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This letter was sent ten days ago to the New York Times; it was not published there.

Editor:

Trump administration trade official Peter Navarro’s attempt to justify the White House’s crackdown on transshipments fails on several counts (“It Was a Great Scam While It Lasted,” August 13). First, these transshipments are the inevitable result of a trade regime – such as Trump’s – that, by rejecting the largely uniform tariffs that arise under a policy of most-favored-nation status, imposes wildly different tariff rates across different countries.

Second, while Navarro is correct that transshipping reduces U.S. customs revenues, he neglects to mention that these revenues are paid overwhelmingly by Americans. His complaint about transshipping, therefore, is really a complaint that transshippers are successfully easing Americans’ tax burden.

Third, Navarro is also correct – trivially so – that all motors, pumps, and other goods that Americans import are goods that Americans don’t produce. Yet he’s incorrect to imply that this reality indicts U.S. trade. Trade of course allows us Americans to acquire these goods at costs lower than we’d incur were we to produce these goods ourselves. But by releasing resources in the U.S. from the production of the goods that we import, trade also allows us to produce other goods that, were we to import less, we’d be unable to produce. Like all protectionists, Navarro is utterly blind to the production and jobs that are made possible in the domestic economy only by trade.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

The post Peter Navarro Is to Economics What Trofim Lysenko Is to Genetics appeared first on Cafe Hayek.

Thoughtful apostasy is beautiful to behold. A person who understands and embraces a view forwards and backwards notices subtle inconsistencies, either internal (the view’s claims clash with each other) or external (the view’s claims clash with the facts). The more he investigates these inconsistencies, the more real and damning they seem. Finally, his intellectual conscience requires him to not only recant, but explain before the whole world precisely why the view he used to hold dear is actually wrong.

Alas, thoughtful apostasy is vanishingly rare. Not only do most humans dogmatically stick to whatever Big Picture views they embraced when they were 15-25 years old. A large majority of humans who do apostatize do so negligently. Instead of pinpointing subtle inconsistencies in their initial view, they emote. If they even bother to explain their prior intellectual errors, they attack a straw man version of what they used to think, using arguments that they previously would have dismissed as unfair and obtuse.

But perhaps thoughtful apostasy is rare because the rationalist bar is so high. Fortunately, I know how to lower the bar: switch from free response to multiple choice. Tone it down from “Tell us exactly where you went wrong and why,” to “Here is a list of positions you probably used to hold, ordered from least controversial to most controversial. At what point did you go wrong?”

Ten years ago, I performed this exercise for libertarians who apostatized on the welfare state. As I explained at the time:

When libertarians start describing Danish “flexicurity” with deep admiration, however, I don’t just doubt their libertarian commitment. More importantly, I wonder why they changed their minds. And to be honest, the more I listen to them, the more I wonder. The most enlightening path, I think, is to restate what I see as the standard libertarian case against the welfare state, and find out exactly where they demur.

In recent years, I’ve had the same experience with libertarians becoming culturally conservative. While immigration is almost always the wedge issue, once libertarians turn against immigration, they commonly move on to a bunch of other culturally conservative views. And once again, the more I listen to them, the more I wonder why they changed their minds. To move forward, I’m going to restate what I see as the standard libertarian case against cultural conservatism, and find out exactly where they demur.

Soft-Core Case

1. While freedom of speech and the press don’t reliably reach the truth, freedom is the best feasible way for humanity to find and spread the truth.

2. This isn’t just wishful thinking. Despite all the nonsense that flourishes today, nonsense was much more prevalent and monolithic before the rise of freedom of speech and the press, and remains much more prevalent and monolithic in modern countries that suppress speech and the press.

3. While we can imagine an epistocratic dictatorship where government censors and otherwise suppresses nonsense to help truth flourish, this has basically never happened. Actually-existing censorship means that one form of nonsense crushes both truth and rival forms of nonsense.

4. The same goes for cultural freedom more generally — the freedom to practice whatever religion you want, love who you want, have sex with who you want, have as many kids as you want, choose what occupation you want, and so on, subject to the constraint that you refrain from literal violence. While such cultural freedom causes a lot of grief, especially when people freak out their parents, it’s the best feasible way for humanity to cope with human heterogeneity and creativity.

5. Again, this isn’t just wishful thinking. Due to deep-seated human conformism, most people use cultural freedom cautiously. A large majority just balances their peers’ norms against their parents’ traditions. Using government to suppress non-conformists is usually more trouble than it’s worth. And while non-conformists are often aggravating and unpleasant, they are also the source of almost all cultural progress. Virtually everyone — including your own parents — would hate to live just like their parents did.

6. Turning 18 or 21 does not magically turn people into responsible adults. Given freedom, people often predictably harm themselves and their families with drunkenness, drug use, impulsive sex, gambling, and more. But all things considered, paternalistic laws against such behavior are still usually a bad idea. Paternalism creates black markets, leading to both violence and adulteration. And the laws are extremely arbitrary. It’s illegal to snort one line of cocaine, but legal to marry a convicted murderer? It’s illegal to run a casino, but legal to run a church of Satanism? Almost no one wants to ban alcohol, which plausibly does more social harm than all other irresponsible behaviors combined.

7. While you might think that granting cultural freedom to people from foreign cultures would be exceptionally dangerous, history really does prove otherwise. The United States in particular has a long history of accepting immigrants from countries that were, at the time, backwards and authoritarian, especially Eastern Europe, Southern Europe, and East Asia. Despite contemporary paranoia, the first generation of immigrants from these backwards, authoritarian countries assimilated enough to become productive members of society. More importantly and amazingly, their kids assimilated strongly enough to “pass” for “regular Americans.”

8. It is thanks to past immigration that the United States is the world’s richest country. This is clearly true for total GDP. But it is almost surely true for per-capita GDP as well. The U.S. has the world’s highest per-capita GDP of any country with a population over 10M, and our long history of immigrant-driven innovation and entrepreneurship is plainly a big part of our recipe for success.

Medium-Core Case

1. Making exceptions to freedom of speech, the press, and cultural freedom in extreme cases is generally not the end of the world or even “the death of freedom.” But unless adults cross the line of literal violence, making exceptions is usually a bad idea. For three main reasons:

   1. Extreme cases are very rare, so even the gross benefits are largely symbolic. If you used the law to stamp out Leninism, Satanism, or polygamy, the gross gains would be trivial.

   2. Legal line-drawing is highly arbitrary, so letting government make exceptions “in extreme cases” often has negative gross benefits. Woke persecution of belief in IQ, colorblindness, and meritocracy are just recent examples of a general pattern of arbitrary persecution. (And yes, this was legal persecution, not just cultural norms).

   3. There really is a severe slippery slope. Even if the initial list of exceptions is perfect, it won’t stay perfect for long.

2. While irresponsible behavior can lead to actual violent crime, this is rare. The sensible response is to harshly punish actual crime, rather than persecuting everyone who engages in some irresponsible behavior. And by the way, almost everyone engages in some irresponsible behavior.

3. Even when irresponsible behavior is closely linked to actual crime, focusing on actual crime is highly effective, so there’s little benefit of criminalizing mere “disorder.” If the homeless really are massively stealing shopping carts and bikes, jail them for stealing shopping carts and bikes. They’re not hard to catch red-handed.

4. Immigrants can be well below average and still far better than nothing. This is true economically: A low-IQ janitor can still be a valuable member of society. And it’s true culturally: An immigrant with revolting habits or beliefs can still be a valuable neighbor, worker, or even friend.

5. Making exceptions to the principle of free migration is a bad idea for the same reasons as making exceptions to freedom of speech, the press, and cultural freedom is a bad idea.

   1. Extreme cases are rare.

   2. Legal line-drawing is highly arbitrary, so letting government make exceptions “in extreme cases” often has negative gross benefits.

   3. The slippery slope.

6. Massive cultural changes happen even if there is zero immigration. Think about the cultural chasm between you and your grandparents. Would they have been justified in using government to make their descendants keep living as they lived?

Hard-Core Case

1. People have a right to say what they want, write what they want, and believe what they want, even if it is false and harmful to society.

2. My body, my choice. Adults have a right to do what they want with their own bodies and lives, even if it is clearly harmful and severely distresses their families.

3. Dogmatic? In the real world, exceptions to “my body, my choice” are deeply arbitrary, so almost everyone supports extreme versions of this principle in some ways. Do you support the individual right to choose a terrible romantic partner? Do you deny that a sufficiently terrible romantic partner will ruin your life? Then why do you want to crack down on casual drug users? (BTW, it wouldn’t be hard to legalize drugs except for serious abusers. You could require a license to buy intoxicants, and revoke it for bad behavior).

4. Even if an immigrant group has unfavorable characteristics, large subsets of natives are clearly worse. Most obviously, virtually no immigrant nationality has worse crime rates than native-born blacks. If that’s a terrible reason to denaturalize native-born blacks, why is it a good reason to refuse immigration from any nation?

5. If government has no right to stop or slow cultural change, it has no right to stop or slow cultural change from immigration. If your culture can’t compete without government protection, it shouldn’t get a bail-out. That said, the winner of global cultural competition is clearly Western culture in general, and American culture in particular. So while authoritarian regimes have a lot to fear from cultural competition, we can and should just expect to keep winning. We don’t just assimilate immigrants; we’re rapidly pre-assimilating the world.

ANAHEIM, CA — The Los Angeles area of Anaheim breathed a collective sigh of relief today after authorities finally arrested owner Arte Moreno for his gross negligence of the Los Angeles Angels baseball team.

Many years ago I came into the habit of offering (and taking) bets on absolutely everything. Conversationally, it could be anything from factual and statistical statements to principles or author names, often when I thought I knew something better than my conversation partner.

The point was not the money. It was what happened after losing a few bets: I learned that I often overestimated the things I so confidently knew. Sometimes, convictions held too strongly will cost me. 

That is a useful corrective in a time when everyone seems to know everything, or will blindly defer to what a handy LLM produces. From fact-checking to fake news, mythbusting to AI-generated slop, it is getting progressively harder to know what we know. Everyone has an opinion; fewer people have an incentive to find out whether they are right.

Prediction markets have put this ethos and emphasis back on the menu. They’re “civilization’s way of knowing what it knows,” said Eliezer Yudkowsky hyperbolically at a who’s who gathering of the prediction market world in Berkeley, California, in June. That’s a pretty tidy, idealistic summary of largely unregulated sports gambling.

Participating in prediction markets forces people to put a price on their beliefs. And sometimes that is enormously valuable.

Words are Cheap

Economics at its very essential, even metaphysical, core is about human actions — entrepreneurially making choices for an uncertain future.

We act even though we do not know the future. Entrepreneurs raise and deploy capital today in the hope of satisfying customers tomorrow. Consumers make purchases based on perceived future circumstances. Every commercial transaction is, in some sense, a wager on an uncertain future.

Doing things, then, particularly as it pertains to commercial transactions, is the subject matter of the discipline. At high enough a level, it’s what financial markets do, too; investors buy securities in hopes of future cash flow. When they guess correctly and don’t overpay for the assets, they profit. When they’re wrong, the (short) seller benefits. Dynamically, asset prices are our collective, capital-backed, best guesses about the future state of the world.

Prediction markets likewise leverage this money-tested, skin-in-the-game, best-guess model for the future. 

Prediction market contracts are zero-sum: one trader’s gain is another trader’s loss, with some slippage for trading fees and the platform itself. So why should society care? Why should we regard a market where two people bet on whether the Fed will cut rates, whether a hurricane will hit Florida, or whether Trump will say “tariff” in a speech as anything other than gambling? How could zero-sum contracts possibly enrich society?

Because relevant, correct information is valuable. And as it is created by these priced transactions, it spills over to the rest of us, free of charge.

Knowledge Creation Is Valuable

The social value of a marketplace isn’t limited to the assets changing hands and the profits of (a few) participants. Prices transmit information, coordinate expectations, tell others whether to deploy more capital or less on a certain idea, whether to expand production or try something else. Prices tell people something about what other market participants know, believe, fear, or expect.

One trading party wins, another loses, but we understand that the system as a whole — asset prices, relocation of capital, a deep and liquid market for issuing securities — is positive sum for society. The spillover knowledge generated by a prediction market contract or an oil price option exploding in price has positive meaning for market actors everywhere. Information is valuable; knowing what it means, probabilistically speaking, for various states of the uncertain future is precisely what financial markets are here to do.

Friedrich Hayek’s famous example in “The Use of Knowledge in Society,” revolved around the market for tin; economics textbooks usually use orange crops and Florida. Prices for goods convey what’s going on. Asset prices do, too. 

An oil producer gains valuable information by seeing futures six months out move in price. As a consumer, seeing those moves helps me estimate costs for a tank of gas or airfares, and to judge whether or not to take a certain trip. Traditional financial markets cover some of that, no problem. But the variety of valuable information in a future state isn’t limited by what a regulated exchange or traditional market maker is willing to support. Prediction markets work on the same basic principle, with a much wider definition of what’s potentially tradable.

Contracts traded on prediction markets, however quirky and frivolous, have that same element to them. But just because Kalshi and Polymarket, the two most well-known platforms, are in this sense mostly regulatory arbitrage for sports gambling, it doesn’t mean nothing important is happening underneath all this apparently frivolous speculation.

“Insider” Information and Externalities

Another line of objections to prediction markets is that they make insider trading easier. Prediction markets are riddled with insider trading, say the casual and morally indignant critic. They’re narrowly correct about that claim.

Last month a teleprompter operator working for Trump reportedly made almost $100,000 on Kalshi via mention markets. Through his work, he knew in advance what words would be in a speech, and bet accordingly.

While this feels wrong on some fundamental level — insider enrichment by trading on specific knowledge — it also illustrates that the existing information is valuable. As one virtue of prediction markets is the spillover information it conveys to everybody else, having accurate inputs reflected in public asset prices earlier should be a good thing.

The Trump teleprompter story is just one story among many indicating that yes, prediction markets are rife with insiders profiting off confidential information.

We can think of it as growing pains for a future industry, or as a whistleblower bounty. One purpose of prediction markets, the more anonymous and unregulated they are, is to financially incentivize insiders to disclose important information to the world. 

And their existence has positive externalities for everybody else. 

The point is that nobody is obliged to bet; traders taking the other side of that bet (at least the more sophisticated ones) are well aware of the possibilities for insider trading and asymmetric information. Also, the information still leaks to the rest of the nontrading public: Because somebody else is willing to put their funds at risk, I can gain some information by seeing what the smart money thinks.

Rewarding the occasional insider is a tolerable price for society to gain access to, and spread more widely, information that benefits us all.

If the price of contracts about whether a leader will be toppled or Israel will launch missiles against Iran suddenly shoots up, lots of people directly or indirectly affected by such events receive vital information that something is coming. Even in the pretty horrid and extreme examples of forest fires, military invasions, bombings, and assassination markets, information is valuable. Large, sudden moves in the odds of these events could, at best, give advance warning and time to prevent disasters, and at least, provide a financial trail for law enforcement to follow later. 

Being Confidently Wrong Should Cost More

In an AI age of infinite generation but limited attention, the economic value of information also explains why I don’t find the proliferation of increasingly bizarre prediction markets quite as troubling as their critics do.

Take Trump’s social media posts, access to which is now sold opportunistically to some Wall Street firms in advance. There is obvious value in knowing what the president has said before everyone else does. News organizations pay for speed (Reuters, Bloomberg); traders pay for speed (high-frequency trading). As outlined popularly in Michael Lewis’ book Flash Boys, the race to place computers closer to a financial exchange’s main servers, or indeed running fiber-optic cables between New York and Chicago for trading information microseconds faster, seems largely wasteful to society and closely approximates economic rent to insiders. 

If it’s critical enough information to have market value, the earlier some semblance of it can exist in the public domain — clearly, milliseconds count — the better off is humanity. 

If you think Truth Social selling early access to posts reeks of pay-for-play and insider enrichment, you’ve already conceded the point that valuable information is otherwise kept away from people and the market, mistakenly leading people to transact on insufficient information. A widespread financial market including contracts on all manner of things (prediction markets) decentralizes and erodes the scarcity value of such advance information and distributes it — meritocratically, we might say — to everyone with skill, devotion, and patience to find it (and profit off it).

Plenty of ideologically motivated commentators in the noisy landscape that is media appearances and opinion pages — plus economists, journalists, think tanks, political strategists, and certainly central bankers — never pay a price for being wrong. They miss currency inflation, recessions, elections, wars, AI timelines, housing crashes, or the value of bitcoin, yet return next week with another similarly confident forecast. Reality rarely seems to discipline them toward humility. Prediction markets can help here, too. 

When someone predicts that housing markets will crash this winter, or proclaims there’ll be a government shutdown by October 1, we shouldn’t be afraid to ask: “What are you willing to bet?”

"[I]mprovement after treatment is not always improvement caused by treatment, since much of it arrives with time and attention. ...

"[C]hiropractic [is] not one profession but many: true believers, entrepreneurs, technicians, philosophers, clinicians ... [but w]hat, exactly, [is] chiropractic, and what would happen if its claims were subjected to serious scrutiny? ...

"During the 1980s and 1990s chiropractic researchers launched clinical trials, comparative-effectiveness studies, and collaborations with universities and medical centres.

"Then, the larger, better-designed studies made the clinical picture go soft. Patients improved—sometimes substantially—but the improvement proved stubbornly hard to pin on [chiropractic] manipulation. Natural history, spontaneous recovery, reassurance, exercise, attention, expectancy, and plain contextual healing kept blurring the causal thresholds. Manipulation generally performed about as well as any other conservative care including placebo, and when superior, it closely tracked the false positive rate expected under null hypothesis significance testing. In fact, to this day you will see chiropractic research conclusions proudly assert that manipulation is no less effective than other treatments for low back pain, including controls—a damnation by faint self-praise. ...

"Look closer, though, and the chiropractic 'arm' was not manipulation but, in reality, the effect of repeated visits, education, exercise, reassurance, coaching, ergonomic advice, self-management support, and the whole atmosphere of attentive care. Patients improved; the contribution of [chiropractic] manipulation itself stayed unknown. And when mechanistic studies looked for the distinctive physiological signature—balance, postural sway, neuromuscular response—the effects were weak, inconsistent, or absent. The anticipated effects of chiropractic refused to show up.

"The strongest test arrived recently. In a trial published online in late 2025, a team led by Gert Bronfort reported on a thousand patients ... Over a year, [chiropractic] manipulation by itself was statistically indistinguishable from ordinary medical care on pain and disability—half a century of hope for the adjustment, tested cleanly at last, returning null. ...

"Chiropractic research is alive and well in Denmark, New Zealand, and a handful of other centres, often more rigorous than anything the reform years produced. But the results of more research will not make spinal manipulation more acceptable. It cannot rescue a treatment this marginal; it will only measure it more precisely. ...

"But a literature that will not resolve after enough well-powered attempts is not unfinished. It is null."

~ J. Michael Menke from his post 'An Insider’s Look at What Happened When Chiropractic Was Evaluated Scientifically, and Why No One Remembers'