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Phil Magness’s letter in today’s Wall Street Journal is superb:

Mark Skousen’s op-ed “The American Economic Association Snubs Hayek” (Sept. 16) calls attention to political bias at the American Economic Association’s annual conference. While I have not seen Mr. Skousen’s rejected proposal on economist F.A. Hayek, several accepted proposals on the AEA’s program point to a leftward drift in the organization.

The coming conference will feature seven papers on Karl Marx and Marxian economics, a fringe school that almost all professional economists reject. Loaded political jargon similarly populates the program. It features six papers on the critical-race-theory concept of “intersectionality” and 16 papers on “neoliberalism,” a pejorative term used by left-wing activists to attack free-market thinkers. The far-left Union for Radical Political Economics has 16 dedicated panels and lectures on the program. Progressive economist John Maynard Keynes appears to be the dominant lens at the conference, with 32 abstracts mentioning Keynes and various Keynesian schools of thought.

By contrast, free-market perspectives are rare at the AEA. Only two accepted papers mention Hayek, with another two mentioning Milton Friedman. The monetarist school appears twice, and the public-choice tradition appears only once. I make no claim of knowing the optimal balance between these competing perspectives, but the AEA’s current ideological filter is proving to be a poor mechanism for rationing scarce conference space.

Phillip W. Magness
The Independent Institute
Oakland, Calif.

Wall Street Journal columnist Gerard Baker argues that in Trump’s first term “the good policies outweighed the foolish ones. Don’t expect the same in a second.” A slice:

It’s hard to be sanguine about a second term of Trumponomics. The good, conventional policies seem likely to be outweighed by a load of bad.

For a start, if this election campaign is a guide, the former president’s proposals might actually better be thought of as “Oprahnomics.” His plan for an economy that is at or near full employment and generating a fiscal deficit close to 7% of GDP—the kind of fiscal incontinence we have only ever tolerated in times of war or depression—is to channel Ms. Winfrey and say to voters: “And you get a tax cut. And you get a tax credit. And you get a tax deduction.”

He proposes not simply to extend the 2017 tax cuts—due to expire next year—in their entirety. He wants to go much further: Tax-free tips; tax-free overtime pay, deeper corporate tax reductions. Last week he added, off the cuff, a promise to increase the state and local tax deduction, which he and his fellow Republicans reduced drastically in his first term. While his SALT deduction cap made a lot of us in high-tax states worse off, it was sound policy. High-tax states shouldn’t have their profligacy subsidized by taxpayers everywhere else.

These are risky proposals in a bleak fiscal environment. Mr. Trump also wants to double down on the other side of the ledger with bad regulations and higher taxes. Rules he would like to impose, such as capping interest rates payable on credit-card debt, are as foolish and counterproductive as Kamala Harris’s “price gouging” penalties.

Worse, he plans a universal tariff of 10%, double that for key import sectors, and 60% on Chinese goods. He seems to think the revenue generated will fund all kinds of new spending, make up for any other revenue shortfalls and reduce the deficit. It’s simple arithmetic—may I call it “Bakermath”?—that if the tariffs are going to generate that much revenue, they are also going to be devastating for the economy, raising prices for both imported and domestically produced goods and significantly reducing real incomes.

On the recommendation of Arnold Kling, I just ordered Michael Huemer’s new book, Progressive Myths.

Wall Street Journal columnist Jason Riley recommends Matt Walsh’s new movie, Am I Racist? A slice:

Robin DiAngelo, author of the bestselling “White Fragility” and a leading authority on diversity, equity and inclusion, doesn’t want you to see “Am I Racist?,” a new documentary about the DEI industry. If you see it anyway, which I strongly recommend, you’ll understand her objections. You’ll also laugh a lot.

Before the film’s theatrical release last week, Ms. DiAngelo posted a statement on her website that accused the star, Daily Wire podcaster Matt Walsh, of promoting racism. But my guess is that her real objection to the movie is that it’s bad for business. Ms. DiAngelo has made a good living charging schools, government agencies and Fortune 500 companies tens of thousands of dollars to give speeches and host workshops on “antiracism.”

In “Am I Racist?,” Mr. Walsh poses as a liberal activist who is earnestly and hilariously seeking the counsel of unsuspecting DEI experts. He reveals how much they charge for their services—Ms. DiAngelo received $15,000 for about two hours of her time—and the kind of gobbledygook advice clients get in return. To his credit, Mr. Walsh’s approach isn’t mean-spirited or adversarial. He poses straightforward questions and lets his interlocutors discredit themselves. Along the way, the DEI industry is revealed to be something of a racket, and such proponents as Ms. DiAngelo look like highbrow grifters.

The objections of Ms. DiAngelo notwithstanding, however, Mr. Walsh’s movie is performing a public service. Of late, more companies have been willing to jettison their DEI policies, and more states are moving to restrict such initiatives at public colleges and universities. “Am I Racist?” could encourage those trends, which would be a good thing because there is little evidence that making racial differences more salient on campus, in the workplace or anywhere else helps anyone other than people who earn a living as DEI advocates.

Also recommending Matt Walsh’s new movie is Washington Post columnist Megan McArdle. A slice:

[Robin] DiAngelo and [Saira] Rao and a number of others gained money and fame during the “Great Awokening” because decent people, genuinely concerned about America’s racial divides, were too polite to point out that they sounded like lunatics. Those well-intentioned Americans had their social instincts hacked, the machinery diverted into a continuous loop of unproductive navel-gazing, instead of the racial justice they were trying to achieve. That’s what left them vulnerable when Matt Walsh showed up to exploit the same bug.

Edward Pinto describes “the Kamala Harris plan for more housing shortages.” A slice:

Ms. Harris also proposes a $40 billion fund for local governments to explore “innovative” housing solutions. The Housing and Urban Development Department would likely channel this money into programs laden with self-defeating government-mandated affordability requirements, which markets abhor.

History offers a cautionary tale against such federal interference in the housing market: From the 1930s to 2008, at least 43 housing, urban-renewal and community-development programs were signed into law. Despite these laws’ lofty goals, these initiatives consistently failed to make housing more affordable.

Casey Mulligan, Shanker Singham, and my Mercatus Center colleague Alden Abbott discuss regulatory policy recommendations for the next U.S. administration.

Philip Klein reports that Kamala Harris supports elimination of the filibuster – that is, Kamala Harris, like many powerful Democrats today, desires at the national level unchecked, raw majoritarian rule. A slice:

First, somebody who is running on nuking the filibuster should not be trusted as a guardian of norms. Second, if the filibuster is gone, Republicans would have little means by which to block the radical elements of her agenda.

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… is from page 48 of Lionel Lord Robbins‘s 1976 book, Political Economy: Past and Present (original emphases):

The practically important quality of a competitive situation is not that there shall be a large number of actual suppliers, but rather that, if any actual supplier is doing particularly well, there is a reasonable possibility of other potential suppliers coming in an competing away the abnormal profits. And this is much more likely in a world of many-product firms, where starting up supplies may involve quite minor switches of organisation, than in a regime of more specialised units where an increase of supply may involve large capital outlays before this can begin.

DBx: Industrial and commercial arrangements, and contracting practices, that best promote economic growth and improvements in the standard of living must be discovered through an actual and on-going competitive process – a process in which firms compete not merely by cutting prices but by experimenting with all manner of peaceful ways of increasing the attractiveness of their outputs to buyers in ways that also increase the profits of the successful innovators. The notion that genius economists, bureaucrats, or judges can divine these arrangements and practices in the abstract is no less absurd than is the notion that a genius professor of English can predict in detail, while sitting at his or her desk, what will be the great novels and poems that will be written over the next decade.

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A few days ago the Wall Street Journal – admirably giving space to persons with alternative views – published a truly horrendous piece by John Paulson who sought to defend Trump’s tariffs. I was too busy to write a letter or otherwise respond, but I’m delighted to discover that in tomorrow’s print edition there will appear letters in response from Art Carden, from Ira Stoll, from GMU Econ alum Dave Hebert, and from my intrepid Mercatus Center colleague, Veronique de Rugy. I share here Art’s and Vero’s letter. In a later post I’ll share Dave’s and Mr. Stoll’s.

In “The Case for Trump’s Tariffs” (op-ed, Sept. 20), John Paulson asks, “Isn’t it better to tax foreign entities for entering the American market than impose new taxes on American families?” His question is emotionally resonant but at odds with economic theory and mountains of evidence.

As every economist can tell you, and as my introductory economics students will learn over the next few weeks, tariffs are “new taxes on American families.” Free trade became “orthodoxy” among economists in response to compelling theory and overwhelming evidence. This time isn’t different: American consumers, not foreign producers, will bear any tariff’s brunt.

Prof. Art Carden
Samford University
Birmingham, Ala.

…..

Mr. Paulson’s defense of former President Donald Trump’s protectionism is seriously flawed. As documented by economist Michael Strain and others, wages haven’t “stagnated” since 2000. Real average hourly earnings of production and nonsupervisory workers are today 25% higher than in 2000. Nor has the merchandise trade deficit “been devastating for U.S. industry.” American industrial capacity is at an all-time high and 17% greater than in 2000, while industrial production is 1% shy of its historical peak in September 2018.

One reason the merchandise trade deficit hasn’t devastated U.S. industry is that nearly 80% of American gross domestic product is produced in the service sector. It’s unsurprising Americans import more merchandise than we export—and export more services than we import. Further, more than half of our imports are intermediate goods used by U.S.-based producers. American industry is helped, not harmed, by this net inflow of goods from abroad.

Finally, Mr. Paulson errs by describing tariffs as taxes on foreigners. Tariffs protect domestic producers only insofar as they raise prices that consumers pay for imports. In other words, U.S. tariffs are taxes paid by Americans who purchase either imports or domestically produced outputs, the prices of which are artificially raised by tariffs.

Veronique de Rugy
Mercatus Center, George Mason U.
Arlington, Va.

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… is from page 59 of my GMU Econ colleague Tyler Cowen’s superb 2002 book celebrating the creativeness of commercial culture and global trade, Creative Destruction: How Globalization Is Changing the World’s Cultures:

It is no accident that Classical civilization developed in the Mediterranean, where cultures used sea transport to trade with each other and learn from each other.

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In my latest column for AIER I describe two modest proposals to increase the supply of transplantable body organs. A slice:

The case for freeing the market in transplantable kidneys is strong, both economically and ethically. Thousands of lives would be saved every year and thousands more delivered from the misery and indignity of dialysis. The downside is almost nonexistent.

Nevertheless, most people steadfastly refuse even to consider supporting a policy of allowing any living individual to be paid a market price in exchange for one of his or her kidneys. Many of the arguments against a free market in kidneys spring exclusively from people’s aesthetic revulsion at the thought of commerce in kidneys. This revulsion is curious, given that it’s surely more revolting to allow people to die unnecessarily simply in order to protect other people’s aesthetic sensibilities.

While I would immediately lift the prohibition on kidney sales, there are several intermediate measures that would yield much benefit if a complete lifting of this prohibition is off the table. One of the most promising was proposed by the late George Mason University law professor Lloyd Cohen.

Cohen recommended that all of our body organs be considered to be parts of our estates in the same way that our homes and jewelry are parts of our estates. When someone dies, his or her heirs would own the deceased person’s body organs just as they own that person’s other properties. These heirs could then sell, give away, or ignore these organs.

The advantages of Cohen’s proposal over the current blanket prohibition on sales are clear. Each year, tens of thousands of healthy transplantable body organs are buried or cremated, needlessly destroyed despite their ability to extend and improve the lives of thousands of people. By treating all transplantable organs as property of each deceased person’s estate, this wholesale destruction of lifesaving body parts would be significantly reduced.

It’s easy to bury a loved one with his or her healthy kidneys or heart if agreeing to have those organs harvested for transplant brings nothing more than a sense of satisfaction from helping a stranger live longer or better. But if the sale of the loved one’s organs will bring thousands of additional dollars to the estate, I’ll bet my pension that the number of kidneys — as well as hearts, lungs, and other body organs — harvested for transplant from newly deceased persons will skyrocket. As a result, thousands of living people will enjoy longer, healthier, and more productive lives.

Of course, as with all properties destined to become part of a person’s estate, that person would, while still alive, have great leeway to determine the disposition of his organs. If someone objects religiously to his organs being harvested, that person must merely specify in his will that no such harvesting is to take place. That man’s family and the courts will be bound to honor this demand.

Or if someone specifies in her will that she wants only her daughter Ann or her nephew Bob to receive her kidney (or heart, or lungs, or liver, or …) for transplant, that provision, too, would be honored.

Cohen’s proposal avoids a major objection to a free market in kidney sales — namely, that too many living persons will impair their health by selling their kidneys to make a quick buck. Cohen’s proposal can be adopted without permitting living persons to sell their organs.

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Phil Magness is right:

1. Orban is an illiberal thug, and should be ostracized to the extent that peaceable means permit. His flirtations with the Maduro regime makes this an unambiguous reality, in addition to years of colluding with Putin, Xi, and other autocratic regimes.

2. I wish the Biden admin would apply a similar standard to Maduro, Lula and other leftist thugs to the extent that they too can be peaceably ostracized. He won’t though (beyond soft condemnation) because his and Harris’s left wing base supports them, whether overtly or quietly. That they cater to this crowd is unforgivable.

3. Trump’s active courting of Orban and similar types is unforgivable in its own right.

4. No matter who wins in November, liberal democracy will lose.

Here’s Mike Munger on Alfred Marshall’s scissors. A slice:

The most fundamental problem, though, is the naïve equating of price changes with costchanges. The logic seems to be that the only legitimate change in prices must come from and be proportional to, changes in cost.

There is no economic basis for such a rule. Cost and price may move together over longer periods of time, but in any period of a few months the price is mostly determined by consumers. This conclusion is not ideological, it’s not controversial, and it dates to one of the giants of economic theory:  Alfred Marshall.

In his landmark monograph, Principles of Economics (first published in 1890), Marshall defined, and limited, the role of costs in determining final price (Book V, Chapter 3, Section 7):

[I am] chiefly occupied with interpreting and limiting this doctrine that the value of a thing tends in the long run to correspond to its cost of production…

We might as reasonably dispute whether it is the upper or the under blade of a pair of scissors that cuts a piece of paper, as whether value is governed by utility or cost of production…[W]hen a thing already made has to be sold, the price which people will be willing to pay for it will be governed by their desire to have it, together with the amount they can afford to spend on it. Their desire to have it depends partly on the chance that, if they do not buy it, they will be able to get another thing like it at as low a price.

The “scissors” analogy is quite clear, since the classic “supply and demand” graph in introductory economics even looks like two scissors blades. If you know only “supply” (the schedule of amounts offered for sale at different prices) or only “demand” (the quantities purchased by consumers at different prices), you have no way of predicting the price at any point in time. Marshall’s insight is timeless: in the short run, consumers are generally buying from other consumers, not from producers.

Brian Miller and Joe Grogan explain that “the Biden-Harris administration is running a relentless campaign against American innovation.”

The Editorial Board of the Wall Street Journal reports on the Biden-Harris manufacturing boom that isn’t. A slice:

Yet there are already signs that this government-driven investment is a mistake. Auto makers are scaling back electric-vehicle production, which may lead to under-utilized factories. Some green startups are struggling to stay in business, such as Lordstown and Fisker.

The Institute for Supply Management’s purchasing managers index shows the manufacturing industry as a whole has been in almost continuous contraction since autumn 2022, right after Mr. Biden signed the IRA and Chips Act.

Meanwhile, investment in new industrial equipment has been notably weaker under Mr. Biden than Donald Trump. This suggests fewer manufacturers are refurbishing existing plants and investing in technology that will make them more globally competitive.

John Tatum understandably isn’t buying Biden’s and Harris’s “magical labor market claims.” A slice:

To give the Biden Administration’s credit for any success in increasing jobs requires proponents to blatantly misrepresent facts. Most notably, they claim to have added nearly 16 million jobs to the economy, more than any earlier president in one term. It’s true, but it takes credit for the return of about 9.4 million jobs for people who lost their jobs due to COVID-19 precautions and had not yet returned to work at the time Biden took office. Taking credit for the recovery of a large part of the COVID-related, record loss of 21.9 million jobs, far overstates Biden’s contribution and the effectiveness of his policy efforts. In fact, since the COVID recovery ended in June 2022, the Biden Administration witnessed the creation of 6.3 million new jobs, only about 40 percent of the Administration’s claim. In contrast, the previous administration oversaw growth of 6.7 million jobs before COVID hit.

Trump dodged Nick Gillespie’s sensible question about government debt.

And, as Jack Nicastro reports, Congress is no more responsible with the public purse than are Trump or Harris.

AEI’s James Pethokoukis is correct: “Illegal immigrants aren’t the same as home invaders.”

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… is from page 242 of Charles Calomiris’s and Stephen Haber’s important 2014 book, Fragile By Design (footnote deleted):

If the mortgage-underwriting standards in effect at Fannie and Freddie circa 2003 had remained in place, nothing on the magnitude of the subprime crisis would have occurred.

DBx: Yep. And as Calomiris and Haber show in this book, mortgage-underwriting standards were pushed lower by officials in the U.S. government.

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George Will rightly applauds the loss of the gleam once emitted to the eyes of too many people by “DEI” and “ESG.” Two slices:

Progressives’ alphabet soup ingredients are DEI hiring and ESG investing. Both often are illegal, and the latter is medieval.

“Diversity, equity and inclusion” became fashionable in corporate America, and enforced in academia. There, refusing to take DEI loyalty oaths provokes exclusion as punishment for deviations from this orthodoxy: Equity is group entitlements — inevitably, a racial spoils system. As Kamala Harris joyfully explains, “Equitable treatment means we all end up in the same place.”

…..

ESG’s defects begin with illegality. The 1940 Investment Advisers Act required advisers to have one overriding concern: their clients’ financial interests. This fiduciary principle was reaffirmed in the 1974 Employee Retirement Income Security Act, which stipulates that those entrusted with investors’ money have the duty to deploy it “solely in the interest of” and “for the exclusive purpose of providing benefits to” the investors.

ESG attempts to vitiate this duty, and disguise ESG’s illegality, by asserting that a corporation’s shareholders are just one set of “stakeholders.” And shareholders are inferior to stakeholders whose supposed superiority derives from having no financial stake in the corporation’s performance. Stakeholders include employees, suppliers, customers and (per the Oxford Reference Dictionary) “members of the wider community.” So, a stakeholder is anyone who claims to be affected, at whatever remove, by any corporate activity.

Investors are supposedly enabled by ESG to do good while doing well. Leave aside the Everest of unsurprising evidence that ESG investments do substantially less well than investments made for the purpose of maximizing returns for investors. Now, about doing good:

The greatest good, in terms of alleviating suffering, in all of humanity’s history has been done in recent decades by market-oriented, profit-seeking capitalists: by private wealth serving private interests. In 1975, half the human race lived in what the World Bank calls extreme poverty ($2.15 a day, adjusted for inflation). Today, fewer than 1 in 10 persons are so afflicted.

Former senator Phil Gramm and his colleagues in refuting ESG note: Between 1990 and 2020, the globalized market dynamism ignited in the previous decade by Ronald Reagan and Margaret Thatcher pulled up from abject poverty an average of 128,000 people every day.

Thanks to Robert Keys, a former GMU Econ student back in the late 1980s, for sending along this excellent clip of comedian Drew Dunn on our standard of living.

I’m honored to be a guest in the latest episode of Geoff Graham’s podcast, Yeoman.

Now that Trump has endorsed a government-imposed cap on credit-card fees, the Editorial Board of the Wall Street Journal wonders if the 2024 GOP candidate is Bernie Sanders. A slice:

Yet economics teaches there’s no free lunch. Millions of Americans use credit cards as convenient and ubiquitous payment networks, and they don’t owe interest because they pay off their balances at the end of each month. Debit cards are an alternative. People in a pinch also use credit cards to cover emergencies or financial shortfalls.

The interest rates on credit cards reflect operating costs, including nonpayment. A 10% cap would effectively cut off people with less-than-pristine credit scores. After Illinois capped many consumer interest rates at 36% “all-in APR,” a study in the journal Public Choice said “financial well-being declined” for residents who lost access to short-term, small-dollar loans.

Why do Messrs. Trump and Sanders think it’s helpful to limit credit access and send folks to the pawn broker or leg breaker instead? Card companies might respond by raising fees, which is what happened to free checking after Democrats regulated debit swipe charges in 2010.

In a new paper, Scott Lincicome, Marc Joffe, and Krit Chanwong expose the folly of subsidies. In their words, their

paper finds, among other things, that the growth of these corporate incentives is likely owed to their enduring political attractiveness and to new federal industrial policy initiatives. It also finds that state and local subsidies routinely create problems beyond their high budgetary (taxpayer) expense.

Bob Graboyes nicely explains just how young a country America really is.

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… is from page 102 of Gordon Wood’s excellent 2009 volume, Empire of Liberty: A History of the Early Republic, 1789-1815 (footnote deleted):

Since his entire fiscal program depended on the customs duties flowing from a large overseas commerce, [Secretary of the Treasury Alexander] Hamilton was reluctant to weaken that overseas commerce for the sake of developing domestic commerce.

DBx: Hamilton, although naive about the source of economic growth, understandably preferred subsidies to protective tariffs as a means of helping ‘infant industries.’ Tariffs that discourage enough imports to ‘stimulate’ domestic industry are unlikely to raise enough revenue to fund the expenses of a government that relies heavily on customs duties for revenue.

Do not, therefore, believe Oren Cass and the many other protectionists who insist – as Cass did in this October 2023 piece – that “in 1789, the first law in the first Congress – advocated by Alexander Hamilton, introduced by James Madison and signed by George Washington on the Fourth of July – established a tariff not unlike Trump’s.”

The tariff of 1789 was nothing like Trump’s. Trump’s tariffs were meant to protect domestic producers; in contrast, that first U.S. tariff was meant to raise revenue rather than to protect domestic producers. As Doug Irwin reports on page 131 of in his monumental 2017 history of U.S. trade policy, Clashing Over Commerce, “the Tariff of 1816 was the first ‘protectionist’ tariff of the United States in the sense that it was mainly designed to provide assistance to domestic manufacturers facing foreign competition.” By 1816, both George Washington and Alexander Hamilton were long dead.

It bears repeating: The tariff of 1789 was a revenue tariff and not a protective tariff. The fact that protectionists continue to confuse the two kinds of tariffs, and even to write – as Cass does – as if the revenue-raising function and protective function of tariffs are aligned, rather than in conflict, with each other, speaks only to the unseriousness of the thought that protectionists bring to the debate over trade policy.