Tweet

Tweet

Phil Magness’s letter is today’s Wall Street Journal is great:

In his May 29 letter, JD Vance encourages policymakers to enlist the “tools” of government to direct the American economy in a style reminiscent of Franklin Roosevelt. Such actions, he contends, are necessary to attain “fairer treatment from foreign partners” and to solve a variety of ills that have allegedly decimated productive American industries. Mr. Vance faults Mexico and China by name for his complaints and presents the Trump administration’s tariff agenda as a prudential government corrective, neglecting to substantiate the efficacy of his preferred economic policies.

While reading these claims, I was reminded of an author who once urged Americans to take responsibility for their lives instead of turning to the government for solutions or constantly blaming others for “some perceived unfairness.” This author dismissed excuses such as “Obama shut down the coal mines, or all the jobs went to the Chinese,” describing them as “lies we tell ourselves to solve the cognitive dissonance—the broken connection between the world we see and the values we preach.”

These words appeared in the 2016 book “Hillbilly Elegy.” Mr. Vance could benefit from their counsel today.

Phillip W. Magness
The Independent Institute

T.J. Rodgers explains that “Congress wasted taxpayer dollars on Sematech in 1987. The 2022 Chips and Science Act is a repeat.” Three slices:

I was the CEO of Cypress Semiconductor, a chip company founded in 1982 that peaked in 2018 at $2.8 billion in revenue and 5,846 employees. In 2020 German chip maker Infineon acquired us for $10 billion.

In 1987, the Semiconductor Industry Association decided that our industry needed to get on what I call welfare. The association lobbied Washington to fund a consortium called Sematech, grant it exemptions from antitrust laws, and fund a silicon-wafer fabrication plant. This was needed, the association said, because Japanese companies were about to wipe out the American semiconductor industry. As a chip company CEO, I never worried about getting wiped out, but I worried daily about rival memory chips from Hitachi, Toshiba, Mitsubishi and Fujitsu. That healthy competition made our company stronger, and in 2015 Cypress acquired Fujitsu’s microcontroller team.

Before a 1987 congressional hearing on funding Sematech, Rep. Bob Walker (R., Pa.) called to ask if I would testify against funneling government dollars into the consortium. The semiconductor establishment, including Gordon Moore of Intel, testified for Sematech. My testimony that Sematech was a bad idea and that it would harm our industry landed me on the cover of BusinessWeek with the headline “The Bad Boy of Silicon Valley.” Although I failed to stop Sematech from getting government funding, I testified three more times before Congress and managed to help prevent the public funding of another chip welfare program.

My mother was a fifth-grade teacher in Oshkosh, Wis. She earned $25,000 a year. Why should chip companies, some of the wealthiest corporations in the world, take money from her and other ordinary citizens? Today’s massive $280 billion Chips and Science Act of 2022, the latest semiconductor welfare program, is even less justified than Sematech was.

…..

Sematech’s wafer-fabrication plant, built slowly because of politics, was already becoming obsolescent on the two-year Moore’s Law clock. By comparison, in 2007 Cypress sold our aging original “Fab 1” 1983 plant for $53 million to a startup, Silicon Valley Technology Corp., to recycle our shareholders’ funding. Sematech, which had moved its headquarters from Austin to Albany, N.Y., in 2007 to chase New York state subsidies, effectively gave away its Austin plant, which was double the size and a decade newer than our Fab 1. The $24 million price wasn’t disclosed and was never paid in cash, just services.

To my knowledge, Sematech contributed nothing of note to U.S. semiconductor technology. Its Final Report in 1997 served up platitudes about “catching up with Japan” and fostering “industry cooperation.”

Decades later, the Semiconductor Industry Association—now a group of lobbyists in Washington—began “saving” the chip industry again. This time the target is China, despite the fact that its best wafer foundry is SMIC, an also-ran in the foundry business. China is less a competitive threat today than Japan was in 1987.

…..

Today, 100 high-performance computers can be put on one chip. The companies that know how to design 100-billion-transistor chips for a critical function such as artificial intelligence are much more valuable than the companies that carve commodity chips out of silicon wafers, like those in China. While the biggest chip-manufacturing company in China is worth $54 billion, a single U.S. chip company, Nvidia, is worth $3.4 trillion—58 times as much—and it doesn’t even make its own chips. Why are we doing this again?

Brian Darling is correct: “‘Liberation Day’ tariffs unconstitutional and unpopular.” A slice:

Our Founding Fathers believed that the executive does not have unlimited powers to impose tariffs on imports. James Madison, in Federalist 48, made the point that “the powers properly belonging to one of the departments ought not to be directly and completely administered by either of the other departments.” Article I, Section 8, Clause 1 of the Constitution specifically gives the power to Congress to lay and collect taxes and duties. Levying tariffs falls clearly into the enumerated powers of Congress that can’t be delegated away to the executive branch.

My Mercatus Center colleague Satya Marar ponders AI and antitrust … and tariffs.

Eric Boehm reports on Sen. Rand Paul’s (R-KY) and Elon Musk’s opposition to the “big, beautiful bill” – or what Musk quite accurately describes as “a disgusting abomination.” A slice:

Trump wrote that the bill is a big “WINNER.” He may see it that way, but every independent assessment of the package says it will add at least $3 trillion to the long-term deficit (and potentially as much as $5 trillion). That means the bill is doing the opposite of what Trump vowed to do in March during his speech to Congress, when he promised to balance the budget.

Thomas Lenard sensibly calls for the Federal Communications Commission to be shut down. (HT Arnold Kling). A slice:

Congress established the FCC to regulate monopoly telecommunications services and later directed it to promote competition in those services. Today, with voice and data communications provided by many competing technologies, the industry is one of the economy’s most competitive and dynamic.

For much of its history, the FCC presided over the Bell System monopoly, which kept out new entrants and lasted until the courts broke it up in the early 1980s. The FCC’s subsequent efforts to promote competition, following passage of the Telecommunications Act of 1996, resulted in dozens of bankruptcies, billions of dollars in shareholder losses, and distorted investment incentives for new entrants and incumbents.

As the internet took off in the 1990s and early 2000s, the Clinton and Bush FCCs recognized the importance of leaving it largely unregulated. The Obama and Biden FCCs, however, saw the internet’s success as a reason to regulate.

Without evidence of market failure, Messrs. Obama and Biden tried for years to make internet-service providers common carriers and subject them to public-utility-style regulation. This type of regulation is rarely beneficial, and virtually never for industries characterized by rapid technical change.

Jim Geraghty rightly warns that ridiculing Trump with “TACO” will only prod him to refuse to change course on those countless occasions when he should indeed change course.

The Editorial Board of the Wall Street Journal rightly worries that Trump is doing and saying things that win the applause of Sen. Sheldon Whitehouse (D-RI). A slice:

“Trump’s mad rant unloads on Court-fixer Leonard Leo—has Trump FINALLY figured out that he was chumped big-time by Leo, McGahn and the creepy billionaires (Koch) who REALLY controlled ‘his’ judicial appointments? Slow learner,” Mr. Whitehouse tweeted.

Mr. Leo and former White House counsel Don McGahn were two of the Federalist Society stalwarts who helped Mr. Trump remake the federal judiciary in the President’s first term. Mr. Whitehouse, the Captain Ahab of the Senate, has spent years trying to find something to spear Mr. Leo with, but he always misses. He is elated now that Mr. Trump, who prospered by nominating originalist judges, is turning against the collaborators who helped engineer the President’s greatest achievement.

Tweet

… is from pages 228-229 of Johan Norberg’s excellent 2023 book, The Capitalist Manifesto:

Many in the West believe China is winning and that the West’s only chance to cope with this economic and technological rivalry is to become more like China. But they confuse China’s unparalleled successes during the opening years 1978-2010 wit the centralist policies after 2010, which in fact hold the country back and put its future in peril. As long as China does not allow capital to flow the the most promising ideas, refuses to let entrepreneurs pursue innovations and surprises, and only allows markets in goods and not in ideas, China will never be an innovative, rich country.

DBx: Congratulations to Johan, whose book – quoted here – is the winner of the Manhattan Institute’s 2025 Hayek Book Prize. This Prize will be formally award this evening at a dinner in Manhattan.

Tweet

… about our new book, The Triumph of Economic Freedom: Debunking the Seven Great Myths of American Capitalism.

Tweet

The Editorial Board of the Wall Street Journal decries Trump’s destructive steel and aluminum tariffs. Two slices:

The best that can be said about President Trump’s blessing of Nippon Steel’s purchase of U.S. Steel is that it blocks Cleveland-Cliffs’ political power play to buy U.S. Steel instead. The worst to be said is that the purchase has become another opening to make U.S. companies less competitive with higher tariff walls on foreign steel.
…..
His first-term steel and aluminum tariffs caused prices to rise for a period, but higher prices hurt customers and caused demand to fall. A Federal Reserve Board of Governors study estimated the tariffs cost 75,000 manufacturing jobs. Employment in fabricated metals manufacturing is still some 33,000 lower than when the tariffs took effect.

GMU Econ alums Scott Burns and Caleb Fuller continue their series on teaching economics during the trade war. Two slices:

To be fair, trade wars aren’t some new obsession for the president. He’s had his eye on this particular doomsday device for quite some time. Protectionism has been the most consistent (and perhaps only) through line in his political thought dating back to the 1980s. Although many believe the president was reined in from detonating a full-blown trade war in his first term by a largely pro-trade cabinet, he didn’t exactly hide the nuclear football with his desire to launch one. In 2018, the “Tariff Man” telegraphed his “Liberation Day” policies by tweeting: “trade wars are good, and easy to win.”

This time around, however, the president isn’t alone in his affinity for tariffs. The Trump 2.0 cabinet is littered with Tariff Men. As we argued in an earlier article, although their motives vary, they’re all united by antagonism towards trade and a belief they can effectively reengineer the global economy.

…..

This story of how nations become wealthy lies at the heart of Adam Smith’s Wealth of Nations. Smith recognized that specialization and trade are engines of economic development. As he observed, “the division of labor is limited by the extent of the market”—the more trading partners we have access to, the more we can specialize, and the wealthier we can become through trade. It’s no coincidence that the wealthiest nations today are the ones that place the fewest restrictions on trade. No nation has achieved great prosperity by restricting trade, but many have stagnated or declined by doing so.

Katherine Mangu-Ward is correct: “The real case for free trade is not “my enemies hate it” or “it’s cheaper for me, personally” but “it makes the world richer, freer, and more peaceful.” Two slices:

After decades of shouting into the void that free trade is good, those of us in the “eliminate tariffs, embrace comparative advantage, and let me buy my haggis-flavored chips online without an import tax” crowd are experiencing something that hasn’t happened in a while: new friends. Things have been especially lonely in recent years, as the right veered away from offering even lip service to free trade while the left coasted on the fumes of its union-driven protectionist past.
But a recent poll from the Polarization Research Lab shows those same lefties making a sudden and striking turn. At the start of 2024, liberals and conservatives were nearly identical in their lukewarm support for unrestricted trade—about 20 percent each in favor. Following President Donald Trump’s electoral win and renewed protectionist rhetoric, liberal support has more than doubled to over 40 percent.

…..

Tariffs are just taxes in sheep’s clothing—dressed up as patriotism, but fundamentally designed to pick your pocket. They don’t protect American workers; they protect politically favored industries from having to innovate, improve, or compete. Every time you pay more for a washing machine or a beer because of a tariff, you’re experiencing crony capitalism with a red, white, and blue bow on top.

Matthew Hennessey pens another gem exposing the ignorance of economics (and of science) of JD Vance and others who offer excuses for government officials to engineer society. A slice:

I wrote a piece last week critical of Vice President JD Vance’s understanding of markets. I offered my view that the laws of supply and demand govern markets the way the laws of gravity govern the physical world—they are invisible, predictable, powerful and true. I never said economics and physics are the same. Or that the social and physical sciences use identical processes of discovery. Yet somehow the discussion descended into a debate over a familiar question: Is economics a science?

The question isn’t helpful. Embedded within it is a faulty assumption—that observations about the world emerging from the hard sciences are somehow superior to or more useful than observations emerging from other academic disciplines. Simply, if economics is science, then it’s real and we’re bound by it. If it isn’t science, anything goes. We’re free to build a brave new world.

This perspective suits the dirigiste pied pipers advising Mr. Vance and informing the policy decisions of the Trump administration. Everything about them suggests a desire to ignore economic history. They want to prove that they can’t be dictated to by the market. Tarring economics as “not a science” gives them political room to run. The protectionist utopia is just around the corner.

Trump’s lashing-out at the Federalist Society is indeed a bad omen.

James Pethokoukis applauds “another step forward in removing NEPA as a barrier to building.”

Erec Smith details the cheap, false tricks of many DEI enthusiasts. (HT George Leef)

Tweet

… is from page 168 of Daniel Boorstin’s splendid 1958 volume, The Americans: The Colonial Experience:

To say that a society can or ought to be “unified” by some total philosophic system – whether a Summa Theologica, a Calvin’s Institutes, or a Marx’s Capital – is to commit oneself to an aristocratic concept of knowledge: let the élite know the theories and values of the society; they will know and preserve for all the rest.

Tweet

These two letters-to-the-editor in today’s Wall Street Journal – one from David Henderson, the other from Eric Fruits – are superb; each is in response to JD Vance’s lame attempt to defend himself against Matthew Hennessey’s insightful criticisms:

Matthew Hennessey gets the better of Vice President JD Vance in arguing that the market isn’t a tool (Letters, May 29). Mr. Vance tries to support his proposition by citing that FDR directed the automobile industry to build the arsenal of democracy. That effort, however, isn’t an example of “operationalizing” the market. The president used government as a tool to override the market, and the private sector responded.

Mr. Vance writes that President Trump has also “leveraged access to America’s markets” to get “fairer treatment from foreign partners” on trade, illegal immigration and illegal drugs. But that isn’t using markets as a tool, either; it’s coercively regulating markets to get the president’s desired results. Parenthetically, do Messrs. Trump and Vance really believe Canada’s government can substantially reduce the amount of fentanyl passing through its border with the U.S., which at 43 pounds in fiscal 2024 was 0.2% of the volume seized along the U.S.-Mexico border?

Mr. Vance asks, “Should we allow enormous volumes of Mexican produce or Chinese autos to decimate productive American industries—or should we use tools like tariffs and trade remedies to protect them?” Allowing Chinese electric vehicles into the U.S. wouldn’t decimate domestic production, especially if Mr. Trump succeeds in ending EV mandates so that U.S. firms can do what they do best: produce gasoline-power vehicles and hybrids. Preventing people from buying cheaper foreign produce disproportionately hurts poorer families. The vice president unwittingly gives the game away: Tariffs, not markets, are the tool.

David R. Henderson
Hoover Institution
Stanford, Calif.

Mr. Hennessey offers a salient observation: Markets aren’t tools to be exploited or managed by politicians any more than democracy is such a tool. Markets are arguably more democratic than Washington. While lawmakers debate growth policies, markets quietly coordinate trillions of dollars in daily transactions. Millions of Americans choose which products succeed, which companies thrive and which innovations gain traction. These decisions happen in real time, not after years of congressional gridlock.

Such politicians as Mr. Vance believe technocratic planning can improve spontaneous economic coordination. But while executive-branch priorities whipsaw with each election cycle, creating regulatory uncertainty that stifles investment, markets provide the continuous feedback mechanisms that allocate resources efficiently. This decentralized system has generated unprecedented prosperity because it operates beyond political control.

Rather than treat markets as obstacles to overcome, policymakers should recognize them as democracy in action, where consumer sovereignty, not political planning, determines winners and losers.

Eric Fruits
Intl. Center for Law & Economics

M. Nolan Gray explains “how Trump’s tariffs and immigration policies could make housing even more expensive.”

Back in January, Doug Irwin talked with Alan Beattie of the Financial Times about Trump and the history of tariffs.

Scott Sumner makes an excellent point about excuses given for protectionism. A slice:

In the US, national security has been cited by proponents of protectionism for a wide variety of products, ranging from computer chips to automobiles to ship building.  But when it comes to foreign countries, our protectionists often have a blind spot.  They cannot even imagine that any other country might also have valid national security concerns.

Thanks to Brian Gross for this favorable review, on Amazon, of Phil Gramm’s and my new book, The Triumph of Economic Freedom.

Boston Globe columnist Jeff Jacoby is correct: NPR should indeed pay its own way. Two slices:

The president is also right when he describes NPR and PBS as “biased” and says they fall short of “fair, accurate, unbiased, and nonpartisan news coverage.” To be sure, conservatives have complained about the leftist slant in public broadcasting for decades. But even NPR loyalists and insiders have acknowledged the problem. In a much-discussed essay last year, former senior editor Uri Berliner, a 25-year NPR veteran, recounted how the organization shifted from reflecting a “liberal bent” to relentlessly promoting a rigidly progressive worldview on everything from race to climate to the Middle East; especially pronounced, he wrote, were NPR’s “efforts to damage or topple Trump’s presidency.”

Yet for all that, public broadcasting’s leftward tilt is not a good reason to pull the plug on its government funding, which in fiscal year 2025 will total $535 million in direct and indirect payments. There is nothing surprising or outrageous about the fact that NPR’s programming reflects a distinct political outlook. Virtually all news media have an ideological leaning. The Globe, The Washington Post, The New York Times, Vox, and CNN are generally liberal, while Fox News, National Review, the New York Post, Daily Wire, and The Wall Street Journal opinion pages are generally conservative.

…..

I oppose any government funding of radio or TV on First Amendment grounds: To my mind, neither Congress nor any state has a legitimate reason to control, influence, or sponsor domestic media. (I distinguish broadcast services like Voice of America and Radio Liberty, which are tools of foreign policy.) Public broadcasting would be healthier and happier if it overcame its craving for taxpayer dollars once and for all.

Trump’s executive order can’t overturn NPR’s subsidy, because the funds were appropriated by Congress. But a bill working its way through Capitol Hill would end the funding of public broadcasting, and it ought to be passed.

This has nothing to do with NPR’s lefty tilt, grating though it can be. Some of my best friends, to coin a phrase, work in public broadcasting, and much of what they produce is first-rate. NPR and its affiliates have broken no end of significant news stories and generated countless hours of intelligent, absorbing, informative content. The same is true of innumerable other media outlets, including the one you’re reading now. Those outlets function every day of the year.

Wall Street Journal columnist Mary Anastasia O’Grady decries the politicization of Mexico’s judiciary. A slice:

Government critics and independent analysts warned that the sweeping overhaul of the judiciary through popular elections would politicize the courts, putting them under the thumb of the Morena Party’s corporatist populism. They aren’t wrong. It’s the goal of former President Andrés Manuel López Obrador, who pushed through the constitutional change as he was leaving office last year. This way when the state wants to discriminate against private investors in favor of its own interests, property rights and contracts won’t get in the way.

AMLO, as the former president is known, wants Mexico to look more like it did in the 1970s. This is a leap in that direction.

Tweet

… is from pages 253-254 of the American jurist James Coolidge Carter’s profound, yet unfortunately neglected, (posthumous) 1907 book, Law: Its Origin, Growth and Function:

[I]t should be kept constantly in mind by the legislator that the function of the law resting upon custom, the function of legislation and the function, indeed, of all Government are the same, namely, to mark out the sphere in which the individual may freely act in society without encroaching upon the like freedom in others; that this sphere is primarily marked out by the unconscious operation of custom with a wisdom far beyond that of the wit of the wisest; that the function of conscious government, whether in the form of legislation or otherwise, is subsidiary to it, and that all legislation should observe this subordination and never attempt to subvert or supersede that which it is designed to aid.

DBx: Indeed so.

Or, rather I say “indeed so.” As good a test as any for how sincerely and consistently a person believes in individual liberty in an open, liberal, peaceful society is how enthusiastically or tepidly (or not at all) that person agrees with what Coolidge writes here. My agreement with Coolidge couldn’t be stronger. But I realize that I and other classical liberals (or genuine libertarians) are freakishly odd. Most people take it for granted that the state should, to one degree or another, consciously design society and use its powers of coercion to prevent individuals from doing particular peaceful activities while also compelling them to do other particular activities. Most people, upon reading this passage from Coolidge, would think him to have been somewhere between naive and nuts.

Relatively few people are content to leave other, peaceful people free of state coercion. The complex and productive patterns of human cooperation that emerge when individuals are left free to engage peacefully with each other, their property and contract rights respected and secure, are looked at by most people with either contempt or fear. The promise of using coercion to attempt to engineer human society into something closer to an imagined earthly paradise intoxicates nearly everyone. But intoxication-driven action, although exciting to the actors, is destined to turn out badly.

Tweet

Here’s a note to a long-time champion of protectionism Warren Platts.

Mr. Platts:

Commenting on David Henderson’s EconLog post titled “Who Bears the Burden of Tariffs?” you construct a hypothetical example in which a protective U.S. tariff on baseball caps causes no increase in the price paid by American buyers of baseball caps yet nevertheless has, as you say, a “protective effect.” In your hypothetical, the tariff incites the baseball-cap producer to increase its American operations to such an extent that the supply of baseball caps – and, hence, the price of baseball caps – remain unchanged. You use this hypothetical to suggest that tariffs can have a protective effect at no cost to domestic citizens.

You’re mistaken.

Even if the producer completely ‘reshores’ its baseball-cap production to the U.S., the supply of these caps will not be as high as it was before the tariff. It will be lower. The reason is that the producer manufactured the caps abroad because that was the lowest-cost method. Manufacturing the caps in the U.S. is more expensive. So even when all baseball-cap manufacturing is ‘reshored’ to the U.S., the supply of baseball caps will be lower, and the prices paid by buyers of these caps will be higher, than before the tariff.

The only way to escape this conclusion is to assume that the cost of producing baseball caps in the U.S. is identical to the cost of producing these caps abroad, and therefore the manufacturer’s decision to produce abroad rather than in the U.S. was a toss-up. While it’s true that under this highly implausible assumption – and only under this assumption – a tariff-induced ‘reshoring’ of all production of baseball caps to the U.S. will not raise the price of baseball caps, it is not true that this tariff will be costless to Americans.

Baseball-cap production in the U.S. cannot expand without drawing resources – capital and labor and other inputs – away from other productive activities in the U.S. Thus, as the tariff fuels an increase in America of the production of baseball caps, it necessarily also fuels a decrease in America of the production of other goods and services. As supplies of these other goods and services fall, their prices rise. Americans’ cost of living goes up. Americans pay.

There is no such thing as a free lunch or free tariff-induced greater domestic production. It is impossible for a tariff to have a protective effect without raising prices paid by domestic buyers.

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