From 1798 to 1860, tariffs were pursued partly to stimulate American industry, especially after the humiliations of the War of 1812. But the main role of the tariff during the early phases of the republic was arguably to generate revenue. Ninety percent of federal receipts during these decades were in fact due to tariff revenue. Domestic taxes were minimal, and although state and local governments were quite active and large in scale, the scope of government was narrow.
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Douglas Irwin has provided a comprehensive overview of this issue in a 2001 article, and in his 2017 book Clashing Over Commerce. From 1870 to around 1920, American economic growth was driven more by capital accumulation than by rising total factor productivity. But judging by capital-output ratios, capital accumulation in the post–Civil War decades was most robust in non-traded service sectors that did not enjoy protection. Capital accumulation, moreover, was made more difficult by the high tariffs that existed on manufactured capital goods. The tariff during this period, Bradford De Long has argued, “made a very wide range of investment goods — from British machine tools and steam engines to steel rails to precision instruments — more expensive.” Capital accumulation and high growth occurred in non-protected industries, despite the tariff-induced increase in production costs.
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Freedom, resource abundance, and a commercial spirit of innovation — these were among the central causes of American economic greatness. The protective tariff may have played a modest role in aspects of economic development in the early decades of the republic, although there are reasons to question this. But it could also be argued that early American economic history broadly vindicates the tradition of free trade — a tradition, incidentally, I believe we would do better to associate with the thought of Adam Smith and Edmund Burke than Thomas Jefferson.
Norbert Michel explains that fears of a U.S. trade deficit are unwarranted. A slice:
Trying to ensure that the current account—or trade flows, or even just capital flows—is regularly balanced has no foundation in economic theory. A country’s capital inflows do not have to match its capital outflows, just as a country’s trade inflows (imports) do not have to match its trade outflows (exports). The failure of these flows to balance does not prevent a nation from reaching its maximum economic potential. Economically, it would make as little sense to try to balance these figures as it would to try to balance the goods or capital flows between Walmart and American consumers.
Back in May, the Wall Street Journal reported that the share of Americans who are satisfied with their jobs has been steadily rising since the end of the Great Recession. (HT Scott Lincicome)
Phil Magness reviews what apparently is a truly horrendous book about higher education. A slice:
The opening diagnosis of higher education unfortunately gives the reader little hope that the author’s proposed remedies will be grounded in factual analysis or data. Instead, [Kevin] Gannon adopts a peculiar style of arguing his points by simply asserting them to be correct. The gist of his thesis is that university instructors can deliver “hope” to students by adopting an explicitly radical pedagogical style—one that calls them to liberating “action” and rejects any notion of political neutrality in instructional content. University professors, Gannon contends, must abandon “the façade of objectivity” in the classroom—a concept that he derides as “an abdication of our responsibility” and an exercise in “intellectually dishonest” instruction (p. 21). In its place, he espouses a “pedagogy of radical hope” that embraces its duty to train political activists, albeit only in a set of far-left values that perfectly align with Gannon’s own beliefs.
My GMU Econ colleague Dan Klein looks at some history of the word “liberal.”
David Henderson is unpersuaded by a case for a universal basic income.
