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… is from page 120 of Eamonn Butler’s excellent 2021 book, An Introduction to Trade & Globalisation:

Economic change is a constant process. Candlemakers were put out of business by gaslights, livery stables by motor vehicles, typesetters by computers, and many shops by online retailers. Artificial intelligence will revolutionise yet more industries. But despite the disruption brought for some, such progress delivers huge improvements to the lives of the general public – which is the whole purpose of production in the first place. Trade simply accelerates this inevitable and beneficial process.

DBx: Yes. But I pick one tiny nit: This process is inevitable only if markets are sufficiently free and property rights sufficiently secure. (I’m sure that Eamonn agrees.)

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Here’s a note to an economics student in Taiwan.

Ms. Chen:

Thanks for your kind words about my blog post that Alex Tabarrok generously shared at Marginal Revolution.

You’re astute to recognize that an increase in national savings – which you understandably call “the text book solution to trade deficits” – won’t necessarily eliminate a country’s trade deficits. Equally astute is your observation that “the text book solution takes investment in a country as something which just happens, leaving the only thing to be determined is who is going to fund the investments with their savings.”

Yes! This point is fundamental but distressingly ignored, even by many economists. The amount of investment in a country is conventionally treated as a macroeconomic phenomenon. That’s a mistake. The amount of investment in a country is, in my view as in yours, far less a macroeconomic phenomenon than a microeconomic one.

Investment is determined by countless microeconomic forces at work, including the weight of regulations and taxes, the security of property and contract rights, the quality of infrastructure, the efficiency of financial and labor markets, and the size and openness of the domestic economy. A country that scores relatively well on these fronts will attract large amounts of global capital – and much of this capital comes along as complements to entrepreneurial ideas.

Domestic investment – whether done by fellow citizens or foreigners – is not, contrary to how it’s too often treated, an exogenous variable that’s funded with foreign savings only because domestic citizens don’t save enough (as is often said) “to fill the gap.” It follows that an increase in domestic savings is just as likely to increase the domestic trade deficit – say, by making the domestic economy even more productive – as to decrease it.

Alex rightly writes that “the trade accounts are among the most pernicious statistics ever collected” – perniciousness that’s fed by flabby macroeconomic thinking. (Although he’s hardly alone, one of the worst offenders on this front is Michael Pettis.)

I’m encouraged that an economist-in-training such as yourself thinks smartly about trade and trade ‘deficits.’ Keep it up!

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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Sen. Mark Kelly (D-AZ) might have been excellent at astronauting, but he’s lousy at economics – as explained by the Editorial Board of the Washington Post. Two slices:

The core of Kelly’s plan is to declare the cost of living a national emergency for 180 days. He would create a new Cost-of-Living Emergency Office inside the president’s Council of Economic Advisers. The chair of the council would then appoint new special advisers to oversee groceries, housing, utilities, health care, transportation and wages.

Those czars would each assemble a task force. They would meet at least once every seven days and prepare a weekly report about costs in their purview. They would also hold regional listening sessions and publish reports about those as well.

The CEA would write a report every three months containing statistics that other government agencies already collect and report on household budgets.
The Office of Information and Regulatory Affairs in the White House would require each agency to prepare a statement about whether new regulations might affect household costs or benefit large corporations.

The attorney general and the Federal Trade Commission would form a joint task force to enforce “price-gouging” laws. This task force would also have a mandate to issue lots of reports.

…..

The bill says that the president’s production commands must be supported by empirical data. That’s hardly any comfort. The Soviet economic planning agency, Gosplan, had a massive computer system to process all the data any economic planner could ever want. The problem is the act of central planning in the first place.

With his penchant for taking stakes in companies and unilaterally imposing taxes, Trump already has some of the qualities of an ambitious central planner. That he is the president who would exercise this authority doesn’t seem to trouble Kelly as much as it might other liberals.

Americans would benefit from a politician with a plan to ease cost-of-living concerns who doesn’t think that even more government intervention in the economy is the answer. Clear-cutting a forest to print out stacks of reports no one would read, combined with six months of socialism, won’t do the job.

Here’s the abstract of a new paper by Charles Calomiris and Matthew Jaremski on the political economy of financial crises:

Financial crises remain a recurrent feature of modern economies despite evidence that many are predictable and preventable. This chapter discusses how financial instability often reflects a political equilibrium rather than purely technocratic shortcomings. Contrasting economic and political perspectives on regulation, the chapter emphasizes how policymakers shape financial rules in ways that favor politically-influential groups but result in financial vulnerability. Key mechanisms include restricted bank chartering, safety nets, credit subsidies, and sovereign borrowing. Political forces also shape crisis management. Delayed interventions, selective support, and constrained policy responses can deepen and prolong crises. Together, these dynamics help explain the persistent and foreseeable nature of financial instability across time, legal origins, political structures, and institutional contexts. Instead of seeing financial crises as arising from an unavoidable vulnerability to external shocks they are better seen as a mirror of the societies in which they occur, reflecting their political structures, vying constituencies, cultural preferences, and blind spots.

My Mercatus Center colleague Jack Salmon counsels humility about what we can and can’t know about how carbon emissions affect the economy.. Two slices:

One of the most striking features of modern climate economics is not consensus, it’s dispersion. Depending on which paper, model, or administration you consult, the economic damages from climate change range from modest to catastrophic. The “social cost of carbon” alone has swung wildly, from roughly $190 per metric ton of emissions under the Biden administration to effectively zero under Trump.

A new paper by Finbar Curtin and Matthew Burgess, “The Empirically Inscrutable Climate-Economy Relationship,” argues that this dispersion is not a temporary problem awaiting better data or cleverer econometrics. It is, instead, a fundamental and irreducible feature of the enterprise. Their conclusion is uncomfortable: we cannot reliably estimate the macroeconomic damage from climate change using historical data.

…..

If the underlying relationship cannot be reliably identified, then there is no single “correct” social cost of carbon. The wide range of estimates is not a temporary inconvenience but reflects a deep uncertainty that cannot be eliminated with better data or more sophisticated models.

Rather than pretending that we can fine-tune climate policy based on precise damage estimates, we should acknowledge the limits of our knowledge. This pushes us toward a framework of decision-making under deep uncertainty, where robustness, resilience, and flexibility take precedence over point estimates and optimal control.

There’s a broader takeaway here, one that extends beyond climate economics.

Policymakers often demand precise numbers, whether it’s the fiscal multiplier, the elasticity of taxable income, or the social cost of carbon. Economists, in turn, are tempted to provide them, even when the underlying uncertainty is substantial.

On this 40th anniversary of a famous disaster, Ron Bailey makes clear that “Chernobyl wasn’t a nuclear disaster — it was a communist disaster.” A slice:

Behind the bad design and human error at Chernobyl, a deeper pair of problems was lurking: central planning and totalitarian secrecy.

The Soviet system put economic decisions in the hands of planners far removed from both the data people need to make decisions and the immediate consequences of their actions. Gosplan, the economic planning bureau, initially determined that nuclear power was unnecessary because the country had more than enough fossil fuels to produce electricity. When it became clear in the late 1960s that they had miscalculated, the energy planners rushed the development of nuclear power. In the process, they neglected to include the containment buildings used in the West, which are designed to prevent the escape of radioactive materials even during severe accidents.

Containment, you see, would have increased the costs of the plants by 25 percent to 30 percent. The “leaders of the Soviet energy sector faced a choice between disrupting the Party’s five-year development plan if they built expensive nuclear facilities or abandoning the project altogether,” a group of Russian researchers noted in 2025 (originally in Russian). “Priority was given to the solution that was safe for the officials, but which subsequently created a threat to people’s lives.” After the disaster, an IAEA engineer told the Los Angeles Times that if the Chernobyl reactor had been housed within a standard Western-style containment structure, “it probably would have made a huge difference.” Even if an explosion breached a containment structure, most of the radioactive particles would nevertheless have been trapped.

My Mercatus Center colleague Gary Leff argues that Trump’s “plan to bail out Spirit Airlines is illegal.”

Stanford law professor Michael McConnell explains that the U.S. Supreme Court’s “shadow docket” is “an inevitable result of the controversial use of executive power.” Two slices:

“Shadow docket” is a pejorative label for the court’s method of deciding whether a government policy may stay in effect while challenges work their way through the system. Such decisions are made on a limited record, without full briefing, argument or final judgment from the lower courts — and, until recently, usually without a written explanation. In another era, the court tended to defer to the executive branch’s judgment of the public interest and to lower courts’ decisions about these matters.

No more. Now the court makes its own judgment about a challenge’s probability of success on the merits and which side is most likely to suffer “irreparable harm” if the underlying policy persists while litigation grinds on. Both halves of that judgment are often contestable. In the “shadow docket” cases that attract attention, the justices often disagree with lower court judges — or, very often, among themselves.

…..

Many shadow docket decisions are subject to legitimate criticism, but the wholesale condemnation of the practice is misguided. Such cases are driven by the practical reality that it takes months if not years for a case to wend its way through the judiciary. Whether a policy is implemented while the case is litigated is often the whole ballgame. By the time it gets to the Supreme Court, the harm is already done.

Yes! – But what should happen is too seldom what does or will happen when decision-making is political.

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… is from page 815 of Richard Nelson’s and Richard Langlois’s February 1983 Science paper titled “Industrial Innovation Policy: Lessons from American History”:

A quick reading of the case studies is enough to dash any supposition that technological change is somehow a cleanly plannable activity. In fact, it is an activity characterized as much by false starts, missed opportunities, and lucky breaks as by brilliant insights and clever strategic decisions. Only in hindsight does the right approach seem obvious; before the fact, it is far from clear which of a bewildering array of options will prove most fruitful or even feasible. Strange as it now seems to us, aviation experts were once divided on the relative merits of the turboprop and turbojet engines as power plants for the aircraft of the future; and the computer industry was by no means unanimous that transistors – or, later, integrated circuits – were to be the technology of the future. Policy must recognize uncertainty as a fact of life, and must not try to repress or analyze it away.

DBx: Yep. And, therefore, overwhelming skepticism is in order whenever you hear some pundit, professor, or politician talk about using tariffs or subsidies, or some combination of the two, to nurture the “industries of the future” or otherwise to steer the economy along some path that’s neatly described by that pundit, professor, or politician. Unless you can convince yourself that tarot-card readers and astrologers are sufficiently scientific as to warrant giving their predictions the benefit of the doubt, you should look with disbelief upon those persons who advocate using industrial policy as a means of improving the overall economy.

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… is from this recent post at Marginal Revolution by my colleague Alex Tabarrok:

The trade accounts are among the most pernicious statistics ever collected.

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Ryan Bourne and Nathan Miller remind us that “greedflation” is economics that’s every bit as lousy when it’s peddled by the Trump administration and Congressional Republicans as when it’s peddled by progressives, democratic socialists, and Democrats. A slice:

But corporate greed or price gouging has never been a plausible theory of price changes, let alone inflation. Corporations with substantive market power don’t need pretext. They can always extract high prices by artificially limiting supply. And firms without market power that try to pocket a windfall invite undercutting by rivals; that’s especially true of hypercompetitive retail gas stations. When prices rise simultaneously across an entire industry—nay, across the entire world—the far simpler explanation is either a demand shock or a common cost shock—precisely the sort a war-driven supply shock produces. Consumers have to be willing and able to pay the higher prices, after all.

A lot of politicians around the world seem to get upset if prices for retail gas spike on inventory that was acquired at lower cost. They regard that as unfair “gouging.” Few of them, I suspect, insist on selling their homes for the price they paid for them. But fundamentally, this misunderstands the role of market prices, which reflect the relevant scarcity of the products in each new context. The opportunity cost for firms of selling oil below what the market will bear today is the price that could be obtained elsewhere in the world. Firms also need to replace inventory at the new market price. So, yes, they might make a short-term accounting profit on some inventory, but this is quite transitory.

Timothy Taylor shares insights from Richard Baldwin’s new monograph, World War Trade. Two slices:

We have been living through the silly season of Trump’s tariff policy for some months now. Baldwin lays out the details: here’s my own summary. The Trump administration has made innumerable announcements about tariff policy, and you will be stunned to learn that every single one of them is a greater triumph than the one before, natch. High announced tariffs? A triumph. Announcing an agreement that would reduce those tariffs? Another triumph. Creating exceptions and loopholes in the lower tariffs to ease the pain on US consumers and on US firms importing inputs to production? Yet another triumph. Announcing a new round of high tariffs? One more triumph. A new tariff policy has a completely different reason than the previous tariff policy? Yet another triumph of statesmanship. Indeed, every time a previous tariff policy is changed, or even abolished, it simply demonstrates that all previous tariff policies were triumphs. Then the US Supreme Court ruled that most of the tariffs imposed since April 2, 2025, were all unconstitutional to begin with. And President Trump reacted by imposing yet another round of tariffs with another pretextual legal rationale.

As US manufacturing firms struggle to deal with higher prices and cutoffs and heightened uncertainty of their global supply chains for inputs, and US consumers face higher prices as a result of tariffs, what’s the rest of the world doing? Baldwin argues persuasively that other nations of the world are pursuing regional free-trade agreements that pointedly leave out the United States–so that US firms have no voice in the negotiations. Baldwin calls it the “domino theory of regionalism,” which is the idea that regional free trade agreements benefit those who are inside, and thus disadvantage those who are outside. Every time an outsider decides to join up, it’s one more domino falling into place.

…..

Baldwin writes of Trump’s “Liberation Day” tariffs announced on April 2, 2025: “Donald Trump’s Rose Garden tariffs were historic in the most disruptive sense of the word. By raising tariffs on almost everything from almost every nation, he broke most of the trade promises America had ever made.” That epic level of promise-breaking will echo into the future of US diplomacy on all subjects.

Alan Beattie compares Tariff Man to Nixon. Two slices:

Donald Trump came into office as the self-styled “Tariff Man” superhero who would tear apart global trade and refashion it under the muscular doctrine of America First. He seems likely instead to be remembered as the supervillain “Epic Fury”, who set the Middle East ablaze and endangered worldwide prosperity and the US’s standing with it.

A year on from his supposed “liberation day”, which imposed sweeping tariffs across the board, Trump has certainly delivered a rupture from the multilateral system which came before. But rather than regressing to the protectionism of the 1930s — not least because other countries have declined to join in — he seems to have stumbled back only to the early years of President Richard Nixon.

…..

Two Republican presidents who started with a somewhat similar attitude to trade both hit the real-world limits of fighting a trade war. Yet it’s revealing how toxic the US attitude to trade has become that the 1970s original shifted towards liberalisation bounded by agreements, while the 2020s redux continues to regard open and rules-based trade with unremitting hostility. It’s not often that historians look back to Nixon’s presidency with nostalgia, but his legacy seems like a golden era of multilateral openness compared with the destructive economic nationalism of Trump.

James Pethokoukis tweets this line from this report in The Economist:

‘Here is an uncomfortable truth for hand-wringing policymakers: Europe’s dependency on America is in no small part Europe’s own fault. Decades of over-regulating the old continent’s economy left businesses there unable to compete with American firms’

Inspired by Nicholas Eberstadt’s research, George Will warns of the ill-consequences to come from America’s population decline. A slice:

America, Eberstadt says, has had “the most robust demographic growth of any developed society.” The Social Security Administration, predicting what it must desperately desire, projects another 100 million Americans by 2100. But intractable pathologies — including government’s fiscal incontinence and “pay-as-you-go entitlements” — spell catastrophe for a nation with an upside-down “population pyramid,” where each generation is smaller than the previous one.

“Who is Hasan Piker?” – Jim Geraghty has the unattractive answer.

Also writing about Comrade Piker and his ethically challenged ilk is Reason‘s Robby Soave. A slice:

Stealing is bad, and you shouldn’t do it. It’s really as simple as that. Children understand this, even from a young age, and it’s taught to them by their parents, grandparents, teachers, and other mentors. Some people, of course, find themselves in desperate circumstances, and are forced to steal to survive. We may empathize with them, and we may even decide that their situation mitigates the blameworthiness of the offense. That doesn’t change the wrongness of stealing, though. If you catch your kids snatching a candy bar from the grocery store checkout line, you invariably punish them. You don’t commend them for striking a blow against capitalist oppression.

Enter leftists Hasan Piker and Jia Tolentino, who have been roundly and deservedly mocked on social media after participating in a podcast interview for The New York Times titled “The Rich Don’t Play By the Rules. So Why Should I?” Already, we are on shaky ground here, since the headline—a direct quote from host Nadja Spiegelman—positions Piker, Tolentino, and Spiegelman as a trio of people that should be contrasted with the rich. This is ridiculous: All three are members of the wealthy, successful, cultural elite. Spiegelman is a culture editor for the Times, an author, a cartoonist, and the daughter of legendary cartoonist Art Spiegelman (creator of Maus, a well-known graphic novel about the Holocaust). Tolentino is a relatively famous feminist writer of not-exactly modest means. Piker is a wildly successful far-left Twitch streamer and nephew of The Young Turks‘ Cenk Uygur, who gave him his start. Suffice it to say, these are not people who need to steal to survive.

And yet, their conversation includes a full-throated defense of shoplifting.

Peter Suderman watched Michael so we don’t have to.

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… is from page 150 of Columbia University economics professor Arvind Panagariya’s brilliant 2019 book, Free Trade and Prosperity:

In India, Bihar is the poorest state and Kerala one of the richest. Going by the Gini coefficient, Bihar is among the states with the least inequality and Kerala among those with the highest inequality. If people truly cared about inequality as measured by the Gini coefficient, we should expect them to migrate from Kerala to Bihar. Of course, the reality is quite the opposite: much of the migration is from Bihar to Kerala.

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On page 13 of their 2017 brief in support of “green industrial policy,” Tilman Altenburg and Dani Rodrik write:

However, it should be noted that consumers do not respond perfectly to price signals. Even when new products exist that are better in many ways and cheaper, many consumers stick to the bad old alternatives because they do not understand the situation well, because their neighbours have not changed or simply out of force of habit.

I know nothing of Mr. Altenburg, but I know much about Prof. Rodrik, who is among today’s most respected and prolific advocates of protective tariffs and other government interventions designed, in his view, to improve domestic economies.

So when I read the above-quoted passage, I wondered why Prof. Rodrik is so certain about his case for protective tariffs. After all, if it’s true that “many consumers stick to the bad old alternatives because they do not understand the situation well, because their neighbours have not changed or simply out of force of habit,” it’s unclear how much established domestic producers have to fear from new imports or from imports the prices of which have been cut. Stuck-in-their-ways consumers – whose numbers, according to Altenburg and Rodrik, are “many” – irrationally continue to purchase inferior goods even when better ones become available, and, rather than switch to lower-priced alternatives, continue indefinitely to pay higher prices for the goods these consumers are accustomed to buying.

While this alleged inertia on the part of many consumers isn’t sufficient to undermine the case for protectionism, it certainly makes that case less urgent and, depending on the strength of this inertia, might well make protectionism practically unnecessary (and it certainly is difficult to square with the so-called “China Shock”). The fact that, in other of his writings, Prof. Rodrik ardently endorses protectionism leads me to suppose that Prof. Rodrik regards consumers as being much more intelligent and rational than they are portrayed in the above-quoted passage.

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Here’s a letter to the Wall Street Journal.

Editor:

Rightly decrying Trump’s escalation of what you call his “tariff blitz,” you reveal – but don’t comment on – an internal contradiction in the administration’s excuses for punitively taxing Americans’ purchases of imports (“The Trump Tariffs Keep Coming,” April 24).

To justify these tariffs legally, the president imposes them under Sections 232 and 301, the former to protect U.S. national security and the latter to counter allegedly “unfair” trade practices. Yet Mr. Trump also boasts that his tariffs will raise enormous amounts of revenue. When properly used, however, Sections 232 and 301 keep tariffed imports out of the U.S., resulting in no revenues collected on those excluded imports.

If the purpose of the tariffs really is to enhance U.S. national security and counter “unfair” trade practices, it cannot also be to raise revenue. But if the goal instead is to raise revenue, then imposing these tariffs under Sections 232 and 301 is unlawful.

The administration either doesn’t see this contradiction, or it has such contempt for the intelligence of the American people that it thinks nothing of baldly expressing this contradiction. Either way, we Americans have no reason to trust anything this administration says or does regarding trade.

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