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AIER’s Laura Williams reflects on Americans’ freedoms since 9/11.

Wall Street Journal columnist Holman Jenkins reflects on the U.S. government’s increased fiscal recklessness since 9//11. A slice:

A poorer country than the U.S. would have had to parcel out its resources more carefully in response to 9/11. Instead, the U.S. was distributing taxpayer checks to heiresses and hedge-fund managers because they happened to live in the vicinity of downtown.

The fiscal debacle of 9/12, to me, would come to seem of a piece with the fiscal debacle of ObamaCare, the fiscal debacle of climate policy and, in crescendo fashion, our Covid response.

Our globe-girdling society produces complex policy challenges. It has a hard time producing intelligent policy responses. In their place, we get bankrupting spending extravaganzas in which politicians demonstrate their caring by how much money they set on fire, facilitated by the accident of the world’s seemingly bottomless appetite for U.S. debt.

Jefferson famously said if forced to choose between living without newspapers and living without government, he’d prefer the latter. But the press no longer plays the role he expected, policing government policy failure—say, by discovering that the Affordable Care Act produces insurance so unaffordable nobody would buy it without a subsidy, or that green-energy handouts reduce emissions only in an imaginary world where energy consumption is capped.

It took two decades, but something new has come into the world perhaps to alter the path I trace here from Sept. 12. A voter can ask a large language model whether government policy makes sense and get a nuanced answer. I may be alone but I don’t see doom coming from AI. I see better decision-making, at last.

George Leef documents yet another instance in a long, sordid list of labor-unions’ assault against the rights and freedoms of workers.

The Editorial Board of the Wall Street Journal reports on new research that gives strong evidence that heavy taxes discourage economic innovation (and, hence, economic growth). A slice:

Economists keep warning politicians that incentives matter, and the latest teachable moment concerns taxation and innovation. New research suggests how sensitive investors in start-up companies are to changes in tax policy, and what this means for the economy.

In short: A big tax break for investment in new companies, introduced in 2009, resulted in more business unicorns. In a working paper published by the National Bureau of Economic Research, Murillo Campello and Guilherme Junqueira of the University of Florida track the effects of changes to the Qualified Small Business Stock (QSBS) tax break, which Congress made significantly more generous after 2009 and 2010.

Previously the law had offered a trivial tax break for investments in small companies. The changes eliminated capital-gains taxes on qualified investments—meaning newly issued shares in C corporations with assets of less than $50 million in certain industries.

This allowed the economists to compare investment decisions and performance in the relevant industries before and after that change. The researchers also distinguish between different kinds of investors with different incentives, such as “angels” investing their own money, venture-capital firms pooling money from many investors, and corporations that can’t benefit from the QSBS break. It adds up to a sample of 158,000 investment deals from 2004 to 2022, tracking those deals from initial investment to exit or failure.

The central insight is that by improving the return investors can hope to achieve, this capital-gains tax cut encouraged more risk-taking. After the tax cut, venture firms (the investors most sensitive to the tax break) were 81% more likely to invest in the earliest development stage of a new company. They were also more likely to invest in startups that already carried debt, or where the venture firm had no previous experience in the industry—all markers of higher investment risk.

Many of those bets didn’t pay off. The rate of failure for firms that received venture funding was 71% higher after than before the 2009 tax cut. But those that succeeded did so in spectacular fashion: Valuations for successful exits after 2009 were 131% higher than before, and startups whose investors were eligible for the tax break were twice as likely to become unicorns with valuations exceeding $1 billion.

The economic intuition here is straightforward. In order to take more risks, investors require higher returns. By allowing investors to keep their gains, this capital-gains tax cut increased the expected return of successful investments, encouraging venture firms to swing for the fences. The counterintuitive benefit of the tax break may be that it makes investors more tolerant of potential failure.

Wesley Smith tells of just how terrifyingly authoritarian are those people who believe that society is a science project.

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… is from page liv of David Hart’s superb “Introduction” to Liberty Fund’s 2016 expanded English-language edition, brilliantly edited by Hart, of Frédéric Bastiat’s indispensable work Economic Sophisms and “What Is Seen and What Is Not Seen”:

Bastiat shared Bentham’s view of “deception” as an ideological weapon used by powerful vested interests to protect their political and economic privileges. Bastiat saw that his task in writing the Sophisms was to enlighten “the dupes” who had been misled by la ruse, or the “trickery,” “fraud,” and “cunning” of the powerful beneficiaries of tariff protection and state subsidies.

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Here’s a letter to a new correspondent.

Mr. Brennick:

Thanks for your email. I’m sorry that you find my letter in today’s Wall Street Journal “thoroughly unconvincing.”

No one can really know how Alexander Hamilton, were he alive, would judge Trump’s tariffs. The best we can do is to consult his writings on trade, the most famous of which is his 1791 “Report on the Subject of Manufactures.” In that “Report,” Hamilton’s clear purpose is to prompt government to use both subsidies and tariffs to foster fledgling manufacturing in the fledgling United States. His belief was that manufacturers in Europe, being well-established and capitalized, would out-compete upstart manufacturers in the U.S. Hamilton argued that U.S. manufacturers could grow to maturity only if they’re protected in their infancy.

I’m confident that Hamilton was mistaken to believe in the need for infant-industry protection – a protectionist belief that reveals that Hamilton’s understanding of the case for free trade was deficient. Hamilton’s sympathy for protectionism, therefore, does indeed lend some credence to the case that he would support Trump’s tariffs. But on the other side, Hamilton also understood that government protection of infant industries can go too far. He wrote:

The continuance of bounties on manufactures long established must almost always be of questionable policy: Because a presumption would arise in every such Case, that there were natural and inherent impediments to success. But in new undertakings, they are as justifiable, as they are oftentimes necessary.

Although he here explicitly mentions only bounties (what we today call “subsidies”), elsewhere in the “Report” Hamilton describes a protective tariff as “a virtual bounty” for protected industries. His reasoning therefore provides good grounds for extending his warning about prolonged subsidies to prolonged protection through tariffs.

Unlike Trump, Hamilton would never have called himself “Tariff Man,” or scribbled in the margins of a speech that “TRADE IS BAD.” Also unlike Trump, Hamilton did not believe that Americans are harmed by U.S. trade deficits (that is, net capital inflows) – quite the opposite. This latter difference is especially significant because the single trade ‘fact’ mentioned most often by Trump as justification for his tariffs – and as the justification for his “Liberation Day” tariffs – is that the U.S. regularly runs trade deficits. On this matter especially, Trump is completely bonkers – an assessment with which Hamilton would surely agree.

Because nearly all U.S. industries covered by Trump’s tariffs are long-established and have access to the world’s most efficient capital market, it’s impossible to conclude from Hamilton’s writings that he would support Trump’s tariffs. Nevertheless, because Hamilton, for all of his brilliance, ultimately did not adequately appreciate how free markets work, he very well might, were he resurrected, endorse Trump’s tariffs. Any such endorsement, however, would reflect Hamilton’s weak grasp of economics rather than any specific policy that he endorsed while alive.

Sincerely,
Donald J. Boudreaux
Professor of Economics
andMartha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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The Editorial Board of the Wall Street Journal warns that today’s continuing inflation is helping to keep Americans’ real wages from growing. A slice:

The worst news for workers in the report is that real hourly average wages fell 0.1% in August. They’re down 0.3% over the past year, as the nearby chart tracks. The burst of inflation in the spring crushed average earnings, which barely grew in 2025 as well. This goes a long way to explaining why Americans feel sour about the economy, and getting those wages up ought to be the President’s highest economic priority.

The war in Iran has caused energy prices to rise, but the President’s job approval rating on the economy was underwater before he launched the attacks in late February and gasoline prices shot up. A big reason is his border taxes, which have contributed to rising prices.

From Unleash Prosperity: (HT David Henderson)

The Washington Post‘s Editorial Board decries the Trump administration’s blatantly unconstitutional – read the 14th Amendment – attempt to exclude from the census count immigrants to America who are neither U.S. citizens nor holders of green cards. A slice:

No matter your view on immigration, the move would clearly violate the 14th Amendment, which mandates that representation in Congress be apportioned according to “the whole number of persons in each state.” The text makes no mention of the citizenship or legal status of those individuals, nor their “allegiance.”

The Constitution codified a simple democratic principle: Members of Congress represent every person in their state or district, regardless of whether those residents voted for them or even could. That reflects the reality that even people who are living in the United States illegally are subject to its laws, pay taxes and retain unalienable rights. Elected officials can choose to not care about some of their constituents as much as others, but they cannot pretend that they do not count at all.

Tosin Akintola reports that, succumbing to pressure from Trump, South Korea will increase the U.S. trade deficit. A slice:

On Thursday, The Wall Street Journal reported that the South Korean government would soon announce an investment of over $100 billion for eight nuclear power plants and a natural-gas project in Texas. The nuclear power plants will likely be built on federal land and use the AP1000 design by U.S.-based company Westinghouse Electric.

Scott Lincicome tweets:

They said the government’s equity stake in Intel was essential for national security. Now, per Secretary Lutnick, it’s ACTUALLY a (much too small) slush fund to bribe voters.

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… is from pages 10-11 of Richard Epstein’s brilliant 1995 book, Simple Rules for a Complex World:

Battles over legislation are likely to be more bitter and protracted given the conflicts between groups that are difficult to compromise and broker whenever a majority is in a position to expropriate wealth from a minority. Legislation, in a word, works best in homogenous societies where agreement on basic values reduces the overall level of conflict.

DBx: Yes. In large, diverse, and dynamic societies, it’s best to rely as much as possible on private sources of ordering, such as the market, and on common-law processes.

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Here’s a letter to the Wall Street Journal.

Editor:

Peggy Noonan is so frightened of AI that she not only calls on investors to stop funding it, but on government to “hit the brakes hard” on this technology (“Pause AI for Humanity’s Sake,” September 11).

Ms. Noonan imagines AI unleashing a terrible dystopia. Yet what we imagine should be informed by the past. Ms. Noonan’s imagination isn’t. Were she to consult the past, she’d encounter a few realities beyond the obvious one that countless technologies that we today celebrate were, when introduced, reproached as imperiling humanity.

One such reality is that when insiders stir up alarm about their own industries, they’re often angling for regulation that shelters them from competition. As classic case involves AT&T: it warned that telephony would collapse into chaos unless regulated as a natural monopoly. Established bankers played the same game during the Depression, warning that, without government-imposed interest-rate ceilings, ruinous competition for deposits would breed financial crises. In each case the peril lay less in the absence of regulation than in the ‘cures’ – a fact that points to a second and more fundamental reality: a far greater danger than new technology to humanity is government authority to regulate technology.

History gives us every reason to distrust government with the awesome power to determine just how new technologies will develop, and how and when we should be permitted to uses these technologies. In short, history teaches that the wealthiest and safest societies are ones in which innovation is, as Adam Thierer calls it, “permissionless.” If we’re to hit the brakes hard, it should be on the ages-old, fear-fueled impulse to put control of economic forces and technological advances into the hands of politicians and bureaucrats.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

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Nick Gillespie decries this decryable reality about 9/11: “We still believe in the false promise of trading freedom for safety.”

John O. McGinnis finds some things to like and much to dislike about Daron Acemoglu’s book What Happened to Liberal Democracy? Two slices:

Daron Acemoglu won the Nobel Prize in economics in 2024 and is the third most cited economist of all time. Thus, the paradox of his new book, What Happened to Liberal Democracy?, is that its most serious analytic failures are economic. He provides a sincere and serious consideration of modern liberalism’s estrangement from the working class. But when he moves from description to solutions, the basic building blocks of economic analysis disappear. Imperfect markets are compared with an idealized government. Expansive agencies are proposed while the risk of their capture—well known in public-choice theory—is ignored. And while Acemoglu is known for integrating institutions into economics, he sometimes celebrates democratic consensus without attention to the elite institutions that formed it.

Acemoglu “pitches his tent” on the left side of liberalism, arguing that it “has historically been an engine of material and social progress.” Today he believes tradition should give birth to “working-class liberalism,” which means, for him, creating a more level economic playing field and technological change that complements rather than displaces labor. The book is well-intentioned. He recognizes that elites cannot be trusted to direct culture. But he never explains why they can be trusted to direct technology, redistribution, and the administrative state.

Acemoglu argues that the postindustrial economy puts a premium on cognitive skills useful in fields such as elevating finance, health, and education, while reducing the importance of manufacturing. He claims that automation “severs the link between mass production and shared prosperity” and has resulted in “the disappearance of good jobs for workers without a college degree.” Acemoglu thus endorses the economic explanation for populist discontent popular among left-liberals.

What is original about his account is his willingness to also highlight the contribution of left-liberals to working-class alienation. As in my own book, Why Democracy Needs the Rich, he sees the class of educated liberals as attracted to social engineering because it “confers on them greater status and social influence.” Acemoglu recognizes that this class then abused its power by imposing cultural values without democratic buy-in, further alienating the working class. He rues the fact that many on the contemporary Left became “convinced that protecting minorities and vulnerable groups and building a fairer economy required silencing those with opposite viewpoints.” This is a welcome admission, but Acemoglu is selective in his political economy. His distrust of elites largely vanishes when they administer the economic policies he favors, and he also fails to consider the influence of other powerful interest groups.

…..

Again, Acemoglu understands in the abstract that “community-level experimentation is vital for social adaptation in a changing world” and that “experimentation is powered by variation.” But he does not make sufficient use of federalism as the constitutional mechanism that enables such variation and, over time, helps build democratic consensus. Federalism permits different jurisdictions to have different policies. Our national guarantee of free speech then allows people to talk about the consequences, facilitating debate. That is how national consensus, if one is to be had, is best reached. When people have their say without it being preempted, they are much more likely to accept the result. Federalism is to political knowledge what competition is to economic knowledge—a process of decentralized discovery.

The book’s failures have some general lessons for left-liberals. Like classical liberals, they cannot avoid answering comparative institutional questions. Do ideas like nondomination actually empower state domination? What are the specific market failures that prevent the market from boosting welfare over the long run? What mechanisms prevent redistribution and new regulatory agencies from being captured by special interests? What protects pluralism when elites want to use courts or agencies to facilitate an elite consensus on the nation? Acemoglu is right to worry that elites can turn left-liberalism into an instrument of domination. But he never explains why the new AI agency he wants to empower would not become the next instrument of elites and interest groups.

Dave Hebert – native of Detroit, son of a manufacturing worker, and GMU Econ alum – talks with Jim Vinoski about manufacturing and trade.

The Editorial Board of the Washington Post is right: “President Donald Trump’s proposal to pay every adult citizen $5,000 if the GOP holds the House and Senate this fall is a desperate gimmick that betrays a profound lack of seriousness about the looming fiscal crisis.” A slice:

Pandering politicians routinely promote expensive ideas in the months before elections. Usually they’re offering new programs, more subsidies or tax cuts that won’t be paid for. The electorate has become habituated to promises of “free” buses, “free” child care and “free” medical coverage, as well as student loan debt cancellation. Trump’s checks-for-votes scheme is just more explicit.

Also critical of Trump’s obscene effort to buy votes with promises to give each American $5,000 picked from the pocket of another American is National Review‘s Charles Cooke. A slice:

Let us start with the obvious moral problem that the money in question does not belong to those to whom Trump is promising it. Explaining his idea, the president described it as a “dividend.” But, of course, it is no such thing. A dividend is money a company pays to its shareholders, usually from its profits. The United States is not a company; the voters are not its shareholders; and, to put it lightly, there are no profits to be shared. There is no reason whatsoever that each adult in America should be sent money from the federal government; there is no reason that, if it is to be sent, that money should be equally allocated; and there is no reason to condition such a payout upon the Republicans winning the midterms. This isn’t tax policy or fiscal policy; it is a reckless, shapeless, irritable spasm, divorced from the nature and purpose of our government and from the Constitution that created it.

Practically, the idea is deeply irresponsible. “Dividend” would remain the wrong word if the United States had no debt, a budget surplus, and 5 percent annual growth. But now? We are $40 trillion in debt. This year’s federal budget deficit will exceed $2 trillion. Sending $5,000 checks to every adult would cost around $1.3 trillion — more than the entire federal discretionary budget for 2026, and equivalent to about ten years of revenues from the tariffs that Trump’s feckless vice president insists will pay for this latest foray. Last year’s tax bill corrupted the sensible reforms of 2017 by adding a patchwork of irrational exemptions and special treatments: deductions for people who live in fiscally profligate states; preferences for workers who earn some of their income from tips; an expansion of the entitlements that are bankrupting us; and more. Trump’s checks-for-everyone gambit would corrupt our already corrupted budget in a similar — and considerably more consequential — manner.

Politically, the act would confirm for all time that the second Trump administration has been a failure. Trump was returned to office because a majority of voters believed that he could get inflation under control and thereby lower prices. Instead, Trump has publicly called for aggressive interest-rate cuts and imposed tariffs on all sectors of the economy. Adding another $1.3 trillion in stimulus would without doubt make the status quo worse. The populists are fond of insisting that the choice is between them and the socialists. This morning, that contention seems preposterous. Leaving to one side that the deliberate stoking of inflation by a president who defines himself as an anti-socialist is likely to lead to a thermostatic increase in the socialists’ support, one must ask the obvious question: If this is populism, what need is there of socialism at all?

Or as the Wall Street Journal‘s Editorial Board puts it: “Trump has a $5,000 bridge to sell you.” A slice:

Mr. Trump is resorting to this because voters are unhappy about inflation and don’t think his economic policies have helped them. His tariff tax increases are a big part of the reason. If he repealed those, he’d give the country an economic dividend without spending a dime.

Charles Hilu documents that cowardly GOP politicians willingly embarrass themselves by offering absurd justifications for Trump’s economically clueless policies – in this case, for Trump’s proposed ‘dividend’ checks of $5,000 to every adult American if the GOP retains control of both the House of Representatives and of the Senate. Two slices:

“Republicans have been fighting fraud, waste, and abuse in a lot of the mandatory programs,” Representative Andy Harris of Maryland, head of the conservative House Freedom Caucus, told National Review. “We should probably take half of those savings, apply half to the deficit, and then send the other half to citizens as a dividend check.”

…..

“I think the point he’s making and the point Republicans are making is that, with a growing economy, you cut the tax burden, you cut the regulatory burden, you get investment, you grow the economy, you get rising wages, and we are more about making sure people control their dollars and not hand all their dollars to government,” Senator John Hoeven of North Dakota told reporters.

About J.D. Vance’s outlandish attempt to justify Trump’s $5,000-per-adult-American vote-buying scheme, Brit Hume tweets: (HT Scott Lincicome)

What Vance is saying here is rubbish and he’s smart enough to know it. Politicians have been, in effect, bribing voters with their own money forever, but this takes it to a new level, not least because the tariff money wouldn’t come close to covering the payouts.

My intrepid Mercatus Center colleague, Veronique de Rugy, reveals the many problems with J.D. Vance’s scheme for government to subsidize stay-at-home parents.

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… is from page 637 of the final (2016) volume – Bourgeois Equality – of Deirdre McCloskey’s soaring trilogy on the essence of bourgeois values, on their transmission:

People want dignity, even more than they say they want income equality. And in a modern economy they achieve it. If we insist on ignoring the equality of genuine comfort, and if we marshal populist politics agains a first-act inequality of income that yields enrichment for the poor as much as it yields baubles for the rich, we can kill dignity and material comfort for the rest of us. It’s happened, repeatedly.

DBx: A wise and timely warning, this.

Please join me in wishing Deirdre a very happy birthday today. May she – for our sake no less than for her’s – live to see many, many more!

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… is from a recent Facebook post by GMU Econ alum Dave Hebert:

China has over 200 million workers in manufacturing, right now and produces roughly twice as much output as the 12.6 million American manufacturing workers.

In other words, ONE American manufacturing worker is as productive as EIGHT workers in China.

The American manufacturing worker (and sector) does not need to be “protected” from the rest of the world. They need to be unleashed upon the world.

DBx: Indeed so.

The graph was put together by GMU Econ alum Mark Perry and shared with me recently by email.