I found many interesting points in a recent Financial Times story about cocoa beans, the main ingredient of chocolate: see Susannah Savage, Chocolate Cartels: The Rise of Cocoa Smuggling, August 2, 2025. The first set of facts relates to the great “deals” that the states of Ghana and Ivory Coast made with their cocoa farmers. Two-thirds of the world supply of cocoa beans comes from these two countries. The official deal was to protect the farmers against price fluctuations on the world market. The real deal probably aimed to allow each state to establish a monopsony of the domestic cocoa production: it could then pay the farmers less than the world price, resell the beans on the world market, and use the difference to subsidize the urban elite. With a world price of cocoa that reached $10,000 per ton (now down to about $7,000) over the last year and a half, the price paid to farmers only crept up, with a lag, from $1,000 to between $3,000 and $5,000. An economist won’t be surprised. In rich countries, where farmers make up a very small proportion of the population, they represent concentrated interests that use the state to exploit the rest of the population. In underdeveloped countries like Ghana and Ivory Coast, where farmers represent the bulk of the active population, they are typically exploited by the concentrated interests of urban and government elites. In general, public choice economics has taught us not to idealize the state: it is manned by people no less self-interested than you and I. Catering to organized and vocal interests serves the interests of politicians and their bureaucracy. A second revealing phenomenon is the rise of smuggling. Given the level of cocoa prices on world markets, farmers sell part of their crops (perhaps a quarter of it in Ghana) to smugglers, who, at some risk, transport it to neighboring countries, out of the reach of the national monopsony, and resell the beans for as much as $9,000 a ton (during the recent peak). From there, the beans are shipped to European processing hubs in Belgium or the Netherlands. Even with the state’s repressive apparatus, it is often impossible to prevent human individuals from trading when doing so is in their best interest. The reflection of a pilot trying to catch moving smugglers gives the flavor of the phenomenon: “It’s more dangerous to investigate cocoa than arms trafficking,” boasted the pilot, an adviser to the government, who requested anonymity and described it being “like cocaine in Colombia or in the Amazon”. Adam Smith saw the smuggler as a person who, though no doubt highly blameable for violating the laws of his country, is frequently incapable of violating those of natural justice, and would have been, in every respect, an excellent citizen, had not the laws of his country made that a crime which nature never meant to be so. … Not many people are scrupulous about smuggling, when, without perjury, they can find any easy and safe opportunity of doing so. To pretend to have any scruple about buying smuggled goods, though a manifest encouragement to the violation of the revenue laws, and to the perjury which almost always attends it, would in most countries be regarded as one of those pedantic pieces of hypocrisy which, instead of gaining credit with any body, serve only to expose the person who affects to practise them, to the suspicion of being a greater knave than most of his neighbours. By this indulgence of the public, the smuggler is often encouraged to continue a trade which he is thus taught to consider as in some measure innocent. A third phenomenon is official corruption. Less honorable are the government officials who, as the FT reports, take bribes from the smugglers, although we should note that this corruption does allow humble people to trade despite the state’s official restrictions. “Ivorian authorities did not respond to a request for comments,” the journalist notes. A fourth observation results from a new surveillance activity by governments. The “traceability” of products decreed by the European Union’s controversial Deforestation Regulation may kill the trade in smuggled beans, which will likely lack proper documentation. To the extent that the smugglers find a way around this new restriction, it will reduce the price they can offer to farmers. (0 COMMENTS)

With all the discussion of free trade, tariffs, and non-tariff barriers, I decided to pick up and quickly skim a short, delightful book by trade economist Jagdish Bhagwati. It’s his 1988 book, titled simply Protectionism. I wrote a short review of the book in the June 5, 1989 issue of Fortune. One of the issues, then and now, is American companies’ objection to what they see as “dumping.” Here’s a key paragraph of my review: American companies often claim that foreign competitors are unfairly subsidized by their governments, and they petition the U.S. government to impose countervailing duties and antidumping measures on foreign suppliers. Bhagwati sees such measures as mainly harassment to discourage competition from foreigners. For example, he says, U.S. rice producers got a countervailing duty imposed on rice from Thailand by establishing that the Thai government was subsidizing rice exports by less than 1%–and ignoring the fact that Thailand also slapped a 5% tax on rice exports. We usually think a foreign firm is dumping when it sells at a lower price in our market than in its own. But the U.S. government took an antidumping measure against Poland’s exports of golf carts even though no golf carts were sold in Poland. I didn’t have space to cover his humorous discussion of an argument by Stephen Cohen and John Zysman, in their 1987 book, which made a splash at the time, Manufacturing Matters. I have space here. Cohen and Zysman wrote, and Bhagwati quotes: There are…other kinds of linkages in the economy, such as those which tie the crop duster to the cotton fields, the ketchup maker to the tomato patch, the wine press to the vineyards (to return to our focus on agriculture). Here the linkages are tight and quite concrete…the linkage is a bind, not a junction or substitution point. Offshore the tomato farm and you close or offshore the ketchup plant. No two ways about it. Responds Bhagwati: Now, as I read the profound assertion about the tomato farm and the ketchup plant, I was eating my favorite Crabtree & Evelyn vintage marmalade. It surely had not occurred to me that England grew its own oranges. (Bhagwati, by the way, wrote the article “Protectionism” for David R. Henderson, ed. The Concise Encyclopedia of Economics.) (0 COMMENTS)

Co-blogger Pierre Lemieux’s recent post “Can a Constitution Limit the State?” (July 21, 2025) poses an important question, one political theorists have wrestled with for millennia.  In the comments section of that post, I linked to a recent paper in the Journal of Institutional Economics by Jacek Lewkowicz, Jan Falkowski, Zimin Lou, and Olga Marut (henceforth LFLM) that makes the case the wording of a constitution will affect how governments comply with their restrictions (“Watch out for Words: Wording of Constitution and Constitutional Compliance,” Journal of Institutional Economics, 20:e35).  Readability (that is, avoiding highly complex and technical jargon) makes it more obvious whether a government official violates the constitution, which in turn can increase pressure on him from the electorate.  Conversely, if a constitution is highly technical and difficult to read, its enforcement falls to those specially trained in its interpretation, making it harder to enforce. Thus, making the constitution (and subsequently laws) understandable to the vast majority of people has benefits. But some readers may recall my post from April, “Colloquial Law.”  In that post, I quoted Lon Fuller on the Soviet legal experiment to make laws so easy to understand that every worker could understand them.  In the process, the law lost all consistency and the law’s application by judges became “capricious and less predictable.”  Note that this is the same effect predicted by overly technical constitutions as well. How to explain this apparent contradiction?  It could be that the relationship between readability and compliance is not monotonic.  The readability of a constitution has marginal benefits, but these marginal benefits are subject to diminishing returns.  At some point, the net benefits go negative.  Indeed, this could also explain the finding in LFLM that the precision of language gives mixed results. It could also be that other factors swamp readability.  In a large democracy like the US, the ability of any one voter (or, for that matter, any one representative or senator) to punish those who violate the Constitution is quite limited.  Your typical collective action problems come into play.  Smaller democracies may have more luck in enforcement. There are many interesting ways to answer this question.  I am sure constitutional scholars have already considered them.  Regardless, how effective constitutions are remains an important question. (0 COMMENTS)

The FT has an interesting story on the British government’s attempt to boost capital gains tax revenue: The UK’s efforts to increase revenues from capital gains tax have backfired, with receipts plummeting in the wake of big cuts in allowances. The government’s CGT take fell 18 per cent from the previous year to £12.1bn in the 2023-24 fiscal year, even as the annual tax-free allowance was halved from £12,300 to £6,000, according to data released by HM Revenue & Customs on Thursday. Separate provisional figures — calculated using a different methodology and published earlier in the week by HMRC — indicated a further 10 per cent drop in CGT receipts in 2024-25. . . . The slashing of allowances by the previous Conservative government in 2023-24 made an additional 87,000 taxpayers potentially liable for CGT, taking the total number exposed to the tax to 378,000. The tax-free allowance was halved again to £3,000 a year in 2024-25. Reeves also increased CGT rates in her Budget last October to between 18 and 32 per cent — up from the previous rates of between 10 and 28 per cent. Defenders of the tax increase might point to the fact that the revenue drop merely represents a decision by investors to delay the realization of capital gains.  In the long run, the higher tax rates may yield more revenue than the previous lower rates: Several tax experts said they expected tax revenues to rise briefly in 2024-25 — which covers the period before last October’s Budget, Labour’s first since returning to office — and then decline. Hollands said: “Given the rife speculation that preceded that Budget of even steeper rises and even a potential alignment with income tax rates, we certainly saw evidence of clients crystallising gains ahead of the event.” That outcome is certainly possible, but it’s worth thinking about the implications of this argument.  Supporters of higher capital gains taxes are implicitly saying something to the effect that, “The revenue intake was disappointing because people respond to incentives when deciding when to sell assets.”  Yes, but unfortunately for the UK Treasury, people respond far more powerfully to incentives (in all sorts of ways) in the very long run than in the medium term.  Thus higher tax rates in the UK may lead to more income gradually being shifted to lower taxed areas such as Ireland. More broadly, I believe that the current malaise in the European economy partly reflects the long run effects of various tax and spending policies, which have slowly eroded the tax base.  European countries that did not opt for a big government model, such as Switzerland, are doing better than their more highly taxed neighbors.  When countries increase their capital gains taxes, I see three effects: Lower revenue in the short run, due to the timing of asset sales. Somewhat higher revenue in the medium term, as assets are eventually sold. Disappointing revenue in the very long run, as individuals and business rearrange their affairs in such a way as to reduce their tax liability. (1 COMMENTS)

This is the fourth part of my exploration of Musa al-Gharbi’s We Have Never Been Woke. (Part 1, Part 2, Part 3). As we’ve seen, al-Gharbi spends a good deal of time establishing the demographic of people who are most likely to end up being “woke” as he described the term. And that group is overwhelmingly skewed toward highly educated white liberals: This is not just a function of baseline U.S. population characteristics: relative to other American workers, symbolic capitalists are disproportionately likely to be white. They nearly unanimously possessed at least a BA. Politically and ideologically, they are overwhelmingly Democratic and liberal. All said, the lion’s share of symbolic capitalists are highly educated white liberals, and Americans who happen to be highly educated whites liberals are quite likely to be symbolic capitalists. If this is where we are, how did we get here? To answer that question, al-Gharbi examines the history of the symbolic professions – their rise in prominence and power, and how the dynamics that created that rise also influenced the ideology most attractive to this new group of elites. While the jobs that make up the symbolic professions have always existed in one form or another, they rose in prominence during the decades bracketing the First World War. The disorder and chaos of the era created a strong sense that civilization needed to be changed on a fundamental level: Into this milieu stepped the Progressives. Secularizing the social gospel movement, they promised to help America transcend its divides, redeem its soul, and experience unprecedented peace and prosperity by leveraging science and reason to maximize human flourishing in a way that laissez-faire capitalism never could. They promised a world where robber barons would be restrained by technocrats, where corruption, nepotism, exploitation, and unjust discrimination would be replaced by meritocracy and professionalization. The poor and the unfit would be cared for and gradually eliminated through a combination of aid, education programs, expanded rules and regulations (and intensified enforcement), and eugenics programs. Political partisanship, ethnic and religious conflict, and other forms of tribalistic struggles would be settled by objective and disinterested experts committed to the greater good. Class struggle would be eliminated, not because inequality was vanquished, but because people across the social strata would be made to see that the prosperity and economic dynamism unleashed by free markets could benefit everyone—so long as the wealthy and powerful could be persuaded to entrust a share of their wealth and authority to symbolic capitalists to manage the economy and society writ large. The symbolic professions arose in the service of this project. As the Progressive movement consolidated political power, members of the symbolic professions worked to administer the goals of Progressivism in both state and private institutions. Through the use of symbolic capital, the symbolic capitalists would lead through expertise, driven by data, and pull levers of policy to achieve desired ends. This caused the various professions of the symbolic capitalist class to more strongly formalize their trade – one example is Harvard creating the Harvard Business School and becoming “the first institution in the world to offer a master of business administration (MBA) degree.” Education, too, became more formalized as a profession: Progressives simultaneously spearheaded the proliferation of secondary schools and successfully lobbied for mandatory attendance laws, with the aim of assimilating (“civilizing”) ethnic or religious minorities…In order to train the needed army of instructors in how to educate students the “correct” way, teachers’ colleges were established around the country (evolved from “normal schools”), and many colleges and universities established departments or schools of education. As this new class of elites arose, they also sought to consolidate political power into their own hands: In order to justify their positions, increase their compensation, and expand their influence, they sought to take more and more decisions out of the realm of democratic contestation by redefining them as matters of expert judgment. It would be for them, the experts, to discern not only what the public did want but what it should want. They would likewise determine the best way to achieve particular goals and officially evaluate progress toward those goals. This formalizing of the new professional class was accompanied by the heavy use of gatekeeping to keep the riffraff out. As members of the new class took the reins of technocratic power in the state, the establishment ensured only those with the proper symbolic capital would be able to wield that power: In order to help ensure these jobs ended up being filled by the “right” people, Woodrow Wilson authorized African Americans to be cut from the civil service on the basis of their race and, post-1914, required pictures with job applications to facilitate racial discrimination henceforth. Later, under Franklin D. Roosevelt (and to a lesser extent Harry S. Truman), immigrants and minorities would also be disqualified in various ways from taking advantage of New Deal and Fair Deal job opportunities or benefiting from associated government wealth-building programs. In the private sector, members of the new professional class created their own barriers to entry through regulatory capture, creating an explosion of licensing and certification requirements, also with the intention of keeping out the “wrong” kind of people: There were moves to restrict access to journalism jobs to those possessing professional degrees. Teacher certification requirements increased dramatically. New licensing, testing, certification, and degree requirements likewise proliferated for medicine (and derivative fields such as dentistry, pharmacology, nursing, and psychiatry), law, social work, the information professions, and beyond. Scientists (in the natural or social sciences) increasingly required advanced degrees in order to be taken seriously or even officially work as scientists. These measures were taken somewhat explicitly to ensure the “right” kinds of people (upper-middle-class WASPs) ended up in these jobs while the “wrong” kinds of people (ethnic and religious minorities) were filtered out. The American Medical Association, the American Bar Association, and many other professional organizations explicitly restricted membership to whites and denied accreditation to most of the schools that arose to train immigrants and minorities in the professions. Even when these barriers weren’t officially explicit in their purpose to keep out the wrong kinds of people, they were often consciously adjusted in order to ensure the desired results were created: Colleges and universities increasingly began awarding scholarships and admission on the basis of “merit.” However, when too many of the “wrong” people (i.e., Jewish people) started qualifying for meritocratic admission and aid, universities shifted to a “holistic” decision-making process that would allow them to discreetly cut “undesirables” who otherwise qualified on the basis of grades and exam scores. Overall, the system of credentialism, licensing, certification, and other barriers to entry created by the new symbolic capitalist class was extremely profitable for them. Citing the work of the sociologist Randall Collins, al-Gharbi notes (ellipsis in original), Indeed, Collins’s research shows that although the symbolic professions and the credentialing system were ushered in under the auspices of transferring wealth and opportunity from those at the top to those that were needy and desperate, in fact the primary wealth transfer that actually occurred during this period was from the upper class to the upper-middle class. Symbolic capitalists took from the rich and gave…primarily to themselves. Yet while the symbolic professions gained wealth and power for themselves, the whole raison d’être of the Progressive movement they supported was supposed to be about improving the conditions of the poor and vulnerable. Thus, it’s critically important for symbolic capitalists to portray their technocratic power, and the institutional barriers they erect and maintain to protect their status, as being motivated by a concern for the good of society in general and of the poor in particular, because if they “are perceived to be selfish or myopic, as serving elite interests at the expense of the broader public, or as parasitic on society rather than advancing the greater good, their authority and job security can be severely undermined.” This creates an arms race within members of the symbolic professions: This mode of legitimation also sets the stage for a unique form of status competition within the symbolic professions: those who are perceived to be more effective or committed to promoting the common good and (especially) helping the vulnerable, marginalized, and disadvantaged are generally perceived to be more worthy of prestige, deference, autonomy, and so on. Meanwhile, those who are successfully portrayed as possessing values, priorities, and behaviors that seem unworthy of their profession will often find their jobs and social status in a precarious position. And when times get hard, symbolic capitalists grow even more aggressive in trying to preserve or enhance their social position by demonstrating that their peers and rivals have never been woke. This aggressive competition is what gives rise to “Awokenings.” While that term was only recently coined to describe “the Great Awokening” among symbolic capitalists post-2010, al-Gharbi argues that this is only the most recent instance of a recurring event. There have been many Awokenings, all driven by members of the symbolic professions. But when al-Gharbi says this happens “when times get hard,” it’s a particular kind of hardship he has in mind. In the next post, we will look at al-Gharbi’s argument about what kinds of conditions lead to Awokenings, as well as what eventually causes their abatement. (0 COMMENTS)

When we communicate with one another, how we say things can sometimes be as important as what we actually say. Words matter, which is even more true when we exchange ideas and try to convince others to embrace our viewpoints. Ideological rhetoric, then, merits some thought on the part of libertarians. Of course, libertarians uphold first and foremost the idea of expanding individual liberty. We want people to be free. But most of the time, non-libertarians say something like this: ‘Well, who doesn’t want freedom? The problem is that freedom can create inequality.’ When this happens, the discussion comes dangerously close to an end: It does not matter that we contextualize such a statement or that we contest it. The urge for some sort of equality, whatever it means, seems unavoidable. But what if libertarians could provide meaning to the ‘equality’ that a significant portion of the public longs for? What if libertarians could also be egalitarians? There is certainly one recent, powerful attempt to tackle these issues: Deirdre McCloskey’s work on the concept of ‘equality of permission.’ According to her, this kind of equality is in fact the basis of libertarianism itself. She implicitly restates libertarians’ main goal to be the creation of a society where everyone is equally allowed to ‘enter in the race as an adult,’ or more simply to live their lives as they see fit. If everybody is allowed to do the same things, which is the same as to say that nobody enjoys any special privileges, then we have a libertarian society. By equating the concept of equality of permission with ‘liberalism’ (in the classic sense of the word), McCloskey provides an eloquent allegory for libertarians to use when debating others. When asked ‘What about equality?,’ libertarians can now say that they also care, that they are also egalitarians. The tension between freedom and equality can finally be bridged. But some of the readers may ask at this point: ‘What about equality before the law? Didn’t we already embrace equality as libertarians?’ This is a great question. Indeed, the idea of ‘equality before the law’ can certainly be conceived as equivalent to the idea of ‘equality of permission.’ The problem is it need not be. ‘Equality before the law’ has a long history, one that goes back to the birth of classical liberalism itself. For most of that history, the law seemed more certain and general in scope than it seems today. But the end of the 19th century and all of the 20th century saw a dangerous trend (identified by Bruno Leoni) of equating ‘law’ with ‘legislation,’ while at the same time the latter became more and more tied to special interests. Thus, to talk about equality before the law can confuse the general public, who instead of thinking we should all be permitted to do the same things could potentially think that we are all entitled to the same privileges that different pieces of legislation award to different interest groups. The latter, from a libertarian standpoint, would be disastrous both in terms of economic and moral damage. As libertarians, we can choose to fight reality or adapt ourselves to it. We can surely try to educate the public regarding the importance of the Constitution, the difference between law and legislation, the problems of crony capitalism, and many other topics. But to advance our most basic goal of liberating ourselves from the oppression of current legislation, we can also probably present our ideas in the simplest way we can think of. ‘Equality of permission’ seems straightforward. ‘Equality before the law’ seems less so. In the end, as libertarians we all want to convey the same ideas to the general public. To do that, and in a context that is skewed against libertarianism, we need a new approach. Perhaps the concept of equality of permission can be as convincing as it is morally strong. It can’t hurt to try.   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)

The answer may surprise you. In so much of the discussion of tax cuts, whether of the recent one or previous tax cuts,  we hear that the highest-income people got the biggest tax cuts. Of course, they did. They pay a disproportionately high percent of overall federal taxes. So it shouldn’t be surprising that they get the biggest tax cuts in absolute terms. But that doesn’t mean that the highest-income people got the highest percentage tax cut. Reporters have generally not done a good job of making that point. Surprisingly, reporters for the Wall Street Journal last week pointed out that the lowest income quintile received the largest percentage decrease in taxes. Why do I say surprisingly? Isn’t the Wall Street Journal the kind of newspaper that, of course, would point that out? The editorial page, certainly. But not the news pages. I’ve read the Journal multiple times a week for 52 years and I’ve always noticed the split between the conservative/sometimes libertarian editorial page and the left-of-center news pages. Indeed, the UCLA economist and now George Mason University economist Tim Groseclose established in his 2011 book, Left Turn: How Liberal Media Bias Distorts the American Mind, that WSJ reporters are among the most left-wing of all reporters for the major media. I reviewed his book here and briefly cited his evidence about the Journal. Here’s what WSJ reporters Richard Rubin and Karen Dapena pointed out in their July 28 news story. The average change in federal taxes paid in 2026, due to the new tax law will be: -15.1% for the lowest quintile -14.9% for the second quintile -12.6% for the middle quintile -11.1% for the fourth quintile -9.2% for the 80-90 percentile -9.5% for the 90-95 percentile -11.2% for the 95-99 percentile -7.1% for the top 1%. (0 COMMENTS)

The relationship between accounting identities and economic model is frequently misunderstood.  An accounting identity is an equality that must be true, by definition.  It is tautology.  It is meant to categorize and organize relationships between variables.  For example Assets = Liabilities is an identity.  Regardless what “assets” equals, “liabilities” must be the same amount.  We have defined it this way.  There is nothing causal about this statement.  It tells us nothing about the behavioral relationship between the various factors. Furthermore, an identity is not testable and falsifiable.  It is always and necessarily true.  We cannot test to see if an increase in consumption increases GDP; it always and everywhere will.  If an increase in consumption decreases GDP, then you made a math mistake. Conversely, economic models describe causal, behavioral relationships.  Rather than being defined a certain way, models take simplifying assumptions and observed behaviors to posit cause and effect.  Take a simple model of demand: Quantity demanded = 10–2P.  This is a model of the causal, behavioral relationship between quantity demanded and price: as price falls, quantity demanded rises by 2 (and vice versa).  Quantity demanded does not equal 10–2P by definition.  That is based on observed behavior and various simplifying assumptions. Quantity demanded could be quadratic, it could be locally upward-sloping, it could take on many different shapes!  This is a relationship that was discovered and is limited to this use. Furthermore, a model is testable and falsifiable.  We can test to see if a change in price influences quantity demanded by 2.  Say, we observe that instead, a marginal change in price changes quantity demanded by 3.  Our model is falsified! The misunderstanding might come from the fact that identities and models look similar.  They are both mathematical equations.  But to properly appreciate what they tell us, one must understand the difference.  A model describes a theoretical causal relationship.  An identity is a description, a definition.  Further, an accounting identity only tells us what happened in the past. Michael Pettis, a Carnegie Fellow and professor of finance at Peking University in Beijing, is perhaps the most prominent (though not the only) offender who confuses the two, since he writes often in large, international outlets.  Brian Albrecht, chief economist at the International Center for Law & Economics, has an excellent blog post in which he shows how a little Econ 101 reasoning exposes the weaknesses, contradictions, and hidden assumptions in Pettis’s arguments.[1]  (My co-blogger Scott Sumner has similar comments.) Pettis frequently argues that mercantilist policies of other governments, in particular China, force America to run a trade deficit.  His argument falls out of the accounting identity that, in a closed economy, Savings = Investment.  If planet Earth is a closed economy (and it is, at least until we uncover sentient alien life), then a nation like China increasing savings must mean that another nation is investing more, leading to a trade deficit. Taking Pettis’s argument on its own terms betrays a fundamental misunderstanding of how accounting identities work.  Accounting identities are not mind control.  They are a record of transactions.  In other words, they tell us what has occurred, not what will occur.  Only transactions that have occurred show up in the accounts.  Accounting is only a description of what has occurred. The accounting of past events tell us nothing about future transactions. Take the simplified accounting identity Assets = Liabilities.  If a firm buys an asset on credit, the firm’s assets go up and the firm’s liabilities go up by the same amount.  As the firm pays off the debt, its assets go down, and so do the liabilities by the same amount.  That must be true because that’s simply the purpose of these categories.  But the changes in assets and liabilities reflect transactions that have occurred, not future transactions.  As a matter of course, when a purchase occurs both assets and liabilities adjust—if the transaction occurs.  If the transaction does not occur, it never appears in the ledger. To bring this to the international stage, the accounting identity Investment = Savings – Balance of Trade is merely accounting for (describing formally) transactions that occurred in the previous time period.  If some investment occurred, it must have been funded by some combination of domestic and international savings.  But it does not track the countless investments (and savings) that did not occur because they didn’t make sense at the available interest rate.  Because they didn’t happen, they can’t be described, and so those transactions do not show up at all!  Again, the accounting identity only tells us what has occurred, not what will occur. For another example, say you have an extra $200,000 and decide to save it.  You open a Certificate of Deposit savings account at the local bank and deposit the money there.  The bank’s assets have risen (its reserves increased by the amount you deposited) but so have its liabilities (account holders can demand their deposits back).  The deposited funds are now available for investment, but nothing about your deposit says investment must rise.  No one wakes up the next day and says, “I must buy a house and borrow $200,000 now!”  The bank will try to entice borrowers with interest rates, but there is no compulsion going on, and nothing about the definition says it has to happen.  Indeed, if the bank cannot lend out the money, it stays in bank reserves and never shows up in GDP at all.  Even though a savings account has increased, without corresponding investments, the transaction does not appear in GDP. Once we understand that accounting identities record transactions that have occurred and have no power to compel future transactions, the logic of Pettis’s (and other mercantilists’) argument falls apart.  Increasing Chinese savings does not compel Americans to run a trade deficit.  Of course, all else held equal, increased savings (loanable funds) would reduce interest rates, which in turn would increase the quantity demanded of loans, increasing US GDP (through increased consumption, investment, or government spending) and the trade deficit, it is true.  But that does not follow from the accounting identity, but from Econ 101 supply-and-demand framework.  If there were no appetite to borrow, no mutually beneficial transactions to occur, then no amount of increased savings will compel Americans to borrow.   — [1] As Brian points out, Pettis would argue that Econ 101 doesn’t apply. But that’s just another weakness in his argument.  If you have to toss out scientific laws to make your case, your case isn’t very good. (0 COMMENTS)

The previous post in this series touched on Musa al-Gharbi’s identification of a class of people as “symbolic capitalists,” his contention that wokeness is the dominant ideology of this group, and that members of this group tend to be most predisposed to amplifying woke ideas. There are multiple “alternative names for symbolic capitalists” used by other writers, such as “the professional-managerial class, the new class, the creative class, the aspirational class,” among others. But regardless of the term one uses, what is a symbolic capitalist, exactly? According to al-Gharbi, symbolic capitalists are professionals who traffic in symbols and rhetoric, images and narratives, data and analysis, ideas and abstraction (as opposed to workers engaged in manual forms of labor tied to physical goods and services). For instance, people who work in fields like education, science, tech, finance, media law, consulting, administration, and public policy are overwhelmingly symbolic capitalists. If you’re reading this book, there’s a strong chance you’re a symbolic capitalist. I am, myself, a symbolic capitalist. That is to say, the world of symbolic capitalists is more about ideas, data, and intangible outputs, compared to workers whose work is focused on physical, tangible outputs. At one point in the book, he uses this as a way of distinguishing medical practitioners from symbolic capitalists: The amount of money symbolic capitalists take home every year is higher than for virtually anyone else in society. The only competitive nonsymbolic occupational group is “health-care practitioners and technicians”… Even though medical professionals are a highly educated, high status group, and the work they do requires substantial knowledge, they generally don’t fall into the category of symbolic capitalists because their work involved efforts to “directly intervene on physical bodies.” (Recently, I had a doctor inject a large amount of cortisone into a tendon sheath on my wrist – I can confirm that the work this doctor did was not in any sense a form of symbolic output.) As the name symbolic capitalist suggests, the stock and trade of such people is symbolic capital. Following the work of the sociologist Pierre Bourdieu, al-Gharbi says, In contrast with more traditional resources associated with wealth, material assets, and so on, Bourdieu defined symbolic capital as the resources available to someone on the basis of honor, prestige, celebrity, consecration, and recognition…According to Bourdieu, the roles people are assigned to on the basis of their symbolic capital (or lack thereof) may actually be more important that more conventional economic forces in determining how power is arranged within a society. Symbolic capitalists, according to Bourdieu, make their living by “three forms of symbolic capital: cultural, academic, and political.” These are very valuable social assets, al-Gharbi says: Collectively, these different forms of symbolic capital serve as the basis for defining others as insiders or intruders, experts or amateurs, leaders or brutes, authentic or posers, geniuses or hacks, sincere or cynical, worthy or unworthy, and so forth. Each of these forms of symbolic capital is defined. First, political capital: Political capital includes the trust, goodwill, relationships, and institutional authority that can be used to mobilize others in the service of particular goals. One’s formal title within an organizational hierarchy, one’s perceived credibility, reliability, efficacy, experience, and virtue – these are all resources that can be drawn on to convince others to throw their lot in with someone, to trust their vision, to run with their plan, to pursue their priorities. Next is academic capital: Academic capital, on the other hand, is about getting others to defer to one’s judgment based on special knowledge, intellect, skill, or expertise. Academic capital is mainly derived from one’s credentials, degrees, formal training, and such. Lastly, we have cultural capital: Finally, cultural capital is about demonstrating oneself as interesting, cool, sophisticated, charismatic, charming, and so on. People reveal their cultural capital through how they talk, how they carry themselves, their dress, their manners, their tastes and expressed opinions – all of which provides strong cues as to one’s level of education, socioeconomic background, ideological and political alignments, place of origin, and so forth. Of these three main forms of symbolic capital, it is cultural capital that is least accessible to nonelites. Cultural capital is key in another way – because it’s the biggest barrier keeping the “normies” distinguished from the elites, “wokeness has become a key source of cultural capital among contemporary elites – especially among symbolic capitalists.” And this helps explain why the activities, perceptions, priorities, and policy preferences of woke social justice activists seem so disconnected from the people these activists claim to be representing: The idiosyncratic understanding of social justice and attendant dispositions and modes of engagement colloquially referred to as being “woke” are popular almost exclusively among people like us. Those who are genuinely vulnerable, marginalized, disadvantaged, or impoverished don’t think or talk in these ways. And that’s part of the point. Among symbolic capitalists, wokeness has come to serve as a sign that someone is of an elite background or well-educated. Through espousing woke beliefs, symbolic capitalists (and aspirants to the symbolic professions) demonstrate that they are the kind of people who “play ball” – they are aware of, and are willing and able to competently execute, the appropriate scripts in response to various cues. That is, wokeness is increasingly a means of identifying who is part of “the club” – and it provides a basis for deeming those who are not part of the club unworthy of symbolic capital (i.e., people who fail to embrace elite conceptions of “social justice” are held to be undeserving of honor, fame, prestige, deference, etc.). By expressing concern for the well-being of the poor and powerless in a particular way, one also distinguishes oneself from the poor, powerless, and vulnerable, and demonstrates oneself to be a member of the elite in good standing. This is why on the one hand, surveys have found that among Black Americans who live in low-income areas, the overwhelming majority wanted the level of police presence in their neighborhood to be at least as high as it currently is or even higher. On the other hand, among members of the highly educated, wealthy, mostly white elites living in gated communities protected by private security, it was a great display of cultural capital to express enthusiasm for defunding or even abolishing the police. By expressing your concern for the poor and downtrodden in a way completely separate from the actual ideas or desires of that group, you signal the fact that you are wealthy, well-educated, and culturally sophisticated – you shouldn’t be mistaken for one of the plebs. However, al-Gharbi points out that symbolic capitalists are not a pure monolith in political leanings: All said, contemporary symbolic capitalists are overwhelmingly and increasingly aligned with the Democratic Party and the “cultural left.” However, there is a right wing among them. They amount to a relatively small share of symbolic capitalists overall yet exert a disproportionate impact in virtue of being highly organized, well funded, and quite skilled at eliciting strong (outraged) reactions both from mainstream symbolic capitalists and against mainstream symbolic capitalists—often in alliance with “anti-woke” peers. Yet the actively anti-woke segment of symbolic capitalists isn’t so much the opposite of the woke. They just have a different focus: What generally separates these symbolic capitalists from most others is that they are symbolically conservative: patriotic, religious, nondisdainful toward U.S. history, culture, and traditions. On the one hand, these are significant differences—ones that align right-leaning symbolic capitalists more closely with most other Americans… The primary grievance of these symbolic capitalists in the “culture wars” is that the abstractions they cherish are being denigrated, villainized, marginalized, and neglected as a result of their peers’ widespread embrace of an alternative symbolic paradigm—one that purports to unsettle the symbolic boundaries between men, women, nature, humanity, and God. Yet they share with mainstream symbolic capitalists a sense that this fight over language, ideas, history, and cultural artifacts is of deep importance—world-historical importance even—to the point where more practical problems that most “normies” confront in their day-to-day lives should take a back seat. Despite these differences, the modes of analysis al-Gharbi applies to woke symbolic capitalists also apply to anti-woke symbolic capitalists: Anti-wokes share mainstream symbolic capitalists’ worldview with the importance of the symbolic struggles: this is what gives their own campaigns perceived urgency and meaning. Materially speaking, they do similar types of work, and live similar lifestyles in similar places, relative to their woke peers. Consequently, virtually everything that follows applies just as much to the anti-woke as to mainstream symbolic capitalists. For our purposes, there is no significant difference between them. Because symbolic capitalists are vastly more likely to be woke and progressive, al-Gharbi places most of his focus on that group: This book will be focused intensively on the Left because symbolic capitalists are overwhelmingly aligned ideologically with the Left and politically with the Democratic Party. But granting that symbolic capitalists are likely to be progressive and woke, what made wokeness the dominant philosophy among symbolic capitalists? This isn’t mere happenstance, says al-Gharbi. Yet it’s not a result of the woke coming to these views as a result of deeply studying the academic literature – as al-Gharbi has mentioned, the views they espouse are often somewhere between unrelated to or the exact opposite of the actual contents of the scholarship they cite as inspiration. Nor is it due to a heightened awareness of the values and preferences of the downtrodden communities they claim to support – again, because the policy preferences of the woke tend to be out of step with of the expressed views of those very people. So what, then, explains the tendency of the elites to embrace wokeness? Or, perhaps more precisely, how did wokeness come to signal one is a member of the elite? We’ll look at al-Gharbi’s answer to that question in the next post. (0 COMMENTS)

A deal is an agreement to exchange something for some consideration, but different sorts of deals exist. A deal is not necessarily a free exchange and a free exchange is not necessarily a free-market exchange. The gold standard of all deals is a free-market exchange: a voluntary exchange where alternative demanders and suppliers exist. The free market does not need to be perfectly competitive, but alternatives are available at costs that are not too high. This qualification is illustrated by the dehydrated traveler lost in the desert who arrives at an oasis and is offered a glass of water for $10,000. “And I have a POS device for your credit card.” Whether the traveler accepts or declines, and whether the oasis owner is led or not to lower his price to get a deal (“better $500 than my customer dropping dead”), we still have a free exchange, because either party is free to accept or decline the trade; but it is not a free-market exchange. Many people are uncomfortable with this extreme case. A free exchange in this sense may be unjust. Extreme cases do not necessarily provide good tests of a theory. Moreover, an unjust exchange may still be better for the “weakest” party than a diktat forbidding him to do what is still in his best interest, as judged by himself, compared to no exchange (see Michael Munger, “What Does ‘Voluntary’ Actually Mean?” The Daily Economy, June 25, 2019). In a free society, such exchanges with limited alternatives would be rare anyway—as can be estimated from their frequency of occurrence in more-free-than-unfree countries and mostly-unfree ones. And then, there are deals that are unambiguously unfree and unjust, at least for some of the parties involved. A free exchange requires that a party who declines be not subject to punishment, that is, to the active removal of a previously recognized or exercised right or liberty. Fining or jailing a smuggler can hardly be called a free exchange between the smuggler and the punisher. We may call this sort of exchange a Berlin Wall deal: if you jump the wall, you will be shot; if you stay on our side, there is no shooting. Close to the Berlin-Wall deal, we encounter the kidnapper’s deal, which is not a free exchange either. You are kidnapped and imprisoned. Your kidnapper offers you a deal: a ransom of $100,000 or death. If you accept, it is an exchange (“a deal”) in the sense that both parties benefit relative to the new, coerced starting point imposed by the kidnapper, but it is not a free exchange considering the whole situation. Note that a deal can be a one-sided free exchange: free for one party, who is not coerced by a third party (say, his government), and unfree for the other contracting party, who is coerced or coercively restricted by another third party (say, by his own government). “I made a good deal on my Lenovo ThinkPad” unambiguously denotes a free and even free-market exchange for me, at least if I did not have to pay a cut (a tariff) to my own government, regardless of whether the seller is coerced by his own government. If Lenovo were not a private company (which it mostly is) or were not shackled to a certain extent by the Chinese Leviathan (which it certainly is), the free purchaser, on his side, would still be making a free-market exchange. A theory or classification that deemed any exchange unfree because some other individuals in the world are unfree would not be very useful. It is not because North Koreans are not free to participate in the world dating market that this market is unfree for Americans—even if the wider the free market, the better everyone is. Another sort of deal, which includes elements of the Berlin Wall deal and the kidnapper’s deal, is the rulers’ deal, made by rulers on behalf of their subjects and imposed on them: “Here is your deal. Enjoy, or else!” Two rulers striking a rulers’ deal benefit or think they will benefit; otherwise, one of them would decline. Obviously, it is not necessarily true for all (and perhaps most of) their subjects. At the limit, imagine two slave masters striking a deal involving their slaves: “Your slaves shall work for me in such or such circumstances, in return for my slaves working for you in such or such circumstances.” For example, your subjects will work to produce stuff for (export stuff to) my subjects, while my subjects will work to produce stuff for (export stuff to) your subjects. (It is too easy to claim that being a slave of the majority is not slavery.) These categories are not airtight and do not capture all the complexities of the social world. They do not, for example, account for conventional or accepted rules, à la de Jasay or à la Buchanan, but I suggest they are a first step in understanding and evaluating social and political realities—including “trade deals.” ****************************** Forthcoming deal between a kidnapper and his victim, by ChatGPT (2 COMMENTS)