In a recent interview, Tyler Cowen asked me why China doesn’t end its deflation by devaluing the yuan. I suggested that it might be due to pressure from the US.  A recent Bloomberg article provides support for that claim: In fact, the PBOC has been fending off depreciation pressure on the yuan since Trump won the US elections in November. It has capped the yuan’s drop at around 7.3 per dollar by setting the daily reference rate, which limits moves in the onshore yuan by 2% on either side, since late January.It has also delayed interest-rate cuts, paused bond purchases so far this year and tolerated a funding squeeze among banks to prevent further yuan declines and capital outflows.“Despite the upcoming extra 10% tariff hike, the PBOC will probably refrain from tweaking its steady yuan fixing policy, considering Trump’s warning on yuan depreciation,” said Ken Cheung, chief Asia FX strategist at Mizuho Bank in Hong Kong. “The PBOC may also be inclined to preserve currency stability during the National People Congress.” The US government did the same thing to Japan back in the 1990s and 2000s, pushing them into deflation.  It never ceases to amaze me how much harm can be done by policymakers that lack a basic understanding of  economics.In the long run, the deflation in China will restore equilibrium, as the real exchange rate will depreciate even as the nominal rate is fixed.  But recall what Keynes said about the long run. China does not need a weaker yuan in real terms, but it does need a weaker yuan in nominal terms in order to boost its NGDP growth rate.  Monetary stimulus would be unlikely to boost China’s current account surplus, as the faster economic growth would probably suck in imports at a faster rate that the weaker yuan would boost exports.  In other words, the income effect would likely dominate the terms of trade (substitution) effect. (0 COMMENTS)

One of the best decisions I made in the early 1990s was to get Herb Stein to do a piece on the balance of payments for The Concise Encyclopedia of Economics, which was then The Fortune Encyclopedia of Economics. His first two paragraphs are still beautiful: Few subjects in economics have caused so much confusion—and so much groundless fear—in the past four hundred years as the thought that a country might have a deficit in its balance of payments. This fear is groundless for two reasons: (1) there never is a deficit, and (2) it would not necessarily hurt anything if there was one. The balance-of-payments accounts of a country record the payments and receipts of the residents of the country in their transactions with residents of other countries. If all transactions are included, the payments and receipts of each country are, and must be, equal. Any apparent inequality simply leaves one country acquiring assets in the others. For example, if Americans buy automobiles from Japan, and have no other transactions with Japan, the Japanese must end up holding dollars, which they may hold in the form of bank deposits in the United States or in some other U.S. investment. The payments Americans make to Japan for automobiles are balanced by the payments Japanese make to U.S. individuals and institutions, including banks, for the acquisition of dollar assets. Put another way, Japan sold the United States automobiles, and the United States sold Japan dollars or dollar-denominated assets such as treasury bills and New York office buildings. Herb died in 1999 and so, when I did the second edition of the Encyclopedia earlier this century, I, with the help of Kevin Hoover and the late Mack Ott, updated his numbers and added the last two paragraphs: These same concerns surfaced again in the late 1990s and early 2000s as the current account went from a surplus of $4 billion in 1991 to a deficit of $666 billion in 2004. The increase in the current account deficit account, just as in the 1980s, was accompanied by an almost equal increase in the deficit in goods. Interestingly, the current account surpluses of 1981 and 1991 both occurred in the midst of a U.S. recession, and the large deficits occurred during U.S. economic expansions. This makes sense because U.S. imports are highly sensitive to U.S. economic conditions, falling more than proportionally when U.S. GDP falls and rising more than proportionally when U.S. GDP rises. Just as in the 1980s, U.S. employment expanded, with the U.S. economy adding more than twenty-one million jobs between 1991 and 2004. Also, employment as a percentage of population rose from 61.7 percent in 1991 to 64.4 percent in 2000 and, although it fell to 62.3 percent in 2004, was still modestly above its 1991 level. How about the issue of foreign ownership? By the end of 2003, Americans owned assets abroad valued at market prices of $7.86 trillion, while foreigners owned U.S. assets valued at market prices of $10.52 trillion. The net international investment position of the United States, therefore, was $2.66 trillion. This was only 8.5 percent of the U.S. capital stock.   By the way, Herb was my boss at the Council of Economic Advisers in the summer of 1973, when I was a summer intern fresh off my first year as a Ph.D. student at UCLA. He was one of the two best bosses I ever had. (The other was Bill Meckling, dean of the Graduate School of Management at the University of Rochester.) (1 COMMENTS)

The mouse smiled brightly It outfoxed the cat! Then down came the claw, And that, Love, was that -Lyrics to a lullaby recited by the devil Raphael   Commenting on a recent post by Scott Sumner, Mactoul argued “Authoritarianism is useful when you are trying to downsize the federal bureaucracy.”  This sort of love affair with arbitrary power is common when the authoritarian does what you want.  It’s why authoritarianism is so seductive, even to those who abhor power.  Many days and nights I have spent dreaming of the utopia that would exist if only I, and I alone, wielded absolute power.  Even Adam Smith discusses how certain evils, like slavery, are more likely to be abolished or mitigated under an arbitrary government as opposed to a more limited government (WN, pages 586-588 of the Liberty Fund Edition.  Common citation: Book IV, Chapter 7, Part b, paragraphs 54-55). But lest we be seduced by this ability for authoritarianism to do good, we must remember that it is arbitrary.  What can be undone by an authoritarian government can once again be done.  For the past four years, the Biden Administration expanded its arbitrary power via executive order.  The Trump Administration is using that same power for its own end goals.   Those who promote arbitrary power tend to imagine they are the only ones who will wield it.  But authoritarians are human, too.  They will die.  Either they die peacefully in their bed like Stalin, at the end of a figurative rope like Robespierre or Ceaușescu, or by their own hand like Hitler.  Then the arbitrary powers pass along to someone else; someone who may very well undo everything they worked toward.   History is littered with examples of authoritarians using arbitrary power for some seemingly noble goal only for it to backfire.  A notable example is Weimar Germany.  Weimar Germany, while more liberal than its predecessor, was still quite illiberal.  Indeed, the government often brutally suppressed dissent, most notably the Nazis.  Many German officials of the 20s and 30s saw the Nazis as a unique threat and employed the full legal (and many illegal) powers of the Weimar government to suppress the movement.  When the Nazis eventually triumphed, they simply took control of an already-authoritarian state.  The Enabling Act of 1933 was not the beginning of authoritarianism in Germany.  Rather, it was the final nail in the coffin of freedom.   Authoritarianism is, ultimately, a deal with the devil; it is a Faustian bargain.  Even if the terms of the bargain are made to advance goodness, the Devil always wins.  I do not celebrate authoritarian power when it is accomplishing what I want for that simple reason.  If the law is laid low, if power becomes arbitrary rather than constrained, then what is to protect me when the reins of power fall to the Devil?  Am I truly to rely on his mercy?   All those who argue authoritarian powers can be useful ought to think very long and hard about the lyric above: are they the cat…or the mouse? (0 COMMENTS)

On February 14, I received an email from Alexa DiFrancesco, a producer at the government-funded Canadian Broadcasting Corporation. She wrote, in part: I’m reaching out because my team is working on a Canada-US call-in show between 4 and 6pm ET (2pm and 4pm MT) on Sunday, Feb 23rd. It will be carried on NPR, CBC and CBC News Network (radio and television). It’s going to be co-hosted by Ian Hanomansing and Jeremy Hobson.  I’m reaching out to see if you would be available for a 5-7 minute virtual interview with us sometime during this show. This episode focuses on the question “What does Canada as the 51st state mean to you?” We’re looking for an American voice that disagrees with Trump’s 51st state idea/comments, and we read your piece about why a Canada/U.S. union is a bad idea. I replied: Thanks, Alexa. I’m in. I should warn you, though, that I’m a dual citizen. I grew up in Manitoba. I think of myself as 98% American, the other 2% being when U.S. plays Canada in hockey (NOT ice hockey) as will happen on Sunday. If that works for you, we’re good. Best, David Alexa replied: Hi David, Thank you so much — amazing news!  Would you be able to hop on a quick call with me later this afternoon or Sunday morning if that works better to discuss interview details/your perspective? This call would be to make notes and draft a script for our hosts Ian and Jeremy. This interview isn’t 100% just yet — one last step is that my senior producer would also have to listen to our call just to make sure your perspective fits what we’re looking for. Please let me know if that all sounds good — thank you again and I hope you’re having a wonderful day! Alexa (PS – only one of us watches Canada/US hockey but it’s great to know you’re supporting Canada LOL). I like when correspondence gets to be fun, so I replied: Dear Alexa, That makes sense. Yes, let’s talk on the phone today. What time? I’m in the Pacific time zone. Best, David P.S. My wife was born in New Jersey. We met in 1981 and married in 1983. When we were watching the final Olympic hockey game between Canada and U.S. in the 2002 Olympics, I started screaming and running around the living room when Canada scored the tying goal. My wife wondered whom she had married. 🙂 Alexa replied with a suggested time and then added: (That is such a wholesome story and it made my day! Thank you so much for sharing it. 🙂 ) We had the interview, and she recorded it for her senior producer. I’m going by memory here. I didn’t get on the show, and I don’t know if it’s because I said something the senior producer didn’t like. Who knows? But here are the questions I remember her asking and my answering. Alexa: What’s your main reason for opposing Canada becoming a 51st state? DRH: I think competition among countries is good. One way they compete is on taxes, especially corporate taxes. When Janet Yellen was U.S. Treasury Secretary, she tried to help organize a tax cartel among most of the world’s leading countries so that countries would find it harder to compete by cutting corporate tax rates. I want to go the opposite way. I want Ireland to keep their corporate income tax low, for instance, so that other countries’ governments will feel pressure to keep their rates low. [I was going by memory here, but I was right: Ireland’s rate is 12.5%.] Canada as an independent country helps in that competition. [I later checked and, sure enough, even though Canada’s statutory corporate income tax rate is a whopping 38%, they lop off 10 points for some reason and 13 points for some other reason to get it to 15%.] Alexa: What would you say to people who don’t care much about tax competition? DRH: I would say that there are other ways countries and governments compete and it’s important to have options. I remember when George W. Bush signed a really bad bill in 2001, the USA PATRIOT Act. The next summer I went up to my cottage in Canada and attended a fireworks display on Canada Day. [That’s on July 1.] At one point they played the national anthem. I had hated it in high school because we had to sing it every day. But I stood and belted it out with a lot of emotion because I was in a country that wasn’t completely under George Bush’s thumb. Alexa: What would you say to Americans who might be leaning in favor of having Canada as a 51st state? DRH: My perception is that people with that leaning tend yo be disproportionately Republican. I would ask them, “Do you really want a lifetime guarantee of 2 more Democratic Senators?” (0 COMMENTS)

Even though I like the broad brush-strokes of Reno’s ideas, as I mentioned in my previous post, I think there are important points where Reno goes wrong. First of all, while Reno (to his credit) acknowledges that the banishing of the strong gods was motivated for good reasons, and in response to real horrors, he often seems entirely too blasé about the prospect of such horrors returning. He argues that people are too focused on the problems of the past, and talks as though those problems are simply behind us: Our societies are not gathering themselves into masses marching in lockstep. Central planners do not clog our economies. There is no longer an overbearing bourgeois culture bent on “exclusion.” Bull Conner isn’t commissioner of public safety in Birmingham. Later on in his book he reiterates his claim that these concerns are misplaced, or at least given an undue level of focus: But we are not living in 1945. Our societies are not threatened by paramilitary organizations devoted to powerful ideologies. We do not face a totalitarian adversary with world-conquering ambitions. In fairness to Reno, he wrote these words for a book that was published in 2019 – not so long ago, but enough has changed since then that the idea of totalitarian governments bent on conquest doesn’t exactly seem like a problem of the past, nor does the threat of authoritarianism within our own society. Still, Reno’s words remind me of this point made by Matt Yglesias, highlighted by Scott Sumner. Yglesias pointed to an article in the progressive publication American Prospect, arguing that insurance companies were overrating the risk of fire in areas like Eaton Canyon in California, because there hadn’t been a major fire there in a long time. This led them, in Yglesias’s words, to the belief that “activist regulators could price this risk better than the market.” Of course, this proved grimly ironic because not long after the American Prospect article, the whole area was engulfed in flames. A problem can lay dormant for a long time without ever truly being behind us. Indeed, one could argue that the authoritarian risk Reno dismisses only seems remote precisely because of the kinds of ideas he finds so lamentable. There was a headline in the New York Times that has been the butt of many jokes that read “Prison Population Growing Although Crime Rate Drops.” The joke, of course, is that one could easily and plausibly claim that the prison population growing is responsible for the crime rate dropping, and this scenario is a sign of success and not a basis to argue that prison populations are too high. (“Firefighters continue to hose down house, despite receding flames!”) Reno does briefly anticipate this, but he asserts that social disunity is a larger threat than the prospect of authoritarianism from within or without. Unfortunately he’s very thin on arguments detailing the relative risk between them. He does spend a great deal of time arguing in detail about the causes and nature of the social disunity that troubles him, and why it’s a serious problem – but the argument for why it’s the greater problem is minimal and rather hand-wavy. So it’s possible for someone to read Reno’s book and agree with him that there is a problem of social fragmentation, and agree with him about what is driving this fragmentation, yet not be convinced by Reno’s claim that it’s a larger risk relative to the prospect of authoritarianism or social oppression. Note, I’m not making the claim that Reno is wrong is his assertion about the relative risk – I’m only making the weaker claim that his argument isn’t sufficient to justify the conclusion. But aside from that, Reno makes many stumbles when discussing both economics and the ideas of economists. I’ll be detailing those problems in the next post. (0 COMMENTS)

At one time, most Americans were farmers.  By late 20th century, the vast majority of farmers had moved to the city for jobs in manufacturing and services.  More recently, China is going through the same sort of transformation, as hundreds of millions of people move from the countryside to the city.  This has contributed to an astounding increase in Chinese productivity. A recent article in the Financial Times discussed the effects of deporting undocumented workers: According to a survey carried out by the National Council of Agricultural Employers in 2020, just 337 US-born workers applied for the 97,691 season agricultural jobs advertised between March and May that year. Critics of immigration often suggest that the so-called “shortage” of workers is a myth, and that if firms paid more there would be plenty of Americans willing to take these jobs.  But how much more?  Suppose you raised wages enough to double the number of US-born workers applying for jobs, that would still represent less than 1% of the required workforce.  Now suppose you raised wages enough to increase the number of US-born workers 10-fold.  You’d still only be meeting about 3% of the demand for agricultural workers. To be clear, I’m not denying that there is some wage that would be high enough to produce 97,691 US-born applicants.  But that wage is likely to be far too high to allow for the profitable production of most labor intensive crops.  Fruit and vegetable fields might be replaced with wheat fields. You might argue that farmers could raise food prices to cover the extra labor costs.  But that would lead to American produce being replaced by imports from other countries. You might argue that we could raise food prices and put tariffs on imported food. I don’t doubt that it would be possible to produce some mix of policies that resulted in lots of US-born workers leaving their factory jobs in big cities and moving back to the countryside, where they’d start picking fruits and vegetables.  There is some policy mix that would reverse the tides of history and begin to move us back toward our agrarian past.  But while we are doing that, I’d expect the Chinese to continue moving millions of people from the farm to the city.  Ask yourself this question: Has a country ever become a great power by encouraging its population to move from the city to the countryside? Here’s a prediction:  The mass deportation that everyone is talking about will never happen: “If there is a significant enforcement event on a big farm or meatpacking plant that happens to be in a red state, you will have business owners in that state saying — this is not what we had in mind,” said Muzaffar Chishti, senior fellow at the non-partisan Migration Policy Institute. (0 COMMENTS)

Late one night in 1989, economist Jeffrey Sachs found himself in a smoke-filled room of government officials in Warsaw, Poland. The country had  just declared independence from the Soviet Union, which had exerted central control over prices of tens of thousands of items, leading to frequent shortages. Sachs argued to the economists and politicians that Poland needed “shock therapy” with an immediate transition to a free market economy with floating prices. For millions of Poles,  that was a frightening proposition. Prices posted by the command-style government had been easy for ordinary people to see and understand, but the principles of the free market were an abstract theory. It required faith to leap into the unknown world of supply and demand where an unseen force called “the invisible hand” would now regulate prices. Sachs’ plan was put in motion the next day, and newly unregulated prices of ordinary grocery items immediately spiked, causing anxiety across the country. The Polish finance minister, Leszek Balcerowicz, paced the streets, looking for a glimmer of hope. He decided to concentrate on one thing: the price of eggs. If the market was working, the higher price of eggs would create incentives for farmers to bring more eggs to market, leading to a fall in prices. Sure enough, in a few days, egg prices began to drop. “That was an important day,” Balcerowicz recounted, a signal that the new free market was working its magic in allocating goods and services in the most cost effective manner.     *                                             *                                          *                              It’s not just the Polish people who watch egg prices. Here in the United States, spiking egg prices since late 2024 are dominating news reports. Eggs, like gasoline, are bought frequently, and so tracking these prices is highly relatable to consumers.  As if they were gold coins, 100,000 eggs were stolen from a trailer in early February. Waffle House’s decision to charge a 50 cent surcharge per egg order even made the national news. The cost of one dozen Grade A eggs jumped 53 percent higher than the same time last year. What’s more, there has been more price volatility, because of sudden shocks from bird flu that has killed over 120  million chickens since 2020. But here’s the strange thing: the egg market is not acting in a way that economic textbooks would predict, and certainly in a different direction than Sachs’ confident prediction to the Polish people. There are two egg puzzles that go well beyond Econ 101 textbooks’ standard explanations of how firms and consumers work together. The answers ultimately give us a richer understanding of the complexities of humans’ selling and buying behavior. The first Econ 101 puzzle:  even with rising egg prices, grocery stores are not letting prices rise high enough to bring demand in line with supply. Customers are swamping stores, buying far more eggs than they need on a weekly basis, leading to empty shelves. To combat potentially angry customers,  grocery stores such as Kroger, Walmart, Trader Joe’s and Costco are now limiting sales of eggs to one dozen per person. In other words, they are rationing eggs, seemingly resembling more of a command economy than a fully functioning free market. The second Econ 101 puzzle is that despite the rise in retail egg prices, grocery stores are actually losing money on each dozen eggs sold, as reported in The New York Times.  According to the latest February 14th, 2025  USDA report, national wholesale prices average $7.74 a dozen while national retail prices average $4.95 a dozen. What’s going on here?  In puzzle #1, the shortage of retail eggs and self-imposed store quotas indicate excess demand. In puzzle #2, the elevated wholesale egg prices mean a higher input cost for supplying retail eggs. Textbook economics predicts that in both cases, retail prices should be driven higher. That means we should be paying at least $8 a dozen, not $5, on average nationwide. Some might explain that this is happening because eggs are a “loss leader,” that encourages customers to buy other profitable items while they make their way to the back of the store, where eggs and milk are typically sold. There is little evidence this explanation is true for any length of time. The below figure charts the past history of retail vs. wholesale egg prices. The orange line representing wholesale prices is almost always below the retail prices in blue. In fact, we see an interesting phenomenon: grocery stores only lose money on eggs when the wholesale prices spike up very quickly, as they briefly did in 2015, 2018, 2020 and 2023 as well. Otherwise they are making around a reasonable 20-75 cents profit per dozen, depending on the type of eggs sold. Figure 1. U.S. Egg Retail and Wholesale Prices, 2010-2023. Source: Jason Lusk.  Whenever we see markets not following standard economic theory, we should investigate two alternative explanations: either there is a government regulation that is leading to some unintended consequences, or there is some aspect of customers’ high emotions that override a firm’s typical profit maximization process. Since there has been no price control on retail eggs a la the former Soviet Union, we turn to the  other explanation. A humble pack of a dozen eggs is likely an emotional purchase, at least when the prices go high. We are in touch with the prices of eggs as intimately as the Polish finance minister who wandered the streets, seeing them as a bellwether of the economy as a whole. Grocery stores have a tough decision to make: they need to weigh the cost of their retail losses from egg sales versus the loss to their reputation if they are seen as “villainous price gougers”  in a time of rapidly rising prices. It appears in this case at least, grocery stores will take the short-term losses on the chin, because they have thousands of other items where the profits can offset these losses. Ironically, consumers may complain about sky-high egg prices in 2025, but they are largely kept in the dark about how protected they are from the reality of far higher wholesale prices. The quotas instituted by the grocery stores now make sense: the nearly $3 loss per dozen eggs sold is like a store’s investment in retaining customer’s goodwill, serving to limit the damage from even higher priced eggs. So it’s rational on the part of the grocery store to distribute their eggs among the largest possible customer base by disallowing bulk purchases by individual customers.  That way, they enhance their reputation as a business who cares for customers and keep their eggs out of just one customer’s grocery basket. Economists such as Daniel Klein, Joshua Klein and others have investigated the economics of reputation, and even Adam Smith noted the tradeoff of reputation vs. profit in his Lectures on Jurisprudence: “Where people seldom deal with one another, we find they are somewhat disposed to cheat, because they can gain more by a smart trick than they can lose by the injury which it does to their character.” The lesson: even in something as simple as an egg market, a delicate dance of emotion and reputation can intertwine with prices finding equilibrium.  In all cases, the more competition the better, especially under long time frames. Consumers stand a far better chance of being protected by firms in these situations than command economies or regulations that create barriers to entry for other competitors, such as health insurance markets. That is eggsactly what we should wish for. (I had to get a bad pun somewhere). Craig Richardson is the BB&T Distinguished Professor of Economics and Finance at Winston-Salem State University. (0 COMMENTS)

A proposal to cap credit card interest rates at 10% is gaining support from politicians on both the left and the right. Advocates argue that this policy will work to the advantage of potential borrowers who will no longer be charged rates of 25% or higher. But things aren’t so simple. For one, there’s a straightforward economic argument against a cap on credit card interest rates: companies simply won’t extend credit to higher-risk borrowers if they aren’t able to secure a higher potential payout to offset the risk of default. (By analogy, you’re unlikely to invest in a high-risk tech startup instead of blue chip stocks unless the potential payout is high enough to offset the increased risk.) And this outcome would be bad for those borrowers since they would no longer be offered credit at all. Surely, an offer of a high interest credit card is better than no offer at all—more on this below. But many advocates of price controls on credit card interest rates make a moral argument. They worry that credit card companies that charge high interest rates are taking advantage of borrowers’ lack of options. Generally speaking, you’d be unwilling to accept a 25% interest rate unless you ran out of alternatives. Credit card companies are therefore exploiting the vulnerability of high-risk borrowers. However, price controls are a misguided solution. Remember that the problem here is that many borrowers lack good options to acquire the money they need. Reducing borrowers’ options by one doesn’t solve that problem—in fact, it makes the problem worse. Borrowers now have even fewer options than they had before. To take a similar case, it would be perverse for the state to ban the sale of low-cost tents to those in need of permanent housing on the grounds that these sales exploit their lack of housing options. Consider also the following moral argument against price controls on credit card interest rates (it’s similar to one I’ve lodged against “price gouging” restrictions): If you may offer no credit at all, you may offer credit with high interest rates. You may offer no credit at all. So, you may offer credit with high interest rates. Let’s break this down. First, take the claim that if you may offer no credit at all, you may offer credit with high interest rates. The argument here is simple enough: Receiving an offer of something is potentially better, and certainly not worse, than receiving an offer of nothing. If the offer is better than nothing, the borrower will take it and thus be better off. If it’s worse than nothing, she can reject it and thus be no worse off for receiving the offer.  Critically, borrowers themselves are in the best position to know whether they should accept the offer of a high interest credit card because they know their particular economic needs and prospects better than anyone else. An outsider may not understand why someone would be willing to use a credit card with a 25% interest rate, but they are likely to be unaware of the particular circumstances that motivate the borrower to do so. Along the same lines, an outsider may not understand why someone would quit their job for one with a significantly lower salary, but here we’re happy to defer to the employee’s own judgment of their economic situation. Lastly, the claim that you may offer no credit at all simply follows from the fact that potential creditors have the right to make their own decisions about their money. If your neighbor knocks on your door and offers to pay you $1,000 at the end of month if you’ll give her $950 today, you’re under no obligation to agree. You’re certainly under no enforceable obligation to agree—that is, no one may compel you to do so. While the push for caps on credit card interest rates may be motivated by a laudable impulse to prevent the exploitation of the economically vulnerable, such a policy both interferes with economic freedom and is likely to harm the very people it intends to help.   Christopher Freiman is a Professor of General Business in the John Chambers College of Business and Economics at West Virginia University. (1 COMMENTS)

Commenting on a post of mine, co-blogger Scott Sumner offered a striking observation: “I feel sort of like Rip Van Winkle, like I fell asleep in the USA and woke up to find myself living in a banana republic.” According to a Wall Street Journal story, some members of Congress are beginning to start waking up to the current president’s power grab (Aaron Zitner, Siobhan Hughes, and Gavin Bade, “Powers of Trump and Congress Collide as Government Shutdown Nears,” March 1, 2025). Budget and tariff policy are two areas where some congressmen suspect that Congress should not have delegated so much power to the president. It could happen here, “it” being despotism of the harder sort than the Tocquevillian soft sort that we have already gotten used to. Instances of the problem are too numerous to be listed here. My post of yesterday suggests that one man has apparently been granted the power to close America to the rest of the world if he feels like it. Let me mention three other incidents that seem symptomatic of a general rejection of anything that looks like the remnants of classical liberalism. One relates to the disgraceful humiliation of the Ukrainian president by President Donald Trump and his vice-president in the White House on February 28 (see “Trump-Zelensky Meeting Implodes, Threatening Hopes for Peace,” Wall Street Journal, February 28, 2025; and “Trump, Vance and Zelenskyy Spar over Russian War in Tense Exchange: ‘Very disrespectful,’” Fox News, February 28, 2025). Trump repeated on his social media something he had said about Zelensky during the meeting: He disrespected the United States of America in its cherished Oval Office. If he heard this naïve glorification of the state, H.L. Mencken must be turning and laughing out loud in his grave. The king of Spain “tramples or tries to trample the dignity of a people,” the late dictator Hugo Chavez said referring to the Venezuelan people, his people, that is, himself, after the king had told him to shut up in a meeting. As a second example, some officials in the president’s entourage have declared that the president’s decisions should not be subject to judicial control. The WSJ reports: Dan Bongino, Trump’s choice to be deputy director of the FBI, has said the president “should ignore” a court decision with which he disagrees, and Vice President JD Vance wrote recently that “judges aren’t allowed to control the executive’s legitimate power.” … “There is no hard-and-fast rule about whether, in every instance, a public official is bound by a court decision,” said Aaron Reitz, Trump’s nominee to head the Office of Legal Policy, which advises the attorney general on policy and helps select federal judicial nominees. In his 1945 book On Power, political theorist Bertrand de Jouvenel explained how English and American liberties had long been protected by the common law or the Constitution through the courts, where judges were powerful enough to check the government and its agents. After the independence of the judges was abolished, the French Revolution rapidly turned into the worst tyranny the country had known. The third instance I will mention also relates to the heightened threat to the rule of law. It was an incident during the campaign to deport illegal immigrants. Although it may look innocuous and merely indicative of the poor legal and historical education, or the weak spine, of many low-level praetorians, I think it is significant. According to a Reason Magazine report, an Afghan government employee who had helped the occupying American army finally succeeded in coming to America as a refugee. But last month when he went to a long-scheduled appointment with Immigration and Customs Enforcement, he was arrested and jailed, presumably to be deported. His lawyer says she asked an ICE agent why her client had been arrested and was answered (twice), “New administration”—as if a change of personnel at the top of the state changed the rule of law at the governors’ pleasure. Is this a government of laws or a government of men? Let’s hope that the lawyer did not remember the answers accurately, but they are in line with the trends we have seen recently. On Monday, the American Bar Association issued a strongly worded statement that supports the concerns expressed in my second and third examples. The problem is a general one: Should a state that wants to do good—or claims such intention, or lies in saying so—be constrained? Well-meaning and well-informed opponents of tyranny admit that the answer is Yes, including on the “caviar left” (la gauche caviar, as we say in French). Take Daron Acemoglu who, in The Narrow Corridor, argues that Leviathan grows non-stop but is happily shackled by the concurrent growth of “civil society.” It is the “shackled Leviathan” in the authors’ jargon or, alternatively, the  “state capacity” doctrine. Illimited democracy can do no wrong. But shackles that don’t shackle are no shackles. Not far down this slope, state capacity, that is, state power, becomes the real object of attraction as we see in Acemoglu latest and rather horrible book, Power and Progress. That’s where we are: enjoying a Leviathan who was strong enough to partly unshackle himself. It looks as if those who wanted a powerful Leviathan are getting their wish. Do they now realize that it will not bring social nirvana? Will the last shackles hold? ****************************** The loving and beloved king with his scepter, by DALL-E as influenced by your humble blogger and perhaps by H.L. Mencken   (0 COMMENTS)

Jordan Schneider has a very informative interview with Edward Fishman, who is an expert on the use of sanctions.  Until recently, the US would occasionally impose sanctions but not require other countries to adhere to our policy.  That all changed with the Iran sanctions, where the US imposed secondary sanctions on third parties that engaged in unauthorized trades with Iran.  This comment caught my eye: Secondary sanctions had been tried before in the mid-90s, but the U.S. effectively wound up blinking and not imposing secondary sanctions on Total, the French oil company that had been investing in Iran’s oil sector. Even the George W. Bush administration decided not to impose secondary sanctions. This tool was very controversial. You can imagine it didn’t go down well with other countries. If you’re an American diplomat and you go meet with one of your counterparts abroad and say, “Sorry, we have to sanction your biggest bank if they don’t stop doing business with Iran” — that just feels like mafia diplomacy, not something that goes down very easily. Fishman is not opposed to the use of sanctions, rather he is describing the mindset in the early 2000s.  Fishman suggests that President Obama used his popularity to get the UN to approve of our sanctions policy.   Jordan Schneider: You mentioned “Mafia diplomacy” as a sort of derogatory term for sanctions tactics. There are a lot of moments in this story where gentlemanliness appears to be very important to Obama. After the invasion of Crimea, around the Maidan revolution, Obama had a call with Putin where he warned that “Moscow’s actions would negatively impact Russia’s standing in the international community.” Putin’s response was basically like, “I don’t know, man, it’s hard to take you seriously.” Why was Obama’s demeanor so helpful in the case of Iran? Edward Fishman: Obama was very attuned to international law, or as you put it, gentlemanliness. You could argue he was very lawyerly in his approach. With respect to the Iran sanctions, I think it actually wound up being helpful because the secondary sanctions against Iran were beyond anyone’s imagination. Fishman seems to suggest that Obama’s “lawyerly” approach was useful in getting support from our allies, but not necessarily in pressuring our adversaries. Today, I’m not even sure which countries are our allies and which countries are our enemies.  Furthermore, the current administration does not seem to be staffed with lots of “gentlemen”.  This Jordan Schneider tweet caught my eye: I guess it’s a sign of the times when I have to apologize for the language used when I quote top government officials.  In the past, I’ve emphasized that both parties need to pay more attention to process.  With each administration, more and more power flows to the presidency.  That may seem good if you support the party that is currently in power, but the next administration will inherit that power and perhaps push the envelop even further.  Tactics that seem mafia-like to one generation will become accepted as normal by the next.  But where does all of this end? (0 COMMENTS)