David Henderson exposes some of billionaire Nick Hanauer’s economic cluelessness. A slice:
Second, he tells us that with his preferred Market Humanism, markets are servants, not masters. Well, yes. But he says that as if it’s new. It’s not. In 1776, Adam Smith famously wrote that we get our dinner from the butcher, the brewer, and the baker, not out of their benevolence but out of their self-interest. In short, they are our servants.
Hanauer’s error of omission is that he never gets around to telling us the pro-market ways to improve the situation. He praises anti-market regulations such as increases in Seattle’s minimum wage to $21.30 but doesn’t mention that the increase cost jobs. He settles instead for assuring us that “the restaurant industry didn’t collapse.” He could have mentioned reducing the requirement for people get government permission before entering one of over 800 occupations. He could have proposed massively deregulating housing construction, so that more people could afford to buy or rent nice houses. But he didn’t.
My intrepid Mercatus Center colleague, Veronique de Rugy, informs newly elected U.S. senators that they cannot avoid dealing – in one way or another – with the looming fiscal reckoning of Social Security. A slice:
The headline item from Tuesday’s elections is that Democrats wiped out Republicans in the House and the Senate. Congratulations. But do our newly minted senators, with their terms ending in January 2033, realize that they will be the cohort of legislators who face the exhaustion of Social Security’s retirement trust fund in 2032?
Each official will choose between letting a 22% automatic cut to benefits go through, finally making the program’s math work by reforming its outdated design, or letting Washington borrow trillions more to prevent any cuts. Few, if any, of the candidates said a substantive word about it while campaigning.
In fact, fiscal sustainability was remarkably absent all election season. During the 2010s, powerful politicians openly championed “austerity.” As late as 2018, according to AdImpact data reported by The Wall Street Journal, 140 political ads mentioned the debt or budget deficit. During this cycle, only 30 did, putting the subject 52nd among campaign topics.
That’s beyond crazy. It has been widely reported that in the fiscal year that just ended, government debt held by the public reached 100% of GDP, a level last seen following World War II. The deficit is nearly $2 trillion, or 6.2% of GDP. Interest payments have more than doubled in only four years, surpassing the United States’ bill for military spending.
And because the Treasury kept the debt’s average maturity short, high interest rates are hitting the budget very quickly. About one-third of the marketable debt — more than $10 trillion — must be refinanced in the next 12 months. This debt must be rolled over at the new rate, so interest payments will continue to explode.
Here’s the Wall Street Journal‘s Editorial Board on yesterday’s huge market sell-off. A slice:
Investors this week also picked up on the hostility to data-center construction evident throughout the midterm election campaign. Thursday’s big losers included chip manufacturers, cloud companies, and anyone else involved in building data centers. The tech-heavy Nasdaq fell 5.52% and shed some $2.5 trillion in market value.
On Wednesday investors bid up stocks on seeming hope that political gridlock in Washington might be good for the economy. On Thursday they noticed Democratic control of so many state governments, and towering majorities in Congress, might not be great for business, especially tech. Investors have to figure out where to land after such a seismic election with uncertain policy consequences.
Notably, Thursday’s selloff spread beyond tech, marking the first time in months that every sector represented in the S&P 500 index declined. And steeply so, this time. Consumer stocks that previously became a refuge for investors taking tech-stock profits also fell.
This could mark merely another painful step in the repricing of financial risks. Or it could signal a new degree of liquidity stress in the market as investors sell to take profits and raise cash to hedge against what they see as new political and economic risks.
Logan Tantibanchachai explains that markets build both wealth and trust.
Arnold Kling reflects on the recent trouncing of the GOP.
Also reflecting on the recent trouncing of the GOP is AEI economist Michael Strain. Two slices:
As Republicans seek to learn lessons for their post-Donald Trump future, it is important for both the party and the conservative movement to recognise that the distinctly Trumpian elements of the president’s agenda have failed to achieve their objectives and to advance economic prosperity. Of the policies that have been motivated by populism and economic nationalism — marking a sharp departure from the traditional GOP consensus — the most prominent has been the trade war. Its two main goals were to increase manufacturing employment and reduce the trade deficit. Each of these goals is wrong-headed, and neither has been met.
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Trump’s push for a sharp reduction in immigrant inflows to the US during his current term has been another signature nationalist-populist policy. The goal was presumably to boost the economic outcomes of native-born Americans. But, according to my calculations, employment rates for the native-born population have fallen since January 2025, while rates for the foreign-born have increased. Comparing September 2026 to September 2025 shows a similar trend, as does comparing economic outcomes among native and foreign-born Americans aged 25 to 54 over that period. Nor have native-born workers seen their earnings grow faster than immigrants during Trump’s current term.
At $2tn, the budget deficit for 2026 is the largest outside a war or recession in US history. While the GOP’s fiscal record leaves much to be desired, Trump’s lack of concern about fiscal responsibility is a departure from the norm. Past Republican administrations have pursued — with and without success — cuts to social security and Medicare spending, the main drivers of projected structural deficits.
These failures have hurt the GOP’s political fortunes. In an economy with high prices and above-target inflation, Trump’s trade war was a political liability. Exit polls showed that nearly two-thirds of midterm voters think Trump’s tariffs have hurt the economy.
And although Trump’s success at securing the southern border is popular, his deportation and enforcement efforts have been more divisive. Meanwhile, his fiscal policy has put upward pressure on politically salient interest rates, including on home mortgage loans.
Trump’s approach has shown a disregard for the rule of law and the principle of limited government. His willingness to weaponise the criminal justice system in order to bend the Federal Reserve to his will eroded a foundation of prosperity and made the US look like a banana republic. Taking equity stakes in private companies, notably Intel, is another threat.
Phil Magness isn’t buying J.D. Vance’s self-serving explanation for the GOP’s enormous midterm electoral loss. A slice:
The scale of the defeat is hard to overstate. Democrats took both chambers of Congress, flipping Senate seats in places like Iowa, Kansas, Ohio, and Texas. The exit polls overwhelmingly confirm why. In the NBC News exit poll, 66 percent of voters said Trump’s tariff policies hurt the national economy, and 64 percent said they hurt the economy in their own area. Just 21 percent said tariffs helped. The economy was the top issue for 39 percent of voters—ahead of the state of democracy at 33 percent, immigration at 14 percent, and far ahead of foreign policy issues, Iran included, at just 4 percent. In another set of questions, 49 percent of the electorate ranked the cost of living concerns as a “crucial” factor in determining their vote. This compares to 36 percent for immigration enforcement, 34 percent for the Iran war, and 23 percent for data centers. The only other issue that matched it was a parallel concern about corruption, which 55 percent of voters flagged as crucial.
These figures should not come as a surprise to anyone. We’ve had almost two years of warning in the polling data. Tariffs have never been popular with the public, save for a tiny hardcore MAGA base. Among the remainder of the electorate, opposition to trade protectionism is strong and growing. The tariff issue has steadily eroded Trump’s economic performance rating since he launched a trade war against the rest of the globe on “Liberation Day” in April 2025. The Economist/YouGov tracker tells the story. In Trump’s first term from 2017 to 2021, his economic ratings remained generally high. In the second, his economic approval began at the same level as his first term, then plummeted as the tariffs rolled out—and it never recovered. It sank to a net minus-36 by October 2026. The unpopular war in Iran and its accompanying strains on gasoline prices accelerated the decline, certainly, but the data show it was already well underway because of the tariffs.
Quite simply, the White House miscalculated on the issue. And it miscalculated badly.
Reem Ibrahim writes that the trouncing of the GOP in the U.S. should be a warning to the right in the U.K.
The Editorial Board of the Washington Post decries the growing authoritarianism imposed by the thugs in Beijing on the people of Hong Kong. A slice:
Pro-democracy activist Joshua Wong, who recently spent his 30th birthday behind bars, was sentenced on Thursday to another 10 years in a Hong Kong prison under China’s national security law. First arrested for protesting at age 17, Wong was accused in the current case of “collusion” with “foreign forces” because his advocacy prompted a government crackdown that helped trigger U.S. sanctions.
Intellectual elites may imagine that they have all the consequential knowledge required to create the social justice world they seek, despite considerable evidence to the contrary. But, even if they were somehow able to handle the knowledge problem, there still remains the problem of having enough power to do all that would need to be done. That is not just a problem for intellectual elites. It is an even bigger problem – and danger – for the people who might give them that power.
When Americans buy clothing from Vietnam, the dollars we send overseas do not evaporate. Foreigners who receive dollars use them to buy American goods and services, to invest in American businesses and real estate, or to purchase American financial assets such as Treasury bonds. Every dollar that leaves the country to pay for imports creates a corresponding inflow of foreign demand for American exports, American assets, or American investment opportunities.
There is a critical distinction between the legitimacy of a right and the morality of exercising that right. The government should only be concerned with questions such as the domain of rights, the proper role of violence, and the definitions of aggression and criminality. The government should not be concerned with all personal moral principles. There is a huge difference between establishing the permissibility of an action and the goodness or morality of it. The state should be concerned with the rights of men and not with the oughts of men.
