Government Should Experiment with Eliminating Patient Barriers, Not with Covering Ozempic by Akiva Malamet, Bautista Vivanco, and Michael F. Cannon, Cato at Liberty, August 11, 2025. Excerpts: While Ozempic and other GLP‑1 drugs are great at helping patients lose weight(among many other promising uses), these impressive medications come with an impressive price tag. For those paying out of pocket, a month’s supply can cost around $1,000. Congress prohibits Medicare from subsidizing anti-obesity medications but allows GLP‑1 drugs for the treatment of diabetes and cardiovascular disease (a particularly vulnerable subset of its beneficiary population). The Congressional Budget Office studied the budgetary impact of authorizing Medicare to subsidize anti-obesity medications. It concluded that subsidizing GLP‑1 drugs for obesity would have a net cost to taxpayers of $31.5 billion between 2026 and 2034. And: More recently, our colleague Jeffrey Singer argued that Congress can and should eliminate FDA barriers for compounding pharmacies. Singer also emphasized the benefits of removing prescription requirements. Combined, these reforms would significantly increase competition and render GLP-1s more accessible. In a competitive market, price-sensitive patients put downward pressure on the prices of the medical goods and services they need or want. Medicare, Medicaid, and the tax exclusion for employer-sponsored health insurance create multiple levels of separation between patients and the price of medical goods and services. The more insensitive patients are to the price of care, the less pressure they put on providers to reduce prices. This makes health care more expensive and less accessible for everyone.   Employer-Sponsored Green Card Processing Takes 3.4 Years, All-Time High by David J. Bier, Cato at Liberty, August 11, 2025. Excerpt: Immigrant workers seeking a green card—which denotes legal permanent residence in the United States—now face almost a three-and-a-half-year wait to make it through the government’s regulatory morass. Paying a $2,805 fee could reduce this wait to “only” 2.8 years. Since 2016, the government has added over 18 months to the average green card process. This needs to change to keep America competitive. The processing delays come on top of the time to wait for a green card cap slot to become available under the annual green card caps (which is often many years). They also don’t include the time spent complying with regulations prior to the first filing step. This prefiling period can take months. DRH comment: I’m so glad I got my green card in 1977, when it took only a few months.   The Price of Pragmatism: How the Court’s Retreat from the Constitution Fueled Mass Incarceration by Mike Fox, Cato at Liberty, August 11, 2025. Excerpt: NYU Law Professor Rachel Barkow has written an extraordinary new book, Justice Abandoned: How the Supreme Court Ignored the Constitution and Enabled Mass Incarceration. It is a damning indictment of our judicial system’s complicity in the dramatic expansion of incarceration over the past several decades. Judge-made changes in the law have created a new status quo: The United States—with five percent of the world’s population—now contains 25 percent of its prisoners. Barkow’s central thesis is that the Supreme Court has failed to execute its core function: to safeguard individual liberties against the encroaching power of the state. Even worse, it has cloaked this failure in the guise of public safety. As Barkow explains, the Court has refused to “police the police.” When supervision of government fails, egregious abuses of authority go unchecked. The Court’s failure to enforce constitutional guarantees has enabled mass incarceration to metastasize.   DRH Note: I didn’t notice until I started posting, but 3 out of 3 of my weekly highlights are from one source: Cato at Liberty. Good for them. So would be the 4th, so I’ll refrain from posting it and, instead, post a link to an excellent forum held by the Independent Institute.   What If Everything You’ve Heard about the 1619 Project Is Wrong? by Jeff Hummel and Phil Magness, Independent Institute, August 13, 2025. Jeff does an excellent job of questioning and Phil knocks it out of the park with his answers. Truly amazing how low the New York Times sunk. I recommend listening at 1.25 speed. You won’t miss much by skipping Q&A, which starts at about the 42:00 point, although there is an interesting question (and an informative answer) about how Abe Lincoln thought of getting slaves to emigrate. Even if you have little time to listen, check out the story of the New York Times fact checker at 15:14. My favorite line, though, which gave me goosebumps, is at 12:34.   (0 COMMENTS)

Most advanced countries are democracies. In most cases, these countries impose heavy taxes, with total revenues often falling between 30% and 50% of GDP. And yet, most people don’t like paying taxes. How can we explain this seeming contradiction?The mainstream view of both the economics profession and the general public seems to be that a fairly high level of tax revenue is desirable, say at least 25% of GDP.  In this post, I’ll take as a given that the institution of taxes is beneficial to the general welfare. My own view is that the world would be better off if most countries reduced the size of their governments to well below 25% of GDP (as in Singapore). But even I am in favor of governments raising a substantial amount of money via taxes. Thus, for the purpose of this post, I’d like to bypass the issue of whether taxes are too high and consider why democracies are able to enact large tax regimes despite the fact that most voters don’t like paying taxes.   I think it’s fair to say that the typical voter has a sort of “not in my back pocket” attitude toward taxes. They would prefer than someone else pays for government services. If they are poor, they might prefer taxes on the rich, and if they are non-smokers they might prefer taxes on cigarettes. My local government in Mission Viejo does not vote to tax local residents and then send the money to Washington DC to fund the military. It is assumed that the federal government will raise taxes for that purpose. Mission Viejo raises taxes for local services like schools and police.  But despite this NIMBP attitude, governments in democratic countries raise vast sums of tax revenue. The implication of this is clear, the unpopularity of taxes does not prevent high tax rates, even in democratic countries.  The key is the raise taxes at the same level as the benefits that will be delivered.  Local taxes for local services and federal taxes for federal programs. Matt Yglesias was recently asked this question: It seems probable to me that a major obstacle to YIMBYist goals is that they are unpopular. How do you square your advocacy for YIMBYism with the philosophy of popularism? He gave an extensive answer, which included these observations: There are some people who sincerely welcome new development very close to their home, but they are a minority. Most folks, if they could have their way, would like to see lots of construction jobs and plenty of affordable housing and a growing economy and tax base, but also for all that construction to be happening somewhere else. That’s why it’s called Not In My Backyard, not Principled Hostility to Housing. The problem with NIMBYism in this sense is that it’s literally not a policy that can be done. If a state government could achieve housing abundance, but with none of the abundance occurring in your backyard, you might love that. But their actual options are “give every locality a veto so nothing gets built” or “reduce local ability to veto so some stuff gets built.” For a long time, politicians seem to have felt that “everyone gets a veto” was the best way to approximate what voters want. Over time, though, the problems with systemic housing scarcity have started to pile up and become more and more obvious, and more and more people are becoming convinced that “less veto everywhere” would actually be a better outcome. In my view, the biggest barrier to higher living standards is housing (with health care a close second).  Food and clothing comprise an ever smaller share of consumer budgets.  Cars have become so good that the vast majority of Americans drive what once were regarded as luxury cars.  (My Nissan Maxima is vastly better that the Cadillacs and Mercedes of the 1970s or 1980s.)  The real price of home appliances has fallen so much that people often just throw them out rather than call a repairman when they have problems. People eat out much more often.  For many people, the type of house they can afford is the key determinant of how well they are doing.  NIMBY regulations have pushed up the real cost of housing in many areas.  Kyla Scanlon recently observed that this was making people unhappy: John Burn Murdoch points out that young people are extremely unhappy in the Western world because society broke its promise of a home them – there is no faith in the future of the system, so people turn to ripping each other apart. Housing abundance is highly popular with the public, just as Social Security, Medicare, policemen, firemen and the public schools are popular.  But just as most people don’t like paying taxes, most people don’t wish to see new housing built right next door.  From this perspective, both government services and housing abundance are collective action problems, which are hard to solve at the individual level. (Once again, I’m giving the standard view, which I only partly accept.) However, there is one important sense in which this analogy breaks down.  Unlike the provision of various government services, housing abundance does not require any affirmative government action.  Rather it would require certain types of governments (i.e., state and local governments) to cease engaging in actions that restrict housing construction.  The most local level of all is the individual homeowner.  At that level, YIMBYism suddenly becomes much more popular.  Do I wish to sell my home for $5 million to a developer who wishes to put up a tall apartment building in Mission Viejo?  Yes!! Proponents of local zoning rules will often cite an “externality” argument for government regulations restricting housing construction.  But as Yglesias points out, that sort of NIMBYism is internally inconsistent. A homeowner who freely chooses to sell to a developer imposes negative externalities on their immediate neighbors.  A town that restricts housing construction imposes negative externalities on other residents of the state.  A state that restricts building imposes negative externalities on the rest of the country.  A country that limits immigration imposes negative externalities on the rest of the world.  “Popularity” is a tricky concept.  A policy regime that is popular at the local level may be unpopular at the state of national level.  Just as peoples’ aversion to paying taxes doesn’t mean that democracies will fail to enact substantial taxes, peoples’ aversion to an apartment building going up next door doesn’t mean that YIMBYism will fail in a democracy.  Yglesias points out that Yimbys are achieving wins in a wide variety of both blue and red states.  His post provides this figure: PS. A recent study suggests that Los Angeles’ large budget deficit could be closed by building more housing near transits lines. (0 COMMENTS)

I have for many years argued that Anne Krueger and Jagdish Bhagwati should be awarded the Nobel Prize in economics for their work on trade, protectionism, and economic development. Indeed, they should have shared the 2008 Nobel with Bhagwati’s student Paul Krugman. The extensive interview of Krueger in the latest issue of the Journal of Economic Perspectives supports my view of Krueger’s importance. I strongly recommend the whole interview. One of the most striking things is that Krueger dug around in the data in other countries by actually talking to the players. She learned a lot and that’s how she came up with the idea of rent seeking: when government officials have discretionary power, other people lobby to get special permission. Of course, we never see that happening in the United States. I started to excerpt it for my Weekly Reading Highlights for next Sunday, but there are so many nuggets that it deserves a post of its own. Thus this post. The interviewer, Dylan Matthews, is a correspondent for Vox.   Lawyers and Economists on Free Trade KRUEGER: Lawyers who do trade law are more pro free trade than economists, because they know how badly protection works. A distorted economy is terrible. Not just a little bad—import substitution probably cut growth rates in half of what they could have been.   Confessions of Corruption KRUEGER: In both countries, I had a number of encounters with people who talked a great deal about black markets and that kind of thing, and I got interested that way, in part. I had a friend in India from graduate school who was working in Delhi at one time when I was there, and he knew I was interested in this, so he invited several of his friends to dinner. He was well connected and invited ministers and vice ministers. At the end of the dinner he sat back and said, “Because Anne is interested in this, and you can trust her, I want each of you to tell exactly how much more you’ve taken than you should legally have taken in your job.” And they did it! One said, “I only took enough to get my three daughters each an adequate dowry. And that was ₹12 million” [about $1.6 million in US dollars at that time]. One of my very able Indian friends, then a graduate student in India, was forced to leave India because he was so honest. He couldn’t take the money. One of his sons got sick, so he had to work in the States to take care of his son. The corruption had all kinds of human effects that you don’t think about.   Would Helping the Poor with Mortgages Work? MATTHEWS: You left the Fund before the global financial crisis in 2008–2009. Did you have a sense that that was brewing toward the end of your time there? KRUEGER: Well, at the Jackson Hole meetings in 2005, Raghuram Rajan (2005) gave a talk where he described what the vulnerabilities were, why helping the poor with mortgages is not going to work. Why are we sitting on a bombshell? I think it was Larry Summers who said we were Luddites.   Industrial Espionage Goes Both Ways KRUEGER: Let me answer half a question you didn’t ask: the Chinese have on occasion tried very hard, I think, to oblige [the United States]. And I think we have missed the signal completely. I think their system is not a good system, and I think they themselves are not quite capable of understanding why it is not a good system, but this idea that they’re always stealing from us, that we never steal from them is silly. I mean, the idea that there’s no industrial espionage in this country! When I was in Silicon Valley, nobody would send a piece of equipment to any of the electronics fairs, even the big one in Las Vegas, without making sure there was some employee 24 hours a day watching the machinery to make sure nobody could reverse-engineer it. Now we’re so mad at the Chinese that they tried to do the same thing. Meanwhile, we’ve had more than one CIA agent arrested [in China] and pretty much caught dead to rights.   Why “Market Failures” Are Not Enough of an Argument for Government Intervention KRUEGER: Some of these arguments about the market assume that if there are market failures, then whatever the government will do will be better. Maybe the market failures are huge, but that does not persuade me that government failures will not automatically be as huge. That’s the part that’s wrong. I still think that when you’re talking about lots of economic activities, you want to just look at incentives. If there’s something wrong with the market, get the incentives right. Giving bureaucrats the incentive to regulate is not the incentive that will work best in most cases.   The Problems with Economists and Graduate Education Today KRUEGER: Gradually, I think the technique guys took over, theory and econometrics. It weakened the field in several ways, one of which, it set the bar so high that some people just couldn’t do it or didn’t want to do it. Some, who were good, got out, even though they could do it, because they didn’t want [that focus]. In a sense, you’ve gotten the idiosyncrasies of that group. If the price of milk doubled, they wouldn’t even begin to wonder why. That’s a big part of it. The fact that we have supercomputers sets everybody in awe, and all I can see is higher caliber regression, maybe. And I still think you need some theory before you do it. I think at some point it has to reverse a bit. Part of the way it’s reversing is, in my view, a bad way. Namely, the public policy schools are doing economics without enough analytical underpinning. So you get things like the advisers supporting industrial policy in the Biden administration and stuff like that, precisely because they haven’t learned what happened. One thing that the Chicago school, for instance, was so good at was making everybody think in terms of, “What’s the alternative? What’s the opportunity cost? What are the incentives that are created?” One of my eureka days was when Milton Friedman was visiting Minnesota sometime in the 1960s, around when the first law came in restricting auto emissions for new cars, making them more expensive. Milton’s argument was, well, that would mean more pollution. Why? Because, obviously, then people keep their cars longer. To him, it was so obvious. But to me, until he said it once, it wasn’t obvious. [DRH note: Probably because I was educated at UCLA, Friedman’s point would have been obvious to me.] There was so much of that in Chicago. Students learned to think that way. The rest of us had to figure it out the hard way. But Chicago often got it right.   Advice for Young Economists MATTHEWS: I think a lot of the people reading this interview might be in grad school or early in their careers, and want to have an influence in policy. You managed to have a long career in both academia and in policy, and I think had a very positive impact in both places. What advice do you have for someone who wants to follow a similar path? What are the skills to develop, or the opportunities they should take? KRUEGER: I really do think that depends on the individual and what they want, but I certainly am a very strong believer in having a good analytical frame-work. That to me is essential, and that means learning what questions to ask, which is often, “Why are people behaving as they are?” and then looking for where the incentives are. Finding out “why” is the important thing first. In the 1960s, the first answer in development economics was “peasants are irrational.” But of course, Ted Schultz (1964) put paid to that very fast.   My one disappointment: Although rent-seeking is a prominent part of the Krueger story and she definitely deserve credit for the term and for her evidence of its importance, neither Krueger nor Matthews points out that it was actually Gordon Tullock, in a 1967 paper, who came up with the idea of rent-seeking even though he didn’t call it that. [Editor’s note: Bhagwati is also the author of the entry for Protectionism in The Concise Encyclopedia of Economics.] (0 COMMENTS)

Now that we’ve looked at Musa al-Gharbi’s description of what causes Awokenings to rise and eventually fall, what are the long term consequences of these movements? Given that Awokenings consist of wealthy and elite members of the symbolic capitalist class rising in support of antiracism, feminism, economic equality, and other social justice related causes, it’s natural to ask if the outcome is an improvement for women, racial minorities, or the poor. Unfortunately, al-Gharbi doesn’t see much cause for celebration regarding results: Despite their intense focus on social justice issues, Great Awokenings have rarely generated positive outcomes for the genuinely needy or vulnerable. That is not to say the situation for such communities has not improved. Great progress has been made for all of these communities. It’s just that Awokenings as such seem to do nothing to contribute to those improvements – and often end up being counterproductive. For example, With respect to racial equality, for instance, political scientist Robert Putnam shows that gains for African Americans began around 1860 – that is, before any of the Great Awokenings, and indeed, before the Civil War…After the war, Black gains proceeded apace through the 1960s. Gaps between Blacks and whites continued to close… There was no apparent impact from the first Great Awokening on any of these trends—for better or worse. Likewise, the civil rights movement notched most of its successes before the second Great Awokening began—and stalled out thereafter. That is, the second Great Awokening was not responsible for the civil rights movement and its victories. It may have derailed them. The same is true for women: At the end of the nineteenth century, women in the United States began making significant gains in terms of rights and protections, and gaps between men and women on a range of dimensions began to close. These patterns did not accelerate as a result of the second Great Awokening, as many perhaps assume. Instead, they slowed beginning in the mid-1960s. And on many measures, women have been losing ground relative to men since the 1990s (i.e., the third Great Awokening). Overall, the first Great Awokening seemed to have no real impact for better or worse, and “the century from 1860 to 1960 was defined by steady and broad based gains in socioeconomic equality, civil rights, trust in social institutions, religious attendance, union membership, and other forms of civic participation.” These gains began well before the first Great Awokening and were not caused by it, nor did they accelerate during or in the aftermath of that Awokening. The subsequent Awokenings, however, were followed by progress either stalling out or worsening along the very measures the woke seemed to be dedicated to improving. Thus, al-Gharbi says, “There have been shocking reversals across all of these dimensions since” the second Awokening, and the symbolic elite taking the reins of social institutions “has been accompanied by stark declines in equality, social cohesion, and civic participation. The first Great Awokening did little to enhance the pre-1960 ‘upswing,’ and subsequent Awokenings seem to have done even less to halt or reverse the post 1960s declines.” Public opinion has shifted in a much more tolerant direction and away from racism or sexism. Nonetheless, al-Gharbi says, there’s no evidence that any of the Awokenings did anything to create this increase in tolerance and acceptance, or to accelerate it: There is no meaningful relationship between Awokenings and material gains for marginalized and disadvantaged populations, nor is there a meaningful connection between Awokenings and durable changes among the general public. If anything, there has been an inverse relationship between Awokenings and material “progress” from the second Awokening forward. But this doesn’t mean Awokenings don’t have long-lasting effects in other domains. Because elites use Awokenings to raise their own status and take the reins of power in institutions, Awokenings create new rounds of institutional capture by the woke and the elites, and the effects of this are long lasting: Although Awokenings do not seem to be responsible for generating major transformation in society writ large, they often do produce significant and durable changes within symbolic capitalist institutions…Yet, rather than enhancing the position of those who are significantly disadvantaged in society, these opportunities primarily benefit elites from the target populations. Awokenings also provide opportunities for entrenched bureaucracies to expand their own power and influence: Corporate HR departments and their ever-expanding rules and administrative processes began proliferating after the second Great Awokening. They have leveraged every subsequent Awokening to expand their institutional influence… The second Awokening likewise corresponded with the birth and proliferation of administrators to curate and managed diversity at postsecondary institutions, elite K-12 schools, and increasingly the private and nonprofit sectors. These positions have also seen major expansions in the aftermath of each Awokening. Their ranks have swelled to the point that, today, many colleges and universities have nearly as many noninstructional staff as they have undergraduate students, and in some cases more. But just as social justice activism as practiced by the woke seems to have little to do with actually bringing about the ostensible aims of social justice, these new expansions in administrative power also seem to be somewhere between ineffectual and actively counterproductive to their supposed purpose: Nonetheless, it is unclear what (if any) good is being accomplished by this ever-expanding constellation of social justice sinecures beyond providing practitioners with gainful employment. Many of the programs associated with these DEI roles (such as diversity training) are demonstrably ineffective with respect to their stated goals. The proliferation of diversity bureaucrats has corresponded with a significant increase in social inequality and decreases in social solidarity, as highlighted in the previous section… However, as a function of perverse incentive structures within these fields, unfortunate social trends may be good for business. A lack of progress or worsening conditions are not typically interpreted as evidence that DEI-oriented positions and programs are unnecessary or unhelpful. Rather, they often serve as a pretext to demand still more institutional power and resources for DEI professionals. As discussed previously, symbolic capitalists frequently use regulatory capture to erect strong barriers to entry into their professions, both increasing their economic power and serving as a buffer to keep people from insufficiently elite backgrounds from joining their ranks. These barriers, too, tend to ramp up during Awokenings, and this creates a ratchet effect where more and more people are shut out of upward mobility – in the name of social justice. This institutional capture among elites also allows entrenched elites to use tools established in the name of social justice to protect their own position and keep would-be rivals in their place: Under the auspices of promoting social justice, many symbolic capitalist spaces have become “hotbeds of craven snitches” where elites weaponize resources established to protect and support those who are genuinely marginalized, disadvantaged, vulnerable, or victimized in order to settle personal vendettas, gain the upper hand in institutional power struggles, or purge political and ideological opponents… Defenders of what has come to be referred to as “cancel culture” often attempt to portray the phenomenon as folks from less advantaged backgrounds holding the “privileged” to account. In fact, the people engaged in these practices are typically themselves elites or aspiring elites. Again, symbolic capitalists tend to be among the most sensitive and most easily offended sectors of U.S. society. The end result is that cancel culture most often results in either elites keeping down members of the working class, on rarer occasions, elites using these tools to displace someone even more elite than themselves: It is elites who are raised from a young age to understand and learn how administrative systems and processes work, allowing them to know which levers to pull to get people fired or disciplined, even on false or exaggerated charges, while minimizing repercussions or blowback for themselves. It is elites who feel comfortable folding authorities and third parties into their personal disputes, believing that these institutions, processes, and professionals exist to serve their interests (not wrongly), and that the system will typically work to their advantage (not wrongly). It is people from elite backgrounds who simply expect institutions and their representatives to accommodate their personal preferences, priorities, and perspectives—and who will demand to “speak to the manager” when they don’t, and who know how to “speak to the manager” to get what they want. These kinds of knowledge, dispositions, and behaviors toward institutions are part of the “hidden curriculum” of elite childhoods, elite education, and elite culture. Consequently, while there are many cases of elites “canceling” working class people, there are not many cases of non-elites successfully cancelling elites. Even in cases of “punching up,” what is characterized as “holding the privileged to account” is generally an instance in which some faction of elites has managed to purge or inflict damage on someone even better positioned than themselves. Much like cricket or lacrosse in the United States, cancellation is primarily an elite sport. Another long term effect of Awokenings is a loss of trust in institutions by the majority of people. As al-Gharbi extensively documents, the views, goals, and priorities of woke elites tends to be wildly out of step with the very people the woke claim to be seeking to uplift, as well as the views of non-elites more generally. This actually tends to produce a backlash against the views of the woke. The woke tend to explain away this backlash as the “distress of the privileged” – they say the backlash is driven by the rage of racist, sexist white men who are resentful about the improving situation of women and racial minorities created through woke activism. However, al-Gharbi points out this self-serving explanation simply doesn’t match reality: But what this means with respect to interpreting the culture wars is that, when Americans shift right in the aftermath of Awokenings, they are generally not reacting against material changes that benefit marginalized populations at the expense of the majority group. Those have been few and far between and don’t cleanly correlate well with Awokenings in any case. The “backlash” instead seems to be about growing alienation among “normies” from elite culture and elite institutions, whose outputs shift far more during Awokenings than any laws or relative material circumstances between groups. The woke recognize how the values they espouse are out of step with those of most ordinary Americans – but openly interpret this as a simply being a result of their own intellectual and moral superiority: Symbolic capitalists broadly recognize that our political views and sensibilities are different from those of most other Americans. Our preferred narrative to explain these gaps is to appeal to our “superior” knowledge, intelligence, and credentials. The “normies” don’t fail to notice the highly condescending attitude the elites harbor toward them, and this creates significant resentment: Moreover, mainstream symbolic capitalists tend to interpret deviance from, or resistance to, our own preferences and priorities in terms of pathologies (racism, xenophobia, sexism, homophobia, authoritarianism, reactionary closed-mindedness, ideological zealotry, and dogmatism) or deficits (lack of information or education; lack of cognitive sophistication or capability; lack of imagination, empathy, or perspective). This is not hyperbole; it is quite literally the case. Entire lines of scholarly research and journalistic reporting are oriented around determining which pathology or deficit best explains why people deviate from the preferred positions of symbolic capitalists. Huge industries have sprung up trying to exploit big data, predictive modeling, and advances in the cognitive and behavioral sciences in order to “nudge” people into behaving in ways that symbolic capitalists think they “should.” Government and non-profit programs are full of restrictions and requirements that convey that others cannot be trusted to make responsible decisions on their own. Inconvenient social movements are typically explained in terms of some noxious counterelite (e.g., Trump, the Koch brothers, Fox News) “brainwashing” and “duping” an easily manipulated public into pursuing the “wrong” ends. This distrust also impacts scientific institutions, particularly as scientists explicitly use their mantle as scientists to support political activism: In the aftermath of the second and third Great Awokenings, we see significant drops in public trust in scientists. And woke elites also created a loss of trust in institutions by expressing outright antagonism towards the values of “normies”: Within the new elite class, people gained status through delegitimizing and denigration institutions, traditions, values, and ways of life associated with the middle class… Again, symbolic capitalists are generally much further to the left on “culture” issues than most Americans – and Awokenings drive them to stake out positions that are even further out of touch with the rest of their countrymen. Woke elites will tend to denigrate the institutions valued by the normies, even as they themselves continue to take advantage of those very institutions. One example al-Gharbi gives is the traditional family: Indeed, although symbolic capitalists are the Americans most likely to disparage “traditional families,” they are also among the most likely to have hailed from “traditional families” themselves, and to establish “traditional families” of their own. And not for nothing: family structure, sequencing, and stability can make a huge socioeconomic difference in one’s own life trajectory and earning prospects—and for those of one’s children as well… In light of these realities, it’s striking that symbolic capitalists so regularly and conspicuously denigrate to others the very strategies they use to ensure their own socioeconomic prosperity—and typically in the name of social justice, no less! Awokenings, then, appear to do little to accomplish any of the goals ostensibly desired by the woke, and often actually cause progress along those lines to flatline or reverse, while also disrupting social cohesion, undermining public trust in institutions, and allowing elites to further entrench themselves in institutions and create new barriers to upward mobility for non-elites. A striking demonstration of this can be seen in situations where progressive elites have the most institutional control. You might assume that in these places, the goals and values professed by such people would be the most prominently realized. But this is not the case. Speaking of areas thoroughly under the long-running control of progressives, al-Gharbi writes, Now, given the current concentrations of financial and cultural capital into these areas – which are controlled by Democrats to an extent that it approaches one-party rule – it is actually well within the power of mainstream symbolic capitalists and their copartisans to significantly upend the distribution of wealth and opportunity in the United States purely through how they allocate their own resources, manage the organizations and institutions they are embedded in, and leverage large city and state governments that Democrats firmly control. And yet, the regions symbolic capitalists dominate also happen to be the most unequal places in the United States – with an ever-growing share of denizens classifying as either extremely well off or impoverished. Strongholds of progressive control, al-Gharbi writes, are places marked by the highest levels of both poverty and income inequality, and are among the most racially segregated places in the country. He cites California and New York City as examples of places that are rich, highly educated, full of millionaires, and have both been a “Democratic bastion for decades,” yet they have the highest poverty rates in the nation and highest levels of both income inequality generally and racial inequality specifically. New York also has the “ignoble honor of possessing the most racially and ethnically segregated school system in the United States.” Thus, areas where the woke have the most control, and can implement their preferred policies freely and unchallenged, tend to produce results that are the worst by the standards of the woke themselves: As New York Times economic analyst Binyamin Appelbaum put it, “Blue states are the problem: Blue states are where the housing crisis is located. Blue states are where the disparities in education funding are the most dramatic. Blue states are the places where tens of thousands of homeless people are living on the streets. Blue states are the places where economic inequality is increasing most quickly in this country.” Despite Democrats describing Republican efforts to restrict the ballot as “Jim Crow 2.0,” blue northeastern states also happen to have some of the heaviest voting restrictions in the country. Another consequence of Awokenings is the rise of what al-Gharbi and others have described as “victimhood culture.” We’ll look at what victimhood culture is, and how it interacts with the ideas of the woke, in the next post. (0 COMMENTS)

Short Version: it’s bad, even by the preferred metrics of protectionists. On July 23, US and Japanese trade negotiators reached a deal on tariffs, investments, and other international transactions.  Much has been written about how bad the deal is from a standard economic perspective (see, for example, here).  But President Trump and his administration, who negotiated the deal, are mercantilist.  So here, I evaluate the trade deal from the mercantilist perspective, focusing primarily on the trade deficit. A few notes first: Details of not only this deal, but the others negotiated, are sketchy and subject to dispute.  In order to give the Trump Administration the benefit of the doubt, I will be using their announced conditions. These are not deals in the traditional sense of legally binding agreements.  As best we can tell, they are verbal assurances of a potential framework for a legally binding agreements down the line.  But, for the sake of argument, I will treat this deal as if it were a formal, legally binding agreement between the two nations. With the preliminaries out of the way, let us begin. Trade Deficit For mercantilists in general, and President Trump in particular, a trade deficit is a major concern.  Indeed, for the Trump administration, it is the overriding concern.  He invoked the authority to do these deals by declaring the mere presence of a trade deficit to be a national emergency. Therefore, let us begin our analysis by looking at what effect this deal will have on the trade deficit. This deal will necessarily increase the US trade deficit with Japan.  Part of the deal is a $550 billion investment by Japan into the United States.  When a foreign investor invests in the US, that necessarily increases the trade deficit, because that is how the transaction is recorded in the National Income Accounts.  So, this investment part of the deal will increase the trade deficit. Furthermore, the Japanese will need US dollars to accomplish this investment.  The only way they can get those dollars is by selling goods to Americans.  That means American imports from Japan will necessarily have to rise, and American exports to Japan will necessarily either not change or fall.  Since a trade deficit is defined as when exports are less than imports, under this scenario, the trade deficit must rise. There is another, indirect way in which the trade deficit will likely worsen.  The US tariff on Japanese cars is now 15%.  US automakers face a rash of higher taxes, including steel tariffs (50%) and auto parts tariffs (various).  Japanese automakers do not face such tariffs.  Consequently, Japanese imported cars will now be relatively cheaper than their American-made competitors.  On the margin, Americans will purchase more imported cars than domestic cars.  Similarly, American auto exports to Japan are now relatively more expensive, which will reduce exports.  Again, the trade deficit rises. Thus, given the mercantilist concern about the trade deficit, this deal is a bad one. Protecting Jobs A lesser concern for mercantilists is protecting jobs.  The effect the deal will have on jobs is ambiguous.  Assuming the investment deal goes through and doesn’t turn into a significantly scaled-back project like Foxconn, some jobs will be created in the United States, intended to be in LNG exports.  But, as discussed above, American auto manufacturers now face significant competition from Japanese auto firms.  And so, some jobs will be created.  Others, destroyed.  The net effect is probably close to zero.  Thus, from the mercantilist perspective on jobs, this deal is potentially bad, especially since autoworkers are another industry the American mercantilists wish to protect. Conclusion Other details of the deal are still obscure, so there is not much more to write.  But, given the information we do have based on the announcements from the Trump Administration, this is a bad deal by their own metrics. (0 COMMENTS)

Timothy Taylor, at Conversable Economist, had a post on August 13 titled “What Economic Ideas are True and Nontrivial?” He starts with a famous story that Paul Samuelson told and I’ll quote it here: [O]ur subject puts its best foot forward when it speaks out on international trade. This was brought home to me years ago when I was in the Society of Fellows at Harvard along with the mathematician Stanislaw Ulam. Ulam, who was to become an originator of the Monte Carlo method and co-discoverer of the hydrogen bomb, was already at a tender age a world famous topologist. And he was a delightful conversationalist, wandering lazily over all domains of knowledge. He used to tease me by saying, ‘Name me one proposition in all of the social sciences which is both true and non-trivial.’ This was a test that I always failed. But now, some thirty years later, on the staircase so to speak, an appropriate answer occurs to me: The Ricardian theory of comparative advantage; the demonstration that trade is mutually profitable even when one country is absolutely more – or less – productive in terms of every commodity. That it is logically true need not be argued before a mathematician; that it is not trivial is attested by the thousands of important and intelligent men who have never been able to grasp the doctrine for themselves or to believe it after it was explained to them. Tim keys in on the last sentence in the above Samuelson quote. He writes: If the “non-trivial” criterion can be met by any economic theory where thousands of intelligent and important people are unable to grasp or believe it, then it seems to me that many economic theories are true and (apparently) non-trivial, including the (apparently) widespread belief that governments can set prices or impose tariffs without experiencing tradeoffs, along with many more. The news headlines provide examples of (apparently) intelligent and important people who seem unable to grasp or believe economic insights pretty much every day. I think Tim means that the true statement is that a government that sets prices and imposes tariffs will experience tradeoffs. That reminded me of a question that Armen Alchian and William Allen asked in their economics textbook University Economics. I came across it when I was TA-ing for an introductory microeconomics course during my first year at UCLA. Here’s question #21 from Chapter 13 of the third edition of University Economics (p. 21): Evidence of the very extent of specialization of knowledge is provided by Albert Einstein’s assertion just prior to his death (Socialist International Information): “The economic anarchy of capitalist society as it exists today is in my view the main cause of our evils. Production is carried on for profit, not for use.” Give evidence of your superiority over Einstein by exposing his error in economic analysis. I won’t bother answering their question because I think that, especially to readers of EconLog, the answer is obvious. I’ll give another one. We often see apparently intelligent people, observing that the share of income of the bottom 20% has fallen, argue that the poor are getting poorer. There are two problems with this. The more obvious is that the share of a growing income can be falling but the average incomes of people in that lowest quintile can be rising. The second, and less obvious, is that the people in the lowest quintile in one year are not all the same people in the next year. And over a decade, there is huge mobility among income quintiles. (There’s a third problem also: income, though positively correlated with wealth, it not perfectly correlated. Someone can be in the bottom quintile of income and still be fairly wealthy.) Note: The related pic is of Universal Economics, an update of the old Alchian and Allen text. (0 COMMENTS)

In the 1960s and 1970s, a fashionable idea, at least among the Western intelligentsia, was the convergence between socialism (read: communism) and capitalism. Even less obvious than today was the true distinction between, on one side, a regime of individual and private choice and, on the other side, a system of collective and political choice. Most people believed instead that the main line of fracture was between capitalism (i.e., the Right and the United States) and communism (i.e., the Left and the Soviet Union). Few saw that the convergence going on was about the supremacy of collective choices (whether of the Left or the Right) swallowing up the (classical liberal) philosophy of individual choices. At that time (in illo tempore), a whole literature developed on the convergence of capitalism and communism. In Gregory Grossman’s Economic Systems (Prentice Hall, 1967), I just reread what I then underlined (pp. 112-113): In the past, these kinds of planning and steering were instituted too rigidly in the East and perhaps too loosely in the West; some future convergence on this plane is not at all unlikely. (The already-mentioned considerable similarity between French and Yugoslav planning may be a case in point; they are, so to say, on the frontiers of capitalism and socialism, respectively.) … While the Soviet-style East moves towards less rigid economic control by central authorities, and while the West is searching for more effective forms of social control, both sides are beginning to look forward seriously to the problems of higher productivity. (In the roaring sixties, many believed that people could be totally free if the state were absolutely powerful, an idea recently rediscovered by a couple of economists who went on to win a Nobel prize.) Forward to the present, the convergence has been progressing much faster, albeit not less stealthily. America has joined the race with a vengeance. A column of Greg Ip in the Wall Street Journal makes the point in different terms (“The U.S. Marches Toward State Capitalism With American Characteristics,” August 11, 2025); the whole piece is worth reading, but a couple of quotes will give its flavor: A generation ago conventional wisdom held that as China liberalized, its economy would come to resemble America’s. Instead, capitalism in America is starting to look like China. … This isn’t socialism, in which the state owns the means of production. It is more like state capitalism, a hybrid between socialism and capitalism in which the state guides the decisions of nominally private enterprises. Of course, even from a narrow economic viewpoint, the pursued primacy of collective choices remains as much an illusion as it was more than half a century ago. Greg Ip notes: Chinese state capitalism isn’t the success story it seems. Barry Naughton of the University of California, San Diego has documented how China’s rapid growth since 1979 has come from market sources, not the state. (0 COMMENTS)

As I mentioned in my last post, Musa al-Gharbi argues that the post-2011 Awokening – that is, the rise of social justice activism and the escalating adoption of social justice ideology among the symbolic capitalist class – was not an unprecedented event. He argues that Awokenings have occurred before and have taken largely similar form. This shouldn’t be overstated – each Awokening was not identical to another, but as Mark Twain might say, they all rhymed. The first wave Awokening, al-Gharbi says, “peaked toward the 1920s and crested through the early 1930s.” This first Awokening saw symbolic capitalists “campaigning for civil rights” while others “aligned themselves with feminists” and “the first gay rights advocacy organizations were also formed at this time.” In addition, there was an increase in support for socialism and protests against military action. There was a second wave Awokening movement from the mid 1960s to the early 1970, with a third wave from the late 1980s to the early 1990s, with the fourth Great Awokening rising in 2011. The content of each of these Awokenings was very similar – a spike in concern among the symbolic capitalist class regarding racism, economic inequality, poverty, the rights of sexual minorities, and against the establishment. But what motivated the symbolic capitalists – the elites of the established order – to rise up at these times in protest against the established order? Musa al-Gharbi’s answer is that Awokenings come about as a result of what he calls “elite overproduction.”  As he describes it, Elite overproduction occurs when a society produces too many people who feel entitled to high status and high incomes relative to the capacity of that society to actually absorb elite aspirants into the power structure. Under these circumstances, growing numbers of frustrated erstwhile elites grow bitter toward the prevailing order and try to form alliances with genuinely marginalized populations in order to depose existing elites and install themselves in their stead. This is also why, as I alluded to in my previous post, it takes a specific kind of “hard times” to produce an Awokening. When times are hard for the people at the bottom but good for symbolic capitalists, the latter have no real reason to rock the boat. When times are hard for the professional class but relatively good for ordinary people, the general public will tend to “care even less about elite problems that they otherwise would.” And because during these time the majority of the population feels things are going well, “concern about social justice issues tends to recede into the background” and this has the effect of “constraining the ability of frustrated elites and elite aspirants to leverage social justice discourse in service of their own ends.” But there is a particular combination of events where things change: However, there are occasional moments when the trajectories between elites and nonelites are partially collapsed—when things have been bad and getting worse for ordinary folks for a while and are suddenly fraught for symbolic capitalists too. These are moments when Awokenings tend to occur. When things have been bad for ordinary folks, social justice concerns begin to rise among the population in general: Narratives indicting the prevailing order and the people at its helm are already taking off. Perennial campaigns, such as women’s rights movements or racial justice movements, which generally fall into abeyance patterns during times of prosperity, begin gaining new traction among a broader swath of society. When the professional class also feels the stress, these rising movements become opportunities for them to challenge the system they believe has failed to provide them with the status and security they feel they deserve. The scorned elites or elite-aspirants also experience “frustration toward those who are enjoying success and apparent security.” Those elites, they say, are corrupt and need to be replaced by better people – people like us. This frustrated branch of the professional class begins to form an alliance with existing social justice movements. But in short order, their membership in the alliance quickly becomes their attempt to control it: However, these newly mobilized symbolic capitalists are rarely content to be mere foot soldiers or subordinates in social movements. They’re elite aspirants, after all. And in virtue of their ostensibly superior knowledge and skills, they often see themselves as uniquely well suited to determine the ideal aims and tactics of movements. This, in turn, leads the social justice movements in directions that have little to do with the actual well-being of those such movements are supposed to help: And as symbolic capitalists become conspicuous faces and voices of social movements, they generally define and pursue the cause in ways that flatter their own sensibilities and serve their personal interests. This is commonly to the detriment of the genuinely marginalized and disadvantaged in society because the preferences and priorities of symbolic capitalists tend to be demonstrably out of sync with those of the people they are ostensibly speaking for and advocating on behalf of. One example al-Gharbi gives is how, in the most recent Awokening, social justice activists would pour tremendous time, energy, and resources into removing the names of disfavored historical figures from schools and renaming those schools after the “right” people, as preferred by symbolic capitalists. Yet, as al-Gharbi points out, “if nonwhites who live in the affected communities had been consulted about their top concerns, it would have been clear that the name of the local school would not rank anywhere near the top of their priorities.” Their primary concerns were much more pedestrian issues like whether or not they’d be able to afford groceries to feed their children. However, “rather than addressing those concerns, or even bothering to find out what those concerns are, mainstream symbolic capitalists focus on securing symbolic victories” rather than focusing on issues that actually mattered to the “normies.” This dynamic also shows something that is not commonly understood about Awokenings. It’s often spoken as if Awokenings come about as grassroots movements – those at the bottom, frustrated about their difficulties, spontaneously organizing and rising against the system. But al-Gharbi argues that the Awokenings and the social movements that rise during them are fundamentally movements of elites (or elite-aspirants) who wish to become even more elite, not of the masses. For example, one of the first movements to rise in prominence during the most recent Awokening was Occupy Wall Street. One might look back at this movement and imagine it was a movement of the poor rising in frustration against their poverty. However, Contrary to depictions of Occupy as a broad-based movement, symbolic capitalists were its primary base. For instance, despite the diversity of the city, participants of Occupy demonstrations in New York were overwhelmingly non-Hispanic white. They were nearly uniformly liberal in their political orientations. They were also relatively affluent: roughly three-quarters (72 percent) of participants came from households above the 2011 New York City median. The Occupy movement was a movement of highly educated professionals frustrated that they hadn’t been able to secure the high prestige, high paying jobs they expected and felt they were entitled to. Similar demographics were found in the post 2016 #Resistance movement, an umbrella term describing “the March for Science, the Women’s March, and the March for Racial Justice” among others. Looking at the makeup of these movements and their attendees, we find they were “overwhelmingly concentrated in knowledge economy hubs, just like Occupy protests were. The average adult age of the demonstrators was thirty-eight to forty-nine years old. Far from being a project of passionate young people, the #Resistance movement comprised primarily of midcareer professionals associated with the symbolic economy. The Occupy crowd, but half a decade later.” Just like Occupy transitioned to the #Resistance, frustrated elites began a long march through social justice causes: As the initial (Occupy) movement fizzled out, roughly the same constituencies began mobilizing alternative modes of social justice discourse, largely toward the same ends. Many who spent 2011 shouting “We are the 99 percent” spent 2013 proudly declaring that “Black Lives Matter,” identified as part of the #Resistance under Trump, began telling #MeToo stories in 2017, and became “trust the science” stans from 2018 through the COVID-19 pandemic. It’s all been part of the same wave of activism among mainstream symbolic capitalists. Occupy in particular served one other key purpose for these frustrated elites with its branding. Casting the struggle in terms of the 99 percent vs the 1 percent allowed these elites to act as though what would be beneficial for them was really about what would be good for the poor or needy, as though merely being in the ninety-seventh percentile of wealth made you basically the same as someone living at the edge of poverty. As al-Gharbi puts it, “Rather than advocating for concrete policies that could tangibly assist the marginalized or disadvantaged in society, or developing some actionable platform that could help promote broad-based prosperity, the movement was primarily focused on villainizing those above symbolic capitalists on the socioeconomic ladder.” Symbolic capitalists, while well off, are not the superelite of society. Symbolic capitalists usually hold the wealthiest members of society in low regard, and have “consistently condemned superelites as selfish, short-sighted, and insufficiently deferential to people like ourselves.” Citing the work of Max Weber, al-Gharbi describes this disdain: As sociologist Max Weber emphasized, elites who hold social status in society on the basis of attributes like their knowledge, skills, or institutional rank tend to be resentful and disdainful toward those who enjoy a high social position primarily on the basis of their business success and accumulated wealth. It has always been our strong conviction that society would be vastly improved if people listened to and admired millionaires and billionaires less and valued the perspectives of intellectuals more. These sentiments are heightened, Weber argued, when symbolic capitalists find their own status or socioeconomic position threatened or particularly precarious. During these periods, we become much more likely to rail aggressively against capitalism and the superrich—often cloaking our struggles for wealth, status, and power as social justice advocacy—although our passion for revolution tends to rapidly fade once our own objectives are met… Highly educated and wealthy activists used the framing of Occupy to portray themselves as on par with the “little guys,” just as much under the thumb of the superrich as the poor. However, one must not overestimate the power of these superelites compared to symbolic capitalists. As al-Gharbi goes on to describe, for all the railing against the 1% that the professional class uses, the symbolic professions are hardly helpless against the power of the extremely rich: We shape the system in accordance with our own tastes and desires, independent of, and sometimes in conflict with, the preferences and priorities of superelites…What’s more, even when superelites try to outright dominate us, they often lose. He gives the example of a struggle for power between the symbolic capitalists who operated the Ford Foundation, and the will of the actual Ford family. During the second Great Awokening, the symbolic capitalists began to use the Ford Foundation as a vessel for their own social justice activism, turning it away from its original “mission of supporting hospitals, museums, and basic science” as initially intended. Henry Ford II tried to assert his control over the situation, only to be pushed out of the organization bearing his family name by the symbolic capitalists nominally under his control. As al-Gharbi sums it up, “The Fords went to war with symbolic capitalists in their own family foundation. The symbolic capitalists won.” So why do Awokenings end? Recall how al-Gharbi said “our passion for revolution tends to rapidly fade once our own objectives are met.” Awokenings are caused when enough frustrated elites fail to achieve the status and security they expect. This also means as the situation for these frustrated elites improves, and they find themselves gaining the highly prestigious and financially secure positions they expected, their motivation for activism fades away. And so, too, does the Awokening. For example, the first Awokening al-Gharbi identifies occurred in the late 1920s to the early 1930s. As described in the previous post, the years leading up to this first Awokening saw the rise of technocratic power in both state and corporate entities and the establishment of symbolic capitalists in these powerful and high status positions. These new elites took steps to ensure their positions were safe: As the symbolic professions were being consolidated, and their positions elevated, educational and certification requirements were increasingly used as barriers to lock out minorities, immigrants, and the poor. But there came a disruption: Then, the Great Depression hit. Suddenly, many who had taken for granted a position among the elite, who had felt more or less entitled to a secure, respected, and well-paying professional job, found themselves facing deeply uncertain futures—especially because layered on top of the economic insecurity were profound geopolitical concerns… Consequently, rather than enjoying the secure and comfortable lives they had imagined for themselves, aspiring elites were facing the prospects of downward social mobility (as a result of the Depression) and possible deployment into a war. The anxiety, frustration, and looming socioeconomic humiliation of elite aspirants quickly curdled into rage against existing elites and the society that failed them. As one college magazine editorial bluntly put it, “Educated for jobs that do not materialize, students will grow resentful towards the existing order and will use the learning they have acquired to overthrow it.” The result was the first Great Awokening. But FDR’s programs in particular were very beneficial to these insecure elites – it provided them with new positions of power among the multitude of agencies and bureaucracies FDR created, securing their situation. And despite the continued hardship the Depression continued to inflict on the normies, this improvement in the situation of the elites was, it turns out, enough to cause the first Awokening to fizzle out: Contrary to their radical rhetoric, they wanted relatively high-status jobs and socioeconomically comfortable lives far more than they wanted to actually overthrow the existing order. And the Roosevelt administration provided what they wanted. By the time FDR stood for reelection for the first time, the New Deal was well underway. Major expansions of the government bureaucracy provided elite workers with stable, respected, and well-paying positions… Civil rights and feminism did not consume their efforts or attention much. Socialism and communism no longer held much purchase with them. The “radicals” of the 1930s became the establishment that protestors would later rebel against in the 1960s and 1970s. The same occurred with each subsequent Awokening. As circumstances got better for the professional elites, their commitment to social justice activism and woke ideology took a backseat or disappeared altogether, and the Awokenings withered away – regardless of whether or not things actually got any better for the communities these social justice activists were ostensibly trying to support. Still, this leads to another important question – what, if anything, are the long-term consequences of Awokenings? Do they actually create long lasting impacts, and if so, are the results beneficial or deleterious? That will be reviewed in the next post. (0 COMMENTS)

President Trump signed the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act) into law on July 18th, promising to “cement American dominance of global finance and crypto technology.” In his post-signing speech, the president explained, “the GENIUS Act provides banks, businesses and financial institutions, a framework for issuing crypto assets backed one for one, with real us, dollars, treasury bills and other cash equivalents, is really strengthening the dollar and giving the dollar great prominence [sic].” Trump declared that the Act “creates a clear and simple regulatory framework to establish and unleash the immense promise of dollar backed stablecoins.” USD stablecoins have been in existence since the 2014 launches of Tether and BitUSD, but they’ve gained prominence in the last few years with an increasing number of issuers and widening acceptance. With the supportive regulatory environment of the GENIUS Act, they should surge in popularity and gain wide usage and acceptance.  I’ll briefly address the uses and ostensible benefits of stablecoins, but I want to focus on what I think is the most exciting feature, which is their potential to herald a renewal of free banking.   Why Stablecoins? Most Americans find it extremely convenient to transfer money or make payments by tapping a debit or credit card. Indeed, in the US about 85% of payments (by number), and 96% of payments (by value) are made via these kinds of bank-to-bank transfers. Investopedia has a nice explainer on ACH—the Automated Clearing House—for  those interested in the nuts and bolts of interbank payment processing. But are there any drawbacks to using this ubiquitous bank-issued money? Plenty. Let’s start with fees: Banks charge fees ranging from a few dozen cents for debit transactions to over 3% for credit card sales. Next is timing: although most payments settle on the same day, larger payments often take days to clear, and wire transfers must be executed during business hours. Regulations requiring banks to scrutinize transactions (especially large sums) for criminal activity also drive these fees and delays. Finally, to use a debit/credit card, check, or wire transfer, both payer and payee must be “banked.” This is not too big of a problem in the US, where only about 4% of the population, or 5.6 million households, don’t have bank accounts. Globally, however, 24% of the population is unbanked, and this proportion is higher of course in undeveloped countries with weak legal institutions. More people have smartphones than have bank accounts in these places, which means stablecoins can step up and solve the cost, timing, and network problems all at once. Stablecoin transfers on their respective blockchains can be consummated instantly and with zero or negligible fees. Stablecoins can be transferred anonymously to anyone with a crypto account “wallet,” which does not require a bank account and is easily accessible in a competitive crypto-custody marketplace. Stablecoins, therefore, are particularly useful for foreigners who wish to transact in dollars, but lack access to US bank accounts. Stablecoins will facilitate both dollar remittances abroad, and foreign flows of capital into the US economy.   Stablecoins and Free Banking Stablecoin issuers are essentially banks. While they don’t (for now) lend out the money they take in, they perform the money-provision and payments system roles of banks. As several commentators have noted—mostly with disapproval—this is reminiscent of the “free banking” era, in which banks were able to issue private currencies denominated in their countries’ monetary units. In historical free banking systems, most of the functional money supply was provided by private banks, in the form of banknotes (currency) and bank deposits (checking accounts). Stablecoins are “backed” by either regular bank deposits or US Treasury securities—indeed the GENIUS Act requires 100% backing of stablecoin issues with one of these forms of liquidity. Free bank notes in the 1700s-1800s were “backed” by each bank’s specie reserves of gold and silver coins, and banks could and did issue more total liabilities (notes and deposits) than their specie reserves. This “fractional reserve” practice has led to much consternation among certain analysts, but leading scholars have found that free banking systems in Scotland, Canada, the United States and elsewhere were stable and successful. This is particularly remarkable in the US case, as state-level regulations, aimed more at governments’ fiscal goals than at monetary stability, allowed some fraud and unsound banking practices to prevail for a time in some areas. Free market skeptics wrongly uphold these “wildcat” banking episodes as emblematic of the entire system. But as Minneapolis Federal Reserve researchers Arthur Rolnick and Warren Weber noted in an overview of America’s free banking era, Free bank notes were relatively safe, although the degree of safety varied over states and over time within a state. New York bank notes were the safest; the expected value of a randomly selected New York bank note never fell below 99 cents on the dollar, and for many years this expected value was one dollar. (Leading monetary scholar Lawrence White provides an excellent overview of free banking theory and practice in this podcast.) So what prevents banks from simply lending excessive amounts of banknotes into existence, causing inflation and/or destabilizing the economy? Simply the core “regulation” of free banking: enforced redemption of banknotes (and other bank liabilities), on demand, for the underlying monetary asset. Any bank that over-issues inside money will see the notes “flow back” for redemption, draining its reserves and forcing it to curtail credit—the corrective mechanism that scholars label the “law of reflux.” Competition and the market mechanism winnow the field and ensure performance and customer satisfaction. Banks that don’t keep adequate reserves nor prudently manage their loan portfolios will risk losing customers and their funds (deposits) to more soundly-managed institutions. More than merely efficiently satisfying customers in a competitive financial services market, free banking helps achieve “monetary equilibrium” and can avoid the problems associated with both over-issue of money (inflation, boom and bust) and stringency of money (deflation, depression). This is because free banks respond to market signals to increase or curtail the issuance of bank money, providing an “elastic” money supply which can expand or contract to meet the exact needs of businesses and the public. In other words, supply of money can adjust to meet changes in demand for money, eliminating the prospect of monetary shocks and consequent macro turmoil. Moreover, with strict redemption of bank-issued forms of money, free banking obviates need for government intervention such as deposit insurance and central banking, with their attendant moral hazards. In pure free banking, market discipline rules and imposes the responsibility of due diligence and risk management on both suppliers and demanders of money and credit. Opposition to Stablecoins Not everyone shares President Trump and the crypto bros’ optimism about stablecoins. Objectors raise two main arguments: Instability: won’t “fly-by-night” stablecoin operators be at risk of not being able to redeem stablecoins—i.e. they won’t have the underlying dollars, and if faced with a “run” on their coins they will have to shut down, leading to widespread panic and destabilizing the financial system? This view is promoted by mainstream economists such as Barry Eichengreen and Gary Gorton, who both smear stablecoins as a reiteration of the worst “wildcat” free banking episodes.  Nefarious activity: due to the anonymity of crypto, stablecoins enable criminal activity, money laundering, etc.  On the stability point: the free banking naysayers really need to check the literature on free banking before casually repeating bromides about wildcat banking. As noted above, free banking systems in Canada and Scotland were remarkably stable, and American free banking, despite serious flaws in regulatory structures, was more stable than mainstream scholars care to admit. The worst “wildcat” frauds were confined to a few states for a few years and only happened due to absurd regulatory loopholes that were quickly closed. On the criminality point: yes, criminals will use stablecoins, just like criminals use cash. Law enforcement is always playing a cat and mouse game with the crooks, and stablecoins will surely add some new challenges. I’m not convinced, though, by the argument, “we can’t allow this cost-saving, brilliant new technology, because bad guys will use it to facilitate crime.” The same could be said for any innovation, from cars to phones to the internet in general.  Of course, stablecoins today are layered on top of an entrenched monetary system, with the fiat US dollar, the Federal Reserve and its helicopter drops of new base money, federal deposit insurance, and a pile of banking regulations from 4 federal and 50 state regulatory agencies. Stablecoins cannot replace all of this with a pristine free banking system. Stablecoins can, however, bring a new facet of freedom and efficiency for one of most important aspects of the financial system: the provision of money that facilitates everyday business.  In sum, stablecoins have immense potential to serve as digital banknotes for the 21st century. Stablecoins can provide full elasticity of money supply, while end-running some meddlesome, costly bank-based regulations regarding other payment media such as deposits. Stablecoins can reduce the costs and increase the benefits of the money we use daily. Stablecoins have potential for greater positive impact than the advent of credit and debit cards.    Tyler Watts is a professor of economics and management at Ferris State University. (0 COMMENTS)

The Economist has an interesting article speculating that the red state advantage in housing affordability may be about to shrink: But what if red states’ cheap-housing advantage were to start shrinking? That may already be happening in places: a study by Edward Glaeser of Harvard University and Joseph Gyourko of the University of Pennsylvania published in May found that new homebuilding in big sunbelt metro areas such as Atlanta, Dallas, Miami and Phoenix has dramatically slowed, leading to higher prices. And on June 30th Mr Newsom signed a reform to make it harder for NIMBYs to block new housing in California, which could eventually make living there more affordable. We need to be cautious in making prediction on this issue.  In previous posts, I’ve argued that reducing the number of regulations that prevent home building may not actually make new construction much more feasible, especially if many regulatory barriers remain in place.  Thus, I’m not at all convinced that California has effectively addressed its housing problems.  Nonetheless, it’s worth thinking about the implications of this possible shift: If the red-state house-price advantage were to shrink a lot, the consequences would be widely felt. The most dynamic cities in blue states have very high wages, and California has weather “like the Garden of Eden”, says Mr Armlovich. If such places actually made it easy to build, the exodus from blue states to red could reverse, he reckons. . . . Such a shift would also undercut a potent Republican talking point, argues Mr Glock: that people vote with their feet and flock to red states because they are better governed and more liveable. Some red-state politicians are waking up to the threat. Texas recently passed several YIMBY reforms: making it easier to build homes in commercial areas, lifting restrictions on lot sizes and weakening what Texans call the “tyrants’ veto” that lets neighbours block new construction.  In previous posts I’ve discussed tax competition between states.  This competition intensified after the SALT deduction was limited to $10,000.  Congress recently increased the SALT limit back up to $40,000, however, which will significantly reduce tax competition between states. In the future, housing policy may become the number one factor in competition for new residents, especially as immigration restrictions and sharply lower birthrates slow or even end the growth of America’s population.  Despite high taxes and burdensome regulations, California has extremely high housing prices.  This suggests that there is still a strong demand to live here, which could lead to a large population inflow if regulations on building were further liberalized.   It is interesting to see that Texas is not waiting around to see if California’s YIMBY policies will succeed and instead is proactively trying to reduce its own incipient NIMBY problem. (0 COMMENTS)