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Andrew Heaton on greedflation-shrinkflation-inflation.

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Scott Lincicome clarifies the ‘China Shock.’ Four slices:

Reading those summaries, you will inevitably think that 1) the China Shock was driven mainly by U.S. trade liberalization; 2) it devastated the U.S. economy, destroying more 2 million American manufacturing jobs and causing widespread social problems too; and 3) that these widespread harms are settled economic canon. Wanting the government to thwart another round of such devastation today—including via tariffs—would be an understandable response.

But there’s only one problem: Almost none of what I just said about the China Shock is actually correct.

…..

More importantly, economists have repeatedly found that other factors—not PNTR or China’s WTO accession—were the main drivers of the China Shock. Economists Kyle Handley and Nuno Limão, for example, found that PNTR’s reduction in trade policy uncertainty accounted for only about one‐third of the growth in Chinese exports to the United States between 2000 and 2005. Mary Amiti and colleagues foundsimilar results, attributing approximately two‐thirds of the trade effects on U.S. manufacturing not to PNTR but to China’s own tariff reductions, which counterintuitively make exporters more competitive. (Preliminary results from a new group of economists suggest that—again contra the narrative—China reduced domestic tariffs by a greater amount than was expected for nations joining the WTO.) Even the China Shock papers by Autor, Dorn, and Hanson (I’ll refer to them as ADH going forward) emphasize that China’s internal reforms—on privatization, trading rights, and (again) import liberalization—were the major contributors to China’s export surge in the late 1990s and 2000s.

In short, PNTR probably accelerated Chinese exports to the United States by reducing tariff uncertainty, but it was China’s own market‐based reforms—policies beyond U.S. officials’ control and ones China critics should cheer—that were the China Shock’s biggest drivers.

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First, the figure of 2.4 million lost jobs during 1999 and 2011 was the authors’ maximum (“upper bound”) estimate, with the more likely scenario (“central estimate”) being only about half that number. Just as importantly, only half of those job losses were in manufacturing—all the others were in local and supporting services. Those jobs matter too, of course, but common claims that the China Shock destroyed 2 million or more American manufacturing jobs are—by even the authors’ most extreme estimates—just plain wrong.

Second, the ADH papers focus strictly on job losses incurred by specific local labor markets because of the China Shock—they don’t account for everything else happening in the U.S. economy at the same time, including Chinese imports’ other effects. This methodological issue is really important, because a) the much-ballyhooed 2.4 million job losses (max) came amid an economy‐wide gain of approximately 2.2 million U.S. jobs (even as the labor market effects of the Great Recession persisted beyond 2011); and b) those 1 million lost manufacturing jobs (max) accounted for less than 20 percent of the total manufacturing job losses over the same timeframe—and a tiny fraction of the tens of millions of job separations that occur in the United States each year. Thus, even the China Shock papers themselves confirm that manufacturing job losses caused by Chinese imports were at best a significant contributor to—not the main driver of—total factory job declines during the 2000s.

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Second, the original ADH China Shock papers didn’t examine the consumer effects of trade with China for the United States. Other economists have filled this gap, again with more optimistic results. Xavier Jaravel and Erick Sager, for example, found that for each percentage point increase in Chinese imports, consumer prices fell by nearly 2 percentage points, with savings from both imports and domestically produced goods (thanks to heightened competition). Notably, middle‐ and low‐income households enjoyed a disproportionate amount of these benefits, as the most affected products were those often sold at big‐box retailers, such as Target and Walmart. As the 2024 Economic Report of the President also just noted, other studies have found Chinese imports to have provided similar reductions in consumer prices—“almost 90 percent of the U.S. population saw an increase in purchasing power”—as well as significant benefits for American manufacturers that consume imported inputs.

David Henderson is correct: High IQ and grasp of factoids isn’t sufficient to make someone a sound thinker.

Amar Bhidé tells “the boring truth about AI.”

And here are thoughts from Arnold Kling on Bhidé’s piece.

Freddie Sayers talks with Harvard Law professor Randall Kennedy about DEI.

C. Jarrett Dieterle reports on Minneapolis’s assault on gig workers and consumers. A slice:

In response to the council’s override, ride-sharing companies like Uber and Lyft have announced they are planning to pull out of the Minneapolis market entirely unless the council reverses course. The ride-share companies originally were set to leave the city on May 1 when the ordinance went into effect, but after a last-minute agreement by the council to delay the ordinance’s effective date to July 1, the ride-share companies are in wait-and-see mode.

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… is from page 233 of F. A. Hayek’s March 1945 essay, in Fortune, “Review of Sir William Beveridge’s Full Employment in a Free Society,” as this essay is reprinted as Chapter 12 of Hayek, Contra Keynes and Cambridge (Bruce Caldwell, ed., 1995), which is volume 9 of The Collected Works of F.A. Hayek:

It is the great merit of democracy that the demand for the cure of a widely felt evil can find expression in an organized movement. That popular pressure might become canalized in support of particular theories that sound plausible to the ordinary man is one of its dangers.

DBx: So true.

There is today a superabundance of policy ideas that sound plausible to ordinary men and women but that, upon inspection with sound economics, are revealed as crackpot. These ideas include minimum-wage legislation as a means of improving the lives of poor workers, protective tariffs as a means of enriching the people of the nation, and ever-increasing funding for government schools as a means of providing better education.

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History has yet to produce a foe of protectionism who is at once as skilled, as sharp, as logical, as consistent, as gripping, as unrelenting, as informed, as indomitable, as astute, and as entertaining as was Frédéric Bastiat. And while it’s folly to try to single out any one essay of Bastiat’s that is most effective at exposing the idiocy of protectionism, at least it’s possible – and worthwhile – to highlight a few of his essays that deserve special attention. Today I highlight Bastiat’s December 1847 essay “L’indiscret,” translated into English by David Hart as “The Man who asked Embarrassing Questions,” which is ES3-12, pp. 309-318, of Liberty Fund’s 2017 expanded English-language edition, brilliantly edited by David Hart, of Frédéric Bastiat’s indispensable work Economic Sophisms and “What Is Seen and What Is Not Seen.”

Pasted below is the first part of the essay, but do read the entire thing. It offers against protectionism an argument that is unanswerable.

Protection for national industry! Protection for national employment! You have to have a very warped mind and a heart that is truly perverse to decry a notion that is so fine and good.

Yes, certainly, if we were fully convinced that protection, as decreed by the Chamber with its double vote, had increased the well-being of all Frenchmen, including ourselves, if we thought that the ballot-box of the Chamber with its double vote that is more miraculous than the urn in Cana, had operated the miracle of the multiplication of foodstuffs, clothing, the means of work, transport and education, in a word, everything that composes the wealth of the country, we would be both foolish and perverse to demand free trade.

And why, in this case, would we not want protection? Well, Sirs, demonstrate to us that the favors it accords to some are not given at the expense of others; prove to us that it does good to everyone, to landowners, farmers, traders, manufacturers, artisans, workers, doctors, lawyers, civil servants, priests, writers or artists. Prove this to us and we promise you that we will align ourselves under its banner for, whatever you say, we are not yet mad.

And, as far as I am concerned, to show you that it is not through caprice or thoughtlessness that I have engaged myself in the struggle, I will tell you my story.

Having read widely, meditated deeply, gathered a host of observations, followed the fluctuations in the market in my village from week to week and carried out a lively correspondence with a number of traders, I finally arrived at the knowledge of this phenomenon:

WHEN SOMETHING IS SCARCE, ITS PRICE RISES.

From which I considered I might, without excessive boldness, draw the following conclusion:

PRICES RISE WHEN AND BECAUSE THINGS ARE SCARCE.

With this discovery in my pocket, which ought to bring me as much fame as Mr. Proudhon expects from his famous formula: Property is theft, I mounted my humble steed like a new Don Quixote and went off to campaign.

First of all, I introduced myself to a wealthy landowner and asked him:

“Sir, be so good as to tell me why you are so attached to the measure taken in 1822 by the Chamber with its double vote with regard to cereals?”

“Heavens, it is obvious! It is because it enables me to sell my wheat better.”

“Therefore you think that, between 1822 and 1847, the price of wheat has on average been higher in France thanks to this law than it would have been without it?”

“Yes, certainly I think so; if not, I would not support it.”

“And if the price of wheat has been higher, it must have been because there has not been as much wheat in France under this law as without it, for if it had not affected quantity it would not have affected the price.”

“That goes without saying.”

I then drew from my pocket a notebook on which I wrote these words:

“On the admission of the landowner, for the last twenty-nine years in which the law has existed there has, in the end, been LESS WHEAT in France than there would have been without the law.”

I then went to a cattle farmer.

“Sir, would you be so good as to tell me why do you support the restriction placed on the entry of foreign steers by the Chamber with its double vote?”

“It is because, through these means, I sell my steers for a higher price.”

“But if the price of steers is higher because of this restriction, this is a certain sign that fewer steers have been sold, killed and eaten in the country in the last twenty-seven years than would have been the case without the restriction?”

“What a question! We voted for the restriction solely for this reason.”

I wrote the following words in my notebook:

“On the admission of the cattle-breeder, for the last twenty-seven years in which the restriction has existed, there have been FEWER STEERS in France than there would have been without the restriction.”

I then hurried off to an ironmaster.

“Sir, would you be so good as to tell me why you defend the protection that the Chamber with its double vote has accorded to iron so valiantly?”

“Because, thanks to it, I sell my iron for a higher price.”

“But then, also thanks to it, there is less iron in France than if it had not meddled in this, for if the quantity of iron on offer had been equal or greater, how would the price have been higher?”

“It is quite straightforward that the quantity is less, since the precise aim of this law was to prevent an invasion.”

And I wrote on my tablets:

“On the admission of the ironmaster, for twenty-seven years, France has had LESS IRON through protection than it would have had through freed trade.”

“It is all starting to become clear”, I said to myself, and I hurried off to a woolen cloth merchant.

“Sir, would you allow me a small item of information? Twenty-seven years ago, the Chamber with its double vote, of which you were a member, voted for the exclusion of foreign woolen cloth. What was its and your reason for doing this?”

“Do you not understand that it is so that I can make more profit from my woolen cloth and become rich more quickly?”

“That was my guess. But are you sure that you have succeeded? Is it certain that the price of woolen cloth has been higher during this period than if the law had been rejected?”

“There can be no doubt of this. Without the law, France would have been swamped with woolen cloth and the price would have become very low; this would have been a major disaster.”

“I don’t yet see that it would have been a disaster, but be that as it may, you must agree that the result of the law has been to ensure that there has been less woolen cloth in France?”

“This has not been not only the result of the law but its aim.”

“Very well”, said I and I wrote in my notebook:

“On the admission of the manufacturer, for the last twenty-seven years there has been LESS WOOLEN CLOTH in France because of prohibition.”

It would take too long and be too monotonous to go into further detail on this curious voyage of economic exploration.

Suffice it to say that I visited in succession a shepherd who sold wool, a colonial plantation owner who sold sugar, a salt manufacturer, a potter, a shareholder in coalmines, a manufacturer of machines, farm implements and tools, and everywhere I obtained the same reply.

I returned home to review my notes and put them into order. I can do no better than to publish them here.

“For the last twenty-seven years, thanks to the laws imposed on the country by the Chamber with its double vote, there has been in France:

Less wheat,

Less meat,

Less wool,

Less coal,

Fewer candles,

Less iron,

Less steel,

Fewer machines,

Fewer ploughs,

Fewer tools,

Less woolen cloth,

Less canvas,

Less yarn,

Less calico,

Less salt,

Less sugar,

And less of all the things that are used to feed, clothe and house men, to furnish, heat and light their dwellings, and to fortify their lives.

By the Good Lord in Heaven, I cried, since this is the case, FRANCE HAS BEEN LESS WEALTHY.

In my soul and conscience, before God and men, on the memory of my father, mother and sisters, on my eternal salvation, by all that is dear, precious, sacred and holy on this earth and in the next, I believed that my conclusion was accurate.

And if anyone proves the contrary to me, not only will I abandon any argument on these subjects but I will abandon any argument on anything at all, for what trust might I place in any argument if I was unable to have confidence in this?

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Trump, Fauci, Pence – they and many other government officials deserve harsh criticism for covid lockdowns. But as this video by Rob Montz makes clear, especially harsh criticism was earned by Dr. Deborah Birx. (Scott Atlas, in contrast, is heroic.)

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George Will exposes the arrogance and folly of Biden’s EV diktats. Two slices:

Government’s language often radiates contempt for the governed, as when the Environmental Protection Agency recently said limits on automobile emissions in model years 2027-2032 will “give drivers more clean vehicle choices.” The regulations are, of course, explicitly intended to restrict consumers’ choices by forcing manufacturers to produce fewer cars that have tailpipe emissions. Drivers will be able to choose any vehicle they want — from the “clean” category government prefers. As Henry Ford reportedly said, the Model T would be available in “any color” the customer wants, “as long as it’s black.”

The Biden administration’s costly and coercive crusade to replace internal combustion vehicles (ICVs) with electric vehicles (EVs) is disproportionate to its minuscule climate impact. The American Enterprise Institute’s Benjamin Zycher says the EPA’s own assumptions project that the new regulations will mitigate global warming by 0.023 degrees Celsius by 2100. Because the standard deviation of the Earth’s surface temperature record is 0.11 degrees Celsius, “that effect would not be detectable.”

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Winter is unkind to EVs: Cold slows the batteries’ chemical reactions. Some drivers who joined lines at charging stations with (supposedly) ample miles of remaining battery capacity had to be pushed, after long waits (high-speed chargers are slow — 30 to 60 minutes — compared with five-minute gas fill-ups), to the chargers. Hot weather, too, makes the chemical reactions less efficient.

Spring, however, is Goldilocks season for EVs — neither too hot nor too cold. And soon, perhaps, government regulations will require temperatures to be mild, always and everywhere.

GMU Econ alum Dominic Pino observes that “the connection between CHIPS and Solyndra is stronger than you might think.”

Also from GMU Econ alum Dominic Pino is this exposé of Sen. J.D. Vance’s (R-OH) almost comical ignorance – or hypocrisy.

Donald Devine explains how “big-government welfare crowds out beneficial social behavior.”

Reason‘s Eric Boehm reports on the gross disconnect between the reality of the U.S. tax burden and the public’s perception of that burden. A slice:

Other surveys show that many Americans have a low level of tax literacy. A recent survey conducted by the Tax Foundation found that “most Americans are not just unhappy with the current tax code but also do not understand it.” One commonly misunderstood aspect is how much the wealthiest Americans pay in taxes every year. In the Tax Foundation survey, 78 percent of respondents did not know the share of taxes paid by the wealthiest 1 percent of Americans—but, tellingly, 65 percent of respondents said their own taxes were too high.

The most straightforward conclusion here is hardly a surprising one. Americans want someone else—preferably someone richer—to pay for the cost of government.

Here’s the good news: That’s already happening!

Bob Graboyes muses on “God, probability, time, and turpentine.”

The Acton Institute’s John Pinheiro praises profits earned in the free market.

David Henderson points out that the Pregnancy Discrimination Act reduces women’s freedom.

Juliette Sellgren talks with Matt Mitchell about socialism in Estonia.

Clark Packard and Alfredo Carrillo Obregon show that Washington’s lofty rhetoric is belied by its misguided economic policies. A slice:

And insofar as Biden’s opposition to the steel deal is for national security purposes, it clashes with the state of US‐​Japan defense cooperation, which has been close for decades and, as stated during the visit, is planned to increase in the coming years. Indeed, Japan hosts US military personnel and Department of Defense (DOD) civilians and their families and acquires more than 90 percent of its defense imports from the US; Japanese investors have not been of concern to the Committee on Foreign Investment in the United States (CFIUS) (which is currently reviewing the Nippon‐​US Steel deal) since the 1980s; and Nippon Steel is no longer closely connected to the Japanese government. Twenty‐​three percent of the company is owned by non‐​Japanese entities.

In sum, most independent observers understand that Biden’s opposition is motivated by electoral politics—as is Donald Trump’s own opposition to the deal—and not economics or national security.

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… is from Thomas Jefferson’s Preamble to his 1778 “Bill for the More General Diffusion of Knowledge”:

Whereas it appeareth that however certain forms of government are better calculated than others to protect individuals in the free exercise of their natural rights, and are at the same time themselves better guarded against degeneracy, yet experience hath shewn, that even under the best forms, those entrusted with power have, in time, and by slow operations, perverted it into tyranny.

DBx: Jefferson was born on this date – April 13th – in 1743 in Shadwell, Virginia.

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GMU Econ alum Erik Matson shares some lessons from history on price controls. A slice:

Two of the [American] founders, James Wilson and John Witherspoon, had argued from the beginning of the discussions surrounding the Providence Plan in 1777 that price controls were a fool’s errand. Witherspoon argued that “laws are not almighty,” and “it is beyond the power of despotic princes to regulate the price of goods.” Wilson claimed, “there are certain things…which Absolute power cannot do.”

Witherspoon and Wilson’s shared skepticism flowed perhaps from their Scottish origins. Both men studied in Edinburgh and were acquainted with the works of David Hume. Hume argued at some length in the second and third volumes of his History of England that price controls under Edward II and Henry VII predictably failed to alleviate the scarcity of commodities and made matters worse. They also studied the price theories of Samuel Pufendorf and Francis Hutcheson, both of whom emphasized prices as outcomes of a market process. Witherspoon drew deeply from the works of Hutcheson when he developed his own course in moral philosophy at Princeton.

These lines of thinking from the Scottish Enlightenment (and also from the modern natural law tradition) conceive of prices as symptomatic of underlying economic realities—the relative scarcity, the risks and toils required to bring a good to market, and so forth. Efforts to change the underlying economic realities that cause prices by regulating the prices themselves have as little a chance of succeeding as efforts to change a room’s temperature by simply altering the numbers displayed on one’s thermometer.

It was Witherspoon who made this case at the greatest length, in his 1786 Essay on Money as a Medium of Commerce and in a little-known open letter he drafted—but never published—to George Washington in 1778. In the Essay, he reiterated points he made in the meetings of the Continental Congress in 1777, namely that high prices facing the states had come from an excess quantity of money, which caused price inflation, and a scarcity of goods caused by wartime conditions. In the letter to Washington, he pushed the analysis further, evincing a sophisticated understanding of the market process.

Here’s insight from Mike Munger. A slice:

In a system of commerce, information is provided by prices, which are emergent phenomena indicating the relative scarcity of resources. That is, commerce generates information about the value of resources, information possessed by literally no individual or group in the absence of prices. Prices are an objective manifestation of subjective preferences, giving people an idea of how much other people — people you haven’t met, and don’t know — want to use the resource. Low prices say “no one else wants this, go ahead and use it!” High prices say, “Stop and think about this, because other folks also value this resource. Do you really need it?”

Politics, by contrast, generates information based on the expression of votes, or notions of what people want to be true. The question of the value of resources is then decided by what most people — if the rule is majoritarian — happen to want to be true about the resource.

Imagine that I have in mind two materials from which I might construct a roof: wood and gold. Wood doesn’t last all that long, and the seams between pieces of wood leak. Gold, on the other hand, can be pounded out quite thin and does not rust or rot. Gold is clearly the better roofing material.

In a commercial system, when I go to the hardware store to buy roofing materials, I see that I can put on a wood roof for about $1,000, but the cost of gold to make the roof is $1,000,000. What gives? The answer is that the commercial system is telling me that there are other, better uses for gold, and that I should take account of the needs of others. Now, do I know the other uses of gold, or the identities of the other people who have uses for gold? I do not, but then I don’t need that kind of specific knowledge. The price is enough.  I buy the wood, and make the roof. The people who need gold are able to obtain it, and overall the society is better off.

Compare that to a political system. Remember, each of us believes — and, honestly, we’re right!  — that gold is a better roofing material, simply on the merits. We vote, and gold wins by a vote of 95 percent over 5 percent who prefer wood. But then we all try to make our roofs out of gold, only to discover that there is not nearly enough available. We blame the greed of the people who are “hoarding” gold, and send out the police to find who is hiding all of this roofing material. They are enemies of the people, and must be found and punished!

And here’s more insight from Arnold Kling. A slice:

I believe that when we look at our thick culture, we are like primitive people looking at nature. We interpret phenomena by invoking “climate change” or “artificial intelligence” or “social media” or “the science,” much in the way our ancestors invoked spirits to explain drought or sickness.

Jeff Yass has a question for Janet Yellen:

Regarding Thomas Duesterberg’s op-ed “China’s Flag Is Red, Not Green” (April 8): The Biden administration is moving toward reimposing Trump-era tariffs because Treasury Secretary Janet Yellen is concerned about Chinese clean-energy subsidies. A question for Ms. Yellen: If $5 billion worth of solar panels washed up on our shores, would she destroy them to save U.S. jobs?

If a subsidy is bad, free stuff must be worse, according to her logic. But I thought climate change posed an existential risk to humanity?

Jeff Yass
Managing director and co-founder, Susquehanna International Group
Bala Cynwyd, Pa.

I very much enjoyed being interviewed by my long-time friend Reuvain Borchardt about the condition of American manufacturing. A slice:

You mentioned that there are protectionists on the right like Trump and on the left like Sanders. Prior to Trump, Democrats were more associated with unions and protectionism while Republicans were associated with free trade, but since 2016 it seems Republicans have become more protectionist. Do you think protectionism will remain in the Republican Party going forward regardless of who wins the presidential election this year?

No question about it.

But keep in mind that Republicans historically have been the party of protection while Democrats were the party of free trade, going back to the early days of the Republican Party in the mid-19th century. And the Smoot-Hawley Tariff Act was signed in 1930 by Herbert Hoover, a Republican president.

That only started to change in the postwar period. By the way, Ronald Reagan talked a better game on trade than he played, due to political compromises. But certainly, from the 1970s through George W. Bush, the Republicans had a legitimate claim to be regarded as the party most favorable to free trade, and it was the Democrats, largely because of their union connections, who were the party of protection.

Now, unfortunately, one of those parties — the GOP — is returning to its protectionist roots, but the other is not returning to its free-trade roots. Historically, one party was the party for protectionism and the other was the party for free trade. Now, for the first time since at least the Civil War, both major parties are explicitly and enthusiastically for protectionism.

My intrepid Mercatus Center colleague, Veronique de Rugy, decries the dissolution of what the late GMU Econ Nobel laureate James Buchanan called ‘the old time fiscal religion.’

Kimberlee Josephson explains that antitrust is anti-consumer. A slice:

Business forecasting is a difficult task, and reality rarely goes according to plan, but the government seems confident that it can predict winners and losers in today’s marketplace. What the government seems to be forgetting, however, is that American firms compete on a global scale and their status is never guaranteed. In fact, Apple no longer has the top spot as the favored phone brand in China, and the adoption rate of Huawei’s smartphone globally will likely result in a ripple effect for downloads derived from Huawei’s AppGallery rather than the App Store. So much for Apple’s walled garden.

The Editorial Board of the Wall Street Journal reports that green ‘energy’ is costly. A slice:

The nearby chart shows the average change in electricity prices over the last decade. Electric rates remained relatively flat in the seven years before President Biden took office, rising 5%. Thank cheap natural gas. Yet since January 2021 electricity prices have soared 29.4%—about 50% more than overall inflation.

By our calculation, electricity prices have increased 13 times faster under Mr. Biden than across the previous seven years. His policies aren’t entirely to blame. But most of it is a result of the left’s climate agenda, and the price increases will get worse.

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… is from page 263 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

Whenever there is a proposal for a tax cut, media pundits demand to know how you are going to pay for it. But when there are proposals for more spending on social programs, those same pundits are strangely silent.