Russell Roberts's Blog, page 25

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 25 of the 1982 Economics Nobel laureate George Stigler‘s May 1960 American Economic Review paper, “The Influence of Events and Policies on Economic Theory,” as reprinted in Stigler’s 1965 collection, Essays in the History of Economics:

Policies designed to lessen income inequality emerged during a period when market forces were making substantial contributions to this end, and a similar relationship between policy and events is found in hours of labor, provision of education, the development of domestic manufacturing, etc. Here policy rides on the wave of events, although often it makes impudent claims to leadership.

Some Links

(Don Boudreaux)

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Wall Street Journal columnist James Freeman isn’t buying Fauci’s latest irresponsible remarks, conveyed in the New York Times, about lockdowns. Two slices from Freeman:

To expose the falsity of Dr. Fauci’s attempt to avoid responsibility for the consequences of his actions and advice, one doesn’t even need to look beyond the pages of the New York Times. Not that the paper was holding him to account. He was often cast as a heroic figure as he pushed back against those who tried to warn of the great harms of closing society. Dr. Fauci wasn’t deferring to economic experts or even to medical experts who didn’t share his Covid prescription—he was using his powerful perch to forcefully rebut them. And he largely succeeded, to the great detriment of America’s children.

As for Dr. Fauci’s claim that he looked at things from “a purely public-health standpoint,” this too deserves great skepticism. One of the reasons his advice was so destructive is that it was based on a purely Covid standpoint—and with a particular approach that didn’t even yield exceptional Covid outcomes—rather than assessing other threats to health, such as mental illness and cancer, the treatment of which suffered during the shutdowns.

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Shame on President Trump for not firing the destructive doctor in 2020, and shame on Dr. Fauci for trying to rewrite this history in 2023.

Mary Katharine Ham rightly criticizes the execrable Randi Weingarten. A slice:

Weingarten is a powerful political force in the Democratic Party. She and her allies in Democratic politics used their leverage to keep school doors closed to students for more than a year, with catastrophic results for the learning and mental health of those students.

The school closures were the longest in modern history, they were more draconian than the rest of the developed world, they were at odds with the proof all around this country in private schools and in red-state public schools that schools could indeed open safely.

Jennifer Sey tweets: (HT Jay Bhattacharya)

I was in Greeley, CO today interviewing a 16 year old for a documentary film about the impact of school closures.

At 13, she was left to care for 2 younger siblings.

She was stuck at home with an abuser.

She stopped attending classes.

At 15, she dropped out of high school.

She’s returned to school thanks to a dedicated, loving grandparent.

She’s one of the lucky ones – she had a guardian to step in and get her back on track.

She’s hoping to catch up and graduate next year. But it’s a struggle.

School closures altered the course of this child’s life.

Pray for her. She’s an amazing young woman who already faced tremendous challenges.

@rweingarten is responsible. Fauci is responsible. I won’t forget what they did. Neither should you.

Jeff Jacoby decries the Biden administration’s preposterous policy of forcing mortgage borrowers with good credit ratings to subsidize mortgage borrowers with bad credit ratings. Three slices:

You’ve done everything you were supposed to do, so this may come as an unwelcome surprise: Because your credit rating is so good and your down payment is so high, the Biden administration has decided to penalize you with a hefty new fee and a higher mortgage rate. As of May 1, mortgage costs for home buyers with risky credit backgrounds will be reduced, resulting in more favorable interest rates. In order to subsidize that discount for less creditworthy borrowers, someone has to pay more. That someone is you and buyers like you — those with credit scores higher than 680 and down payments of 15 percent or more.

The fees involved are called loan-level price adjustments, or LLPAs. These are charges paid upfront; they apply to all mortgages controlled by Fannie Mae and Freddie Mac, the two giant government-chartered finance firms that buy up most home mortgages. LLPA fees are determined by a borrower’s credit score and down payment size, and are commonly converted into percentage points that affect the buyer’s interest rate.

Lending to borrowers with lower credit scores is risky, since by definition they’re less likely to pay back what they borrow. To cover that risk, lenders have to charge them more for mortgages. That makes it harder for low-income borrowers, who are disproportionately Black, to qualify for loans, which exacerbates the racial gap in homeownership. Hence the Biden administration’s plan to “increase pricing support for purchase borrowers limited by income or by wealth,” to quote Sandra Thompson, the director of the Federal Housing Finance Agency. Borrowers with great credit scores will pay higher fees so that those with not-so-great scores can get a discount, thereby enabling more people with poor credit to buy homes.

The only thing wrong with that theory is — everything.

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Second, it is not a kindness to qualify borrowers for mortgages they can’t afford. Doesn’t the White House remember the 2008 subprime loan crisis? Lenders went bankrupt, homes were foreclosed on, the housing market collapsed, and the credit of untold thousands of Americans was shredded, largely because of government policies that promoted lending to borrowers who weren’t creditworthy.

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The way to expand homeownership is not to undermine credit scores. It is to get lower-income earners to do what you did — pay their bills faithfully, live within their means, and save for the future. You shouldn’t be punished for having done the right thing, and no one who didn’t should be getting a reward.

Scott Lincicome is always worth reading. Here’s a slice from his latest essay:

And, even when not being outright protectionist, various anti-China “friendshoring” initiatives and restrictions—such as the IRA subsidy requirement that EV battery minerals be sourced from “free trade agreement” countries—will likely exclude developing countries like Indonesia (which has a lot of those minerals but also does a lot of business with China).

GMU Econ alum Dominic Pino talks with Robert Hetzel about his, Hetzel’s, new book, The Federal Reserve: A New History.

GMU Econ alums John Robinson and J. Robert Subrick look closely at (what is widely believed to be) Adam Smith’s labor theory of value. A slice:

We conjecture that Smith recognized the incoherence of a LTV and employed the language as a sort of noble lie to advance his liberal plan for society. We argue that Smith would have known of an alternative explanation for value, such as the role of scarcity and subjective desires in determining value, as outlined in LJ [Smith’s Lectures on Jurisprudence]. We also claim that Smith may have had good reason to shroud or otherwise deemphasize this alternative explanation of value in his magnum opus.

Roger Ream talks with Jason Clemens and Ted Tucker about the realities of socialism.

Quotation of the Day…

(Don Boudreaux)

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… is from page 75 of the late Forrest McDonald’s 1985 book, Novus Ordo Seclorum: The Intellectual Origins of the Constitution (footnote deleted):

John Taylor of Caroline put it succinctly: “The more a nation depends for its liberty on the qualities of individuals, the less likely it is to retain it. By expecting publick good from private virtue, we expose ourselves to publick evils from private vices.” Taylor went on to deal at length with the importance that the structure of political institutions had for republican liberty.

DBx: Private virtue is wonderful, and necessary for a society to be good. But private virtue isn’t sufficient. Also necessary are good institutions – institutions that, above all, check arbitrary power and disperse decision-making authority.

Pictured here is John Taylor of Caroline.

Bonus Quotation of the Day…

(Don Boudreaux)

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… is from page 25 of William Gladstone’s January 1890 contribution to a debate, with James G. Blaine of Maine, on free trade versus protectionism; these remarks are published in volume CCCXCVIII of the North American Review:

I urge, then, that all protection is morally as well as economically bad. This is a very different thing from saying that all Protectionists are bad. Many of them, without doubt, are good, nay, excellent, as were in this country [the U.K.] many of the supporters of the Corn Law. It is of the tendencies of a system that I speak, which operate variously, upon most men unconsciously, upon some men not at all; and surely that system cannot be good which makes an individual, or a set of individuals, live on the resources of the community and causes him relatively to diminish that store, which duty to his fellow-citizens and to their equal rights should teach him by his contributions to augment. The habit of mind thus engendered is not such as altogether befits a free country or harmonizes with an independent character. And the more the system of protection is discussed and contested, the more those whom it favors are driven to struggle for its maintenance, the farther they must insensibly deviate from the law of equal rights, and, perhaps, even from the tone of genuine personal independence.

DBx: Yes.

Protectionists frequently insist that their policy is a means of giving workers dignity. Yet such dignity, even when sincerely felt, is false. It is not dignified to be employed in a job that exists only because the government forcibly restricts fellow citizens’ economic options. It is not dignified to be paid wages that are as high as they are only because fellow citizens are coercively prevented from spending their incomes as they choose. Employment in such jobs and receipt of such wages are parasitic, and there should be shame rather than dignity in being a parasite on fellow citizens.

Protectionists are peddlers of economic parasitism. They are to the body politic what the creature pictured above is to the body individual. The fact that many protectionists are unaware of the ugly nature and harmful consequences of that which they peddle speaks only to their intellectual weakness.

All They Can Think Of Is Centralized Control

(Don Boudreaux)

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Here’s a letter to Time:

Editor:

Historian Philip Zelikow, head of the Covid Crisis Group, writes that the U.S. “lost the war against covid” because we fought it “without an army or a battle plan” (“How America Lost the COVID-19 War,” April 24). But in fact large swathes of America were commanded to lock down for many months; schools in much of the nation were ordered closed; travel restrictions and one-size-fits-all mandates were imposed upon millions of people; and the media were nearly unanimous in parroting Anthony Fauci’s and other public-health generalissimos’ exaggerated warnings of covid’s perils.

Nevertheless, as is evident from his martial reference and the full content of his essay, Mr. Zelikow believes that America’s response was insufficiently authoritarian: no commanders arose to conscript all Americans into all-out, single-minded, sustained war against an existential threat.

Yet there was another way, another “battle plan,” long endorsed by public-health authorities until the Chinese state in early 2020 gave world ‘leaders’ the novel example of draconian, society-wide lockdowns. That other way was Focused Protection, as endorsed by the Great Barrington Declaration. Unfortunately, by the time the GBD was issued, in October 2020, governments worldwide were committed to mimicking Beijing’s tyrannical response, while the public were thoroughly saturated with misinformation that exaggerated both the danger of covid to the general population and the effectiveness of lockdowns at dampening that danger.

With evidence accumulating that lockdowns were largely ineffective even on their own terms, it’s fair to ask what the covid death toll would have been had we practiced Focused Protection from the start. Of course, we’ll never know. But it’s utterly mistaken to assume that the death toll could have been lowered only by resort to earlier, stricter, and longer lockdowns. The ravages of covid are far more likely to have been lowered – and the economic ravages of lockdowns certainly avoided – by the opposite approach, one featuring Focused Protection.

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

No, Industrial Subsidies Do Not Benefit the Country As a Whole

(Don Boudreaux)

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This new piece at National Review by my intrepid Mercatus Center colleague, Veronique de Rugy, makes clear just how shoddy and weak are the arguments in favor of industrial policy and protectionism put forth by researchers affiliated with American Compass. Here are a few slices from Vero’s essay (but do read the whole thing):

American Compass recently produced a piece, written by Gabriela Rodriguez, professing the greatness of European industrial policy. Rodriguez uses European governments’ support for Airbus as a case study. Airbus, you see, sold more planes in 2022 than Boeing, invests more in R&D, employs workers throughout Europe, and has lower production costs thanks to the strategic decisions made by a few European governments to turn things around.

Rodriguez’s piece is part of a series of American Compass articles that claims to highlight “lessons on public policy’s vital role in a productive market economy that supports families, workers, communities, and entire nations.” The experience of Airbus allegedly offers a significant contrast with that of Boeing and is offered as evidence that “shareholder primacy does not necessarily yield the most competitive or innovative firms.”

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As American Compass frequently does, this piece overclaims and under-delivers. It’s written as a contrast between two ways of doing business: the mindless, unconstrained way of the free market, supposedly epitomized by Boeing, and the carefully arranged marriage between government and business, supposedly epitomized by Airbus. But this contrast is a cartoon, and to draw it, Rodriguez has to elide some important facts.

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Rodriguez does a poor job of assessing the actual costs involved in Europe’s boosting of Airbus and whether these are justified. Answering these questions properly is important if one is going to argue that subsidies and other special privileges bestowed on Airbus improved life for Europeans. But her piece makes no attempt to show that these subsidies and special privileges — over $200 billion in today’s dollars bestowed on Airbus over the last 40 years — have been beneficial to anyone other than Airbus and its executives, suppliers, and workers. Is the industrial policy that produced Airbus a net positive for the European economy or taxpayers in the countries that supported it?

Europe’s stagnant economic growth, high unemployment rates, and high debt over the last few decades are not evidence in support of that theory. Also, European countries have seen their manufacturing sectors shrink as a share of total employment since the 1970s just like developed countries on other continents.

To make a case for industrial policy, one must be able to show that it has benefited not only the companies receiving government favors, but, more importantly, also the economies and taxpayers of the countries that paid for these favors. This is essential because labor and other resources directed by subsidies into Airbus must come from somewhere. Absent subsidies, these workers and resources would produce other goods and services, so the value of those other goods and services must be weighed against the value of the additional Airbus aircraft whose production has been made possible by subsidies and other privileges. Industrial-policy supporters hardly ever mention these foregone goods and services, much less show that their value could be less than the value of the additional aircraft. Rodriguez just assumes that what we get is the best that can be gotten, and that it was thus worth the expense.

…..

There are a few claims made by the American Compass piece that are correct, but these aren’t controversial. First, Airbus is an artifact of the state. It was created by a consortium of governments, and it was supported financially by European taxpayers, including through the sweetheart deal whereby it didn’t have to repay its loans unless its planes made a profit in global markets. Second, it is also true that Airbus is one of the two dominant aircraft manufacturers today, hence showing that an enormous amount of subsidies and other financial support doesn’t always lead to failure. These are not new findings, especially considering that the sale of commercial aircraft (whether by Airbus or Boeing) is a geopolitical game in which purchase decisions are often made for noneconomic reasons.

But in the end, I am left wondering, as you should be, what exactly is supposed to be American Compass’s broadly applicable lesson here? Is it that hyper-regulated industries in which large purchases are made by state corporations, politics play an outsized role in orders, and subsidized producers compete for government-orchestrated orders can “work” despite offering a poor return to taxpayers? Or is it that government interventions in some companies make countries and their economies better off? American Compass certainly hasn’t proven the latter, and it hasn’t shown that the former is a strategy worth pursuing for our national defense or our position in the world. Because even if you buy the assertion that Airbus is as successful as American Compass claims it to be, all that says for sure is that it’s successful for its shareholders and workers, not for the people of Europe.

All that Rodriguez’s piece does is prove that some government interventions aren’t failures when only measured in terms of output and worker employment in favored industries. But no one denies that a company can be built, survive, and grab a large share of the market if it’s fed a steady diet of billions of taxpayer funds in the form of subsidies and other special favors. For instance, for decades Airbus didn’t have to start repaying its government loans until it made a profit, and if it never made a profit then it never had to repay a dime. Under these conditions, that it stayed afloat in a duopolistic market is no great achievement.

Some Links

(Don Boudreaux)

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The Wall Street Journal‘s James Taranto continues to expose the shoddiness (to put it mildly) of the current media efforts to discredit Justice Clarence Thomas. Two slices:

Well, they’ve got him now. Or have they?

“Justice Clarence Thomas said he was advised he didn’t have to disclose private jet flights and luxury vacations paid for by billionaire Harlan Crow because … Crow ‘did not have business before the court,’” Bloomberg reported Monday. “But in at least one case, Crow did.”

Bloomberg’s Zoe Tillman, “with assistance by Greg Stohr,” “reviewed dozens of state and federal cases involving companies that the Crow family has owned or had a financial stake in since Thomas’ 1991 confirmation.” The duo’s digging was certainly exhaustive, and the proof is that what they turned up was utterly trivial—one case the high court didn’t hear, in which a litigant had a family connection to Mr. Crow.

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Bloomberg’s headline reads “Clarence Thomas’s Billionaire Friend Did Have Business Before the Supreme Court.” The story amounts to nothing, but it’s another chance to fling mud at Justice Thomas in the hope that something sticks.

See also this defense by James Taranto of Justice Thomas. A slice:

But her analysis is laughable. As Mr. Swaim reported, Mr. Crow describes himself as “a moderate Republican” and “moderately pro-choice—a first-trimester guy” and says of the justice: “Do I influence him? Hell no. I respect his judgment about those things way more than mine.”

Justice Thomas appears impervious to influence and always has. He is, in the words of Justice Samuel Alito, “a purist and an important voice”—and often a soloist, whose lone concurring opinions or (less often these days) dissents argue for adhering to the original meaning of the Constitution even if that requires uprooting precedents that have become deeply established in law and culture.

Barry Brownstein explains that “eliminating property rights destroys social order.”

Iain Murray weighs in wisely on how best to make the liberal free-market order.

Charlotte Blease warns of the dangers of groupthink on college campuses. Two slices:

Universities like Harvard are incredibly successful at netting major funding that rewards highly specialised, ‘hot’ research. This allows for laser-like focus within any given field, and it can reap many investigative benefits. But, as late American psychologist Scott Lilienfeld warned, the prevailing grant culture also creates disincentives for contrary views, and rewards pre-ordained ‘correct’ opinions. Worse still, a self-interested eagerness to ‘oversell’ one’s ideas in grant bids leads to a great deal of false research findings being published.

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Repressing diversity of thought is a calamity for science. Thanks to the race for the research bucks, dubious research practices have become rampant, and investigators do a poor job of citing research that discredits their pet theories.

Eric Boehm isn’t buying Anthony Fauci’s cowardly and lawyerly denials of his role in promoting lockdowns. A slice:

But while Fauci is narrowly correct about each of these things, he’s also woefully understating the role that he played in creating the mess. From the start, Fauci pushed for the Trump administration to tell states to lock down. “No bars, no restaurants, no nothing. Only essential services. When you get a place like New York or Washington or California, you have got to ratchet it up,” he told Science magazine in an interview in mid-March 2020.

Fauci also pushed back against evidence that lockdowns were causing unintended (though totally predictable) problems. A group of epidemiologists and other public health experts in October 2020 signed The Great Barrington Declaration, which called for a focus on protecting the vulnerable and letting everyone else resume normal life. Soon after it was published, Fauci denounced the document as “nonsense and very dangerous.”

And though it may not have affected the public policy response to the pandemic, Fauci also deserves blame for his disassembling about the usefulness of masks and the origins of the pandemic. In the early days of COVID, he advised against the wearing of masks in public places, only to later admit that he’d been less than truthful. Later still, he advocated for double-masking, despite a lack of any evidence for the effectiveness of that strategy.

Jay Bhattacharya tweets:

Censorship is speech hate.

Quotation of the Day…

(Don Boudreaux)

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… is from Ludwig von Mises’s April 1960 Freeman essay titled “The Economic Foundations of Freedom“:

The economic foundation of this bourgeois system is the market economy in which the consumer is sovereign. The consumer, i.e., everybody, determines by his buying or abstention from buying what should be produced, in what quantity and of what quality. The businessmen are forced by the instrumentality of profit and loss to obey the orders of the consumers. Only those enterprises can flourish that supply in the best possible and cheapest way those commodi­ties and services which the buyers are most anxious to acquire. Those who fail to satisfy the public suf­fer losses and are finally forced to go out of business.

DBx: Advocates of industrial policy would replace everybody with themselves. Such hubris.

Advocates of industrial policy operate with two mistaken suppositions, the first one arrogant and the second one naive. First, they arrogantly suppose that they possess superhuman knowledge about just what the pattern of resource allocation should be. Second, they naively suppose that government can be trusted with the power to coercively engineer their preferred reallocation of resources.

Griswold and Freytag On the So-Called “Trade Deficit”

(Don Boudreaux)

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This new paper by my friend and former Mercatus Center colleague Dan Griswold, co-written with Andreas Freytag, is not to be missed. In it, Dan and Prof. Freytag brilliantly bust many myths about the trade deficits. This paper should silence the incessant false alarms that the U.S. trade deficit both reflects and promotes America’s economic decline. The truth is quite the opposite. Here are some slices:

Concerns about the trade deficit are myopic and do not fully account for the benefits of expanding trade. In particular, both the causes and supposed consequences of the trade deficit are misunderstood, leading to wrong and self‐​damaging policy conclusions. We explain the causes and consequences of the trade deficit, contrasting the U.S. case with trade surplus countries such as Germany, including the impact on manufacturing output and employment. We also explain how the balance of trade, in fact, points to the nation’s strength as a haven for global investment, to robust trade in goods and services, and to a strong dollar that remains at the center of the global economy. And finally, we briefly recommend policy steps to build on the nation’s underlying commercial and geopolitical strengths.

The U.S. balance of trade in goods and, more broadly, the current account, have been in deficit for decades. Year after year, Americans buy more goods in global markets than they sell. This is not a problem to be solved with tariffs or other trade measures, but the result of deeper economic realities in the economy that could reasonably be seen as signs of strength. The United States can only run a persistent deficit in its current account because it runs an equally persistent surplus in the financial account, which measures the flow of capital across the border. More investment flows into the United States each year than flows out, on net, in large part because the United States remains a safe and profitable haven for the world’s savings. The investment, in turn, fuels growth and job creation.

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When critics are not focusing on the overall trade deficit, they call attention to persistent bilateral trade deficits with key trading partners such as China and the European Union. But bilateral imbalances are even less meaningful than the general balance in trade. American citizens and firms deal with partners all over the world. There is no rational economic reason why Americans should be expected to sell exactly the same value of goods and services to people in a particular foreign nation than they buy from them.

To illustrate this point, let us conduct a thought experiment: imagine the world consists of three countries with limited but generally balanced trade. Germany is only buying oil from Saudi Arabia and only selling machines to the United States, which itself is only selling telecommunications equipment to Saudi Arabia. Germany runs a bilateral trade deficit with Saudi Arabia, Saudi Arabia with the United States, and the United States with Germany. Each country has balanced trade with the world, but deficits and surpluses with individual trading partners. The bilateral deficits can reflect perfectly normal comparative advantages and preferences.

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In reality, manufacturing output, as measured by domestic value‐​added, has expanded in the past two decades along with persistent annual deficits in merchandise trade. In 2021, as the merchandise trade deficit continued to exceed 4 percent of GDP, manufacturing value reached a record high of $2.563 trillion. As Figure 4 shows, real U.S. manufacturing value‐​added rose in the past two decades by more than a third, from $1.84 trillion in 2000 to $2.5 trillion in 2021. Meanwhile, the merchandise trade deficit as a share of GDP has fluctuated within a range of 3.5 to 6.1 percent of GDP. While certain regions of the country have seen a decline in their traditional manufacturing sectors, a persistent trade deficit is no barrier to expanding manufacturing output in the United States overall.

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Beneath the headline number of the trade deficit lies evidence of America’s continued economic strength and influence in the world, including a projection of soft power in its growing competition with Russia and China. The U.S. trade balance is not a source or symptom of weakness, but a reflection of underlying strengths of America’s still relatively open economic system. A more comprehensive look at America’s commercial accounts with the world shows the economic sophistication of the economy, the importance of the freedom to import, its enduring attraction as a safe and profitable haven for the world’s capital, and the continued dominance of the U.S. dollar—all of which enhance America’s influence in the world.

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Another sign of strength in the U.S. balance of payments is the nation’s openness to imports. The United States is the world’s largest market for the rest of the world’s exports of goods and services. Since the end of World War II, this status has enhanced America’s influence over global trade rules and alliances. Access to globally priced imports also benefits consumers and domestic producers who depend on imports and global supply chains to produce competitively priced products. The economy is stronger and more resilient because of the ability of American companies to source semiconductors and other critical components from a broad range of global suppliers. This is true of the defense sector as well as private industry.

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A more open economy would both stimulate economic performance while strengthening our ties to allies and increasing our influence in the world. This had been a consensus in Washington in the decades after World War II, but it is worth renewing our national commitment as tensions continue to rise with rivals such as China and Russia. A commitment to openness would strengthen channels of influence such as robust U.S. exports and imports, the continued attractiveness of the United States as a home for foreign investment, and the strength and appeal of the U.S. dollar as the world’s most important currency.

Common Errors Committed by “Common Good Capitalists”

(Don Boudreaux)

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Among the most insidiously dangerous notions to worm its way into policy discussions recently is what’s called “common good capitalism.” In my latest AIER column I expose some of the factual errors, as well as errors of economic reasoning, peddled by “common good capitalists.” Two slices:

Among the most frequently encountered assertions of “common good capitalists” is the claim that American workers in recent decades have been, and continue to be, denied their fair share of the fruits of economic growth. Senator [Marco] Rubio insists that American workers are “suffering,” while Oren Cass contends that American workers’ wages are “stagnating.” This suffering and stagnation, in turn, are said — as, for example, in this American Compass study — to result in lower incomes for middle-income households and rising economic inequality.

These and related claims have been repeatedly debunked by serious scholars who, unlike most “common good capitalists,” are deeply knowledgeable about the data and interpret these competently. Consult especially the work of Scott Winship, of Michael Strain, and of Phil Gramm, Robert Ekelund, and John Early. Nearly every assertion that “common good capitalists” make about the alleged desperate and deteriorating economic condition of ordinary Americans is wrong, and often spectacularly so. Far from ordinary Americans being crushed in the last few decades by globalization and the entrepreneurial dynamism that Adam Thierer calls “permissionless innovation,” ordinary Americans’ economic opportunities have expanded and their standard of living has skyrocketed.

Consider, for example, this remarkable fact, amply supported by data, described by Gramm, Ekelund, and Early:

When inflation adjustment accounts more completely for the extraordinary improvements in our well-being from new and improved products, over the last fifty years, all but 6.2 percent of households in 2017 had incomes that would have placed them in the top quintile in 1967.

Or ponder Michael Strain’s summary of his well-documented findings:

A country as large as ours, in which citizens have such varied experiences, makes generalizing difficult. But today’s prevailing narrative is so stark that the task of generalizing becomes much easier. The narrative is wrong. America is upwardly mobile, particularly for those nearer the bottom of the income distribution. Incomes aren’t stagnant. Workers do enjoy the fruits of their labor. The argument that life hasn’t improved for typical households in decades borders on the absurd.

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“Common good capitalists’” carelessness with data is paired with an often comical failure to understand basic economics. One such recurring error is the assertion that US trade deficits represent, or result in, net reductions in demand for American-made outputs. As Oren Cass put it in a 2019 New York Times op-ed, “More trade is good, if that trade is balanced. But huge trade deficits represent supplies [produced by] foreign workers entering the United States market from afar with no commensurate rise in foreign demand for what American workers produce.”

This claim is both factually false and rooted in a mistaken premise.

It’s factually false because most dollars that foreigners do not spend buying American exports nevertheless return to the US; they do so as investments. And this inflow of investment dollars from abroad, no less than an inflow of dollars to buy American exports, fuels “demand for what American workers produce.” It might fuel this demand directly, as when the Dutch company Ikea uses dollars to build a new store in the US. Or it might fuel this demand indirectly, as when non-Americans buy US government bonds, the sales revenues of which are then spent by the US government on military weaponry or on welfare programs that increase their recipients’ spending power. A key reality that Mr. Cass and other “common good capitalists” miss is that foreigners accept dollars in exchange for their exports not because foreigners wish to hoard monochrome portraits of dead American statesmen, but because foreigners wish either to spend or invest those dollars in the US.

The mistaken premise in Mr. Cass’s claim is that Americans would be harmed if, contrary to fact, foreigners literally or figuratively stuffed most or all of their dollars into mattresses. If foreigners were to refuse to spend or invest their dollars in the US, that would be for us Americans, trade-wise, the best of all possible worlds. We Americans would grow even richer at foreigners’ (voluntary) expense.

The cost of printing a $100 bill is 17 cents. Thus, if foreigners hoarded their dollars, for every million dollars worth of goods we import in exchange for hundred-dollar bills, we’d spend a mere $1,700 — netting us Americans a handsome profit of $998,300 on every $1,000,000 of imports purchased. Put differently, the rate of return, in terms of the value of goods and services imported, on trading with foreigners would be 58,724 percent! This rate of return would be even higher if we were to pay with lower-denomination bills (which cost less to produce than do $100 bills), and higher still if we paid with only digital bank-account entries.

How we Americans would be impoverished if foreigners chose to sell to us valuable goods and services in exchange only for fancily inked slips of linen and cotton that we produce at minimal cost is beyond me. Alas, though, foreigners are just like us: they produce and sell in exchange for dollars only because they want to spend or invest those dollars, ultimately in the US. And the spending and investing of dollars by foreigners creates demand for American labor no less than does the spending and investing of dollars by Americans.