The Shallowness and Shadiness of the Steel-Industry Protectionist Argument

A Don Boudreaux letter to the Wall Street Journal:

By offering not one justification, but two, for punitive taxes on Americans who buy imported steel, U.S. Steel’s David Burritt reveals the shallowness and shadiness of the steel-industry’s case for protection from foreign competition (Letters, Feb. 28).

In one argument, Mr. Burritt insists that a thriving domestic steel industry is vital for U.S. national defense.  If this argument is valid, it renders irrelevant Mr. Burritt’s second argument for high tariffs – namely, the allegation that the only reason U.S. steelmaking capacity is threatened is that foreign governments subsidize and “dump” steel in the U.S.  This second argument – assuming it to be correct and relevant – implies that if foreign steel producers were to have a natural comparative advantage over Americans at producing steel, the loss of U.S. steelmaking capacity would be acceptable and, therefore, it would be improper for Uncle Sam to protect U.S. steelmakers.

If Mr. Burritt’s national-defense argument is correct and relevant, then the specific reasons why steel imports threaten U.S. steelmaking capacity become irrelevant.  If a thriving domestic steel industry truly is vital to U.S. national security, protective steel tariffs would be justified regardless of the policies and practices of foreign steel producers and, therefore, it would be pointless to inquire into whether or not U.S. steel imports are subsidized, “dumped,” or otherwise ‘unfairly’ offered for sale in America.

Mr. Burritt’s case for punitive taxes on American buyers of imported steel has the powerful stench of special-interest pleading that emits from all producers who clamor for protection.  Logic, consistency, and conformity with economics are cast aside and replaced with illogical trains of assertions meant, not to clarify and enlighten, but to confuse and frighten.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA  22030

Are Google and Facebook Monopolies?

Dominick Armentano, who literally wrote the book against antitrust law (The Myths of Antitrust: Economic Theory and Legal Cases) emails:

Bob,

Tyler Cowen offers a sound and spirited defense of the corporate behavior of both Facebook and Google in this video (which was sent along by Robert Hessen, author of the classic "In Defense of the Corporation." My only quibble is his failure to rebut the allegation by his opponent that the old Standard Oil Corporation was a "monopoly" and that the SC ordered divestiture in 1911 was good public policy. Aside from that, a quality performance and well worth watching. 

Dom

-RW 

Also see: Was Standard Oil a Monopoly?

The Bombshell Fed Chairman Powell Dropped Yesterday on the House Financial Services Committee

By Robert Wenzel

New Federal Reserve chairmen Jay Powell dropped a bombshell during testimony yesterday before the House Financial Services Committee. Mainstream media has seemed to have missed it, but this is big.

Stockman: Jerome Powell is Going to Lead Us Into A Massive Economic Crash

-RW 

Bizarre and Even More Bizarre

A Don Boudreaux letter to the Wall Street Journal:

Walter Russell Mead rightly proclaims that “protectionism remains a dangerous drug” (“Don’t Misjudge Trump’s Trade Tirade,” Feb. 27).  Yet by implicitly granting the correctness of what in fact is an essential error in Mr. Trump’s economics, Mr. Mead inadvertently promotes overdosing on this dangerous drug.

As he did in the CPAC speech to which Mr. Mead refers, Mr. Trump repeatedly insists that America’s trade deficit with China is evidence of Beijing’s nefariousness combined with official Washington’s spinelessness.  Yet what really is on display here is Mr. Trump’s cluelessness.

First, in a world of more than two countries, any bilateral trade deficit or surplus is as absolutely and indisputably meaningless as is, say, my trade deficit with my grocer and my grocer’s trade surplus with me.  The Wall Street Journal should not be party to allowing talk of such “deficits” or “surpluses” to pass as if such gibberish makes economic sense.

Second, while the U.S. has for decades consistently run trade deficits with the rest of the world, China has, since its 2001 entry into the WTO, overwhelmingly run trade surpluses with the rest of the world – a reality that means exactly the opposite of what Mr. Trump believes it to mean.  What this reality in fact means is that the U.S. continues on net to attract global investment funds while China generally is a net loser of global investment funds.  It’s bizarre that Mr. Trump interprets this reality as evidence of America ‘losing’ and China ‘winning.’  And it’s even more bizarre that this man who brags about his business acumen thinks that a net inflow of global investment funds to the U.S. weakens our economy while a net outflow of global investment funds strengthens the Chinese economy.

Sincerely,Donald J. BoudreauxProfessor of EconomicsandMartha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus CenterGeorge Mason UniversityFairfax, VA  22030

The above originally appeared at Cafe Hayek.

Baghdad Hassett is at It Again

Kevin "Baghdad" Hassett

I'm saving this for future reference.

The White House Council of Economic Advisers has put out a detailed 568-page analysis of the Trump administration’s economic outlook. The analysis projects out 3 percent growth through 2020.

“There's so much momentum in this economy,” said Kevin Hassett, chairman of the CEA, on Thursday. 

“Right now, we're looking at an economy that's about as solid and as good as we've seen since before the financial crisis,” Hassett said.

There is about a 30% chance that Hassett's projections workout  (and if they do they will likely be fudged numbers.) More likely Trump's trillion dollars deficits and accelerating price inflation will destroy the entire thing.

-RW 

"A Fed Duet: Janet Yellen in Conversation with Ben Bernanke"

At the Brookings Institution on Tuesday, former Federal Reserve chairs Ben Bernanke and Janet Yellen will sit down for a special event: Bernanke will interview Yellen on her career, her time at the Fed and her observations about the current state of the economy. The two former Fed chairs will also take questions from the audience.

Brookings has dubbed the event, "A Fed duet: Janet Yellen in conversation with Ben Bernanke."

The event will take place between 2:00 — 3:15 p.m. EST.

The in-person audience seating is full but it can be viewed via live webcast for those who register in advance.

Consider this a high-level Fed propaganda show. Keep in mind that Bernanke never saw the financial crisis coming and destroyed the economy in the wake of the crisis when he was intimidated into bailing out the banksters by drama king then-Treasury Secretary Hank Paulson. (Mid-level Fed policy personnel personally told me that they thought Paulson intimidated Bernanke.)

Yellen lucked out by heading the Fed after Bernanke destroyed the economy. She pretty much coasted by keeping interest rates low and pumping 2.67 trillion new dollars into the economy and not having to deal with serious price inflation. Jay Powell, the current Fed chairman, will not be so lucky.

None of the above will be discussed at the event. It's like they will be singing in the shower without the water running

 -RW

Walter Block On Ayn Rand and Ludwig von Mises

In response to the post, Did Tyler Cowen Just Take a Swipe at the Mises Institute?, Dr. Walter Block emails:

Dear Bob:

I for one am not an overzealous disciple who overrates Mises and Rand

Rather, I am a very zealous disciple who rates both of them VERY highly.

On Rand:

Did Tyler Cowen Just Take a Swipe at the Mises Institute?

Ludwig von Mises

In a post titled, Who are the most underrated and overrated libertarian thinkers?, Tyler Cowen includes this paragraph: 

Ayn Rand and Ludwig Mises belong in a separate category, because they both have overzealous disciples who so overrate them.  That in turn makes them somewhat underrated almost everywhere else.  Rand’s cocktail party analysis of the sociology of capitalism-hatred remains one of the great contributions to political thought, plus she reaffirmed the necessary high status of the business producer.  Mises’s Liberalism and also Socialism were two of the best books of the first part of the 20th century.  So I am happy to call them both underrated, subject to the above not entirely insignificant caveat.

How can this not be a swipe at the Mises Institute?

I'll let the Randians discuss Rand, but I just don't see that many overzealous Misesian disciples, certainly not any that overrate him. If anything, I would say most fail to understand many of the most important contributions of Mises (I would put Cowen in this category.).Further, compared to John Maynard Keynes, Mises is hardly known and Mises was a far better economist than Keynes.

That said, I think Cowen does have a point that among free market economists many distance themselves from Mises because of their belief that "overzealous Misesian disciples" exist.

I would say though that this is a failure and a weakness of the scholars who ignore Mises. I don't judge an economist by the crowd around him but by what he himself says. I have read all kinds of crackpots to make sure they were crackpots. A scholar is an incomplete scholar if he fails to learn for himself.

And this failure does go on with Mises. Indeed, just last year I wrote this about a Rusell Roberts podcast:

At one point [Roberts] says he never learned much from Mises but in the next breath says he hasn't read much Mises at all. Go figure.

Also of note, Cowen writes this:

 The most overrated libertarian qua libertarian might be Milton Friedman.  He is not overrated as an economist, if anything he is still considerably underrated.  But as a libertarian?  For a guy that smart, I’m not sure he added much to the corpus of libertarian ideas, and I recall one closing segment to a Free to Choose episode where he couldn’t out-argue Peter Jay on some basic issues of political philosophy.  And have the Friedmanite ideas of school vouchers and social security privatization really held up as so central?  Friedman and Rothbard really didn’t like each other, and each was right about what the other couldn’t do.

That's an interesting take on Friedman but I will leave it to David to respond, but in the entire discussion of libertarians, this is Cowen's only mention of Rothbard. It is as if he is signaling he didn't forget to mention Rothbard but just didn't think him worthy of greater mention. Interesting.

-RW 

Nassim Nicholas Taleb to Barry Ritholz: 'Fuck Off'

Do these guys have some kind of history?

Taleb's new book is Skin in the Game: Hidden Asymmetries in Daily Life.

The book's blurb:

From the New York Times bestselling author of The Black Swan, a bold new work that challenges many of our long-held beliefs about risk and reward, politics and religion, finance and personal responsibility

In his most provocative and practical book yet, one of the foremost thinkers of our time redefines what it means to understand the world, succeed in a profession, contribute to a fair and just society, detect nonsense, and influence others. Citing examples ranging from Hammurabi to Seneca, Antaeus the Giant to Donald Trump, Nassim Nicholas Taleb shows how the willingness to accept one’s own risks is an essential attribute of heroes, saints, and flourishing people in all walks of life.

As always both accessible and iconoclastic, Taleb challenges long-held beliefs about the values of those who spearhead military interventions, make financial investments, and propagate religious faiths. Among his insights:

• For social justice, focus on symmetry and risk sharing. You cannot make profits and transfer the risks to others, as bankers and large corporations do. You cannot get rich without owning your own risk and paying for your own losses. Forcing skin in the game corrects this asymmetry better than thousands of laws and regulations.
• Ethical rules aren’t universal. You’re part of a group larger than you, but it’s still smaller than humanity in general.
• Minorities, not majorities, run the world. The world is not run by consensus but by stubborn minorities imposing their tastes and ethics on others.
• You can be an intellectual yet still be an idiot. “Educated philistines” have been wrong on everything from Stalinism to Iraq to low-carb diets.
• Beware of complicated solutions (that someone was paid to find). A simple barbell can build muscle better than expensive new machines.
• True religion is commitment, not just faith. How much you believe in something is manifested only by what you’re willing to risk for it.

The phrase “skin in the game” is one we have often heard but rarely stopped to truly dissect. It is the backbone of risk management, but it’s also an astonishingly rich worldview that, as Taleb shows in this book, applies to all aspects of our lives. As Taleb says, “The symmetry of skin in the game is a simple rule that’s necessary for fairness and justice, and the ultimate BS-buster,” and “Never trust anyone who doesn’t have skin in the game. Without it, fools and crooks will benefit, and their mistakes will never come back to haunt them.”

-RW 

The Bank for International Settlements: Bitcoin is “A Combination of a Bubble, a Ponzi Scheme and an Environmental Disaster”.

Central banks must clamp down on bitcoin and other cryptocurrencies to stop them “piggybacking” on mainstream institutions and becoming a “threat to financial stability”, the head of the Bank for International Settlements warns.

Agustín Carstens, general manager of the BIS condemned bitcoin as “a combination of a bubble, a Ponzi scheme and an environmental disaster,” reports the Financial Times.

“To date, many judge that, given cryptocurrencies’ small size and limited interconnectedness, concerns about them do not rise to a systemic level,” said Carstens in a speech delivered earlier this month at Goethe University in Germany.

“But if authorities do not act pre-emptively, cryptocurrencies could become more interconnected with the main financial system and become a threat to financial stability.”

Pointing out that the “mining” process to create new bitcoins uses the same amount of electricity as Singapore each day, Carstens said “the current fascination with these cryptocurrencies seems to have more to do with speculative mania than any use as a form of electronic payment, except for illegal activities."

Bitcoin fanboys are delusional if they believe that governments won't crack down on Bitcoin and other cryptocurrencies.

-RW 

WARNING Trump May Promote Trade-Hater

Just when you things can't get worse.

President Trump could soon promote Peter Navarro, a trade policy adviser, to a more powerful position in the White House, reports The New York Times.

Notes NYT:

Mr. Navarro’s ascendance may signal that the balance of power is shifting toward those who have backed Mr. Trump’s get-tough approach to trade policy and away from those who have sought to restrain it.

The president has agreed to promote Mr. Navarro to assistant to the president from his current role as deputy assistant, giving him more access to top strategy meetings, said two trade experts close to the White House, who requested anonymity to discuss plans that weren’t yet public....

White House trade policy has been rocked in recent weeks by the departure of Rob Porter, a former aide accused of domestic violence, who had organized regular meetings for the trade staff. John F. Kelly, the White House chief of staff who imposed order on the West Wing through a strict hierarchy that left Mr. Navarro out of high-level meetings, has also been beset by rumors that he has lost standing in the White House over a series of recent negative events.

Amid the tumult, Mr. Navarro has been able to leverage a close personal relationship with the president to gain more access, a third trade expert close to the White House said.

Navvaro is a Neadrenthal when it comes to trade thinking. His understanding of trade certainly has not advanced beyond the pre-Adam Smith mercantilist views.

He is a very dangerous man to be close to the president. His advice could cause the country's global trade to be narrowed. Something that would do nothing but shrink the economy.

 -RW 

Financial Times Reporter Triggers the President of the Bundesbank

I have never seen reporting like this before in the "Lunch with the FT" feature of the Financial Times.

Claire Jones, the FT’s Frankfurt bureau chief, invited Bundesbank president Jens Weidmann for the feature section profile lunch. Halfway down her profile, she writes that she triggered Weidmann during the lunch:

For a nation [Germeny] that views debt as a sin (the word for it, schuld, also means “guilt”), the ECB’s aggressive attempts to keep the European show on the road — which have included promises to spend trillions buying government bonds and savage cuts to interest rates that savers here hate — have come to symbolise everything the euro’s enemies detest about the single currency..

Does Weidmann think it has made matters more difficult for the ECB that he as president of the revered Bundesbank has been so openly critical? He demurs. Germans would not have trusted their central bank, had it not been consistent with its traditional view, he argues...

Later he adds: “Trust comes through understanding. But it also comes with personality.” Some think the German wariness of the ECB would change if a German were to succeed Draghi after he leaves at the end of next year. But it would be an extraordinary change — for Weidmann and the bank. He has been the most vocal of the handful of the council’s 25 members to have opposed the bank’s bond-buying...

He argues that, if monetary union is going to work, then the question of nationality must be put to one side. Talking about which country people are from all the time “illustrates a certain nervousness” that Weidmann thinks in time would weaken people’s trust in the euro.

“If you say, ‘We would never have somebody from Malta at the ECB’, I mean, how would the Maltese feel? Do you think that they would be willing to accept ECB policy?”

I reply that I think the Maltese know it is very unlikely that one of them will succeed Draghi.

“Well you know what I mean,” he bristles. “If you exclude a country and say nobody from Luxembourg, Malta, whatever . . . this is not how it should work.”

We are by now an hour into lunch. As I tackle my schnitzel, Weidmann is losing his cool. This discussion about a candidate’s nationality is “completely absurd”, he says. “I mean, would you have asked if this institution is right for an Italian?”

Weidmann is absolutely correct here. Shouldn't the soundness of monetary stewardship by an ECB presidential candidate be first and foremost, not the candidate's nationality? I can understand why he gets triggered with the line of questioning by this reporter. Especially, since he is the most conservative of money printers that is in a position to succeed current ECB president Mario Draghi next year.

What difference does it make that he comes from Germany?

 -RW 

Trump Loses His Temper During Phone Call With Mexican President

Tentative plans for Mexican President Enrique Peña Nieto to make his first visit to the White House to meet with President Trump were scuttled this week after a testy call between the two leaders ended in an impasse over Trump’s promised border wall, reports the Washington Post.

Peña Nieto was eyeing an official trip to Washington this month or in March, but both countries agreed to call off the plan after Trump would not agree to publicly affirm Mexico’s position that it would not fund construction of a border wall that the Mexican people widely consider offensive, according to WaPo.

According to the report, Speaking by phone on Tuesday, Peña Nieto and Trump devoted a considerable portion of their roughly 50 minute conversation to the wall, and neither man would compromise his position.

One Mexican official said Trump “lost his temper.”

Trump got himself into this mess. What a clown.

 -RW 

Trump Slaps Horrific Sanctions on North Korea; Crime Against Humanity

Among the conventional weapons in the arsenal of the modern Warfare State, none is crueler or more indiscriminate than economic sanctions. While a bomb, missile, or other military ordnance can devastate an entire neighborhood in a moment, the slow death of economic strangulation can so degrade an entire people that they are reduced to a pre-civilizational state, modern savages living at a subsistence level.

This psychological and spiritual degeneration is nothing less than a war crime, a "crime against humanity."

-Justin Raimondo, 1998

The Trump administration has issued a far-reaching sanctions package targeting North Korea’s maritime industry, reports The Financial Times.

The US Treasury issued sanctions against 28 vessels, 27 companies and one individual across nine jurisdictions, including China, Singapore and Tanzania, on Friday.

“We have imposed the heaviest sanctions ever imposed,” President Trump said. “Frankly hopefully something positive can happen; we will see.”

This series of sanctions appears to be aimed at shutting down North Korea’s  maritime activities to obtain oil and sell coal.

China has lodged “stern representations” with the US over the sanctions.

 -Robert Wenzel 

Koch Brothers Group Launches Ads Against Tax Breaks for Amazon HQ2

Tax cuts for me but not for thee?

An advertising campaign opposing tax breaks for Amazon's proposed second headquarters has been launched by an advocacy organization linked to the conservative billionaire Koch brothers.

The ad geo-targets the American markets that Amazon is currently considering as a location for HQ2.

“While small businesses and young entrepreneurs struggle,” Generation Opportunity's ad states, “government cuts special deals with Amazon, a corporation that raked in $175 billion last year! Does this look like a company that needs taxpayer cash?” the ad asks.

Tax cuts certainly should be more broad-based but the advocacy should be for more tax cuts not objecting to tax cuts others are getting.

 -RW 

(via Channel9 Denver)

Mark Your Calendar: New Fed Chief to Testify Before House Panel

For the first time, new Federal reserve chairman Jerome Powell will deliver the semiannual monetary policy testimony on Tuesday, Feb. 27 before the U.S. House of Representatives’ Financial Services Committee.

The hearing will be held at 10 a.m. ET.

(Note: The date of the testimony was changed, it was initially scheduled for Wednesday, Feb. 28.)

Powell is not an economist. He was trained as a lawyer. This testimony will give us a sense as to the economic views of the economists inside the Fed that he is relying on.

My expectation is that he will come out as a mild monetary inflationist ---just enough to get the economy into serious trouble.

I have marked my calendar.

Powell will also deliver the semiannual monetary policy testimony before the Senate Banking Committee on March 1.


-RW 

THIS IS GOOD: A Protectionist is….

Tim Worstall writes:

A protectionist is someone who argues that you should be poorer so they can be richer.

Thank You, Janet Yellen and Ben Bernanke

Jamie Dimon, Chairman, CEO, and President, of JPMorgan Chase

J.P. Morgan Chase unveiled plans Wednesday to replace its existing New York headquarters with a new 2.5-million-square-foot complex.

The building will be the largest bank building in the world and will be built at 270 Park Ave in New York City on the same property where JPM has its current headquarters.

The current building at Park Avenue between 47th and 48th Streets was constructed in 1950 and meant for 3,500 employees. Employees will be relocated to nearby facilities during the construction.

The new headquarters will house 15,000 of the bank’s employees and is expected to be between 70 and 75 stories tall. The current structure is 52 stories.

Jamie Dimon, the bank's Chairman, CEO, and President,, could have never pulled this off without massive money printing by former Fed chairs Ben Bernanke and Janet Yellen over the last 10 years.

The question now becomes will the Fed still be able to keep the economy in boom phase until the new building is expected to be complete in 2024. Given the expected price inflation acceleration on the horizon, it says here that the Fed won't be able to pull it off.

 -RW 

(via CNBC, The New York Times and Bloomberg)

Venezuelans Lost On Average 24 Pounds Last Year

This is what happens when price controls, socialism and hyperinflation are mixed.

According to Reuters, Venezuelans reported losing on average 11 kilograms (24 lbs) in body weight last year and almost 90 percent now live in poverty.

The data comes from a study on the impact of  the devastating economic crisis and food shortages.

The annual survey, published on Wednesday by three universities, is one of the most closely-followed assessments of Venezuelans’ well being.

Last year, the three universities found that Venezuelans said they had lost an average of 8 kilograms during 2016. This time, the study’s dozen investigators surveyed 6,168 Venezuelans between the ages of 20 and 65 across the country of 30 million people.

“Income is being pulverized,” Maria Ponce, one of the study’s investigators, told a news conference at the Andres Bello Catholic University on Caracas’s outskirts.

“This disparity between the rise in prices and the population’s salaries is so generalized that there is practically not a single Venezuelan who is not poor,” she said.

Prices in Venezuela rose over 4,000 percent in the 12 months to the end of January, according to various studies.

    -RW 

Protectionists and the 50 States

By Don Boudreaux

A Protectionist is Someone Who…

… believes that we Americans would be even wealthier than we now are if each of the 50 states were a sovereign nation that restricted its citizens’ abilities to import goods and services not only from Europe, Asia, and other far away places, but also from each of the other 49 states.  After all, if creating artificial scarcities in the United States is key to increasing each American’s access to goods and services, imagine how much richer we Americans would be if we in Virginia enjoyed the artificial scarcities created by the government in Richmond obstructing our access not only to goods and services sold by the likes of Canadians and the Chinese, but also to goods and services sold by the likes of North Carolinians, Marylanders, Californians, Hawaiians, and Americans in other states.  Ditto for Louisianans whose wise leaders in Baton Rouge obstructed their ability to import goods and services not only from places such as Mexico and Japan, but also from places such as Mississippi, Texas, New Jersey, and other U.S. states.  Ditto also for Oklahomans, Nebraskans, Minnesotans, Floridians, Vermonters, Arizonans, Alaskans, and citizens of each of the other states.

Or put somewhat differently, a protectionist is someone who regards American courts as having visited upon Americans a curse rather than a blessing through these courts’ consistent interpretation of the U.S. Constitution as meant to create among these united states a free-trade zone.

The above originally appeared at Cafe Hayek.

The Time Schumpeter Attacked Bastiat

By Henry Hazlitt

Frédéric Bastiat was born at Bayonne, France, on June 29, 1801. His father was a wholesale merchant, but Frédéric was orphaned at the age of nine and was brought up by his grandfather and his aunt.

He seems to have had a good, though not an extraordinary education, which included languages, music, and literature. He began the study of political economy at nineteen and read principally Adam Smith and Jean-Baptiste Say.

Bastiat's early life, however, was not primarily that of a scholar. At the age of seventeen he went to work in his uncle's counting-house and spent about six years there. Then he inherited his grandfather's farm at Mugron and became a farmer. He was locally active politically, becoming a juge de paix in 1831 and a member of the conseil genéral of the Landes in 1832.

Bastiat lived in a revolutionary period. He was fourteen when Napoleon was defeated at Waterloo and exiled to St. Helena. He lived through the Revolution of 1830. But what first inspired his pamphleteering activity was his interest in the work of Cobden and the English Anti-Corn-Law League against protection. In 1844 he rose to immediate prominence with the publication of his article on "The Influence of French and English Tariffs on the Future of the Two Peoples" in the Journal des économistes.

Then began the outpouring of a brilliant series of articles, pamphlets, and books that did not cease till his premature death in 1850. There came first of all the first series of Sophismes économiques, then the various essays and the second series of Sophismes, and finally, in the last year of his life, the Harmonies économiques.

But the list of Bastiat's writings in this short span of six years does not begin to measure his activities. He was one of the chief organizers of the first French Free Trade Association at Bordeaux; he became secretary of a similar organization formed in Paris; he collected funds, edited a weekly journal, addressed meetings, gave lecture courses — in brief, he poured out his limited energies unsparingly in all directions. He contracted a lung infection. He could breathe and nourish himself only with difficulty. Finally, too late, his ill-health forced him to Italy, and he died at Rome, at the age of forty-nine, on Christmas Eve, 1850.

It is ironic that the work which Bastiat considered his masterpiece, the Harmonies économiques that cost him so much to write, did far more to hurt his posthumous reputation than to help it. It has even become a fashion for some economists to write about Bastiat patronizingly or derisively. This fashion reaches a high point in an almost contemptuous one-page notice of Bastiat in the late Joseph A. Schumpeter's History of Economic Analysis. "It is simply the case," writes the latter, "of the bather who enjoys himself in the shallows and then goes beyond his depth and drowns…. I do not hold that Bastiat was a bad theorist. I hold that he was no theorist."

It is not my purpose here to discuss the

Pay Attention Donald Trump: A Protectionist is Someone Who…

By Don Boudreaux

.... believes that rickshaws are a much better means of urban public transportation than are busses or subways because the number of workers required to transport any given number of passengers is much higher with rickshaws than with busses and subways.  The protectionist – assuming (contrary to fact) that he or she has any capacity for consistency in thought – would lobby to prohibit busses, subways, and even taxies, bicycles, and skateboards on the grounds that these transportation options employ fewer urban-transportation workers than would be employed by a policy of using only rickshaws.

The above originally appeared at Cafe Hayek.

Do Sales Taxes Get Passed On To the Consumer?

At the post, Seattle Residents Will Outsmart the Socialist 'Behavior Control' Soda Tax, Peter Kapeel asks:

How is this story reconciled with Rothbard's discussion in MES on sales tax. Rothbard (Austrians) said that sales taxes do not get passed on to consumers because prices are determined by the consumers, not the cost of production. Is this simply an immediate run effect that will lead to a decline in prices at these stores?

 RW response:

The issue of sales taxes is a very complex one. The best short answer is that you can't just pass a tax on to consumers.

That said, after a tax is implemented sometimes prices will climb sometimes they won't.  It depends on the demand schedule for a good and also the products involved in producing a good.

Let us say, by way of example, that ice cream is made up of just two ingredients, milk and sugar.

Let us further assume that the milk and sugar are non-specific goods, that is they have plenty of uses well beyond making ice cream and the market for the ingredients is robust and not dependent on ice cream demand.

So if, say, a 10% tax is placed on ice cream, ice cream producers won't be able to "push" the tax back down on milk and sugar producers because the milk and sugar producers have plenty of other outlets where they can sell their product and they won't budge on price.

If margins are tight at the ice cream maker, the only thing he will be able to do is raise his price by 10%. Depending on the demand schedule, this could very well result in some marginal buyers no longer buying ice cream. So it is not really increasing the price to all consumers, it is pushing some consumers out of the market.

Let us consider another situation. There are three ingredients that make up ice cream, milk, sugar and, just for illustrative purposes, a special glue that holds ice cream together, Unlike milk and sugar, this special glue does not have other demand, it is a specific good for ice cream and that is all. There is no other market.

So let's say that the 10% tax is put on. The ice cream maker doesn't really want to raise prices because he will lose the marginal buyers,  but this time, unlike in the first example, he has options.

The milk and sugar producers still won't negotiate with him to lower their supply prices because they have other markets where they can sell their products, but the special glue maker has no other markets. Therefore the ice cream maker can go to the glue maker and say, "Hey, I have to cut what I pay you buy X amount because of this tax." Since the special glue maker has no other market to sell to, he takes the hit and absorbs the tax.

These two examples are just generalizations to give a sense of what can occur, you can really spin out many, many permutations. The point is, it is not as simple as slapping a sales tax on and the consumer gets hit with the tax.

Many things can happen. Indeed, in Rothbard's discussion, he recognized such when he wrote about another possible permutation:

It is true that a tax can be shifted forward, in a sense, if the tax causes the supply of the good to decrease, and therefore the price to rise on the market. This can hardly be called shifting per se, however, for shifting implies that the tax is passed on with little or no trouble to the producer. If some producers must go out of business in order for the tax to be "shifted," it is hardly shifting in the proper sense but should be placed in the category of other effects of taxation.

    -RW 

Risky Crypto Bet Blows Up Dennis Gartman's Retirement Account

Sixty-seven-year-old Dennis Gartman, longtime publisher of a namesake daily investing newsletter and television commentator, just blew up his retirement account.

Bloomberg reports Gartman pt a stock called Riot Blockchain Inc. in his very own retirement account.

Here's the play-by-play from Bloomberg:

The stock lost a third of its value on Feb. 16 after CNBC broadcast an investigative story on the biotech-company-turned-blockchain-startup. The Suffolk, Virginia-based commodities trader and economist might have been hoping to strike it rich and retire early, but he may end up working a few extra years now.

“Friday was one of the worst days we have suffered through in a very long while,” he wrote in the Gartman Letter on Tuesday. “We were long of a sizeable position in a blockchain focused company that was the victim of a CNBC expose, which sent the shares down more than 20 percent and which sent us ‘down’ for the year to date, having been up about 6 percent previously.”

The firm announced in October that it was rebranding itself from Bioptix Inc. to Riot Blockchain after years of lackluster stock performance and minimal revenue growth, a move that led the shares to more than quadruple. The euphoria didn’t last.

  -RW

Will Rand Paul and Elizabeth Warren Stop a Trump Fed Nominee Who Wants to Insert Magnetic Strips Into US Currency?

Marvin Goodfriend 

I have already pointed out that Marvin Goodfriend would be a dangerous addition to the Federal Reserve Board of Governors because of his desire to tax money in checking accounts during recessions via a "negative interest rate."

It turns out that Goodfriend's plan is even more horrific than I originally was aware.

Reuters reports:

Goodfriend's idea was to insert magnetic strips into the bills. Each time the cash was returned to a bank, the money would be taxed at a pre-determined rate. That would discourage individuals from hoarding cash and remove one obstacle for central bankers in setting negative rates.

Reuters calls this insanity "creative thinking." It is Keynesian aggregate demand policy on steroids.

There are two senators, from opposite sides of the aisles and political spectrum, who might be able to stop Goodfriend's confirmation.

Here's Reuters again:

 Even so, the idea of a tax on cash is politically toxic. Senators Rand Paul and Elizabeth Warren - two lawmakers often on opposite ends of the ideological spectrum - have denounced Goodfriend's idea, and may now put his nomination in jeopardy.

Rand does a lot of good but if Warren can somehow play a role in stopping Goodfriend from getting on the Board, it will probably be the best thing she has ever done in the Senate.

     -RW

-Robert Wenzel 

STOCKMAN: "The Education of Mick Mulvaney—-He’s No David Stockman!"

Mick Mulvaney

This is excellent.

David Stockman, with plenty of justification, links to a National Review essay by Veronique de Rugy, The Education Of Mick Mulvaney, where she writes:

I am incredibly disappointed to see my hopes about budget director Mick Mulvaney go up in flames. See, I thought that as a budget director, he would be more like David Stockman than many of the successors we have had since he left his job after serving in the Reagan White House...What I am most disappointed by is what looks like a total abdication of what made him such an unusual Republican representative. As I wrote:

Better yet, like Stockman, he isn’t afraid to go after the Republican sacred cow—defense spending

It is really difficult for me to understand how anyone bought into anyone who joined the Trump administration. Trump has only hired clowns, yes men and generals. This was obvious from the start.

This is what I wrote about Mulvaney when he was confirmed in February of last year:

I do not expect much positive from Mulvaney.

During Senate confirmation testimony, he said he was in open to raising Social Security taxes via raising the cap on Social Security payroll taxes, as well as being open to cutting benefits via raising the retirement age to extend the program’s solvency.

However, he said he was in favor of raising military spending. He said he backed Trump’s plans to boost military spending.

That said, it is good to see de Rugy take on a Trump hire, something a lot of libertarians are still not doing.

 -RW

The Projected Federal Deficit Over the Next 10 Years

Via Veronique de Rugy and Justin Leventhal.

Note: These are conservative deficit numbers. I believe that interest rate costs alone are underestimated by hundreds of billions.

  -RW 

Thomas Sowell Agrees With Ron Paul About the Federal Reserve

Sowell is pretty good here and shocks the establishment interviewer Paul Robinson.

   -RW 

Seattle Residents Will Outsmart the Socialist 'Behavior Control' Soda Tax

LOL. The Seattle socialists think they are going to collect oodles of cash with their creepy soda tax.

Charles Hughes explains why they won't:

Seattle recently became the latest major city to enact a sweetened beverage tax. In response to the new levy, some retailers have calculated how much of the price is due to the tax, and customers are reeling from sticker shock. One local reporter found thatthe tax added $10.34 to a case of Gatorade, bringing the final price to more than $26.00....  

One of the justifications for beverage taxes is that customers will respond to price changes by reducing consumption of taxed beverages. The mechanism here is straightforward: tax something to get less of it. If people were to substitute diet sodas or other, less-harmful beverages for sugared sodas, they would be healthier

The City of Seattle denies that consumers respond to higher prices. On the city government’s website explaining the tax, the Finance & Administrative Services Department takes pains to mention explicitly that the “tax is not collected by the retailer nor is the tax burden intended to fall onto the consumer. The intent of the sweetened beverage tax is to tax the distributions of sweetened beverages into Seattle for retail sale in Seattle.”  

If the burden of the tax is supposed to completely bypass the consumer, as unlikely as that might be, what would drive them to substitute away from the unhealthy products that the government is taxing in the first place?Whatever the City states, not all of the tax will be borne by distributors, some of the burden will fall on stores and consumers, and they will respond to the change in price in some way. The less-visible Frequently Asked Questions document for the tax acknowledges this, as “the ordinance does not prohibit a business from passing on the expense of this tax.... 

>Many people are likely to avoid the tax by traveling to other untaxed locations to purchase groceries. Costco tells its customers about locations outside the city that are not subject to the beverage tax. One customer told KIRO, a local news station, that she would go to the location in a nearby town. People will undoubtedly follow her lead, so the tax will have limited success in its health-related goals while also harming local businesses and failing to generate tax] revenue.

   -RW 

WAR: Per Bylund vs. Nassim Nicholas Taleb

Per Bylund, Assistant Professor of Entrepreneurship & Records-Johnston Professor of Free Enterprise in the School of Entrepreneurship at Oklahoma State University, and an Associated Scholar with the Mises Institute, tweets out:

For the record, I do not believe it is necessary for a professor to have been an entrepreneur to teach the theory of entrepreneurship, any more than it is necessary for a surgeon to jump and touch a basketball rim to perform knee surgery.

That said, I suspect that many academic economists are confused about entrepreneurship because they have never seen it up close, the way a fat knee surgeon who was stuck on an isolated island with other fat people might find it difficult to believe that some humans can jump and touch a basketball rim 10-feet high.

It would not be impossible for a fat knee surgeon on such an island to consider how a person could jump to touch the rim but it would take a superior mind to conceive of such.

As far as teaching entrepreneurship rather than entrepreneurial theory, what can be done in a classroom is extremely limited.


  -RW 

More Evidence of the High Collateral Damage of a War on Cash

By Lawrence H. White

The leading arguments for banning large-denomination currency notes are those made in a much-cited working paper by Peter Sands and at book length by Kenneth Rogoff. They have been rebutted persuasively by Pierre Lemieux and Jeffrey Hummel in their respective reviews of Rogoff’s book. I have previously offered my own rebuttals here and here.

The justification for returning to the topic now is that two recent reports, issued by the Federal Reserve Bank of San Francisco and by the European Central Bank, provide new evidence on the public’s use of large-denomination notes. This evidence is essential to any serious evaluation of proposals to ban large-denomination in notes in the United States and Europe.

The Sands and Rogoff argument assumes that the users of large bills are almost entirely criminals; use by innocent citizens is rare. Rogoff writes in his book: