The Independent Institute’s Graham Walker talks with Independent Review editor (and famed economic historian) Robert Whaples, my GMU Econ colleague Chris Coyne, and GMU Econ alum Diana Thomas about a new book that brings to our better attention the importance of 24 relatively unsung economist heroes of free markets.
Earlier this morning, my Nobel-laureate emeritus colleague, Vernon Smith, sent this email to me, which I share in full with his kind permission.
Don:
My first foreign speaking invitation after the Nobel was from Mexico at the international meetings of the Mexican Bus and Truck manufacturers Association. It was a lesson in free trade. Highway truck tractors were assembled in Mexico. The engines came from Detroit, the tires came from Japan, the axels came from Brazil, and so on. Imagine a well-intentioned Mexican tariff on engines; it could wipe out that truck industry in Mexico.
On tariffs, Tread With Caution.
Vernon
Taken together, the empirical literature tells a consistent but nuanced story. Tariffs reliably raise prices and reduce targeted trade flows. Their employment effects are more ambiguous because they depend heavily on the level of analysis: protected industries may gain, but downstream firms, exporters, and consumers often lose. The productivity and output evidence, however, points strongly in one direction. Tariffs shelter some firms from competition and may preserve some jobs in the short run, but they do so at the cost of higher prices, reduced trade, weaker productivity growth, and lower overall economic welfare.
[DBx: Next time – and there will be many next times – you encounter a protectionist asserting that the case for free trade is “an article of faith,” remember this essay by Jack Salmon – an essay that is evidence as powerful as evidence gets that the economic case against tariffs is rooted in science, not faith.]
Jake Scott explains that “good trade deals make good neighbors.”
Colin Grabow makes clear that “the GOP’s protectionist detour has run its course.” A slice:
Riding a wave of voter anger over the Washington status quo — and, it must be said, weak Democratic opposition — Trump was elected in 2016 and 2024 on promises that included confronting China, revitalizing manufacturing, and correcting alleged abuses by U.S. trading partners. This, we were told, was how America would be made great again.
After more than five years in office, and with a trade policy largely left in place by former President Joe Biden (which should give Republicans pause), it’s worth taking stock. The results are not encouraging.
On the China front, no one can credibly argue that heavy and sustained tariffs have prompted the country to change its ways. Even the U.S. government has acknowledged as much. Instead of producing reform in Beijing, the administration has often focused on trade battles with longtime allies rather than building a coordinated response to China.
If the goal is to compete with China, the answer isn’t to wall off the United States but to link arms with its allies. Deeper trade ties in the Indo-Pacific would strengthen supply chains and ensure that global rules are shaped by the U.S. and its partners, not Beijing.
But the administration opted for conflict rather than cooperation, engaging in skirmishes with allies that became the preamble to numerous trade deals widely described as liberating the U.S. from years of abuse. The deals signed in the president’s second term, however, have proved ill-conceived. Concluded under the threat of tariffs, the agreements secured modest foreign tariff reductions while locking in significantly higher U.S. tariffs under the guise of reciprocity.
On net, these deals have made trade more difficult and more costly for Americans. Their result has been a sapping of American economic strength.
David Henderson loses a bet with Charley Hooper.
Michael McShane’s letter in today’s Wall Street Journal is excellent:
Mr. [Mark] Kelly argues that Arizona’s education savings accounts program forces trade-offs in state spending, even though he concedes that ESAs represent only 8% of the state’s education budget. He then criticizes the $50 billion price tag on the federal scholarship tax credit for education. The 2025 federal budget was $7 trillion, making the scholarship program less than 0.75% of federal spending. The idea that these scholarships will result in significant “lost revenue” is ridiculous.
Mr. Kelly laments that when students leave public schools in a choice system, public schools lose money. “Hold harmless” arrangements can blunt the blow of enrollment shifts, but even if such options didn’t exist, what would the senator propose we do? Shouldn’t funding vary with enrollment? Would he propose not increasing funding when enrollment rises? He can’t have it both ways.
Finally, Mr. Kelly links to a story in the Washington Post that associates vouchers with declining enrollments in Arizona. Recent projections from the National Center for Education Statistics predict declining student populations due to birth dearth, not school choice, as we see the largest losses projected in states like California that don’t have choice programs. Even if choice was driving declines in enrollment in public schools, that should be a wake-up call that public schools are only viable with a captive audience.
The fund will be under the control of five people appointed by the attorney general. They can be fired at will by Trump, meaning the money can go only to people the president sympathizes with. Don’t expect James B. Comey — who is fighting an utterly frivolous prosecution by the Trump Justice Department in North Carolina — to win any compensation.
Instead the money will presumably flow to conservative figures investigated or prosecuted during the Biden years. But people who are victims of malicious prosecution can seek recompense through the normal legal process. If that process is too onerous, Congress can change the law. The new model of “compensation” the Trump administration just invented lacks normal legislative and judicial checks.
Conservatives rightly blasted the use of sue-and-settle tactics employed by progressive groups during the Obama administration. Instead of fighting lawsuits brought by environmentalists, for example, the Environmental Protection Agency would enter settlements that gave them what they wanted. The goal was to use the illusion of an adversarial legal process to lock in progressive policy wins without formal rulemaking that couldn’t pass muster or legislation that couldn’t pass either chamber.
Also criticizing Trump’s “anti-weaponization fund” is National Review‘s Dan McLaughlin. A slice:
Is that bad? Absolutely. Trump critics on the left currently say so. But he’s really just taking another page from the left’s playbook.
The classic Trump modus operandi is to look at something crooked that is done smoothly and quietly by the left through sophisticated lawyering on the left — and then imitate it while saying all the quiet parts out loud. This is another instance. Of course, using legislative appropriations and programs to line the pockets of allied groups is an old standby of Democrats, but so is laundering aid to friends and allies through the judicial system — often, with the knowledge that a part of it gets kicked back.
Arnold Kling looks back on the era of “technocratic economics.”
Protectionist legislation usually strikes hardest at the weak and powerless.
The individual participant in the market process has a fuller and more detailed knowledge of his own circumstances and its profitable possibilities than anyone in government can possess or appreciate in the same way. It becomes a source of danger, in fact, for the well-being of the society as a whole when those in political authority presume to know best how any individual should apply himself and the resources at his disposal in the service of others in the social system of division of labor. Indeed, as Smith said, it is nowhere “so dangerous as in the hands of a man who had folly and presumption enough to fancy himself fit to exercise it.”
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In the market process, competition is understood to mean the attempt by supply-side producers to discover, develop, produce, and offer new, better, and improved products so as to attract customers to their product or service; the goal is increased sales, greater market share, and larger net revenues to earn profits.
To do so, competition in the marketplace also entails devising ways to not only improve the quality of the product but also to creatively find ways to produce it for less costs to offer it to customers at a lower price than one’s competitors.
This requires entrepreneurs to decide on what to produce and where, how, in which quantities, and at what price to market it to potential buyers. In other words, to compete means not to take the market price or the existing ways of doing things as “given.” It means to go outside the current and existing knowledge about how to produce a product with various inputs (land, labor, resources, capital equipment) and to discover how all of this might be done less expensively and with the product having new and improved qualities that make it more attractive to the buying public.
Inescapably, this process means new knowledge and information, given that the discovery processes that bring about better products can only come through some people in the market learning and utilizing and applying that knowledge before others. After all, any new knowledge must come into someone’s head first, which means new knowledge and its use is invariably asymmetric. That is, some people know things that others do not, and they know it ahead of those others.
The Economist investigates America’s “productivity miracle.” Two slices:
[O]ver the past five years or so American productivity has been growing at the fastest rate in around two decades. Whether you look at output per worker or per hour, it has risen by a lively 2% a year, from a moribund 1% for most of the 2010s (see chart 3). This has led the Federal Reserve to raise its median forecast for America’s long-run GDP growth from 1.8% to 2%. Jerome Powell, the outgoing chair, bore witness at a recent press conference. “I never thought I’d see this many years of really high productivity,” he marvelled in response to a question from The Economist.
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Productivity growth also sped up in oil and gas. The shale-fracking revolution of the 2010s turned America from a net energy importer to an exporter. In 2023 it sold half as much energy abroad, net of imports, as Saudi Arabia. Since then, construction of new liquefaction plants for natural gas has allowed America to send the fuel to Europe and Asia, where it fetches higher prices than at home.
Tad DeHaven is always worth reading.
Our politics have been analogized to Veep. A more apt comparison some days is that we are living in a cartoon. Every good cartoon needs a supervillain or three. Our supervillains created millions of jobs, made goods cheaper and far easier to obtain, and revolutionized access to information, among other terrible, terrible things.
I am referring to billionaires. Reasonable people will debate, and disagree on, the best way to sketch out the tax code. Protestations to “tax the rich” have long been central to progressive politics. But last week’s Met Gala was a reminder that there is something else undergirding those calls: what seems like legitimate hatred or, at a minimum, disgust. Why?
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Sergey Brin and Larry Page gave the world near-unfettered access to information with Google. Maybe it’s even how you found this article. (Thanks.) Steve Jobs effectively put computers in our pockets, facilitating more intimate communication and connection with friends and loved ones near and far. Elon Musk, for all of his controversy, helped pioneer the modern electric vehicle and is investing in technology to help people with neural issues regain function. Why is this never a part of the story?
America’s youth are infatuated—almost two-thirds of those under 30 have a “favorable view” of socialism. They are told artificial intelligence will destroy jobs; they worry about never-arriving climate disasters and are seduced by universal basic income (aka welfare for all). Oh, and they hate the filthy inequality schemes and unfathomable riches of billionaires—but they sure enjoy iPhones and Starbucks’s Iced Brown Sugar Oatmilk Shaken Espresso.
Young voters help elect oxymoronic democratic socialists. The effect has been swift. In April, Seattle’s socialist mayor, Katie Wilson, declared, “I think the claims that millionaires are going to leave our state are, like, super overblown. And if—the ones that leave, like, bye.” Starbucks announced a $100 million expansion in Nashville, Tenn., and former CEO Howard Schultz moved to Florida. As in, like, bye.
New York Mayor Zohran Mamdani seemingly ran out of money to fund collectivism shortly into his term, saying: “We are forced to raid the rainy-day fund, the retiree health benefits trust reserve, and to increase property taxes.” Well, half of personal income taxes are paid by 2% of city dwellers. Florida beckons. Finance firms Citadel and Apollo are expanding elsewhere. A New York Post headline nailed it: “We Are Zo Outta Here!”
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Socialism’s patron saint in a pantsuit, Rep. Alexandria Ocasio-Cortez, recently declared, “You can’t earn a billion dollars. You just can’t earn that. You can get market power, you can break rules, you can abuse labor laws, you can pay people less than what they’re worth, but you can’t earn that.” Thanks, comrade. If only she had said “surplus value,” we could Scooby-Doo-like rip off her mask to reveal Karl Marx.
Twenty years ago, comedian Ron White presciently observed, “You can’t fix stupid.” Socialism fails. Every time. If you’re offended, go read a history book. Or visit Havana. The leaders reap the spoils. Bernie Sanders has three homes and flies private. He told Bret Baier about his “Fighting the Oligarchy” tour: “Think I’m going to be sitting on a waiting line at United?” and added, “No apologies.” Joseph Stalin had 20 dachas while the proletariat went hungry.
Thanks to capitalism, we are living in unprecedented good times. Space launches. Weight-loss wonder pills. Happy-hour-friendly autonomous cars. AI bots that will meet our every imaginable need. A more peaceful Middle East on the horizon. A resurging middle class around the globe. But that’s nothing that a few commies—er, democratic socialists—couldn’t destroy in a generation.
Socialism adoration comes from brainwashing. A recent City Journal survey of 120 “prominent colleges and universities” showed that a grand total of zero schools required economics courses to graduate. Only 15% required some U.S. government or history classes, while half required diversity, equity and inclusion-like courses. Ugh. So bye to jobs, hello socialism.
We need to educate our youth with a full-throated defense of capitalism and free markets because for too many, the most intelligent thing they say coming out of college is, “It’s like, whatever.”
[DBx: We’re doing our best at GMU Econ to provide such education. Later this morning I will meet for the first time my Summer 2026 “Econ 101” students. Before class is dismissed two hours later, these students will know that they are among the richest human beings ever to live. They will understand that the difference between their wealth and that of the likes of billionaires Jeff Bezos and Paul McCartney is minuscule – a rounding error – compared to the difference between their wealth and that of any of their ancestors who lived three or more generations ago. Speaking of McCartney, when, on June 18th, 2006, he turned 64 I wrote this about him.]
Philosopher Christopher Freiman sensibly asks: “Can socialists support commerce but not capitalism?”
A report from the Progressive Policy Institute found no meaningful evidence that these changes translated into lower prices for consumers. The promised benefits at the checkout line by and large failed to appear.
Banks, however, had to make up the lost income. Research from Penn State demonstrated that in the aftermath of the Durbin Amendment, banks reduced access to free checking accounts by roughly 40 percentage points and nearly doubled monthly account maintenance fees.
A George Mason University study showed similar adjustments, including tripled minimum balance requirements for fee-free accounts and doubled fees on standard checking products in the years after the policy took effect. Debit card rewards programs simply disappeared.
The lesson is straightforward. Consumers lose out twice — they don’t get the promised savings, and their banking costs go up.
GMU Econ alum Jeremy Horpedahl tweets: (HT Scott Lincicome)
The Industrial Revolution would probably not have been approved by a public vote
… is from page 96 of Deirdre McCloskey’s forthcoming book, Equality of Permission:
What, then, should be the primary-liberal rule in the footrace of life?
It should be – for natural justice to the individual and for the consequent flourishing of the individual’s family and fellows and trading partners and society through loving care and peaceful exchange and liberal conversation – an equality of permission, or allowance, or approval for a general right to do, to venture. Let no obstacles of human design be placed in your path. It is to be permitted to enter the race as an adult, and to accord to others the same permission. It is [Adam] Smith’s “obvious and simple system of natural liberty.”
DBx: By “primary-liberal,” McCloskey means classical liberal, as distinct from the progressive statists who are often inaccurately called “liberals.”
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McCloskey’s point here is profound. Equality of outcomes is not only impossible, but attempts to achieve some superficial resemblance of such ‘equality’ would inevitably unleash hellish tyranny and crushing poverty. Equality of opportunity – despite frequently being endorsed by classical liberals – is also practically impossible, and attempts to engineer it would also involve a great deal of authoritarian oppression.
Equality of permission, in contrast, is quite feasible. Achieving in practice something close to such equality requires only that the state abandon all efforts to dispense privileges. No more tariffs, no more subsidies, no more occupational-licensing restrictions, no more government-imposed land-use restrictions and requirements. The result won’t be heaven on earth, but it would be increasing prosperity and protection as firm as is humanly possible against oppression and injustice.
I deleted my letter – posted earlier today – criticizing Michael Faulkender’s Washington Examiner piece on trade. I did so not because I discovered an error in my letter; I didn’t. I stand by every claim made in the letter, the chief one being that the case for free trade is most certainly not an article of faith.
I deleted the letter because I learned something about Mr. Faulkender that I admire very much – something that signals his unusual courage and principle. In honor of his courage and principle, I deleted my letter.
Scott Lincicome ably defends GDP as a meaningful measure of economic performance. A slice:
As I’ve written before, GDP has real methodological quirks. It’s basically a clunky aggregation of several economic indicators—private consumption, gross private investment, government spending, and net exports—that, even in normal times, can produce misleading snapshots of national economies. Import surges and collapses driven by recent U.S. tariffs, for example, distorted quarterly GDP prints last year—to the upside and down—in ways that had little connection to the country’s underlying economic health. Furthermore, the metric fails to account for important activities like leisure and unpaid household work; it doesn’t consider inequality; and it has difficulty properly valuing environmental goods, government expenditures, and new innovations. As we’ve discussed, GDP can be gamed by authoritarian governments with a strong incentive to fudge the numbers. And it can be particularly distorted in a handful of economies that are driven by one type of economic activity (e.g., petrostates or tax havens).
Populist critiques of GDP, however, go much further than these common methodological concerns. On the right, economic nationalists routinely sneer at “libertarian” policies that “merely” boost GDP at the expense of—in their view—more important measures of well-being: native-born wages, mortality, family formation, culture, national security, and so on. On the left, meanwhile, “degrowth” theorists see GDP growth as an outright bad thing because it necessarily means environmental destruction and mistakes economic activity for human welfare. A truly rich society, they argue, maximizes health, happiness, and sustainability over the monetary value of production.
In theory, these critiques make some sense: An economy that grows only by embracing pollution or selling vice doesn’t make people better off in the long term. In reality, however, the anti-GDP coalition goes much further by mechanistically rejecting policies they don’t like because they “only” boost GDP. This gets things badly wrong in several ways.
For starters, humans do value the stuff that GDP measures, so the metric alone—usually adjusted for inflation and divided by a nation’s population (aka, real GDP per capita, or “RGDPpc”) —nis a good starting point for measuring well-being.
Trumpian tariffs were designed as political theatre. The goal was simple: show the forgotten men and women of America that the President was standing up for them.
The tariffs were meant, as the President said in announcing them, to heal the “once beautiful American dream” that thieving foreigners had “torn apart.” Tariffs were aimed at striking back at the globalist elite that had “stolen our jobs”, and “ransacked our factories.”
Or at least that’s the only way I can make sense of the drama and chaos surrounding the Trumpian tariffs. No planning, or preparation. Lots of grandstanding and spectacle.
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One of the lasting legacies of President Trump will be his tariffs, but not in the way he probably thought they would.
Trumpian tariffs were meant to remake world trade around US power.
Instead, they revealed how disruptive tariffs were at home, how limited US trade power was when it acted alone, and how quickly the world could learn to trade around US disorder.
The world did not fragment. America did.
In recent years, observers have closely tracked the rise of pro-union sentiments on the political right. During his reelection campaign, President Donald Trump garnered headlines for skipping a presidential debate to visit United Auto Workers (UAW), who were on strike in Michigan, while officials like Vice President JD Vance and Sen. Josh Hawley (R–Mo.) have made waves for their pro-union bent. Perhaps most prominently, Teamsters President Sean O’Brien was featured as a speaker at the GOP convention.
But to this point, any actual legislation emanating from the pro-labor right has failed to go anywhere in Congress. That may soon change.
A Hawley-backed bill, known as the Faster Labor Contracts Act (FLCA), seems to be picking up steam and may soon pass the House of Representatives. Unfortunately, the FLCA is a trifecta of bad public policy: It suffers from constitutional infirmities, revives a corrupt government agency, and takes away the voice of both businesses and workers.
“Destroying property, which can be replaced, is not violence,” wrote Nikole Hannah-Jones, the author of the New York Times’ 1619 Project. “To use the same language to describe those two things is not moral.” The New Yorker editor David Remnick agreed. “We don’t have time to finger-wag at protesters about property,” he wrote of the big-box and mom-and-pop stores alike that were put to the torch. “That can be rebuilt. Target will reopen.” Sure, “looting is counterproductive,” NPR CEO Katherine Maher conceded. “But it’s hard to be mad about protests not prioritizing the private property of a system of oppression founded on treating people’s ancestors as private property.”
Of course, the property that was subject to vandalism and destruction wasn’t situated in their own backyards. Perhaps these and other permissive figures on the left would revise that outlook now that the vandals are razing their neighborhoods in the name of anti-capitalism.
This past Wednesday evening I talked with AIER’s Paul Mueller – a GMU Econ alum – about trade and national security.
… is from Henry Martyn’s brilliant 1701 tract, Considerations Upon the East-India Trade:
For, if the Providence of God wou’d provide Corn for England as Manna heretofore for Israel, the People wou’d not be well imploy’d to Plough, and Sow, and Reap for no more Corn, than, might be had without this labour. If the fame Providence wou’d provide us Cloaths without our labour, our Folly wou’d be the same, to be Carding, Spinning, Weaving, Fulling and Dressing, to have neither better nor more Cloaths than might be had without this labour…. In like manner, if the East-Indies wou’d send us Cloaths for nothing, as good or equivalent of those which are made in England by prodigious labour of the People, we shou’d be very ill imploy’d to refuse the Gift, only that we might labour for the same value of Cloaths which might be as well obtain’d by sitting still. A People wou’d bethought extravagant and only fit for Bedlam, which with great for and bustle shou’d imploy itself to ‘remove Stones from place to place, at-last to throw ’em down.
DBx: Yes. Protectionism is insanity – bedlam.
