Socialism and the Decline of the Black Family

Children need fathers, but social fragmentation gives an advantage to those who seek centralized power

By Jason Riley. Excerpts:

"socialism’s impact on the traditional family structure is no less concerning. Children from intact families are more likely to finish school and avoid poverty. The absence of fathers is strongly correlated with teen parenthood, drug addiction and involvement with the criminal justice system. The cultural anthropologist Margaret Mead wrote that “every known human society rests firmly on the learned nurturing behavior of men” and that civilization “depends upon social inventions that will make each generation of males want to nurture women and children.”"

"socialists such as Karl Marx and Friedrich Engels dismissed the traditional family as a tool of oppression"

"many of the social and economic problems in low-income black communities stem from the sad fact that some 70% of black children are born to unwed parents and nearly 45% live with a single mother."

"Asians are the highest earners, followed by whites, Hispanics and blacks. Similarly, Asians have the highest marriage rates, followed by whites, Hispanics and blacks. Maybe it’s no coincidence."

"Following emancipation, one of the first things black people did was seek out spouses and children from whom they had been forcibly separated during slavery."

"Between 1890 and 1950, black men and women married earlier and were more likely to be married by 35 than their white peers, Mr. Squires writes. That suggests black attitudes toward marriage and child rearing today are the product of incentives and circumstances that developed long after the end of slavery. “More than 70 percent of black children were born to married parents in 1965—a century after the abolition of slavery,” Mr. Squires writes. “Today, only 30 percent are."

"The black family was more intact after three centuries of chattel slavery than after three generations of the federal government’s ‘war’ on poverty.”" 

Hamilton Was No Protectionist

The first Treasury secretary backed tariffs mostly to raise revenue and promote free trade

By Phil Gramm And Donald J. Boudreaux. Excerpts:

"the 21st century, when the average trade-weighted tariff rate of Organization for Economic Cooperation and Development member countries was below 3% and almost identical to that of the U.S., and the OECD found that the nontariff barriers of U.S. trading partners aren’t significantly higher than America’s nontariff barriers, it’s highly doubtful that Hamilton would support Trump policies."

"It’s true that Hamilton endorsed some elements of the infant-industry argument for tariffs, but he did so because American industry then was indeed in its infancy. America today occupies a completely different position"

"The conditions that led Hamilton to support tariffs have long since disappeared. He never saw protection of domestic manufacturing as a long-term policy but rather insisted that “continuance of bounties on manufactures long established must almost always be of questionable policy.”"

"among the greatest forces fostering U.S. industrialization was its trade deficit and resulting capital surplus"

"Hamilton described net inbound foreign capital as “a precious acquisition . . . a most valuable auxiliary, conducing to put in Motion a greater Quantity of productive labour, and a greater portion of useful enterprise than could exist without it.”"

"the British and Dutch invested heavily in America. They grew wealthy on those investments, and so did America."

"Hamilton knew that high protective tariffs, by discouraging importing and encouraging smuggling, suppressed those [tax revenue] collections."

"From 1816 through 1830, industrial production grew at an average annual rate of 4% as tariffs rose. From 1831 through 1860, industrial production exploded by 6.7% a year as tariffs fell." 

"between 1866 and 1900 average tariff rates fell from 41.8% to 27.6% and industrial production grew at an average annual rate of 5.6%."

"Frank Taussig concluded in 1915, it [industrialization] was fueled by “the intelligence and inventiveness of the people; these being promoted again by the breath of freedom and competition in all their affairs.”" 

Does Rent Control Redistribute from Poorer to Richer?

From Jeffrey Miron.

"Rent control policies are gaining momentum on the campaign trail and in state houses. New research, though, confirms something economists have argued for a long time: rent control has serious adverse effects that undermine its rationale..

The study

examines the effects of a rent control ballot measure passed in Saint Paul, Minnesota, in November 2021, on property values. … [Researchers found that t]he law decreased rental property values by reducing expected future rental income and landlords’ incentives to invest in maintenance.

In addition,

the effects of Saint Paul’s rent control law varied significantly by the income levels of renters, landlords, and owner-occupants. On average, rent control generated financial gains for renters and losses for owners, as expected. However, higher-income renters gained more than lower-income renters. … [Also,] lower-income landlords lost more wealth relative to their income than higher-income landlords. Finally, owner-occupants, despite not directly participating in the rental market, bore the greatest share of the total losses.

The study

shows that the benefits of Saint Paul’s rent control law are distributed regressively to renters, while the costs are distributed regressively to landlords."

It’s Time To Legalize Kei Trucks

Restrictions on kei trucks are another way government drives up the cost of living

By Scott Beyer of The Independent Institute. 

"If you’ve spent time traveling the Third World—or Japan—you’ve seen them: tiny pickup trucks, built for cargo, hauling lumber, produce, construction materials, or even groups of workers. They’re ubiquitous in developing countries because they’re inexpensive, fuel-efficient, and well-suited for certain types of work. Yet for decades they’ve been largely absent from U.S. roads. That’s a shame, because the humble Japanese kei truck represents the kind of practical vehicle that would benefit Americans.

Kei trucks originated in Japan after World War II as part of the country’s “kei” (or light vehicle) classification. Manufacturers such as Suzuki and Mitsubishi designed them to meet strict size and engine limits while remaining surprisingly capable work vehicles. Although they typically produce around 50 horsepower, and sometimes only have top speeds of 60mph, they can haul loads approaching 1,000 pounds while achieving fuel economy that exceeds 35mpg. 

The reason Americans rarely see kei trucks has to do with regulation, not lack of demand. Federal law prevents newer kei models because imported vehicles must comply with the same crashworthiness, lighting, and emissions standards that apply to vehicles originally sold in the U.S. Meeting those standards is not worth it for Japanese manufacturers who never intended to sell kei trucks in the American market. 

There is one notable exception: once a vehicle reaches 25 years of age, it is exempt from many of those federal safety requirements. That means Americans who want a kei truck are largely limited to importing vehicles that are at least a quarter-century old. Even then, ownership is not straightforward. Several states—including Rhode Island and Georgia—have refused to title or register many kei trucks for normal highway use, while Maine has enacted restrictions that effectively bar them from public roads. Other states permit registration only under limited classifications, such as off-road, farm, or low-speed vehicle designations. 

The Trump administration has broadly emphasized cutting regulations and boosting domestic industry, and has directed that energy towards kei trucks. During the rollout of the “Freedom Means Affordable Cars” initiative, President Trump called the trucks “cute” and “beautiful” while criticizing barriers that prevent them from reaching U.S. soil. He tasked Transportation Secretary Sean Duffy with clearing obstacles to domestic production, so that kei-style trucks could bypass import tariffs like the 25% Chicken Tax (which specifically targets light trucks). However, this directive remains in early stages and faces hurdles within the federal code.

At state level, a wave of reforms has at least expanded access to the 25+ year-old kei trucks. Last year, Texas Senate Bill 1816 formally legalized titling, registration, and on-road use after earlier DMV inconsistencies. Such reforms typically enable operation, but mandate lower speed limits, require standard insurance/safety inspections, and can vary by jurisdiction. Meanwhile in other states, such as Oregon, reform efforts failed and kei trucks remain illegal to use on public roads. 

There are compelling economic reasons to welcome these vehicles. A brand-new full-size pickup truck now sells for $66,000 on average in America. It’s hard to find even quality used trucks nowadays for under $20,000. Brand new kei trucks are often sold in Japan for under $10,000. Many plumbers, electricians, landscapers, carpenters, farmers, and other small business owners would benefit from this cheaper option and don’t need massive four-door pickups that tow 15,000 pounds. 

Kei trucks are also at times more practical. Some models feature fold-down bed sides that allow forklifts to load pallets directly from either side of the truck. Their small footprint allows them to maneuver through tight alleys, narrow driveways, and crowded work sites that would frustrate drivers of a large pickup.

The most common argument against kei trucks concerns safety. Critics point out that they lack many of the crash protections found in newer American vehicles. That observation is true, but it also raises an obvious question: are kei trucks really so dangerous that Americans cannot be trusted to choose them, while motorcycles—which offer no crash protection whatsoever—remain legal? Society routinely allows adults to accept varying risk levels. 

Environmental objections are similarly unpersuasive. Some critics argue that kei trucks fail to meet modern emissions standards. Yet this argument actually highlights the inconsistency of current policy, which allows 25-year-old vehicles but not cleaner, newer versions. Kei trucks also achieve far better fuel economy than most full-size pickups.

Ultimately, kei trucks serve as a reminder that government regulations make everyday life more expensive. Here is a vehicle that has proven itself on farms, construction sites, and city streets worldwide, and is used by millions. Yet Americans cannot purchase a new one, even though their retail value starts at about 1/10th the average price of a new pickup truck. Nor can they purchase a 25-year-old one without paying thousands in extra taxes and duties. That is because regulators have more say in what consumers can drive than consumers themselves. The Trump administration should move forward with its kei truck deregulation efforts."

More Defense Spending Won’t Save the Economy

By Benjamin Giltner of Cato. 

"The Trump administration has failed so far to deliver on its affordability promises. Yet, in a recent Department of Defense video on X, Secretary Hegseth boasted that the administration’s $1.5 trillion proposed defense budget would “supercharge” the American economy. It’s not exactly a novel plan.

The secretary’s statement echoes a long-standing argument since the publishing of NSC-68 in 1950: More defense spending is good for the economy. Of course, as with all federal spending, defense budgets certainly do affect Americans—just not in the way Secretary Hegseth thinks. 

Instead of boosting economic growth, increased defense spending stunts the US economy, wastes money, and raises costs for Americans.

True enough, defense spending can create jobs and contribute to the economy. But this misses a more fundamental question: Which type of federal spending is most beneficial for the economy? The federal government can spend and borrow only so much money, and there are only so many resources and workers to go around. Should scientists be hired for defense research or domestic manufacturing? Should land be used for missile production or building a school? With limited resources and people, policymakers need to know how to spend federal dollars efficiently to limit waste and bloat. 

Herein lies the central problem with Hegseth’s argument: Of all federal outlays, defense spending creates the least number of jobs. And the reasoning is simple—it is a “parasitic output.” The finished products from defense spending—tanks, missiles, bullets, and so on—leave the market once they are made. When that $4 million Patriot missile is built, that’s it. That $4 million either sits in storage or explodes in combat. Parasitic output is accounted for as part of a country’s gross domestic product, which is why, among other reasons, measuring defense spending as a contribution to GDP is misleading. 

Increased defense spending also weakens America’s manufacturing industry, an economic sector in rough shape these days. The workers, research, and capital that could’ve been used to strengthen domestic manufacturing are being used to make weapons. Yes, building new weapons may increase employment rates. But such an obsessive focus on defense production means missing out on the wider employment and economic benefits of manufacturing other products with higher returns on investment. 

Additionally, increased defense spending puts upward pressure on inflation. As the federal government pumps more money into the economy with little return, inflation rises. To offset this, governments have three primary options: increase interest rates, raise taxes, or reduce spending in other sectors. All three options are politically unpopular. 

Reducing defense spending is the logical position for policymakers to take. Reforming the weapon acquisition process and walking back US military commitments abroad, for instance, are compelling policy options. But bolder action is needed. A spending cap should be placed on the defense budget, which is in fact how these budgets were made prior to the 1960s. Such a cap would force the military to make use of set funds, laying down an imperative to spend efficiently.

Matching the defense budget to America’s national interests makes sense in theory. And indeed, this is what the current Planning, Programming, Budgeting, and Execution process aims to do. Yet, threat inflation regularly goads Congress into paying any price to safeguard against exaggerated threats.

Proponents of hiking the defense budget argue that proposals to reduce defense spending put money before national security and that less spending in a world characterized by risk is radical. But what is truly radical is the notion that the United States can sustain its exorbitant defense spending indefinitely. It’s also radical to suppose that there are no trade-offs with federal spending. And it is radical to separate economic conditions from national security. 

If the Trump administration is serious about lowering costs for American families, it cannot pretend that defense spending is somehow exempt from basic economic realities. A larger Pentagon budget does not create prosperity out of thin air. Lawmakers will need to scrutinize defense spending more heavily if they hope to fix the country’s economic woes."

Single-payer health care systems are looking worse all the time

By Tyler Cowen.

"That is the theme of my latest Free Press piece, here is one excerpt from it:

Government-run systems often (not always) do a perfectly fine job setting a broken arm or administering a long-standing, well-known medication. They do much less well when it comes to developing, financing, and delivering a new immunological approach to fighting cancer, personalized to your individual genome at a cost of hundreds of thousands of dollars. In our rapidly arriving biomedical future, innovation capacity will matter above all else. And though they may not see it today, the people with the most life ahead of them will reap nearly all of the benefits of a dynamic system, or suffer the consequences of a paralytic one.

Thirty years ago, it was often debated whether the Canadian or British healthcare systems were better than what we have in the U.S. After all, they offered a kind of guaranteed access to health services. The details could differ, but often the healthcare had no upfront price or only a low user fee. In America, in contrast, healthcare was more expensive, there were many millions of uninsured people, and dealing with sometimes rapacious insurers and hospitals could involve significant emotional trauma.

But over time the British and Canadian systems look worse and worse. The queues and rationing have increased, as giving healthcare away for free makes it hard to satisfy demands in a timely manner. In Canada, for instance, the median wait time has risen from 9.3 weeks in the early 1990s to 28.6 weeks today. In the British National Health Service, only 65.3 percent of patients start treatment within 18 weeks.

Worse yet, both of those systems are undercapitalized. In Britain, healthcare is badly understaffed and underfunded. Yet the country already has high taxes, high debt, and slow economic growth, so it is not clear where the new money will come from to recapitalize the system.

And this sentence:

This entire dynamic will be intensified as the pace of medical innovation picks up.

Your life may depend on it."

High-ability individuals move in response to tax rates

See Taxation and International Migration of Superstars: Evidence from the European Football Market. 

"We analyze the effects of top tax rates on international migration of football players in 14 European countries since 1985. Both country case studies and multinomial regressions show evidence of strong mobility responses to tax rates, with an elasticity of the number of foreign (domestic) players to the net-of-tax rate around one (around 0.15). We also find evidence of sorting effects (low taxes attract high- ability players who displace low-ability players) and displacement effects (low taxes on foreigners displace domestic players). Those results can be rationalized in a simple model of migration and taxa- tion with rigid labor demand."

Robert Reich's CEO Pay Chart Is Wrong. Here's the Real Math.

The former U.S. labor secretary presents economic data in deceptive ways.

By Aaron Brown of Reason. 

"Robert Reich, an emeritus professor at the University of California, Berkeley, and a former U.S. labor secretary, makes popular economics videos arguing that the U.S. economy is rigged against workers.

One of his recent pieces caught my eye because it makes heavy use of numbers and charts. The video is a great example of how to misuse economic data to support a preconceived narrative—in this case, a fairy-tale account of evil CEOs stealing wealth from their employees.

At the outset of the video, Reich presents a chart showing that in 2024 the "typical worker" earned $36.49 per hour, while CEOs made—"ready for this?" Reich asks viewers—$431.80!

There are lots of problems with this chart, starting with the fact that it's labeled "CEO Salaries," but that's not what the $431.80 figure represents. Though he rarely sources his work, Reich's chart matches data from a report by the Economic Policy Institute (EPI), which measures what the leaders of the largest 350 public corporations in America earn, not all CEOs.

There are about 4,000 publicly traded corporations headquartered in the U.S., and even more privately held companies. They all have CEOs. Reich has cherry-picked the wealthiest and most successful faces in the crowd. This is like measuring what the highest-paid actors earn, setting aside all the struggling performers waiting tables, and claiming that acting is the world's most lucrative profession.

If you broaden the lens to include CEOs at ordinary-sized companies, Bureau of Labor Statistics (BLS) data show their pay looks a lot like that of other professionals: Median CEOs make about $200,000 a year, and their pay is growing at about the same pace as everyone else's.

Another problem is that the $431.80 is compensation realized in 2024. Most of it came from stock options granted for performance in previous years. In the prior five years, stock prices had roughly doubled, allowing CEOs to cash in compensation from past years. It's a lot of money, but perhaps not out of proportion to five years of service steering the world's largest and most successful businesses through the pandemic and doubling shareholder wealth. And only the CEOs who survived the turmoil and delivered the doublings were around to collect it. In a down year for the stock market, you might see compensation drop by 80 percent.

The CEOs of the largest American companies have seen their compensation grow at an extraordinary pace, but that's because the businesses they run have grown so large. A highly regarded paper by economists Xavier Gabaix and Augustin Landier, "Why Has CEO Pay Increased So Much?" showed that CEO compensation should scale with firm size, and that this effect explains the entire rise in CEO pay.

Today, Nvidia's market cap alone is more than two and a half times the entire S&P 500's market cap when it was created in 1957, adjusted for inflation. Comparing CEO pay at the largest firms in 1968 vs. what they make today is like equating the director of a late-night commercial for a personal injury law firm to the director of a Hollywood blockbuster. Nvidia CEO Jensen Huang impacts more economic value in an afternoon in 2026 than James Roche did as the CEO of General Motors in all of 1968.

The same compensation explosion has occurred across every winner-take-all field, affecting top athletes, movie stars, and best-selling authors. The highest NBA salary in 1968 was Wilt Chamberlain's $250,000-a-year deal with the Lakers, and the team also agreed to cover his taxes. Chamberlain's salary alone works out to roughly $2.2 million in today's dollars. Compare that to Steph Curry's record-setting $62.6 million pay package in the upcoming NBA season.

Yet Reich claims that "the system is rigged." Is the NBA also rigged in favor of Curry? Against whom?

Reich has more evidence that the economy is rigged against workers. He presents another chart showing, in his words, that "big corporations chronically underpay workers compared to the workers' productivity on the job. Productivity, that is, the value of their output, has soared and resulted in record corporate profits."

The source of Reich's chart, which shows the productivity-pay gap, was once again the EPI, which compares workers' earnings over time to the productivity of the U.S. economy.

The measure they used for worker pay doesn't include all employees. It's just "nonsupervisory workers," so it excludes management. The EPI says that it uses this dataset because it represents "the typical worker," or "roughly 80% of the U.S. workforce." The purpose of the chart, they explain, is to answer "a crucial question: Do typical workers in the United States share in the benefits of economic growth?"

The problem is that the EPI is drawing on an untrustworthy dataset. In 2005, the BLS published a note in the Federal Register repudiating its measure of nonsupervisory workers' earnings, stating that it had "limited value."

The agency also noted that the distinction between a "supervisory" and "nonsupervisory worker" was "not meaningful to survey respondents" and "that it is not possible to tabulate their payroll records" to reflect this distinction.

In 2003, Patricia Getz, who was in charge of employment statistics at the BLS, noted that "records are not kept for these groupings of workers," so employers weren't filling out this portion of the survey.

And this series only counts regular paychecks. Bonuses, profit sharing, and stock grants, which represent how a growing share of American workers are paid over the exact period this chart covers, are excluded entirely. 

The BLS sought to discontinue this data series altogether in favor of the all-employee series. In the end, it continued to collect and publish data on nonsupervisory workers, but the poor data quality renders this chart essentially worthless.

The wage measure favored by the BLS tracks compensation for all employees at all levels, not only because this is a more trustworthy dataset, but on the logical assumption that a company's gains in productivity reflect the combined efforts of all employees, including its officers and supervisors.

Reich also cites gross productivity before depreciation. Consider an Uber driver whose passengers pay $85,000 over a year, of which $30,000 goes toward expenses such as gas, insurance, and fees. The driver's gross productivity is $55,000. But her car might have depreciated $15,000, so the net productivity is $40,000. That $15,000 wasn't stolen from her paycheck by a greedy CEO; it's a true loss in economic value.

This matters because over the period Reich discusses, corporate assets shifted from slow-depreciation assets such as steel mills to faster-depreciating assets such as computers and software. Depreciation has risen from 12 percent of national income to 17 percent. Reich is counting that 5 percent difference as stolen from workers, but in fact, it disappeared.

Regardless, if we use the data favored by the BLS and compare all worker compensation to productivity, the divergence between pay and productivity disappears.

Reich's theory that workers are getting shafted has a third component: He claims that CEOs are "siphoning" profits into stock buybacks to boost their own compensation.

"Stock buybacks," he claims, "reduce the number of shares available for investors to purchase, which drives up the value of the remaining shares. Just simple supply and demand."

This is an elementary accounting error. Take a $10 billion market-cap company with 100 million shares trading at $100 each. It decides to do a 10 percent buyback, spending $1 billion to buy 10 million shares for $100 each. The $1 billion cash it spends makes it a $9 billion company. It now has 90 million shares outstanding. The stock price is the same $100 per share outstanding.

Of course, in real life, things are not so neat. Investors tend to take a buyback announcement as good news; the insiders think the stock is undervalued, and bid the price up a few percent. There are other cases where investors take the opposite view: The buyback is a sign the company has no better use of its cash and is fading. But the point is it's not "simple supply and demand"; it's a signal that might or might not help the stock price.

Moreover, Reich misunderstands the purpose of a stock buyback. Companies have two ways of transferring profits to their shareholders: They can pay a dividend or they can do a buyback. The economic effect is the same.

Reich sees buybacks as a way of diverting profits to themselves rather than sharing them with their workers. "Corporations and their CEOs are instead siphoning them off into stock buybacks," he says.

They're not "siphoning" money. They're paying out profits to their owners. All investors, even greedy ones, are entitled to a share of the earnings of the companies they own. That's the deal. And without it, nobody would invest in the first place.

"Stock buybacks used to be considered illegal stock manipulation until Ronald Reagan came along," Reich says. "CEOs can now effectively give themselves a raise while workers get the shaft."

Stock buybacks were never "considered illegal stock manipulation." In 1982, the SEC clarified a gray area, simplifying the legal treatment of stock buybacks and making it easier for companies to use them as an alternative to paying dividends.

Reich claims that stock buybacks are worse than paying dividends because they're a way for CEOs to enrich themselves. "These rising share prices bump up CEO pay because increasingly part of their compensation is in shares of stock," he says.

The problem with this theory is that boards of directors, not CEOs, decide whether to pursue stock buybacks. These are the same directors who negotiate CEO compensation. Buybacks are an item on the negotiation checklist, like benefits and contract length, not something CEOs sneak in afterward to inflate their earnings.

What's the evidence on how buybacks affect CEO compensation? A study in the Journal of Accounting and Economics found the relationship between buybacks and CEO compensation was spurious. Research by a compensation consulting firm that examined S&P 500 buybacks from 2018 to 2021 found the same picture from inside the boardroom: Pay packages rest on multiple performance metrics, and the companies making the largest buybacks adjust their incentive targets to cancel out the share-count effect.

So what does Reich conclude from all of this misinformation and misconceived data? That we need a slew of policies to rein in American capitalism. He says we should "raise the federal minimum wage," "strengthen labor unions," "use antitrust laws to break up big corporate monopolies," "raise taxes on corporations," and "ban stock buybacks."

Apart from his misinformed discussion of stock buybacks, Reich doesn't address those issues in his video. Instead, all he's done is cherry-pick the compensation of the top CEOs in America and use a faulty data series to claim the economy is rigged against workers.

The charts and numbers we use to argue about important questions in public life are too often presented in deceptive ways. It doesn't get much more deceptive than this video."

Friedman on Immigration: Setting the Record Straight

By Chris Freiman.

"Even people who are otherwise enthusiastic about a free market in labor can get cold feet about immigration once redistribution enters the picture. Some are fond of quoting Milton Friedman, who famously (or infamously) said:

“It’s just obvious you can’t have free immigration and a welfare state.”

On this view, immigration is fine under fully free market institutions, but in the actual world with its abundant government-provided benefits, immigration restrictions are justified to protect taxpayers from the added expense that could arise if immigrants consume these benefits. But this conclusion is too quick, and even Friedman’s position is more nuanced than people on both sides of the immigration debate tend to realize.

An initial point, though: the concern about the fiscal cost of immigration is overstated. For one reason, in the United States, most welfare spending goes to the very young or the very old. Immigrants, by contrast, are disproportionately of working age.

Setting that point aside, Friedman’s own view wasn’t that immigration as such is harmful. He argued that legal immigration is the problem, precisely because it allows immigrants to access government benefits. By contrast, he thought illegal immigration was beneficial. As he put it: “It’s a good thing for the illegal immigrants. It’s a good thing for the United States. It’s a good thing for the citizens of the country. But it’s only good so long as it’s illegal.” Friedman’s reasoning was that illegal immigration enables mutually beneficial market exchange while limiting immigrants’ access to government benefits.

Now, many fiscal conservatives balk at Friedman’s recommendation—namely, if the overconsumption of government resources is the problem with lawful immigration, the solution is to encourage people to break the law. I understand this reaction, but I admit I don’t share it. In my view, whether it’s okay for someone to do something doesn’t depend on whether lawmakers give them written permission. For instance, did you know that it’s against the law to drive on Cape Cod’s National Seashore’s beach if there’s not a tire-pressure gauge in your car? Nevertheless, I have no moral objection if you drive on the beach gaugelessly. Regardless of whether government officials approve, this is just a peaceful activity that doesn’t violate anyone’s rights.

Maybe you disagree with me. Still, as others have suggested, there’s another way to accommodate Friedman’s general idea: admit immigrants as lawful permanent residents but restrict their access to certain government resources. Economists sometimes call this a “keyhole solution”—if the problem is immigrants’ consumption of benefits, then design a policy that narrowly targets that problem rather than restricts their freedom to immigrate entirely.

The main objection to this sort of policy seems to be moral rather than economic. Indeed, Friedman himself was asked about it and he replied that he found the proposal unappealing partly because it’s not “desirable to have two classes of citizens in a society.” That’s a good point. It’s unfair for a government to give some citizens taxpayer-financed benefits but not others. If two people live, work, and pay taxes within a country, government officials should treat them equally, which involves giving them both equal access to government resources.

Notice, though, that a policy of immigration restriction also treats citizens and prospective immigrants differently—it gives citizens, but not immigrants, access to domestic labor markets, private associations, educational opportunities, and more. Consequently, a principle of equal treatment actually seems to imply open borders. Given that Friedman rejects this option, the task becomes that of identifying the second-best solution. (Also, it’s not clear that Friedman can square his objection to keyhole solutions with his endorsement of illegal immigration, which would presumably also create two classes in a society.)

Why think that a policy of open immigration with restricted access to benefits is better than outright exclusion? The reason, in brief, is that admission with conditions treats prospective immigrants better than exclusion. A policy of open immigration with restricted benefits at least gives people the option to move, and it’s hard to see how giving someone a new option could make them worse off.

Here’s an analogy. Suppose John is entering the job market. One employer offers him a job with health insurance and a retirement plan. The next day, he receives another offer—this one comes with no benefits, but a much higher salary. Even if you think he should take the first job, it seems perfectly permissible to offer him the second. John is no worse off for having another option. If he doesn’t want to take it, he can simply decline it. And if he does prefer higher pay without benefits, he’s clearly better off for having the option.

John’s case is analogous to the case of a prospective immigrant who expects to earn significantly more by moving to a country where her access to government benefits is limited. If she prefers having access to a wider range of government-provided benefits in her current country to having higher earnings but fewer benefits in a new country, she can decline to move; in this case, she is no worse off for having the option. But if she prefers higher earnings with fewer benefits, the option makes her better off. Just as it’s permissible—indeed, probably good—to offer John the extra option, so too is it permissible to offer prospective immigrants the extra option.

It’s also worth highlighting another important aspect of restricting immigrants’ access to benefits rather than restricting their movement entirely. Admitting immigrants as lawful permanent residents removes the threat of deportation, among other consequences, that accompanies undocumented entry into a country. Even if you agree with Friedman (as I do) that the keyhole solution of admitting immigrants with reduced access to benefits isn’t totally fair, it’s still more fair than denying prospective immigrants the option of safely moving at all."

Businesses leaving Illinois have rapidly accelerated

 Tweet from Brian Costing.

 

The average federal income tax rate has risen for the top 20% since 1979 but fallen for others and the federal tax code remains progressive

Tweet by Jessica Riedl of Brookings.

 

 

Did median wealth in the U.S. fall nearly 20% from 2020-2025?

See The U.S. Added 1,200 New Millionaires a Day Last Year by Miriam Gottfried of The WSJ. Excerpt:

"While average wealth per U.S. adult climbed by almost 10% between 2020 and 2025 net of inflation, median wealth fell by nearly 20%."

This was based on a report from UBS, A Swiss multinational investment bank and financial services firm (according to Wikipedia). 

But I am skeptical. I looked at some data from the Federal Reserve on the wealth of the bottom 50% over these years and even if we adjust for population growth and inflation, it is clear that per person wealth of the bottom 50% has gone up over these years (and it is possible that the numbers at the Fed site are adjusted for inflation but it just does not say).

The Fed site is Distribution of Household Wealth in the U.S. since 1989. (Hat Tip to Timothy Taylor for this link-his blog is The Conversable Economist).

This graph shows that wealth for the bottom 50% in the U.S. about doubled from $2 trillion in 2020 to $4 trillion in 2026

 

It might be hard to see but it does say "Bottom 50%." You can got to the link and select bottom 50% to see for yourself. They also have an option to see a table with these numbers. This link will take you directly to the table.

In the 2nd quarter of 2020, the bottom 50% had $2.21 trillion in wealth. In the 2nd quarter of 2025 it was $4.13 trillion. So it was up 87%. The U.S. was up just 3.3%. See US Population by Year.

So if the total is up 87% and the number of persons is up just 3.3%, the wealth per person must be way up. And this is for the bottom 50%. Median means that half are below a certain number and half are above. The article says the median wealth went down. But that seems unlikely if the per person wealth of the bottom 50% is up.

If we adjust for inflation (and the numbers might have already been adjusted, I just can't tell), let's use the CPI increase of 24% from 2020-25. See Consumer Price Index Data from 1913 to 2026. I got the % increase by using the yearly average for each year.

So let's reduce the $4.13 trillion wealth owned by the bottom 50% in the 2nd quarter of 2025 by 24%. That gets us about $3.14 trillion. That is 42% higher than the $2.21 trillion in the 2nd quarter of 2020. Which is still much higher than the 3.3% increase in the U.S. population. That means per capita wealth increased for the bottom 50%. That makes me skeptical that the median wealth went down.

Air Conditioning, Scourge of the French Left

Heat waves kill thousands in Europe, but politicians resist the relief Americans can take for granted

By Alexander Kustov. He is an associate professor of global affairs at the University of Notre Dame. Excerpts:

"The French left argues that air conditioning is a selfish indulgence and an ecological menace. Jean-Luc Mélenchon, the country’s most prominent left-wing leader, warned that cooling would mean “increasing the damage,” and says he wouldn’t expose his grandchildren to air conditioning because it “destroys your sinuses.”"

"The economist Alan Barreca and his colleagues found that the spread of home cooling explains most of the decline in “hot-day-related fatalities” in the U.S. since 1960."

"Air conditioning accounts for about 3% of global emissions today, and in France, where two-thirds of the power is nuclear and much of the rest is low-carbon, running a unit is close to carbon-free."

"a group of left-wing economists, among them Joseph Stiglitz, Thomas Piketty and Kate Raworth, declared economic growth “a doomed strategy” and signed on in support of a road map, developed by United Nations Special Rapporteur Olivier De Schutter, for a new “degrowth economy.” Its policies aim to reduce material consumption, shorten the workweek, and impose caps on personal income. Underlying this road map is the idea that wanting to be comfortable is shameful."

"In France, a condominium owner generally needs the consent of the other owners to install air conditioning. In the country’s heritage zones, a state architect can veto any unit visible from the street. In England and Wales, an air conditioner that has no heating function requires permission. The canton of Geneva issues a permit for comfort cooling only to people who prove they need it. Spain forbids public and commercial buildings from cooling below 80 degrees."

"The left’s most respectable voices are telling grandmothers to draw down the shutters and wait it out." 

Tennessee students make gains with tutoring and a back-to-basics approach that emphasizes phonics

See National Test Scores Are Dropping. This State Is Fighting Back by Chao Deng of The WSJ. Excerpts:

"As schools across the nation search for remedies, one of the most closely watched efforts is playing out in Tennessee. The state’s schools—once among the U.S.’s worst-performing—have made gains with intensive tutoring, mandatory summer school for struggling pupils and a back-to-basics approach that emphasizes phonics."

"From 2022 to 2025, Tennessee ranked second out of 38 states in math improvement and fourth out of 35 states in reading gains"

"The state’s most recent scores on a key national test placed it 17th out of 50 states and Washington, D.C."

"up from near the bottom in 2009"

"Much of the work has revolved around early literacy and carefully tracking schools’ and students’ progress."

"American schools have wrestled with learning loss for the better part of a decade and no one has found a panacea. Stalling of student progress in K-12 math and reading coincided with less emphasis on standardized tests and a rise in social-media use."

"Researchers believe the secret lies in the components of a state’s plan and how they are implemented. Mississippi, which began emphasizing phonics-based literacy instruction over a decade ago, has since made major academic strides, for example. Researchers say the key ingredients likely included investing in literacy coaches, holding schools and districts accountable, and holding back struggling students at the end of third grade."

"Tennessee policymakers required districts to adopt high-quality instructional materials and trained teachers on how to implement evidence-based reading in classrooms. A 2021 state law required third-graders scoring just below reading proficiency to show “adequate growth” at the end of summer camps to advance to fourth grade." 

As Europe Sweats, Some Politicians Talk of Air-Conditioning, Not Climate Action

Heat-related deaths and disruptions to daily life are forcing politicians to reckon, in different ways, with a rapidly warming planet

By Michael D. Shear and Jeanna Smialek of The NY Times. Excerpts:

"In the context of northern Europe’s traditionally mild, temperate climate, some left-wing and green parties opposed air-conditioning and have instead favored renovating buildings with architectural fixes to keep them cool when it gets hot. But the dangers to health posed by this week’s heat wave are piling pressure on that view — and changing minds.

In the Belgian city of Ghent, which is run mostly by left-of-center politicians, the municipal website this week discouraged citizens from using air-conditioners, saying that “the best air-conditioner is a tree” and advising they use fans and request a free tree to plant outside their houses.

Maurits Vande Reyde, a right-wing member of the Flemish Parliament, responded to Ghent’s recommendations on social media.

“It is absurd that all governments in our country, under pressure from left-green mumbo-jumbo, advise against the use of air-conditioning,” he wrote on Tuesday. “The most efficient and best solution. How many deaths would the government already have on its conscience with this kind of absurd advice?”

After The New York Times sent a request for comment, Ghent removed wording that read “avoid air-conditioners,” replacing it with the phrase “cool smartly.”

Thomas Dierckens, a spokesman for the mayor of Ghent, said in a written comment that the city was not against air-conditioning — noting that it had installed 30 portable air-conditioners into day care centers this week.

Marine Tondelier, the head of the Green Party in France, acknowledged that she was “breaking a taboo” when she said on Tuesday that “there are places where we can no longer do without air-conditioning.”

In London, Sadiq Khan, the center-left Labour Party mayor, said on Thursday that air-conditioning would need to be installed in the capital’s schools, offices and hospitals, as he warned that London needed to “act now” to strengthen its resilience ahead of worse heat waves to come. And at the European level, Terry Reintke, co-president of the European Parliament’s Green group, said in an interview that some air-conditioning was necessary, alongside longer-term solutions like planting more green spaces."

Competition intensifies in broadband and media markets

See Comcast Plans Company Split as Competition Escalates by Jessica Toonkel and Gareth Vipers of The WSJ. Excerpts:

"Comcast up pointing triangle plans to separate its media and connectivity businesses, dismantling an earlier bet on combined entertainment and distribution as it navigates intensifying competitive pressure."

"company leaders believe the media and connectivity businesses should stand alone as publicly traded companies, providing more opportunity to pursue deals and better compete."

"it became clear greater flexibility would help the company navigate the increasingly challenging broadband and media markets, people familiar with the matter said."

"Comcast has been working to stem broadband and cable TV subscriber losses"

"Broadband businesses have been challenged by cellphone carriers offering home internet service beamed over the air. Elon Musk’s Starlink satellite connectivity company has added further competition for providers." 

Record-breaking heat waves are challenging the Europe’s longstanding resistance to cooling technology, spawning new political battles

See Europe Is Hot as Hell. Why Doesn’t It Want Air Conditioning? by Matthew Dalton of The WSJ. Excerpts:

"European infrastructure was designed for a climate that was much cooler than today. Temperatures in the northern half of the continent rarely rose above 90 degrees Fahrenheit and temperatures over 100 were almost unheard of. 

Rail lines and electrical grids weren’t built to withstand extreme heat. Many of the continent’s buildings lack design features that would keep them cooler in the summer, such as shutters to block out the sun.

Most of the continent’s homes and institutions lack air conditioning. In Italy, around 56% of homes are equipped with the technology, a figure that falls to 25% in France and 5% in the U.K. Europe’s summer heat waves often claim tens of thousands of lives, far more than in the U.S., a difference that scientists say is partly due to the lack of air conditioning."

"Europe is the fastest warming continent, with temperatures that are already around 2.5 degrees Celsius warmer than in the preindustrial era, compared with around 1.4 degrees for the earth as a whole.

Last week, Paris topped 40 degrees Celsius (104 degrees Fahrenheit) on Wednesday and Thursday. That has only happened on three other days since official records began in the 19th century: in 1947, 2019 and 2022."

"Authorities across Europe have tried to avoid air conditioning on a large scale. The side effects from a big increase in air conditioning are considered to be large: The devices are costly; they are energy hungry; and they eject hot air into the street, warming cities even more. Moreover, they are a nuisance in dense urban neighborhoods, afflicting residents with the omnipresent hum of compressors."

In London, city regulations require developers to adopt cooler design measures—natural ventilation, shutters on windows and better insulation—before installing air conditioning in new buildings. Paris and Berlin have plans to incorporate more plants into the city landscape, reducing the heat-magnifying effect of stone during a heat wave. Paris opened the Canal Saint-Martin for swimming during the latest heat wave.

The problem is such measures are considerably less effective than air conditioning at reducing the threat of extreme heat, according to the Intergovernmental Panel on Climate Change, the U.N.’s official climate science body. In its latest report on adaptation in Europe, the IPCC rates air conditioning as a highly-effective response to heat waves, while mechanical ventilation was rated medium-effectiveness and urban greenery was given a low rating.

Measures such as mechanical ventilation or shading don’t work when the heat is relentless, experts say. During the latest heat wave, 85-degree Fahrenheit temperatures at night didn’t allow buildings to cool down before the sun rose to bake them again.

Radhika Khosla, a climate scientist at Oxford University, said countries should mix better building design with air conditioning to limit the devices’ energy consumption. “You want to use it for what it’s really needed as opposed to making it your go-to solution,” she said."

"In some European cities, installation of an air conditioner in an apartment requires approval from the entire building. Local officials also get a say, to make sure the system respects architectural norms, noise laws and the city’s energy goals. 

In Geneva, the installation of an air conditioner is subject to strict energy-usage rules. London officials have forced homeowners to remove air conditioning because they haven’t resorted to other cooling methods, such as ceiling fans."

"First, residents [in Paris] must gain approval from the neighbors. Then, if the system is visible from the street, local officials can refuse if it mars the iconic, limestone facades of the city’s Haussmannian buildings."

"Under French law, a building association can block the installation of a system if it produces more than five decibels during the day or three at night, roughly the noise of a light breeze." 

AI is making it easier for one worker to do tasks that once required a small team

See Me, Myself and AI by Liya Palagashvili of George Mason University’s Mercatus Center. Excerpts:

"AI is making it easier for one worker to do tasks that once required a small team."

"Since early 2024, solo business applications have risen nearly 27% in professional services, information, education, finance and insurance—sectors the that have among the highest AI-adoption rates. In construction and wholesale trade, where AI is less likely to enable independent work, solo business applications have been essentially flat."

"In 2022 and 2023, solo applications moved similarly in sectors with both high and low AI exposure. The divergence emerged after 2024 and then took off."

"Business applications with payroll intent fell by 6.4% in AI-exposed sectors, while applications unlikely to hire employees rose by 26.8%."

"Among occupations most exposed to AI, solo self-employment rose about 20% from 2022 to 2025. In the least AI-exposed occupations, it barely moved."

"it’s becoming cheaper to operate as a one-person business" 

The New Transportation Bill Puts Special Interests Above Safety

Some safety recommendations are treated as essential—while others become negotiable once influential people object

By Veronique de Rugy. 

"Congress loves to wrap legislation in the language of the public interest. This year's surface transportation reauthorization bill is no exception. Supporters describe the House Transportation Committee–passed package as a major safety bill designed to make America's transportation system more secure and efficient.

Beneath their rhetoric lies the familiar Washington story of a bill shaped less by evidence than by the demands of organized interests.

Perhaps the clearest example comes from the rail provisions. If the bill is being driven by a coherent safety philosophy, why would legislators soften rules requiring the faster replacement of old hazardous-materials tank cars, despite repeated recommendations from the independent National Transportation Safety Board? Some safety recommendations are treated as essential, while others become negotiable once influential people object.

The reason, of course, is politics, which come with clientelism.

Much of the debate over freight car inspections didn't center on the frequency, timing, or type of inspections required—things the conversation would focus on if safety was the overriding goal. Instead, most of the argument centered on who would perform inspections.

Labor organizations pushed provisions that would narrow who counts as qualified to inspect freight cars, thereby reserving those jobs for organized carmen. They opposed railroads' de facto practice of routing inspection volume to non-carmen staff (conductors) as a cost saver that didn't affect safety. Legislators ultimately crafted a compromise that reflects the competing interests of these two powerful stakeholders more than measurable safety outcomes. This is regulatory capture in action.

The role of organized labor is especially revealing. At a recent Senate hearing, Teamsters union officials openly acknowledged that autonomous trucking is going to happen and that workers have historically adapted to technological changes. Rather than trying to prevent deployment of the technology altogether, they argued that policymakers should proactively focus on worker transition issues. This is sensible enough. Yet many of the same labor groups strongly oppose automation and technology deployment in freight rail, including with systems believed to improve safety and detect defects far earlier than traditional inspection methods.

Why is automation acceptable in trucking but unacceptable in rail? The distinction, once again, is less about safety than politics. Where technological change threatens existing, strongly pro-labor work rules, opposition is intense. Where resisting new tech is less practical, the conversation shifts to something else. That may be understandable from a labor relations perspective, but legislators should not treat it as a sound basis for national transportation policy.

The broader bill suffers from a litany of problems. Together, they point toward the same influence issues.

Fiscal conservatives, assuming there are still enough of them to be heard in Congress, should be particularly concerned about a package that authorizes roughly $580 billion in spending while doing little to address the long-term insolvency of the Highway Trust Fund. Legislators are instead choosing to promise more spending while avoiding the structural reforms necessary to put transportation funding on sustainable footing.

Meanwhile, they inserted a controversial new federal registration fee structure for electric and hybrid vehicles. Progressives oppose it because they believe it discourages E.V. adoption. Many conservatives oppose it because it expands federal fee collection and further entangles state governments in administering federal policy.

The growing coalition of critics extends well beyond those issues. Transit advocates argue the bill underfunds transit and passenger rail. Environmental groups oppose permitting and climate-related provisions. Labor unions object to autonomous-vehicle language. Federalism-minded Republicans question federal preemption provisions.

When a bill generates opposition from nearly every direction, it is worth asking whether legislators are solving problems or trying to accommodate too many competing interests.

That's the deeper lesson here. Congress increasingly treats transportation policy as an exercise in stakeholder management. Instead of establishing clear goals and allowing innovation and competition to deliver results, legislators pile on mandates, carve-outs, protections, and special-interest provisions designed to satisfy whichever constituency has secured a seat at the table.

The result is predictable: Every organized interest receives something of value. Taxpayers inherit the costs.

The Senate will have an opportunity to reject this approach. Senators should evaluate every one of the House's mandates and favors using a simple test: Does it produce a measurable public benefit that likely exceeds its cost? If the answer is no, it should be removed.

Transportation policy should be guided by safety outcomes, economic efficiency, and fiscal discipline—not by whichever stakeholders have the strongest lobbying operations. Unfortunately, Washington still struggles to distinguish between the public interest and the interests of those who are in the room."

The Incidence of the "Liberation Day" Tariffs

From Jeffrey Miron.

"Reporters and economists alike spilled much ink predicting the impacts of Trump’s “Liberation Day” tariffs. New analysis offers clarity on the actual impact of these tariffs.

First,

enacted policies remain much smaller than announced policies. This is a key reason why the price effects of the tariffs remain below many forecasts made in April 2025.

Second,

most of the incidence of recent US tariff hikes has fallen on US consumers. And given the significance of imported inputs in US manufacturing, domestic producers have also shouldered much of the burden.

Third, the tariffs have also

led to striking changes in sourcing patterns. … [For example, t]he share of Chinese goods in US imports collapsed from 22 percent at the end of 2017 to about 12 percent at the end of 2024.

Lastly, while

[e]conomic theory posits that increasing US import tariffs should appreciate the dollar … [it instead] depreciated significantly after the 2025 tariffs. … [This may be because] other policies and macroeconomic forces counterbalanced the effects of tariff hikes on the dollar exchange rate."

Hamilton’s Economic Vision Had One Crucial Blind Spot

Hamilton recognized the importance of manufacturing but overlooked the market processes that create lasting prosperity

By Donald J. Boudreaux. 

"Speaking in January at Davos, US Trade Representative Jamieson Greer said that President Trump’s protectionism revives the policy first proposed by Alexander Hamilton. Like countless attempts to justify US protectionism and industrial policy, Greer’s effort praises Hamilton’s Report on Manufactures (“Report“). 

More recently, Scott Bessent, now holder of a job first held by Hamilton — US Treasury Secretary — also boasted of the administration’s Hamiltonian creed. Given the fame of Hamilton’s Report, and Hamilton’s key role in America’s founding, a close look at his Report is warranted.

Impetus for the Report

Requested by the US House of Representatives in January 1790, Hamilton submitted his Report on December 5, 1791. It was the longest and most famous of four major reports submitted to the House by Secretary Hamilton.

According to Hamilton, the House requested that he devote attention to “the subject of Manufactures; and particularly to the means of promoting such as will tend to render the United States, independent on foreign nations, for military and other essential supplies.” He complied.

America’s Economy Should Have a Strong Manufacturing Sector

The Report opened by making the case that America would benefit from a larger manufacturing sector despite America being unusually rich in land. Without naming Thomas Jefferson, the Report‘s opening was a challenge to Jefferson’s conviction that America should remain a nation mostly of yeomen farmers.

Offering this challenge, Hamilton relied on Adam Smith (also without naming him) to expose the errors of physiocracy — that is, the belief that net economic value is produced only by agriculture. Yet Hamilton went further, arguing that manufacturing can be more productive than agriculture. In making this argument, Hamilton was impressive; one might even sense in it an anticipation of some insights revealed by economists’ marginal revolution of 80 years later.

Regardless of how much or little Hamilton intuited of marginalism, he deserves credit for emphasizing the reality and significance of opportunity costs. To produce some increment of agricultural output requires that some increment of manufacturing output not be produced. And that increment of agricultural output is worthwhile to produce only if its value exceeds that of the foregone manufacturing output. Thus did Hamilton defuse the arguments of persons who believed that, to establish the case for keeping America an agricultural nation, it’s sufficient to point to the positive market value of agricultural output.

In this way, and some others, Hamilton revealed a keen ability to think insightfully about economic matters. Nevertheless, on a full assessment, Hamilton in the Report got more wrong about economics than he got right. Not content to support only the removal of artificial barriers in the US against domestic manufacturing, Hamilton argued strenuously that the government must actively promote American manufacturing. That promotion should consist chiefly of subsidies (“bounties”) supplemented by protective tariffs.

Hamilton Respected But Rejected Adam Smith

The renown of Smith’s Wealth of Nations obliged Hamilton to try to refute Smith’s argument that, in Hamilton’s summary, “industry, if left to itself … without the aid of government will grow up as soon and as fast, as the natural state of things and the interest of the community may require.” For Hamilton, what Smith called “the obvious and simple system of natural liberty” was too simple, at least for a young country without much industry. Here’s Hamilton:

Against the solidity of [Smith’s] hypothesis … cogent reasons may be offered. These have relation to — the strong influence of habit and the spirit of imitation — the fear of want of success in untried enterprises — the intrinsic difficulties incident to first essays towards a competition with those who have previously attained to perfection in the business to be attempted — the bounties premiums and other artificial encouragements, with which foreign nations second the exertions of their own Citizens in the branches, in which they are to be rivalled.

The first-mentioned impediment to American manufacturing was Americans’ alleged lack of entrepreneurship. Habit-bound and excessively risk-averse, too many Americans would stick with familiar agricultural pursuits and refrain from launching new manufacturing endeavors. Further discouraging Americans from venturing into manufacturing were the established competitors abroad who would out-compete upstart rivals. 

For Hamilton, simply being long-established was, in free markets, a nearly insurmountable competitive advantage. But in addition, foreign manufacturers might also practice what we today call “predatory pricing,” as well as enjoy their own subsidies. Therefore, Hamilton believed that manufacturing would arise and thrive in America only if the rates of return on these enterprises were boosted by the government.

Hamilton here forgot his own counsel to attend to opportunity costs. He simply presumed that whatever additional manufacturing activities were encouraged by the government would increase the net value of US economic output. He also ignored both the knowledge problem (How do politicians know which particular industries to encourage?) and the public-choice problem (With subsidies and protection being doled out by politicians, what prevents this doling from being distorted by interest-group politics?).

Hamilton also had a cramped understanding of economic competition. (In fairness, this understanding still infects economics textbooks today.) For him, competition consisted of firms producing a largely given set of outputs with largely identical technologies. Although he can’t be faulted for not reading Joseph Schumpeter’s 1942 work on creative destruction, even in 1791 evidence was growing that the major source of economic growth was entrepreneur-driven creative destruction. Such innovation introduced not only new products, but also completely new and improved means of producing existing products. 

In such an innovative economy, being long-established wasn’t the great advantage that Hamilton assumed it to be. Just ask, for example, the American millers whose traditional manner of milling flour was rendered obsolete starting in the 1780s in Delaware by Oliver Evans‘s automated flour mill.

Hamilton’s Curious Evidence

Attempting to augment his case for active government encouragement of manufacturing, Hamilton offered curious evidence. Responding to opponents who insisted that America’s economy was unfit for manufacturing, he boasted that America’s economy was already demonstrating an impressive ability to support manufacturing.

Writing about the prospects of profitable investment in manufacturing, Hamilton said that “it is certain that the United States offer a vast field for the advantageous employment of capital; but it does not follow, that there will not be found, in one way or another, a sufficient fund for the successful prosecution of any species of industry which is likely to prove truly beneficial.” He continued: In addition to America’s “multiplying” banks, another ready source of funding for manufacturing was foreign capital, which he wisely welcomed as “a precious acquisition.” Indeed, “the attraction of foreign Capital for the direct purpose of Manufactures ought not to be deemed a chimerical expectation. There are already examples of it.”

Question for Hamilton: If it was certain that the US offered vast opportunities for profitable investments in manufacturing, and if such investment was already occurring, why did such investment need to be further stimulated by the government? Hamilton’s inconsistency is evident.

Another example of Hamilton’s inconsistency is worth mentioning. When he argued for subsidies and protective tariffs for goods produced with iron, his evidence for the worth of such government assistance was the fact that such manufacturing had significantly grown in the US since the American Revolution and was flourishing. His argument was that this industry deserved protection precisely because it had proven itself capable and successful. Presumably, Hamilton would defend this inconsistency by maintaining that, without government assistance, this industrial growth — and that of other critical manufacturers — would stop short of its optimal point.

Here’s where Hamilton-as-economist faltered most seriously. He made the incorrect presumption that markets fail to generate optimal economic growth because, in the end, he didn’t appreciate just how effectively resources are allocated by market signals and incentives — by competitively determined prices, profits, and losses. 

At least for fledgling nations with relatively little industrial capacity, he believed that intervention from the top was required.

The Lasting Lesson

Studying the Report on Manufactures makes clear that Hamilton, contrary to the assertions of Greer and Bessent, was far from being a protectionist in the mold of Donald Trump. 

Not only was Hamilton’s case for protection confined to the need to stimulate industrial capacity in a country lacking such capacity, he also preferred subsidies over tariffs (because tariffs, unlike subsidies, reduce supplies of targeted goods), and he welcomed, rather than bemoaned, net inflows of foreign capital. 

Nevertheless, Hamilton ultimately had too little confidence in free markets. The late Gordon Wood’s assessment of Hamilton-as-economist is accurate:

Hamilton was so wedded to a hierarchical view of society that he could only imagine industrial investment and development coming from the top down. Thus he was incapable of foreseeing that the actual source of America’s manufacturing would come from below, from the ambitions, productivity, and investments of thousands upon thousands of middling artisans and craftsmen who eventually became America’s businessmen. Hamilton’s historical reputation as the prophet of America’s industrial greatness therefore seems somewhat exaggerated. He certainly wanted a powerful and glorious nation, but he was no more capable of accurately foretelling the future than the other American leaders."

Rent Control: The Ceiling Trap

From Alex Tabarrok.

"Rent control is in the news again. Check out my new website, Rent Control: The Ceiling Trap. Here is just one bit:

Norway abolished its rent control in 1982, and the economist Are Oust realized the newspapers had been quietly recording the whole experiment. He collected housing classifieds from Oslo’s Aftenposten from 1970 to 2008 and watched the market turn inside out.

Under rent control, Oslo’s listings pages looked nothing like a housing market. It was tenants who advertised, pleading their qualities to landlords — “housing wanted” ads outnumbered “housing for rent.” Ten to fifteen percent of those ads were placed by the tenant’s employer, vouching for them the way a bank vouches for a borrower. Tenants offered babysitting, gardening, snow-shoveling, and janitorial work on the side to sweeten the deal. Landlords, for their part, could demand a tenant of a particular gender, age, occupation, region of origin — some ads specified “strong Christian beliefs.” Deposits commonly ran to 50 or 60 months’ rent, occasionally 100 or more: tenants effectively lent the landlord the equity of the flat, interest free. And only about 20 percent of “for rent” ads dared print the rent, much of which would have been illegal.

Then the ceiling lifted. Within a few years the page flipped: landlords advertised to tenants, roughly 80 percent of listings printed an asking rent, the mega-deposits vanished, and the demands for snow-shoveling Christians of specified gender dwindled to nothing. The price went back to doing the rationing — so nothing else had to.

Check out the whole thing–it’s fabulous."

Chile's free-market reforms still seem to be working

Tweet from Steve Hanke.

"Chile still basks in the afterglow of the free-market reforms put in place by the Chicago Boys. Chile's neighbor, Argentina, the world's biggest deadbeat, struggles under the weight of a mountain of debt." 

 

Impact of rent control in Buenos Aires

Tweet from M. Nolan Gray.

"I haven't studied it in detail, but from what I have seen, the natural experiment that Buenos Aires ran over the past six years seems like yet more clear evidence that rent control limits supply and (ironically) raises rents." 

 

Chevron Deference Is Gone. Where Is Kagan’s ‘Massive Shock’?

Loper Bright isn’t without costs, but it has benefits too—and it hasn’t proved particularly disruptive.

By John Chisholm. He is a trustee of the Santa Fe Institute and of the Foundation for Economic Education. Excerpts:

"When the Supreme Court ended Chevron deference, one of the most consequential doctrines in American law, Justice Elena Kagan warned in dissent that it would “cause a massive shock to the legal system.” Two years later, that hasn’t happened.

In Loper Bright Enterprises v. Raimondo (2024), a 6-3 majority discarded a 40-year-old rule for interpreting “ambiguous” statutes. Under Chevron v. Natural Resources Defense Council (1984), judges were obligated to defer any time a federal agency made a “reasonable” interpretation of the law. Loper Bright was the last in a series of cases in recent years narrowing Chevron. Now courts, not agencies, must determine the best reading of the law."

"Two economic lenses bring those benefits into focus, revealing why Loper Bright is the sounder doctrine in the long run."

"The first lens is regulatory stability."

"The second lens is cognitive diversity. Social scientist Scott Page has shown that for hard problems, a diverse group of decision-makers tends to outperform a homogeneous group of higher-ability experts."

"public debate and cost-benefit analyses systematically overweight Loper Bright’s costs—the same bias that drove Chevron’s centralization in the first place."

"Two years on, no “massive shock” has materialized. Agencies still prevail in most challenges. Empirical studies put their win rate at roughly 75% when courts applied Chevron and near 60% on established rules since Loper Bright." 

One City Might Have Just Cracked the Housing Crisis

By Binyamin Appelbaum of The New York Times. Excerpts:

"The Canadian government has returned 10 acres in the middle of Vancouver to the Squamish, the First Nation whose ancestors lived there. On that land, the Squamish are building the densest residential neighborhood in the country."

"Cities have largely lost the power to say yes to construction. To prevent officials from acting against the public interest, we have drained them of the power to act in the public interest. Every decision can be appealed, every complaint must be heard, every objection weighed. We are so committed to fairness that we have lost sight of the unfairness of doing nothing."

"Freed from Vancouver’s rules, the Squamish are providing the city’s residents with a chunk of the housing they so desperately need."

"Vancouver, like most cities, prioritized the interests of homeowners at the expense of everyone else"

"It works hard to prevent the replacement of houses with apartment buildings. Sometimes it even replaces apartment buildings with houses. There is an eight-unit apartment building a few blocks from Senakw on the verge of falling down. Under the city’s land-use laws, however, it cannot be replaced by a new eight-unit apartment building. A developer has proposed building three mansions instead." 

"The current generation of Squamish, raised on stories of the old Senakw village, now had the chance to build anew. They could have built single-family homes. They could have built office towers or a shopping mall. They ultimately decided to build a better version of Vancouver."

"The result was a project with more than 6,000 housing units in towers as high as 58 stories"

"Senakw “is literally what the market wants,” said Thomas Davidoff, a professor of real estate finance at the University of British Columbia who supports the project."

"The nation’s leaders frankly acknowledge that money was their most important motivation. The project was a chance for the nation to participate in Vancouver’s pre-eminent industry: real estate development. That is exactly how the economy is supposed to work. To paraphrase Adam Smith, it is not from the benevolence of real estate developers that we expect our housing, but from their regard for their own self-interest. The Squamish are going to make a lot of money, and Vancouver is going to get a lot of new housing."

"Vancouver has moved to reduce its parking requirements and to allow larger buildings in some areas."

"“Restrictive zoning has been pushing people farther and farther away from the communities that they love,” said Christine Boyle, a former Vancouver city councilor who is now housing minister for British Columbia."