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… is from pages 139-140 of the 2009 Revised Edition of Thomas Sowell’s Applied Economics: Thinking Beyond Stage One:

The incentives of a government agency are very different from those of a family or an insurance company. As a matter of financial self-protection, both families and insurance companies must seek to discourage risky behavior in one way or another. For a government agency, however, financed by taxpayers’ money, there is no such urgency about discouraging the increased risks that people may take when those risks are covered by others. Moreover, the agency gets its biggest political support from helping those suffering the consequences of the risks they have taken, however unwisely, not by criticizing them. Thus government emergency programs help people struck by floods, hurricanes, and other natural disasters make it easier for people whose homes have been destroyed to rebuild at the same locations, in areas where such disasters recur regularly over the years.

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Here’s a letter to National Review.

Editor:

John Puri superbly reveals core flaws in Michael Brendan Dougherty’s argument that tariffs will not raise prices in the long run (“Tariffs Still Raise Prices, Even If They Fall,” October 15). But one other flaw warrants identification, namely, even if the prices of domestically produced substitutes for tariffed goods eventually fall to their pre-tariff levels, the prices of other domestically produced goods and services must rise.

The prices of the outputs of protected firms can, in the long run, be kept at pre-tariff levels only if these firms increase their outputs by the amounts by which imports are kept out of the country. But to expand their outputs, these firms must draw resources away from other domestic industries. As these other industries lose resources, their outputs will fall. And as their outputs fall, the prices of these industries’ outputs will rise.

In short, to the extent that tariffs cause the outputs of protected industries to rise – and, hence, to moderate their price increases – the prices of the outputs of non-protected industries will rise.

There’s no escaping the fact that, because protectionism restricts domestic citizens’ and producers’ access to goods and services, protectionism causes prices to rise.

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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… is from page 93 of Arnold Kling’s superb 2006 book, Crisis of Abundance:

Another possible source of inefficiency comes from government licensing restrictions and related regulations. If there is a shortage of, say, physical therapists, it is difficult for the market to remedy the shortage because of the many hurdles to obtaining a license. Professional regulation in medical care appears to be carried out in the interests of suppliers who wish to restrict competition. Consumer-oriented regulation instead would rely more on disclosure and less on restricting people’s choices.

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Fifty years ago today, Milton Friedman was announced as the 1976 Nobel Prize winner in economics. Art Diamond celebrates this great man. A slice:

In Newsweek and elsewhere, Friedman proposed a better world of progress and freedom. His arguments were strong, and he delivered them with courage, clarity and a disarming good humor that was magnified by his directing them at ideas, not people. Gary Becker, Friedman’s former student and an eventual Nobel winner himself, said Friedman “was the most intellectually courageous person I have ever known, willing to say something if he believed it was right, damn the consequences.” The consequence was that Friedman sometimes had to take ill will from those who didn’t want to hear what he said.

Friedman took ill will from the American Medical Association when he argued that licensing physicians limited their supply and thereby reduced patient access to healthcare. He took ill will from his fellow economists who were receiving National Science Foundation funding when he argued that the NSF should be abolished because it burdened taxpayers and reduced innovation. And he took ill will from the Marxist Spartacus Youth League (who for years disrupted his speeches) when he argued that their socialism would bring the end of progress and freedom.

Early in his career Friedman took ill will from the socialist-oriented and highly mathematical Cowles Commission. The commission was an important part of the University of Chicago economics department and included a couple of members who went on to receive Nobel Prizes. At Cowles Commission seminars, Friedman persistently argued that their modeling choices were arbitrary and their complex general equilibrium multiple regression models didn’t generate predictions supported by the evidence.

Friedman’s experiences strengthened his argument. During World War II, while working for the government, he had used multiple regression analysis—a means of statistical prediction—to try to devise two stronger alloys for use in military airplanes. When he sent his proposed alloy mixtures to be created and tested at an MIT lab, both alloys burned up in a few hours, leading him to a lifelong skepticism of multiple regression analysis.

Jennifer Burns tells in her biography of Friedman how the members of the Cowles Commission decamped for Yale rather than stay in Chicago and face his persuasive arguments. This gave Friedman the opportunity to build a major economics department that practiced methods and pursued goals different from others.

Economists Arjo Klamer and David Colander reported in their 1990 book, “The Making of an Economist,” that when they surveyed graduate students at four major economics departments, those at MIT, Harvard and Columbia thought they were doing mathematical puzzle-solving. Those at Chicago thought they were applying price theory to understand how the world worked and make it work better. Many called this the Chicago School; Friedman called it good economics.

Arnold Kling applauds the 2026 Nobel award to Robert Hall.

My former Mercatus Center colleague Josh Pauzé explains what shouldn’t – but, alas, what today nevertheless does – need explaining: Giving immigrants research jobs isn’t fraud. A slice:

Opposition to visa programs is, unfortunately, found on both the left and the right. In his first term, President Donald Trump enacted a slew of restrictions that complicated the H-1B visa application process and increased denial rates to 24 percent in FY 2018 (up from 6 percent in FY 2015).  In 2020, the administration was forced to rescind key policies behind those rising denials after a federal judge ruled they hadn’t followed the required rulemaking process. In September last year, Trump imposed a $100,000 fee on H-1B petitions. A federal judge struck it down in June, saying it exceeds the president’s authority and violates the separation of powers.

Other presidents have used federal power as leverage against higher education. But Trump’s war on universities—including the freezing of federal funds for universities like Columbia and Harvard for alleged instances of antisemitism—is mostly unprecedented. These actions are indicative of a more enduring problem: Federal dollars come with federal influence, and as long as universities depend on federal funding, they will remain at Washington’s mercy. If universities want lasting independence, the answer isn’t to reduce their use of the J-1 visa. It’s to get off the federal teat altogether.

Also weighing in against the Trump administration’s hostility to high-skilled immigrants is the Editorial Board of the Washington Post. A slice:

Vice President JD Vance unfairly accused Microsoft last week of replacing American workers with “foreign indentured servants” just hours before President Donald Trump presented the company’s immigrant CEO with the National Medal of Technology and Innovation. This dichotomy underscored the paradox of the administration’s crackdown on legal immigration.

Vance’s accusation against Microsoft is deceptively simple: The firm laid off about 6,000 American workers last year while sponsoring 6,300 H-1B visa holders and nearly 3,000 green card holders. “If you do the math, for every worker that Microsoft laid off, they replaced that worker with one and a half foreign indentured servants,” Vance said.

But there is no evidence these foreign workers were substitutes for the Americans laid off by the company based in Redmond, Washington. Microsoft says that 80 percent of its H-1B applications were filed to extend or change the status of existing employees. “The remaining filings for new employees were for individuals already legally in the United States who decided to come work for us, and they equal only 1% of our U.S. workforce,” the company said in a statement. “They are not new arrivals to our country.”

Microsoft employs 121,000 people in the U.S., more than half its global workforce. The great majority are American citizens. Not that the company is legally obliged to hire only American workers. And if Microsoft is going to stay competitive, especially in the race for artificial-intelligence dominance, it must be able to hire the best people it can find, anywhere on the planet.

And here’s Dan Greenberg on the apparently clueless J.D. Vance.

Scott Lincicome tweets:

According to the new @CatoInstitute Government Ownership Dashboard, the Trump admin has done 35 equity-stake deals since last June. Prior to that, US equity deals were unheard of in non-crisis times.

You can dig into each one here: https://cato.org/restoring-free-enterprise/government-ownership-dashboard #CatoRFE @Cato_RFE

Joakim Book is a fan of Deirdre McCloskey’s forthcoming Equality of Permission. A slice:

As always, McCloskey shines dissecting the opinions and stances of other renowned economists and scholars: Daron Acemoglu gets a turn, as does his co-author James Robinson; the behavioral economics is reduced to people making mistakes when talking to their stockbroker or buying milk; Esther Duflo is a Nobel Prize-winning economist “who performs unethical experiments on impoverished human beings in poor countries in order to arm the state to better dominate them.” Michael Sandel, the rockstar Harvard philosopher, gets his own historically informed critique. Patrick Deneen, the conservative critic of liberalism, “hasn’t opened a book on economics since Marx, or of economic history since [Karl] Polanyi.” As a dire consequence, “he does not understand how a market economy works, and what its actual history has been.”

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… is from pages 4-5 of Chelsea Follett’s forthcoming book, The Grim Old Days: An Introduction to the Preindustrial Past:

A popular saying holds that “the past is a foreign country,” but I assure you it is not one where you would wish to vacation. If you could visit the preindustrial past, you would give the experience a zero-star rating. Indeed, the trip might leave you permanently scarred, both physically and in the sense denoting psychological trauma. You might long to unsee the horrors encountered on your adventure and to forget the shocking, gory details.

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David Henderson is a fan of the work of the most-recent Nobel laureates in economics, Robert Hall and Michael Woodford. A slice:

Among Mr. Hall’s most important works is his 1985 book, “The Flat Tax,” written with Alvin Rabushka. Messrs. Hall and Rabushka made a strong case for replacing the current income tax with a flat rate and showed that it would be much less distortionary and more pro-growth than our current tax system.

Michael Woodford’s main contributions were on monetary policy. His 2003 book, “Interest and Prices,” has been called a bible for central bankers. Keynesians, up to and including 1970 Nobel laureate Paul Samuelson, argued that monetary policy was ineffective at lifting economies from recessions. Friedman, on his own and with co-author Anna J. Schwartz, showed that monetary policy, for good and ill, was quite effective. Friedman had focused on the money supply. Mr. Woodford showed how the Federal Reserve could affect the economy by targeting the federal-funds rate. As Hoover economist John Cochrane notes, the Taylor rule, named for economist John Taylor, is central to the framework Mr. Woodford developed. According to that rule, to reduce inflation, the Fed should aggressively raise interest rates.

The Nobel committee said the prize was awarded for “demonstrating how economic models could be reconstructed to revitalise stabilisation policy.” That leaves out two important points. First, Mr. Hall’s work on consumption shows that using Keynesian fiscal policy wouldn’t work. Second, the work of both Messrs. Hall and Woodford shows how government policy, especially monetary policy, has at times erred and caused instability. The Nobel committee has an unfortunate tendency to attribute implicitly almost all problems of unstable economies to the economies themselves and almost none of the problems to bad government policy. Fortunately, the work of this year’s winners offsets this tendency.

Reason‘s Eric Boehm reports this: “Michigan congressman proposes using tariff revenue for tariff relief fund.”

GMU Econ alum Dave Hebert reports that “manufacturing surged when tariffs were lifted.” A slice:

The combination of high tariffs with uncertain start dates and unclear goals proved disastrous for firms looking to make long-term investments. As a result, the manufacturing sector shrank. The ISM’s Manufacturing PMI fell into contraction and stayed there for ten months. Factory payrolls fell for eleven straight months, resulting in a loss of about 92,000 manufacturing jobs. Economists had predicted these outcomes and warned that the tariff agenda would produce them.

Ross Levine imagines how Adam Smith would warn us Americans in 2026 of the folly of the U.S. government’s fiscal incontinence.

My GMU Econ and Mercatus Center colleague Pete Boettke makes clear that America grew rich because of (true) liberalism – the liberalism of the likes of Adam Smith, America’s founders, and F.A. Hayek. Two slices:

The great historian of the American Revolution, Gordon Wood, argued in The Radicalism of the American Revolution that what is most overlooked in discussions is the radical transformation of society that resulted. Colonial America was a society of status, of privileges, of station. Patronage and personal favoritism by those with power played a major role in social mobility—to the extent that it existed. This social system would all be transformed by the Revolution. One prominent example of the legal transformation was the abolition state by state of the practice of primogeniture between 1777 to 1798. Not only did this change the laws of inheritance, but transformed the meaning and use of property, encouraged entrepreneurship, credit markets and social and geographic mobility. Legal distinctions based on rank disappeared, and economic opportunities were based in interest, aptitude and talent rather than birth. Certainly not perfectly, it must be acknowledged. But in a far more sweeping nature than anywhere else in the world, ordinary individuals were enabled to “give it a go,” as the historian Deirdre McCloskey likes to stress about the ascendancy of the Bourgeois Era. Almost overnight, Wood argues, Americans became “the most liberal, most democratic, most commercially minds, and most modern people in the world.”

As a result, America became the richest country in history over the next 250 years. It did so without an aristocracy, and without central planning or a comprehensive blueprint by the governmental authorities. The Revolution succeeded because it created the institutional conditions for commercial civilization. It unleashed the creative powers of a free people to a greater degree than had ever been experienced before. As Hayek would stress, the transformation for a society of status to one of contract is critical to experiencing modern economic growth. And this is only possible if the governing system seeks to eliminate privileges and instead binds itself to the rule of law.

…..

This to me is the enduring lesson in political economy that we should derive from reflecting on the twin 250th anniversaries and allow to guide us through our contemporary debates which too often seem to have forgotten these. Let me add one other aspect that is too often overlooked. When Hayek founded the Mont Pelerin Society, one of the names he toyed with was the Acton-Tocqueville Society. This was rejected by the original group for a variety of reasons, but it does reflect Hayek’s thinking. In the context of this article, I think we can argue that Alexis de Tocqueville provides a bridge between Wood’s historical account of the American Revolution and Hayek and Friedman’s theoretical accounts of economic and political freedom. Tocqueville observed what Wood described as the transformation of American society: a social order characterized by vibrant civil society of voluntary associations, social mobility, local initiative, and unbounded energy. Hayek explains to us why this decentralized dynamism is a source of discovery and continuous learning how to better pursue productive specialization and realize the gains from peaceful social cooperation. Friedman explains how the constitutional structure of government, by limiting power and privileges, preserves the open society and its properties of creativity, innovation and social and material progress.

Both the left and right in our current political and intellectual culture have abandoned these principles, at least in their rhetoric. New York Mayor Zohran Mamdani and Vice President J. D. Vance have recently gone out of their way in respective speeches to dismiss the ideas of Hayek and Friedman. Critics of neoliberalism repeatedly target Hayek and Friedman without seemingly any sense of understanding the subtleties and nuances in their arguments. Post-liberals are even worse. Thinkers like Patrick Deneen argue that free market policies result in the erosion of community, destroy the social fabric, and increase inequality. The individual becomes isolated and lacks any great purpose as a result. The remedy offered is the abandonment of the free market system with its emphasis on material growth and the adoption of public policies that stress virtue, local obligations, and the moral community. Scholars under the New History of Capitalism movement see the coercion and abuse of corporate and state power as attributes inherent in capitalism. To both groups of critics, support for capitalism must either elide over these abuses or even justify them as the lesser evil to growth.

These criticisms are grounded in a misunderstanding of the argument for the liberalization of markets from David Hume and Adam Smith to F. A. Hayek and Milton Friedman. Markets are no doubt vehicles for efficiency in exchange and production and the creation of great material abundance, but that isn’t the side of markets that was stressed by Hayek and Friedman, let alone Smith. Smith was a champion of the doux commerce thesis that commerce civilized. Thomas Paine, of American Revolution fame, wrote that: “If commerce were permitted to act to the universal extent it is capable of, it would extirpate the system of war…” Commercial life civilizes people. Peaceful social cooperation among strangers replaces violence and conquest. Montesquieu wrote that “wherever the ways of man are gentle, there is commerce; and wherever there is commerce, there the ways of men are gentle.”

George Will writes eloquently about Pete Hegseth’s barbaric proposal to live-stream an execution. Two slices:

Might this live-streaming desensitize the audience and coarsen society? Benjamin Rush, the Philadelphia physician and signer of the Declaration of Independence, thought capital punishment “lessens the horror of taking away human life,” thereby fostering murders. Today, it neither encourages nor deters. Death sentences are handed down so capriciously and administered so glacially (Hasan’s is scheduled for 17 years after his crime), its deterrent effect, if any, is vanishingly small.

…..

Put aside the question of whether the soldiers who will be in the Fort Hood firing squad anticipated such an assignment when they enlisted. But credit Hegseth with usefulness. His idea of live-streaming the infliction of death comes as the nation approaches midterm elections widely considered a referendum on the Republicans’ national administration. Hegseth has clarified what should be the preeminent issue: Fill the government with barbarians, you get barbaric government.

Revulsion is not an argument. But regarding Hegseth and the administration he vividly exemplifies, it is a virtue.

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… is from page 424 of Liberty Fund’s 2011 collection of Frédéric Bastiat’s writings, The Man and the Statesman: The Correspondence and Articles on Politics – which is the first volume of what will eventually be six volumes, expertly edited by David Hart, of The Collected Works of Frédéric Bastiat [original emphasis]:

No, the privileged groups had a clearer view of what might prolong their existence. They understood that they could continue peacefully to pick the pockets of the public so long as contrived antagonisms would prevent the drawing together and merging of nations. This being so, they harnessd their forces, influence, capital, and activity to national hatred. They, too, adopted the mask of patriotism. They bribed such newspapers as had not yet adopted the banner of false national honor, and it may rightly be said that this monstrous alliance stopped the march of civilization.

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… is from page 13 of Leland Yeager’s and David Tuerck’s still-vital 1966 volume, Trade Policy and the Price System:

The economic case is the same for free trade as for allowing technological progress: both increase the yield of useful goods and services from available labor and other resources.

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Here’s a letter to USA Today.

Editor:

Paul Osterman claims that 35% of workers in America today are “disposable” – a status that renders them both underpaid and easily dismissed (“The job crisis is more than AI. Gig work makes you disposable,” October 6). Odd, that. Workers who produce for their employers value that’s far higher than these workers’ wages are workers that employers – greedy as they are for profit – should be especially keen to continue employing. Underpaid workers are practically nondisposable.

Let’s assume for the moment, however, that Mr. Osterman has his facts straight. If so, he personally can help to remedy this problem of underpayment and earn big bucks in the process. Underpaid workers are like hundred-dollar bills strewn on the sidewalk. Mr. Osterman can open businesses and bid these workers away from their current exploiters, offering them a package of pay and perks superior to what they now receive yet still leaving him a substantial profit on each worker. Mr. Osterman’s handsome profits will attract other entrepreneurs to follow in his footsteps. As Mr. Osterman and these other entrepreneurs bid for workers, the workers’ existing employers – again, motivated by their own self-interest – will raise these workers’ pay.

The fact that Mr. Osterman doesn’t put his money where his mouth is strongly suggests that he either doesn’t understand the labor market about which he writes, or that he’s really not confident about his empirical claims. Either way, policymakers should be very skeptical of his policy recommendations.

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