As I write this piece, I’m about to board an airplane. I’m in Buenos Aires, Argentina, but in just over 13 hours I’ll be in Zurich, Switzerland. In the 19th century, not even the wealthiest imaginable person would have been able to travel this quickly. Indeed, the entire wealth of the world could not have bought a 13-hour trip of just over 7,000 miles, say, in 1910, because it simply didn’t exist. But now it does and I can book it, which means that at least in this regard I’m richer today than anyone was back in the day. I’m not a multi-millionaire, or even a millionaire, and I don’t even think of myself as being rich at all. I just happen to live in 2025. It’s very likely that the flight crew will be Swiss, since the airline I’m flying is based in Switzerland. Not long ago, most people in the world were unlikely to ever meet people foreign to their own countries. Today still, most people are expected to not move too much during their lifetimes and die pretty close to where they were born. But just as more and more people go to distant places, other people come to ours as well. And our first-hand knowledge of other cultures increases exponentially when they do. Before boarding the plane, I’ll take a pill that frees up my nostrils, so my ears don’t get plugged for a whole day after I take off. (It’s strange, I know. I have to get surgery in my nose to avoid that in the future.) I’ve used these pills before and I know they work exactly as designed. All it took to get them was a visit to the doctor, a prescription, and about twenty dollars. And after I board the plane, I’ll put on headphones that will cancel all surrounding noise as we lift off so I can relax and maybe take a nap. Can you imagine explaining this kind of comfort to the millions of people who, just one century ago, were boarding ships from Europe to America for months-long journeys during which it was very likely that some people would die??? When I’m in the plane, I’ll continue to write this piece on a laptop, the mere concept of which was nonexistent barely fifty years ago. Yet today, millions of people around the world own personal devices like these computers with which they can work, access all kinds of information from multiple sources worldwide, play games, stream movies, et etcetera. As long as you have internet access, you can access more information than in the Library of Alexandria or any other library in the world. Literally. If I get bored on the flight as a write this piece, I’ll probably turn my attention to one of the two books I brought along for the journey. But a person like Aristotle, for example, could not dream of such an object. The fact that there exist printers on a mass scale and a transportation system that allows for books filled with standardized typographies to be distributed across the world is amazing. Once I leave the plane, I’ll immediately text my girlfriend that I’ve arrived safely, something that was inconceivable a few decades ago. We no longer need to write potentially outdated letters that may take months to arrive or make prohibitively expensive calls to talk to our loved ones. The same cellphone I use in Argentina allows me to be in touch with anyone even if I’m in a different continent. Freedom makes all of these things possible. Planes, pills, headphones, laptops, books, cellphones: Whenever we make it possible for human ingenuity to flourish, we come up with new inventions that raise our standard of living over and over. In particular, the ability to trade with others and make profits assures us that people have an incentive to improve not just their lives, but also those of others. This applies to services too, which is why airlines and all other businesses exist. Individuals that you’ll never meet are working hard to make money and at the same time will bring you new inventions that everyone will profit from in different ways. The benefits of free market capitalism and the international division of labor, which we usually take for granted, are incredible, and their extent is probably impossible to fully realize. We often forget what life used to be like, but as we’ve become freer it has only gotten better and continues do so everyday. When you board a plane next year, think about how marvelous this world is for giving regular people like us the chance to enjoy it.   Marcos Falcone is the Project Manager of Fundación Libertad and a regular contributor to Forbes Argentina. His writing has also appeared in The Washington Post, National Review, and Reason, among others. He is based in Buenos Aires, Argentina. (0 COMMENTS)

Tom Wolfe once designated the 1970s as “The Me Decade”.  It seems to me that this label better applies to the 2020s.  Consider this action by the New York state Senate: ALBANY — Under cloak of darkness, the state Senate moved to help more than 130,000 reckless drivers avoid accountability in a middle-of-the-night watering down of the Stop Super Speeders bill, which only targeted the worst-of-the-worst drivers in the first place. . . . Instead of requiring drivers with six or more speed-camera or red-light camera tickets in any 12-month period to install a speed-limiting device in their cars, the bill now only carries that requirement for drivers with 16 or more tickets — and only speed-camera tickets rather than a combination. . . . It’s common Albany knowledge that if legislators can imagine themselves being hurt by a bill, they vote against it. You might think that this is no big deal, as “almost everyone goes over the speed limit”.   I routinely go 10 miles over the limit on interstate highways, but I’ve only received one speeding ticket in my entire life–despite driving an enormous number of miles.  (And that was for going 66 on a rural New York interstate highway back when the national speed limit was 55.) People racking up 10 or 15 speeding tickets in a 12-month period are not normal speeders; they are reckless drivers.  Unfortunately, many of these drivers do not recognize the consequences of their recklessness: And there’s the sheer fact that lawmakers see themselves as drivers first and foremost — and are therefore reluctant to do anything perceived as punishing drivers. Assembly Member Michaell Novakhov (R-Midwood) famously said that six speeding and red-light tickets in a single year was too low a threshold, for example. “I think this is too little,” Novakhov told Streetsblog. “Any driver can get much more than six. It’s the regular constituents, just people like me and you are getting those tickets.” It’s worth noting that he made those comments at the funeral of Natasha Saada and daughters Diana and Deborah, who were killed in March by a recidivist speeder who had just racked up her 16th speed-camera ticket of the year days before the crash. The fact that you might be charged with breaking a law is not a good reason for failing to enact the law. Crypto regulation is another example of where lawmakers put self-interest ahead of the public interest.  Here’s The Economist: When Mr Trump nominated Jay Clayton to head the Securities and Exchange Commission (sec) in 2017, crypto received no mention at all during his confirmation hearing in the Senate. As recently as 2021, the president disdained digital assets. “Bitcoin just seems like a scam” he said of the biggest cryptocurrency. “I don’t like it because it’s another currency competing against the dollar.” Then President Trump discovered that crypto assets would allow business interests to give him hundreds of millions (if not billions) of dollars without triggering laws against bribery.  Here’s The Atlantic: When it was all over, Trump apparently decided he had been thinking too small. In his first term, he made improper millions. In his second term, he is reaching for billions: a $2 billion investment by a United Arab Emirates state-owned enterprise in the Binance crypto exchange using the Trump family’s stablecoin asset. An unknown number of billions placed by Qatar in a Trump-family real-estate development in that emirate, topped by the gift of a 747 luxury jet for the president’s personal use in office and afterward. Government-approved support for a Trump golf course in Vietnam while its leaders were negotiating with the United States for relief from Trump tariffs. Last week, Trump hosted more than 200 purchasers of his meme coin, many of them apparently foreign nationals, for a private dinner, with no disclosure of the names of those who had paid into his pocket for access to the president’s time and favor. The record of Trump real-estate and business projects is one of almost unbroken failure; from 1991 to 2009, his companies filed for bankruptcy six times. Few if any legitimate investors entrusted their money to Trump’s businesses when he was out of office. But since his return to the White House, Trump has been inundated with cash from Middle Eastern governments. Obscure Chinese firms are suddenly buying millions of dollars’ worth of Trump meme coins. So are American companies hard-hit by the Trump tariffs and desperately seeking access and influence. After Trump invited major holders of his crypto funds to dinner, Wired quoted a crypto analyst about the coin’s value proposition: “Before, you were speculating on a TRUMP coin with no utility. Now you’re speculating on future access to Trump. That has to be worth a bit more money.” During Trump’s first term, he argued that TikTok should be shut down.  Then he discovered that TikTok was a valuable way of reaching his supporters.  In his second term, the Trump administration has repeatedly failed to enforce a law that required TikTok to be sold or shut down. To be clear, I am not taking any position on these two issues.  It may well be true that both cryptocurrencies and TikTok are worth preserving.  Rather, I’m suggesting that decisions on these issues are not being made on the basis of what’s in the public interest; rather they reflect the special interest of policymakers.  That’s always been true to some extent, but I’ve never seen it to be as blatant as during the 2020s. (0 COMMENTS)

For today’s post, further thoughts inspired by Barry Lam’s book Fewer Rules, Better People. When Lam puts forth arguments in favor of legalism in his book, one of the main values he argued legalism seeks to preserve is the idea that justice requires we treat like cases alike. If you and I engage in the same behavior, but you are punished for it while I am not, that is arbitrary and unfair. So far, so good. However, there’s a problem. Legalism requires clear and consistent definition for rules of conduct so these rules can be understood by both citizens and enforcers. Unfortunately, working out a consistent definition that accurately classifies every case turns out to be a dead end. As I discussed in my post on Daniel Dennett’s Prime Mammal thought experiment, lines drawn will always end up somewhat arbitrary, and there will be clear cases where that line defines things incorrectly. This isn’t just the case with defining mammals. Michael Huemer wrote an entire book about the nature of knowledge, running over 350 pages. And in the opening line of the first chapter after the introduction, Huemer writes “In this chapter, we will try and fail to define ‘knowledge’.” He starts with the basic first-pass definition of knowledge as a justified true belief, then shows that there are situations where someone can have a justified true belief that X, but still not actually know X – and this turns out to be true for all of the ever more complex definitions of what knowledge is. He makes a similar point in is book Ethical Intuitionism about defining something as simple as a table. He’ll have his students attempt to work out what the definition of a table is – and no matter how carefully they attempt to craft a definition, you can still find instances of things that are obviously tables that don’t find the definition, and things that fit the given definition that still obviously aren’t tables. This is not to say that attempting to define this is pointless, or that the inevitably inexact nature of definitions shows the utter meaninglessness of the phenomenon these definitions attempt to describe.  But we should be aware that for any definition, if we drill down enough, there will be cases when it falls apart, and when that happens, sticking to the definition for its own sake can seriously lead us astray. One example that comes to mind is the Clean Waters Act passed by Congress. The purpose of this act was straightforward enough – to put limits on pollutants being dumped into “the waters of the United States.” However, simply saying “the waters of the United States” is too vague – that term required a more precise definition. So regulators attempted to do just that, adding among other clauses that it included areas “sufficient to support, and that under normal circumstances do support, a prevalence of vegetation typically adapted for life in saturated soil conditions.” This turned out to be a problem for a father and son duo named Ocie and Carey Mills, who were building a cabin on a wooded plot of land in Florida. Unfortunately for them, this wooded lot, with no standing water, contained within the property line a small patch of marsh grass – and marsh grass constitutes “vegetation typically adapted for life in saturated soil conditions.” Thus, by introducing sand and fill dirt on that plot of dry land as part of constructing the cabin, they were guilty of “discharging pollutants into the navigable waters of the United States.” The judge presiding over the case agreed that the Mills couldn’t have realistically been expected to understand that dry land constituted “navigable waters” on the basis that it “may have some saturated-soil vegetation, as is the situation here.” Unfortunately, The Rules Are The Rules™, and Ocie and Carey Mills spent 18 months locked up in a federal prison for polluting the waters of the United States. (As a postscript, after their release, they were instructed to remove those “pollutants.” In this instance, they managed to convince the judge presiding over that case to actually visit the site. Upon doing so, the judge was agreed that it made no sense whatsoever to call the area a “wetlands” constituting “navigable waters,” and described the legal definitions used in this case as “a reversal of terms that is worthy of Alice in Wonderland.”) And this can be a case where the limits of drawing lines and establishing legal definitions can end up working against the value legalism is meant to preserve – the avoidance of arbitrary treatment by ensuring like cases are treated alike. One the one hand, you have a prototypical case of someone dumping waste into a river. On the other hand, you have the Mills placing some fill dirt on a driveway on dry land. For a judge to look at both of those cases and say “Yep, the people in both of these situations ought to be sent to federal prison – after all, justice requires that I treat these like cases alike!” would almost seem like a Monty Python sketch if it wasn’t actually true. This wouldn’t be treating like cases alike – it would be a case of pretending that completely unalike cases are actually alike, and treating the act of putting dirt on a driveway on dry land as the same as dumping chemicals into a river. This seems as arbitrary as anything legalism wishes to avoid. If justice requires that we treat like cases alike, we should also bear in mind that a by-the-book legalism that refuses to make distinctions or exceptions can also result in us treating wildly and obviously unalike cases as if they were alike. (0 COMMENTS)

A great deal of blame for declining GDP has been placed on the impact of imports by the national conservative and protectionist crowds. Pierre Lemieux does an excellent job explaining why imports have no direct impact on GDP here, so there’s really no reason to cover that ground again. It is sufficient to revisit the fact that GDP only accounts for domestic production and consumption; the net export variable simply cancels out the part of consumption measurement that accounts for consumption of imports, reducing the effect to net zero. This renders absurd the argument for tariff increases in order to protect GDP from the influence of foreign goods and services.  On the other hand, tariffs do have an observable negative impact on GDP.  According to the Tax Foundation, the current 10 percent baseline tariff will raise the effective tariff rate to 12.1% – before the effects of retaliation can even be factored in, – reduce GDP by 0.7 percent (again, before accounting for retaliation) and lower market income by 1.2 percent in 2026. This translates to an average tax increase of $1,190 in 2025 and $1,462 in 2026 per household, and a reduction in available goods and services. Yale’s Budget Lab paints an even more grim picture, predicting an eventual effective tariff rate if 22.5 percent, an average per household consumer loss of $3,800 due to a 2.3% rise in price levels, and a persistent GDP decline between 0.4 to 0.6 percent; these are short-run predictions that, again, do not factor in the impact of retaliation on the part of trade partners. Growth from 1870 – 1910 None of this should surprise observers of economic history. During the 1870’s, a period of relatively high tariffs averaging some 35 percent, GDP declined by an average of 0.5%, despite accelerated development in a few protected industries. The period between 1870 to 1913 was one of a rapid transition from an agrarian economy to an increasingly industrialized one. Between 1872 and 1913, the US share of global manufactured exports grew from 2 percent to 14%, while the labor market share in agriculture fell from 48 percent to 32 percent. In roughly the same period, the share of national income paid to the agricultural sector fell by 3 percent, while the share paid to the manufacturing sector rose by 5 percent. As a reflection of this shift, the export of crude materials and foodstuffs declined slightly (people must always eat, after all, while exports of finished goods effectively doubled. Of course, one would surmise that this should have been good for domestic growth, and it would have been had the political machine not gotten to a-lobbying and logrolling. Had manufacturers just left well enough alone, they might have realized that they possessed an inherent comparative advantage in access to raw materials. Large iron ore deposits near Lake Superior benefited iron and steel producers, while the discovery of petroleum, coal and other inputs allowed for price competition with foreign producers who had to source such inputs elsewhere. As we now know, these deposits were hardly inexhaustible, but at the time, they were relatively new and abundant. Instead, manufacturing interests elected to seek “protection” by lobbying for high tariff rates against foreign competitors in their industries. If, as the national conservatives argue, such protection benefits the general welfare, then the evidence should demonstrate higher productivity combined with lowering prices, but that isn’t what happened. As Douglas Irwin demonstrates in Clashing over Commerce : A History of US Trade Policy, productivity growth was no more rapid in the US over this period than it was in Great Britain, which had fewer natural resources, and whose population – and thus domestic consumer markets – grew at a decidedly slower pace. In fact, productivity increased for sectors not affected by trade, such as transportation, utilities, and services, while seeing a decline in agriculture and manufacturing. This is not to say that the scale of manufacturing did not increase; it did. However, the political nature of the imposed tariffs not only shielded American manufacturers from foreign competition, it also shielded them from the benefits of competition. Many disparate manufacturers crept onto the scene, producing less efficiently without creating necessary economies of scale. Innovation lagged behind nations such as Great Britain, because insular manufactories had no incentive to innovate. Conversely, in Great Britain, which imposed marginal tariffs when they bothered to impose any at all, manufacturing grew at an average annual rate of 2.2 percent between 1870 and 1913. During this same period, manufacturing employment grew at an average annual rate of 0.8%, and labor productivity within the sector grew at an average rate of 1.4%. Manufacturing employment increased by 30 percent during the period, with in increase of capital per worker of 76 percent. Hence, despite low tariffs, manufacturing played a huge role in Great Britain’s GDP growth during this era. By 1890, America and Germany had begun to catch up with Britain in large part, ironically, because their low tariff structures allowed for the flow of ideas, processes, and technology both inward and outward. While America invested in formal education that trained executives to tend to the business of manufacturing, Germany focused on vocational training that combined formal teaching with apprenticeships. All of this aside, the real drive behind America matching – then surpassing – Great Britain as an industrial/manufacturing force was the population boom of the 1890s. Recall our earlier look at the growth in non-traded sectors such as transportation and communication. Eventually, this allowed for national markets with goods and services that moved in every direction. As people moved back and forth more freely, transportation costs continued to decrease as demand drove improvements in transportation, allowing laborers to move away from rural areas to more densely populated urban ones. As more labor became available, large factories began to supplement the smaller workshops and foundries that had marked the beginnings of the manufacturing boom. Agricultural workers outnumbered their manufacturing counterparts in 1880 by a factor of three, but by 1920, the number of manufacturing workers had increased from 2.5 million to 10 million. Not all of this growth in the labor force – and the subsequent growth in GDP – was endogenous. Because of a relatively sudden surplus of available higher-wage jobs, 1890 marked the beginning of a large surge in immigration. Between 1870 and 1900, the native-born population doubled, due in large part to higher wages, increased living standards and access to the more advanced medical technology available in the urban areas that large segments of the population were flocking to. Beginning in 1890, the immigration also doubled, from some 7 million to 14 million. With the exception of San Francisco, the new wave of immigrants converged mostly upon the industrial cities of the Northeast and Midwest; cities such as Boston, Chicago, New York, Cleveland, Buffalo and Milwaukee. By 1920, 23 million children had been born to those 14 million immigrants, meaning that one-third of the population belonged to that community. Despite the tariff missteps of the 1870s which rendered productivity in manufacturing inefficient and depressed GDP, this population boom combined with the growth in non-traded sectors eventually complimented an industrial boom resulted in economic growth and increasing productivity; in fact, many economic observers consider this to be the beginning of the American Middle Class. This happened in spite of tariffs, not because of them, and as those such as Klein and Meissner  demonstrate, would have happened a lot sooner without them. The Folly of Smoot Hawley I have often observed that there is scarcely a bad idea that government will not adopt, and certainly none that they will fail to repeat. In many ways, the Smoot Hawley Tariff Act of 1930 was just an inverse reflection of late 1800s measures such as the McKinley Tariff Act of 1890. By the 1920s, American manufacturing had come to dominate global markets, engendering less political concern on the part of politicians. A fall in commodity prices in 1920, triggered by an overall post WWI slowdown of global commodity markets, resulted in an agricultural depression that predated the Great Depression and lasted nearly a decade and a half. In essence, a world no longer at war no longer needed massive amounts of foodstuffs from American farmers, who were now the victims of overproduction and overextended credit. Moreover, a large number of soldiers returned from European theaters of war to their farms, exacerbating the problem. The factors underlying this crisis for farmers should have been obvious for legislators, but rarely are politicians either cognizant of or concerned with proximate cause. Congress’ initial effort to deal with this issue was the McNary–Haugen Farm Relief Act, first introduced in 2024, which called for both a series of protective tariffs and a series of price supports to bolster the profits of farmers. It called for the creation of a Federal agency that would maintain agricultural price levels from 1910 -1914 by purchasing surplus crops, selling them overseas, and therefore taking any loss at taxpayer expense. President Coolidge, perhaps understanding that no market for crops meant no market for crops, vetoed the Act in 1927 and 1928, killing passage both times. Coolidge did commit to then-Commerce Secretary Herbert Hoover’s plan to have a farm board “stabilize” prices via cooperatives , so he can’t be given too much credit. The sorry plight of farmers became a major issue in the election of 1928, with both Democratic candidate Al Smith and Republican candidate Herbert Hoover pledging to revise the Fordney–McCumber Tariff of 1922 in order to create “tariff equality” for agricultural goods. With little daylight between the candidates and most voters outside of farmers enjoying a period of prosperity, the electorate opted for continuity and Hoover won. Soon after his victory, Ways and Means Chairman Willis Hawley announced a hearing on revising the tariff. As Irwin notes, some 1100 individuals provided statements to the committee, resulting in 10,684 pages of testimony that comprised 18 published volumes. Soon, Hawley joined forces with Utah Senator Reed Smoot, and instead of a revision of the Fordney-McCumber Tariff, they supplemented it with their own. Democrats vociferously opposed the bill; Tennessee Senator and future Secretary of State Cordell Hull opined that it would be a feeding trough for the worst logrolling and special interests, while Texas’ Cactus Jack Garner lambasted it as completely lacking in common sense or knowledge of any economic principle. Notwithstanding that they likely would have supported such measures if their party controlled the White House and Congress, they didn’t have the votes to impede it, and the measure passed on June 13, 1930. Hull was right; the Act was over 200 pages, and while its ostensible purpose was to protect American agriculture from foreign competition, it imposed as many duties on manufacturing imports as it did on agricultural.  In a telling mirror of current events, 1028 economists signed a statement published on the front page of the New York Times reflecting a consensus that the tariffs, especially those on manufactured products, were a mistake, as domestic factories at the time already supplied Americans with 96 percent of manufactured goods consumed, leaving exports as the only viable option for expansion and prosperity. Smoot dismissed such concerns as the idiotic prattling of eggheads with no understanding of practical realities, unlike the sugar men and other representatives of special interest with whom he had conversed. As we know, Smoot-Hawley shielded neither agriculture nor manufacturing from market realities. By not repealing and replacing Fordney-McCumber, it added to the tariffs already in place; it added a 15 percent tariff increase to the already extant Fordney-MCumber increase of 64 percent. Given exemptions and other negotiated relief, this resulted in average tariff rates of roughly 60 percent, and global markets responded. To say that the timing of this trade war was bad would be putting it lightly, as America’s stock market crash was already exerting recessionary pressures on global markets that were more closely integrated than global leaders would admit. Nations which instituted direct retaliatory measures against the US reduced their imports by an average of 28-33 percent, while some nations indirectly protested by reducing their imports from everyone, resulting in a decline of US imports to their nations by 15 to 22 percent. As Mitchener et al. observe, the scope of de facto retaliation exceeded official acts of retaliation. The Depression was its own beast which would have happened without any ill-advised trade war. The decline in global GDP would have hampered trade in any case. Because of this, national conservatives tend to argue that Smoot-Hawley was of little consequence, but a less insular outlook that acknowledges the impact global markets have on its members would reveal otherwise. The entire stated impetus of the tariff was to benefit farmers, who were suffering from credit defaults based on loans extended during WWI, the defaults themselves resulting from lower demand for American produce. Retaliatory measures exacerbated this even further; moreover, manufacturing – which had been doing brisk business in exports – also fell victim to retaliation, significantly weakening the one sector which had been doing well. As such, the resulting trade war had a significant impact on trade flows independent of other factors and exacerbated the decline in global – and American – GDP. Having gone into detail on previous instances of high tariffs failing to generate the desired results and instead creating a decline in GDP, it must be mentioned that another favorite argument of national conservatives and protectionists is that early revenue tariffs, as a function of Henry Clay’s “American System,” were responsible for the nation’s growth and economic development. The error  of this argument has been addressed ad  nauseum, including by myself at American Institute for Economic Research’s The Daily Economy. Therefore, those counterarguments, important and valid as they are, will not be repeated here.  A major error made by many when assessing tariffs, even some opponents, is viewing them linearly, as shocks to an otherwise perpetually fixed structure. In essence, while discussions (correctly) center around exogenous impacts such as distorting bilateral trade volume, disrupting supply chains or exacerbating inflationary pressures, few observers address that from a general equilibrium perspective, tariffs endogenously distort the interconnecting networks of global trade flows. In other words, they exert network effects with infinite non-linear differential coefficients impacting prices, availability of supply, and general welfare across the network. Simply put, they redirect exports in an inefficient manner which generally benefits no one. Even if this is not by the design of the politicians who impose tariffs, it is the inherent nature of tariffs to impact markets in this manner. Ceteris paribus, a thing can only be what it is. It is also inherent to tariffs that the higher they are, the more they will negatively impact GDP. It is just in the math of the matter. Let us take a brief look at that math: GDP = C + I + G + (X – M)  Where:  C = Consumer spending  I = Business investment  G = Government spending X = Exports M = Imports Once again, as a practical matter, imports have no direct impact on GDP, as the import variable simply cancels out the portion of consumption that measures spending on foreign products. However, as will soon be demonstrated, high tariff schemes can cause imports to have a negative, indirect impact on GDP. To begin, as one would expect, high tariffs should result in an increase in government revenue, which they may in the short-run. This may also result in an increase in government spending, which may generate future inflationary pressures as these added revenues invariably will not last (this, however, is another, even if related, discussion). Higher tariffs will lower the availability of imports, which is essentially meaningless for measuring direct domestic consumption, but does have an indirect impact via investment. As tariffs distort supply chains, increase the cost of inputs (and, as a function thereof, end prices) and generally decrease profit margins, resources are inefficiently shifted to less import-reliant domestic firms at the expense of choice and availability. Additionally, firms decrease investment when the risk of uncertainty increases, and global trade disputes are often rife with uncertainty. The subsequent higher prices, and hidden costs such as loss of employment in those import-reliant sectors, decreases consumption. Additionally, the retaliation of trade partners has an invariably negative impact on exports, further depressing investment, consumption, and the revenue needed to increase government spending without inflationary pressure. This has always been the impact of  high tariff rates, from the late 1800s, to the onset of the Great Depression. In terms of our current Administration, not only will the outcomes be predictably grim, but as it has added an even greater degree of uncertainty with its bombast, pauses and generally inscrutable whims, they may turn out to be worse than once might predict or imagine.     Tarnell Brown is an Atlanta based economist and public policy analyst. (0 COMMENTS)

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” –FA Hayek, The Fatal Conceit: The Errors of Socialism, pg 76 Hayek wrote these words back in 1988, but they could apply just as easily today.  The past two months have demonstrated in no uncertain terms just how little some men know about what they imagine they can design.  The so-called “Liberation Day” tariffs were supposed to usher in an era of unparalleled prosperity for the US.  Not only were we going to be freed from the evil machinations of foreign governments, but prices would fall, stocks would rise, the dollar would strengthen, interest rates would fall, the debt would fall, foreigners would come begging to deal with Trump, and America would stand on top of the world.  This plan was endorsed by Very Smart People™ with advanced degrees from Harvard (Navarro, Miran) and Yale (Cass).  Invoking an odd combination of MMT and bizarrely-understood strategic trade models, everything was going to be perfect.  Why, the model even had fancy Greek letters in it, so you know it was legit!   But since the announcement, absolutely nothing has worked out as the central planners intended.  The stock market lost trillions of dollars worth of wealth, and the S&P 500 had its worst performance in a president’s first 100 days since the 70s.  The US dollar plummeted in value.  Interest rates, especially treasury yields, have risen, as investors have looked for alternatives to America.  Debt is likely to rise due to more interest payments at higher rates and the administration’s plan to bail out industries negatively affected by the tariffs.  Foreign governments are giving lip service to Trump while coming up with alternative deals (mainly involving China). What “deals” have been announced involve higher tariffs on Americans.  America, rather than standing atop the world, has become a dangerous prospect in both politics and economics thanks to Trump’s capricious nature and his apparent tendency to be influenced by the last voice that talked to him. Despite the fancy mathematics, the ivy league degrees, and the assurances of the elite, “Liberation Day” has failed in a spectacular fashion.  In fact, it’s failed so spectacularly that the Trump Administration is already setting up scapegoats.  After all, the one thing the central planners can never, ever do is admit fault or that they were wrong.  Just like the failure of Fauci et al’s central plans to stop COVID didn’t fail because the plan itself was flawed (why, it too was endorsed by Very Smart People™ and had fancy Greek letters!) but because of the unvaccinated, Trump is in desperate search of scapegoats. Why has this plan failed?  The math was perfect. They failed to account for one thing: economics is a social science.  Ultimately, we are not dealing with mindless automatons.  There are not, to borrow Adam Smith’s famous metaphor, pieces on the chessboard to be directed by the visible hand of the player.  The economy is not top-down, with incentives acting as computer inputs, directing behavior.  Economics is the study of human action and human behavior.  We are dealing with people.  People with hopes, dreams, desires.  People who want to live their best lives.  And those hopes, dreams, desires are in direct conflict with the Central Plan.  They are impossible to coordinate with the Central Plan.  In short, these men misunderstood the very nature of the system they imagined they can design.   Just like every planner before him, the Trump Administration will find it has to resort to more and more restrictions, regulations, threats, tariffs, taxes, etc., to get what it wants.  Scott Sumner said it best: this is very much Trump’s “Great Leap Forward” moment ).  Let us just hope it ends before the consequences get disastrous.  (0 COMMENTS)

[Given the recent American trend of political alliteration, I was thinking of entitling this Build Back Better By Borrowing Billions for Big Beautiful Baby Bonds.] The administration has proposed giving newborn babies (whose parents have Social Security numbers) a savings account containing $1000, which must be saved at least until the child reached the age of 18. Here is Ryan Teague Beckwith at MSNBC: If a lower-income family added no money to their Trump account, after 18 years that $1,000 would have grown to around $2,000, if we assume a generous 4% rate of return. So how should we think about this policy? At first glance, it seems sort of like a natalist policy, as the money is going to babies. But the babies don’t actually benefit until reaching the age of 18, at which point that money goes to almost all 18-year olds, regardless of whether or not they later choose to have children. So unless I’m missing something, I don’t see how it encourages fertility. Why not just give all qualified individuals a $2000 check at age 18? What’s the purpose of these special savings accounts? Perhaps the goal is to encourage thrift, get people in the habit of saving. But the proposed plan would be funded with borrowed money, so I have difficulty understanding how it would encourage thrift. Isn’t the public being encouraged to believe in “something for nothing”, i.e., in deficit spending? Imagine the typical baby were to invest the $1000 in government bonds yielding 4%. Then at age 18, they would come into possession of two things: A $2000 government bond. An expectation that they’ll have to pay an extra $2000 in future taxes (in present value terms) in order to service that debt. In other words, on average they will be no better off than if the program had never been created. Under the assumption of Ricardo/Barro equivalence, they should just hold onto the bonds forever. In other words, there’s no such thing as a free lunch. The previous discussion is looking at the average impact of the program, but not everyone is identical. Perhaps half the population is marshmallow eaters and the other half is misers. At age 18, the marshmallow eaters sell their bonds to the misers, and splurge an extra $2000 on consumption. But the misers reduce spending in consumption by an equal amount, as they need to cut back to buy the bonds being sold by the less thrifty. [Technically, until the age of 30 the funds can only be spent on certain approved items, but money is fungible.] Of course you can develop more realistic models where aggregate consumption does change. But in most of those models the change would be in the direction of more consumption and less saving. That is, the marshmallow eaters would spend $2000 more and the (presumably richer) misers would reduce consumption by less than $2000. This does not seem like a policy that would increase aggregate saving and investment. Beckwith suggests another argument for the Trump policy. He sees it as creating an opening for a much more expansive policy, which would presumably be created by a future Democratic administration: Under the Booker-Pressley proposal, every child would get $1,000 in a savings account and as much as $2,000 more each year up to age 18, depending on the family’s income. By contrast, the Trump accounts only include the initial $1,000 deposit, though parents could add up to $5,000 a year of their own money up to age 18. Those seemingly minor changes make a huge difference. If a lower-income family added no money to their Trump account, after 18 years that $1,000 would have grown to around $2,000, if we assume a generous 4% rate of return. . . . By comparison, a poor kid with a Booker-Pressley account would have more than $50,000 at age 18 and more than $85,000 at age 30 — literally life-changing amounts of money. Beckwith doesn’t like the Trump proposal, but supports it anyway: The biggest mistake that both Republicans and Democrats make when considering a proposal from the other side is to treat it as static. Good ideas often start as bad ones, and good policies often grow out of flawed ones. When it started in 1935, Social Security didn’t cover agricultural or domestic workers, which meant it disproportionately excluded African Americans. But over time, it was expanded. Today, it is more fair — and actually helps Black and Hispanic workers more due to the way benefits are structured. Beckwith is a progressive, and sees this policy as a form of income redistribution. Everyone receives the same amount, but the future taxes that will pay for the program fall disproportionately on the rich. Alternatively, you can view the program as a way of leveling the playing field. Today, the federal government heavily subsidies young adults that go to college, through programs like 529 accounts and Pell Grants. An egalitarian might argue that it would be better to subsidize all 18-year olds by an equal amount, regardless of whether they went to college or whether they went immediately into the workforce. In recent years, non-college voters have switched to the GOP, while college grads have switched to the Democrats. Beckwith seems to see the poor as the group that progressives should favor, whereas Trump sees those who don’t go to college as the group that should be favored. Not sure how voters align in the long run, but the political equilibrium of 2025 is certainly not going to last very long. The politics of the 2030s will likely be almost unrecognizable to today’s pundits. I have very mixed feelings on this sort of policy. On the plus side: I see the utilitarian argument for income redistribution. I favor treating college and non-college youth equally. On the minus side: A recent study suggests that giving money to poor people doesn’t provide durable gains. I hate the complexity of our tax system, and this proposal makes it even worse. We already have IRAs, Roth IRAs, SEP IRAs, 401k plans, 403b plans, 529 saving plans, etc. The proposed plan has a very complicated tax treatment, which depends on all sorts of factors. We are broke, and should not be creating even more new programs with borrowed money until we have made our fiscal situation sustainable. For me, the final item is the most important. I’d be far more likely to support the plan if it were combined with an equal reduction is federal spending on things like college grants and loans. A while back, I argued that President Trump might end up being one of those “Nixon to China” situations, where a GOP president ushers in a European style welfare state. I don’t see it happening during his term, but down the road I could see tariffs eventually turning into VATs, and baby bonds eventually turning into a much more generous income redistribution scheme. The artificial intelligence boom creates a sort of barrier that I cannot see beyond. If it ends up being as transformative as its boosters suggest, then all bets are off the table as to how future public policy will play out. As with almost all of my posts, this one analyzes things from a 20th century mindset, which might soon be viewed as obsolete. PS.  Like most social science experiments, the Stanford marshmallow eater study doesn’t seem to hold up. (0 COMMENTS)

We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed. Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!   Question: One common argument against public assistance taking the form of direct cash handouts is that the recipients will use the money to buy things that taxpayers find objectionable, e.g., illicit drugs, gambling, etc. To avoid this outcome, the argument goes, public assistance should take the form of in-kind transfers, e.g., food, housing, medical care, etc. What does this argument assume about the income elasticities of objectionable goods? Suppose the recipients could costlessly resell the in-kind transfers. In this case, is there any difference between direct cash handouts and in-kind transfers? (0 COMMENTS)

Recently, co-blogger David Henderson offered some ponderings about the limits of self-ownership. He argued that the government shouldn’t put limits on the self-ownership of adults of sound mind, but such limits could appropriately be placed on children and adults of unsound mind. That raised the issue of how we set about determining when a child stops being a child and counts as an adult, or at what level an adult is of unsound mind. Of course, through policy we can set particular hard and well-defined limits. If you’re over 18 years of age, you’re an adult. If you’re younger, you’re a child. If your IQ is above, say, 85, you’re of sound mind, but if it’s below that, then you’re not. This approach is clean, neat, simple, and as David points out, comes with two big difficulties. One difficulty is that drawing a hard line at a specific threshold will always be arbitrary to a certain degree. In day-to-day life, the mental capacity of someone with an IQ of 85 is basically the same as someone with an IQ of 84. Yet the former will be classified as of sound mind, while the latter is considered of unsound mind, despite there being no real practical difference between them. Someone who is 17 years and 364 days old isn’t going to change in any meaningful way when the clock strike midnight and they turn 18 – but should they happen to have been charged with a heinous crime, whether they get charged as a minor or an adult can very well turn on if the act occurred before or after midnight. The second problem is that there will always be cases on either side of the line that are wrongly classified. There are some people with an IQ of 80 who, despite not being intellectual powerhouses, can still conduct themselves well and make sound decisions. And there are people with an IQ of 180 who go mentally off the rails and make nutty decisions. I’ve known people who at 16 years old were more mature and insightful than some 26 year-olds. How do we solve these two difficulties when it comes to establishing limits? If you were hoping I’d be solving that problem, I’m going to have to disappoint you. But I was reminded of an insight from Daniel Dennett’s book Intuition Pumps and Other Tools for Thinking where he described how we can tie ourselves up with this question. He begins by offering a simple argument that mammals don’t exist, starting with two premises that initially seem plausible: Every mammal has a mammal for a mother. If there have been any mammals at all, there have only been a finite number of mammals. But if there has been even one mammal, then by (1) there have been an infinity of mammals, which contradicts (2), so there can’t have been any mammals. It’s a contradiction in terms. Of course, Dennett isn’t seriously suggesting there are no mammals. He instead invokes a Moorean shift, arguing that since the conclusion is obviously absurd we can justly conclude that something is wrong with the premises or the inference, thus “we take this argument seriously only as a challenge to discover what fallacy is lurking within it.” One way we are tempted to solve the issue is by disputing the first premise. Along the evolutionary path, there were precursors to modern mammals called therapsids, animals that weren’t quite reptiles but not really mammals yet either. So, Dennett suggests, perhaps along this line we could, in principle, identify the birth of what he calls the Prime Mammal – the first animal born that was Objectively And For Real A Mammal. Thus, when this Prime Mammal was born, we have a mammal that was born from a therapsid, falsifying premise one and preserving the existence of mammals. Hooray! Except, hold on, it’s not that simple. Let’s just imagine we had godlike technology allowing us to look back through time to try to spot the birth of this Prime Mammal. When this Prime Mammal was born, how would we know it? What would be the characteristics that make it essentially and fundamentally unlike its therapsid parents? And here we run into the problem of arbitrariness. We could just stipulate that, perhaps, there are ten features that define a mammal, and the first animal born with all ten features is the Prime Mammal. But that’s clearly arbitrary. Why ten features? Why not eight, or seventeen? And why that particular set of ten and not some other set of ten? And along the evolutionary chain, we would find all kinds of instances where a specific animal with ten of those features (and therefore a mammal) mated with another that had only nine (and therefore a therapsid), producing new generations of mammals born of therapsids alongside therapsids born of mammals. Dennett suggests we handle this problem in a way that would probably make many philosophers very upset – we deal with it by not dealing with it: What should we do? We should quell our desire to draw lines. We don’t need to draw lines. We can live with the quite unshocking and unmysterious fact that all of these gradual changes accumulated over many millions of years and eventually produced undeniable mammals. Similarly, the differences between lakes, ponds, and wetland or marshes do not need to be calibrated, even by limnologists (those who study inland waters). This runs counter to how philosophers like to think about things: Philosophers, however, tend to be tidy, fussy users of words. Ever since Socrates persisted in demanding to be told precisely what marked the defining features of virtue, knowledge, courage, and the like, philosophers have been tempted by the idea of stopping a threatened infinite regress like this one by identifying something that is – must be – the regress-stopper: the Prime Mammal, in this case…So, as a general rule, consider ignoring the philosophers’ demand for an essence, a defining feature, a “truth-maker.” It typically – not always – starts a wild goose chase that may be diverting but is only moderately illuminating at best. The upshot – the act of where and how to set limits is itself an activity that has limits. We shouldn’t worry too much about our inability to set exact limits in a way that correctly handle every case, because that’s simply not a possible task. (As I once heard a mathematician quip, it’s very difficult to prove a theorem that’s false!) Now for some things, we simply can’t take Dennett’s advice to just avoid drawing any lines at all. Attempting to solve everything on a case-by-base basis has prohibitively high transaction costs. But when we draw these lines, we should do so with the full awareness that any line we draw will necessarily be imperfect and will get things wrong some of the time. (This, perhaps, is another reason to ensure rules allow for the possibility of exceptions.) However, one mustn’t make a different sort of mistake from this – the mistake of going from the observation that there is no objectively correct, nonarbitrary spot to draw a line for these distinctions, to concluding that the distinctions themselves are meaningless, anything goes, and it doesn’t matter at all where the line ends up. Matt Zwolinski talked about how people can make this mistake when they move from pointing out that certain features of property rights require enforcement through social conventions that are inevitably arbitrary regarding specific details, to embracing the non-sequitur that the very idea of property rights is arbitrary and entirely determined by social conventions. As Zwolinski put it, One way of sidestepping the philosophical puzzles involved in these questions is to simply stipulate an answer through the establishment of a convention. The Homestead Act of 1862, for instance, stated that families could claim up to 160 acres of land once they’d lived on it for five years. Why 160 and not 180? Why five years and not three? Obviously it’s not because those numbers are uniquely mandated by the correct theory of natural rights. Does that make the theory of natural rights worthless? Of course not. A theory of natural rights establishes general principles, and those principles demarcate a range of morally acceptable solutions to the problem of appropriation. Within that range, societies are free to choose. But the open-endedness is not unlimited. It doesn’t really matter if you specify that families can claim 160 acres or 180. It matters a lot that you specify that they can’t take land that somebody else is already living on. So what does all of this mean? It’s true that there is no one, unique set of rules and institutions that counts as a “free market.” Neither natural law nor economic theory can tell us exactly what a libertarian utopia should look like. But that doesn’t mean that anything goes. It might be impossible to specify in a non-arbitrary way exactly where blueish-green shades into greenish-blue, or when a child becomes an adult, or when a free-market ceases to become free. But only someone who has allowed philosophical puzzles to blind them to the world in front of them would conclude from this that there’s no difference between green and blue, or a child or an adult, or capitalism and socialism. The same, too, can be said of someone who insists that there is no difference between a mammal and a reptile. We can’t draw an exact line justifiable with mathematical precision. The best we can do is find a point in the proverbial grey area, draw a line somewhere in there, and say “well, that’s good enough.” And in much of life, “good enough” is going to be the best we can do. (0 COMMENTS)

  I’m glad that co-blogger Scott Sumner took on one of the fears about ending the production of pennies. His post made me realize that I had neglected to post on my article on the demise of the penny that I published at Hoover in March. The article is “Thoughts for Your Penny?“, Defining Ideas, March 13, 2025. No, I didn’t come up with that great title. My editor did. Some highlights: The US government makes a pretty penny (pun intended) on seigniorage. It’s not as much as it used to be because more and more people use credit cards and even cryptocurrency to buy goods and services. Still, it’s a good amount. The biggest gain from seigniorage is on the $100 bill. Printing one costs the federal government just 9.4 cents. So, when the feds spend this $100, they make a nice profit of $99.90. Not bad. Printing a $1 bill costs the feds 3.2 cents. So even on a $1 bill, the feds make 97 cents. But minting small coins loses money for the feds. In its 2024 Annual Report, the US Mint reports the cost of producing each coin denomination. The cost of producing a penny was $0.03. In other words, the cost of producing a penny was three times the value of the penny. Interestingly, the feds went underwater even on the nickel, whose cost, at $0.11, was over twice the value of the nickel. That’s why I stated earlier that the federal government should stop producing nickels also. It isn’t until you get to the dime that you find a coin that the feds make money on. Interestingly, the cost of producing a dime, at $0.045, is less than the cost of producing a nickel. That surprised me at first, but it shouldn’t have. First, the nickel is bigger than the dime. Second, the nickel and the dime are made up of almost the same metals. The nickel is made up of 75 percent copper and 25 percent nickel; it’s actually an alloy called cupronickel. Interestingly, since 1866, except for a period during World War II, when the US government wanted nickel for military uses, nickels have been made of cupronickel. The dime is made up of a copper core within an outer layer of cupronickel; the overall composition of a dime is 91.67 percent copper and 8.33 percent nickel. Unlike with the nickel, the dime’s composition has changed dramatically. Before the Coinage Act of 1965 removed silver from dimes, dimes were composed of 90 percent silver and 10 percent copper. I still have some silver dimes and quarters hidden away in my sock drawer. It should be obvious why the feds changed the composition of the dime: with increases in the price of silver, producing a dime the pre-1965 way was a losing proposition. And: Because the bigger gains would come from getting rid of the penny, not the nickel, that’s what I’ll focus on here. How would we make the transition? First, no real transition would be necessary for the vast majority of transactions. Most people use credit cards or debit cards to buy items. If you bought an item on your Visa card for, say, $19.99, the merchant could charge you $19.99. No penny would need to change hands. Let’s say that that’s the only thing you bought that month and that you pay off your credit card in full each month. You would pay the credit card either by transferring funds from your bank electronically, or, as is rare now, writing and sending in a check. Again, no pennies would be necessary. So, the only transition required would be for people who pay cash. How would that work? We can look to Canada for guidance. Under Conservative former prime minister Stephen Harper, Canada’s Royal Mint quit producing pennies in May 2012, and Canada’s government stopped distributing them in February 2013. I go to my cottage in Canada every summer and the few times I have paid cash, it has been seamless. If the bill came to, say, $19.97, the cash register rounded down to $19.95. But if the bill were $19.98, the cash register rounded up to $20.00. Interestingly, pennies are still legal tender in Canada, but for the past ten years, I have not seen anyone using them. Gone are the days with the little dish on the retail counter labeled “Take a penny, leave a penny.” There’s no need. Read the whole thing.   (0 COMMENTS)

Assume for the sake of the argument that the run-of-the-mill nationalist’s expression “our national resources” is meaningful. These resources—physical resources, capital, talents, expertise, etc.—constitute a sort of “public good” belonging to, and to be consumed collectively by, the nation’s members, if not by “the Nation” herself. Consider a first contradiction. Nationalists are usually mercantilist: they want “protection” against imports and maximization of exports—the largest possible trade surplus. But this means using “our national resources” to produce goods for foreigners (the definition of exports), and using state coercion (tariffs and other barriers to imports) to limit our fellow citizens’ consumption of the production from (output of) foreigners’ own national resources. The contradiction is obvious. To be consistent, nationalists should instead favor maximum imports and minimum exports. A nationalist could offer the counter-argument that “we” export production from “our” national resources in order to be able to import the foreigners’ production from their national resources. If that is true, “we” would want the best terms of trade, that is, as much importation and as little exportation as possible. But why would “we” want to do this? Answering by invoking comparative advantage and the benefits of trade generates a second contradiction (this one more institutional than purely logical). For then, why would “we” limit imports to what our government’s political and bureaucratic geniuses think should and should not be imported and under which conditions? Economic freedom is generally more efficient than government planning and industrial policy. What does “efficient” mean? Different schools of economic thought provide different answers: maximizing economic benefits measured in terms of money (mainstream neoclassical school); maximizing social welfare (welfare economics); favoring economic growth and prosperity (Adam Smith and classical economics); “increas[ing] the opportunities for any unknown person picked at random” (Friedrich Hayek); coordinating individual actions (see, for example, Robert Sugden, The Economics of Rights, Cooperation, and Welfare or, for the matter, Anthony de Jasay); realizing the common preferences of all individuals for the basic rules of social interaction (James Buchanan). The underlying ideal is to satisfy as much as possible the demands of all individuals, all being assumed formally equal. In international trade as in domestic trade, comparative advantage simply follows from free individuals (and their private organizations) producing what each can produce efficiently enough to find willing customers, in order to be able to purchase individually what they want at the lowest price available. Economic efficiency refers to the satisfaction of individual preferences. A corollary of these individualist theories is that property of “our national resources” is held by individuals in severalty, as opposed to in commonalty (a legal term to mean “in common”). Otherwise, the principal-agent problem prevents the efficient use of resources on the Pareto frontier. (See Chapter 13 of de Jasay’s Justice and Its Surroundings.) What belongs to everybody belongs to nobody except the state. Nationalism, on the contrary, refers to the satisfaction of the national collective, which means in practice its majority or a plurality. Nationalism is a form of collectivism. In reality, the satisfaction of a collective amounts to the satisfaction of the preferences of its rulers and their political supporters. In a free society, “national resources” are private. (Exceptions for communal lands, streets, roads, and such can be justified, perhaps with a contractarian argument, but they would be exceptions.) Trade from the outputs of private resources is, at least in peacetime, freely open for individuals and their private organizations to conduct as they want. ****************************** Waiting in line to hug our national-collective tree, by ChatGPT and your humble blogger (0 COMMENTS)