"Socialists often criticize US trade restrictions on Cuba. A recent example is the flotilla organized by activists attempting to deliver aid to the island that aimed to draw attention to the embargo. Participants and commentators often frame Cuba’s poverty as a direct result of US policy: lift the embargo, the argument goes, and Cuba will prosper.
What should we make of this argument? For one, the primary driver of Cuba’s persistent poverty is the Cuban government’s own economic policies, including state control, chronic misallocation, and long-standing restrictions on private enterprise. These institutional mistakes would keep Cuba poor even without the embargo.
That said, there’s little doubt that trade barriers cause economic harm, and socialists are right to recognize this. But here one might wonder: can socialists coherently object to trade restrictions while also opposing free market capitalism more broadly?
Many think the answer is yes. The socialist target isn’t free exchange as such, but private ownership of productive property. Socialists object to an economy where capitalists own the means of production and workers sell their labor for wages or a salary. Socialism, by contrast, would create a kind of “workplace democracy,” where firms are owned and operated by workers themselves. They’d collectively make decisions about production, investment, and distribution rather than take orders from a single boss. This could mean workers directly voting on major business decisions or periodically electing managers to act on their behalf. Suppose, for example, that a worker-owned pizzeria is deciding whether to shift from traditional pizza to a more upscale artisanal menu. In a traditional capitalist firm, the owner would have the final say. In workplace democracy, the cooks, servers, and other employees would collectively decide how to proceed. While there might be some conflicts between growth and equality, writes Mike Beggs at Jacobin, such a model would aim to “harmonize firm-level democracy with macroeconomic expansion and a solidaristic wage.”
Under this style of socialism, markets would still play an important role. Central planners wouldn’t decide how to allocate resources to the pizzeria or determine how many pizzas it has to bake. Instead, the pizzeria would compete with rival restaurants for customers just as it would under capitalism. The goal is to retain the information markets provide in the form of prices, profits, and losses while “socializing” ownership of firms.
At first glance, it seems as though this version of socialism is perfectly compatible with free trade. You could have an economy in which firms are democratically owned and still allow free trade both within and across borders.
That’s fine as far as it goes. But there’s a tension lurking in the background. Consider that a central justification for free trade is that it enables all parties to voluntarily enter into an economic agreement in the expectation of mutual benefit. As Adam Smith puts the point:
Whoever offers to another a bargain of any kind, proposes to do this. Give me that which I want, and you shall have this which you want, is the meaning of every such offer; and it is in this manner that we obtain from one another the far greater part of those good offices which we stand in need of.
If I want the apples you have, and you want the oranges I have, we’re both better off as a result of a trade. Trade barriers — tariffs, quotas, embargoes, and the like — block these sorts of exchanges. That’s why critics of the Cuba embargo argue that it makes people worse off: it prevents them from engaging in mutually beneficial exchange, which an abundance of research shows is a source of human prosperity.
Once you see trade in this light, it becomes harder to draw a bright line between the kinds of exchanges socialists want to allow and the kinds they want to prohibit. As I mentioned earlier, to qualify as socialist, an economy must not permit capitalists to own the means of production and hire wage laborers. This means that a socialist economy must prohibit freely agreed-upon, mutually beneficial capitalist labor agreements. For instance, suppose Barry doesn’t want to take on the risks and responsibilities that come with being a co-owner of a coffee shop; he’d rather work for a steady wage as a barista for a corporate giant. Nevertheless, a socialist economy wouldn’t allow him to do so. (Otherwise, it would start drifting toward capitalism.)
It’s not clear why trading barista labor for money is all that different from trading apples for oranges. In both cases, people are making voluntary agreements in the expectation that they’ll be better off as a result. Here, then, is the tension. On the one hand, socialists criticize trade restrictions on the grounds that they block mutually beneficial exchange and thereby make people worse off. On the other hand, they want to restrict or eliminate capitalist employment of wage laborers — even when workers voluntarily choose those arrangements.
So something has to give. You can’t easily say, “Let people trade as they see fit because they expect it to benefit them,” while also saying, “But don’t let them sell their labor as they see fit, even when they expect it to benefit them.”
If mutual benefit justifies freely trading apples for oranges, it’s hard to see why it doesn’t also justify freely trading labor for wages. And if workers may trade their labor freely, they may trade it to capitalists — a conclusion that socialist defenders of free trade are sure to find unwelcome."
Friday, July 31, 2026
Can Socialists Support Commerce But Not Capitalism?
Drug Prohibition and the Waterbed Effect
"A key rationale for drug prohibition is the belief that outlawing drugs makes them less available and more expensive, thereby shrinking consumption.
Decades of evidence, however, suggest this impact is modest, partly due to the “waterbed effect:” enforcement efforts aimed at shrinking the market mainly causes it to shift, in various ways, without much impact on its overall size. Just as pushing down on one part of a waterbed merely forces the water somewhere else, rather than reducing the overall quantity.
Two recent news stories provide textbook illustrations. From the Washington Post,
The Trump administration’s deadly military strikes on alleged drug trafficking boats have not reduced the amount of cocaine entering the United States, but they’re prompting criminal organizations to develop new strategies and tactics and undermining traditional investigative methods, according to a previously unreported assessment by the Drug Enforcement Administration, a closed-door congressional briefing and interviews with current and former U.S. and foreign officials.
In a recent assessment reviewed by The Washington Post, DEA analysts found the strikes had failed to affect the supply or price of cocaine in the United States and had led traffickers to diversify beyond go-fast boats and to avoid international waters, opting instead for larger boats and hemming close to coastlines, where U.S. forces are less likely to open fire. In a closed-door briefing last month, Pentagon officials told lawmakers the strikes in international waters off South and Central America had not reduced its purity.
And from the Financial Times,
In the battle for the seas, drug traffickers are often coming out on top — making Europe, in the words of the UN, the new “primary destination” for cocaine. The drug, once the preserve of rich European partygoers, has gone mainstream, with street prices falling by an average of 18 per cent between 2014 and 2024 while the products sold became 44 per cent purer, according to the EU’s drugs agency.
…
As authorities have stepped up interceptions at major ports, traffickers have kept ahead through sophisticated drop-offs at sea, enabled by encrypted communications, powerful speedboats, unmanned submersibles and GPS spoofing, which involves vessels faking their locations.
“You always have to stay up-to-date, because there’s always a new modus operandi,” says Jürgen Ebner, acting chief of Europol, the EU’s law enforcement agency. He warns of a “waterbed effect” — when authorities come down hard in one area it can just push problems somewhere else.
Exactly."
Thursday, July 30, 2026
The Endangered Species Act Reduces Housing
"Max Tabarrok’s paper on the Endangered Species Act and housing (WP) has just been published in the Journal of Public Economics! It’s a clever paper: Max observed that the moment an animal is put on the endangered species list, developers face enhanced compliance costs and liability risk. But what’s important for an empirical economist is that this increased regulation isn’t national–it binds just where the species lives. Thus, the ESA creates many natural experiments, places where it binds and nearby places where it doesn’t and the list changes over time–there were 82 listings in 1970 and nearly 1500 today–and there are even some de-listings which reduce regulation.
Here, for example, is a picture of the habitat (red) and control areas (blue) for when the Northern Long Eared Bat was put on the endangered species list.
The bottom left panel measures annual housing permits per 1000 1980 pop in treatment (red) versus control (blue) areas. The bottom right is the event study coefficients. After the bat was put on the endangered species list, the number of new housing permits declined in areas where bats might live relative to control areas.
Here is what happened when the Peregrine falcon was delisted. Before the delisting, housing permits were lower in regions (red) where the falcon had habitat compared to controls areas but after the delisting the treatment areas caught up to the control areas.
Overall:
…this paper provides evidence that an additional endangered species listing reduces annual housing permit flows by 0.5 permits per thousand 1980 residents, about 10% of the average place’s permit flow. Accounting for spillovers and diminishing costs, my estimates suggest the aggregate effect of the ESA has been to reduce the national housing stock by…roughly 6.3 million missing units over 1980–2024, about 4% of the 2025 housing stock.
Now, you might say, ok this shows the ESA has costs. What about the benefits of the ESA? It’s hard to measure the benefits, of course, or even know if the ESA is effective. But Max shows using satellite data that there are quite a few places where the ESA binds on infill development.
…at the intensive margin of housing production, new developments are often replacing existing buildings or are filling in space in a highly developed area that could not host endangered species even if no new construction took place. On the intensive margin, the tradeoff with species protection does not bind, and may even be positive sum as it substitutes for less dense greenfield development. Therefore, whether and how much the ESA constrains development on the extensive vs intensive margin is relevant to the tradeoffs we face between housing production and species protection, and thus is relevant to the aggregate welfare effects of the law.
In this section I extend the main empirical specification of the paper to satellite data on land use from the National Land Cover Database (NLCD) (Multi-Resolution Land Characteristics Consortium, 2025) and to heterogeneity within the Building Permits Survey to assess where the effects of the Endangered Species Act are accruing.
The NLCD is a set of satellite images of the United States compiled and pre-classified by the U.S. Geological Survey. They classify 30-square-meter pixels into one of fifteen land use groups, including four levels of development, three types of forest, and two types of wetland. The NLCD has annual files going back to 1985. I overlap these pixels with the map of permit-issuing places in the BPS using constant 2024 borders, and track the changes to pixels within each place over time. The hazard rate of extensive margin or greenfield development is measured by the flow of non-developed pixels (e.g., forests or wetlands) into any of the four levels of developed land use, divided by the total area of greenfield land use.
He concludes:
The most urbanized 15% of places are responsible for 90% of total permit flows, while the highest-value endangered species habitat is well outside these developed areas. The Endangered Species Act seems to restrict infill development in these dense areas as much as it restricts greenfield development in exurban sprawl (Table 9, Table 10, Table 11). Relaxing the legal mechanism of the Endangered Species Act in already developed areas may increase permit flows in dense, energy- and land-efficient cities in California and on the East Coast at the expense of sprawling suburbs in the Sun Belt, increasing both housing supply and endangered species habitat.
The Trump administration is trying to limit the ESA, multiple lawsuits have already been filed. Max’s paper is thus timely and it points to a fix that might satisfy housing proponents and environmentalists: relax the ESA’s bite on infill and redevelopment in already-built-up areas, where the housing-versus-habitat tradeoff barely binds, rather than across the board.
Addendum: Obviously, I am pleased as punch to see this paper in print. Max began writing the paper before graduate school–he has only just finished his first year. He was fortunate to have had lots of great advice along the way, most notably from a superb pre-doc he did at Dartmouth under the auspices of Heidi Williams."
The Enclosures and the Industrial Revolution
"Here’s a letter to someone who (I boast) reports that he’s greatly enjoying reading Phil Gramm’s and my book, The Triumph of Economic Freedom.
Mr. M__:
Thanks for your email and for your kind words about Phil Gramm’s and my book. They’re much-appreciated.
Our book’s chapter on the industrial revolution prompts you, understandably, to write:
A critique may say that one reason why people left rural areas to go to the cities was due to Britain’s enclosure laws that forced rural workers off their traditional land (which they presumably wished to stay on), causing them to have nowhere else to go except the cities and factories. This undermines the argument that rural people voluntarily left rural areas for the cities and factories due to the latter being more appealing than rural life.
Sen. Gramm and I did not explicitly address this particular point, although we should have done so. Had we done so, we’d have simply summarized the work of the eminent economic historian Deirdre McCloskey. In her remarkable 2010 volume, Bourgeois Dignity, McCloskey writes on page 154 that, in attempting to explain the industrial revolution, Karl Marx
instanced enclosure in England during the sixteenth century (which has been overturned by historical findings that such enclosure was economically minor) and in the eighteenth century (which has been overturned by findings that the labor driven off the land by enclosure was a tiny source of the industrial proletariat, and enclosure happened then mainly in the south and east where in fact little of the new sort of industrialization was going on, and where agricultural employment in newly enclosed villages in fact increased).
A few pages later (pages 172-173), McCloskey adds:
By now, though, several generations of agricultural historians have argued (contrary to the Fabian theme first articulated in 1911, which followed Marx) that eighteenth-century enclosures were in many ways equitable and did not drive people out of the villages…. Contrary to the pastoralism of [Oliver Goldsmith’s 1770] poem – which as usual reflects aristocratic traditions in poetry back to Horace and Theocritus more than evidence from the English countryside – the commons was usually purchased rather than stolen from the goose. One can point with sympathy to the damaging of numerous poor holders of traditional rights without also believing what appears to be false – that industrialization depended in any important way on the taking of rights from cottagers to gather firewood on the commons. Industrialization, after all, occurred first in regions to the north and west, mainly enclosed long before, such as Lancashire or Warwickshire, and especially (as Eric Jones pointed out) in areas bad for agriculture, not in the fertile East Midlands or East Anglia or the South – the places where the parliamentary acts of the eighteenth century did transform many villages, though non “deserted.” In such freshly enclosed areas, I repeat, the local populations increased after enclosure."
Wednesday, July 29, 2026
Who's Paying for the Discounts in Mamdani's City-Run Grocery Stores?
This week, Mamdani announced his city-run grocery stores will sell core goods at a 30 percent discount.
"This week, New York City Mayor Zohran Mamdani gave more details about his administration's plan to open five city-owned, city-run grocery stores across all five boroughs. Although Monday's press conference provided some more clarity about the stores' discount rates and inventory, the plan is still no better than before (despite New York magazine's declaration that the stores "Sound Pretty Good").
The Mamdani administration has announced the locations of two stores: The first will open in Hunts Point in the Bronx by the end of next year, and another will open in East Harlem by 2029. In total, the city plans to spend $70 million in capital costs, with $30 million funding the ground-up construction of the East Harlem location. The city will cover the rent and property taxes for the five grocery stores located in each borough, and private operators will run the day-to-day operations of each store. Those operators will be "contractually required" to pass on savings to customers by offering discounts on a core basket of staples.
Until Monday's press conference, it was unclear which goods would be discounted and by how much. The core set of goods, Mamdani revealed, will include produce, meat, and seafood, along with 20 other items such as milk and bread. These items will be discounted by 30 percent compared to "typical retail prices" with "no exceptions, no gimmicks." Mamdani told reporters he arrived at the 30 percent figure because food prices have risen roughly 30 percent since 2019.
When asked whether the city-run grocery stores would threaten surrounding businesses, Mamdani told reporters that the city's stores would not pose a threat to bodegas and other grocery stores because they would not sell hot food or cigarettes, items he says drive revenue for existing bodegas and stores.
Even if the public stores do not threaten privately run businesses, there are few clear upsides to the plan. As philosophy and economics professor Daniel Muñoz noted on his Substack, if the goal of Mamdani's stores is progressive redistribution, a government-owned grocery store is an inefficient and "negative sum" solution.
"Notice that anyone can shop there—there is no means testing," Muñoz wrote. "By contrast, food stamps are designed to help the poor, and they don't cause long lines or put more efficient grocers out of business."
Mamdani has said that government intervention for food distribution is nothing new. On Monday, he explained that former New York City Mayor Fiorello La Guardia was inspired to create municipally owned markets after witnessing food riots several years earlier.
"He did so because he believed in a simple definition of the task of government to make people's lives better," Mamdani said.
La Guardia may have been partially motivated to create municipally owned markets to make goods affordable, but Mamdani conveniently left out another part of the story. La Guardia wanted to create municipal markets (like Essex Market in the Lower East Side) to get pushcarts off the streets.
According to a New York Times article from 1938, La Guardia wrote in a letter to commercial associations: "It is my policy, where a market is necessary, to build a proper covered market so that these same peddlers may be permanently placed in such market under proper and wholesome sanitary conditions." While municipal markets, like Essex Market, are still in use today, they are not proof of concept for city-run grocery stores. The vendors at Essex Market pay below-market rent, but the vendors are still private businesses subject to market fluctuations.
Even if the city-run stores push other grocers out of business, create resale markets, or produce other unintended consequences, the city will have little incentive to shut them down because taxpayers will always be there to foot the bill. Plus, the city can take credit for making life more "affordable" for New Yorkers."
Tuesday, July 28, 2026
The Apples and Oranges Tribunal
"Suppose that apples sell for more than oranges and Parliament in it’s wisdom decides that, at last, apples and oranges must be compared. Not by shoppers — shoppers are biased, they merely reveal what they are willing to pay — but by a tribunal, which will determine whether apples and oranges are of truly equal value and thus must sell at the same price.
What would the tribunal need to know?
Start with land. Orange groves sit on Florida real estate with one set of alternative uses; apple orchards occupy Washington hillsides with another. The opportunity cost of an orange includes the housing development, the solar farm, the tourist attraction not built on that grove. How is the tribunal to value what was never built? Perhaps you answer: look at land prices. Brilliant suggestion, I reply. Keep going.
Next, capital. Orchards take years to mature, so today’s fruit embodies investments made under yesterday’s expectations about today, financed at interest rates the tribunal must somehow incorporate. Then storage: apples keep, oranges rot, so an apple and an orange in April are different goods than the “same” fruits in October. Add transportation, refrigeration, frost, pests, crop insurance, the option to divert fruit into juice, cider, marmalade, or pie, substitution with every other item in the produce aisle, and the shifting preferences of millions of consumers, each of whom knows things about his own breakfast that he could not articulate to a tribunal. It all matters.
To determine the “just” price of apples and oranges, the tribunal would need the entire general-equilibrium system.
Market prices are necessary to compare alternative uses of resources, as Mises taught us in 1920. In 1945, Hayek added the knowledge problem: the relevant knowledge is dispersed, local, tacit, and fleeting. Free markets are the only institution that aggregates that knowledge, articulates it in prices and gives people a reason to listen and respond. A price is a signal wrapped up in an incentive. Apples and oranges can be compared but only by the incomparably complex operations of the price system. There is a reason we call it the super-market.
Britain is now running this experiment in the labor market–A retail worker equal to a warehouse worker? A canteen worker equal to a coal miner? A dinner lady equal to a gravedigger?
Under the Equality Act’s “equal value” provisions, tribunals compare jobs by scoring their intrinsic properties — effort, skill, responsibility, working conditions — the labor theory of value applied to labor. How is it going? The Tesco litigation began in 2018; the tribunal’s fact-finding hearing ran 36 days, its judgments run to more than 900 pages resting on some 19,000 pages of training manuals, and the independent experts have yet to begin the report that will actually say whether a shelf-stacker’s job equals a warehouse worker’s. Eight years, and the calculation has not started. Apples and oranges, adjudicated but not, as Orwell or Marx or Stafford Beer might have imagined, by a industrial bureaucracy or by an all-knowing artificial intelligence but by lawyers and commissions and tribunals. The worst of all worlds.
And having discovered that the tribunal cannot price two jobs in a decade, the government now proposes to add race and disability comparisons and an enforcement unit to publish official guidance on which reasons for a wage difference are permissible. A bureau of allowable scarcities.
Moreover, let us say that one day the tribunal reaches its conclusion and finds the truly just apple to orange price. At last, nirvana. The next day the public learns that vitamin C really does combat cancer–the demand for orange juice skyrockets. To encourage more orange juice production we need a higher price but wait…nothing about oranges or apples or the labor required to produce them has changed. We need to attract more labor to the orange juice industry but the effort, skill, responsibility and working conditions of orange juice workers has not changed. How can we justly pay them more than their apple juice brethren? Blank out.
The market compares apples and oranges every day. It is the only institution that can. But there is a deeper error here than computation. Suppose the tribunal succeeded. Suppose that after another decade it delivered the true and final score, shelf-stacker versus warehouseman. What would it have found? Not justice. A wage is not a grade on your character or a measure of your worth as a human being. A wage is a price — a report on how scarce your skills are relative to the desires of people you will never meet. Nurses are not morally less worthy than plumbers should they earn less than plumbers or vice-versa, and no one thinks otherwise except the tribunals.
Hayek nailed it in The Mirage of Social Justice: justice is about conduct — how one person treats another. An employer who defrauds his workers, an employee who steals from the till, a product sold under false pretenses — condemn them, take them to court. But the pattern of prices that emerges from millions of voluntary trades is nobody’s conduct. No one chose it, no one designed it, no one can be guilty of it. The constellation of prices is, in Ferguson’s phrase, the result of human action but not of human design. Demanding that prices be just is a category error, like suing the weather. Prices don’t grade our merit; they guide our actions. Ask them to do the first and they can no longer do the second.
Judge Anthony Kennedy said it well in the Ninth Circuit ruling that (mostly) killed comparable worth in the US: “neither law nor logic deems the free market system a suspect enterprise.”"