To analyze society and the economy, and especially if the goal is to coerce peaceful individuals, an understanding of basic economics should be a must. Economics is needed to think clearly about the social consequences of individual actions and government interventions. An example a contrario was just given by President Donald Trump; the Wall Street Journal reports (“Trump Says He ‘Couldn’t Care Less’ if Car Prices Go Up,” March 30, 2025): “I couldn’t care less, because if the prices on foreign cars go up, they’re going to buy American cars,” Trump said. “I hope they raise their prices, because if they do, people are gonna buy American-made cars. We have plenty.” The president doesn’t seem to understand that a tariff also leads to an equivalent increase in the prices of competing domestically produced goods—American cars in this case. This is precisely why domestic producers of tariffed goods are happy: higher prices for their own products will be protected against foreign competitors. A tariff “protects” only if it allows domestic producers to get higher prices. (For more on this topic, see two of my recent posts, “The Basic Error About International Trade” and “Aluminum, Economics, and Liberty.”) Thus, nobody should have been surprised when Trump apparently warned domestic car producers not to rise their prices under penalty of punishment. He later denied having made this threat (see the March 30 WSJ report): The Wall Street Journal reported last week that Trump had warned executives that the White House would look unfavorably on such a move, leaving some of them rattled and worried they would face punishment if they increased prices. “I never said that,” Trump told NBC. Did he or did not? Perhaps he entertains “basic holistic” beliefs, to use the terms of his trade advisor Peter Navarro as reported by the WSJ: “If you look at this basically holistically, as they say, consumers and Americans are going to be better off, including all the jobs they get,” Navarro said. “They” are certainly not serious economists, who never speak in those terms. However, it must be that only “basic holistic” intuitions can justify the sort of trade war Navarro has been pushing on Trump, admittedly a fertile ground. At the time when he used economic theory instead to reason about such matters, Navarro was closer to reality. In his 1984 book, The Policy Game: How Special Interests and Ideologues are Stealing America (John Wiley & Sons), he attacked special interests and specifically explained how tariffs also push up the prices of domestically produced competing goods: In the absence of trade barriers, goods ranging from autos and apparel to shoes and televisions are offered to consumers at lower prices (or higher quality) than if U.S. producers manufactured them. However, when a device such as a tariff is imposed, the importer must pay a duty to the U.S. government to sell his product. This, in effect, raises the importer’s costs and forces the importer to raise his price by all or part of the duty. U.S. producers can then raise their prices, which hitherto were lowered by import competition. [pp. 75-76, my emphasis] Navarro offers other arguments that are not very original but at least in line with a couple of centuries of economic analysis, for example: However, as the economic analysis indicated, the choice is not between preserving smokestack industries or relying on high tech wonderlands. Rather, it is between a protected but inefficient and declining industrial base versus a more innovative industrial sector that, under the spur of import competition, can and does invest in rapid technological developments that promise a prosperous merger of the two worlds. [p. 89] The clear danger of this [protectionist] trend is an all-out global trade war. … And as history has painfully taught, once protectionist wars begin, the likely result is a deadly and well-night unstoppable downward spiral by the entire world economy. If the world is, in fact, sucked into this spiral, enormous gains from trade will be sacrificed. While such sacrifice might save some jobs in the sheltered domestic industries, it will destroy as many or more in other home industries, particularly those that rely heavily on export trade. At the same time, consumers will pay ten of billions of dollars more in higher prices for a much more limited selection of goods. [pp. 55-56] Of course, one cannot blame somebody for having changed his opinions and explained the reasons why he now thinks he was previously wrong. But basic holistic intuitions of the Tantric-New-Age sort can’t serve as a rational explanation. Nor can cozying up to politicians of all kinds provide a sufficient justification (see my article “Peter Navarro’s Conversion,” Regulation, Fall 2018). ****************************** Basic holistic stuff, by DALL-E and your humble blogger (1 COMMENTS)

Should monkeys have the same rights as humans? What about elephants, ants, or invertebrates? NYU philosopher Jeff Sebo makes the case for expanding your moral circle to many more beings than you might expect, including those based on silicon chips. Listen as Sebo and EconTalk’s Russ Roberts discuss to whom and what we owe moral consideration, how we determine a being’s intrinsic moral […] The post Do All Creatures, Great and Small, and Made From Silicon, Have Rights? (with Jeff Sebo) appeared first on Econlib.

I’ve always been skeptical of people that use “national security” as a justification for various repressive policies, including government secrecy, trade barriers, the military draft, censorship, and even taking over Greenland.That’s not to suggest that national security is never a valid concern—I would not advocate releasing nuclear weapons secrets—rather that the concept is overused, often as a way of achieving other more dubious objectives such as mercantilism and authoritarianism. One “tell” that national security is overused as an excuse for secrecy is that even top officials don’t take the concept seriously.  While Edward Snowden remains in exile for exposing US government crimes, top officials from both parties routinely flout national security laws, with no legal consequences.  Most people are familiar with Clinton’s emails and Trump’s bathroom full of documents, but there are many other such cases that could be cited, including previous slip-ups by Pete Hegseth. A recent example occurred with the Signal chat leaks to Jeffrey Goldberg of The Atlantic.  I predict that none of the people responsible for leaking US military secrets will end up going to jail.  They are not “little people”. As with Watergate, the cover-up is often worse than the crime.  The administration initially denied that the leak included any classified information such as war plans or specific weapons systems.  The Atlantic then decided that if the government didn’t regard this information as classified, there was no reason not to publish the entire Signal chat.  It turned out that top government officials were lying to the press and Congress. When I was young, government officials would have had to resign after a fiasco like Signalgate.  Indeed, when I was young, an obviously unqualified cable news reporter would never be appointed Secretary of Defense, or confirmed by the Senate.  That America is long gone.  (Pete Hegseth once suggested that Hillary Clinton should have been prosecuted for a much more minor security leak.)   Today, a different set of rules applies to the rich and famous.  Blue-collar types go to prison for violating prostitution laws.  The rich and famous purchase sexual favors with diamond bracelets and fancy dinners.  Blue-collar types go to prison for violating drug laws.  Rich and famous addicts go to rehab.   PS.  Older readers may recall Leona Helmsley saying: We don’t pay taxes; only the little people pay taxes. Actually, the rich do pay lots of taxes; it’s the criminal justice system where they have a huge advantage.  PPS.  There was an interesting case right here in Orange County where a 71-year old judge shot his wife after an argument, admitted to the crime, and even said he deserved to be convicted by a jury, and the jury still couldn’t reach a verdict.  Here’s the OC Register: A year and a half after Superior Court Judge Jeffrey Ferguson, while sitting in a police station, said aloud to himself “I killed her. Ladies and Gentlemen of the jury, convict my ass. I did it,” the actual jury tasked with deciding his fate announced they were deadlocked during their ninth day of deliberations, which lasted longer than the trial itself. Imagine the same set of facts for a poor person.  You might say, “It’s complicated”.  Has there ever been a crime of passion that wasn’t?  Even black defendants get a break if they are rich and famous, as we saw in the OJ Simpson case. (0 COMMENTS)

  Federal Spending Is a Leaky Bucket   by Chris Edwards, Cato at Liberty, March 24, 2025. Excerpt: There are two sides to the inefficiency of federal spending. Spending is funded by taxes, which distort the working, investing, and entrepreneurial choices of individuals and businesses. Each additional dollar in income taxes causes about 40 to 50 cents of damage to the private sector beyond the tax amount itself. That damage is called deadweight loss. Republicans seem to understand this side of the fiscal equation, and they push to cut taxes. However, many Republicans do not seem to understand that the spending itself causes distortions and deadweight losses. Government bureaucracies waste resources, and the subsidy programs they run induce unproductive responses by individuals and businesses. Most federal programs are not worth the cost, as discussed in this study. Interesting Times by David Friedman, David Friedman’s Substack, March 25, 2025. Excerpts: What I am currently worried about is the potential for the present political situation to make America a much worse place, in any of several different directions. The obvious is the one that the left has been crying wolf on for a long time, development of a right wing dictatorship. The present administration claims the right to deport people into a foreign prison with no need to demonstrate that they are guilty of anything, even illegal immigration, based on a very stretched interpretation of an 18th century law. They are, sensibly, starting with the most unsympathetic victims they could find, but nothing in their interpretation of the law would prevent them from doing it to anyone else — at no point, in their view, are they required to demonstrate that their claims about the victims are true. I expect the courts to rule against them, the Supreme Court by a sizable majority. But there are faint murmurs among their supporters of the idea of ignoring the courts, sympathetic references to Andrew Jackson’s (probably apocryphal) “John Marshall has made his decision, now let him enforce it.” Continued electoral success could move them farther in that direction and, even if it does not, would eventually change the makeup of the judiciary. And: The less obvious danger is in the opposite direction, a risk discussed in an earlier post. Suppose Trump’s administration goes badly, serious economic problems driven by rapid change, increased uncertainty, an increase rather than decrease in the deficit, serious foreign policy reversals, perhaps disasters. The Democrats end up with the presidency, both houses of Congress, a lot of angry supporters. They have already demonstrated their willingness to engage in lawfare against their enemies. The claim that everyone commits three felonies a day is doubtless an exaggeration, but a sufficiently committed prosecutor drawing jurors from a sufficiently biased local population can, as already demonstrated, get multiple felony convictions for a misdemeanor on which the statute of limitations has already run. Even without a biased jury to convict, prosecution alone can impose very large costs — and anyone can be prosecuted for something, a problem I discussed in an earlier post.   Naturalized Immigrants Probably Voted Republican in 2024 by Alex Nowrasteh and Krit Chanwong, Cato at Liberty, March 25, 2025. Ezra Klein recently interviewed David Shor, a data scientist at the Democratic consulting firm Blue Rose Research. Shor made two important immigrant-related points. First, the foreign-born share of the population in a county was highly correlated with a shift toward Trump. Second, Trump likely won the immigrant vote. Naturalized immigrants went from favoring Biden in 2020 by 27 points to favoring Trump by one point. This abrupt change destroys the common immigration-restrictionist argument that more open immigration policies will tilt the country leftward, an argument commonly made by Elon Musk that explains why he decided to support Trump in the 2024 election.   Why Economic Sanctions Against Iran Are Backfiring by Matthew Petti, Reason, April 2025. Excerpt: Although the United States has the power to seriously disrupt economic life in other countries, the book argues, the consequences don’t always serve American interests. Sanctions hurt the prosperity and political standing of Iran’s pro-American middle class the most. They also make the government more paranoid and remove important incentives to play nice. Everyone seems worse off. The U.S. has tried to wash its hands of the policy’s consequences for ordinary Iranians, blaming their poverty on domestic “corruption and economic mismanagement” rather than on sanctions. But the data are clear. The Iranian economy was booming from 1988, the end of the country’s war with Iraq, to 2011, the beginning of former President Barack Obama’s intensified sanctions campaign. DRH note: The article “Sanctions” in David R. Henderson, ed., The Concise Encyclopedia of Economics is excellent. (1 COMMENTS)

Tyler Cowen recently made an uncharacteristic mistake: But there is another way to pose the question and that is “should the resources in the EU be allocated toward export, or not?” And then exports are VAT-free, and within-EU sales generally are not VAT-free. So there is an encouragement to exports here. America has sales taxes, but VAT rates usually are higher. Thus you can say that Europe does more to encourage exporters than does the United States. Of course you can say the same about many other European government interventions. Germany’s notorious Sunday closing laws also encourage more exports. Send it to the US, and let it be sold on a Sunday, bitte! (Just not in Paramus, NJ.)From an American point of view, I don’t think anything is wrong with this kind of “export subsidy” (and that is not how I would describe it in a first-order sense, but we are steelmanning here). Note that he did not call a VAT an export subsidy, but did suggest that “there is an encouragement to exports here”.  I don’t see how that is true.  If you have a 20% VAT, and export goods to another country with a 20% VAT, obviously there is no advantage.  But what if you export to a country with no VAT?  Consider a $100 item that sells in Europe for $120 due to the VAT.  According to PPP it would sell for $100 in countries without a VAT.  So once again, there is no obvious encouragement to export.  (PPP may not hold for other reasons, but that has no bearing on whether VATs encourage exports.) I’m not suggesting that you cannot construct an argument where VATs encourage exports.  Thus, if you compared a VAT to a situation with no VAT and a bigger budget deficit, the imposition of a VAT might result in a lower real exchange rate and more exports.  But that’s true of any device for raising tax revenues, and I don’t see Tyler making that argument.  The fact that within-EU sales are VAT-free seems completely irrelevant, unless I’m missing something. One other point, and this is not aimed at Tyler’s post.  If it were true that VATs were like export subsidies, then they would be exactly the opposite of tariffs.  European tariffs discourage US firms from exporting to Europe.  European export subsidies would encourage US firms to export to Europe, as export subsidies are equivalent to import subsidies.  So if VATs were like export subsidies, then they would also be the exact opposite of import taxes. (0 COMMENTS)

Michael Huemer’s book The Problem of Political Authority examines various arguments given in favor of establishing the existence of political authority, which he defines as a property containing two aspects: (i) Political legitimacy: the right, on the part of a government, to make certain sorts of laws and enforce them by coercion against the members of its society – in short, the right to rule. (ii) Political obligation: the obligation on the part of citizens to obey their government, even in circumstances in which one would not be obligated to obey similar commands issued by a nongovernmental agency. Huemer spends several chapters examining the most popular arguments for establishing political authority and finds them all lacking. He does take care to point out that this, in itself, does not automatically lead to a conclusion that governments should be abolished: If there is no authority, does it follow that we ought to abolish all governments? No. The absence of authority means, roughly, that individuals are not obligated to obey the law merely because it is the law and/or that agents of the state are not entitled to coerce others merely because they are agents of the state. There might still be good reasons to obey most laws, and agents of the state might still have adequate reasons for engaging in enough coercive action to maintain a state. Huemer devotes two chapters to examining social contract theory as an argument for political authority – the first on traditional social contract theory as proposed by John Locke, and the second on more modern social contract theories based on the idea that a government could have hypothetically been arranged as a result of a social contract, and that real-world authority and obligations are created out of this hypothetical agreement. Huemer pretty convincingly refutes both forms of social contract theory. Among his arguments is that all forms of the social contract argument (whether historical, implicit, or hypothetical) lack any of the features needed for a contract to generate valid agreement or obligations. For example, some people argue that by accepting government services, people are showing that they have implicitly consented to pay taxation as part of the social contract. Huemer argues that doesn’t work, because taking an action indicates consent to some scheme only if you could reasonably believe that had you not taken that action, the scheme would not be imposed upon you. Suppose I forcibly compel you to buy cookies I bake – one hundred dollars for a half-dozen cookies, every month. Let’s say that I later find out that you ate some of the cookies. It would be obviously absurd to say that you eating the cookies shows you had implicitly consented to the transaction, and it was therefore a valid agreement. You’d still have been forced to give me the hundred dollars regardless. There’s one more issue I have with social contract theory that Huemer doesn’t describe. In order for a contract to be validly binding, it needs to be clear exactly what the contract contains. Yet even among social contract theorists, there is surprisingly little agreement here. They’ll all agree that a social contract exists, but wildly disagree about what that contract actually entails. People on the left and the right will both object that some law or institution “violates the social contract” but disagree about which laws or institutions do so, and what the violated terms are. Note, this can’t be resolved by something as simple as pointing to the existing set of laws (or the Constitution, perhaps) and declaring that those laws are what represent the social contract. For one, if the social contract just means “whatever laws are currently on the books,” no social contract theorist would have any grounds to argue some existing law or institutional arrangement is in violation of the social contract. Given how frequently social contract theorists make this claim, it’s clear that the social contract is not the same thing as the existing set of legislation or legal institutions. Second, and more fundamentally, the social contract is itself supposed to be what provides an explanation for why the government has the authority to create legislation in the first place. So using existing legislation or legal institutions to try to demonstrate the existence or content of the social contract is question-begging. If existing legislation or state institutions are “the social contract” then it’s meaningless to say the social contract is what justifies existing legislation or state institutions. In practice, much social contract theory discourse seems to be little more than different people equivocating over the term “social contract” to mean “whatever arrangements I, personally, happen to favor.” Now, maybe I’m wrong about that, but there is a way to test. If social contract theorists were attempting to work out what the contents of this unwritten social contract really are (rather than using it as a Trojan Horse to smuggle in their own policy views), we should frequently expect to see social contract theorists highlights aspects of what the social contract contains that they might dislike. Jason Brennan made a similar criticism of much of Constitutional legal theory, arguing that it tends to follow this process: 1. Start with a political philosophy–a view of what you want the government to be able to do and what you want to the government to to be forbidden from doing. 2. Take the Constitution as a given. 3. Reverse engineer a theory of constitutional interpretation such that it turns out–happily!–that the Constitution forbids what you want it to forbid and allows what you want it to allow. When I read academic writing by constitutional legal theorists, it seems like basically everyone (conservatives, liberals, libertarians) does this. Isn’t that bizarre? For example, why don’t more libertarian legal theorists just say, “Yes, the Constitution allows X, even though X ought to be forbidden, and so to that extent, the Constitution is bad.” Why don’t we see more left-liberals saying, “A just society would allow X, but, alas, our Constitution forbids X and is to that extent a bad Constitution.” We do sometimes see this, but for the most part, people of every ideology tend to argue that the Constitution allows or forbids exactly what they would want it to allow or forbid. In the same way, I can’t recall any social contract theorists arguing “the social contract unfortunately allows X which should be forbidden and it forbids arrangement Y which should be permitted.” It always seems that whatever the terms of this social contract are, it just so happens to contain the exact terms that are most conducive to the political ideology of the person arguing about the importance of upholding the social contract. Any real-world contract with contents so hopelessly indeterminate would never be validly binding. I see no reason why a hypothetical social contract would be either. (0 COMMENTS)

The recently announced auto tariffs are expected to raise roughly $100 billion per year in revenue. How does that compare with other major tax increases? According to the Tax Foundation, the previous record was $76.8 billion for the 2011 tax increase to finance the ACA (Obamacare).   In real terms, the auto tariffs are not as large as some of the previous tax increases, but it remains one of the largest tax increases since 1968.  (The CPI is up about 50% since 2009.) With more tariffs expected soon, the ultimate Trump administration tariff program may well end up being the largest tax increase, even in real terms.  So what do the Democrats think of this policy, one of the most consequential changes in federal tax policy in my entire life? I checked with the New York Times, and as usual they had very long article that contained lots of interviews.  I was especially interested in learning what the Democrats thought of the policy.  The article did present the views on a number of key political figures, but none of them were Democrats.  Indeed, other than Trump, none of them were Republicans.   You may believe that the NYT has a liberal bias, but I’m quite certain that when Obama’s tax increase was proposed, the “newspaper of record” provided at least some coverage of Republican views of the legislation.  Do the Democrats plan to repeal the auto tariff next time they take office?  Do Republican congressmen have views on the issue?  Isn’t that something that we should know? It is certainly interesting to learn that Trump’s tariffs are opposed by the leaders of Canada, Mexico and France, but given that the tax is actually paid by Americans, I wish they’d told us what American politicians thought of the idea.   Here’s AI Overview: The U.S. Constitution grants Congress the power to “lay and collect Taxes, Duties, Imposts and Excises” (Article I, Section 8), including tariffs, and to regulate commerce with foreign nations. However, the President also has authority to impose tariffs, particularly through delegated powers and under certain conditions, such as national security threats or unfair trade practices. I’m having trouble understanding the legal basis for these tariffs.  It’s hard to believe that Canada is a national security threat, and our free trade agreement with Canada was negotiated by President Trump in 2020.  As recently as last fall he called it the best trade deal ever.  So the “unfair trade practices” also doesn’t seem to apply. In the past, the Supreme Court has often taken the view that governments can do pretty much whatever they wish.  Thus although the “takings clause” says that eminent domain applies only to projects with a “public use”, the courts have ruled that a public purpose is almost anything the government says it is.  Maybe that reasoning applies here as well. I notice that the administration denies that the bombing raid on Yemen is a “war”, and yet insists that we can use “war powers” to deport Venezuelans.  So war also seems to be one of those things that have a fairly loose definition–war is migration, not bombing. The bottom line is that we should not expect the Constitution to be an effective limit on the powers of the US government. PS.  It is also expected that there will be a major tax cut enacted later this year, which will take the form of extending the earlier Trump tax cuts, which were otherwise set to expire.   (0 COMMENTS)

I wonder how Christians who favor the current US government’s war on immigrants can reconcile their stance with Leviticus 19:34, which reads (King James version): But the stranger who dwelleth with you shall be unto you as one born among you, and thou shalt love him as thyself, for ye were strangers in the land of Egypt. Would they reply that the Bible is merely epic poetry? Or are they CINOs—Christians In Name Only? One endearing characteristic of the Catholic Church, which was the only Christian church for 15 centuries, was its universalism—globalism as we would say today. This feature, as well as its spiritual message, provided multitudes of poor and exploited people, the bulk of the population on earth, with the ability to feel that they were elsewhere, just as culture in its learned sense is a way to be elsewhere. American history is replete with testimonies to the openness of this country. Hector Saint John de Crèvecoeur was a Frenchman (original name: Michel-Guillaume-Saint-Jean de Crèvecoeur) who immigrated to colonial America in the early 1760s. In the chapter “What Is An American” of his famous Letters from an American Farmer (1782) celebrating America, he wrote: We know, properly speaking, no strangers; this is every person’s country. Despite my classical-liberal attraction for universalism, I also share Friedrich Hayek’s and James Buchanan’s arguments against totally free immigration: it could, at a certain point or level, compromise the maintenance of a free society. My post of June 19, 2018, “Immigration: A Confession and a Value Judgment,” offers a skeleton of this sort of argument. This argument against totally free immigration is what Alex Nowrasteh and Benjamin Powel call “the new economic case against immigration” in their 2021 book Wretched Refuse? They claim it has no empirical support. As for the argument that an immigrant who comes and works in America imposes a net cost to “society,” it is, of course, economically invalid: if it were valid, we should also blame a woman or a student who decides to join the labor market. My main point is that the treatment of immigrants, especially very recently, has become tribal, irrational, and “un-American”—to the extent we can make sense of the last qualificative as opposed to the ideal of a free society. The treatment of immigrants has also become contrary to the rule of law and increasingly barbaric. There can be no acceptable ideology and no free society without human decency. ****************************** Hector Saint John de Crèvecoeur on his farm, as viewed by DALL-E (4 COMMENTS)

There’s a widespread perception that trade with China caused increased unemployment in America. This is false. Imports from China did reduce jobs in some industries, but this did not have any effect on the overall unemployment rate, as even more jobs were generated in other industries. Last year, the Chinese trade surplus rose to nearly a trillion dollars.  If the mercantilists were correct, then China should be experiencing a boom in manufacturing employment.  In fact, just the opposite is occurring—millions of manufacturing jobs are being lost and China’s unemployment rate is higher than ours. The Financial Times reports that jobs are being lost in a wide range of manufacturing industries: The FT points out that while some jobs have migrated to other East Asian countries, the main issue is automation: Manufacturing is far from dead in China, however. In a factory in Panyu on the outskirts of Guangzhou, humans work in synchronisation with machines to churn out new electric vehicles every 53 seconds. . . . But in parts of the line — such as when seven robots lift, rotate and fit windscreens on chassis passing on a conveyor belt — humans are vastly outnumbered by machines. Other tasks, such as the hazardous welding and coating of car doors are entirely automated, while the overall automation rate of the final assembly process is about 40 per cent. That is by design, says Li Xiaoyu, an engineer: the factory has a goal of reducing its human workforce by 10 per cent a year. Automation was also the primary cause of job loss in US manufacturing.  Unfortunately, politicians have blamed the job loss on trade, and this has contributed to the global rise in nationalism.  If trade really were the issue, then China’s vast trade surplus would be generating lots on manufacturing jobs.  Instead, they’ve lost over 7 million such jobs, just since 2011: Analysis of 12 labour-intensive manufacturing industries between 2011 and 2019 by academics at Changzhou University, Yancheng Teachers University and Henan University found that average employment shrank by roughly 14 per cent, or nearly 4mn roles, between 2011 and 2019. Roles in the textile industry shrank 40 per cent over the period.  An FT analysis of the same 12 sectors between 2019 and 2023 found a further decline of 3.4mn jobs..   (0 COMMENTS)

I posted on Monday about where I agreed and disagreed with a statement by Veronique de Rugy about imports and exports, particularly about exports. In doing so, I was also disagreeing with Don Boudreaux. Don responded the same day with 2 lengthy comments on my post and 1 new post on his CafeHayek. But Don told me that this post best represents his thinking. Here, in a nutshell, is my thinking: People have multiple reasons to export. The usual purpose of exporting is to make money, but there are others. People don’t always export in order to import. (As you’ll see, Don Boudreaux agrees with this.) One way to pay for imports is with investment by foreigners rather than with exports. While consumption is the one main goal that motivates people to make money, it is not the only one. When we see people being paid for something, that does not mean that they had to be paid. Finally, remember the 7th Pillar of Economic Wisdom. Before I give my specific responses, I acknowledge something Don said upfront: I here try once more to explain why I disagree – uneasily, to be sure – with my dear friend David Henderson on the question of the relationship between imports and exports. I feel the same way about Don. Nothing about our friendship is at stake in this discussion. This discussion is solely about technical economics. Here goes. Don writes: As I wrote in my earlier post, wanting to do something does not imply that that something is an end. “I want to sell my car” does not mean that my end – my goal – is to get rid of my car. I want to sell my car only because, by doing so, I will get money that I can then spend on some other consumption goods today, or to invest, which will increase my access to consumption goods tomorrow. Selling my car is a means toward the end of improving my consumption. If I were prevented from receiving anything in exchange for my car, I would not sell it or otherwise get rid of it. David writes that “our exporters want to export: that’s their end.” I disagree – or, rather, I think this wording is too confusing to be justified. Because exporters demand payment in return for their exports, their end is not to export but, instead, to receive something in exchange. Their exports are a means. I almost agree. I think the vast majority of exporters do so in order to earn payment that they can use for other things. Why “almost?” Over the years, I’ve met, or heard of, a number of successful entrepreneurs who produce things they really believe in and sell them to poorer people in other countries who will benefit big-time. The entrepreneurs get paid. I hear them saying that satisfying people in those countries is a big part of their reward. Could they be lying? Maybe, but I doubt it. I think they’re sincere. In short, they want to make money but that’s not their only motive. Don writes: What exporters receive in exchange, of course, is money (just as money is what I receive when I sell my car). But clearly the money isn’t the exporters’ end any more than the money is my end when I sell my car. If, just before shipping their goods abroad, the exporters were informed that the moment they receive the (say) $1M worth of euros they must stuff those euros into mattresses and never retrieve them, the exporters would immediately become not-exporters. I agree. There may be weird exceptions—I’m looking at you, mattress stuffers—but I basically agree. Don writes: Exporters accept money as payment only because they’re confident that they can exchange that money, now or in the future, for real goods and services. And ultimately the real goods and services are consumption goods and services. The exporters’ end is to increase their standard of living by increasing their access to real goods and services. I agree with the first sentence. The third is too much of a generalization. Do firms in which Elon Musk has a large stake export? I think they do. Is Elon trying to increase his standard of living? I doubt it. Or take Warren Buffett. I think that Berkshire Hathaway, the firm he owns a big part of, exports some things. That firm makes money and because Buffett is a major shareholder, he makes money. Is he trying to increase his standard of living? Consider the home Warren Buffett lives in. He bought it in 1958 for $31,500. It’s worth about $1.4 million today.  Couldn’t he own a nicer house? He says that he tends to forswear expensive $100 meals and instead he eats a hamburger and a Coke. I just don’t think a major part of his motive is to consume. Don probably foresees my argument because in his very next paragraph, he writes: The exporters can spend their export earnings today on consumption goods. Or the exporters can invest their export earnings. David might say that, in this latter case, the investment was the exporters’ end, but I would disagree. People invest, ultimately, to increase their or their families’ or heirs’ spending power – that is, to increase their or their families’ or their heirs’ future access to consumption goods and services. Investing, in short, is a means to greater consumption. But that’s why I chose Warren Buffett as my example. He has made clear that he is leaving very little of his wealth to his heirs. Don might say that he said, “families’ or heirs’ spending power” to account for heirs who are not part of his family. If that’s what Don is getting at, then touché: score one for Don. Don then writes: In reality, the individuals who export need not be – and frequently are not – the individuals who import. This fact might be taken as indicating that exports cannot correctly be said to be the means and imports to be the end. After all, if exporter Smith has no desire to purchase foreign-made outputs, how can it be that importing is the end of his exporting? It indeed cannot correctly be said that importing is the end of Smith’s exporting. But at least two relevant things can correctly be said. The first is that Smith’s exporting was, as explained above, nevertheless a means to his increased consumption. The second is that Smith’s exports are a means to increase imports of the country in which Smith resides. Smith’s fellow citizen Jones is able to import only because Smith exported. Note the first sentence of his second paragraph. Good. Don and I finally agree on something. Importing is not the end of Smith’s exporting. And, to remind you, that was one of my major points in my Monday post. So at least that is settled. Don then goes on to show how the money Smith makes from exporting is then used by others to buy imports. Given the way he sets that up, he’s correct. So money from exporting is then used to buy imports. Don’s crucial assumption, though, is that none of the money Smith makes from exporting is used to invest in real assets in America and none of it is held as $ by foreigners. Both assumptions are at odds with reality. Don recognizes that he has simplified because he then writes: This simple example can be made more complicated by introducing investment uses of the euros, but as I argue above, that complexity only means that the consumption end of exporting is delayed in time. That gets back to consumption being the only end of exporting, which I’ve challenged above with my benevolent entrepreneur example. Moreover, Don needs to go back to one of the original statements by Vero that I challenged. She wrote: If we could acquire imports without exporting anything, that would be the best of all worlds for us. In my original post, I disagreed with that by pointing out that we could export nothing but still get foreign investment in return. Some of the commenters on my original post tried what the Supreme Court might call a “saving construction:” regarding foreign investment as exports. That would make Vero’s statement true by definition. I don’t like that definition but if that is what she (and Don) really mean, then we are arguing about definitions. Such arguing rarely makes sense. Don ends with this: People must be paid to export. This fact proves that exports are not an end in themselves. People are paid to export. But the fact that someone is paid for doing something doesn’t automatically mean that he must be paid. I’ll take an example from my own life. When I give talks at local Rotary Clubs, I am not paid, except for a meal. But what if they offered me $500? I would accept. An outside observer might see me being paid $500 and assume that I must be paid. But that person can’t get inside my brain. Another example. I’ve given my talk titled “How Economists Helped End the Draft” several times, mainly as a guest lecturer in classes at the Naval Postgraduate School. When I give the talk, I usually refer to the All-Volunteer Force (AVF), which was the term that was normally used to refer to the U.S. military for the first 15 years or so after the draft ended in 1973. A student in one of my talks told the rest of the class and me that when he had heard about the all-volunteer force, he wanted to join. His big surprise came with his first paycheck. He had taken the word “volunteer” to mean that he wouldn’t be paid. (I asked him why he had joined, and he said it was to get out of the small town in California that he had grown up in. The town, Paradise, burned down a few years later.) Someone observing him being paid might say that he had to be paid. But that was not true. One last thought. For the last 25 or so years I taught at the Naval Postgraduate School, I would start each class with my 10 Pillars of Economic Wisdom. Pillar #7 is, “The value of a good or service is subjective.” When I see people claim that someone does something only because of a particular goal, I get suspicious. Many people have multiple reasons for valuing things and doing things.   You might wonder why I’m spending so much time on this. It’s not because I don’t believe in free trade. I do. It’s not because I think imports are bad. They’re good. It’s because I think we free traders should make good arguments, not bad arguments, for free trade. (0 COMMENTS)