The Danger from Japan

ImageAnswer: America won.

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.”

https://www.archilovers.com/stories/30456/why-architects-should-watch-perfect-days-by-wim-wenders.html

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.

Regulatory Complexity and Rents

Luis Garicano on the EU-US trade deal.

…The growing regulatory complexity and arbitrariness of the tariff regime provides rents to those connected with power, not to innovators. It is a recipe for the biggest enemy of growth: regulatory overkill and crony capitalism. Consider the example of importing a can of beer from Belgium into the US. There is a 10% country-specific tariff on the entire value of the product. On top of this, the aluminium can itself is treated as a completely separate product, subject to its own additional tariff of up to 50%. The level of this tariff is based on the nearly untraceable origin of the raw metal—the country where the aluminium was “smelted and cast.” The tariff rises to 200% if the country is unknown. This forces an importer to research the obscure global supply chain of a minor component and apply multiple, overlapping tax rates to a single, everyday item.

Many other interesting comments.

Genius, Rejected: Emergent Ventures Versus the System

Quanta Magazine has a good piece on a 17-year-old student who disproved a long-standing conjecture in harmonic analysis:

Yet a paper posted on February 10(opens a new tab) left the math world by turns stunned, delighted and ready to welcome a bold new talent into its midst. Its author was Hannah Cairo(opens a new tab), just 17 at the time. She had solved a 40-year-old mystery about how functions behave, called the Mizohata-Takeuchi conjecture.

“We were all shocked, absolutely. I don’t remember ever seeing anything like that,” said Itamar Oliveira (opens aof the University of Birmingham, who has spent the past two years trying to prove that the conjecture was true. In her paper, Cairo showed that it’s false. The result defies mathematicians’ usual intuitions about what functions can and cannot do.

…The proof, and its unlikely author, have energized the math community since Cairo posted it in February. “I was absolutely, ‘Wow.’ This has been my favorite problem for nigh on 40 years, and I was completely blown away,” Carbery said. 

Here is the abstract to the paper:

I can’t speak to the mathematics but this is Quanta Magazine not People Magazine and Cairo is not coming out of nowhere. As the article discusses, she has been taking graduate classes in mathematics at Berkeley from people like Ruixiang Zhang. So what is the problem?

I was enraged by the following:

After completing the proof, she decided to apply straight to graduate school, skipping college (and a high school diploma) altogether. As she saw it, she was already living the life of a graduate student. Cairo applied to 10 graduate programs. Six rejected her because she didn’t have a college degree. Two admitted her, but then higher-ups in those universities’ administrations overrode those decisions.

Only the University of Maryland and Johns Hopkins University were willing to welcome her straight into a doctoral program.

Kudos to UMD and JHU! But what is going on at those other universities?!! Their sole mission is to identify and nurture talent. They have armies of admissions staff and tout their “holistic” approach to recognizing creativity and intellectual promise even when it follows an unconventional path. Yet they can’t make room for a genius who has been vetted by some of the top mathematicians in the world? This is institutional failure. 

We saw similar failures during COVID: researchers at Yale’s School of Public Health, working on new tests, couldn’t get funding from their own billion-dollar institution and would have stalled without Tyler’s Fast Grants. But the problem isn’t just speed. Emergent Ventures isn’t about speed but about discovering talent. If you wonder why EV has been so successful look to Tyler and people like Shruti Rajagopalan and to the noble funders but look also to the fact that their competitors are so bureaucratic that they can’t recognize talent even when it is thrust upon them.

It’s a very good thing EV exists. But you know your city is broken when you need Batman to fight crime. EV will have truly succeeded when the rest of the system is inspired into raising its game.

Time Theft at the Terminal

Travel expert Gary Leff on the billions in wasted time spent at airports:

Maybe the biggest failure in air travel is something we don’t talk about at all. How is it possible that people are being told to show up at the airport 2.5 to 3 hours before their flight, and that isn’t considered a failure of massive proportions?

As Gary points out airport delay wipes out many technological advancements:

The lengthened times for showing up at the airport mean that it no longer even makes sense for many people to take shorter flights, but aircraft technology (electric, short and vertical takeoff) is changing and becoming far more viable in the coming years…The FAA is considering standards for vertiports but are we thinking creatively enough or will that conversation be too status quo-focused either because of regulator bias or because it’s entrenched interests most involved?

More and smaller airports are needed. Streamlined security, that doesn’t wait for nationwide universal rollout, is needed. We need runways and taxiways and air traffic capacity to increase throughput without stacking delays. Most of all, we need to avoid complacency that accepts the status quo as given.

By the way, Washington Dulles (IAD) has ~10.5 min security waits, among the best in the nation and the world for a big airport but it is terrible at inbound passport control. (Also, I am not a fan of the people movers.)

The Indian Wedding

Another great piece by Samir Varma on Indian marriages—where deep traditions endure, even as subtle revolutions unfold around the edges.. It starts with this kicker:

When I told my mother I was marrying my girlfriend, an Italian Jew, she called all my friends in the US asking them to break us up.

When that failed, she faxed my future father-in-law threatening to disinherit me and never speak to me again. When that failed, she tried to get my PhD advisor to “tell us to break up.” (Luckily, he was relaxed enough to laugh about it with me, though it was embarrassing and deeply unpleasant.) Then she invited my girlfriend to India to “meet the family,” where my girlfriend paid a significant fraction of her yearly income as a starting engineer to fly over.

The pièce de résistance? My mother threw a party to “introduce her to everyone” — and spent the entire time complaining about her to all the guests. About 100 of those guests came to talk to me afterward, apologizing profusely, saying Indians aren’t like this and I should explain so she doesn’t think all Indians are nuts.

At my wedding, I had exactly zero relatives present. We didn’t speak for three years.

The Tragedy of India’s Government-Job Prep Towns

In Massive Rent-Seeking in India’s Government Job Examination System I argued that the high value of government jobs has distorted India’s entire labor market and educational system.

India’s most educated young people—precisely those it needs in the workforce—are devoting years of their life cramming for government exams instead of working productively. These exams cultivate no real-world skills; they are pure sorting mechanisms, not tools of human capital development. But beyond the staggering economic waste, there is a deeper, more corrosive human cost. As Rajagopalan and I have argued, India suffers from premature imitation: In this case, India is producing Western-educated youth without the economic structure to employ them. In one survey, 88% of grade 12 students preferred a government job to a private sector job. But these jobs do not and cannot exist. The result is disillusioned cohorts trained to expect a middle-class, white-collar lifestyle, convinced that only a government job can deliver it. India is thus creating large numbers of educated young people who are inevitably disillusioned–that is not a sustainable equilibrium.

The Economist has an excellent piece on the lives of the students including Kumar who is studying in “Musallahpur Haat, a suburb of Patna where dozens of coaching centers were concentrated, and the rent was cheap.”

…About half a million students are currently preparing for government exams in Musallahpur….For most government departments the initial tests are similar, and have little direct bearing on the job in question. Would-be ticket inspectors and train-drivers must answer multiple-choice questions on current affairs, logic, maths and science. They might be asked who invented JavaScript, or which element is most abundant in the Earth’s crust, or the smallest whole number for a if a456 is divisible by 11. Students have no idea when their preparations might be put to use; exams are not held on a fixed schedule.

…Kumar made his way to the bare, windowless room his friend had arranged for him to rent and started working. Every few days, he’d check the Ministry of Railways website to see if a date had been set for the exams. The days turned into weeks, then months. When the covid pandemic erupted he adjusted his expectations – obviously there would be delays. The syllabus felt infinite and he kept studying, shuttling between libraries, revision tutorials and mock test sessions. Before he knew it he’d been in Musallahpur nearly six years.

As his 30s approached, Kumar began to worry about running out of time. There is an upper age limit for the railway exams – for the ones Kumar was doing it was set at 30. As a lower-caste applicant he was allowed to extend this deadline by three years. His parents urged him to start thinking about alternative careers, but he convinced them to be patient. His father, who was struggling to keep up the allowance, reluctantly sold some of the family’s land to help support him, and Kumar studied harder and longer.

In my post, I emphasized the above-average wages and privileges, which is true enough, but even by Indian standards many of the jobs aren’t great and The Economist puts more focus on respectability and prestige (the sad premature imitation I discussed):

Indian society accords public-sector jobs a special respect. Grooms who have them are able to ask for higher dowries from their brides’ families. “If you are at a wedding and say you have a government job, people will look at you differently,” said Abhishek Singh, an exam tutor in Musallahpur.

Railway jobs in particular still have a vestigial glow of prestige.

…[Kumar] had been preparing for junior engineer and assistant train-driver jobs, but decided to apply for the lowest rung of positions too, the Group D roles, to increase his chance of getting something. An undergraduate degree and six years studying in Patna could lead to him becoming a track-maintenance worker. “I never imagined it would come to this,” he said sadly.

And yet he wouldn’t trade it. A short drive from his room in Musallahpur, a glitzy mall has just been built. There are jobs going there which pay close to what he might earn in a Group D role. But Kumar baulked at the suggestion he might become a barista. “I am educated with a technical degree,” he said. “My family hasn’t sacrificed so much for me to work in a coffee shop. People only work there if they have no other choice.” No one from his parents’ generation would respect a barista. But they admired, or at least understood, a job on the railways.

India’s government job system squanders talent, feeds on obsolete and socially-inefficient prestige hierarchies, and rewards years of sterile preparation with diminishing returns. It’s inefficient, of course, but behind the scenes it’s devastating to the young.

Hat tip: Samir Varma.

Design Your Own Rug!

For my wedding anniversary, I designed and had hand-woven in Afghanistan a rug for my microbiologist wife. The rug mixes traditional Afghanistan designs with some scientific elements including Bunsen burners, test tubes, bacterial petri dishes and other elements.

I started with several AI designs, such as that shown below, to give the weavers an idea of what I was looking for. Some of the AI elements were muddled and very complex and so we developed a blueprint over a few iterations. The blueprint was very accurate to the actual rug.

I am very pleased with the final product. The wool is of high quality, deep and luxurious, and the design is exactly what I intended. My wife loves the rug and will hang it at her office. The price was very reasonable, under $1000. I also like that I employed weavers in a small village in Northern Afghanistan. The whole process took about 6 months.

You can develop your own custom rug from Afghanu Rugs. Tell them Alex sent you. Of course, they also have many beautiful traditional designs. You can even order my design should you so desire!

Red Flags for Waymo in Boston

The British Locomotives Act of 1865 contained a red flag provision for cars:

…while any Locomotive is in Motion, [one of the three required attendants] shall precede such Locomotive on Foot by not less than Sixty Yards, and shall carry a Red Flag constantly displayed, and shall warn the Riders and Drivers of Horses of the Approach of such Locomotives, and shall signal the Driver thereof when it shall be necessary to stop, and shall assist Horses, and Carriages drawn by Horses, passing the same.

Not to be outdone the Boston City Council is debating a law on self-driving cars that includes:

Section 6. Human Safety Operator

Any permit process must include the following requirements: (a) an Autonomous Vehicle operating in the City of Boston shall not transport passengers or goods unless a human safety operator is physically present in the vehicle and has the ability to monitor the performance of the vehicle and intervene if necessary, including but not limited to taking over immediate manual control of the vehicle or shutting off the vehicle; and (b) that Autonomous Vehicles and human safety operators must meet all applicable local, state and federal requirements.

The Rising Cost of Child and Pet Day Care

Everyone talks about the soaring cost of child care (e.g. here, here and here), but have you looked at the soaring cost of pet care? On a recent trip, it cost me about $82 per day to board my dog (a bit less with multi-day discounts). And no, that is not high for northern VA and that price does not include any fancy options or treats! Doggie boarding costs about about the same as staying in a Motel 6.

Many explanations have been offered for rising child care costs. The Institute for Family Studies, for example, shows that prices rise with regulations like “group sizes, child-to-staff ratios, required annual training hours, and minimum educational requirements for teachers and center directors.” I don’t deny that regulation raises prices—places with more regulation have higher costs—but I don’t think that explains the slow, steady price increase over time. As with health care and education, the better explanation is the Baumol effect, as I argued in my book (with Helland) Why Are the Prices So Damn High?

Pet care is less regulated than child care, but it too is subject to the Baumol effect. So how do price trends compare? Are they radically different or surprisingly similar? Here are the two raw price trends for pet services (CUUR0000SS62053) and for (child) Day care and preschool (CUUR0000SEEB03). Pet services covers boarding, daycare, pet sitting, walking, obedience training, grooming but veterinary care is excluded from this series so it is comparable to that for child care. 

As you can see, the trends are nearly identical, with child care rising only slightly faster than pet care over the past 26 years. Of course, both trends include general inflation, which visually narrows the gap. When we normalize to the overall CPI, we get the following:

Over 26 years, the real (relative) price of Day Care and Preschool has increased 36%, while Pet Services have risen 28%. If regulation doesn’t explain the rise in pet care costs–and it probably doesn’t–then regulation probably doesn’t explain the rise in child care costs either. After all, child and pet care are very similar goods!

The similar rise in the price of child day care and pet day care/boarding is consistent with Is American Pet Health Care (Also) Uniquely Inefficient? by Einav, Finkelstein and Gupta, who find that spending on veterinary care is rising at about the same rate as spending on human health care. Since the regulatory systems of pet and human health care are very different this suggests that the fundamental reason for rising health care isn’t regulation but rising relative prices and increasing incomes (fyi this is also an important reason why Americans spend more on health care than Europeans).

Thus, my explanation for rising prices in child care and pet care is that productivity is increasing in other industries more than in the care industries which means that over time we must give up more of other goods to get child and pet care. In short, if productivity in other sectors rises while child/pet care productivity stays flat, relative prices must rise. Another way to put this is that to retain workers, wages in stagnant-productivity sectors must rise to match those in (equally labor-skilled) high-productivity sectors. That means paying more for the same level of care, simply to keep the labor force from leaving

But rising productivity in other sectors is good! Thus, I always refer to the Baumol effect rather than the “cost disease” because higher prices are not bad when they reflect changes in relative prices. As with education and health care the rising price of child and pet care isn’t a problem for society as whole. We are richer and can afford more of all goods. It can be a problem, however, for people who consume more than the average quantities of the service-sector goods and people who have lower than average wage gains. So what can we do? Redistribution is one possibility.

If we focus on the prices, the core problem is that care work is labor-intensive and labor has a high opportunity cost. One solution is to lower the opportunity cost of that labor. Low-skill immigration helps: when lower-wage workers take on support roles, higher-wage workers can focus on higher-value tasks. As I’ve put it, “The immigrant who mows the lawn of the nuclear physicist indirectly helps to unlock the secrets of the universe.” Same for the immigrant who provides boarding for the pets of the nuclear physicist.

Another solution is capital substitution—automation, AI, better tools. But care jobs resist mechanization; that’s part of why productivity growth is so slow in these sectors. Still, the basic truth remains: if we want more affordable day care—for kids or pets—we need to use less of what’s expensive: skilled labor. That means either importing more people to do the work, or investing harder in ways to do it with fewer hands.

Horseshoe Theory: Trump and the Progressive Left

Many of Trump’s signature policies overlap with those of the American progressive left—e.g. tariffs, economic nationalism, immigration restrictions, deep distrust of elite institutions, and an eagerness to use the power of the state. Trump governs less like Reagan, more like Perón. As Ryan Bourne notes, this ideological convergence has led many on the progressive left to remain silent or even tacitly support Trump policies, particularly on trade.

“[P]rogressive Democrats like Senator Elizabeth Warren have chosen to shift blame for Trump’s tariff-driven price hikes onto large businesses. Last week, they dusted off—and expanded—their pandemic-era Price Gouging Prevention Act. While bemoaning Trump’s ‘chaotic’ on-off tariffs, their real ire remains reserved for ‘greedy corporations,’ supposedly exploiting trade policy disruption to pad prices beyond what’s needed to ‘cover any cost increases.’

…The Democrats’ 2025 gouging bill is broader than ever, creating a standing prohibition against ‘grossly excessive’ price hikes—loosely suggested at anything 20 percent above the previous six-month average—but allowing the FTC to pick its price caps ‘using any metric it deems appropriate.’

…Instead of owning the pricing fallout from his trade wars, President Trump can now point to Democratic cries of ‘corporate greed’ and claim their proposed FTC crackdown proves that it’s businesses—not his tariffs—to blame for higher prices.

If these progressives have their way, the public debate flips from ‘tariffs raise prices’ to ‘the FTC must crack down on corporate greed exploiting trade policy reform,’ with Trump slipping off the hook.”

Trump’s political coalition isn’t policy-driven. It’s built on anger, grievance, and zero-sum thinking. With minor tweaks, there is no reason why such a coalition could not become even more leftist. Consider the grotesque canonization of Luigi Mangione, the (alleged) murderer of UnitedHealthcare CEO Brian Thompson. We already have a proposed CA ballot initiative named the Luigi Mangione Access to Health Care Act, a Luigi Mangione musical and comparisons of Mangione to Jesus. The anger is very Trumpian.

A substantial share of voters on the left and the right increasingly believe that markets are rigged, globalism is suspect, and corporations are the real enemy. Trump adds nationalist flavor; progressives bring the regulatory hammer. The convergence of left and right in attacking classical liberalism– open markets, limited government, pluralism and the  basic rules of democratic compromise–is what worries me the most about contemporary politics.

Gross(ery) Confusion

Zephyr Teachout’s NYTs op-ed on grocery store prices is poorly argued.

The food system in the United States is rigged in favor of big retailers and suppliers in several ways. Big retailers often flex their muscles to demand special deals; to make up the difference, suppliers then charge the smaller stores more.

Let’s be clear about what is actually going on. Costco offers its suppliers lower prices in return for bigger orders. There is nothing anti-competitive about volume discounting. Moreover, are firms dismayed or are they eager to sell to big, bad Costco? Google AI gives a good answer:

…firms are eager to sell to Costco because of the immense potential for sales and brand exposure, but they must be prepared to meet stringent requirements, negotiate competitive pricing, and be able to handle high volume and demanding logistics. 

Would Americans be better off without Costco? Doubtful given that more than one-quarter of all Americans pay for a Costco membership (either individually or as a family).

Teachout’s idea that suppliers “make up the difference” by charging smaller stores more is also economically incoherent. Profit-maximizing firms already charge what the market will bear. If Costco’s volume justifies a discount, that doesn’t mean suppliers can or should charge higher prices to other buyers. Yes, there are models where costs change with volume but costs could go down with volume and, in any case, those models don’t rely on the folk theory of “making up the difference.”

That’s one of the subtler mistakes. Here’s a more glaring one:

Consider eggs. At the independent supermarket near my apartment, the price for a dozen white eggs last week was $5.99. At a major national retailer a few blocks away, it was $3.99. (For an identical box of cereal, the price difference was $3.) Any number of factors may contribute to a given price, but market power is a particularly consequential one.

Read that again: the firm allegedly abusing market power is the one charging less.

It gets stranger:

New York City has a strong price gouging law on the books, which forbids anyone — suppliers and retailers — from jacking up prices during a state of emergency unless the seller’s own costs have gone up accordingly. The city couldn’t have stopped the bird flu that devastated flocks, but maybe it can stop suppliers from cynically exploiting a crisis to justify exorbitant prices.

This makes two errors. First, she acknowledges it’s not gouging if costs rise—then cites egg prices rising due to the bird flu devastating flocks. That’s literally a textbook case of a supply shock. Maybe some firms exploited the crisis—but eggs rising in price after millions of chickens are killed is the best example you’ve got???

Second, within the span of a few paragraphs, the op-ed veers from claiming large retailers charge prices that are unfairly low to blaming them for charging prices that are too high. I’m surprised she didn’t go for the trifecta and accuse them of colluding to charge the same price.