A major assertion by the Trump Administration is that tariffs are paid for by foreigners.  And, indeed, under very specific circumstances, a tariff may be paid in part or in whole by a foreign producer: if the importing country is a monopsony (or has significant market power), if the exporting country has price power, and if there is no foreign retaliation, then a sufficiently small tariff could induce the exporting country to lower prices in order to retain market share.  That is, the exporter may absorb some or all of the tariff (an interesting and non-technical discussion on the theory and its history can be found here). At least on paper, the US seems to fit the description.  We are one of the largest countries in international trade.  US imports account for about 13.8% of global imports and exports are about 8% of global exports (data from the World Bank).  Furthermore, in some individual markets, we are the largest buyers/sellers by far.  So, at least in theory, there should be some part of a US tariff that is eaten by the foreign producer.  At yet, that is not the case in reality.  Indeed, tariffs imposed by the US government are pretty much entirely paid by Americans.  Why is this the case?  One could be tempted to throw away trade models and make unscientific appeals to things like greed or politics (as the White House has done).  But one shouldn’t throw out a perfectly good theory except when it cannot explain things.  And, as it happens, properly understood trade theory explains this seeming contradiction.  Most trade models treat countries as individual economic actors: The United States trades with Mexico.  This is done for pedagogical purposes to help our students see that there is little difference between domestic and international trade.  And there are times when treating countries as individual economic actors is useful or appropriate. The theoretical ability to pass on a tariff depends on treating countries as individual actors. But the reality is that trade, all trade, ultimately occurs between individuals, not countries.  The United States is not trading with Mexico.  A firm in Dallas is trading with a firm in Mexico City.  Consequently, while countries in the aggregate may have some sort of market power, individuals mostly do not.  The actual ability to pass on a tariff, or to force a foreign supplier to pay a tariff, is limited to non-existent. But isn’t this the point of tariffs?  To “collectively” negotiate for all?  Can’t we apply the same logic here to the “firm” called The United States?  Alas, no.  A country is not a firm.  Short of outright socialism, the president is not negotiating for inputs for American firms.  The firms are still the ones making buying decisions. It is their ability to pass on prices, not some fiction called “The United States Company,” that matters. The predictions and proclamations made by the Trump Administration and its economists fail to come true because they do not appreciate methodological individualism: that economic decisions are ultimately made by individuals, and that must be where our analysis begins.  Those who claim American market power can make foreigners eat the cost of US tariffs zoom out too far to the aggregate and forget that the aggregate is not independent, but rather emergent, from individuals.  This fatal conceit, this fatal error, has been the burr under the saddle of many a politician, and the Trump Administration is no different.  Reality is not optional, no matter how many fancy Greek letters you have to say otherwise. (0 COMMENTS)

  Economist Marina von Neumann Whitman died, at age 90, on May 20 this year. She was one of my 3 bosses when I was a summer intern at the Council of Economic Advisers in the summer of 1973. (I think of this as the “Watergate summer” because the hearings of the Watergate Committee were conducted that summer. Every morning, as I rode my bicycle down Capitol Hill to work in the Old Executive Office Building, I saw people lined up at one of the Senate buildings to watch the committee, chaired by North Carolina Democratic Senator Sam Ervin.) My other 2 bosses were chairman Herb Stein and member Gary L. Seevers. I started working in early June under Bob Tollison. He left at the end of June and had enough confidence in my ability that he recommended to Herb that Herb let me serve as an acting senior economist for the approximately 5 or 6 weeks before his replacement, Alan Pulsifer, arrived. Surprisingly, even though I had been a little brash and even rude in a meeting with Herb the day before, Herb said yes. I think Herb had the perspective I now have about young people: they can do stupid, thoughtless things but you should not put too much weight on those things if you’ve seen other good evidence of performance. But I’m getting away from the story. I reported to Marina, the other member, on only a few issues. I attended one major meeting with her and other people from other agencies who were at her rank, roughly the rank of undersecretary. Although I inappropriately spoke up to state the CEA’s position on something before she did, Marina didn’t chide me. I have two stories about Marina. Here’s the first, which is really about Herb Stein. It’s from Chapter 12 of my 2001 book, The Joy of Freedom: An Economist’s Odyssey. The chapter is titled “A Tour of Washington.” Herb would have made a first-rate comedian—his son, Ben Stein of Comedy Central fame, comes by it honestly. Near the end of the summer, Marina von Neumann Whitman (the daughter of the famous mathematician John von Neumann), one of the members of the Council, was set to leave, so there was a big party for her over at the New Executive Office Building, attended by various muck-a-mucks, including Arthur Burns, then chairman of the Federal Reserve Board, and George Shultz, secretary of the treasury, both economists who defended price controls knowing full well that they would hurt the economy. That summer, the Watergate hearings were going at full tilt, and it had been revealed just weeks before that (a) many conversations in the White House had been taped and (b) the ones the Watergate committee wanted were missing. So, at one point in the celebration, Herb announced that “the missing White House tapes” had been found and that he wanted to play an excerpt. He turned on the tape recorder and what followed was a skit, scripted by Herb, in which Herb did his own voice, a secretary named Margaret Snyder did Marina’s voice, and the other member of the Council, Gary Seevers, did Nixon’s voice. One segment of that skit still stands out in my memory: Nixon: Herb, inflation is rising again. What should we do? Stein: Let me ask your new member, Marina. Marina, what should we do? Marina: Impose price controls. Nixon: But we already have price controls. Marina: Then abolish price controls. People, including Burns and Shultz, laughed uproariously. I laughed too. It was pretty funny, in isolation. I go on in the book to address my upset about the broader issue of price controls, but I want to stick to this being a post on Marina, not on Herb Stein or price controls. Fast forward to September 1980, the last time I saw and talked to Marina. I told the story at length here. I was trying to talk my way on to a panel on the presidential candidates’ economic policies. This is the part I want to highlight, because Marina did me a big favor. Then I called the president of the AEA, William Baumol, and asked him if I could be on the panel. “That’s not my call,” he answered. “That’s up to Leonard Silk, who put the panel together and is chairing the session.” “When I talk to Leonard Silk, may I tell him that this has your blessing?” He answered yes. So I wandered around the convention hall and found Marina von Neumann Whitman, one of my former bosses at Nixon’s Council of Economic Advisers (CEA) when she was a member of the CEA, and, coincidentally, she was talking to Leonard Silk. So I went up to them, said hi, and introduced myself to Leonard. Just then, in another lucky coincidence, Hendrik Houthakker came along. He had been a member of the CEA when Marina was a senior staff economist. I got to the point quickly. I pointed out that Hendrik was representing John Anderson, whom everyone knew had no chance of winning the election. Therefore, I said, I thought it reasonable that Clark be represented and I had got permission from the Clark campaign to represent him. “I’m so sorry,” said Leonard, “but this is not my call. Bill Baumol is the program organizer and it’s up to him.” “Good,” I said, “because I talked to him an hour ago, he said he favors it, and that’s it actually up to you.” Leonard was nonplussed, but only for a few seconds. “The problem is,” he said, “that we have limited time and each person will get only 15 minutes or so. There won’t be time for you.” “I understand,” I said, “so how about this? Give me 7 minutes and I promise to stick to it.” I looked at Hendrik, pleading with my eyes for his support. He didn’t give it directly, but didn’t object. Finally, Marina said, “Come on, Leonard. Be a sport.” “OK,” said Leonard.   (0 COMMENTS)

I had many good things to say about Barry Lam’s book Fewer Rules, Better People: The Case for Discretion. However, no book is flawless, and no argument leaves no room for pushback. There are several places where I think the analysis in the book falls short, or at least misses out on important insights. While Lam’s argument for why discretion best allows people to use dispersed knowledge in a way that accounts for particular conditions of time and place is, as I said, a textbook insight from F. A. Hayek, there is another Hayekian idea that could have greatly strengthen Lam’s analysis. Hayek spoke of things like rules, order, law, and legislation, but for Hayek, these terms were not synonyms. In particular, Hayek made a deep distinction between law and legislation. Reviewing the first volume of Hayek’s Law, Legislation, and Liberty, Pierre Lemieux describes the distinction in the following way, Law is made of those rules of conduct that need to be enforced for the maintenance of society. Historically, law is older than legislation. It was considered as given, something that a “legislator” might discover but not change. In Hayek’s evaluation, law is organic, an order that grows and evolves, and is not the direct or deliberate product of any given mind. Law establishes and preserves the overall social order, but it does not aim to produce specific ends within that order. By contrast, legislation is a rationally directed attempt to write specific rules in order to bring about some known and desired end result. When Lam speaks about laws, he’s almost always referring to what Hayek would call legislation. This might seem like little more than a terminological quibble, or a digression into disputing definitions. But the distinction matters. For example, early in the book Lam writes, Big businesses, small businesses that compete with big businesses, community groups, youth sports, and anything involving the management of lots of people will require rules and their enforcement, rather than informal exchanges between people built on trust, friendship, acquaintanceship, and verbal agreements. I think it’s wrong to say that all these forms of social organization requires written rules rather than the informal and spontaneous norms of ordinary human interaction. The way Lam has written it, it sounds as if he’s saying the presence of written rules substitutes for these informal and spontaneous norms. I think this is wrong. Written rules are not a substitute for evolved social norms – though they can obviously help compliment, secure, and reinforce those norms. Indeed, I’d take it a bit further – the success and reliability of those written rules depends critically on the strength and prior existence of the base-layer norms that govern ordinary social interaction. This is why low-trust societies tend to have such terrible results. No amount of rule-writing can bootstrap away the problems that develop when a society lacks this fundamental layer of social order. The absence of a distinction between law and legislation leads to another possible source of trouble for Lam’s argument. Lam argues that bureaucrats, enforcers, and ordinary citizens in their day-to-day lives ought to seek to understand the reasons behind the rules, the proverbial spirit of the law, and enforce (or ignore) those rules in a way that will best embody those reasons. But the rules of an evolved, spontaneous order – laws, rather than legislation – aren’t developed according to constructivist rationality and by the kind of articulatable reasons Lam envisions. Hayek and many others have forcefully argued that there is a strong case to be made for following rules that you don’t understand and whose purpose can’t be rationally articulated. Many of the rules of the social order fall into this category. Hayek did argue that we can still gain some understanding of the purpose of these kinds of rules, but only in a limited capacity. Still, he put things rather starkly in The Fatal Conceit when he wrote “If we stopped doing everything for which we do not know the reason, or for which we cannot provide a justification in the sense demanded, we would probably very soon be dead.” A counterpoint that can be made in Lam’s favor is that his book is explicitly examining the rules of bureaucracy – the written, constructivist, ground-level rules of both state and private organizations that attempt to bring about some known, desired end. That is, Lam’s book is a mediation on how to think about legislation, rather than law in the Hayekian sense. Thus, one can take Lam’s book as making a case about how we should interact within the legislative layer of social order, but not as greenlighting a free-for-all to disregard law in the larger Hayekian sense. But that counterpoint isn’t found in the book – and anyone who reads the book but lacks an understanding of the important difference between law and legislation might not take that lesson to heart either. This issue will be particularly important if Lam wants to persuade people whose thought (like my own) takes a strong cue from the thinking of people like Edmund Burke. Recall some of Lam’s closing words I quoted in my final post outlining his argument, about the need to rise above the limitations of legalism: True, [legalist bureaucracies] are better than the worst fears of political philosophers. They are better than famines, tyrants, civil wars, and the complete lack of civil institutions. But that is a very low bar. If you have ever been trapped inside a sprawling bureaucracy, sent to one by-the-book bureaucrat after another to get a permit, medical procedure, or reimbursement approved, you will know how low everyone’s expectations are. You will know how helpless everyone inside of that system feels. We’re sorry, they will say, but this is the system, these are the rules, we all have to work within them. No, we do not. We do not have to treat human agency like a venom to civil society, sucking and draining every last bit of it from the institutions that matter most. We can instead treat agency and the cultivation of its virtuous practice as essential to all people in all jobs, especially the jobs of people in power. This is certainly a stirring thought, and I do not deny that it has its appeal. However, there is also a strong intellectual tradition associated with people like Edmund Burke and John Selden that cautions against such stirring sentiments. This line of argument says, in effect, that when you have inherited a system that has been stable, enduring, and works tolerably well, you should be extremely cautious – pessimistic, even – in the face of stirring calls to disrupt the workings of that system in pursuit of grand and high aims. Social order is something that is far easier to break down than build up, and something concrete that works tolerably well in practice ought to be carefully guarded over abstractions of what would be excellent in theory. Attempts to transform the former into the latter have a track record of creating gulags more often than greatness. As Burke put it, A disposition to preserve and an ability to improve, taken together, would be my standard of a statesman. Everything else is vulgar in the conception, perilous in the execution. Does Lam’s case fail this test? This, too, is something that could be cleared up by a greater attention to the distinction between law and legislation. I’m inclined to interpret Lam’s argument in a way that accounts for both a disposition to preserve and improve, because his focus is on the rationally constructed rules of bureaucracy rather than the organic laws of the larger social order. Still, his case would have greatly benefitted from making this point directly. Some parts of Lam’s description of discretion in law enforcement don’t quite click for me. He describes how in particular, progressives began to seek out district attorney or prosecutorial positions in order to try to wield selective and interpretive discretion in a way more aligned with justice. Many were met with resistance from their own police forces, who were upset at their perception that the DA was no longer enforcing the law. But among the names Lam cites is former San Francisco DA Chesa Boudin. Lam doesn’t describe the specifics of Boudin’s term in detail, which can only slightly uncharitably be described as “let’s just make crime legal in San Francisco.” Lam only mentions in passing that “Chesa Boudin of San Francisco, elected in 2019, was recalled in a 2022 vote.” Someone skeptical of Lam’s thesis could latch on to this glossing over of how badly things went under Boudin, and accuse Lam of paying insufficient attention to the real risks and downsides of discretion. Still, there are two ways Lam could respond. One is by pointing out that as part of his case, he argues discretion must come with accountability, and those who use discretion poorly may be removed from their position even if they were technically within the bounds of their discretion. Boudin’s recall was simply a case of this idea being put into practice. But a more interesting response is to argue that it would be wrong to cite Boudin as a case of discretion displacing legalism – Boudin was actually a case of the removal of discretion and the implementing of legalism, albeit a legalism consisting of his own very different rules. As Professor Hunter Baker said of the Boudin case: The reason for the existence of great discretion in the prosecutor’s hands is to avoid manifest injustice in specific cases. In other words, there could be compelling circumstances in a particular case that would make the ordinary operation of the law unjust. A good prosecutor can apply discretion to bring about a more just result. But that discretion is inappropriate when applied to cases in a blanket fashion. While there may be virtue in leniency exercised with regard to extenuating circumstances, it is a mistake to translate discretion into a decision to ignore the law in whole classes of crime. Prosecutors are part of the executive apparatus of the legal system, not the legislative. They are to enforce the law, not make it. By treating some laws as illegitimate or not worth enforcing, Chesa Boudin effectively acted as a kind of king. To pick a nit with Professor Baker’s description, to say discretion has been “applied to cases in a blanket fashion” is really just saying that discretion isn’t being applied at all – it means discretion has been replaced with a rule. A blanket decision is by definition one that is indiscriminate to specific circumstances, and it does not allow for distinctions to be made or allow for the discretion those distinctions require. Boudin, it can be said, used his power as DA to remove discretion from his prosecutors and replaced it with his own top-down mandates and rules. Indeed, this has been said by a prosecutor who had been working under Boudin: “I agree with the spirit of some of the policies that he’s implemented, but where Chesa has failed is by removing prosecutorial discretion completely,” said Brooke Jenkins, a former homicide prosecutor who left the DA’s office in October and joined the recall movement. Lam’s practical recommendations also leave me less than satisfied. I certainly recognize his laws of bureaudynamics in action – and I’ve witnessed organizations evolve through them firsthand numerous times. Lam recommends things like making rules that restore discretion periodically, having organizations that review the use of discretion as well as offering regular training into the most up to date information about discretion can best be employed. But why would any of these steps, themselves, not eventually end up getting caught up by the laws of bureaudynamics? Lam suggests that “there should be ethics boards that evaluates discretionary decision-making and informs bureaucrats of how they are falling short” – but what will prevent these boards from themselves becoming the kinds of legalist institutions Lam is trying to excise? We can’t just assume these boards will be exempt from the laws of bureaudynamics, nor can we assume that the rule-making Lam recommends to insert discretion into the rules won’t itself go through the very processes that Lam identifies. As is often the case, Scott Alexander put it well. Using the term “Moloch” as a metaphor for social processes that tend to trap societies in an inadequate equilibrium (the tragedy of the commons would be a classic example), Alexander described a “rookie mistake” people make: The rookie mistake is: you see that some system is partly Moloch, so you say “Okay, we’ll fix that by putting it under the control of this other system. And we’ll control this other system by writing ‘DO NOT BECOME MOLOCH’ on it in bright red marker.” (“I see capitalism sometimes gets misaligned. Let’s fix it by putting it under control of the government. We’ll control the government by having only virtuous people in high offices.”) Lam recommends the use of ethics boards to review the use of discretion as its exercised by street-level bureaucrats. To me, the next obvious question is, “What will prevent those ethics boards from eventually becoming sclerotic, legalistic-to-the-extreme institutions like Institutional Review Boards? How will they be insulated from the laws of bureaudynamics?” If there’s an answer to this question in Lam’s book, I wasn’t able to discern it. In my next and last post in this series, I’ll offer some final thoughts on Lam’s book overall. (0 COMMENTS)

At various points in my life, I’ve been very pessimistic about a variety of things. In 2008, it was monetary policy. Today, it’s fiscal policy and authoritarian nationalism. At the same time, I’ve never been so pessimistic that I started planning a move to Canada or New Zealand. The US remains a pretty great place to live.Janan Ganesh has a piece in the FT that seems to criticize both the left and the right for excessive pessimism: The 1930s are an almost useless guide to what is happening now. The strongmen back then came out of an era of scarcely precedented chaos: the great war, hyperinflation, political gangs fighting for control of the streets. Today’s demagogues emerged in a period of sustained peace and affluence. It was more or less the richest nation on Earth that elected Donald Trump in 2016, after decades of falling violent crime, and more than 40 years since its last conscript war. The Britain that voted to leave the European project had far more industrial peace and international standing than the one that first joined. As for Germany, the far right’s voting base maps almost perfectly on to the old East, which is unrecognisably richer and freer than it was at reunification. These aren’t just different stories, then, but almost opposing ones. The lesson of the 1930s is that people who suffer — economic pain, physical fear, national territorial loss — are liable to turn to extremists. The lesson of today is that not suffering can induce them to do the same thing. After too long a period of calm, boredom sets in. The temptation to take risks with one’s vote starts to grow. Stability destabilises. The 1930s is simple to understand, as it conforms to common sense: trauma leads to anger. The real intellectual challenge is to absorb the theme of our own time, which is the perverse consequences of prolonged success.  The left wrongly thinks this is the 1930s again, with Hitler just around the corner.  The right thinks this is the 1930s again, and we need a strong leader to fix the disastrous state of our society.  This is from Trump’s 2017 inauguration speech: This American carnage stops right here and stops right now.  Eight years later, things had gotten even worse: For many years, a radical and corrupt establishment has extracted power and wealth from our citizens while the pillars of our society lay broken and seemingly in complete disrepair.   It’s almost like the right pretends to believe it’s 1933 all over again, with 25% unemployment, and the left pretends to believe it’s 1933 again, with the fascists taking over. A top Trump official named Michael Anton wrote a famous essay that likened America’s situation to the ill-fated Flight 93 on 9/11.  To me, our country seems more like an ordinary United Airlines flight to Chicago, full of annoyances but still a pretty amazing technological feat.   Francis Fukuyama’s book entitled The End of History has been widely criticized, mostly by people who never read it.  Here’s what he actually said would happen after the end of history: Experience suggests that if men cannot struggle on behalf of a just cause because that just cause was victorious in an earlier generation, then they will struggle against the just cause. They will struggle for the sake of struggle. They will struggle, in other words, out of a certain boredom: for they cannot imagine living in a world without struggle. And if the greater part of the world in which they live is characterized by peaceful and prosperous liberal democracy, they then will struggle against that peace and prosperity, and against democracy.  Amazing.  The best description of the world of 2025 was written in 1989.  It’s almost as if the internet was invented to make Fukuyama’s prophecy come true. I am also reminded of this famous comment by Karl Marx: Hegel remarks somewhere that all great world-historic facts and personages appear, so to speak, twice. He forgot to add: the first time as tragedy, the second time as farce. Unfortunately, excessive pessimism has consequences.  The pessimist fails to realize just how many problems are faced by even the most successful societies.  People start to think: “Things are so bad we need to shake things up.  What do we have to lose?” What do we have to lose?  Let’s think about that phrase.  Suppose we were to rank all of the world’s societies from the most to the least successful.  Obviously, this list would be somewhat subjective, but I think it’s fair to say that most people would put places like Switzerland and Norway near the top, and places like North Korea, Haiti and Somalia near the bottom.  Think of a scale of 1 to 100, with the most successful societies at the top.  Where does the US fall on that list?  Are we closer to Switzerland and Norway, or are we closer to North Korea and Haiti? If we decide that things in America are so bad that we need to radically “shake things up”, then is it more likely that we move much higher on the list or much lower?   Imagine a car with a few small mechanical problems.  If you pick up the car with a giant robot arm, and shake it wildly up and down, is it more likely that the shaking causes the broken components to fall into their correct position, or is it more likely that the car is even further damaged? Some studies suggest that happiness is positively correlated with wealth.  One possibility is that “money buys happiness”.  Another possibility is that depressed people make bad decisions, and make themselves worse off. (0 COMMENTS)

Rule of law has long been sacred to the classical liberal.  While the term was popularized by British jurist A. V. Dicey, the concept is much older.  The rule of law has three distinct characteristics in the common law world:*  An absence of arbitrary power on the part of the government Every man (regardless of rank or condition) is subject to ordinary law administered by ordinary tribunals The law is discovered by judges when considering cases brought before the courts This last is often a cause for controversy.  Why should judges decide law?  If judges simply decide, and those decisions become legal precedents, aren’t judges just substituting their judgement for politicians?  Why do judges deserve special reverence when classical liberals are skeptical of politicians?  Or, as it’s sometimes put, aren’t judges just “politicians in black robes?” These are legitimate questions.  Fortunately for us, public choice analysis lets us explore them.  The reality is that judges are not special people.  Just like any other person, they face incentives and those incentives influence their behavior. In their 2006 book Judge and Jury: American Tort Law on Trial, Claremont McKenna College economist Eric Helland and George Mason University economist Alex Tabarrok explore how incentives faced by judges, juries, and other officers of the court affect judicial outcomes.  One of their big findings is that tort awards are often driven by political factors such as judicial elections.  In other words, when judges face elections for their seats, they tend to award higher claims to plaintiffs than those who are appointed for life.  When judges are treated as politicians, they tend to act as politicians in black robes.  When judges are treated as arbiters of the law, they tend to act as arbiters of the law. While judicial procedures differ at the state level, federal judges are appointed.  In the media, the president who appointed a judge is often mentioned (e.g., “‘That is unconstitutional retaliation and viewpoint discrimination, plain and simple,’ wrote the judge, an appointee of former President Barack Obama. Or “Rodriguez, who was nominated to the bench by Trump during his first term, ruled the government can’t detain the plaintiffs solely on the basis of the Alien Enemies Act.”).  Commentary on Supreme Court decisions often talks about the ideologies of the justices when discussing how they voted.  Fascinatingly enough, the ideologies do not seem to matter much.  American federal court rulings are amazingly consistent.  When judges are appointed for life (or good behavior), they tend to rule consistently.  Conversely, when they are elected, judges tend to rule less consistently and play to the electorate. And there are other incentives at play as well: appeals courts/the Supreme Court can overturn decisions of lower judges (and judges do not like having opinions overturned), in extreme cases, judges can be impeached, etc.  In other words, the incentives are for judges to be consistent, not political.   Of course, there are times when ideology might matter.  For Supreme Court decisions, ideology might play a larger role than in lower courts’ decisions.  But this potential outcome is due to the nature of the cases that make their way to the Supreme Court.  The Supreme Court deals with cases where there is no clear law—where legitimate differences of interpretation can exist.  The Supreme Court doesn’t deal with every case, but rather with unclear cases.  Since these cases are unclear, ideology may be a factor that ultimately shapes the opinion.  And that even depends on the justices.  Chief Justice Roberts puts emphasis on strong consensus, and his courts have churned out an incredible number of unanimous decisions.  In the 2022 term, for example, nearly half (48%) of the Court’s decisions were unanimous. So, classical liberals like myself put a lot of faith in the courts because of the incentives they face.  If those incentives were different, then our opinions of judges would be different.  Now, this is not to say that the Courts will always get the decision right.  The US alone has numerous decisions where the Courts obviously got it wrong: Dred Scott v Sandford, Plessy v Ferguson, Korematsu v United States, Wickard v Filburn, etc.  Some have been overturned (Dredd Scott by Constitutional amendment, Plessy by Brown v Board) whereas others remain precedents, either enforced (Wickard) or ignored (Korematsu).  Incentives are not mind control, and there will be times when ideology influences decisions.  But in general, the incentives faced by judges and justices are different than those faced by politicians, so it is unfair to consider them just politicians in black robes. For more reading, I recommend Federalist 78, where Alexander Hamilton makes similar arguments as I do here.  In a similar vein, GMU law professor Todd Zywicki has an interesting paper on how the doctrine of stare decisis can transform the incentives of litigants and judges (see, in particular, Section III.A). *For a classic treatment, see AV Dicey’s Law of the Constitution, Chapter IV.  Bruno Leoni’s Freedom and the Law is another excellent read.  For the history of the development of Common Law, I recommend Maitland & Pollock’s History of English Law Before the Time of Edward I and Plucknett’s A Concise History of the Common Law. (0 COMMENTS)

Welcome to a little thought experiment. Suppose that Mississippi became a sovereign country. “Sovereign” means that the state apparatus can make any decision, even one that violates international law. The flip side of sovereignty is that the state can also impose its decision on the country’s residents or a portion of them, and that other states in the world have no recognized right to intervene against that imposition. States and their rulers were recognized as sovereign by the treaties of Westphalia in the mid-17th century. Mississippi would be a poor country relative to the United States. The average hourly wage in Mississippi is $23.91, compared to $38.41 in California (Bureau of Labor Statistics, data for May 2024). On average, wages are thus 38% lower in Mississippi than in California. For the whole (current) USA, the average wage is $32.66, which means that Mississippian wages are on average (about) 27% lower than in the rest of the United States. As a newly sovereign country, Mississippi would be much poorer than the US, although still wealthier than, say, Vietnam or China. Voices would be raised in the (remaining) United States to claim that American businesses cannot compete against their Mississippian counterparts given the latter’s “unfair” wage advantage. “We need fair trade, an equal playing field, with Mississippi,” American lobbyists and politicians would proclaim. After the first national-account system in Mississippi is set up and its customs authorities have become effective enough at measuring trade flows, the new data would lead to further conflict. By virtue of a frontier having been drawn on the map, the trade deficit would suddenly become a politically contentious issue. It is likely that Mississippi currently has a trade deficit with the rest of the US, although it cannot be measured in the absence of border surveillance and control. After independence, many Mississippian lobbyists and politicians would get all pumped up about the trade deficit. From a liberal-individualist viewpoint, nothing would have really changed: it would still be individual Mississippians and their private organizations trading with Americans and the latter’s private organizations. Many variables, including a few new ones, would adjust between the poorer traders in Mississippi and the richer traders in the US: the terms of trade and (if Mississippi had its own currency) currency exchange rates and the terms of trade; interest rates; foreign investment flows; public policy and government, etc. It should be obvious that few individuals would become richer if the American state imposed tariffs on imports from Mississippi, or if the Mississippian state imposed tariffs on goods imported from the US. It would be the contrary: most people on both sides of the border would become poorer—and probably to a greater extent on the Mississippian side because of the relative size of the two economies. Nobody would become richer except for government favorites and cronies. To make sure that most Mississippians would not get poorer whatever the government of the US does is if the government of the former adopted unilateral free trade, that is, let its own residents free to trade, to make whatever bargains they can with US residents (and residents of any other country). Mississippi could become a new Hong Kong. This would be true, mutatis mutandis, for the US: if its government did the same and stopped interfering with its residents’ trade, which is the definition of unilateral free trade, most Americans would gain. Temporary disruptions could of course happen, but nothing compared with what we are currently seeing in the US. Collectivists of the left or the right have problems understanding this thought experiment, or else they are simply happy to exploit their fellow citizens (see my “Patriotism as Stealing from Each Other,” Regulation, Winter 2017-2018, pp. 64-69). It is a good measure of the perverse silliness of the current protectionist claims to compare them with the arguments that would be made on both sides of the new border: “unfair” Mississippian wages exciting American lobbyists, trade unionists, and politicians to clamor for the protection of manufacturing and agriculture; and Mississippian lobbyists and politicians calling for “protection” against high-tech and service imports from the US. Only a bit of imagination is necessary to think of Mississippian populist leaders arguing for protectionism because “the United States has been taking advantage of us and raping us for centuries” (a Trumpian sort of Mississippian populist would probably say “for millennia”). ****************************** Absurd protectionist battles after Mississippi became a sovereign country, by imperfect ChatGPT (0 COMMENTS)

  In “Liberation Day for Gas-Powered Cars,” Wall Street Journal, May 22, 2025 (print edition), the Journal editors make a strong case for getting rid of the California government’s mandate that requires an increasing number, year by year, in the percentage of auto makers’ sales that must be “zero-emission vehicles.” For the year 2026, that number must be 35 percent. In 2023, I wrote about why we won’t come close and why it’s good that we won’t. Along the way, though, the Journal editors make a basic price theory mistake. They write: Auto makers warn the quotas would force them to produce fewer gas cars. Prices would almost certainly rise to offset their EV losses. No. They’re right about the effect on prices of gasoline-powered cars, but they’re wrong about the causation. Profit-maximizing firms don’t typically raise prices in one segment to offset losses in another. The reason: if raising prices in that segment increases profits, then they would already be doing it. Nevertheless, they would raise prices on gas-powered vehicles. The reason is not that dong so would increase profits to offset losses elsewhere. Since they’re already at the profit-maximizing price, raising prices of gas-powered cars further would reduce profits. So why would they raise them? To reduce sales. There are two ways of hitting the percentage target: reduce prices artificially on zero-emission vehicles to increase sales of those vehicles and raise prices artificially on gas-powered cars to reduce sales of those vehicles. They would do both. In 1985, I wrote about the distorting effects on the mix of cars sold, when auto companies were figuring how to comply with the Corporate Average Fuel Economy (CAFE) regulations. Those regulations required each company to meet a stringent average fuel economy standard for all their cars sold in a given model year. To hit their targets, the companies needed to sell more small cars and fewer large cars. I thought I had been more explicit about the pricing implications than I was.  In any case, the way to do so was to price their high mpg cars below the profit-maximizing price and to price their low mpg cars above the profit-maximizing price. The same thing is going on now for zero-emission vehicles and gasoline-powered vehicles.   A little price theory goes a long way. (0 COMMENTS)

Despite dramatic progress in a number of areas, global poverty is increasingly concentrated in Africa.  This is from a long survey in The Economist: In many ways, there has never been a better time to be born African. Since 1960, average life expectancy has risen by more than half, from 41 years to 64. The share of children dying before their fifth birthday has fallen by three-quarters. The proportion of young Africans attending university has risen nine-fold since 1970. African culture is being recognised worldwide; in the 2020s African authors have won the Booker prize, the Prix Goncourt and the Nobel prize for literature. . . . In 1960 GDP per person in Africa, adjusted for the different costs of goods in different places (so-called purchasing-power parity, or PPP), was about half of the average in the rest of the world. Today it is about a quarter. Then the region was roughly on a par with East Asia. Today East Asians have average incomes seven times higher than those in sub-Saharan Africa. . . . On current trends Africans will make up over 80% of the world’s poor by 2030, up from 14% in 1990. Another article discusses the problem of corruption: The closeness of business and politics also helps explain why there are so few African entrepreneurs of global standing, and so few globally competitive African firms. It is hard to become a legitimate billionaire when wealth depends on politics. It also encourages Africans with cash to stash it offshore. Perhaps 30% of African wealth is held outside the continent, compared with a global average of 8%, according to (somewhat old) estimates by Gabriel Zucman, an economist. Some people worry that America is becoming a bit more like Africa.  In recent years, business success in America has come to increasingly depend on political connections.  If you watch one of those cable business channels, you will notice much more discussion of whether or not a given CEO is liked by the president.  I don’t recall political connections being so important when I was young. (0 COMMENTS)

How much of our success or failure is written in our genes? How much is under our control? Is it nature or nurture or is that dichotomy too simplistic? Hear EconTalk’s Russ Roberts and psychologist Paul Bloom discuss why the nature vs. nurture question is actually worth taking seriously and how by understanding it we […] The post Nature vs. Nurture (with Paul Bloom) appeared first on Econlib.

  Air Traffic Control: It’s Management, Not Money by Chris Edwards, Cato at Liberty, May 20, 2025 Excerpts: The Secretary of Transportation, Sean Duffy, is on the case, but so far, he is just proposing to throw more money at the problem. By itself, more money will not cure the ATC system’s deep flaws, which stem from trying to run a high-tech industry from within a bureaucracy at the Federal Aviation Administration (FAA). With all the red tape, risk aversion, and political interference inherent in federal bureaucracies, the FAA’s performance may get even worse over time as global aviation demand continues rising and the skies get ever more crowded. Congress must restructure ATC. The obvious reform model is Canada, whose ATC system has excelled for three decades as a self-funded, non-profit corporation outside the government bureaucracy. And: Canada’s System Robyn: “The Canadian ATC provider Nav Canada, the model for the 2018 House bill, is handling significantly more traffic with a smaller staff than in 1996. It beats the FAA on unit costs despite its smaller scale.”   How To Fix California’s Self-Inflicted Homeowner’s Insurance Crisis by J.D. Tuccille, Reason, May 21, 2025. Excerpt: In 1988, Californians passed Proposition 103 which, according to the state’s summaryof the measure, “required that every insurer reduce its rates to at least 20% less than the rates that were in effect on November 8, 1987 unless such rollback would lead to a company’s insolvency.” The California Supreme Court modified this to allow for what state officials considered “a fair rate of return,” but there are more voters paying premiums than working for insurance companies, with predictable results. The Problem With Voting Yourself Discounts at Others’ Expense According to a 2023 paper from the International Center for Law and Economics, as of 2020, despite sky-high property values and well-known wildfire risks, Californians “paid an annual average of $1,285 in homeowners insurance premiums across all policy types—less than the national average of $1,319.” When insurers need to raise rates to reflect risks and costs, they can only do so after extended hearings and a government review process designed to please voters, not to reflect economic reality. Unsurprisingly, well before the Los Angeles fires, insurers were limiting coverage and leaving the state. Even Insurance Commissioner Ricardo Lara admits insurers “don’t have to be here, and when we try to overregulate, we’ll see what happened after the Northridge earthquake, when the legislature came in and tried to overregulate, and they no longer write earthquake insurance in California.”   The 3 FAA Failures Creating a Dangerous Mess in the Skies by Robert Poole, Reason, May 21, 2025. Excerpt: As detailed in a 2023 Department of Transportation inspector general report, the Philadelphia control tower and Terminal Radar Approach Control (TRACON) facility, which services Newark’s airspace, were among the least understaffed of major FAA facilities. But The New York Times recently reported on the critical air traffic control understaffing issues now impacting Newark Airport. The Philadelphia TRACON that is responsible for managing Newark’s airspace has “only 22 controllers certified to guide planes in and out of the airport,” the Times reports—significantly lower than the FAA’s target of 38 controllers. “The overall staffing level of the Philadelphia facility, which is also responsible for several other airports in the region, is about 70 percent.” And even fewer controllers are often available to work. The Times notes that as few as “three air traffic controllers were scheduled during a period on Monday evening at the [Philadelphia] facility that guides planes in and out of Newark—far short of the target of 14 for that shift.” That brings us to the third problem: the air traffic control system’s obsolete communications technology. All the flight data from New Jersey airports (Newark, Teterboro, and Morristown) get transmitted to Philadelphia via a 25-year-old telecommunications system and routed to a controller display system called STARS, the Standard Terminal Automation Replacement System. STARS processes radar data for Newark and, according to the FAA, “telecommunications lines feed this data from New York to the Philadelphia TRACON, where controllers handle Newark arrivals and departures.” Note: Robert Poole is one of my go-to people when I want to understand anything about transportation policy. If I recall correctly, he was in the forefront, in 2001, in arguing for not having the TSA have a monopoly on airport security. The original legislation allowed Kansas City, MO and San Francisco, among others to have a private contractor rather than TSA.   Manufacturing is thriving in the South. Here’s why neither party can admit it. by Gary Winslett, Washington Post, May 14, 2025. Excerpt: There’s a popular story that politicians in both parties like to tell us: The Rust Belt was a thriving region until China, Mexico and their American business allies tore their manufacturing jobs away with lopsided trade deals. Whether through President Donald Trump’s tariffs or some Democratic alternative, it’s now up to Washington to get them back. It’s a politically convenient tale for courting voters in key swing states, pining for the way things once were. The problem is that it’s not true — and it is leading to some terrible policy decisions. A big missing part of the story: Interstate competition. The Rust Belt’s manufacturing decline isn’t primarily about jobs going to Mexico. It’s about jobs going to Alabama, South Carolina, Georgia and Tennessee. To put it in college football terms, the traditional Big Ten has been losing out to the Southeastern Conference. In 1970, the Rust Belt was responsible for nearly half of all manufacturing exports while the South produced less than a quarter. Today, the roles are reversed, it is the Rust Belt that hosts less than one-fourth of all manufactured exports and the South that exports twice what the Rust Belt does.   (0 COMMENTS)