The Simple Mathematics of Chinese Innovation
The NYTimes has a good data-driven piece on How China Went From Clean Energy Copycat to Global Innovator, the upshot of which is that the old view of China as simply copying (“stealing” in some eyes) no longer describes reality. In some fields, including solar, batteries and hydrogen, China is now the leading innovator as measured by high-quality patents and scientific citations.
None of this should surprise anyone. China employs roughly 2.6 million full-time equivalent (FTE) researchers versus about 1.7 million in the United States. On a per-capita basis the U.S. is ahead—about 4,500 researchers per million people versus China’s 1,700—but population scale tips the balance. China simply has more researchers in absolute terms. If you frame it in terms of rare cognitive talent, as in my post on The Extreme Shortage of High IQ Workers—the arithmetic is even more striking: 1-in-1,000 workers (≈IQ 145) ~170,000 in the U.S. labor force and ~770,000 in China. Scale matters.
In the 20th century the world’s most populous countries were poor but that was neither the case historically nor will it be true in the 21st century. The standard of living in China remains well below that in the United States and China may never catch U.S. GDP per capita, but quantity is a quality of its own. More people means more ideas.
To be clear, the rise of China and India as scientific superpowers is not per se a threat. Whiners complain about US pharmaceutical R&D “subsidizing” the world. Well, Chinese pharmaceutical innovation is now saving American lives. Terrific. Ideas don’t stop at borders, and their spread raises living standards everywhere. It would be wonderful if an American cured cancer. It would be 99% as wonderful if a Chinese scientist did. What matters is that when more scientists attack the problem, the odds of a cure rise so we should look favorably on a world with more scientists. That is progress.
The danger is not China’s rise but America’s mindset. Treat science as zero-sum and every Chinese patent looks like a loss. But ideas are nonrival: a Chinese breakthrough doesn’t make Americans poorer, it makes the world richer. A multi-polar scientific world means faster growth, greater wealth, and accelerating technology—even if America wins a smaller share of the Nobels.
Could China Have Gone Christian?
The Taiping Rebellion is arguably the most important event in modern history that even educated Westerners know very little about. It’s also known as the Taiping Civil War and it was one of the largest conflicts in human history (1850–1864), with death toll estimates ranging from 20 to 30 million, far exceeding deaths in the US civil war (~750,000) with which it overlapped. The civil war destabilized Qing China, weakening it against foreign powers and shaped the trajectory of 19th- and 20th-century Chinese politics. In China the Taiping Civil War is considered the defining event of the 19th-century.
The most surprising aspect of the civil war is that the rebels were Christian. The rebellion has its genesis in 1837 with the dramatic visions of Hong Xiuquan. In his visions, Hong and his elder brother traveled the world slaying demons, guided onwards by an old man who berated Confucius for failing to teach proper doctrines to the Chinese people. (I draw here on Steven Platt’s excellent Autumn in the Heavenly Kingdom). It is perhaps not coincidental that Hong began experiencing his visions after failing the infamously stressful Chinese civil service exams for the third time. It wasn’t until 1843, however, after he failed the exams for the fourth time, that he had an epiphany. A Christian tract that he had never read before suddenly unlocked the meaning of his visions–the elder brother was Jesus Christ, making Hong the second son of the old man, God.
With his visions unlocked, Hong threw himself into learning and then teaching the Gospels. He quickly converted his cousin and a neighbor and they baptized themselves and began taking down icons of Confucianism at their local school. Confucianism, of course, underpinned the exam system that Hong had grown to hate (Recall, that a similar pattern is visible in India today, where mass exams generate large numbers of educated but frustrated youth).
The wild visions of a lowly scholar wouldn’t seem to have the makings of a revolutionary movement but this was the beginning of the century of humiliation when China was forced to confront the idea that far from being the center of civilization it was in fact a backward and weak power on the world stage. Moreover, China was governed by foreigners, the Manchus, who despite ruling for 200 years had never really integrated with the Chinese population. Hence, Hong’s calls to kill the demons merged with a nationalist fervor to massacre the Manchus. Hong proclaimed himself the Heavenly King and his movement quickly grew to more than a million zealous warriors who captured significant territory including establishing the Taiping Heavenly Kingdom with its capital at Nanjing.
The regime banned foot‑binding, prostitution and slavery, promoted the equality of men and women, distributed bibles, and instituted a 7-day week with strict observance of the sabbath. To be sure, this was a Sinicized, millenarian Christianity, more Old Testament than new but the Christianity was serious and real and the rebels appealed to British and Americans as their Christian brothers. One Taiping commander wrote to a British counterpart:
You and I are both sons of the Heavenly Father, God, and are both younger brothers of the Heavenly Elder Brother, Jesus. Our feelings towards each other are like those of brothers, and our friendship is as intimate as that of two brothers of the same parentage. (quoted in Platt p.40)
Now, as it happened, the Heavenly Kingdom fell to the Qing, but it was a close thing and could easily have gone the other way. Western powers—above all Britain, but also the United States—hedged their bets and at times fought both sides, yet for short-sighted reasons ultimately tilted toward the Qing, an intervention Ito Hirobumi later called “the most significant mistake the British ever made in China.” Internal purges fractured the movement, alliances went unmade, and crucial opportunities slipped away. Yet the moment was pregnant with possibility. Hong Rengan, Hong Xiuquan’s cousin and prime minister from 1859, pushed sweeping modernization: railroads, steamships, postal services, banks, and even democratic reforms. These initiatives would likely have brought what one might call Christianity with Chinese Characteristics into closer alignment with Western Christianity.
Indeed, it is entirely plausible that with only a few turns of history, China might now be the world’s most populous Christian nation. And if that seems hard to believe, consider what did happen. Sixty three years after the fall of Nanjing in 1864, China again erupted into civil war under Mao Zedong. This time the rebels triumphed, and instead of a Christian Heavenly Kingdom the world got a Communist People’s Republic. The parallels are striking: both Hong and Mao led vast zealous movements that promised equality, smashed tradition, and enthroned a single man as the embodiment of truth. Both drew on foreign creeds—Hong from Protestant Christianity, Mao from Marxism-Leninism. Both movement had excesses but of the counter-factual and the factual I have little doubt which promised more ruin. The Heavenly Kingdom pointed toward a biblical moral order aligned with the West, the People’s Republic toward a creed that delivered famine, purges, and economic stagnation. Such are the contingencies of history—an ill-timed purge in Nanjing, a foreign gunboat at Shanghai, a missed alliance with the Nian. Small events cascaded into vast consequences. For the want of a nail, the Heavenly Kingdom was lost, and with it perhaps an entirely different modern world.
Inside India’s endless trials
The FT’s Krishn Kaushik covers the courts in India:
…in one recent example a Delhi court concluded a property dispute after 66 years. Both the original litigants were dead. Still, the lawyer for one of the warring parties cautioned that the conclusion was in fact not the end, as the ruling would be appealed.
Three years ago, after pondering a dispute for 16 years, the supreme court sent back a 60-year-old land case for fresh adjudication to a lower court, which had already taken over 30 years to give its judgment in 2006.
A 2021 study [excellent study, AT] of Mumbai real estate found that more than a quarter of the projects under planning or construction and 43 per cent of all “built-up spaces” in the city were under some litigation. My apartment block was one of them.
…One of the reasons for this accumulation is human resources. India has around 16 judges per million people, compared to over 150 for the US. In 2016, the issue brought the country’s chief justice, TS Thakur, to tears during a speech as he requested that the government hire more judges to wade through the “avalanche” of backlog.
Reminds me of one of my favorite MR posts, A Twisted Tale of Rent Control in the Maximum City.
Resources for Teaching Tariffs
Trump has put tariffs on the economics agenda in a way that hasn’t been true for decades. As a new semester of principles of economics begins, here are some resources for teaching tariffs.
Comparative Advantage (video)
The Microeconomics of Tariffs and Protectionism (video)
Why Do Domestic Prices Rise with Tariffs? (post)
Trade Diversion (Why Tariffs on More Countries Can Be Better) (post)
Manufacturing and Trade (post), Manufacturing Went South (post) and Tariffs Hurt Manufacturing (post)
Three Simple Rules of Trade Policy (Lerner symmetry, imports are inputs, trade balances and capital flows; post)
Tariffs and Taxes (post), Tariffs are a Terrible Way to Raise Revenue (Albrecht post) and Consistency on Tariffs and Taxes (post)
Globalization: Economics, Culture and the Future (video)
The Tariff Tracker, great source for real time tracking of prices such as below (the data can be downloaded):
The War on Roommates: Why Is Sharing a House Illegal?
Boarding houses were made illegal by zoning that enforced single family homes and by rules limiting occupancy, demanding every room have a private bathroom, outlawing shared kitchens, requiring parking spaces for every resident etc.
How States and Cities Decimated Americans’ Lowest-Cost Housing Option is an excellent, hard-hitting piece making and extending these points and significantly it’s not from a libertarian think tank but Pew:
Low-cost micro-units, often called single-room occupancies, or SROs, were once a reliable form of housing for the United States’ poorest residents of, and newcomers to, New York, Chicago, San Francisco, and many other major U.S. cities. Well into the 20th century, SROs were the least expensive option on the housing market, providing a small room with a shared bathroom and sometimes a shared kitchen for a price that is unimaginable today—as little as $100 to $300 a month (in 2025 dollars).
In the late 19th and early 20th centuries, landlords converted thousands of houses, hotels, apartment buildings, and commercial buildings into SROs, and by 1950, SRO units made up about 10% of all rental units in some major cities. But beginning in the mid-1950s, as some politicians and vocal members of the public turned against SROs and the people who lived in them, major cities across the country revised zoning and building codes to force or encourage landlords to eliminate SRO units and to prohibit the development of new ones. Over the next several decades, governments and developers gradually demolished thousands of SROs or converted them to other uses, including boutique hotels for tourists. And as SROs disappeared, homelessness—which had been rare from at least the end of the Great Depression to the late 1970s—exploded nationwide.
The Pew piece does an excellent job of documenting how laws are beginning to change. I especially appreciated this point: the simplest reform is to stop making it illegal for unrelated people to share a home!
Perhaps the simplest method of creating low-cost shared housing is to allow unrelated individuals to share a house in the same way that relatives are allowed to share a house.67 But many communities limit the number of unrelated people who can live together—in some places, to as few as two. Such laws make sharing a house for a group of roommates—which usually enables rents lower than having an individual apartment—illegal. The U.S. has a record number of unused bedrooms, but many cannot be rented because of restrictions on house sharing by unrelated roommates, even if that would be the most profitable use for the landlord and the most affordable option for the tenants.68 To enable this low-cost housing option, Iowa, Oregon, and Colorado all passed bipartisan legislation to strike down local codes that prohibit house-sharing (in 2017, 2021, and 2024, respectively).69
So many of our problems are created by busybodies and do-gooders who prevent people from using their own property.
Singapore’s Pay Model Isn’t India’s: Market Wages vs. Civil-Service Rents
In my post How High Government Pay Wastes Talent and Drains Productivity I pointed to evidence that high government compensation in poorer countries creates tremendous waste and drains the private sector of productive talent. A reader asked: What about Singapore?—famous for paying its top officials very well.
Singapore, however, is hardly comparable to India. Its GDP per capita is about 37 times India’s (~$91k vs. $2.4k) and its population is ~1/233rd the size (6m vs. 1.4b). Still, lets take a closer look. 
When I discuss high public pay in places like India, Greece, or Brazil, I don’t mean a few top ministers. I mean millions of railway clerks, office staff, and civil servants. Teachers illustrate the point well, since their work is broadly similar worldwide. As Justin Sandefur shows in the data at right, teacher salaries relative to GDP per capita tend to be highest in the poorest countries—sometimes five times GDP per capita or more.
Sandefur comments:
This may come as a bit of a surprise to many rich-country readers. There’s no doubt that teachers in, say, India earn much less than teachers in Ireland, but relative to context, they tend to be very well paid. Dividing by per capita GDP is a rough and ready way to put salaries in context.
The evidence suggests supply and demand can’t explain this. For example, in countries where teachers are highly paid relative to GDP per capita, they’re also paid far above private-sector wages for the same job. Sandefur presents more evidence on this question and concludes:
…Public school teachers in many developing countries earn civil service salaries that are far higher than market wages. This is what economists traditionally refer to as “rents.”
Singapore does NOT fit this pattern. Its teachers earn on the order of 70–80% of GDP per capita, market wages, not inflated packages. What’s unusual in Singapore is only at the top: a small number (fewer than 500) of elite officials and politicians have salaries pegged to the highest 1,000 Singapore-citizen income earners.
The issue Singapore is tackling is wage compression. In many democracies, collective bargaining combined with fairness, envy and inequality concerns pushes pay up at the bottom and down at the top. Denmark and heavily unionized firms are classic cases. Singapore, meritocratic and unapologetic, instead says its highest-ranking officials should be paid like CEOs.
Unlike India, Italy, Greece or Brazil, Singapore’s policy is not to pay any government workers above market wages but to pay competitive salaries to its entire civil service, even those at the top. Crucially, Singapore does not use mass exams to limit entry–it doesn’t have to because by keeping wages consistent with similar jobs in the private sector it matches supply to demand. As a result, we do not see in Singapore thousands or even millions of over-qualified people applying for a handful of over-paid government jobs, as in this example from Italy (quoted in Geromichalos and Kospentaris):
Italy’s chronic unemployment problem has been thrown into sharp relief after 85,000 people applied for 30 jobs at a bank [. . . ] The work is not glamorous – one duty is feeding cash into machines that can distinguish banknotes that are counterfeit or so worn out that they should no longer be in circulation. The Bank of Italy whittled down the applicants to a “shortlist” of 8,000, all of them first-class graduates with a solid academic record behind them. They will have to sit a gruelling examination in which they will be tested on statistics, mathematics, economics and English [. . . ] The high level of interest was a reflection of the state of the economy but also of the Italian obsession with securing “un posto fisso” – a permanent job.
So far from being a counter-example, Singapore illustrates the lesson: Singapore pays market wages, not rents—thereby avoiding the rent-seeking and talent misallocation that plague countries where civil servants are paid far above their market value.
India, Greece, Brazil: How High Government Pay Wastes Talent and Drains Productivity
Compensation for government jobs is higher relative to GDP per capita the poorer the country. In other words, government workers are most overpaid in poor countries. Excessive public-sector compensation in low- and middle-income countries distorts labor markets on two margins: queues (rent-seeking to win jobs) and misallocation (talent and taxes diverted from the private sector).
In my two posts Massive Rent-Seeking in India’s Government Job Examination System and The Tragedy of India’s Government-Job Prep Towns I drew attention to the first margin, rent-seeking losses from the queues. India’s most educated young people—precisely those it needs in the workforce—often devote years of their life cramming for government exams instead of working productively. These exams cultivate no real-world skills and entire towns have become specialized in exam preparation. I argued using a back-of-the-envelope calculation that the rent seeking losses alone could easily be on the order of 1.4% of GDP annually. More tragically, large numbers of educated young people are inevitably disillusioned. Finally, because pay is so high, the state can’t staff up; India has all the laws of a rich country with roughly one‑fifth the civil servants per capita.
Two macro papers quantify the other margin of loss: who ends up where.
In The unintended consequences of meritocratic government hiring, Geromichalos and Kospentaris (GK) look at the consequences of excessively high government salaries in Greece. In (MIS)Allocation Effects of an Overpaid Public Sector, Cavalcanti and Santos look at the case of Brazil. Both papers model the allocation of labor between the private and public sectors and focus on the cost of drawing too many high-productivity workers into government jobs.
GK summarize their results for Greece:
In many countries, public employees enjoy considerable job security and generous compensation schemes; as a result, many talented workers choose to work for the public sector, which deprives the private sector of productive potential employees. This, in turn, reduces firms’ incentives to create jobs, increases unemployment, and lowers GDP…. [Calibrating the model to Greece] we find that a 10% drop in public sector wages results in a 3.8% increase in private sector’s productivity, a 7.3% drop in unemployment, and a 1.3% increase in GDP.
CS report similar distortions in Brazil:
Our counterfactual exercises demonstrate that public–private earnings premium can generate important allocation effects and sizeable productivity losses. For instance, a reform that would decrease the public–private wage premium from its benchmark value of 19% to 15% and would align the pension of public sector workers with the one in place for private sector workers could increase aggregate output by 11.2% in the long run without any decrease in the supply of public infrastructure.
Interestingly, in the GK model there is no rent-seeking waste because workers are assumed to forecast exam outcomes perfectly and sort directly into private or public streams. In my India model, by contrast, the waste comes precisely from the years of futile exam preparation. GK also find that reducing the number of public jobs can raise efficiency, while my take is that in India high salaries make the public sector paradoxically too small (thus to some extent limiting misallocation). CS also focus on allocation but, unlike GK, they estimate that rent-seeking losses are massive—about triple my conservative estimate:
The aggregate cost of job applications to public jobs, which we label as the rent seeking cost, is large in the baseline economy…roughly 3.61 percent of output.
Across India, Greece, and Brazil the story converges: overpaying government workers distorts education, job search, and firm dynamics. The waste shows up as socially unproductive effort devoted to entering the echelons of government employment and a private sector which is drained of top talent causing it to be less productive and to grow more slowly. In short, rent seeking and misallocation from overly generous government compensation generate large macroeconomic losses. As relative compensation tends to be higher the poorer the economy, high government pay can be a development trap.
Comparative Advantage
The excellent Don Boudreaux on comparative advantage, one of the deepest and most important ideas in economics.
As a new semester begins this is a good reminder that MRU has great videos for learning and teaching economics, all entirely free and open. (Of course, these videos pair delightfully with Modern Principles of Economics).
AI and the Detection of Gravity Waves
Researchers at the Laser Interferometer Gravitational-Wave Observatory, the giant two-observatory machine to detect gravitational waves, developed an AI to improve the sensitivity of the design:
Wired: Initially, the AI’s designs seemed outlandish. “The outputs that the thing was giving us were really not comprehensible by people,” Adhikari said. “They were too complicated, and they looked like alien things or AI things. Just nothing that a human being would make, because it had no sense of symmetry, beauty, anything. It was just a mess.”
The researchers figured out how to clean up the AI’s outputs to produce interpretable ideas. Even so, the researchers were befuddled by the AI’s design. “If my students had tried to give me this thing, I would have said, ‘No, no, that’s ridiculous,’” Adhikari said. But the design was clearly effective.
It took months of effort to understand what the AI was doing. It turned out that the machine had used a counterintuitive trick to achieve its goals. It added an additional three-kilometer-long ring between the main interferometer and the detector to circulate the light before it exited the interferometer’s arms. Adhikari’s team realized that the AI was probably using some esoteric theoretical principles that Russian physicists had identified decades ago to reduce quantum mechanical noise. No one had ever pursued those ideas experimentally. “It takes a lot to think this far outside of the accepted solution,” Adhikari said. “We really needed the AI.”
…If the AI’s insights had been available when LIGO was being built, “we would have had something like 10 or 15 percent better LIGO sensitivity all along,” he said. In a world of sub-proton precision, 10 to 15 percent is enormous.
As with AlphaGO and Move 37 the AI developed entirely novel approaches:
“LIGO is this huge thing that thousands of people have been thinking about deeply for 40 years,” said Aephraim Steinberg, an expert on quantum optics at the University of Toronto. “They’ve thought of everything they could have, and anything new [the AI] comes up with is a demonstration that it’s something thousands of people failed to do.”
China Versus the US in the Competition for Global Talent
In my posts The Sputnik vs. DeepSeek Moment and The Answers, I contrasted America’s reaction to Sputnik—expanded funding for education in math, science, and foreign languages; creation of agencies like ARPA; higher federal R&D spending; recruitment of foreign talent; and reduced tariff barriers—with the more recent U.S. response to China’s rise as an economic and scientific power, which has been almost the reverse.
One can also compare America’s choices today with China’s own strategy, where the roles also seem reversed. A striking example is China’s new K visa for science and technology.
BEIJING, Aug. 14 …China will add a K visa to its ordinary visa categories, available to eligible young science and technology professionals.
Compared with the existing 12 ordinary visa types, K visas will offer more convenience to holders in terms of number of permitted entries, validity period and duration of stay, according to a press conference held by relevant authorities on Thursday.
After entering China, K visa holders can engage in exchanges in fields such as education, culture, and science and technology, as well as relevant entrepreneurial and business activities.
…applications for K visas do not require a domestic employer or entity to issue an invitation, and the application process will also be more streamlined.
“China’s development requires the participation of talent from around the world, and China’s development also provides opportunities for them,” according to the press conference.
The decision aims to…facilitate the entry for foreign young sci-tech talent into China, and promote international cooperation and exchanges among young sci-tech professionals, said officials at the press conference.
Keep in mind that this is on top of China’s newly-eased rules for visa-free entry.
In December 2023, China announced visa-free entry for citizens of France, Germany, Italy, the Netherlands, Spain and Malaysia. Almost all of Europe has been added since then. Travelers from five Latin American countries and Uzbekistan became eligible last month, followed by four in the Middle East. The total will grow to 75 on July 16 with the addition of Azerbaijan.
About two-thirds of the countries have been granted visa-free entry on a one-year trial basis.
The United States faces a shortage of high-IQ workers, yet instead of treating international talent as resource, every immigrant is cast as a threat. Today, it can take months to years just to get an interview to visit the US. At the same time, we are deporting international students, making them feel unwelcome, cutting research funding, and, as a result, losing ground in the competition for academic talent.
Attracting global talent is not China’s strength—the world’s best would rather join the United States. But if America abandons the openness that has long underpinned its exceptionalism, it will squander one of its biggest advantages and decline into a second-rate power.
The Danger from Japan
Every generation launches a new competitor to America and the people who don’t like capitalism and America’s individualist, free market economy trumpet that now the American way is being left in the dust. In the progressive era it was the Germans (how did that work out?), then it was the Russians (remember Sputnik?), then it was the Japanese (buying up Rockefeller center! the horror!), then it was the Chinese (look at those high speed rail lines!). My message to Americans is to double down on America. Double down on immigration, entrepreneurship, innovation, building for tomorrow, free markets, free speech and individualism and America will take all new competitors as it has taken all comers in the past. The world should be more like America not the other way around.
Hat tip: Mike Bird.
Tabarrok on Flight Delays
Tyler already linked to Max’s excellent post on flight delays but Fortune gives you the backstory:
On one sweltering summer afternoon in June, thunderstorms rolled over Boston Logan International Airport. It was the kind of brief, predictable summer squall that East Coasters have learned to ignore, but within hours, the airport completely shut down. Every departure was grounded, and flyers waited hours before they could get on their scheduled flights.
Among those stranded were Maxwell Tabarrok’s parents, in town to help move him into Harvard Business School, where he is completing an economics PhD. Tabarrok told Fortune he was fascinated by how an entire airport could grind to a halt, not because of some catastrophic event, but due to a predictable hiccup rippling through an overstretched system.
So, he did what any good statistician would: dive into the data. After analyzing over 30 years—and 100 gigabytes—of Bureau of Transportation Statistics data, he found out his parents’ situation wasn’t bad luck: Long delays of three hours or more are now four times more common than they were 30 years ago.
Not only that, but Tabarrok found airlines are trying to hide the delays by “padding” the flight times—adding, on average, 20 extra minutes to schedules so a flight that hasn’t gotten any faster still counts as “on time.” Thus, on paper, the on-time performance metrics have improved since 1987, even as actual travel times have gotten longer.
We had a can’t miss appointment the next morning and ended up renting a car and driving through the night from Boston to the Washington. Glad Max got a great post out of it!
Free the Patient: A Competitive-Federalism Fix for Telemedicine
During the pandemic, many restrictions on telemedicine were lifted, making it far easier for physicians to treat patients across state lines. That window has largely closed. Today, unless a doctor is separately licensed in a patient’s state—or the states have a formal agreement—remote care is often illegal. So if you live in Virginia and want a second opinion from a Mayo Clinic physician in Florida, you may have to fly to Florida, unless that Florida physician happens to hold a Virginia license.
The standard framing says this is a problem of physician licensing. That leads directly to calls for interstate compacts or federalizing medical licensure. Mutual recognition is good. Driver’s licenses are issued by states but are valid in every state. No one complains that Florida’s regime endangers Virginians. But mutual recognition or federal licensing is not the only solution nor the only way to think about this issue.
The real issue isn’t who licenses doctors. It’s that patients are forbidden from choosing a licensed doctor in another state. We can keep state-level licensing, but free the patient. Let any American consult any physician licensed in any state. That’s competitive federalism—no compacts, no federal agency, just patient choice.
A close parallel comes from credit markets. After Marquette Nat. Bank v. First of Omaha (1978), host states could no longer block their residents from using credit cards issued by national banks chartered elsewhere. A Virginian can legally borrow on a South Dakota credit card at South Dakota’s rates. Nothing changed about South Dakota’s licensing; what changed was the prohibition on choice.
Consider Justice Brennan’s argument in this case:
“Minnesota residents were always free to visit Nebraska and receive loans in that state.” It hadn’t been suggested that Minnesota’s laws would apply in that instance, he added. Therefore, they shouldn’t be applied just because “the convenience of modern mail” allowed Minnesotans to get credit without having to visit Nebraska.
Exactly analogously, everyone agrees that Virginia residents are free to visit Florida and be treated by Florida physicians. No one suggests that Virginia’s laws should follow VA residents to Florida. Therefore, VA’s laws shouldn’t be applied just because the convenience of modern online tools allow Virginians to get medical advice and consultation without having to visit Florida.
In short, patients should be allowed to choose physicians as easily as borrowers choose banks.
Why Tariffs On More Countries Can Be Better
Today, I am going to explain why tariffs on more countries can be better! Not to worry, I still think free trade is the best policy (modulo some special cases discussed in Modern Principles) but I am going to show that a uniform tariff can be better than a selective tariff. My example comes from a nice tweet from Malaysia expert Apurva Sanghi, modified for the US context.
Suppose the U.S. can import Hyundai Sonatas from Korea and Toyota Camrys from Japan, and consumers view the two cars as perfect substitutes. We compare three scenarios:
A) Free trade
B) 10% tariff on both countries (uniform tariff)
C) 10% tariff on Korea only (selective tariff)
The surprising result: B can be better than C, even though C is, in one sense, closer to free trade (the “best” policy) than B as it tariffs fewer countries. To focus on the key points I will assume 50 car buyers and no change in the number of buyers when tariffs change (so I will ignore the standard deadweight loss from reduced quantities).
Assumptions
Korea (Hyundai Sonata): $40k pre-tariff
Japan (Toyota Camry): $43k pre-tariff
50 buyers; perfect substitutes
A) Baseline (free trade)
Everyone buys Sonatas from Korea at $40k.
U.S. tariff revenue: $0.
B) Uniform 10% tariff on all countries
Sonata: $40k → $44k
Camry: $43k → $47.3k
Consumers buy Sonatas from Korea (lowest-cost source preserved).
Per car: consumers pay +$4k; government gets +$4k.
Totals (50 cars):
Consumer loss: $200k
Tariff revenue: $200k
Total losses (national): ≈ $0 (consumers transfer $ to government; ignoring DWL from Q changes).
C) Selective 10% tariff (on Korea only)
Sonata (Korea): $40k → $44k
Camry (Japan): $43k (untaxed)
Buyers switch to Camry’s from Japan (trade diversion).
Totals (50 cars):
Consumer loss: 150k (consumers now pay $43k vs $40k in the no tariff baseline → $3k more per car)
Tariff revenue: $0 (imports shifted to untaxed Japan).
Net (national): –$150k.
Global efficiency: production cost rises from $40k → $43k per car → $150k real resource loss.
Total losses: 150k (consumer loss = real resource loss)
The total losses under scenario C in which just some countries are tariffed are larger than in scenario B in which all countries are tariffed! What’s going on? Under a uniform tariff, the lowest-cost supplier still wins. Tariffs create distortions, but a uniform tariff at least preserves efficient sourcing and generates government revenue. Under a selective tariff, sourcing can shift to a higher-cost supplier purely because of the tariff. That’s trade diversion —bad for efficiency which means some combination of consumers and government must lose.
Here’s an analogy. Forget tariffs for a moment and imagine taxing GM but not Ford. That could make Ford win sales even if GM can produce the same car more cheaply — an obvious waste. The same logic applies in international trade.
In general, as Brian Albrecht argues, tariffs are a costly way to raise revenue. Selective tariffs are especially inefficient and wasteful. Sad to say, the U.S. tariff system today is highly selective — wildly different rates on different countries and times. Trade diversion isn’t a necessary consequence of selective tariffs but our current high and chaotic tariff structure makes it all but inevitable. Thus selective tariffs mean standard deadweight losses will compound with large-scale trade diversion and inefficiency, raising losses above headline numbers. Finally, the selective structure invites rent seeking, as firms and industries lobby for favorable treatment — adding yet another layer of economic waste.
Addendum: Thanks to KarterB in the comments for correcting a calculation.
What to Watch (or Not): Ballard, Perfect Days, Billy Joel
Ballard (Amazon Prime) — I liked Bosch, so I had high hopes for this spinoff. The core premise—a team of misfits solving cold cases—is solid enough but the writing is unimaginative and lazy. In one scene, Ballard is told she needs to get a confession. We expect clever interrogation tactics. Instead, she walks in and bluntly asks, “Did you shoot Yulia Kravetz?”
Maggie Q is charismatic but the writers don’t write for her. She’s exceptionally slim, for example, yet the show repeatedly asks us to believe she can physically overpower men twice her size. I have no problem with that in a superhero movie but it’s off putting in a show that pretends to be grounded and gritty. If you’re casting someone with that physique, write her as sharper, more cunning, more insightful—not as a female stand-in for macho Bosch.
Worst of all is the ending: a killer reveal that comes out of nowhere, with no foreshadowing or internal logic. The writers don’t understand the difference between a twist and a cheat. Disappointing.
Perfect Days (Hulu, Amazon) — a 2023 Wim Wenders film that won the award at Cannes for “works of artistic quality which witnesses to the power of film to reveal the mysterious depths of human beings through what concerns them, their hurts and failings as well as their hopes.” The film follows the life of Hirayama (Kōji Yakusho, who won at Cannes for best actor) as he cleans public toilets in Tokyo’s Shibuya district. You will not be surprised to learn that the movie proceeds slowly. The toilets and the cleaning are the most interesting part of the first hour! I say this not as critique–I liked Perfect Days and the toilets really are interesting–only to illustrate the kind of movie that it is.
It helps to know the following from a useful Sean Burns review:
Komorebi is a Japanese word for the dancing shadow patterns created by sunlight shining through the rustling leaves of trees. There’s no equivalent term in English, and it’s tough to imagine any American caring enough to come up with one. But every afternoon on his lunch break, Hirayama (Koji Yakusho) takes a picture of the komorebi from his favorite park bench using an old Olympus film camera. Back at his apartment, he’s got boxes and boxes of black-and-white photos of the same spot, every one of them unique. Subtle shifts of the light and swaying branches in the breeze make similar snapshots strikingly different every time. Indeed, the whole concept behind komorebi is that it can exist only in a moment, never to be repeated. “Next time is next time,” Hirayama’s fond of saying, “Now is now.”
Although I would disagree with Burns slightly because there is an English term for something related to komorebi and that is crown shyness, the phenomena where trees grow in such a way that their branches keep from touching one another creating a canopy of closeness yet also distance. Indeed, I would argue that crown shyness expresses more of what the movie is about than komorebi.
A key question that divides reviewers is whether Hirayama is happy or content. The standard interpretation is that he has found, as Davis puts it, “beauty in the routine,” stopping to smell the roses. Yes, that is one aspect, but the routine is also a narcotic for the lost. Hirayama is estranged from his family. Barkeeps like him but all his relationships are superficial. He plays a game with a “friend” he never meets—distance and disconnection are everywhere.. In two scenes he finds meaning and joy in looking after a child but in both these scenes the child’s mother quickly rips the child away. Hirayama’s work partner disappears in the second half of the film. He almost makes connections with three women but in each case, crown shyness intervenes. He takes pride in his work but is operating well below his ability. He is isolated, alone, and without someone else to share a life, he is incomplete.
There are great scenes and music in Perfect Days, including a beautiful scene in which a Japanese hostess (Sayuri Ishikawa) sings House of the Rising Sun.
Billy Joel: And So It Goes (HBO) — 52nd Street was one of my favorite albums as a youth and it was fun to revisit his career. Billy Joel’s first wife, Elizabeth Weber, was the muse for many of his early songs including Big Shot and Stiletto:
She cuts you hard, she cuts you deepShe’s got so much skillShe’s so fascinatingThat you’re still there waitingWhen she comes back for the killYou’ve been slashed in the faceYou’ve been left there to bleedYou want to run awayBut you know you’re gonna stay‘Cause she gives you what you need
She is indeed, fascinating! Wow. Even today, she comes across as formidable.
I thought a lot about genetics while watching And So It Goes. Joel’s father was a classical musician, though his only notable comment on Billy’s playing was to knock him unconscious for taking too much liberty with a piece. The father left when Billy was eight. Not much nurture. Years later, they reunite in Vienna—where Joel discovers he has a half-brother, Alexander Joel, a successful pianist and conductor.
Joel grew up poor, but his paternal grandfather had been a wealthy Jewish businessman in Germany until the Nazis forced him out. His mother, Rosalind, was also musical, but her primary inheritance may have been bipolar disorder. Joel’s mental health struggles are never explicitly named in the documentary, but the signs are everywhere: an early suicide attempt, alcoholism, repeated motorcycle and car crashes of a self-destructive nature. The emotional cycles also help explain the pattern of intense, short-lived marriages to beautiful and accomplished women—Weber, Christie Brinkley, Katie Lee, and Alexis Roderick. In his highs, he was irresistible. In his lows, unbearable. He goes to extremes.
Critics didn’t always love Joel’s music, but his catalog has become part of the American songbook. Proof of something Tyler and I often discuss, the power of simply keeping going.