July 1, 2025 • 35 mins
Roger welcomes Dominic Pino, the Thomas L. Rhodes journalism fellow at the National Review Institute, for a wide-ranging conversation on why both political parties are drifting away from free-market principles—and what that means for the United States’ economic future.
They discuss the growing embrace of industrial policy, the return of tariffs and subsidies, and the bipartisan belief that government should play a bigger role in steering the economy. Pino breaks down why this approach has historically failed, why politicians are often poor at picking winners and losers, and why market-driven growth remains the most effective path to prosperity. They also touch on entitlement spending, the misunderstood nature of trade deficits, and how public skepticism of economic expertise is shaping policy debates.
Dominic Pino hosts the “Econception” podcast and is a former William F. Buckley Jr. Fellow in Political Journalism and a National Review editorial intern. He also was a 2020 Political Studies Fellow with the Hertog Foundation and has held internships with ALEC, the Heritage Foundation and the Tax Foundation. He holds both a bachelor’s and master’s degree in economics from George Mason University. While at Mason, he served as an opinion editor of Fourth Estate, the university’s student paper.
The Liberty + Leadership Podcast is hosted by TFAS president Roger Ream and produced by Podville Media. If you have a comment or question for the show, please email us at podcast@TFAS.org. To support TFAS and its mission, please visit TFAS.org/support.
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Episode Transcript
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Speaker 1 (00:02):
Welcome to the Liberty and Leadership Podcast,
a conversation with TFAS alumni,faculty and friends who are
making an impact.
Today I'm your host, roger Ream.
It's a pleasure to welcomeDominic Pino to today's show.
Dominic is the Thomas L RhodesJournalism Fellow at the
National Review Institute, afellowship funded by the Bradley
(00:25):
Foundation.
Prior to his current position,he was the William F Buckley Jr
Fellow in Political Journalismand a National Review Editorial
Intern.
Dominic was also a 2020Political Studies Fellow with
the Hertog Foundation and hashad past internships with ALEC,
the Heritage Foundation and theTax Foundation.
(00:46):
He holds both a bachelor's andmaster's degree in economics
from George Mason University andduring his time there was
opinion editor of Fourth EstateMason's student newspaper.
We are pleased that Dominic isa regular participant in
programs we sponsor at TFAS foryoung professionals.
Dominic, thank you for inprograms we sponsor at TFAS for
young professionals.
Dominic, thank you for joiningthe Liberty and Leadership
(01:08):
podcast.
Speaker 2 (01:09):
Thanks so much for having me.
Speaker 1 (01:10):
Well, I think it's great to have an economist on
today, because there's so muchgoing on in the world, and
particularly the United States,related to economics, but
globally as well.
So I've got a lot of questionsabout economics and economic
policy and I know you'll clearthe air on all of them when we
get done with it.
But I should add that you writea feature in National Review
(01:30):
each month.
In their print magazine calledthe Stat, you grab some very
interesting topical issue andyou give a stat about it.
You recently had one on thesurplus that the US runs in
terms of services.
Could you touch on that?
I think the number was maybeyou remember it was $290-some
billion.
Speaker 2 (01:49):
Yeah, first of all, I just want to say I'm not an
economist.
I write about economics but I'mnot an economist myself.
But yeah, the US trade deficitis something that's been talked
about a lot with the presidentand a lot of people around him.
It's a meaningless number, thefirst thing to know about the
trade deficit.
It doesn't matter.
But when people invoke thetrade deficit as a justification
(02:10):
for tariffs, as a justificationfor whatever their preferred
industrial policy might be, forsome reason the services trade
just gets completely ignored.
And we would expect the UnitedStates, because it's a very,
very rich country, to specializemore in services.
This is what happens all aroundthe world.
As countries become richer,they specialize more in services
(02:31):
, and because the US is theworld's richest country, we
would expect it to be very faralong that process.
And sure enough.
If you look at the tradebalance for services, the US has
a large trade surplus inservices.
Now, there's basically notariffs on services at all.
Tariffs really only apply togoods.
So it's not some result of likebetter trade policy, it's just
(02:54):
a result of what the USspecializes in and what it
doesn't specialize in.
And so if trade surpluses areinherently good which, again,
they're not.
They just don't matter one wayor the other.
But if trade surpluses areinherently good which again
they're not they just don'tmatter one way or the other.
But if trade surpluses areinherently good, why doesn't the
services surplus ever count forprotectionists?
Speaker 1 (03:10):
People are alarmed about the trade deficit.
Is that just an accountingmatter, or are we really
accumulating debts that we'regoing to have to repay in the
future?
Speaker 2 (03:19):
No, we're not accumulating debts.
What the trade deficit is isit's just an accounting
statistic that tallies up all ofthe goods that come into the
country in a year and all thegoods that go out, and then, if
you subtract those from eachother, you get a negative number
right now, because the USimports much more than it
exports.
Speaker 1 (03:35):
Because we're a rich country.
We're a rich country.
Speaker 2 (03:37):
We have the richest consumers in the world that
spend a large share of theirincome as well.
Other countries that have lowertrade deficits oftentimes have
lower consumer spending.
They'll have higher savingsrates than the United States
does, and so what you end upfinding, actually, is that the
trade deficit is more related tothings like that than it is to
trade policy, and we know that.
(03:59):
Efforts to restrict imports.
You know you'll reduce theimports, but they'll often
reduce exports as well, becausewhen a country imposes tariffs
on goods that come from anothercountry, that other country will
retaliate, oftentimes and tryto block exports as well, and
then the currency will changeand appreciate and make it more
difficult for US exports to besold in that way as well.
(04:23):
And so what you end up havingis this thing that was
undertaken to reduce the tradedeficit ends up really not
changing the trade deficit atall, and we saw this during
Trump's first term, when therewere massive tariffs on China
and on steel and aluminum andcertain other specific products.
The balance of trade didn'tchange all that much.
The last time that the US tradedeficit really declined was the
(04:45):
Great Recession, becauseconsumers got poorer and people
weren't working, and so peoplecouldn't afford to buy as much.
So, again, it really has moreto do with the overall economic
trends than it does with tradepolicy.
Speaker 1 (04:56):
So if a country is running a trade deficit or a
trade surplus, that reallydoesn't tell you anything about
whether it's increasing thenumber of manufacturing jobs or
decreasing the number ofmanufacturing jobs.
It's kind of irrelevant to thatfact, right?
Speaker 2 (05:10):
Definitely.
I mean, it doesn't tell youreally anything about the health
of a country's economy.
Angola runs a trade surplus,and so does Australia.
Speaker 1 (05:18):
They export diamonds, huh.
Yeah, angola, exactly, theydon't buy a lot and oil, so they
don't buy a lot of productsfrom the rest of the world.
Speaker 2 (05:24):
Uh-huh.
But Australia is a rich country.
They run a trade surplus.
But then you look at, the UKruns a trade deficit.
It's a rich country, and sodoes Uganda, which is a poor
country.
There's really no correlationat all.
Speaker 1 (05:34):
And it doesn't mean we have a debt we have to pay in
the future.
No, not at deficit, probablywith our grocery stores.
Speaker 2 (05:42):
Oh yeah.
Speaker 1 (05:43):
And it doesn't mean that we at some point we're
going to be in trouble with ourgrocery store because we have
had a deficit year after yearafter year with them.
Speaker 2 (05:49):
That's exactly right.
I mean, the important thing toremember is that individuals
trade with each other.
Countries don't.
You know, countries keep atrack of accounting statistics
for the purposes of nationalaccounts, but the actual
economic activity is donebetween individuals and between
businesses.
Just because those individualsand businesses happen to be in
another country doesn't changethe fact that trade was mutually
(06:11):
beneficial for both sides.
You know, one of the greatadvances that the founding
fathers made when they startedthis country was to abolish all
trade barriers within the UnitedStates, you know, between the
13 colonies, and that was apretty radical idea at the time.
You know France at that timehad a lot of internal trade
barriers.
Canada still has internal tradebarriers today Between
different provinces.
(06:32):
Between the different provinces,yeah, yeah, and it's a huge
political issue up there becauseit creates all kinds of
deadweight loss in their economyand it really holds back the
Canadian economy from doing aswell as it could.
The US and the founding US andthe founding fathers saw that
and solved that problem 250years ago.
And as the country expandedwestward, that free trade zone
grew and grew and grew and thatwas a big part of what helped to
(06:55):
make the United States rich asit was growing, and that was
basically the world's first andlargest free trade zone at that
time.
And so it goes all the way backto the founding generation.
I mean, we talk about how thefounding fathers also had
tariffs.
There were tariffs at that timeand they were responsible for a
large part of the government'srevenue.
But the reason for that wasthat every country at that time
(07:16):
used tariffs to fund theirgovernments, because tariffs are
really easy taxes to collect.
You put a customs official at aport.
He collects the tariffs ongoods as they come in.
As countries get richer, theymove to other forms of taxation,
like the income tax or thesales tax, which are less
economically distortive thantariffs are.
They are usually more steadyand stable sources of revenue,
(07:40):
but they're more complicated toadminister, so you have to have
a certain level of nationalwealth and sort of
sophistication in yourgovernment in order to do that,
and so that's exactly what wesaw in the United States.
Again, this is a trend we seeall over the world Today.
The only countries that reallyrely on tariffs for the revenue
are generally poor countries.
Speaker 1 (07:57):
And when we did rely on tariffs for a large portion
of the government's revenue, thegovernment was much smaller.
Speaker 2 (08:03):
Yeah, yeah, yeah.
If you want to have agovernment the size we had in
1800, I would gladly fund itwith tariffs.
But that would mean no Medicaid, no Medicare, no Social
Security, a much smallermilitary.
It would be completelyunrecognizable to Americans
today the size of that federalgovernment.
Again, I think the federalgovernment's much too big right
now.
But as long as we have thoseobligations that we have to fund
(08:25):
, doing so with an income taxand with I would love to see a
national consumption tax, forexample, but there's no reason
to think that tariffs are aparticularly good way to do that
.
Speaker 1 (08:34):
In your recent stat in National Review you posted
96% was the stat and that is theproportion of the growth of
government employment that'sbeen at the state and local
level in the past.
I guess it was a decade or so,but could you talk some about
that?
And you know, we all think thefederal government's growing so
(08:54):
big and that it's overwhelmingstate and local governments, and
certainly it is in terms of thepower shift to the federal
government.
But this is just an explosionof employment at state and local
government and I know oftenstate and local governments
they're the operationaldeliverer of programs that the
federal government mandates.
So I'm interested in hearingmore about that.
96%.
Speaker 2 (09:15):
Yeah, yeah, so the number goes back to 1955.
That's the first year that theBureau of Labor Statistics keeps
track separately of federal,state and local government
employment and obviously we allknow the federal government is
much more powerful, bigger thanit was in 1955.
1955 is before the GreatSociety.
(09:36):
You might expect that a lot ofthat growth in government
employment would come from thefederal government, because
government employment has surgedsince 1955.
It's grown at about twice therate of the population growth
over that same span.
So it's not just because we'rea bigger country that it really
is growing relative to that aswell.
But if you look at the actualgrowth, a lot of it comes from
state and local government,nearly all of it, in fact.
(09:57):
State and local government haveboth increased their employment
by over 300% since 1955.
One of the cool things I foundas I was doing this is actually
the total state governmentemployment for all 50 states
combined was lower than federalgovernment employment as
recently as 1972.
And now it's just like crazy toeven imagine that all 50 states
(10:20):
put together would have lessgovernment employment than the
federal government.
There's other factors going onhere.
Right, as you said, a lot offederal programs get
administered by the states, andso the federal government's
responsible for part of thatgrowth.
But state governments areresponsible for a lot of this
growth too In sectors such aseducation.
You see enormous surges inemployment in the education
(10:41):
sector with basically noimprovements for student
outcomes, and now we see adeclining public school
population in a lot of places asschool choice expands and as
people have fewer kids, and so,despite all of that, the
employment in government keepsgoing up.
And so I think a mistake thatwe can make as supporters of
(11:03):
limited government to say youknow, employment is the problem
when the federal government ismuch too powerful, and it's not
because they've hired a bunch ofpeople, it's not because
employment is too big, it'sactually because of the laws and
regulations that come out ofWashington DC that give those
bureaucrats lots and lots ofpower, even if there's not that
(11:24):
many more of them than therewere 50 years ago.
Speaker 1 (11:26):
I recall an old joke Ronald Reagan used to tell about
a man coming into his job atthe Department of Agriculture
and his colleague who sits nextto him is crying.
This guy says what's wrong?
What's wrong?
He said my farmer died At somepoint.
I guess maybe there were morebureaucrats in the Department of
Agriculture than there werefarmers.
Another stat that you hadrecently, which was interesting,
(11:50):
you know, maybe I would sayrandom in some sense, but
fascinating was that the economyof Poland, I guess was per
capita GDP of Poland was goingto surpass Japan in 2026.
Right, what kind of led you tothat stat?
And what do you see happeningin Poland and not happening in
Japan, or why is that trendhappening?
Speaker 2 (12:12):
Yeah, poland is a really interesting example of
what economic freedom can do forsociety.
You know, poland was acommunist country until 1989 and
was very poor, as all communistcountries are, and all that you
had to do was get rid of thecommunism, add good, stable,
free market policies, which theydid under their deputy prime
(12:34):
minister at the time, who was aneconomist, and they did the
thing that's supposed to notwork, which is shock therapy.
It was actually sort of similarto what Javier Millet is doing
in Argentina right now, and theysaid you know, we're just going
to dot markets and we're goingto stick to it.
And it was difficult at times.
Unemployment rate went up, asyou would expect when you know
(12:54):
all these government jobs goaway and all that kind of thing,
but they stuck to it and theyhave grown at about 4% a year
for the last 30 years and it'sastonishing that a country that
was that poor can now be thatwealthy.
The statistic that I picked outis by 2026, if the growth
(13:15):
forecasts are anything close tobeing right, they will surpass
Japan in GDP per capita whenadjusted for purchasing power.
And so the Japanese in the 1980swere supposed to be the world
beaters.
They were supposed to be theones who had it all figured out,
because they had this greatindustrial policy and they were
going to dominate electronicsand they were going to dominate
in cars and they were going totake over the world.
What happened was theindustrial policy played out and
(13:38):
they've had 30 years ofstagnation.
Poland really had no industrialpolicy.
They just said we're going tolet markets run, and they've
been able to grow at 4% a year.
They did not have a greatrecession in Poland.
It didn't happen.
It's a really astonishingaccomplishment.
Now, part of their success, too, is that they joined the
European Union, which puts themin a free trade zone with a lot
(13:58):
of different European countries.
They got development aid fromthe European Union that helps.
That's not nothing, but thereal difference, because you can
compare Poland's performance toother countries that joined the
EU at the same time, and allthose countries are better off
today than they were when theyjoined, but Poland has
leapfrogged several of them.
That shows you that there'ssomething different going on
with Poland's policies, and it'sthose market reforms that are
(14:19):
really making the difference.
Speaker 1 (14:21):
I'm old enough to remember in the late 70s and 80s
when Japan's model was the rageand people were saying we need
to adopt that and thankfully wedidn't and we've continued to
have some strong economic growth.
But today there are thosenationalist conservatives who
seem to be calling for that.
I've seen Senator Josh Hawleyconcerned about growing monopoly
(14:43):
power and industries andwanting government to manage the
economy.
Maybe Vice President Vance hasdone likewise and others.
What do you make of this callfor government to somehow
conduct industrial policy?
Coming from you know theseelites who are in power in our
country.
Speaker 2 (15:00):
It's a problem.
I think we saw Joe Biden wasthe champion of this when he was
president.
Right, we had theinfrastructure bill first, which
was supposed to be this massive, you know, job creator
industrial policy bill throughthe government providing funds
for infrastructure projects.
We've seen a lot of those nottake off.
We had the broadband expansionprogram $40 billion put into
(15:20):
expanding rural broadbandservices.
They have built nothing.
It was.
This bill was signed in 2021.
Speaker 1 (15:26):
But they probably spent some of the money.
Speaker 2 (15:28):
Oh, yeah, I'm sure, I'm sure some people spent the
money, but yeah, no, theyhaven't built anything.
The famous example with theelectric vehicle chargers they
appropriated like $5 billion tobuild this huge charging network
and they've built a coupledozen since then.
Then Biden did the CHIPS Actfor semiconductors, which you
know had some bipartisan buy-inbut was mostly Democrat bill,
which had some bipartisan buy-inbut was mostly Democrat bill,
(15:55):
and their signature project inColumbus and in Arizona are not
doing as well as you wouldexpect if it was really such an
urgent national emergency toincrease semiconductor
production.
Michael Strain at AmericanEnterprise Institute talks about
how the American SemiconductorTrade Group not a unbiased
source on this said that becauseof the CHIPS Act, us production
will go from 11% of globaltotal to 14%, which, okay.
(16:18):
What difference does that makefor national security?
Going 11% to 14%?
And the bill is going to spend$50 billion to do this.
It's completely crazy.
And then you look at theso-called Inflation Reduction
Act, which was a huge industrialpolicy bill for green energy,
and you see, you knowRepublicans are trying to scale
some of that back now.
They should just repeal theentire thing.
(16:39):
But that is industrial policy.
That is what these guys saythat they want, and it was the
signature economic agenda itemof the previous president of the
opposite party of them.
I think it would be helpful tohave a little bit more
partisanship here, actually totry to say you know what we're
going, to differentiateourselves from the Democrats,
rather than just trying to copywhat they do and improve on it.
(17:01):
Because you know, the reasonthis stuff doesn't work is not
because Democrats don't know howto do it.
It's because no one knows howto do it doesn't work is not
because Democrats don't know howto do it.
It's because no one knows howto do it.
No one knows how to plan aneconomy.
No one knows how to pick whichindustries are the ones to
support and which ones are theones to leave behind.
And if industrial policy workedreally well, the United States
green energy sector should belike the best industry in the
(17:24):
country.
I mean, the Inflation ReductionAct is not the first time we've
subsidized green energy, andthis goes back at least to the
70s with synthetic fuels, withJimmy Carter and all that stuff.
But we've been doing this stuffforever and yet the industry is
still convinced that it needs atrillion dollars of subsidies,
otherwise it's not going to work.
That doesn't sound like successto me.
Speaker 1 (17:43):
It seems as though the contradictory views in that
on the one hand, politicians atleast resist the Joseph
Schumpeter's idea of creativedestruction, that there is
constant change in a dynamicfree market economy and some
industries will go by thewayside, new ones will come up
(18:04):
and replace them with newtechnology, while at the same
time you know they want tofreeze things.
You know, senator Hawley, insomething you wrote recently,
was upset that you know fourcompanies control 80 percent of
the meat processing business.
Speaker 2 (18:15):
Which was also a Biden line, by the way.
Speaker 1 (18:17):
So should we be worried about monopolies gaining
power and controlling oureconomy and ripping us off?
Speaker 2 (18:23):
We should be.
I mean, that is a thing thatcould happen, but it doesn't
happen a lot right now.
The question that should alwaysbe asked whenever someone puts
out some number there you canpick an industry, there's always
some number of.
Like you know, this manycompanies controls this
percentage of the market?
For the meatpacking one, it'salways like four companies
control 80% or something likethat.
Speaker 1 (18:43):
It seems like there's always one company who has the
largest market share.
Speaker 2 (18:52):
Yeah, yeah, I mean the first point is one of them
has to be the largest.
I mean, this is any ordinalranking of anything.
One of them has to be the top.
But the other problem is howmany companies should control
80% of the market.
They never say If you doublethe number to eight instead of
four, would that be enough?
Would that be like fine?
Does it have to be 11?
I mean, like, what's the number?
No one knows.
And this is why US antitrustpolicy is not actually made on
those grounds.
(19:12):
It's how it gets talked aboutall the time in public.
But since the 1970s we havesomething called the Consumer
Welfare Standard which says theway we're going to enforce
antitrust policy is this hurtingconsumers?
Are consumers worse off becauseof higher prices, reduced
options?
And you have to go out thereand prove that that is happening
, and that's what courts rule onin these cases and that's what
all the case law has said sinceat least the late 70s.
(19:33):
And so that's a much better wayto think about this.
Right, because there are realadvantages to consumers from big
companies, because bigcompanies have economies of
scale and they can pass onsavings from their economies of
scale to consumers.
I just wrote a big piece aboutthe longtime CEO of FedEx, fred
Smith, and FedEx is a goodexample of this.
(19:55):
They're a gigantic company.
They employ like 500,000 people, billions and billions of
dollars of revenue, but as aresult of being a gigantic
company, they can provideservices to customers that a
smaller company couldn't.
They can fly, they have trucksand airplanes to pick up a
package in one part of thecountry and send it to another
part of the country without itever having to go to a different
company.
(20:15):
That was their big advance inthe logistics industry was their
ability to do that door to doorfor a package.
I'm happy that FedEx can dothat.
Other companies do this as wellUPS, dhl.
It's a very competitiveindustry, but it's a big company
.
If it was smaller, would that bebetter for consumers?
No, of course not.
The important thing thatmatters is do they have monopoly
(20:37):
power, which is determined notby how many companies there are,
but by their actual behavior?
Are they raising prices andrestricting output?
Those are the two things thateconomists look for when
determining if something is amonopoly, and we don't see that
happening in that sector.
We don't see that happening inthe meat sector.
We don't see that happening inmost of the American economy.
(20:58):
The other issue that these guysrun into with competition is a
lot of them, like Hawley, arealso protectionists.
Well, protectionism is areduction in competition, right?
One industry that people loveto hate is airlines.
Airlines do have veryconcentrated power.
That we see.
One of the reasons for that isthe entire US domestic market
for air travel is walled offfrom foreign competition.
(21:19):
That's not how it works inEurope.
Right In the European Union,you can have different air
carriers from differentcountries operating within and
between those differentcountries, and, as a result,
they have a much morecompetitive air sector there.
They have lower prices for alot of budget airlines, and we
can do that here, too, if weallow more competition from
other countries.
Anytime you protect an industryfrom foreign competition, you
(21:41):
are asking them to raise prices.
You're asking them to makethings worse off for consumers.
So again, it would be a littlebit easier to take these
concerns seriously if they wereat least consistent about
supporting competition all thetime.
Speaker 1 (21:52):
A lot of this reminds me of something the late Alan
Meltzer wrote about, and that isthat the reason government
grows is that the benefits arevery concentrated and the costs
are diffused.
If government protects anindustry, they get a big benefit
from it.
So they'll have lobbyists workfor that subsidy or that
protection from competition, butthe cost is borne by, you know,
(22:14):
100 million consumers andthere's very little motive for a
taxpayer or a consumer to fightsome bill in Congress that you
know is going to cost them a fewcents maybe.
And I guess that's why you seethis protection in many areas,
like airlines I assume that'sdomestic airlines that want to
keep out foreign competitorsfrom serving the American market
(22:35):
.
And you see that throughout theworld of tariffs the president
has been advocating tariffs andhe's got some advisors who are
very enthusiastic about tariffs,but they seem to have a muddled
number of reasons they oftenoffer.
Sometimes they say it's toraise revenue, like we talked
about earlier, other times it'sto bring back manufacturing jobs
(22:55):
, and yet other times it's justa weapon to try to bring out a
level playing field and getother countries to reduce
barriers to our goods.
Do you think his effort to, ifit is indeed to accomplish
lowering barriers that othercountries offer.
Is that a real concern, that weshould try to be pressuring
other countries to lowerbarriers, and is this a tool
(23:16):
that will help accomplish that?
Speaker 2 (23:18):
No, I don't think any of those justifications are
very good.
So for getting other countriesto reduce their barriers, you
know the US has very low tradebarriers in general.
In certain specific sectors ithas very high ones, right, but
in general it has very low tradebarriers, and other rich
countries, on average, have evenlower trade barriers.
The US, for example, is one ofthe top users, already before
(23:39):
Trump, of countervailing duties,which are anti-dumping tariffs,
which are the idea that ifother countries are producing
something and selling it toocheaply, we will raise the price
in order to protect thedomestic price, and the US uses
that more than anyone.
The US also uses lots ofnon-tariff barriers for all
sorts of different things, eventhough we have a pretty low
(24:02):
average tariff rate, butbasically all the rich countries
in the world do this.
Like I was saying before, thereal story on tariffs is the
shift towards income taxes andtowards more general consumption
taxes that we've seen allaround the world as just better
ways to raise revenue forgovernments, and so the only
countries that really have hightrade barriers are poor
countries.
We see that all over the place,and most US trade is done with
(24:25):
other rich countries.
This is another sort of mythabout foreign trade that is all
about taking from these poorcountries and all this stuff.
Most US trade is done withCanada and Mexico, because
they're right next to us, andthe European Union and China.
China's not as rich as the restof those countries, but by no
means the poorest country in theworld.
They're very much middle-incomecountry and that's where most
US trade happens, and so theidea that these countries are
(24:49):
ripping us off by having thesereally high trade barriers is
not true, and the Trumpadministration ripped up all the
trade agreements that wealready had which had reduced
trade barriers, and so that washow we did this previously.
Speaker 1 (25:03):
Including one.
He negotiated with Mexico andCanada.
Speaker 2 (25:05):
Yeah, exactly.
But you know, during the GeorgeW Bush administration, for
example, the US very nearly hada trade agreement with almost
every country in Latin America.
We had the Central AmericanFree Trade Agreement.
There's free trade agreementswith Peru, with Chile and a
couple of other countries, andthis was like a priority of the
administration at that time toexpand US trade and get other
(25:27):
countries to reduce their tradebarriers.
So how do you do that?
You go send diplomats overthere and negotiate and they
argue about it for a couple ofyears and then you get a treaty
and you sign it with Congress,and that's what the US was doing
.
And then Trump came along in2016 and said no, we're not
going to do that anymore.
Biden continued that, by theway, take the exact same
position that we're not going toprioritize getting more free
(25:48):
trade agreements.
And now Trump has ripped up theones that we already had,
including the one with Israel,by the way, which we're standing
by in this major conflict rightnow.
Israel was the first bilateraltrade agreement the United
States made in 1985.
And Israel, right before Trumpannounced these tariffs, said
that it was going to get rid of100% of its tariffs on US goods.
There were only a handful ofgoods that had any tariffs at
(26:10):
all.
Because, like I said, wealready had this free trade
agreement no-transcript.
And then Trump still puts 17%tariffs on Israeli goods.
So, yeah, the idea that it'sabout reducing other countries'
trade barriers is obviously nottrue by the administration's own
actions.
And then, as far as thisrevenue versus protection point,
a tariff can only do one or theother.
If a tariff is raising revenue,that means that the goods are
(26:32):
still coming into the countrybecause goods coming into the
country, that's how they gettaxed.
If a tariff is protectingdomestic industry, that means
goods aren't coming into thecountry because the industry is
protected, which means there'sno revenue coming in.
So you can either do one or theother.
You can't do both at the sametime, and the fact the
administration thinks that theycan should tell you that they
really don't know what they'redoing.
Speaker 1 (26:52):
As we record, this Congress is working on what's
been called the big, beautifulbill that the president wants to
sign.
It covers a lot of ground,including extending personal tax
cuts that were passed in thefirst Trump administration.
It shows that we will rundeficits way out into the future
.
It does nothing to.
(27:12):
In fact, it exacerbates theannual deficits of the federal
government and the national debt.
Do you see any way the US candeal with this issue before it
comes to a head in a crisis inthe future?
They're already, I think,scheduled to see major cuts in
Social Security.
I remember someone I know inSweden once telling me it's
(27:33):
impossible to have bothgovernment health care and a
defense budget, and he said herein Sweden this was 10, 15 years
ago.
He said we're blessed to havethe United States provide our
defense so we can do socialwelfare state, but the US is in
a point where you know we seemto have to have a defense budget
and yet we're seeing vastexpansion in Medicaid and
(27:53):
government welfare programs.
Does this lead to a majorcrisis in the future, you think,
or is there a way to turn thisaround?
Speaker 2 (28:00):
Well, I'm glad you brought up Sweden, because they
actually fixed their entitlementsystem For most of the 20th
century.
They had an enormous publicsector with a social democratic
government, and they did exactlywhat Margaret Thatcher said
would happen they ran out ofother people's money, and so,
when they did in the 1990s, theyhad a moderate government and
they came together and hashedout a thing to fix their
(28:21):
retirement system and it worked.
And Sweden's retirement systemis doing perfectly fine now, and
so it's possible it can be done.
We've seen it other places, butthe US right now is definitely
on pace to just continue toignore the problem, and this you
know Republicans ignore it,democrats ignore it.
The crazy thing is is that weseem to be ignoring it more as
it gets worse.
(28:41):
At least back in like 2010,there was like talk about
reducing the deficit, and we hada commission about reducing the
deficit and we had politiciansthat would at least pretend to
be concerned about it, and nowwe don't even have that for the
most part.
I mean, there's a handful thatstill do, but in general, they
don't seem to care.
You know they might not care,but like bondholders will, and
(29:01):
we've seen a problem alreadywith rising bond yields, which
puts upward pressure on interestrates, which then makes the
deficit even worse because thegovernment has to pay higher
interest in order to borrow.
And we've seen credit ratingdowngrades now from all three
major credit rating agencies,and so those should be warning
signs to Washington DC, even ifthis other stuff isn't.
(29:25):
But what did they do last year?
We just had the Social Securitytrustees report come out saying
that, you know, social Securitywill have automatic benefit
cuts in less than 10 years 23percent.
I think yeah, yeah, yeah.
And what did they do last yearon?
Social Security Politicianscame to Washington DC right
before Christmas and passed in abipartisan bill an expansion of
Social Security for governmentworkers.
(29:46):
That's what's going on, andthey mentioned it in the
trustees report as one of thereasons why the program is going
to be going bankrupt slightlysooner, a couple months sooner
than they thought it would.
It's completely irresponsible.
They do it, like I said, rightbefore Christmas, stuff like
that, so when no one's payingattention, they don't seem
willing to learn a lesson.
Speaker 1 (30:03):
The only way out of this is if we can sustain strong
economic growth, in a sense,and outgrow the national debt as
a percentage of GDP.
Now that means growth rates ofI don't know 4%, 5%, 6%.
That's hard to accomplish, butit is possible.
I guess.
If you can reduce theregulatory burden on the economy
(30:24):
and make sure taxes don'tdisincentivize companies to grow
and expand, is it possible thateconomic growth could save us
from this problem.
Speaker 2 (30:32):
I don't think so.
I mean I think it's possible wecould have sustained growth
above 3%.
Above 4% is really hard to see.
I mean it's just, the US is arich country.
Rich countries around the worldgenerally have lower population
growth, which means they havelower economic growth.
Speaker 1 (30:46):
Immigration can.
Speaker 2 (30:47):
Yeah, the US has an advantage because of immigration
, right.
That's one of the reasons whyour growth has generally been
higher than a lot of otherdeveloped countries that don't
have that.
But I don't see there's any wayto grow out of it.
What the US needs to do is theyneed to cut spending a lot.
We've seen, you know, a sort ofratchet effect from COVID,
where you had this enormoussurge in emergency spending that
(31:08):
a lot of people supported and alot of it was justified.
There was a real emergencythere, but then the emergency
ends.
You need to get rid of all ofit, and we haven't.
The spending level today isabout a trillion dollars a year
higher than it was if it hadcontinued on its trend in 2019.
And it's lower than it was atthe peak of COVID, but it's
still higher than the pre-COVIDtrend, and the pre-COVID trend
(31:32):
was already bad.
So we're already in a toughspot.
If you look at the projectionsfrom Congressional Budget Office
out over 30 years, revenue ispretty stable as a percentage of
the economy, we're right around17% 18% of the economy of tax
revenue for the federalgovernment, right.
So it's not like we have aproblem of declining revenue.
We have a problem of soaringspending, and what we've seen is
(31:54):
that that spending is supposedto continue to rise, and the
biggest reason is entitlements.
But now we have the problem ofall the borrowing fund.
Entitlements means thatinterest payments actually
become a huge part of the debt,and it's entirely possible that
by 2050, half of all federalrevenue will be going to just
pay interest.
That's before you pay anythingfor any of the benefits that
(32:17):
people get, for the military,for law enforcement, for any of
that stuff that the governmentdoes.
It's going to be just going tointerest payments.
That's completely irresponsible.
Politicians should know this Ithink a lot of them do but they
just don't have the courage yet.
And voters?
You know voters bearresponsibility too, because they
don't vote for people thatpromise to cut spending.
You know they vote for peoplewho might promise to cut
(32:40):
unpopular spending on foreignaid, for example, but they don't
vote for people who promise tocut entitlements, and that's the
source of the problem.
Speaker 1 (32:47):
You're the Thomas L Rhodes fellow at National Review
.
Who was Thomas Rhodes?
Speaker 2 (32:52):
He was president of National Review and then he was
also leader in the BradleyFoundation, based in Milwaukee,
as you mentioned before.
Bradley Foundation supports myfellowship and they named it in
honor of him because he was suchan important and influential
guy in both organizations,stalwart defender of free
markets and of the American idea.
Speaker 1 (33:12):
And we learned before we started recording today that
we're both from Wisconsin.
That's a great state, that'sright.
You have a podcast sponsoredthrough AIER, american Institute
for Economic Research, calledEconception.
Speaker 2 (33:24):
Yeah.
Speaker 1 (33:25):
Say something about the podcast, because I'm sure
people would like to find thatand listen to it.
Speaker 2 (33:29):
Yeah, yeah, you can find any major podcast platform
it's called Econception and wejust look through the economic
events of the day and thebroader concepts that are behind
those events, and so we try totalk about why socialism doesn't
work, why free markets do work,and we deal with the complexity
of modern economy right,because there's not a lot of
(33:50):
simple stories out there and tryto break down the complicated
stuff that's going on in a waythat people can understand.
The slogan I have for it is youknow, the economy is
complicated.
Nobody has all the answers, butmarkets work.
We do know that.
We know markets work, and sousing that insight to try to
make policy better, to try toexplain what's going on, that's
what we're all about.
Speaker 1 (34:10):
Last thing I wanted to ask was I know you've
participated in programs at TFAS, discussions groups and things
like that.
How's that been beneficial toyou?
Speaker 2 (34:24):
Has it helped expand your network?
Oh, definitely.
Several other people atNational Review go to these
things as well.
It's a great place to connectwith people in DC who are
working in similar fields.
You talk to people that arewriting about all sorts of
interesting stuff in a lot ofthe journalism programs and
things like that, and so it'sgreat to be able to meet them
and have a place to do that atTFAS.
Speaker 1 (34:41):
Great.
Thank you for joining me todayon the Liberty and Leadership
Podcast.
Thanks, roger.
Thank you for listening to theLiberty and Leadership Podcast.
If you have a comment orquestion, please drop us an
email at podcast at tfasorg, andbe sure to subscribe to the
show on your favorite podcastapp and leave a five-star review
.
Liberty and Leadership isproduced at Podville Media.
(35:04):
I'm your host, roger Ream, anduntil next time, show courage in
things, large and small.
Welcome to the Liberty and Leadership Podcast,
a conversation with TFAS alumni,faculty and friends who are
making an impact.
Today I'm your host, roger Ream.
It's a pleasure to welcomeDominic Pino to today's show.
Dominic is the Thomas L RhodesJournalism Fellow at the
National Review Institute, afellowship funded by the Bradley
(00:25):
Foundation.
Prior to his current position,he was the William F Buckley Jr
Fellow in Political Journalismand a National Review Editorial
Intern.
Dominic was also a 2020Political Studies Fellow with
the Hertog Foundation and hashad past internships with ALEC,
the Heritage Foundation and theTax Foundation.
(00:46):
He holds both a bachelor's andmaster's degree in economics
from George Mason University andduring his time there was
opinion editor of Fourth EstateMason's student newspaper.
We are pleased that Dominic isa regular participant in
programs we sponsor at TFAS foryoung professionals.
Dominic, thank you for inprograms we sponsor at TFAS for
young professionals.
Dominic, thank you for joiningthe Liberty and Leadership
(01:08):
podcast.
Speaker 2 (01:09):
Thanks so much for having me.
Speaker 1 (01:10):
Well, I think it's great to have an economist on
today, because there's so muchgoing on in the world, and
particularly the United States,related to economics, but
globally as well.
So I've got a lot of questionsabout economics and economic
policy and I know you'll clearthe air on all of them when we
get done with it.
But I should add that you writea feature in National Review
(01:30):
each month.
In their print magazine calledthe Stat, you grab some very
interesting topical issue andyou give a stat about it.
You recently had one on thesurplus that the US runs in
terms of services.
Could you touch on that?
I think the number was maybeyou remember it was $290-some
billion.
Speaker 2 (01:49):
Yeah, first of all, I just want to say I'm not an
economist.
I write about economics but I'mnot an economist myself.
But yeah, the US trade deficitis something that's been talked
about a lot with the presidentand a lot of people around him.
It's a meaningless number, thefirst thing to know about the
trade deficit.
It doesn't matter.
But when people invoke thetrade deficit as a justification
(02:10):
for tariffs, as a justificationfor whatever their preferred
industrial policy might be, forsome reason the services trade
just gets completely ignored.
And we would expect the UnitedStates, because it's a very,
very rich country, to specializemore in services.
This is what happens all aroundthe world.
As countries become richer,they specialize more in services
(02:31):
, and because the US is theworld's richest country, we
would expect it to be very faralong that process.
And sure enough.
If you look at the tradebalance for services, the US has
a large trade surplus inservices.
Now, there's basically notariffs on services at all.
Tariffs really only apply togoods.
So it's not some result of likebetter trade policy, it's just
(02:54):
a result of what the USspecializes in and what it
doesn't specialize in.
And so if trade surpluses areinherently good which, again,
they're not.
They just don't matter one wayor the other.
But if trade surpluses areinherently good which again
they're not they just don'tmatter one way or the other.
But if trade surpluses areinherently good, why doesn't the
services surplus ever count forprotectionists?
Speaker 1 (03:10):
People are alarmed about the trade deficit.
Is that just an accountingmatter, or are we really
accumulating debts that we'regoing to have to repay in the
future?
Speaker 2 (03:19):
No, we're not accumulating debts.
What the trade deficit is isit's just an accounting
statistic that tallies up all ofthe goods that come into the
country in a year and all thegoods that go out, and then, if
you subtract those from eachother, you get a negative number
right now, because the USimports much more than it
exports.
Speaker 1 (03:35):
Because we're a rich country.
We're a rich country.
Speaker 2 (03:37):
We have the richest consumers in the world that
spend a large share of theirincome as well.
Other countries that have lowertrade deficits oftentimes have
lower consumer spending.
They'll have higher savingsrates than the United States
does, and so what you end upfinding, actually, is that the
trade deficit is more related tothings like that than it is to
trade policy, and we know that.
(03:59):
Efforts to restrict imports.
You know you'll reduce theimports, but they'll often
reduce exports as well, becausewhen a country imposes tariffs
on goods that come from anothercountry, that other country will
retaliate, oftentimes and tryto block exports as well, and
then the currency will changeand appreciate and make it more
difficult for US exports to besold in that way as well.
(04:23):
And so what you end up havingis this thing that was
undertaken to reduce the tradedeficit ends up really not
changing the trade deficit atall, and we saw this during
Trump's first term, when therewere massive tariffs on China
and on steel and aluminum andcertain other specific products.
The balance of trade didn'tchange all that much.
The last time that the US tradedeficit really declined was the
(04:45):
Great Recession, becauseconsumers got poorer and people
weren't working, and so peoplecouldn't afford to buy as much.
So, again, it really has moreto do with the overall economic
trends than it does with tradepolicy.
Speaker 1 (04:56):
So if a country is running a trade deficit or a
trade surplus, that reallydoesn't tell you anything about
whether it's increasing thenumber of manufacturing jobs or
decreasing the number ofmanufacturing jobs.
It's kind of irrelevant to thatfact, right?
Speaker 2 (05:10):
Definitely.
I mean, it doesn't tell youreally anything about the health
of a country's economy.
Angola runs a trade surplus,and so does Australia.
Speaker 1 (05:18):
They export diamonds, huh.
Yeah, angola, exactly, theydon't buy a lot and oil, so they
don't buy a lot of productsfrom the rest of the world.
Speaker 2 (05:24):
Uh-huh.
But Australia is a rich country.
They run a trade surplus.
But then you look at, the UKruns a trade deficit.
It's a rich country, and sodoes Uganda, which is a poor
country.
There's really no correlationat all.
Speaker 1 (05:34):
And it doesn't mean we have a debt we have to pay in
the future.
No, not at deficit, probablywith our grocery stores.
Speaker 2 (05:42):
Oh yeah.
Speaker 1 (05:43):
And it doesn't mean that we at some point we're
going to be in trouble with ourgrocery store because we have
had a deficit year after yearafter year with them.
Speaker 2 (05:49):
That's exactly right.
I mean, the important thing toremember is that individuals
trade with each other.
Countries don't.
You know, countries keep atrack of accounting statistics
for the purposes of nationalaccounts, but the actual
economic activity is donebetween individuals and between
businesses.
Just because those individualsand businesses happen to be in
another country doesn't changethe fact that trade was mutually
(06:11):
beneficial for both sides.
You know, one of the greatadvances that the founding
fathers made when they startedthis country was to abolish all
trade barriers within the UnitedStates, you know, between the
13 colonies, and that was apretty radical idea at the time.
You know France at that timehad a lot of internal trade
barriers.
Canada still has internal tradebarriers today Between
different provinces.
(06:32):
Between the different provinces,yeah, yeah, and it's a huge
political issue up there becauseit creates all kinds of
deadweight loss in their economyand it really holds back the
Canadian economy from doing aswell as it could.
The US and the founding US andthe founding fathers saw that
and solved that problem 250years ago.
And as the country expandedwestward, that free trade zone
grew and grew and grew and thatwas a big part of what helped to
(06:55):
make the United States rich asit was growing, and that was
basically the world's first andlargest free trade zone at that
time.
And so it goes all the way backto the founding generation.
I mean, we talk about how thefounding fathers also had
tariffs.
There were tariffs at that timeand they were responsible for a
large part of the government'srevenue.
But the reason for that wasthat every country at that time
(07:16):
used tariffs to fund theirgovernments, because tariffs are
really easy taxes to collect.
You put a customs official at aport.
He collects the tariffs ongoods as they come in.
As countries get richer, theymove to other forms of taxation,
like the income tax or thesales tax, which are less
economically distortive thantariffs are.
They are usually more steadyand stable sources of revenue,
(07:40):
but they're more complicated toadminister, so you have to have
a certain level of nationalwealth and sort of
sophistication in yourgovernment in order to do that,
and so that's exactly what wesaw in the United States.
Again, this is a trend we seeall over the world Today.
The only countries that reallyrely on tariffs for the revenue
are generally poor countries.
Speaker 1 (07:57):
And when we did rely on tariffs for a large portion
of the government's revenue, thegovernment was much smaller.
Speaker 2 (08:03):
Yeah, yeah, yeah.
If you want to have agovernment the size we had in
1800, I would gladly fund itwith tariffs.
But that would mean no Medicaid, no Medicare, no Social
Security, a much smallermilitary.
It would be completelyunrecognizable to Americans
today the size of that federalgovernment.
Again, I think the federalgovernment's much too big right
now.
But as long as we have thoseobligations that we have to fund
(08:25):
, doing so with an income taxand with I would love to see a
national consumption tax, forexample, but there's no reason
to think that tariffs are aparticularly good way to do that
.
Speaker 1 (08:34):
In your recent stat in National Review you posted
96% was the stat and that is theproportion of the growth of
government employment that'sbeen at the state and local
level in the past.
I guess it was a decade or so,but could you talk some about
that?
And you know, we all think thefederal government's growing so
(08:54):
big and that it's overwhelmingstate and local governments, and
certainly it is in terms of thepower shift to the federal
government.
But this is just an explosionof employment at state and local
government and I know oftenstate and local governments
they're the operationaldeliverer of programs that the
federal government mandates.
So I'm interested in hearingmore about that.
96%.
Speaker 2 (09:15):
Yeah, yeah, so the number goes back to 1955.
That's the first year that theBureau of Labor Statistics keeps
track separately of federal,state and local government
employment and obviously we allknow the federal government is
much more powerful, bigger thanit was in 1955.
1955 is before the GreatSociety.
(09:36):
You might expect that a lot ofthat growth in government
employment would come from thefederal government, because
government employment has surgedsince 1955.
It's grown at about twice therate of the population growth
over that same span.
So it's not just because we'rea bigger country that it really
is growing relative to that aswell.
But if you look at the actualgrowth, a lot of it comes from
state and local government,nearly all of it, in fact.
(09:57):
State and local government haveboth increased their employment
by over 300% since 1955.
One of the cool things I foundas I was doing this is actually
the total state governmentemployment for all 50 states
combined was lower than federalgovernment employment as
recently as 1972.
And now it's just like crazy toeven imagine that all 50 states
(10:20):
put together would have lessgovernment employment than the
federal government.
There's other factors going onhere.
Right, as you said, a lot offederal programs get
administered by the states, andso the federal government's
responsible for part of thatgrowth.
But state governments areresponsible for a lot of this
growth too In sectors such aseducation.
You see enormous surges inemployment in the education
(10:41):
sector with basically noimprovements for student
outcomes, and now we see adeclining public school
population in a lot of places asschool choice expands and as
people have fewer kids, and so,despite all of that, the
employment in government keepsgoing up.
And so I think a mistake thatwe can make as supporters of
(11:03):
limited government to say youknow, employment is the problem
when the federal government ismuch too powerful, and it's not
because they've hired a bunch ofpeople, it's not because
employment is too big, it'sactually because of the laws and
regulations that come out ofWashington DC that give those
bureaucrats lots and lots ofpower, even if there's not that
(11:24):
many more of them than therewere 50 years ago.
Speaker 1 (11:26):
I recall an old joke Ronald Reagan used to tell about
a man coming into his job atthe Department of Agriculture
and his colleague who sits nextto him is crying.
This guy says what's wrong?
What's wrong?
He said my farmer died At somepoint.
I guess maybe there were morebureaucrats in the Department of
Agriculture than there werefarmers.
Another stat that you hadrecently, which was interesting,
(11:50):
you know, maybe I would sayrandom in some sense, but
fascinating was that the economyof Poland, I guess was per
capita GDP of Poland was goingto surpass Japan in 2026.
Right, what kind of led you tothat stat?
And what do you see happeningin Poland and not happening in
Japan, or why is that trendhappening?
Speaker 2 (12:12):
Yeah, poland is a really interesting example of
what economic freedom can do forsociety.
You know, poland was acommunist country until 1989 and
was very poor, as all communistcountries are, and all that you
had to do was get rid of thecommunism, add good, stable,
free market policies, which theydid under their deputy prime
(12:34):
minister at the time, who was aneconomist, and they did the
thing that's supposed to notwork, which is shock therapy.
It was actually sort of similarto what Javier Millet is doing
in Argentina right now, and theysaid you know, we're just going
to dot markets and we're goingto stick to it.
And it was difficult at times.
Unemployment rate went up, asyou would expect when you know
(12:54):
all these government jobs goaway and all that kind of thing,
but they stuck to it and theyhave grown at about 4% a year
for the last 30 years and it'sastonishing that a country that
was that poor can now be thatwealthy.
The statistic that I picked outis by 2026, if the growth
(13:15):
forecasts are anything close tobeing right, they will surpass
Japan in GDP per capita whenadjusted for purchasing power.
And so the Japanese in the 1980swere supposed to be the world
beaters.
They were supposed to be theones who had it all figured out,
because they had this greatindustrial policy and they were
going to dominate electronicsand they were going to dominate
in cars and they were going totake over the world.
What happened was theindustrial policy played out and
(13:38):
they've had 30 years ofstagnation.
Poland really had no industrialpolicy.
They just said we're going tolet markets run, and they've
been able to grow at 4% a year.
They did not have a greatrecession in Poland.
It didn't happen.
It's a really astonishingaccomplishment.
Now, part of their success, too, is that they joined the
European Union, which puts themin a free trade zone with a lot
(13:58):
of different European countries.
They got development aid fromthe European Union that helps.
That's not nothing, but thereal difference, because you can
compare Poland's performance toother countries that joined the
EU at the same time, and allthose countries are better off
today than they were when theyjoined, but Poland has
leapfrogged several of them.
That shows you that there'ssomething different going on
with Poland's policies, and it'sthose market reforms that are
(14:19):
really making the difference.
Speaker 1 (14:21):
I'm old enough to remember in the late 70s and 80s
when Japan's model was the rageand people were saying we need
to adopt that and thankfully wedidn't and we've continued to
have some strong economic growth.
But today there are thosenationalist conservatives who
seem to be calling for that.
I've seen Senator Josh Hawleyconcerned about growing monopoly
(14:43):
power and industries andwanting government to manage the
economy.
Maybe Vice President Vance hasdone likewise and others.
What do you make of this callfor government to somehow
conduct industrial policy?
Coming from you know theseelites who are in power in our
country.
Speaker 2 (15:00):
It's a problem.
I think we saw Joe Biden wasthe champion of this when he was
president.
Right, we had theinfrastructure bill first, which
was supposed to be this massive, you know, job creator
industrial policy bill throughthe government providing funds
for infrastructure projects.
We've seen a lot of those nottake off.
We had the broadband expansionprogram $40 billion put into
(15:20):
expanding rural broadbandservices.
They have built nothing.
It was.
This bill was signed in 2021.
Speaker 1 (15:26):
But they probably spent some of the money.
Speaker 2 (15:28):
Oh, yeah, I'm sure, I'm sure some people spent the
money, but yeah, no, theyhaven't built anything.
The famous example with theelectric vehicle chargers they
appropriated like $5 billion tobuild this huge charging network
and they've built a coupledozen since then.
Then Biden did the CHIPS Actfor semiconductors, which you
know had some bipartisan buy-inbut was mostly Democrat bill,
which had some bipartisan buy-inbut was mostly Democrat bill,
(15:55):
and their signature project inColumbus and in Arizona are not
doing as well as you wouldexpect if it was really such an
urgent national emergency toincrease semiconductor
production.
Michael Strain at AmericanEnterprise Institute talks about
how the American SemiconductorTrade Group not a unbiased
source on this said that becauseof the CHIPS Act, us production
will go from 11% of globaltotal to 14%, which, okay.
(16:18):
What difference does that makefor national security?
Going 11% to 14%?
And the bill is going to spend$50 billion to do this.
It's completely crazy.
And then you look at theso-called Inflation Reduction
Act, which was a huge industrialpolicy bill for green energy,
and you see, you knowRepublicans are trying to scale
some of that back now.
They should just repeal theentire thing.
(16:39):
But that is industrial policy.
That is what these guys saythat they want, and it was the
signature economic agenda itemof the previous president of the
opposite party of them.
I think it would be helpful tohave a little bit more
partisanship here, actually totry to say you know what we're
going, to differentiateourselves from the Democrats,
rather than just trying to copywhat they do and improve on it.
(17:01):
Because you know, the reasonthis stuff doesn't work is not
because Democrats don't know howto do it.
It's because no one knows howto do it doesn't work is not
because Democrats don't know howto do it.
It's because no one knows howto do it.
No one knows how to plan aneconomy.
No one knows how to pick whichindustries are the ones to
support and which ones are theones to leave behind.
And if industrial policy workedreally well, the United States
green energy sector should belike the best industry in the
(17:24):
country.
I mean, the Inflation ReductionAct is not the first time we've
subsidized green energy, andthis goes back at least to the
70s with synthetic fuels, withJimmy Carter and all that stuff.
But we've been doing this stuffforever and yet the industry is
still convinced that it needs atrillion dollars of subsidies,
otherwise it's not going to work.
That doesn't sound like successto me.
Speaker 1 (17:43):
It seems as though the contradictory views in that
on the one hand, politicians atleast resist the Joseph
Schumpeter's idea of creativedestruction, that there is
constant change in a dynamicfree market economy and some
industries will go by thewayside, new ones will come up
(18:04):
and replace them with newtechnology, while at the same
time you know they want tofreeze things.
You know, senator Hawley, insomething you wrote recently,
was upset that you know fourcompanies control 80 percent of
the meat processing business.
Speaker 2 (18:15):
Which was also a Biden line, by the way.
Speaker 1 (18:17):
So should we be worried about monopolies gaining
power and controlling oureconomy and ripping us off?
Speaker 2 (18:23):
We should be.
I mean, that is a thing thatcould happen, but it doesn't
happen a lot right now.
The question that should alwaysbe asked whenever someone puts
out some number there you canpick an industry, there's always
some number of.
Like you know, this manycompanies controls this
percentage of the market?
For the meatpacking one, it'salways like four companies
control 80% or something likethat.
Speaker 1 (18:43):
It seems like there's always one company who has the
largest market share.
Speaker 2 (18:52):
Yeah, yeah, I mean the first point is one of them
has to be the largest.
I mean, this is any ordinalranking of anything.
One of them has to be the top.
But the other problem is howmany companies should control
80% of the market.
They never say If you doublethe number to eight instead of
four, would that be enough?
Would that be like fine?
Does it have to be 11?
I mean, like, what's the number?
No one knows.
And this is why US antitrustpolicy is not actually made on
those grounds.
(19:12):
It's how it gets talked aboutall the time in public.
But since the 1970s we havesomething called the Consumer
Welfare Standard which says theway we're going to enforce
antitrust policy is this hurtingconsumers?
Are consumers worse off becauseof higher prices, reduced
options?
And you have to go out thereand prove that that is happening
, and that's what courts rule onin these cases and that's what
all the case law has said sinceat least the late 70s.
(19:33):
And so that's a much better wayto think about this.
Right, because there are realadvantages to consumers from big
companies, because bigcompanies have economies of
scale and they can pass onsavings from their economies of
scale to consumers.
I just wrote a big piece aboutthe longtime CEO of FedEx, fred
Smith, and FedEx is a goodexample of this.
(19:55):
They're a gigantic company.
They employ like 500,000 people, billions and billions of
dollars of revenue, but as aresult of being a gigantic
company, they can provideservices to customers that a
smaller company couldn't.
They can fly, they have trucksand airplanes to pick up a
package in one part of thecountry and send it to another
part of the country without itever having to go to a different
company.
(20:15):
That was their big advance inthe logistics industry was their
ability to do that door to doorfor a package.
I'm happy that FedEx can dothat.
Other companies do this as wellUPS, dhl.
It's a very competitiveindustry, but it's a big company
.
If it was smaller, would that bebetter for consumers?
No, of course not.
The important thing thatmatters is do they have monopoly
(20:37):
power, which is determined notby how many companies there are,
but by their actual behavior?
Are they raising prices andrestricting output?
Those are the two things thateconomists look for when
determining if something is amonopoly, and we don't see that
happening in that sector.
We don't see that happening inthe meat sector.
We don't see that happening inmost of the American economy.
(20:58):
The other issue that these guysrun into with competition is a
lot of them, like Hawley, arealso protectionists.
Well, protectionism is areduction in competition, right?
One industry that people loveto hate is airlines.
Airlines do have veryconcentrated power.
That we see.
One of the reasons for that isthe entire US domestic market
for air travel is walled offfrom foreign competition.
(21:19):
That's not how it works inEurope.
Right In the European Union,you can have different air
carriers from differentcountries operating within and
between those differentcountries, and, as a result,
they have a much morecompetitive air sector there.
They have lower prices for alot of budget airlines, and we
can do that here, too, if weallow more competition from
other countries.
Anytime you protect an industryfrom foreign competition, you
(21:41):
are asking them to raise prices.
You're asking them to makethings worse off for consumers.
So again, it would be a littlebit easier to take these
concerns seriously if they wereat least consistent about
supporting competition all thetime.
Speaker 1 (21:52):
A lot of this reminds me of something the late Alan
Meltzer wrote about, and that isthat the reason government
grows is that the benefits arevery concentrated and the costs
are diffused.
If government protects anindustry, they get a big benefit
from it.
So they'll have lobbyists workfor that subsidy or that
protection from competition, butthe cost is borne by, you know,
(22:14):
100 million consumers andthere's very little motive for a
taxpayer or a consumer to fightsome bill in Congress that you
know is going to cost them a fewcents maybe.
And I guess that's why you seethis protection in many areas,
like airlines I assume that'sdomestic airlines that want to
keep out foreign competitorsfrom serving the American market
(22:35):
.
And you see that throughout theworld of tariffs the president
has been advocating tariffs andhe's got some advisors who are
very enthusiastic about tariffs,but they seem to have a muddled
number of reasons they oftenoffer.
Sometimes they say it's toraise revenue, like we talked
about earlier, other times it'sto bring back manufacturing jobs
(22:55):
, and yet other times it's justa weapon to try to bring out a
level playing field and getother countries to reduce
barriers to our goods.
Do you think his effort to, ifit is indeed to accomplish
lowering barriers that othercountries offer.
Is that a real concern, that weshould try to be pressuring
other countries to lowerbarriers, and is this a tool
(23:16):
that will help accomplish that?
Speaker 2 (23:18):
No, I don't think any of those justifications are
very good.
So for getting other countriesto reduce their barriers, you
know the US has very low tradebarriers in general.
In certain specific sectors ithas very high ones, right, but
in general it has very low tradebarriers, and other rich
countries, on average, have evenlower trade barriers.
The US, for example, is one ofthe top users, already before
(23:39):
Trump, of countervailing duties,which are anti-dumping tariffs,
which are the idea that ifother countries are producing
something and selling it toocheaply, we will raise the price
in order to protect thedomestic price, and the US uses
that more than anyone.
The US also uses lots ofnon-tariff barriers for all
sorts of different things, eventhough we have a pretty low
(24:02):
average tariff rate, butbasically all the rich countries
in the world do this.
Like I was saying before, thereal story on tariffs is the
shift towards income taxes andtowards more general consumption
taxes that we've seen allaround the world as just better
ways to raise revenue forgovernments, and so the only
countries that really have hightrade barriers are poor
countries.
We see that all over the place,and most US trade is done with
(24:25):
other rich countries.
This is another sort of mythabout foreign trade that is all
about taking from these poorcountries and all this stuff.
Most US trade is done withCanada and Mexico, because
they're right next to us, andthe European Union and China.
China's not as rich as the restof those countries, but by no
means the poorest country in theworld.
They're very much middle-incomecountry and that's where most
US trade happens, and so theidea that these countries are
(24:49):
ripping us off by having thesereally high trade barriers is
not true, and the Trumpadministration ripped up all the
trade agreements that wealready had which had reduced
trade barriers, and so that washow we did this previously.
Speaker 1 (25:03):
Including one.
He negotiated with Mexico andCanada.
Speaker 2 (25:05):
Yeah, exactly.
But you know, during the GeorgeW Bush administration, for
example, the US very nearly hada trade agreement with almost
every country in Latin America.
We had the Central AmericanFree Trade Agreement.
There's free trade agreementswith Peru, with Chile and a
couple of other countries, andthis was like a priority of the
administration at that time toexpand US trade and get other
(25:27):
countries to reduce their tradebarriers.
So how do you do that?
You go send diplomats overthere and negotiate and they
argue about it for a couple ofyears and then you get a treaty
and you sign it with Congress,and that's what the US was doing
.
And then Trump came along in2016 and said no, we're not
going to do that anymore.
Biden continued that, by theway, take the exact same
position that we're not going toprioritize getting more free
(25:48):
trade agreements.
And now Trump has ripped up theones that we already had,
including the one with Israel,by the way, which we're standing
by in this major conflict rightnow.
Israel was the first bilateraltrade agreement the United
States made in 1985.
And Israel, right before Trumpannounced these tariffs, said
that it was going to get rid of100% of its tariffs on US goods.
There were only a handful ofgoods that had any tariffs at
(26:10):
all.
Because, like I said, wealready had this free trade
agreement no-transcript.
And then Trump still puts 17%tariffs on Israeli goods.
So, yeah, the idea that it'sabout reducing other countries'
trade barriers is obviously nottrue by the administration's own
actions.
And then, as far as thisrevenue versus protection point,
a tariff can only do one or theother.
If a tariff is raising revenue,that means that the goods are
(26:32):
still coming into the countrybecause goods coming into the
country, that's how they gettaxed.
If a tariff is protectingdomestic industry, that means
goods aren't coming into thecountry because the industry is
protected, which means there'sno revenue coming in.
So you can either do one or theother.
You can't do both at the sametime, and the fact the
administration thinks that theycan should tell you that they
really don't know what they'redoing.
Speaker 1 (26:52):
As we record, this Congress is working on what's
been called the big, beautifulbill that the president wants to
sign.
It covers a lot of ground,including extending personal tax
cuts that were passed in thefirst Trump administration.
It shows that we will rundeficits way out into the future
.
It does nothing to.
(27:12):
In fact, it exacerbates theannual deficits of the federal
government and the national debt.
Do you see any way the US candeal with this issue before it
comes to a head in a crisis inthe future?
They're already, I think,scheduled to see major cuts in
Social Security.
I remember someone I know inSweden once telling me it's
(27:33):
impossible to have bothgovernment health care and a
defense budget, and he said herein Sweden this was 10, 15 years
ago.
He said we're blessed to havethe United States provide our
defense so we can do socialwelfare state, but the US is in
a point where you know we seemto have to have a defense budget
and yet we're seeing vastexpansion in Medicaid and
(27:53):
government welfare programs.
Does this lead to a majorcrisis in the future, you think,
or is there a way to turn thisaround?
Speaker 2 (28:00):
Well, I'm glad you brought up Sweden, because they
actually fixed their entitlementsystem For most of the 20th
century.
They had an enormous publicsector with a social democratic
government, and they did exactlywhat Margaret Thatcher said
would happen they ran out ofother people's money, and so,
when they did in the 1990s, theyhad a moderate government and
they came together and hashedout a thing to fix their
(28:21):
retirement system and it worked.
And Sweden's retirement systemis doing perfectly fine now, and
so it's possible it can be done.
We've seen it other places, butthe US right now is definitely
on pace to just continue toignore the problem, and this you
know Republicans ignore it,democrats ignore it.
The crazy thing is is that weseem to be ignoring it more as
it gets worse.
(28:41):
At least back in like 2010,there was like talk about
reducing the deficit, and we hada commission about reducing the
deficit and we had politiciansthat would at least pretend to
be concerned about it, and nowwe don't even have that for the
most part.
I mean, there's a handful thatstill do, but in general, they
don't seem to care.
You know they might not care,but like bondholders will, and
(29:01):
we've seen a problem alreadywith rising bond yields, which
puts upward pressure on interestrates, which then makes the
deficit even worse because thegovernment has to pay higher
interest in order to borrow.
And we've seen credit ratingdowngrades now from all three
major credit rating agencies,and so those should be warning
signs to Washington DC, even ifthis other stuff isn't.
(29:25):
But what did they do last year?
We just had the Social Securitytrustees report come out saying
that, you know, social Securitywill have automatic benefit
cuts in less than 10 years 23percent.
I think yeah, yeah, yeah.
And what did they do last yearon?
Social Security Politicianscame to Washington DC right
before Christmas and passed in abipartisan bill an expansion of
Social Security for governmentworkers.
(29:46):
That's what's going on, andthey mentioned it in the
trustees report as one of thereasons why the program is going
to be going bankrupt slightlysooner, a couple months sooner
than they thought it would.
It's completely irresponsible.
They do it, like I said, rightbefore Christmas, stuff like
that, so when no one's payingattention, they don't seem
willing to learn a lesson.
Speaker 1 (30:03):
The only way out of this is if we can sustain strong
economic growth, in a sense,and outgrow the national debt as
a percentage of GDP.
Now that means growth rates ofI don't know 4%, 5%, 6%.
That's hard to accomplish, butit is possible.
I guess.
If you can reduce theregulatory burden on the economy
(30:24):
and make sure taxes don'tdisincentivize companies to grow
and expand, is it possible thateconomic growth could save us
from this problem.
Speaker 2 (30:32):
I don't think so.
I mean I think it's possible wecould have sustained growth
above 3%.
Above 4% is really hard to see.
I mean it's just, the US is arich country.
Rich countries around the worldgenerally have lower population
growth, which means they havelower economic growth.
Speaker 1 (30:46):
Immigration can.
Speaker 2 (30:47):
Yeah, the US has an advantage because of immigration
, right.
That's one of the reasons whyour growth has generally been
higher than a lot of otherdeveloped countries that don't
have that.
But I don't see there's any wayto grow out of it.
What the US needs to do is theyneed to cut spending a lot.
We've seen, you know, a sort ofratchet effect from COVID,
where you had this enormoussurge in emergency spending that
(31:08):
a lot of people supported and alot of it was justified.
There was a real emergencythere, but then the emergency
ends.
You need to get rid of all ofit, and we haven't.
The spending level today isabout a trillion dollars a year
higher than it was if it hadcontinued on its trend in 2019.
And it's lower than it was atthe peak of COVID, but it's
still higher than the pre-COVIDtrend, and the pre-COVID trend
(31:32):
was already bad.
So we're already in a toughspot.
If you look at the projectionsfrom Congressional Budget Office
out over 30 years, revenue ispretty stable as a percentage of
the economy, we're right around17% 18% of the economy of tax
revenue for the federalgovernment, right.
So it's not like we have aproblem of declining revenue.
We have a problem of soaringspending, and what we've seen is
(31:54):
that that spending is supposedto continue to rise, and the
biggest reason is entitlements.
But now we have the problem ofall the borrowing fund.
Entitlements means thatinterest payments actually
become a huge part of the debt,and it's entirely possible that
by 2050, half of all federalrevenue will be going to just
pay interest.
That's before you pay anythingfor any of the benefits that
(32:17):
people get, for the military,for law enforcement, for any of
that stuff that the governmentdoes.
It's going to be just going tointerest payments.
That's completely irresponsible.
Politicians should know this Ithink a lot of them do but they
just don't have the courage yet.
And voters?
You know voters bearresponsibility too, because they
don't vote for people thatpromise to cut spending.
You know they vote for peoplewho might promise to cut
(32:40):
unpopular spending on foreignaid, for example, but they don't
vote for people who promise tocut entitlements, and that's the
source of the problem.
Speaker 1 (32:47):
You're the Thomas L Rhodes fellow at National Review
.
Who was Thomas Rhodes?
Speaker 2 (32:52):
He was president of National Review and then he was
also leader in the BradleyFoundation, based in Milwaukee,
as you mentioned before.
Bradley Foundation supports myfellowship and they named it in
honor of him because he was suchan important and influential
guy in both organizations,stalwart defender of free
markets and of the American idea.
Speaker 1 (33:12):
And we learned before we started recording today that
we're both from Wisconsin.
That's a great state, that'sright.
You have a podcast sponsoredthrough AIER, american Institute
for Economic Research, calledEconception.
Speaker 2 (33:24):
Yeah.
Speaker 1 (33:25):
Say something about the podcast, because I'm sure
people would like to find thatand listen to it.
Speaker 2 (33:29):
Yeah, yeah, you can find any major podcast platform
it's called Econception and wejust look through the economic
events of the day and thebroader concepts that are behind
those events, and so we try totalk about why socialism doesn't
work, why free markets do work,and we deal with the complexity
of modern economy right,because there's not a lot of
(33:50):
simple stories out there and tryto break down the complicated
stuff that's going on in a waythat people can understand.
The slogan I have for it is youknow, the economy is
complicated.
Nobody has all the answers, butmarkets work.
We do know that.
We know markets work, and sousing that insight to try to
make policy better, to try toexplain what's going on, that's
what we're all about.
Speaker 1 (34:10):
Last thing I wanted to ask was I know you've
participated in programs at TFAS, discussions groups and things
like that.
How's that been beneficial toyou?
Speaker 2 (34:24):
Has it helped expand your network?
Oh, definitely.
Several other people atNational Review go to these
things as well.
It's a great place to connectwith people in DC who are
working in similar fields.
You talk to people that arewriting about all sorts of
interesting stuff in a lot ofthe journalism programs and
things like that, and so it'sgreat to be able to meet them
and have a place to do that atTFAS.
Speaker 1 (34:41):
Great.
Thank you for joining me todayon the Liberty and Leadership
Podcast.
Thanks, roger.
Thank you for listening to theLiberty and Leadership Podcast.
If you have a comment orquestion, please drop us an
email at podcast at tfasorg, andbe sure to subscribe to the
show on your favorite podcastapp and leave a five-star review
.
Liberty and Leadership isproduced at Podville Media.
(35:04):
I'm your host, roger Ream, anduntil next time, show courage in
things, large and small.
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