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… is from pages 65-66 of Johan Norberg’s excellent 2023 book, The Capitalist Manifesto:

The free market is based on Socratic wisdom – that the most important thing is to be aware of what we do not know. We do not know which ideas offer the most productive innovations or are the best solutions to our problems. We know that we have not yet come up with the best ways to teach students, cure illnesses, organize family life, insure against risk, produce food, or make a cappuccino. We only know that the chance of finding ever better methods is greater if everyone is allowed to join in the search.

DBx: Yes.

In a contrast that couldn’t be more stark, advocates of overriding market signals and competition with government-decreed allocations of resources – that is, advocates of all such interventions from full-on socialism to protectionism – ask us to have faith that they, these advocates, already have somehow accurately determined which is the best mix of outputs to produce and how best to produce this mix. Never, of course, do these socialists or industrial-policyists or protectionists reveal to us the source of their amazing knowledge. We are simply told that we must accept it on faith. And if we refuse to swallow this faith, we are accused – astonishingly – of being benighted dogmatists when we point to a well-established theory that does explain how dispersed knowledge is accessed and used by market processes to tend to channel resources from less-valuable to more-valuable uses.

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Eric Boehm explains that Trump’s new tariffs on steel and aluminum will not help manufacturing in the U.S. A slice:

Near the top of an official “fact sheet” distributed by the White House on Tuesday morning, the Trump administration makes clear its rationale for imposing new tariffs on steel and aluminum imports.

The White House claims that “foreign nations have been flooding the United States market with cheap steel and aluminum” and promises that taxes on those imports will restore “fairness” to the markets for steel and aluminum.

That’s about as straightforward as it could be: The Trump administration believes cheap imports are a problem and is seeking to artificially raise prices with tariffs.

Is that fair? Steelmakers and aluminum manufacturers might think so, but the potential costs will spread through dozens of downstream industries and could impact the price of goods ranging from beer cans and cars to kitchen gadgets and construction vehicles. Nucor, one of America’s largest steelmaking companies, said it would raise prices just hours after the tariffs were announced.

Jeff Luse reports that “Trump’s tariffs on steel and aluminum are bad news for American energy.” A slice:

Imposing levies on steel and aluminum will increase costs for domestic energy projects (which will be passed on to consumers) while hamstringing America’s energy dominance. In recent years, high material costs (and burdensome regulations) have led to cancellations or price tag hikes for offshore wind energy, advanced nuclear power, and transmission line projects. Instead of building oil pipelines to the U.S., these trade barriers could also incentivize Canadian energy companies to invest in other markets, such as Japan, says Wayne Winegarden, an economist at the Pacific Research Institute, a free market think tank. “This really is one of the dumbest things we could be doing,” Winegarden tells Reason.

Importantly, these tariffs won’t accomplish Trump’s stated goal of “making America rich again.”

A study from the International Trade Commission found tariffs on steel (25 percent) and aluminum (10 percent) implemented during the first Trump administration decreased production and increased costs in downstream industries that use these materials by 0.6 percent and 0.2 percent, respectively. Total production in downstream industries was $3.5 billion less in 2021 because of these tariffs.

It’s wise to always heed Douglas Irwin on matters related to trade:

The U.S. does depend on some foreign steel. “The import market share was about 25%,” said Douglas Irwin, a professor of economics at Dartmouth College. He said most of it comes from political allies like Canada, Germany, Japan and South Korea, “who were not going to cut us off from steel if there was a national emergency.”

Speaking of Doug Irwin, he was a guest recently on Jon Hartley’s excellent podcast.

The Editorial Board of the Wall Street Journal warns of the growth-suppressing uncertainty created by Trump’s economic-nationalist policies. A slice:

One month is no cause for great alarm, but it does suggest that Mr. Trump’s policies are causing some hesitation among small-business employers. They’re worried about finding workers amid the crackdown on immigration, and that prices are still rising. They may also be worried about Mr. Trump’s willy-nilly tariffs and their impact on supply chains and the overall economy.

Uncertainty is typically a Democratic malady, as regulation and higher taxes hang over business decisions. Mr. Trump needs more business confidence, not more uncertainty.

GMU Econ alum Benjamin Powell calls for more high-skilled immigrants. A slice:

If he follows through on his new pro-high-skilled immigration rhetoric, it would be a major boost for the U.S. economy. Musk is correct to claim that U.S. companies that import foreign engineers improve their companies in the same way that NBA teams do when they import foreign athletes like Serbian-born MVP Nikola Jokic. But unlike in the NBA, with a fixed 82 games to win or lose, our economy is not zero-sum. Importing engineers makes companies more productive and spurs competition that enlarges the overall economy.

High-skilled immigrants don’t just bring talent to fuel productivity in existing companies. They also found companies that employ and serve the needs of millions of Americans. Musk himself once held an H-1B visa, and he is not alone. Forty-five percent of Fortune 500 companies were founded by immigrants or children of immigrants. If a country had the combined output of these companies, it would have the third highest GDP in the world. Immigrants also found small and midsized companies at a high rate. Approximately 3.2 million immigrants, roughly 15 percent of the foreign-born population in the United States, run their own businesses.

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with GMU Econ alum Adam Michel about “the uncertain future of the American tax code.”

Jon Miltimore offers some sound economics about Super Bowl half-time performers.

James Pethokoukis puts AI in historical perspective.

Thomas Sowell deserves a Presidential Medal of Freedom.

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… is the same as on this date last year. I now run this Quotation of the Day every February 12th – Julian Simon’s birthday. It’s from page 64 of Julian Simon’s 1996 magnum opus, The Ultimate Resource 2:

The quantity of a natural resource that might be available to us – and even more important the quantity of the services that can eventually be rendered to us by that natural resource – can never be known even in principle, just as the number of points in a one-inch line can never be counted even in principle.

DBx: Yes.

A resource is a bundle of services that can be rendered to humanity. Take as an example petroleum. It renders energy as fuel, malleable viscosity that becomes plastics, and other molecular arrangements that become key ingredients in petrochemicals and pharmaceutical products. Each and every one of these rendered services originated in creative human minds that discovered how to extract these services from those particular molecular arrangements.

Because human creativity is on-going – or, under encouraging cultural and institutional settings, can be on-going – Simon is correct that, even in principle, we cannot know how much of a natural resource is available to us.

This key (and keen) insight remains valid even if we limit our attention to only one particular kind of service rendered by a resource – say, petroleum’s rendering of the service of fuel. Let’s assume (contrary to fact) that we know for certain that there are now only five trillion barrels of crude oil available on earth. This number – “five trillion barrels” – appears to be objective, as well as a hard constraint. But economically it tells us surprisingly little.

Suppose a petroleum engineer will discover tomorrow that mixing each barrel of petroleum with some tiny amount of readily available other substances will double the energy that we can extract from each barrel of petroleum. Or suppose that there occur major breakthroughs in automotive engineering and in the design of fuel-oil heating systems. One breakthrough doubles the mileage that each gasoline- and diesel-powered vehicle gets from each gallon of fuel, while the other cuts in half the amount of fuel needed to render a certain amount of heat over a certain amount of time. Each of these creative human acts will dramatically increase the amount of petroleum services available to humanity. (If petroleum were used only to make fuel for engines and heating systems, these creative acts would literally double the amount of petroleum services.) There will still be five trillion barrels of accessible petroleum on earth, but when reckoned as a resource, the amount of this resource will have enormously increased.

The “five-trillion-barrels” number is economically nowhere nearly as objective or as important – or as constraining – as it seems.

…..

The late, great Julian Simon was born on this date in 1932.

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… is from pages 325-326 of the 1951 Augustus M. Kelly reissue of Frank Knight’s 1935 collection, The Ethics of Competition; specifically, it’s from Knight’s December 1934 paper titled “Economic Theory and Nationalism” (footnote deleted):

Yet I must enroll myself among those who do not like the change from liberalism to nationalism, and who look with regret upon the passing of freedom as an ideal to be striven for, and to an important degree an actuality. There seems to be no room for doubt that commercialism, while it lasted, made for tolerance and humanity, and to a significant extent practised as well as preached the doctrine of “live and let live.” It encouraged friendliness and good humour, and the sense of a basic human equality, among men of divergent rank and station. This was surely true to a degree far beyond anything ever seen in any other type of culture. And this was in addition to its incomparable multiplication of the means necessary to a decent existence and the even more remarkable diffusion of these means among the masses.

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The Editorial Board of the Wall Street Journal makes clear that Trump’s first-term steel tariffs hurt American consumers and producers. Two slices:

President Trump gave the economy another jolt of uncertainty on Monday when he signed executive orders imposing 25% tariffs on all steel and aluminum imports. His advisers say these tariffs are economically “strategic” rather than a bargaining chip for some other goal. Is the strategy to harm U.S. manufacturers and workers?

That’s what his first-term tariffs did, and it’s worth revisiting the damage of that blunder as he threatens to repeat it. In March 2018, Mr. Trump announced 25% tariffs on steel and 10% on aluminum under the pretext of protecting national security. Then, as now, most U.S. metal imports came from allies including Canada, Mexico, Europe, South Korea and Japan.

Mr. Trump said tariffs were needed to boost domestic steel and aluminum production. But U.S. production was already increasing amid a surge in capital investment unleashed by his deregulation and 2017 tax reform. U.S. steel capacity utilization climbed to 78.5% in March 2018 from 72.4% in December 2016.

The real goal of U.S. steel and aluminum companies that wanted the tariffs was to boost their bottom lines. Raising prices on foreign imports allowed them to charge more. The price was paid by U.S. secondary metal producers and downstream manufacturers.

…..

This is political rent-seeking at its most brazen, and it benefits the few at the expense of the many. None of this matters to Mr. Trump, whose dogmatic views on tariffs can’t be turned by evidence. But we thought our readers would like to know the rest of the story.

Nick Gillespie talks with Dartmouth’s great trade economist and economic historian, Doug Irwin, about Trump’s protectionism.

Eric Boehm explains that “trade wars that never happen still have costs.” A slice:

But tariffs that never materialize create costs too—and that’s something we know, in part, because of how Trump handled trade policy during his first term. Uncertainty created by Trump’s trade policies reduced aggregate U.S. investment by as much as $47 billion in 2018, according to a 2020 study in the Journal of Monetary Economics.

The authors of that paper wrote that “all measures suggest that uncertainty about trade policy has recently shot up to levels not seen since the 1970s.” They concluded that “both higher expected tariffs and increased uncertainty about future tariffs deters investment.”

Trump’s fans and allies try to justify his chaotic trade policies by arguing that the president is merely negotiating with other countries. That would make more sense if he wasn’t picking an unnecessary fight with two of America’s biggest trading partners, countries with which Trump literally negotiated a new trade deal during his first term.

Even so, there’s no negotiating with the reaction of the markets—which responded negatively to the tariff threats and now seem to be pricing in the uncertainty going forward.

GMU Econ alum Dan Mitchell offers lessons in Trade 101 for Trump and other protectionists.

Megan McArdle warns Trump supporters “not to develop their own variant of Trump derangement syndrome.” A slice:

For example, when Trump imposed tariffs on Canada, he claimed they were needed to halt the flows of fentanyl and illegal immigrants across our northern border. This seemed obviously a pretext to justify tariffs that he’s been promising for years, not because of security concerns, but because he thinks they’re good for the economy.

As pretexts go, this one is pretty thin. In fiscal 2024, Customs and Border Protection caught 23,721 people trying to illegally cross from Canada into the United States, just 1.5 percent of total apprehensions — and for comparison, in 2023, more than 30,000 undocumented migrants crossed in the other direction. Similarly, the Drug Enforcement Administration seized 43 pounds of fentanyl coming across our northern border, compared to 21,148 pounds coming from Mexico. Canada is simply not a significant contributor to our fentanyl problem.

Nonetheless, once Trump said it, the right wing on X became very, very invested in the idea that Canadian fentanyl was a major problem that needed a drastic solution. Suggest that tariffs were a solution in search of a problem, and you’d be mobbed by people who were sincerely outraged by an issue they’d never heard of three days ago.

Peter Earle warns that government officials aren’t trustworthy stewards of people’s assets.

Brian Albrecht concludes that “DeepSeek shows there’s no AI monopoly.” A slice:

“The best of all monopoly profits is a quiet life,” observed the late British economist and Nobel laureate Sir John Hicks. But there’s no quiet life in artificial intelligence.

When Chinese startup DeepSeek recently demonstrated it could train world-class AI models using a fraction of the computing resources required by industry leaders, it revealed something crucial about competition in AI: dominance is more fragile than markets and regulators believed. Through clever engineering, DeepSeek claims to have achieved performance rivaling top firms OpenAI and Anthropic. And it did so while reportedly spending just $5 million on compute—a rounding error compared with the budgets of leading AI labs.

This type of breakthrough challenges conventional antitrust wisdom, which sees in AI markets a system of already-entrenched monopolies. Despite their massive scale, even the AI companies that once appeared unassailable now find themselves racing to keep up with breakthroughs from unexpected directions.

Here’s some good news reported by the Editorial Board of the Wall Street Journal: “School choice revs up again in the states.” A slice:

The number of private school choice programs in the country grew to 81 from 65 from 2020-2024, according to the education nonprofit EdChoice. But only 33 states have choice programs, which means there are many more children and parents to liberate from lousy union schools.

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… is from page ix of Weiying Zhang’s 2024 book, Re-Understanding Entrepreneurship:

The entrepreneur is the key player in the market. However, entrepreneurship is totally absent from mainstream market economics. Neoclassical economics is a market theory without entrepreneurship. This misconception of the market distorts our understanding of the real market economy, leading to a theory of market failure that forms the common foundation of various government interventions. Once entrepreneurship in the market is correctly understood, so-called market failure is nothing but a failure of market theory, and the foundation of government intervention is undermined.

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Although laid low with a wicked flu now for a week, I nevertheless know that I’ll be unable to sleep without writing some response to Robert Lighthizer’s lastest tendentious apology for protectionism. There’s much, much more to say in response, as his essay is stuffed with both factual and analytical howlers.

Editor, New York Times
620 Eighth Avenue
New York, NY 10018

Editor:

Conceptual problems galore infect Robert Lighthizer’s case that U.S. trade deficits are a problem in need of solution (“Want Free Trade? May I Introduce You to the Tariff.” Feb. 10). Not the least of these problems is evident when he writes that “in the last 20 years, we have transferred some $20 trillion of our wealth (in the form of equity in our companies, debt and real estate) to the governments and citizens” of foreign countries.

Mr. Lighthizer here does single-entry bookkeeping. When foreigners acquire dollar-denominated assets from Americans, Americans acquire valuable goods, services, or assets in return. Because each and every one of these exchanges is voluntary, every American party to these exchanges believed himself or herself to be made better off as a result. Who is Mr. Lighthizer to second-guess these decisions made by fellow Americans regarding their own property?

The voluntary nature of these exchanges creates a powerful presumption that they’re in no need of being ‘corrected’ by protectionist interventions. Yet this presumption is only further strengthened by the data. In the third quarter of 2024, the real net worth of the average American household was, at $1,207,509, 55 percent greater than was the real net worth in 2004.*

If Mr. Lighthizer’s implication about U.S. trade deficits were correct, American households over the past 20 years would have suffered declining net worth. But in fact the opposite occurred – testifying that the foreign investments in the U.S. that generate U.S. trade deficits not only make the American economy more productive, but Americans themselves more prosperous.

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 nominal household net worth are available here; I converted the 2004 dollars into 2024 dollars using this GDP deflator calculator. I then adjusted for the rise in the number of households by using these data.

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The Economist offers an explanation of “why Donald Trump’s protectionist zeal has only grown.” Two slices:

Donald trump’s supporters celebrate him as a man who says what he means and means what he says. The trade crisis he ignited over the past week has provided more proof, if any was needed, that this reputation is undeserved. Yes, Mr Trump has been clear that he loves tariffs, but he is vague and even misleading about what this ardour means in practice. That has made for a remarkably chaotic start to his new administration, with businesses, investors and other governments all trying to figure out exactly what he wants—and most now bracing for more turbulence.

Not once in the lead-up to the election did he mention the possibility of tariffs aimed at both Canada and Mexico, America’s biggest trading partners. Yet his first move on trade after taking office was to announce hefty levies on the pair, threatening to blow up a North American pact renegotiated in his first term. As justification, he invoked an emergency on America’s borders from an influx of drugs and illegal migrants, only to then say that what really bothered him was America’s trade deficit. Meanwhile, his most radical campaign proposal—a universal tariff on imports—has, for now, been supplanted by talk of more targeted levies.

…..

Mr Trump’s new tariffs also arrived suddenly. In his first term he provided months-long notice to affected firms. This time, he announced the tariffs on February 1st, and importers were due to start paying the levies three days later. Mr Trump has also let it be known that he is far from done. He has said that he will “absolutely” implement tariffs on the European Union and has pledged to slap levies of as much as 100% on Taiwanese semiconductors. “He has come right out of the starting gate, going after our close friends and allies,” says Douglas Irwin of Dartmouth College. “He is so much more brazen.”

A second lesson is that Mr Trump is a true believer in tariffs, seeing them as a singularly effective tool for achieving multiple objectives. This is why there are so many different interpretations of his philosophy: they can all apply at different times. Mr Trump unquestionably views tariffs as leverage, and is not wrong that America, the world’s largest importer, has an advantage in any trade war. Consider the country’s relationship with its neighbours. Exports to America are worth roughly 20% of Canadian GDP and 30% of Mexican GDP. By contrast, American exports to Canada and Mexico combined are worth just 3% or so of American GDP.

Mr Trump believes that tariffs can be a large revenue source, too, helping wean America off income tax. Never mind that any reasonable estimate shows they would pay for only a fraction of federal spending. Mr Trump also thinks tariffs will prompt a manufacturing renaissance—another idea scoffed at by economists since tariffs raise input costs and shield inefficient producers. Mr Trump’s belief in tariffs can thus be said to be overdetermined.

Omar Barbiero and Hillary Stein examine the likely unhappy effects of Trump’s tariffs on prices.

Kristian Niemietz explains what should not – but, alas, what nevertheless today does – require explanation: “You cannot tariff yourself rich.” A slice:

The empirical evidence, of course, shows that a tariff is nothing like a tax on a foreign country. It is a tax on domestic consumers, because it does get passed on to them. But does it at least stimulate domestic industry?

Well, some industries, sure. But, as mentioned, it can only have that effect if it hits consumers where it hurts, thus making them poorer. These poorer consumers will now have to cut back on something else, so inevitably, some other industries will suffer. You cannot tariff yourself rich.

Phil Magness, at his Facebook page, is correct, at least insofar as protective non-national-security-related tariffs go:

There are no good arguments for tariffs, just as there are no good arguments for price controls.

They cause clear economic harm, they don’t achieve any of the things their supporters claim, and they are especially susceptible to special interest capture. There is no upside.

The Editorial Board of the Wall Street Journal looks at the latest U.S. jobs report. A slice:

The job losses in autos and chip-making are notable given the Biden Administration’s enormous subsidies. Mr. Biden claimed his force-fed electric-vehicle transition and industrial policy would create hundreds of thousands of auto jobs, but the job report dispels that fantasy.

The robust job growth in November and December may reflect the revival in animal spirits after Mr. Trump’s election as the threat of higher taxes and more regulation receded. But the slower growth in January is a warning to Mr. Trump to tread carefully on his tariff agenda.

Consumer confidence has recently slid amid worries about the tariff impact. The University of Michigan’s consumer survey for February showed inflation expectations for the next year increased to 4.3% from 3.3% in January. One risk is that businesses, especially manufacturers, will hold off investing and hiring amid continued uncertainty over tariffs.

Wall Street Journal columnist Mary Anastasia O’Grady separates fact from Trumpian fiction about the Panama Canal. Two slices:

Secretary of State Marco Rubio went on Fox last week to cite a “Hong Kong shipping vessel” in the Panama Canal as evidence that China is exercising “effective control” of the waterway. He was wrong on two fronts. First, the Panamanian-flagged ship belonged to a South Korean company. Second, the 47-year-old U.S.-Panama treaty governing “the permanent neutrality and operation” of the canal means ships from any country are allowed to use it.

Mr. Rubio knows this. He loudly denounced Cuba’s effort to sneak arms through the canal to North Korea in 2013. But ever since President Trump announced on Dec. 21 that he wants to tear up the treaty and reclaim the canal for Americans, fiction has ruled the U.S. narrative.

…..

China does present cyber threats to the canal, the ambassadors said. But such attacks “can be launched from anywhere in the world.” That’s why, “in the spirit of upholding the Neutrality Treaty,” the canal authority recently signed a cybersecurity agreement with U.S. Southern Command.

The antidote to China’s “creeping commercial expansion” in Panama, the ambassadors wrote, is greater “U.S. commercial interest and activity.” Instead, the Trump administration is making stuff up, swinging a big stick, and humiliating a friend. This is strengthening the anti-American left in the country. That’s not diplomacy. It’s insanity.

Andy Kessler is understandably bullish about the long-run economic consequences of AI. Here’s his conclusion:

As happened with operators, tellers, travel agents and so on, jobs lost are replaced by new and better-paying jobs in emerging industries. Every time. Yes, AI is now going after white-collar jobs with a vengeance, but that means freeing up capital to fund new technologies that don’t yet exist (laundry folding robots, please). McKinsey projects that “8 to 9 percent of 2030 labor demand will be in new types of occupations that have not existed before.” Eventually, AI will enable 25% and then 50% of productive but never-existed-before new jobs.

Arnold Kling continues to write importantly and wisely.

David Osborne reminds us that Trump’s pick for Labor secretary is a friend of Labor, not of workers.

Reason‘s Robert Poole offers sound advice on how to improve U.S. air-traffic control. A slice:

America’s air-traffic control system is decades behind those of Australia, Canada, Germany, Italy and the U.K. While these nations build safer, cheaper and more effective digital control towers that can be stationed off-site, the FAA continues to build the traditional towers of years past. While American control-tower staff share flight information with each other via paper flight strips, other countries use electronic flight strips with interactive displays and real-time data. Other providers subscribe to a global space-based surveillance system to track aircraft where there is no radar, such as over the oceans. The FAA doesn’t.

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… is from page viii of George Gilder’s Foreword to Rainer Zitelmann’s 2024 book, How Nations Escape Poverty:

The chief source of new wealth and growth is entrepreneurial disruption of incumbent wealth.

DBx: So few words; so much insight.

Progressives overlook this reality because they believe that wealth begets itself – that wealth is created by mysterious historical forces and grows more or less automatically. No human choices or genuine action are necessary.

Economic nationalists, in contrast, bemoan entrepreneurial disruption and believe that government can choose how to ‘optimally’ trade-off entrepreneurial disruption (and material wealth) for whatever goodies – more manufacturing jobs, more static communities, more stay-at-home moms, a more god-fearing populace, whatever – the particular economic nationalist in question happens to fancy the country needs more of.

Neither progressives nor economic nationalists have any idea of the complexity of the economy and economic forces that they lash out against.