The June 15 issue of The Economist had the following headline and subhead: America’s assassination attempt on Huawei is backfiring The company is growing stronger—and less vulnerable But if the allusion to Nietzsche was ill-timed, the story itself contains some important insights: America’s assault continues. In May, for instance, regulators revoked a special permit allowing Intel and Qualcomm, two American tech groups, to sell Huawei chips for laptops. Yet Huawei has not just survived; it is thriving once again. In the first quarter of this year net profits surged by 564% year on year to 19.7bn yuan ($2.7bn). It has re-entered the handset business. Its telecoms-equipment sales are rising again. And it has achieved this in large part by replacing foreign technology in its wares with home-grown parts and programmes, making it much less vulnerable to American hostility in future. Having failed to kill Huawei, Uncle Sam’s attacks have only made it stronger. Foreign Affairs also has an excellent piece on trade relations with China: A China that is increasingly cut off from Western markets will have less to lose in a potential confrontation with the West—and, therefore, less motivation to de-escalate. As long as China is tightly bound to the United States and Europe through the trade of high-value goods that are not easily substitutable, the West will be far more effective in deterring the country from taking destabilizing actions. China and the United States are strategic competitors, not enemies; nonetheless, when it comes to U.S.-Chinese trade relations, there is wisdom in the old saying “Keep your friends close and your enemies closer.” One advantage of globalization is that it makes countries much more interdependent.  If your well-being depends on interactions with countries all over the world, you might be less inclined to engage in hostile behavior that puts those supply chains at risk.  Once cut off from the rest of the world, there is little incentive to avoid reckless behavior, as we see in places such as North Korea.      (0 COMMENTS)

  California School Punishes First-Grader for a Drawing, Sparking Federal Lawsuit by Patrick McDonald, Reason, August 9, 2024. Excerpt: In March 2021, the elementary school student, referenced in legal filings as “B.B.,” drew a sketch depicting several individuals of different races, representing “three classmates and herself holding hands,” the family’s complaint states. Above the drawing, B.B. wrote “Black Lives Mater” [sic] with the words “any life” transcribed below the slogan. B.B. then gave the drawing to one of her classmates, who is black, in an attempt (as she later testified) to comfort her classmate. The words any life are, of course, similar to the phrase, “All Lives Matter,” which became a controversial retort to the Black Lives Matter movement in the wake of the 2020 killing of George Floyd. That similarity—whether the first-grader was aware of it or not—was soon to land B.B. in hot water. The same day she made the drawing, B.B. was told by the school’s principal, Jesus Becerra, that her drawing was “inappropriate” and, allegedly, “racist.” (The parties dispute whether Becerra told B.B. that the drawing was “racist.” The defense alleges that B.B.’s testimony on the subject is inconsistent.) DRH comment: Think of the emotional scars on this elementary school student who was punished for doing something nice. Also, notice that the first grader thought more clearly about human beings than Jesus Becerra, the principal did. Moral of the story: keep your kids out of government schools if it’s financially doable. Many of them are toxic.   Why Does Building Roads Cost So Much in the United States? by Timothy Taylor, Conversable Economist, August 9, 2024. Excerpt: One of my personal frustrations with how legislation is often discussed arises when there is a heavy focus on the total amount spent, which is easy to measure, and much less focus on what is received for what is spent, which is harder to measure. But the intention (level of spending) is not the outcome (actual results). The estimates in this paper   E.U. Regulations Made the CrowdStrike Fiasco Much Worse by J.D. Tuccille, Reason, August 9, 2024. Excerpt: “CrowdStrike’s bug was so devastating because its security software, called Falcon, runs at the most central level of Windows, the kernel, so when an update to Falcon caused it to crash, it also took out the brains of the operating system,” The Wall Street Journal‘s Tom Dotan and Robert McMillan reported July 21. “A Microsoft spokesman said it cannot legally wall off its operating system in the same way Apple does because of an understanding it reached with the European Commission following a complaint. In 2009, Microsoft agreed it would give makers of security software the same level of access to Windows that Microsoft gets.” “Mr. Bean” on free speech in UK. Don’t miss this one: it’s an impassioned case against Britain’s harsh restrictions on speech. HT2 Dan Klein. (0 COMMENTS)

  The list is long and so I’m doing this in two parts. The second part will be later today. Prostitution Surveillance Tower Goes Up in San Diego by Elizabeth Nolan Brown, Reason, August 5, 2024. Excerpt: The Ugly Truth’s website also states that there are “approximately 18,000 victims in the U.S.” If we take that at face value (and again, it’s dubious), that would mean that around 17 to 44 percent of all U.S. trafficking victims are in San Diego County. Why, it’s almost as if these numbers are completely made up… [italics in original] And: Local, national, and even international media have run with Bonta’s framing in their headlines. “14 Arrested at Comic-Con In Anti-Human Trafficking Sting,” NBC reported. “Fourteen arrests in undercover sex trafficking sting at San Diego Comic-Con convention,” Sky News said. If you read a few paragraphs down into Bonta’s press release, you’ll see that no sex trafficking or labor trafficking arrest resulted from this trafficking sting. The 14 people arrested were picked up for trying to pay another adult for sex. That other adult, however, turned out to be an undercover cop. [italics in original] ‘Too Much Law’ Gives Prosecutors Enormous Power To Ruin People’s Lives by Jacob Sullum, Reason, August 7, 2024. Excerpt: “Criminal laws have grown so exuberantly and come to cover so much previously innocent conduct that almost anyone can be arrested for something,” Supreme Court Justice Neil Gorsuch observed in 2019. Gorsuch elaborates on that theme in a new book, showing how the proliferation of criminal penalties has given prosecutors enormous power to ruin people’s lives, resulting in the nearly complete replacement of jury trials with plea bargains. “Some scholars peg the number of federal statutory crimes at more than 5,000,” Gorsuch and co-author Janie Nitze note in Over Ruled: The Human Toll of Too Much Law, while “estimates suggest that at least 300,000 federal agency regulations carry criminal sanctions.” The fact that neither figure is known with precision speaks volumes about the expansion of federal law. And: Since keeping up with all that law is a challenge even for experts, the rest of us cannot hope to know exactly which conduct is a crime, even though “fair notice” is a basic requirement of due process. The civil liberties lawyer Harvey Silverglate has suggested that “the average busy professional in this country” may unwittingly commit “several federal crimes” every day. DRH note: I read the referenced book, Three Felonies a Day, and I can’t find Silverglate coming close to making that case. He came up with a catchy title but I don’t think his book lives up to the title. Moreover, almost every time I see the book referenced, the person referencing it claims that Silverglate makes that claim. He doesn’t. I suspect that the number of felonies per day is substantially fewer than the book’s title says.   Poll: 63% of Americans Want to Increase Trade with Other Nations, 75% Worry Tariffs Are Raising Consumer Prices by Emily Ekins, Cato at Liberty, August 7, 2024. A newly released national survey from the Cato Institute of 2,000 Americans conducted by YouGov finds that two-thirds (66%) of Americans say global trade is good for the US economy, and 58% say it has helped raise their standard of living. This may help explain why 63% of the public favors the United States increasing trade with other nations. Three-fourths (75%) are concerned about tariffs raising the prices of products they buy at the store. Indeed, two-thirds (66%) of Americans would oppose paying even $10 more for a pair of blue jeans due to tariffs, even if they are intended to help US blue jean manufacturing. US Citizens Were 80.2 Percent of Crossers with Fentanyl at Ports of Entry from 2019 to 2024 by David J. Bier, Cato at Liberty, August 8, 2024. Many people wrongly believe that immigration is critical to the illicit supply of fentanyl in the United States. However, proponents of this view have offered little more than speculation to support it. New data obtained by the Cato Institute via a Freedom of Information Act (FOIA) request calls this belief into question. The new dataset shows that US citizens comprised 80 percent of individuals caught with fentanyl during border crossings at ports of entry from 2019 to 2024. The FOIA dataset contains individual records regarding each person encountered by officials at US ports of entry from whom fentanyl was seized. Figure 1 shows the citizenship of individuals arrested with fentanyl from fiscal year (FY) 2019 to 2024, as of June. Overall, the dataset reveals that out of 9,473 individuals associated with a fentanyl seizure, 7,598 were US citizens (80.2 percent).   (0 COMMENTS)

  When I taught a Masters course in macroeconomics at San Jose State University in the winter of 2009, one of my students was Drew Benson. He went on to found his own financial management firm. On June 18, he interviewed me about COVID, lockdowns, decentralized information, behavioral economics, and nudge units. Here’s the link. (0 COMMENTS)

 A new Federal Reserve study by Jason P. Brown, Elior D. Cohen, and Alison Felix looks at the effects of marijuana legalization.  Here is the abstract: We analyze the effects of legalizing marijuana for recreational use on state economic and social outcomes using difference-in-differences estimation robust to staggered timing and heterogeneity of treatment. We find moderate economic gains accompanied by some social costs. Post-legalization, average state income per capita grew by 3 percent, house prices by 6 percent, and population by 2 percent. However, substance use disorders, chronic homelessness, and arrests increased by 17, 35, and 13 percent, respectively. Early legalizing states experienced larger economic gains yet similar social costs, implying a potential first-mover advantage. Tyler Cowen discusses this study in Bloomberg: The researchers used appropriate statistical controls, but there is some question about causation vs. correlation. At the very least, it seems highly likely that state GDP went up: A state with legal marijuana can sell it, including to users in other states. Selling marijuana is a new business, and like any new business, it boosts the local economy. Due to the replication crisis in the sciences, it’s sensible to remain cautious about this sort of research.  But in this post, however, I’ll assume their findings are accurate. Let’s start with the fact that the estimated gains in income are huge.  To a non-economist, 3% may not sound very large, but it is.  The US defense budget is roughly 3% of GDP, and you rarely see people describe defense spending as small.  In contrast, the legal marijuana industry is tiny, well below 0.2% of GDP in California.  Therefore, this large a rise in income cannot plausibly be attributed to the direct effect of adding legal pot to a state’s GDP.  Instead, marijuana legalization seems to have produced some strong positive externalities—some combination of making workers more productive and adding to the number of workers.  If true, that’s a finding that we should be “shouting from the rooftops”. Tyler has mixed views on pot legalization, and in his Bloomberg piece he mostly emphasizes the negative: It would be hard to use this latest research paper to persuade people that additional drugs should be legalized as well. And I would not be surprised if some governments decided to end their experiments with marijuana legalization. Unless you are a responsible user, how exactly does it make you better off? Looking only at the practical issues, what is the case for legalization? Well, the study says it leads to higher incomes.  Yes, that seems unlikely.  But then why cite the study? The strongest argument for pot legalization is that it is cruel to send people to prison for selling or consuming pot.  After legalization in California, the number of people imprisoned for marijuana offenses fell dramatically.  On the other hand, the black market has not gone away, and thus the criminal justice benefits have been far less than they should have been.  That’s partly because pot remains illegal at the federal level, and this substantially increases the cost of doing business.  In addition, states have adopted legalization in such a way as to encourage the continuance of a black market.  There’s nothing special about marijuana that would make it more susceptible to a black market than are toasters or tee shirts.  The black market is almost entirely caused by burdensome regulation.  (Contrary to popular wisdom, taxes are not the main problem.)  The government may wish to restrict sales to people below a certain age and ban driving while under the influence.  Otherwise, it’s not obvious why there should be any regulation of pot production and distribution. So what would we expect from complete pot legalization?  Here are my guesstimates:  1. Some increase in a state’s population, but probably less than 2%. 2. No significant change in per capita productivity or income. 3. Some increase in both total usage and problem usage. 4. A substantial decrease in crime and punishment, much bigger than what we have observed thus far.  The black market would be almost completely ended, except for resale to underage teens.  (We’d have an even smaller black market than for cigarettes, which have higher taxes than pot.) (Note that for points #1 and #2 I am actually more pessimistic than the Fed study.  I believe they overstate the economic gains.) It is interesting to compare this list to the effects of alcohol legalization.  I suspect that alcohol has a much more negative impact on productivity than does pot.  It also seems likely that there is more problem usage of alcohol than pot, and that the health costs are greater. If society were serious about banning “bad things”, it might make more sense to start by banning alcohol.  Of course that experiment was tried, and the effects were roughly consistent with the pros and cons discussed above.  Banning alcohol reduced both consumption and problem consumption, and led to a big increase in crime and punishment.  The latter is a clear negative from prohibition, whereas the former is ambiguous.  Many people enjoy consuming alcohol, while heavier users suffer from some pretty severe consequences. I suspect that both the gains and losses from pot consumption are a bit lower than for alcohol. When I look at proposals to ban products such as alcohol, tobacco and pot, I see one massive negative consequence (more crime and punishment), and then some other effects that are hard to judge.  In 1933, the US public rejected alcohol prohibition, and is now beginning to develop the same view of pot prohibition—the policy has uncertain gains and huge losses. PS.  When I say “complete” pot legalization, I mean legalization at the federal level combined with state laws that are not more burdensome than the laws for selling beer.   (0 COMMENTS)

In April 1971, President Nixon was worried. Inflation had fallen from an annual rate of 6.2% in February 1970 to 4.2%, but unemployment, 3.5% in December 1969, hadn’t been below 5.9% since October 1970. Nixon’s ratings were tumbling; since the New Year, his approval rating had fallen from 56% to 49% and against his likely opponent in the 1972 presidential election, he had had flipped from leading 43-40 to trailing 47-39. He had to act. An avid sports fan, Nixon pulled an old favorite from his playbook. “Among the sharpest recalls of [Nixon’s] experience,” Theodore H. White wrote, was:  …the campaign against John F. Kennedy in 1960, and how the economy affected that campaign. As early as 1959, Nixon, then Vice-President, recognized the political danger as the second Eisenhower recession began. He had pleaded, early, in the Cabinet for an easy-money, pump-priming policy to get the economy moving before the election of 1960. His only ally had been economist Arthur Burns, but the Eisenhower administration had waited until late spring to loosen credit. By then it had been too late, for pump-priming requires long lead-time; and Nixon had been compelled to campaign against Kennedy with unemployment rising all across the country in the fall. He had lost. He did not want to repeat that experience in 1972. Now, time was running against him once more. ‘‘I’ve never seen anybody beaten on inflation in the United States”, Nixon said, “I’ve seen many people beaten on unemployment.’’ In one of Nixon’s famous secretly taped conversations, Arthur Burns, nominated by Nixon and now Federal Reserve chairman, told the president in February 1971: In my view the monetary authority…has laid the foundation for recovery…What is holding back the economy now not any shortage of money but a certain shortage of confidence. If we flooded the banks even more than we have I think you could have awful problems in 1972 and beyond.  But with unemployment stuck near 6%, Nixon continued pressuring Burns to ease monetary policy. “We’ve really got to think of goosing it…late summer and fall of this year and next year. As you know there’s a hell of a lag,” Nixon told Burns in March, but Burns replied that “To drive interest rates lower would run the risk of accelerating an international monetary crisis.” Changing tack, in July, Nixon discussed a possible vacancy on the Federal Reserve Board with Office of Management and Budget director George Shultz: I’ve told [Treasury Secretary John] Connally to find the easiest money man he can find in the country. And one that will do exactly what Connally wants and one that will speak up to Burns…and Connally is searching the god damn hills of Texas, California, Ohio. We’ll get a populist Senator [sic] on that Board one way or another…If you know of someone that’s that crazy let me know too…I want a man on that board that I can control. I really do. Basically that Connally can control. “To further pressure Burns,” Burton A. Abrams writes, “Nixon told his close advisors, John Ehrlichman and H. R. Haldeman, to leak a story through Charles Colson” – all key figures in the Watergate scandal – “about a recommendation to expand the Federal Reserve Board.” This “packing” would undermine Burns’ authority. Haldeman was also to leak that Nixon was considering legislation to curb the Federal Reserve’s independence.  On November 10, Burns folded, telling Nixon “Look, I just wanted you to know that we are reducing the discount rate today.” In December, Schultz told Nixon “[Burns] agrees that the money supply should now go up.” Later, Nixon urged Burns, “The whole point is, get [the money supply] up. You know, fair enough? Kick it!”  He did. Unemployment drifted down to 5.3% on election day. Nixon was reelected in a landslide, though this had as much to do with the Democrat’s missteps as anything else.  Wage and price controls announced in August 1971 muted inflation temporarily. But in September, Milton Friedman had warned Nixon that price controls “might be able to hold [inflation] down at least through the election…After this, you’ll have a great upsurge in inflation.” This soon materialized. The year-on-year inflation rate rose from 1.4% on election day to 4.9% when Watergate forced Nixon’s resignation in August 1974. One commodity after another surged against the dollar; soybeans, wheat, and finally oil, this latter, a consequence of inflation, being frequently mistaken as a cause even today. Unemployment was on its way up again, to a peak of 9.0% in May 1975. ‘Stagflation’ was here.  The American economy experienced the “awful problem” Burns and Friedman had warned about and the great inflation of the 1970s would not subside until the policies which caused it were reversed by Paul Volcker. Its origins lay not in the Arabian oilfields, but in Richard Nixon’s White House.           John Phelan is an Economist at Center of the American Experiment. (0 COMMENTS)

The arrest of a 19-year-old suspect who had allegedly planned a terrorist attack on a Taylor Swift concert in Vienna carries some lessons in view of what Auberon Herbert, a disciple of Herbert Spencer, wrote in 1894. The suspect, an Austrian citizen “with North Macedonian roots,” who is reported to have sworn allegiance to Islamic State, apparently intended to attack the crowd with knives and explosives. (See “Teenager Confesses to ‘Isis’ Attack Plot Against Taylor Swift Concerts,” Financial Times, August 8, 2024; and “Taylor Swift Terror Suspects Planned to Use Bomb-Filled Car at Concert, Authorities Say,” Wall Street Journal, August 8, 2024). Auberon Herbert was a British individualist-libertarian anarchist, although he called his philosophy “voluntaryism” and rejected the anarchist label. European anarchists of his time were mostly communists and often terrorists who blew up things to precipitate the revolution. In his Contemporary Review article, “The Ethics of Dynamite” (reproduced in The Right and Wrong of Compulsion by the State, Liberty Fund, 1978), Auberon Herbert argued that the “dynamiters” (the terrorists) were not really against government: Perhaps I ought at once, for the benefit of some of my friends who are inclined a little incautiously to glorify this word “governing” without thinking of all that is contained in it, to translate the term, which is so often on our lips, into what I hold to be its true meaning: forcing your own will and pleasure, whatever they may be, if you happen to be the stronger, on other persons. … Dynamite is not opposed to government; it is, on the contrary, government in its most intensified and concentrated form. … [Dynamite] is a purer essence of government, more concentrated and intensified, than has ever yet been employed. It is government in a nutshell, government stripped, as some of us aver, of all its dearly beloved fictions, ballot boxes, political parties, House of Commons oratory, and all the rest of it. How, indeed, is it possible to govern more effectively, or in more abbreviated form, than to say: “Do this—or don’t do this—unless you desire that a pound of dynamite should be placed tomorrow evening in your ground-floor study.” It is the perfection, the ne plus ultra, of government. Speaking of the terrorists, he harangued governments of his time: Here is your own child. This is what your doctrine of deified force, this is what your contempt of human rights, this is what your property in men and women leads to. This was at a time when Western governments were much less powerful than today’s. For sure, the latter are still far from beating at that game Isis and many other tyrants in the world. Still, we might reflect on a Senate hearing about another matter related to Taylor Swift but mainly about the government’s dirigiste crusade against so-called monopolies and market inefficiencies—a claim that, coming from the government, is hard to take seriously (“Senate Hearing on Ticketmaster’s Taylor Swift Meltdown: Five Takeaways,” Wall Street Journal, January 25, 2023): Live Nation Entertainment Inc. faced questions from lawmakers in Washington on Tuesday, in a Senate hearing stemming from Ticketmaster’s botched ticket sales last year for Taylor Swift’s coming tour. … Senators from both political sides of a divided Congress came together to criticize Ticketmaster, with Democrats and Republicans calling for a re-examination of Live Nation’s market power. Individual liberty and private property are required to prevent social strife or Leviathan. Let people who like Taylor Swift free to patronize her concerts, if she or others can finance them. Those who don’t like Taylor Swift or don’t like fun just have to abstain. And let people who want to go to Taylor Swift’s concerts buy their tickets from whoever organizes these concerts or acts as an agent of the organizers or has tickets to resell. (0 COMMENTS)

How should we think about the problem of unanticipated consequences? And what are the implications for the possibility of unintended consequences regarding top-down, technocratic policy initiatives that aim to mitigate targeted social problems?  For example, I’ve occasionally heard it argued that we shouldn’t be too worried about unanticipated consequences of interventions, because unanticipated consequences don’t have to be bad. They might be good! Albert Hirschman made this claim in his book The Rhetoric of Reaction, where he advanced two claims – the idea that “purposive social action” leads to adverse unintended consequences only “occasionally,” and that “it is obvious that there are many unintended consequences or side effects of human actions that are welcome rather than the opposite.”  In his book Power Without Knowledge, Jeffrey Friedman argued that Hirschman’s case falls flat on both points. To start, “Hirschman’s first claim is a generalization of naïve technocratic realism. It tacitly appeals to the reader’s agreement that if we tally up our first-order assessments of technocratic wins and losses, technocracy comes out ahead, begging the epistemological question by assuming the reliability of these tallies.” Given that the ability to accurately tally such things is the very point under dispute, trying to resolve the dispute by appealing to those tallies would indeed be a textbook case of question-begging.  The second claim Hirschman makes might provide a basis for defending technocracy, but Hirschman fails to adequately defend it, Friedman argues: To counteract worries about the adverse unintended consequences of technocracy he would have had to contend that the unanticipated consequences of technocrats actions will tend to be beneficial, not merely that they may be beneficial. Thus he would have had to argue not that “there are many unintended consequences or side effects…that are welcome,” but that, even though policymakers may be ignorant of the side effects of their actions, something or other ensures that these effects will be more welcome than unwelcome overall. This claim would not be naively realistic, as it would gesture toward a second-order factor or factors that might explain the on-balance beneficial valence of unintended consequences. However, since Hirshcman does not specify what this factor or factors might be, it is hard to imagine how the claim could be supported, saved through a quasi-religious providentialism.  That is, Friedman argues that if one wants to salvage the argument in favor of technocracy in situations where technocrats lack what Friedman called “type 4 knowledge” – knowledge that the costs of a technocratic policy (consisting of both the costs of implementing the solution as well as any unanticipated and unintended costs) will not be higher than the costs of the initial problem – merely pointing out that unanticipated outcomes could in principle be beneficial is simply inadequate. One would need to provide some positive grounds for believing that unintended consequences will have an overall tendency to be beneficial.  In his book, Friedman simply adopts the fairly modest premise that “while the tendency of unintended consequences might be either more harmful than beneficial or more beneficial than harmful, we do not know which is the case…The question, then, is whether our ignorance of the valance is more damaging to epistemological criticisms of technocracy or to defenses of it.” He argues that the simple fact of uncertainty is fatal to the argument for technocracy, and to say otherwise “would fly in the rationalist face of technocracy, for it would license the adoption of policies that – like policies pulled from a hat – are justified not by knowledge, but by hope.” Appealing to the mere possibility that unintended consequences might be beneficial as a defense of technocracy actually rebuts the argument in favor of technocracy. Friedman left the question of how to judge the valence of unanticipated consequences unexamined – his case didn’t depend on making a positive case that the valence will be neutral or even negative. But I want to look a step further than Friedman did – do we have reason to think that valence of unintended consequences will tend to be positive, neutral, or negative? And on what basis would we examine such a claim? Friedman argues (correctly, I believe) that we need to make a second-order argument on this issue. A second-order argument is one that focuses on systemic reasoning about the workings of a system, rather than first-order arguments where one attempts to tally up points on a case by case basis. For example, one might argue that government operates inefficiently compared to market activity by first-order means, perhaps pointing out that building a public restroom consisting of a “tiny building with four toilets and four sinks” cost the taxpayers of New York City over two million dollars, while by contrast “privately managed Bryant Park, in the middle of Manhattan, gets much more use and its recent bathroom renovation cost just $271,000.” But the same article also makes a second-order argument about the systematic differences under which state and private enterprises operate, arguing that since “government spends other people’s money, it doesn’t need to worry about cost or speed. Every decision is bogged down by time-wasting ‘public engagement,’ inflated union wages, and productivity-killing work rules.” So we can distinguish between the first order argument (examining specific cases) and the second order argument (comparative institutional analysis). Thus, the article uses a first-order case as an example of government being wildly wasteful and inefficient in what it does, and also offers a second-order argument for why this sort of disparity is systemic rather than random. In my next post, I will be considering a second-order argument about the valence of unintended consequences, and whether we should expect them to have a tendency to be positive, neutral, or negative.    (0 COMMENTS)

The claim in the title of this post might sound obvious. But I encounter lots of people that think import tariffs are taxes on imports, but not exports. In fact, taxes discourage both imports and exports, to a roughly equal extent.Just to be clear, tariffs might reduce imports a bit more than they reduce exports if they led to a smaller budget deficit. I doubt there’s anyone who believes that has been the case for the tariffs imposed in the US by recent administrations.Another misconception is that tariffs on imports reduce exports only in the case where other countries retaliate. That’s not true. Tariffs move the exchange rate to a position where exports are likely to fall roughly as much as imports decline, even if there is absolutely no explicit “retaliation” from other countries.The intuition here is that exports are the way we pay for imports. If you tax one side of a transaction you will reduce both sides, just as a tax on gasoline reduces both the sale of gasoline and the purchase of gasoline.  It makes no difference whether the tax is imposed on buyers or sellers.To be sure, the quantity of imports and exports of goods can differ if countries are also exchange financial assets in trade.  The trade balance (technically current account balance) is national saving minus national investment.  But unless tariffs reduce the budget deficit (which is negative saving), they are not likely to increase the trade surplus, or reduce the trade deficit.   Bloomberg has an article discussing how US farmers are losing market share to Brazilian farmers: An aging rural population is the latest strike against a country that’s been losing its agricultural dominance for years. That standing has been a crucial source of political power, including crucially with China, the biggest agricultural importer. But US-China relations frayed during Donald Trump’s trade war, allowing Brazil to take the place of some US supplies. Already the top exporter of soybeans, Brazil may now be on pace to overtake the US in corn exports, too. As the US’s agricultural trade deficit widens to a record $32 billion in fiscal 2024, households will find themselves at increasing risk of supply-chain disruptions and price spikes when far-flung disasters hit. A loss in agricultural export competitiveness is exactly what you’d expect when a country adopts higher tariffs.  It has nothing to do with “US-China relations”, and everything to do with the real exchange rate. None of this means that tariffs are necessarily a bad idea.  Rather this analysis suggests that it would be a mistake to move toward protectionism under the assumption that tariffs only reduce imports, whereas in fact tariffs reduce both imports and exports, and by a roughly equal amount.  PS.  The same applies to an export tax, which also reduces imports.  For the same general reason, a policy regime that combines a uniform import tariff with an equal export subsidy is pretty close to a pure free trade regime, as the two policies roughly offset.  Thus countries like South Korea were far less “mercantilist” during their high growth phase than many people claim. (0 COMMENTS)

Was it divine intervention or simply the fact of being right that makes the infamous “Letter from Birmingham Jail” timeless, profound and even life-changing for some readers? If you haven’t met Dwayne Betts in an earlier EconTalk episode, get ready for Russ Roberts’s phenomenal friend and guest. Betts is so present in the moment and affected by the beauty, truth, and humility of the great Martin Luther King that his voice sometimes cracks answering Roberts’s questions. In this episode, he shares moments from his own history and the effect King’s work has had on him. Betts’s 9 years in prison and remarkable journey since uniquely qualify him as the King family’s choice author for the introduction to Letter from Birmingham Jail (The Essential Speeches of Dr. Martin Luther King). We hope this conversation stirs thoughts about freedom in you. Please share a thought or insight in the comments below.     1- Both Roberts and Betts have appreciated King’s great speech in different ways upon revisiting it. Roberts calls it a love letter to justice in his (King’s) country. As you pause and read “Letter From Birmingham Jail,” by Martin Luther King Jr., what do you notice that perhaps you didn’t remember?   2- How does Betts argue that King’s urgent letter, a response to criticism of his nonviolent protesting, honored the eight clergy critics?    3- Betts states, “I feel like it’s much more challenging to name what the side of justice looks like,” referring to the difficulty of arguing with conviction on contemporary topics. To what extent do you agree with this statement and, with what examples would you explain?   4- “Turning regrets into feathers” versus “Economics explains everything except justice”.  John Rawls (not Robert Nozick) is in The Freedom Library in 340 prisons. Confronting the sense of “nobodiness,” which conversation strand would you want to pursue over dinner, and why? (0 COMMENTS)