… is from page 70 of Douglas Irwin’s vital 2017 history of U.S. trade policy, Clashing Over Commerce; Doug here is writing of the United States very soon after the Constitution was ratified:
Most Americans embraced the view that commerce was naturally beneficial and required no central direction, in part because they did not want to create an overly powerful national government that might play favorites with certain producers.
A new line has been crossed: The U.S. government has finally declared an AI model too dangerous for unrestricted use. It’s the kind of move that could cripple AI progress in the U.S. and around the world.
I had the chance to work with Anthropic’s recently released, high-powered Fable 5 model, a version of Claude Mythos (I am a member of Anthropic’s Economic Advisory Board). But now the plug has been yanked. A federal dispute with Anthropic led the government on Friday to order an export control that requires Anthropic to withhold the model from any non-U.S. citizens. The only practical way to comply with that order was to take down the model altogether.
…..
Another result is that some countries may opt for an alliance with China and Chinese AI models, rather than the U.S. At least some of these countries are fence-sitters anyway, when it comes to choosing sides, and so lesser American reliability could tilt a few over the edge. In East Africa, for instance, current commercial connections with China are strong, and China has a reputation for not interfering in internal affairs. In this scenario, America would lose some of its global reach and influence.
Finally, many countries and companies will opt for open-source AI systems, where there is no kill switch. That will also empower Chinese AI over American AI, since the best open-source models come from China. That might sound okay, but it is still a big geopolitical loss for America, and possibly for the nations buying Chinese AI as well, if Beijing decides to exploit their dependence. Even in the absence of a kill switch, when it comes to servicing, installation, applications, and upgrades, those countries would look to China rather than to the U.S. Furthermore, the open-source models typically are worse than the best American-made proprietary models.
In sum, the inability of the U.S. government to reach an agreement with Anthropic translates into a big geopolitical loss for the U.S. It also means slower and inferior AI adoption for companies, schools, and countries around the world.
It’s difficult to overstate how counterproductive that was. Cybersecurity has always been a race without a finish line. Attackers are constantly probing to find vulnerabilities to exploit in software, and defenders are always rushing to patch them before it’s too late. AI speeds the race up considerably. But, crucially, it’s also both the tool that finds the flaw and the tool for fixing it.
The problem is that while Anthropic’s models are widely considered to be among the best available at this moment, its competitors are not far behind. OpenAI’s GPT-5.5 is nearly on par with Anthropic’s flagship in unearthing software vulnerabilities, according to the London-based AI Security Institute.
Much cheaper Chinese models, though still not on the frontier, just keep getting better. By whacking Anthropic, the government hasn’t pushed back the cyberthreat. It just took an important tool out of the hands of defenders.
Worse, the mistake was predictable. Only 10 days earlier, the Trump administration signed an executive order about AI guardrails. The administration created a voluntary review process for frontier models, with an explicit promise that nothing in it would create a licensing or preclearance regime.
The U.S. House is still run by Republicans, though it’s hard to tell based on recent results. The latest left turn came last week when the House passed the Faster Labor Contracts Act (FLCA), which forces binding arbitration on companies if they don’t reach a new collective-bargaining agreement quickly when new labor unions are certified.
The bill received a House vote after seven Republicans signed a discharge petition to override the Speaker’s control over the floor. It passed, 230 to 193, with 20 Republicans and all Democrats in favor.
The bill shifts the balance of power to labor unions in collective bargaining since they know an arbitrator will step in and dictate a settlement if the parties reach an impasse after 120 days. Arbitrators tend to use industry standards in their judgments, which may not be appropriate for an individual firm. That means less incentive for union chiefs to compromise, and less power for individual workers who will have no say in arbitration.
Scott Lincicome explains why “Whirlpool is a poster child for tariffs — and not in a good way.” A slice:
It would be difficult to construct a clearer cautionary tale of how US protectionism can harm not only American consumers but even its intended beneficiaries.
Whirlpool has been one of the nation’s most vocal proponents of US protectionism since at least 2011. That year, the company requested antidumping and countervailing duties (AD/CVDs) on imported refrigerator-freezers and washing machines from South Korea and Mexico, resulting in significant new duties on the latter products. When foreign production of washing machines moved to avoid the duties, Whirlpool asked Uncle Sam to target imports from those countries too, eventually winning from the Trump administration “safeguards” on washers from every country except Canada.
In the years that followed, Whirlpool was involved in essentially every available legal channel for import protection – more than a dozen interventions under six different laws – and was often successful. Its Ohio facilities also have been the backdrop for two separate Trump administration events touting the President’s “America First” trade policies.
Beneath the surface, however, lie the mounting costs of Whirlpool’s advocacy. For starters, research shows that that the washing machine tariffs increased prices for both those units andcomplementary dryers, costing American consumers more than $800,000 per job created in domestic industry. Moreover, according to a 2023 US International Trade Commission report, the industry’s gains came from LG Electronics and Samsung Electronics’ new US facilities, while Whirlpool’s fortunes continued to decline.
“Leftists use Google Form to organize Stanford commencement walk-out against Google CEO.”
John Puri is correct: “Economic illiteracy is not unusual for progressives.”
The US hit a milestone this year. The size of the national debt eclipsed annual economic output. The ratio of debt to GDP is over 100 per cent for the first time since 1946, when the US had been borrowing to finance military spending during the second world war.
Today, debt service is the third-largest category of federal spending, behind only social security and Medicare — and, remarkably, ahead of national defence.
In Washington, analysts and politicians alike seem increasingly resigned to the idea that the only way the government will engage in fiscal consolidation is in the aftermath of a bond market crisis. But I am more optimistic that the normal democratic process could yet lead to deficit reduction.
A visitor – “Freddy” – from Germany to the U.S. is awestruck by America. Two slices:
Freddy found “the holy land” on his third day in America: a Taco Bell near Atlanta. When the German soccer fan landed in New York on June 5 to begin a six-week road trip with a couple of friends for the World Cup, he had about 11,000 followers on X. As he has traveled the country on a tight budget, posting about the wonders small and large he encounters along the way, his audience has grown to more than 600,000.
The camera-shy traveler posts as FreddyLA7, no last name given. As an enthusiastic, even awestruck, visitor, he has performed a public service by opening many Americans’ eyes, just weeks before the nation’s 250th birthday, to see clearly how much there is to savor and celebrate in America.
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“I love Americans,” he posted after arriving. “We were about to walk an hour to the stadium in the rain to save on an Uber, and the receptionist at the hotel we were parked in front of decided to drive us there.” From inside Auburn University’s 88,000-seat stadium, he posted, “This is the most ‘The European mind can’t comprehend this’ moment of my life.” Part of the spectacle: “There’s an eagle flying around the stadium.”
The night ended, naturally, with a run to a Buc-ee’s, where Freddy struggled to comprehend the world-within-a-rest-stop Buc-ee’s aesthetic, with gas pumps as far as the eye can see and slow-smoked Texas barbecue inside. Or as Freddy put it, with photos and three crying-face emojis, “DUDE LMAO THIS IS A GAS STATION.”
Quotidian American life has suddenly been made fresh when seen through a visitor’s eyes.
GMU Econ alum Paul Mueller is a careful student of Adam Smith. A slice:
The institutional failures Smith excoriated — supply restrictions, state-sponsored overproduction, and laws penalizing poor workers — remain rampant today. Modern government intervention sabotages efficiency through the exact same three channels.
In the United States, protectionist state power insulates incumbent industries from new competitors. Certificate-of-need laws permit existing hospitals to block the entry of new medical competitors. Exclusionary municipal zoning laws choke housing construction. Restrictive occupational licensing rules shackle professions ranging from hair stylists and plumbers to medical doctors.
As Smith observed, the state triggers massive inequalities by “restraining the competition in some employments to a smaller number than might otherwise be disposed to enter into them.”
Arnold Kling reviews Batya Ungar-Sargon’s new book, The Jews and the Left. A slice from Arnold’s review:
The labor movement had its moderates who wanted to work within the capitalist system, and its socialists who wanted to overthrow it. Jews could be found in both camps. In either case, they were on the left. Ungar-Sargon fails to mention that in this era, the Democratic Party appealed to urban ethnic groups, perhaps with patronage more than policy.
Franklin Roosevelt’s corporatist New Deal appealed to the moderate wing of the labor movement, including many Jews. In my opinion, support for the New Deal is where Jews began to go wrong. The statist impulse of the left is unfortunate. In Brian Doherty’s Radicals for Capitalism, the most prominent libertarians are Hayek, Mises, Friedman, Rand, and Rothbard. All but Hayek were of Jewish extraction. Too bad that their view of markets did not prevail among Jews at large. Ungar-Sargon takes the more standard view of New Deal good, libertarian economics bad.
Perhaps what clinched Jewish support for Roosevelt was the antisemitism of many on the right. My father always justified his enthusiasm for FDR by referring to Father Coughlin, a radio broadcaster who was vitriolic against FDR and against Jews. Father Coughlin occupied the space in Jewish heads that Tucker Carlson occupies today.
… is from pages 477 of the 1971 Augustus M. Kelley reprint of the 1880 Sixth American edition of Jean-Baptiste Say‘s 1803 A Treatise on Political Economy (Traité d’économie politique):
There is this grand distinction between an individual borrower and a borrowing government, that, in general, the former borrows capital for the purpose of beneficial employment, the latter for the purpose of barren consumption and expenditure. A nation borrows, either to satisfy an unlooked-for demand, or to meet an extraordinary emergency; to which ends, the loan may prove effectual or ineffectual: but, in either case, the whole sum borrowed is so much value consumed and lost, and the public revenue remains burthened with the interest upon it.
DBx: As an empirical matter, yes.
Of course it’s possible in theory for government to borrow and then use the funds productively. And, no doubt, some such use by government of borrowed funds has in fact occurred and might still occur. But the general thrust of Say’s point is correct and relevant: government borrowing is overwhelmingly used to fund wasteful current consumption. Resort to deficit financing of government expenditures allows today’s citizens-taxpayers to spend the money of tomorrow’s citizens-taxpayers, many of whom aren’t yet born. And when any group of people gets to spend other people’s money, that money is seldom spent wisely.
Legal problems with USTR’s proposed tariffs start with the statute itself.
Section 301 authorizes USTR to investigate foreign trade practices and to impose tariffs if a foreign government violates the terms of a U.S. trade deal or engages in an “unjustifiable” or “unreasonable or discriminatory” trade practice that adversely impacts the U.S. economy. Specifically, Section 301(b), the provision USTR is relying on for the new tariffs, provides that if USTR conducts an investigation and finds that “an act, policy, or practice of a foreign country is unreasonable or discriminatory and burdens or restricts United States commerce,” USTR “shall take all appropriate and feasible action authorized under subsection (c)…and all other appropriate and feasible action within the power of the…to obtain the elimination of that act, policy, or practice.” (19 U.S.C. § 2411(b)). Subsection (c) then authorizes USTR to impose “duties or other import restrictions on the goods of…such foreign country for such time as the Trade Representative determines appropriate.”
Although the Supreme Court has never weighed in on Section 301, lower courts have, and held that USTR actions pursuant to Section 301 are subject to judicial review pursuant to the Administrative Procedure Act (APA). Simply put, USTR’s new proposed tariffs do not comport with the requirements of 301.
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Trump campaigned on tariffs and his win in 2024 gives him the moral and political authority to raise tariffs within the bounds of the law. A single electoral win, however, does not empower a President to upend the Constitution’s separation of powers or usurp Congress’s authority over trade. Potential challengers to Trump’s new Section 301 tariffs have strong arguments on their side, and the courts should continue to insist that Trump follow the law when he imposes tariffs, rather than rewrite them without Congress’s approval.
Lant Pritchett of the London School of Economics and Addison Lewis of Brigham Young University have released a paper with a deceptively simple title: “Economic Growth Is Enough and Only Economic Growth Is Enough.“
Their target is a claim that has become fashionable in development economics: that growth is not sufficient to improve human wellbeing, that targeted programs and redistribution are “equally important,” and that poor countries should worry as much about the distribution of income as its growth. To this effect, Pritchett and Lewis cite a bunch of examples. The executive director of J-PAL, one of the most influential development research organizations in the world, put it baldly in a 2021 op-ed: “growth is not enough.” Yale’s Rohini Pande, director of the Economic Growth Center, wrote that growth “will not be sufficient to eradicate extreme poverty.”
This phenomenon, taken to its extreme, is what Piketty and his friends express when they argue against growth.
In that paper, Pritchett and Lewis set the record straight. They aim to prove something stronger about growth than a mere correlation: namely, that every general, plausible, cross-national measure of the basics of human material wellbeing has a strong, non-linear, statistically robust relationship with GDP per capita.
“Basics” here means what you’d expect: things like child mortality, nutrition, access to clean water and sanitation, shelter, primary and secondary schooling, and life expectancy. The floor of what a decent human life requires.
They construct multiple measures of the basics using entirely different methods, then compare them to GDP per capita. They also run three deliberate “data undermining” exercises to search specifically for indicators and weights that minimize their relationship to GDP per capita, to find the weakest possible result.
What they find is that regardless of how you measure the basics of human wellbeing (the Legatum Prosperity Index, the Social Progress Imperative’s Basic Human Needs index, the Oxford Multidimensional Poverty Index, or headcount poverty rates), the relationship with GDP per capita has four features that hold across every specification.
Ernie Tedeschi tweets: (HT Scott Lincicome)
Rising real net worth for people over their lifetime is par for the course. The typical Baby Boomer is indeed doing better than prior generations at the same age.
But, so too is the typical Millennial and Gen-Xer.
When National Economic Council Director Kevin Hassett called for an “FDA for AI” that would formally license frontier AI models, we warned against such an approach. The Trump administration subsequently walked back those comments. Yet, the U.S. may be on the road to something far worse.
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This latest USG action signals a change. It significantly escalates the centralization of control over advanced computation in our country. Like a recent Executive Order, the new export control demonstrates the rise of national security interests in regulating AI. Increasingly, the administration is treating AI like a weapon.
Various experts have questioned how the new “arbitrary, post-hoc system” of model-specific export controls blocking foreign nationals would even work. Anthropic chose the seeming only route to compliance by shutting down everyone’s access – and that may have been the government’s goal. Others have highlighted the important First Amendment concerns raised by these export controls, characterizing them as “a prior restraint on expression justified by speculative risk.”
It’s easy to be cynical about this story. No firm has done more to whip up a panic about frontier model capabilities than Anthropic. As former White House AI czar David Sacks has interpreted it, “Anthropic is running a sophisticated regulatory capture strategy based on fear-mongering. It is principally responsible for the state regulatory frenzy that is damaging the startup ecosystem.” In fact, just days before all this went down, Anthropic posted a new call for governments “to block or deter the deployment of models that pose a significant risk of catastrophic harm.”
Also warning of the dangers of the Trump administration’s latest move on AI is Kevin Frazier.
Jason Willick documents the late historian Gordon Wood’s influence on the U.S. Supreme Court. A slice:
Chief Justice John G. Roberts Jr.’s most significant opinion citing the historian is Moore v. Harper (2023) about how much leeway state legislatures have to set the rules of their elections. Progressives and the press feared the justices would unleash (presumably Republican) state legislatures to make partisan mischief, but Roberts wrote for a 6-3 majority that state courts could check the elected representatives.
After all, state courts after the American Revolution had to “impose restraints on what the legislatures were enacting as law,” as the chief justice quoted Wood. “Creation” shows how the founding generation blanched first at British royal authority in the 1770s, and then at the runaway state legislatures that came after American independence in the 1780s. That helps explain why Wood’s work might appeal to judges: The historian cast the Constitution as a bulwark against executive and legislative tyranny, and the courts at their best can restrain both.
In Philadelphia 250 years ago, Thomas Jefferson was commencing work on a writing assignment in the upstairs of a house at what is now Market and South 7th streets. A couple of hundred miles to the south, on this day in 1776 Jefferson’s patriotic pals approved a helpful first draft: the Virginia Declaration of Rights. There was one pal in particular, George Mason, who served as the lead author.
Speaking of Jefferson and the Declaration, here’s Michael Gibson:
Even before Jefferson drafted the Declaration, abolitionist action was under way. In 1775, American Quakers formed the first antislavery society in the Western world. Rhode Island and Connecticut freed any slave imported into their territory. Pennsylvania taxed the slave trade out of existence and abolished slavery in 1780; Vermont did so in 1777. The First Continental Congress banned the slave trade in 1774, though the issue later reverted to the states. In the 1780s, enslaved people in Massachusetts won their freedom by arguing before the state’s highest court that slavery violated their rights as free and equal men.
True, nationwide emancipation would not come for nearly another century, and only at immense cost and tragedy. The setbacks were many and horrific. Yet it must also be acknowledged that slavery’s eventual dismantling began only because the philosophy of the American Revolution contained the seeds of its destruction. The Declaration was foundational.
Megan McArdle – reflecting on the primary victories of the execrable Ken Paxton in Texas and the execrable Graham Platner in Maine – writes wisely about politics and principles. Here’s her conclusion:
What’s that, you say? Politics ain’t beanbag?
Republicans have been saying so for 10 years and it’s gotten them only grief. Many have kept their jobs, but at great cost. They’ve been left with a badly weakened party that will either struggle to win elections or need to rebuild itself as something other than a cult of personality. Their jobs now mostly consist of explaining the inexplicable and defending the indefensible.
It’s a pity to sell your soul for power. It’s an embarrassment to sell it for nothing.
… is from page 88 of Art Carden’s and Ilia Murtazasvili’s paper “W.H. Hutt: An Economist for the Twenty-First Century,” which is a chapter in the 2026 book Unsung Heroes of the Market: The 24 Underrated Economists You Need to Know – a volume edited by Robert Whaples, Christopher Coyne, Gregory Robson, and Diana Thomas [original emphasis; footnote deleted]:
His [Hutt’s] criticisms of strike-threats were grounded in his conviction that it was impossible to transfer wealth and income from capitalists as a class to workers as a class for several reasons. First, workers who saved and invested were themselves capitalists. Second, any gains workers enjoyed from the strike-threat system came at the expense of other workers who were shut out of the market and consumers who were paying higher prices. Throughout [Hutt’s 1973 book] The Strike-Threat System, he argued that the system’s apologists failed to answer the important ethical question about why one class (investors) should be expropriated for the benefit of another class (workers), noting further that “the easy assumption that investors are rich and workers poor is rather dubious today.” With so many Americans owning the means of production through pension funds and retirement accounts, it is even less clear in the twenty-first century.
DBx: Indeed so.
W.H. Hutt (1899-1988) was one of the finest economists – and most consistent advocates of liberalism – of the past 100 years. His work, unfortunately, is not well known. Also unfortunately, over the past few years Hutt has become the target of libelous accusations issued by pseudo-scholars who are hell-bent on falsely portraying Hutt as an illiberal racist in order to have a straw man to destroy in their dogmatic war against the liberal market order.
Michael Dresdale writes wisely about charges of oligarchy in the U.S. A slice:
The danger of the left’s embrace of the oligarchy thesis is that it risks blinding the public to a genuinely valuable aspect of American capitalism. “Oligarchy” does fairly describe many economies, past and present. The Economist’s crony-capitalism index captures the difference: It measures the share of a country’s billionaire wealth drawn from state-dependent, rent-heavy sectors — telecoms, mining, casinos, defense — against the share generated in competitive ones. Unsurprisingly, the 2023 rankings put Putin’s Russia at the top, with crony wealth equal to 19 percent of GDP. In the United States, the figure was 2 percent.
The left blurs this distinction, treating inequality as equally condemnable whether it springs from cronyism or from competition. Representative Alexandria Ocasio-Cortez’s (D., N.Y.) insistence that there is no ethical way to amass a billion dollars underscores the point. Earning a billion dollars — or many times that — by building a company that hundreds of millions of people freely use is a supremely pro-social act. Of course, we can debate in good faith how much a productive billionaire ought to pay in taxes. But our scorn should be reserved for those whose path to wealth runs through a Machiavellian climb into the inner rings of power, only to use that proximity to exploit their fellow citizens rather than serve them.
One of the strongest criticisms of the Trump administration is that it, too, is blurring the lines between these two modes of capitalism through the intense personalization of the executive branch. As the Wall Street Journal has documented, Trump has taken a personal hand in the Food and Drug Administration’s drug approvals, the Federal Trade Commission’s merger reviews, and the Federal Communications Commission’s authority over broadcast licenses. The administration can offer a plausible rationale for any one of these interventions. Cumulatively, though, they leave a different impression — that the administrative state’s technocracy has been restored to a clientelist species of democratic control. Unsurprisingly, spending on lobbying targeting the White House has surged to record levels.
First comes more evidence that the lockdowns driven by teachers unions hurt student learning. Math and reading performance for 13-year-olds stagnated between 2023 and 2025 on the NAEP’s long-term trend assessment—which isn’t the same as the traditional NAEP exam—the Education Department announced Wednesday.
These children were in elementary school when Covid hit. Their scores in both subjects are lower than in 2020, before the pandemic. Some 58% performed at an intermediate level in reading in 2025 compared to 63% in 2020. In math, 70% could do “numerical operations and beginning problem solving” in 2025, down from 79% in 2020. Teachers union chief Randi Weingarten has a lot to answer for.
The news is better for 9-year-olds, who weren’t in school in 2020. Their scores went up from 2022 to 2025 in reading and math. Some 71% demonstrated at least “partially developed” skills in reading and 84% showed “beginning skills” in math in 2025, up from 67% and 80% respectively in 2022. Their reading scores caught up to 2020 levels, though they remain three points lower in math.
It’s notable that much of the 9-year-old rebound came from the lowest-performing students. That could be because the pandemic had “more dire consequences for the lowest scorers,” says Nat Malkus of the American Enterprise Institute. Those consequences aren’t affecting the 2025 cohort.
But the data also add to the evidence of a concerning long-term trend. With the exception of 9-year-old reading, which is about the same, scores for all age groups and subjects are lower than in 2012—including by 15 points in math for 13-year-olds. That comports with declining scores over the past decade on other tests like the traditional NAEP exams and the ACT.
The Journal’s editorial board is right to be wary of Pope Leo XIV’s embrace of government in his new encyclical “Magnifica Humanitas” (“Pope Leo’s AI Manifesto,” Review & Outlook, May 28). The Holy Father hasn’t upheld the long papal tradition of rejecting the false binary of the day.
In the 1891 encyclical “Rerum Novarum,” Pope Leo XIII railed against certain abuses of industrial capitalism and defended the dignity of workers before turning with equal seriousness to the socialist response then on offer.
Forty years later, Pope Pius XI, in “Quadragesimo Anno,” criticized concentrations of capital amid the widespread destitution during the Great Depression, but he also criticized the totalitarian responses sweeping Europe.
In “Centesimus Annus” in 1991, Pope St. John Paul II named the errors of “real socialism,” and then turned to the potential risks of “a radical capitalistic ideology.”
Pope Leo could have confronted the current false binary of unfettered artificial intelligence versus unfettered government control of this technology. Yet “Magnifica Humanitas” is more likely to encourage those who would stifle progress with state power. As a faithful Catholic, I hope Pope Leo’s next encyclical restores the balance that befits such important moral documents.
Mike Munger tweets: (HT Scott Lincicome)
Econs of the Left, 1976: “Socialism is better than Capitalism for Growth!”
Econs of the Left, 2026: “Socialism is bad for growth, and that’s good!”
… is from page 401 of Michael Oakeshott’s 1948 essay “The Political Economy of Freedom” as this essay is reprinted the 1991 Liberty Fund collection of some of Oakeshott’s work, Rationalism in Politics and Other Essays:
Collectivism is indifferent to all elements of our freedom and the enemy of some.
DBx: Although he understates the portion of our freedom to which collectivism is an enemy, Oakeshott is correct that – contrary to the wishful thinking of so many progressives – collectivism by its nature is no friend of individual freedom. Collectivism necessarily suffocates individual freedom. Trusting collectivism to protect and nurture individual freedom makes no more sense than trusting a hungry shark to protect and nurture a seal.
Mr. Charles Benoit
Coalition for a Prosperous America
Mr. Benoit:
In your attempt to justify punitive taxation by the U.S. government of Americans’ purchases of imports, you get much wrong, both economically and factually (“Adam Smith’s Enemy Was the East India Company, Not the Tariff of 1789,” June 12). Here, though, I address only one of your errors – namely, your insistence that Scott Lincicome erred in suggesting that Adam Smith would have opposed U.S. protectionism.
If you read – in full – Smith’s Inquiry Into the Nature and Causes of the Wealth of Nations, you’ll find that, while Smith did indeed powerfully oppose the British East India Company, his case for free trade went far beyond opposition to monopoly trading companies. Smith was an ardent free trader who would have warned against the protectionism in America that you celebrate.
This fact about Smith is perhaps best established by pointing to his four, and only four, exceptions to his case for free trade: national security; using tariffs to pressure other governments to lower their duties; ensuring that imports are taxed at the same rate as domestically produced substitutes; and sometimes removing tariffs gradually, rather than all at once, in order to ease workers’ adjustment to a free-trade regime. None of these exceptions justifies what you allege Smith would support: a permanent tariff wall around a nation.
Furthermore, the Wealth of Nations is filled with passages that are impossible to square with your attempt to portray Smith as a man who would have supported protectionism. Here’s just one example:
All systems either of preference or of restraint, therefore, being thus completely taken away, the obvious and simple system of natural liberty establishes itself of its own accord. Every man, as long as he does not violate the laws of justice, is left perfectly free to pursue his own interest his own way, and to bring both his industry and capital into competition with those of any other man, or order of men. The sovereign is completely discharged from a duty, in the attempting to perform which he must always be exposed to innumerable delusions, and for the proper performance of which no human wisdom or knowledge could ever be sufficient; the duty of superintending the industry of private people, and of directing it towards the employments most suitable to the interest of the society.
You may disagree with Smith, thinking him to have been mistaken to support free trade. But you cannot credibly assert that he would have supported American protectionism.
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
The first problem lies in how Messrs. Saez and Zucman measure taxable wealth. Under the U.S. system, taxes are generally assessed on income earned over the course of a year. Since 1920, federal tax law has followed the realization principle, meaning that income must actually be realized as earnings before it can be taxed. Messrs. Saez and Zucman instead propose taxing estimated changes in a person’s net worth—including unrealized capital gains that exist only on paper. If a billionaire’s stock portfolio rises in value, they want to tax the appreciation even if the assets are never sold.
Unrealized gains are notoriously volatile and speculative. They can disappear overnight with a market downturn. Federal courts have long viewed taxes on unrealized gains as constitutionally dubious, which is why Messrs. Saez and Zucman have shifted their efforts to the state level. California’s proposal is an attempt to circumvent the constitutional constraints that would doom a federal wealth tax.
Another problem is even more basic: The underlying wealth estimates are deeply unreliable. Because billionaire tax returns are private, Messrs. Saez and Zucman rely heavily on outside estimates of billionaire wealth. One of their favorite sources is the Forbes 400 list.
What they rarely acknowledge, though, is that the Forbes rankings were never designed to function as a tax database. The list has long suffered from what might be called the Donald Trump Problem. In the 1980s and ’90s, Mr. Trump repeatedly called Forbes reporters, at least once under a fake name, to lobby for higher estimates of his fortune.
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At the same time, they artificially inflate the tax burden borne by lower-income Americans. The federal income tax is intentionally progressive, and one of its most important antipoverty mechanisms is the Earned Income Tax Credit. The EITC frequently reduces federal income-tax liability for low-income workers to zero and in many cases provides net refunds.
Messrs. Saez and Zucman simply omit the EITC from their calculations. That creates the illusion that low-income Americans pay far more in taxes than they actually do. Harvard economist Jason Furman finds that the bottom 20% of Americans face an overall combined tax burden of approximately 11%—less than half the figure Messrs. Saez and Zucman claim.
The billionaire-tax movement depends heavily on stoking public outrage fueled by misleading statistics. Americans should be skeptical anytime activist academics present enormously complicated tax calculations as simple moral certainties.
It’s worth noting that Piketty, Saez, and Zucman have been repeatedly caught by economists across the political spectrum, including Obama’s Treasury Secretary Larry Summers, inflating wealth-concentration figures, using nonstandard methods to manufacture desired, errors, and in at least one case quietly scrubbing prior data from the internet when new numbers told a more convenient story. Their work is less a research program than policy advocacy dressed up in academic clothing.
In this case, their paper argues that the California billionaire wealth tax could raise around $100 billion, and that mobility responses would be manageable. But Josh Rauh has run the same numbers and arrived at a sharply different conclusion. Jack Salmon and I have written about this matter in the past, but here is the basic problem with the Saez-Zucman projections: they counted billionaires who had already left. Larry Ellison departed California in 2020. Larry Page and Sergey Brin left before the proposed liability date of January 1, 2026. These departures were public record. Yet the Berkeley paper’s $100 billion figure does not adequately account for a tax base that was already walking out the door before the vote was cast.
Rauh’s team found that those confirmed departures alone reduce projected revenues by nearly 40% before a single dollar is collected. Apply the mobility elasticities that the academic literature actually supports. Factor in the future California income taxes permanently foregone from departed taxpayers, and the tax produces a net present value loss to the state of at least $25 billion.
These economists should know better, because the French government has already run this experiment. Encouraged by Piketty and Zucman, France tried to tax the very rich. From Fortune: from 2000 to 2017, around 60,000 millionaires chose to leave the country. The revenue collection took a hit. France largely repealed its wealth tax in 2018.
Elon Musk is the world’s first trillionaire. I think that this is marvelous.
Many of our public officials, it seems, do not. California’s governor, Gavin Newsom, responded to the news by saying that “the rich get richer and everyone else gets shafted.” Senator Ed Markey complained that it was “disgusting.” Senator Elizabeth Warren suggested that it was a “wake up call.” Would-be Senator Graham Platner wrote that “Elon Musk just became the world’s first trillionaire. Let’s make sure he’s also the last.” And so on and forth.
I find this viewpoint revolting. Repulsive. Grotesque. Un-American. I hate it. As far as I’m concerned, Newsom, Markey, Warren, Platner, and those who agree with them are members of an impotent envy cult. Elon Musk has been responsible for PayPal, Starlink, Tesla, SpaceX, Neuralink, and more. If your primary reaction to his stewardship of these endeavors is to wonder how quickly you can confiscate the money he has tied up in them, you are a loser and you do not deserve the blessings that this country has bestowed upon you. That sort of thinking is at home in Belgium or Canada or Russia. It is not at home in the United States of America. There are many, many reasons that I wanted to move to this country, and one of them is that it is the sort of place where people such as Elon Musk are able to do great things. England has become sclerotic and its politics have become narrow and covetous. But America? America is a different beast. Elon Musk is the world’s first trillionaire? Hell yeah he is.
But SpaceX has pioneered innovations in space travel that very recently seemed like science fiction. “SpaceX’s ability to lower launch costs by roughly 90 percent—through reusable first-stage boosters, but also a vertically integrated manufacturing process and a high-cadence flight rate—is mega innovation equal to any of the past quarter century,” writes James Pethokoukis of the American Enterprise Institute. “That massive cost decline, with another 90 percent or more potentially on the way through full reusability, has fundamentally altered the economics of space and finally made possible the dreams of the original Space Age: orbital cities, deep-space habitats, space-based solar, asteroid mining.”
Besides, economics is not zero-sum. Musk’s balance sheet growing to a trillion dollars does not mean other people lose money; it means the economy as a whole is growing.
And growing economies are good for everybody, not just the uberwealthy: Between 1990 and 2025, the global share of people living in “extreme poverty” declined by nearly two-thirds, from 2.31 billion to 808 million, even as the global population increased by nearly 3 billion—an accomplishment J.D. Tuccille called “nothing short of miraculous.” It’s not a coincidence that over that same period of time, global gross domestic product (GDP) roughly quadrupled, boosting countless thousandaires into millionaires and millionaires into billionaires in the process.
Peter Earle, too, writes about Elon Musk becoming a trillionaire. A slice:
That Elon Musk is an immigrant to the United States who arrived without wealth, status, or elite connections in America will likely be lost amid the inevitable class-warfare point-scoring. Less remarked upon is that the companies he has founded or helped build — including Tesla, Inc. (134,000), SpaceX (22,000), Neuralink (300), xAI (1200), X (formerly Twitter) (1000), and The Boring Company (400) — now collectively employ on the order of 150,000 people worldwide, directly supporting a workforce larger than many midsized American cities. The temptation will be to generate interpretations of such a milestone in resentment-driven, zero-sum political terms. The more useful and accurate lenses are both financial and structural. An individual with a trillion-dollar net worth ultimately reflects markets allocating vast amounts of equity capital not to an individual, but toward uncertain but potentially transformative ideas; and, in the process, generating benefits extending across billions of lives and potentially generations beyond.
GMU Econ alum Dominic Pino tweets: (HT Scott Lincicome)
Today is a great example of why taxing unrealized gains is insane.
If Musk had to face a massive tax bill for paper gains from taking SpaceX public, he likely wouldn’t have done it, and the wealth SpaceX creates would be more concentrated in his hands.
Jim Bacchus criticizes Trump’s latest economically ignorant outburst about trade.
… is from page 313 of Richard Salsman’s 2021 book, Where Have All the Capitalists Gone? [original emphasis]:
Mr. Trump also repeatedly words his policy as “slapping tariffs on China” and others that export to America, but of course it’s Americans – importing households and firms – who pay his tariffs. In this way, Mr. Trump is a tax-hiker.
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