… is from page 329 of Amity Shlaes’s wonderful 2007 book, The Forgotten Man:
The inexorable New Deal emphasis on the group over the individual was not liberal in the classic sense.
Here’s a letter to a new correspondent:
Mr. N__:
Thanks for your email.
About my letter in Thursday’s Washington Post, you correctly infer that I do not believe that the U.S. economy is “threatened by a foreign government creating excess capacity in its industries.”
First, it’s impossible for any government to create excess capacity in all industries. Resources cannot be diverted into, say, the steel industry without being diverted away from other industries – say, the aluminum and electronics industries – thus causing capacity in those other industries to be inadequate.
Second, excess capacity exists if the value of the output produced by that capacity is less than is the cost of the resources that are used to create and operate that capacity. This situation implies that, were these resources not tied up in that excess capacity, they would instead produce outputs of higher value in other industries in that country.
Third, therefore, whenever a government diverts resources into, say, the steel industry to create excess capacity there, it harms its economy by arranging to produce steel that’s worth less than the outputs that would instead have been produced had that diversion of resources not occurred. That country winds up suffering losses on the additional steel that it produces, as it also foregoes the economic gains that it would have reaped on the outputs that it fails to produce because its government foolishly diverted resources into excess steelmaking capacity.
So, no, if other governments are undermining the productiveness of their economies by creating excess capacity in some of their industries, we should not much fret about their stupidity threatening our economy.
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
Alex Chalmers makes clear that “AI won’t fix central planning.” (HT Arnold Kling)
Kevin Frazier and Jennifer Huddleston identify five flaws in pending AI legislation.
Jim Dorn draws lessons for monetary policy from William McChesney Martin’s famous “punch bowl” speech. Two slices:
William McChesney Martin Jr. was chairman of the Federal Reserve Board from 1951 to 1970. He is perhaps best known for his “punch bowl” speech delivered on October 19, 1955, to the New York Group of the Investment Bankers Association of America. His often-quoted line in the penultimate paragraph reads: “The Federal Reserve … is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up” (Martin 1955: 12). He made this statement in the context of a recent increase in the Fed’s discount rate, which tightened monetary policy.
…..
Two main lessons can be drawn from Martin’s punch bowl speech. First, the Fed needs to be prudent and humble in exercising its monetary powers. There are limits to what the Fed can do. Its main function should be to safeguard the dollar’s long-run value by adhering to a predictable, responsible monetary framework. Second, a rules-based approach to policy—both monetary and fiscal—is consistent with the moral element in private enterprise. Freedom is best protected by limited government, so individuals have a wide range of choices under a just rule of law.
Today, we have a discretionary government fiat money system. Much of the Fed’s bureaucracy could be abolished by a simple monetary rule rather than the complex framework currently in place (see Dorn 2018). Whether the punch bowl will be removed, under increasing political pressure to use the Fed to monetarize fiscal deficits and expand its mandate to include environmental and social issues, remains to be seen. After more than 70 years, Martin’s speech remains relevant both for monetary policy and the moral state of the union.
Stanford’s Joshua Rauh and several coauthors find that the California wealth tax’s projected revenue is a fantasy. Supporters advertised $100 billion in collections. Building on sound analysis as opposed to wishful thinking, Rauh’s team saw billionaires already leaving and, as a result, other future tax revenues disintegrating. By driving high earners out permanently, the most likely “net present value” of the wealth tax is negative $24.7 billion.
Whether politicians and voters want to admit it or not, the real problem is still spending. California’s revenue has surged by 55 percent since 2019, but Sacramento has expanded state spending commitments by 68 percent. It patched budget deficits in three consecutive years ($27 billion, $55 billion, and $15 billion) not by fixing the underlying problem but by drawing down reserves and applying onetime fixes. The Legislative Analyst’s Office now projects a fourth consecutive deficit, this time reaching nearly $18 billion in 2026-27 and growing to $35 billion annually by 2027-28. Medi-Cal alone will hit an all-time high, taking $49 billion from the General Fund.
Currently 20 American airports use private contractors, not the Transportation Security Administration, to screen passengers. And those private contractors still get paid regardless of whether Congress passes legislation on time.
The federal government’s Screening Partnership Program (SPP) allows airports to apply to use qualified private companies for passenger screening, rather than relying on unionized federal employees. TSA still gets to set all the regulations and standards for the private screeners. The agency just doesn’t do the screening itself.
This is a much better way to do airport security. A government agency regulating itself creates conflicts of interest. International Civil Aviation Organization standards say that security providers and regulators should be independent.
Jarrett Dieterle decries “the progressive war on cheap eats.”
… is from page 335 of the “Random Thoughts” section of Thomas Sowell’s 2010 book, Dismantling America:
The reason so many people misunderstand so many issues is not that these issues are so complex, but that people do not want a factual or analytical explanation that leaves them emotionally unsatisfied. They want villains to hate and heroes to cheer – and they don’t want explanations that fail to give them that.
Phil Magness, on his Facebook page, shared a tweet by someone who believes that the New York Times, in its obituary of the consistently, wildly wrong Paul Ehrlich, was justified in describing Ehrlich’s mistaken predictions as “premature.”
Ehrlich in 1968 predicted that within a decade humanity would suffer massive worldwide starvation. 1968 was 58 years ago. It was before man landed on the moon. Before microwave ovens were commonplace. Before low-priced pocket calculators were a thing. Before Watergate. Before the Beatles broke up. Before most Americans owned color televisions.
For anyone in 2026 to attempt to justify describing Ehrlich’s whackadoodle, consistent-proven-spectacularly wrong predictions as “premature” is ridiculous. They were and remain wrong, not only in their specifics, but also on the broader point that Ehrlich incessantly sought to make.
With the close of 2025, the United States has run 50 consecutive years of annual trade deficits. Should we Americans despair? No.
As regular patrons of Cafe Hayek know, a common complaint about U.S. trade deficits is that these deficits – said to be ‘funded’ by a combination of Americans going further into debt to foreigners and Americans selling off assets to foreigners – drain wealth from America. As regular patrons of Cafe Hayek also know, this Cafe’s proprietor never tires of reminding people that, although some part of U.S. trade deficits might be caused by Americans borrowing money from, or selling assets to, foreigners, rising U.S. trade deficits do not necessarily mean increasing American indebtedness or that we Americans are selling our assets to foreigners.
In earlier posts I’ve reported on data that belie the assertion that U.S. trade deficits necessarily drain wealth from the U.S. Here I report such data that are more complete – specifically, I count as part of Americans’ liabilities not only our private debt but also that portion of federal-, state-, and local-government debt for which the average American household is liable. Here are the conclusions, with all dollars converted into 2025$ using this personal-consumption-expenditure deflator.
In Q3 2025 (the latest date for which all relevant data are available), the average real net worth of U.S. households – taking account of all outstanding debt issued by federal, state, and local governments – was $1,031,144.
Expressed in 2025 dollars:
In 2001 (Q3), the quarter before China joined the World Trade Organization, the average real net worth of U.S. households was $583,989.
In 1993 (Q4), the quarter before NAFTA took effect, the average real net worth of U.S. households was $424,630.
At the end of 1975 – that is, in Q4 1975 – the last year the U.S. ran an annual trade surplus, the average real net worth of U.S. households was $339,074.
Therefore, in Q3 2025, the average real net worth of U.S. households was:
– 77% higher than it was in 2001
– 143% higher than it was in 1994
– 204% higher than it was in 1975.
Note that I do not include among households’ assets their share of the market value of government-owned assets. Were I to do so, I doubt that the percentage changes over the years in the average real net worth of U.S. households would be much different from the figures reported above.
The bottom line is that because wealth can – and, when markets are reasonably free, does – grow, a country that consistently runs trade deficits does not necessarily thereby lose wealth. Indeed, trade deficits – representing, as they do, net inflows into the country of global capital – can help to increase the wealth of the nation. The data in the U.S. are consistent with this optimistic take on U.S. trade deficits.
Details on how I calculated these figures are below the fold.
Peter Coclanis isn’t favorably impressed with John Cassidy’s new book, Capitalism and Its Critics. Two slices:
Over the past 200 years or so, capitalism has ushered in levels of economic growth, development, and overall human flourishing unknown and well-nigh inconceivable to our species anywhere in the world at any earlier point in time. It has been responsible for an explosion of wealth creation over the centuries covered by Cassidy. In the developed world, people today are roughly 25 times richer in real terms than they were in A.D. 1800. In the developing world they are roughly eleven times richer. Even during the frequently derided capitalist era we have just lived through—that of neoliberalism, or hyperglobalization, or what have you—we find very significant economic gains worldwide, huge declines in the proportion of the world’s population living in extreme poverty, and impressive increases in living standards, educational levels, and human health, particularly in the developing world. Cassidy knows this and grudgingly acknowledges it from time to time. He even includes an astonishing graph showing the spike in global average GDP that capitalism precipitated. But that doesn’t stop him from lamenting the persistence of the world’s most successful economic system for the better part of 600 pages.
…..
Cassidy has little time for neoclassical economics or marginalism. He gives Jevons and Walras a single mention and Menger none at all. He sees neoclassicists as apologists for capitalism, and he seems to rue the fact that “[a]fter 1890, when Alfred Marshall, a professor at Cambridge, published his Principles of Economics, most economists used supply and demand curves, rather than the labor theory of value, to explain how market prices get determined.” It is not surprising, then, that Cassidy treats later adherents of “orthodox” economics—dissimilar figures ranging from Hayek and Friedman to Paul Samuelson and Robert Solow—with distaste or aversion. For Cassidy, the only acceptable camp to be in is that of managed capitalism. He deplores the laissez-faire eras in capitalism’s history, to wit: everything from circa 1770, when he begins, to the 1930s, plus the neoliberal era stretching from the late 1970s or early 1980s until the financial crisis of 2007-09 and beyond, some would say almost to the present day. It is during these long periods, Cassidy believes, that capitalism’s shortcomings have been most egregiously on display. That leaves only the period of managed capitalism—give or take 40 years, between the mid-1930s and the mid-1970s—to praise or emulate.
One can challenge the idea that another era of “managed capitalism” is even possible: not for nothing does leftist historian Jefferson Cowie refer to the 1930s-70s in the U.S. as “the great exception.” But Cassidy’s interpretation of capitalism’s long-term trajectory is seriously flawed as well. As numerous scholars over the years have pointed out, capitalism has been responsible for an explosion of wealth creation over the centuries covered by Cassidy. In his view, none of this can make up for what he considers capitalism’s worst flaw: inequality, particularly the inequality represented by the so-called 1%.
The Congressional Budget Office projects that in 10 years, the nation will annually be spending more than $2 trillion (two thousand billion) just on debt service, which already is the fastest-growing part of the budget. The national debt will exceed $40 trillion by the end of October, the Peterson Foundation projects.
The debt has doubled in the 10 years since Donald Trump, on March 31, 2016, vowed to eliminate the debt in eight years. He did not try, but if he had, he would have been stymied by this grinding political dynamic:
The fastest-growing age cohort is people 65 and older. They are high-propensity voters because the more government subsidizes them, the higher are the stakes of politics for them. And because of their powerful incentive to vote (in order to defend and enlarge their benefits), the political class has a permanent incentive to intensify the elderly’s incentive by enriching those benefits. Last year, the president’s One Big Beautiful Bill Act increased the standard tax deduction for seniors — and only for them.
…..
Kevin R. Kosar of the American Enterprise Institute says the 50-year (1975-2025) average of annual budget deficits as a percentage of GDP has been 3.8 percent. Since 1946, that average has been surpassed only eight times. Three of those, however, were 2023, 2024 and 2025.
The Editorial Board of the Wall Street Journal reflects on the unfortunate legacy of the late Paul Ehrlich. Two slices:
The Stanford biologist Paul Ehrlich, who died Friday at age 93, made his most important contribution to the world by losing a bet. It helped educate millions that his ideas about scarcity and human ingenuity were wrong.
…..
It was really a wager over human beings and free markets. If Ehrlich was right, and people were devouring the Earth’s resources, then the price of those resources would go up. If Simon was right, human beings would respond to shortages with ingenuity, and prices would, in the long term, go down. In 1990 Simon won the bet and Ehrlich paid up.
Today the nations such as China that embraced population control most wholeheartedly are now worried about a birth dearth. Ehrlich’s life is a lesson that brilliant men can become captive to bad ideas that become intellectual fashion and do great harm. At least he honored his bet.
Colin Grabow warns again of the folly of the Jones Act.
The law was supposed to encourage more domestic shipbuilding. But outside of mobilization during the world wars, commercial shipbuilding has not been one of America’s strong suits for 150 years, despite — or perhaps because of — near constant protectionism since the founding of the country.
…..
The costs the Jones Act imposes are significant in the aggregate. Repeal would save U.S. consumers $769 million per year on petroleum alone, according to a 2023 study. But these savings would be barely noticeable at the level of a gallon of gasoline, probably only a few cents in the regions most affected.
And Colin Grabow tweets: (HT Scott Lincicome)
Waiver less than 24 hours old and foreign ships are already being chartered. Each of these voyages represents a cost savings. If cheaper Jones Act-compliant alternatives were available, they would have been used. Shows the existence of demand the JA fleet couldn’t meet.
… is from pages 63-64 of the late William Baumol’s 2002 book, The Free-Market Innovation Machine [original emphasis]:
But in both Roman and Chinese societies there were two types of activity that incurred unambiguous disgrace: participation in commerce or in productive activity (with the possible exception of some gentlemanly agricultural undertakings). In Rome, for example, such disgraceful endeavors were left to freedmen – to manumitted slaves and their sons. And these individuals, too, strove to accumulate sufficient means so that they could afford to leave their degrading occupations, ar at least make it possible for later generations in their families to achieve respectabilty. It is little wonder, then, that there was not much productive entrepreneurship in these societies. Even though the Chinese, in particular, produced an astonishing abundance of inventions, there was little innovation, in the sense of the application and distribution of the inventions. Most such inventions were put to little productive use and often soon disappeared and were completely forgotten.
DBx: The lesson: The more we denigrate commerce and entrepreneurship, the poorer we will be.
Regarding the March 12 news article “White House takes first step toward permanent fix for tariffs ruled illegal”:
Citing Section 301 of the Trade Act of 1974, the Trump administration announced a move to impose new tariffs by accusing more than a dozen countries of having “structural excess capacity.” Although Section 301 doesn’t mention excess capacity, it does permit the U.S. Trade Representative to restrict imports from trading partners found to impose what the Congressional Research Service calls “unfair and inequitable” burdens on American trade.
Forget that the economic meaning of “unfair and inequitable” — like that of “excess capacity” — is so vague as to invite abuse. Instead, recognize that for a foreign government to artificially create excess capacity in any industry within its jurisdiction requires drawing workers and resources away from other industries within its jurisdiction. If some industries in, say, Japan, really do have excess capacity, then other industries in Japan must have inadequate capacity. This artificially created inadequate capacity not only self-inflicts economic harm on countries that have it; it also might cause some foreign industries to reduce their production, increasing Americans’ opportunities to export.
Protectionists, of course, never mention this flip side of the “excess capacity” argument for raising U.S. tariffs.
Donald J. Boudreaux, Fairfax
The writer is the Martha and Nelson Getchell chair for the study of free-market capitalism at George Mason University’s Mercatus Center.
Jason Riley describes the late Paul Ehrlich as “always wrong, never in doubt.” A slice:
Ehrlich had visited India and concluded that poor people were overbreeding. He believed that the developing world simply had “too many people” and calculated that the earth’s population needed to be cut in half. “The operation will demand many apparently brutal and heartless decisions,” and the “pain may be intense,” he cautioned, sounding like a cartoon villain. But it would be “coercion in a good cause.” Ehrlich urged wealthy nations to cut off food assistance to the Third World. He endorsed an Indian official’s proposal for “sterilizing all Indian males with three or more children.” It was for their own good, he insisted.
The world’s population grew, but famine on the scale that Ehrlich predicted never materialized. Within a decade, India not only produced enough food to feed itself, thanks to technological advances in agriculture that Ehrlich hadn’t anticipated, but was a net exporter of wheat. “Since 1900 the world has increased its population by 400 per cent; its cropland area by 30 per cent; its average yields by 400 per cent and its total crop harvest by 600 per cent,” Matt Ridley wrote in his 2010 book, “The Rational Optimist.” “So per capita food production has risen by 50 per cent.”
Making spectacularly wrong predictions of imminent catastrophe became something of a habit for Ehrlich over the decades. His dire forecasts about global cooling and warming were wide of the mark, a twofer. He speculated that the U.S. and Europe would be forced to ration food and encouraged couples to limit themselves to one or two children. In 1971, he said that by “the year 2000 the United Kingdom will be simply a small group of impoverished islands, inhabited by some 70 million hungry people.” Three years later, he predicted that “America’s economic joyride is coming to an end: there will be no more cheap, abundant energy, no more cheap abundant food.”
Noah Rothman reports on Paul Ehrlich’s disastrous legacy. A slice:
Central to Ehrlich’s thesis in The Population Bomb was his contention that the Earth had a finite “carrying capacity,” and its limits were already being tested by the mid-20th century. Humanity would soon have to ration its resources and consign those for whom it could no longer care to triage.
Ehrlich’s modern Malthusianism fired the imaginations of the international environmental left, but he seemed compelled to forever up the ante on his dire predictions. He subsequently anticipated that, by 1980, the average American lifespan would decline to just 42. “Most of the people who are going to die in the greatest cataclysm in the history of man have already been born,” Ehrlich wrote in 1969. “The death rate will increase until at least 100-200 million people per year will be starving to death during the next ten years,” he declared the following year. By 1971, Ehrlich was willing to “take even money that England will not exist in the year 2000.” Roughly 100 to 200 million people, he assumed, would die of starvation between 1980 and 1989 in what he deemed “the Great Die-Off.”
Sure, he got some of the “details and timing” of the events he predicted wrong, his allies will concede. But, to them, the eschatological gist of his work still rang true. “Population growth, along with over-consumption per capita, is driving civilization over the edge,” Ehrlich told The Guardian as recently as 2018, “billions of people are now hungry or micronutrient malnourished, and climate disruption is killing people.” With the confidence of a Marxian economist, Ehrlich never questioned his faith in where humanity’s addiction to prosperity was taking it. “As I’ve said many times, ‘perpetual growth is the creed of the cancer cell,’” he said.
When President Donald Trump implemented his Liberation Day tariffs last spring, the president’s senior adviser, Peter Navarro, suggested that these tariffs could generate an additional $700 billion a year.
At the time, I estimated that a more realistic estimate of the maximum additional revenue these tariffs could reap was likely less than $300 billion, which would barely fund two weeks of federal government spending.
Almost a year later, customs duties revenue data suggest that prediction was far closer to reality than what the administration was promising.
Tariff revenues did tick up during this 11-month period, averaging just under $27 billion a month from April 2025 through February 2026, or roughly $296 billion in cumulative tariff revenues since Liberation Day.
To understand why America’s rare-earth problem is really a regulatory problem, it helps to understand what naturally occurring radioactive materials (NORM) actually are. Every piece of rock on earth contains trace amounts of every element, including radioactive ones. A mineral deposit is simply a place where a particular element is more concentrated than usual. Most of the time, the radioactive trace elements in a deposit stay with the waste rock when the ore is extracted, get dumped back in the hole, and nobody thinks about them again.
Rare earths are different. When you process rare earth ores, the naturally occurring thorium in the rock tends to concentrate alongside the rare earth elements you actually want. The processing step that gives you usable rare earth material also gives you concentrated thorium, which is radioactive. Concentrated radioactivity is, rightly, subject to strict regulation. The question is not whether to regulate it. The question is whether the regulations are sensible.
In the United States, they are not.
After numerous exchanges with Tim Worstall, a former metals trader and commodities analyst who spent decades working in rare earth markets with the enormous patience (thank you, Tim), here’s what I have come to understand. One of the most important rare earth feedstocks in the world is monazite, a mineral that occurs as a byproduct of common mining operations. When companies mine mineral sands for ilmenite and rutile, the feedstocks for titanium production, an industry operating at millions of tons per year, produce monazite as a leftover. Monazite is loaded with rare-earth elements. Because processing involves handling concentrated thorium, and because American NORM regulations make that legally treacherous for any company without specific legacy authorizations that almost no one has, the monazite either gets sold to China for a fraction of its value (because there is no other market) or is simply stockpiled on site indefinitely.
How stupid is that? A mineral containing exactly what America says it urgently needs sits in warehouses and waste piles across the country, made worthless by the regulations.
One common consequence of war is to make censorship more politically tempting, which makes it imperative to call out government efforts to chill free speech in moments like this.
President Donald Trump complained over the weekend on social media about a “misleading headline” that he said overstated the damage to United States warplanes from an Iranian strike in Saudi Arabia. His Federal Communications Commission chairman, Brendan Carr, sprung to attention, amplifying the president’s post and threatening broadcasters. Carr, who met with Trump at Mar-a-Lago on Saturday, said they will “lose their licenses” if they don’t “operate in the public interest.”
The message to broadcasters such as NBC, ABC and CBS is clear: They might face regulatory reprisals, up to being forced off the air, for casting the Iran war in a negative light — or as Carr puts it, engaging in “news distortions.” Presumably, coverage favorable to the war, even if distorted, would be in the public interest.
John O. McGinnis talks about his new book, Why Democracy Needs the Rich.
James Hartley praises Adam Smith’s “knack for synthesis.”
The Wall Street Journal‘s Matthew Hennessey hits an important nail squarely on its head:
The Journal reports that 39 states now mandate high-school students take a personal-finance course as a graduation requirement.
Wonderful! Great! It’s good to learn how to live within your means. Young people need to hear about credit scores and nest eggs.
Unfortunately, economics is being edged aside to make room. To some ears that may sound like a wash. It’s actually a net loss.
The difference between economics and finance is the difference between physics and engineering. One is general, the other specific. If it’s easier to conceptualize, think of the difference between a literature course and a journalism class.
Economics is a social science, which means it’s fundamentally an attempt to better understand human behavior. It’s concerned with production and consumption. It teaches students to think about margins and trade-offs.
Finance is more concrete, pragmatic, practical. It’s budgeting and planning, savings and investment.
Studying economics makes you a more thoughtful decision-maker. Studying personal finance makes you a better manager of money and credit. Each has its place, but when teaching young people, we generally start with concepts before moving to real-world applications, right? We want students to walk before they run.
Basic economic education is essential. In an ideal world every American would get a rudimentary grounding in the principles of supply and demand while still in short pants.
Middle-school students would learn about scarcity, incentives and opportunity costs alongside their algebra and Earth science. High schoolers would read Adam Smith as well as Shakespeare.
That this isn’t already standard practice has contributed to an epidemic of economic ignorance. The consequences are everywhere—at least two generations of Americans who don’t understand what prices are and how they’re set, who are ignorant of how wealth is created, who see markets as a rigged game, who think that national prosperity is a fixed pie, who believe changes in tax rates have no effect on behavior, who think you can just freeze the rent . . . the list goes on.
Teaching kids how to be responsible in their personal financial lives is important. But let’s not stop teaching them why it matters. That’s a trade-off we’ll live to regret.
