at or near the highest in the nation as well. The wealth-tax initiative would amplify the problem of revenue volatility by taxing volatile paper valuations while assuming the tax base will sit still when the bill arrives.

Proposition 13 was a warning about what happens when government treats unrealized gains like income. California shouldn’t need another tax revolt to remember it.

The Wall Street Journal‘s Editorial Board calls on the Trump administration to pause ICE’s operations in Minneapolis. Here’s its conclusion:

The violence in Minneapolis has erased the state’s welfare fraud from the headlines, which no doubt pleases Mr. Walz. It’s also given Democrats in Washington an excuse to shut down the government a second time over the Homeland Security funding bill.

Mr. Miller’s mass deportation methods are turning immigration, an issue Mr. Trump owned in 2024, into a political liability for Republicans in 2026. Americans don’t want law enforcement shooting people in the street or arresting five-year-old boys. The President who said you have to have a heart in enforcement ought to show some.

Jonah Goldberg tweets: (HT Scott Lincicome)

It’s so funny how effortlessly these cheerleading “conservatives” just embrace whatever ridiculous argument comes out of the administration without even a moment’s hesitation.

GMU Econ alum Matt Mitchell draws three lessons from the economic collapse of Venezuela. Two slices:

President Trump has accepted the Nobel Peace Prize that was awarded to Venezuela’s opposition leader, María Corina Machado. Unlike Machado, however, he does not accept the central lessons that can be gleaned from five decades of Venezuelan misrule.

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As the Cato Institute’s Marcos Falcone recently explained, one Venezuelan who seems to have internalized these lessons is María Corina Machado. As a decades-long leader of the opposition, she has consistently championed both personal and economic liberty. She traces much of the country’s corruption, mismanagement, and stagnation to its 1976 nationalization of the oil industry.

And she is wildly popular. In the unified opposition primary of 2024, she ran on a platform of complete oil privatization and won 90 percent of the vote. Maduro refused to let her run in the general election, so she backed Edmundo González Urrutia and he is estimated to have won 70 percent of the vote. But Maduro refused to recognize the result and clung to power.

Now, apparently, President Trump is in charge. But like Maduro before him, Trump refuses to recognize the results of the last election. He claims that Machado lacks the “respect” and “support” to lead. Polls, meanwhile, indicate that she is favored by more than 70 percent of the country. While accepting her re-gifted Nobel Prize, Mr. Trump has decided to give the reins to Maduro’s Vice President, the socialist Delcy Rodriguez, calling her a “terrific person” and predicting a great Venezuelan renaissance.

As for privatization, Trump instead says “we’re going to keep the oil.” He claims that Rodriquez will be “turning over” up to 50 million barrels to the US, the proceeds of which will be “controlled by me, as President of the United States of America.”

Meanwhile, he is strong-arming US oil companies to invest in the country, telling them that if they want to recover their property that was seized by President Andrés Pérez in 1976, they’d better cooperate in rebuilding Venezuela’s infrastructure. For their part, the companies have been reluctant to do so, citing the country’s poor track record of protecting private property.

Like Andrés Pérez, Chávez, and Maduro, Trump seems to imagine that the right central plan will unlock the country’s vast oil wealth. But history teaches a different lesson.

Wall Street Journal columnist Mary Anastasia O’Grady warns that Delcy Rodríguez and other Venezuelan ‘leaders’ – a more accurate term is ‘thugs’ – who Trump praises and is now partnering with are bad news. Two slices:

Why does President Trump call Venezuelan dictator Delcy Rodríguez “a terrific person,” despite her monstrous human-rights record and her reputation for corruption? It’s perplexing—until one considers that Chevron Corp. and Florida asphalt magnate Harry Sargeant have long lobbied the president for licenses to operate in Venezuela, and Ms. Rodríguez has been their counterpart in Caracas.

The Guardian reported last week that in October the U.S. began considering Ms. Rodríguez, right hand to then-dictator Nicolás Maduro, to replace him. The British newspaper said it learned from sources that she told the U.S. she was on board with the removal of her boss and ready to cooperate with Washington.

“One factor was her promise to work with American oil and her acquaintance with Americans in the oil business. ‘Delcy is the most committed to working with US oil,’ an ally of hers said.”

It’s no secret the fashion-conscious Marxist, who plays ping-pong when she isn’t running the narco-trafficking police state, has made inroads with foreign oil executives. Not all, of course. ExxonMobil and ConocoPhillips left the country years ago. But for those still making a buck off the repression of the Venezuelan people, she’s the ideal despot, more interested in power than ideology and therefore “flexible.”

Mr. Trump’s own obsession with oil might explain why he disparaged opposition leader María Corina Machado at a press conference the day the U.S. captured Mr. Maduro. He claimed the wildly popular Ms. Machado has neither “support” nor “respect” in Venezuela. That’s absurd. She is such a threat to the regime that it banned her candidacy for president in 2024. Edmundo González, who took her place, received 70% of the vote.

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After Ms. Machado presented her Nobel Peace Prize medal to Mr. Trump, he declared her a “wonderful woman,” and last week he said, “I am talking to her and maybe we can involve her in some way” in Venezuela. That’s big of him. Then he gushed again about the much-hated Ms. Rodríguez. Flying back from Davos, Switzerland, last week, Mr. Trump again engaged in moral equivalence: “I get along well with both sides.”

Amity Shlaes reviews Richard Vague’s The Banker Who Made America: Thomas Willing and the Rise of the American Financial Aristocracy, 1731–1821. A slice:

As Vague notes, Willing grasped principles of business that seem mundane to us but were rarely applied, or even recognized, in his day: diversification to reduce risk, and the two magics: the magic of the actuarial pool and the magic of compounding. Later, Willing invested in a then-new business, life insurance. Perhaps excited at the prospect not merely of profits but also of protecting widows, Willing penned a pamphlet: “An Address to the Citizens of Pennsylvania Upon the Subject of a Life Insurance Company.”

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Quotation of the Day…

is from page 389 of Johan Norberg’s splendid 2025 book, Peak Human: What We Can Learn from the Rise and Fall of Golden Ages [footnote deleted; link added]:

The Industrial Revolution came about when entrepreneurs and engineers gained the freedom, knowledge and inspiration to innovate and improve, and this was not dependent on colonial capital. Unlike some earlier interpretations, it was not a big push of investment that got industry going. Usually businesses started with small sums scraped together from relatives and acquaintances, and then the main source of funding was self-finance – entrepreneurs ploughed their profits back into the business. The revolution ‘pulled itself up by its bootstraps’.

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