Terence Kealey explains that “government funding of academic research does not stimulate growth.” A slice:
The most important fact in science policy is that the United Kingdom led the world through the first industrial revolution in the absence of significant government money for research. By contrast, the French and German governments were then funding their nations’ research capaciously, yet their GDPs per capita failed to converge on the UK’s. Government funding for research is thus neither necessary nor sufficient for economic progress.
The country that did converge on the UK—and in 1890 overtake it—was the U.S., whose government also did not fund research significantly. In those days, the British and U.S. federal governments then funded only “mission research,” which was research that was undertaken by government agencies such as the Library of Congress or the Coast Survey in the service of their missions. In comparison with the vast government labs funded in France and Germany, UK and U.S. mission research was always narrowly focused and modestly funded. All other research was done through private funding.
The two largest U.S. research missions were defense and agriculture, but neither was of substantial economic impact. Defense research in peacetime was always small: The federal government did create research agencies during the Civil War and WWI, but they were defunded on the resumption of peace. Equally, the Office for Scientific Research and Development, which had been established in 1941 and had funded the Manhattan project, MIT’s Rad Lab, and other vast WWII research missions, was shuttered in 1947.
The other significant mission of the day was agriculture, yet agriculture’s problem was over-production, which impoverished the farmers. But trying to raise agricultural productivity would not solve their problem. The federal and state governments’ motives in funding agricultural research were, therefore, essentially political—the farmers were poor, there were many of them, they had votes, so it seemed wise for politicians to be seen to be doing something.
In short, by as late as 1940, the federal and state governments’ investment in research amounted to only 23 percent of U.S. R&D and 10 percent of U.S. basic science, and the nature of that investment could have had little or no impact on rates of American economic or health growth: Defense R&D has almost no economic benefit, while the agricultural R&D was surplus to requirement.
GMU Econ alum Nikolai Wenzel urges a rediscovery of Bastiat in our age of tariffs. A slice:
Many people are instinctively worried about trade deficits – somehow, it seems problematic that trade partners might sell to us more than they buy from us. But, first, the US is richer than almost every other country in the world, so it makes sense that the US would buy more. Second, the US has deeper capital markets with greater legal protections than almost any country in the world, so it makes sense that foreigners would invest more in the US than the US invests abroad; this capital account surplus is merely the flip side of a current account deficit. Third, all of us run trade deficits with the grocery store, the doctor, and the restaurant, who brazenly refuse to buy from us; yet we are all better off. In his Economic Sophisms, Bastiat debunks the idea that The Balance of Trade is problematic. Indeed, he playfully shows that the trade deficit could be erased if the ships carrying payments to foreigners were to sink… or be scuttled.
Clifford Asness and Michael Strain debunk several myths, beloved by both MAGAs and progressives, about the American economy. Three slices:
But today, both the progressive left and the MAGA right seem to run on imaginary—or at best, horribly exaggerated—grievance. The uniting theme is that the average American has it terrible these days, and only their chosen end of the horseshoe can fix it. People will go to extremes only when they are convinced things are terrible—and there’s a cottage industry, again both press and politicians, working on selling that story.
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There has never been a better time and place to be alive than in the United States today. We will focus on economics below, as that is our expertise, and easily the single biggest category of populist grievance.
Wages for typical American workers have never been higher. According to our calculations, after adjusting for inflation, the wages of nonsupervisory workers—roughly the bottom 80 percent of workers by pay, including manufacturing workers and service-sector workers who are not managers—have grown by around 60 percent over the past two generations. Over the past three decades, inflation-adjusted wages for typical workers have grown by 44 percent.
Wages are the most important component of the flow of financial resources households can use for consumption and savings. But households receive resources from other sources as well, including government transfer payments, social insurance receipts, and businesses. Overall household income tells the same story as wages: Real household income has never been higher than it is today.
And not just for families at the very top. According to the Congressional Budget Office (CBO), families in the 51st to 90th percentiles of the wealth distribution had an average wealth of $1.3 million in 2022, the most recent year data are available. That’s up from around $500,000 in 1990, after adjusting for inflation.
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In the 1960s, the poverty rate was above 20 percent. Using the government’s official poverty measure, poverty has fallen to 11.1 percent as of 2023, the most recent year data are available. This measures poverty on a relative basis. Of course, a relative standard will always find relative poverty. But using an absolute standard finds that income poverty is below 6 percent. On a consumption basis, well over 20 percent of households were in poverty in the 1960s, and 11 percent were in poverty in 1990. Today, the consumption poverty rate is around 1 percent.
The debate over the OBBBA has revealed (once again) that the uniting principle in Republican politics is not fiscal responsibility. The bill that passed the Senate on Tuesday afternoon, with Vance as the tie-breaking vote, will add nearly $4 trillion to the national debt over the next decade. It is not, under any circumstances, a fiscally responsible piece of legislation.
Instead, the fulcrum for conservative politics is—and for quite some time has been, even before Vance and President Donald Trump rose to prominence—immigration. If you want to keep the GOP coalition together for a tough vote, it makes more sense to pitch the bill as an immigration measure.
Vance understands this. He also understands that the facts don’t really matter when conservatives are talking about immigration within their own tribe.
Indeed, he’s completely wrong about “the thing that will bankrupt this country more than any other policy.”
It’s not immigrants who are doing that. It’s Congress.
Industrial policy advocates view the market as a policy device that government officials can manipulate, but in fact, the market is a group of people cooperating to get what they need while offering each other something in exchange. And in the United States, the market is a very large group of people. Even to “redirect” this market would require persuading – or forcing – hundreds of millions of people to so something they would otherwise not do. It’s a core reason that so many experiments with government-directed economies have failed.
In the long run, expected antitrust penalties just become costs of doing business. Prices will eventually increase to the extent that the conditions of demand and supply allow sellers to pass these higher costs on to consumers. The end result is fewer producers selling at higher prices – just the opposite of antitrust’s intended effect.
Trump’s trade war is grievance in action – victimhood weaponised and unleashed as tariffs. It’s not economic strategy; it’s MAGA-fied trade policy, where protectionism becomes a form of emotional retribution without a great deal of thought about the consequences.
Another source of “unfair competition” is said to be subsidies by foreign governments to their producers that enable them to sell in the United States below cost. Suppose a foreign government gives such subsidies, as no doubt some do. Who is hurt and who benefits? To pay for the subsidies the foreign government must tax its citizens. They are the ones who pay for the subsidies. U.S. consumers benefit. They get cheap TV sets or automobiles or whatever it is that is subsidized. Should we complain about such a program of reverse foreign aid? Was it noble of the United States to send goods and services as gifts to other countries in the form of Marshal Plan aid or, later, foreign aid, but ignoble for foreign countries to send us gifts in the indirect form of goods and services sold to us below cost? The citizens of the foreign government might well complain. They must suffer a lower standard of living for the benefit of American consumers and of some of their fellow citizens who who own or work in the industries that are subsidized.
