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Mr. Oren Cass
Chief Economist, American Compass

Oren:

My friend Steven Kaufman just shared with me your March 2025 F&D Magazine piece – which I hadn’t yet seen – “In Search of the Invisible Hand.”

Your portrayal of the case for free markets – and of the scholars who make that case – is disappointingly tendentious.

Start with your argument that economists make too much of Adam Smith’s metaphor of the invisible hand. You’re correct that Smith used that phrase only once in Wealth of Nations, but you incorrectly infer from this fact that Smith attached little significance to the theme that it summarizes. That theme, which runs through the book, is that in free markets producers, sellers, investors, workers, and consumers not only generally are led to cooperate productively with each other without any central direction or design, but that government interference with such market-coordinated cooperation will likely make things worse. I don’t ever recall, in all of the many times in your writings that you mention Smith, your sharing this passage from Wealth of Nations:

What is the species of domestic industry which his capital can employ, and of which the produce is likely to be of the greatest value, every individual, it is evident, can, in his local situation, judge much better than any statesman or lawgiver can do for him. The statesman who should attempt to direct private people in what manner they ought to employ their capitals would not only load himself with a most unnecessary attention, but assume an authority which could safely be trusted, not only to no single person, but to no council or senate whatever, and which would nowhere be so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.

If you’re intent on making an honest and strong case that Smith was not the staunch advocate of free markets that the economists who you criticize believe him to have been, you should not ignore the above passage.

Regarding the particular context in which Smith used the phrase “invisible hand,” see here and here.

Your chief error, though, is to describe the case for free markets as being based on “blind faith.” Frankly, that’s a smear. People rely on faith when they have neither good reason – that is, no compelling theory – nor good evidence to support their case. Yet over the course of 250 years, economists – starting with Adam Smith – have developed and refined theories of the workings of the market, and have tested these theories with history and empirical data. Among the most notable such tests were performed by another Smith – Vernon, a co-winner of the 2002 Nobel Prize – who constructed laboratory experiments that confirmed that markets are remarkably proficient at coordinating human action absent conscious direction.

And there are mountains of historical verifications of the successful working of spontaneous-ordering market forces. Consult, for example, the Journal of Law & Economics, Regulation magazine, and the Independent Review. Read the data-rich articles and books written by T.S. Ashton, Robert Higgs, Douglas Irwin, Deirdre McCloskey, Douglass North, Elinor Ostrom, Julian Simon, Thomas Sowell, and Lawrence H. White – to name only a few.

It’s true that there are challenges to this theory and history, yet the very existence of these challenges proves that the economic case for free markets isn’t one of blind faith. It’s one of science.

But if you insist on identifying a policy that relies heavily on faith, consider your own endorsement of industrial policy. Economists have a theory of how prices, profits, losses, and other market signals provide both the knowledge and the incentives for resources to continually be directed away from less-productive and toward more-productive uses. What is your and other industrial-policyists’ theory of how the politicians and mandarins who are to carry out your industrial policies will get the knowledge they need in order to achieve economic outcomes superior to those brought about by free markets?

My question is serious. Please identify that theory. Explain how elected officials in the White House and on Capitol Hill, and bureaucrats on the streets and avenues around them, will obtain the knowledge required to out-perform the market at allocating resources. Do so with the rigor that’s found in any ordinary ECON 101 textbook.

Until and unless you identify such a theory, it is you and other interventionists – not those persons who you regularly deride as “market fundamentalists” – who are guided by faith.

Sincerely,
Don

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Prager University’s new short video on the Great Recession was inspired by Chapter 5 of Phil Gramm’s and my 2025 book, The Triumph of Economic Freedom.

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The Wall Street Journal‘s Matthew Hennessey is rightly sickened by the sight of the hammer and sickle being waved promotionally in Times Square. Two slices:

In a better world, the media would treat the appearance of the hammer and sickle at this weekend’s No Kings rallies the same way it treated the appearance of the tiki torches in Charlottesville, Va. That is to say, as evidence that something has gone deeply wrong in our political culture.

In 2017, a platoon of fascist dorks marched across the lawn at the University of Virginia chanting, “You will not replace us.” The entire political world flipped out for weeks—months, years even. They’re still recovering.

In 2026, keffiyeh-clad tankies clustered in New York’s Times Square chanting, “Only one solution, Communist revolution.” How much do you want to bet you’ll never hear about it again?

Communism is like Covid-19: a pathogen of relatively recent vintage that will be with us forever. As Free Expression columnist Louise Perry wrote in January, communism’s “infantile morality” is perennially attractive to the young. Its empty promise of a new world built on sharing and caring appeals to the ignorant envy of the unformed mind. It’s baby stuff

A well-functioning society educates the baby stuff out of its citizens. That doesn’t happen here because the people who do the teaching tend to be communist sympathizers, if not outright believers.

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The hammer and sickle represents repression and dictatorship, stagnation and misery, the negation of human rights, the opposite of progress. It is the symbol of unfreedom, and therefore of slavery. It is death on a stick.

When an American sees the hammer and sickle he should feel the same instinct to retch that he feels when he sees the swastika. That he doesn’t—that he rolls his eyes and thinks, “They’re just kids, they’ll grow out of it”—is an insult to the memory of the 100 million [innocent people killed by communism]. And it suggests that the grand total is perhaps not the final tally.

Peter Earle writes wisely about AI. Here’s his conclusion:

History suggests that the economic consequences of sweeping technological change hinge less on the invention than on the institutional ecosystem surrounding it. Electrification required factory redesign. The internal combustion engine required road networks and suburban development. The Internet required specialized software, new legal frameworks, and payment systems. Artificial intelligence will be no different. Its aggregate productivity impact will depend on education systems that adapt, firms that reorganize workflows, and regulatory regimes that neither stifle experimentation nor generate moral hazard. In that sense, the Productivity Panic of 2026 is likely to be less about machines replacing workers than about whether our institutions can evolve as quickly as our technologies.

Danny Crichton is understandably aghast at the economic stupidity packed into new legislation proposed by a U.S. Senator from Vermont and a U.S. Representative from New York City. A slice:

Artificial intelligence is currently the white-hot center of America’s economy. Big Tech is investing more than $750 billion in data centers this year, mostly domestically. Unsurprisingly, wages for construction workers and the skilled trades are skyrocketing. Communities like Virginia’s Loudoun County are almost covering their entire operating budgets through data-center taxes.

Representative Alexandria Ocasio-Cortez and Senator Bernie Sanders want to put a stop to all of that. On Wednesday, the pair jointly proposed a universal halt to America’s AI economy. Their bill would enact a moratorium on new and existing data-center growth as well as a ban on exporting AI chips. The pause would last until Congress passes a “framework” to regulate the industry.

In other words, the degrowth duo want to tie up America’s most innovative and globally competitive industry using the same bureaucratic process that has recently resulted in TSA airport security lines snaking through terminals and parking garages. And they want to take advantage of Americans’ understandable fears about new technology to impose their radical beliefs on the nation’s economy.

The Editors of National Review decry progressives’ determination to further soak the rich. A slice:

Above all, a wealth tax would be unjust because it aims to perpetrate the very expropriation that republican government exists to prevent. The purpose of the tax code is to pay for legitimate state functions, not to seize money from one set of citizens and dole it out to another. Contrary to popular belief, the richest households already contribute the bulk of federal revenue and pay higher effective tax rates than anyone else. Any leftover wealth is rightfully theirs to spend as they see fit.

Absent a compelling message on affordability, progressives are attempting to channel voters’ economic discontent into class resentment. But a punitive tax on the rich would do no one any good, while risking U.S. investment and competitiveness.

My Mercatus Center colleague Satya Marar wonders why politicians in the U.S. want to copy the E.U.’s failed Digital Markets Act. A slice:

Two years after the European Union (EU)’s Digital Markets Act (DMA) took effect, the results have been mixed to negative. Promises about certainty, lower enforcement costs, and a more innovative and competitive digital ecosystem haven’t materialized.

Rather than learn from Europe’s mistakes, Californian policymakers and federal proponents of Sen. Amy Klobuchar (D-MN)’s American Innovation and Choice Online Act (AICOA) would import similar ideas to ostensibly help small businesses and hold tech giants accountable. The EU’s experience shows that DMA-style proposals aren’t just unlikely to achieve these goals. They’re also likely to harm consumers, competition, and innovation.

The Editorial Board of the Wall Street Journal warns against reviving Jimmy Carter’s foolish wish to tax so-called “windfall profits.” A slice:

Fossil-fuel opponents aren’t letting the Iran war go to political waste. Progressives are using rising energy prices to seek higher taxes on oil and gas companies, which would discourage the investment needed to increase supply and bring down prices after the war is over.

Iran’s harassment of shipping through the Strait of Hormuz and attacks on the region’s energy infrastructure have driven up oil and gasoline prices. Enter Rhode Island Sen. Sheldon Whitehouse and California Rep. Ro Khanna, who have introduced a bill that would impose a 50% tax on U.S. crude sold above the 2025 Brent average (roughly $68 a barrel).

Democrats have proposed similar bills to tax the so-called windfall earnings of oil producers in the previous two Congresses, which is a giveaway that the war in Iran isn’t what’s motivating them. They want to reduce U.S. production at any time for any reason.

U.S. producers have benefited from higher prices caused by the war, but much less than the left claims. Some frackers began pulling back rigs last year as prices fell below what they needed to break even on their investments. Producer margins last year were squeezed by inflation, higher interest rates and tariffs.

The price of Brent crude has been bouncing around north of $100 a barrel, though U.S. shale blends trade at a steep discount in part because they are more costly to refine. At a Brent price of $112 under the Whitehouse-Khanna bill, the government would extract $22 in tax for every barrel sold. That’s more than what some producers have been earning in profit.

Higher prices enable companies to boost supply. Taxing production does the opposite. The short-lived U.S. experiment with a windfall oil profits tax from 1980 to 1988 reduced domestic production and resulted in 80% less tax revenue than projected. Congress finally repealed the tax because it made the U.S. more dependent on foreign oil.

The Trump administration is hard at work raising Americans’ cost of living. (HT Scott Lincicome)

The Trump administration ordered U.S. refiners ​on Friday to blend a record amount of #biofuels into their gasoline and diesel this year and next, a move the refining industry said would raise #gas pump #prices already spiking due to the war in Iran.

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… is from page 317 of the late University of Washington economist Paul Heyne‘s undated and previously unpublished manuscript titled “Teaching Economics By Telling Stories,” as it appears in the 2008 collection of Heyne’s writings, “Are Economists Basically Immoral?” and Other Essays on Economics, Ethics, and Religion (Geoffrey Brennan and A.M.C. Waterman, eds.) [original emphasis]:

Moreover, social systems that impinge on us daily in important ways seem threatening when we don’t know how they work. They generate alienation and anxiety. So the best reason for anyone to learn economics is that a knowledge of how markets work empowers the knower. Economic understanding is a powerful antidote to the sense of impotence that comes from supposing that “they” must be in control because “we” are not.

DBx: Yep. Learning sound economics, even if only ECON 101, outfits you with the intellectual equivalent of x-ray-vision glasses: You are able to see forces and consequences that are invisible to people who know little or no economics.

But there’s a downside. (How could there not be? Economics also teaches that there are no solutions, only trade-offs.) Seeing forces and consequences that other people don’t, you naturally want to tell people – often to warn them for their own good – about what you see. But because most of the people with whom you share your econ-vision knowledge do not see what you see, those people think that you’re either a kook or a mercenary liar. Nevertheless, it’s far better to be informed and knowledgeable than to be blind and ignorant.

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Art Carden describes “the tragedy of Paul Ehrlich.” A slice:

In the Malthus-Ehrlich view of the world, every new person is just a stomach and a pair of hands. Diminishing marginal returns means the hands can’t keep up, and disaster is inevitable. In [Julian] Simon’s view of the world, which I share with a great many economists and other commentators, each person is a stomach, a pair of hands, and a brain—a creative mind. That creative mind, according to Julian Simon, is the ultimate resource.

The New York Times called his predictions “premature.” The word they needed to use was “wrong.” His alarmist predictions informed fifty years of population and environmental policy, including China’s one-child policy and the demographic cliff we face as population growth slows and may eventually turn into decline. Ehrlich’s ideas had disastrous consequences, and the greatest tragedy of his passing is that he apparently died never having learned from a career of alarmism and sustained error. May his example and his memory serve as a warning to us all.

The Editorial Board of the Washington Post argues that the American economy is hurt, not helped, by the U.S. government’s increasing proclivity to mimic the interventionist policies of the communist government ensconced in Beijing. A slice:

The administration has already used taxpayer dollars to buy equity stakes in other critical mineral companies, such as Trilogy Metals, Lithium Americas, MP Materials, Vulcan Elements, Korea Zinc and USA Rare Earth. It’s also entered into an agreement to take a 10 percent stake in Intel, the chip manufacturer, and secured a “golden share” of U.S. Steel while negotiating the acquisition of that company by Japan’s Nippon.

There may be a case for limited government intervention to guarantee the supply of certain inputs into products crucial for national security. But a better way to ensure that happens is reducing trade barriers with allies rather than allowing bureaucrats to bet on which firms might be successful.

These deals are especially problematic when the companies have business connections with administration officials or close allies of the president. Syrah, for example, is closely tied with Elon Musk’s Tesla. But they also distort the economy by boosting projects that might not make sense economically. And taxpayers will be left holding the bag if the company fails.

China’s control of critical minerals is a serious issue, but having Uncle Sam as a minority shareholder in a foreign mining operation won’t solve it. Getting out of the way of innovators, and allowing private money to flow more freely between friendly nations, would do more.

Scott Lincicome tweets:

The Trump administration’s new biofuels bailout means higher US gas and food prices and worse environmental outcomes.

But at least farmers will get another $3-4B from the government.

Per Bylund reveals “the real lesson of the TSA walkout.”

Daniel Freeman explains what shouldn’t – but, alas, what nevertheless always does – need explaining: Rising prices are not caused by “greed” (but price ceilings, in addition to further reducing access to goods and services, are caused by greed – namely, the greed for political power).

Stephanie Slade writes that the loathsome “Nick Fuentes and his followers compete to see who can be most offensive.”

Whether you regard the current war on Iran as righteous or reckless, Coleman Hughes debunks the lazy notion that the U.S. government is a pawn of the Israeli lobby. Two slices:

The idea that the most powerful country the world has ever known is being puppeteered by a country the size of New Jersey — and by a group that collectively accounts for 0.2 percent of the world’s population — is an extraordinary claim. You would expect overwhelming evidence. In reality, there’s little to substantiate it.

Criticize America’s foreign and domestic policy as much as you want—there’s plenty to criticize. But don’t blame it on Israel or its supporters.

The centerpiece of this narrative is a historical claim: that Israel got the United States into the Iraq War. In reality, Israel’s prime minister came to the White House to caution President Bush against invading Iraq, warning that it would empower Iran, Israel’s real enemy. Bush listened politely, then ignored him and invaded anyway, because American presidents make their own choices, for good and for ill.

At the same time, the IDF chief of military intelligence said on TV in the fall of 2002 that Israel did not believe Saddam Hussein could obtain nuclear weapons, contradicting U.S. intelligence assessments. It’s hard to imagine a clearer discouragement. Again, the United States ignored this and proceeded for its own reasons.

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The United States maintains hundreds of military bases worldwide and spends vast sums sustaining its global presence. For example, the U.S. stations 30,000 American troops in South Korea and loses $3–4 billion every year because of its deployment there. But no one argues that an all-powerful South Korea lobby controls American foreign policy.

Glenn [Greenwald] tried to argue that the fact that we have troops deployed in South Korea makes the $4 billion a year we lose there a lesser commitment than the aid to Israel. But if the situation were reversed — if we had troops deployed in Tel Aviv and not Seoul — then he’d argue the opposite! Dave [Smith] and Glenn are always reasoning backward from their conclusion — they start from the premise that Israel controls us, and fill in the reasons afterward.

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… is from page 31 of the late Brian Doherty’s superb 2007 book, Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement:

Libertarianism arose in America from distinctly American roots. Yet in its soul it is a cosmopolitan philosophy, celebrating a world united in spirit, ideas, and trade, while reveling in the wide panorama of freely chosen local peculiarity that only relatively free polities can provide.

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… is from this Facebook post by my former NYU professor Mario Rizzo:

It is too much to say that wealthy people have a moral obligation to flee high tax states. However, they do other taxpayers a favor by putting pressure of rapacious government to curtail its taxes and programs.

DBx. Yes indeed.

(The image is from this January 2020 essay by the Cato Institute’s Chris Edwards.)

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Here’s a letter to the editor of National Review Online.

Editor:

Daniel Flynn’s reflections on Bill Buckley’s “feud” with Murray Rothbard are excellent (“Revisiting the Buckley–Rothbard Feud,” March 27). And while the balance of my sympathies are with Buckley and against Rothbard, on the question of the private provision of lighthouses, it was Buckley rather than Rothbard who suffered what Buckley called “the disadvantages of knowing nothing about lighthouses.” Rothbard was correct, and Buckley not, that private provision of lighthouses isn’t only possible, it was real.

In 1974, the great Nobel-laureate economist Ronald Coase published “The Lighthouse in Economics,” which tells of many lighthouses in Britain in the 18^th and 19^th centuries being privately built and operated. Fees were collected when ships docked at nearby ports. Although government wasn’t completely out of the picture – it set rates and helped to collect fees – private enterprise, contrary to Buckley’s supposition, did indeed play a significant role in providing lighthouse services.

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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GMU Econ alum Erik Matson is having none of Katie Miller’s ignorant accusation that classical liberalism is woke progressivism.

Although the competition is stiff, Scott Lincicome identifies “the world’s dumbest tariff.” Two slices:

For American consumers, higher aluminum costs flow into the retail prices of food, beverages, foil, appliances, and more. For US manufacturers, the steep premium means higher costs and reduced competitiveness. Aluminum is a critical input for both advanced manufacturing – automotive, aerospace, defense, etc. – and less capital-intensive industries like food production. Today, American firms pay much more for the metal than do their overseas competitors.

Economists have found that Trump’s first-term aluminum tariffs hurt manufacturing on net. The harms today are surely greater, given the tariffs’ higher rates and broader scope – and dwindling domestic inventories that could cushion the blow. The complicated “derivatives” regime, which requires US companies to report imports’ precise metals content, has added more costs – a regulatory burden that even Trump officials acknowledge.

American supply chains are also more fragile. In one absurd example, Ford Motor Co. reported last month that a fire at its main US supplier would force it to pay $1 billion more to import aluminum in the meantime. (And that was before Iran.) Manufacturers without Ford’s resources and clout have been hit even harder, unable to get needed supplies and pausing expansion plans in response.

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Overall, aluminum protectionism has been a confounding own-goal. Tariffs haven’t just raised prices and harmed American manufacturers; they’ve actively pushed a top producer and close ally out of our market, with shrinking domestic sources unable to fill the gap. Given the metal’s role in the US defense industrial base, aluminum-related risks are likely higher today than they were before “national security” tariffs were ever enacted.

New investments, meanwhile, require years of sky-high prices before coming online and will take resources from better uses when they do. The US Chamber of Commerce estimates that replacing imports with domestic aluminum would require electricity generation equivalent to that of Nevada – finite power unavailable for semiconductors, data centers, and every other “strategic” industry Washington says we need. With clean, abundant, and secure supplies right across the border, choosing this path is nonsensical.

High-earning – that is, mostly highly productive – Americans continue to vote with their feet for lower-tax states. Two slices:

As Democrats across the country seek to raise income taxes, the IRS on Friday released new data on state income migration that is a reality check on their ambitions. Even after the pandemic, high-tax states continue to lose tens of billions of dollars in taxable income to low-tax states.

The latest IRS data includes the adjusted gross income (AGI) of tax filers who moved between and within states between 2022 and 2023. Not surprisingly, overall migration ebbed from record highs in 2020 and 2021 during the Covid lockdowns. A mortgage lock-in effect and rising interest rates also resulted in fewer people moving.

Yet states with the highest taxes continue to lose the most income to other states. California lost on net $11.9 billion, mostly to Texas, Nevada and Arizona. Other big losers include New York ($9.9 billion), Illinois ($6 billion), Massachusetts ($4 billion), New Jersey ($2.6 billion), Maryland ($1.8 billion) and Minnesota ($1.5 billion).

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People move for reasons besides taxes, but taxes influence the economic climate and opportunity. Government unions that rule high-tax states also work to undermine the quality of public education and other services, while ballooning welfare states squeeze spending on public safety.

When partisan gerrymanders and public-union machines entrench one-party Democratic governance, people who can’t affect political change at the ballot box vote with their feet. And they are taking their wallets and mutual funds with them.

Hank Adler reports on the flight from California of that state’s wealthy taxpayers. A slice:

California has long depended on a small number of ultrawealthy taxpayers to fund a large share of its government. According to the Legislative Analyst’s Office, the top 1% of taxpayers generate roughly 40% of the state’s personal income-tax revenue.

The flight of even a handful of California’s highest-earning taxpayers from the state has immediate and significant consequences for Sacramento’s finances. Although California doesn’t currently tax wealth directly, it heavily taxes the income generated by wealth—particularly capital gains. When billionaires change their state of residence, California largely forfeits the ability to tax those gains in the future. Former residents who are company founders won’t pay California income taxes when they sell shares in their companies after they leave the state.

Jack Nicastro explains that Elizabeth Warren “fails to consider how her tax would harm middle class Americans and slow economic growth.”

My intrepid Mercatus Center colleague, Veronique de Rugy, asks: “How will Congress fund a $300 billion war with Iran?” Here’s her conclusion:

In the end, the $300 billion question isn’t really about Iran. It’s about whether Congress will admit that nothing the federal government does is free, and that the bill always comes due. The only choice is who pays for it and when.

Eric Boehm is correct: “From long TSA lines to air traffic control issues to the chaotic war in Iran, it’s all the result of a government that won’t take its powers or responsibilities seriously.” A slice:

It doesn’t have to be this way—and a country with a more serious government would have fixed it long ago.

America’s entire air-traffic control system relies on technology that is woefully out of date (which probably makes it more difficult to recruit workers) compared to systems used in other countries. It remains that way because it is funded and managed by the federal government, rather than by the people who must rely on it to work: airlines, airports, and private pilots.

Those entities would have an incentive to make sure the air traffic control system is top-notch and fully staffed. As Reason Foundation cofounder Bob Poole noted in November, roughly 100 countries receive their air traffic control services from user-funded utilities. “If any of their governments were to have a shutdown like ours, air traffic control would continue to operate normally,” Poole wrote.

The federal government could fix this problem with air traffic control anytime it wants. This is not a partisan issue. It does, however, require some semblance of seriousness from our policymakers—so it is unlikely to happen, and another accident is inevitable.

Jeffrey Miron continues to share research evidence of the folly of minimum-wage legislation.

Robert Trivers is remembered by his student Robert Lynch. A slice:

The first [paperr], published while he was still a graduate student at Harvard, confronted one of the deepest problems in evolutionary theory: how can natural selection favor cooperation between non-relatives? In The Evolution of Reciprocal Altruism Trivers proposed that cooperation could evolve when the same individuals interacted repeatedly, making it advantageous to help those who were likely to help in return while avoiding cheaters who took benefits without reciprocating — i.e.“you scratch my back, I’ll scratch yours.” The paper offered an elegant solution to the problem of how natural selection can “police the system” and has had enormous implications for human psychology, including our sense of justice, with parallels in other mammals such as capuchins and dogs. The next year in 1972, Trivers published his most cited paper, Parental Investment and Sexual Selection. Here he offered a unified explanation for something that had puzzled biologists since Darwin. Writing perhaps the most famous sentence in all of evolutionary biology—“What governs the operation of sexual selection is the relative parental investment of the sexes in their offspring”—Trivers threw down the gauntlet and revealed a deceptively simple principle that reorganized the field. From that insight flowed one of the most powerful and falsifiable ideas in modern science: the sex that invests more in offspring will tend to be choosier about mates, while the sex that invests less will compete more intensely for access to them.