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… is this comment, on Facebook, by Richard Fulmer:

The software that Gates produces and sells allows people to achieve their goals. His charities pay them to achieve his.

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I’m proud to have paired up with the Cato Institute’s Marian Tupy to pen this new piece at National Review on so-called ‘predatory pricing.’ A slice:

Competition drives innovation, improves quality, and most importantly, lowers prices for consumers. Yet when foreign companies — particularly Chinese firms — successfully compete on price, accusations of “predatory pricing” or “dumping” often follow. These charges deserve scrutiny through a lens of economic rationality, rather than through the fog of hazy protectionist thinking.

Predatory pricing occurs when a firm deliberately sets prices below production costs with the intent to drive competitors out of business. Once this goal has been achieved, the predator can theoretically raise prices to monopolistic levels and recoup earlier losses. The strategy sounds plausible in theory, but it is much harder to pull off in practice.

Such concerns aren’t new. For decades, American industries have pointed to low-priced foreign goods as evidence of unfair trade practices. In the 1980s, Japanese manufacturers of electronics and automobiles faced similar accusations.

Yet for all the alarm about predatory pricing, examples of its success remain surprisingly scarce. The most cited case — the Standard Oil Company during the early 20th century — has long been known by economists to be false. The truth is that Standard Oils’s low prices reflected its low costs.

Why does predatory pricing so rarely succeed? Basic economic principles provide several explanations.

First, predatory pricing imposes significant costs on the predator itself. Selling below cost generates immediate losses that can quickly accumulate to unsustainable levels, especially in capital-intensive industries. These losses are certain and immediate, while any potential monopoly profits are speculative and distant.

Second, competitors can often weather temporary price wars by accessing capital markets. If investors recognize that a company is competing against a predatory pricer, rather than suffering from fundamental business flaws, they have incentives to provide financing to enable survival through the predatory period — especially because the firm that loses most during the predatory period is the predator.

Third, even if a predator succeeds in driving competitors out of the market, the resulting monopoly position proves difficult to maintain. Once prices rise to profitable levels, new entrants are attracted into the market — entrants that oblige the predator to lower its prices.

Fourth, global competition makes market dominance increasingly difficult to achieve. If Chinese manufacturers drive American companies out of business, then European, Korean, and Indian competitors remain. True monopolization today would require successful predation against all global competitors simultaneously — an economically ruinous proposition.

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David Henderson explains that housing restrictions in the United States are even more economically harmful than are international-trade restrictions. Two slices:

If the free market had been invented rather than simply coming about, the inventor would have deserved every Nobel Prize in economics and every Nobel Peace Prize. The free market has made well over one quarter of the world’s population fabulously wealthy and elements of the free market have reduced the number of people in extreme poverty to a record low.

Relatively free trade is one of the factors in this growth of wealth. It has led to an increasingly extensive international division of labor that causes people in each country to produce goods and services for which they have a cost advantage and buy goods and services for which they have a cost disadvantage. But, especially for large, highly populated countries like the United States, free trade is not as important as other components of economic freedom such as protection of property rights, absence of price controls, relatively free labor markets, restraints on government spending, and relatively low marginal tax rates.

I have been gratified by the large number of economists across the political spectrum who have come out strongly against higher US tariffs. But it’s disappointing that too few have been as forthright on other components of economic freedom that, as a whole, are more important for US growth than free trade. One US restriction that’s particularly destructive is on housing construction.

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Tariffs are destructive, and it’s great that economists have been so outspoken in their opposition to high tariffs. Restrictions on housing do much greater damage. They are pricing a large swath of millennials out of the housing market. Economists know why. Those economists who oppose tariffs, which is almost all of them, should be even more vociferous in their opposition to restrictions on housing.

Speaking of harmful housing policies, Chris Edwards has more.

Eswar Prasad is correct: “Whatever their ostensible objectives, the Trump tariffs will make the world a poorer and more perilous place.” Two slices:

But now trade itself has come to be seen as a zero-sum game, in which one country gains only at the expense of another. That is harmful to resolving differences. If U.S.-China tensions in the South China Sea or over Taiwan were to escalate, for example, a give-and-take on trade matters would no longer be an element of negotiations.

Middle-power countries such as India now recognize that even U.S. friendship may not protect them from tariffs, making them less willing to ally themselves fully with the United States. Even longstanding U.S. allies such as Britain and the European Union were not spared from tariffs.

Governments make policy choices. But it is commercial interests that drive the realities on the ground. Falling trade barriers and other factors such as declining transportation costs had led corporations to build lean supply chains threaded through multiple countries. This approach, which emphasized efficiency and lower costs, drove down prices for consumers, increased product choices, helped spread new technologies and promoted innovation.

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A world with less trade and more uncertainty will be a less prosperous one. That, at least, is one aspect in which Mr. Trump’s tariffs are fair: All countries, including the United States, will feel the pain.

The Wall Street Journal‘s Matthew Hennessey decries “the age of excusability.” Two slices:

The disposition to make excuses has opened the GOP to charges of hypocrisy, which are deserved. Once known for sobriety and propriety, Republicans kept up appearances even as the culture fell to pieces around them. I’m not suggesting they didn’t play hardball, merely that they maintained their dignity while doing so. Now they don’t mind appearing base and servile if it keeps Mr. Trump happy. And it obviously does.

The excusability crisis is bipartisan. Cool administrative competence was the selling point of Barack Obama’s political career. Hillary Clinton ran on that line too. But in 2024 Democrats were happy to excuse Joe Biden’s clear mental frailty and Kamala Harris’s obvious lack of competence if it meant stopping Mr. Trump from returning to the White House. Nothing mattered more. It all had to be excused.

The score isn’t completely even. When it comes to handing out passes to political allies, progressives are worse than conservatives by a long shot. The American left is committed to an ideology that excuses crime as a legitimate response to poverty. Progressives claim to abhor violence but cheer it when it’s directed against their political enemies—the police, Tesla dealerships, healthcare CEOs, supporters of Israel. It helps if the perpetrators of that violence are good-looking. In 2020, as several American cities burned, progressives excused riots as “the language of the unheard.”

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The disease of excusability is a drag. When you hear someone you otherwise respect defend the indefensible, it can be hard to process. Despair is the natural response, but that leads nowhere. Better to take a deep and honest personal accounting. All of us have, at some point or another, looked at the disastrous state of American politics and said: Yeah, it’s bad, it’s ugly, but I guess I can live with it. The other guys are worse.

Jack Nicastro reports on a rent-seeking AI CEO.

GMU Econ alum Nikolai Wenzel ponders discrepancies in drug prices. A slice:

On May 12, President Trump signed an  Executive Order aimed at lowering US prescription drug prices. In keeping with his tariff policy, the president was motivated by the price differences — often vast — between identical prescription drugs sold in the US and in the rest of the world. The EO ordered the US Trade Representative and the Secretary of Commerce to take action against countries that were “free-riding on American pharmaceutical innovation.” It further directed the Secretary of Health and Human Services to establish a mechanism for American consumers to bypass middlemen and purchase prescription drugs directly from manufacturers at favored prices for Americans.

Simple fallacies and misunderstandings of economic reasoning underlie the EO. Fundamentally, it claims a perceived problem will be solved through central planning — alas, President Trump is continuing the bipartisan conceit of presidents, from FDR to Nixon, and more recently Bidenomics, that the executive pen will allocate scarce resources more efficiently than the free market. More generally, the EO displays a fundamental misunderstanding of the factors determining prescription drug prices.

The American healthcare system is broken — not because of market failures, but because of government involvement, direct and indirect. Yet another layer of command-and-control price-fixing won’t solve that.

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… is from page 186 of Art Carden’s and GMU Econ alum Caleb Fuller’s excellent new book, Mere Economics:

Economics shows how social benefits are largely unintended consequences of people pursuing their interests. Bill Gates’s money is his to do with as he pleases, but has likely done far more to help the world’s poor by founding and running Microsoft – which still produces most of the world’s productivity software – than he has done through the Gates Foundation. When considering any charitable undertaking, we should ask, How is this better than doing nothing? Merely describing results we might hope for is poor substitute for understanding likely consequences – and we should entertain the possibility that we do more for people by leaving our money in the bank or expanding our enterprise.

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This letter written by Phil Gramm and me will appear in the print edition of tomorrow’s (Tuesday’s) Wall Street Journal:

In his op-ed “Where the Trade Court’s Tariff Decision Went Wrong” (June 2), George E. Bodgen uses the technique of misrepresenting the words of respected historical figures to support his protectionist views. It’s true, for instance, that Cordell Hull advocated reciprocal trade agreements as a means of reducing tariffs. But when he praised reciprocity for reducing “excessive economic barriers to trade,” he didn’t, contrary to Mr. Bogden’s claim, refer to “unfair trade practices targeting the U.S.” An internationalist, Hull hoped that U.S.-led efforts to reduce tariffs worldwide would promote peace. He understood that, for political reasons, governments will cut tariffs only in exchange for cuts by other governments.

Moreover, the trade negotiations that Hull envisioned were from existing tariff rates. He would have been appalled by the U.S. suddenly jacking up rates and then bullying other countries into negotiating them back down.

As for the claim that U.S. trade deficits are an emergency, there is no evidence that trade deficits have ever dampened economic growth in the U.S. Over the 29 years from demobilization (1947) through the year when America last ran an annual trade surplus (1975), real per-capita gross domestic product grew at an average annual rate of 2.1%. Over the next 29 years, as the U.S. ran trade deficits, 1976-2004, that rate was 2.2%. Today, in the 50th consecutive year of trade deficits, by every economic measure America’s economy is stronger and healthier than ever. A half-century of global capital infusions and economic growth is hardly a problem warranting “emergency” intervention.

Phil Gramm and Donald Boudreaux
AEI and George Mason University
Helotes, Texas, and Fairfax, Va.
Mr. Gramm was chairman of the Senate Banking Committee.

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Wall Street Journal columnist Mary Anastasia O’Grady reports on the damage America’s economy is suffering because of Trump’s tariffs punitive taxes on Americans’ purchases of import and import-competing products. A slice:

If Mr. Trump is looking for a tariff off-ramp for North America, it isn’t out of magnanimity or respect for the USMCA, which he negotiated and signed. His tariffs are tax increases that firms or consumers have to eat in what until now has been a highly integrated continental economy. Narrowing profit margins, reduced competitiveness, higher household bills and fewer job openings aren’t good for his constituents.

Canadian retaliation has already cost U.S. exporters. U.S. exports to Canada subject to auto retaliation declined by 53% year over year in April, and U.S. exports subject to IEEPA retaliation declined by 13%, according to Dan Anthony at the Trade Partnership Worldwide in Washington. But retaliation is far from the biggest problem.

The Commerce Department says Canada sold $7.8 billion in steel to the U.S. in 2024, making it the largest single steel supplier to the U.S. That same year, the International Trade Commission says, Canada imported $5.36 billion in steel from the U.S. Like all trade, these were voluntary exchanges in the interest of wealth creation. According to international-trade lawyer Lewis Leibowitz in Washington, Canada specializes in flat-rolled steel products used by U.S. manufacturers in things like autos, trucks, containers, construction and capital machinery. In particular, U.S. customers demand Canadian thin-gauge steel sheet for such applications as carports and garage doors. This thin-gauge material doesn’t offer the same profit margins as heavier-gauge steel, so the U.S. hasn’t been interested in producing it.

Scott Lincicome warns that “if courts strike down his Liberation Day tariffs, he has other options to implement import taxes.” Two slices:

Of course, scholars like the Cato Institute’s Ilya Somin—one of the lawyers/heroes in the CIT case—had good legal arguments against these tariffs, particularly the administration’s contradictory claims that IEEPA gives the president effectively unlimited tariff powers yet remains a proper delegation of those same powers, which the Constitution expressly gives to Congress. (Indeed, prominent constitutional scholars on the right and left intervened in the case to challenge this very thing.) Nevertheless, not everyone agrees with Somin, and it was simply remarkable that two different U.S. courts—and four different judges with widely varying backgrounds (including one Trump appointee)—would quickly and unanimously rule in plaintiffs’ favor on basically all  he above questions, on all IEEPA tariffs, and—in the CIT case—for all U.S. importers. It’s even more remarkable given that the Trump administration worked hard to move all litigation to the CIT, which was considered more deferential to presidential trade powers than other venues. And those judges—again, unanimously—even questioned the president’s determination that fentanyl trafficking constituted an “unusual and extraordinary threat” that can be dealt with by IEEPA.

The rulings’ potential economic effects are also substantial because the IEEPA tariffs were by far the biggest and broadest of Trump’s new import taxes. According to the Yale Budget Lab, in fact, invalidating all the IEEPA tariffs would cause the average effective U.S. tariff rate to drop approximately 10 percentage points from around 17 percent to 7 percent, thus nixing about $2 trillion in future revenue over the standard 10-year budget window while also significantly dampening the tariffs’ price increases and GDP reductions. The static reduction in U.S. tariffs (meaning no shifting of trade flows) would be even more dramatic.

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In short, given the president’s TACO-bruised ego and proclivity for tariffs, we should expect more of them in the months ahead—and more costs and uncertainty along the way—regardless of what the courts do later this year on IEEPA. And, as the Financial Times’ Alan Beattie reminds us, we should expect other, non-tariff restrictions on trade and investment, too.

Michael Bordo and Mickey Levy warn against disregarding history’s lessons on protectionism. (HT Scott Lincicome)

Insight from Alex Tabarrok:

I understand being concerned about illegal immigration. I definitely understand being concerned about murder, rape, and robbery. What I don’t understand is being more concerned about the former than the latter.

Yet that’s exactly how the federal government allocates resources. The federal government spends far more on immigration enforcement than on preventing violent crime, terrorism, tax fraud or indeed all of these combined.

Mark Jamison decries the Biden-Trump growth-suffocating and economically illiterate antitrust attacks on prominent tech companies. A slice:

Here’s the problem: these firms didn’t become dominant by suppressing competition. They became leaders by out-innovating everyone else.

Take Google’s search engine. The court concluded that Google’s leadership came from constantly innovating to build a superior product—one that almost all consumers and business partners freely chose over alternatives. In other words, the company earned its lead in the never-ending innovation race. Yet the DOJ now claims that this very success threatens future innovation, and that Google must be punished and be forced to shackle its AI and hand over its resources to rivals.

That’s like forcing a marathon winner to share his or her time with the competition so that everyone is a winner. No one wins here.

Peter Suderman is correct: “The libertarians aren’t in charge. But the lesson of the last decade of politics is that they should be.” A slice:

The charge [that libertarians have been running things] has always carried a whiff of desperation, given how little power actual self-identified libertarians have in the corridors of government. But after four years of Joe Biden running a White House that was a hotbed of Warrenite progressivism, and the early months of Donald Trump’s presidency marked by all manner of New Right paranoia and kookiness, maybe it’s time to revise the complaint: Libertarians don’t have enough power.

Scott Sumner wisely urges college students to challenge their professors more often.

Russ Roberts’s conversation with Patrick McKenzie about consumer credit is fascinating.

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… is from page 222 of Johan Norberg’s superb 2023 book, The Capitalist Manifesto:

One-man rule limits the amount of knowledge that reaches the top, and leads to yes-men, paranoia and purges. Major mistakes can be made when witless loyalty is rewarded.

DBx: Indeed.

Norberg here is writing about one-man rule in today’s China. But the logic applies generally, including to the United States. Although we in the U.S. are still far from the authoritarianism and dysfunction of China’s political system, we have moved in that direction for quite some time – a movement that has accelerated following the subprime crisis and, again, under Trump 2.0.

With his flood of executive orders, Trump reigns very much like a dictator surrounded, as all dictators are, by yes-men and yes-women. Trump’s rule ignores and overrides the vast amount of knowledge that must be accessed and used if the economy is to continue to grow – and the society to continue to be free.

I fear that the courts will, in the end, do almost nothing to rein in this unconstitutional abuse of executive authority. Too many jurists on the right are under the delusion that the Constitution requires almost complete deference of the courts to legislative and executive action. Too many jurists on the left are under the ‘progressive’ delusion that effective governance in the modern world is impossible when constrained by those old and out-of-date 18th-century notions of checks-and-balances and separation-of-powers.

Congress is and will remain largely supine. And the courts will stand by and – although occasionally reminding Congress of its Constitutional duty – decline to do their Constitutional duty.

We Americans now seem destined to have an elected monarchy.

But, hey, it’s an elected monarchy – democracy in action, so nothing whatsoever to worry about! Right? Right?? Through the coming succession of elected monarchs who will reside in the palace at 1600 Pennsylvania Ave., NW, it will – we are assured – be the will of The People that reigns in the person of the current king or queen. What could possibly go wrong?

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Question for fans of tariffs and of Tariff Man: If it’s ethical and economically wise to impose tariffs on foreign cars in order to artificially increase the demand for American-made new cars, is it also ethical and economically wise to impose punitive taxes on Americans’ purchases of used cars? This latter tax has exactly the same effect on the market for new American-made cars as does the former tax. If you favor tariffs on imported new cars but oppose punitive taxes on purchases of used cars, please identify the difference you see that distinguishes one of these taxes from the other.

(This question was prompted by the piece, linked here, that was brought to my attention by Scott Lincicome.)

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Eric Boehm explains “how tariffs are breaking the manufacturing industries Trump says he wants to protect.” Two slices:

Most imports to the U.S. are raw materials, intermediate parts, or equipment—the stuff that manufacturing firms need to make things.

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The people who run successful businesses understand something that Trump does not: Voluntary trade is a mutually beneficial arrangement. That’s true regardless of whether the deal is between a store and its customers or a factory and its suppliers. It’s also true even if one of the traders is located abroad.

Trump will fail as the country’s department store manager in chief for the same reasons that central planners always fail. It’s simply impossible for the White House to understand and manage trillions of dollars in cross-border trade more efficiently than individuals and businesses do. Trump certainly has no clue what equipment the Plattco Corporation needs to build its annual supply of valves, to say nothing of the millions of other transactions that are essential to building cars, appliances, and other gadgets at factories all over America.

In many cases, those transactions involve items that can’t be sourced domestically. “Whether it is coffee, bananas, cocoa, minerals or numerous other products, the reality is certain things just can’t be produced in the United States,” Suzanne P. Clark, president and CEO of the U.S. Chamber of Commerce, explained in a statement released in late April, as the organization was urging the White House to grant tariff exemptions for small businesses. “Raising prices on those products will only hurt families struggling to pay their bills.”

Trump may fail for new reasons too. The White House has spent weeks pivoting between the claim that tariffs will allow the federal government to collect trillions of dollars in new revenue and the claim they are a negotiating tool to be removed once the other countries have knuckled under. Both cannot be true at once.

Perhaps Trump – to better ensure what he falsely imagines will be the success of his tariffs – should now consider imposing punitive taxes on Americans’ purchases of used cars. After all, used cars are every bit as much a substitute for new American-assembled cars as are new foreign-assembled cars. (HT Scott Lincicome)

Nick Timiraos reports that “the U.S. economy is headed toward an uncomfortable summer.” A slice:

The U.S. economy, which weathered false recession alarms in 2023 and 2024, is entering another uncomfortable summer

Job growth held steady in May, with the economy adding 139,000 jobs. The unemployment rate has stayed in a tight range, between 4% and 4.2%, over the past year.

But there are cracks beneath the surface. Businesses are warning that constantly shifting trade policies are interfering with their ability to plan for the future, leading to hiring and investment freezes.

Policy uncertainty has unfolded against the backdrop of an economy with slower job growth and a cooling housing market. Compared with last year, the Federal Reserve is more reluctant to cut interest rates because officials are worried about new inflation risks.

John Starr, the owner of UltraSource, an importer and manufacturer of meat-processing technology in Kansas City, Mo., said he is hunkering down—no hiring, no more capital spending—until he has clarity on tariffs.

Speaking of the U.S. labor market, the Wall Street Journal‘s Editorial Board sees signs in the latest jobs report that “Trump’s immigration crackdown may be shrinking the workforce.” A slice:

The weaker news is that the jobless rate stayed the same because some 625,000 people left the job market. As a result, the labor participation rate fell 0.2% in the month, and the employment-population ratio by a highly unusual 0.3%. Some 71,000 more people were jobless in May, and Labor Department revisions showed 95,000 fewer new jobs in March and April than previously reported.

David Rose wisely turns to Milton Friedman for an idea on how to improve Medicaid. A slice:

Medicaid is an outstanding example of how not to structure a government program. Its daunting complexity results in people frequently migrating into and out of the program (this is especially problematic for programs that provide some kind of insurance because of adverse selection problems). Because it is fundamentally a government bureaucracy, problem-solving is mostly through top-down edicts or acts of Congress. In contrast, in many parts of American society entrepreneurs continuously adapt, adjust, and innovate to deal with new problems and to take advantage of new opportunities to improve service, reduce costs, or both.

My GMU Econ and Mercatus Center colleague Peter Boettke reflects on the impressive legacy of his teacher – and his and my late Nobel-laureate colleague – James Buchanan. Two slices:

In James M. Buchanan and Liberal Political Economy, Richard Wagner argues that the scholarship of James Buchanan was an effort to update the classical political economy of Adam Smith and John Stuart Mill with the tools of modern neoclassical economics. “Normatively,” Wagner (2017, 58) writes, “Buchanan was a democrat who embraced the democratic ideology of self-governance.” He recognized “democracy as simultaneously desirable and subject to a degradation that required conscious effort to resist.”

This constitutional project required both efforts to unearth the governing dynamics of alternative institutional arrangements and the educational effort to prepare future scholars with the necessary intellectual background to engage in the ongoing conversation. Buchanan was identifying the misdirection that public economics and public finance were going in the post-World War II reconstruction of the discipline. Economics had adopted a utilitarian and elitist presumption which was comfortable with the notion of governing elites acting for the good of society. Government was seen as a corrective, policy was a tool to achieve ideal outcomes, and economics was the science of administration that would aid in that task. Buchanan was uncomfortable with that set of presumptions from the start. Instead, he saw the need for the examination of the institutional infrastructure within which policy decisions were to be conceived and implemented.

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In the October 15, 1958 edition of The University of Virginia Newsletter announcing the founding of the Thomas Jefferson Center, Buchanan stated plainly that the center “strives to carry on the honorable tradition of ‘political economy’—the study of what makes for a ‘good society.’” He also elaborated further what the task of the political economist must be. They must first use the technical tools of economic reasoning to understand and assess how alternative institutional arrangements either hinder or promote productive specialization and peaceful social cooperation. But the political economist cannot be content stopping with that vital exercise. They must “try to bring out into the open the philosophical issues that necessarily underlie all discussions of the appropriate functions of government and all proposed policy measures.”

Joining Buchanan in this research and educational mission were not only Warren Nutter, but also Ronald Coase, Gordon Tullock, and Leland Yeager. These individuals and their graduate students initiated a paradigm shift in economics, law, and political science over the next decades, and in so doing, reinvigorated the discourse in political economy and social philosophy.