Government Goons Destroy Tree House by Autumn Billings, Reason, March 12, 2025. Excerpt: Bringing the tree house into compliance was no simple task. Polizzi tells Reason that while he had secured the necessary zoning permit for the tree house—a feat in and of itself—he’d been unable to obtain a building permit from the L.A. Department of Building and Safety (LADBS). While one would think it’d make sense to permit the structure as a tree house or play structure, Polizzi says that the LADBS took a strict stance, ruling that the roughly 120-square-foot tree house instead had to meet the arduous requirements for an accessory dwelling unit (ADU). Los Angeles defines an ADU as “an attached or detached residential dwelling unit that provides complete independent living facilities” and must include “permanent provisions for living, sleeping, eating, cooking and sanitation.” Securing these building permits requires “soil reports, structural designs, Americans With Disabilities Act compliance, and all this stuff that is just kind of absurd” for an existing treehouse that has stood for 25 years with no safety incidences, Paige Gosney, Polizzi’s attorney, told The Los Angeles Times. According to Polizzi, meeting the ADU demands would’ve cost another $50,000 to $80,000 on top of what he had already spent. “It’s felt like a strong-arm tactic meant to get me to buckle.” Despite ongoing good faith efforts to comply with the city’s regulations, Polizzi was criminally charged with four misdemeanors by the Los Angeles City Attorney’s Office in 2020 for the tree house’s noncompliance. Unable to move forward with renovations, he applied for a permit waiver in April 2024 but never heard back from the city.   MICHAEL MANN SANCTIONED FOR FALSE TESTIMONY, BAD FAITH by John Hinderaker, Power Line, March 12, 2025. Excerpt: My wife and I attended several days in court, near the end of the Michael Mann v. Mark Steyn and Rand Simberg trial in Washington, D.C. We witnessed a dramatic moment, when Mann’s lawyers had introduced into evidence a document, which was blown up for the jury and about which Mann testified, that contained a list of grants that Mann allegedly didn’t get as a result of the defendants’ purported defamation. The value of one of those grants, per the exhibit, was $9 million. On cross-examination by Simberg’s lawyer, Victoria Weatherford*, it turned out that the exhibit reflected sworn interrogatory answers that had been served by Mann, but later superseded by revised answers, also given under oath. The $9 million had been reduced to $112,000. To say that Weatherford’s cross-examination was effective is an understatement. And Mann didn’t get away with the misrepresentation, as the jury found only nominal damages of $1.   India has six of the world’s 10 most polluted cities, report shows by Peter Guo and Yixuan Tan, NBC News, March 11, 2025. Excerpt: https://www.nbcnews.com/news/world/india-six-worlds-top-10-polluted-cities-report-shows-rcna195763Six of the world’s 10 most polluted cities are in India, while California has the worst air pollution in North America, a new report shows. New Delhi was the most polluted capital city globally, followed by N’Djamena, the capital of Chad, a country in central Africa with the world’s worst air pollution, according to the 2024 World Air Quality Report published Tuesday by IQAir, a Swiss air monitoring company. Ten of the 15 most polluted cities in North America, including Ontario and Bloomington, are in California as the United States reclaimed the top spot as the most polluted country in the region in 2024, the report said. India, the world’s most populous country, with more than 1.4 billion people, had a 7% decline in PM2.5 concentration last year, but air pollution remains a “significant health burden” that reduces life expectancy there by an estimated 5.2 years, the report said. The country’s major pollution sources include industrial discharge, construction dust and the burning of crop residues. HT2 Tyler Cowen. Notiee the mention of California in the first sentence.   MedPAC Identifies Medicare Advantage Pricing Errors, Savings Opportunities by Michael F. Cannon, Cato at Liberty, March 14, 2025. Excerpt: Medicare Advantage plans compete to capture that $84 billion by offering “nonmedical supplemental benefits” that differentially appeal to relatively healthy enrollees, whom insurers know will cost less than the government is paying. You know, stuff like “nonemergency transportation services, assistance paying for over-the-counter items, meals, and gym memberships.” Your tax dollars are even paying private health insurance companies to offer groceries, hair care, pet care, complementary therapies, and structural home improvements. Jewish Protest against the Gaza War | Glenn Loury & Peter Beinart | The Glenn Show March 14, 2025. Highlights (approximate times): 18:25: When Palestinians struggle non-violently, consistent with international law, we need to support that or at least not repress it. 27:00: States should treat people equally irrespective of their religion or ethnicity, 34:00: I (DRH) am not sure he’s right about Trump. 47:00: Anti-Zionist or anti-Israel vs. anti-semitic.   Watching this motivate me to buy Beinart’s book. (0 COMMENTS)

If someone external to your group wants to invest in a certain territory encompassing you, your group’s permission should be required. The argument seems obvious. It is nearly by definition that when we make a decision collectively, the individual must submit. The individual is just one but the collective is more than one. Or so goes the argument. Controlling foreign capital inflows would be coherent with the collectivist and mercantilist approach to human affairs (Gillian Tett, “Tariffs on Goods May Be a Prelude to Tariffs on Money,” Financial Times, March 14, 2025): Could Trump’s assault on free trade lead to attacks on free capital flows too? … Might tariffs on goods be a prelude to tariffs on money? … Until recently, the notion would have seemed crazy. After all, most western economists have long seen capital inflows as a good thing for America. … And six years ago, Democratic senator Tammy Baldwin and Josh Hawley, her Republican counterpart, issued a congressional bill, the Competitive Dollar for Jobs and Prosperity Act, which called for taxes on capital inflows and a Federal Reserve weak-dollar policy. Says McNair [a financial analyst] “the strategy itself is more coherent and far-reaching than most observers recognise.” I am not implying that Tett herself embraces collectivist thinking. She explicitly says that she is “not endorsing” a tax on capital inflows. There are good reasons for generally rejecting the primacy of collective choices that is ingrained in the minds of politicians on both sides of the aisle and thus for opposing collective control of capital inflows. Circumscribing the group and the territory where collective choices can crush minority individual choices is broadly arbitrary, as is the collectivist we of my introductory paragraph. Even setting aside the issue of who constitutes the group and where the territory lies, the political we itself remains highly problematic. Is it represented by the 49.8% of the voters, which means the third of the electorate, who supported Donald Trump in the last election? What about the Condorcet paradox and its extensions that prove the frequent logical incoherence of a democratic majority? Any policy and political decision requires a moral judgment about distribution, as welfare economics famously demonstrated. Any collective choice that is not unanimous means that some individuals will be exploited by others, so the required moral judgment can only be arbitrary. It is to circumvent this conclusion that the public choice school of economics, notably James Buchanan and Gordon Tullock, developed a theory of unanimous but limited social contract. Not surprisingly, then, capital controls—whether on inflows or outflows—raise many problems. Government allocation, that is, allocation by politicians and bureaucrats, at least partly replaces market signals and incentives. Those who can tax can also control and ban if only with prohibitive tax rates or the threat thereof. A tax on capital inflows would prevent American businesses from freely appealing to foreign lenders or investors. It would limit the purchase of American dollars by foreign tourists. Perhaps, after a few decades of autarkic controls, remittance flows would be reversed and Americans would need to pay a tax to receive foreign remittances from exiled family members. Remember that, at the turn of the 20th century, Argentina was among rich countries. Similarly, if capital inflows can be collectively managed, so can outflows, such as investment or travel abroad. The collective is made up of individuals while the individual is not made up of collectives. There is no a priori reason why the collective is superior to the individual. If there is any axiomatic foundation to politics, it seems to be the primacy of the individual, recognizing all individuals are to be formally equal. Otherwise, it is accepting that some individuals will rule over others. And we know from the theory of autoregulated social order developed since the 18th century that spontaneous coordination in society is possible and efficient, at least under certain conditions. In short, the superiority of the collective and its choices is not obvious at all. ****************************** Are individuals made up of countries? A complicated question for DALL-E (0 COMMENTS)

A body of literature called the New History of Capitalism argues (incorrectly, I believe) that Western prosperity is built on legacies of exploitation like colonialism and slavery. Economists are very skeptical because the New Historians of Capitalism rest much of their case on fundamental misunderstandings of basic economic concepts like national income accounting. Economists have criticized some of the movement’s foundational texts in the blogosphere and scholarly journals. There is a related body of work I’ve called the New Intellectual History of Capitalism, focusing on post World War II neoliberalism and the alleged conspiracy beginning with Mont Pelerin Society’s first meeting in April 1947. Examples of this genre include Nancy MacLean’s Democracy in Chains, which stirred public choice circles in 2017 by attempting to link James M. Buchanan to Virginia segregationism in the 1950s and which Michael Munger called “speculative historical fiction.” Other contributions include work by Quinn Slobodian purporting to locate fascist sympathies in the judiciously selected and carefully minced words of Ludwig von Mises. MacLean’s treatment of Buchanan is conspicuous, like Naomi Klein’s treatment of Milton Friedman in The Shock Doctrine: The Rise of Disaster Capitalism, which I reviewed here. Other incorrect interpretations come from Quinn Slobodian’s treatments of Ludwig von Mises in multiple places and his treatment of W.H. Hutt in his book Globalists. Sandy Darity, M’Balou Camara, and MacLean pick up on Slobodian’s portrayal of Hutt and misrepresent an argument Phil Magness, Ilia Murtazashvili, and I make (Magness and I respond here; the published version of their paper is here, along with Murtazashvili, we respond here). Consider the insinuation that Mises and F.A. Hayek were fascist sympathizers. Mises did write, hyperbolically, that lovers of liberty should thank the fascists for vanquishing the communists, but this was not because he thought the fascists were good but because he thought the communists were worse. It’s like the Battle of Stalingrad in Enemy at the Gates. There are no good guys, just bad guys (the Soviets) and worse guys (the Nazis). Being glad the Soviets helped defeat Hitler is hardly an endorsement of communism. Mises’s opposition to totalitarian socialism of the right (Naziism) and totalitarian socialism of the left (communism) was so complete that he ended up being the subject of a 1998 issue of The Batman Chronicles titled “The Berlin Batman.” It features a short story asking, “What if Bruce Wayne had actually been a Jewish artist named ‘Baruch Wane’ in 1930s Berlin?” When Baruch Wane heard that the Nazi Kommisar had to meet a train because they had seized the books and library of Ludwig von Mises, he worked to stop them (perhaps he delayed them and did not stop them). Still, it correctly explained that Mises was anti-Nazi and correctly portrayed Mises’s Human Action as a volume that repudiated totalitarian doctrines and embraced liberty. Is a comic book portrayal definitive evidence? No, but it is suggestive: if Misesian anti-Nazi liberalism is so obvious that it became the subject of a Batman comic, perhaps there isn’t much to read between the lines.   [Editor’s note: Readers may also be interested in this Liberty Matters forum led by Phil Magness, Why We Don’t Need a “New” History of Capitalism.) Art Carden is Professor of Economics & Medical Properties Trust Fellow at Samford University. (0 COMMENTS)

When I posted on Social Security as a Ponzi scheme on March 11, I didn’t expect the degree of interest I got. It also led to a discussion of what to do now that we’re in a mess. So I’ve decided to post the rest of my chapter of The Joy of Freedom: An Economist’s Odyssey. I’ll do it in installments. The last installment discusses what to do about it. Here’s the next installment.   Flawed from the Start How did we get into this mess? It started in 1935, when President Franklin D. Roosevelt, together with Congress, explicitly designed Social Security as an intergenerational “chain letter.” That, more than any other single feature, virtually guaranteed a big mess for future generations. Interestingly, when the proposal was debated, its chain-letter aspect was little discussed. Politicians in neither the Democratic nor the Republican party seemed upset about that crucial aspect of the plan. At the time, some of its proponents thought of the Social Security tax as a way of extending the income tax to lower-earning people. W. R. Williamson, an actuarial consultant to the first Social Security Board, stated that Social Security extends Federal income taxes “in a democratic fashion” to the lower-income brackets.[1] Roosevelt and Congress also rejected the Clark amendment, named after Missouri Senator Bennett Champ Clark, which would have exempted employers and employees who had government-approved pension plans. Although the Senate backed this amendment by a vote of 51 to 35, it was later removed. Had that exemption been in the law, many fewer people would have been in the Social Security program and, in fact, with the growth of private pensions, the fraction of the workforce in Social Security would probably have shrunk over the years. Roosevelt strongly believed in a payroll tax as the way to finance the program. Calling the taxes “contributions,” which the federal government did from the start, would make people think of Social Security as an annuity that they had paid for and that they therefore had a right to. That’s also why Roosevelt wanted to use a special payroll tax rather than general revenues. If people paid a payroll tax earmarked for Social Security, reasoned FDR, they would think themselves entitled to benefits from the program. FDR stated, [T]hose taxes were never a problem of economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral, and political right to collect their pensions….With those taxes in there, no damn politician can ever scrap my Social Security program.[2] Roosevelt was saying, in effect, that once the entitlement mentality had taken hold, it would be very difficult ever to cut or eliminate Social Security. He was right. What he didn’t say—but what the chain-letter financing implied—was that the other reason Social Security would be entrenched was that older people would press politicians for continued benefits, which would necessitate continued taxes on working people, who, when they retired, would push for further taxes on the next generation, and on and on forever. In short, FDR implemented a system of passed-on intergenerational abuse that is still with us today. Presidents Johnson and Nixon made the problem worse. Between 1967 and 1972, Congress and the President raised Social Security benefits by 72 percent (37 percent after adjusting for inflation). When Wilbur Cohen, Johnson’s Secretary of Health, Education, and Welfare, proposed a 10 percent hike in Social Security benefits, Johnson replied, “Come on, Wilbur, you can do better than that!”[3] President Nixon added to the problem by getting into a bidding war with Wilbur Mills, a powerful congressman who was jockeying for the 1972 Democratic presidential nomination. The net result was a 20 percent increase in benefits. MIT economist Paul Samuelson added some of the intellectual backing for these policies. “The beauty about social insurance is that it is actuarially [italics Samuelson’s] unsound.” Samuelson’s point was that if real incomes were growing quickly, each generation could get more out of Social Security than it paid in. While its critics attacked Social Security as a Ponzi scheme, Samuelson beat them to the punch in 1967 by blessing it as one. “A growing nation,” wrote Samuelson, “is the greatest Ponzi game ever contrived.”[4] We are now paying through the nose for that “beautiful” Ponzi game. If we include the portion paid by the employer, over 62 percent of families now pay more in payroll taxes (most of which is for Social Security) than they pay in federal income taxes.[5] The initial payroll tax rate when the program first began was 2 percent on the first $3,000 of income, split equally between employer and employee. In the year 2001, the tax rate for Social Security was 10.6 percent on income up to $80,400 and zero after. This increase in income taxes is not simply an adjustment for inflation. Three thousand dollars in 1938, adjusted for inflation, is less than $38,000 today, or only about half the base income that is taxed today. The maximum tax, employer and employee combined, is $8,077 today versus $60 when the program first started. Had the tax been increased just for inflation, but no more, it would be only about $750 today. See Table 14.1. Table 14.1 Maximum Tax for Social Security (excluding Disability Insurance) Calendar Year Maximum Tax Maximum Tax in 2000$ 1939 $60 $735 1950 $90 $636 1955 $168 $1,066 1960 $264 $1,518 1965 $324 $1,750 1970 $569 $2,496 1975 $1,234 $3,902 1980 $2,341 $4,835 1985 $4,118 $6,512 1990 $5,746 $7,483 1995 $6,438 $7,187 1997 $6,932 $7,348 2001 $8522 $8,274 (estimated) Source: Tax rates and tax base from Social Security Board of Trustees Report, various issues; inflation adjustment from Economic Report of the President, various issues. Ponzi versus Stocks Many critics of Social Security have claimed that the current elderly are getting a windfall from the system, but that the younger you are, the worse a deal you will get. They’re half right. The younger you are, the worse your deal. But many of the current elderly are also hurt. The reason is that the return from Social Security compares very unfavorably to the returns available in the stock market. In a 1987 article in the National Tax Journal, Stanford economists Michael Boskin (later to be chairman of the first President Bush’s Council of Economic Advisers), Douglas Puffert, and John Shoven, and Boston University economist Laurence Kotlikoff presented data on the rate of return earned from Social Security taxes[6]. The real rates of return varied from minus 0.79 percent to 6.34 percent and depended crucially on the person’s age (older is better), income level (low income is better than high income), and marital status (being married with one spouse not working is better than either being single or being married with both spouses working). Interestingly, even the person who did the best—someone born in 1915, the sole wage earner for a married couple, earning only $10,000 a year in 1985 dollars—received a return of 6.34 percent. Every other category of income earner they considered, including those slightly younger or with a slightly higher income, earned a lower return from Social Security taxes. In a more recent study,[7] Harvard economist Martin Feldstein and Dartmouth economist Andrew Samwick found that the average rate of return on taxes paid will be as shown in Table 14.2. TABLE: Average Real Rate of Return on Social Security Taxes Paid Year of Birth Pre-1915 1915 1930 1945 1960 1975 1990 Real Rate of Return 7.0% 4.21% 2.52% 1.67% 1.39% 1.39% 1.43 Source: Feldstein and Samwick, “The Transition Path in Privatizing Social Security,” National Bureau of Economic Research, Working Paper # 5761, September 1996. Compare these rates of return with what you could have earned with an indexed portfolio of stocks. According to Ibbotson Associates, a Chicago-based firm that computes stock market returns, the average rate of return on stocks between 1926 (before the 1929 crash) and 1997 was 11.0 percent, or 7.7 percent when adjusted for inflation. For shorter periods, of course, the rate of return has been higher and lower than this, but for no 30-year period has the real rate of return ever been below 4 percent. So a rate-of-return comparison shows private investment in stocks to be superior to the government system for people who invest for 30 years or more. Of course, you can find 5-year periods and even 10-year periods during which you would have done considerably worse. According to Ibbotson Associates, the worst 10-year period was October 1, 1964 to September 30, 1974, when the annual inflation-adjusted rate of return in stocks was -4.3 percent.[8] The moral of the story is that you shouldn’t put all your savings in stocks if you plan to draw on the funds in 10 years or so. Another equally valid way to compare makes the contrast starker: look at the effect that Social Security taxes and benefits have on your wealth. Economists do the computation in three steps. First, they compute the present value of Social Security taxes paid by you and your employer—the value at retirement age of all the previous taxes paid, assuming that they earn compound interest. Second, they estimate the present value of Social Security benefits—the value at retirement age of a stream of future income—using the same rate of return they use for the taxes. Finally, they subtract the present value of taxes from the present value of benefits. The crucial variable for such a calculation is the interest rate. A pessimistic real rate to use is 4 percent. Why? Because, as noted above, you could have earned over 4 percent with a portfolio of stocks for the worst 30-year period for stocks. Shawn Duffy, a student at the Naval Postgraduate School, using an inflation-adjusted rate of return of 4 percent, found that someone born in 1929 who paid the maximum Social Security tax his or her whole working life and who retired in 1994, would have been $120,000 better off with a private savings plan instead of Social Security. Someone who worked at the average wage his or her whole life would have been $54,000 better off without Social Security. And even a 1994 retiree who earned the minimum wage for the whole of his or her working life, supposedly the quintessential social-security-windfall king, would have been about $9,000 better off with a private savings plan.[9] With a more realistic 6 percent real rate of return, the Social Security caused the maximum-earning 1994 retiree to lose $262,000 in wealth, caused the average earner to lose $160,000, and caused the minimum-wage earner to lose $66,000. It’s true that the earliest recipients of Social Security did very well. That’s because they had paid into the system for only a few years, but received substantial benefits for many years. Miss Ida Mae Fuller, for example, the first recipient of Social Security, received, by the time of her death at age 100, $20,000 in benefits in return for $22 in taxes paid. But now that all future and most current beneficiaries have paid taxes over a working lifetime (when this happens, economists who study Social Security call the system “mature”), there is no windfall for current and future retirees. [1] “26,000 in Brooklyn Defy Security Law,” New York Times, November 29, 1936, p. 37. [2] From Arthur M. Schlesinger, Jr., The Age of Roosevelt, vol. 2, The Coming of the New Deal (Houghton Mifflin, 1959), pp. 309–310, referenced in Martha Derthick, Policymaking for Social Security, Washington, D.C.: Brookings Institution, 1979, p. 230. [3] This story is told in Peter G. Peterson, Will America Grow Up Before It Grows Old?, New York: Random House, 1996, pp. 93–99. [4] Samuelson quotes are from Newsweek, February 13, 1967, and are quoted in Derthick, p. 254. [5] Andrew Mitrusi and James Poterba, “The Distribution of Payroll and Income Tax Burdens, 1979-1999, National Bureau of Economic Research, Working Paper No. 7707, May 2000, p. 24.   [6] Boskin, Michael, Laurence Kotlikoff, Douglas Puffert, and John Shoven, “Social Security: A Financial Appraisal Across and Within Generations,” National Tax Journal 40, 1987, pp. 19–34. [7] Martin Feldstein and Andrew Samwick, “The Transition Path in Privatizing Social Security,” National Bureau of Economic Research, Working Paper # 5761, September 1996, p. 20. [8] I thank Heather Fabian, public affairs manager at Ibbotson Associates, for providing the computations. [9] Shawn P. Duffy, Social Security: A Present Value Analysis of Old Age Survivors Insurance (OASI) Taxes and Benefits, Naval Postgraduate School, Masters Thesis, December 1995.   (0 COMMENTS)

A new trend is emerging in left-wing circles in the Americas- denouncing rivals as ‘cruel.’ In the US, the New York Magazine (NYMag) recently ran a cover titled ‘The Cruel Kids’ Table,’ which featured a picture of partying conservatives who apparently would have been, according to the implied message, bullies in high school. Never mind that the photo was altered to remove nonwhites and thus make it seem racist, the implication was clear: Not aligning with the left equaled being ‘cruel.’ Interestingly, the same phenomenon has also been taking place for a few years in Argentina. Various writers, political commentators, and politicians have called President Javier Milei ‘cruel’ and even a ‘villain.’ Again, the implication is that Milei embodies cruelty and is thus a danger to the Argentine society, because he has come to destroy it. Denouncing ‘cruelty’ has become the new way in which left-wing élites showcase their moral superiority. But why? What exactly is cruel about a party? Why would a politician with whom one disagrees be a villain? Astonishingly, left-wing Argentine magazine Anfibia recently announced that its funding was close to running out due to the end of USAID cooperation. ‘We are a shelter against cruelty,’ they said. So, how could Trump dare cut their funding? The problem with moral superiority on the part of the left is that the track record of cruelty denouncers is usually terrible. This is a direct consequence of the policies that the left supports, which include higher public spending, higher taxes, and higher regulation: All of these reduce growth, drive out investors, and cause inflation. In some cases, these are problems whose root causes the left does not understand, but in others, they seem to be the product of human design. (Many left-wingers call for degrowth, after all.) A worse economy results in a worse quality of life for most people. How is that not cruel? Besides funding cuts, the left usually focuses on layoffs in the public sector when describing their opponents’ alleged cruelty. However, it is generally left-wing policies that artificially inflate government and grant privileges to those who are part of it, the cost of which falls on taxpayers. That is, from a classical liberal perspective, unjust and cruel. Just because a minority living off of others is less visible than a layoff does not mean that the former is any less real.  To be sure, the right sometimes also embraces policies that make everyone poor, and the latest push for protectionism in the US is a prime example of that. But recent efforts to deregulate, on the contrary, do have a clear classical liberal root, which is why the Trump administration has followed Milei’s in creating a department (DOGE) whose sole purpose is to deregulate the economy and unleash the potential of the private sector. Classical liberals, then, must deny that there is any cruelty in trying to stop the government from interfering with basic economic liberties. On the contrary, they must question the left’s alleged moral superiority. All in all, classical liberals would do well to counter the new trend among the left by insisting that it is the policies of those who denounce ‘cruelty’ that cause injustice and economic chaos through privileges, taxes, regulations, and unstoppable spending. Trying to fix them cannot possibly be cruel.   Marcos Falcone is the Project Manager of Fundación Libertad and a regular contributor to Forbes Argentina. His writing has also appeared in The Washington Post, National Review, and Reason, among others. He is based in Buenos Aires, Argentina. (0 COMMENTS)

I’m continually amazed by the media coverage of China’s deflation problem, which is treated as a big mystery.  Actually, almost all modern examples of deflation have the same explanation—relatively tight money. (To be sure, deflation can be caused by a positive supply shock, but that rarely occurs under modern fiat money regimes.)  Central banks can only hit one target at a time.  Most developed countries target inflation at around 2%, which forces them to allow highly volatile exchange rates.  Those that stablize their exchange rate are unable to target inflation.  When their currencies become overvalued, they are forced to engage in “internal devaluation”, i.e., deflation of domestic wages and prices. Over the past few decades, China’s currency has been either rigidly fixed to the US dollar (1995-2005 and 2008-2010), or kept within a narrow band around the US dollar.  At no time has the Chinese government allowed the yuan to move dramatically up or down, as we see with other currencies like the yen, the euro, the pound, and Swiss franc.  Because of China’s exchange rate policy, Chinese monetary policy is essentially made in the USA.  A strong dollar in the foreign exchange markets leads to deflation in China.  Period, end of story.  But the press consistently ignores this issue.  Here’s Bloomberg: Why is China experiencing deflation? Prices rocketed in the US and other big economies when they reopened after the Covid-19 pandemic, as pent-up demand coincided with shortages in the supply of many goods. Predictions that the same would happen in China proved to be wrong. Consumer spending power is weak and a real estate slump has dented confidence, causing people to hold back from buying big-ticket items. A tightening of regulations in high-paying industries like technology and finance has led to layoffs and salary cuts, further dampening the appetite for spending. A policy push to develop manufacturing and high-tech goods spurred increased production, but demand for these goods has been weak, forcing businesses to mark down their prices. That’s it.  That’s the entire explanation.  Much of the rest of the article is devoted to possible solutions, with no mention of exchange rate adjustment or internal devaluation. The article even includes a graph, which provides very strong clues as to what is causing these repeated episodes of Chinese deflation: The grey bands represent periods of deflation using the GDP deflator.  Notice an extended period in the late 1990s, a brief period around 2009, a brief period around 2015, and an extended period since 2023. Now let’s examine the real exchange rate for the US dollar against a basket of other currencies: Notice a very strong appreciation of the dollar in the late 1990s, a brief surge in 2009, another surge in 2015 and an exceedingly strong dollar over the past few years. Of course it’s not a perfect fit, as the yuan was not rigidly fixed to the US dollar.  The yuan did depreciate somewhat in the late 2010s, which helped to make the 2015 deflationary period fairly brief.  And the equilibrium real exchange rate can move around for reasons unrelated to monetary policy.  But as a general rule, a strong US dollar means tight money for any country with its currency pegged to the dollar, or even kept relatively stable against the dollar. So why didn’t most other countries have deflation in the late 1990s?  Most other countries allowed their currencies to depreciate against the dollar.  Those that didn’t (China, Argentina, Hong Kong) generally experienced deflation.  Deflation also hit countries that allow only slight currency depreciation, due to pressure from the US government.  The Japanese yen/US dollar exchange rate showed very little change between 1997 and 2002, while most of the rest of the world was sharply depreciating their currencies.  The result was Japanese deflation. It’s not complicated.  In the 21st century, deflation is generally caused by a policy of exchange rate stabilization combined with a strong US dollar. (0 COMMENTS)

It’s often said that economics is counterintuitive. On the other hand, it’s also said that economics is about human behavior. This should imply that at least the basic ideas of economics should be pretty easy to understand and explain. (Assuming, of course, that you are in fact a human.) One important point in economics is about the margin – thinking at the margin, decisions being made at the margin, and so on. On the one hand, it sometimes seems tricky to get people to understand what it means to make a decision at the margin, or to understand the difference between marginal cost and average cost. Some people attempt to illustrate the difference using math. You might, for example, give someone an equation for calculating total cost, and then tell them that marginal cost is the first derivative of total cost. Then, with a little basic calculus, they can work out the marginal cost of some process. This is neat, precise, and makes for tidy exam questions that are easy to grade. It’s also entirely possible to ace an exam full of these math problems and leave class at the end of the semester without ever really internalizing the idea of making a decision at the margin. On the other hand, if people really do make decisions at the margin, shouldn’t it be easy to explain the concept to people by pointing out these decisions being made, in cases that are easy to understand and recognize? Yes, actually. Consider the following meme. If you recognize what the meme is saying and understand why it’s funny, then you intuitively understand the difference between average and marginal cost, and you understand what making a decision at the margin means: Assuming you’re old enough to shave, you’ll immediately recognize this. Nonetheless, I’m going to break a cardinal rule of comedy and explain the joke. Shaving cartridges are expensive. To make the math easy, let’s assume this pack costs $20. The average cost per cartridge is $5. As you use a razor, it gets duller, making it less comfortable and effective for shaving. So as the first cartridge wears down after five shaves, you switch to the second. Because you paid the full price for the pack up front, the marginal cost of tossing out the first cartridge for the second is essentially zero, while the marginal benefit is pretty high. The same holds true for tossing out the second for the third, and the third for the fourth. But once you start using the fourth, things change. Now the marginal cost of tossing out the fourth and switching to a new cartridge means paying the full price of a new pack. As a result, people stretch the fourth cartridge in the pack far longer than the first three. All four razors have the same average cost – but they don’t all have the same marginal cost when it comes to use and disposal. And because people make their decisions on the margin, you end up seeing the kind of behavior highlighted in the meme. Unfortunately, there are people who can pass through economics programs with excellent grades on the basis of their high level of mathematical acumen, yet never absorb the economic way of thinking in a way that is presented by this simple meme. Math is a fine thing and certainly has legitimate uses in economics, but solving math problems isn’t the same thing as doing economic analysis. There’s an old saying that if you can’t explain something in a way that an eight year old can understand it, then you don’t truly understand it yourself. Maybe there’s an analogy here. If you can put together a simple meme that highlights how indifference curves work, that demonstrates your understanding of the topic far more than calculating partial derivatives, using utility functions, or referencing budget lines. Anyone who’s decent at math can do the latter, particularly in the context of a classroom exam. But only someone who has really absorbed the idea can do the former. (1 COMMENTS)

  What are the economic benefits and costs of import tariffs? The economic impact can be examined in one of two ways: on an individual product basis (partial equilibrium, looking at supply and demand for a particular good), or on an economy-wide basis (general equilibrium, looking at many markets simultaneously). Let’s consider each approach in turn. Suppose the U.S. government imposes a tariff on imported sugar. This tax discourages the importation of sugar and the domestic price rises. The higher price reduces the quantity of sugar that consumers demand but increases the quantity of sugar that domestic producers are willing to supply. As a result, imports fall, being squeezed by lower domestic demand and higher domestic supply. Because it increases domestic production of sugar and decreases domestic consumption, the tariff is equivalent to a production subsidy and a consumption tax. In changing production and consumption, the tariff redistributes income. Domestic consumers lose from the higher price, which goes partly to domestic producers (in the form of higher prices) and partly to the government (in the form of tax revenue). However, consumers lose more than producers and the government gains, meaning that there are “deadweight losses” (economic inefficiencies) associated with the tariff. The production deadweight loss is the extra costs that are incurred in increasing domestic production (beyond what would have been produced at the world price) and the consumption deadweight loss is the lost benefits to consumers who used to purchase the good (at the world price) but no longer do so. These deadweight losses can be considered lost gains from trade as a result of reducing trade. This is from Douglas A. Irwin, “Tariffs,” in David R. Henderson, ed., The Concise Encyclopedia of Economics. With the huge role that tariffs have taken in economic policy in the last 2 months, Liberty Fund and I thought (and think) it made sense to have an article devoted to tariffs. I already have “Free Trade” by Alan S. Blinder, “Protectionism” by Jagdish Bhagwati, and “International Trade Agreements” by Doug Irwin. The article on tariffs is the latest addition to the online Encyclopedia. Additional excerpt: Tariffs are sometimes proposed as a way of reducing a trade deficit. But trade deficits are determined by macroeconomic factors, such as the degree to which capital can move between countries, and the balance between a country’s national savings and investment. Tariffs tend not to affect these underlying determinants of trade deficits and are largely ineffective at reducing them. For developing countries, tariffs not only reduce consumer choices but also can harm a country’s growth prospects. Countries that are behind the technology frontier need imports of foreign capital goods to help their producers become more efficient. Tariffs that restrict such imports are an obstacle to such countries catching up to the productive efficiency and higher income levels enjoyed by other countries (Irwin 2025). For example, under its communist leader Mao Zedong, China was largely closed to international trade and remained one of the poorest countries in the world. In the late 1970s, China’s new leader, Deng Xiaoping, opened the economy to trade and foreign investment. For several decades thereafter, China’s economy grew at close to double digit rates, raising incomes dramatically and sharply reducing poverty. A similar process has been observed in countries such as India and Vietnam after they opened to trade. However, trade is an opportunity, not a guarantee of economic success, and other countries in Latin America and Africa have not seen such dramatic growth rates after they reduced their trade barriers. Read the whole thing. It’s long but it doesn’t feel long. It’s like slicing a hot knife through butter. (0 COMMENTS)

Populism is one of the most important political phenomena of our time. Yet, it is still poorly understood. At its core, populism is built on the notion that the masses are engaged in a struggle against corrupt elites who have rigged the political and economic system to their advantage. Whether left-wing or right-wing, this is the essence of the populist narrative: an appeal to “the people” against “the elite” and the claim to restore power to ordinary citizens by breaking the grip of entrenched interests. But can populism effectively challenge crony capitalism—a system where the political and economic elite are entangled? Can it truly dismantle the grip of entrenched interests? In a recent working paper, we argue that populist movements are likely to fail to deliver on their promises. The reason is that populism does not resolve the dual epistemic and incentive challenges necessary for success.    The epistemic problem  Populist movements claim to embody the “true will of the people” and pledge to implement policies that prioritize the welfare of the masses over that of the elite. However, a deeper examination of societal decision-making exposes significant epistemic challenges for these leaders. These challenges stem from the inherent difficulty political decision-makers face in accurately identifying and advancing the collective will of the people.  William Riker, James Buchanan, and Timur Kuran provide key insights into why populism cannot truly assess and represent the “will of the people.”  Riker demonstrated through social choice theory that collective decision-making is inherently flawed, as different voting rules yield different outcomes and fail to translate individual preferences into a coherent aggregate representing the masses. Therefore, the idea of a unified “will of the people” is a myth.  Buchanan argued that social welfare functions—used to aggregate individual preferences into a collective decision—are fundamentally flawed. He maintained that individual preferences can only be revealed in the moment of choice and are highly dependent on the context faced by the chooser. The challenge is even greater since, as Buchanan noted, people change through time as opposed to being some fixed and pre-packaged utility function. Lastly, Kuran’s concept of “preference falsification” adds another epistemic challenge for the populist leader in assessing the true will of the masses. Kuran argues that individuals often misrepresent or suppress their true preferences due to social pressures, fear of ostracism, or the desire to conform to prevailing norms. Consequently, the expressed public opinion may not match what people truly think or want.  Thus, the core epistemic problem of populism lies in its inability to discern and act upon a singular will of the people. Instead, populist leaders impose their own interpretation of what “the people” want, thereby reinforcing their power. The conclusion, as noted by Pierre Lemieux, is that populism is ontologically impossible because there is no way for the political leaders to assess the “will of the people.”   The incentive problem Despite the epistemic challenge faced by populist decision-makers, someone must decide which policy will be implemented. An appreciation of the organizational logic of politics further undermines the promises of populism.  One key issue is encapsulated in what Robert Michels’s concept of the “iron law of oligarchy.” Michels argued that any organization—even one with democratic origins—inevitably concentrates power in the hands of a few. This concentration is not necessarily due to corruption, but rather the natural emergence of leadership and a division of labor. As leaders coordinate activities and manage the organization, even a populist movement can quickly devolve into a new elite structure, setting the stage for rent seeking and resource extraction akin to traditional regimes. This problem is compounded by multiple principal-agent issues inherent in democratic systems. Voters (the principals) rely on elected officials (the agents) to implement policies on their behalf. However, voters are often poorly informed—a phenomenon known as rational ignorance—and they struggle to communicate the intensity of their preferences or monitor the complex bargaining behind policymaking. This information gap allows political agents to prioritize narrow interests over the common good, all under the guise of executing “the will of the people.” Two factors exacerbate these incentive problems in populist settings. First, populism often leaves the scope of government intervention remarkably open-ended. Leaders can justify virtually any action as aligning with the amorphous “will of the people,” a flexibility that rent-seeking groups readily exploit to advance their own interests. Second, populist movements typically emerge from—and are sustained by—a perceived crisis. This sense of urgency fuels the rise of populist leaders and creates an environment in which expansive, crisis-driven measures become the norm. Even after the initial crisis subsides, these measures tend to persist, as entrenched interests and empowered elites continue the cycle of resource redistribution, leaving voters with little meaningful control   The future of democracy If populism—a political movement based on the idea of representing the true will of the people and giving them a voice—is doomed to fail, is there any hope for liberal democracy? The answer to that question varies depending on how we conceptualize democracy, the idea of a self-governing people, and their relationship. Populist movements  act as if there is a singular “will of the people” that can be realized through centralized political institutions. In this framing, the problem is not with the nature of political institutions themselves, but with who controls them. However, for all of its rhetoric of empowering “the people” often collapse into existing patterns, where the elite continue to govern over the masses. But what if we change the way we think about democracy? We often tend to envisage democracy as a top-down system, but a better alternative would be to imagine it as a network of bottom-up processes rooted in the interactions among self-governing individuals. Vincent Ostrom developed this alternative perspective in The Meaning of Democracy and the Vulnerability of Democracies. Following Alexis de Tocqueville, Ostrom argued that when citizens view government as a caretaker, individuals are more likely to “democratic despotism”—a system characterized by where elites control the rest of the population.  In contrast, Ostrom envisions democracy as emerging from associations among citizens, where person-to-person, citizen-to-citizen relationships form the basis of a truly democratic society. As he states “Democratic ways of life turn on self-organizing and self-governing capabilities rather than presuming that something called ‘the Government’ governs” (pp. 3-4). From this perspective, meaningful change is not achieved through marginal reforms to existing political institutions or the rise of new ideological movements within the current system. These strategies fail to address the fundamental issue: elite rule through top-down command-and-control institutions. For Ostrom, overcoming democratic despotism requires a transformation in the beliefs citizens hold about the nature of the political process and their influence in self-governance.  If we truly care about individual preferences and authentic democratic participation, salvation does not lie in centralized political power—even when exercised in the name of “the people.” Instead, it is found “on principles of self-responsibility in self-governing communities of relationships” (p. 4).    Christopher Coyne is a Professor of Economics at George Mason University, the Associate Director of the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center, and the Director of the Initiative for the Study of a Stable Peace through the Hayek Program. André Quintas is a PhD student in Economics at George Mason University and a Hayek Fellow through the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center. 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Despite containing useful information, a Financial Times story makes some puzzling statements (“Trump Nominee Unites Right and Left with Tough Antitrust View,” Financial Times, March 7, 2025): Among the loyalists selected by Donald Trump to staff his second administration, Gail Slater stands out for a different reason: she unites right and left with a sceptical view of big business. While the US president’s other nominees tend to be traditional conservative free market advocates, Slater, his pick to lead the Justice Department’s antitrust division, is expected to maintain the Biden administration’s vigorous approach to enforcement–much to Wall Street’s chagrin. … Slater embodies the unlikely alignment of progressives who support tough antitrust enforcement and a new generation of populist conservatives. Who are “the US president’s other nominees [who] tend to be traditional conservative free market advocates?” The “free market advocates” are difficult to find in Trump’s entourage, or they are dumb silent. No free-market advocate can reject free trade among individuals in the way that Trump and his entourage do. As I argued before, the “unlikely alignment of progressives … and a new generation of populist conservatives” is easy to understand. It has only become tighter and more visible. Historically, populist rulers, of the right and of the left, have defended the primacy of collective and political choices against individual and private choices, as the experience of Latin America shows. Antitrust laws, which grant extraordinary power to the state, are just one illustration. We would expect that such power would naturally be used by the state rulers of the day to take sides in favor of their preferred clientèles and against individuals and groups that do not fit well in their ideal economic organization. It was only a matter of time before this power could, in advanced “democratic” countries, be openly used against “enemies of the state.” It may now be happening in the United States. The Financial Times reports that a top deal banker said corporate leaders fear that under Trump, antitrust may be used to punish enemies and reward friends in ways that are unpredictable. That the Department of Justice has opened an investigation into the price of eggs seems to confirm this fear: a scapegoat must be found to explain why the president has not succeeded in lowering food prices “starting on day one” as he had promised (“Justice Department Opens Probe of Sharp Surge in Egg Prices,” Wall Street Journal, March 7, 2025). It would not be the first time political power has intervened in the administration of justice, but the fact that the DoJ is now quasi-officially at the service of the president’s “vision” makes witch-hunts more probable and more dangerous (“Trump Tightens Grip on FBI and Justice Department,” Wall Street Journal, March 7, 2025). Ten years ago, most Americans probably thought that the danger of state lawlessness had receded since J. Edgar Hoover and Richard Nixon. The Wall Street Journal writes: While every FBI director since J. Edgar Hoover has taken pains to keep the White House at arms length, the new Trump administration has taken the opposite tack, working to bring the traditionally independent ethos of the FBI and Justice Department firmly within the president’s grasp. … Louis Freeh, who was director under former President Bill Clinton, irked the president by surrendering his White House access badge during his first week on the job, after learning that Clinton was under investigation for a controversial land deal, which became known as the Whitewater scandal. James Comey refused to play basketball with former President Barack Obama because he didn’t want to appear too chummy with the man who appointed him. One of the few areas of public policy where individual liberty seemed to have strengthened over the past several decades was indeed in the quasi-disappearance of the incestuous relationship between politicians and the administration of justice. Of course, the state continued to grow but most individuals seemed better protected against glaring arbitrary power. Whatever good intuitions and commendable intentions Mr. Trump has—and he has expressed some—they look like random blips likely to fail among his enervated interventionism, his imperial entertainment, and the infatuation with collective choices that he shares with the other major political party. He just wants to impose different tastes and values on the 50.2% of voters who did not vote for him and, tragically, on many in his 49.8%. A grave danger is that this be mistaken for the defense of individual liberty. ****************************** Jean-Baptiste Colbert writing a report for the King, as imagined by DALL-E (with some external influence) (0 COMMENTS)