Category Archives: Economics

Henri Pirenne – Medieval Cities: Their Origins and the Revival of Trade

Henri Pirenne – Medieval Cities: Their Origins and the Revival of Trade

Of Pirenne’s three best-known books, also including Mohammed and Charlemagne and Economic and Social History of Medieval Europe, this one, from 1925, is probably the strongest on its analysis of institutions and how they changed over time. The Pirenne Thesis is essentially that economic isolation caused the downfall of Roman civilization. Not barbarians, or Christianity, or decadence, as many other historians argue. It was a combination of economics and closed cultural attitudes among Europe’s Mediterranean neighbors. Centuries later, a gradual return to economic and cultural openness led to the high medieval ages, and eventually the Renaissance. Pirenne’s line of thought can easily be extended to the Enlightenment, the Industrial Revolution, the Information Age, and today’s debates over trade and immigration, where Pirenne has most influenced this writer.

This book focuses on the rise of the city. Cities require a lot of support, and do not emerge fully formed out of a vacuum. They have numerous economic and cultural preconditions. One of the major ones was shaking off feudal shackles. This was a long, gradual process with many degrees. It was a spectrum, not an on/off switch. City residents were often former serfs; remember the famous saying, “city air makes one fee.” This was a legal concept, not just an attitude. An escaped serf who lived a year and a day without being captured was legally freed.

City residents answered to neither king nor lord, at least during the period Pirenne studies in this book. But there was more to the story of cities than a simple rejection of feudal authority. City workers did not grow their own food. They relied on specialized work and trade with outside farmers to put food on the table. This was not possible without requisite population density, infrastructure, and a cultural openness to commerce and technology.

Most societies are neophobic; city life required almost a neophilia. Once this happened to a small degree, a virtuous circle emerged. Improved productivity made people more prosperous and more accepting of bourgeois social norms. This further reinforced the process, and so on. This mishmash of factors, with arrows of causality pointing every which way, are why people began to live in cities rather than farms and villages, eventually paving the way for modernity.

China Retaliates to U.S. Tariff Increase

A story in Canada’s The Globe and Mail (unfortunately behind a subscription paywall), quotes me on the latest tariff increases in the U.S.-China trade war:

Ryan Young, a senior fellow at the free-market think tank, Competitive Enterprise Institute, said Mr. Trump’s negotiating strategy has “backfired badly” and he will have to change course to reach a resolution. Mr. Young said Congress should try to take away Mr. Trump’s authority to impose levies.
Mr. Young said better options for dealing with China’s behaviour would be suing Beijing through the World Trade Organization and joining the Trans-Pacific Partnership, a Pacific Rim trade pact meant to contain China’s influence.
“The President has the order wrong – he says ‘ready, fire, aim,’” Mr. Young said. “Trump can’t be trusted with tariff authority.”

Happy 120th Birthday, F.A. Hayek

Today would be Hayek’s 120th birthday. From the archives, here is an appreciation I wrote a few years ago of Hayek’s career and intellectual contributions.

Export-Import Bank Politics

Politico’s Zachary Warmbrodt has an excellent–and thorough–writeup on the current state of Export-Import Bank politics, covering all sides. He also quotes me at the end:

Conservative opponents of the bank are making clear they’ll resist entreaties by McHenry and others to bring them along for reauthorization.

“He’s not going to succeed with us — that’s for sure,” Competitive Enterprise Institute senior fellow Ryan Young said. “We’re standing by our principles.”

I’m a (classical) liberal, not a conservative, but the statement is still true. The more company, the merrier on that front, regardless of party.

Trump Threatens New China Tariff with May 10 Deadline

On Sunday, President Trump announced via Twitter that if he does not approve of the results of this week’s U.S.-China trade talks, he will enact a new tariff on Friday, May 10th. It would raise a current 10 percent tariff on $200 billion of Chinese goods to 25 percent. He threatened a similar tariff late last year, but backed off. China, in response, might withdraw from the talks altogether.

This week’s trade talks, set to begin Wednesday, were expected to conclude by Friday anyway, though without a hard deadline.

Trump has a history of using drastic threats as a negotiating tactic, only to quickly back off. In addition to threatening and backing away from the same China tariff last year, he has also backed off of threats to shut down the U.S.-Mexico border and to enact tariffs against European automobiles on national security grounds.

If Sunday’s tweets are just the latest iteration of an established pattern, consumers will have little to worry about. But if Trump follows through, those same consumers should be aware of Trump’s tenuous grasp of how tariffs work. His two tweets read:

1:  For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars….

2: ….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!

To which I responded—with my apologies for a dumb grammatical error (that’s Twitter for you):

Chinese producers doesn’t pay the tariffs. American consumers do. Chinese companies sell goods at the same price and profit margins. U.S. consumers then pay the tariff when they make the purchase.

President Trump has a fundamental misunderstanding of who pays tariffs, and that matters for his policy aims. He has made this mistake before, and his advisors are apparently unable to shake him of it despite repeated “Groundhog Day” meetings.

As for tariffs helping the economy, that is also false. When people have to pay more money to get the same goods as before, they have less left over to spend on other goods, or to save and invest. This means tariffs not only reduce consumption, they shrink available capital for U.S. entrepreneurs, startups, and homebuyers.

Writ large, the Trade Partnership estimates that if President Trump goes through with the 25 percent Chinese goods tariff, and China retaliates in kind per usual, total tariffs would cost up to 1.04 percent of GDP. That comes to $2,389 per year for a family of four.

There is a policy action Congress can take immediately to prevent further tariff abuses. The China tariffs are enacted under Section 301 of the Trade Act of 1974; Congress should repeal that section. For more on that, see the trade chapter in CEI’s “Free to Prosper: A Pro-Growth Agenda for the 116th Congress.” For more on the larger case for free trade, see Iain Murray’s and my study “Traders of the Lost Ark.”

Ideology, Evolution, and In-Groups

Joel Mokyr points out a strange tendency among ideologies on p. 51 of his 2016 book A Culture of Growth: The Origins of the Modern Economy:

Cultural beliefs tend to occur in clusters. For instance, those Americans who adhere to evangelical religion commonly also think that widespread gun ownership is desirable, that marriage should be confined to heterosexual couples, that climate change is not a reality, and object to large scale federal redistribution policies, although logically these beliefs are not all obviously connected.

This tendency is not specific to religious conservatives. Other groups across political, national, and religious identities have their own similarly odd belief clusters. For many people, affirming their group identity is more important than evaluating the merits of a given policy.

We’re evolved to think that way, and it won’t change anytime soon. Even those of us without religious or partisan affiliation think that way; we’re human, too.

A big part of the greater Enlightenment project is raising awareness of this cognitive tendency among people. If people are more aware of what they’re doing, they are more likely to take a step back and evaluate policies with a cooler, more rational head. There are healthier ways to feel part of a group.

Institutional Economics in a Nutshell

Long-term structures matter more for policy outcomes than electing a preferred candidate.

Or as Geoffrey Brennan and James Buchanan put it in the closing paragraph of The Reason of Rules: Constitutional Political Economy, p. 167:

Good games depends on good rules more than they depend on good players.

Ex-Im Bank Revival?

Next week the Senate is expected to vote on new board members for the Export-Import Bank, which gives favorable financing terms to foreign governments and businesses when they buy U.S. products. This is a bigger deal than it sounds. Ex-Im’s charter requires a quorum of three members to authorize any transactions larger than $10 million. It has lacked that quorum since 2015 due to expiring board member terms. As a result, Ex-Im has been doing just a fraction of the business it used to do. Its financing projects declined from $21 billion in 2014 to $3.6 billion in 2018.

Sen. Pat Toomey (R-Penn.) and other members have been blocking board member confirmation votes in order to keep Ex-Im to returning to its former “Bank of Boeing” status—when Boeing alone accounted for nearly half of its business in most years. A literal top 10 list of large businesses captured as much as 80 percent of Ex-Im largesse before the big 2014-2015 reauthorization and board quorum battle.

The current board quorum fight is the first act in a larger fight. Ex-Im’s charter expires on September 30. If Congress does not reauthorize it, Ex-Im would close its doors to new projects, wind down its portfolio, and then disappear entirely. This nearly happened in the 2014-2015 reauthorization cycle, when Ex-Im’s authorization lapsed for more than six months. It has lacked board quorum for much of the period since.

CEI has signed on to a coalition letter opposing Ex-Im’s reauthorization. We also hope the Senate declines to give the Ex-Im board a quorum. As the Mercatus Center’s Veronique De Rugy and Justin Leventhal point out in a recent study, Boeing and other major Ex-Im beneficiaries are doing just fine without Ex-Im. They have had no trouble finding private financing, and Boeing even set new profitability records.

Total U.S. exports have increased by $266 billion since 2014. The most recent GDP growth and employment rates are both stellar, despite four years of limited Ex-Im activity. Estimated GDP growth was 3.2 percent in fourth quarter 2018, and Friday’s employment report estimated an employment increase of 263,000 jobs and a 3.6 percent unemployment rate.

Given that the prelapsarian was Ex-Im operating at a loss of $2 billion per decade under conventional accounting standards (the Bank uses unconventional methods to show a $14 billion profit instead), it is time to close Ex-Im. Congress can do that simply by doing nothing. It can also limit Ex-Im’s cronyism by doing nothing to vote on new quorum-restoring board members.

For more on the case for closing Ex-Im, see my paper “Ten Reasons to Abolish the Export-Import Bank.”

Interview on the Case against Antitrust Law

Here is an interview I recently did on Wayne Crews’ and my paper on antitrust law. My segment starts at about the 57-minute mark.

The paper is here.

Republican Study Committee Releases 2020 Budget Proposal

Congress is supposed to pass an annual spending budget, though it rarely gets around to it. Instead, the government is usually funded through a mashup of individual appropriations bills, omnibus appropriations bills, and continuing resolutions. This makes government spending less transparent and less accountable. It also leaves the federal government vulnerable to shutdowns during political fights, which happened in January of this year.

Fortunately, the Republican Study Committee (RSC) has just issued a proposed budget. It is likely the only budget that will be introduced in Congress this year, though unlikely to pass a Democratic House. As with any issue-spanning document, one can quibble with its contents regardless of political persuasion. Still, the RSC deserves a great deal of credit for at least putting something out there.

Other parts of the GOP should also issue their own proposed budgets; unlike The Highlander, there can be more than one. Across the aisle, a Democratic budget(s) would face similar obstacles in a Republican Senate and White House. They still should release their own budgets to make their policy priorities more concrete.

The whole RSC FY 2020 Budget is here. The document cites CEI sources on a variety of issues:

  • Regulatory Reform. The budget gives an entire chapter to regulatory reform, beginning on page 17, and cites Wayne Crews’s Ten Thousand Commandments annual report—the 2019 edition of which will be released soon.
  • Energy and Environment. The budget’s recommendations for increasing North American energy production draw on the energy and environment chapter in CEI’s Agenda for the 116th Congress.
  • Export-Import Bank. On page 25, the budget would abolish the Export-Import Bank, citing my paper “Ten Reasons to Abolish the Export-Import Bank.” Ex-Im’s charter expires this September 30, and will close if Congress declines to reauthorize it.

Kudos to the RSC for putting out a tangible document that should serve as a starting point for debating federal priorities for the next fiscal year—and for attempting to fix a broken budget process. They also have excellent taste in finding sources for many of their ideas; interested readers can find more in CEI’s Free to Prosper: A Pro-Growth Agenda for the 116th Congress.