I recently read some interesting comments by a basketball player for the Milwaukee Bucks: Regardless, Antetokounmpo felt weird about facing [former coach] Budenholzer at the other side of the court considering that they were strong and close allies in Milwaukee for five seasons. “It’s definitely weird,” Giannis said. “Seeing him complain about plays that I do, charges, push-offs, and all that, and it’s the stuff that he loved when I did it when we were on the same team, winning a championship together. “He loved when I did that, but now I’m playing against him.  On one level this is sort of amusing, as we all understand that coaches are not seeking the truth, they are like lawyers advocating for their clients.  They are more interested in winning than in determining whether a given action was or was not a foul.  But I do understand how this change of tone would feel “weird”, as in the heat of battle we tend to feel that we are in the right, and often interpret reality through that lens.   David Hume once said, “Reason is the slave to the passions”.  Many people decide what they want, and then look for reasons to justify their actions.  Consider the case of tariffs.  Proponents of high tariffs often suggest that the US is being taken advantage of by other countries, which they claim have much higher tariff rates than we do.  In fact, our major trading partners mostly have similar of even slightly lower tariff rates than the US.  If we were to adopt “reciprocal tariffs” it would mean cutting out tariff rates with our major trading partners. Nationalists will often cite a few individual tariffs in foreign countries that are much higher than the equivalent tariff rate in the US, overlooking the fact that we also have some individual trade barriers that are much higher than those of our trading partners.  David Henderson is also skeptical of claims that these are reciprocal tariffs. In a recent post, I suggested that the roughly $100 billion in tariffs on Canadian and Mexican autos would represent one of the largest tax hikes in history.  Today’s announcement is far larger, perhaps $400 billion—although I cannot be certain as the tariffs will also impact the quantity of imports.  In any case, it would certainly be the largest tax increase in American history, even in real terms, although as a share of GDP the WWII increases were probably larger. It’s too soon to predict the economic impact, as President Trump’s tariff announcements are frequently adjusted after negotiation.  In addition, the effect also depends on the monetary policy reaction.  If inflation is targeted at 2%, a recession might occur.  If monetary policy is adjusted in order to prevent a recession, we would probably get higher inflation.  (0 COMMENTS)

  President Trump has now unveiled his outline of the higher tariffs he proposes. They are much higher and, therefore, much more destructive of people’s wealth, than I or, apparently, many others had expected. Trump claims to be doing this in the interest of reciprocity. In his Rose Garden speech, he noted, correctly, that you should judge countries’ openness to trade not just based on their explicit tariff rates but also based on their other barriers to trade. On that basis, he produced fantastic numbers showing what combining non-tariff barriers, including “currency manipulation,” with explicit tariff rates would imply for a tariff equivalent. When I saw on his graph that that leads to an equivalent tariff rate for China of 67%, I smelled a rat. Of course, I will withhold final judgment about the authenticity of Trump’s number until his Council of Economic Advisers publishes a high-quality economic study backing these numbers. I’m skeptical that it will. It might publish such a study. I suspect that it will be full of exaggerations, much like the thinking of the president. Why am I so skeptical about Trump’s claims? Because we have good data from the Heritage Foundation’s Index of Economic Freedom. In “Trade Freedom and the Myth of Tariff Reciprocity,” April 1, 2025, the Independent Institute’s Phillip Magness writes: The United States is currently one of the worst offenders among developed nations in placing discriminatory tariffs and NTBs on our trading partners. This ignominious position may be seen in the Heritage Foundation’s Index of Economic Freedom, which compiles an annual “trade freedom” score for nearly 200 countries and political jurisdictions. According to the 2025 report, the United States ranks in 69th place, putting us lower than New Zealand (2nd), Australia (3rd), the United Kingdom (17th), Canada (18th), France (38th), and Germany (39th). The Heritage 100-point scale combines the country’s trade-weighted average tariff rate with a scoring of its NTBs—an assortment of quotas, export restrictions, subsidies, regulations, and similar policies that discriminate against foreign goods or unfairly prop up domestic products. A score closer to 100 represents lower tariff rates and fewer discriminatory trade policies. The United States scores a mediocre 75.6, which puts it only slightly better than China’s 74 and much worse than Canada’s 83.2. This means that true reciprocity would mean the United States cutting trade restrictions on imports from many countries. Although it would be an exaggeration, I’m tempted to say of everything that follows Trump’s correct point that you need to consider non-tariff barriers, something similar to what author Mary McCarthy said of Communist writer Lillian Hellman: Every word she writes is a lie, including “and” and “the.” (0 COMMENTS)

It’s often said that after people are wealthy enough to meet their basic needs, they are more concerned about their relative rather than absolute level of well-being. If Smith sees his real income increase by 10% this year, but everyone else around Smith has their real income increase by 20%, Smith doesn’t feel glad that his standard of living has gotten objectively better. Instead, Smith feels despondent that he’s falling behind compared to others. Bryan Caplan recently posted an argument on his Substack that, contrary to popular belief, people barely care about relative income. His argument is a simple and straightforward one – if people were really concerned with their relative level of well-being, they can easily fix that. In Caplan’s words: The resolution begins with the observation that each of us possesses a nearly fool-proof short-cut to relative riches. Namely: Move to a poorer area. If you want to feel superior to your immediate neighbors, move to a poor neighborhood. If you want to feel superior to people in your state, move to a poor state. If you want to feel superior to people in your country, move to a poor country. When we look at human migration, all three of these choices are rare. He later followed up with an additional post to provide empirical support, courtesy of Professor Douglas Coates of Rutgers University. Professor Coates used Zillow data to see how the price of a two bedroom house is impacted by local inequality. He finds that homebuyers “have a slight preference for locations in communities where high quintile households receive a greater share of community income, not less.” That is, all else equal, people seem to slightly prefer to move to neighborhoods where the top quintile of households makes a larger share of total income. I don’t find either of these arguments particularly compelling. First, the empirical evidence offered doesn’t show that people don’t care about relative income. One can easily read the evidence as showing that people’s concerns about relative income can be overcome by other factors. Professor Coates notes that there may be a “preference by relatively lower income home buyers for the values and consumption externalities of their better off neighbors,” for example. That is, there are advantages you might gain by having rich neighbors. It’s entirely possible – and, I think, very plausible – that a person might both care about relative income and feel some discontent at being the relatively poor person in a richer neighborhood, and decide that this is outweighed by other advantages that come with moving to that area. There is a difference between saying a downside can be outweighed by other factors, and saying that the downside doesn’t even exist or barely matters. As a comparison, suppose Harry has a choice of what college to attend. He can go to Harvard, or the local state college. He’s fully aware that if he goes to Harvard, he will be a pretty substandard student compared to the typical Harvard student. He reasonably expects to be able to graduate, but he will consistently struggle compared to his brighter classmates, and he will feel a good deal of personal embarrassment and unhappiness in seeing how easily most of his peers outperform him. On the other hand, if he attends the local state college, he will be one of the brightest students in his class, and will consistently outperform the other students. It’s very easy to see why Harry might still choose to attend an elite university – he’ll still have the pride and social clout that comes from being able to identify himself as a Harvard graduate, and a Harvard degree would almost certainly open more doors in his career. But that in no way would suffice to show that Harry (or anyone else) “barely cares” about feeling like the intellectually slowest person in the room, or that struggling to get through classes Harry’s peers coast through just doesn’t matter to him. It just means there are other things to consider than can outweigh this factor. Second, I think Caplan’s “just move to a poor neighborhood to feel relatively rich” claim misses a fundamental point. It isn’t that people care about their well-being relative to their neighbors. People care about their well-being relative to the people they think of as being their peers – which may or may not include their neighbors. The people you went to school with, the people you know through work, your friends, the people you aspire to have fill your life – these are the people that most have in mind when they are concerned about their relative well-being. Consider this other hypothetical case. John is a high school athlete. He loves sports, he’s always participated in various sports teams, and his friend group is largely centered around his fellow jocks. However, John has always been a mediocre athlete. Over the years, even though John’s skills have improved, the gap between him and his teammates has only grown. He can still qualify for the team, but he will never be a star player, and often serves as little more than a backup player. The idea that this would be troubling to John isn’t at all hard to believe. Now, suppose someone came to John and told him that if he really cared about the gap between his athletic abilities compared to others, there’s an easy solution. All John has to do is just start hanging out with the chess team instead! Once he does that, he’ll easily be the biggest, fastest, and strongest person around. Yet, strangely, John never does this. Would this show that in fact, John barely cares about his relative level of athletic performance? No, obviously not, because the people on the chess team are not the ones John sees as his peers! They just aren’t the people John is, or will be, comparing himself to. John could move to a new “social neighborhood” and change his relative athletic status, but that new social neighborhood won’t be filled with the peers with whom John is comparing himself. The move won’t change anything for him in that respect. Or, imagine there are two towns one can live in – Slumville and Richville. Susie can afford a house in either neighborhood. She’d be at the top end of Slumville, or the low end of Richville. If Susie chooses to live in Richville, does that show she doesn’t care about relative income? Well, that depends. If she doesn’t think of the people who live in Slumville as being her peer group, then the fact that she’s rich relative to her “neighbors” won’t matter to her. And she might easily think about situations where she’d want to invite friends over for social events, or host birthday parties for her kids, and feel embarrassed for her friends and coworkers to come over and find out she lives in Slumville. Meanwhile, Susie’s friends and coworkers coming over to her house and seeing she lives in the Richville neighborhood could easily seem desirable to Susie, even if she’d be at the relatively lower end of the typical Richville resident. This is because she knows by moving to Richville, she can impress her peers. Caplan’s argument implicitly assumes that if people are concerned with relative income, it must be relative to whomever is physically nearest to them. But I see no reason to think that’s true, and in many real-world scenarios it’s plainly false. (0 COMMENTS)

The student of economics and especially of public choice theory should expect politicians to lie—and he is certainly not disappointed in America these days. Politicians are ordinary individuals. An ordinary individual is tempted to lie when he considers it is in his interest to do so. I take lying to mean intentionally conveying a statement that one knows to be false. A milder form of lying would be conveying a statement that one suspects would be revealed false if a low-cost verification were done. (I do not consider innocent lies justified by overwhelming humane considerations, like not telling the whole truth to a dying child; I also exclude lying in self-defense, to a thief or a kidnapper for example.) The economics of lying is the study of why individuals lie or don’t lie and which social consequences follow. There are both economic and moral reasons for an individual not to lie. One major moral justification to avoid lying and acquiring the habit of lying is that a free society requires an ethics of reciprocity, which means treating as a moral equal any individual who is likely to reciprocate. You don’t lie to those who don’t lie to you. (On this, see James Buchanan’s small but enlightening book Why I, Too, Am Not a Conservative.) This moral reason intersects with economics because it calls for the analysis of the institutions necessary to maintain a spontaneous social order offering maximum opportunities to individuals. The freer a society is, the less one feels that others are always trying to swindle him. Honesty and personal integrity, which are closely related to telling the truth, increase trust and reduce transaction costs—and, more generally, the costs of beneficial interaction between individuals. In a collectivist society, on the contrary, the incentive of each individual is to grab as much as possible of the free “public goods” before others crowd it out. The self-interests of some don’t further the self-interests of others but work against them. Ultimately, you lie because everybody lies. (See my post “Self-Interest and Capitalism Are Not Synonymous,” August 22, 2019; on collective choices generating free riders, see Anthony de Jasay, Social Contract, Free Ride.) The pure economic reason for an individual not to lie, and to get into the habit of not lying, is that a reputation of personal integrity will overall carry higher benefits than costs for him—if he lives in a society more rather than less free. At least if he is not “on the spectrum,” an individual cannot both be a known liar and hope that people will trust his word. There is also a distinct risk for a liar to become incoherent if not clownish. (Besides the case of Haitians eating pets and more recent examples, see Guy Chazan, “‘Almost Comical’: The Trump Team’s First National Security Crisis,” Financial Times, March 28, 2025, and “The Cover-Up Is Worse Than the Group Chat,” The Economist, March 27, 2025.) Many reasons explain why the incentives for telling the truth are weaker among politicians. The more activist and excited a politician is, the less traceable will be the intertwined consequences of his policies, especially in the eyes of rationally ignorant voters. From his megaphonic throne, the politician can easily blame others (judges, foreigners, the media, the “enemies of the people”) and argue for more power to the very extent that his policies fail. The more he lies, the more his political competitors will feel justified to do the same. If the chief politician lies shamelessly, his subordinates and sycophants are incentivized to lie, and even expected or ordered to do so. A selection process will bring into politics the individuals who are the most inclined to lie or tolerant of lying. This helps us understand why, in a politicized society, the worst get on top and their example corrupts others (see my post “What Is Kakistocracy”). Once such a regime is entrenched, it will be difficult to reverse; today’s Russia is one example. ****************************** A Cabinet meeting in Syldavia, by DALL-E under the influence of your humble blogger (the red tape is an addendum by the chatbot) (0 COMMENTS)

The Financial Times has an article discussing the proposed tax on Chinese ships that use US ports: In 2024, about 46 per cent of US bulk fertiliser imports — 6.7mn metric tons — were carried by Chinese-built dry bulk carriers, according to Kpler data. A $1.5mn fee could increase transportation costs by $62.50 per ton, a burden that would likely be passed down to farmers, already facing high input costs. Phosphate and nitrogen fertilisers, essential for US crop production, would be hit hardest. . . .The suggested fees are the result of a months-long investigation by US trade officials, initiated by the Biden administration, into how to counter China’s maritime dominance. The probe came in response to complaints from union leaders about Chinese industry subsidies. Japan and Korea are also major builders, with American shipmakers widely considered slow and expensive in comparison. Why can’t US farmers simply pass on this extra cost to the foreign consumers of their exports?  The problem they face is that the tax does not apply to their competitors.  While the global demand for farm goods may be somewhat inelastic, the specific demand for US farm exports is far more elastic, as importing countries have many other suppliers to choose from: Jay O’Neil, a commodities consultant, said that the proposed fees “scare the heck out of me”, adding that they amount to “encouraging crop production expansions in lands of our foreign competitors”.   (0 COMMENTS)

  I’m eagerly awaiting Donald Trump’s announcements of increased tariffs on Liberation Day, April 2. I used to think that Donald Trump was an ignoramus who didn’t understand the gains from trade. But now I realize that he understands it better than we economists. All we have are our models and our logical reasoning. Trump has experience as a trader in the real world who understands that in every trade, there is a winner and loser. He also understands that when domestic car companies charge low prices to Americans, that’s good, but when foreign car companies charge low prices, that’s bad. I really must read The Art of the Deal thoroughly so that I may understand the source of his wisdom. I wasn’t wrong to criticize Kamala Harris for advocating price controls during the presidential campaign. But I’m wrong for having criticized Donald Trump for warning auto companies not to raise prices after his tariffs on cars increase demand and his tariffs on aluminum and steel reduce domestic supply. The difference is that Harris is a Democrat and Trump is a Republican and that makes all the difference. I was wrong to conclude, back in 2021, that Joe Biden had dementia. I should have gone with the insights of Joe Scarborough on MSNBC, who thought that even in March 2024, Joe was “better than he’s ever been, intellectually, analytically.” In recent days, I’ve told American and Canadian friends that the new Prime Minister of Canada, Mark Carney, is someone who wants to regulate people’s lives because of climate change. But now, having read parts of his insightful book Value(s), I realize that, as a central banker, he has profound knowledge of climate change and much basis for his view that “the risks are existential.” Silly me for concluding, after reading Steven Koonin’s book Unsettled, that “[T]he good news is that the long-term economic effect of even substantial global warming will be small.” (0 COMMENTS)

The title of this post comes from co-blogger David Henderson’s beautiful 2001 book The Joy of Freedom: An Economist’s Odyssey. It is one of my favorite books; David captures the optimism of liberalism in a way few other authors can.  Since David wrote the book, the world has entered the Digital Age.  The proliferation of the Internet, cheap digital storage and transmission, and cloud computing has enabled amazing levels of creativity and entertainment to arise.  In particular, the indie scene. Indie (independent) artists are artists who are not tied to a particular movie studio, video game studio, or music label.  Before the digital world, an artist would need a contract with a studio to be a viable artist.  The studio handled a lot of the “backroom” elements of art: promotion, distribution, production, etc.  For a cut of the artist’s revenue, the studio reduced costs for the artist.  This system, however, was often rife with corruption with studios often imposing egregious terms, IP ownership, and other conditions that significantly weakened the artist’s ability to produce (see here in the section “Hating Capitalism, or Hating Specific Capitalists”).  Furthermore, the studios tended to act like conspiring oligopolies: a small group of large firms who colluded to keep prices relatively high by reducing production.  Consequently, the genres of art were limited to whatever the studios decided was “in” for that year.  With some exceptions, radical forms of art were not promoted widely. The digital era ushered in a new era of creative freedom.  With the rise of digital content platforms like YouTube and later Spotify, artists could cut out the middleman.  The websites would host, distribute, and (through increasingly sophisticated algorithms) advertise the art to prospective consumers.  Furthermore, since the marginal cost of using these sites is virtually zero, indie artists could produce new music and distribute it rapidly.  All sorts of new genres and nice music began to emerge: lo-fi, synthwave, atmospheric, new covers of classic hits, and so on.  Indeed, my friend listens to a band that just uses various blunt instruments against various flat surfaces to produce their music.  Is it niche?  Yes.  But it is his niche and thanks to liberal markets, he is able to enjoy it.   We see the same thing in video games.  While the Big Three studios (Nintendo, Sony, and Microsoft) continue to produce and promote their own games, they also have digital storefronts where indie developers can sell their games.  Some studios, like Canada-based Sabotage Studio, have hit it big: their 2023 game Sea of Stars has sold over 6 million copies since it was released in August 2023.  Sea of Stars is a retro-inspired JRPG; it’s a love letter to classics like Chrono Trigger.  Other studios, like Finland-based Remedy Entertainment were able to break into the big leagues with their hit Alan Wake (and later Control).  Alan Wake and Control are Lovecraft-inspired games that rely heavily on atmosphere to tell their stories.  Games like these existed, but were fairly rare pre-digital.  Now, indie games have their own sections on digital stores and their own game award ceremonies.   Liberal markets, not mercantilism or central planning, created digitization.  The market process broke down the barriers (the costs) preventing niches from developing.  Contrary to the “market failure” story, these barriers to entry were the very thing that sowed the downfall of the cartels.  Creative entrepreneurs found a way around the barriers to entry by making things digital.  Consequently, the market expanded, and folks like me can sit in Louisiana and listen to atmospheric music created by a South African musician through a digital streaming service that costs less than a CD. The joy of freedom comes not just from finding elbow room from the raging presumptions of one’s “betters” (to paraphrase Thomas Sowell).  It is the ability to be creative, to enjoy, to satisfy a niche.  Do you want a heavy metal song about how awesome it is to be a dwarf?  You can have it.  A gender-bendered version of Stacy’s Mom called Stacy’s Dad?  Friend, do I have news for you.  Freedom is the freedom to be you.  Markets promote that freedom. (0 COMMENTS)

We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed. Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!   Question: Some economists have argued that the Federal Re3serve should raise its inflation target from 2 percent to 3 or even 4 percent. Why might the effect of a higher inflation target on the quantity of real money balances demanded be larger in the long run than in the short run? (0 COMMENTS)

  On March 7, 2025, I highlighted Herb Stein’s article “Balance of Payments,” which appeared in David R. Henderson, ed. The Concise Encyclopedia of Economics. That led to a lively discussion in the Comments section. Frequent commenter Warren Platts noted that the U.S. Net International Investment as a percentage of GDP has gone downhill since about 2007 and now sits at minus 90%. That might sound scary and it did make me wonder. But what matters to most Americans is not how much foreign investment there is but, rather, how much their net worth is and how that has changed. So I looked at those data and was reassured. The St. Louis Fed’s FRED site shows U.S. households’ net worth in current dollars from the 4th quarter of 1987 to the 4th quarter of 2024. It rose from $17.426 trillion in 1987 to $160.345 trillion in 2024. $17.426 trillion in 1987 $ is $47.641 trillion in 2024 $. So household net worth over those 37 years increased by 237%. Of course, the number of households increased too. According to FRED, it rose from 89.479 million in 1987 to 132.216 million in 2024. That means that average household wealth, in 2024 dollars, rose from $532,426 in 1987 to $1,217,504 in 2024, an increase of 129%. How about for the shorter period referenced by commenter Platts: 2007 to 2024? In 2007, household net worth was $65.754 trillion. In 2024 $, that’s $98.702 trillion. So household net worth increased by 62.5%. The number of households increased from 116.011 million in 2007 to 132.216 million in 2024. So household net worth per household increased from $850,799 in 2007 to $1,217,504 in 2024, an increase of 43%.   Note that these are averages, not medians. The net worth for a median household at each point in time is below the average. But what matters here is the average, given that the issue is the situation of the United States as a whole. It says that on average, Americans are getting wealthier despite (maybe partly because of?) increased foreign investment. (2 COMMENTS)

Donald Trump’s decision to impose tariffs has sparked a lively debate among economists and others: are tariffs good? Maybe some of them? Should governments then impose those tariffs that are good? While these discussions are interesting in themselves, they also raise a more general question: what should economists be doing at all? The title of this blog post is an echo of Buchanan’s seminal paper. However, while I allude to Buchanan, it is not his paper that I want to refer to. Rather, I want to point to another of Buchanan’s insights. Let me begin by quoting a revealing (and charming) story told by Richard E. Wagner, a student of Buchanan’s: While sitting excitedly in class the first day, I saw Buchanan glance at his roll sheet. He looked into the room as if looking for someone in particular, then said: “Mr. Wagner, what’s wrong with the American tax system?” I felt an adrenalin rush.  After my summer’s reading, that question was written for me, or so I thought … Instantly I began reciting things I read that summer about simplifying the tax system by reducing exemptions and deductions and such things. Buchanan seemed to be paying close attention to me, which pleased me hugely. When I finished, however, he responded: “Mr. Wagner, you have no business answering a question like that. We are democrats here and not autocrats.”  The gist of Buchanan’s response (which also runs through his work, beginning with Knut Wicksell, whom Buchanan greatly admired) is that economists are in no position to determine what people should want or to judge what is good for them. There is no “truth” in politics, Buchanan tells us in his The Limits of Liberty. And if one agrees with Buchanan and thus rejects “the truth-judgment approach to politics,” it follows that, as he writes in the first chapter, “we cannot claim to play as God, and we can scarcely carry off the pretense that our own private preferences reflect his ‘truth.’” Rather, it is up to the people—each and every one of them—to decide what they want and to be the evaluators of their lives. “A situation is judged “good” to the extent that it allows individuals to get what they want to get, whatsoever this might be, limited only by the principle of mutual agreement,” Buchanan tells us. It is not the job of economists—nor of political philosophers or anyone else, for that matter—to determine what is good for others. Where does that leave economists? They have an incredibly valuable role to play: they are to examine the consequences of different courses of action and recommend different ways forward, given what people want. Thus, economists are concerned with prudence. They ought to give people prudential advice about what are the best means to pursue given ends—very much in line with economists’ aspirations for value-free science. But let me hasten to add that this does not mean that economists should not chide the government for certain actions—indeed, this will often be their task. But in doing so, they must make it clear that they are only taking citizens’ perspective and not judging the governmental actions themselves. What I mean is that economists can criticise governmental action whenever it goes beyond the unanimous consent of citizens (because, to repeat, this is always the measure of “goodness”). But then economists are not putting forward their preferences—or their “truth”—but insisting that government accept the sovereignty of the individual. Economists should be democrats, not autocrats.   Max Molden is a PhD student at the University of Hamburg. He has worked with European Students for Liberty and Prometheus – Das Freiheitsinstitut. He regularly publishes at Der Freydenker. (1 COMMENTS)