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… is from page 326 – the final page – of Arvind Panagariya’s remarkable 2019 volume, Free Trade and Prosperity:

In sum, if the devotees of protection want to persuade scholars to adopt their viewpoint and not mislead unsuspecting and innocent policymakers, they need to offer much more evidence in favor of their case. It will not suffice to offer half-baked arguments for infant industry protection, often relying on the post hoc fallacy, and point fingers at cases in which liberalization failed to deliver. If they insist that free trade advocates produce iron-clad evidence of a causal link between trade and growth, they must subject themselves to the same standard of proof. Or at least they must produce evidence that matches what free trade advocates have produced. To date they have not even come close to doing so.

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Phil Gramm and Mike Solon decry “the Trump tax increase of 2026.” A slice:

Republicans are counting on voters being pleasantly surprised by larger-than-expected tax refunds this spring thanks to new tax cuts from the One Big Beautiful Bill Act. Republican lawmakers hope this will ameliorate what Democrats call the “affordability crisis” and make it possible for the GOP to maintain control of Congress. The problem is that although the government is putting money back into taxpayers’ pockets on the one hand via tax refunds, it is taking more money out via tariff-driven price increases, leaving Americans worse off financially.

The Trump administration insists that other countries are eating the cost of tariffs. That is a myth. If foreigners were absorbing the costs, import prices would drop: To keep their products at the same prices in U.S. stores, foreigners would have to lower their products’ prices to make room for the tariff. Instead, a Bureau of Labor Statistics analysis found that “U.S. import prices were unchanged (0.0 percent) in 2025.” It’s hardly surprising, therefore, that a Federal Reserve Bank of New York analysis finds that “there is 100 percent pass-through from tariffs to import prices, and therefore on U.S. consumers and firms.”

The Joint Committee on Taxation estimates that taxpayers will receive about a $188 billion reduction in federal tax liability for 2025 that they wouldn’t have received if the president’s tax cuts hadn’t become law. Those refunds and tax benefits, however, have been more than offset by the $195 billion in new tariffs collected in 2025.

Things will get worse in 2026. The Congressional Budget Office projects that Mr. Trump’s tariffs will generate $331 billion this year, while the CBO estimates the new tax cuts will save taxpayers $230 billion. Families and businesses will be worse off on net. This will matter in the election. By October, Mr. Trump’s new tariffs from his second term will have cost American consumers and businesses $443 billion, while the tax cuts will have provided them with $379 billion. If the president successfully restores his tariffs to the levels where they were before the Supreme Court’s decision in February, the tariff tax in 2026 will be 44% larger than the new tax cuts contained in the Big Beautiful Bill.

John Puri explains “how inflation and tariffs impoverish people differently.” Two slices:

A current refrain in financial commentary is that tariffs — taxes on imported goods, paid by Americans — increase inflation. This is not technically accurate. Tariffs certainly raise the cost of items on which they are imposed. That is their design: Protectionists favor tariffs because they make foreign goods more expensive, driving people to buy domestic alternatives that are costlier to produce.

…..

Tariffs do not merely redistribute purchasing power, making one set of consumers better off at the expense of others. They destroy everyone’s purchasing power by limiting how it can be employed.

Iain Murray deserves credit for writing so intelligently about credit.

David Henderson makes clear that “central planning messes up spontaneous order.”

Eric Boehm argues that the “Trump administration’s review of ABC’s broadcast licenses looks Like ‘illegal jawboning’.”

Arnold Kling ponders political extremism.

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Pondering my latest disagreement with John Tamny on deficit financing of government spending, I now realize that I did indeed misunderstand his argument. My misunderstanding was a careless, if innocent, effort to make sense of his argument. I apologize for it.

One common argument that Keynesian-type economists, such as Paul Krugman, offer when they wish to excuse deficit financing is to compare the amount of outstanding government debt to total GDP and then say “See! Total GDP is large enough to allow the government to easily repay its debt by raising taxes in the future, so government debt isn’t a problem.” This argument effectively treats the income of the citizens as property of the government – as property that secures the government debt and, hence, that encourages creditors to continue to lend to the government at low interest rates.

In the earlier version of his essay, John wrote “unless Americans were already excessively taxed … there’s no way Treasury could borrow as it does.” The ellipses in this quotation signal my exclusion of a subordinate clause the meaning of which I couldn’t grasp, but one that seemed not to change the fundamental point.

(John has since changed the wording to this [original emphasis]: “Unless Americans were already excessively taxed now such that lenders trusted tax revenues, there would be very little U.S. debt.” I interpret this new wording to have the same intended meaning as the earlier wording.)

But I erroneously read John as saying this: “If Americans were excessively taxed … there’s no way Treasury could borrow as it does.” I assumed that his use of “unless” was a careless wording choice that would have been improved by “if.” On my reading, John’s argument becomes quite the opposite of what he meant; it becomes a version of the Keynesian argument commonly offered by the likes of Krugman.

Now I understand that John believes that the government is able to borrow the gargantuan sums that it does only because Americans are today taxed excessively. John’s argument is emphatically not the Krugman-Keynesian one, and so I apologize for my earlier misreading of his argument.

But now a new problem for John’s argument emerges: A citizenry excessively taxed today – or so it seems to me – is one that is less likely, not more likely, to be able to be taxed even more heavily in the future in order for the government to obtain the revenues it needs to service and repay its debts. Just as creditors are less likely to extend credit on easy terms to a firm that is being drained of wealth by lots of embezzlement, creditors are less likely to extend credit to a government whose citizens are already excessively taxed, for such excessive taxation both is more likely to intensify tax resistance in the future as well as to reduce the future tax base by shrinking the economy.

Yet for John, what makes government, in the eyes of creditors, an especially attractive borrower is precisely its excessive current taxation of its citizens. In John’s view, today’s abuse of taxpayers is a signal that government is willing and able to abuse tomorrow’s taxpayers even more. I write “even more” because government debt is growing, so taxation of citizens must become ever-more excessive.

I remain unclear why John nevertheless frequently criticizes Veronique de Rugy, Romina Boccia, me, and others for worrying about growing government indebtedness. Such indebtedness, again, requires even greater abuse of taxpayers in the future. Wishing to avoid this increasing abusiveness of taxation should lead John to oppose increasing government indebtedness.

…..

If my new reading of John is correct, it seems that he should be a leader in the ranks of those of us who warn against deficit financing. I gather, though, that he’d prefer that a greater portion of government expenditures be funded with debt and a lesser portion with current taxes. But if government reduces its current intensity of taxation, then – on John’s own theory – it dims the very signal that increases its attractiveness to creditors. It sends a signal that it’s less willing to tax its citizens in the future – causing, in John’s theory, creditors today to be less willing to lend on easy terms. John’s argument, then, must be the ultimate starve-the-beast one: A dramatic reduction in taxes today will deny government access to resources both from current taxpayers and from creditors who are reluctant to lend to a government that signals its unwillingness to tax its citizens excessively. Unfortunately, starve-the-beast is bad economics.

While I don’t buy John’s theory, I again at least concede that it’s very different from – indeed, the opposite of – the Keynesian-Krugman one that I’d earlier accused him of using. One reason why I don’t buy John’s theory is that, if only because the government can sell its bonds to the central bank, it remains the case that deficit financing encourages special-interest groups to obtain government spending that will be paid for largely by other people (here, by the general populace through inflation). I also, for the record, believe – apparently unlike John – that deficit financing keeps today’s tax bill lower than it would otherwise be while the burden of repaying that debt is, when not reduced by inflation, paid by future generations.

…..

A final point. John mistakes what Adam Smith, James Buchanan, and other budget-deficit hawks mean by the shifting of the fiscal burden. The argument is not that today’s government spending and actions don’t cause current harm. Of course they often do, as John’s examples amply document. Instead, the argument is that the persons given the burden of paying the bill for the government spending that gives rise to these current harmful activities are future citizens-taxpayers.

Suppose that a majority of today’s citizens-taxpayers mistakenly believes that spending huge sums of money to convert to net-zero carbon emissions is a good idea. But this majority is too stingy to have its taxes raised in order to pay for all that government must do to attempt this conversion to green energy. So the government borrows the money. These borrowed funds are then spent on this energy conversion only to discover within a few months that this forced attempt to achieve net zero is inflicting extreme damage on the economy.

John treats this damage experienced today as disproving the classical-economics-Buchanan insistence that the burden of repaying government debt falls on future generations. But John is mistaken: the government debt must still be serviced and repaid, and the obligation to do so (assuming away default) falls on future citizens-taxpayers. The irony here is that this destructive government program – destruction that is indeed experienced today – would not have occurred if government had no access to deficit financing.

In short, the classical-economics-Buchanan argument is not that deficit-financed current government actions impose no harms today. Instead, it’s that when government acquires through deficit financing the resources it uses to perform the actions that inflict those harms, future citizens-taxpayers are handed the bill for repaying the creditors who loaned those resources to the government. And so if deficit financing of government spending were prohibited, government today, and in each day in the future, would be less likely to inflict harm today because it would have less access to resources.

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… is from Thomas Sowell’s April 2nd, 2013, column titled “Could Cyprus Happen Here?”:

When the federal government spends far beyond the tax revenues it has, it gets the extra money by selling bonds. The Federal Reserve has become the biggest buyer of these bonds, since it costs them nothing to create more money.

This new money buys just as much as the money you sacrificed to save for years. More money in circulation, without a corresponding increase in output, means rising prices. Although the numbers in your bank book may remain the same, part of the purchasing power of your money is transferred to the government.

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I apologize, sincerely, to John Tamny. I allowed my intellectual disagreement with him on questions of the causes and consequences of government debt to prompt me to post at Café Hayek a response to John that is plausibly seen as ungenerous (although my quotation, in that post, of his words were cut and pasted from his original text, leaving out only a subordinate clause the meaning of which I did not grasp and that seems to me did not alter the underlying message of the quoted passage).

John is a well-meaning, thoughtful, and important scholar who is a true champion of liberalism and limited government. He’s someone with whom my disagreements are tiny when put beside my agreements with what he says and writes.

That I gave offense to John – that I failed to interpret his theory of deficit financing by government as generously as it deserves to be treated – is my bad, a bad act that I regret and for which, again, I offer my sincere apologies.

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Here’s a letter to a reader who sent to me John Tamny’s latest essay on deficit financing of government spending.

Mr. L__:

Thanks for passing along John Tamny’s latest piece on government debt.

I’ve already shared, many times, my reasons for disagreeing with John’s obliviousness to the dangers of deficit financing of government spending. Nothing that he writes here changes my mind – just as, I’m sure, nothing that I might repeat would change his.

Like Paul Krugman and other Keynesians, John commits a kind of aggregation fallacy when he writes that “unless Americans were already excessively taxed … there’s no way Treasury could borrow as it does.” John here mistakenly assumes that the U.S. government is the American people – or, rather, that the American people’s incomes and assets are property of the U.S. government, much as a corporation’s income and assets are property of that corporation. Just as Acme Corp.’s anticipated income and asset values serve as security for Acme’s debt, the American people’s incomes and asset values, in John’s view, serve as security for U.S. government debt.

The tiny kernel of truth in John’s theory is that the U.S. government does indeed operate under this assumption, and its creditors take that operation to heart when they buy its bonds. But operating on this assumption leads to ill-consequences to which John is blind.

Shareholders of a private corporation that borrows excessively and spends foolishly are nevertheless ethically responsible for that corporation’s debt – both because they voluntarily purchased those shares and because they can easily sell those shares if they wish. Americans’ relationship to the U.S. government is categorically different. Americans do not voluntarily purchase shares in that government and, crucially, unlike corporate shareholders who can sell shares, Americans have no practical way to escape the debt burdens imposed on them by imprudent government borrowing.

John’s Pollyanna-ish opinion of deficit financing rests on the continued willingness of creditors to lend on easy terms to the U.S. government despite that government’s enormous indebtedness. John takes this willingness as evidence that continued government borrowing poses no problem for the American people. But in fact the continued willingness of creditors to lend to the U.S. government is due chiefly to the fact that, unlike a private corporation, the U.S. government can unilaterally seize ever-larger chunks of Americans’ incomes, either through direct taxation or inflation.

And this ample ability of government officials to unilaterally seize other people’s incomes in order to pay for what those officials fancy means that – also unlike a private corporation – government officials practically spend too much because deficit financing enables them to spend other people’s money without the people from whom that money is seized having any real say in the matter.

It’s dismayingly ironic that the individualist John Tamny treats the property of the American people as property of the U.S. government.

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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This hot-off-the-press publication – “Land of Opportunity: Advancing the American Dream” – from AEI and edited by Kevin Corinth and Scott Winship is surely a must-read.

The Washington Post‘s Editorial Board warns of the ill-consequences to come from the Trump’s creeping socialization of the U.S. economy. Two slices:

Like moths to a flame, budget airlines struggling with higher jet fuel prices are flocking to the Trump administration for bailouts. Americans would be better off if the federal government just lit that money on fire.

With Spirit Airlines careening toward liquidation, talks are underway for the government to take up to a 90 percent stake in the carrier in exchange for a $500 million lifeline.

The United States does not need an Amtrak or U.S. Postal Service of the skies. Spirit’s failure poses no systemic risk to air travel, and the administration has no business picking winners and losers in a competitive industry.

Even talking about intervention is creating moral hazard. Low-cost airlines such as Frontier and Avelo are now formally asking for $2.5 billion in exchange for warrants that the government could convert into equity stakes.

…..

Indeed, previous government meddling pushed Spirit toward its current predicament. President Joe Biden’s Justice Department successfully sued to block Spirit from being acquired by JetBlue. A merger would have allowed the combined firms realize economies of scale and better compete with the majors. But Biden and his team were consumed by antitrust zealotry.

Again, two wrongs don’t make a right. As shortsighted as it was for Biden to block the merger, Trump taking national ownership would somehow be worse. Any taxpayer money wasted on Spirit, Frontier or Avelo would simply prolong the inevitable.

The Cato Institute’s Tad DeHaven weighs in intelligently on Trump’s effective nationalization of Spirit Airlines. A slice:

Transportation Secretary Sean Duffy even seems to understand the problem. Last Tuesday, when news of a possible Spirit bailout broke, Duffy told Reuters, “What we don’t want to do is put good money after bad.” He also asked whether a Spirit bailout would merely “forestall the inevitable” and posed the obvious question: “If no one else wants to buy them, why would we buy them?”

That’s exactly right. If private investors, competitors, creditors, and potential buyers don’t see enough value in Spirit to put their own money at risk, taxpayers should not be forced into the role of rescue financier. And if the administration rescues Spirit and others follow, an additional concern Duffy expressed will have been prescient: “By the way if you do do Spirit, who comes next? Who is the third?”

A Spirit bailout was already a bad idea when it involved one airline. The latest reports show why it could become even worse: Anytime Washington suggests that government money is available, the line begins to form.

The Wall Street Journal‘s Editorial Board warns of the ill-consequences to befall Californians if they insist on slaughtering golden-egg-laying geese. A slice:

Progressives are testing how much ruin there is in California. On Sunday they said they’ve gathered enough signatures to place a wealth tax referendum on the November ballot, even as a new study shows it is likely to result in less state revenue.

The proposed ballot measure would impose a (supposedly) one-time 5% tax on individuals with more than $1 billion in wealth. The tax would hit nearly all of a billionaire’s assets including trusts, as well as voting interests in a company if that exceeds his equity stake. It applies to billionaires who were California “residents” as of Jan. 1 this year.

Billionaires are already leaving the state. California Tax Foundation visiting fellow Jared Walczak estimates in a new paper that “reported departures already total $777 billion,” and more “‘quiet departures’” that do not draw media coverage” are likely this year since “there are solid legal reasons to believe that the initiative’s residency date and approach could be challenged successfully in court.”

National Review‘s Andrew Stuttaford warns of the ill-consequences to befall Americans if Elizabeth Warren’s proposed wealth-tax becomes the ‘law’ of the land. A slice:

Warren and her gang are beginning this process even before her law passes. The proposed tax is not just aimed at billionaires, a group who have been villainized for years (for a recent example, check out the recent video by New York City’s Mayor Zohran Mamdani) but would reach as far down as the pockets of those worth $50 million, the latter a figure that Warren has not changed since first putting forward this tax in 2019, even though $50 million then is equivalent to over $60 million in 2026. Moreover, those approaching the $50 million threshold will also be caught up, forced to prove they have not crossed that dreaded threshold. Their financial privacy will be consigned to the past, as, of course, will be that of those who must pay the tax. If passed, it would be levied at an annual rate of 2 percent on the assets of those worth $50 million and 3 percent on those belonging to billionaires. According to Emmanuel Saez and Gabriel Zucman, two French economists backing Warren’s tax, some 260,000 American households would be hit.

While very few—absent savage inflation—will have to worry for now about being caught within Warren’s net, the fact that this tax is not only targeted at billionaires already sends a message. It will not be long before the definition of ultra-wealthy is defined further down, and more and more citizens find themselves caught in a tightening net.

John Mozena is correct: “Republicans fumble away fiscal conservatism in stadium subsidy projects.”

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with Rebecca Lowe and Henry Oliver about recovering the soul of liberalism.

Scott Lincicome talks tariffs and trade.

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… is from page 10 of Martin Wolf’s excellent 2004 book, Why Globalization Works:

[A]nti-globalization protesters … fall rather in the category of spoiled children. But they are ‘our’ children. If we fail to persuade the idealistic young of the merits of a liberal global economic order, it may founder before the certainty of its enemies.

DBx: When Wolf wrote these words at the dawn of the 21st century, the loudest and most prominent opponents of free trade and globalization were young people. Today’s young people – being, on average, no more economically informed and wise than was that earlier generation – are just as likely as was that earlier generation to oppose free trade and globalization. If today’s young people are more silent on the issue than was the earlier generation, it’s only because they don’t want to be seen to be in league with Donald Trump and other conservative economic nationalists; after all, Trump and his MAGA fans support the same economically ignorant protectionist policies that the 1999 protestors in Seattle supported.

Nearly all members of my geezer generation who are all in on MAGA protectionism have no hope of being enlightened about the economics and ethics of free trade. Their minds are closed. But young people are generally more open-minded. We free traders must direct the bulk of our educational and persuasive efforts toward the young.

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Here’s a letter to a new correspondent.

Mr. C__:

Thanks for your email in response to Mark Perry’s and my Washington Post piece – a piece showing that, over the past 50 years, as U.S. trade deficits increased, Americans’ real net worth rose. Accusing Perry and me of “confusing correlation with causation,” you also write that “Americans would be even more rich today if that investment was done by us instead of foreigners.”

With respect, we don’t confuse correlation with causation. The common accusation about U.S. trade deficits, such as the one we quote from Warren Buffett, is that these trade deficits reflect irresponsibly excessive American consumption – consumption paid for either with funds borrowed from foreigners or with funds received in exchange for the sale to foreigners of valuable assets. If this accusation were correct, the average real net worth of American households would have fallen just as the average real net worth of the households on your neighborhood block would have fallen if those households generally and irresponsibly borrowed and sold off assets in order to fund current consumption.

The fact that the real net worth of the average American household rose, rather than fell, over the past 50 years shows that U.S. trade deficits do not generally reflect irresponsibly excessive consumption by Americans.

Now about your claim that we Americans would be even richer had we, rather than foreigners, done those investments: This claim is trivially true. But it’s trivially true in the same way that it’s trivially true that I would today be even richer had I, and not Jeff Bezos, launched Amazon in 1994. The reality, of course, is that it was Jeff Bezos, and not I, who had the idea for Amazon. If Bezos hadn’t had the idea for Amazon, no miracle would have bestowed that idea on me (or anyone else). The idea itself would not exist and nor would Amazon as we know it. The central point here is that Bezos’s launch and successful operation of Amazon took nothing from me; nor did it make me poorer. In fact, Bezos enriched me and hundreds of millions of other people by creating the greatest retail experience so far known to humankind.

Nor did Bezos’s launch of Amazon prevent me from starting a new business, either in competition with Amazon or in some other industry. If I had more entrepreneurial creativity and gumption, I’d have done so. But my failure to do so wasn’t caused by Bezos.

The story is the same with foreign investment in the U.S. That investment doesn’t prevent American investors and entrepreneurs from taking advantage of new opportunities to produce and profit. To suppose otherwise is to believe that entrepreneurial opportunities are fixed in number and exist independently of the creative minds that conceive and implement them. Such a belief is profoundly mistaken.

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