Federal Reserve officials have been hoping for evidence that inflation is returning to target. The latest data from the Bureau of Economic Analysis (BEA) should give them some confidence. The Personal Consumption Expenditures Price Index (PCEPI), which is the Fed’s preferred measure of inflation, grew at a continuously compounding annual rate of 0.9 percent in June 2024, bringing the three-month average annualized rate down to 1.5 percent. The PCEPI has grown 2.5 percent over the last year and 3.7 percent per year since January 2020, just prior to the pandemic. Prices today are 8.8 percentage points higher than they would have been had the Fed hit its 2-percent inflation target over the period.

Core inflation, which excludes volatile food and energy prices, also remains low. Core PCEPI grew at a continuously compounding annual rate of 2.2 percent in June 2024, and 2.3 percent over the last three months. Year-on-year core PCEPI growth is now 2.6 percent, compared with the 3.6 percent core PCEPI inflation realized per year since January 2020.

Figure 1. Headline and Core Personal Consumption Expenditures Price Index with 2-percent Trend, January 2020 – June 2024

The latest inflation data amounts to more good news for the Federal Open Market Committee (FOMC), which is scheduled to meet next week. The FOMC has held its federal funds rate target in the current 5.25 to 5.5 percent range since July 2023. In a statement released following its meeting in June, the FOMC said it would not likely cut its federal funds rate target before gaining “greater confidence that inflation is moving sustainably toward 2 percent.”

Earlier this month, Fed Governor Christopher Waller said the evidence was “mounting that the first quarter inflation data may have been an aberration and that the effects of tighter monetary policy have corralled high inflation.” But he also recognized the two-sided risks the Fed now faces:

On the one hand, it is essential that monetary policy get inflation down to a sustained level of 2 percent. If we start to loosen policy too soon, and allow inflation to flare up again, we risk losing credibility with the public and allowing expectations of future inflation to become unanchored. That credibility has helped inflation fall as quickly as it has in the past 18 months and squandering it would be a grave mistake. […] The other risk is that we wait too long to ease monetary policy and contribute to a significant economic slowdown or a recession, with unemployment rising notably.

Waller said he believed “we are getting closer to the time when a cut in the policy rate is warranted.”

Fed Chair Jerome Powell has also acknowledged the progress on inflation. In a conversation with David Rubenstein on July 15, Powell said the FOMC “didn’t gain any additional confidence in the first quarter. But the three readings in the second quarter […] do add somewhat to confidence.”

Powell confirmed that the Fed would not wait for the annual inflation rate to return to 2 percent before cutting the federal funds rate target. “If you wait until inflation gets all the way down to 2 percent, you’ve probably waited too long,” Powell said, “because the tightening that you’re doing or the level of tightness that you have is still having effects which will probably drive inflation below 2 percent.”

Despite the progress made on inflation over the last three months, and the risk of overtightening noted by Waller and Powell, the FOMC is unlikely to cut its federal funds rate target next week. The CME Group puts the odds at just 6.7 percent. 

Figure 2. Target Rate Probabilities Reported by the CME Group for the September 18, 2024 FOMC meeting, as of July 26, 2024.

More likely, the FOMC will begin cutting its target rate in September. Indeed, the question implied by futures prices is not whether the FOMC will cut by September but by how much. There is currently an 87.7 percent chance that the federal funds rate target will be 25 basis points lower following the September meeting; an 11.9 percent chance it will be 50 basis points lower; and a 0.4 percent chance it will be 75 basis points lower.

Rate cuts are coming. With inflation falling so far over the last three months, we must hope they come soon enough — and deep enough — to prevent a recession.

In recent years, the resurgence of inflation in the United States and other advanced economies has brought a revival of conflict theories of inflation (CTIs). These theories, which are gaining momentum in academic and policy-making circles as well as the popular press, posit that inflation is fundamentally the result of distributional conflicts among various social groups. The historical roots of CTI reveal their policy implications. For instance, Elizabet Warren has spearheaded initiatives rooted on CTI ideas such as Shrinkflation Prevention-Act and the Price Gauging Act of 2024. The “greedflation” narrative, so popular in recent years by Isabella Weber, is another example of CTI-inspired rationale surrounding higher-than-normal inflation.

The rising popularity of CTIs can be seen in the public discourse on “greedflation,” where inflation is attributed to corporate greed. In academia, influential figures such as Olivier Blanchard have echoed similar sentiments. Blanchard recently stated that inflation is “fundamentally the outcome of the distributional conflict between firms, workers, and taxpayers.” This sentiment is echoed in recent working papers by prominent economists like Lorenzoni and Werning (2004), and institutions such as the Bank of England and the IMF, which discuss the “battle of markups” and attribute a significant portion of recent European inflation to corporate profits. While these working papers do not represent official positions, they demonstrate that CTIs are no longer considered fringe theories.

The origins of CTIs can be traced back to Marxist economic thought, as explicitly recognized by one of its early proponents, R. E. Rowthorne (1977). CTIs are rooted in the assumption that class struggles, particularly between capitalists and workers, are the primary drivers of inflation. This perspective emphasizes that social conflicts, rather than purely economic factors, are the central cause of inflationary pressures. The Marxist undertones of CTIs suggest that inflation results from social injustice, thereby implying a moral imperative for government intervention to right the supposed wrongs. In simple terms, inflation is caused by inflation increasing prices at the expense (exploit) of consumers and, to the extent possible, not passing those extra profits to their workforce. Alternatively, strong-unions can trigger cost-push inflation by demanding higher wages. Either way, inflation is the result of conflict on income distribution.

The moral dimension of CTIs is particularly concerning. By framing inflation as a result of social injustice, CTIs suggest that government intervention is not merely a matter of economic efficiency. Rather, government intervention is seen as a moral duty. This moral duty could be used to justify redistributing wealth and controlling economic outcomes by strengthening labor unions, implementing wage and price controls, nationalizing big corporations, or even establishing government-run companies. It opens a pandora’s box of costly policies.

The historical outcomes of such policies inspired by Marxist thinking provide a clear warning. In Latin America, decades of Marxist economic policies have led to greater conflict and higher inflation, rather than resolving these issues. Countries like Argentina and Venezuela, where left-leaning populist leaders used conflict to advance their political agendas, have experienced record-high inflation rates and significant economic instability. These examples demonstrate that, rather than alleviating economic tensions, CTI-based policies tend to exacerbate them.

Conflicts exist in all societies, and along many margins. Resources are limited. Naturally, people fight over those scarce resources. Conflicts arise across classes, but also along geographic, racial, ethnic, religious, and cultural lines. Moreover, the existence of conflicts does not necessarily drive prices higher, as CTIs suggest. In market economies, competition puts downward pressure on prices as entrepreneurs attempt to capture a bigger share of the market.

The danger of CTIs lies not only in their flawed explanation of inflation but also in their potential to justify extensive government control over the economy and encroachments on private property rights. By promoting the idea that inflation is a moral wrong requiring correction through redistribution and control, CTIs could lead to policies that undermine economic freedom and stifle economic growth.

Whenever financial assistance or opportunities for achieving favorable gains are present, rent-seeking often follows. Rent-seeking, as conveyed by Robert Tollison refers to “the expenditure of scarce resources to capture an artificially created transfer.” Simply put, rent-seeking “involves seeking to increase one’s share of existing wealth without creating new wealth.” As such, who the givers and the receivers are matters a great deal, as does who determines the requisites for the gains – thereby setting the ‘rules of the game.’ 

Gordon Tullock featured the concept of rent-seeking in his 1967 paper, “The Welfare Costs of Tariffs, Monopolies, and Theft,” but it wasn’t until Anne Krueger’s 1974 study, “The Political Economy of the Rent-Seeking Society,” that it gained significant attention. Krueger found the requirements for import licensing generated rent-seeking behavior and she believed that the presence of rent-seeking “surely affects people’s perception of the economic system.” Krueger asserted that rent-seeking results in economic distribution being viewed as “the outcome of a lottery,” with some winners and some losers. Fifty years later, her assertions still hold true and, unfortunately, the practice of rent-seeking has persisted and proliferated.

Great examples of rent-seeking can be found in the 2024 Congressional Pig Book which cites how Senator Bernie Sanders was able to secure a $500,000 earmark for the Vergennes Opera House in Vermont. As noted in the Pig Book:

The opera house’s website contains a laundry list of needs ranging from a new heating boiler to new seating and estimates the total cost would be $178,000. Thanks to Sen. Sanders’ earmark, the Vergennes Opera House can address everything and pocket the extra $322,000.

Rent-seeking is a process of acquiring and accumulating, instead of innovating and creating. To be sure, resource development and ingenuity are not needed when existing rents can be competed for. 

If one can apply for a grant, a scholarship, a subsidy, or a tax credit – it would be rational to do so. If one can (or needs to) attain a license, a permit, or favorable legislation – it would make sense to appeal for such. If one could respectfully request donations, sponsorships, and contributions to further a preferred cause – it would be reasonable to solicit funds. Most of us have engaged in these acts. I certainly have. But we must remember that assistance is never truly ‘free’ nor is it ever limitless. Fredric Bastiat, in his 1848 essay, Government, puts it perfectly:

We are all making some similar request to the Government; but Government cannot satisfy one party without adding to the labor of the others. Government is the great fiction through which everybody endeavors to live at the expense of everybody else. Every one is, more or less, for profiting by the labors of others. 

Rent-seeking, however, doesn’t seem to be a concern for Senator Sanders who claims the American people want assurance of government assistance. During a recent appearance on “Face the Nation,” Senator Sanders gave America’s laundry list of needs and he has been a champion for student loan forgiveness and the Medicare for All program. Senator Sanders, however, should be made aware that rent-seeking is not an isolated activity. Resources and effort are required to compete for or maintain rents and so opportunity costs must be taken into account, especially for unsuccessful attempts at attaining rents. Even successful forms of rent-seeking though will generate adverse effects since such behavior produces net costs for society overall.

Let me explain:

Pecuniary transfers, which leave the effectiveness of a free market in question, will entice others to engage in rent-seeking behavior. More rent-seekers means more competition for rents, and more competition for rents means more is needed to vie for rent attainment. And, the more effort and resources being directed toward capturing rents, means less is being used for productive or entrepreneurial purposes.

Costs for acquiring rents will rise over time and economic productivity will decline, and it will continue in such a fashion until the cost of competition becomes too great or rents run out. And when that time comes, reviving a market-based economy will be a difficult task since the provision of existing rents diminishes incentives to seek out new or alternative forms for income generation or productive exchange. The trader principle does not apply when one must curtail a choice of action to the stipulations and expectations of those who control allotments.

Rather than the coordination of knowledge by means of price signals and purchases, or the use of competitive strategies to capitalize on market opportunities, ambitions will be redirected toward what is available. And, when the demand for rents exceeds the amount that can be distributed, the creators of wealth will be called upon to contribute to a greater degree — assuming there are still a few capitalists who can be called upon. Senator Sanders is banking on such since he has signed a letter, addressed to President Biden and Treasury Secretary Janet Yellen, urging support for a global wealth tax.

Capitalists, those who seek to profit from voluntary exchanges, are being pressured to hand over their fair share to assist with rents and, if the amount expected becomes too great (consider the Laffer Curve) or goes against one’s values (read Atlas Shrugged), then capitalists (and their capital) may be hard to come by over time.

Let me elaborate:

Capitalism in its truest form has never been fully tried given the presence of a mixed economic system, which integrates the political and economic realms. Government interests and interference in the marketplace has kept pure capitalism at bay and given us cronyism and corporatism instead. 

Under a system of true capitalism, businesses would operate with success being dependent on the market process of exchange and have a government that upholds the protection of private property. What businesses have today is the right to own property with the government intervening with how that property operates and transacts. The government is directing the use of property rather than protecting it. As such, permissionless innovation seems to be a thing of the past and any business that grows too big will inevitably find itself restricted.

Under our current system, businesses operate with less certainty given the subjective nature of some standards, the retroactive application of select rules, and the murkiness of various established case laws. The growth in power of government agencies overseeing business matters comes at the cost of market power and business dynamism. And, over time, this will generate greater disparity between the haves and the have nots, since status positions will comprise of givers, receivers, and what could be categorized as non-achievers (those who have lost faith in the market and have no means for competing for rents). For non-achievers there will be a persistent race to the bottom because if assistance were to ever be granted to help those in greatest need, they would need to prove they fit the bill. And eventually, more of the ‘receivers’ will fall into the category of ‘non-achievers,’ either because competition for rents has gotten too high or because the distribution of rents has been squeezed too much.

Let me sum up:

The more the state becomes involved in everyday affairs, the more we move to a rent-seeking society, enabling a power dynamic based on what can be accessed rather than on what can be earned. When our means for advancement are dependent on rents, rather than through advantageous mutual exchange, a market economy will cease to exist. Rent-seeking normalizes individual conduct and producer practices according to the requisites for rents and when the activities for acquiring or distributing rents become greater than that which can be derived from producers, we will all be to blame for what follows.

The soul of enterprise will be replaced by relations of power and dependency. Economic concerns are therefore only one side of the equation, the other is social degradation. The ability to profit from an exchange or an activity must always be greater than that which can be granted by the government. And we must all be mindful of that.

A photo from 1931 of unemployed men queued outside a depression-era Chicago soup kitchen. The 2011 photo taken at the same location shows run-down housing and a vacant lot. Arlen Parsa.

“People often think that capitalism is all about ‘oh, you’re only looking at the numbers, and all about profit,’ but no — the markets include charity, and it includes generosity and community and all that.”

Tuur Demeester, What Bitcoin Did

Professor Guido Hülsmann of the University of Angers, France, was early to the modern study of the social impacts of monetary interventions; if anything, his The Ethics of Money Production is more relevant today and rings truer than when published fifteen years ago. Moreso, his German-only Krise der Inflationskultur (Eng.: “Inflation Culture in Crisis”) and 2014 lecture “The Cultural Consequences of Fiat Money” remain obligatory for anyone interested in these topics.

In his new treatise, Abundance, Generosity, and the State: An Inquiry Into Economic Principles, he takes on the idea of gratuitous goods — goods that go beyond the standard obligations of members in a commercial society. He doesn’t narrowly target tips, though they certainly count, but everything from gifts and grants to externalities and the moral implications of a capitalist, commercial order. 

At first, the attempt seems to be a wholly unrelated and strange exercise in academic intellectualizing. To carve out donations and gifts from other economic activities feels odd and contrived. But about halfway through the dense, 400-page work, it’s all coming together; Hülsmann just needed a long, very serious, and very careful lay-up. If you stick with it, you’ll be rewarded handsomely.

The catalyst and starting point for Hülsmann’s investigation into what’s more philosophy and theology than economics is the Papal encyclical “Caritas in Veritate” issued in 2009 by Pope Benedict. The idea of encyclicals is for faithful Catholics — of which Hülsmann is one — to carefully consider the themes that the Pope draws to your attention. While he admits that he was a decade or so late to the “Caritas in Veritate” party, Hülsmann has been on this beat for a long time; if anybody could write a combination of these widespread topics (theology, moral implications of government interventions, virtues of social market order), it would be him. 

It is his explicit purpose to “show how the narrow economic point of view may fit within the broader conceptions of Christian theology and philosophy,” but readers certainly don’t have to profess any specific faith to gain from this complicated and serious work. Indeed, by the middle of the book those topics have largely faded to the background and been replaced by what seems like more conventional political economy considerations. 

Where Hülsmann really shines is his treatment of welfare without the welfare state. His summary of education, health, and social security before the ages of government-provided versions of those services (and how they could once more be provided without the edifice of a government) is masterful and would well have fit the ideological void left by my heavily pro-government Public Policy101 class at university. “Private charity and the welfare state,” explains Hülsmann, “have completely dissimilar consequences in practice. The reason is that private charity preserves the direct and voluntary bond between donors and donees.”

These considerations, a good few hundred pages into the treatise, really tie the book together. His foundational critique against welfarism justifies the entire investigation: goods and services received gratuitously are not the same as those obtained as a right, especially when governments have extorted tax-“payers” at the point of a gun: “Tax receivers do not have legitimate claims to receive taxes. Taxpayers are not morally obliged to pay taxes. Paying and receiving taxes are [therefore not] gratuitous acts.”

What’s so fascinating — and in hindsight, so obvious — in that framing is that genuine gifts improve the welfare of both giver and recipient, and are more likely to be effective than centralized, state-provided welfare. Genuine gifts cannot be expected to be permanently renewed, unlike the rights-based, bureaucratic, and legalistic demands underpinning a welfare state. As a citizen in “need” you may be entitled to this or that clearly (not that clearly, if we’re being honest) specified benefit, but as a recipient of your fellow humans’ genuine gifts you are not. 

A welfare state produces a “loss of genuine community,” its services thus “perpetuate the problem they are supposed to mend. They do not build but destroy.”

We shouldn’t be surprised, since all that a government wages war on makes it worse — which is why the drugs are winning the war on drugs, terrorists are mostly winning the war on terror, and poverty is winning the war on poverty. 

Hülsmann disassembles the theoretical underpinnings for many other standard political-economy talking points such as (positive) externalities and public goods. He explains why property rights exist and what they do for social harmony in a commercial social order, investigates the financial and welfare implications of monetary orders, and what the true role that nonprofits play in civic society. 

Abundance is an exercise in theology, in economic philosophy, and a thorough venture into the history of economic thought. But it’s also a social history, a serious attack on the many moral and philosophical ideas that underpin most public policies. It can readily serve as a verbal (non-mathematical) and well-argued textbook in broad courses on economic philosophy or the morality of a market-based social order. 

I highly recommend it if you’re up for the challenge of sifting through hundreds of pages of serious and careful academic prose. (If not, there’s a one-hour episode with Austrian economist and Bitcoin educator Stephan Livera that covers much of the crucial ground.) The AIER August Harwood Graduate Colloquium with Dr. Pete Earle and Prof. Hülsmann himself should be immensely valuable for those lucky enough to attend. The rest of us will FOMO and from a distance marvel at this work so sorely needed for an intellectual movement of liberty that often brushes over these more ephemeral, moral, and social themes.

The city of Wrightsville Beach (WB), on the North Carolina coast, operates municipal lots that charge for parking. It happens there are two lots near the beach condo where we spend a month every summer. One is large (about 85 parking spaces), and the other is small (19 spaces). The current charge is $6 per hour, or $30 for the day, a rate that applies 9 am to 8 pm.

On some days — cloudy weekdays, say — the lots are not full. But on high-demand days, on sunny weekends, and almost all the time in July and August, peak beach-going times, there are more people willing to pay $6 per hour to park than there are spaces.

If you pull into a space that is unoccupied, and there are other unoccupied spaces, you have replicated the old Lockean process of acquiring ownership. Of course, if you fail to pay, you’ll be ticketed and ultimately towed; let’s ignore the price, because that is fixed externally.

You have an exclusive right to use that space — you can park there, and I can’t. But you have no right to transfer the space to someone else: it’s not clear what happens when a car pulls out of a space to leave the parking lot. But, of course, that is where the allocation problem emerges: since many people are willing to pay the money price, whose space is this, now that the previous “owner” has left?

Perhaps surprisingly, there is a clear pattern of behavior. When the large lot fills up, a line forms — there is only one entrance — with the first car in line waiting at the turnoff from the main road, and the other cars temporarily parked in order of arrival off on the right shoulder, with two wheels on the grass so that they don’t block through traffic.

As I have noted before, this constitutes a kind of “surge pricing,” because the cost of a parking spot is the sum of the fixed money price — $6 per hour — and the “congestion tax” of waiting in a longer or shorter line. If the line is “too long,” you are not willing to pay the time costs of obtaining a space, and so you pull out of line.

But when the smaller lot fills up, cars waiting for a spot disperse around the lot, with four cars each parked in an area that commands four or five parking spaces. If someone comes back from the beach and pulls out of a spot, the car that has staked out the relevant segment gets to pull in.

I’ve watched these parallel systems play out many times, over the course of weeks, for a decade. The large lot system is more rational, and predictable, and seems more fair, because cars get parking in the order of their arrival. Further, because the larger lot is nearly five times as big, the rate at which cars are leaving spots is far greater.

The downside is that, for just these reasons, the line at the big lot is really, really long. The “line” at the small lot is usually one or two cars at most, plus the four cars that have staked out territories within the lot itself. You might get lucky, in the small lot, and only have to wait 10 or 20 minutes, where you will have to wait for an hour or more at the large lot. On the other hand, you also might get unlucky, at the small lot — you only have 4 or 5 spots in your “territory,” and none of those might leave for a long time — and have to wait for 2 hours or more.

There are two differences in the lots. The obvious one is size. But the other is access: smaller lot is a circle, meaning that there are, in effect, two entrances. It’s supposed to be “one way,” but a car near the entrance could hurriedly pull around and take the short part of the circle, pulling into the vacated spot before the car that was waiting in line could drive the long part of circle. The large lot has only one entrance, and there is no way to pull around the cars ahead of you in line to jump the queue. The more orderly line there is self-enforcing.

As far as I can tell, the same people behave differently in the two settings, based on the “comparative statics” differences in size and access. But they also choose one lot or the other, based on their preferences: if you like risks, and you are willing to argue about the boundaries between the made-up “territories,” you’ll choose the smaller lot. The average wait time there is smaller, though the variation in wait time is much larger.

Over the July 4 extended weekend, I saw a man who broke the emergent conventions, or tried to. It was in the large lot, and his car was fourth in line. I happened to be standing in the lot, watching, thinking about the way the line worked, because of course I was. By chance a young woman beside me was talking to herself: “I can’t believe it. He’s doing it again. Why does he do this?”

She was referring to (as it turns out, I asked) her father. It was obvious who she meant. A round gentleman in a worn straw pork-pie fedora was accosting people who were obviously heading to their cars, with their carts, chairs, and umbrellas, back by the exit from the sandy beach. He asked them if he could buy their parking spot, and offered to pay. He found someone who accepted $10 for “their” spot, and then ran to his car and (I watched) pulled around the line to go wait by the spot he had bought.

It’s not easy to pull around; you have to go into the exit lane, and there are lots of people there. But he waited by the soon-to-be-emptied spot, with his turn blinker on, the standard “I claim this” signal in parking lot language.

It worked: paid guy pulled out, porkpie guy pulled in, jumping the queue. The daughter was hiding behind the bathroom building, mortified with embarrassment. But this behavior was so out-of-bounds that I think the people ahead of the “buyer” assumed that something else was going on. Nobody gets to buy a space; they must be family members or something.

What’s interesting about these observations is that humans discover, and then follow, rules for being fair and consistent. The idea of “line up!” is deeply ingrained in most of us, to the point where we are angry if someone “cuts” in line ahead or, for that matter, behind us.

But we can also adapt. In the smaller lot, a different institution, staking out a territory rather than lining up, solves the slightly different problem of small size and double entrances. The problem is that a functioning community may have trouble with outsiders, who don’t know or don’t accept the norms. Either the “bidding” system that the aggressive man used so successfully, or the “line up!” system that the community is used to, might work well, but only if everyone is using the same system. It is the mix of systems, and uncertainty about the right thing to do, that leads to arguments and conflicts. Beach parking is a microcosm of the larger problem of sustaining norms. 

Enjoy the beach!

By now practically everyone who follows news and commentary about climate change has seen graphs of global warming over the past century or more. The National Oceanic and Atmospheric Administration (NOAA) produced this one in 2017, covering 1880–2016. 

Ever since it first appeared, it’s been one of the most commonly used, whether in scholarly journals or government websites or news media or blogs or social media. More recent data generally are communicated similarly — and it’s not hard to understand why. 

Here, solid bars, one for each year, depict the change in global average temperature (depicted as anomalies, i.e., departures, from the 20th-century average), and the psychological impact is predictable: fear. 

How? Bars in the early years, below the average, are a comforting blue; later bars, above average, are an alarming red. If all the bars were the same color, the psychological impact of the different colors would be lost. 

But the color choices aren’t all. They’re just the most obvious. Another choice is less obvious, and readers unfamiliar with how to interpret graphic representations (or misrepresentations) of data are likely not to notice it. 

Ominously, the longest blue bars reach almost to the bottom of the graph, and the longest red ones almost to the top. Why? Because the vertical axis chosen (and note that word — it’s a definite choice) covers only from -0.5°C to +1.0°C (-0.9°F to +1.8°F). A grand total of 1.5°C (2.7°F). 

On the one hand, this is quite defensible. Enter the raw numbers into common spreadsheet software, tell it to produce a bar graph, and that, or something very close to it, is what you’ll get. And why not? After all, it accommodates all the numbers, lowest to highest. What more can we ask? 

On the other hand — if your intent is to help people think reasonably about changing global temperature, it’s utterly indefensible. 

Why? Because it makes a temperature variation of under 1.5°C (2.7°F) look, to the unpracticed eye, far more significant than it is. After all, most people hardly notice if a room’s temperature rises or falls that much. But on this vertical scale, the longest red bars reach almost to the top, as if to say, “We’re about to reach the maximum!” True, the longest blue bars also reach almost to the bottom, which could be interpreted, “Whew! We just barely missed freezing!” (And since cold snaps kill, on average, 10 to 20 times as many people per day as heat waves, that should be really comforting — but I digress.) 

But remember, blue’s a comforting color; red routinely means “danger!” That, after all, is why United Nations Secretary-General António Guterrez called the first volume of the Intergovernmental Panel on Climate Change’s Sixth Assessment Report “code red for humanity,” not “code blue” (though, admittedly, in a hospital “code blue” denotes a critical status of a patient — but that’s not common lingo). 

And since most people read from left to right, the graph subtly communicates that, whatever risks might have come with those low temperatures, we’ve left them far behind. No need to worry about them now. It’s those high temperatures, marching inexorably upward, that we need to worry about. 

Back in the early 1990s, when I was managing editor of the book The State of Humanity, its general editor, the late economist and statistician Julian L. Simon, legendary for his antipathy to misleading statistical graphs, insisted that all graphs of the data provided by the 58 authors (including 8 Nobel Prize winners) use a realistic, objective scale. 

For example, graphs of data expressed as percent should have a vertical scale of a full 100 points — otherwise, the result could be highly deceptive. After all, if the vertical scale only went from 80 percent to 90 percent, a data point of 86 percent could appear to depict a quantity twice as high as 83 percent, when in reality it’s only 3.6 percent higher. 

Another example: graphs of data that don’t depict percents should have a zero baseline. Or, if they depict both negative and positive data, the vertical axis should stretch equally far below and above zero, so the relative magnitudes would be quickly and easily comprehensible. Or, if they depict data so enormously different that low numbers just disappear, they should be drawn with exponential scales — and that fact should be communicated prominently — or with clearly marked discontinuities along the vertical axis. 

There are other examples, but you get the point. One of the basic principles is that the vertical axis should cover a truly significant range. 

That’s the bigger problem with NOAA’s famous graph. As we saw above, it makes a very small change in temperature appear much larger and more significant. 

A more appropriate, less misleading, way to graph the same temperature data is to use a vertical range that’s fairly typical of the weather people commonly experience. That’s a scale they’ll understand. 

In the United States, except when air currents rapidly move a much warmer (or cooler) air mass from one locale to another, diurnal (daytime high to nighttime low) temperature range is typically around 5.6°C (10°F) in humid locales but around 22.2°C to 27.8°C (40°F to 50°F) in arid to semi-arid locales. In other words, people are accustomed to those temperature ranges.  

It would seem reasonable, then, to depict global temperature anomaly data on a vertical scale of, say, halfway between the low and high ranges, i.e., 16.7°C (30°F). And, to complete our avoidance of psychological scare tactics, we’ll jettison the color scheme and use a neutral color. 

How would NOAA’s data for 1880 to 2016 look depicted that way? Like this: 

Remember, this depicts exactly the same data depicted in NOAA’s graph. Does it look scary? No, but it’s a much more honest, objective, non-manipulative depiction of the data. So, now you’re equipped not to be manipulated — and to enlighten your friends and neighbors. 

Defenders of the scary way to depict the data could respond, “But the fact is that this apparently slight change in global average temperature will, if it continues at scale, cause devastating changes in weather, sea level, crop production, and other measures — changes that will impoverish humanity and possibly even bring about its extinction. So scary depiction of scary facts is just what we need.” 

But the Intergovernmental Panel on Climate Change disagrees — firmly and adamantly. Its 2018 Special Report on Global Warming of 1.8°C concludes that if we do nothing to slow greenhouse gas-induced warming, the warming will make gross world product (GWP) in 2100 2.6 percent lower than it otherwise would be. 

What would it otherwise be? The Center for Global Development says economic growth through the remainder of this century is most likely to be about 3 percent per year. After factoring in change in population, the result would be GWP per capita 8.8 times what it was in 2018. 

When poverty is a far greater threat to human health and life than anything related to climate and weather, can anyone think those gains represent a catastrophic result? 

If you spend much time at all on social media sites on which people often post text or pictures meant to make points about controversial issues, you’re bound to have seen “fact checks” stating that a post conveyed “false or misleading information” because it was “missing context.” (That’s a judgment that’s often subjective and driven by the ideology of the “fact checker,” but we can ignore that for now). What you now know is that, when it comes to “missing context” about climate change, official government agencies can be among the worst offenders, not just on social media but also on agency websites — from which their products, like the NOAA graph evaluated here, regularly make their way into scientific journals and mainstream media. 

A Google image search July 11, 2024, found NOAA’s graph at about 100 sites. Where are those “fact checkers” when we need them? 

No concept in all of economics is misunderstood and abused as much as that of the so-called “trade deficit.” This misunderstanding and abuse owes much to the word “deficit,” which conveys a sense of decline and imbalance. No one, of course, wants to be declining or unbalanced. But, in fact, the trade deficit is not a sign of any economic decline or real imbalance.

The United States runs a trade deficit whenever, during some time period, Americans import more goods and services than they export. Yet each time Americans import more than they export, foreigners invest more in America than Americans invest abroad. The reason is simple: because foreigners who wish to invest in America need dollars to do so, they can’t spend all of their dollars buying American exports. It follows that as foreigners’ eagerness to invest in America intensifies, their eagerness to buy American exports diminishes — thus causing US trade deficits to rise.

This net inflow of investment funds to America balances out the trade deficit (or, more precisely, the current-account deficit). Because investing is every bit as much an economic activity as is buying (importing) and selling (exporting), when investing is included in the economic picture — as it should be — the existence of a trade deficit signals neither decline nor imbalance. Countries, such as the US, that consistently attract a disproportionately large share of investment funds from around the world can hardly be said to be on the decline or unbalanced.

This simple reality, however, is stubbornly ignored by protectionists. The negative connotation conveyed by the term “trade deficit” is so very useful to the protectionist cause that protectionists seem to have no interest in getting their — or their audiences’ — thinking straight about this concept.

Although an obstacle to economic understanding and to an acceptance of free trade, the term “trade deficit” in particular — and, more generally, the concept of “balance of payments” — will unfortunately remain available to protectionists as a means of deceiving the economically uninformed into a self-destructive hostility toward free trade. As noted by the great economic historian Robert Higgs, “the international balance of payments has to be the most nonsensical accounting statement ever devised, serving no purpose but to justify to gullible people the government’s pernicious application of force and fraud as if its so-called protectionism were a benefit to the general public.”

The concept of a “trade deficit” sows even more confusion when it is used to describe, not one country’s economic engagement with the rest of the world, but one country’s economic engagement with one other particular country. As confusing as is the term “US trade deficit” when used to describe America’s economic engagement with all other countries, at least this term conveys economically meaningful content to people who understand economics. If, for example, the US in 2024 runs in a trade deficit of $900 billion, this fact tells us that America in 2024 was a net recipient of $900 billion of investment funds from around the world.

In contrast, when someone speaks of, say, “the US trade deficit with China,” absolutely no economically meaningful content is conveyed. In a world of more than two countries, the trade that the peoples of any pair of countries have with each other has no economic relevance whatsoever. Bilateral trade deficits or surpluses are economically meaningless.

We know what a protectionist such as Oren Cass refers to when, for example, he complains that the “US-China trading relationship became the most imbalanced in world history.” He refers to the value of American imports from China far exceeding the value of American exports to China. According to Cass and other protectionists, we Americans are therefore supposed to be alarmed. But the only alarming thing about Cass’s complaint is the gross economic misunderstanding that it reflects and fuels.

Even if we disregard the possibility that the Chinese are investing in America some of the dollars they earn by exporting to America, there’s no reason whatsoever to suppose that any two countries in our world of nearly two-hundred countries will buy and sell to each other the same amounts. Such an outcome could happen, but, were it to do so, it would be bizarre and surprising.

Let’s say that Americans in 2024 import from China $300 billion more than Americans export to China. Cass and other protectionists will point in panic to this ‘US trade deficit with China.’ But to anyone who understands economics, this panic is laughable. To see why, suppose that the Chinese spend all $300 billion on goods imported from countries in Europe, and then Europeans in turn spend this $300 billion buying exports from the U.S. In this hypothetical example — which isn’t remotely far-fetched — America can indeed be said to have a $300 billion trade deficit with China, but every cent of this $300 billion nevertheless returns to America as demand for American exports. This $300 billion of demand for American exports just happens to come from Europeans by way of the Chinese, rather than directly from the Chinese.

Nothing of significance in the American economy changes in consequence of this $300 billion of export sales being made to Europeans rather than to the Chinese. But to listen to people such as Oren Cass and other protectionists who write about America’s trade deficit with China, you’d think that something momentous — and ominous — is afoot.

In a world of more than two economic entities — more than two individuals, more than two households, more than two firms, or more than two countries — the very logic of economic specialization results in each entity producing for, and selling to, one subset of fellow economic entities and then using its sales proceeds to buy mostly from another subset of fellow economic entities. I, for example, have large and ever-growing trade surpluses with George Mason University and AIER (two entities that purchase that which I produce and sell). And I have large and ever-growing trade deficits with my local supermarket, with Amazon, with the Toyota Motor Co., with my physician, and with every other entity from which I purchase the many goods and services that enrich my life. The same economic relationships in general are true for every person in modern society. And what is true at the level of the individual is true at the level of the country: just as there’s absolutely no reason for you to worry about the trade deficit that you have with your physician or your grocer, there’s absolutely no reason for us Americans to worry about the trade deficit that America has with China.

But if the (il)logic that drives protectionists to warn of the alleged dangers that lurk in one country’s trade deficit with another country were valid, then I, you, and every other person in modern society should begin to worry about all the many trade deficits that each of us has with those economic entities from whom we purchase goods and services. And we would enrich ourselves if each of us refused to trade with any individual or company that refused to buy from us the same amount as we buy from it.

I urge Oren Cass and other American protectionists to practice for themselves what they preach for our country. I urge each of them to try to eliminate the many bilateral trade deficits that they run in their individual economic affairs. If they do so — if they succeed at having no trade deficit with another economic entity — and honestly report to us that they have thereby been enriched, I will then listen with respect to their warnings about America’s trade deficit with China. But until then, I’ll reject these warnings for what they are: foul fruits of economic ignorance.

When I first saw the film Brazil (1985) a decade after its release, I was decidedly underwhelmed. The pacing was slow, the symbolism convoluted, and the humor too British for my twenty-eight-year-old American tastes. But after a recent viewing, this movie that routinely appears on ‘best British film’ lists impressed me with its entertainment value, but even more with how relevant its message has become in 2024.

The plot begins with a literal bang, as a terrorist bomb explodes during a television commercial put out by Central Services, an arm of the government bureaucracy that, along with the Ministry of Information (MOI), represents state control bloated beyond all reason. On a wall behind one bureaucrat’s desk is a poster depicting a padlock shackling a woman’s lips. “Loose talk is noose talk,” the poster’s caption reads. Getting canceled in this dystopia is serious business, as the film’s protagonist Sam Lowry discovers.

A young functionary in the MOI’s Records Department, at night he dreams of a different life, one in which he soars through the sky with wings as the song Brazil (the sole basis of the film’s title) plays in the background. Sam’s wings are an effective symbol of God-given individual rights, as enshrined in the United States’ founding documents. Exercising such rights in a society bent on suppressing them can require struggle, and in Sam’s dreams he sometimes must battle robotic monsters.

Waking life for Sam is less glorified. It involves seeking morsels of happiness in a narrow space between terrorist bombings and the sort of tyrants — small and large — that an authoritarian regime naturally breeds. A pair of surly HVAC workers, angered over paperwork and an unofficial repair to Sam’s air conditioning, appropriate and wreck his flat. And Mr. Helpmann — a deputy minister who promotes Sam to the Information Retrieval department — later directs his torture for fiddling with government records. Absurd humor is woven throughout. As Sam is shackled into a chair for torture, an officer earnestly implores him to confess. “If you hold out too long, you could jeopardize your credit rating.”

Parallels to the United States in 2024 are easy to draw. One of the film’s ubiquitous government posters shows a smiling family on a car trip with the caption, “Happiness, we’re all in it together.” Remove the first word and put surgical masks on the family and it could be a CDC-issued public service announcement from the COVID-19 pandemic.

Brazil was heavily influenced by George Orwell’s novel 1984, and was filmed with a composite future-past look that illustrates the timeless threat of collective tyranny. Since the setting of the film is never specified, it might happen anywhere. The song that gives the film its name combines dreamy lyrics with a sensuous samba rhythm to impart a sense of tropical freedom. Today’s nation of Brazil, however, does not inspire the same feeling, with its supreme court now heavily policing online speech. As both the nation and the movie illustrate, control of information is the ultimate power.

Things are not much better for South America as a whole. The Economist reports that the region has experienced the biggest recession of democracy “of any region over the past 20 years,” with only Chile, Costa Rica, and Uruguay being classified as “Full Democracies.” Our southern neighbor Mexico comes in as a “hybrid regime.” And four nations — Cuba, Haiti, Nicaragua, and Venezuela — rank as “authoritarian regimes.”

We should take that trend, and the film, as warnings against complacency. Peaceful, institutionalized respect for inalienable rights, the wings Sam dreams of flying with in Brazil, has only held sway in a minority of the world, and there only for a narrow slice of human history. Any reversion of individual freedom to the historical mean would be extraordinarily unfortunate, and we could find ourselves in a reality that looks disturbingly similar to Brazil.

With America’s debt projected to reach astronomical levels in the next decade, my generation will need to step up to the plate and overcome our chronic spending addiction. Recent projections by the Congressional Budget Office (CBO) forecast that by 2034, total deficit spending will climb to $2.6 trillion, amounting to 116 percent of GDP. But as Mark J. Warshawsky of the American Enterprise Institute notes, these projections could be vastly understated.

Indeed, with a few tweaks to the model — including adding realistic deficit growth and real interest rate figures — Warshawsky finds that by 2034, debt-to-GDP could be as high as 138 percent. While the US dollar remains strong despite our fiscal woes, our luck isn’t guaranteed. And if we continue down our current fiscal path, we will reach a cliff over which our economy and society will be unable to reverse course.  

Which brings me to my main point: my generation (Gen Z, age 12–27) is ill-equipped to confront our looming fiscal crisis. My generation is buried in student loans. We accrue mountains of personal debt, opening up new lines of credit and eschewing financial responsibility. Making matters worse, Generation Z has fully leaned into gambling, with the hopes of getting rich quick. Sports betting, options trading, and other risky activities are the new normal for young adults who are fed up with inflation, high housing costs, and a government that believes that the conventional rules don’t apply to them.

An emerging trend encapsulates the growing dissatisfaction my generation feels toward its economic prospects. Personal finance expert Dave Ramsey has preached financial prudence for decades, extolling the virtues of saving money and tightening belts. But this message isn’t resonating with Gen Zers, who frequently criticize Ramsey for his “out-of-touch” advice. Why save and invest now when any realistic shot at homeownership is 20, perhaps 30 years away? Why minimize household spending when inflation shrinks our wallets anyway? Advice that once guided previous generations toward prudent financial decisions has morphed into silly memes that my generation can barely take seriously.  

Responding to Ramsey’s frequent advice to young people to slash their spending, one TikTok streamer told the Wall Street Journal, “I’m sorry, I’m not willing to do anything to get out of debt. I’m not willing to eat rice and beans every day.” Another young critic of Ramsey cites his apparent indifference to young adults whose personal finances are tight. While some of these criticisms are understandable, the flood of backlash against “boomer” financial advice suggests that young Americans are unprepared to fix our country’s debt given that we can’t get our own, individual financial houses in order.  

Despite record high wages and a steady labor market, Gen Zers still feel like the American Dream is more unattainable than ever. The cost of living is the main reason why. According to Bureau of Labor Statistics data, analyzed by the Washington Post, Gen Z Americans are spending 31 percent more on housing and 46 percent more on health insurance than Millennials (age 28–43) did just a decade ago.

Of course, whenever we examine data that gauge the pulse of American satisfaction, we must look at both sides of the coin. For example, Gallup poll data indicates that roughly 30 percent of US adults view the American Dream is unattainable, but that means that 70 percent view it as within reach. We can celebrate the incredible strides of economic progress while also addressing the concerns that young Americans feel when the fruits of that progress seem distant.

But our sympathies will only get us so far. My generation needs to get their act together. They need to take responsibility, even if that means following “outdated” financial advice that requires self-discipline. It could be argued that because previous generations have ushered in the financial mess America now faces, sinking deeper into personal debt would not substantially change the country’s chances of fiscal ruin. But I believe that our dismal debt history implies the exact opposite: my generation has a responsibility to act prudently because the stakes are so high and because it will be my generation who will be called upon to right our teetering economy when the time comes.

America’s unsustainable deficit spending doesn’t just spell future economic ruin. It also dampens current economic growth. One paper reports that 36 out of 40 studies find an overwhelmingly negative relationship between countries with high debt and economic growth, as economic theory would predict. This means that not only are Gen Z Americans unprepared to reform our country’s spending programs and revive the nation’s fiscal health, they are also engaging in the very behavior that will undermine their ability to achieve the American Dream. By embracing financial nihilism, they thwart any realistic chance at solving the problems that they claim to be protesting.  

The fiscal cliff is approaching faster than expected. My generation needs to get its house in order before it can steer our country’s finances toward solvency. Our nation’s health — and our livelihoods — depend on it.

Humans, it seems, are always on the verge of obsolescence. There is no innovation without opposition from two groups: people who lose their jobs and people who think about mass unemployment and ask, “Where will the new jobs come from?” The devil is in the details, but at least in principle, redistribution should be able to win the first group’s assent. The second group of professional and amateur hand-wringers need to be persuaded. While economists cannot say with confidence exactly which new jobs will appear where, and while we have to acknowledge that the adjustment to a new economic reality will be very difficult for some people — even in the long run — we can paint with a very broad brush and see where new opportunities are most likely to present themselves.

Technological innovations and falling trade barriers make many people more productive, which raises their real earnings. It also means slightly lower prices for everyone. We use this new wealth to create opportunities in high-skill, medium-skill, and low-skill occupations. If you’re scoring at home, ask what you would do with an extra $100, think about the new opportunities this would create, and consider some common objections.

Health Care and Education

More health care is one of the first things many people would buy. New opportunities appear as innovation puts more dollars in their pockets and makes those dollars go further. Some people who previously gritted their teeth and dealt with foot pain, bleeding gums, or eczema use their innovation-and-trade-induced savings to see podiatrists, dentists, and dermatologists. More people get eye exams, hearing tests, psychiatric evaluations, and physical therapy. In the short run, medical specialists’ earnings rise. Someone schedules the shoulder surgery they have been putting off. In the long run, the higher prices draw more people into these fields (whether licensing laws will let enough people into them is another question).

People also buy more and better education. The return on investment in schooling is higher in an innovation-enriched society, and richer people can afford to spend more time and money studying the humanities. It’s easier to curl up with War and Peace when you can get more food, clothing, and shelter for less labor. Kids can spend more time learning when they don’t have to spend all day in a field or a factory to keep the family fed. Higher demand for education means higher demand for educators and, therefore, more opportunities for the highly educated.

An innovation-enriched society also means a higher demand for financial services. People demand more money managers when they have money to manage. Investing is easy: put your money in indexed mutual funds and hold until you need it. There are a lot of other decisions out there — planning when to make a big purchase, anticipating and budgeting for eventual large home expenses, getting end-of-life documents in order, doing your taxes, and so on — where a little professional help can be nice. The great economist Walter Williams once asked his wife how she would feel if he died. She would be devastated, she replied. Williams said he realized then and there that he didn’t have enough life insurance, because the right amount of insurance would have left her indifferent (he was joking — maybe). As great an economist as Williams was, perhaps he could have caught his “mistake” earlier.

Arts and Entertainment

Innovation and trade-induced enrichment mean a higher demand for entertainment and the arts. True, higher real incomes mean we have more time and money to spend watching professional wrestling (which I love), but it also means we have more time and money to spend going to see performances by world-class companies like Alvin Ailey American Dance Theater (which I also love). There is wheat among the chaff. It’s said that an economist, upon hearing his taxi driver say he’s an unemployed artist, replied, “No, you’re not. You’re an employed taxi driver.” A richer society might be more willing to pay for him to take up his paintbrush again. And John at the bar? Maybe there’s enough new demand that he could be a movie star.

Medium-Skill Labor

It’s not like people are going to be able to switch into these industries overnight. A newly unemployed machinist isn’t going to be able to hang a shingle and take up work as a podiatrist overnight. There are alternatives, though, with skills that might be easier to learn.

Take construction. If there wasn’t so much red tape, or if we let people think more expansively about what constitutes “housing”, we would build more housing in the United States. Even with the red tape, a lot of building and remodeling still happens. A richer world means more construction and more jobs for people in the building trades (which, in many places, is restricted by union rules and regulations which limit the supply of contractors, builders, and other specialists).

It used to be big news when a family in the neighborhood got a car. In so many households now, it’s just assumed that there’s at least one car for every licensed driver. These cars need maintenance and repair. That means people offer something valuable — money — in exchange for value.

Empirically, people tend to eat at restaurants more frequently the richer they get. This creates many low-skill jobs waiting tables or washing dishes, but it also creates many higher-skill jobs, because restaurants need to be owned and managed.

People also like to look nicer. More income from more innovation means people getting more and nicer haircuts. Someone who might have never been to a nail salon might use some of innovation’s bounty to get a manicure or pedicure. Part of looking nicer involves being healthier, so some people get gym memberships, and others go so far as to hire personal trainers. They don’t just want to look nice. They want to live in nice spaces, so there’s a new demand for interior designers. They want nicer outdoor spaces, which creates new opportunities for landscapers.

Rapidly improving mobile technology creates an interesting first-world problem: making it all work together, especially if your family has a bunch of Amazon, Apple, Google, and Microsoft accounts with different settings and login credentials. Contextualized tech support — “I’m a middle-aged dad who wants all this stuff to play nicely together” — might be worth hundreds of dollars an hour. Innovation, trade, and (importantly) flexible labor markets might mean new opportunities in customer service. Imagine calling a customer service line and speaking quickly to a human being who can pick up on the exact problem you are trying to solve instead of navigating endless automated phone trees. Embracing innovation, trade, and economic freedom would make that more likely.

Low-Skill Labor

Innovation also leads to more opportunities in fields that require fewer skills. The richer people get and the more opportunities they have, the more likely they will be willing to pay someone else to clean their house, wash their clothes and cars, cook their food, and scape their lands. Abundance translates into more to fall back on for the skilled worker who loses a job, but can put food on the table cleaning houses and washing cars. It also creates more entry-level work for people who need to get just a little experience in the workforce and learn the habits of highly effective people. They might start out in low-skill McJobs. They aren’t likely to stay there.

The World of Side Hustles and Hobbies

“But you don’t know that. You can’t guarantee that will happen,” a critic might object. Right. I don’t, but I think it’s pretty odd to assume people would just bury their new earnings in the yard — and even then, the rising productivity would reflect itself in lower prices. A little bit of introspection goes a long way.

So why don’t we see more dynamism? Why do we see people leaving one job and taking a long time to find a new one? Part of the answer is that working legally is getting harder every year. A lot of jobs require licenses, which are special permission from the government to ply a trade. Occupations are heavily regulated. Commerce is taxed. All these impede the market’s adjusting to sudden and disruptive change as quickly it would otherwise. Describing his early career, the pro wrestler Jon Moxley said he would work wrestling shows when he was booked rather than go work his minimum-wage job, even if it meant being fired, because he knew he could always get another minimum-wage job. That’s unfortunately not true of everyone, and it’s less true the higher we make those minimum wages.

There are even more ways to pick up some of the fruits of innovation-enabled higher productivity that don’t involve switching careers. Monetizing hobbies and taking on side hustles is easier when more productive people surround you. More traveling people means more demand for travel bloggers, so your passion for Disney World could become a way to pick up a little extra cash helping novices and noobs. Some people spend some of their excess income collecting things they’re passionate about. Maybe you won’t be able to make a full-time career out of it, but if you know more than anyone in the world about elevators, medieval Legos, Memphis pro wrestling, or basketball sneakers, you might be able to earn a few dollars on YouTube or eBay helping people who share your passion — or a few dollars doing the technical work for YouTubers and podcasters.

Conclusion

Intelligent machines probably aren’t coming from your jobs or wages. Automation doesn’t mean the end of work. We don’t need industrial policy to save American manufacturing. We don’t know exactly what tomorrow’s opportunities are — I don’t recall anyone telling me in high school and college in the 90s that companies would need to develop social media strategies — but we can be pretty confident there will be something.

The critic sneers, “I see, so it’s okay to close a factory and cause someone I can see their livelihood because I’m supposed to have blind faith that someone I can’t see will be able to afford shoulder surgery now?” This is why people hate economists: we can’t say specifically what will happen to whom because we do not and cannot have all the relevant knowledge that would allow us to be so precise. That is a feature, not a bug: in a commercial society where so much of the action happens in markets, everyone’s knowledge and preferences get reflected in market prices and, ultimately, outcomes. But to paraphrase what economist Thomas Sowell has said about the efficacy of the marketplace, I don’t have blind faith. I have evidence.

In the twentieth century, innovation, immigration, and international trade reduced the fraction of Americans working in agriculture from about 80 percent to about 2 percent. We didn’t have mass technological unemployment and starvation as a result. Entire new industries sprang up, and what today counts as “poor” by American standards is unimaginably wealthy. When my grandparents were young, it was big news when someone in the neighborhood got a car. When my parents were young, it was big news when someone in the neighborhood got a color TV. When I was young, it was big news when someone in the neighborhood got a Nintendo. It’s big news for my kids when one of their friends gets a smartphone.

We don’t know where the new jobs will come from, but we know they will come from somewhere — and finding out is exciting.