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An Open Letter to J.D. Vance

Mr. Vance:

On Thursday, over at X, you declared that “Our message to corporate America is simple: We’re not going to let you lay off American workers so you can replace them with cheap foreign labor.”

Because you greatly admire Thomas Aquinas, who endorsed human reason as a gift “imparted to us by God,” you’ll undoubtedly wish to embrace all that reason reveals to be implied by your premise that American workers should not lose their existing jobs to lower-cost means of production.

Obviously implied by your premise, as you’re aware, is a policy of excluding imports and immigrants who displace American workers from their existing jobs. But your premise implies much more. To be consistent you must also insist that government prevent improvements in all labor-saving techniques. A worker who loses his job to a machine that operates more cheaply than him is no less distressed than is a worker who loses her job to a foreigner who works more cheaply than her.

You should, therefore, persuade Pres. Trump to join with Sen. Bernie Sanders to impose a moratorium on the development and use of AI. But not only that. You should persuade Americans to be grateful that the wars in Iran and Ukraine are raising the cost of energy. Because energy fuels labor-saving mechanization, the higher the cost of energy, the slower is the development and use of new labor-saving machines.

Indeed, you’ll want to block all expansion and improvement in America’s capital stock – expansion and improvement that historically have increased worker productivity. By your logic, we must avoid a future in which six American workers can produce what today requires ten American workers to produce. Stagnation of worker productivity demands that you and your party put an end to new investment in America.

And you’re not yet done. You should also oppose all research and development, including for health care. After all, every medical advance that reduces the severity of diseases and injuries puts some physicians, nurses, and caregivers out of their particular lines of work. By your logic, we cannot risk discovering the likes of a cure for cancer, as such a development would destroy the jobs of most oncologists.

Happily for you (if not for Americans generally), many of the policies that you and your party now practice – including tariffs, mass deportation of immigrants, government ownership of corporate shares, and fiscal profligacy – are certain to slow, and perhaps even to halt, economic growth and the inevitable destruction of particular jobs that accompanies such growth. You’re already well on your way to achieving your desired utopia.

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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Some Links

GMU Econ alum David Hebert explains that “tariff exemptions are big business for big business.” A slice:

What Apple and scores of other companies make clear is that extra profits from excluding foreign competition (costs paid by American buyers) isn’t the only prize industry lobbyists are after. The largest companies run through the exact same rent-seeking process again. The second time through, they argue for exemptions from the very tariffs they backed. And this is where the real money can be made.

First, tariffs make importing goods more expensive. This, in turn, allows domestic firms to raise their prices without fear of losing market share. A tariff on steel, for example, leads to higher domestic prices for steel. Then, industries adversely affected by the tariffs lobby for exemptions for themselves. Apple has done this, but so too have other industries. On June 1, President Trump signed a proclamation that adjusted the Section 232 tariffs on steel, aluminum, and copper to help relieve farmers of some of their burden. One industry gets the protection of the tariffs while another gets exemptions, protecting them from the tariffs. A firm that wins an exemption can continue buying its inputs at the lower, world price while their rivals pay the higher, domestic price.

This isn’t a new phenomenon. During President Trump’s first term, the Commerce Department created a process by which firms could request exclusions from the Section 232 tariffs on steel and aluminum. By January 2021, 153,831 such requests had been filed by just 941 firms. Why such a small number of firms? Consider what it takes to actually file a request. You’ll need lawyers and trade consultants who know how to actually put together a well-formatted request and staff who know their way around a federal docket to make sure that the request reaches the correct person. Larger companies, with their Rolodex of contacts in Washington, can make sure that their requests reach certain people with whom they already have a standing relationship. Smaller firms have none of these. What’s more, domestic producers were allowed to object to a competitor’s request, meaning that not only were firms able to request exemptions for themselves, but they were able to sabotage one another’s requests as well.

Speaking of hypocritical big businesses, Clark Packard and Alfredo Carrillo Obregon call out Nucor Steel for its duplicity.

Emily Ekins and Jonah Messinger report that working-class Americans aren’t sold on tariffs.

My Mercatus Center colleague Jack Salmon makes clear that the measured fall in workers’ share of national income does not mean that workers are losing. A slice:

But even if we look past the mismeasurement issue inherent in the income share data, there is good reason to be upbeat about what the data is fundamentally pointing towards: a growing capital stock.

Importantly, the period of declining labor share has coincided with rising real wages, higher living standards, greater worker ownership of capital, and significant improvements in technological progress. But sadly, optimism doesn’t sell as well as doomerism.

Scott Lincicome tweets:

CBO just released its latest “Distribution of Household Income” report (for year 2023), and the findings are – as usual – a narrative violation.

Real incomes up across the board.

Income inequality basically flat for decades.

Taxes falling for everyone except the rich.

The Washington Post chats with Reason‘s Stephanie Slade about the right’s wrong turn.

Maud Maron justly criticizes fantasy-writer Nikole Hannah-Jones’s mistaken and dangerous notion of equality. A slice:

My insistence that my children get a good education is neither tawdry nor a bargain. It’s called being a good parent, and Ms. Hannah-Jones could and should have done it for her own child. Now, instead of asking hard questions about why her approach failed, she doubles down on her original thesis: racism.

Ms. Hannah-Jones and I both have children who are juniors in the New York City public schools. I also have two older children who graduated in 2024 and 2026, as well as a fifth-grader, so I have some comparison points Ms. Hannah-Jones lacks. My two eldest graduated from a school system that required Regents exams—subject-matter competency tests that measure students’ baseline proficiency and stress-test whether the system itself is serving students. My youngest two, like Najya, won’t have to take those exams because the “equity” movement Ms. Hannah-Jones champions won the day: The state Education Department has decided that the class of 2027 is the last that will have to pass the Regents to graduate.

I have also seen the effect of replacing state test scores, grades and attendance as admission rubrics for middle school and high school with lottery numbers. It did lessen the number of white and Asian kids in “good” schools and increase black and Hispanic enrollment. It also fueled the exodus of families of all colors from the school system. Ms. Hannah-Jones calls that racism in action. But city data don’t support her claim. The school system asked families why they left. Forty-one percent wanted a more rigorous education than the city’s public schools could provide. Of families who switched to charters, which overwhelmingly serve minority students, 46% cited the need for greater academic rigor. For families moving to private schools, 42% did.

Racial animus is Ms. Hannah-Jones’s blind spot, and it runs through everything else she won’t look at. The Mississippi Miracle—a decade-long, low-cost literacy overhaul that took the poorest state in the country from 49th to ninth in the nation in reading—never makes it into her articles. Neither do the charter schools that routinely outperform their district counterparts with similar students and less money.

If you care about improving outcomes for black students, you ought to ask how that happened. Ms. Hannah-Jones doesn’t, because she is sure she already has the answer to what ails New York’s schools: “wealthy white parents.” Najya figured out that parents like me were on to something when we championed meritocracy and selective schools. Her mother has a lot of lessons to learn.

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Quotation of the Day…

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

Learning to think, and to know what you are talking about, is a full-time occupation. Nowhere is this more true than in the formative years. Even naturally bright people can turn out to be nothing more than clever mush heads if the discipline of logic and the analytical dissection of many-sided empirical evidence is slighted for the sake of emotional “experiences.”

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Some Links

Mike Munger reviews Kim Phillips-Fein’s new book, Country of Lords: Neo-Aristocrats, Social Darwinists, Tech Utopians, and the Long Fight Against Equality in America. A slice:

This history of the idea of “hierarchy as good,” focusing primarily on the U.S., is useful and interesting. But there are several aspects of the account, and what is left out, that I find puzzling.

First, the focus on hierarchy here is private, or at a minimum non-governmental. But no subjugation is as complete as that of ruled to ruler. Many of the great hierarchy-mongers of American history have designed and operated their power structures supported by the weapons and boot heels of armies and police. Andrew Jackson’s “Trail of Tears”; Lincoln’s suspension of habeas corpus and confiscation of property; Woodrow Wilson’s summary roundup of dissidents, suspension of postal deliveries, and the “Palmer Raids”; Franklin Roosevelt’s seizure of prices and property, followed by forcing thousands of American citizens into concentration camps; Nixon’s draconian wage and price controls; and the intrusive and unconstitutional surveillance state that has grown up after 9/11.

Most recently, and starkly, we saw the comprehensive confinement and draconian dictates of state scientism. The unelected health czar Anthony Fauci offered “I am the science!” as his justification for complete hierarchy; the Biden administration actively crushed dissent, even among those with scientific credentials who were disputing scientific arguments. Surprisingly, the only state actor mentioned here is Woodrow Wilson; he makes the list only because he hosted a viewing of “Birth of a Nation” at the White House.

Second, and perhaps more important, no one claims, to my knowledge, that the distinctive aspect of the U.S. is that there has always been perfect agreement about liberalism and equality under a rule of law. Phillips-Fein does provide a useful service in her careful documentation of some important advocates for hierarchy (even if it is strangely censored to ignore the state), but the actual argument is bizarrely narrow, even myopic. What’s distinctive about the U.S. is not that no voices have clamored for hierarchy, but that those voices have always lost! More than any other nation over the last 250 years, the U.S. has repeatedly recentered itself in equality before the law, and preserved social mobility in the face of substantial efforts to reify hierarchies of many different kinds.

Finally, Phillips-Fein notably strains, and frankly fails, to fit every personality she can scrape up neatly into a single Procrustean anti-egalitarian lineage. John Adams worried that a majoritarian system might struggle to govern, a plausible concern in 1780 given the world’s lack of experience with democracy. Adams is folded in here on the strength of his “ambivalence” about equality; that’s a much softer claim than outright advocacy for hierarchy. Andrew Carnegie is a similar problem: his philanthropic guilt and paternalistic sense of obligation to give back to the public sit awkwardly next to figures like Sumner or Stoddard who denied any such obligation.

When a 250-year argument has its founding-era anchor express nothing stronger than concern for an untried system, that’s a sign the argument is weak. Phillips-Fein concludes that the American belief in equality has always had to compete with a genuinely mainstream counter-tradition rather than triumph outright, which is surely correct. But then she infers that today’s inequality debates aren’t a betrayal of some past consensus so much as a resurgence of one side of a fight that never really ended.

This is a tone-deaf conclusion, and a deep misunderstanding of the liberal tradition. As Thomas Hobbes explained, each individual wants to rule and sees in him or herself the sort of person entitled to deference from others. But as Montesquieu, John Locke, Adam Smith, James Madison, and John Stuart Mill pointed out, we can design a political system that controls and blunts this urge to power. Liberalism is the instantiation of checks and balances, guardrails that limit concentrations of private power. Though there have been voices of dissent in the U.S., people who have sought power, there are fewer of those voices here, and they have been less effective.

National Review‘s John Puri points to “the ancient wisdom of free trade.” A slice:

Economic specialization is not a newfangled concept in the arc of human history, however. It has been with us since men hunted and women gathered.

My intrepid Mercatus Center colleague, Veronique de Rugy, explains that “China does present some real national security challenges. But the Trump administration’s policies have made it harder to address those, all while damaging American prosperity.” A slice:

For instance, an all-out trade war with just about every country certainly does not lessen our dependence on China. A July New York Times story described a small American flashlight importer that spent years pursuing supply from Thailand, Vietnam, and Cambodia. Then Trump’s latest tariffs put those countries’ rates at roughly the same level as the rate on Chinese goods, so the importer shifted back to his Chinese supplier. That’s Trump’s trade policy in one anecdote.

While we shouldn’t worry too much about where our flashlights come from, all of this makes America less safe. As scholar Samuel Gregg explains in a study for the American Institute for Economic Research, it boils down to the fact that military power rests on economic power. The United States outlasted the Soviet Union in part because a larger, faster-growing economy let it match Moscow’s defense spending while committing a smaller share of its output to the effort. Tariffs erode the U.S. advantage by raising costs for American producers and slowing growth, shrinking the economic base that funds the Pentagon.

Protectionism also costs us friends. Gregg points to the Morrill Tariff of 1861, which angered Britain (a country with every reason to back the Union against the slaveholding South) enough to settle into an uneasy Civil War neutrality. In recent weeks, Trump’s furious attack on Canada has not just alienated our closest neighbor, dependable trading partner, and NATO ally. It sent one friend running into the arms of China. Some might be eager to call the move stupid in the name of owning Trump. The more important reality is that it makes America weaker.

Finally, stretching the term “national security” to cover every steel mill and auto plant drains it of meaning. A government that calls everything a security threat will have trouble rallying allies, or voters, when a real one arrives.

George Will is right: right-wing religious “integralists” (such as J.D. Vance and Adrian Vermeule) share very much in common with Democratic Socialists and very little with America’s founding fathers. A slice:

Integralists illustrate the “horseshoe” rather than the linear conception of the political spectrum: Integralism and socialism bend toward each other. Vermeule: “Libertarian conceptions of property rights and economic rights will also have to go, insofar as they bar the state from enforcing duties of community and solidarity in the use and distribution of resources.”

“The bureaucracy,” Vermeule promises, “will be seen not as an enemy, but as the strong hand of legitimate rule,” protecting “atomized individuals” from, among other things, “corporate exploitation.” Where, one wonders, do the devout integralist vice president, JD Vance, and New York’s socialist mayor, Zohran Mamdani, differ concerning what the mayor calls “the warmth of collectivism”?

An integralist might oppose immigration and a socialist might oppose economic disparities for similar reasons: Both favor government-enforced social homogeneity. Neither agrees with Robert Frost, who opposed the urge to “homogenize society,” because, he said, “I want the cream to rise.”

Integralists who speak, as Vance does, of “the Christian foundation of this country” are baptizing the Founders without their permission. The six most important — Franklin, Washington, Adams, Jefferson, Madison, Hamilton — held, tepidly, various flavors of deism, which says a clockmaker deity got the universe going, then His attention wandered. The six tended toward unitarianism, the watery belief that there is at most one God.

Integralists, like socialists, promise political transformations that will achieve salvation for our fallen world. Jesus said, “My kingdom is not of this world” (John 18:36). Integralists, like socialists, are more ambitious.

Kevin Williamson is not impressed with Trump’s recent speech at the U.N.

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Some Links

The Washington Post‘s Editorial Board – which now includes, by the way, a GMU Econ alum – writes insightfully against banning sales of Chinese-assembled automobiles in the U.S. Three slices:

The legislation for the proposed ban gives the game away by allowing companies that have been manufacturing cars in the U.S. for five years to keep doing so. Volvo would qualify. Lawmakers don’t have a problem with Chinese cars per se. They want to ban additional competition.

…..

China’s industrial policy is not a stroke of genius. Its auto subsidies are funded by massive domestic household savings held hostage by government capital controls. The country suffers from high unemployment and underemployment, even as its population declines. China is shedding factory jobs as automation and outsourcing become more widespread there.

Beijing has been rolling back its car subsidies for the past few years, leading to numerous bankruptcies. Top firms such as SAIC, BYD and Geely, however, are globally competitive and will have lots to offer U.S. buyers, even as Chinese citizens are left worse off by their government’s myopic focus on exports.

If Chinese cars were to break through with U.S. customers, Chinese automakers would likely build factories in America. That basic pattern has played out time and again with foreign manufacturers: Honda, Toyota, Nissan, Mazda, Subaru, Kia, Hyundai, Volkswagen, BMW and Mercedes-Benz all make cars for Americans in the U.S. They do so not because the government forces them to, but because it logistically makes the most sense.

The U.S. might believe it can weaken China by denying its automakers access to the U.S. market. But that’s delusional. These Chinese companies are selling in much of the rest of the world, and they’re not going to stop. American consumers are just missing out.

…..

It is not fair to perpetually ask American car buyers to pay higher prices and have fewer options just to protect American automakers. And ignoring the realities of the global market will not help these American companies in the long run, anyway. Banning additional competition from Chinese automakers is a drastic measure that ignores existing ways to ensure national security while lowering prices for American drivers.

Sam Gregg ponders how to put the protectionist genie back into the bottle where it belongs. A slice:

Trade policy, however, is never developed in a politics-free zone. Despite the animus against protectionism presently widespread among Americans, the likelihood of a new president – let alone a fractious House and Senate – embracing unilateralism is low, at best. Even many political leaders who firmly believe in free trade may balk at adopting this approach, not least because it would be all too easily demagogued to death by free trade critics and special interests as selling out American workers to foreigners.

The alternative to unilateralism is multilateral, plurilateral, or bilateral trade agreements. Each has different mechanics and its own pros and cons. Multilateral agreements, such as those negotiated through institutions like the WTO, generally lower trade and non-trade barriers across the global economy. However, they take years (and sometimes decades) to settle on account of the large number of participating nations, not to mention the various business, union, and NGO interests trying to influence the process. Even in a post-Trump world, the WTO’s sheer size, combined with the presence in its ranks of a China committed to neomercantilist policies and with a bad record of violating or ignoring WTO rules, makes successful multilateralism via such structures a long shot.

Bilateral agreements involve only two partners in the agreement and thus are, theoretically, easier to negotiate. But the proliferation of such agreements also creates confusing, mismatched trade rules across the global economy that end up complicating trade for everyone.

That leaves us with plurilateral free trade agreements. Broadly speaking, these involve a set of countries voluntarily agreeing to rules and policies that liberalize specific areas of trade, while leaving the door open for other countries to join the group if they agree to embrace the rules.

A contemporary example is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). This arose out of the ruins of the Trans-Pacific Partnership (TPP), which was scuttled by the first Trump Administration in January 2017. Among other things, CPTPP has reduced barriers on nearly all goods traded between its one European and 11 Asia-Pacific members and moved toward clearer guidelines for digital trade, investments, and services.

John O. McGinnis writes wisely about data centers.

Vitor Melo documents some of the many amazing things that AI is doing for humanity. Two slices:

Begin with the labor market, where AI’s effect so far has been minimal. In a recent study, my colleagues and I compared the occupations most exposed to AI—software developers, financial clerks, administrative assistants—with those least exposed. Job postings and layoffs showed no statistically significant change across industries regardless of AI exposure.

Other studies confirm our findings: AI adoption has no detectable effect on employment, earnings or hours worked, with exceptions so far confined to some entry-level jobs in the most exposed fields. Employers added 162,000 jobs in August, beating expectations, with unemployment steady at 4.1%. Four years after ChatGPT’s launch, the mass layoffs that everyone feared haven’t shown up in the data.

Now consider what the jobs debate leaves out. In 2024, the Nobel Prize for Chemistry went to three scientists for work on protein structures enabled by AI. Many medications work by binding to the shape of proteins in the body, and for more than half a century, determining that shape could require years of lab work for a single protein. Now an AI platform called AlphaFold predicts it in hours. Its makers in 2022 released the structures of almost all 200 million proteins known to science, and more than three million researchers in 190 countries have used them, a third of them to better understand disease. Years of work that once stood between a patient and a cure could see a breakthrough in an afternoon.

New drugs are already arriving. In 2022 South Korea approved a Covid-19 vaccine built with a computer-designed protein, the first medication of its kind. Last year patients with a fatal lung disease who took a drug designed by generative AI saw their lung function improve in a randomized trial, while patients on a placebo declined. And as some bacteria resist antibiotics, AI has identified a new class that kills drug-resistant staph.

…..

Human flourishing has never been measured in job titles. It is determined in suffering avoided, time returned and problems solved that once seemed intractable. Ask whether AI will take our jobs, and the honest answer is: not yet. But ask whether it is helping people prosper, and the answer is an easy yes.

Steven Greenhut is also an AI optimist.

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On Diesel Donald

Here’s a letter to the Wall Street Journal.

Editor:

Mike Sommers makes excellent arguments against banning diesel exports (“The Diesel Export Ban Folly,” Sept. 25). But he leaves one out. By shrinking the market that U.S. refiners serve, an export ban, which raises the likelihood of future bans, will cause refiners to invest less in capacity over time. Why build to serve the global market for an average of 365 days a year when your market in the future is likely to be global for an average of only, say, 300 days a year?

As capacity shrinks, the real long-run price of diesel and other petroleum products will rise. Even if the ban lowers diesel prices today, the cost of that price cut will be higher energy prices tomorrow and long into the future.

Doubters should consider a parallel. Suppose Sacramento, reacting to rising global wine prices, banned wine exports from California for 90 days. What would this ban do to winemakers’ incentives to plant vineyards and build wineries? Knowing that the government is likely to restrict their market again, winemakers would scale back, and Californians would pay more for wine over the long run.

The same is true of diesel.

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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Quotation of the Day…

… is from page 88 of David Schmidtz’s chapter “But Is It Just?” in David Schmidtz and Robert E. Goodin’s wonderful 1998 book, Social Welfare and Individual Responsibility: For and Against:

To be sure, what people care about is sensitive to social context, and we should applaud institutions that encourage people to care for each other. But telling people that they are required to tend someone else’s garden rather than their own does not encourage people to care for each other. It does the opposite. It encourages spite.

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Fueling Economic Understanding

Here’s a letter to a Facebook commenter.

Mr. Edinger:

Commenting on my Facebook page, you ridicule me for criticizing Trump’s proposal to ban exports of diesel from the U.S. In your opinion, Trump is a brilliant strategist who understands that “limiting exports of US diesel will ultimately lower domestic prices by increasing our supply, which will ripple through prices for a wide variety of commodities and finished goods since diesel is extensively used in our trucking industry.”

Well.

The price of diesel has risen globally because of the war in Iran. Prohibiting U.S. exports of diesel will only further raise the global price of that fuel. Because the proposed export ban is only 90 days, U.S. oil companies – as Justin Wolfers points out – are not going to sell diesel today at prices in the U.S. lower than they can fetch in 90 days by selling that diesel abroad.

But let’s assume, contrary to fact, that this proposed export ban would indeed cause the price of diesel today in the U.S. to fall below the global market price. By shrinking the size of the market served by U.S.-based oil producers, the export ban – which raises the chances of future export bans – will likely cause these producers to allow the scale of their operations in the U.S. over time to shrink. Why optimize to produce to serve the global market an average of 365 days annually when your market in the future is likely to be the global market an average of only, say, 250 days annually?

As the scale of operations shrinks over time, the real long-run price of diesel (and, by the way, also the real prices of other fuels and products made from petroleum), will rise. At best, the export ban will achieve lower diesel prices today in exchange for higher energy prices tomorrow and long into the future.

If you doubt this analysis, answer me this: Suppose the State of California, in an attempt to lower the prices Californians pay for wine, prohibits the exportation of wine from that state. What effect would this export prohibition have on California winemakers’ incentives to produce wine and invest in additional vineyards and wineries? Do you really not see that shrinking the market available to California winemakers would discourage them from producing more wine and investing in wine production? And do you really not see that such a ban on wine exports would result in Californians paying a higher price of wine over the long run?

What’s true for wine is true for diesel.

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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A Last Ditch Effort to Make a Market Experiment Succeed

Among the many wonderful features of free markets is what my former Mercatus Center colleague Adam Thierer calls “permissionless innovation.” “Permissionless innovation” is the freedom of people spending their own money and time to experiment with producing new products, and new ways of producing existing products, combined with the freedom of people as buyers (also spending their own money and time) to choose which of these experiments to support and which not to support. Creativity being what it is, the outcomes cannot be predicted.

It’s beautiful, as such innovation is a peaceful means of promoting prosperity for the masses.

So I applaud this market experiment with a, shall we say, unusual kind of leisure spot.

But the experiment is failing. And yet some people – ignorant of the foundation, working, and benefits of free markets – are unjustly criticizing the owners of this experiment for trying to salvage it.

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