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… is from page 60 of the print-edition version, in the January/February 2025 issue of Reason, of Johan Norberg’s excellent essay (forthcoming on-line) “The Real Threat Is An Isolated China”:

[M]ore than a million American jobs depend directly on exports to Chinese consumers. About 0.5 percent of the U.S. work force would lose their jobs if the U.S. lost access to its third-largest exporting market.

In other words: If Trump passes the tariffs he’s been promising, the GOP’s newfound identity as the party of the working class would be just a brief stopover on the way to becoming the party of the unemployed class. The economy would eventually find work for most who lost their jobs in this decoupling shock, but those jobs would on average be less productive and pay less, since they would be in sectors where America has less of a comparative advantages.

Still more opportunities would be lost in the future, since protectionism reduces competition and innovation.

DBx: Someone might acknowledge that all that Johan says here is correct, but nevertheless insist that further government-engineered decoupling from China is justified on grounds of national security. A priori that insistence can’t be dismissed as misguided. But surely it’s not too much to ask proponents of such decoupling at least to acknowledge not only that such a move necessarily has economic downsides, but that these downsides are substantial. How do the decouplers know that whatever we Americans gain on the national-security front will be greater than what we lose on the economic front?

Serious question: What’s the most credible, serious effort undertaken to estimate these benefits and these costs and then to compare the latter to the former?

And please do not say that economic benefits cannot or ought not be weighed against national-security benefits; do not say that national security is too important and foundational to be compromised for something as tawdry as ‘mere’ economic benefits. If you’re tempted to say this, then – before you do – let me ask you: Would we Americans be made better off if we became a militarized society, with the great majority of our GDP devoted to military and other national-security efforts? Should we spend all of our labor and other resources in pursuit of no end other than national security?

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George Will assesses Biden’s term in the White House with appropriate harshness – and also gives us a glimpse of how industrial policy really works. Three slices:

After he lost 42 of the 48 states in 1932, Herbert Hoover wrote: “Democracy is a harsh employer.” Sometimes appropriately so.

Joe Biden’s failed presidency is ending with a blizzard of decisions that validate voters’ rejection of his vice president, who, when asked, could not think of a flaw in his record. He and she pretended, from opposite directions, to be what they are not.

…..

Two months into his presidency, the seeds of its ruin were sown with the American Rescue Plan, which pumped up demand for goods and services beyond the capacity of the economy to produce them. The predicted result, inflation, was exacerbated by the Inflation Reduction Act’s torrent of subsidies in the service of “industrial policy.”

Three weeks after the 2024 election, Biden’s administration, rushing to open wide the spending sluices before Jan. 20, provided almost $8 billion in subsidies to chip-maker Intel. Five days later, Intel’s CEO retired, effective immediately, his company having lost $16.6 billion in the previous quarter. The chair of Intel’s board of directors said the CEO’s departure would facilitate “restoring investor confidence.” The Biden administration’s investors of other people’s money already had sky-high confidence.

In December, the Biden administration gave a $15 billion low-interest loan to California utility PG&E. This loan is the largest ever from the Energy Department’s incorrigibly overconfident Loan Programs Office. The second-largest was made the day before — a $9.6 billion loan for a joint-venture Ford Motor battery plant.

In November, the LPO had funneled $6 billion to Rivian, an electric vehicle start-up that the New York Times reports “has had trouble ramping up sales beyond about 50,000 vehicles a year.” Fewer might be better: The Wall Street Journal reports that Rivian lost $107,043 on every vehicle it sold in the first nine months of 2024, even with Biden’s $7,500 tax credit per vehicle (up to $40,000 for its heaviest commercial EV). Rivian blames a “more challenging consumer environment” — customers are pickier than the Biden administration’s investors.

…..

(In 2009, the LPO served Barack Obama’s industrial policy by sinking $535 million in solar panel manufacturer Solyndra, which filed for bankruptcy in 2011. In 2010, the LPO gave a $465 million loan to Tesla. Henceforth, such transactions might be subjected to the withering squint of Elon Musk’s new “Department of Government Efficiency.”)

James Hohman understandably is no fan of government handouts to corporations.

My intrepid Mercatus Center colleague, Veronique de Rugy, warns of the still-looming risk of inflation.

GMU Econ alum Alex Salter’s letter in today’s Wall Street Journal conveys wisdom:

Jason Furman wisely reminds us that public policy always involves trade-offs (“Left and Right Alike Are Blind to Trade-Offs,” op-ed, Jan. 8). Nevertheless, I have some reservations about cost-benefit analysis as a “framework” that “offers a path to better policy.” The economic way of thinking is necessary but not sufficient to improve governance.

There are two issues. The first is that the cost-benefit paradigm too easily becomes an excuse for rule by experts. Who decides what the relevant trade-offs are, as well as the best way to navigate them? Economists and public-policy experts, presumably, in which case we’ve inadvertently subjugated democratic deliberation to technocratic tinkering.

Second, and more important, cost-benefit analysis takes values as given. We call “benefits” what people like and “costs” what people dislike. This is appropriate for economics as a descriptive social science. But it won’t do for public policy, which is inherently prescriptive. Every law, regulation or other reform presumes an “ought,” not merely an “is.” Maximizing net benefits means people are getting what they want, but people often want what they shouldn’t have and don’t want what they should have.

Mr. Furman is correct that partisanship is a bad guide to good governance. But the technocratic approach isn’t much better. What we need is a prudential evaluation of the proper ends of man and the best means to secure those ends. In a word, what we need is statesmanship.

Also worth reading is this letter by Mark Schiller:

Mr. Furman isn’t really talking about economic decision-making. He is referring to political decision-making in which a small number of people impose their decisions on society. As Thomas Sowell has written: “Political, and especially legal, decision making tends toward categorical rather than incremental decisions.”

The alternative is economic decision-making in which myriad companies and individuals make choices based on their own unique knowledge, preferences and situations. These are incremental and not categorical in nature and allow for valuable feedback, which is direct and significant.

Mr. Furman chides conservatives for excessive focus on the costs of liberals’ expansive social goals. But the reality is that thoughtful conservatives and free-market proponents understand the inherently inefficient and frequently catastrophic nature of political decision-making and would prefer allowing market processes to function unhindered by political control.

Joe Lancaster decries a new economically ignorant authoritarian move by the economically ignorant authoritarian-wannabe Gavin Newsom.

At his Facebook page, Sam Grove shares this news story about the Los Angeles wildfires:

Jack Nicastro writes in defense of private firefighters.

Bob Graboyes reminds us that it’s never too late.

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… is from page 468 of Gordon Wood’s splendid 2009 volume, Empire of Liberty: A History of the Early Republic, 1789-1815:

Precisely because of the exuberantly democratic nature of American politics, the judiciary right from the nation’s beginning acquired a special power that it has never lost. By protecting the rights of minorities of all sorts against popular majorities, it has become a major instrument for both curbing that democracy and maintaining it.

DBx: Pictured here is John Marshall (1755-1835), the fourth Chief Justice of the United States Supreme court.

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Here’s a letter to the Washington Post:

Editor:

Michael Ignatieff is correct that a resurgence of liberalism would make America a better place (“I was born liberal. The ‘adults in the room’ still have a lot to learn.” Jan. 15). But that liberalism should be not the modern sort of John Rawls and E.J. Dionne, but the classical sort of F.A. Hayek and George Will. One deep problem with liberalism of the sort espoused by Mr. Ignatieff is revealed when he writes, as if it’s a fact too obvious to question, of “capitalism’s remorseless distribution of economic disadvantage.”

What in the world is he talking about?

Ordinary Americans, even ones in lower-income brackets, today live in air-conditioned homes, drive air-conditioned automobiles, carry electronic devices that stream music and videos and enable real-time conversations – in voice or in text – with people literally on the other side of the globe. Nearly all of us regularly fly through the air to distant locations, have closets full of clothes and amazing appliances and detergents to keep those clothes clean, spend lower and lower shares of our disposable incomes on food as the quality and variety of that food increase (fresh blueberries in January in New York would have astonished J.D. Rockefeller), enjoy health care undreamed of by J.P. Morgan, and have life expectancy at birth more than double what it was for most of humanity’s existence.

Indeed, our pets eat better than did most of our forebears, and even our inanimate stuff is more comfortably and securely accommodated than they were.

These and many other ordinary experiences of modern life are so routine that we take them for granted, yet each and every one would have astounded the richest monarch or pooh-bah before the capitalist era. And each one is the product of innovative, entrepreneurial capitalism. Capitalism is indeed remorseless, but in distributing economic advantage.

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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Here’s a reply to a recent correspondent.

Ms. C__:

Thanks for your follow-up e-mail to my note.

You write that I “wrongly scrutinize President Trump’s trade actions like an academic economist. He’s a successful businessman strategically deploying trade policy to bargain for America’s advantage over other countries.”

With respect, you and Trump suppose that global commerce is a zero-sum activity; you think that one country gains wealth only by tricking or forcing other countries into losing wealth. That this supposition is mistaken can be seen by observing your own daily life: You are enriched by working for your employer and by shopping at your local supermarket. So, too, is your employer enriched by employing you, and your local supermarket is enriched by selling groceries to you. And no one is made poorer. Voluntary exchange by people using their own property is positive-sum, not zero-sum – an economic reality that doesn’t change if a political border separates the persons who trade with each other.

In addition, Trump and the apologists for his protectionism offer myriad different justifications for tariffs. Taken together, these justifications reveal, not a ‘strategy,’ but excruciating ignorance of trade as well as an incoherent approach to trade policy.

I took a five minutes to google “Trump” “tariffs” and different justifications for tariffs, such as “national security” and “protect American jobs.” Just in the past week, we’re told that Trump’s tariffs are meant to protect American jobs and invigorate American industry, supply leverage to pressure foreign governments to change their trade policies, supply leverage to pressure foreign governments to change their non-trade policies, strengthen America’s national security, fight alleged “unfair competition,” and – from the incoming chairman of the Council of Economic Advisors – to improve America’s terms of trade and to reduce the trade deficit and to deal with the (fictional) problem of America’s “hollowed-out” industrial base. And just yesterday, Trump boasted that he’ll use tariffs to raise so much revenue that we’ll need a new agency – the External Revenue Service – to collect it.

This jumble of justifications reflects ignorance of reality (for example, America’s industrial base has not been “hollowed out”), ignorance of economics (for example, every American job protected by a tariff is matched by an American job destroyed by that tariff), and dizzying inconsistency (for example, because no revenue is reaped on imports kept out of the country by tariffs, tariffs for protection are a poor tool for raising revenue).

Far from being masterful strategy, Trump’s trade policy is mindless pandemonium.

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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Wall Street Journal columnist Holman Jenkins writes that the L.A. wildfires are causing Californians finally to “wake up from the dream that green pork is a solution.” A slice:

Last year, the premier journal Science put a nail in the question: 96% of policies supported worldwide as “reducing” emissions failed to do so, consisting mostly of handouts to green-energy interests.

And yet certain Journal readers still assail me with the epithet “denier.” They confuse my criticism of Democratic hypocrisy with my imagined views on climate science. As I’ve written back to many, “Don’t think politicians haven’t figured this out about you. That’s why they can give us unsustainable corporate welfare boondoggles and call it climate policy.”

A CNN moderator Saturday urged viewers to vote in an online poll on whether the California disaster should be blamed on climate change or poor leadership. Notice the non sequitur: as if climate change is an excuse for not acting against fire risk.

Cait Dexter explains some of the damage that tariffs inflict on small businesses. A slice:

The impact of the Trump administration’s proposed tariffs extends beyond imported goods. Even products made in the US aren’t immune, as heightened costs throughout their supply chains could lead to higher prices for domestically produced items. Take for example Premier Yarns, a popular choice for the fiber arts community — and my yarn of choice. While the yarn itself is manufactured in the US, the raw fibers are often sourced from Turkey, making them one of about 45 percent of businesses that depend on imported raw materials according to the National Association of Manufacturers. Tariffs on these imported fibers could lead to increased production costs, even for yarns produced domestically, affecting everything from pricing to production schedules.

Recent studies offer compelling insights into how tariffs present a complex challenge for small businesses, extending far beyond the crafting sector. A comprehensive study by the National Bureau of Economic Research shows tariffs introduced under the previous Trump administration were borne almost entirely by American consumers and enterprises. These costs disproportionately impact small businesses, who often lack the financial flexibility and resources to absorb increased costs resulting from tariffs, making them more vulnerable to shifts in policy. Reports from the Peterson Institute for International Economics also highlight how tariffs intended to protect domestic industries inadvertently act as regressive taxes that indirectly hurt lower-income consumers and increase production costs for small businesses, stifling their ability to compete both domestically and globally.

Eric Boehm warns Republicans that they might suffer at the polls as a result of Trump’s tariffs. A slice:

A new tariff on that crude oil will be passed along to consumers down the supply chain. Among other things, that likely means higher prices at the pump. The specifics remain to be seen, but analysts believe prices could jump by 40 cents or even 70 cents per gallon. If those tariffs spiral into a broader trade war, energy companies are already warning about “volatility in crude oil prices, impacting refineries and downstream fuel markets, especially for gasoline and diesel.”

GMU Econ alum Dominic Pino reports on a new conservative organization’s efforts to keep Trump’s tariffs punitive taxes on American consumers and businesses to a minimum. Two slices:

One of the major problems with protective tariffs is that they hurt domestic manufacturers because about half of U.S. imports are intermediate goods used for domestic production. The report notes that the International Trade Commission listed manufacturing, apparel, auto parts, computer parts, electronics, and general purpose machinery among the industries most harmed by the tariffs that already exist.

…..

The report illustrates why all of the talk of tariffs in the past several years has been so far afield from the actual economic concerns of the American people. And if tariffs are going to be a part of U.S. economic policy going forward, they should be targeted toward enemies as part of a foreign-policy strategy with measurable goals, not threatened indiscriminately at the president’s whim.

Takahiro Mori, a v-p of Nippon Steel, tells why his company and U.S. Steel are suing Biden over the blockage of Nippon’s attempt to purchase U.S. Steel – or, said differently, U.S. Steel shareholders’ attempt to sell their private property to Nippon Steel. Two slices:

We didn’t take this decision lightly, but the Cfius review failed to meet the most basic requirements of due process and fairness. We believe that Mr. Biden twisted the process to achieve predetermined political ends. (In response to our suit, the White House defended Mr. Biden’s decision and the review as based on the determinations of national-security and trade experts.)

During Mr. Biden’s re-election campaign, the leadership of the United Steelworkers union announced in February that the president had personally assured them that he had their backs as they opposed our deal. He publicly announced his opposition to our partnership in March—before Cfius began its formal review—and received the USW’s endorsement days later.

…..

Cfius’s mandate is protecting national security, and the president can block a transaction only when there is “credible evidence” that a foreign acquirer might take action that “threatens to impair national security.” If electoral politics can dictate the process, it erodes trust in Cfius—threatening the national security interests it was made to guard.

The U.S. has built a welcoming environment for foreign investment, but the world is watching this deal closely. Major companies in allied nations want to invest in the U.S. and employ Americans. Now they wonder if they’ll be treated as partners or political pawns.

GMU Econ alum Adam Michel takes us to tax bootcamp.

Allison Schrager criticizes Donald Trump and Bernie Sanders for their support of a government-imposed cap on credit-card interest rates. A slice:

An interest-rate cap may seem like a good way to protect consumers, especially low-income ones who find themselves in a cycle of debt they can’t pay off. In 2024, Americans held a collective $1.17 trillion in credit card debt, and in 2022, they paid $130 billion in interest and fees toward their credit cards. But consumer credit is a risky business; many borrowers default or make late payments, and the higher rates are how banks and credit card companies get compensated for taking on that risk. Sanders points out that they make a profit from credit cards—well, they should!

Jeff Jacoby calls for an end to the power of the U.S. president to issue pardons. A slice:

It was naive of me to imagine that the Clinton/Trump abuses would prove exceptions to the rule. President Biden’s deluge of pardons and commutations in recent weeks makes it clear that the old norm is largely defunct. Presidents now are more likely than ever to deploy clemency not to ensure fairness but to thwart it — not as an act of grace to lower the flames of discord but as a political weapon to protect unrepentant allies and reward supporters.

Biden’s sweeping pardon of his son for any and all federal crimes he committed over the past 10 years was disgraceful, and not only because Biden had repeatedly insisted that he would not do it. The pardon also shut down any law-enforcement investigation into Hunter Biden’s alleged influence-peddling activities, which reportedly involved selling access to the Biden “brand” for millions of dollars.

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… is from page 277 of Historical Impromptus, a 2020 collection of some of Deirdre McCloskey’s work on economic history; this quotation, specifically, is from McCloskey’s March 10th, 1991, review, in the Chicago Tribune Book World, of Robert Reich’s The Work of Nations:

We do not really know what the balance of trade is, nor does it matter.

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The Editorial Board of the Wall Street Journal is having none of Gavin Newsom’s and other progressives’ predictable but specious attempts to blame the L.A. wildfires on carbon emissions. A slice:

Look out for “hydroclimate whiplash” coming to a media website near you. That’s the term the climate left is suddenly using to explain the Los Angeles wildfires, or to put it more baldly, to change the subject from the failure of the state and local government to contain the fires that often accompany Santa Ana winds.

The theory is that climate change caused two especially wet winters in California in 2023 and 2024. This led to lush vegetation growth. Perhaps you recall the ebullient stories about the blooming desert and wildflower explosion. But in recent months, the theory goes, climate change has also caused a dry spell that has turned that vegetation into tinder for fires. Ergo, “hydroclimate whiplash.”

So climate change explains wet and dry seasons, which follows the progressive line that climate change is responsible for every natural disaster except for perhaps earthquakes. In today’s climate orthodoxy, bad weather is always man-made.

This ignores that California’s climate has long been variable with dry years following wet ones. The nearby chart from the California Office of Environmental Health Hazard Assessment shows precipitation in the state going back 130 or so years. There are wet and dry spells. The last couple of decades have had more dry years, but then so did the 1910s and 1920s when carbon emissions were far less than they are today.

The climate is changing, and human activity affects the climate. But variable rain and snowfall patterns in California are to be expected. Fires will occur as a result. Rather than blame the climate for wildfires, the obligation of public officials should be to prepare for them and, when they inevitably occur, mitigate the damage.

It’s on that score that Gov. Gavin Newsom, the Legislature in Sacramento, and the mayors of Los Angeles have failed. And, judging by the budget Mr. Newsom introduced on Friday, the Governor wants to keep on failing. His proposal skimps on wildfire prevention while boosting spending on Medicaid, green energy and payoffs to the teachers’ unions.

Phil Magness makes clear that Karl Marx was never an important economist. Three slices:

To [English professor Alex] Moskowitz, Marx is an epochal figure in the development of economic theory, and thus, it is “necessary” to understand the discipline’s history. To almost any competent historian of economic thought, however, Marx was never more than a peripheral figure in the economics profession.

One need not take my word for this assessment. The famous progressive economist John Maynard Keynes concurred. In 1925, Keynes visited the Soviet Union as part of a delegation of distinguished academics from the United Kingdom. He met with leading Marxist thinkers, including Leon Trotsky, who expressed hope that Keynes would steer Britain in a socialist direction. Keynes recorded a very different assessment of the Marxist economists he encountered upon his return to Cambridge. The Soviet economists, he wrote, had set up Marx’s Das Kapital as their “bible, above and beyond criticism.” To Keynes, however, Marx’s magnum opus was nothing more than “an obsolete economic textbook which I know to be not only scientifically erroneous but without interest or application for the modern world.”

…..

In fact, most economist contemporaries of Marx did not even notice Das Kapital at the time of its publication or for many years later. When marginalist economist Philip Wicksteed happened upon it in 1884, he composed a withering “Jevonian” critique of Marx on account of its faulty theory of value. Additional problems in Marx’s system became apparent by the decade’s end, especially as it struggled to find a solution to the so-called “transformation problem.” Under Marx’s system, labor is operationalized as both an input of production and a priced good. This creates a mathematical circularity in practice, and Marx’s attempts to solve it in the posthumously published notes that became Volumes 2 and 3 of Das Kapital were generally regarded as unsatisfactory.

…..

Within the field of economics, Marx remains a non-entity for the simple reason that his theories have not withstood the scrutiny of other practitioners in the discipline. They not only failed the test of time—they never took hold among economists in the first place due to deficiencies in Marx’s system at its outset. When an English professor such as Moskovitz ventures far afield of his research competencies and declares that Marx was a preeminent figure in the history of economics, he only reveals his ideological biases while adding nothing of substance to the discipline he purports to critique.

William Carney’s excellent letter in the Wall Street Journal reveals that that which is “unseen” can sometimes easily be seen along side that which is seen:

Thomas Sowell and others state that the federal government owns 25% of the nation’s land (“The World’s Biggest Landlord Is Washington,” op-ed, Dec. 26). According to the Public Land Law Review Commission’s report in 1970, it owned one-third. So, there has been some progress.

In a letter to the editor (Jan. 7), Thomas Straka notes that much public land is “scrub desert” that would be difficult to sell. I pointed out in a 1998 book chapter that much of the poor quality is the result of the Interior Department’s multiple-use policy, which allows multiple ranchers to overgraze the land. Driving in the West, I could always identify whether the land’s ownership was private or public: One side of the fence was green and the other was wasteland. And it continues.

GMU Econ alum Dominic Pino warns that Trump’s proposed tariffs will inflict damage on the U.S. market for energy. Three slices:

Donald Trump’s promises of tariffs against Canada and Mexico would be harmful to the U.S. economy, upending numerous cross-border business relationships. Tariffs would violate the terms of the United States–Mexico–Canada Agreement (USMCA) that Trump’s first administration negotiated and that Trump said was “the most important trade deal we’ve ever made by far.” And, unlike at any point in the past, they would affect U.S. energy markets.

Tariffs on our North American allies, if they truly will be on all products as Trump has promised, would affect about 70 percent of U.S. crude oil imports. Danielle Smith, the premier of Alberta (Canada’s top oil-producing province), met with Trump and said she is not expecting any exemptions for the 25 percent tax on Canadian imports.

…..

Unlike in the past, when many U.S. energy imports came from the Middle East, the No. 1 source of imported crude oil today is Canada. By far. Almost 60 percent of U.S. crude oil imports in 2023 came from our northern neighbor.

Almost 70 percent of that Canadian oil goes to the Midwest, where it is processed in world-class refineries that employ thousands of Americans. The oil from the tar sands of Alberta is very difficult to refine because of its chemical makeup, and many U.S. refineries in the Midwest are specially built to handle it. Refining is one of America’s key energy strengths, and the sector is integrated with the global marketplace for oil and petroleum products. Refined products are shipped from the Midwest to the Gulf Coast for export.

…..

Aside from violating the USMCA, which Trump claims was one of his biggest accomplishments, 25 percent tariffs on all goods from Mexico and Canada would blow up years of progress toward an integrated North American energy market and invite retaliation by the No. 1 buyer of U.S. energy exports. It would not be a good start for an administration prioritizing U.S. energy production and security.

Pierre Lemieux ponders business people and international trade.

Michael Chapman is no fan of minimum-wage legislation. And nor is Eric Boehm.

Emma Camp reports that “41 percent of Chicago teachers were chronically absent last year.”

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with the Cato Institute’s Michael Cannon about getting government out of health care.

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… is from page 411 of the 2016 second edition of Thomas Sowell’s excellent volume Wealth, Poverty and Politics (original emphases):

[E]ven if every American man, woman and child had equal individual incomes, that would still leave substantial inequalities in household incomes, because households that are in the top 20 percent of income recipients today contain millions more people than households in the bottom 20 percent. These larger households would remain in higher income brackets if incomes were made equal among all individuals. If we restrict income inequality to adult, there would be even more inequality between households, since households consisting of a single mother with multiple children would not have nearly as much income – either total income or income per person – as households consisting of two parents and two children, even if welfare paid the single mother as much as other adults received from working.

DBx: Yes. And it follows that if government or god somehow managed to bring about equality of incomes among households, rather than among individuals, inequality of individual income might rise if the differences between the numbers of persons in different households are sufficiently large.

Most professors, pundits, preachers, and politicians who pound their fists self-righteously in opposition to “inequality” never pause to think about inescapable realities such as these. And these. Emoting and displaying one’s imagined moral superiority are oh so much easier and enjoyable than thinking.