A New Era Of Economic Nationalism
(This item originally appeared at Forbes.com on February 13, 2025.) The United States was founded on Free Trade. And, high tariffs. Free Trade applied between the States. The new Federal Government was given specific powers over Interstate Commerce, to prevent the States from erecting tariff barriers against each other. States were not allowed to establish their own tariffs on foreign trade. The Federal Government applied a uniform tariff throughout the United States. It was one of the principal sources of revenue, in the Nineteenth Century. Domestically, the United States had exceptional economic policy. There were hardly any taxes, and the currency was reliably fixed to gold. Trade was Free between States. With what I’ve called “The Magic Formula” (Low Taxes and Stable Money), the US got rich – even with high tariffs with the rest of the world. Immigration was highly restricted during the first half of the Nineteenth Century. No significant immigration took place until a burst of Irish immigrants, fleeing the Irish famine and British oppression, in the 1840s. In 1830, 98% of the US population was native-born. Even until 1890, almost all immigration came from Britain, Ireland, Canada, and Germany (England’s medieval ancestors). The tariffs themselves were extremely problematic, however. They invited extreme overcomplexity, with different tariffs for different goods, and even for different countries, with rates that changed suddenly. Every tariff rate became an object of political contention. High tariffs were an object of chronic disagreement between the North and South, which was only exacerbated when the election of Abraham Lincoln resulted in still-higher tariffs. During the Nineteenth Century, the United States ran a persistent current-account deficit with the rest of the world, which basically reflected the desire of foreigners to invest in the booming United States. This arrangement changed with the introduction of the Income Tax in 1913. Now, there was an alternative
2024 Reading List
For 2024, my book count dropped again, to rather low levels. This is also because the books are big: Thucydides, and especially Gibbon, are long, slow reads. In regular book format, Gibbon chapters 1-40 would probably be about 1300 pages. (I am reading the Great Books of the Western World edition, which is so tightly printed that there are actually two columns per page.) Gibbon is great fun, and certainly worthwhile. You have to read it quite slowly to follow the narrative, and catch the significance. I would sometimes read aloud, by myself. Build Your Own College series For 2025, I plan to continue with Durant’s Story of Civilization (#4, The Age of Faith); read the political works of Plato, Aristotle and Cicero; and continue with the Harvard Classics of Fiction, where the next step is Hugo’s Notre Dame de Paris. I think I will take a little break from Gibbon, but will follow up later with his tale of the fate of the Byzantine Empire. This doesn’t seem like too much of an agenda — only one big book, not three as in 2024 — but I think it will still be enough to exclude a list of more contemporary works that I would like to read, or other works of economics, which were light this year. Not everyone needs to undertake this kind of intensive “liberal arts” education. I think the effort to spread this kind of education to the masses, after 1950, was mostly a failure. It is an exclusive club, and you should already know if you are in it, because you want to be in it. But, we should have a few people who are educated to this degree. In the past, it was maybe 5% of the male population. Before 1940, most Americans ended
Gold Is Still Your Only Monetary Alternative
(This item originally appeared at Forbes.com on January 25, 2025.) Today, we are seeing a lot of the institutions and bad ideas of the Post World War II Consensus breaking down and collapsing. Among these is the rather stupid notion that economies should be managed by some combination of currency and interest rate manipulation, and “fiscal stimulus” spending that amounts to utter waste, for the simple reason that it has no justification except as “stimulus.” These are the conclusions of “Keynesianism,” which has been taught in all universities since the 1940s. Note how this is completely opposed to what I’ve called the Magic Formula: Low Taxes, and Stable Money. This is the Formula that enabled the United States to become the wealthiest country in the world, and the same Formula that enabled Japan or China to achieve similar results more recently. If the US sadly deviates from this Formula today, nevertheless taxes are Lower, and the currency is more Stable, in the US than in most any other developed country today. We see that it takes more and more dollars to buy an ounce of gold; and also, more and more euros or yen. This is probably a reflection of a declining value of the dollar, euro and yen themselves, rather than any change in gold. The average price of a hamburger in New York City, in 1950, was $0.10. Today, it is a lot more than that — and still rising, at a rate that is quite unpleasant to anyone who gets hungry in Manhattan. Is there some shortage of hamburgers? Or maybe too many people have a job? (Economists keep telling us that the solution to “inflation” is more unemployment.) No, the reason that hamburgers cost a lot more now is because the dollar lost value during that
Economic Nationalism: The Capital-Labor Ratio: Foreign Trade
I think it is worthwhile to think about the Capital-Labor Ratio in terms of Foreign Trade. Previously, we took some time to think about the effects of Immigration on the Capital-Labor Ratio. January 12, 2024: Economic Nationalism: The Capital-Labor Ratio Basically, immigration means More Labor, which tends to depress the Capital-Labor Ratio, to the detriment of most people in society. Capital loves it, of course. Basically, you get the guy in the upper left corner, “Toryism,” accompanied by a vague sense of “unjust exploitation of the worker.” This tends to produce the response in the upper right, Socialism. Oscillating between these poles will destroy your society. Usually, it is hard to find this “unjust exploitation of the worker.” Wages are low, but that’s because business is marginal. Low-wage/labor-intensive businesses, in the US or around the world, the “sweatshop,” are not known for their high profit margins. Basically, it is a Bad Business Environment for both Labor and Capital. Successful, growing businesses with high profit margins (Nvidia today; Ford Motors in the past) usually offer pretty good wages. “Unjust exploitation of the worker” today mostly takes the form of cartelist behavior, for example in healthcare or education, the financial system (“usury”), or the artificial housing shortage we have today. Nevertheless, there is a persistent sense that people work all day, under difficult conditions, and are not properly compensated. Now let’s forget about immigration, and just look at trade. Trade can be seen as a kind of indirect supply of labor. When you buy cheaply produced goods from China or Vietnam, you are, in effect, importing cheap labor. That cheap Chinese or Vietnamese labor is basically competing with your local higher-cost labor. The result of this is a factory is opened in China; and closed in the US. China has more capital,
Economic Nationalism: The Capital-Labor Ratio
Until now, I’ve mostly dealt with important but, in my view, secondary aspects of the topic of Economic Nationalism. Having now addressed that, we can turn to what I consider the core of the matter, without (I imagine) being distracted by secondary concerns. Economic Nationalism series These basically fall into two categories — the Capital-Labor Ratio, and issues of Nationality that are not economic. In the 19th century, Ireland was very poor, and many Irish people immigrated to the United States. This Irish immigration, beginning in response to the Irish Famine of the 1840s, was the first major wave of immigration since the founding of the United States. Before then, for about fifty years, there was almost no immigration, which tells you that the United States was never supposed to be a “melting pot.” All of this “give me your tired, your poor, your huddled masses” stuff was pro-immigration propaganda written by a Jewish Zionist immigrant from Russia, who wanted the doors to remain open to Jewish Zionist immigrants from Russia, and which was unrelated to the making of the Statue of Liberty itself, which of course took place in France. Immigration from Russia at the time (the 1890s) was rather controversial. Along with new immigration from Italy and elsewhere, it was the first time in US history that there was significant immigration from outside Great Britain, Canada and Germany. Ireland was, in the 1840s, part of Great Britain (Ireland became independent in 1921), so basically Irish immigration was British immigration, and the Americans were British, in fact British colonists only a few decades earlier. Why did these Irish come to the United States? Basically, it was the Capital-Labor ratio. There were too many people in Ireland compared to the Industrial Capital (jobs), or the basic natural capital of arable
Specialization and Trade: A Re-Introduction to Economics (2016), by Arnold Kling
I really enjoyed Specialization and Trade: A Re-Introduction to Economics (2016), by Arnold Kling, and published by the Cato Institute. A long time ago, I decided, or you could say discovered, that most establishment, academic economics was bunk; or at least, not very useful, and plain wrong on a number of important points. Thus I began studying these topics on my own, and soon discovered that there were other, similar people, especially the Supply-Side group which I consider myself a part of. This has been quite productive, but the consequence has been that I am not really that familiar with conventional academic economic dogma, as would be a person who has gone through that whole process, perhaps getting a PhD from a major institution. The problem of such people is that they are almost never capable of overcoming their mediocre and erroneous training, and thus never amount to much. The most capable tend to want to become High Priests of their hermetic religion of error and mediocrity, and spend their days stamping out heretics to their received dogma — in other words, younger economists asking hard questions. But, there are a few exceptions. We looked at one such exceptional economist last year, Stephen Kates, and his book Classical Economic Theory and the Modern Economy (2020). July 9, 2023: Classical Economic Theory and the Modern Economy (2020), by Steven KatesSeptember 3, 2023: Classical Economic Theory and the Modern Economy (2020) #2: Mostly Right As Kates put it: Writing this book was an odd experience, since the premise of everything found within the rest of this book is that just about the whole of modern economic theory is perniciously wrong, that other than here and there, such as in its opposition to rent controls, there is virtually nothing useful one can learn
Economic Nationalism: Savings and Investment
Today, we will look at Savings and Investment in the United States, which is directly reflected in the Balance of Payments. Economic Nationalism series You can think of the Balance of Payments as the difference of Exports of Goods and Services, and Imports of Goods and Services, with the difference balanced (trade is always balanced) by the financial account. Or, you can think of the Balance of Payments as the difference of Acquisition of Foreign Assets by US entities, and the Acquisition of US Assets, by foreign entities. (A loan here is the “acquisition” of a debt asset.) The balance is made up by Goods and Services account, or Current Account (which also includes overseas income). Both of these views are fundamentally correct. When you decide to buy something, you also decide not to save the money you are spending; and when you decide to save and invest, you are also deciding not to spend the money on consumption. At the aggregate level, a combination of billions of such decisions among millions of individual entities, you have the aggregate Balance of Payments. When you think of it this way, it is easy to see that, if the US savings rate was high, then there would be a tendency to purchase overseas assets (because you have to acquire something, that is the definition of financial savings), and also, a tendency to purchase domestic assets, which means less of them would be purchased by foreigners. The result is a Current Account Surplus. When looking at domestic Savings, there are some big factors that we should consider. The basic idea of Savings, especially financial savings, from an economic perspective is that it is the flip side of investment, which means the creation of some new productive capacity. If we do not spend this
Economic Nationalism: The Balance of Payments: The Rest of the World
We’ve been talking about elements of Economic Nationalism. Economic Nationalism series The basic character of the debates about Economic Nationalism, over the decades, has been pretty bad reasoning by the Economic Nationalists, who are nevertheless responding to real and important issues; and a tendency to recite “general economic principles” among the non-Nationalists, mostly in calculated ignorance of real-world situations. Foreign trade is always a big component of these debates, so we have been addressing various issues related to foreign trade; not only in goods and services, but also, on the other side of the Balance of Payments, which must always balance (trade is always balanced), finance and investment. For the sake of argument and convenience, economists typically talk about the “Rest of the World.” But, we do not actually interact with this “Rest of the World.” We only interact with individual entities. We must remind ourselves again that also we do not interact with “China” or “Mexico.” We only interact with individual entities characterized as “Chinese” or “Mexican,” which may include a subsidiary of Ford in Mexico, or Alibaba. Of course this “we” itself is not the “United States,” or “Americans,” but literally you or me, or some other entity like a corporation. The “United States” does not trade with “China,” but I might buy something on AliExpress this afternoon. This interaction of individual entities is the reality of trade. Everything else is abstraction and aggregates. To understand trade, we must thus begin with understanding the trade we are familiar with between individuals, or individual entities like a corporation or government entity. We say that we “trade” our labor Monday through Friday at a job for some money; and then we “trade” this money for things we buy from the “Rest of the World,” such as WalMart. We might spend
How To End The Fed
(This item originally appeared at Forbes.com on November 15, 2024.) President Wilson enacted the Federal Reserve Act in 1913. This allowed a consortium of private bankers to establish what amounted to a central bank monopoly currency issuer in the United States — although they took great pains to deny that was the goal. The Federal Reserve was never part of the government. It was the fourth attempt by private bankers to establish a monopoly currency issuer in the United States. The third attempt was the Second Bank of the United States. It began in 1819 and became the dominant currency issuer in the US. In 1841, president Andrew Jackson led the effort to decharter the Second Bank. The incipient central bank was shut down, and the United States returned to its previous monetary arrangement, of hundreds of small currency issuers whose banknotes were redeemable in gold coin. This worked well enough; and in the years between 1841 and 1913, even despite a terrible Civil War, the United States became the wealthiest country in the world, with one of the world’s most reliable currencies. President-Elect Donald Trump recently floated the idea of eliminating the Income Tax, perhaps in favor of a better alternative like a Value Added Tax. Before the Sixteenth Amendment was passed (by Wilson) in 1913, the United States had no income tax. It was actually banned by the Constitution. In 1895, the Supreme Court struck down the US’s first peacetime income tax, passed in 1894. Recently, Trump also floated the idea of ending the Federal Reserve, even asking Mr. End The Fed himself, retired Congressman Ron Paul, to help advise on the issue. After more than a century of experience, can we now say that the “progressive” changes of the Wilson era were a mistake? I think we
Economic Nationalism: The Current Account Deficit #3: Complete Nonsense
Now I think we have a pretty good mental picture of what the “Balance of Payments” really is; and its components the Current Account, Capital Account and Financial Account. Economic Nationalism series Today we will contrast with what you often hear from other economists. It is complete gobbledygook. Here’s Wikipedia, always a good summary of conventional wisdom: Wikipedia on the Balance of Payments What is this? It is nonsense. You should be able to see that clearly now. When I see this nonsense, I think that it must arise from two sources: Error and Stupidity. Most economists, I have decided, are not very smart. They are smart enough to be taught something like you read above — in fact quite abstract — and recite it on demand at appropriate times. They are smarter than the population average. But, they are not smart enough to see that it is nonsense. The smart people went into engineering and computer science, or private equity. For one thing, the tendency of universities toward internal dogma naturally ejects the kind of smart young person who can see that this is nonsense. Such a smart young person becomes an immediate threat to the older professors who have based their careers on the propagation of dogmatic error. The fact of the matter is, the older professors can’t even understand the smart young person’s correct observations. Pretty soon this smart young person, becoming aware that the economics department is in fact composed of people less smart than they are, and that their natural mental superiority is an organizational liability, gets a job at Bain Capital. The Structure of Scientific Revolutions, by Thomas Kuhn The Curse of the High IQ, by Aaron Clarey Intentional Obfuscation. I think that a number of these issues have been intentionally obfuscated, to put
