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… is from page 525 of F.A. Hayek’s brilliant Postscript – “Why I Am Not a Conservative” – to the Definitive Edition (Ronald Hamowy, ed., 2011) of Hayek’s 1960 volume, The Constitution of Liberty:

The chief evil is unlimited government, and nobody is qualified to wield unlimited power.

DBx: Indeed so.

Hayek was born on this date – May 8th – in 1899.

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Here’s a note to a second cousin of mine.

Prentiss:

Suspicious of my and other economists’ support for free trade, you offered at my Facebook page the following comment:

So we remove all our tariffs and trade restrictions. America buys cheap foreign stuff exclusively. All domestic production ceases. The only jobs are in medicine, education, government, retail (Amazon) and gardening. Did Adam Smith discuss this?

I understand that it’s commonplace in certain circles – on both the political left and right – to conclude that if we Americans eliminate our protectionist policies, we’ll end up impoverishing ourselves by importing lots of things at low prices as we produce only services. But this conclusion makes no sense.

Forget the difficulty of squaring a fall in the prices of things that people want to buy with impoverishment of those people. Forget also that the empirical evidence contradicts your prediction about U.S. production: As tariff rates from the end of WWII until about eight years ago steadily fell, U.S. industrial production rose, as did U.S. exports of goods. Forget, too, that, even as we imported more goods from abroad, more than half of the value-added of the manufactured goods that we purchase today (2023) remains American-made. Instead, let’s explore your argument’s logic.

If you mean (as do large numbers of people who I encounter) that elimination of U.S. protectionism will result in Americans importing lots of stuff and exporting nothing in return, then, well, that’s bizarrely unrealistic. Foreigners supply their exports to us in order to earn dollars to spend or invest in the U.S. If foreigners wanted nothing from us, they’d sell nothing to us. It follows that the more foreigners sell to us, the more they’ll buy from us. Further, just as economic theory predicts, as our imports rise, so too do our exports rise.

It’s silly to worry that foreigners will deluge us with gifts, expecting from us nothing in return. (By the way, if foreigners were ever to put Americans first in this way, that would be to our enormous advantage, just as it is to our advantage whenever technological innovations enable us to get more output from fewer inputs.)

But perhaps you instead mean that elimination of U.S. protectionism will result in Americans specializing fully in services (and not at all at producing tangible things), and paying for our imported goods by exporting services. Again, as an empirical matter this outcome is extremely unlikely, but – national-security concerns aside – there would be nothing to lament about this outcome if that’s where free trade takes our economy.

The highest-paying jobs are in the service sector – a big reason why the vast majority of Americans aspire to work in the service sector. What’s true for service-sector workers Taylor Swift and Warren Buffett (and also Don Boudreaux and Prentiss Davis), who are much wealthier than they’d be if they were forced to work in manufacturing plants, is true for most American workers. And to the extent that free trade would increase the demand for U.S. service-sector output, the productivity of Americans working in the service sector would almost certainly rise as would the real wages earned by those Americans.

This outcome would be applause-worthy.

But, to repeat, the fact that today (2024) two-thirds of American exports are goods alone makes it’s highly unrealistic to suppose that elimination of U.S. trade barriers would result in the American economy specializing completely in services.

…..

As for Adam Smith, he understood trade very well and, therefore, he would never have supposed that a country that imports more after freeing its trade would export less.

Sincerely,
Don

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… is from page 8 of Scott Lincicome’s and Huan Zhu’s superb September 2021 paper, “Questioning Industrial Policy: Why Government Manufacturing Plans Are Ineffective and Unnecessary”:

A core part of industrial policy’s knowledge problem is timing: because markets and personal preferences are constantly evolving, the facts (products, investments, supply and demand, etc.) on which an industrial policy is designed will inevitably be different than the facts that exist at the time it is approved, and they will likely change again (and again) upon implementation. Discovery is endless. Thus, history repeatedly has shown that the “critical technologies” (and suppliers) of today are often not so critical tomorrow, and only markets are flexible and nimble enough to reveal the difference. Planners don’t stand a chance.

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Here’s a letter to a new correspondent.

Mr. N__:

Thanks for your email in which you write: “Foreigners making it harder for us to export to them hurt us, which is good reason for us making it harder for them to export to us.”

Your position is understandable. Even Adam Smith recognized its kernel of validity. But that kernel is too tiny to serve as a practical justification for policy.

Start by recognizing that it’s inaccurate to say that foreign trade barriers hurt “us.” These barriers hurt some of us, but not all of us. They mostly hurt those of us who choose to supply goods that are produced more efficiently in larger rather than smaller volumes – that is, at larger rather than smaller scales. The harm inflicted by foreign trade barriers on those of us who do not choose to own or to work in such industries are, at most, tertiary and too minuscule to matter.

So then the question becomes: Will we benefit if our government retaliates against these foreign tariffs by imposing its own tariffs – which are, after all, punitive taxes on our purchases of imports? In theory, it’s possible that such “retaliatory” tariffs will pressure foreign governments to eliminate their tariffs and, thus, make everyone – and especially foreigners – better off.

I write “especially foreigners” because the bulk of the harm of protective tariffs, in practice, is suffered by the people of the country imposing the tariffs. It follows that the bulk of the benefit from the removal of tariffs is enjoyed by the people of the country that removes the tariffs.

Even if our tariffs successfully pressure foreign governments to remove their tariffs, it’s still unclear that our tariffs worked to our benefit. The reason is that our tariffs, for as long as they are in place, inflict unambiguous harm on us: We pay more as consumers; many of our producers pay more for inputs; and our resources are diverted from industries in which we have a comparative advantage into industries in which we have a comparative disadvantage – all of which reduces our rate of economic growth. (In addition, the willingness of government to use tariffs in this way diverts entrepreneurial attention into rent-seeking efforts.)

These self-imposed costs must be weighed against the benefits that some of us will enjoy if our tariffs persuade other governments to lower theirs. While it’s possible that the cost-benefit calculation works in favor of such retaliatory protectionism, the likelihood in practice that it will do so is vanishingly small. All trade policy is destined to be propelled, not by apolitical science but instead by special-interest politics. Further, even if by some miracle special-interest politics were eliminated, there’s no practical way for politicians to know when the (always speculative future) benefits of raising tariffs here at home will exceed the (always real and current) costs here at home. Such a determination would require detailed knowledge not only of the political decision-making of foreign governments, but also of how both domestic and foreign industries would change in scale and scope as a result of the tariffs and their removal. No human beings can hope to possess such knowledge.

The bottom line is this: Because no producer has a right to any minimum amount of guaranteed sales, and because there’s a powerful presumption that every income earner does have a right to spend his or her income in whatever peaceful ways he or she chooses, our government is justified neither in economics nor in ethics to violate the rights of some of us in attempts to drum up sales for others of us.

The strength of this conclusion only grows by recognizing that the principal beneficiaries even of successfully deployed retaliatory tariffs are not us – we are the people who pay most of the costs of such tariffs – but foreigners. It’s amusing that so many supporters of Trump’s tariffs imagine themselves as “putting America first” when, in fact, these supporters endorse policies that put non-Americans first by obliging Americans to pay for trade restrictions that benefit mostly foreigners.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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The Wall Street Journal‘s Editorial Board warns of the economic damage to Americans that is the unavoidable consequence of the Trump administration’s insistence on expelling from America that most valuable of resources: human labor. Two slices:

Restrictionists in the White House claim that deporting illegal immigrants will improve economic opportunities for U.S.-born workers. But job growth has slowed amid the Administration’s mass deportations, and a new study from the National Bureau of Economic Research finds they are harming American workers.

Economists at the University of Colorado, Boulder, examined employment changes in areas most affected by Immigration and Customs Enforcement (ICE) arrests—i.e., states and regions in which arrests doubled relative to their non-citizen population—in comparison to the rest of the country between January and October 2025.

First, they found a 4% decline in employment of undocumented workers, which comports with employer reports that raids have prompted immigrant workers to stop showing up. Some 28% of construction firms said in an industry survey last summer they were affected by the President’s stepped up immigration enforcement. “For every ICE arrest, 6 male likely undocumented workers stop working,” the NBER study estimates.

…..

It’s possible to support mass deportation on legal grounds, or in order to deny Democrats success in flooding the U.S. with illegal migrants every time they take power. But the claim that this helps American workers and the economy doesn’t hold up to scrutiny.

John Stossel argues persuasively that the war on data centers “doesn’t add up.”

Scott Lincicome declares intellectual victory for those of us who oppose the Jones Act. Two slices:

For more than a century, the Jones Act has survived on purported economic and security grounds. Its waiver by the Trump administration for Operation Epic Fury reveals serious flaws in both rationales.

…..

President Donald Trump’s most recent waiver of the law has substantially undermined the pro-Jones Act case. Issued for 60 days on March 17, 2026 – right after the Strait of Hormuz effectively closed – and subsequently extended for another 90, the waiver covers all US territories and more than 659 product categories. That makes it the longest and broadest waiver since 1950. The law also requires that any operator using the waiver file a compliance report on their activities. Here’s what the data thru May 6 show – and what they don’t.

First, the waiver exposes flaws in the law’s national security rationale. The Jones Act ostensibly exists to ensure the US isn’t dependent on adversaries to move critical supplies in times of crisis. Yet, even leaving aside that this “national security” law keeps getting waived when a genuine security emergency arrives, the waiver data tell a benign story. None of the foreign vessels moving millions of barrels of gasoline, diesel, crude oil, and fertilizer between American ports have been owned or operated by Chinese firms or have flown the flag of China. Russia is similarly absent.

The White House has called these vessels’ availability “incredibly effective” for stabilizing US energy markets. Thus, when a real crisis hit, allies and neutral registrants, not adversaries, filled the gap – a gap created by a withering Jones Act fleet of just 93 oceangoing vessels (only 55 tankers) and a moribund commercial shipbuilding industry that recently got bailed out by the South Koreans.

This letter by George Thomas in today’s Wall Street Journal is excellent:

Mr. [Joseph] Sternberg correctly observes that American-style productivity and entrepreneurship produce more prosperity than European welfare states can manage. He wonders whether Europeans will “have to confront their failure to generate enough growth to pay for social benefits.” Might they move toward the American model then? The movement, I fear, will be in the other direction. If Democratic socialists win U.S. elections, we will move to the European model with its lack of prosperity.

Robby Soave is right and Elizabeth Warren is wrong about Jeff Bezos’s tax payments. A slice:

Bezos’ wealth largely consists of the stock he owns in Amazon. When he cashes in shares of stock, he pays taxes. That’s how it works for everyone. It doesn’t make sense to tax people based on the theoretical value of the stock they own; that would mean taxing unrealized gains, i.e., the projected value of the asset before it’s sold. Even Rep. Ro Khanna (D–Calif.), a progressive and supporter of heavier taxation on billionaires, at one point understood that such a tax would discourage entrepreneurs from investing in their own companies and instead force them to sell off assets to private equity firms.

Mark Jamison writes wisely about the economically and factually ignorant thinking that fuels the new enthusiasm for active antitrust interventions. A slice:

For years, government officials, academics, and journalists have repeated a simple story. Antitrust enforcement weakened beginning in the 1980s, mergers surged, industries consolidated, and competition declined. That story now underpins much of antitrust.

Former President Barack Obama embraced it. His Council of Economic Advisers warned of rising concentration and declining competition. Biden went further, declaring decades of evidence-based antitrust policy a failed “experiment” that allowed large firms to accumulate excessive power. His adviser Tim Wu explicitly called for turning the page on the consumer-welfare framework associated with the Chicago School.

Even business journalism has echoed the theme. Reporting in The Wall Street Journal and elsewhere has frequently treated the mantra of rising concentration as established fact—sometimes suggesting that mergers, even small ones, are quietly eroding competition.

But there’s a problem: The empirical foundation for this narrative is deeply flawed.

One flaw is the use of the wrong data. Widely cited studies purported to demonstrate rising concentration often rely on census or other data that was never designed to measure competition. These studies group firms by production categories. But competition occurs in markets, not categories.

That distinction is not simply academic. As economist Carl Shapiro points out, under census definitions, all metal cans are grouped together, regardless of use. Yet paint cans and soda cans do not compete with one another. Meanwhile, glass and plastic soda bottles are placed in entirely different industries, even though they are direct substitutes. The result is a measure of “concentration” that often bears little relation to reality. Resulting studies treat shifts in firm size as evidence of market power, even when those shifts reflect efficiency gains and productivity growth.

Pete Earle explains that “AI won’t make money obsolete.”

National Review‘s Dan McLaughlin remembers the late Ted Turner.

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… is from page 30 of Timothy Sandefur’s 2014 book, The Conscience of the Constitution: The Declaration of Independence and the Right to Liberty [original emphases]:

The characteristic difference between rights and privileges is that rights are not held at the mercy of another person, or of the state. We deserve rights; we cannot be made to pay for them, and are not answerable to our neighbors or to the state when we exercise them. But privileges are given to us by one in a superior position, who retains authority to restrict or to eliminate those privileges. One cannot deserve a privilege, and one can be required to pay for it. To obscure this distinction and contend that rights are permissions issued by the state is to reject the basic proposition of equality articulated in the Declaration, and to presume that some people are fundamentally entitled to decide how much freedom others should enjoy.

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GMU Econ alum Julia Cartwright, writing in the Washington Post, explains that Spirit Airlines’s rise and fall is an example of the healthy process of market experimentation and creative destruction. Three slices:

By stripping fares to a bare minimum, Spirit routinely undercut legacy carriers, at times offering base rates 30 to 50 percent lower on comparable routes and forcing competitors to follow suit. That was the “Spirit Effect.” The company compelled incumbents to introduce “basic economy” tiers and restructure offers to compete for price-sensitive travelers. One Delta executive even referred to the company’s basic economy option as the “Spirit match fare.” When Spirit exited a route, fares jumped 5.7 to 22 percent, according to an analysis by TD Cowen.

Yet disruption doesn’t guarantee durability. Spirit struggled financially for years, and by its first Chapter 11 filing in November 2024, it had lost more than $2.5 billion since 2020. A second bankruptcy followed last August.

There were moments when intervention might have changed the outcome. In 2022, JetBlue offered to acquire Spirit for $3.8 billion, offering a potential lifeline. Yet the Biden administration’s Justice Department sued to block that merger, and in January 2024, a federal court agreed. U.S. District Judge William G. Young reasoned that the deal would harm cost-conscious travelers. Ironically, the antitrust action meant to protect budget travelers from higher fares eliminated the budget airline entirely.

…..

It’s tempting to consider Spirit’s demise as a failure requiring correction; in truth, it is evidence of a system working as intended. The event tracks what economists call “creative destruction,” a phenomenon central to the work of Philippe Aghion and Peter Howitt, whose research was awarded the 2025 Nobel Prize in economics. Their central insight is that economic growth depends on the continuous cycle of innovation, transition and reallocation. Firms must be free to succeed and fail. Losses show resources are misallocated; profits show they’re well used. When governments block failure, they blur these signals, trapping capital and labor in less productive uses and slowing the growth that underpins rising living standards.

…..

If the United States wants to remain competitive, especially in such emerging sectors as artificial intelligence and advanced manufacturing, it ought to protect the environment that allows for experimentation and failure. Prosperity depends less on preserving specific companies than on sustaining the conditions that allow new ones to emerge.

Hannah Cox understandably isn’t thrilled with what Lina Khan will likely teach students at Columbia University’s School of Law. A slice:

As the youngest FTC chair to ever serve, Khan rose to prominence early in her career thanks to her 2017 Yale Law Journal article “Amazon’s Antitrust Paradox,” which argued that Amazon should be targeted for monopolistic practices despite the fact it wasn’t a monopoly at all. In Khan’s mind, the legal jurisprudence that had governed antitrust law for decades, known as the consumer welfare standard, was outdated. The consumer welfare standard asks, “Is a company a monopoly, and if so, has it used its power to harm consumers?” Only if that standard is met does the government have the right to take up antitrust actions against a company. The consumer welfare standard was a desperately needed bit of guidance in the early 1980s. Up until then, the government had wreaked havoc in the market, frequently targeting companies due to political bias or for simply being popular.

Khan’s contrasting theory was essentially that a business being big is inherently a sign that the organization in question is bad, and that the internal practices they use to maintain their market advantage should be grounds for action against them. Like most progressives, Khan sees success as proof of immorality.

The Editorial Board of the Wall Street Journal wisely urges repeal of the cronyist and economically destructive Jones Act. A slice:

President Trump has temporarily called off America’s legal blockade of its own ports, and the White House says the results are positive. Under the 1920 Jones Act, waterborne cargo between two U.S. points must travel on ships that are built, crewed, and owned by Americans. Because that constricts supply and raises costs, Mr. Trump waived the law after attacking Iran.

So far, about two dozen waiver voyages have been reported complete as of April 30, according to the Maritime Administration. A ship flying the Singapore flag took 322,000 barrels of gasoline blend stock from Texas to California. A Maltese-flagged tanker brought 300,000 barrels of Bakken crude oil from Texas to a refinery in Pennsylvania. A second Singaporean vessel carried 300,000 barrels of gasoline from Louisiana to Florida. Useful commerce, amid Iran’s blockade of the Strait of Hormuz.

Mr. Trump’s initial suspension of the Jones Act was for 60 days, but late last month he extended that for another 90 days, with the White House calling it a great success. “New data compiled since the initial waiver was issued revealed that significantly more supply was able to reach U.S. ports faster,” a spokeswoman said. “This extension will help ensure vital energy products, industrial materials, and agricultural necessities are maintained.”

Funny, it also sounds like a good argument for permanent Jones Act relief. In a crisis, such as a hurricane in the Caribbean or a menacing in the Persian Gulf, the archaic law becomes an acute problem, because it limits the flexibility of American supply chains to respond. Yet the Jones Act is always an economic drain, since it increases shipping costs and distorts markets for all sorts of products.

Wall Street Journal columnist Jason Riley bids good riddance to racial gerrymandering. Two slices:

The fainting spells on the left after last week’s Supreme Court ruling in Louisiana v. Callais were probably to be expected. Democrats these days reject colorblind public policies that they championed in a previous era and scoff at clear evidence of America’s racial progress. A court decision that reins in racially gerrymandered voting districts checked both boxes, so it is no wonder that Democratic elites from Barack Obama on down are outraged.

…..

What nonsense. The case before the court concerned Louisiana’s 2024 decision, under pressure from the courts, to draw a congressional map that included a second majority-black district. Supporters said the racial gerrymander was necessary to comply with Section 2 of the Voting Rights Act of 1965, which bars the use of qualifications, standards or procedures that make it harder for minorities to cast a ballot. Opponents contended that the map violated the Constitution’s equal-protection clause by sorting voters based on race. In a 6-3 ruling, the justices sided with the challengers and said Louisiana unlawfully discriminated by race when it created a second majority-black district.

Mr. Obama is pretending that the decision somehow threatens the black franchise, but it didn’t touch Section 2 protections against efforts to restrict black voting. All the court did was scale back a judicially created doctrine based on the assumption that most white voters would never support black candidates. The former president, of all people, should appreciate that this is no longer the case.

Richard Morrison reasonably tries to nudge us away from reading the new book by Nick Chater and George Loewenstein. A slice:

But the success of nudge behavioralism, after a first flush of success, yielded disappointing long-term results. Upon wider reading and investigation, Chater and Loewenstein grew so disenchanted with their own specialty that they turned against it entirely with the vengeance of the betrayed. They now attack nudge interventions as not just ineffective but actively harmful, in part because people who are concerned about societal problems can be seduced by the supposed effectiveness of nudges, thus eroding support for more aggressive interventions.

And their preferred alternative is a bold one indeed. They claim that the major problems of the day can only be solved by flushing away any pretense of voluntary inducement and going full speed ahead on banning (or mandating) the behaviors and outcomes they want abolished (or to see more of). They now consider it absurd and unjust to expect anyone in America to actually manage how many calories they eat, decide how their retirement nest egg is invested, or pick which health plan they pay for.

Everything must be federally mandated to ensure the just outcomes that the co-authors have already helpfully decided upon. Liberating Americans from the tyranny of making their own choices will leave them, readers are helpfully reminded, with ample leisure time for hobbies and entertainment.

Emmanuel Maggiori exposes the whackadoodleness of “Modern Monetary Theory” (MMT).

My Mercatus Center colleague Henry Oliver writes beautifully about Samuel Johnson.

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… is from page 74 of the late Daniel Dennett’s magnificent 1995 volume, Darwin’s Dangerous Idea:

Time and again, biologists baffled by some apparently futile or maladroit bit of bad design in nature have eventually come to see that they have underestimated the ingenuity, the sheer brilliance, the depth of insight to be discovered in one of Mother Nature’s creations. Francis Crick has mischievously baptized this trend in the name of his colleague Leslie Orgel, speaking of what he calls “Orgel’s Second Rule: Evolution is cleverer than you are.”

DBx: Yes – and this lesson about the evolution of natural processes applies with no less force to the evolution of market processes. The only real difference is that biologists by and large are more genuinely scientific than many economists.

Too many mainstream economists who are baffled by some apparently futile or maladroit bit of bad design in the market economy leap to the conclusion that the market economy is “failing” and, therefore, the government must intervene to force observed features of the market economy to appear to conform more closely to textbook models. The attitude is this: “If I – a professional economist or think-tank head – don’t understand what I observe, then what I observe must be causing harm. I will help to make the real world look more like the theoretical model that is so pretty in my imagination!”

These mainstream economists (and pundits who are influenced by them) reject the understanding that drove and drives the work of wise economists such as Carl Menger, Ludwig von Mises, Joseph Schumpeter, F.A. Hayek, Ronald Coase, Armen Alchian, Donald Dewey, Harold Demsetz, Israel Kirzner, Thomas Sowell, Dominick Armentano, Deirdre McCloskey, and Robert Higgs – the understanding that the market is a never-ending process of trial and error that discovers extraordinarily creative ways to satisfy human wants. This discovery process is never “perfect” (whatever such a standard might mean), but it works over time to improve human well-being.

Unlike biologists who appreciate the unfathomable complexity of the phenomena they study, typical mainstream economists mistake the necessary simplifications of their models as being full-enough descriptions of economic reality – and when not fully enough descriptive, then prescriptive of what government should do.

…..

I repeat here an example that I perhaps turn to too often: an ‘ordinary’ American supermarket. Walk into your neighborhood Kroger or Safeway or Walmart or Whole Foods. Pick any aisle at random – say, the aisle with laundry detergent. Who dealt with the logistics to ensure that jugs of Tide detergent wound up undamaged on the shelf? What process is at work that results in that shelf almost always being filled with detergent that you are free to purchase or not to purchase? Who designed the barcode and the software that lets you scan a jug of that detergent at the self-checkout lane? Who designed the jug itself so that it holds the detergent without leaking? Now ask the same questions about the dishwasher detergent and paper towels. Move on to other aisles and ask about toothpaste, aspirin, peanut butter, corn flakes, milk, yogurt, orange juice, crushed red pepper, cumin, fresh broccoli, fresh corn, canned corned, olives, ground beef, lamb chops, gluten-free pasta, coffee. The list is very long.

And who pays that store’s electricity bill? Who supplies that store’s liability insurance? Who put up the capital that makes that supermarket possible?

Ask the following question to anyone who fancies that he or she knows enough to recommend how government coercion should be used to ‘redesign’ or change existing market processes and outcomes: “Can you recount in sufficient detail all the information and knowledge that is used today to ensure that that Kroger or Walmart operates as a supermarket in a manner that all Americans now take for granted?” If they cannot – and they certainly cannot – offer a respectable answer, ask this follow-up question: “Then by what miracle will you have enough knowledge to re-engineer the larger economy in a way that improves overall human well-being?”

You’ll get an answer, for such interventionists are intoxicated with their own superiority and imagined intellectual genius. But if you pay close-enough attention to that answer, you’ll notice that it is little more than a stew of abstractions and aspirations. Nothing in the answer will give you confidence that that person should be trusted to intervene coercively into market processes. The market is cleverer than that person.

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Here’s a letter to Fortune. (I thank my friend Ross Kaminsky for sharing this Fortune article with me.)

Editor:

Interviewed by Sasha Rogelberg, Eswar Prasad says many sensible things about America’s economy, but he inadvertently sows confusion by saying that the reason that the recent spike in oil prices isn’t inflicting more damage on America’s economy is because “the U.S. is not the manufacturing powerhouse it once used to be” (“America is lucky it’s no longer a manufacturing powerhouse—it’s what’s protecting the US economy from the worst of the oil shock, top economist says,” May 4).

Of course the U.S. produces a smaller share of global manufacturing output today than in the past. In 2024 the U.S. produced ‘only’ 17% of global manufacturing output – a smaller share than the 25% to 30% that we produced in the mid-1970s, and much less than the nearly 50% that we produced just after the second world war. But this smaller share is due not to a decline in U.S. manufacturing but, instead, to an increase in manufacturing in other countries. U.S. manufacturing output is today just shy of the all-time high that it hit in late 2007. U.S. industrial output – a broader category of non-services and non-agricultural production – hit its all-time high in September 2018 and is today also just shy of that all-time high.

The bottom line here is that U.S. manufacturing output today is second only to that of China – and on a per-capita basis the U.S. produces 156% more manufacturing output than does China. To describe the U.S. as “no longer a manufacturing powerhouse” is incorrect.

As for why rising oil prices aren’t inflicting more damage on America’s economy, the chief reason surely is that U.S. manufacturing is today far more energy-efficient than it was in the 1970s. According to EBSCO, “US industry has been making significant strides in energy efficiency, reducing the amount of energy used per dollar’s worth of goods (energy intensity) by 50 percent between 1970 and 2003 (from 9.13 to 4.32 thousand Btu). Energy use per dollar’s worth of goods produced has continued to fall.

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