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… is from page 6 of Robert Higgs’s “Introduction” to his important 2012 book Delusions of Power:

While knocking from their pedestals some of the “great men” of the past century, I also devote attention to debunking a variety of ideas and related programs that flourished along with these leaders, such as business-government cooperation, pump priming via government deficit spending, Johnson’s War on Poverty, Nixon’s New Economic Plan, and the antirecession “stimulus” and bailouts caring out recently by the Bush and Obama administrations. Such ideas cloak a frenzy of opportunism in which politicians snatch new powers and special interests enrich themselves at public expense, all in the guise of saving the day – more often than not, a day that needs saving only because of destructive actions the government has taken previously.

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Here’s a letter to a long-time correspondent.

Mr. Barnes:

Thanks for sending along Oren Cass’s recent Congressional testimony. Unlike you, I’m not favorably impressed.

The Chinese government is indeed a bad actor and, therefore, a case can be made for certain trade restrictions with that country. Cass’s case, however, isn’t it. A credible case would, unlike Cass’s, be free both of misleading statistics and dubious claims, such as this one:

In 2024, the United States imported $440 billion in goods from China while exporting only $143 billion in return. For the most part, the PRC refuses to open the Chinese market to American exports and instead trades its own exports for American assets. This not only compounds the problems of investment and control, but also hollows out American industry, as production for the American market moves offshore but no commensurate foreign demand emerges for what America might produce.

Face-palm.

In our world of more than two countries, a bilateral ‘trade deficit’ between any pair of countries has no policy-relevance. It does nothing to establish that the country running the bilateral ‘surplus’ restricts access to its market. And because Americans produce and export services as well as goods, a bilateral goods trade ‘deficit’ with China tells us even less about the economic consequences of trade with that country.

Yet Cass trots out this statistic as if it establishes that trade with China damages the American economy. It doesn’t.

Moving on. Even if China were the world’s only other country, and even if all production and consumption were of goods, Cass’s assertion that China thereby “trades its own exports for American assets” remains misleading.

The American assets that Chinese investors acquire through market transactions are assets that their American owners choose to sell. These Americans receive payment in exchange, and foreign demand for American assets can increase the value of assets that Americans continue to own. Cass identifies several industries in which he believes Chinese investment or control poses national-security risks. But he offers no evidence that the bilateral ‘trade deficit’ has resulted in Chinese acquisitions of American assets that threaten national security.

Moreover, contrary to the impression Cass conveys, these asset sales do not necessarily reduce Americans’ net worth. Americans can invest the proceeds in other assets or use them to finance productive enterprises. Indeed, that Americans have largely done so is evidenced by the fact that Americans’ real median household net worth has risen substantially over the past several decades.*

As for the hackneyed assertion of ‘hollowing out,’ U.S. industrial capacity today is at an all-time high and 13% larger than when China joined the WTO in 2001.

One reason for this healthy growth in U.S. industrial capacity is that the U.S. remains the world’s leading destination for inward foreign direct investment (FDI). In 2025, the value of the stock of FDI in the U.S. was $5.7 trillion – the largest in the world. The corresponding figure for China was $3.8 trillion.** On a per-capita basis, therefore, the U.S. now has 5.2 times more inward FDI stock than does China. Foreign capital finances new American enterprises and expands the very productive capacity that Cass claims foreign purchases of assets in America ‘hollow out.’

Cass’s errors further cascade with his claim that “no commensurate foreign demand emerges for what America might produce.” In our world of more than two countries, the Chinese need not purchase American products in amounts equal to their sales to Americans. They can instead purchase products from other countries, whose residents then use the resulting dollar earnings to purchase American exports. And in fact, the inflation-adjusted value of U.S. exports is today at an all-time high, having more than doubled since China joined the WTO.

If a serious case is to be made for the U.S. to restrict trade in order to minimize the military threat posed by China, that case should rest on evidence of specific threats and a careful assessment of the likely consequences of the proposed restrictions. Yet Cass’s talk of bilateral trade ‘deficits,’ foreign asset purchases, and ‘hollowing out’ instead inflames rather than informs.

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

* Here’s part of an Endnote from Bryan Caplan’s and my forthcoming book, Blockade (Cato Institute, 2027):

Jeremy Horpedahl – using data from the Federal Reserve’s historical financial surveys and adjusting the figures for inflation with the chained Consumer Price Index and the earlier CPI series used by the U.S. Census Bureau in its historical household-income series – calculated the increase in real (in 2022 dollars) median U.S. household net worth:

1962 – $57,380
1969 – $71,226
1983 – $87,859
1989 – $108,501
1992 – $102,977
1995 – $111,868
1998 –$130,733
2001 – $145,208
2004 – $146,128
2007 – $173,151
2010 – $105,166
2013 – $103,609
2016 – $119,995
2019 – $141,145
2022 – $192,700.

** Calculated by Claude from data here and here.

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Rather than tighten the reins on the power of the executive branch to levy tariffs punitive taxes on Americans’ purchases of imports, Congress recently loosened those reins, as was wanted by the late protectionist Lindsey Graham. Clark Packard, Alfredo Carrillo Obregon, and Eli DeLuca warn of the consequences. A slice:

For nearly a decade, the executive branch has abused the broad, highly discretionary tariff authorities Congress granted it throughout the 20th century. These abuses have imposed high economic costs on American firms and consumers; undermined the United States’ international standing; and fueled rent-seeking cronyism in Washington. Thus far, Congress has failed to rein in those abuses by reforming the underlying laws and reasserting its constitutional authority over tariffs and trade policy. To be sure, the political costs of limiting the executive branch’s powers—particularly concerning policies that benefit many well-connected, highly concentrated special interests and are simultaneously intertwined with sensitive issues like “national security” and geopolitical competition with China—are high for most legislators.

But what is indefensible is for Congress, knowing about the economic costs and political dysfunction engendered by executive tariff abuse, to grant even broader and highly discretionary tariff authorities to the White House—and this president in particular. Yet, that is exactly what Congress did on September 16, when the House of Representatives passed the Lindsey O. Graham Sanctioning Russia and Iran Act of 2026.

We have previously outlined the flaws of the tariff mechanism approved as part of this legislation to sanction the largest purchasers of Russian energy and the largest enablers of Russian sanctions evasion. To be clear, our criticisms have nothing to do with the underlying objective of supporting Ukraine or even with the foreign policy merits of doing so by putting economic pressure on these countries. But achieving them need not require giving the executive branch outsized discretion to impose additional annual tariff costs as high as $400 billion on a static basis. And discouragingly, even amendments that would have kept this mechanism in place but limited its proneness to presidential abuse did not even make it out of committee. Congress is, indeed, content to abdicate its Article I authority for political convenience.

Until now, lawmakers had an alibi. The statutes the administration relied on were enacted decades ago in policy landscapes very different than today—plus, the president invoked them on his own. When he imposed 25 percent tariffs on imported upholstered furniture in the name of “national security,” members of Congress could accurately claim he acted on his own.

When the Supreme Court held in February that the International Emergency Economic Powers Act does not authorize tariffs, the administration pivoted to a 1974 balance-of-payments statute drafted for a world with fixed exchange rates (which no longer exists). After the Court of International Trade ruled against those tariffs in May—and after they lapsed in July—the White House concocted a forced labor rationale in 60 countries to impose yet another round of new tariffs. Congress could look the other way and treat all of it as a battle between the president and the courts.

That alibi is now gone. This time, Congress wrote the new authority itself, with the whole record in front of it. The bill lets the president set tariffs up to 100 percent on the largest buyers of Russian oil and gas that continue purchasing these goods, as well as on the largest facilitators of Russian sanctions evasion. Yet it never specifies which data determine who those buyers or facilitators are. It leaves the executive branch to decide whether a country’s efforts to cut Russian energy purchases are “significant” for reducing tariffs. And Congress failed to reserve any power to approve or block any particular tariff (it may only disapprove of a presidential decision to terminate a tariff). Every member who voted yes had President Trump’s track record in plain sight. Whatever tariffs follow will carry their fingerprints.

Ironically, there’s a non-negligible chance that once this authority is used to impose high tariffs, some of the legislators who voted to approve it will petition the executive branch for relief from such onerous duties for their constituents. Earlier this week, it was reported that staunch Trump tariff supporter Sen. Katie Britt (R‑AL) quietly lobbied the administration for exemptions from Section 232 and Section 301 tariffs for companies in her state. “Tariffs for thee, but not for me,” is alive and well.

Scott Lincicome shares this line from The Economist:

Chinese GDP per person grew half as fast in 2014-24 as it did in 2004-14.

Jason Willick writes insightfully about AI and “Effective Altruism.” Two slices:

Effective altruism is a philosophy developed in the past 20 years or so, focused on estimating the probability of existential risks to humanity. It has attracted many smart, well-meaning, secular followers who want a moral purpose. Technologists seem especially drawn to the way EA appears to justify its precepts with mathematical rigor.

…..

Put aside the great imprecision of probabilities about such extreme circumstances that EA throws around. The utilitarian math wrenches attention away from more plausible dangers of rogue AI — such as hacking and theft, which can be dealt with through ordinary legal and cybersecurity mechanisms — and wrenches it toward the most extreme imaginable scenarios. The claim that a risk is existential gives EAs a pass to dismiss laws and institutions. “Our systems of laws, norms and organizations for handling risk have been tuned to the small- and medium-scale risks we have faced over past centuries,” Ord breezily claims.

EA’s philosophy of AI doom could have a self-fulfilling quality. It imagines humanity as essentially a machine for calculating and maximizing the well-being of the greatest number of people, now and in the future, ignoring other theories of morality. Imagine if AI agents were trained to act the same way. They’d just be one step away from calculating that they ought to be single-mindedly maximizing the “welfare” of AI agents, rather than humans, and (like their extinction-obsessed creators) taking extraordinary measures to ensure the bots can survive any contingency.

That would be the start of the very doomsday that EAs fear, in which humans irrevocably lose control of the technology. I’m not convinced such a scenario is particularly plausible, because computers aren’t conscious and don’t have any reason to be “motivated to wrest control of the future from humanity,” as [Toby] Ord puts it. EAs fear AI in part because they project their moral vision onto the algorithms. They assume agents will act in parallel with the way they believe people are supposed to act — as collective utility-maximizers.

The AI industry talks about “aligning” artificial intelligence with human value systems. Most human value systems look nothing like EA. But if the EA moral vision is triumphant in the technology world, the industry might end up making bots that are more prone to bizarre and dangerous behavior.

Fear of an apocalyptic AI takeover is rooted in the perception that machines can have motivations like people do. It isn’t true, as Microsoft recently emphasized in a helpfully “humanist” AI manifesto. But the illusion that it is true, rampant among doomers, can itself be dangerous.

Autumn Billings reports on “the shaky evidence that Flock cameras reduce crime rates.”

Carola Binder, Laura Crespo, Carlos Gento, Luis M. Guirola, and Ernesto Villanueva find evidence – unsurprising to me – that survey results should be read with much skepticism. Here’s the abstract of their new paper:

Probabilistic expectation questions are often used to measure subjective uncertainty, but respondents frequently assign all probability to one outcome. We show that this bunching is partly a survey artifact rather than genuine certainty. In the (online) ECB Consumer Expectations Survey and the (in person) Spanish Survey of Household Finances, bunching is higher among less financially literate respondents and increases with panel tenure. Two survey-design changes provide stronger evidence: enforcing neutral interviewer protocols reduces bunching by about 15 percentage points, and a later questionnaire redesign reduces it by a further 18 percentage points. Interviewer-level variation also falls after standardization. These findings imply that degenerate responses in probabilistic expectations can reflect task burden and survey administration, causing standard measures to overstate certainty and understate uncertainty.

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… is from page 4 of GMU Econ alums Matthew Mitchell’s and Peter Boettke’s superb 2017 book, Applied Mainline Economics: Bridging the Gap between Theory and Public Policy:

Prosperity matters. Greater wealth, of course, buys us nicer vacations and fancier gadgets. But it also buys us longer life spans. It buys us better nutrition and lower infant mortality. It buys more time with family and less time at work. It buys greater self-reported happiness. It makes us better stewards of the environment. And it even buys intelligence, for as societies grow wealthier, their average IQs seem to rise.

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Sarah Thomas sings the praises of globalization. A slice:

An economic order based on comparative advantage is more efficient and productive than economic nationalism. As a result, societies that have liberalized economically have seen the strongest growth, where growth often drives democratization and, ultimately, peace. But comparative advantage has less to do with a country’s technical ability for production and more to do with the efficiency of its production—so even the countries with the fewest resources can grow.

This dynamic intersects with opportunity cost, meaning that even if a country had superior technical skills in producing, another country could produce and sell the good to the first country at a lower cost than if that country produced it itself. In doing so, the other producer can be said to have a comparative advantage. A real-world example of this is Germany and Saudi Arabia. Germany has superior technical know-how but channels those skills toward the production of cars—its comparative advantage. Meanwhile, Saudi Arabia has the reserves and sufficient skill to extract and refine oil, giving it a comparative advantage as the world’s largest exporter of oil.

Hence, comparative advantage drives the international division of labor, which cultivates a peaceful world order of trading partners. But this peace is not limited to the modern globalized era. Indeed, earlier societies also embodied the peace of commerce—even prior to the Industrial Revolution. As Johan Norberg notes in Peak Human, history attests to seven “Golden Ages” of civilization where economic dynamism and peace prevailed.

The Editorial Board of the Wall Street Journal decries Trump’s “tariff gift to Abdul El-Sayed.” A slice:

President Trump’s trade war with Canada is harming both countries, but it’s helping American Democrats who are using his border taxes to attack Republicans. Ground zero is Michigan, where competitive races could decide control of Congress in November.

A new Ipsos poll conducted for the business coalition M finds that Mr. Trump’s tariffs are overwhelmingly unpopular in the state, especially the tariffs on Canada. While the President says other countries pay the tariffs, 80% of Michigan likely voters say American consumers do. They’re right.

Businesses that import goods embed the tariffs into their prices, sometimes in stealthy ways. Cox Automotive this spring found that Mr. Trump’s tariffs drove a 10.4% increase in the average suggested retail price for new cars. Michigan Smart Trade Alliance estimates tariffs have cost the state $26 billion since January 2025, or about $6,419 per household.

A large share of this tax bill comes on imports from Canada, which exports about $40 billion in goods to Michigan every year. Vehicles and parts make up roughly half of that. Because of its significant car manufacturing, Michigan depends heavily on cross-border supply chains with Canada and Mexico. Michiganders understand that.

Some 81% of Republicans and 92% of Democrats and independents say the U.S. trade relationship with Canada is crucial to the state economy, according to the Ipsos poll. About three-quarters of both parties want the U.S. to focus on combatting China’s mercantilist trade practices while at the same time maintaining strong trade ties with Canada and Mexico.

National Review‘s Daniel Foster, noticing the positive reaction of fans at Thursday’s Buffalo Bills – Detroit Lions game to the playing of Canada’s national anthem along with the Star Spangled Banner – and noting also the unpopularity in the U.S. of Trump’s tariffs punitive taxes on Americans’ purchases of imports from Canada – understandably wonders what effect Trump’s belligerence toward Canada will have on the November elections.

Incoming tourism is an export industry because the domestic economy is thereby selling goods and services to foreigners. Economic theory makes clear that restrictions on imports are also restrictions on exports. In 2025 Trump dramatically increased U.S. restrictions on imports. Unsurprisingly, therefore, in 2025 a major U.S. export industry – tourism – took a big, bad hit, as shown in this graph shared by Scott Lincicome.

My Mercatus Center colleague Satya Marar explains that “Trump’s MFN price controls aren’t the answer to America’s high patented drug pricing, but trade deals may be.”

Eric Boehm reports this: “The Trump administration paid federal workers $9.5 billion to skip work.”

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… is from page 213 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

The “academic freedom” argument for tenure gets more and more threadbare as more and more scholars work in think tanks where there is no tenure. The research coming out of these think tanks is at least as independent as that coming out of universities operating under the stultifying conformity of political correctness.

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Here’s a letter to a Facebook commenter.

Mr. McNicoll:

Commenting on Jeff Singer’s Facebook page, you unjustifiably call Reason’s Billy Binion a “moron.” You level this uninformed accusation at Binion because he points out that Trump is as clueless to complain about the so-called U.S. “trade deficit” with each of many individual countries as would be an individual American to complain about her “trade deficit” with a supermarket. In fact, the supermarket example is a correct and clear way of exposing the fallacy of Trump’s economics. Yet rather than recognize this fact, you resorted to name-calling.

Name-calling is easy and childish. Making a credible argument requires thought and maturity. So I challenge you to act like an adult and offer a credible argument in response to the following:

In an economy of more than two entities – more than two individuals, firms, towns, states, or countries – there’s absolutely no reason to expect any pair of these entities to sell to each other the same amount as they buy from the other.

Suppose, for example, that the world had only three countries: the U.S., Canada, and Brazil. Suppose further that in this world the U.S., each year, imports from Canada $1M of maple syrup, paying in U.S. dollars. The Canadians then use those U.S. dollars to buy $1M of coffee from Brazil. The Brazilians, in turn, use those U.S. dollars to buy $1M of corn from the U.S. There are (for simplicity) no other international transactions.

In this example – if Trump is correct – Canada is “ripping” America off, for the U.S. has a so-called “trade deficit” of $1M with Canada. Also if Trump is correct, were he as president to stop Americans from trading with Canada, we Americans would lose nothing; indeed, we’d gain $1M.

Do you think that Trump is correct? If so, show your work – work, by the way, that would also reveal that, according to Trump’s logic, the U.S. in this example is “ripping off” Brazil to the tune of $1M annually.

Note that if we now allow also for foreigners to invest some or all of their U.S. dollars in the U.S. instead of spending them all on U.S. exports, the absurdity of Trump’s ‘argument’ is only magnified.

Billy Binion is perfectly justified in using the supermarket example, for there is no essential difference that separates one individual’s “trade deficit” with a supermarket from one country’s “trade deficit” with another country.

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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My intrepid Mercatus Center colleague, Veronique de Rugy, explains that the U.S. government’s fiscal incontinence helps to fuel inflation by making more likely future monetization of the debt.

GMU Econ alum Dave Hebert has a new paper on manufacturing in the U.S. A slice:

The lesson from the Biden-Harris years is not that their policies were successful.Instead, American manufacturing is resilient enough to perform remarkably well despite regulatory headwinds. Regardless, bad policy does take its toll and is more accurately measured in unrealized potential: factories never built, jobs never created, and investment directed elsewhere. The regulatory hangover described here is not the story of a sector that collapsed or is “dead.” It’s the story of a sector that could have been significantly stronger.

“A 5 percent wealth tax would destroy a lot more than it raises” – so explains my Mercatus Center colleague Jack Salmon.

John Early tells “how to improve the Trump administration’s tepid proposal to remove race and ethnicity from the decennial census.” A slice:

Classifying people by race is inherently unethical because it enables government to discriminate for or against individuals or groups based on their race. At its most extreme, the Nazis in Germany and the Vichy government in France used official statistics as part of their genocide campaigns. The French have learned that lesson and forbid almost all data collection by race. Less extreme use of race to discriminate is widespread in the United States today, from college admissions to housing subsidies and hundreds of other applications. (For extensive documentation of such abuses, see David E. Bernstein, Classified: The Untold Story of Racial Classification in America.

George Leef reviews Unsung Heroes of the Market: The 24 Underrated Economists You Need to Know. A slice:

Rosolino Candela contributes a chapter on Israel Kirzner, who enrolled at New York University intending to study accounting and happened to hear about a professor who gave an interesting seminar on economics — Ludwig von Mises. Kirzner decided to attend and was so captivated that he chose to pursue a PhD in economics under von Mises. Candela writes, “The hallmark of Kirzner’s scholarship has been to take his inspiration from Mises and develop his own unique appreciation of the entrepreneurial market process, not for the purpose of illustrating where mainstream economic theory had gone wrong per se, but to explain why its focus on equilibrium states painted an incomplete picture of the market process.” Kirzner’s work also illustrates the ways government regulation hinders entrepreneurs from taking advantage of opportunities for profit.

Brian Albrecht continues to write insightfully about market prices and the many different margins on which individuals make adjustments to changes in economic constraints and opportunities.

Here the concluding paragraph of Noah Rothman’s reflections on Trump’s asinine proposal to give every American adult $5,000 if, in November, Republicans retain control of both houses of Congress:

If the president were surrounded by folks with a little more faith in voters’ intelligence, he might not have insulted them with the promise of a greasy payoff. He should find himself a few people who don’t hold their fellow Americans in contempt. That might make the next two years a little easier on this White House, the GOP, and whomever Republican voters pass the party’s baton to in 2028.

Scott Lincicome draws the logical conclusion from Trump’s latest ‘explanation’ of the meaning of bilateral trade deficits and surpluses:

Just think how rich you’ll be when you stop eating altogether!

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… is from page 24 of the new CL Press printing of the 1954 Revised Edition of Eli Heckscher’s 1931 book, Mercantilism [original emphasis]:

Without deviating from the relationship of mercantilist policy to the state, we may ask further, what was the object of mercantilism in using economic forces in the interests of the state? The answer is primarily that it wanted to make use of them not directly in the interests of the subject but to strengthen the state authority itself; it concentrated on the power of the state.