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Here’s a letter to the Wall Street Journal:

Editor:

Robert Rubin identifies three reasons why running a government differs from running a business (“The Limits of ‘Running Government Like a Business’,” January 18). But he misses a fourth reason, one especially important given Donald Trump’s obsession with tariffs and reducing America’s so-called ‘trade deficit’ – namely, unlike a business, a country does not succeed economically by selling to others as much as possible while buying from others as little as possible.

A business has no standard of living; it’s a tool for transforming inputs into outputs in order to raise its owners’ standard of living by increasing their ability to consume. The people of a county, in contrast to a business, do have a standard of living, and it rises as their access to goods and services for their consumption rises. America succeeds economically only insofar as her people’s standard of living rises – that is, only insofar as the value of the goods and services that we receive from those with whom we trade, domestically and abroad, is greater than the value of the goods and services that we give in exchange.

Because protectionists like Trump mistakenly think of America as a business, they try to run it in a way that we sell as many goods and services as possible to foreigners while we receive in exchange from foreigners as few as possible goods and services – folly that should be, but obviously isn’t, obvious. These protectionists don’t see that by thereby artificially reducing our access to goods and services they reduce our standard of living and make our economy less successful.

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

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George Will decries the accelerating monarchialization of the U.S. presidency as he applauds jurisdictional competition. Two slices:

Four years ago, Casey Burgat of George Washington University and Matt Glassman of Georgetown University wrote in National Affairs that the presidency “changes more abruptly than other governing institutions.” A “strong disruptive incentive” grows stronger as presidents, impatiently disdaining Congress as an impediment to the flowering of their reputations, increasingly resort to achieving changes unilaterally, by executive orders.

…..

Americans by the millions are rendering a mandate — albeit a negative one — as much with their feet as with their ballots. The mandate is in domestic migration from progressive states. Edward Pinto of the American Enterprise Institute notes that between 1990 and 2021 net migration subtracted 13 million residents from California, Illinois, Massachusetts, New Jersey and New York, and added 13 million to Arizona, Florida, Nevada, North Carolina, South Carolina, Tennessee and Texas. Entrepreneurial federalism — states competing for attractive economic and cultural climates — disfavors progressive policies.

At their peril, progressives disparage this as a “race to the bottom.” Particularly regarding their cultural aggressions, progressives should heed the late Daniel Patrick Moynihan, the four-term Democratic senator from New York: “Liberals have simply got to restrain their enthusiasm for civilizing others. It is their greatest weakness and ultimate disease.”

The greatest weakness of the U.S. government in the 21st century is the bipartisan embrace of executive strength — of unfettered presidents.

Here’s the abstract of an excellent new paper by Michael Davies, R. Jisung Park, and Anna Stansbury: (HT Tyler Cowen; emphasis added)

Do minimum wage changes affect workplace health and safety? Using the universe of workers’ compensation claims in California over 2000-2019, we estimate whether minimum wage shocks affect the rate of workplace injuries. Our identification exploits both geographic variation in state-and city-level minimum wages and local occupation-level variation in exposure to minimum wage changes. We find that a 10% increase in the minimum wage increases the injury rate by 11% in an occupation-metro area labor market which is fully exposed to the minimum wage increase. Our results imply an elasticity of the workplace injury rate to minimum-wage-induced wage changes of 1.4. We find particularly large effects on injuries relating to cumulative physical strain, suggesting that employers respond to minimum wage increases by intensifying the pace of work, which in turn increases injury risk.

C.J. Ciaramella is not amused by Biden’s juvenile and lawless attempt to certify the ratification of the Equal Rights Amendment.

Also unamused by what he calls Biden’s “constitutional vandalism” is National Review‘s Dan McLaughlin.

GMU Econ alum Dominic Pino is correct: “Donald Trump’s nominee for secretary of labor, Lori Chavez-DeRemer, is one of his worst cabinet picks.”

My Mercatus Center colleague Ben Klutsey writes that “America’s civic culture is battered but not broken.”

GMU Econ alum David Hebert, sparked by Trump’s proposal for an “External Revenue Service,” points out what by now shouldn’t – but, unfortunately, what nevertheless still does – need pointing out: Trump is ignorant of basic economic realities about trade. A slice:

In 2009, the Obama Administration imposed a tariff on “new pneumatic tires, of rubber, from China, of a kind used on motor cars (except racing cars) and on-the-highway light trucks, vans, and sport utility vehicles.” This tariff would be “imposed for a period of 3 years” and would start at 35 percent in the first year, drop to 30 percent in the second, and drop again to 25 percent in the third before being phased out or “sunset.”

What happened to the price of tires in the US, you ask?

They rose from 2009 — 2012 before starting to fall back down in 2013, after the tariff ended. More to the point, the price of tires never rose the full 35 percent, 30 percent, or even 25 percent. In fact, from 2009 to 2012, the price of tires “only” rose 21.7 percent. Where did the remaining tariff revenue come from? From the Chinese manufacturing companies accepting lower prices per unit than they previously had.

Importantly, though, all of the money used to pay these tariffs came from the American consumers, not China. Yes, Chinese tire manufacturers received fewer dollars per tire than they did previously and, in that sense, “paid” some of the tariff in the form of lower price per tire. But the American consumer paid a higher price for tires, whether they were Chinese- or American-made, and in that sense paid some of the tariff in the form of higher prices.

Former U.S. Treasury secretary Robert Rubin lays out some of “the limits of ‘running government like a business’.” A slice:

First, the private sector’s mission is far simpler. While every company functions differently, businesses share the overarching goal of strong profitability over time. That focus is fundamental to our market economy. In government, however, there are always competing concerns, interests and ideologies. One idea isn’t inherently worthier than the other. Early in the Clinton administration, I told Paul Begala, a senior political adviser, that I believed effective government was critical to our country’s future. He replied, “Effective government in pursuit of what?” Public-sector leaders have to define, balance and set priorities among different missions in ways private-sector leaders don’t.

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… is from page 334 of the “Random Thoughts” section of Thomas Sowell’s 2010 book, Dismantling America:

It is amazing to me that there are people who still take seriously claims by some politicians that they are against “special interests.” All politicians are against their opponents’ special interests and in favor of their own special interests – which, of course, they don’t call special interests.

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Scott Winship asks and answers: “Should we believe the economic data or Americans’ ‘lyin’’ eyes? The answer is yes.” Three slices:

So, are Americans “right to believe their lyin’ eyes,” as Cass claimed in a recent op-ed titled, “Three Cheers for Economic Pessimism”? This formulation begs the question of whether American beliefs about the economy conflict with objective measures. Cass and the declensionists are no more reliable guides to those beliefs than accurate interpreters of economic data. What Americans tell surveyors is consistent with the objective data, for the most part. There has been no long-term decline in economic conditions.

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Whenever you read that 80 percent of Americans are dissatisfied with the way things are going in the US, you should remember that 80 percent are satisfied with the way things are going in their own life. Large majorities of Americans are satisfied with a variety of aspects of their lives. Gallup found in January 2023 that 90 percent were satisfied with their family life, 88 percent with their housing, 87 percent with their education, 87 percent with their work, 84 percent with their community, 81 percent with their health, 77 percent with their leisure time, 76 percent with their standard of living, and 71 percent with their household income. These are mostly down from early 2019 but up from 1995.

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Economic declensionists might argue that economic sentiment is informed by bad jobless data. Americans’ eyes might be lyin’, but that’s due to lyin’ data. But probing official data on the jobless only reinforces what Americans tell Gallup. Most working-age people who are not in the labor force cite reasons other than an absence of jobs, ranging from being retired or in school to being disabled or taking care of family members. The increase over time in the number of Americans outside the labor force is also primarily due to these factors. Alternative measures put out by the Bureau of Labor Statistics that include discouraged would-be workers who have given up looking for a job or workers who have been involuntarily reduced to part-time employment show trends similar to the official unemployment rate. Using such measures can alter how much joblessness there is, but it doesn’t change the conclusion that involuntary joblessness is at historic lows.

John Cochrane ponders tariffs: (HT W.E. Heasley) A slice:

First, tariffs are an answer. What’s the question? National security? Increase manufacturing employment? Use our pricing power to make the US better off at the expense of our trading partners? Each one recommends a different strategy, and often a different answer. Policy should not be answers in search of questions.

James Taranto writes that “the decline of journalism may have hit rock bottom with the end of Meta’s censorship regime.” Two slices:

The term “fact checking” has two distinct meanings in journalism—one venerable, the other recent and corrupt. The former refers to a process of self-correction in which an editorial staffer retraces a writer’s reportorial steps, inspecting and reinterviewing sources to make sure everything in the story is accurate. The New Yorker and Reader’s Digest were renowned in the industry for their rigorous fact-checking departments.

When you hear the term today, though, it usually refers to something completely different—what the Washington Post’s Glenn Kessler calls “political fact-checking.” This isn’t a behind-the-scenes quality-control practice but a subgenre of news, whose emergence Mr. Kessler dates to the founding of FactCheck.org in 2003. Political fact-checkers don’t seek to ensure that journalists tell the truth but to demonstrate that other people—principally but not only politicians—are liars.

Political fact-checks aren’t simply about accuracy. They delve into more complicated questions of interpretation, emphasis and opinion. A fact-check article typically consists of a politician’s or other target’s statement to be evaluated, an analysis citing facts and authorities, and a conclusion about the statement’s veracity, such as “false” or “mostly true.” Some political fact-checkers employ cheeky ratings for statements they deem to be jiggery-pokery or pure applesauce: Mr. Kessler assigns them as many as four “Pinocchios,” while PolitiFact slaps them with a “pants on fire” label.

The form imitates that of a judicial ruling, which sets forth a matter in dispute, analyzes the underlying facts and applicable law, and then delivers a conclusion resolving the dispute. When the Supreme Court publishes such a document, every page carries the header “Opinion of the Court.” But whereas a court’s opinion carries the authority of law, a journalist’s opinion binds nobody. A political fact-checker is a journalist pretending to be a judge—a counterfeit authority.

…..

Unlike the internet of a quarter-century ago, social media was dominated by a few big companies, Facebook (now Meta) foremost among them. That gave aspiring gatekeepers a new locus of control. In December 2016, Facebook announced that it would contract with political fact-checkers—FactCheck.org, PolitiFact, ABC News, the Associated Press and others—to help it suppress disfavored content. Based on their opinions, Facebook labeled posts as “disputed” or “false,” prevented their authors from advertising or monetizing them and reduced their visibility in other users’ feeds.

This censorship intensified after Joe Biden was elected, sometimes at the government’s direction. The targets included news organizations. In 2021 Facebook suppressed at least two Journal articles for scientific heterodoxy—an op-ed on Covid by Johns Hopkins surgeon Marty Makary (now Mr. Trump’s nominee to lead the Food and Drug Administration) and a review of a book on climate by physicist Steven Koonin, who served in the Obama administration.

Good!

Also good!

Kimberly Strassel argues that the left “spent eight years trying to kill democracy in the name of saving it.” A slice:

It was Mr. Biden—citing Republicans’ supposed mismanagement of Covid—who stripped Americans of basic civil liberties during the pandemic. Mr. Biden—citing the damage of GOP policies—who issued regulations blatantly exceeding the scope of executive power. Mr. Biden—citing the high court’s ruling against his student-loan forgiveness plan as a “mistake” and “wrong”—who thumbed his nose at a coequal branch of government, and issued the plan again. Mr. Biden—citing his “political opponents”—who rewrote presidential power with a never-before-witnessed blanket pardon for anything his son might have done in more than a decade.

Juliette Sellgren talks with Eric Leeper about the fiscal theory of the price level.

Scott Lincicome says about the L.A. wildfires: “Insurance regulations, land management, and other policies didn’t cause the fires but have made things worse.” A slice:

The place to start is California’s onerous regulation of homeowners insurance, which has probably encouraged many Angelenos to live in more fire-prone areas and has kept many of them underinsured or without insurance entirely. As economist Brian Albrecht detailed last week, citing a deep dive paper from his colleagues at the International Center for Law and Economics (ICLE), California’s Proposition 103 forces private insurers to price their products not just below hypothetical market rates but well below their cost — creating “the biggest gap between rates and risk in the nation.” Albrecht adds that the system is also highly inflexible and insanely slow: California’s speed of rate approvals ranked second-to-last among the 50 states (and D.C.) over the last five years, with an average of 236 days for homeowners insurance. And it’s been getting worse.

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… is from page 60 of the print-edition version, in the January/February 2025 issue of Reason, of Johan Norberg’s excellent essay (forthcoming on-line) “The Real Threat Is An Isolated China”:

[M]ore than a million American jobs depend directly on exports to Chinese consumers. About 0.5 percent of the U.S. work force would lose their jobs if the U.S. lost access to its third-largest exporting market.

In other words: If Trump passes the tariffs he’s been promising, the GOP’s newfound identity as the party of the working class would be just a brief stopover on the way to becoming the party of the unemployed class. The economy would eventually find work for most who lost their jobs in this decoupling shock, but those jobs would on average be less productive and pay less, since they would be in sectors where America has less of a comparative advantages.

Still more opportunities would be lost in the future, since protectionism reduces competition and innovation.

DBx: Someone might acknowledge that all that Johan says here is correct, but nevertheless insist that further government-engineered decoupling from China is justified on grounds of national security. A priori that insistence can’t be dismissed as misguided. But surely it’s not too much to ask proponents of such decoupling at least to acknowledge not only that such a move necessarily has economic downsides, but that these downsides are substantial. How do the decouplers know that whatever we Americans gain on the national-security front will be greater than what we lose on the economic front?

Serious question: What’s the most credible, serious effort undertaken to estimate these benefits and these costs and then to compare the latter to the former?

And please do not say that economic benefits cannot or ought not be weighed against national-security benefits; do not say that national security is too important and foundational to be compromised for something as tawdry as ‘mere’ economic benefits. If you’re tempted to say this, then – before you do – let me ask you: Would we Americans be made better off if we became a militarized society, with the great majority of our GDP devoted to military and other national-security efforts? Should we spend all of our labor and other resources in pursuit of no end other than national security?

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George Will assesses Biden’s term in the White House with appropriate harshness – and also gives us a glimpse of how industrial policy really works. Three slices:

After he lost 42 of the 48 states in 1932, Herbert Hoover wrote: “Democracy is a harsh employer.” Sometimes appropriately so.

Joe Biden’s failed presidency is ending with a blizzard of decisions that validate voters’ rejection of his vice president, who, when asked, could not think of a flaw in his record. He and she pretended, from opposite directions, to be what they are not.

…..

Two months into his presidency, the seeds of its ruin were sown with the American Rescue Plan, which pumped up demand for goods and services beyond the capacity of the economy to produce them. The predicted result, inflation, was exacerbated by the Inflation Reduction Act’s torrent of subsidies in the service of “industrial policy.”

Three weeks after the 2024 election, Biden’s administration, rushing to open wide the spending sluices before Jan. 20, provided almost $8 billion in subsidies to chip-maker Intel. Five days later, Intel’s CEO retired, effective immediately, his company having lost $16.6 billion in the previous quarter. The chair of Intel’s board of directors said the CEO’s departure would facilitate “restoring investor confidence.” The Biden administration’s investors of other people’s money already had sky-high confidence.

In December, the Biden administration gave a $15 billion low-interest loan to California utility PG&E. This loan is the largest ever from the Energy Department’s incorrigibly overconfident Loan Programs Office. The second-largest was made the day before — a $9.6 billion loan for a joint-venture Ford Motor battery plant.

In November, the LPO had funneled $6 billion to Rivian, an electric vehicle start-up that the New York Times reports “has had trouble ramping up sales beyond about 50,000 vehicles a year.” Fewer might be better: The Wall Street Journal reports that Rivian lost $107,043 on every vehicle it sold in the first nine months of 2024, even with Biden’s $7,500 tax credit per vehicle (up to $40,000 for its heaviest commercial EV). Rivian blames a “more challenging consumer environment” — customers are pickier than the Biden administration’s investors.

…..

(In 2009, the LPO served Barack Obama’s industrial policy by sinking $535 million in solar panel manufacturer Solyndra, which filed for bankruptcy in 2011. In 2010, the LPO gave a $465 million loan to Tesla. Henceforth, such transactions might be subjected to the withering squint of Elon Musk’s new “Department of Government Efficiency.”)

James Hohman understandably is no fan of government handouts to corporations.

My intrepid Mercatus Center colleague, Veronique de Rugy, warns of the still-looming risk of inflation.

GMU Econ alum Alex Salter’s letter in today’s Wall Street Journal conveys wisdom:

Jason Furman wisely reminds us that public policy always involves trade-offs (“Left and Right Alike Are Blind to Trade-Offs,” op-ed, Jan. 8). Nevertheless, I have some reservations about cost-benefit analysis as a “framework” that “offers a path to better policy.” The economic way of thinking is necessary but not sufficient to improve governance.

There are two issues. The first is that the cost-benefit paradigm too easily becomes an excuse for rule by experts. Who decides what the relevant trade-offs are, as well as the best way to navigate them? Economists and public-policy experts, presumably, in which case we’ve inadvertently subjugated democratic deliberation to technocratic tinkering.

Second, and more important, cost-benefit analysis takes values as given. We call “benefits” what people like and “costs” what people dislike. This is appropriate for economics as a descriptive social science. But it won’t do for public policy, which is inherently prescriptive. Every law, regulation or other reform presumes an “ought,” not merely an “is.” Maximizing net benefits means people are getting what they want, but people often want what they shouldn’t have and don’t want what they should have.

Mr. Furman is correct that partisanship is a bad guide to good governance. But the technocratic approach isn’t much better. What we need is a prudential evaluation of the proper ends of man and the best means to secure those ends. In a word, what we need is statesmanship.

Also worth reading is this letter by Mark Schiller:

Mr. Furman isn’t really talking about economic decision-making. He is referring to political decision-making in which a small number of people impose their decisions on society. As Thomas Sowell has written: “Political, and especially legal, decision making tends toward categorical rather than incremental decisions.”

The alternative is economic decision-making in which myriad companies and individuals make choices based on their own unique knowledge, preferences and situations. These are incremental and not categorical in nature and allow for valuable feedback, which is direct and significant.

Mr. Furman chides conservatives for excessive focus on the costs of liberals’ expansive social goals. But the reality is that thoughtful conservatives and free-market proponents understand the inherently inefficient and frequently catastrophic nature of political decision-making and would prefer allowing market processes to function unhindered by political control.

Joe Lancaster decries a new economically ignorant authoritarian move by the economically ignorant authoritarian-wannabe Gavin Newsom.

At his Facebook page, Sam Grove shares this news story about the Los Angeles wildfires:

Jack Nicastro writes in defense of private firefighters.

Bob Graboyes reminds us that it’s never too late.

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… is from page 468 of Gordon Wood’s splendid 2009 volume, Empire of Liberty: A History of the Early Republic, 1789-1815:

Precisely because of the exuberantly democratic nature of American politics, the judiciary right from the nation’s beginning acquired a special power that it has never lost. By protecting the rights of minorities of all sorts against popular majorities, it has become a major instrument for both curbing that democracy and maintaining it.

DBx: Pictured here is John Marshall (1755-1835), the fourth Chief Justice of the United States Supreme court.

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Here’s a letter to the Washington Post:

Editor:

Michael Ignatieff is correct that a resurgence of liberalism would make America a better place (“I was born liberal. The ‘adults in the room’ still have a lot to learn.” Jan. 15). But that liberalism should be not the modern sort of John Rawls and E.J. Dionne, but the classical sort of F.A. Hayek and George Will. One deep problem with liberalism of the sort espoused by Mr. Ignatieff is revealed when he writes, as if it’s a fact too obvious to question, of “capitalism’s remorseless distribution of economic disadvantage.”

What in the world is he talking about?

Ordinary Americans, even ones in lower-income brackets, today live in air-conditioned homes, drive air-conditioned automobiles, carry electronic devices that stream music and videos and enable real-time conversations – in voice or in text – with people literally on the other side of the globe. Nearly all of us regularly fly through the air to distant locations, have closets full of clothes and amazing appliances and detergents to keep those clothes clean, spend lower and lower shares of our disposable incomes on food as the quality and variety of that food increase (fresh blueberries in January in New York would have astonished J.D. Rockefeller), enjoy health care undreamed of by J.P. Morgan, and have life expectancy at birth more than double what it was for most of humanity’s existence.

Indeed, our pets eat better than did most of our forebears, and even our inanimate stuff is more comfortably and securely accommodated than they were.

These and many other ordinary experiences of modern life are so routine that we take them for granted, yet each and every one would have astounded the richest monarch or pooh-bah before the capitalist era. And each one is the product of innovative, entrepreneurial capitalism. Capitalism is indeed remorseless, but in distributing economic advantage.

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

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Here’s a reply to a recent correspondent.

Ms. C__:

Thanks for your follow-up e-mail to my note.

You write that I “wrongly scrutinize President Trump’s trade actions like an academic economist. He’s a successful businessman strategically deploying trade policy to bargain for America’s advantage over other countries.”

With respect, you and Trump suppose that global commerce is a zero-sum activity; you think that one country gains wealth only by tricking or forcing other countries into losing wealth. That this supposition is mistaken can be seen by observing your own daily life: You are enriched by working for your employer and by shopping at your local supermarket. So, too, is your employer enriched by employing you, and your local supermarket is enriched by selling groceries to you. And no one is made poorer. Voluntary exchange by people using their own property is positive-sum, not zero-sum – an economic reality that doesn’t change if a political border separates the persons who trade with each other.

In addition, Trump and the apologists for his protectionism offer myriad different justifications for tariffs. Taken together, these justifications reveal, not a ‘strategy,’ but excruciating ignorance of trade as well as an incoherent approach to trade policy.

I took a five minutes to google “Trump” “tariffs” and different justifications for tariffs, such as “national security” and “protect American jobs.” Just in the past week, we’re told that Trump’s tariffs are meant to protect American jobs and invigorate American industry, supply leverage to pressure foreign governments to change their trade policies, supply leverage to pressure foreign governments to change their non-trade policies, strengthen America’s national security, fight alleged “unfair competition,” and – from the incoming chairman of the Council of Economic Advisors – to improve America’s terms of trade and to reduce the trade deficit and to deal with the (fictional) problem of America’s “hollowed-out” industrial base. And just yesterday, Trump boasted that he’ll use tariffs to raise so much revenue that we’ll need a new agency – the External Revenue Service – to collect it.

This jumble of justifications reflects ignorance of reality (for example, America’s industrial base has not been “hollowed out”), ignorance of economics (for example, every American job protected by a tariff is matched by an American job destroyed by that tariff), and dizzying inconsistency (for example, because no revenue is reaped on imports kept out of the country by tariffs, tariffs for protection are a poor tool for raising revenue).

Far from being masterful strategy, Trump’s trade policy is mindless pandemonium.

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