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Pierre Lemieux

Articles by Pierre Lemieux

Imports as a “Drag on the Economy”

4 days ago

A Wall Street Journal story of last week, “The Verdict on Trump’s Economic Stewardship, Before Covid and After,” makes many good points. It also falls into some popular economic errors. Here is an obvious one:
Trade itself turned out to be a drag on the economy. U.S. export growth slowed starting in 2018 as Mr. Trump’s tariff battles ramped up. The U.S. trade deficit, reflecting an excess of imports over exports, grew to $577 billion in 2019 from $481 billion in 2016.
We are told that imports or a trade deficit necessarily constitute “a drag on the economy.” This elementary error stems from the misunderstanding of a national-accounting identity: GDP = C + I + G + X – M. This identity is often misunderstood as meaning that M (imports) constitutes a “drag” on GDP

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Facebook’s Decision about the Holocaust

11 days ago

The vast majority of people, including your humble blogger, have never done any serious research on the Holocaust. In this case, our main reason to believe it happened is that, in most relatively-free countries, anybody who had the opposite opinion has been free to defend it and that, obviously, it did not survive the shock of free debates. For the same reason, most of us non-physicists believe in quantum entanglement.
What will be the consequence of the legal bans on Holocaust denialism (often through so-called “hate laws”) that have spread in so-called free countries (but not in America)? And what will be the results of Facebook’s decision not to allow the discussion of this topic (“Facebook Bans Content Denying the Holocaust on Its Platforms,” Wall Street

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Zico and Ammo under Price Controls

16 days ago

In the current shortage economy, why are some goods are in shortage (in the economic sense: none available at the on-going price), others are simply not produced (intensifying the shortage), and some others (I’ll consider the case of ammunition) are produced as needed and sold at higher prices in violation of the states’ “price gouging” laws or the federal Defense Production Act?
To answer this question, it is necessary to understand the economic concept of shortage, as opposed to a blob intuition (I call it “smurfage”) encompassing all situations where somebody does not have something that he would like to have, but not necessarily more than something else.
In another post, I mentioned many ways in which producers—incentivized by consumers who bid up prices

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Zico and Ammo under Price Controls

16 days ago

In the current shortage economy, why are some goods are in shortage (in the economic sense: none available at the on-going price), others are simply not produced (intensifying the shortage), and some others (I’ll consider the case of ammunition) are produced as needed and sold at higher prices in violation of the states’ “price gouging” laws or the federal Defense Production Act?
To answer this question, it is necessary to understand the economic concept of shortage, as opposed to a blob intuition (I call it “smurfage”) encompassing all situations where somebody does not have something that he would like to have, but not necessarily more than something else.
In another post, I mentioned many ways in which producers—incentivized by consumers who bid up prices

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A Story of Love and Hate

21 days ago

One of my book reviews in the Fall issue of Regulation is about Philip Coggan’s More (The Economist, 2020) and has the same title as this post. In the article, I explain what my love and hate story is about:
I am certainly not the only one to have a love–hate relationship with The Economist, the venerable magazine created in 1843 to defend free trade. At least over the past 10 years, the magazine seems to have become more tolerant of Leviathan, but it remains a source of serious information and it keeps me up to date on what intelligent social democrats think.
I had the same feeling reading Philip Coggan’s new book … The fact that Coggan is a journalist at The Economist may have something to do with this.
What I love in More’s book is explained in the review, and

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COVID Reality: From POTUS to NOTUS

22 days ago

There is such a thing as external reality, of which any moral ideal, political goal, or action must take due notice. The revelation today that POTUS has been infected by the coronavirus provides an example. One should want to preserve individual liberty during a pandemic or another natural or man-made catastrophe, but reality must still be acknowledged in a logically consistent way.
Restraints to trade are like pandemics: it is important to understand how they work and what are the trade-offs involved. Trade wars are not “good, and easy to win,” as POTUS tweeted on March 2, 2018. An exception would be if “good” means good for special interests (such as domestic steel or washing machines manufacturers) and for the politicians’ interest. And they are not “easy to

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Impoverishing Economic Illiteracy

26 days ago

Last week, for the Nth time, the Wall Street Journal had a story about shortages of Covid-19 tests ( “Covid-19 Testing Is Hampered by Shortages of Critical Ingredient,” September 25). An important topic. The journalist notes:
According to a survey last month by the American Association for Clinical Chemistry, which represents commercial, hospital and public-health laboratories, 67% of labs are having issues getting both reagents and test kits—the highest level since the group started querying labs in May.
Shortages of test kits have persisted for seven months. And there is apparently no explanation in sight. The president of the Riverside Health System in Virginia, Dr. Michael Dicey, echoes the general puzzlement:
This is a big country, and we still haven’t been

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The Failures of the CDC and its Political Bosses

September 23, 2020

Last Friday, the CDC (U.S. Centers for Disease Control and Prevention) changed its guidelines concerning the ways the Covid-19 virus spreads; on Monday, one business day later, the government agency changed again and reverted to its previous guidelines (see “CDC Removes Guidelines Saying Coronavirus Can Spread from Tiny Air Particles,” Wall Street Journal, September 21, 2020). Who will believe these politically-tainted public health bureaucrats?
Mistrust is justified not only by the catastrophic performance of governments in the Covid-19 crisis, mirroring the general failure of central planners in economic history, and the constant turnarounds of public health agencies, but also by the fact that for several decades, public health experts and activists have been

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Is Modern Democracy So Modern and How?

September 18, 2020

The Decline and Rise of Democracy, a new book by David Stasavage, a political scientist at New York University, reviews the history of democracy, from “early democracy” to “modern democracy.” I review the book in the just-out Fall issue of Regulation. One short quote of my review about the plight of modern democracy in America:
[Stasavage] notes the “tremendous expansion of the ability of presidents to rule by executive order.” Presidential powers, he explains, “have sometimes been expanded by presidents who cannot be accused of having authoritarian tendencies, such as Barack Obama, only to have this expanded power then used by Donald Trump.” We could, or course, as well say that the new powers grabbed by Trump will likely be used by a future Democratic president

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The Logic of Protectionist Nationalists

September 16, 2020

It seems that economics and logic were not the strong fields of protectionist nationalists in college—or at least this is the case with the three lieutenant governors who published an op-ed in The Hill at the beginning of the Summer. In the just-published Fall issue of Regulation (the electrons are still hot and the paper version has not yet hit the newsstands), I write:
The USMCA, the authors glowingly wrote, will “increase U.S. annual agricultural exports by $2.2 billion.” This crowing claim comes just a few lines after the statement that “agriculture is what puts food on the table, literally and metaphorically.” They better  take their “metaphorically” very literally because exported agricultural products actually take food away from American tables in order to

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One Thing Rationally Ignorant Voters Don’t Know

September 14, 2020

A Twitter follower of mine just praised president Trump for saving money by donating his salary back to government departments:
“He takes a ZERO salary from the american people. How much did americans paid for Obama, Biden, Pelosi, Schumer, etc?”
Is this a significant saving for “the American people,” that is, American taxpayers? To check that, the voter must do some simple calculations. But even among those voters who can easily find the data sources and do the calculations, “rational ignorance” (as public choice economists say) will prevent most from doing it. Rational ignorance is the fact that the voter remains rationally ignorant of politics because he or she, individually, has no impact. It’s not as when he buys a car: he pays the money and gets the car he

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What Is Populism? The People V. the People

September 11, 2020

“Populism” has received many definitions and historical interpretations. Some analysts take it simply as a more active form or stretch of democracy, but this may underplay the existence of very different theories and practices of democracy. One analytically useful definition of populism was given by political scientist William Riker in his 1982 book Liberalism Against Democracy. He defines the essence of populism as a political ideal in which the will of the people ought to be public policy: “what the people, as a corporate entity, want ought to be social policy.”
“The people” and “the will of the people” have long been invoked by populists of the right and populists of the left. Carlos de la Torre (University of Florida) summarizes the history of populism in Latin

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The Failure of Government Command-and-Control

September 7, 2020

If another example was necessary to confirm that government command-and-control allocation of resources is far inferior to market allocation by prices, the continuing shortage of Covid-19 tests could be one. Yesterday’s Wall Street Journal (Scott Patterson and John Simons, “Labs Struggled With Surge in Covid-Testing Demand; How One Made it Through,” September 6) reports:
Labs have competed for limited supplies of plastics and chemicals used to run tests, struggled to understand how federal supplies were allocated, and scrambled to come up with workarounds.
“Scrambled to come up with workarounds” instead of just paying the market price as free enterprises do on a free market.
Not only are private companies dependent on approvals from the FDA or the CDC, but their

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The Sanford Pastor and Individual Liberty

September 6, 2020

From deep Maine comes the story of the pastor of Calvary Baptist Church in Sanford who is reportedly at the source of the Covid-19 infection of 120 people. He held religious services in Sanford and officiated a marriage ceremony in the Katahdin area (of Thoreau fame). He does not encourage wearing masks and many of his flocks didn’t. His sermons apparently have political tones, which are not those of the Scottish Enlightenment. He warns against any future coronavirus vaccines, claiming they will contain “aborted baby tissue.” He believes that only God can control epidemics. Source: “Sanford Preacher Linked to Outbreak Tells Followers to Put Faith in God, Not Government,” WGME, September 2, 2020.
Their website is currently down. Your blogger risked life and limb to

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Repression of Economic Freedom: The Case of Eggs

September 2, 2020

There exist some people, usually called “economists,” who have a theory that explains why price ceilings create shortages. Most other people believe that there is no relation between prices and whether shelves are bare or fully stocked. Within this last category, there are those who insist that prices should be prevented from rising when supply decreases or demand increases.
In a recent post (“Why Shortages Are Not More Widespread,” August 17), I wondered why, despite the “price gouging” laws on the books in more than two-thirds of American states (including virtually all the largest ones), shortages were not more widespread; and why prices of meat, poultry, fish, and eggs had been allowed to rise, thereby preventing shortages of them. I wondered if farmers are

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Economics: Prices, Pri-ces, P.R.I.C.E.S.

August 24, 2020

It is impossible to understand the economy—that is, the economic consequences of individual actions—without understanding the role that prices play or are prevented from playing. This was a crucial scientific discovery of modern times. For that very reason, microeconomic theory used to be called “price theory.” So it is troubling to observe that many of our contemporaries and even many financial journalists ignore that discovery. Even economists tend to forget it when their moral values or virtue signaling is at stake.
An illustration of the problem was given by a Wall Street Journal feature of August 21 titled “Why Are There Still Not Enough Paper Towels?” The role of prices and price controls is nowhere mentioned. The very word “price” only appears twice, mainly

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Bannon’s Nationalist Adventure: Natural Justice?

August 23, 2020

Economists assume that each individual has his own preferences that guide his actions. The moral problem starts when an individual wants to force his preferences on other individuals’ choices. If, for this kind of moral sin, God had wanted to strike Steve Bannon off his horse on the road to Damascus and perhaps punish him with a nervous breakdown, He would have done exactly what He did on August 20: get Bannon arrested by federal agents on a Coast Guard boat.
Bannon is the former executive chairman of Breitbart News and Trump adviser. A believer in providential or natural justice (which is of course something different from economics) might think that Bannon’s arrest was a wake-up call or punishment for his protectionist crimes, that is, conspiring to impose his

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Mencken’s 100-Year-Old Prediction Realized, Twice

August 19, 2020

I raised before the question of the limits of civil conversation, the point at which it is legitimate to just laugh at a stupid idea that lacks any serious rational support or is backed by no argument at all, a point at which perhaps even the ad hominem temptation is not totally forbidden. Call a crank a crank. This is a difficult question but we can at least recognize the frequent benefits of free speech from those who step outside those limits while, of course, accepting the right of others to do likewise. Castigat ridendo mores—Correcting mores with laughter—says the motto of the Comédie-Française, an old theatre and theater company.
For the purpose of this post, let me define a moron as an individual who satisfies one of the two following conditions: he thinks

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Why Shortages Are Not More Widespread

August 17, 2020

Many grocery items are still in shortage in the sense that they are absent from the shelves even if some buyers would be willing to pay more to have them available. The Wall Street Journal asked the question last week, “Why Are Some Groceries Still So Hard to Find During Covid?” The newspaper’s big-data analysis concludes that at least half the grocery shortages persist:
During the peak shopping spree at the end of March, stores ran out of 13% of their items on average. Now, roughly 10% of items remain out of stock, compared with a normal range of 5% to 7% before the pandemic.
The WSJ story does not explain why that happens. It also happens in many other sectors of the economy. A few days ago, for example, the same newspaper had a story titled, “Why Is It Hard to

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Good Government Greed, Bad Economic Freedom!

August 12, 2020

When the Treasury auctions government bonds (more than $100 billion per week these days), its goal is to obtain the highest possible prices (pay the lowest interest rate): that’s why a seller holds an auction. But private individuals are forbidden to hold auctions of goods deemed important in an emergency; they are forbidden to charge what the market will bear. Sanctimonious officials defend it and the populace often applauds.
In the sort of announcement that has become familiar in the current crisis, the Attorney General of Iowa, Tom Miller, announced a second lawsuit against a Brenda Kay Noteboom who had auctioned toilet paper and sanitizing products on eBay, and sold them at prices judged excessive by the state’s “price gouging” law. The majority of American

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Flaaen et al. on Washing Machine Tariffs in the A.E.R.

August 10, 2020

Trump’s early 2018 tariffs on washing machines are costing American consumers $1.5 billion a year in higher prices, even after deducting the meager $82 million in customs revenues. The whole tariff was paid by American consumers in higher prices—in fact, even more than the whole tariff if we consider that dryers, a complement good, also increased in price. The total cost to American consumers amounts to more than $800,000 a year for each of the 1,800 jobs created in America by the tariff.
These are the main results of an econometric study by three economists, Aaron Flaaen (Federal Reserve), Ali Hortaçsu (University of Chicago and NBER), and Felix Tintelnot (same affiliations as the latter). Their article was published in the latest issue of the American Economic

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US Government Punishing Americans Again

August 7, 2020

Many people must be puzzled. What’s the point of international sanctions? Why should the Chinese owners of TikTok or WeChat obey sanctions imposed by the US government? Chinese nationals are not bound to obey American laws and decrees. Here’s the thing: US government’s sanctions are obeyed because they order AMERICANS to stop dealing with the foreign entities officially targeted. The sanctions are perhaps not officially directed towards Americans but it is only because they indirectly target them that they are obeyed; if anybody is prosecuted and goes to jail, it will be Americans.
I explained that in a previous post: “American Sanctions: Why Foreigners Obey,” Econlog, October 1, 2019). The cases of TkiTok and WeChat provide as clear a confirmation as possible. The

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Should Jane Decide Who Gets the Vaccine?

August 3, 2020

Who will get the cars and when? Who will get the steak? Who will get the wine? Or, as the Associated Press asked this morning, “who’s first in line for COVID-19 vaccine”? There are two answers: (1) Jane who works for the government will decide. (2) An impersonal, decentralized, efficient exchange process, where everybody is his own Jane, will give the answer.
My first claim is that, if such a process as #2 existed, it would be much superior for satisfying the most urgent demands, promoting prosperity, and preventing social strife if not “the war of all against all.” My second claim is that such a process does exist: it’s called the (free) market.
The market is a continuous, invisible auction in which every individual or association of individuals can bid, and a

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Economists Should Not Forget Supply and Demand

August 2, 2020

A Jule 23 Economist article about how “Generous Unemployment Benefits Are Not Keeping Americans from Work” is not easy to understand.  “[T]here is little evidence,” it claims, “to suggest that the extra $600 a week [from the federal government] is slowing down the labour-market recovery.” One would think that paying more in benefits to non-working workers would, ceteris paribus, decrease their number. Consider the last two paragraphs of the article:
Another signal that employers were struggling to fill positions would be soaring wages. Workers might hold bosses hostage with the threat of settling for benefits instead. Upon first inspection, this seems to be true. Average hourly earnings in the second quarter of 2020 increased by about 7% from a year ago, according

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Of Hydroxychloroquine and Sex With Demons

July 30, 2020

I know as little about biology and medicine as the typical public health expert knows about economics and the scientific study of society. I don’t know if hydroxychloroquine is effective against Covid-19 or under which conditions. However, I believe I know something about, or I have the analytical tools to understand, a social system where politicians or public health pontiffs decide what is good or not for individuals and forces it upon them.
Frequent readings about Covid-19 and a cursory perusal of recent articles in medical journals on the efficacy of hydroxychloroquine led me to believe either that the drug was detrimental or else that it had no beneficial effect. My opinion was not moved by the crowd pushing the drug, from Peter Navarro and Donald Trump to

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The 1918 Pandemic and Economic Freedom

July 23, 2020

One would think that, in the case of an economic shock such as a pandemic, an economy would suffer less damage and recover more rapidly the greater its level of economic freedom and the more flexible it is. To the typical economist, this seems rather obvious in theory. But is it empirically confirmed?
Worse than the current COVID-19 pandemic, the influenza pandemic that started in 1918 infected half a billion individuals or one-third of the world population and killed 50 million.
In a recent paper “Economic Freedom and the Economic Consequences of the 1918 Pandemic” (SSRN, May 2020), two young economists, Vincent Geloso (King’s University College, Ontario) and Jamie Bologna Pavlik (Texas Tech University) provide an empirical confirmation that economic freedom

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The Neo-Nazis and the Woke in 97 Words

July 14, 2020

The free speech of the neo-nazis and the woke must be defended not because their theories are true. As obvious as can be, their beliefs are non-sensical and dangerous. But, as John Stuart Mill argued in On Liberty, free speech is a rule for learning or approaching the truth, and the rule can only function and survive if selling intellectual snake oil is not banned. For if it is, you need somebody to determine for others what intellectual snake oil is.
However, government subsidization of one set of ideas or the other is a recipe for disaster.

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Some Reflections on Reparations for Slavery

July 7, 2020

In any liberal-libertarian conception of justice, there is no doubt that a liberated slave had a moral right to compensation from his master. From an economic viewpoint (what is possible and at what cost), the problem is more complex, especially across generations. In response to an article in The Economist, I would propose two arguments against reparation payments to today’s descendants of the slaves of several generations ago. These arguments suggest a new approach for effective and moral reparations.
The first argument is an economic argument: measuring the compensation due to the slaves’ descendants is impossible. Academic estimates of the harm done to American slaves range from 0.7% to 37% of today’s GDP (that is, of what American residents produce and earn in

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Flesh & Soul, Economics & Liberal Arts

July 4, 2020

On our sister website Law & Liberty, Jennifer Frey (U. of South Carolina) has a remarkable review of what seems to be a remarkable book by Zena Hitz. With Hitz, Frey defends the “monkish virtues”—and liberal arts—that David Hume attacked in the name of utility and economics. Monks, however, should also learn some economics.

The reviewed book (which I have not read) is Zena Hitz’s Lost in Thought: The Hidden Pleasures of an Intellectual Life (Princeton University Press, 2020). Every economist should read Frey’s review, a vibrant defense of the “solitude of contemplative life.” A couple of excerpts from Frey:
… the compelling case that the cultivation of our inner lives, which requires many of the monkish virtues that Hume dismissed, is fundamental to authentic

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Masks: Dr. Fauci Confirms My Hypothesis

July 2, 2020

According to a Wall Street Journal story of June 29 (“Masks Could Help Stop Coronavirus. So Why Are They Still Controversial?”), Dr. Anthony Fauci confirmed a hypothesis I proposed in an Econlog post of the same day: the long-lasting detrimental advice by the US government against ordinary people wearing masks was motivated by their shortage. This shortage was itself created by the governments’ own price-controls and their efforts to commandeer the consequently insufficient quantity supplied. The WSJ writes:
White House adviser Dr. Anthony Fauci said this month that he initially dismissed masks because medical workers were facing a shortage in supplies.
The link in the quote above points to a June 16 WSJ story that does not in fact mention anything like that—but

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