Eric Boehm explains “how tariffs are breaking the manufacturing industries Trump says he wants to protect.” Two slices:
Most imports to the U.S. are raw materials, intermediate parts, or equipment—the stuff that manufacturing firms need to make things.
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The people who run successful businesses understand something that Trump does not: Voluntary trade is a mutually beneficial arrangement. That’s true regardless of whether the deal is between a store and its customers or a factory and its suppliers. It’s also true even if one of the traders is located abroad.
Trump will fail as the country’s department store manager in chief for the same reasons that central planners always fail. It’s simply impossible for the White House to understand and manage trillions of dollars in cross-border trade more efficiently than individuals and businesses do. Trump certainly has no clue what equipment the Plattco Corporation needs to build its annual supply of valves, to say nothing of the millions of other transactions that are essential to building cars, appliances, and other gadgets at factories all over America.
In many cases, those transactions involve items that can’t be sourced domestically. “Whether it is coffee, bananas, cocoa, minerals or numerous other products, the reality is certain things just can’t be produced in the United States,” Suzanne P. Clark, president and CEO of the U.S. Chamber of Commerce, explained in a statement released in late April, as the organization was urging the White House to grant tariff exemptions for small businesses. “Raising prices on those products will only hurt families struggling to pay their bills.”
Trump may fail for new reasons too. The White House has spent weeks pivoting between the claim that tariffs will allow the federal government to collect trillions of dollars in new revenue and the claim they are a negotiating tool to be removed once the other countries have knuckled under. Both cannot be true at once.
Perhaps Trump – to better ensure what he falsely imagines will be the success of his tariffs – should now consider imposing punitive taxes on Americans’ purchases of used cars. After all, used cars are every bit as much a substitute for new American-assembled cars as are new foreign-assembled cars. (HT Scott Lincicome)
Nick Timiraos reports that “the U.S. economy is headed toward an uncomfortable summer.” A slice:
The U.S. economy, which weathered false recession alarms in 2023 and 2024, is entering another uncomfortable summer
Job growth held steady in May, with the economy adding 139,000 jobs. The unemployment rate has stayed in a tight range, between 4% and 4.2%, over the past year.
But there are cracks beneath the surface. Businesses are warning that constantly shifting trade policies are interfering with their ability to plan for the future, leading to hiring and investment freezes.
Policy uncertainty has unfolded against the backdrop of an economy with slower job growth and a cooling housing market. Compared with last year, the Federal Reserve is more reluctant to cut interest rates because officials are worried about new inflation risks.
John Starr, the owner of UltraSource, an importer and manufacturer of meat-processing technology in Kansas City, Mo., said he is hunkering down—no hiring, no more capital spending—until he has clarity on tariffs.
The weaker news is that the jobless rate stayed the same because some 625,000 people left the job market. As a result, the labor participation rate fell 0.2% in the month, and the employment-population ratio by a highly unusual 0.3%. Some 71,000 more people were jobless in May, and Labor Department revisions showed 95,000 fewer new jobs in March and April than previously reported.
David Rose wisely turns to Milton Friedman for an idea on how to improve Medicaid. A slice:
Medicaid is an outstanding example of how not to structure a government program. Its daunting complexity results in people frequently migrating into and out of the program (this is especially problematic for programs that provide some kind of insurance because of adverse selection problems). Because it is fundamentally a government bureaucracy, problem-solving is mostly through top-down edicts or acts of Congress. In contrast, in many parts of American society entrepreneurs continuously adapt, adjust, and innovate to deal with new problems and to take advantage of new opportunities to improve service, reduce costs, or both.
In James M. Buchanan and Liberal Political Economy, Richard Wagner argues that the scholarship of James Buchanan was an effort to update the classical political economy of Adam Smith and John Stuart Mill with the tools of modern neoclassical economics. “Normatively,” Wagner (2017, 58) writes, “Buchanan was a democrat who embraced the democratic ideology of self-governance.” He recognized “democracy as simultaneously desirable and subject to a degradation that required conscious effort to resist.”
This constitutional project required both efforts to unearth the governing dynamics of alternative institutional arrangements and the educational effort to prepare future scholars with the necessary intellectual background to engage in the ongoing conversation. Buchanan was identifying the misdirection that public economics and public finance were going in the post-World War II reconstruction of the discipline. Economics had adopted a utilitarian and elitist presumption which was comfortable with the notion of governing elites acting for the good of society. Government was seen as a corrective, policy was a tool to achieve ideal outcomes, and economics was the science of administration that would aid in that task. Buchanan was uncomfortable with that set of presumptions from the start. Instead, he saw the need for the examination of the institutional infrastructure within which policy decisions were to be conceived and implemented.
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In the October 15, 1958 edition of The University of Virginia Newsletter announcing the founding of the Thomas Jefferson Center, Buchanan stated plainly that the center “strives to carry on the honorable tradition of ‘political economy’—the study of what makes for a ‘good society.’” He also elaborated further what the task of the political economist must be. They must first use the technical tools of economic reasoning to understand and assess how alternative institutional arrangements either hinder or promote productive specialization and peaceful social cooperation. But the political economist cannot be content stopping with that vital exercise. They must “try to bring out into the open the philosophical issues that necessarily underlie all discussions of the appropriate functions of government and all proposed policy measures.”
Joining Buchanan in this research and educational mission were not only Warren Nutter, but also Ronald Coase, Gordon Tullock, and Leland Yeager. These individuals and their graduate students initiated a paradigm shift in economics, law, and political science over the next decades, and in so doing, reinvigorated the discourse in political economy and social philosophy.
