Let’s Impose Some Transaction Costs on Government

by Gary Galles

One of the things I have said to my economics principles students for years is that economists don’t like the letter T. It has been a good way to reinforce an important idea to students, but this year, I am planning on flip-flopping a bit (in honor of the political season) and endorsing T in appropriate circumstances.

Economists’ dislike of the letter T is obvious when we remember that in economic analysis, T often stands for taxes. Between differences in subjective values and differences in opportunity costs of production, economists recognize that voluntary exchanges create wealth and that, therefore, anything that wipes out voluntary exchanges that would otherwise have been agreed to wipes out real wealth.

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