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… is from page 213 of Thomas Sowell’s 1999 book, Barbarians Inside the Gates:

The “academic freedom” argument for tenure gets more and more threadbare as more and more scholars work in think tanks where there is no tenure. The research coming out of these think tanks is at least as independent as that coming out of universities operating under the stultifying conformity of political correctness.

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Here’s a letter to a Facebook commenter.

Mr. McNicoll:

Commenting on Jeff Singer’s Facebook page, you unjustifiably call Reason’s Billy Binion a “moron.” You level this uninformed accusation at Binion because he points out that Trump is as clueless to complain about the so-called U.S. “trade deficit” with each of many individual countries as would be an individual American to complain about her “trade deficit” with a supermarket. In fact, the supermarket example is a correct and clear way of exposing the fallacy of Trump’s economics. Yet rather than recognize this fact, you resorted to name-calling.

Name-calling is easy and childish. Making a credible argument requires thought and maturity. So I challenge you to act like an adult and offer a credible argument in response to the following:

In an economy of more than two entities – more than two individuals, firms, towns, states, or countries – there’s absolutely no reason to expect any pair of these entities to sell to each other the same amount as they buy from the other.

Suppose, for example, that the world had only three countries: the U.S., Canada, and Brazil. Suppose further that in this world the U.S., each year, imports from Canada $1M of maple syrup, paying in U.S. dollars. The Canadians then use those U.S. dollars to buy $1M of coffee from Brazil. The Brazilians, in turn, use those U.S. dollars to buy $1M of corn from the U.S. There are (for simplicity) no other international transactions.

In this example – if Trump is correct – Canada is “ripping” America off, for the U.S. has a so-called “trade deficit” of $1M with Canada. Also if Trump is correct, were he as president to stop Americans from trading with Canada, we Americans would lose nothing; indeed, we’d gain $1M.

Do you think that Trump is correct? If so, show your work – work, by the way, that would also reveal that, according to Trump’s logic, the U.S. in this example is “ripping off” Brazil to the tune of $1M annually.

Note that if we now allow also for foreigners to invest some or all of their U.S. dollars in the U.S. instead of spending them all on U.S. exports, the absurdity of Trump’s ‘argument’ is only magnified.

Billy Binion is perfectly justified in using the supermarket example, for there is no essential difference that separates one individual’s “trade deficit” with a supermarket from one country’s “trade deficit” with another country.

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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My intrepid Mercatus Center colleague, Veronique de Rugy, explains that the U.S. government’s fiscal incontinence helps to fuel inflation by making more likely future monetization of the debt.

GMU Econ alum Dave Hebert has a new paper on manufacturing in the U.S. A slice:

The lesson from the Biden-Harris years is not that their policies were successful.Instead, American manufacturing is resilient enough to perform remarkably well despite regulatory headwinds. Regardless, bad policy does take its toll and is more accurately measured in unrealized potential: factories never built, jobs never created, and investment directed elsewhere. The regulatory hangover described here is not the story of a sector that collapsed or is “dead.” It’s the story of a sector that could have been significantly stronger.

“A 5 percent wealth tax would destroy a lot more than it raises” – so explains my Mercatus Center colleague Jack Salmon.

John Early tells “how to improve the Trump administration’s tepid proposal to remove race and ethnicity from the decennial census.” A slice:

Classifying people by race is inherently unethical because it enables government to discriminate for or against individuals or groups based on their race. At its most extreme, the Nazis in Germany and the Vichy government in France used official statistics as part of their genocide campaigns. The French have learned that lesson and forbid almost all data collection by race. Less extreme use of race to discriminate is widespread in the United States today, from college admissions to housing subsidies and hundreds of other applications. (For extensive documentation of such abuses, see David E. Bernstein, Classified: The Untold Story of Racial Classification in America.

George Leef reviews Unsung Heroes of the Market: The 24 Underrated Economists You Need to Know. A slice:

Rosolino Candela contributes a chapter on Israel Kirzner, who enrolled at New York University intending to study accounting and happened to hear about a professor who gave an interesting seminar on economics — Ludwig von Mises. Kirzner decided to attend and was so captivated that he chose to pursue a PhD in economics under von Mises. Candela writes, “The hallmark of Kirzner’s scholarship has been to take his inspiration from Mises and develop his own unique appreciation of the entrepreneurial market process, not for the purpose of illustrating where mainstream economic theory had gone wrong per se, but to explain why its focus on equilibrium states painted an incomplete picture of the market process.” Kirzner’s work also illustrates the ways government regulation hinders entrepreneurs from taking advantage of opportunities for profit.

Brian Albrecht continues to write insightfully about market prices and the many different margins on which individuals make adjustments to changes in economic constraints and opportunities.

Here the concluding paragraph of Noah Rothman’s reflections on Trump’s asinine proposal to give every American adult $5,000 if, in November, Republicans retain control of both houses of Congress:

If the president were surrounded by folks with a little more faith in voters’ intelligence, he might not have insulted them with the promise of a greasy payoff. He should find himself a few people who don’t hold their fellow Americans in contempt. That might make the next two years a little easier on this White House, the GOP, and whomever Republican voters pass the party’s baton to in 2028.

Scott Lincicome draws the logical conclusion from Trump’s latest ‘explanation’ of the meaning of bilateral trade deficits and surpluses:

Just think how rich you’ll be when you stop eating altogether!

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… is from page 24 of the new CL Press printing of the 1954 Revised Edition of Eli Heckscher’s 1931 book, Mercantilism [original emphasis]:

Without deviating from the relationship of mercantilist policy to the state, we may ask further, what was the object of mercantilism in using economic forces in the interests of the state? The answer is primarily that it wanted to make use of them not directly in the interests of the subject but to strengthen the state authority itself; it concentrated on the power of the state.

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Wall Street Journal columnist Barton Swaim decries Americans’ loss of an ethos of risk-taking. Two slices:

Evidence abounds that most college-educated Americans have lost the ability to assess risk. An exaggeration, maybe, but that thought has haunted me since the pandemic years of 2020-21, when otherwise sane people embraced draconian interventions of minimal benefit while showing no interest in costs. The very few advocates of shutdowns and school closings willing to acknowledge those policies as misjudgments mostly excuse themselves by noting how little we knew of the virus in its early days.

Well, sure—although some of us knew folly when we saw it. Anyway, the maniacal demand for a clinically neat solution to the pandemic, and the concomitant failure to acknowledge cost-benefit trade-offs, suggests a cultural pathology predating Covid-era safetyism. In fact, its roots go back nearly a century, as Manhattan Institute economist Allison Schrager makes clear in “Worth the Risk,” to be published next week by Yale.

America’s global economic dominance, achieved in the 1950s and enduring still, is largely thanks to the young country’s risk-welcoming ethos. The few provisions that shielded economic actors from ruin in the 19th century—bankruptcy protections, limited-liability laws—didn’t deter risk-taking but encouraged it.

Then came the New Deal’s dramatic expansion of the welfare state. Social Security, unemployment insurance and an assortment of jobs programs aimed to make economic life less risky and more predictable. Three decades later, beginning with the Great Society and its attendant War on Poverty—Medicare, Medicaid, expanded food stamps, school lunch programs, housing vouchers—the federal government tried to abolish risk for the working class: the class, that is, from which the country’s boldest entrepreneurial risk-takers had always sprung. The trend continued when consumer-protection and product-liability laws made America a more litigious society and forced companies and public institutions to think constantly about safety and risk-avoidance.

After the 2008-09 financial crisis and the shutdowns of 2020-21, wealthy democracies all over the world, including the U.S., expanded their role as citizens’ primary insurer. “Regulatory policy changed to restrain banks from lending and taking on risk, and industrial policy, tariffs, and reshoring efforts were billed as ‘de-risking the economy,’ ” Ms. Schrager writes. Rather than insuring against a specific risk that went badly in the past, “the government started heading off opportunities for risk altogether, explicitly forfeiting growth in exchange for safety.”

…..

Ms. Schrager debunks several myths that she says keep Americans of all ages and stations from taking healthy chances. Among those myths: the belief on the progressive left and populist right that U.S. workers face more economic risk than they did two or three generations ago. The odds of being laid off, for example, haven’t changed appreciably since the 1950s. Or this: “Conventional wisdom says that Millennials don’t have the cash to buy a home because, unlike their parents’ generation, they have too much student loan debt. But there is actually a positive correlation with student debt and homeownership, since people with more student debt tend to earn more.”

And bear in mind, Ms. Schrager says, the reason millennials carry that debt in the first place: because politicians starting in the ’80s presented college as a risk-free road to financial security. Federal and state governments made loans easy, borrowers felt less price sensitivity and colleges responded rationally by bumping up tuition. “When college is touted as a ticket to a certain lifestyle,” she writes, “it seems smart to agree to almost any price tag and any amount of debt.”

John Stossel writes wisely about AI.

GMU Econ alum Dave Hebert ponders Canadian membership in the EU.

Also from Dave Hebert: He exposes yet another foundational inconsistency in Trump’s (mis)understanding of trade.

From a new poll by the Cato Institute:

74% Say President Trump’s Tariffs Have Raised Prices; 53% Say Tariffs Have Weakened the Economy, 70% Say the President Needs Congressional Approval to Impose Tariffs.

“US-Canada trade war further taxes small businesses as costs rise during the Iran war.” (HT Scott Lincicome)

National Review‘s John Puri applauds the tightening of U.S. monetary policy and hopes that it remains tight long enough to actually whip inflation. Here’s his conclusion:

Americans should be worried that, for a second time, the Fed will declare victory at the first sign of easing inflation and quit before the task is done. As Warsh said last month, no self-executing law of the universe requires inflation to revert to 2 percent. Inflation is a function of monetary policy, and policy must be sufficiently restrained over time to keep the money supply in check.

“Inflation is a choice,” Warsh reiterated today. The Fed has finally begun to do its job of restoring some semblance of price stability. It needs to make sure that it finishes the job this time.

Jacob Sullum reports on a court ruling against the DHS’s proposed changes in visas for students and journalists. A slice:

“The damage to the higher education system and to the economy of the United States is likely to be catastrophic,” U.S. District Judge F. Dennis Saylor IV, a former President George W. Bush appointee, writes in response to a lawsuit filed by organizations representing universities, educators, and journalists. “Notwithstanding the scale of the likely harm, the government’s proffered rationales for the rule are exceptionally weak, and the connection between the rule and the problems it purports to address is exceptionally attenuated.”

Although the DHS estimated that complying with the rule would cost about $250 million in the first year, “the real expected costs go far beyond” that figure, Saylor notes. Under prior regulations, foreign students could remain in the United States until they completed their educational programs, including “authorized practical training following completion of studies.” For people earning one or more advanced degrees, that process often takes longer than four years. By ignoring that reality, the DHS rule would undermine the huge scientific and economic benefits generated by international students.

“How Socialism Destroyed Venezuela in 16 Charts.“

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… is from James Madison’s Federalist 47:

The accumulation of all powers, legislative, executive, and judiciary, in the same hands, whether of one, a few, or many, and whether hereditary, selfappointed, or elective, may justly be pronounced the very definition of tyranny.

DBx: Indeed. Yet today, leaders of, and cheerleaders for, both major U.S. political parties seem to believe that as long as politicians are chosen democratically, any such concentration of power in one branch of government is not only acceptable, but desirable.

Happy Constitution Day, fellow Americans.

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Deirdre McCloskey proposes to replace the term “capitalism” with “innovism.” I agree with her that the former term, because of decades of ignorant propaganda – and because the essence of “captialism” isn’t capital, but entrepreneurial innovation – unfortunately conveys negative impressions to too many people. (For alerting me to the Barron’s piece I thank Steve Kaufman.)

Don
……..

Editor, Barron’s

Editor:

You describe Trump’s vision of the American economy as “state-directed capitalism” (“How a Trade Deal With Japan Could Change the Face of U.S. Energy,” September 16). Although the “state-directed” part is unfortunately accurate, the “capitalism” part is inaccurate if by “capitalism” is meant the innovative and competitive free-market process that alone is responsible for modernity’s prosperity.

Genuine capitalism, by its very nature, cannot be state-directed. It is driven by entrepreneurs and investors, in competition with each other, spending their own (and only their own) money to create goods and services to offer for sale to consumers who are unmolested in choosing how they spend their own (and only their own) money. The result is economic dynamism that incessantly improves the living standards of almost everyone.

What you call “state-directed capitalism” is categorically different. It’s politicians and bureaucrats, facing virtually no competition, spending other people’s money to produce goods and services that these same government officials decide ahead of time must, by hook or crook – through the use of the likes of tariffs, subsidies, and regulatory mandates – be purchased by consumers. The result is economic stagnation that improves the living standards only of politicians, their apparatchiks, and special-interest groups.

“State-directed capitalism” might appear on the surface to be a version of genuine, free-market capitalism. But like a Potemkin village, behind the façade stands only rickety scaffolding held together with the equivalent of spit, string, and children’s glue. Just as no informed person would choose to live in a Potemkin village, no informed person would choose to live under “state-directed capitalism.”

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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Phil Magness’s recent letter in the Wall Street Journal is important:

In his op-ed “California’s Pro-Business Wealth Tax Proposition” (Sept. 3), Rep. Ro Khanna makes a case for California’s “billionaire tax” by pointing to the high federal tax rates of the mid-20th century.

Taxes in this era peaked at a top marginal income tax rate of 91%, although generous loopholes meant the wealthy didn’t pay this sticker price, a point Mr. Khanna concedes. Mr. Khanna nevertheless maintains that midcentury “effective rates were well above current levels.”

But is that claim true? In a 2018 paper in the Quarterly Journal of Economics, University of California Berkeley economists Emmanuel Saezand Gabriel Zucman estimated that for 1962 (the earliest year with available data) the upper 0.001% of income earners faced an overall effective tax rate of 44.3%. At the time that their paper was published, that same rate hovered between 39-40%.

Mr. Khanna makes no mention of this modest rate reduction over the past half-century, or how it reveals that our current tax system is still steeply progressive.

My GMU Econ colleague Vincent Geloso decries the competition between the political left and right to collectivize the economy. A slice:

On the right, the postliberal right or “beefsteak socialists” (brownish on the outside, red on the inside) propose to use tariffs as devices for reorganizing industries, promoting civic virtues, and protecting workers from “globalists.” These intellectuals include figures such as Adrian Vermeule, Sohrab Ahmari, Patrick Deneen, Oren Cass and Gladden Pappin. They defend state ownership in private corporations in order to direct investments toward national revival. In addition to tariffs, they defend subsidizing “key” (rarely defined consistently) industries to protect national interests. Their talking points have the ear of our current vice president, who explicitly replicates their arguments.

On the left, the Democratic Socialists of America are no longer a mere ragtag bunch of campus activists. They have great electoral visibility and competitiveness. They have won competitive primary races in Democratic strongholds in New York State; won primaries in more purple states such as Michigan; and ran surprisingly competitive candidates in Maine’s Senate race and Wisconsin’s gubernatorial race, despite those candidates being flawed in many ways, either because of personal scandals or because they expressed views far from the median voter. One of their key figures, Alexandria Ocasio-Cortez (D-NY), also features prominently in betting markets for winning the Democratic presidential primaries in 2028. They want, however, essentially the same policies as their beefsteak socialist counterparts. They merely use different justifications for increased state control of the economy.

The Editorial Board of the Washington Post is not impressed by Trump’s latest tantrum against the U.S. Supreme Court – or by many ‘progressives” itch to pack the Court (a move that, in my opinion, would exceed anything Trump has yet done to further undermine the rule of law in the United States). A slice:

But members of the court whom Trump interviewed came down differently on those issues. Justice Neil M. Gorsuch joined the majority striking down Trump’s tariffs but dissented on birthright citizenship. Justice Brett M. Kavanaugh concurred with the outcome on birthright citizenship but would have upheld Trump’s tariffs.

Justice Amy Coney Barrett ruled against Trump on tariffs and citizenship, but she dissented from a key 5-4 decision upholding the independence of the Federal Reserve. Only Trump’s “legends” — Alito and Thomas — dissented from all of his major high court losses last term.

For Trump, the fact that none of the justices he nominated joined Alito’s dissent on mail-in voting is evidence of cowardice. But it’s actually evidence that the administration was on rickety legal ground. Most presidents would prefer that their Supreme Court appointees be firm political allies. It often hasn’t worked that way throughout U.S. history.

Court-packing is making a comeback on the left, with Democratic politicians talking seriously about adding Supreme Court seats the next time they control the government. Like Trump, they can’t get over the fact that the court is not under their partisan control.

The Wall Street Journal‘s Editorial Board reports that New York State is taking what is, really, the next logical step in government-supplied ‘education”s destruction of education. A slice:

New York, are you reading the classroom? The state is plowing ahead with a plan to abolish a key high school graduation test, even as students aren’t graduating with basic knowledge or skills. Mark this down as one more sorry milestone on America’s educational march to mediocrity while creating frustrated voters who wonder why they can’t compete in the modern U.S. economy.

Empire State high schoolers have been measuring their knowledge on Regents exams since 1878. They must take five exams—English, math, science, social studies and “any additional” test. But starting in 2028 they’ll no longer have to pass the exams to graduate. A Board of Regents commission recommended this change in 2023, and on Monday the Regents voted to instruct the state Education Department to move ahead.

State officials insist they’re not rejecting rigor, but their ideas for replacing the graduation standards aren’t reassuring. Though details aren’t final, a state Education Department statement notes that state tests will be one of “multiple sources of evidence” that schools and districts use to assess students. Others include teacher observations and “performance-based learning experiences.”

Taking a cue from Tyler Cowen, Arnold Kling uses his “Polanyi knowledge” to explain the reality and relevance of “Polanyi knowledge.”

David Ibsen writes wisely about AI policy. A slice:

New technologies are by nature disruptive, and it is reasonable for people to ask how AI will affect their lives — policymakers should not ignore this. But policy should be based on an understanding of what AI actually does, the infrastructure it requires, and its concrete benefits and risks.

AI is a tool that analyzes patterns from enormous amounts of data to predict the next word, phrase, image element, or line of code in a user’s request. That predictive ability is what allows it to draft, translate, and write code so quickly. It is powerful not because it possesses human judgment, but because it can process information at a speed and scale no individual human can match.

AI’s most immediate promise is not replacing human beings but augmenting human work — helping small businesses reduce administrative burdens, doctors’ offices organize records, nonprofits analyze information, and governments deliver services more efficiently and accurately. Every one of those tasks is handled by powerful computers housed in data centers, supported by servers, cooling systems, fiber connections, and electricity. The potential usefulness of AI cannot be achieved without this infrastructure.

Too many policymakers want the promise of AI while resisting the data centers and energy systems that have made our modern life and the rise of AI tools possible. This is the technological equivalent of wanting air travel without airports or online commerce without warehouses.

Data centers are not new. They already support banking, streaming services, health records, logistics, cloud storage, cybersecurity, and countless other parts of modern life. AI did not create the need for data centers; our world already depends on them.

Scott Lincicome shares this unsurprising headline of a report in the Financial Times:

“US manufacturers hit by fresh burst of supply chain cost inflation”

Hilarious!

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…. is from pages 265-266 of the original edition of Walter Lippmann’s sometimes deeply flawed but profoundly insightful and still-important 1937 book, The Good Society:

For it is not necessary to choose between social control administered by the aggrandized state and a self-assertive individualism subject to no social control. That supposedly exclusive choice, which causes such furious party antagonism in our society, overlooks entirely one of the oldest, best established, and most successful methods of social control in human experience. It is social control, not by authority fro9m above commanding this man to to this and that man to do that, but social control by a common law which defines the reciprocal rights and duties of persons and invites them to enforce the law by proving their case in a court of law.

This method of social control is, I submit, the appropriate method for a self-governing people to use.