Tweet

… is from page 234 of the 1997 Johns Hopkins University Press edition of H.L. Mencken’s brilliant 1956 collection, Minority Report:

When I hear a man applauded by the mob I always feel a pang of pity for him. All he has to do to be hissed is to live long enough. Remember the tragedies of Wilson and Roosevelt I. In their last days they were peeping sadly from the curtains like worn-out actors, as new and worse mountebanks took their places. The mob is faithful only to its infidelity. It always stones those it has worshipped.

Tweet

Dave Hebert, writing at Law & Liberty, corrects Gene Callahan’s (and many other individuals’) misconceptions about the economic case for a policy of free trade. A slice:

In his Modern Age piece, Callahan argues economists miss the value of contentment over endless consumption. Yet, economists understand trade-offs in personal choices, too. Many, including myself, choose lower-paying academic jobs over lucrative private-sector roles because we value the sense of meaning we achieve through our work. Furthermore, many of us will retire at some point; surely, the quest for “more and more” is not served by ceasing to earn income. Though some, like the excellent Walter Williams, joke that “if I should ever die, I want to have taught that day.” But in doing so, people like Williams demonstrate not their consumerist desires, but their great love for their craft of teaching.

Likewise, when Callahan criticizes Mike Munger for describing wealth as “the ability to obtain high quality, low cost products,” he again misses the mark. The implication is not that all people should always and everywhere zealously pursue maximizing their ability to buy more stuff. Munger is making the simple claim that, all else being equal, a person is wealthier when they can purchase more things. If we want people to have more access to the things that allow them to live healthier and wealthier (however they choose to define those terms), then we should eschew policies that make that more difficult. This is especially true of tariffs, which are widely recognized as being regressive in their application, even by members of the New Right such as Michael Lind.

[DBx: Just fyi, Walter Williams got his wish. He died suddenly, at the age of 84, only minutes after teaching the final session of his Fall 2020 PhD-level Microeconomics Theory I course at George Mason University.]

Brian Albrecht reflects on the value of Econ 101. A slice:

Everything comes down to a simple idea: if costs rise, prices tend to rise. If demand surges, prices tend to rise. These simple insights, drawn from the first pages of any econ textbook, go a long way toward explaining phenomena as varied as soaring egg prices, housing shortages, tariffs on imports, and New York City’s new congestion charge. This may seems trivial but an incredible amount of people don’t make the same prediction and many actively deny it when it happens.

Econ 101 won’t give us every answer, of course. As [Matt] Yglesias notes, “life is, of course, more complicated” than any basic model. But time and again, the basic supply-and-demand framework proves to be a reliable lens for predicting and interpreting market outcomes.

Mark Jamison continues to warn against the economic damage destined to result from the misguided Biden-Trump antitrust policy. A slice:

The Trump administration is trying to fix a market that isn’t broken—and in doing so, it risks breaking the parts that are working just fine.

Let’s hope that Kenneth Michael Sikorsky wins his case against a tyrannical local government.

Our natural resources??

Arnold Kling reviews Kathleen DeLaski’s Who Needs College Anymore?.

GMU Econ doctoral candidate Anna Claire Flowers explores Adam Smith’s understanding of relationships between young and old. A slice:

Beyond highlighting the differences between the old and the young, Smith makes a strong claim regarding the dignity of the old. He says that one’s treatment of the elderly indicates virtue: “The weakness of childhood interests the affections of the most brutal and hard-hearted. It is only to the virtuous and humane, that the infirmities of old age are not the objects of contempt and aversion.” It is easy to respond kindly to a child, but the virtuous response may not be natural. Sympathy transforms our natural inclinations and aversions, making it possible to move past a transactional approach to relationships.

Tweet

… is this comment, on Facebook, by Richard Fulmer:

The software that Gates produces and sells allows people to achieve their goals. His charities pay them to achieve his.

Tweet

I’m proud to have paired up with the Cato Institute’s Marian Tupy to pen this new piece at National Review on so-called ‘predatory pricing.’ A slice:

Competition drives innovation, improves quality, and most importantly, lowers prices for consumers. Yet when foreign companies — particularly Chinese firms — successfully compete on price, accusations of “predatory pricing” or “dumping” often follow. These charges deserve scrutiny through a lens of economic rationality, rather than through the fog of hazy protectionist thinking.

Predatory pricing occurs when a firm deliberately sets prices below production costs with the intent to drive competitors out of business. Once this goal has been achieved, the predator can theoretically raise prices to monopolistic levels and recoup earlier losses. The strategy sounds plausible in theory, but it is much harder to pull off in practice.

Such concerns aren’t new. For decades, American industries have pointed to low-priced foreign goods as evidence of unfair trade practices. In the 1980s, Japanese manufacturers of electronics and automobiles faced similar accusations.

Yet for all the alarm about predatory pricing, examples of its success remain surprisingly scarce. The most cited case — the Standard Oil Company during the early 20th century — has long been known by economists to be false. The truth is that Standard Oils’s low prices reflected its low costs.

Why does predatory pricing so rarely succeed? Basic economic principles provide several explanations.

First, predatory pricing imposes significant costs on the predator itself. Selling below cost generates immediate losses that can quickly accumulate to unsustainable levels, especially in capital-intensive industries. These losses are certain and immediate, while any potential monopoly profits are speculative and distant.

Second, competitors can often weather temporary price wars by accessing capital markets. If investors recognize that a company is competing against a predatory pricer, rather than suffering from fundamental business flaws, they have incentives to provide financing to enable survival through the predatory period — especially because the firm that loses most during the predatory period is the predator.

Third, even if a predator succeeds in driving competitors out of the market, the resulting monopoly position proves difficult to maintain. Once prices rise to profitable levels, new entrants are attracted into the market — entrants that oblige the predator to lower its prices.

Fourth, global competition makes market dominance increasingly difficult to achieve. If Chinese manufacturers drive American companies out of business, then European, Korean, and Indian competitors remain. True monopolization today would require successful predation against all global competitors simultaneously — an economically ruinous proposition.

Tweet

David Henderson explains that housing restrictions in the United States are even more economically harmful than are international-trade restrictions. Two slices:

If the free market had been invented rather than simply coming about, the inventor would have deserved every Nobel Prize in economics and every Nobel Peace Prize. The free market has made well over one quarter of the world’s population fabulously wealthy and elements of the free market have reduced the number of people in extreme poverty to a record low.

Relatively free trade is one of the factors in this growth of wealth. It has led to an increasingly extensive international division of labor that causes people in each country to produce goods and services for which they have a cost advantage and buy goods and services for which they have a cost disadvantage. But, especially for large, highly populated countries like the United States, free trade is not as important as other components of economic freedom such as protection of property rights, absence of price controls, relatively free labor markets, restraints on government spending, and relatively low marginal tax rates.

I have been gratified by the large number of economists across the political spectrum who have come out strongly against higher US tariffs. But it’s disappointing that too few have been as forthright on other components of economic freedom that, as a whole, are more important for US growth than free trade. One US restriction that’s particularly destructive is on housing construction.

…..

Tariffs are destructive, and it’s great that economists have been so outspoken in their opposition to high tariffs. Restrictions on housing do much greater damage. They are pricing a large swath of millennials out of the housing market. Economists know why. Those economists who oppose tariffs, which is almost all of them, should be even more vociferous in their opposition to restrictions on housing.

Speaking of harmful housing policies, Chris Edwards has more.

Eswar Prasad is correct: “Whatever their ostensible objectives, the Trump tariffs will make the world a poorer and more perilous place.” Two slices:

But now trade itself has come to be seen as a zero-sum game, in which one country gains only at the expense of another. That is harmful to resolving differences. If U.S.-China tensions in the South China Sea or over Taiwan were to escalate, for example, a give-and-take on trade matters would no longer be an element of negotiations.

Middle-power countries such as India now recognize that even U.S. friendship may not protect them from tariffs, making them less willing to ally themselves fully with the United States. Even longstanding U.S. allies such as Britain and the European Union were not spared from tariffs.

Governments make policy choices. But it is commercial interests that drive the realities on the ground. Falling trade barriers and other factors such as declining transportation costs had led corporations to build lean supply chains threaded through multiple countries. This approach, which emphasized efficiency and lower costs, drove down prices for consumers, increased product choices, helped spread new technologies and promoted innovation.

…..

A world with less trade and more uncertainty will be a less prosperous one. That, at least, is one aspect in which Mr. Trump’s tariffs are fair: All countries, including the United States, will feel the pain.

The Wall Street Journal‘s Matthew Hennessey decries “the age of excusability.” Two slices:

The disposition to make excuses has opened the GOP to charges of hypocrisy, which are deserved. Once known for sobriety and propriety, Republicans kept up appearances even as the culture fell to pieces around them. I’m not suggesting they didn’t play hardball, merely that they maintained their dignity while doing so. Now they don’t mind appearing base and servile if it keeps Mr. Trump happy. And it obviously does.

The excusability crisis is bipartisan. Cool administrative competence was the selling point of Barack Obama’s political career. Hillary Clinton ran on that line too. But in 2024 Democrats were happy to excuse Joe Biden’s clear mental frailty and Kamala Harris’s obvious lack of competence if it meant stopping Mr. Trump from returning to the White House. Nothing mattered more. It all had to be excused.

The score isn’t completely even. When it comes to handing out passes to political allies, progressives are worse than conservatives by a long shot. The American left is committed to an ideology that excuses crime as a legitimate response to poverty. Progressives claim to abhor violence but cheer it when it’s directed against their political enemies—the police, Tesla dealerships, healthcare CEOs, supporters of Israel. It helps if the perpetrators of that violence are good-looking. In 2020, as several American cities burned, progressives excused riots as “the language of the unheard.”

…..

The disease of excusability is a drag. When you hear someone you otherwise respect defend the indefensible, it can be hard to process. Despair is the natural response, but that leads nowhere. Better to take a deep and honest personal accounting. All of us have, at some point or another, looked at the disastrous state of American politics and said: Yeah, it’s bad, it’s ugly, but I guess I can live with it. The other guys are worse.

Jack Nicastro reports on a rent-seeking AI CEO.

GMU Econ alum Nikolai Wenzel ponders discrepancies in drug prices. A slice:

On May 12, President Trump signed an  Executive Order aimed at lowering US prescription drug prices. In keeping with his tariff policy, the president was motivated by the price differences — often vast — between identical prescription drugs sold in the US and in the rest of the world. The EO ordered the US Trade Representative and the Secretary of Commerce to take action against countries that were “free-riding on American pharmaceutical innovation.” It further directed the Secretary of Health and Human Services to establish a mechanism for American consumers to bypass middlemen and purchase prescription drugs directly from manufacturers at favored prices for Americans.

Simple fallacies and misunderstandings of economic reasoning underlie the EO. Fundamentally, it claims a perceived problem will be solved through central planning — alas, President Trump is continuing the bipartisan conceit of presidents, from FDR to Nixon, and more recently Bidenomics, that the executive pen will allocate scarce resources more efficiently than the free market. More generally, the EO displays a fundamental misunderstanding of the factors determining prescription drug prices.

The American healthcare system is broken — not because of market failures, but because of government involvement, direct and indirect. Yet another layer of command-and-control price-fixing won’t solve that.

Tweet

… is from page 186 of Art Carden’s and GMU Econ alum Caleb Fuller’s excellent new book, Mere Economics:

Economics shows how social benefits are largely unintended consequences of people pursuing their interests. Bill Gates’s money is his to do with as he pleases, but has likely done far more to help the world’s poor by founding and running Microsoft – which still produces most of the world’s productivity software – than he has done through the Gates Foundation. When considering any charitable undertaking, we should ask, How is this better than doing nothing? Merely describing results we might hope for is poor substitute for understanding likely consequences – and we should entertain the possibility that we do more for people by leaving our money in the bank or expanding our enterprise.

Tweet

This letter written by Phil Gramm and me will appear in the print edition of tomorrow’s (Tuesday’s) Wall Street Journal:

In his op-ed “Where the Trade Court’s Tariff Decision Went Wrong” (June 2), George E. Bodgen uses the technique of misrepresenting the words of respected historical figures to support his protectionist views. It’s true, for instance, that Cordell Hull advocated reciprocal trade agreements as a means of reducing tariffs. But when he praised reciprocity for reducing “excessive economic barriers to trade,” he didn’t, contrary to Mr. Bogden’s claim, refer to “unfair trade practices targeting the U.S.” An internationalist, Hull hoped that U.S.-led efforts to reduce tariffs worldwide would promote peace. He understood that, for political reasons, governments will cut tariffs only in exchange for cuts by other governments.

Moreover, the trade negotiations that Hull envisioned were from existing tariff rates. He would have been appalled by the U.S. suddenly jacking up rates and then bullying other countries into negotiating them back down.

As for the claim that U.S. trade deficits are an emergency, there is no evidence that trade deficits have ever dampened economic growth in the U.S. Over the 29 years from demobilization (1947) through the year when America last ran an annual trade surplus (1975), real per-capita gross domestic product grew at an average annual rate of 2.1%. Over the next 29 years, as the U.S. ran trade deficits, 1976-2004, that rate was 2.2%. Today, in the 50th consecutive year of trade deficits, by every economic measure America’s economy is stronger and healthier than ever. A half-century of global capital infusions and economic growth is hardly a problem warranting “emergency” intervention.

Phil Gramm and Donald Boudreaux
AEI and George Mason University
Helotes, Texas, and Fairfax, Va.
Mr. Gramm was chairman of the Senate Banking Committee.

Tweet

Wall Street Journal columnist Mary Anastasia O’Grady reports on the damage America’s economy is suffering because of Trump’s tariffs punitive taxes on Americans’ purchases of import and import-competing products. A slice:

If Mr. Trump is looking for a tariff off-ramp for North America, it isn’t out of magnanimity or respect for the USMCA, which he negotiated and signed. His tariffs are tax increases that firms or consumers have to eat in what until now has been a highly integrated continental economy. Narrowing profit margins, reduced competitiveness, higher household bills and fewer job openings aren’t good for his constituents.

Canadian retaliation has already cost U.S. exporters. U.S. exports to Canada subject to auto retaliation declined by 53% year over year in April, and U.S. exports subject to IEEPA retaliation declined by 13%, according to Dan Anthony at the Trade Partnership Worldwide in Washington. But retaliation is far from the biggest problem.

The Commerce Department says Canada sold $7.8 billion in steel to the U.S. in 2024, making it the largest single steel supplier to the U.S. That same year, the International Trade Commission says, Canada imported $5.36 billion in steel from the U.S. Like all trade, these were voluntary exchanges in the interest of wealth creation. According to international-trade lawyer Lewis Leibowitz in Washington, Canada specializes in flat-rolled steel products used by U.S. manufacturers in things like autos, trucks, containers, construction and capital machinery. In particular, U.S. customers demand Canadian thin-gauge steel sheet for such applications as carports and garage doors. This thin-gauge material doesn’t offer the same profit margins as heavier-gauge steel, so the U.S. hasn’t been interested in producing it.

Scott Lincicome warns that “if courts strike down his Liberation Day tariffs, he has other options to implement import taxes.” Two slices:

Of course, scholars like the Cato Institute’s Ilya Somin—one of the lawyers/heroes in the CIT case—had good legal arguments against these tariffs, particularly the administration’s contradictory claims that IEEPA gives the president effectively unlimited tariff powers yet remains a proper delegation of those same powers, which the Constitution expressly gives to Congress. (Indeed, prominent constitutional scholars on the right and left intervened in the case to challenge this very thing.) Nevertheless, not everyone agrees with Somin, and it was simply remarkable that two different U.S. courts—and four different judges with widely varying backgrounds (including one Trump appointee)—would quickly and unanimously rule in plaintiffs’ favor on basically all  he above questions, on all IEEPA tariffs, and—in the CIT case—for all U.S. importers. It’s even more remarkable given that the Trump administration worked hard to move all litigation to the CIT, which was considered more deferential to presidential trade powers than other venues. And those judges—again, unanimously—even questioned the president’s determination that fentanyl trafficking constituted an “unusual and extraordinary threat” that can be dealt with by IEEPA.

The rulings’ potential economic effects are also substantial because the IEEPA tariffs were by far the biggest and broadest of Trump’s new import taxes. According to the Yale Budget Lab, in fact, invalidating all the IEEPA tariffs would cause the average effective U.S. tariff rate to drop approximately 10 percentage points from around 17 percent to 7 percent, thus nixing about $2 trillion in future revenue over the standard 10-year budget window while also significantly dampening the tariffs’ price increases and GDP reductions. The static reduction in U.S. tariffs (meaning no shifting of trade flows) would be even more dramatic.

…..

In short, given the president’s TACO-bruised ego and proclivity for tariffs, we should expect more of them in the months ahead—and more costs and uncertainty along the way—regardless of what the courts do later this year on IEEPA. And, as the Financial Times’ Alan Beattie reminds us, we should expect other, non-tariff restrictions on trade and investment, too.

Michael Bordo and Mickey Levy warn against disregarding history’s lessons on protectionism. (HT Scott Lincicome)

Insight from Alex Tabarrok:

I understand being concerned about illegal immigration. I definitely understand being concerned about murder, rape, and robbery. What I don’t understand is being more concerned about the former than the latter.

Yet that’s exactly how the federal government allocates resources. The federal government spends far more on immigration enforcement than on preventing violent crime, terrorism, tax fraud or indeed all of these combined.

Mark Jamison decries the Biden-Trump growth-suffocating and economically illiterate antitrust attacks on prominent tech companies. A slice:

Here’s the problem: these firms didn’t become dominant by suppressing competition. They became leaders by out-innovating everyone else.

Take Google’s search engine. The court concluded that Google’s leadership came from constantly innovating to build a superior product—one that almost all consumers and business partners freely chose over alternatives. In other words, the company earned its lead in the never-ending innovation race. Yet the DOJ now claims that this very success threatens future innovation, and that Google must be punished and be forced to shackle its AI and hand over its resources to rivals.

That’s like forcing a marathon winner to share his or her time with the competition so that everyone is a winner. No one wins here.

Peter Suderman is correct: “The libertarians aren’t in charge. But the lesson of the last decade of politics is that they should be.” A slice:

The charge [that libertarians have been running things] has always carried a whiff of desperation, given how little power actual self-identified libertarians have in the corridors of government. But after four years of Joe Biden running a White House that was a hotbed of Warrenite progressivism, and the early months of Donald Trump’s presidency marked by all manner of New Right paranoia and kookiness, maybe it’s time to revise the complaint: Libertarians don’t have enough power.

Scott Sumner wisely urges college students to challenge their professors more often.

Russ Roberts’s conversation with Patrick McKenzie about consumer credit is fascinating.

Tweet

… is from page 222 of Johan Norberg’s superb 2023 book, The Capitalist Manifesto:

One-man rule limits the amount of knowledge that reaches the top, and leads to yes-men, paranoia and purges. Major mistakes can be made when witless loyalty is rewarded.

DBx: Indeed.

Norberg here is writing about one-man rule in today’s China. But the logic applies generally, including to the United States. Although we in the U.S. are still far from the authoritarianism and dysfunction of China’s political system, we have moved in that direction for quite some time – a movement that has accelerated following the subprime crisis and, again, under Trump 2.0.

With his flood of executive orders, Trump reigns very much like a dictator surrounded, as all dictators are, by yes-men and yes-women. Trump’s rule ignores and overrides the vast amount of knowledge that must be accessed and used if the economy is to continue to grow – and the society to continue to be free.

I fear that the courts will, in the end, do almost nothing to rein in this unconstitutional abuse of executive authority. Too many jurists on the right are under the delusion that the Constitution requires almost complete deference of the courts to legislative and executive action. Too many jurists on the left are under the ‘progressive’ delusion that effective governance in the modern world is impossible when constrained by those old and out-of-date 18th-century notions of checks-and-balances and separation-of-powers.

Congress is and will remain largely supine. And the courts will stand by and – although occasionally reminding Congress of its Constitutional duty – decline to do their Constitutional duty.

We Americans now seem destined to have an elected monarchy.

But, hey, it’s an elected monarchy – democracy in action, so nothing whatsoever to worry about! Right? Right?? Through the coming succession of elected monarchs who will reside in the palace at 1600 Pennsylvania Ave., NW, it will – we are assured – be the will of The People that reigns in the person of the current king or queen. What could possibly go wrong?