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Twenty years ago today, on January 7th, 2004, Paul Craig Roberts predicted that if the U.S. government did not significantly reduced the off-shoring of American jobs – especially white-collar American jobs – “the United States will be a Third World country in twenty years.”

I submit that this prediction is now disproved.

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Aaron Brown reveals shoddy reporting by the New York Times on a shoddy paper on private equity. Here’s the lead-in:

Researchers trumpeted a statistically insignificant finding and attempted to explain away contrary data. The Gray Lady further garbled the evidence.

Ayaan Hirsi Ali ponders “Claudine Gay and the mafia of mediocrity.” Two slices:

DEI is the programmatic implementation of an intolerant progressive agenda that views the existing structures of government, education, media, and industry as deeply unjust. It presents these institutions in the light of a hierarchical “intersectional” model of the oppressors and the oppressed. The ultimate oppressor is white, male, and straight. Blacks, women, gays and others are defined as their victims. To redress these past wrongs, DEI is supposed to design new structures of “positive” discrimination, or “affirmative action”.

This is how individuals such as Claudine Gay secured promotion to the commanding heights not just of the Ivy League, but of many other august institutions. Merit, qualifications, the ability to lead — all these criteria were cast aside as expressions of “systemic racism” and “white supremacy”.

The blame for this, of course, cannot be solely pinned on the individuals who have since benefited from DEI. As Gay ascended the ladder of academic preferment, her ambition was central but hardly sufficient. Rather, she did so with the complicity of a network of gatekeepers: the admissions offices of Princeton and Stanford; the peer reviewers who overlooked her plagiarism; the Harvard committees that promoted her through the various ranks of the professorship; and, finally, the members of the Harvard Corporation who deemed her the most suitable candidate for the position of president.

Thanks to their collaboration, and the fall-out following their exposure, the truth about DEI has been thrust into the mainstream. As an acronym, it still holds, but not in the way they intend. In reality, the Dstands for the degradation of the standards once upheld at institutions such as Harvard; the E stands for their erasure; and the I stands not only for the indoctrination that follows, but also intimidation. Gay, after all, not only plagiarised the work of Carol Swain and other black academics. As dean and then as president, she set about destroying the careers of black scholars who choose to play by the rules of merit and academic integrity, notably Roland Fryer.

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In her graceless attempt to portray her downfall as something more than the result of her exposure as a fraud, Claudine Gay alleged that there was “a broader war to unravel public faith in pillars of American society… Trusted institutions of all types — from public health agencies to news organisations — will continue to fall victim to coordinated attempts to undermine their legitimacy and ruin their leaders’ credibility.”

The reality is very different. Harvard — like the New York Times, which published her screed — has done the work of unravelling public faith all by itself. It has made a mockery of itself as surely as the Somali Sports Ministry did when it fielded a manifestly unqualified runner. The difference is that Harvard humiliated itself for the sake of an ideology, as opposed to plain nepotism. Until that ideology is extirpated not just from one university but from American education as a whole, the mafia of mediocrity will continue to march on — and produce many more Claudine Gays along the way.

Sofia Hamilton writes that “welfare is great – for the welfare bureaucrats.”

Here’s David Henderson on Jeff Bezos and the Washington Post.

I’m eager to read my GMU Econ colleague Bryan Caplan’s new book, You Will Not Stampede Me.

Timothy Taylor: “I’m not overly confident that any of these studies on whether economics causes selfishness should be treated as dispositive. But the empirical evidence that does exist for the claim seems weak.”

Jay Bhattacharya tweets:

It’s tough competition, but the people who study health and economic development & supported lockdown are among the most disappointing. They make a living studying deep poverty, but supported a policy that they should have known would cause the poor to starve, suffer, and die.

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… is from page 111 of Thomas Sowell’s 2023 book, Social Justice Fallacies:

Today it is possible, even in our most prestigious educational institutions at all levels, to go literally from kindergarten to a Ph.D. without ever having read a single article – much less a book – by someone who advocates free-market economics or who opposes gun control laws. Whether you would agree with them or disagree with them, if you read what they said, is not the issue. The far larger issue is why education has so often become indoctrination.

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Lawrence Krauss decries the fact that “articles in hard-science journals increasingly read like [Alan Sokal’s] 1996 hoax, and dissenters are suppressed.” A slice:

Undergraduates are being exposed to this stuff as well. Rice University offers a course called “Afrochemistry: The Study of Black-Life Matter,” in which “students will apply chemical tools and analysis to understand Black life in the U.S. and students will implement African American sensibilities to analyze chemistry.” The course catalog notes that “no prior knowledge of chemistry or African American studies is required for engagement in this course.”

Such ideas haven’t totally colonized scientific journals and pedagogy, but they are beginning to appear almost everywhere and are getting support and encouragement from the scientific establishment. There are also indications that dissent isn’t welcome. When a group of physicists led by Charles Reichhardtwrote to the American Physical Society, publisher of the Physics Education Research journal, to object to the “observing whiteness” article, APS invited a response, then refused to publish it on the grounds that its arguments, which were scientific and quantitative, were based on “the perspective of a research paradigm that is different from the one of the research being critiqued.”

“This is akin to stating that an astronomer must first accept astrology as true before critiquing it,” the dissenters wrote in the final version of their critique, which they had to publish in a different journal, European Review.

That sounds like an exaggeration, but in 2021 Mount Royal University in Canada fired a tenured professor, Frances Widdowson, for questioning whether indigenous “star knowledge” belonged in an astronomy curriculum. The same year, New Zealand‘s Education Ministry decreed that Māori indigenous “ways of knowing” would have equal standing with science in science classes. The Royal Society of New Zealand investigated two scientists for questioning this policy; they were exculpated but resigned. The University of Auckland removed another scientist who questioned the policy from teaching two biology classes.

Greg Lukianoff and Rikki Schlott explain that “universities use DEI statements to enforce groupthink.” Two slices:

Even if you completely agree with the importance of DEI, there really isn’t any reason to ask a potential physics professor, for example, to discuss their prior, past, and future “intellectual commitments” to “social justice.” That is, unless you’re looking to test their political outlook as a condition for their employment. The purpose of DEI statements is obvious, and professors themselves know it.

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A whopping 91 percent of professors said they were at least somewhat likely to self-censor in their speech on social media, in class, in their publications, or online. (Compare this with the 9 percent of social science faculty during the Joseph McCarthy era who answered yes to the question, “Have you toned down anything you have written lately because you were worried that it might cause too much controversy?”)

National Review‘s Charles Cooke eviscerates the mindset that celebrates the likes of Claudine Gay.

Also writing about the Claudine Gay affair, and so-called “higher education” more generally, is Glenn Reynolds. (HT Arnold Kling)

Richard McKenzie ponders the fragility of civil society. A slice:

Contemporary Americans could be witnessing an escalating breakdown in societal norms, with each loss feeding the breakdown of others, like the spread of a contagious disease. Hayek didn’t dwell on this prospect, but I will in this short essay. My arguments rest on a well-worn conceptual foundation in economics, that of the “tragedy of the commons,” which is inherently unstable, because of the role of widespread volition in norms’ value and survival. The theme of this essay is that a breakdown in societal norms shares the same economic foundations as a run on a bank, although perhaps at a slower pace.

GMU Econ alum Paul Mueller continues his examination of ESG ‘investing’ (so-called).

David Henderson and I think alike about many things, including about so-called “trade deficits.” A slice:

When there’s a current account deficit, there’s necessarily an offsetting capital account surplus. When foreigners sell us goods and services, they have basically five things to do with the money that they don’t spend on our goods and services: (1) buy U.S. dollar-denominated debt, typically U.S. government Treasury bills and bonds; (2) buy stock in U.S. companies; (3) buy land in the United States; (4) directly invest in the United States; and (5) hold on to the actual currency because it’s still the world’s leading currency. In only one of those cases, case (1), does the current account deficit translate into debt.

It’s understandable that [Oren] Cass makes that mistake because many bona fide economists do. They often talk about the capital account surplus as if it’s all debt, even though they know (or should know) better.

I wrote about some of this in 1988, when many observers, not including me, were worried that Japanese people would take an outsize share of U.S. capital assets. It’s titled “America for Sale?” Reason, July 1988.

My former Mercatus Center colleague Bryce Chinault, writing in the Wall Street Journal, reports that Connecticut hit a speed bump when attempting to impose California-inspired EV mandates. A slice:

Electric-vehicle mandates aren’t cost-free. They come packaged with environmental, social and policy implications that sensible legislators in every state would be wise to consider. EVs require many times the amount of minerals to manufacture as traditional cars. The cobalt used in many lithium-ion batteries is mined with child and near-slave labor in the Democratic Republic of the Congo. The majority of mineral processing occurs in China, the world’s largest carbon emitter.

Electric vehicles are heavier than regular cars and trucks, which increases costs and burdens on roads, bridges and tires. Heavier cars are more dangerous—they increase accident fatality rates. In Connecticut, there is also the strange reality that consumers can’t buy cars directly from manufacturers, so anyone who wants to purchase a Tesla, the world’s most popular EV, can do so on only sovereign tribal land at Mohegan Sun Casino and Resort. The state is simultaneously trying to tell people what to buy and make it difficult for them to acquire.

Policy makers across the country have convinced themselves that electric vehicles are the future—that there’s a market for these cars and trucks. If that’s the case, why are we mandating these regulations instead of letting the market work?

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… is from page 6 of Jennifer Burns’s 2023 Milton Friedman: The Last Conservative:

Yet Friedman did not simply propose technical fixes to policy problems. He set his economic ideas within a broader philosophy of individual freedom that served as the moral foundation of his work.

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Here’s a letter to the editor of Discourse:

Editor:

Whatever credibility might reside in Kenneth Rapoza’s argument for us Americans to be wary of our trade with the Chinese is seriously diluted by his crude misunderstanding of trade balances (“In the U.S.’s Fight Against China, We’re at a Distinct Disadvantage,” January 3).

He errs by equating rising U.S. trade deficits with rising American indebtedness. In fact, rising U.S. trade deficits increase American indebtedness only when foreigners lend money to Americans, such as when foreigners help Americans bear the burden of the U.S. government’s fiscal incontinence by buying bonds from the Treasury. But Americans’ indebtedness does not rise when America’s trade deficit increases as a result of foreigners purchasing dollar-denominated equity or real estate in the U.S., or when foreigners simply hold dollars. Contrary to Mr. Rapoza’s assertion, we Americans do not have to “keep borrowing” to pay for imports that foreigners sell to us to obtain dollars for these latter purposes.

Furthermore, Mr. Rapoza’s assertion that long-running trade deficits threaten the U.S. with “disaster” is impossible to square with this fact: People who graduated from high school the year America began running its current unbroken string of annual trade deficits reached, in 2023, the age of retirement. Surely if trade deficits were so ruinous, 47 consecutive years of them would by now have left Americans immiserated. Yet in 2019 (the last year before the gusher of pandemic spending) the average real net worth of an American household was 46 percent higher than it was 20 years earlier when China got Most Favored Nation trading status, and 118 percent higher than in 1987 (the earliest year for which I can get consistent data).*

Mr. Rapoza commits an even more egregious error by attributing meaning to America’s trade balance with China. In a world of more than two countries, the trade balance between any pair of them is utterly without economic meaning. There is simply no more reason to expect any pair of countries to have ‘balanced’ trade with each other than there is to expect you to have ‘balanced’ trade with your dentist. I advise my students to ignore pronouncements about trade offered by anyone who suggests that economic meaning exists in one country’s trade deficit or surplus with another country.

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

* Data on total household net worth are here, and these nominal dollars were converted into real dollars using this deflator. The number of households is here.

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The Wall Street Journal‘s Editorial Board reflects on Claudine Gay’s disingenuous casting of blame for her recent tribulations. Three slices:

Claudine Gay’s resignation as president of Harvard might seem like a ripe moment for introspection at America’s institutions of higher learning. Alas, they seem to be circling the progressive wagons instead.

That’s the message of Ms. Gay’s essay in the New York Times on Thursday that accuses her critics of racism and know-nothingism. “Those who had relentlessly campaigned to oust me since the fall often trafficked in lies and ad hominem insults, not reasoned argument. They recycled tired racial stereotypes about Black talent and temperament,” she writes.

Public figures these days, no matter their race, are too often targets of invective and lies. Yet Ms. Gay brushed past the substantive criticism of her leadership and failure to punish antisemitism on campus. So did her bosses at the Harvard Corporation, which issued a statement Tuesday lauding her “insight, decisiveness, and empathy.” Jewish students at Harvard might disagree.

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She blames “opportunists” for “driving cynicism about our institutions.” But elite institutions—from the press to public-health agencies to social media and big business—have undermined their own credibility and fueled public cynicism.

Like Ms. Gay, they’ve done so by impugning as deplorables half of the country that doesn’t share their views. If you support voter ID laws, you’re a racist. If you oppose modern progressive cultural orthodoxy about gender identity or pronoun use, you’re a bigot. If you question the left’s climate policies, you’re anti-science.

They have sought to shut down intellectual debate on everything from the Palestinian-Israel question to race and Covid lockdowns. The campaign by the press and public-health experts to discredit the authors of the Great Barrington Declaration—which called for focusing Covid protections on the elderly and those at high-risk—was a shocking case in point.

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Ms. Gay writes that campaigns against institutions “often start with attacks on education and expertise, because these are the tools that best equip communities to see through propaganda.” Yet elites invoke their education and expertise to enforce ideological conformity. Today’s illiberal progressives vilify and misrepresent their critics’ arguments rather than engage with them, which fuels the public backlash.

Oliver Wiseman and Bari Weiss consider the Claudine Gay affair. A slice:

Missing from Gay’s note was some important. . . context.

In particular, there was no mention of the twin scandals that have plagued Gay and captured the attention of the country in recent weeks. The first: her handling of antisemitism and free expression on Harvard’s campus since October 7, including her appalling appearance before Congress in December.

The second: the ever-growing list of plagiarism allegations against Gay. On Monday night, the dogged journalists over at The Washington Free Beacon reported six more charges of plagiarism. That brought the number of allegations against Gay close to 50 and implicated half of her published works in the scandal. The next day, Gay was gone, making her the shortest-serving president in Harvard’s history: the Kevin McCarthy of higher ed.

My GMU Econ colleague Dan Klein writes about “the enduring George Will.”

Samuel Gregg reviews Martin Wolf’s The Crisis of Democratic Capitalism. A slice:

Herein lie contradictions never resolved in Wolf’s book. Wolf’s program puts considerable faith in experts and the political class. Yet these are the same elites that Wolf believes have severe credibility problems and who, I would add, are as culpable for the rise of rentier capitalism as business leaders. Much of Wolf’s economic agenda is also reminiscent of the neo-Keynesian arrangements that prevailed in the Western world after 1945. But these policies not only contributed significantly to the stagnation of the 1970s to which many countries seem to have returned today; they also saddled Western societies with expensive welfare states, which even politicians who favor limited government have struggled to restrain in the face of democratic pressures.

David Henderson agrees that it’s misleading to described capitalism as “soulless.”

Alison Somin and Oliver Dunford react to the hysterical over-reaction by progressives to further restraints being put on the administrative state. A slice:

The sky-is-falling case—Securities and Exchange Commission v. Jarkesy—raises many interesting and contentious issues about the Constitution’s separation of powers. And Prof. Rosenblum is plenty contentious. But he gets the big picture wrong. In his zeal to show how dumb and simple and misguided “right-wing activists” are, he ignores the “declared purpose” of the separation of powers—to “diffuse power the better to secure liberty,” a point Justice Kavanaugh made during oral argument. Prof. Rosenblum looks only at what the government can (theoretically) do for us; he ignores what it can (in practice) do to us. Prof. Rosenblum’s screed also ignores the biggest issue in the case.

Who’d a-thunk it?:

U-Haul published its one-way rental data today, and the results are what one would expect: Texas and Florida are the top two destinations for Americans, while California, Illinois, and Massachusetts continue to reside in the bottom five.

My intrepid Mercatus Center colleague, Veronique de Rugy, identifies three economic myths that must be busted. A slice:

The second claim warranting skepticism is the one about how years of unchecked globalization have eroded America’s industrial foundation. Not only do we Americans still produce an enormous economic output, but the U.S. also continues to be a dominant force in manufacturing. A recent paper by the Cato Institute’s Colin Grabow even reports that American manufacturing surpasses the output of Japan, Germany, and South Korea combined. We are the world’s second-largest manufacturing economy and, better yet, we are a global frontrunner in critical sectors such as automotive and aerospace.

Further, I hope people finally come to understand that the fact that manufacturing now employs fewer workers and contributes less to gross domestic product than in previous decades doesn’t require a change in policy. As Grabow shows, the same thing is happening across all developed countries—and not predominantly due to globalization. It’s more a result of advances in productivity (as workers use more machines and computers, they produce more output) and a change in consumer preferences toward services rather than goods.

Jim Dorn reflects on the works of Joel Mokyr and Peter Bauer.

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… is from page 232 of the original edition of the late Wesleyan University economic historian Stanley Lebergott’s 1964 volume, Manpower in Economic Growth (footnotes deleted; ellipses original to Lebergott):

The record is a litany of failure of employer attempts to keep wage costs down by importing labor. In 1828 the Chesapeake and Ohio Canal Company sent agents to Belfast and Cork, to the Upper Rhine, and to Liverpool. It hired workers well below prevailing rates. But a year later the company president was forced to report that while “the rise of wages of labor was for some time controlled, and for a few months sensibly reduced by the importation of those laborers and artificers from Europe … difficulties of enforcing under existing laws the obligations of the emigrants and of preserving among them due subordination” made it unlikely that the company could again rely on such methods to restrict wage increases.

In 1849 an Englishman warned those hopefuls who planned to bring their own mechanics with them when they emigrated to Texas: They would find them tempted away by “the high wages and abundant demand for labor”; contracts would fail to hold them since they “have so many means of escape.”

DBx: This historical reality is evidence against the truth of claims that employers in 21st-century America widely enjoy monopsony power over their workers.

If in early and mid 19th-century America – and, notably, even outside of big cities – workers could easily switch employers, it’s highly unlikely that workers in 21st-century America are so welded to their current employers that the latter can be accurately described as possessing monopsony power over labor. Communications and transportation are today far less costly and much more speedy than they were in the 19th century – thus making workers more knowledgable about alternative opportunities and better able to seize these opportunities. Also, because today’s general levels of prosperity are much higher than in the past, workers today are better able than were their counterparts in the 19th century to risk long periods of unemployment as they search for new jobs.

The key to good job opportunities is not the monopolization of labor provided by government-backed labor unions. The labor-union model raises the wages of some workers at the greater expense of other workers. The key, instead, is more opportunities. And more opportunities for workers are created when entrepreneurs and investors are better able to create new businesses and expand existing ones.

Twenty-first century America features more legal restrictions than did 19th-century America on creating new businesses. (These restrictions should be removed.) But the negative consequences of these government-imposed restrictions are almost certainly swamped by the pro-business-creation (and, hence, worker-opportunity creation) consequences of more-efficient capital markets along with improved communications and transportation.

It’s also true – as my esteemed colleague Bryan Caplan will point out – that a huge drag today on the American economy are land-use regulations which restrict access to housing, and especially housing for lower and middle-income Americans. These government interventions hamper workers’ abilities to change employment. But it seems highly unlikely that the difficulties of moving from one location to another in search of new employment opportunities are today even as great as, and much less greater than, were the difficulties of moving in 19th-century America.

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In my latest column for AIER I distinguish capitalism being impersonal from capitalism being ‘soulless.’ Two slices:

There’s a lot to like in Richard Jordan’s recent essay at Law & Liberty, “Romancing Creative Destruction.” But it’s also infected with a notable flaw, namely, Jordan’s claim, complete with added emphasis, “capitalism is soulless.”

Read narrowly, this assertion is empty of useful meaning. Capitalism isn’t a sentient creature; it has neither consciousness nor a conscience. Capitalism is the name we give to a particular manner of human interactions. It therefore is no more useful to observe that “capitalism is soulless” than it is to observe that “automobile traffic is soulless.”

But the ‘soullessness’ of capitalism is claimed so very frequently, and by people of all ideological stripes, that this claim obviously conveys some substantive meaning to those who encounter it.

What might that meaning be? I think I know. The claim that capitalism is soulless reflects a confusion of “impersonal” with “soulless.” Capitalism does indeed feature myriad impersonal exchanges, but this reality doesn’t mean that capitalism is soulless.

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In small communities, the members of which seldom interact with individuals whom they do not know personally, all commercial interactions feature heavy doses of personal knowledge and emotion. Tailor Smith knows that grocer Jones will not cheat him because Smith and Jones are old friends. While each gains economically from trading with the other, each also gains emotionally. Smith treasures his in-store chit-chat with Jones, who in turn appreciates Smith’s purchase of that extra loaf of bread – a purchase motivated, Jones is silently aware, by Smith’s knowledge that Jones is currently going through a financial rough patch.

These interactions are personal. And they are good.

Trade exclusively among people who know each other – even when wholly unregulated by government – is not, as such, capitalism. Capitalism requires more than that government remain largely uninvolved in the details of economic processes; capitalism also involves (1) such an openness to economic change that incessant innovation is encouraged, and (2) an eagerness to earn profits by catering to as many people – and as diverse a population of people – as possible. Under capitalism, the division of labor – that is, specialization – is limited not by individuals’ personal connections or by boundaries fixed by tradition, but (as Adam Smith famously observed), “by the extent of the market.”

The greater the number of people who interact economically with each other, the greater the ability of individuals as producers to specialize. This increased specialization, in turn, increases output per person. But the same condition that makes it possible for this increased specialization to occur also makes it impossible for any individual in this economy to know personally all the other individuals with whom he economically interacts. Because in today’s global economy the people with whom we interact economically number literally in the billions, the percentage of these persons with whom we also interact personally is near zero.

It is therefore true that almost all of the motives that prompt and guide the billions of human actions that daily make possible our modern prosperity are exclusively ‘economic’ rather than warm and personal. Whoever it was who rolled out of bed one morning a few weeks ago to drive from farm to slaughterhouse the pig that I shared on Christmas day with family and friends does not know me, and I don’t know him. That person certainly contributed to my fine Christmas dinner, but the motivation wasn’t love or neighborliness. And no part of the purchase of the ham that I ate was motivated by affection for that truck driver – or, indeed, for anyone else involved in supplying that ham. From start to finish, the motivation and information came in the form of prices, wages, profits, and losses registered in terms of money. All of these exchanges were purely ‘economic.’ The chief motivation throughout is material gain, and the whole process is guided by rational, monetary calculations. Almost no role was played by personal, warm fellow-feelings.

All true. Yet to describe capitalism – or, at least, capitalist society – as soulless is misleading.

First of all, capitalism doesn’t prevent us from exercising and experiencing fellow-feeling. We denizens of the 21^st-century global economy have just as much opportunity to connect personally with fellow human beings as did our ancestors in the Pleistocene and those in quaint 18^th-century New England villages. And, of course, many of us do. We love our parents, siblings, children, and grandchildren. We are members of churches. We care for our neighbors. We comfort our friends when they are down and are comforted by them when fortunes are reversed. If some of us today choose to live lives more isolated and alone – an option admittedly made easier by capitalist riches – that isn’t the fault of capitalism. If fault must be assigned, it is on the individuals who choose that option.

Yet, again, most of us don’t choose to live as isolated atoms. I suspect that the typical resident today of Manhattan or Miami or Manchester has as many personal, warm connections with other flesh-and-blood individuals as did the typical resident 500 years ago of any medieval village.

But the charge that capitalism is “soulless” is flawed in a second and even deeper way. What the denizen of modernity has that his medieval ancestor lacked are very real connections also to countless more fellow human beings. In today’s globe-spanning system of social cooperation, billions of individuals every day are incited and guided to work for each other’s betterment. We still have the personal connections from which we draw warmth. But we also have extensive market connections to countless strangers that allow vast swathes of humanity to assist each other as if each of us loves, and is loved, by billions of strangers of diverse backgrounds and beliefs.