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… is from pages 3-4 of Art Carden’s and GMU Econ alum Caleb Fuller’s forthcoming (in April 2025) book, Mere Economics (original emphasis):

Economics doesn’t tell you what to value, only that there are trade-offs. Economics isn’t about why you’re making the waffles. It just says that the eggs you put into waffles for the homeless shelter across the street can’t also be served as omelets at the homeless shelter across town. Even good things (e.g., feeding the homeless across the street) cost something (e.g., feeding the homeless across town).

Dbx: So true.

And yet this truth, as indisputable and important as it is, is very often ignored when people ponder and propose government policies. The protectionist sees the jobs and industries kept in place, or even expanded, by high tariffs; the protectionist ignores the jobs and industries necessarily destroyed by those same tariffs. The proponent of price controls sees the lower money prices paid by buyers who are fortunate enough to gain access to price-ceilinged goods and services; the proponent of price controls does not see the people who are unable to get the price-ceiling goods and services at any price, or the non-price means of payments – e.g., waiting in long queues – often paid even by those persons who gain access to the price-ceilinged goods and services. Similar blindness to all but the most immediate effects of government intervention is suffered by proponents of minimum wages, of income redistribution, and very many other government-imposed regulations.

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Mr. Abhi Desai
Stanford University

Mr. Desai:

In the Stanford Review (“Hoover’s Neoconservatism Can’t Last,” Feb. 21) you write about the Hoover Institution that it

has been out of sync with the conservative base for years. On trade and globalization, its economists cling to pre-Trump free-trade absolutism. One Hoover-published article recently called Trump’s tariffs a “tragedy” that undermines decades of progress. But GOP voters no longer buy the old gospel. After decades of offshoring and economic hollowing-out, today’s conservatives care more about factories at home than trade pacts abroad. Yet Hoover’s scholars still talk as if “protectionism” is heresy.

From foreign wars to trade policy, Hoover keeps defending a dead consensus. The Institution is still operating under the assumption that Republican voters will automatically back wars and globalist economics if wrapped in patriotic rhetoric. That assumption has collapsed under Trump. But Ferguson acts as if the assumption is true.

With respect, Mr. Desai, you – a student at an elite institution – can surely do better than this. Where, for example, is your evidence of the “economic hollowing-out”? Had you consulted the data (rather than merely repeated a phrase uttered ad nauseam by people who are ignorant of the data) you’d have discovered that U.S. industrial capacity is today at an all-time high – that the inflation-adjusted value of the capital stock in America reached an all-time high in 2019 (the last year for which we have good data) – that the real value-added by U.S. manufacturing has, in the past twenty years, risen by 29 percent – that real value-added per manufacturing worker in the U.S. is not only the highest in the world but a whopping 45 percent greater than in South Korea, the country where this value-added is second-highest – and that the real net worth of nonfinancial corporations in the U.S. hit its all-time peak in the fourth quarter of 2021 and is today (the third quarter of 2024) not far off that all-time peak.*

And since when is the validity of an intellectual argument determined by whether or not it’s currently en vogue with voters? That you seem to subscribe to this dubious epistemology makes it especially galling that you describe the case for free trade as “old gospel.” It’s no such thing. This case is built on 250 years of careful economic theorizing. And it has been repeatedly tested – by both history and formal empirical studies – and found to explain observable reality far better than its protectionist alternatives. Those who are preaching a gospel on this front aren’t free traders, but protectionists who have nothing but blind faith to support their insistence that government can perform the miraculous feat of increasing its citizens’ access to goods, services, and capital by restricting its citizens’ access to goods, services, and capital.

Please, rather than swallowing whole the latest popular notions about public policy, use what I’m sure is your unusual intelligence to think and write intelligently about public policy.

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

* I converted the nominal dollar figures for net worth of nonfinancial corporations into 2024 dollars using this GDP Deflator calculator.

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(For alerting me to Desai’s essay, I thank David Henderson.)

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Scott Lincicome defends free trade in a debate with Jeff Ferry.

Rich Vedder makes clear that Adam Smith was an infinitely better economist than Donald Trump. A slice:

If you put 50 randomly selected American academic economists in a room and ask them what they thought of raising tariffs as a way of increasing economic growth, I bet at least 48 of them would say that is a bad idea. That is amazing because I cannot think of ANY other major economic policy issue on which economists have such near-unanimous views. For example, if you ask those 50 randomly selected economists should the Fed lower, raise, or leave constant interest rates now to stimulate the economy, I expect you would get all sorts of different answers.

As an economic historian, I am acutely aware that the 250-year-long move towards greater material abundance beginning in earnest with the British Industrial Revolution was also generally accompanied by an abandonment of the high tariff-mercantile regime that previously dominated. Adam Smith’s Wealth of Nations (1776) is still appropriately considered the first great work in modern economics.

Smith understands that people and geographic areas have different abilities in producing goods and services, and individuals should generally do what they do best, selling most of their output and, in return, buying things from others that they cannot themselves make easily or cheaply. Smith thus realized that a division of labor induced by trade could lead to higher output and that barriers to trade, like tariffs, had a stultifying economic impact. By 1860, England was the world’s richest nation and was essentially tariff-free.

Bryce Chinault and Andrew Fowler report that the State of Connecticut is understandably unhappy with the cronyist, protectionist Jones Act. A slice:

Officially known as the Merchant Marine Act of 1920, the Jones Act blocks foreign-flagged ships from transporting goods between U.S. ports. The law has historically had many detractors from both sides of the aisle. Republican Sen. John McCain was against it. Hawaii Democratic Rep. Ed Case has blamed the law for “artificially inflating the cost of shipping goods” to his state. Rep. Alexandria Ocasio-Cortez called for a “one-year waiver from the Jones Act for Puerto Rico” after Hurricane Fiona hit the island in 2022.

These pages have long editorialized in favor of the Jones Act’s repeal. The most recent attempt to do so was introduced by Utah Republican Sen. Mike Lee in January 2024. But the Senate Commerce, Science and Transportation Committee, then led by Democrats, took no action beyond reading the bill. Now the political landscape has shifted and Republicans control the committee. The time is right to revisit Mr. Lee’s bill.

The Jones Act has powerful supporters. Most of them represent constituencies that benefit financially in some way from the economic distortions the law creates. Groups such as the AFL-CIO, the Marine Engineers Beneficial Association and American Maritime Partnerships have spent heavily to preserve the Jones Act. Organizations like the Transportation Institute argue it is “critical” for national security and domestic economic stability, ensuring “reliable domestic water transportation service” and employment for hundreds of thousands of U.S. citizens. Some Republicans, including Louisiana Sen. Bill Cassidy and Florida Rep. John Rutherford, support leaving the Jones Act alone.

The Editorial Board of the Wall Street Journal identifies several Biden-era regulations that Congress should axe. Two slices:

• The Consumer Financial Protection Bureau ban on inclusion of medical debt in credit reports. Before the rule was issued, credit bureaus had removed from reports collections under $500 and those that were later paid. The CFPB rule eliminates the incentive to pay medical bills, which will harm medical providers and lead to higher healthcare costs. There’s no such thing as a free MRI.

The rule is projected to increase credit scores of some 15 million Americans with medical debt by 20 points, making those who skip out on paying medical bills look more credit-worthy. As a result, lenders could struggle to underwrite other forms of consumer debt.

• The CFPB’s effective $5 cap on overdraft fees. The biggest banks in recent years have eliminated or slashed such fees to compete with fintech firms. This rule will mostly punish smaller banks, which may compensate for lost revenue by eliminating free checking. Some may also scrap overdraft protection, forcing customers to take out higher-interest payday loans to pay bills.

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• Energy Department efficiency standards for tankless gas water heaters that will remove 40% of models from the market. Consumers would have to buy more expensive electric or condensing gas models that require costly home retrofits.

• The Environmental Protection Agency waiver that lets California impose electric-vehicle quotas. Auto makers can’t achieve the Golden State’s mandates, which a dozen or so other states have adopted. The result will be higher prices on gas-powered cars nationwide as auto makers seek to compensate for losses on EVs in California.

Steven Greenhut asks: “Has the imperial presidency arrived?”

GMU Econ alum Bryan Cutsinger isn’t swallowing Jerome Powell’s history of recent inflation.

Ethan Yang provides a nice overview of likely changes in European antitrust policy – unfortunately changes that will do nothing to free Europe’s moribund economy from its dirigiste overlords.

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… is from page 12 of Philip K. Howard’s 2024 book, Everyday Freedom:

What’s lost in our time are the microeconomic truths of how humans and institutions achieve things. Daily achievements of most people consist of many small and large choices. The freedom to make these daily choices is the essential mechanism by which anything good happens.

DBx: Yep.

Yet look around and you’ll encounter all sorts of people eager to restrict your and others’ freedom to make peaceful choices. Protectionists and industrial-policyists believe that they, not you, know better how to choose to spend your income. “Nudgers” and the grossly misnamed “libertarian paternalists” want to put their thumbs on your choice scale to ‘nudge’ you to choose as they, not you, believe you should choose. Proponents of most government economic regulation are convinced that government officials directing the uses of other people’s money – rather than individuals directing the uses of their own money – will choose better how resources should be allocated.

Precious few people truly believe that peaceful adults should be free to choose.

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Here’s a note to a new correspondent.

Mr. P__:

Thanks for your feedback on Phil Gramm’s and my piece, in yesterday Wall Street Journal, on trade deficits. You believe that I “and Sen. Gramm omit that every US trade deficit means Americans are consuming more than they are producing, a habit that is unsustainable.”

With respect, U.S. trade deficits mean no such thing, as evidenced by the fact that the U.S. has run annual trade deficits every year since 1976, the year I graduated from high school. In 2023 I reached the conventional retirement age of 65. During those years –  from 1976 through 2023 – the real net worth of American households and nonprofit organizations rose by 537%.* (I’m unable to find pre-1987 data on household net worth alone.) It’s practically impossible to square this fact with the claim that U.S. trade deficits mean that “Americans are consuming more than they are producing.”

Consider a simple example. Suppose that Americans this year produce $1,000 worth of bricks and other outputs. Americans spend $100 of their income – income earned from this production – buying wine from France. The French vintner immediately turns around and uses the $100 that he earned on his exports to America to buy bricks from America, bricks that uses to expand his facility in Bordeaux. In this case, American exports equal American imports; there is no U.S. trade deficit.

Now tweak the example. As before, Americans produce $1,000 worth of bricks and other outputs. But now they buy from France, not wine, but $100 worth of machine tools for use in U.S. factories. And the French machine-tool seller buys $100 of American-made bricks, but not for shipment to France but instead to build a new factory in Alabama. In this case, the U.S. has a $100 trade deficit: Americans imported $100 worth of stuff (specifically, machine tools) and exported nothing.

I challenge you to tell me how, while in the former example we Americans are living within our means, in the latter example we are, as you insist is implied by trade deficits, “living beyond our means.”

Balance-of-trade accounting is accounting, not economics. Unfortunately, because most people misunderstand both the accounting conventions and the economic forces that generate the monetary figures, balance-of-trade accounting is a never-ending source of confusion – confusion that fuels sympathies for self-destructive protectionism.

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

* I used this site to find net worth then converted 1976 dollars into 2023 dollars using this Personal Consumption Price Index deflator.

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David Henderson explains some of the harm destined to be done by Trump’s protectionism. Two slices:

Economists who write about trade have tried to offset the information asymmetry by noting the high cost per job saved that comes about due to restricting imports. The costs are often gargantuan.

The table in this 2017 study by Mark J. Perry, an economist with the American Enterprise Institute, shows that in every examined case of protectionism in the 1980s, the benefits created for the protected workers and companies were less than the costs to consumers. That makes sense. Because protectionism substitutes higher-cost domestic production for lower-cost foreign production, the benefits to domestic producers are necessarily less than the costs to domestic consumers.

The table shows something else interesting. The losses to consumers per job saved, in 2016 dollars, can be greater than $1 million per year. Protecting carbon steel production from foreign competition, for example, cost $1,642,500 per job saved. Protecting specialty steel cost a whopping $2,190,000 per job saved.

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Trump has made a superficial argument: namely, that the United States should have reciprocal tariffs. If country A has 10 percent tariffs against their imports of our goods, then we should have 10 percent tariffs against our imports of their goods. But calling it an argument is too generous. He hasn’t made an argument for reciprocal tariffs. Such an argument would be hard to make. As noted earlier, when our government imposes new tariffs, we are hurt, no matter what the other government is doing. As Reason writer Eric Boehm noted, if Trump’s claims about the expected tariff revenues are correct—they’re not—he would be imposing the largest tax increase since World War II.

Moreover, I don’t think Trump believes in his own proposal. As Cato Institute scholar Scott Lincicome recently pointed out, forty-four countries have average tariff rates that are less than America’s average tariff rate. Most of those are small countries, but they also include Canada, France, Germany, Italy, and Japan. Will Trump start to lower tariffs against those countries? I’m betting not.

Peter Earle takes a close and critical look at Trump’s proposal for “reciprocal tariffs.” A slice:

Even when one country implements tariffs, unilateral free trade remains beneficial. Avoiding counter-tariffs keeps domestic prices lower, benefiting consumers and businesses reliant on imported goods. Not retaliating also prevents damaging trade wars, which have historically had negative economic consequences (consider the Smoot-Hawley Tariff Act, which exacerbated the Great Depression). In addition, there is the not-inconsiderable moral high ground: a nation committed to unilateral free trade can position itself as a stable, open-market economy, attracting investment and diplomatic goodwill. From this perspective, free trade is the ideal arrangement regardless of how other nations act.

Clark Packard reveals “the high costs of eliminating de minimis shipping.”

Charles Cooke is understandably fed up with the absurd attempted justifications for Trump’s incoherent ‘policies.’ Two slices:

Trump plays 4D chess on lots of different boards. Sometimes, for example, he says that tariffs are excellent and wealth-generating and that the United States should impose them so widely that it is able to replace the income tax with them. At other times, he says that tariffs are really bad, obviously, and that this is why he’s not imposing them, but that he had to say they were good for a while to get other countries to do the unrelated things that he wanted them to do. That’s classic 4D chess, whichever way you look at it, and, unless you internalize that and recall it at every juncture, you might end up confused by his behavior.

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Occasionally, Trump has been known to play 5D chess, and even 6D chess, and there’s a rumor that he’s working on his 7D skills. This is mostly a good thing, but it does make it quite difficult for the citizens of the republic to judge him, as, over the years, they have become accustomed to doing with their presidents. Historically, Americans were able to say that they liked or disliked this or that part of the president’s conduct, and that, in their estimation, he had got some policies right but erred with others. Now, they cannot. Sometimes, this is because they are suffering from Derangement Syndrome, which is a disease that only affects critics of this administration and has never been seen before anywhere in the world. Most of the time, though, it’s because Trump is playing chess in a whole host of complicated dimensions, and because you, the lowly voter, are simply incapable of following along.

Some of what Trump & Co. are doing is indeed applause-worthy, as explained here by the Editorial Board of the Wall Street Journal. A slice:

A century of evidence refutes Wilson’s premise, and Mr. Trump is now challenging it head-on. His argument, echoed by many modern conservative scholars, is that insulation from presidential authority runs counter to Article II’s command that the President “take Care that the Laws be faithfully executed.” If Congress has charged such agencies with enforcing laws, then the President should be able to supervise how they do their job.

As Mr. Trump’s order explains, “previous administrations have allowed so-called ‘independent regulatory agencies’ to operate with minimal Presidential supervision. These regulatory agencies currently exercise substantial executive authority without sufficient accountability to the President, and through him, to the American people.”

No more. His order requires these agencies to submit proposed and final rules to the Office of Information and Regulatory Affairs in the White House. OIRA, which is part of the Office of Management and Budget (OMB), will review rules to ensure their cost-benefit and legal analysis is rigorous and that they hew to Mr. Trump’s priorities. His order notably includes the Fed’s financial regulation, though not its interest-rate or monetary policy functions.

Mr. Trump’s order also states that OMB “shall establish performance standards and management objectives for independent agency heads” and adjust their funding “by activity, function, project, or object, as necessary and appropriate, to advance the President’s policies and priorities.”

This will give the President enormous leverage over agency leaders and their priorities. OMB could block agency money for rule-makings or enforcement activities—say, crypto regulation—that don’t jibe with Mr. Trump’s policies.

Progressives are calling this a power grab, but if so it is restoring the vision of the Founders who gave the President control over the executive branch.

Jack Nicastro is rightly critical of Trump’s unfortunate Biden-esque choice of FTC chairman. (See also here.)

Juliette Sellgren talks with Get Married author Brad Wilcox.

Brian Albrecht busts the myth that egg prices are being driven higher by “market power.”

David Henderson isn’t much worried about an asteroid hitting earth in 2032.

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… is from page 145 of Johan Norberg’s superb 2023 book, The Capitalist Manifesto (original emphasis):

Socialism for capitalists is no better than other forms of socialism, and few reforms could be more important than once again making capitalism a system of profit and loss. The market-liberal logic is merciless: either a business is competitive and so does not need support, or it is not competitive and so doesn’t deserve support.

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In today’s Wall Street Journal, Phil Gramm and I bust some myths about so-called “trade deficits.” Two slices:

Trade deficits don’t stifle growth, nor do trade surpluses foster it. In the 29 years after the end of World War II, during which the U.S. had a virtual monopoly in heavy manufacturing and regularly ran trade surpluses, real per capita gross domestic product grew 2.1% a year. Over the next 29 years, from 1976 through 2004, the U.S. ran chronic trade deficits, and the average annual growth rate of real per capita GDP was virtually identical: 2.2%.

During the Reagan administration, as economic growth surged, foreign investment flooded into the country and the trade deficit soared. The trade deficit similarly grew during the economic boom of the Clinton administration. In the high-growth years from 1998 to 2001, when the federal government ran a budget surplus, the annual trade deficit more than doubled. And when economic growth ramped up in 2017 and 2018 due to Mr. Trump’s deregulation and tax cuts, foreign investment surged and the trade deficit rose—despite Mr. Trump’s 2018 tariffs.

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Has the expansion of global trade “hollowed out” U.S. manufacturing, as Joe Biden claimed in 2022? No. U.S. industrial production today is more than double what it was in 1975, the last time we ran a trade surplus. It’s 55% higher than in 1994, when the North American Free Trade Agreement went into effect, and it’s 18% higher than it was when China joined the World Trade Organization in 2001. Real wages are up 19% from 1994 and 10% from 2001. The inflation-adjusted value of America’s capital stock is 36% higher today than it was in 2001, 66% higher than it was in 1994, and 178% higher than it was in 1975.

Manufacturing as a share of total nonfarm employment peaked during World War II and has declined ever since, following the pattern of employment in agriculture, which fell from 40% of the labor force to 2% over the course of the 20th century. This is attributable not to globalization, but to the spread of modern technology and the rise in demand for services relative to goods. Neither Nafta nor China’s membership in the WTO notably increased the secular rate of decline in the share of workers employed in manufacturing.

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Scott Lincicome explains some of the many problems that infect Trump’s proposal for so-called “reciprocal tariffs.” Two slices:

Among the now-regular Trump tariff announcements is his plan for eventual “reciprocal tariffs”—a concept championed by the president and his loyal trade adviser Peter Navarro that would, if enacted, set U.S. tariffs on goods from foreign counties at levels approximating the countries’ tariff and nontariff discrimination against American exports of the same products. The idea, repeatedly teased by Trump and officially announced last week, has a certain seductive simplicity: Isn’t it only fair that “we” charge “them” what “they” charge “us,” and that if “they” want duty-free access to “our” market, then “we” should have the same in “theirs”?

Alas, you will be shocked to learn that it is not actually that simple, and that—in the real world—“reciprocal tariffs” would be a catastrophically bad idea for all sorts of reasons, most of which have nothing to do with one’s stance on tariffs, free(ish) trade, or U.S. trade agreements.

Those other concerns have been covered at length—here at Capitolism and elsewhere by trade experts of all stripes—so instead we’ll focus today on the mainly practical reasons why the Trump/Navarro plan for reciprocal tariffs makes little sense.

(And that’s being kind.)

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Then there are domestic government policies with highly uncertain and indirect trade effects. Economists will tell you, for example, that value-added taxes are—contra the Trump team—trade neutral in theory, but whether a nation’s VAT system affects imports and exports in practice can  depend on the tax’s structure and whether, for example, local currency adjusts fully and quickly. Labor, environmental, intellectual property, and other domestic policies also can have indirect trade effects, even though they’re non-discriminatory on their face. Heck, even the metric system can be a nontariff barrier. Mimicking the CVD process for 150-plus countries, thousands of products, and thousands of government programs—not just tariffs and subsidies!—is simply impossible. So, either the Trump team will fake it, or they’ll give up.

Let’s hope it’s the latter.

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with the Tax Foundation’s Erica York about the true costs of tariffs.

Ramesh Ponnuru isn’t optimistic about DOGE’s chances of significantly cutting the federal government down closer to appropriate size. Here’s his conclusion:

DOGE is the kind of initiative that both political parties have opposite incentives to hype: The Republicans say it will revolutionize government, the Democrats that it will destroy it. Musk has generated enough news and controversy to provide the illusion of long-term impact. But the conventional wisdom of just a few weeks ago — that DOGE will not substantially alter the trajectory of the federal government — remains likely to prove true. Before we conclude that Musk will curtail government in a way no one else has, let’s wait to see the receipts.

And see also this follow-up by Ponnuru.

Veronique de Rugy is not favorably impressed with the GOP’s budget plans. A slice:

It’s not as if there isn’t lots to cut—there is, especially considering the unhinged government expansions of the last four years—but it remains politically tough. As the Manhattan Institute’s Jessica Riedl notes, achieving the assumed level of cuts in the plan would require Congress to deliver the lowest discretionary spending share of GDP since the 1930s while simultaneously increasing defense and border security spending. Why would we expect Congress to have the stomach for that?

Many Republicans are putting their faith in Elon Musk’s cost cutting, but it’s not enough. Much of what needs to happen requires Congress, which apparently prefers to once again kick the can down the road.

The blueprint makes other questionable assumptions. I doubt we’ll find $2.6 trillion in extra revenue from a highly improbable 2.8 percent annual GDP growth rate, considering the approximately 1.8 percent growth baseline.

In this podcast with Reason, Randy Barnett discusses the legality of DOGE’s efforts as well as of some other of Trump’s measures.

John Sailer describes one of the many ways that institutions  of “higher learning” recruit unscholarly “activists” into ostensibly scholarly positions.