… is from page 246 of Milton & Rose Friedman’s great 1980 book, Free To Choose:
A worker is protected from his employer by the existence of other employers for whom he can go to work. An employer is protected from exploitation by his employees by the existence of other workers whom he can hire. The consumer is protected from exploitation by a given seller by the existence of other sellers from who he can buy.
DBx: Milton Friedman was born on this date – July 31st – in 1912.
… is from page 39 of Razeen Sally’s excellent 1998 book, Classical Liberalism and International Economic Order [footnote deleted]:
[Adam] Smith does give detailed consideration to two major deviations from free trade: the support of infant industries and preferential trading arrangements (in his day, with the colonies). He rejects both policy preferences, for the promotion of infant industries or preferential trading arrangements diverts capital from other productive uses. Moreover, he is of the general opinion that the market is better at allocating capital to productive uses than having capital allocated in an arbitrary and discriminatory manner by government, favouring a few industries but damaging the rest of the economy.
Yet despite economists repeatedly offering empirical evidence showing that trade deficits do not negatively affect employment, wages, economic growth, or any other measure of economic performance, Mr. Trump’s determination to end trade deficits is unshaken — and polls show that a majority of the public shares his concern with these deficits. This attitude is unfortunate, as the problem with the president’s war on trade deficits goes beyond its inconsistency with the empirical record; the problem includes its inconsistency with some of his own policy aspirations.
Earlier this month, Mr. Trump again emphasized his desire that the US dollar maintain its status as the global reserve currency. In addition, the White House boasts about the many additional investments that his policies are prompting multinational corporations to make in America. As a simple matter of economic logic, however, if foreign governments, firms, and private citizens continue to rely on US dollars as reserves, as well as if foreigners increase their investments in the US, Mr. Trump’s goal of eliminating US trade deficits becomes impossible to achieve.
Any dollars that foreigners hold as reserves, use to conduct international commercial transactions amongst themselves, or invest in America are unavailable to be spent on American exports. These uses of dollars thus result in US trade deficits. And the more intense are foreigners’ demands for dollars as reserves or to invest in America, the larger are these trade deficits.
It’s disturbing that the president is unaware of this necessary connection between US trade deficits and foreigners’ demand for dollars as a reserve currency or as an investment vehicle. He doesn’t realize that if US trade deficits are to be eliminated, foreigners must be persuaded, period after period, to spend on American exports all of the dollars that Americans send abroad as payment for US imports. Only then will the value of our exports equal the value of our imports. But the elimination of US trade deficits, by preventing all uses for dollars other than to purchase American exports, would also end the dollar’s run as a reserve currency, as well as reduce global investment in the American economy.
… is from page 761 of John Stuart Mill’s 1841 “Petition for Free Trade,” as this petition is reprinted in Essays on Economics and Society, 1850-1879, which is volume 5 of The Collected Works of John Stuart Mill (Indianapolis: Liberty Fund, 2006):
That protecting duties, or, in other words, duties imposed on foreign commodities, not to raise a revenue, but to keep up the price of similar articles produced at home, are a tax on the whole community for the pecuniary profit of some class or classes, and are therefore an abuse of the power of legislation.
That the argument frequently urged in defence of such duties, namely, that they encourage production and favour the national industry, is, in the opinion of your petitioners, not only unfounded, but the very reverse of the truth, inasmuch as employments which would not be carried on without an artificial high price, are by this very circumstance proved to be employments yielding of themselves a less return than that which the same amount of labour and capital would realise if left to take its natural course. A smaller production is by this means obtained through the sacrifice of a greater, and thus, in addition to what these restrictions take from one portion of the community to bestow upon another, they cause a further and commonly a still greater loss of national wealth, without benefit to any one.
Phil Gramm’s op-ed “Ronald Reagan was No Protectionist” (July 24) is absolutely right. Despite efforts by Oren Cass, Robert Lighthizer and other national conservatives to get the Gipper on their side, Reagan favored free trade and opposed protectionism. He wanted to cut taxes on trade, not raise them. One need only listen to Reagan’s words and observe his actions.
In 1985, Reagan stated “our trade policy rests firmly on the foundation of free and open markets—free trade.” He argued that “Instead of protectionism, we should call it destructionism. It destroys jobs, weakens our industries, harms exports, costs billions of dollars to consumers, and damages our overall economy.”
Reagan concluded free-trade agreements with Israel and Canada, vetoed protectionist legislation, rejected import relief for industries from footwear to copper, and helped launch the Uruguay Round of multilateral trade talks. Although committed to addressing unfair trade, Reagan saw open trade as promoting economic prosperity at home and strengthening our alliances around the world.
Douglas A. Irwin
Hanover, N.H.
Freedom of the press should mean freedom from government control that comes via funding. Spectrum license renewal still overhangs over-the-air TV network owners. The Fairness Doctrine, adopted in 1949, forced media to run opposing views. Its repeal in 1987 allowed media to pick sides and flourish, from Rush Limbaugh to MSNBC. Government-funded media—politicized and with raw momentum of swamp support—was always asking for trouble and should have also ended in 1987.
Video killed the radio star, and now social media has been killing broadcasters. Ask Stephen Colbert and his $40 million-losing “Late Show.” Artificial intelligence will stir the pot in new and not yet imagined ways. Such is progress. Of course, digital media inherits many old problems. Social media censored posts about Covid vaccines, often goaded by the Biden administration. Republicans and the Trump administration want to break up Big Tech for stifling conservative voices.
The First Amendment’s press freedoms should be absolute, including freedom from government-funded outlets. Freedom of thought and expression and freedom from government interference are critical to a functioning society. Even Oscar the Grouch would agree.
Andrew Stuttaford decries the continuing demise of freedom of speech in the United Kingdom.
Greg Mankiw’s Martin Feldstein lecture is (unsurprisingly) a worthwhile read. Two slices:
The topic I would like to talk about today was close to Marty’s heart: the stance of fiscal policy and the path of government debt. Throughout his career, Marty advocated for greater saving, both private and public. As President Reagan’s chief economist, he warned about the adverse effects of large budget deficits, much to the chagrin of some other Reagan administration officials. If he were here with us today, I have no doubt that he would be concerned about the fiscal path the United States is now on.
Some years ago, The Wall Street Journal ran a cartoon that goes to the essence of the matter. A small child is coming home after getting off a school bus. As he opens the door to his house, he shouts to his parents, “What’s this I hear about you adults mortgaging my future?”
I like this cartoon not because it’s funny (it’s not, really) but because it succinctly summarizes the economics of government debt. Courses in macroeconomics examine how government debt affects interest rates, capital accumulation, trade deficits, and so on. But the starting point for all that analysis is a transfer of income between generations. In their personal capacity, parents cannot choose to live beyond their means and leave negative bequests to their children. As voters and citizens, however, parents can do exactly that, and Americans are now doing so in a big way.
…..
I began this lecture with a cartoon. Let me conclude with another, one of my favorites from The New Yorker. It takes place in the Oval Office, with the president’s advisers huddling around the Resolute Desk. They tell him, “Our deficit-reduction plan is simple, but it will require a great deal of money.”
This is the situation we now confront. Putting the federal government on a sustainable path is, from a purely economic standpoint, relatively simple. If a random group of NBER research associates could be appointed as a committee of monarchs, they could solve the problem in a long weekend.
In the real world, the solution must come from our elected representatives, who know that any solution will impose significant pain on the current generation of voters. For most politicians, getting reelected is their highest priority. Enacting good policy is farther down the list. It is possible, perhaps even likely, that a solution won’t come until the financial markets leave policymakers with no other choice. That scenario would be unpleasant for nearly everyone.
“Notre-Dame was built – and rebuilt – through private donations.”
No one knows more about airline travel than does my Mercatus Center colleague Gary Leff.
… is from pages 153-154 of the 2023 CL Press edition of John Rae’s 1895 Life of Adam Smith [footnote deleted]:
Now this journey to London in 1761 is memorable because it constituted the economic “road to Damascus” for a future Prime Minister of England. It was during this journey, I believe, that Smith had Lord Shelburne for his travelling companion, and converted the young statesman to free trade. In 1795 Shelburne (then become Marquis of Lansdowne) writes Dugald Stewart: “I owe to a journey I made with Mr. Smith from Edinburgh to London the difference between light and darkness through the best part of my life. The novelty of his principles, added to my youth and prejudices, made me unable to comprehend them at the time, but he urged them with so much benevolence, as well as eloquence, that they took a certain hold which, though it did not develop itself so as to arrive at full conviction for some few years after, I can truly say has constituted ever since the happiness of my life, as well as the source of any little consideration I may have enjoyed in it.”
Shelburne was the first English statesman, except perhaps Burke, who grasped and advocated free trade as broad political principle.
DBx: I share this passage as further proof that Adam Smith, despite protectionists’ many attempts to kidnap him into their ranks, was an ardent proponent of free trade.
(Note: Pedants might point out that both Burke and Shelburne were Irish, not English. Doesn’t matter; Rae’s point stands.)
Here’s a letter to a protectionist commenter on my Facebook page.
Mr. Seligman:
Unhappy with my opposition to U.S. tariffs on aluminum imports from Canada – imports that allegedly are subsidized by the Canadian government – you write this on my Facebook page: “In 2000, there were 23 aluminum smelters in America. Now it’s down to four. Is the de-industrialization of Pennsylvania Ohio Indiana Michigan the Free Trade Policy?”
You’re confused about both facts and theory. First the facts.
As Richard Fulmer notes in his reply to your comment, the real value of manufacturing outputs in Indiana, Michigan, Ohio, Pennsylvania are all higher today than twenty years ago (the earliest date for which these data are available). Indeed, in all four of these states, also higher is the real value of primary metals production. (Note that these data on primary metals production go back to 1997.)
In addition, as Gary Winslett has shown, whatever adjustment problems are suffered by manufacturers in rust-belt states are largely due to unfavorable regulatory policies in those states. Manufacturing in U.S. states with fewer tax and regulatory burdens is especially booming.
Now some straightforward theory. If Canada subsidizes its aluminum producers, it draws capital, workers, and resources in Canada away from other Canadian industries. These other Canadian industries reduce their output. Canada’s non-aluminum exports likely fall, thus opening greater opportunities for American producers who compete with Canada’s non-aluminum exports. Why do you not celebrate the Canadian government’s creation of larger markets for these American producers? And if U.S. trade policy were to successfully protect American aluminum producers from subsidized Canadian aluminum, would you shed the same number of tears for the resulting shrinkage of markets and jobs in America’s non-aluminum industries as you now shed for the shrinkage of markets and jobs in America’s aluminum industry? If not, why not?
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
Here’s a letter to the Wall Street Journal.
Editor:
Mark Duffy asserts that America has been harmed by Canadian aluminum subsidies – a harm that allegedly justifies higher U.S. tariffs on aluminum (Letters, July 28). But although as common as pigeons in Central Park, arguments that foreign subsidies justify domestic protection crumble upon inspection.
It’s true that subsidized imports reduce outputs and employment in the U.S. industries that compete with these imports, but this effect helps, not hurts, the U.S. economy. Capital, workers, and resources released from these domestic industries become available to increase the production and employment of other domestic industries. America gets more output and jobs from these expanded industries, while foreigners pick up part of our bill for the consumption of the subsidized imports.
Given the Trump administration’s determination to “Put America First!,” it should – instead of ungratefully taxing Americans’ receipt of these Canadian gifts – send notes to our northern neighbors thanking them for joining in Mr. Trump’s effort to Make America Great Again.
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
Here’s an updated interview with George Selgin on Bitcoin and free banking.
An audio version of my and Phil Gramm’s book, The Triumph of Economic Freedom, is now available.
Canada is starting to lower its interprovincial trade barriers. A slice:
Barriers to domestic commerce “are not relatively sexy in the area of public policy,” said Stephen Laskowski, chief executive of the Canadian Trucking Alliance. “But if we can resolve them, we can get a lot of productivity and efficiency improvements.”
Price theory is fun and revealing, David Henderson edition.
Walter Olson asks: “Can the White House denaturalize domestic opponents?” A slice:
In general, courts will not treat someone as having renounced US citizenship unless they are shown to have done so voluntarily, a principle endorsed by all nine Supreme Court justices in Vance v. Terrazas (1980). Under the 1967 Supreme Court case of Afroyim v. Rusk, as well as relevant statute, as Eugene Volokh explains, there are very narrow circumstances in which courts might infer that someone has implicitly renounced his US citizenship, say by serving in the army of a foreign power at war with the United States. “Needling Donald Trump too much on TV,” [Rosie] O’Donnell’s apparent offense, is not one of the permissible grounds, and in its absence, Trump’s formal presidential powers against O’Donnell would seem to be limited to the capacity to cope and seethe.
Arnold Kling predicts that “the U.S. debt binge will end with a 2-tier health care system.”
… is from pages 357-358 of William Leggett’s January 28th, 1837, Plaindealer essay, “The Meaning of Free Trade,” as this essay is reprinted and titled in Democratick Editorials, Lawrence H. White, ed. (1984):
This is not free trade, because this is not leaving the buyer and seller free to make their own bargain. They are both under the necessity of deferring to a third party, who makes the bargain for them.
DBx: It’s amusing, but it’s even more sad, to witness Trump’s many apologists feverishly insist that Trump, and Trump above all, protects ordinary Americans from the arrogance and officiousness of elites. These fans of Trump seem to welcome having their pockets picked as long as the pocket-picker entertainingly ridicules other, competing pocket-pickers while assuring his victims that his picking their pockets will redound to their great benefit in the future. (The fact that Trump seems sincerely to believe that his trade-policy pocket-picking is in the public interest doesn’t, of course, change the fact that his trade policies pick the pockets of ordinary Americans in ways that make these Americans poorer than they would otherwise be.)
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