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Pierre Lemieux asks: “If international trade is so bad and abusive, what’s all the fuss about keeping the Strait of Hormuz open?”

C. Jarrett Dieterle reports that “Seattle’s minimum wage laws backfired on Uber and Lyft. Now the union wants to limit drivers.” A slice:

In recent years, progressive locales like Seattle have experimented with minimum wage laws for rideshare and food delivery drivers. These laws have led to surging prices for rides and delivery, reduced demand for trips and orders, and no evidence of higher take-home pay for drivers.

As demand for trips has plummeted in the wake of the wage hikes, more rideshare drivers are finding themselves working longer hours to achieve the same number of rides as before. Instead of fixing the root of the problem, a union representing Seattle rideshare workers has a new solution: Limit the number of people who can work as Uber drivers.

According to the Drivers Union, which represents Lyft and Uber drivers in Washington State, there is a severe glut of rideshare drivers on the road in the Emerald City. The union bases this on a new report it released (with funding from the state Department of Ecology), which concludes that “a majority of miles driven by Uber drivers are now without a passenger.”

[DBx: Above are two economic lessons in one. The first is that, despite clever tales told by some pedants and data processors, minimum-wage legislation does indeed reduce the employment options of affected workers and, thus, makes those workers poorer. The second is that labor unions enrich their members by reducing the employment options of other workers and, thus, making those other workers poorer.]

Bjorn Lomborg, writing at National Review, looks back on the nearly twenty years since Al Gore’s movie, An Inconvenient Truth, first dazzled studio audiences with its fantastical, unwarranted tales. Two slices:

Let’s start with the film’s core narrative: that climate change is driving ever-worsening disasters. Gore painted a picture of a world besieged by floods, droughts, storms, and wildfires, with humanity on the brink.

The data tell a different story. Over the past century, as the global population quadrupled, deaths from climate-related disasters have plummeted. In the 1920s, an average of nearly half a million people died annually from such events. Today, that number is under 10,000 — a decline of more than 97 percent. This isn’t because disasters have vanished. It’s because wealthier, more resilient societies have adapted through better infrastructure, early warnings, and disaster management. Richer, smarter societies have made us dramatically safer, proving that adaptation and resilience work far better than alarmists suggest.

Gore’s movie famously warned of vanishing polar bears, using poignant computer-generated images to suggest they were drowning because of melting ice. Again, reality is starkly different: Polar bear populations have increased from around 12,000 in the 1960s to more than 26,000 today, according to the best available evidence, including from the Polar Bear Specialist Group under the International Union for Conservation of Nature. The primary historical threat was overhunting, not climate change. While future warming poses risks, the apocalyptic narrative is undermined by the data.

Hurricanes were another bogeyman. The film notably claimed that we would see more frequent and stronger storms; its poster cunningly showed a hurricane coming out of a smokestack. But global data from satellites actually show a slight decline in hurricane frequency since 1980. While Al Gore blamed Hurricane Katrina on climate change, just one year later, the U.S. began an unprecedentedly long streak of eleven years without major hurricane landfall. Indeed, the longest reliable data series for landfalling hurricanes in the U.S. has shown a decline since the year 1900, and major hurricanes are about as frequent as they were in the past. When adjusted for more people and more houses, the damages from U.S. hurricanes have declined, not increased.

Wildfires follow a similar pattern. Media hype suggests a planet ablaze, but global burned area has decreased by 25 percent since 2001, according to NASA data. Each year, the reduction spares from the flames an area larger than Texas and California combined.

…..

Two decades on, An Inconvenient Truth reminds us that claiming to care about the planet and future generations is not enough. Alarmism has cost trillions but achieved little. We need to embrace the evidence: Climate change is a challenge, not a catastrophe. And there are cost-effective solutions such as innovation, adaptation, and development, even if they are not as morally satisfying as the exhortations in Gore’s movie.

Jacob Sullum ponders Trump’s theory of the judiciary.

David Henderson sensibly asks “Can you make the case for the drug war by pointing out a bad effect of the drug war?”

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… is from page 648 of the 1988 collection of Lord Acton’s writings (edited by the late J. Rufus Fears), Essays in Religion, Politics, and Morality; specifically, it’s a note drawn from Acton’s extensive papers at Cambridge University; (I can find no date for this passage):

Every man is the best, the most responsive judge of his own advantage. Therefore don’t let some one else interfere.

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My GMU Econ and Mercatus Center colleague Pete Boettke continues to make clear that AI cannot possibly replace markets. A slice:

This is where Nobel laureate economist Friedrich Hayek (1899-1992) comes in. Hayek explained that the problem is not merely that the relevant knowledge is decentralized — spread out across millions of individuals — but that it is often tacit. Local shopkeepers’ understanding of their customers’ buying habits cannot be translated into one data point to feed into an AI or any other kind of model. Nor can we predict the emergence of an entrepreneur dreaming up a product that did not exist before.

Most important of all is the phenomenon of prices — indispensable signals that guide our decision making. Prices are neither set in stone nor arbitrarily fixed. Instead, they emerge from real exchanges. When the price of wheat rises, it is because buyers and sellers are competing for a limited supply. This price increase signals something about relative scarcity. It also provides an incentive to adjust consumption and conserve the resource, to look for a substitute, to increase production and to innovate.

In short, prices are not lying around in the wild, waiting to be harvested and fed into an algorithm. Rather, they are the result of constantly evolving discovery. Without this process of discovery, the knowledge embedded in a price simply doesn’t come into existence.

Hayek called the price system, with its ability to generate knowledge in the market, a “marvel.” He described competition as a “discovery procedure” that does much more than allocate resources. When entrepreneurs bring new products to market, for instance, they are making informed bets. If they’re wrong, they bear the cost. If they’re right, they reap the rewards. Through this process, we all learn a little more about what is possible, what is valued and what works.

Liya Palagashvili applauds “the rise of portable benefits.”

The Editorial Board of the Wall Street Journal justly criticizes FTC commissioner Andrew Ferguson, who is described by the Editorial Board as “Trump’s Lina Khan impersonator.” A slice:

Then there’s Federal Trade Commission Chair Andrew Ferguson, who is defending his Biden predecessor Lina Khan’s overreaches in court. On Thursday he struck out at the Fifth Circuit Court of Appeals.

Mr. Ferguson, a Trump appointee, has for unclear reasons defended Ms. Khan’s magnum-opus rule that sought to suffocate mergers with red tape. Last month federal Judge Jeremy Kernodle blocked the rule on grounds that the agency’s cost-benefit analysis was sloppy. The FTC’s claimed benefits “are illusory or, at least, unsubstantiated,” he wrote.

The Chair asked the Fifth Circuit to stay the decision to let the Khan rule stay in effect. A three-judge panel on Thursday rejected the request in a pithy unsigned order. That suggests the panel agreed with Judge Kernodle’s reasoning for the most part. The panel notably included appointees of Donald Trump, Barack Obama and Joe Biden.

The Editorial Board of the Washington Post writes of “Rivian and the danger of building a business on government largesse.” A slice:

Rivian’s struggles offer a cautionary tale to investors. A company that structures its business around generous government handouts is like a house built on sand — with just one political wave, its foundation could disappear.

Arnold Kling decries the stranglehold that “teachers” unions have over government-supplied K-12 “education” in Montgomery County, MD – and, hence, over taxpayers in that county.

Eric Boehm blames U.S. regulations for China’s dominance in rare-earth minerals. A slice:

In an attempt to break China’s hold on the global market for this vital resource, the Trump administration is now spending millions to spur the development of new rare-earth processing facilities in Texas and California, and is also seeking partnerships with Australian mines.

That response flows from the widespread belief that Chinese dominance of rare-earth minerals is the result of a market failure.

“The market fundamentalists argue that government should not be picking which industries to support,” Marco Rubio, now the secretary of state, explained in a 2019 speech. “But what happens when an industry is critical to our national interest, yet the market determines it is more efficient for China to dominate it? The best example of this is rare-earth minerals.”

That view ignores the government’s own role in sabotaging America’s production of rare-earth metals—a market that the United States dominated until the 1980s.

Permitting is a major problem. It takes seven to 10 years for a new mine to obtain the necessary permits in the United States, compared to an average of two years in Canada and Australia, according to the Essential Minerals Association (EMA), an industry group. An S&P Global study published in 2024 found that it took American mines an average of 29 years to go from discovery to production—the
second-longest period in the world behind Zambia.

Those delays often stem from the fact that a single mine requires approval from multiple federal and state agencies with overlapping and duplicative regulatory requirements. The EMA estimates that permitting delays add more than $1 billion to the development of major mining projects.

John Puri explains what shouldn’t – but, alas, what today nevertheless does – need explaining: Gasoline prices reflect underlying economic realities that do not disappear if they are masked. A slice:

In a world of finite oil supplies, easing pressure at any particular point will raise it elsewhere. Only the worst ideas remain. Capping energy prices would result in shortages. Banning petroleum exports would backfire on America by further disrupting established trade patterns. A windfall profits tax on oil companies would discourage domestic production.

Ivan Osorio remembers Brian Doherty.

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… is from page 329 of Amity Shlaes’s wonderful 2007 book, The Forgotten Man:

The inexorable New Deal emphasis on the group over the individual was not liberal in the classic sense.

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Here’s a letter to a new correspondent:

Mr. N__:

Thanks for your email.

About my letter in Thursday’s Washington Post, you correctly infer that I do not believe that the U.S. economy is “threatened by a foreign government creating excess capacity in its industries.”

First, it’s impossible for any government to create excess capacity in all industries. Resources cannot be diverted into, say, the steel industry without being diverted away from other industries – say, the aluminum and electronics industries – thus causing capacity in those other industries to be inadequate.

Second, excess capacity exists if the value of the output produced by that capacity is less than is the cost of the resources that are used to create and operate that capacity. This situation implies that, were these resources not tied up in that excess capacity, they would instead produce outputs of higher value in other industries in that country.

Third, therefore, whenever a government diverts resources into, say, the steel industry to create excess capacity there, it harms its economy by arranging to produce steel that’s worth less than the outputs that would instead have been produced had that diversion of resources not occurred. That country winds up suffering losses on the additional steel that it produces, as it also foregoes the economic gains that it would have reaped on the outputs that it fails to produce because its government foolishly diverted resources into excess steelmaking capacity.

So, no, if other governments are undermining the productiveness of their economies by creating excess capacity in some of their industries, we should not much fret about their stupidity threatening our economy.

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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Alex Chalmers makes clear that “AI won’t fix central planning.” (HT Arnold Kling)

Kevin Frazier and Jennifer Huddleston identify five flaws in pending AI legislation.

Jim Dorn draws lessons for monetary policy from William McChesney Martin’s famous “punch bowl” speech. Two slices:

William McChesney Martin Jr. was chairman of the Federal Reserve Board from 1951 to 1970. He is perhaps best known for his “punch bowl” speech delivered on October 19, 1955, to the New York Group of the Investment Bankers Association of America. His often-quoted line in the penultimate paragraph reads: “The Federal Reserve … is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up” (Martin 1955: 12). He made this statement in the context of a recent increase in the Fed’s discount rate, which tightened monetary policy.

…..

Two main lessons can be drawn from Martin’s punch bowl speech. First, the Fed needs to be prudent and humble in exercising its monetary powers. There are limits to what the Fed can do. Its main function should be to safeguard the dollar’s long-run value by adhering to a predictable, responsible monetary framework. Second, a rules-based approach to policy—both monetary and fiscal—is consistent with the moral element in private enterprise. Freedom is best protected by limited government, so individuals have a wide range of choices under a just rule of law.

Today, we have a discretionary government fiat money system. Much of the Fed’s bureaucracy could be abolished by a simple monetary rule rather than the complex framework currently in place (see Dorn 2018). Whether the punch bowl will be removed, under increasing political pressure to use the Fed to monetarize fiscal deficits and expand its mandate to include environmental and social issues, remains to be seen. After more than 70 years, Martin’s speech remains relevant both for monetary policy and the moral state of the union.

My intrepid Mercatus Center colleague, Veronique de Rugy, explains that “California’s billionaire tax won’t save hospitals.” A slice:

Stanford’s Joshua Rauh and several coauthors find that the California wealth tax’s projected revenue is a fantasy. Supporters advertised $100 billion in collections. Building on sound analysis as opposed to wishful thinking, Rauh’s team saw billionaires already leaving and, as a result, other future tax revenues disintegrating. By driving high earners out permanently, the most likely “net present value” of the wealth tax is negative $24.7 billion.

Whether politicians and voters want to admit it or not, the real problem is still spending. California’s revenue has surged by 55 percent since 2019, but Sacramento has expanded state spending commitments by 68 percent. It patched budget deficits in three consecutive years ($27 billion, $55 billion, and $15 billion) not by fixing the underlying problem but by drawing down reserves and applying onetime fixes. The Legislative Analyst’s Office now projects a fourth consecutive deficit, this time reaching nearly $18 billion in 2026-27 and growing to $35 billion annually by 2027-28. Medi-Cal alone will hit an all-time high, taking $49 billion from the General Fund.

The Washington Post‘s Editorial Board has a good idea for rescuing airline passengers in the U.S. from the whims and wiles of government. A slice:

Currently 20 American airports use private contractors, not the Transportation Security Administration, to screen passengers. And those private contractors still get paid regardless of whether Congress passes legislation on time.

The federal government’s Screening Partnership Program (SPP) allows airports to apply to use qualified private companies for passenger screening, rather than relying on unionized federal employees. TSA still gets to set all the regulations and standards for the private screeners. The agency just doesn’t do the screening itself.

This is a much better way to do airport security. A government agency regulating itself creates conflicts of interest. International Civil Aviation Organization standards say that security providers and regulators should be independent.

Jarrett Dieterle decries “the progressive war on cheap eats.”

GMU Econ alum Nikolai Wenzel explains what shouldn’t – but, alas, what today nevertheless does – need explaining: government-imposed caps on interest rates are economically harmful.

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… is from page 335 of the “Random Thoughts” section of Thomas Sowell’s 2010 book, Dismantling America:

The reason so many people misunderstand so many issues is not that these issues are so complex, but that people do not want a factual or analytical explanation that leaves them emotionally unsatisfied. They want villains to hate and heroes to cheer – and they don’t want explanations that fail to give them that.

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Phil Magness, on his Facebook page, shared a tweet by someone who believes that the New York Times, in its obituary of the consistently, wildly wrong Paul Ehrlich, was justified in describing Ehrlich’s mistaken predictions as “premature.”

Ehrlich in 1968 predicted that within a decade humanity would suffer massive worldwide starvation. 1968 was 58 years ago. It was before man landed on the moon. Before microwave ovens were commonplace. Before low-priced pocket calculators were a thing. Before Watergate. Before the Beatles broke up. Before most Americans owned color televisions.

For anyone in 2026 to attempt to justify describing Ehrlich’s whackadoodle, consistent-proven-spectacularly wrong predictions as “premature” is ridiculous. They were and remain wrong, not only in their specifics, but also on the broader point that Ehrlich incessantly sought to make.

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With the close of 2025, the United States has run 50 consecutive years of annual trade deficits. Should we Americans despair? No.

As regular patrons of Cafe Hayek know, a common complaint about U.S. trade deficits is that these deficits – said to be ‘funded’ by a combination of Americans going further into debt to foreigners and Americans selling off assets to foreigners – drain wealth from America. As regular patrons of Cafe Hayek also know, this Cafe’s proprietor never tires of reminding people that, although some part of U.S. trade deficits might be caused by Americans borrowing money from, or selling assets to, foreigners, rising U.S. trade deficits do not necessarily mean increasing American indebtedness or that we Americans are selling our assets to foreigners.

In earlier posts I’ve reported on data that belie the assertion that U.S. trade deficits necessarily drain wealth from the U.S. Here I report such data that are more complete – specifically, I count as part of Americans’ liabilities not only our private debt but also that portion of federal-, state-, and local-government debt for which the average American household is liable. Here are the conclusions, with all dollars converted into 2025$ using this personal-consumption-expenditure deflator.

In Q3 2025 (the latest date for which all relevant data are available), the average real net worth of U.S. households – taking account of all outstanding debt issued by federal, state, and local governments – was $1,031,144.

Expressed in 2025 dollars:

In 2001 (Q3), the quarter before China joined the World Trade Organization, the average real net worth of U.S. households was $583,989.

In 1993 (Q4), the quarter before NAFTA took effect, the average real net worth of U.S. households was $424,630.

At the end of 1975 – that is, in Q4 1975 – the last year the U.S. ran an annual trade surplus, the average real net worth of U.S. households was $339,074.

Therefore, in Q3 2025, the average real net worth of U.S. households was:

–   77% higher than it was in 2001
– 143% higher than it was in 1994
– 204% higher than it was in 1975.

Note that I do not include among households’ assets their share of the market value of government-owned assets. Were I to do so, I doubt that the percentage changes over the years in the average real net worth of U.S. households would be much different from the figures reported above.

The bottom line is that because wealth can – and, when markets are reasonably free, does – grow, a country that consistently runs trade deficits does not necessarily thereby lose wealth. Indeed, trade deficits – representing, as they do, net inflows into the country of global capital – can help to increase the wealth of the nation. The data in the U.S. are consistent with this optimistic take on U.S. trade deficits.

Details on how I calculated these figures are below the fold.

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