Watch what they do, not what they say.Government officials frequently tell us that global warming is an existential threat. And yet when it comes to public policy, the issue is treated almost as an afterthought. For example, the US currently blocks the importation of Chinese electric cars. If BYD’s excellent and very inexpensive EVs were allowed to be sold here, they would rapidly gain market share. It seems that a few union jobs are more important than global warming.We are frequently told that China is the greatest threat to US national security, and that we need to work with our “allies” to counter that threat. So what are we to make of the following story? President Joe Biden has blocked the $14.1 billion sale of United States Steel Corp. to Nippon Steel Corp., killing a high-profile deal that sparked a political firestorm and tensions between the US and Japan. . . .“We need major US companies representing the major share of US steelmaking capacity to keep leading the fight on behalf of America’s national interests,” Biden said in a written statement, adding that the deal “would place one of America’s largest steel producers under foreign control and create risk for our national security and our critical supply chains.” We claim that Japan is one of our closest allies.  We demand that they sacrifice economic growth by refraining from the export of high tech products to China.  They accommodate our wishes.  And then when a few union jobs are threatened, we turn around and treat them like an enemy nation. This is not about where the steel gets produced.  Nippon Steel would not be offering $14 billion for US Steel if they planned to shut the firm down.  Rather the fear is that Nippon would make US Steel more efficient, and that this might cost a few jobs.  In the long run, however, inefficiency leads to unemployment.  Thus it’s not even clear that US steelworkers will benefit from the president’s decision: Biden’s announcement was a massive victory for United Steelworkers President David McCall and his union’s leadership, who have been vocally opposed to the deal, even as some rank-and-file labor members spoke out in favor of it.   (0 COMMENTS)

Not long ago, Vice Presidential candidate and now Vice President-elect J.D. Vance asserted that “a million cheap, knockoff toasters aren’t worth the price of a single American manufacturing job.” There’s a lot wrong with this comment – see this Reason essay pointing out some of the issues with what Vance is saying. But I want to add one more issue to the pile – what, exactly, does Vance mean when he says these are “knockoff” products? The term “knockoff” has usually been taken to mean a low quality, counterfeit product attempting to pass itself off as an expensive product with a prestigious brand. I’ve heard of knockoff Louis Vuitton bags or knockoff Rolexes, for example. So what would make an imported toaster a knockoff product? The toaster in my kitchen is an imported product – is it therefore a knockoff? Well, not by this measure. It’s not a counterfeit of some other brand. I can’t imagine someone looking at the toaster and calling it a “knockoff” – a knockoff of what, exactly? Well, was the toaster “cheap?” To say something is cheap can be taken in two ways – sometimes it means a thing is inexpensive, and other times it’s meant to signal low-quality. In this case, my toaster was cheap by one measure but not the other. It’s a good, reliable, and high quality product – but it was also fairly inexpensive. Cheap in quality, no, cheap in price, yes. But it’s also worth pointing out that a product being cheap in both senses – low cost and low quality – is not in and of itself a problem. Sometimes, buying something inexpensive and basic is a perfectly sensible option! When I moved into my first apartment, I had to go about acquiring furniture and kitchen supplies. The first sets of furniture I bought were low cost, low quality items. And that was ok! I wasn’t looking to furnish my first apartment with high quality, expensive artisanal products that would become timeless family heirlooms. I just needed some basic stuff to make my apartment livable for the time being. As time went on and as I moved from one place to another, almost all of those items were replaced, one by one. Not having an option for inexpensive and basic furnishings wouldn’t have resulted in my first apartment being glamorously decorated with finely crafted work, handmade by Ron Swanson himself. It would have just resulting in me sitting on the floor all the time and having nowhere to put my clothes. Calling things like imported toasters “cheap knockoff” products doesn’t seem to mean much besides signaling contempt for the items and the people who buy them. My toaster is not low quality, nor is it a counterfeit product. But it is imported, and for some people, that’s bad in and of itself. Readers of this blog will likely be familiar with the famous short story I, Pencil by Leonard Read. But perhaps less well known is a Ted talk that makes the same point as Read’s story – a man who attempted to build his own toaster, from scratch. And when I say “from scratch,” I mean he literally hand mined the ore needed for the metal components, using hand made tools. But he quickly discovered just how intricate even the “cheapest” toaster actually is. He says, Working on the idea that the cheapest electric toaster would be the simplest to reverse-engineer, I went and bought the cheapest toaster I could find, took it home, and was kind of dismayed to discover that inside this object I’d bought for just three pounds ninety four, there were four hundred different bits made out of a hundred plus different materials. Even the cheapest, lowest quality toaster available on the market is an absolute marvel. In Capitalism, Socialism, and Democracy, Joseph Schumpeter wrote about how, “Queen Elizabeth owned silk stockings. The capitalist achievement does not typically consist in providing more silk stockings for queens but in bringing them within the reach of factory girls in return for steadily decreasing amounts of effort.” In the same way, capitalism makes home appliances easily available to even very low income people at very low prices. This deserves more than the snide condescension and derision of “cheap knockoffs” preached by populists. For the cost of just a few dollars, Thomas Thwaites was able to acquire a toaster infinitely better than anything he could make himself with months of effort. Vance is wrong. The fact that even the poorest Americans can find a toaster in their price range is not a problem that needs to be solved. It’s a thing of beauty. (0 COMMENTS)

  I’ve never tried this before, but I thought I would try to come up with what I think of as my top 10 EconLog posts in 2024. I got it whittled down to 15 and then made some somewhat arbitrary exclusions. Here they are. In all but one instance, I give an excerpt. The Wall Street Journal’s Misleading Subhead About Oil Companies November 23, 2024. When I wrote this, I was working from the electronic version of the Wall Street Journal because my print version comes with a lag. I had no idea that this was the front-page article when I wrote my critique, a fact that makes me glad that I wrote it. Its prominence on the page makes it an even bigger deal than I had thought.   Should You Be a College Professor? November 18, 2024. Excerpt: Even if the vast majority of colleges and universities are beyond salvation, that doesn’t mean all colleges are. And it doesn’t mean that even those beyond salvation can’t have nice niches.   Thomas Gale Moore RIP October 29, 2024. Excerpt: Tom was one of the early advocates of deregulation. At a forum on inflation held by President Ford in 1974, Tom circulated a statement calling for deregulation of transportation, airlines, energy, and a number of other sectors. (I’m going by memory here. The copy he gave me was destroyed in my 2007 office fire.) As I recall, he got the vast majority of economists, a group that included many Democrats as well as Republicans, to sign the statement.   Are Sex Workers Necessarily Engaged in Trafficking? October 14, 2024. Excerpt: Note the disgusting irony. We are told to look out for sex traffickers because that will reduce the number of people forced into prostitution. But if we cooperate, we might well be helping the police use force against innocent non-coercive people.   NBA Players’ Average Height and Canada’s Fall in Real GDP Per Capita October 8, 2024. Excerpt: But here’s a back-of-the-envelope attempt. The number of NPRs in Canada rose from 3.5% of the population in 2022 to 6.5% by January 2024. That’s a 3.0 percentage point increase. Because these NPRs were disproportionately students and because the ones employed were disproportionately in low-productivity jobs, a generous assumption, I believe, is that they raised GDP by 1.0% over those 2 years. So if, all else equal, the numerator, GDP, rises by 1.0% and the denominator, the number of people, rises by 3.0%, GDP per capita will fall by 2.0%. In short, these non-permanent residents bring down GDP per capita. But the rest of Canada could be experiencing an increase in GDP per person.   Subsidies to the Press Endanger Free Speech September 12, 2024. Excerpt: Freedom of the press in Canada is dying. And, as Noormohamed’s threatening tweet points out, silencing critics of the government is one of the main purposes of government subsidies.   Bryan Caplan Understates Case for Immigration August 21, 2024. Excerpt: With all its imperfections and government barriers, America still has one of the most vital dynamic economies in the world. Potential inventors here have others near them to work with: think Silicon Valley. So if the government had prevented a substantial number of them from immigrating, it would have prevented a substantial amount of innovation, and American consumers, along with other consumers, would have been deprived of gains from innovation.   Military Age Males April 16, 2024. Excerpt: So why do they refer to immigrants as “military-age males?” I think it’s to subtly plant in the listeners’ minds the fear that a hostile foreign government is sending these males here to help them take over or at least somehow undercut American society. Could a substantial percent of these military-age males be actual military personnel, but in disguise? Sure, they could. But it seems unlikely. Occam’s Razor applies here. The more-likely explanation is that they want to get the hell out of the country they’re from because this country (the United States) is so much less oppressive and so much better in other ways. In fact, it wouldn’t be totally surprising if some of those military-age males were fleeing conscription. That was a strong motivator for their counterparts who came here between 100 and 150 years ago.   Pregnancy Discrimination Act Reduces Women’s Economic Freedom April 12, 2024. Excerpt: Whenever the government interferes with contracts between employers and employees, it reduces the freedom of both sides. Take the PDA. One can certainly imagine a married women who would want the freedom to contract with an employer who doesn’t offer a pregnancy benefit. Why? The most obvious reason is that she might not want to get pregnant. The benefit, then, would appear to be of no value to her. But it’s worse than that. Although the benefit is of no value, there is a cost. There’s no such thing as a free lunch, and employers, if forced to offer this benefit, will figure out ways to reduce pay (either in dollars or in other benefits) for women, especially married women, of child-bearing age.   How Timur Kuran Changed My Thinking January 13, 2024. Excerpt: Rarely do I leave a conference thinking hard about an idea I just heard. But his paper stuck with me. It helped resolve an issue that I had been thinking about for a couple of decades. The issue was this: why does the adult world seem more like high school than I had expected when I was in high school? Even when I was very young, I was not very hesitant to state my views. But in high school, I noticed that there could be strong social sanctions against me (fortunately, short of threatening my life, which happened only once) if I stated unpopular views.   Note: The accompanying pic is of Timur Kuran. (0 COMMENTS)

In another post, I argued that two factors contributed to monetary policy mistakes:1.  Having the wrong target.2. Having an instrument setting unlikely to hit the target.In the comment section, John made the following claim: I think this was a good post and the right post to respond to Tyler with, but it does raise a conundrum. Your argument is basically that policymakers shouldn’t rely on inflation forecasting models and should instead rely on market-based expectations of inflation (or nominal GDP). But how should the market participants forecast inflation (or nominal GDP)? I don’t think nominal GDP is high because the Fed let nominal GDP be high is satisfactory for this purpose (maybe if the Fed actually had the objective to target NGDP). I believe there are cases where “nominal GDP is high because the Fed let nominal GDP be high” is a useful way of understanding the problem, even if it’s not a complete explanation in the deepest sense of the term. Consider the following analogy.  Fred is depressed.  One day while driving down the road, he decides to accelerate his car and plow into a tree.  Now consider two possible explanations for the fatal crash: 1. Fred felt depressed, and committed suicide. 2. Fred’s right hand suddenly moved from a position at 12 o’clock on the steering wheel to a position at 3 o’clock on the wheel, causing the car to suddenly veer toward a big tree. There is a sense in which the second explanation is more scientific, more like “physics”.  But most people would find the first explanation to be more useful. Insiders suggest that by late 2021 the Fed fully understood that NGDP was about to rise well above trend.  Outside the Fed, the same perception was widespread.  So why did the Fed make this mistake?  In a recent comment, Rajat reminds me of an exchange between David Beckworth and Jason Furman, which occurred on mid-2021.  Here’s Rajat’s comment: From when I started reading your blog in 2011, it took me at least a couple of years to grasp the importance of level targeting to your approach. The NGDP aspect was what brought you to prominence, perhaps because it was so intuitive in the midst of a supply shock, but in (my) hindsight is less important. I think the reason that policy-makers and people like Tyler have such difficulty accepting level targeting is that it removes a major policy escape valve. I constantly come back to David Beckworth’s interview with Jason Furman on Macro Musings (from June 2021) where Furman said: “You in 2019, put down a really elegant framework for nominal GDP targeting. If we were following it now, we would already have lifted off interest rates. And we’re going to, with extreme likelihood, overshoot the nominal GDP target we were on. So under your framework, you’d have to make up for that with a sustained period of lower than trend on nominal GDP growth. I don’t mean that to pick on you, this experience has destroyed anyone’s plans that they wrote down before. It’s such a weird period. But to me, that says, “I’d like the Fed, if the unemployment rate a year from now is still 5.5%, I’d like the Fed to take that into account, regardless of what’s happening to nominal GDP or prices as an independent problem and issue that they need to take into account.” So I think that anything has to have a dual mandate, but do you look at nominal GDP and the like, instead of inflation? Maybe.” As it turned out, had the Fed tightened in 1H 2021, the US probably would have avoided most of the excess price level increase it has experienced with little reduction in employment growth. But as you noted, the supply shocks have mostly been reversed in the US. What if that never happened and the Fed tightened in 1H 2021 anyway? Then maybe employment would not have recovered as quickly, and policy-makers would have been under a lot of pressure from people like Furman. I have enormous respect for Furman, who is an outstanding economist.  But in this particular case he got it wrong; policy did need to tighten in order to prevent a big NGDP overshoot.  The Fed knew what it was doing.  It set rates at zero and did extensive quantitative easing, despite clear signs of above trend NGDP growth.  If we go back to the two types of mistakes outlined at the top of this post, the late 2021 error was clearly an example of “having the wrong target.” More broadly, almost all important Fed policy mistakes are of this type.  Commenters occasionally point out that the inflation surge of 2021-23 ended up being much larger than the TIPS market expected in early 2021.  That’s true, but this fact doesn’t have the implication that many assume.  It does not mean that the Fed was doing the best job it could, and just got unlucky.  Under a level targeting regime the inflation surge would have been far milder, some transitory supply-side inflation but no permanent NGDP overshoot.  The primary cause of high inflation over the past 5 years has been NGDP overshooting its 4%/year trend line by 11%.  That’s a lot! If I would weight my policy advice in terms of relative importance, it would be: A 10% weight on using markets to guide policy. (Tactics) A 90% weight on doing NGDP level targeting.  (Strategy) If you are not aiming for the right target, it doesn’t help much to be a skilled navigator.  Market guidance is useful, but it’s not a panacea. (0 COMMENTS)

Donald Trump was reelected President in the November 2024 election.  Since then, he has promised large, across-the-board tariffs to go into effect via executive order on Day 1.  These promises mimic those he made on the campaign trail, but of a much larger magnitude.  Whether or not these tariffs materialize is an open question.  Blanket tariffs would likely face legal challenges (interested readers can find a brief discussion on the legal issues of blanket tariffs here).  For the sake of this post, I will assume that the tariffs currently proposed (as of 29 December 2024) go into effect with no alterations.  If that is indeed the case, then I have two major concerns: one economic and one political. On the economic side, I am concerned that tariffs will substantially raise the prices of many goods.  This, of course, is the point of protectionist tariffs, but many goods America imports are intermediate goods.  In other words, they are used in the manufacturing process.  Final goods are a relatively small portion of US imports.  Consequently, tariffs will raise the costs of domestic manufacturing, reducing supply, and leading to higher prices on all sorts of goods and services.  High-tech manufacturing will likely get hit hard here.  Computer chips are largely imported; with few options readily available, high-tech manufacturers will have to bear the brunt of the price increases, which will in turn reduce their comparative advantage.   Construction will get hit hard, too.  Approximately one-third of construction material in the US is imported, including major items needed for manufacturing construction like steel.  In a time where construction and housing costs are already rising thanks to NIMBY, occupational licensing, and tariffs already in place, imposing more tariffs will only make housing more expensive.  Furthermore, raising the cost of constructing industrial buildings will frustrate any efforts to “reshore” manufacturing. A final area of economic concern is borrowing costs.  The US runs a large trade deficit, which means that foreigners want to invest in the US economy (another reason is the US Dollar is the international reserve currency).  Consequently, many of the dollars we send overseas when we buy imports come back as loanable funds or other investments.  By increasing the supply of loanable funds in the US economy, interest rates are lower than they otherwise would be, making the costs of investing lower.  If tariffs were to reduce imports substantially, it would in turn reduce both exports and loanable funds coming into the US.  A reduction in the supply of loanable funds necessarily means higher interest rates and, all else held equal, higher borrowing costs.  Indeed, we saw these effects from the tariffs in Trump’s first term.   (A recent argument has come about that tariffs do not actually raise prices, but rather lower them by creating more competition in the domestic market.  I’ll respond to that argument in a future blog post) On the political side, some justify tariffs (or the threat thereof) as a negotiation tool.  Unfortunately, statements made by the President-Elect have undermined his negotiation power.  Trump proposed imposing special tariffs on Canada and Mexico because of illegal drugs and immigrants coming into the US.  This proposal likely destroyed any negotiation power Trump might have had because it rendered him uncredible and unreliable.  In his first administration, Trump renegotiated the North American Free Trade Agreement (NAFTA) with Mexico and Canada.  The new agreement, the US-Mexico-Canada Agreement (USMCA) addressed these issues and others.  The point of this new treaty was to prevent such arbitrary cycles of tariffs and retaliation.  Unfortunately, by signaling he supports new, arbitrary tariffs, Trump has signaled in no uncertain terms that the treaty is not worth the paper it is written on.  In game theory terms, Trump has defected and now the rational behavior by the other parties is to defect as well.  They stand to gain nothing from negotiation because any agreement would be worthless.  Given the Mexican President signaled that in response to tariffs, she would also defect rather than negotiate, we see Trump’s bargaining position has already weakened.   (As an aside, using tariffs as a negotiation tool only works under a very specific set of circumstances, none of which currently exist for the US.  But that, as well, is a matter for a different blog post) As I said at the beginning, these are simply concerns that I have.  How things actually shape up will matter.  Some of what I have written here may end up not mattering at all.  I guess we’ll just have to see.     (0 COMMENTS)

We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can view the previous problem and Cutsinger’s solution here and here. This, our first problem for 2025, is ready for you to solve! Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next two weeks, and we’ll again post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory   Question: Suppose that cotton and wool are substitutes. In addition, suppose that the supply of cotton is upward sloping while the supply of wool is perfectly elastic. Evaluate: A new production technique that increases the supply of cotton will reduce the quantity of wool supplied, but there will be no change in the price of wool and, thus, no change in the demand for cotton. (0 COMMENTS)

Right wing anti-immigrant parties have recently achieved power in a number of European countries. But their immigration policies often don’t seem to match the campaign rhetoric. Here’s The Economist: In April 2023, six months after the hard-right government led by Giorgia Meloni took office, her agriculture minister, Francesco Lollobrigida, chided Italians to have more babies or face being “replaced” by foreigners. Yet in practice Mr Lollobrigida has pushed for more visas for agricultural workers. Ms Meloni, while trying to ship off many asylum-seekers for processing in Albania, is welcoming more labour immigration, so long as it is controlled. The reason is pure necessity. Italy’s agriculture industry has a shortfall of some 200,000 workers each year, says Massimiliano Giansanti, president of Confagricoltura, a farmers’ association. The legal workforce in agriculture, including seasonal workers, numbers around a million. A third are foreigners. Among those aged 18-35 nearly all are, says Mr Giansanti; young Italians think of agriculture as “back-breaking work under the sun”. In addition, some 230,000 people work in the sector’s shadow economy, many of them undocumented migrants from Asia and Africa. And it’s not just Italy.  A similar process is occurring in Poland and the Netherlands: The hard-right Law and Justice party that governed Poland in 2015-23 railed against non-European immigration. But in practice it quintupled the number of work permits issued to Asians and Latin Americans, to 275,000 in 2023. Many involved bribes. . . .  The Netherlands epitomises the tension between farmers and anti-immigrant groups. The biggest party in the hard-right government that took office in July is the anti-immigrant Party for Freedom. But it also includes the Farmer Citizen Movement, which resists any restrictions that might interfere with getting the berries plucked. In the US, Donald Trump earned the votes of many opponents of immigration.  But even within the GOP, there is a major split between social conservatives who favor less immigration and business conservatives who favor more immigration. In recent weeks, a rift has opened in the GOP, with the tech bloc headed by Elon Musk advocating for more immigration.  Trump himself suggested that he liked the visas that allowed him to employ unskilled workers at his various properties: President-elect Donald J. Trump appeared to weigh in on Saturday on a heated debate among his supporters over the role of skilled immigrant workers in the U.S. economy, saying he had frequently used the visas for those workers and backed the program. . . . But his comments — which were enthusiastically embraced by the technology industry as an endorsement — may muddy the waters because Mr. Trump appears to have only sparingly used the H-1B visa program, which allows skilled workers like software engineers to work in the United States for up to three years and can be extended to six years. Instead, he has been a frequent and longtime user of the similarly named, but starkly different, H-2B visa program, which is for unskilled workers like gardeners and housekeepers, as well as the H-2A program, which is for agricultural workers. To be fair, there is fairly general agreement within the GOP that unrestrained illegal immigration is a problem.  But even in that area there are difficult decisions to make.  Deporting all 11 million illegals would have a major impact on industries such as agriculture, hospitality and construction.  There are no (politically) easy answers.  In the past, the most effective technique for reducing illegal immigration has been economic recessions.  It will be interesting to watch how this issue plays out over the next few months.  (0 COMMENTS)

“What is needed is a fresh attempt to articulate a radical liberal vision that recovers not the details but the original essence of classical liberalism: democracy and markets.” – Don Lavoie, Democracy, Markets, and the Legal Order: Notes on the Nature of Politics in a Radically Liberal Society Liberalism is democratic Writing in 1993, the academic libertarian Don Lavoie made a suggestion few classical liberals have taken up: reconsider our skepticism about democracy in light of the insight provided by those who had lived without political and economic liberty.  Newly liberated Eastern Europeans weren’t excited about democratic political rights because they were naïve about liberal democracy. Rather, Eastern Europeans’ experience without political rights helped them grasp something essential about liberalism that classical liberals have too often overlooked.  Lavoie suggested that the misconception that markets and democracy are in fundamental conflict stems from an incomplete liberalism that takes political rights for granted. Instead, Lavoie proposed the idea of “democracy as openness”, or liberalism as a “political culture” that uses the dispersed knowledge and concerns of all citizens when deciding what ends to pursue and how to pursue them.  Openness is required, said Lavoie, in politics as well as markets. “If we redefine markets and democracy in terms of the more fundamental value of openness, we may find that the radicalization of these principles poses a challenge to the traditional interpretation of liberalism.“  Democracy produces the political peace needed to support pluralism and liberal institutions, and inclusive democracy is the political system most likely to protect diverse individuals.  Classical liberals tend to cast doubt on the value of democratic participation. Skeptics argue that voters are irrational, ignorant, or generally incapable of voting well. (And besides, they’ll say, voting isn’t effective.) These concerns mirror the concerns of market skeptics, and they should be rejected for similar reasons.  The benefits of democracy To assess how well democracy works and how much enthusiasm it warrants, we have to know what democracy is for. A popular critique of democracy is that it fails to produce good laws and policies, or that it fails to achieve specific goals. But criticizing democracies because of what they yield is like criticizing markets for what they produce and how they produce it. What counts as good laws and policies is a fundamental question for politics, not one we can assume away to judge a political system.  Liberals may broadly agree about what counts as good political goals—legal protection of liberty and political equality, the rule of law, legal limits on the power and action of the executive and police, protection of freedom of speech and religion, and institutions to support an open commercial society—but not everyone in a democracy is a liberal. Even the most basic political values are contested and cannot be taken for granted under democratic systems (though they may be protected institutionally by constitutions and norms rather than common legislation). We can’t declare democracy a failure because it doesn’t automatically implement our preferred policies.  The main benefit of democracy is this: it facilitates peaceful transfers of power and resolutions to social disagreements, even in diverse populations.  Liberals should be committed to democracy because the peace it produces is a prerequisite for other liberal goals. With this in mind, liberals should consider who should be included politically and what citizens must do to participate usefully.  People will accept losing elections when they believe the democratic system is legitimate. Functional democracy depends on political buy-in. Securing this buy-in is a social problem that democracy is uniquely suited to solve—so long as that democracy is open and inclusive. Perceived legitimacy is subjective and dispersed in the minds of citizens. Because we don’t know—and can’t know—how each person perceives a legitimate political system, the best road to buy-in is openness.  Lavoie presented a positive case for “openness and publicness”, observing that democratic institutions, like markets, can make use of distributed knowledge.  Distributed knowledge made useful through market prices can coordinate the economic plans of people competing for resources. Distributed knowledge made useful through democratic institutions balances voters’ interests, concerns, and demands to provide governance structures that people will use to resolve political disagreements peacefully. This is true even when voters are “irrational” or “ignorant”, just as it is true that markets can coordinate activity when market actors are not fully rational agents with perfect information. Political culture Lavoie was also concerned about citizens’ belief in the political system and its legitimacy because political beliefs limit what is politically possible. Democratic peace can prevail if people are committed to democracy. It will be undermined if people don’t buy into the system.  Everything depends here on what is considered acceptable social behavior, that is, on the constraints imposed by a particular political culture. Where slavery is considered offensive, those who attempt to practice it are easily overwhelmed by the horror of the public. Where it is thought by the general public to be justifiable, no amount of constitutional design will prevent it. Where taxes are accepted as morally defensible, they will be deployed; where they are equated with slavery, they will be impossible to collect. The feasibility of slavery or taxation does not fundamentally depend on the (concentrated) opinion of the designated representatives of the public, but on the (distributed) opinions of the public itself. (Lavoie, pp.116–117, emphasis mine) Lavoie believed that radically liberal anarchism is possible because a sufficiently open political system could persuade people that radical self-governance is possible—and successfully persuading them would make it so.  Lavoie imagined a democracy of people contesting their rights and responsibilities, both politically and through market action, every day on an ongoing basis. He did not prescribe particular political institutions. Institutions emerge from the political culture. They can’t be designed a priori, abstracted from the individuals who form them.  Lavoie offered a welcome corrective to classical liberal skepticism of democracy and to the belief that democracy can, and ought to be, segregated from market activity. In every market exchange—whether we buy, sell, or boycott—we communicate what we value. If we could strip market transactions of their political content, we would lose important insight into what people care about and believe in. People in markets are people, too. They do not become apolitical when acting in a market any more than they become selfless when acting through government.  In liberal democracies, political information is also expressed through votes. Lavoie worried that elections reduce politics to a belief in a single “democratic will” that ignores or suppresses dissenting points of view and dispersed knowledge. But the meaning of an electoral victory is also a product of the political culture. A political loss does not have to mean someone is on the wrong side of the democratic will. It can mean merely that one has lost. Put bluntly: democratic change, that is, a change in public opinion and political culture, is the only game in town for any liberal who wants to change the size or scope of government.  When liberals conceive of democracy in terms of its ability to balance individual concerns as required to yield political peace, the importance of Lavoie’s “openness” becomes more obvious. Concerns can’t be balanced if they’re not incorporated. It’s to the incorporation of as many concerns as possible that I turn in Part 2.   Read more: Don Lavoie on the Continuing Relevance of the Knowledge Problem by Cory Massimino The Great Antidote Podcast: Peter Boettke on Don Lavoie and Central Planning More Great Antidote: David Boaz on Liberalism and the Continuing Progress of the Enlightenment (0 COMMENTS)

A major danger will continue to threaten the future of liberty in 2025. It is not a new threat but one that has become more pressing since the rise of populism in the world over the past three decades, including with the election of Donald Trump. (On the rise of populism, see Manuel Funke, Moritz Schularick, and Christoph Trebescb, “Populist Leaders and the Economy,” American Economic Review, 2023.) Populism of the right, which is more prevalent in Europe, is no less dangerous than populism of the left, which has been the main variety in Latin America. But the threat I want to emphasize is not populism as such, which I have treated elsewhere (see notably my Independent Review article “The Impossibility of Populism”), but its frequent identification with what journalists often label “the libertarian right.” It seems to me that Donald Trump himself has been mentioning the word “freedom” (but significantly not the more demanding “liberty”) more often recently—for example: “For purposes of National Security and Freedom throughout the World, the United States of America feels that the ownership and control of Greenland is an absolute necessity,” Trump wrote on Truth Social. Ignore the funny anthropomorphism in the quoted statement. Consider instead how the likely catastrophes caused by populism will be identified by the enemies of liberty as failures of libertarianism and classical liberalism. This could set liberty back several decades—and that’s if we are lucky. One set of catastrophes will likely be economic. For example, if Trump were to follow up only on his tariff promises, we can expect a recession to follow the supply shock. If the federal government reacts by increasing its expenditures and the Fed partly finances them by creating money, inflation will compound the problem. It is easy to forecast that a populist government will worsen the problem with price controls. Another sort of catastrophe would be war. For many Trump supporters, whether among the enthusiasts or among those who believe that his collectivism is less dangerous than that of “the left,” this cannot happen because he said he opposed forever wars. But the Panama Canal may not be handed to the US government without a fight. Sending missiles against Mexican drug gangs would also be a casus belli—which is apparently a current fear among the least sycophantic in Mr. Trump’s entourage. According to the Washington Post (“Trump Team Says Canada, Greenland, Panama Comments Are Part of a Broader Plan,” December 28, 2024), Some in [Mr. Trump’s] orbit have real concerns about whether he will cross the line from harsh rhetoric and economic warfare to military intervention. Trump has threatened a 25 percent tariff on Mexican imports to stop the flow of illegal drugs, and privately discussed the idea of firing missiles into Mexico to try to take out cartels. Even if none of these catastrophes come to pass, any suggestion that such games or clowneries have something to do with the ideal of individual liberty can only be damageable to its future. John Maynard Keynes was right that in the long run, ideas matter. Consider the case of Xavier Milei, the president of Argentina who describes himself as an anarcho-capitalist or, more recently, a minarchist. He seems cut from a different cloth than the sort of illiberal populists I have been alluding to. (Among the recent press reports, see “An Interview With Javier Milei, Argentina’s President”; Javier Milei, “My Contempt for the State Is Infinite“; and “Javier Milei, Free-Market Revolutionary“— all in The Economist dated November 28, 2024.) Milei obviously has some economic understanding and competence: during his first year in power, he has already significantly reduced inflation, balanced the budget, and seems for the moment to have stopped the long decline of his country—decline that was mainly due to previous populist rulers. (See Ciara Nugent and Michael Scott, “Argentina: Has Milei Proved His Critics Wrong?” Financial Times, December 10, 2024; and Mary Anastasia O’Grady, “Measuring Milei’s Argentine Progress,” Wall Street Journal, December 8, 2024.) But Milei has also fallen in with bad company. He expressed his support for many far-right and illiberal populist politicians in Europe and the Americas. Whether or not he succeeds in his important Argentinian enterprise, he will have further contributed to identifying libertarians with illiberal wackos. ****************************** For somebody who can draw, it should not be rocket science to create, for this post, an image illustrating a dangerous pass in the Alps under the inspiration of a passage in a short story by Guy de Maupassant (1850-1993), L’Auberge (The Inn): Le ciel pâlissait sur sa tête ; et soudain une lueur bizarre, née on ne sait d’où, éclaira brusquement l’immense océan des cimes pâles qui s’étendaient à cent lieues autour de lui. On eût dit que cette clarté vague sortait de la neige elle-même pour se répandre dans l’espace. Peu à peu les sommets lointains les plus hauts devinrent tous d’un rose tendre comme de la chair, et le soleil rouge apparut derrière les lourds géants des Alpes bernoises. [Translation:] The sky was growing pale overhead, and suddenly a strange light, springing, nobody could tell whence, suddenly illuminated the immense ocean of pale mountain peaks, which stretched for many leagues around him. It seemed as if this vague brightness arose from the snow itself, in order to spread itself into space. By degrees the highest and most distant summits assumed a delicate, fleshlike rose color, and the red sun appeared behind the ponderous giants of the Bernese Alps. Below is the best I could get from DALL-E after I provided “him” with the passage and at least an hour of explanation effort on my part. Many times, I repeated the bot that the valley must be dark and forbidding, and that only the summits can be pink. Its drawing remained very far from Maupassant’s picture in words: A dangerous pass in the Alps, by DALL-E (trying to imitate the style of Maupassant in The Inn)   (0 COMMENTS)

  Did you know that (as of this writing) 75 percent of the overall burden of US tariffs is on apparel? Or that of this burden, 66 percent is on women’s apparel? It’s not just because women buy more clothing than men; it’s also because the US government purposely sets tariff rates higher on women’s clothing (15.1 percent) than on men’s clothing (11.9 percent.) That’s one of many interesting nuggets you’ll find in Scott Hodge’s important new book Taxocracy. Before I read the book, I knew a lot about the US tax system. Now I know much, much more. From 2000 to 2022, Hodge was president and CEO of the Tax Foundation, based in Washington, DC. You don’t have to read much of that foundation’s work to suspect that the professionals who work there are not big fans of taxation; you also don’t need to read much to realize that they know their subject and report it honestly. Hodge’s book is in that tradition. He considers the many ways that taxes distort our behavior and make us worse off, not just because they take our money but also because of deadweight loss—the loss of consumer and producer gains because exchange is forgone as a result of the higher prices resulting from taxes. These are the opening two paragraphs of my recent book review “Taxocracy: What You Don’t Know About Taxes and How They Rule Your Daily Life,” Regulation, Winter 2024-25. Another excerpt: Consider so-called sin taxes, taxes that governments impose on items that some government officials and some voters disapprove of. Any economist can tell you that such taxes will alter people’s behavior. Hodge goes further and shows how specific sin taxes have done that. He notes, for example, that hard seltzer—carbonated water containing alcohol—is “one of the fastest-growing beverage classes in the US.” Why? Because the taxes on brewed beverages are much lower than the taxes on distilled spirits. Hard seltzers are brewed? Yes. Hodge explains that its producers have figured out how to brew sugar to create their products. Consider Norway’s high tax on sugar, which, writes Hodge, “has created a booming candy business … in Sweden.” Or, closer to home, New York, whose high taxes on cigarettes have led to over 50 percent of cigarettes smoked in the state coming from smugglers. Read the whole review and you’ll learn a fair amount. Better yet, read the whole book and you’ll learn even more. I saw Scott give a talk at the Stanford Institute for Economic Policy Research a couple of years ago, and was impressed. That’s why I asked him to do an updated article on corporate income taxation for my Concise Encyclopedia of Economics.. It’s here. (0 COMMENTS)