Economists at the St. Louis Federal Reserve report this unsurprising fact: (HT Jon Murphy)
While headline PCE inflation has increased only modestly in recent months, the categories of goods most exposed to international trade tell a different story. In the U.S., prices for durable goods—such as vehicles, electronics and furniture—have increased noticeably. These price movements align with the timing of tariff hikes earlier this year.
For more on tariff-induced price increases see this tweet by Scott Lincicome.
Many New England farms were among the economic, cultural and emotional casualties of the dynamism unleashed by the Erie Canal’s contribution to globalization. Americans were, however, as [Daniel Walker] Howe says, “a mobile and venturesome people, empowered by literacy and technological proficiency,” welcoming dynamism.
Headlines announced the arrival of Long Island oysters in Batavia, a town in western New York. By 1850, the price of a wall clock had plunged from $60 dollars to $3. Howe: Largely because of lower transportation costs, “changes from the rustic to the commercial that had taken centuries to unfold in Western civilization were telescoped into a generation in western New York state.”
By lessening the commercial and political isolation of prairie farmers, the canal helped to populate the prairies by connecting them with Eastern markets. And by linking Americans living west of the Appalachian mountains to the Hudson River, it created New York City as a financial center. One day in 1824, Howe writes, there were 324 ships in New York harbor. One day in 1836, there were 1,241. Through the city’s port, America exported grain and revolution.
John Cochrane writes about Thomas Sowell’s great 1980 book, Knowledge and Decisions. Two slices:
Prices convey information, including what we now call “private information,” like who can more easily get along without orange juice for a while or what plot of land is best suited for growing oranges. Prices are the wires that connect the processors of the economy. Prices are the pheromones that socially organize our ant colony. Prices are signals, wrapped in incentives. Prices are efficient, sufficient statistics for decisions, giving just enough information. You don’t need to know whether there was a freeze in orange country, or a train derailment, or a new fad raising others’ demand. You just look at the price, and your own self-interest, and you act with the socially efficient response.
So wrote Friedrich Hayek (1945) in his celebrated essay “The Use of Knowledge in Society.” I read this essay, as many economists do, in graduate school in the early 1980s. I thought it was wonderful. Hayek undoes a grand conceit: Introductory economics courses teach the “first welfare theorem:” that the market, if absolutely perfect, can just achieve the same result as a benevolent planner. The classes quickly move on to describe how hypothetical planners can solve myriad market “imperfections.” But planners can never have or process the necessary information. The theorem should be rewritten: Planners can never hope to achieve what markets do.
But I also noticed that despite the then 40 year passage of time, few others seemed to have followed up on this spectacular insight. Hayek seemed to stand alone. Every other paper we read spawned thousands of followers. Where were Hayek’s followers? (They were there, of course. But unlike Hayek, “Austrians” never made it to the academic mainstream that gets assigned in graduate schools.)
Then I found the just-published Knowledge and Decisions, Tom Sowell’s economic masterpiece. (I read several other eye-opening Sowell books at the same time, especially his works on race, and culture. But it is not my task to share that experience today.) This was a world-view-changing experience, a few crucial steps down the yellow-brick road that made me the classical liberal with many adjectives that I am today.
Sowell encyclopedically expands on Hayek. But he also drew on many others.
…..
Mainstream economics ignored Hayek for 45 years until Sowell produced his masterpiece. That it has largely ignored Sowell for another 45 years means that the ground is ripe for another masterpiece.
J.D. Tuccille sensibly pleads for the end of Obamacare subsidies. A slice:
The federal government’s not-really-a-shutdown lingers on, largely driven by Democrats’ insistence on extending pandemic-era subsidies that conceal the real cost of health coverage under the Affordable Care Act (ACA)—better known as Obamacare. It’s not enough that the spending bill under consideration is already bloated with unaffordable goodies that Republicans and Democrats alike support. Democrats have to show themselves battling the Trump administration and see advantage in doing so while fighting to preserve the main legislative accomplishment (bad policy though the ACA is) on which they’ve staked their reputations for over a decade. This is no way to handle spending, let alone to improve health care.
PERC’s Shawn Regan explains that “the Clean Air Act is making our air dirtier.”
