Category Archives: Economics

Delaying Further China Tariffs “Nice” but Fails to Undo Harm “Being Done Right Now”

Posted on March 1, 2019 | Comments Off on Delaying Further China Tariffs “Nice” but Fails to Undo Harm “Being Done Right Now”

This is a CEI press release. See the original at cei.org here.

In a notice put out this morning, the Trump Administration announced a delay in tariffs against China “until further notice.”

CEI fellow Ryan Young said:

“Trade talks with Beijing have resulted in the Trump administration delaying ‘until further notice’ its threat to raise the current 10 percent tariff on $200 billion of Chinese goods to 25 percent. This is good news, but it is important to remember the difference between abstaining from harm and actively doing good.

“The existing 10 percent tariff reduced GDP by more than $14 billion in 2018, causing direct harm to the U.S. economy. Because China has responded in kind to President Trump’s tariffs, soybean exports to China are down 99.7 percent from a year ago, and other industries such as automobiles are also having difficulties in China. The administration’s decision to hold off on doing further harm is nice, but it doesn’t change the harm already being done right now.”

Read more:

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Posted in Economics, Trade

Joseph Schumpeter – Capitalism, Socialism, and Democracy

Posted on February 28, 2019 | Comments Off on Joseph Schumpeter – Capitalism, Socialism, and Democracy

Joseph Schumpeter – Capitalism, Socialism, and Democracy

Schumpeter was famously pessimistic about capitalism’s long-term prospects. But he was equally dismissive of Marxian socialism as a viable replacement. He instead foresaw a long slide into Fabian-style socialism-lite. Such a system is benign and boring for the most part, which seems harmless enough.

The trouble is that prosperity comes from taking risks–starting a business, inventing new products or business models, and displacing the old and replacing it with something better. People seem to prefer safe mediocrity to risking excellence, and in the long run, Schumpeter thinks that is what people will get.

A lot of people hope Schumpeter was wrong. He seems to have hoped so, at least.

Schumpeter also outlines his famous theory of creative destruction, which is easily his most influential idea.

Haughty in tone with occasional flashes of wit, this 1942 book is a classic for a reason, though I can only hope its flaws are deeper than I suspect they actually are.

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Posted in Books, Economics, Innovation, Uncategorized

Jean-Baptiste Say – A Treatise on Political Economy

Posted on February 26, 2019 | Comments Off on Jean-Baptiste Say – A Treatise on Political Economy

Jean-Baptiste Say – A Treatise on Political Economy

Say was an early 19th century French economist, most famous for what we now call Say’s Law. It is often cynically misunderstood as meaning “supply creates its own demand.” A more accurate statement is that “abundance makes more abundance possible.”

Think of it this way: if you produce more value, have more you can trade to others in exchange for other things you value. If everyone does this, the result is a virtuous circle of growing prosperity. Even if people just act in their own self interest, other benefit. The more people who do this, the more people benefit, and to a greater degree.

Say’s Law is a very deep concept to which this short review cannot do justice; suffice it to say that when it clicked in my head, it gave me a major “eureka!” moment I have only experienced a few times in my life.

Say also roundly refutes the labor theory of value that John Locke, Adam Smith, and later, Karl Marx all used. But Say stops short of the subjective theory of value that Walras, Jevons, and Menger independently developed in the 1870s, and that nearly all economists use today.

In that respect, Say is an important bridge figure in economic history. He also displays much common sense on trade barriers, rent-seeking, and political corruption, and dispels common romance about preserving obsolete industries and jobs. On those issues, he remains pertinent reading nearly two centuries after his death.

Say’s book is also long overdue for a new English language edition–a perfect project for the good people at Liberty Fund. The old-timey edition linked to above (courtesy of Liberty Fund, naturally) has distracting and uninformed editorializing in endless footnotes by the translator and editor. They are less than helpful and beyond irksome–and date from 1830.

Say’s name is not obscure, but his Treatise is surprisingly hard to find. The link above might save interested readers some time. In the meantime, let us hope a new edition will come out sometime soon. Say still has much to teach us.

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Posted in Books, Economics, The Market Process, Trade, Uncategorized

Say No to Trump’s Proposed Auto Tariffs

Posted on February 22, 2019 | Comments Off on Say No to Trump’s Proposed Auto Tariffs

President Trump is mulling a tariff on automobiles. Joining a long list of people urging him against it is the Japanese auto industry. That opposition is obviously self-interested, but has merit. Japanese automakers directly employ 92,000 U.S. workers. Counting in dealerships, parts suppliers, and others, they support over 1.5 million jobs, at least by their own estimate. An auto tariff would also antagonize the Japanese government, a needed ally for President Trump’s China reform efforts.

Trump would enact the tariffs on national security grounds. Japanese Automobile Manufacturers Association Chairman Akio Toyoda responds to that point in a statement:

Imported vehicles create new market demand, including demand for new vehicle technologies, thereby expanding and diversifying the choices available to our U.S. customers. As such, these vehicles clearly do not threaten United States national security.

In short, importing cars means importing new technologies, some of which could increase U.S. security.

The same arguments apply to European carmakers, especially in Germany. Many of the cars are assembled in the U.S. by American employees, and support related jobs. Trump will have a hard time pursuing his China policies without the EU’s cooperation, and auto tariffs hurt that cause. And European cars, especially high-end ones, contain new technologies with potential security benefits.

There is also an old saying among economists that during war, the first thing a country does is blockade its enemy from foreign trade. Protectionists seek to blockade their own countries, even during peacetime. That President Trump is proposing such blockades on national security grounds only adds to the irony. I previously dealt with other national security arguments for tariffs here.

It’s also not just Japan and Europe who oppose Trump’s proposed auto tariff:

  • Congress doesn’t want it since it would hurt their constituents.
  • Consumers don’t want it. Cars and car parts would become more expensive.
  • Domestic auto companies might benefit from being able to raise prices without being undercut by competitors. But higher prices would hurt sales, and many of their parts costs would increase. From their perspective, it’s at best a mixed bag, and existing tariffs have already led to billion-dollar losses and more than 14,000 layoffs at GM alone.
  • Even Trump’s campaign staff is probably wondering what he is thinking. An auto tariff would hurt auto workers in Trump-friendly states where many foreign car companies have production plants.
  • Investors don’t want it. A new study estimates the S&P 500 would be 11 percent higher today if not for Trump’s trade policies. An auto tariff would not reduce that number, though it would reduce Americans’ retirement savings.

If you don’t think of Hondas or Audis as national security threats, you’re not alone. Now would be an excellent time for Congress to vote on the Bicameral Congressional Trade Authority Act. This would reduce the President’s Section 232 authority, which is what enables him to unilaterally raise tariffs if he cites national security. Not only would this improve economic growth, it would make for a healthier balance of powers between legislature and executive.

For more on trade policy, see my Web Memo, “Common Myths and Facts about Trade: Clarifying the Trade Debate Is Crucial to Ensure the Prosperity of America and the World” and my 2018 study, with Iain Murray, “Traders of the Lost Ark: Rediscovering a Moral and Economic Case for Free Trade.”

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Posted in Economics, Trade

David Ricardo – On the Principles of Political Economy and Taxation

Posted on February 22, 2019 | 1 comment

David Ricardo – On the Principles of Political Economy and Taxation

If Adam Smith was the first great modern economist, David Ricardo was the second. His textbook has its faults, but Ricardo plants all manner of seeds that later economists would grow into the quantity theory of money, denationalized currency, the law of one price, and the subjective theory of value, among other things.

Ricardo’s most famous contributions are to the theory of international trade and comparative advantage. On these issues, like nearly all economists, he stands almost exactly opposite President Trump.

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Posted in Books, Economics, Trade, Uncategorized

Dennis C. Rasmussen – The Infidel and the Professor: David Hume, Adam Smith, and the Friendship That Shaped Modern Thought

Posted on February 20, 2019 | 1 comment

Dennis C. Rasmussen – The Infidel and the Professor: David Hume, Adam Smith, and the Friendship That Shaped Modern Thought

A highly enjoyable dual biography of David Hume and Adam Smith that mixes the personal and the intellectual. Rasmussen spends too much time on their religious beliefs for my taste, but still gives plenty of attention to more interesting topics. Hume was famously gregarious while Smith was intensely private, though their friendship was a close one. Despite some differences, they were also close intellectual allies who repeatedly defended each other from their many critics.

Hume gets the lion’s share of the book’s attention, mainly because Smith asked that most of his papers be burned after his death. His wishes were mostly respected, leaving less material for the historian to work from.

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Posted in Books, Economics, Great Thinkers, Philosophy, The Old Religion, Uncategorized

Benjamin Powell – Out of Poverty: Sweatshops in the Global Economy

Posted on February 19, 2019 | Comments Off on Benjamin Powell – Out of Poverty: Sweatshops in the Global Economy

Benjamin Powell – Out of Poverty: Sweatshops in the Global Economy

Powell has the audacity to evaluate policies by their results, not their intentions. In this book, anti-sweatshop activists come off poorly. Most of their favored policies, despite good intentions, have lousy results. The concluding chapters contain a host of economically literate alternatives, from freeing trade and immigration restrictions to cultural openness and exchange. Integration, not segregation.

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Posted in Books, Economics, International, Uncategorized

Richard Posner – Antitrust Law, Second Edition

Posted on February 18, 2019 | Comments Off on Richard Posner – Antitrust Law, Second Edition

Richard Posner – Antitrust Law, Second Edition

A foundational text in modern antitrust regulation. From the 1890 Sherman Act up until about the late 1960s, antitrust policy was strictly for lawyers and politicians. Posner, though a lawyer, incorporated economic analysis into antitrust questions. This was a controversial departure at the time, and came to be called the Chicago School approach.

Unlike more populist analysts, Posner placed results above aesthetics. Do large market share, mergers, tying, charging high or low prices, and more cause consumer harm? If so, then antitrust enforcement is appropriate. If not, then not. It is an empirical question, not an emotional one.

The consumer welfare standard displaced the previous Brandeisian “big is bad” standard. Posner’s work is vulnerable to criticism on public choice grounds, and his command of economic analysis not perfect. But his influence has been largely positive, and greatly improved policy outcomes in an area badly in need of reform.

The story is not over, though. The Trump administration and progressive activists would both like to revive big is bad; the coming years will see who prevails in this next chapter.

On a personal note, back in college I once had lunch at the same table as Posner. This would have been around the time this book’s second edition came out, though I don’t recall it being discussed. The conversation mostly revolved around prescription drug reimportation regulations, a hot issue at the time. Had I been more knowledgeable about Posner’s place in the law-and-economics movement, I would have loved to pick his brain about improving antitrust policy and other legal areas.

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Posted in Antitrust, Books, Competition, Economics, Law, Uncategorized

Henri Pirenne – Economic and Social History of Medieval Europe

Posted on February 16, 2019 | Comments Off on Henri Pirenne – Economic and Social History of Medieval Europe

Henri Pirenne – Economic and Social History of Medieval Europe

Though written before Mohammed and Charlemagne, it continues the Pirenne thesis up through the 15th century.

Trade never stopped during the medieval period, but it was geographically confined for political, military, and religious reasons. Eastern goods such as cloths and especially spices all but disappeared from Europe. The ultra-high prices merchants could command for these goods made remaining long-distance trade very lucrative.

When political and cultural change in the Near East eventually let more trade through, it quickly led to the birth of modern finance and banking—though Europe’s own cultural restrictions, such as prohibitions on usury and a popular disdain for commerce, slowed the process.

It also led to both the rise and decline of the Champagne Fairs and similar big annual events. Long distance trade went from almost nothing to enough to support large annual fairs, then finally became commonplace enough to make faraway goods available year-round in every city, making the fairs obsolete. In a weird way, both the rise and the fall of the Champagne fairs were evidence of progress.

Italy, especially Venice, and the North Sea traders from the cities comprising the Hanseatic League were some of the biggest drivers of the economic revival. It is not a coincidence that the Renaissance began around this time.

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Posted in Books, Economics, History, Trade, Uncategorized

Henri Pirenne – Mohammed and Charlemagne

Posted on February 15, 2019 | Comments Off on Henri Pirenne – Mohammed and Charlemagne

Henri Pirenne – Mohammed and Charlemagne

The Pirenne thesis is that barbarian invasions didn’t collapse the Roman Empire in 476 AD—economic isolation did, two centuries later.

Most barbarians wanted to assimilate, not destroy. They eventually became soldiers, senators, and even emperors who gave their lives fighting for the Empire, sometimes against their own former countrymen. Government and everyday life stayed pretty much the same after Romulus Augustus’ 476 overthrow.

The real change happened about two centuries later, when Arabs conquered most of the southern, eastern, and western Mediterranean. The new conquerors were uninterested in trading with the Romans, and mostly ignored them. This isolated the old Empire from existing long-distance trade.

Isolation from trade caused Europe’s economic decline, as the archaeological record shows (later historians have since confirmed this in detail). Papyrus was replaced by costlier parchment, and churches were lit by ineffective wax candles instead of oil-burning lamps. What once was open became isolated, and that’s what caused the Dark Ages.

Highly recommended, and relevant to today’s trade and immigration policy debates.

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Posted in Books, Economics, History, Trade, Uncategorized