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Here’s a letter to Fortune: (For alerting me to this piece in Fortune I thank James Nellis)

Editor:

Jason Ma writes as if we Americans should be distraught that the value of the U.S. dollar is rising against other currencies (“Armed with the mighty dollar, Americans are rushing to go on cheap vacations overseas – and it’s hurting the U.S. economy,” May 12). How strange it is to be distressed when our purchasing power increases.

Would Mr. Ma also suggest that we Americans should suffer distress when the prices of our favorite items at the supermarket or on Amazon are cut? Should we be dismayed when the rate of inflation slows? Of course not. The higher is our purchasing power the better off we are – individually, as households, and as a nation. Yet for some reason, when there’s an increase in our purchasing power over goods and services sold by foreigners, we think it to be, not the good fortune that it is, but a misfortune from which the government must protect us. And especially puzzling is the fact that among those who scream most loudly for such ‘protection’ are individuals who boast of their desire to “Make America Great Again.”

It’s anyone’s guess how the greatness of America is enhanced by her government arranging for foreigners to give to Americans fewer goods and services in exchange for any given amount of dollars – or, what is the same thing, arranging for Americans to fork over to foreigners, in exchange for some given amount of foreign currency, more of the valuable goods and services that we produce. Such is the topsy-turvy nonsense that is economic nationalism.

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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There are many distinguishing features of those persons who have mastered the economic way of thinking, including an awareness of “substitution effects” – the topic of my latest column for AIER. A slice:

Named after University of Chicago economist Sam Peltzman, the Peltzman effect occurs when the changing riskiness of engaging in some activity causes people to change their behavior in ways that offset, partially or fully, the change in riskiness.

My late, great George Mason University colleague Gordon Tullock offered what is perhaps the most vivid example of the Peltzman effect. Gordon famously observed that government could, without outlawing driving, immediately reduce the number of traffic fatalities to near-zero by taking just one simple step, namely, mandate that a steel dagger be fitted onto every steering column and pointed at each driver’s heart. Outfitting automobiles with these daggers would so raise the riskiness of driving that less driving would occur, and that which did occur would be done with the utmost care.

The beauty of Gordon’s steel-dagger hypothetical is that, in its vividness, it serves as a springboard for revealing what is equally true, but less obvious, for lesser and more realistic changes in risk. While everyone sees that drivers drive less cautiously without daggers pointed at their hearts than with the daggers installed, too few people naturally see that drivers also drive less cautiously when other, more modest improvements in automobile safety are put in place. The steel-dagger hypothetical positions the economist to ask: “If making driving more safe by removing steel daggers will cause drivers to drive less cautiously, won’t making driving more safe by, say, installing shoulder harnesses and airbags have a similar effect on drivers?” I can attest from many years of using this example with my undergraduate students that the point is made effectively.

And the point here is not that technology or government regulation that reduces the risk of serious injury while driving is a bad idea. Instead, the point is that, because of substitution effects, we should always be aware that outcomes quite different from those that seem most obvious are possible. Mandating greater automobile safety might reduce traffic fatalities. Or it might not — or not by enough to justify the cost of the additional safety.

Society abounds with substitution effects. In our daily lives we routinely do such substitutions without thinking about them, as when the child buys more M&Ms after the price of gummy bears increases, and when the homeowner personally installs her new electrical outlet when the price of hiring a professional electrician rises. Unfortunately, the reality of substitution effects is too often ignored by politicians and regulators, as when they raise minimum wages under the mistaken assumption that ‘rich’ companies will respond by doing nothing other than pay the higher wages by dipping into their cash reserves.

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AEI’s Ben Zycher’s latest letter in the Wall Street Journal is excellent:

In an otherwise useful reminder of why the much-ballyhooed “transition” to unconventional energy won’t happen anytime soon—because the massive attendant costs can’t be borne by most of the world’s people confronted by the difficult realities of eking out a living—Bjorn Lomborg (“When the Only Problem Was Climate,” op-ed, May 9) nonetheless tries to have it both ways. He argues that the world should “ramp up investments in green innovation, eventually driving the cost of clean energy below that of fossil fuels.”

Why, without massive subsidies, does the private sector fail to invest in such innovation in pursuit of a competitive advantage? Answer: The unconcentrated energy content of wind flows, sunlight and other green fantasies means that it is very unlikely that their costs ever will fall below those of fossil fuels, which are also likely to enjoy the benefits of innovation. Further, it is misleading to describe unconventional energy as “clean,” shunting aside the heavy metal pollution, wildlife destruction and myriad other environmental problems caused by such energy.

Benjamin Zycher
American Enterprise Institute
Long, Beach, Wash.

David Henderson corrects Angus Deaton on inflation adjustors.

GMU Econ alum Dominic Pino wisely calls for the privatization of airports. A slice:

Privatized airports frequently rank highly on surveys of the best airports in the world. Some of the world’s largest airports are privatized, such as Paris Charles de Gaulle, London Heathrow, and Frankfurt. If you’ve flown to Cancún any time since 1998, you used a privatized airport.

Barry Brownstein decries the illiberalism of young people.

Motivated by shoddy reporting on Jerry Seinfeld’s commencement address at Duke, Billy Binion reports this fact:

It has become fairly standard practice in the press to take voices on the fringe and shove them to the center of the conversation without contextualizing where they came from. Journalists are incentivized to find engaging angles, and fringe characters tend to be interesting. The impulse is understandable. But it creates a distorted picture of reality and comes at the expense of the truth. And journalists should foremost be invested in conveying the truth.

I fear that Virginia Postrel is correct: (HT Arnold Kling)

What has happened to the LP, the libertarian movement, and much of the Republican party is that the partisans of natural liberty have abandoned the ideal of Feigenbaum Freiheit. They don’t want to be left alone. They don’t want to live and let live. They aren’t happy with peace and prosperity. They want to fight against those who are not in their clan, however they may define it.

Vance Ginn likes Corey DeAngelis’s case for school choice.

Tunku Varadarajan reviews Glenn Loury’s memoir, Late Admissions. A slice:

The subsequent rejection of liberalism [DBx: progressivism] —and his rebirth as a conservative—came in large part as a reaction to President Obama, whom he describes as “a political operator” whose “self-presentation as an icon of American blackness” struck Mr. Loury as “absurd.” His return to the conservative fold was also hastened, he tells us, by Black Lives Matter, demanding allegiance to a belief that present-day America is “the New Jim Crow” beset by “the machinations of white supremacy at every turn.”

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… is from page xii of Ryan Bourne’s February 2024 Introduction to The War on Prices: How Popular Misconceptions About Inflation, Prices, and Value Create Bad Policy (Ryan A. Bourne, ed., 2024):

Blaming “corporate greed” and one-off supply shocks nevertheless became a prevailing narrative that obscured the role of monetary mismanagement in fostering inflation. Rather than tighten monetary and fiscal conditions, many political commentators urged the federal government to invest in expanding capacity in sectors suffering from bottlenecks, to use antitrust policy to make markets more competitive, or even to control prices directly – basically, anything other than deliver the monetary medicine for inflation that has been accepted among economists as the (at times painful) cure since the late 1970s.

DBx: Congratulations – and thanks – to Ryan Bourne for assembling this excellent collection of original papers on the role and importance of market prices, as well as on the folly of obstructing price movements. Today, May 14th, 2024, is this splendid book’s official release date.

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Here’s a letter to the Wall Street Journal:

Editor:

Profiled by Greg Ip, Robert Lighthizer is quoted as saying, about China, that “if you’re running chronic surpluses for decades, then you are by definition a protectionist. You’re engaging in industrial policy to help yourself, you’re transferring resources from your consumers to your producers, you’re trying to … acquire other countries’ assets” (“He Helped Trump Remake Global Trade. His Work Isn’t Done.” May 13).

Chronic trade surpluses neither make a surplus country protectionist “by definition” nor signal that that country uses industrial policy. Such surpluses simply mean that global investors, including those in the country in question, consistently find better investment opportunities outside of that country than within that country. Why countries, such as the U.S., that are net recipients of these investments should complain is a mystery.

An even worse error is to describe surplus countries as “trying to … acquire other countries’ assets.” The amount of capital in the world or in any country isn’t fixed; it can and does grow. When the Dutch company Ikea builds a store in Newark, it doesn’t so much acquire assets that once belonged to Americans as it creates assets in America that would not otherwise exist – assets that improve employment opportunities for Americans as well as expand Americans’ access to goods and services. Ditto when the German company BASF builds facilities in Louisiana, when the Mexican company Cemex constructs a plant in Texas, and when the Japanese company Toyota erects a factory in Kentucky. It’s beyond mysterious why Mr. Lighthizer, who’s frantic to have more manufacturing in the U.S., peddles policies that would reduce such foreign investment on America’s shores.

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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Samuel Gregg finds much to criticize in Joe Stiglitz’s new book, The Road to Freedom. Four slices:

The word “neoliberal” has its own pedigree. Today, however, it functions as an epithet used by the Left—and now the New Right that populates many conservative institutions—to stigmatize people and ideas. The use of epithets is common in polemics, and polemics are not concerned with reasoned debate or discussion. Nor, despite protestations to the contrary, is Stiglitz’s book. From beginning to end, it trades in hyperbole.

“Freedom,” Stiglitz states at the beginning “is in danger.” The global decline of liberty reflected in the rise of authoritarian regimes, he argues, has also manifested itself in liberal democratic societies. By Stiglitz’s account, this reflects failures in economic policies that mirror “the Right’s incorrect conception of freedom.”

“The Right” functions throughout this book as a catch-all phrase. It embraces groups like the Republican Party and as unlikely bedfellows as libertarians and Donald Trump. Important details, like Trump stating that he is “not a conservative” or the undeniable and deep split in the American conservative movement between economic nationalists and free marketers, are obscured by Stiglitz’s Manichean view of politics. Light is on the side of modern liberals, neo-Keynesians, and social democrats. Darkness envelops everything else.

…..

This, however, is dwarfed by Stiglitz’s astonishing claim that the “free and unfettered markets advocated by Hayek and Friedman and so many on the Right have set us on the road of fascism.” I find it hard to believe that Stiglitz does not know that fascist regimes have historically been characterized by widespread regulation, endless interventionism, and corporatism: in short, the opposite of free market economies.

As the German market liberal economist Wilhelm Röpke demonstrated in his 1934 Economica article “Fascist Economics,” the economies of actual fascist regimes like Mussolini’s Italy were distinguished by a “monopolistic-interventionist system” enforced by armies of uniformed bureaucrats. Stiglitz, however, claims that the economic conditions preceding regimes like Nazi Germany were characterized by too little intervention.

…..

A second irony concerns Stiglitz’s repeated insistence that he wants a more decentralized economy. All the policies listed above, however, necessitate a large government constantly intervening in the economy and crowding out the civil society associations that Stiglitz claims to value.

The third irony is that many of Stiglitz’s progressive capitalism proposals mirror those of prominent New Right thinkers. Not only do they support many of the same policies; but they also echo Stiglitz’s anti-neoliberal rhetoric and critical view of Hayek and Friedman. Therein lies a fracture that increasingly characterizes American politics: one in which Stiglitz’s Old Left economic preferences line up with those of some on the Right against whom his book inveighs.

…..

Above all, social democrats have often undermined the means by which societies cultivate the moral habits needed to sustain what John Adams called “virtuous liberty.” Throughout his book, Stiglitz regularly refers to the importance of habits like honesty, trust, and other-regarding behavior for social cooperation. He is right to do so. But social democrats have traditionally looked to government to shape the social order—not civil society. The associated growth of state power and bureaucratization of society subverts the rich ecology of families and bottom-up communities and associations in which such habits are best taught and internalized.

Therein lies the deeper problem with Stiglitz’s book. Like many of his fellow-travelers on the Left and the New Right, Stiglitz doesn’t believe that we can trust ordinary people operating within a context of rule of law, constitutionally limited government, proven norms, and a rich civil society to make their own decisions as they see fit. For, notwithstanding Stiglitz’s desire to carve out a new road to freedom, the political agenda underlying this book is not one of renewal or rejuvenation. Instead, it reflects an old-fashioned Keynesian faith in the state: one that has always ill-fitted the American experiment in liberty of which Stiglitz is plainly skeptical.

Ryan Yonk and Ethan Yang ask: “Is China winning?” A slice:

For aspiring bureaucrats who fell in line with Xi’s mandate, promotion to national leadership positions in the Politburo, the CCP’s leadership organ, followed. Indeed, despite the public outcry surrounding Xi’s Zero-Covid response, his grip on power increased following the 20th Party Congress in 2022 when he replaced all his political opponents on the Politburo Standing Committee, the country’s highest governing body, with his allies. In particular, Li Qiang and Cai Qi, the mayors of Shanghai and Beijing who oversaw the widely condemned covid responses in Shanghai and Beijing, were elevated to Standing Committee positions for their loyalty, and willingness to follow the leader despite disastrous consequences.4

These political realities have significantly harmed business confidence in China and Chinese nationals have increasingly hedged their assets by purchasing property in foreign countries and positioning their wealth for mobility. Taken as a whole, these blemishes strongly suggest an overall narrative of a hyper competent and efficient autocratic regime is inaccurate.

Arnold Kling is understandably unimpressed with certain economists’ praise of the Financial Crisis Inquiry Commission. A slice:

The establishment narrative for the financial crisis was already set two years before the FCIC report. My Mercatus paper cited a Treasury study that—of course—said that increasing the power of regulators was the solution, rather than the cause, for the calamity. If you let government control the narrative, it will always say that problems come from the private sector, and the answer is to make government bigger and stronger.

From a narrative perspective, the Edelberg-Fredberg paper hits a nerve with me for two reasons. One is the sheer smugness of it, with no mention of any mistakes made or lessons learned about economic policy analysis from their experience. It is as if the performance of the FCIC staff was flawless. The other problem is that substantively I disagree with their characterization of the what the FCIC produced. It did not give the most accurate explanation for the crisis. I see the FCIC as a purely political project from the outset, resulting in analysis that was somewhere in between inadequate and misleading.

Stefan Bartl reveals the ugly reality of the politics of protectionism.

Wall Street Journal columnist Mary Anastasia O’Grady reminds us of this reality:

Cuba is still run by angry, envious tyrants who excel at only one thing: destruction. Having achieved that goal at home and made themselves rich in the process, they toil endlessly to expand their reach. Columbia University is merely one more destination on their revolutionary map.

Wall Street Journal columnist Allysia Finley writes about Biden’s “George Costanza presidency.” A slice:

Yet Mr. Biden’s bigger problem is that the pandemic handouts that Democrats hoped would win them votes have backfired. Excessive spending has fueled inflation and led to the highest interest rates in a generation. Young people have been especially harmed because those who don’t own homes now can’t afford them. Mr. Biden boasted a 33% approval rating among voters under 30 in an Economist/YouGov poll last week. Only 24% of them said the economy was excellent or good. A mere 13% thought it is improving and 15% believed it will get better if Mr. Biden is re-elected.

“Anti-Israel Students Protest Jerry Seinfeld’s Commencement Speech.”

Wisdom from Eugene Volokh.

Jay Bhattacharya talks with the Bradley Foundation.

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… is from page 242 of Deirdre McCloskey’s 2024 paper “Market Prices and Wages Do Not Reflect Ethical Value,” which is chapter 19 in The War on Prices: How Popular Misconceptions About Inflation, Prices, and Value Create Bad Policy (Ryan A. Bourne, ed., 2024):

The price system doesn’t guarantee nirvana, heaven, perfection. But beware of making the imagined perfect the enemy of the actual pretty good. Money prices don’t value us ethically. But they have yielded a 3,000 percent increase in human material welfare since 1800.

Not too shabby. Let’s keep it going.

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Here’s a letter to a long-time critic of Café Hayek, Nolan McKinney:

Mr. McKinney:

Unlike you who find Duncan Braid’s May 6^th harangue against supporters of free trade “devastating,” I find it to be tendentious. Braid writes triumphantly as if he’s caught us free traders in yet another of our Keystone Kops antics – specifically here, our effort to blame tariffs for inflation. Yet no competent economist or advocate of free trade is guilty of this ridiculous charge. If one were, Braid’s evidence of free-traders’ belief that tariffs cause inflation would consist of more than single link to a piece in, of all places, Vox.

If Braid were serious, he’d have searched for evidence for his charge in the works of trade scholars such as Jagdish Bhagwati, Daniel Griswold, Douglas Irwin, Pierre Lemieux, Scott Lincicome, Johan Norberg, Arvind Panagariya, Russ Roberts, and Razeen Sally (to name only a few). Finding no such evidence, Mr. Braid would not have written what he wrote. (Note: To point out, correctly, that tariffs raise the prices of the particular goods that are protected is not to argue that tariffs cause inflation, which is a rise in the price level.)

Further evidence of Braid’s unseriousness – or of his ignorance of a subject, trade, about which he writes so confidently – is his assertion that higher tariffs on U.S. imports “would help address the America’s $1 trillion trade deficit.” Never mind that U.S. trade deficits are not a problem that needs to be addressed. Braid should exert the effort to learn what is known by every adept economics major: Because a tax on American imports is, effectively, also a tax on American exports, raising tariffs won’t reduce the trade deficit – won’t reduce it, that is, unless U.S. trade policy becomes so very destructive of the American economy that global investors get scared away. Ironically, the policies peddled by Braid and his American Compass colleagues would, if implemented, so mutilate America’s economy that U.S. trade deficits would indeed disappear – and, along with them, Americans’ prosperity.

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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GMU Econ PhD candidate Giorgio Castiglia writes insightfully about the DOJ’s antitrust case against Apple. A slice:

The outcome of this and other major cases will show if we’re moving toward a “competitor welfare” policy as opposed to a consumer welfare policy. This would more closely resemble the European Union’s competition policy system, an example which many modern antitrust advocates hope the U.S. will follow. In the EU, many more investigations into unilateral conduct are opened, typically at the instigation of the defendant’s rivals or firms it transacts with. A relevant example is the recent 1.8 billion-euro fine levied against Apple by the European Commission at the conclusion of an investigation that was launched after an initial complaint by Spotify.

A strand of the industrial organization economics literature in the latter half of the 20th century explored how antitrust law could be used by firms to gain an advantage over rivals, i.e. to subvert competition rather than protect it. During this time, the consumer welfare standard took its place as the lodestar of antitrust enforcement alongside of the “end of history” where liberal open markets and democracy were seen as the new hegemony.

However, antitrust has not been immune to the rise of populism in recent times, as demonstrated by the Biden administration enforcers zeal for targeting consolidation (“big is bad”). However, it seems that their cases against big tech, contrary to what they’ve stated before, attempt to make the case for harm to consumers and innovation. It remains to be seen whether they can successfully make that case in court.

The Editorial Board of the Wall Street Journal rightly ridicules senators J.D. Vance, Sherrod Brown, and other Potomac projectionists for treating seriously U.S. mattress manufacturers’ demand for protection from foreign competition protection from their fellow citizens’ voluntary consumer choices. A slice:

Domestic manufacturers and unions accuse other countries of “dumping” whenever they face increased foreign competition. This case is no different. The Senators write that tariffs are needed to protect 12,000 mattress workers—never mind that many more Americans would be harmed by higher prices after already getting smacked by an earlier round of tariffs.

Commerce in May 2021 imposed steep tariffs on imports from Turkey (20.03%), Thailand (37.48%), Malaysia (42.92%), Cambodia (52.41%), Serbia (112.11%) and Vietnam (668.38%). Mattress prices subsequently surged. A TikTok video recently went viral of a mattress shopper kvetching that prices had increased by 40% in a little over two years.

Yet domestic manufacturers want the Administration to extend tariffs to more countries. Commerce in February proposed antidumping duties on a dozen countries including Mexico (41.29%), Bosnia and Herzegovina (217.38%), Italy (257.06%), Poland (330.71%), Philippines (538.23%), Taiwan (624.50%), and Slovenia (744.81%).

As usual, Washington protectionists put special interests over the common good. Americans who feel pocketbook pain when shopping for a new mattress should know whom to blame.

Pierre Lemieux is correct: When it comes to international trade, “Biden is really Trump 2.0, not surprisingly.” A slice:

If he [Biden] goes ahead with his reported protectionist plans, Trump 2.0 would be, in this area, more Trumpian than Trump 1.0. As I argued in a recent post, protection against environmental goodies is especially farcical: see “The Farce of Clean Energy Dumping,” Econlog, April 1, 2024. But it is no more economically absurd and dangerous than Trump’s nationalism.

Underlying all this are phenomena that the economics of politics has accustomed economists to see: the politicians’ power greed before organized interests and the logic of interventionism begetting interventionism.

Here’s the Wall Street Journal‘s Editorial Board on the Biden economy. A slice:

Democrats searching for a silver lining might point to the 5.1% average under Ronald Reagan, who won re-election in a landslide in 1984. But what matters in that case is inflation compared to what it had been. The Gipper campaigned against the Carter inflation, promised to do something about it, and with the help of the Paul Volcker Federal Reserve, he did. The average inflation rate fell by half in his first four years, and voters could feel it and rewarded him for it.

Mr. Biden’s inflation performance is the opposite. Voters became inured over six Presidencies, from Reagan to Donald Trump, to falling or low inflation. Then, all of a sudden under Mr. Biden, inflation surged, hitting a peak of 9.1% on an annual basis in June 2022.

Also unhappy with the Biden economy is Scott Lincicome. A slice:

Though grocery inflation has moderated in recent months, Bloomberg recently reported that food prices remain at the top of Americans’ inflation concerns. Unsurprisingly, this issue has become a major theme of the 2024 presidential election, with Joe Biden and Donald Trump—and Democrats and Republicans in Congress—pointing fingers at each other and making their case before American voters.

Yet, as I wrote in my column this week at The Dispatch, few people in Washington actually seem interested in lowering grocery prices—instead, some have been actively trying to increase them in recent cases by using protectionist trade policies to restrict available supply of products, such as beef, frozen shrimp, and fresh tomatoes. These recent actions (which are described in greater detail in my column) are moreover just the latest examples of long‐​standing US food protectionism.

My GMU Econ colleague Bryan Caplan talks with David Pakman about his – Bryan’s – new book, Build, Baby, Build.

Emma Camp reports that “nearly half of all masters degrees aren’t worth getting.”

Arnold Kling continues to discuss his and Nick Schultz’s book, Invisible Wealth. A slice:

In textbook economics, the entrepreneur is the fellow who decides how much to produce. But in the real world, the entrepreneur is trying to innovate. It could be a small innovation, such as starting an ethnic restaurant, or it could be a dramatic innovation. Either way, the entrepreneur must persuade people to adopt something new.

[DBx: Industrial policyists take note: Because industrial policy is a government plan for the allocation of resources, it necessarily obstructs entrepreneurship, for adopting something new disrupts the government’s plan.]