You Can’t Break the Laws of Economics

This newsletter originally appeared in the Wall Street Journal with links added back, a defense of economics.

Nearly every week, someone writing for a major news outlet argues that economics has failed. Our models are too abstract. Our predictions are always wrong. President Trump’s recent firing of Bureau of Labor Statistics Commissioner Erika McEntarfer is the latest notable example of this anti-economics sentiment.

Let me make what appears to have become a radical argument: Simple economics is surprisingly good at making real-world predictions.

When Mr. Trump imposed steel and aluminum tariffs in 2018, the University of Chicago surveyed dozens of top economists. These weren’t partisan hacks; they included Nobel laureates and advisers to both parties. Not one of them thought that Americans would be better off because of the tariffs.

Seven years later, what have we learned? Sure enough, study after study—using customs data, retail prices and scanner data from stores—has found that American businesses and consumers bore virtually 100% of the tariff burden. The economists were right: As consumers, Americans weren’t better off.

Americans were also hurt as workers. Economists have discovered that about half of U.S. imports are used as inputs in the production of other goods. Aluminum goes into beer cans. If the price of aluminum rises, beer companies will buy fewer cans. Fewer cans mean fewer workers. Researchers found that because of the 2018 tariffs, downstream American industries—the companies that use aluminum to make everything from beer cans to car parts—lost jobs, swamping any gains to aluminum producers. Tariffs intended to protect American workers destroyed more jobs than they created. Empirical studies confirm a basic idea from economics: If you tax something, the price rises, and people use less of it.

We don’t need fancy statistics to see the predictive power of simple supply and demand. Take the recent controversy over egg prices. After egg prices roughly doubled at the start of this year, Sen. Elizabeth Warren (D., Mass.) urged the Justice Department to investigate price gouging. Alvaro Bedoya of the Federal Trade Commission called for a probe into “anticompetitive conduct” in the egg industry. Their theory mostly involved blaming Big Egg.

But the boring story proved more accurate. The supply side collapsed when avian flu killed more than 100 million birds. When supply shrinks and consumers aren’t very price-sensitive (there aren’t many other options for your morning omelette), the price will rise significantly. That’s ...