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.
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.
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.
In the market there are in effect a very large number of parties, there is no majority rule, and there is the possibility of a wide diversity of mixtures of commodity purchases and a wide diversity in styles of life. In the political area, where majority rule is the convention, diversity can only be achieved through coalitions offering packages, one of which will appeal to more voters than the others. It is as if in economic life we had only two firms, each of them offering a complete package of consumer goods in relatively fixed proportions, so that in effect we had a choice between two enormous packages of commodities and could not make our own selection.
Lesson 8. Protection does not create jobs. Trade destroys many fewer than is popularly believed. Protection may slow down the rate of decline of employment in a declining industry but creates many fewer jobs than expected in the protected industry and results in more job losses elsewhere. Many more jobs are lost due to capital deepening and automation than because of trade.
