Exactly 200 years ago, [David] Ricardo published “On the Principles of Political Economy and Taxation,” explaining the doctrine of comparative advantage. Paul Samuelson, a leading 20th-century economist, cited this doctrine when challenged to name a social-science proposition that is both true and not obvious. British journalist Matt Ridley calls Ricardo’s insight “a thoroughly counterintuitive idea” that “takes Adam Smith’s division of labour one step further.” It explains why free trade benefits every country, even relatively advanced England trading cloth for wine from relatively undeveloped Portugal, which has a comparative advantage making that product.
Seven years after Ricardo’s book appeared, Thomas Babington Macaulay wrote, “Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular.” It certainly is with the Trump administration, which bristles with chest-thumping anti-cosmopolitans who are too flinty to be bamboozled by foreigners such as Ricardo and others who deny that trade is a zero-sum game.
Dan Mitchell applauds foreign investment in America.
Bob Higgs applies principal-agent theory to politics. A slice:
Moreover, unlike the market setting, where principals can establish measurable objectives for an agent to accomplish and create legally enforceable, quantitative incentives for the achievement of goals—for example, defined profit sharing or graduated compensation, perhaps in the form of stock options or other links to the agent’s performance—the political setting permits no such linkages. As a rule, the candidates for election to public office make vague promises, hardly any of which are subject to straightforward monitoring or quantitative measurement. In general, it is impossible for principals in the electorate to identify precisely how their office-holding agents have succeeded or failed. And even if a definite failure were to be confirmed, the political agent cannot be held accountable in a fashion comparable to the accountability of an economic agent who can be immediately fired or penalized according to a formula stipulated in his contract. Political agents are supposedly accountable at the next election, in the event that they run for reelection, but—wholly apart from the fundamental problems of monitoring and measurement—once in office they have substantial advantages in rigging electoral factors in their favor (e.g., by gerrymandering electoral districts or by steering government contracts or subsidies to borderline voters) so that the principals (the voters in this case) cannot discipline or dismiss them. For the most part, political agents are not truly accountable to the principals, but only to the major contributors to their reelection campaigns. Accountability is in general much more myth than substance.
Brian Domitrovic explains that soaking the rich can lead to greater economic inequality.
Here’s Mike LaFaive on a largely overlooked consequence of taxing cigarettes.
