The anti-trade protectionists are back in power, and they’re promising once again to “bring back good-paying jobs” that America supposedly had “stolen” from us over the years due to “unfair” foreign competition. Tariffs are of course the preferred tool of protectionists past and present, and President Trump has heralded tariffs as “the most beautiful word in the dictionary.” Howard Lutnick, Trump’s Commerce Secretary and influential economic advisor, articulated very clearly in a recent interview that the goal of Trump’s tariffs is to boost manufacturing employment in the US:  “…under Donald Trump union labor is going to double because those factories are going to come back and those workers are going to get great jobs and we are going to have a different America, one that produces and manufactures. And if I need to use tariffs—this is the president talking—if I need to use tariffs to bring that manufacturing home, we’re going to do it.” Tariffs and rumors of tariffs are sowing doubt, confusion, and fear about current and future US economic performance. This is a shame because Trump’s broader economic policy package, featuring deregulation, lower taxes, cheap and abundant energy, minimizing government waste, etc., would otherwise be strongly pro-growth. Trump’s tariffs are doing to the economy what Plaxico Burress did to the NY Giants, and economists are rightfully speaking out against the counter-productive idiocy of Trump’s shoot-from-the-hip, on-again off-again tariff pronouncements. Others have spoken well about the economic damage of tariffs. Here I want to take a deeper look into the protectionists’ claims about jobs—losing them and bringing them back. Have we lost manufacturing jobs? Yes. Is this because of trade? Partly. Is it a bad thing? Certainly not. Protectionists commit the classic economic fallacy outlined by Frederic Bastiat: “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.” So let’s look at the big picture, beyond the job losses, and assess overall changes in the US economy during this era of alleged manufacturing decline. Fortunately, data makes it fairly easy to see, at least in broad terms, the job-shifting impact of global trade. First, we’ll acknowledge the magnitude of the manufacturing job losses. As shown in Figure 1, manufacturing employment in the US dropped by about 1.5 million from pre-Great Recession levels (2006), and is down by nearly 7 million, or 35%, from the all-time high reached in 1979. So indeed, the US had been losing manufacturing jobs for decades, despite a small recovery  of about 1.5 million from the Great Recession nadir. The overall trend gives prima facie support to the demagogues’ arguments about outsourcing and the so-called “de-industrialization” of America. But manufacturing is just part of an enormous US economy. What do we observe when we look at employment in the entire economy? First, let’s note that total employment numbers wax and wane with the business cycle. For instance, we experienced a shocking and nearly instantaneous payroll drop of 22 million during the Covid shutdowns of early 2020. These losses were fully recovered within two years, though, and since mid-2022 the US economy has been adding jobs on a relatively steady basis. Payroll employment hit a new all-time high of 159 million as of the February 2025 jobs report. The main thing to be observed is the steady and sure long-run uptrend in total jobs, as seen in Figure 2. Not only are jobs growing, but job growth has outpaced population growth—i.e. the increase in the number of people available to fill those jobs—and this has been the case for most of the last four decades, as seen in Figure 3.  In my next post, I will turn will turn to the question, “Is the fact that more people are working good news for the economy?”   Tyler Watts is a professor of economics and management at Ferris State University. (0 COMMENTS)

The Wall Street Journal has had some fantastic coverage of tariffs since the so-called “Liberation Day” tariffs were announced.  One recent article (“Retail Giants Manage to Keep a Lid on Prices but Warn It Can’t Last,” 29 April 2025) demonstrates some important insights into tariffs.  Sarah Nassauer, Shane Shifflett, and Sebastian Herrera write (emphasis added): To keep prices low on phone chargers, towels and blenders in the face of rising tariffs, America’s largest retailers are trying everything.  They are pressuring their suppliers to absorb cost increases and dropping free perks from corporate offices. They have paused some shipments of goods from China and are leaning on inventory that has already been imported to the U.S. … They warned Trump that higher prices would be difficult to avoid and said certain products could become scarce if retailers decide not to sell them to avoid tariff costs. … Some cost-cutting measures are in full effect. Last week, Walmart told staff of its Hoboken, N.J., office that free plates, bowls and cups would no longer be available in the office, according to people familiar with the situation. A memo sent to staff encouraged employees to bring their own.” The whole article is full of insightful tidbits that all lead to one thing: there are many ways for firms to adjust to tariffs, not all of them are raising prices.  Walmart is reducing employee benefits.  Some firms are considering cutting product lines.  Firms are overstocking now.  In another WSJ article, other firms are cutting employee benefits like travel.  All of these are real costs over and above the loss in consumer welfare and deadweight loss from the tariffs. Economic models are extraordinarily useful; they explain a lot.  The supply and demand model is exceptionally useful as it explains much human behavior outside of the market relationship.  The model looks at the relationship between price and quantity.  Those are the two variables—the margins people adjust along.  But, in reality, there are many margins beyond price and quantity.  What’s more, what those margins are and their relative value will vary from decision-maker to decision-maker.  This means that decision-makers will make different decisions, even when faced with the same constraints.  With tariffs, some may raise prices.  Some may cut benefits.  Some may switch products.  It’ll all depend on the opportunity cost: the realistic alternatives each individual faces.  The key takeaway from the supply and demand model is not the relationship between price and quantity per se, but the effects costs have on various margins.  When costs rise, people will economize along many margins, not just price.  Consequently, when looking at the costs of tariffs (or any other policy like minimum wage), we cannot look solely at changes in price.  Looking at just one margin can cause one to miss all these hidden margins. (0 COMMENTS)

Early in his EconTalk interview with Douglas Irwin, Russ Roberts says: But I just want to pose the question: Suppose they didn’t come back. Suppose foreigners sold us cars and all kinds of things, and we sent them dollars. Americans sent them dollars. And the foreigners really liked the way the dollars looked, so they put them up on their wall as wallpaper, and never bought American goods and services or invested in American assets. Would that be bad for America? I mean, we’re stimulating their economy, but they’re not stimulating ours. That’s so unfair. Irwin answers: Well, in some sense what we’re doing is printing up worthless pieces of paper; they’re giving us goods in exchange for them; and then there’s no liability associated with that. They don’t have to make a claim on our assets or our goods as a result of that; they’ll just keep it down there. In fact, actually there are a lot of dollars circulating in the world, so that’s true to some extent. In Latin American countries–you go to Argentina, dollars sort of circulate because they don’t trust the domestic currency. And, elsewhere around the world. So, there’s a big stock of dollars out there in the world. But, compared to the yearly flows, I think it’s not huge. But, once again, it’s not necessarily a problem if they never redeem those dollars as a claim on U.S. assets or goods or services. That’s a good answer, but a little off. The pieces of paper are not close to being worthless. They’re worth a lot. That’s why other people accept them. I think that what Doug meant to say is not that they’re worthless but that they’re almost costless to produce. The cost of to the U.S. government of printing a $100 bill is about 10 cents. When we Americans spend a Benjamin, we Americans get $100 worth of stuff. And actually, the worth is higher than $100; we get some consumer surplus or else we wouldn’t bother spending. To people who worry that then those Benjamins won’t circulate in this economy, I say something similar to what Jay Leno said in an ad for Doritos: “Go ahead and keep them; we’ll make (0 COMMENTS)

Among the smarter center-left pundits, we are seeing signs of what might be called a revival of neoliberalism. Here I’m thinking of people like Matt Yglesias, Ezra Klein, Derek Thompson and Noah Smith. (They might not like that label, but I’m more concerned with content than terminology.)Noah Smith recently provided a good explanation of this position, which reflects his frustration with both the authoritarian/populist right and the statist left. Interestingly, he provides Latin American examples for both of his critiques.  Let’s start with populist nationalism: The size and breadth of Trump’s tariffs came as a shock to me. I never imagined that a U.S. leader would have such a deeply broken view of how trade works, or would willfully inflict such harm on the American people. But I should have known it was possible. I should have studied the historical example of Juan Peron, whose Trump-style policies of protectionism and fiscal profligacy combined to knock Argentina out of the ranks of the rich nations. I should have studied the failure of “import substitution” policies in the 1950s and 1960s. I should have known more about the political context that produced Smoot-Hawley in the U.S. In the past, left-of-center pundits have often lumped together various forms of right wing ideology.  Smith sees important distinctions: Over the past eight years, I’ve often thought of Reaganite conservatism as the Lord Ruler, keeping a lid on the spirit of right-wing Ruin that was Patrick Buchanan and the John Birch Society. But it also seems likely that free-market ideology, for all its flaws, was keeping a lid on the right’s natural impulse toward Peronism. To be sure, libertarianism proved inadequate to a number of important 21st-century tasks — preserving U.S. defense manufacturing capacity in the face of Chinese competition, speeding the adoption of green technologies, redistributing the gains from trade and technology, and driving forward technological progress in an age of exploding research costs. And yet who, at this moment, wouldn’t trade Trump’s tariff regime for the libertarian policies of Argentina’s Javier Milei, who has reduced his country’s inflation to manageable levels, while reducing poverty as well? [Verlan Lewis makes some similar points in contrasting Donald Trump and Charles Koch.] Back in 2016, I also made a comparison between Trumpism and Peronism, albeit perhaps prematurely: A fan of the working class would be promoting free market policies, not protectionism and higher minimum wages and massive government spending increases.  How’d Argentina’s working class do under Peron? In his first term, President Trump put the budget on an unsustainable path, and put substantial tariffs on Chinese imports.  But neither of these measures were anywhere near significant enough to turn the US into Argentina.  Since then, both the fiscal situation and the trade situation have deteriorated even further.  Fortunately, investors still have trust in US Treasury securities; although that trust was briefly shaken a few weeks back, before Trump back off on his more extreme tariff proposals.  We are still a long way from Peron’s Argentina, but edging a bit in that direction. Smith is equally critical of left wing economics, again citing a Latin American example: I’ve seen respected progressives like Joe Stiglitz rush to praise the economic policies of Hugo Chavez, and then fail to apologize after those policies drove Venezuela’s economy into one of the worst catastrophes in modern history. An article from 2007 gives you an idea of what Smith is referring to: Despite the high rate of growth, high public spending and increased consumer demand have contributed to inflationary pressures, pushing inflation up to 15.3%, also the highest in Latin America. However, Stiglitz, who won the Nobel Prize for economics in 2001, argued that relatively high inflation isn’t necessarily harmful to the economy. He added that while Venezuela’s economic growth has largely been driven by high oil prices, unlike other oil producing countries, Venezuela has taken advantage of the boom in world oil prices to implement policies that benefit its citizens and promote economic development. . . . In his latest book “Making Globalization Work,” Stiglitz argues that left governments such as in Venezuela, “have frequently been castigated and called ‘populist’ because they promote the distribution of benefits of education and health to the poor.” . . . In terms of economic development Stiglitz argued it was not good for the Central Bank to have “excessive” autonomy. Chavez’s proposed constitutional reforms, if approved in December, will remove the autonomy of the country’s Central Bank. . . . Stiglitz also criticized the “Washington Consensus” of implementing neo-liberal policies in Latin America, in particular the US free trade agreements with Colombia and other countries, saying they failed to bring benefits to the peoples of those countries. How does that advice seem today?  Check out this tweet: Those figures do not adjust for changes in the value of the US dollar over time.  The US price level is up almost-four fold since 1980, which means that in inflation-adjusted terms Venezuela’s GDP per capita has fallen from roughly $30,000 to $8,000, whereas South Korea’s has risen from roughly $7500 to $56,000.  (Those figures are not exact.) Today, both the Democrats and the Republicans have market-friendly factions.  But the two parties differ in one important respect.  No single individual dominates the Democrats in anything like the way that Donald Trump dominates the GOP.  This means the Democratic Party is somewhat up for grabs, whereas the battle for the soul of the GOP will have to wait until Trump is no longer the head of the party.  In the 1990s, neoliberals dominated both the Democratic and Republican parties.  By the late 2010s, they’d been pushed aside in both parties.  Can neoliberals make a comeback in either party, or will they remain on the fringes for the foreseeable future?  (0 COMMENTS)

Question: Suppose the market price of gasoline is $5.00 per gallon. Politicians, responding to their constituents who believe that such a price is outrageous, impose a price control of $2.00 per gallon. At this price, you want to buy 9 gallons of gasoline per week but gas stations are now only willing to sell you 5 gallons per week. There is a shortage. Assume that to buy gas, you must wait in line. Doing so gives you the right to purchase gasoline at the controlled price of $2.00 per gallon. Assume also that you would be willing to pay up to $6 per gallon. Finally, assume that your wage is $10 per hour. How long will you wait in line to buy gasoline? What will be your total expenditure on gasoline each week? What price will you pay per gallon? Did the price control reduce the price of gasoline?   Solution: This question highlights the importance of considering the full price of a good—not just the money price but also the opportunity cost of time. With a price control set at $2 per gallon and a willingness to pay up to $6 per gallon, the extra $4 per gallon reflects the value you’d accept in waiting time. Given a wage of $10 per hour, this translates to 4/10=0.44/10=0.4 hours, or 24 minutes per gallon. For 5 gallons, you’d wait a total of 2 hours per week. Your total weekly expenditure combines: Monetary cost: 5×2=105×2=10 dollars Time cost: 2×10=202×10=20 dollars Thus, total expenditure = $30 per week. Dividing by 5 gallons gives a full price of 30/5=630/5=6 dollars per gallon. Although the nominal price fell from $5 to $2, once you account for waiting costs, the effective price rose to $6. Therefore, the price control did not lower the true cost of gasoline—it actually raised it. (0 COMMENTS)

Scott Sumner’s post Tariffs and the Economy observes that the most important effects of tariffs are not big, dramatic, or immediate ones. They’re the hits to long-term growth as arrangements gradually become less efficient and lower growth rates compound.  The lack of an immediate, catastrophic outcome could be used as an excuse to dismiss tariffs as not that big a deal. Even at the point of the biggest market losses after the Rose Garden tariff announcements, the S&P 500 was at far higher levels than it had been five years prior. A year’s lost wealth is a tragedy. Increasing wealth increases our potential to save and improve lives. But it’s true that the United States was quite rich five years ago and remains quite rich now.  This called to mind the ‘Brexit: Five Years Later’ takes in 2024. Brexit was the withdrawal of a smaller economy from integration with a large common market—essentially, introducing trade barriers.  In spring 2016, the UK Treasury forecast an “immediate and profound” recession if Brexit passed. When this didn’t happen, supporters of Leave started mocking “Brexit doom”, dismissing concerns that there would be a dramatic economic cost of leaving the EU. Aside from the general rule that shrinking the market makes us poorer (or we know almost nothing about economics), those dismissing the cost would have benefited from the more specific lesson in point three of Scott’s post:  3. Most economists overestimate the impact of “real shocks” such as tariffs on inflation and the business cycle. And then, from points four and five: 4. The most important economic impact of tariffs is on long run economic growth.  (There are other non-economic impacts, such as increased risk of war. 5. Most economists do not overestimate the impact of tariffs on long run growth. Finally, the reminder that “A 0.2% decline in long run growth is far worse than a 2% fall in GDP for a single year.” (Read the whole post for more on the effects of monetary policy.) In longer run forecasts of the cost of Brexit, economists seem to have been closer to the mark. By January 2020, GDP was 1–3% lower than it would have been if the UK had not voted to leave the EU. By 2025,  productivity is falling, and the UK economy seems to be underperforming in this ‘doppelgangar’ model (which takes the pandemic into account and is the model with the most fun name). 

An eight-second Wall Street Journal video clip illustrates the old-time, labor-intensive manufacturing that some, including the two last US presidents, want to bring back to America by using state coercion and threats (“Trump’s Tariffs Are Lifting Some U.S. Manufacturers,” May 4, 2025). The featured worker in the video clip seems to be endlessly repeating two mechanical operations on a machine. The employer is an Ohio manufacturer looking to boost its production—and its prices, which will be bid up—following the 145% tax that Donald Trump imposed on Chinese imports. The repetitive and mindless job shown on the clip is typical of old-time, labor-intensive, low-tech, “dirty,” often dangerous manufacturing, which has been mostly eliminated from the United States and other rich countries by two factors: automation and, for the rest, reliance on the comparative advantage of poorer countries at a lower stage of development and labor productivity. Bringing old-time manufacturing back to America, besides diverting resources from industries where labor is more productive and better paid, would also bring back repetitive jobs. Otherwise, it would not increase employment as the labor market is already at, or close to, full employment. The very process of bringing old manufacturing to the US, notably with tariffs and other Colbertist interventions, could further compromise full employment, creating another problem instead of solving a non-existent one. About mindless manufacturing jobs, which were once common in now-rich countries, Adam Smith wrote in The Wealth of Nations (Book 5, Chapter 1): The man whose whole life is spent in performing a few simple operations, of which the effects are perhaps always the same, or very nearly the same, has no occasion to exert his understanding or to exercise his invention in finding out expedients for removing difficulties which never occur. He naturally loses, therefore, the habit of such exertion, and generally becomes as stupid and ignorant as it is possible for a human creature to become. The torpor of his mind renders him not only incapable of relishing or bearing a part in any rational conversation, but of conceiving any generous, noble, or tender sentiment, and consequently of forming any just judgment concerning many even of the ordinary duties of private life. … But in every improved and civilized society this is the state into which the labouring poor, that is, the great body of the people, must necessarily fall, unless government takes some pains to prevent it. Revealed preferences suggest that repetitive manufacturing jobs are still preferable to pre-industrial life or scavenging dumps in underdeveloped countries. In the 19th century, most workers outside agriculture, construction, and the resource industries were employed in mindless manufacturing. Of course, these workers are as worthy of our respect as the consumers who patronize more efficient producers. Adam Smith raised an important question, but he could not imagine that, thanks to the fast economic growth that was to become typical of free societies, few workers would remain stuck in mindless manufacturing. In a modern developed economy, most jobs require some knowledge, thinking, and initiative. In manufacturing, which accounts for less than 10% of employment in America (like in most rich countries), the most repetitive tasks are done by machines. We in the rich world should be happy to be there. And our governments should not fall into economically illiterate and morally reprehensible attempts to prevent poorer countries from rising to our level of development. (Recall that in China, GDP per capita is less than one-third the American level; Vietnam is at 14%—according to data from the 2023 Maddison Project database.) The most important questions remain to be asked: Who should be producing which goods and services, how, and where? Economic theory and history strongly suggest two alternative answers. The first is to leave the decisions to some authority: the tribe, the council of elders, rationally ignorant voters,  politicians, the king, the strongman, or the planning bureau. The second way is to rely on consumer sovereignty, free enterprise, competition, and laissez-faire: letting each individual and each voluntary association (including corporations) decide what to do, and with whom to trade and at what terms. ****************************** Mindless manufacturing (1 COMMENTS)

No. The Net International Investment Position (NIIP) is a simple accounting concept.  It is the total value of foreign assets owned by Americans in other countries minus the total US assets owned by foreigners.  A positive number means that the value (but not the returns) of US-owned foreign assets is greater than the value (but not the returns) of foreign-owned US assets.  A negative number means that the value of US-owned foreign assets is less than the value of foreign-owned US assets.  More precisely: What is the international investment position? The accumulated value of U.S.-owned financial assets in other countries and U.S. liabilities to residents of other countries at the end of each quarter. The difference between assets and liabilities is the U.S. net international investment position. Like a trade deficit,[1] a negative number here conjures images of indebtedness and financial disaster.  And, like a trade deficit, that image is false.  Of course, debt can be part of the equation, but it isn’t all of it.  In fact, foreign holdings of US debt are falling.  Americans are becoming less indebted to foreigners.   But another way the NIIP can be misleading is that, much like the trade deficit, it only captures international transactions, not all transactions.  These transactions represent just a fraction of the total US financial market.  Consequently, a negative may look like more and more of the nation is becoming foreign-owned.  But the reality is just the opposite. The US Treasury recently released a report on foreign holdings of US financial securities.  Figure 2 is quite telling.  It breaks down foreign and domestic holdings by type.  One thing we see is that the share of US assets owned by foreigners has been generally flat/mildly falling since about 2009.  Foreign-owned US assets have accounted for about 20–21% of US assets over the past nearly-two decades.  But how can this be when NIIP has fallen over the same time period?   The answer is simple: Both foreigners and Americans want to invest in America.  Foreigners invest in the US, so that shows up in the NIIP.  But Americans also want to invest more in the US than abroad, so those investments do not show up in the NIIP.  The NIIP is falling since the negative side of the equation is getting more negative and the positive side is not rising as fast.  But, since America remains a productive place, the value of US assets is rising.  Americans are getting wealthier and buying more assets than foreigners are.  So, the NIIP falls, but their share of US-owned assets stays the same.  The NIIP here is our strength, not our weakness. For the sake of demonstration, assume the following: US-owned US assets: $80b Foreign-owned US assets: $20b Total US assets: $100b US-owned foreign assets: $10b   From these numbers, the US NIIP would be -$10b ($10b – $20b) and foreign holdings of US securities would be 20% of the total.  Now let’s assume some time has passed, and now we have these numbers: US-owned US assets: $96b Foreign-owned US assets: $24b Total US assets: $120b US-owned foreign assets: $10b After this time period, the US NIIP would be -$14b ($10b – $24b), but foreign holdings would still be 20% of total US securities.  Americans chose to invest their money in the US, not overseas.  Consequently, NIIP falls, but that’s just because Americans are choosing to keep their money domestically! Paradoxically, if one wants to reduce the NIIP, one must somehow convince Americans to increase their investments abroad and/or convince foreigners to decrease their investments in America.  Of course, one way to do that is to make America less competitive through “economic statecraft” (or is it “economic nationalism?”  “Reciprocal tariffs?”  The buzzwords change so fast).  But in the same way that one way to kill a spider is to burn down one’s home, these tariffs do far more harm than good. They are not ideal or even helpful. Value is all well and good, but returns matter, too.  Here we see another paradox:  American returns on foreign investments are higher than foreign returns on American investments.  In other words, Americans make more on their foreign investments than foreigners make on US investments.  Why?  Because, again, of how great America is.  American securities are relatively safe compared to the rest of the world.  So, foreigners want to keep their money safe and invest it here.  Americans also obviously take advantage of that safety and invest heavily in America.  But they also go after higher interest rates abroad, thus bringing in higher returns.  See here. Fear is the mind-killer.  Fear shuts down rational thought and leads to obliteration.  And fear comes from a lack of understanding.  Both the trade deficit and the NIIP have inspired a lot of fear in those who do not understand them.  They see a negative sign and assume negative outcomes.  Fear of foreigners owning everything springs unbidden to their minds.  I have written about the irrationality of these fears before.  Just as they were in the 1980s, they are irrational now.   — PS: One other interesting note from that Treasury report: US government debt is becoming less owned by foreigners.  Foreigners are opting for corporate debt and equity.  This makes me even more skeptical that simply balancing the federal budget would eliminate the trade deficit. [1] A quick note: the trade deficit and the NIIP are related, but not identical.  The trade deficit is a flow.  The NIIP is a stock. (0 COMMENTS)

In Barry Lam’s Fewer Rules, Better People: The Case for Discretion, the largest portion of his examples of real-world cases of rules and discretion is framed in terms of sports competition, or law enforcement. Here, I look at how he explores rules and discretion in law enforcement. He identifies two different forms of discretion in law enforcement. Selective discretion is the discretion to decide whether or not to enforce some law in a given case. Interpretive discretion is the ability to decide whether (or how) the law applies to a given case. In writing his book, he carried out interviews with police officers and district attorneys learning about their use of each of these forms of discretion. One case of selective discretion is examined early in the book, taking place in the low-income community of Oniontown, New York. A young teen called Joey is caught by a store owner stealing items, who in turn calls the police. The officers quickly learn that the young teen stole bread, peanut butter, and some milk – he and his younger brother had no food at home and hadn’t eaten in days. They take pity on him, and try to work out an arrangement with the shop owner. At first the owner is angry and insists they arrest and charge the young teen. But the officers work out a deal, even framing it to the shop owner as a favor he would be doing to them, to instead put the boy to work. Have him clean the parking lot, wash windows, shelve some items – to work back for the items he stole. Eventually the shop owner relents and agrees. When the officers come back later in the evening to check in on the situation, they get this report from the shop owner: “I’m sorry,” the owner said. “It’s just hard when you’re working so hard and someone steals from you. I want you to know that kid did such a good job that I gave him another loaf of bread and another half a gallon of milk. I made a bargain with him. I told him to come back each week. We would find something for him to do if he needed food. I’m not giving the kid cigarettes. I’m not giving him beer.” According to [Officer] Mike, Joey went to work every week doing the same thing, cleaning the parking lot, cleaning the windows, and stacking the milk crates in the back for the deliver drivers to pick up. In exchange, he received bread, peanut butter, milk, and other grocery items, enough to keep his family fed. “He probably got paid two or three dollars an hour, which isn’t much, comparatively speaking, but he didn’t get arrested,” says Mike proudly. This kind of selective discretion, Lam notes, would also run afoul of various other rules regarding child labor, employment, and minimum wage laws: Hypothetically, some nosey lawyer, or Javertian legalist could file some kind of complaint about the store owner “exploiting” a hungry child for labor. If such a person were to report the store owner, it would not be good citizenship. I would hope any relevant bureaucrat in charge would have the wisdom and discretion to look the other way. Because if not, this kind of busybody reporting might spread fear among store owners, deterring them from letting shoplifters pay for their crime with labor, insisting on arrest, and making everyone worse off. If it came to be that some authority had to put a stop to these kinds of arrangements because she did not have discretion to let it continue, then that is a flaw, not a virtue, of the bureaucratic state. According to the two officers involved in this case, Mike and Dave, understanding the virtue of selective discretion is something that comes with real-world experience: Officer Mike says, “What you see is the younger kids, they all want to arrest. You did something wrong, you’re going to be arrested, because when you read the book, that’s what it says. The book doesn’t say ‘person does this wrong, try to figure out something good for them and then work it out.'” “When you’re just starting out, you’re still learning the jobs. You haven’t seen a lot of things in the world, you haven’t dealt with a lot of people, so you go by the book,” Officer Dave explained. “When you get to be my age, you realize there’s a lot better ways to get someone to do something right,” he continued. Interpretive discretion, by contrast, comes into play when rules are vague rather than precise. This kind of discretion is all but unavoidable – crafting rules that make precise and clear boundaries applying to every possible case is an impossible task. As an example, most states have speed limit laws – these are precisely defined. But not every traffic safety law is so precise: Consider the basic speed law, a statue in almost every state. The basic speed law says that no one may drive faster than is safe for current road conditions. If the speed limit is fifty-five, but you are driving fifty-five during a blizzard when none of the roads are salted or plowed, you are in violation and may receive a ticket under the statute…Whether you are driving faster than is safe is in some sense a judgment call. Lam argues that virtually all laws on the books are open to wide interpretations, making the use of both selective and interpretive discretion unavoidable facts of reality. As a result, decisions will always need to be made about how to interpret the scope and content of any given rule or law: If a police department wants to implement the principle “interpret a vague statute so that as many acts as possible count as being a crime,” that is no less political than its opposite, “interpret a vague statue so that it excludes as many acts as possible.” A commitment to by-the-book legalism is not only impossible in practice, but also serves to deflect examinations of how one uses this unavoidable discretion by casting it as simply applying legalism: There is no more overused but false cover for a cop or prosecutor when trying to explain a blatantly wrong, controversial, or unpopular decision than to way that they were “simply following the law.” There is no such thing for cops and prosecutors as simply following the law when the law not only permits, but requires, discretion. No one with selective or interpretive discretion passively follows the law. There is always a choice of which laws (or which interpretations of the laws) to follow and which ones to ignore. How, then, should the decisions be made in enforcing and applying laws? I’ll look at Lam’s foray into that territory in the next post. (0 COMMENTS)

In a recent post, Kevin Erdmann uses the concept of never reason from a price change to explain why low wages do not give a country an advantage in international trade: The confusion comes from “all else held equal” thinking. All of those costs are part of an interconnected web of interactions. Interest rates may be high because investors are looking for risk more than safety and more corporations are seeking debt financing for expansion plans. So, at the micro level, high interest rates seem like they work against profitable activity, but at the macro level, they are frequently associated with more activity.Likewise with wages. High wages are the product of the quality of local economic and public institutions. They are a product of the broad set of alternatives that workers have access to. They are a result of the productivity that comes from the incomprehensible web of cooperative and competitive actions and opportunities that are present in an economically advanced community.Production moves to places where productivity is rising and institutions are improving. Production moves to places that find themselves capable of producing more. Production moves to where wages are rising, not where wages are low. Production appears to move to where wages are low because the places with the most potential for improvement are the places that were previously worse off. Let’s take a look at the 20 countries with the highest wages in the world, provided by Numbeo.com.  (Note, ideally, we’d want to use pretax hourly wages, but I could not find that data.  Nonetheless, a list using appropriate data it would be highly correlated with this list.) Among the 10 highest wage economies, only three run trade deficits (the US, Iceland and Australia.)  Among the next 10 highest, only two run trade deficits (the UK and New Zealand.)  That means 15 of the 20 high wage countries run surpluses.  Even if you exclude the 4 oil and gas economies, 11 out of 16 run surpluses.  High wages tend to be associated with trade surpluses. As a general rule, countries running trade deficits fall into two major categories: Low wages English-speaking As a general rule, countries running trade surpluses tend to fall into three major categories: High wages Energy exporters Confucian culture (East Asia.) To summarize, there is no evidence at all for the claim that, “Jobs are leaving the US because we pay high wages.”  Wages largely reflect productivity. Never reason from a wage level. PS.  I often argue that bilateral trade balances are meaningless.  A recent article in the Financial Times provides another reason why this is so: Chinese exporters are stepping up efforts to avoid tariffs imposed by US President Donald Trump by shipping their goods via third countries to conceal their true origin.   (0 COMMENTS)