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… is from page 7 of Menzie Chinn’s and Douglas Irwin’s excellent 2025 textbook, International Economics:

Moreover, one of the defining features of the recent period is record levels of cross-border holdings of assets – everything from factories and other real estate to stocks and bonds. This means that someone from Poland might take out a mortgage on her house from a Swiss bank, or an American credit card holder might pay a record low interest rate because of China’s eagerness to lend to the rest of the world.

DBx: Yes.

Always remember that, by the rules of accounting, U.S. trade deficits (or, more precisely, current-account deficits) are a necessary accounting result of U.S. capital-account surpluses – that is, of net inflows of capital to the United States. The arithmetic behind the accounting is that all U.S. dollars that are invested by foreigners in the U.S. are U.S. dollars that foreigners cannot also use to purchase U.S. exports.

Next time you encounter some government official or media pundit talking or writing as if U.S. trade deficits are necessarily a problem, remember that these ‘deficits’ keep interest rates in the U.S. lower than they would otherwise be, and thus these ‘deficits’ not only reduce the burden of debt for American consumers, they also spur investment in American businesses (which, over time, raises American workers’ real wages).

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Pow! Slam! Art Carden wrestles successfully with myths about so-called “trade deficits.” A slice:

In their textbook, Modern Principles of Economics, Tyler Cowen and Alex Tabarrok ask what happens when Walmart buys toys from a Chinese supplier. I decided to test this once by going to my local Walmart and buying an action figure of All Elite Wrestling’s Brody King, which is part of the Jazwares “Unrivaled” collection and a Walmart exclusive. After tax, the figure cost me $21.82. The figure was manufactured in China for a company (Jazwares) based in Florida, represents an athlete who lives in Georgia and works for a company also based in Florida, and was purchased (and taxed) in Alabama. There is value added at every stage and by people around the world, but let’s focus strictly on the share of the figure that goes to the Chinese manufacturer.

What does the manufacturer do with the dollars he earns by selling me (via Jazwares and Walmart) a wrestling figure? He wants the dollars for dollar-denominated transactions. First, he might want to buy American goods and services. In the Chinese context, one of the services they seek to purchase is American higher education. Second, he might want to invest in the United States by (for example) buying new bonds issued by American corporations. Third, he might want to lend to the U.S. government by purchasing new Treasury bonds. In both cases, he might also want to purchase dollar-denominated assets, such as existing stocks and bonds. Fourth, he might want to increase his dollar reserves for several reasons. The US dollar is the world’s reserve currency; it is famously stable and widely used for transactions in the United States.

Fifth and finally, the Chinese manufacturer might want to sell the dollars to someone who wants to do any of these things.

How does the transaction affect the balance of payments? The trade deficit widens because we imported the figure. That receives considerable attention, but I think the attention the trade deficit receives is overstated. In the long run, countries pay for their imports with their exports. Additionally, the dollars “come back” to the United States as foreign direct investment. The current account deficit (the trade balance) is identical to the capital account surplus.

Matthew Lau is correct: “Protectionists live in economic wonderland.” A slice:

In recent years, the White House’s Protectionist-in-Chief has turned much of the political landscape into an upside-down Wonderland. Among the things that are now topsy-turvy is that the Republican Party increasingly practices socialism, while actual socialists, at least on international trade, champion freer markets.

Under socialism, government owns the means of production, which the U.S. government increasingly wants to do. In June, through $750 million in investments, it took minority equity stakes in two semiconductor companies. In July, through up to $874 million in additional funding, it took minority equity stakes in six more and increased its ownership of a seventh. The Cato Institute counts 30 companies in the federal government’s expanded corporate portfolio. “Republicans warning that communists are taking over the Democratic Party might first ask why their own administration is so eager to have the government acquire pieces of private companies,” Cato analyst Tad DeHaven suggested.

Writing in the Washington Post, GMU Econ alum Julia Cartwright reviews Daron Acemoglu’s new book, What Happened to Liberal Democracy? A slice:

Not every argument is equally strong. Still, “What Happened to Liberal Democracy?” is a book for these times, when many Americans sense that the nation is at an inflection point. Acemoglu’s answer is neither despair nor nostalgia. It is a rallying cry to return to liberal democracy, the system that turns individual freedom into prosperity for all. Right, left or center, the tasks laid out are for everyone: Invest in your community, demand institutions that answer to their citizens and defend the freedoms of people you disagree with.

Paul Meany makes this ever-important point: “Economic liberty begins where government privilege ends.”

Reem Ibrahim reveal yet another front on which the Trump administration is protecting Americans from arrogant and overreaching bureaucrats – not!

David Henderson on Hayek on power.

Shiv Parihar decries the economic ignorance of proponents of legislated minimum wages. Two slices:

This issue is personal for me. The jobs that these policies kill once helped keep me alive.
At 5, I was living in a Utah shelter at the height of the Great Recession. My single mother had little education or experience, but she needed work. Low-wage, entry-level positions were her path into the job market. She didn’t have a job that paid $15 an hour until 2023. If the minimum wage had been $15, she might not have had one at all.

Minimum-wage jobs were even more helpful to my father. He was a high school dropout who had been to jail. Had the minimum wage been $15, far fewer employers would have been willing to gamble on an applicant like him, especially one with a child to take care of half the week.

Utah has never raised its minimum wage above $7.25 an hour, the current federal floor. That isn’t much. But for my family, it was the difference between dinner and an empty stomach.

…..

The well-intentioned supporters of minimum wage hikes think of themselves as battling for everyday Americans, and I’m sure that can feel good. But hundreds of thousands of the poorest Americans have stories like mine. The fight for $15 is a fight against us.

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… is from page 109 of Robert Higgs’s Summer 1995 Critical Review paper, “Coercion Is Not a Societal Constant,” as this paper is reprinted in the superb 2004 collection of some of Bob’s essays, Against Leviathan (footnote deleted; link added; original emphasis):

[G]overnment stipulation of private-property rights differs fundamentally from government command and control. In the former case, the government sets rules regarding only what may not be done – namely, a person may not take actions that violate the established rights of another. Therefore, the choices people make and hence the outcomes of the socioeconomic process remain open-ended to an enormous degree. The concept of “spontaneous order” – a pattern of socioeconomic arrangements, transactions, and realizations unforeseen and unforeseeable by anyone, including those who establish the prevailing private-property rights – nicely expresses the workings of a society based on private-property rights. In the command-and-control case, however, the authorities stipulate what must be done.

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Now that 30 days have passed since the Wall Street Journal published Phil Gramm’s and my piece arguing that Alexander Hamilton would almost certainly not approve of Trump’s tariffs punitive taxes on Americans’ purchases of imports, I can share our piece here in full and without charge. It’s beneath the fold. (Note that authors choose neither these titles nor subheadings. For this article, I wouldn’t have chosen either of these. The reason is that Hamilton did indeed see a significant role for protective tariffs,  although – as Gramm and I argue – not for the conditions under which Trump imposes tariffs.)

[continue reading…]

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Ryan Bourne explains that “burrito-gate reflects inflation’s toxic legacy.”

Brian Albrecht carefully lays out the likely consequences of Mamdani’s government-run grocery stores.

National Review‘s Jim Geraghty is right: “Both parties embrace what’s popular and abandon what’s right.” A slice:

The Republican president keeps taking a government stake in private companies, now up to 30 firms. As the Cato Institute observes, the U.S. government taking an ownership stake in private companies is now routine, and a Republican-controlled House and Senate are ready to make it official federal policy under law, not just some rogue administration’s actions. Zohran Mamdani wants to “seize the means of production”; today’s Republicans want to establish a federal ownership stake in the means of production. A future President Alexandria Ocasio-Cortez or some other progressive Democrat will appreciate Trump-era Republicans establishing the precedent and the legitimacy of the federal government strong-arming many kinds of companies into giving them ownership shares.

Justin Amash tweets:

One of the worst things about Trump is that he’s ushering in more corporate welfare, cronyism, and socialism while parading it under the banner of capitalism, so we end up with all the failings of those ideologies but with a generation of young people blaming the market economy.

Although commonly described as a “non-renewable resource,” petroleum continues to become more abundant. Gale Pooley tells us why.

Although never described as a “non-renewable resource,” elevators in the U.S. are more limited in number than they would be under freer markets. Eric Boehm tells us why.

The Washington Post‘s Editorial Board warns of the U.S. government’s fiscal incontinence. A slice:

The fiscal challenges scheduled to arrive in the 2030s are actually based on optimistic assumptions. They are from the CBO’s baseline estimates, which assume no wars, no recessions, low and stable inflation and no new government programs or tax changes.

Imagine how much worse the debt will look when there is a recession. If, heaven forbid, the U.S. needs to boost defense spending for a protracted war, it doesn’t have much room to grow.

Starting with World War II levels of debt and exceeding Great Depression levels of annual deficits, the U.S. is not prepared to face the demographic-induced challenges that loom, let alone world events nobody can predict.

Budget hawks have been talking for years about many of these problems, and it may have felt like not much has happened. The federal budget has been able to withstand more than many expected. But the 2030s is when the bill comes due.

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… is from page 155 of my late, great colleague Walter Williams’s 2015 book, American Contempt for Liberty, which is a collection of many of Walter’s columns and essays; this quotation specifically is from Walter’s August 31st, 2011, syndicated column, “Race and Economics“:

The National Industrial Recovery Act of 1933 and the Fair Labor Standards Act of 1938 broadened the number of workers covered by minimum wages, with negative consequences for black employment across a much wider range of industries. Good intentions motivate most Americans in their support for minimum wage laws, but for compassionate public policy, one should examine the laws’ effect. That’s seen by putting oneself in the place of an employer and asking, “If I must pay $7.25 an hour to no matter whom I hire, does it pay me to hire a worker who’s so unfortunate as to have skills that enable him to produce, say, only $4 worth of value an hour?” Most employers would view hiring such a worker as a losing economic proposition; therefore, a minimum wage law discriminates against low-skilled workers by reducing employment opportunity.

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GMU Econ alum Dave Hebert, writing in today’s Wall Street Journal, explains that – contrary to assertions by Peter Navarro and many other protectionists – imports do not suppress economic growth. A slice:

The $1,000 Italian espresso machine bought in Ohio enters consumption spending even though it wasn’t produced in the U.S. So to total domestic production accurately, the tabulators subtract its import value. The purchase adds $1,000 in one column and subtracts $1,000 in another. As the agency tasked with tabulating official GDP statistics, the Bureau of Economic Analysis, says, “to avoid including foreign production in GDP it is necessary to subtract the value of imports.”

Imports are subtracted not because they make the U.S. poorer, but because foreign production isn’t American production. Trade protectionists incorrectly view domestic production and economic health as synonymous. But American prosperity comes from what people can buy and use, and the factory’s address has nothing to do with that.

The last time the trade deficit shrank dramatically was in 2009, when it decreased by nearly half. It fell because Americans were in the throes of the worst recession since the Great Depression. The trade-deficit hawks’ misreading of the economic scoreboard was discredited: A shrinking trade deficit turned out to be the signature of an economy in ruins. A widening trade deficit, on the other hand, is the mark of an economy with money to spend.

Chelsea Follett writes insightfully about the ancient fear of overpopulation – a fear rendered unwarranted by innovative free markets. Here’s her conclusion:

Globalized markets and modern technology have accomplished what even Zeus could not in the wildest dreams of the ancients. Humanity has pushed back the constraints that once seemed as fixed and inescapable as a hero’s fate in a Homeric epic. We now easily feed a population perhaps 100 times larger than the one known to the ancient Greeks. If only public wisdom would catch up.

George Leef recommends the new book, Books and the Founding Fathers and Their Influence on America Today, by George H. Nash and Timothy G. Nash.

Jason Willick ponders the rise of the DSA. A slice:

In his 1992 book “The End of History and the Last Man,” Francis Fukuyama famously argued that — at least for the time being — the great ideological struggles over how modern societies should govern themselves were over. Liberal, democratic capitalism had won out with the Soviet Union’s collapse. As he wrote: “All future efforts to push social equality beyond the point of a ‘middle-class society’ must contend with the failure of the Marxist project. For in order to eradicate those seemingly ‘necessary and ineradicable’ differences, it was necessary to create a monstrously powerful state.”

Fukuyama described the post-Cold War world well. But no consensus lasts forever, and the stigma against Marxism in America is clearly weakening as the memory of the Soviet Union fades. The title Democratic Socialists of America tries to dissociate today’s American socialists from the 20th-century socialist dictatorships. But, of course, the Soviet Union styled itself as a union of “republics.” Sometimes a label tries too hard.

Speaking of the DSA, the Wall Street Journal‘s Editorial Board reports on the economically clueless front-running Democratic candidate for governor of Wisconsin. A slice:

Her “Tax the Rich” agenda includes “a new tax bracket for millionaires and large corporations.” How high would Ms. Hong raise rates on wealthy Wisconsinites? In a recent debate, she suggested a top rate near 8.65%, up about one percentage point. Yet she has sponsored legislation to create a top rate of over 17%. And her campaign is floating the idea that “if millionaires and corporations chip in 17 cents out of every dollar earned after that first million, it could lower all our property taxes by 44%.”

To compare, Wisconsin’s current corporate tax is 7.9%, and the country’s highest business rate, according to the Tax Foundation, is 11.5% in New Jersey. On personal income, the top tax rate in New York City is 14.8%, with California at 13.3%. Such punishing rates are economically harmful, and Wisconsin doesn’t need a reason beyond winter weather for residents to flee to Florida or Arizona.

Wall Street Journal columnist Andy Kessler accurately describes the DSA’s ideology as “fertilizer for the feeble-minded.” A slice:

Zoh-Mart would be great branding for New York’s city-run grocery stores—though they’re doomed to fail. The mayor says they’ll have 30% discounts on a “core basket of goods.” Did he even take Econ 101? Price discovery is critical, else you get hoarding, shortages and bare shelves. Or worse, La Libreta ration cards like in Cuba. This has all been tried before. “You’re a mayor, dude,” Sen. John Fetterman (D., Pa.) said on Newsmax, “Pick up trash. Fix some potholes.” No fun in that. Viva la revolución!

The movement’s promises go downhill from there. Darializa Avila Chevalier is running for Congress, endorsed by Mr. Mamdani. She wrote, in a since-deleted tweet, “No more police at all ever.” Ever? She wrote to CNN that her tweets don’t reflect who she is today. She’s 32. The DSA Abolition Working Group’s website says they plan to “defund the police by rejecting any expansion to police budgets or scope of enforcement while cutting budgets annually towards zero.” Yeah, that’s ever. Bye, bye order.

Steve Landsburg explores, with his usual deep insightfulness, the fever of many people to seize much of Elon Musk’s wealth.

Scott Winship tweets: (HT Scott Lincicome)

I’ve been playing around with the [Raj] Chetty data, and I’m finding that 80% of people with parents in the bottom 3/5 of income are better off than their parents, compared with only half of people raised in the top fifth.

Back to Dave Hebert, who here, at his Substack, puts into proper perspective a recent report that protectionists are touting as evidence of the benefits of Trump’s tariffs punitive taxes on Americans’ purchases of imports.

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… is from page 39 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

Like so much that is done under cover of academic pieties, “service” to others is all too often a means of propagandizing the students themselves with “politically correct” ideologies, getting them to feel sorry for those supposedly neglected or abused by society, and to see handouts and social engineering as the solution to social problems.

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Christine Rosen uncovers evidence of the pathetic appeal of the DSA. Two slices:

But one aspect of the DSA’s appeal has been too often overlooked, particularly by conservative critics: its appeal as a form of instant community for a generation that often lacks one. DSA supporters are a highly homogenous group: 85 percent of DSA members are white, and 80 percent of them have college degrees. But it turns out that one of the things this knowledge-class proletariat is seeking (besides the abolition of prisons and the end of landlords) is . . . friends?

…..

Like sentimental socialists of old, the current crop of socialist youth, surrounded by others exactly like themselves and marinating in resentment about their circumstances, risks falling prey to what William James called the “sentimentalist fallacy,” or the tendency to “shed tears over abstract justice and generosity, beauty, etc. and never to know these qualities when you meet them in the street.” His example was “the weeping of the Russian lady over the fictitious personages in the play, while her coachman is freezing to death on his seat outside.” Today’s equivalent might be the Sey Coffee barista with a Ph.D. in post-colonial studies who is invested in seeing herself as downtrodden (while ignoring the genuinely struggling working-class people who surround her).

Writing in the Wall Street Journal recently, former Democratic congressman Daniel Lipinski tried to calm fears of a radical takeover of the Democratic Party by the DSA. He claimed “it is best to understand what is happening inside the Democratic Party today not as a widespread endorsement of the DSA platform, but more broadly as a protest by those fearful about the future and feeling betrayed by the perceived fecklessness of party leaders. Such emotions make fertile ground for demagogues.”

Today’s DSA demagogues-in-training already know this; the question is when their young followers, busy with their communal political gatherings and reveling in sentimental abstractions, will see how deeply cynical — and harmful to a free society — the political program they are supporting really is.

GMU alum Alex Nowrasteh takes on ten arguments offered by the DSA. A slice:

5. “Housing is a human right. Build new, publicly owned social housing, strictly regulate investment properties, establish universal rent control, and guarantee right to counsel for all tenants.”

Government intervention tends to raise housing prices. Universal rent control would deepen the shortage it claims to address and is among the policies most widely critiqued by economists. A 2012 survey asked economists about whether rent control would have a positive impact on the quantity and quality of broadly affordable rental housing, and 2 percent agreed that it would, about what you’d expect if they misread the question. Economist Nancy Stokey summarized the evidence well when she wrote, “The planets are lined up here: theory and evidence point in the same direction.”

San Francisco’s rent control expansion cut the supply of rental housing by 15 percent and likely raised citywide rents by about 5 percent. Publicly owned housing adds an agency problem on top of a shortage while making the government your landlord, who cannot go broke, answers to politicians rather than to tenants, fills units by political allocation, and maintains buildings the way Pruitt-Igoe was maintained. If the goal is to increase the supply of housing to lower the price, abolish or reduce the burden of zoning and other land use ordinances. We should do that anyway, and it would be far better and infinitely cheaper than a cross-country government construction project.

Paul Meany explains what shouldn’t – but, alas, what nevertheless does – need explaining, to wit: “Redistributing wealth means redistributing power to the state.”

Also explaining what shouldn’t – but, alas, what today nevertheless does – need explaining is Megan McArdle: “Universities desperately need to regain their credibility as neutral institutions, not publicly position themselves on the Democratic Party’s leftmost flank.”

Scott Lincocome makes clear that “data centers are not the problem. Bad policy is.” A slice:

Most of the hysteria, however, is nonsense—random anecdotes and shoddy pseudoscience that drown out rational analysis and leverage humans’ natural insecurities and innumeracy.

Let’s start with electricity, which is arguably the most difficult data center issue—at least in the future. Several regional and national studies have found little merit to the common claim that data centers have already caused large, localized increases in Americans’ electricity bills. In fact, a brand new, peer-reviewed study found that data centers actually caused average U.S. retail electricity rates to “fall modestly” between 2015 and 2024, because the centers’ high, steady power demand helped spread a grid’s fixed costs over more usage. This finding is counterintuitive but consistent with research from 2025 that high-demand areas—including ones like North Dakota and Virginia that saw an explosion of data centers—“saw lower prices overall,” while prices rose in places like California where demand had declined.

Reason‘s Billy Binion writes that Trump’s new ‘orders’ that attempt to limit birthright citizenship “combine unconstitutional provisions with performance art.”

Here’s the abstract of a paper recently written by Ran Abramitzky, Leah Platt Boustan, Ahmet Gulek, and Jens Hainmueller:

We study the effects of H-1B immigration on U.S. industries that employ H-1B workers and their trading partners. Using a novel cross-industry design and the 1999–2003 expansion of the H-1B visa cap for identification, we find that H-1B exposure raised incomes for natives and pre-existing immigrants, with gains concentrated in non-STEM occupations. Income gains propagate forward through supply chains to downstream industries but not backward to upstream industries, consistent with a productivity shock rather than a labor supply shock. We find no direct effect on patenting, suggesting that productivity gains arise from better task execution rather than patentable invention.

Arnold Kling continues to write with real intelligence about artificial intelligence.